<PAGE>
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
FINANCIAL SERVICES ACQUISITION CORPORATION
- -----------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -----------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Class B Common Stock, par value $.001 per share ("EBIC Common Stock"),
of Euro Brokers Investment Corporation
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(2) Aggregate number of securities to which transaction applies:
1,671,290 shares of EBIC Common Stock
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$23.80*.
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(4) Proposed maximum aggregate value of transaction:
$39,776,702 (calculated by multiplying (i) $23.80* by (ii) 1,671,290,
the number of shares of EBIC Common Stock to be received and cancelled
by Financial Services Acquisition Corporation in the Merger)
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(5) Total fee paid:
$7,955.34
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[X] Fee paid previously with preliminary materials.
- -----------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- -----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -----------------------------------------------------------------------------
(3) Filing Party:
- -----------------------------------------------------------------------------
(4) Date Filed:
- ------------
* Estimated solely for purposes of calculating the filing fee; based on
the unaudited book value per share of EBIC Common Stock, as of March
31, 1996 (after giving effect to certain adjustments anticipated to be
required by the Merger Agreement), all as estimated at the time of the
initial filing of preliminary materials.
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
667 MADISON AVENUE
NEW YORK, NY 10021
July 18, 1996
Dear Stockholder:
On behalf of our Board of Directors, I am pleased to invite you to attend
a Special Meeting of Stockholders of Financial Services Acquisition
Corporation ("FSAC"), which will be held at 10:00 a.m., local time, on
Thursday, August 15, 1996 at the offices of FSAC located at 667 Madison
Avenue in New York City.
At this meeting, stockholders will be asked to approve the Agreement and
Plan of Merger, dated as of March 8, 1996 (as amended, the "Merger
Agreement"), by and among FSAC, EBIC Acquisition Corp., a wholly owned
subsidiary of FSAC ("Merger Sub"), and Euro Brokers Investment Corporation
("EBIC"), pursuant to which Merger Sub will be merged with and into EBIC (the
"Merger"), with EBIC being the surviving corporation and becoming a
subsidiary of FSAC. Stockholders of FSAC will also be asked (i) to elect
eight persons to the FSAC Board of Directors (including two EBIC
representatives), (ii) to approve the FSAC 1996 Stock Option Plan (the
"Option Plan") and (iii) to approve certain amendments to FSAC's Certificate
of Incorporation (the "Charter Amendments"). The Charter Amendments will,
subject to satisfaction of all other conditions to consummation of the
Merger, provide for (1) the name change of FSAC to "Financial Services
Corporation," (2) an increase in the authorized shares of Common Stock, par
value $.001 per share (the "FSAC Common Stock"), of FSAC from 14,000,000
shares to 30,000,000 shares, (3) the classification of the Board of Directors
into three classes serving staggered terms, with the initial number of
directors to be eight, (4) the elimination of the ability of stockholders to
act by written consent and (5) the restriction of the ability to call special
meetings of stockholders to the Chairman and the President of FSAC or to an
affirmative vote of a majority of the Board of Directors.
THE BOARD OF DIRECTORS OF FSAC, AFTER CAREFUL CONSIDERATION, HAS
DETERMINED THAT THE MERGER AGREEMENT AND THE MERGER AND THE OTHER
TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE STOCKHOLDERS OF FSAC. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT, THE CHARTER AMENDMENTS AND THE OPTION PLAN AND RECOMMENDS
THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF EACH OF THE PROPOSALS RELATING
THERETO AT THE SPECIAL MEETING.
Under the terms of the Merger Agreement, at the closing of the Merger (the
"Closing"), each outstanding share of Class B Common Stock, par value $.001
per share ("EBIC Common Stock"), of EBIC (other than shares held in treasury
and shares as to which appraisal rights have been duly demanded) will be
converted into the right to receive, subject to certain adjustments and
escrow arrangements, consideration consisting of approximately (i) 2.64
shares of FSAC Common Stock (the "Stock Exchange Ratio"), (ii) 4.53 Series B
Redeemable Common Stock Purchase Warrants (the "Merger Warrants") of FSAC
(the "Warrant Exchange Ratio") and (iii) $9.57 in cash, without interest (the
"Cash Consideration"). The foregoing consideration reflects, and is subject
to adjustment to maintain, the intentions of the parties that (x) the holders
of EBIC Common Stock who do not exercise appraisal rights (subject to certain
escrow arrangements and disregarding cash payments in lieu of fractional
interests) collectively receive a post-Merger 50% interest in FSAC by
acquiring a number of shares of FSAC Common Stock and a number of Merger
Warrants equal to the number of shares of FSAC Common Stock and the number of
Redeemable Common Stock Purchase Warrants of FSAC outstanding, respectively,
immediately prior to the Merger (after giving effect to certain adjustments)
and (y) the respective pre-Merger contributions of FSAC stockholders and EBIC
stockholders to the post-Merger consolidated net worth of FSAC be equalized,
subject to certain adjustments, by the payment to EBIC stockholders of the
Cash Consideration.
Consistent with the foregoing intentions, and based on certain specific
adjustments contemplated by the Merger Agreement, it is expected at the
Closing that the Stock Exchange Ratio will neither exceed approximately 2.78
nor be less than approximately 2.21, and that the Warrant Exchange Ratio will
not
<PAGE>
have materially changed. The Cash Consideration at Closing will be adjusted
to reflect the then-existing difference between FSAC and EBIC's respective
net worths (each as calculated in accordance with the Merger Agreement).
Based primarily on increases in EBIC's net worth that have occurred since the
signing of the Merger Agreement, FSAC and EBIC estimate that the Cash
Consideration would have been adjusted to approximately $12.03 per share if
the Merger had occurred on June 30, 1996. To the extent that EBIC's net worth
changes further during the period between July 1, 1996 and the actual Closing
(which is expected to occur promptly after the Special Meeting), or actual
increases in EBIC's net worth from April 1, 1996 through June 30, 1996 vary
from the preliminary assessments and estimates of the same used by management
in arriving at the above $12.03 figure, the Cash Consideration will be
adjusted further, with every approximately $167,000 increase or decrease in
EBIC net worth having the effect of increasing or decreasing, as the case may
be, the Cash Consideration by approximately $.10 per share. In addition, to
the extent that FSAC stockholders exercise certain redemption rights
described below, the Cash Consideration will be increased by approximately
$.32 per share for every approximately 100,000 shares of FSAC Common Stock so
redeemed (up to a maximum additional approximately $2.27).
Because of the variety of possible adjustments to the merger consideration
that may be necessary to maintain the intentions of the parties described
above, FSAC and EBIC have agreed to resolicit the approval of the Merger by
their respective stockholders if (subject to certain escrow arrangements) the
final Stock Exchange Ratio falls outside of the range of approximately 2.21
to 2.78, the final Warrant Exchange Ratio changes by more than 10% from the
approximate Warrant Exchange Ratio of 4.53 or the final Cash Consideration is
less than $9.00 or greater than $17.50.
EBIC STOCKHOLDERS HAVE ALREADY APPROVED THE MERGER AGREEMENT, BY
APPROXIMATELY A 97% VOTE, AT A SPECIAL MEETING OF EBIC STOCKHOLDERS HELD ON
JULY 15, 1996. FSAC stockholder approval of the Merger Agreement and the
Charter Amendments, however, is still required, among other things, for
consummation of the Merger.
FSAC STOCKHOLDERS WHO VOTE AGAINST THE MERGER AGREEMENT HAVE THE RIGHT TO
DEMAND THE CASH REDEMPTION, AT APPROXIMATELY $5.30 PER SHARE, OF THEIR SHARES
ISSUED PURSUANT TO FSAC'S INITIAL PUBLIC OFFERING ("IPO") IN DECEMBER 1994
("FSAC PUBLIC SHARES") IF THE MERGER IS APPROVED AND CONSUMMATED. HOWEVER, IF
THIS REDEMPTION RIGHT IS EXERCISED WITH RESPECT TO 20% OR MORE OF THE FSAC
PUBLIC SHARES, FSAC, PURSUANT TO ITS CERTIFICATE OF INCORPORATION, IS NOT
PERMITTED TO CONSUMMATE THE MERGER. TO BE EFFECTIVE, THIS REDEMPTION RIGHT
MUST BE EXERCISED AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, INCLUDING
BY VOTING AGAINST THE MERGER AGREEMENT AT THE SPECIAL MEETING AND BY MAKING
WRITTEN DEMAND THEREFOR AND DELIVERING SUCH DEMAND AND CERTIFICATES
REPRESENTING SUCH SHARES, UNDER COVER OF A PROPERLY COMPLETED AND EXECUTED
LETTER OF TRANSMITTAL, TO FSAC BEFORE 5:00 P.M. (NEW YORK CITY TIME) ON THE
DATE OF THE SPECIAL MEETING.
IF FSAC DOES NOT CONSUMMATE THE MERGER OR ANOTHER BUSINESS COMBINATION BY
DECEMBER 7, 1996, FSAC WILL BE OBLIGATED TO DISSOLVE AND DISTRIBUTE TO
HOLDERS OF FSAC PUBLIC SHARES THE PROCEEDS FROM THE IPO THAT WERE DEPOSITED
IN TRUST, PLUS INTEREST EARNED THEREON, ESTIMATED TO BE $5.40 PER SHARE, PLUS
A PRO RATA PORTION OF ANY REMAINING NET ASSETS OF FSAC.
A Notice of the Special Meeting and a Proxy Statement containing detailed
information concerning the Merger Agreement, the other Proposals and certain
other transactions are attached. I urge you to read this material carefully.
Your participation in this meeting, in person or by proxy, is important.
Please mark, date, sign and return the enclosed proxy as soon as possible,
whether or not you plan to attend the meeting.
Sincerely,
GILBERT D. SCHARF
Chairman of the Board, Chief Executive Officer
and President
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
667 MADISON AVENUE
NEW YORK, NY 10021
(212) 317-1000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, AUGUST 15, 1996
A Special Meeting of Stockholders of Financial Services Acquisition
Corporation ("FSAC") will be held on Thursday, August 15, 1996 at 10:00 a.m.,
local time, at the offices of FSAC located at 667 Madison Avenue in New York
City, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of March 8, 1996 (as amended, the
"Merger Agreement"), a copy of which is attached as Annex I to the
accompanying Proxy Statement, among FSAC, EBIC Acquisition Corp., a wholly
owned subsidiary of FSAC ("Merger Sub"), and Euro Brokers Investment
Corporation ("EBIC"), pursuant to which Merger Sub will be merged with and
into EBIC (the "Merger"), with EBIC being the surviving corporation and
becoming a wholly owned subsidiary of FSAC. Under the terms of the Merger
Agreement, upon consummation of the Merger, each outstanding share of
Class B Common Stock, par value $.001 per share ("EBIC Common Stock"), of
EBIC (other than shares held in the treasury of EBIC, shares owned by any
subsidiary of EBIC or shares owned by FSAC, all of which will be
cancelled, and other than shares of EBIC Common Stock as to which
appraisal rights have been duly demanded pursuant to Section 262 of the
General Corporation Law of the State of Delaware) will be converted into
the right to receive, subject to certain adjustments and escrow
arrangements, (i) 2.6426688 shares of Common Stock, par value $.001 per
share (the "FSAC Common Stock"), of FSAC, (ii) 4.5274405 Series B
Redeemable Common Stock Purchase Warrants of FSAC and (iii) $9.5734433 in
cash. Based primarily on increases in EBIC's net worth that have occurred
since the signing of the Merger Agreement, FSAC and EBIC estimate that the
cash portion of the consideration to be received in the Merger would have
been adjusted to approximately $12.03 per share if the Merger had occurred
on June 30, 1996. To the extent that EBIC's net worth changes further
during the period between July 1, 1996 and the actual closing of the
Merger (which is expected to occur promptly after the Special Meeting) or
stockholders of FSAC exercise certain rights of redemption, the cash
portion of the consideration to be received in the Merger will be adjusted
further. The determination of the final consideration to be received is
more fully described in the accompanying Proxy Statement.
2. In connection with the Merger and subject to satisfaction of all
conditions to consummation of the Merger (including the approval of
Proposal 3 below), to consider and vote upon a proposal to elect eight
directors (including two EBIC representatives), two of whom will be
designated Class I Directors to serve for an initial term of one year
until the annual meeting of stockholders in 1997 and until their
respective successors are elected and qualified; three of whom will be
designated Class II Directors to serve for an initial term of two years
until the annual meeting of stockholders in 1998 and until their
respective successors are elected and qualified; and three of whom will be
designated Class III Directors to serve for an initial term of three years
until the annual meeting of stockholders in 1999 and until their
respective successors are elected and qualified, as more fully described
in the accompanying Proxy Statement.
3. In connection with the Merger and subject to the satisfaction of
all other conditions to consummation of the Merger, to consider and vote
upon a proposal, to be effective immediately after the Merger, to amend
FSAC's Certificate of Incorporation to (i) provide for the classification
of the Board of Directors into three classes serving staggered terms, (ii)
eliminate the ability of stockholders to act by written consent, (iii)
restrict the ability to call special meetings of stockholders to the
Chairman and the President of FSAC or to an affirmative vote of a majority
of the Board of Directors and (iv) require an 80% supermajority vote to
amend any of the foregoing provisions, as more fully described in the
accompanying Proxy Statement.
4. In connection with the Merger and subject to satisfaction of all
other conditions to consummation of the Merger, to consider and vote upon
a proposal, to be effective immediately prior
<PAGE>
to the Merger, to increase the number of authorized shares of FSAC Common
Stock from 14,000,000 shares to 30,000,000 shares, as more fully described
in the accompanying Proxy Statement.
5. In connection with the Merger and subject to satisfaction of all
other conditions to consummation of the Merger, to consider and vote upon
a proposal to amend FSAC's Certificate of Incorporation, to be effective
immediately prior to the Merger, to change the name of FSAC to "Financial
Services Corporation," as more fully described in the accompanying Proxy
Statement.
6. In connection with the Merger and subject to satisfaction of all
conditions to consummation of the Merger, to consider and vote upon a
proposal to adopt the FSAC 1996 Stock Option Plan, as more fully described
in the accompanying Proxy Statement.
7. To transact such other business as may properly come before the
Special Meeting or at any and all adjournments or postponements thereof.
The accompanying Proxy Statement and the annexes thereto, including the
Merger Agreement, form a part of this Notice.
A SPECIAL MEETING OF STOCKHOLDERS OF EBIC WAS HELD ON JULY 15, 1996. AT
SUCH MEETING EBIC STOCKHOLDERS APPROVED THE MERGER AGREEMENT BY APPROXIMATELY
A 97% VOTE. Consummation of the Merger still requires, among other things,
FSAC stockholder approval of the Merger Agreement and the amendments to
FSAC's Certificate of Incorporation described in Proposals 3-5 above.
The Board of Directors has fixed the close of business on July 11, 1996,
as the record date for determination of stockholders entitled to notice of,
and to vote at, the Special Meeting. Only holders of record of FSAC Common
Stock at that time are entitled to notice of, and to vote at, the Special
Meeting. Each share of FSAC Common Stock entitled to be voted at the Special
Meeting is entitled to one vote. With respect to approval and adoption of the
Merger Agreement, the FSAC stockholders who held FSAC Common Stock prior to
FSAC's initial public offering (the "IPO") in December 1994 (the "Initial
FSAC Stockholders") are required to vote all of the 833,333 shares acquired
by them prior to the IPO (being approximately 18.9% of the currently
outstanding shares of FSAC Common Stock) in accordance with the vote of the
majority in interest of the 3,583,333 shares of FSAC Common Stock that were
issued in the IPO (the "FSAC Public Shares"). The Initial FSAC Stockholders
also own an aggregate of 597,000 FSAC Public Shares (constituting
approximately 13.5% of the currently outstanding shares) and have indicated
that they currently intend to vote such shares in favor of approval and
adoption of the Merger Agreement. The six current directors of FSAC (which
include FSAC's only two officers) constitute all of the Initial FSAC
Stockholders.
HOLDERS OF FSAC PUBLIC SHARES WHO VOTE AGAINST THE MERGER AGREEMENT HAVE
THE RIGHT TO DEMAND THE CASH REDEMPTION OF SUCH SHARES IF THE MERGER IS
APPROVED AND CONSUMMATED. TO BE EFFECTIVE, THIS REDEMPTION RIGHT MUST BE
EXERCISED AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT, INCLUDING BY (I)
VOTING "AGAINST" THE PROPOSAL TO APPROVE THE MERGER AGREEMENT AT THE SPECIAL
MEETING AND (II) MAKING WRITTEN DEMAND FOR REDEMPTION AND DELIVERING TO FSAC
SUCH DEMAND AND CERTIFICATES REPRESENTING THE SHARES FOR WHICH REDEMPTION IS
REQUESTED, UNDER COVER OF A PROPERLY COMPLETED AND EXECUTED LETTER OF
TRANSMITTAL, IN EACH CASE BEFORE 5:00 P.M. (NEW YORK CITY TIME) ON THE DATE
OF THE SPECIAL MEETING.
If 20% or more of the FSAC Public Shares are voted against the Merger
Agreement (and have redemption rights duly demanded with respect to them),
FSAC, pursuant to its Certificate of Incorporation, is not permitted to
consummate the Merger. Moreover, EBIC has a right not to consummate the
Merger if the number of FSAC Public Shares with respect to which redemption
rights are duly demanded exceeds 10% of the number of shares of FSAC Common
Stock outstanding at the time of the Merger (after giving effect to certain
adjustments), although this right is in turn subject to an FSAC right of
cure.
WHETHER OR NOT YOU PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING,
PLEASE MARK, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE
ACCOMPANYING ENVELOPE.
By Order of the Board of Directors
MICHAEL J. SCHARF
Secretary
July 18, 1996
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
PROXY STATEMENT
INTRODUCTION
This Proxy Statement (this "Proxy Statement") is being furnished to
holders of record as of July 11, 1996 (the "FSAC Record Date") of the Common
Stock, par value $.001 per share ("FSAC Common Stock"), of Financial Services
Acquisition Corporation ("FSAC"), in connection with the solicitation of
proxies by the Board of Directors of FSAC for use at its Special Meeting of
Stockholders, to be held on August 15, 1996 at 10:00 a.m., local time, and
any adjournments or postponements thereof (the "FSAC Special Meeting"). At
the FSAC Special Meeting, stockholders of FSAC will consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
March 8, 1996 (as it may be amended, modified, or supplemented from time to
time, the "Merger Agreement"), by and among FSAC, EBIC Acquisition Corp., a
wholly owned subsidiary of FSAC ("Merger Sub"), and Euro Brokers Investment
Corporation ("EBIC"). A copy of the Merger Agreement is attached hereto as
Annex I and is incorporated herein by reference.
Stockholders of FSAC will also be asked at the FSAC Special Meeting (i) to
elect eight persons to the FSAC Board of Directors (including two EBIC
representatives), (ii) to approve the FSAC 1996 Stock Option Plan (the "FSAC
Option Plan") and (iii) to approve certain amendments to FSAC's Certificate
of Incorporation (the "Charter Amendments"). The Charter Amendments will,
subject to satisfaction of all other conditions to consummation of the
Merger, provide for (x) immediately prior to the effectiveness of the Merger,
(1) the name change of FSAC to "Financial Services Corporation" and (2) an
increase in the authorized shares of FSAC Common Stock from 14,000,000 shares
to 30,000,000 shares and (y) immediately after the effectiveness of the
Merger, (1) the classification of the Board of Directors into three classes
serving staggered terms, with the initial number of directors to be eight,
(2) the elimination of the ability of stockholders to act by written consent,
(3) the restriction of the ability to call special meetings of stockholders
to the Chairman and the President of FSAC or to an affirmative vote of a
majority of the Board of Directors and (4) a requirement of an 80%
supermajority vote to amend any of the provisions described in this clause
(y).
The Merger Agreement provides, subject to the satisfaction or waiver of
certain conditions, that Merger Sub will be merged with and into EBIC (the
"Merger"), with EBIC surviving the Merger as a wholly owned subsidiary of
FSAC. At the effective time of the Merger (the "Effective Time"), each
outstanding share of Class B Common Stock, par value $.001 per share ("EBIC
Common Stock"), of EBIC (other than shares held in the treasury of EBIC,
shares owned by any subsidiary of EBIC and shares owned by FSAC, all of which
will be cancelled, and other than shares as to which appraisal rights shall
have been duly demanded) will be converted into the right to receive, subject
to certain adjustments and escrow arrangements, (i) 2.6426688 newly-issued
shares of FSAC Common Stock (the "Stock Exchange Ratio"), (ii) 4.5274405
newly-issued Series B Redeemable Common Stock Purchase Warrants ("Merger
Warrants") of FSAC (the "Warrant Exchange Ratio" and, together with the Stock
Exchange Ratio, the "Exchange Ratios") and (iii) $9.5734433 in cash, without
interest (the "Per Share Cash Consideration" and, together with the per share
consideration described in the preceding clauses (i) and (ii), the "Merger
Consideration"). Cash will be paid in lieu of fractional shares of FSAC
Common Stock and fractional Merger Warrants.
The Exchange Ratios were originally calculated to result in, and will be
adjusted as necessary at the closing of the Merger (the "Closing") to
continue to result in, the stockholders of EBIC who do not
The date of this Proxy Statement is July 18, 1996.
<PAGE>
exercise appraisal rights owning in the aggregate, subject to certain escrow
arrangements (see "THE MERGER AGREEMENT --Certain Related Agreements --Escrow
Agreement") and the payment of cash in lieu of fractional interests, a 50%
post-Merger interest in FSAC by acquiring in the Merger (i) a number of
shares of FSAC Common Stock equal to the number of shares of FSAC Common
Stock outstanding immediately prior to the Merger (after giving effect to (x)
any exercise by FSAC stockholders of their Redemption Rights (as defined
below) and (y) the Unit Purchase Option Exchange (as hereinafter defined), if
any) and (ii) a number of Merger Warrants equal to the number of Redeemable
Common Stock Purchase Warrants of FSAC, of all series (the "FSAC Warrants"),
outstanding immediately prior to the Merger. Consistent with the foregoing
intentions, and based on the specific adjustments contemplated by the Merger
Agreement, it is expected that at the Closing the Stock Exchange Ratio will
neither exceed 2.7772954 nor be less than 2.2138588, and that the Warrant
Exchange Ratio will not have materially changed.
The Per Share Cash Consideration, which was originally determined for
purposes of the Merger Agreement by reference to the difference between FSAC
and EBIC's respective net worths at December 31, 1995, will also be adjusted
prior to the Merger to reflect the then-existing difference between the
respective pre-Merger net worths of FSAC and EBIC (on a consolidated basis),
subject in each case to certain other adjustments, with the intention
generally of equalizing the respective pre-Merger contributions of FSAC
stockholders and EBIC stockholders to the post-Merger consolidated net worth
of FSAC. Based primarily on increases in EBIC's net worth that have occurred
since the signing of the Merger Agreement, FSAC and EBIC estimate that the
Per Share Cash Consideration would have been adjusted to approximately $12.03
if the Merger had occurred on June 30, 1996. To the extent that EBIC's net
worth changes further during the period between July 1, 1996 and the actual
Closing (which is expected to occur promptly after the FSAC Special Meeting),
or actual increases in EBIC's net worth from April 1, 1996 through June 30,
1996 vary from the preliminary assessments and estimates of the same used by
management in arriving at the above $12.03 figure, the Per Share Cash
Consideration will be adjusted further, with every approximately $167,000
increase or decrease in EBIC net worth having the effect of increasing or
decreasing, as the case may be, the Per Share Cash Consideration by
approximately $.10. In addition, to the extent that FSAC stockholders
exercise their Redemption Rights (see below) in connection with the Merger,
the Per Share Cash Consideration will be increased by approximately $.32 for
every approximately 100,000 shares of FSAC Common Stock redeemed (up to a
maximum additional approximately $2.27, representing the maximum redemption
permitted by FSAC's Certificate of Incorporation).
Because of the variety of possible adjustments to the Merger Consideration
that may be necessary to maintain the intentions of the parties described
above, FSAC and EBIC have agreed to resolicit the approval of the Merger by
their respective stockholders if (subject to certain escrow arrangements) the
final Stock Exchange Ratio falls outside of the range of 2.2138588 to
2.7772954, the final Warrant Exchange Ratio changes by more than 10% from
4.5274405 or the final Per Share Cash Consideration is less than $9.00 or
greater than $17.50.
EBIC stockholders have already approved the Merger Agreement, by
approximately a 97% vote, at a Special Meeting of EBIC Stockholders held on
July 15, 1996. However, consummation of the Merger still requires, among
other things, approval by FSAC stockholders of the Merger Agreement and the
Charter Amendments. See "THE MERGER AGREEMENT --Conditions to Consummation of
the Merger."
With respect to the proposal to approve and adopt the Merger Agreement,
the FSAC stockholders who owned FSAC Common Stock prior to the consummation
of FSAC's initial public offering (the "IPO") in December 1994 (the "Initial
FSAC Stockholders") are required to vote all 833,333 shares acquired by them
prior to such date (the "Pre-IPO Shares") (constituting approximately 18.9%
of the currently outstanding shares of FSAC Common Stock) in accordance with
the vote of the majority in interest of the 3,583,333 shares of FSAC Common
Stock that were issued in the IPO (the "FSAC Public Shares"). The Initial
FSAC Stockholders also own an aggregate of 597,000 FSAC Public Shares
(constituting approximately 13.5% of the currently outstanding shares) and
have indicated that they currently intend to vote such shares in favor of
approval and adoption of the Merger Agreement.
ii
<PAGE>
Pursuant to FSAC's Certificate of Incorporation, a holder of FSAC Public
Shares may demand that FSAC redeem such shares for cash (the "Redemption
Rights") if such holder votes against the proposal to approve and adopt the
Merger Agreement and complies with all of the procedures described elsewhere
herein (see "REDEMPTION RIGHTS") and the Merger is consummated. The per share
redemption price will be equal to approximately $5.30 per share, calculated
by dividing the amount, as of the FSAC Record Date, in the trust fund
established by FSAC (the "Trust") to hold most of the proceeds of the IPO,
including interest thereon, by the number of FSAC Public Shares (the
"Redemption Price"). However, if 20% or more of the FSAC Public Shares, or
716,667 shares, are voted against the Merger Agreement (and have Redemption
Rights duly demanded with respect to them), FSAC, pursuant to its Certificate
of Incorporation, is not permitted to consummate the Merger. Moreover, it is
a condition to EBIC's obligation to consummate the Merger that the number of
FSAC Public Shares with respect to which Redemption Rights are duly demanded
(the "Redemption Shares") not constitute more than 10% of the number of
shares of FSAC Common Stock outstanding immediately prior to the Merger
(giving effect to the Unit Purchase Option Exchange described below, if any).
Accordingly, if 441,667 (or, if the Unit Purchase Option Exchange is
consummated, 464,167) FSAC Public Shares are voted against the Merger
Agreement (and have Redemption Rights duly demanded with respect to them),
EBIC is not obligated to consummate the Merger. Notwithstanding the
foregoing, any one or more of the current stockholders of FSAC has the right
under the Merger Agreement, but not the obligation, to satisfy any
non-fulfillment of such 10% condition by arranging within ten days to pay
FSAC the amount necessary to pay the aggregate Redemption Price for the
Redemption Shares in excess of such 10% threshold (the "Excess Redemption
Shares") (up to the maximum 20% of the FSAC Public Shares threshold permitted
by FSAC's Certificate of Incorporation), and FSAC shall thereafter issue to
such stockholder or stockholders a number of shares of FSAC Common Stock
equal to the number of such Excess Redemption Shares. See "REDEMPTION
RIGHTS."
If FSAC does not consummate the Merger or another business combination by
December 7, 1996, FSAC, pursuant to its Certificate of Incorporation, is
obligated to dissolve and distribute to holders of FSAC Public Shares an
amount, estimated to be approximately $5.40 per share, calculated by dividing
the amount estimated to be in the Trust as of such date, including interest
thereon, by the number of FSAC Public Shares (the "Distribution Amount"),
plus a pro rata portion of any remaining net assets of FSAC.
Holders of FSAC Warrants do not have any right to demand or receive
distributions from the Trust. The holders of the Pre-IPO Shares do not have
any Redemption Rights and have waived any right to receive the Distribution
Amount. Accordingly, if the Merger or another business combination is not
consummated by December 7, 1996, the FSAC Warrants and the Pre-IPO Shares
will be valueless. See "PROPOSAL 1: THE MERGER --Interests of Certain Persons
in the Merger."
In connection with the Merger, FSAC has entered into an agreement (the
"Unit Purchase Option Agreement") with the holders of its outstanding options
(the "Unit Purchase Options") to acquire 333,333 Units of FSAC (the "Advisor
Units"), which options were sold in the IPO to the underwriters therefor and
certain designees thereof. Each Advisor Unit consists of one share of FSAC
Common Stock and two FSAC Warrants. The Unit Purchase Option Agreement
provides for the exchange, contingent upon and effective immediately
following the Merger, of all Unit Purchase Options for an aggregate of
225,000 newly-issued shares of FSAC Common Stock (the "Unit Purchase Option
Exchange"). If the Unit Purchase Option Exchange is consummated on such
terms, the aggregate Merger Consideration will be adjusted to include an
additional 225,000 shares of FSAC Common Stock. If the Unit Purchase Option
Agreement is not consummated for any reason, the aggregate Merger
Consideration instead will include such additional amount of cash as is
agreed upon between FSAC and EBIC or, if such amount cannot be agreed upon,
an additional 333,333 newly issued Unit Purchase Options. See "RISK FACTORS
- --Effects of Unit Purchase Option Exchange" and "PROPOSAL 1: THE MERGER
- --Certain Related Transactions --Unit Purchase Option Exchange."
The Merger Agreement contemplates that as soon as reasonably practicable
following consummation of the Merger (subject, however, to the advice of its
financial advisors), FSAC will commence an exchange offer (the "Exchange
Offer") to acquire all FSAC Warrants (including the Merger Warrants) that are
then outstanding, on the basis of one share of FSAC Common Stock for a number
of FSAC Warrants to be
iii
<PAGE>
mutually agreed upon between FSAC and Welsh, Carson, Anderson & Stowe VI,
L.P., a Delaware limited partnership ("WCAS"). WCAS holds approximately 51%
of the outstanding shares of EBIC Common Stock. There can be no assurance,
however, that the Exchange Offer will be made or, if made, as to the exchange
ratio at which it will occur or the other terms and conditions thereof. See
"RISK FACTORS --Effects of Exchange Offer" and "PROPOSAL 1: THE MERGER
- --Certain Related Transactions --Exchange Offer." Certain stockholders of
FSAC and EBIC have agreed, if the Exchange Offer is made, to tender the FSAC
Warrants held by them at such time (including Merger Warrants) in numbers
proportionate to the aggregate tenders of FSAC Warrants made by other holders
in the Exchange Offer. See "THE MERGER AGREEMENT --Certain Related Agreements
- --Security Transfer Agreement."
FSAC has filed a Registration Statement on Form S-4 (together with any
amendments thereto, the "Registration Statement") pursuant to the Securities
Act of 1933, as amended (the "Securities Act"), covering the shares of FSAC
Common Stock and the Merger Warrants to be issued in connection with the
Merger, as well as the shares of FSAC Common Stock issuable upon exercise of
the Merger Warrants (the "Warrant Shares") and the shares of FSAC Common
Stock issuable in the Unit Purchase Option Exchange, if any.
The information contained in this Proxy Statement with respect to FSAC and
its affiliates has been supplied by FSAC, and the information with respect to
EBIC and its affiliates has been supplied by EBIC.
This Proxy Statement and the accompanying materials are first being mailed
to stockholders of FSAC on or about July 18, 1996.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
SOLICITATION OF PROXIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY FSAC
OR EBIC. THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY
FROM ANY PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE ANY SUCH
PROXY SOLICITATION. THE DELIVERY OF THIS PROXY STATEMENT SHALL NOT, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FSAC OR EBIC SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
FSAC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by FSAC with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's Regional Offices at
Seven World Trade Center, 13th Floor, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also can be obtained from the Public
Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates, or from the Web Site
maintained by the Commission at "http://www.sec.gov."
In addition to filing the Registration Statement with the Commission as
described above, FSAC has filed with the Commission an issuer tender offer
statement on Schedule 13E-4 (the "Schedule 13E-4") with respect to the
Redemption Rights. This Proxy Statement does not contain all of the
information set forth in the Registration Statement and the Schedule 13E-4 or
the respective exhibits thereto. Such additional information may be obtained
from the Commission's principal office in Washington, D.C. Statements
contained in this Proxy Statement as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, the Schedule
13E-4 or such other document, each such statement being qualified in all
respects by such reference.
<PAGE>
FSAC ANNUAL REPORT ON FORM 10-K
FSAC will furnish without charge to each FSAC stockholder whose proxy is
being solicited, upon written request, a copy of FSAC's annual report on Form
10-K for the fiscal year ended December 31, 1995, including the financial
statements and schedules thereto. Requests for copies of such report should
be directed to FSAC, Attention: Michael J. Scharf, Secretary, 667 Madison
Avenue, New York, New York 10021.
iv
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TABLE OF CONTENTS
<TABLE>
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SECTION PAGE
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<S> <C>
INTRODUCTION ............................................................................... i
AVAILABLE INFORMATION ...................................................................... iv
SUMMARY .................................................................................... 1
Business of FSAC .......................................................................... 1
Business of EBIC .......................................................................... 1
Risk Factors .............................................................................. 2
FSAC Special Meeting ...................................................................... 5
EBIC Special Meeting ...................................................................... 6
Proposal 1: The Merger .................................................................... 6
Certain Related Transactions .............................................................. 9
Recommendations of the Boards of Directors ................................................ 10
Reasons for the Merger .................................................................... 10
Interests of Certain Persons in the Merger ................................................ 11
Redemption Rights ......................................................................... 12
Accounting Treatment ...................................................................... 13
Certain Federal Income Tax Consequences ................................................... 13
Conditions to the Merger; Termination of the Merger Agreement ............................. 13
Nasdaq National Market Listing ............................................................ 13
Regulatory Approvals Required ............................................................. 14
Certain Related Agreements ................................................................ 14
Proposal 2: Election of Directors ......................................................... 15
Proposals 3, 4 and 5: The Charter Amendments .............................................. 15
Proposal 6: The FSAC Option Plan .......................................................... 17
Market Prices of FSAC Securities .......................................................... 17
No Public Market for EBIC Securities ...................................................... 18
RISK FACTORS ............................................................................... 19
Limited Trading Market for FSAC Common Stock and FSAC Warrants ............................ 19
Possible Volatility of Prices for FSAC Common Stock and FSAC Warrants ..................... 19
Shares Eligible for Future Sale ........................................................... 20
Effects of Exchange Offer ................................................................. 21
Effects of Unit Purchase Option Exchange .................................................. 21
Dependence on Key Employees ............................................................... 21
Authority of FSAC to Issue Additional Securities .......................................... 22
Concentration of Voting Control; Staggered Board .......................................... 22
Determination of Merger Consideration; Absence of Fairness Opinion ........................ 23
Current Prospectus and State Blue Sky Registration Required in Connection with Exercise
of FSAC Warrants ......................................................................... 23
Potential Redemption of FSAC Warrants ..................................................... 23
Loss of SPAC(Registered Trademark) Protections ............................................ 24
Effect of Changes in General Economic and Financial Conditions ............................ 24
Government Regulation ..................................................................... 24
Consolidating Supervisor .................................................................. 24
Competition ............................................................................... 25
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SECTION PAGE
- ------- --------
European Market Unification ............................................................... 25
Liability for Unsettled Trades ............................................................ 25
Lack of Business Diversification .......................................................... 26
Dividends Unlikely ........................................................................ 26
SELECTED FINANCIAL DATA OF FSAC ............................................................ 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FSAC ............................................... 28
SELECTED FINANCIAL DATA OF EBIC ............................................................ 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF EBIC ............................................... 32
History ................................................................................... 32
Overview .................................................................................. 32
Liquidity and Capital Resources ........................................................... 39
FSAC AND EBIC UNAUDITED PRO FORMA FINANCIAL INFORMATION .................................... 41
FSAC COMPARATIVE PER SHARE DATA ............................................................ 46
CAPITALIZATION ............................................................................. 47
MARKET PRICES OF FSAC SECURITIES ........................................................... 48
Stock Price Performance Comparison ........................................................ 49
NO PUBLIC MARKET FOR EBIC SECURITIES ....................................................... 50
THE SPECIAL MEETINGS ....................................................................... 50
FSAC Special Meeting ...................................................................... 50
EBIC Special Meeting ...................................................................... 53
Solicitation of Proxies ................................................................... 53
PROPOSAL 1: THE MERGER ..................................................................... 53
Form of Merger; Effective Time ............................................................ 53
Merger Consideration ...................................................................... 54
Determination and Adjustment of Merger Consideration ...................................... 55
Conditions to the Merger .................................................................. 57
Certain Related Transactions .............................................................. 57
Background of the Merger .................................................................. 58
Reasons for the Merger; Recommendations of the Boards of Directors ........................ 60
Interests of Certain Persons in the Merger ................................................ 61
Nasdaq Listing ............................................................................ 64
Regulatory Approvals ...................................................................... 64
Certain Federal Income Tax Consequences ................................................... 64
Accounting Treatment ...................................................................... 65
Resales of FSAC Securities ................................................................ 65
Absence of Fairness Opinion ............................................................... 66
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SECTION PAGE
- ------- --------
REDEMPTION RIGHTS .......................................................................... 67
THE MERGER AGREEMENT ....................................................................... 69
Certain Representations and Warranties .................................................... 69
Conduct of Business of EBIC Pending the Merger ............................................ 69
Conditions to Consummation of the Merger .................................................. 71
No Solicitation ........................................................................... 72
Certain Other Covenants ................................................................... 72
Amendment and Waiver ...................................................................... 72
Directors' Indemnification ................................................................ 73
Merger Agreement Indemnification .......................................................... 73
Termination ............................................................................... 73
Fees and Expenses ......................................................................... 74
Closing True-Up Procedures ................................................................ 74
Adjustment of Exchange Ratios and Cash Consideration ...................................... 75
No Fractional Securities .................................................................. 76
Deposit of Merger Consideration ........................................................... 76
Certain Related Agreements ................................................................ 76
DESCRIPTION OF FSAC CAPITAL STOCK .......................................................... 79
General ................................................................................... 79
FSAC Units ................................................................................ 79
FSAC Common Stock ......................................................................... 79
Preferred Stock ........................................................................... 80
FSAC Warrants ............................................................................. 80
Merger Warrants ........................................................................... 81
Advisor Units and Bridge Warrants ......................................................... 81
Delaware Anti-Takeover Law ................................................................ 81
BUSINESS OF FSAC ........................................................................... 82
General ................................................................................... 82
Characteristics of a Specified Purpose Acquisition Company(Registered Trademark) ......... 83
Subsidiaries .............................................................................. 84
Competition ............................................................................... 84
Management and Employees .................................................................. 84
Properties ................................................................................ 85
Legal Proceedings ......................................................................... 85
BUSINESS OF EBIC ........................................................................... 86
Overview .................................................................................. 86
Products .................................................................................. 86
Communications Network and Information Systems ............................................ 88
Personnel ................................................................................. 88
Regulation ................................................................................ 88
Competition ............................................................................... 89
Facilities ................................................................................ 89
Legal Proceedings ......................................................................... 89
Proposed Joint Venture .................................................................... 90
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SECTION PAGE
- ------- --------
MANAGEMENT OF EBIC ......................................................................... 91
Executive Compensation .................................................................... 91
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF FSAC AND EBIC ........................... 93
Beneficial Ownership of Shares of FSAC Common Stock ....................................... 93
Beneficial Ownership of Shares of EBIC Common Stock ....................................... 94
PROPOSAL 2: ELECTION OF DIRECTORS .......................................................... 95
Compliance with Section 16(a) of the Exchange Act ......................................... 97
Executive Compensation .................................................................... 97
Certain Other Relationships and Related Transactions ...................................... 97
PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH ..................................................... 98
General ................................................................................... 98
Classified Board Amendment ................................................................ 99
Stockholders' Action Amendment ............................................................ 100
Special Meeting Amendment ................................................................. 100
Supermajority Amendment ................................................................... 101
Deletion of Certain SPAC(Registered Trademark) -Related Provisions ........................ 101
PROPOSAL 4: ADDITIONAL COMMON STOCK AMENDMENT .............................................. 101
General ................................................................................... 101
Additional Common Stock ................................................................... 102
PROPOSAL 5: NAME CHANGE AMENDMENT .......................................................... 102
PROPOSAL 6: FSAC OPTION PLAN ............................................................... 103
General ................................................................................... 103
Description of Principal Features of the Plan ............................................. 103
Certain Federal Income Tax Consequences ................................................... 104
OTHER MATTERS .............................................................................. 105
EXPERTS .................................................................................... 105
STOCKHOLDER PROPOSALS ...................................................................... 106
INDEX TO FINANCIAL STATEMENTS .............................................................. F-1
</TABLE>
viii
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LIST OF ANNEXES
<TABLE>
<CAPTION>
<S> <C>
ANNEX I MERGER AGREEMENT
Annex II Form of Merger Warrant
Annex III Form of Certificate of Merger
Annex IV Forms of Certificates of Amendment to the FSAC Certificate of Incorporation
Annex V Form of FSAC Option Plan
Annex VI Escrow Agreement
Annex VII Security Transfer Agreement
Annex VIII Majority Stockholders' Agreement
Annex IX Form of Registration Rights Agreement
</TABLE>
ix
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in
its entirety by, the more detailed information contained in this Proxy
Statement and the Annexes hereto. Stockholders are urged to read this Proxy
Statement and the Annexes hereto in their entirety. Capitalized terms used
herein and not defined have the meanings ascribed to them elsewhere in this
Proxy Statement. See "RISK FACTORS" for certain information that should be
reviewed carefully in considering the Merger.
BUSINESS OF FSAC
Financial Services Acquisition Corporation ("FSAC") was organized on
August 18, 1994 as a Specified Purpose Acquisition Company(Registered
Trademark) (a "SPAC(Registered Trademark)"), with the objective of acquiring
an operating business in the financial services industry (a "Target
Business") by merger, exchange of capital stock, asset or stock acquisition
or other similar type of transaction (a "Business Combination"). Since its
inception, FSAC has not engaged in any substantive commercial business, and
its sole activities have been to evaluate and select an appropriate Target
Business and to structure, negotiate and consummate a Business Combination
with such Target Business. FSAC may ultimately acquire more than one
business; however, FSAC's initial Business Combination must be with a Target
Business whose fair market value is at least 80% of the net assets of FSAC at
the time of the Business Combination. See "BUSINESS OF FSAC."
FSAC consummated its initial public offering (the "IPO") in December 1994,
and received net proceeds of approximately $19,150,000 after payment of
offering expenses. A substantial portion of the net proceeds ($17,415,000)
was placed in an interest-bearing trust account (the "Trust") until the
earlier of (i) the consummation of a Business Combination with a Target
Business or (ii) the liquidation of FSAC. The remaining net proceeds of the
IPO which were not placed in the Trust and the interest earned thereon have
been used by FSAC to identify, evaluate and select a suitable Target
Business, and structure, negotiate and consummate a Business Combination, as
well as for general, administrative and organizational expenses. If the
Merger is consummated, it is anticipated that all or substantially all of the
IPO proceeds held in the Trust, together with interest earned thereon, will
be paid to holders of EBIC Common Stock (subject to certain escrow
arrangements) as the cash portion of the aggregate Merger Consideration.
In the event FSAC does not consummate a Business Combination by December
7, 1996, FSAC is obligated to dissolve and to distribute the amount in the
Trust, estimated to be approximately $5.40 per share at that date (the
"Distribution Amount"), plus any remaining net assets of FSAC, to FSAC
stockholders in respect of their shares of Common Stock, par value $.001 per
share ("FSAC Common Stock"), of FSAC (other than the 833,333 shares of FSAC
Common Stock (the "Pre-IPO Shares") held by the FSAC stockholders (the
"Initial FSAC Stockholders") prior to the IPO). On July 15, 1996, the most
recent date for which it was practicable to obtain market price information
before the printing of this Proxy Statement, the high and low closing bid
prices for FSAC Common Stock as reported on the OTC Bulletin Board (the "OTC
Bulletin Board") of the National Association of Securities Dealers, Inc. (the
"NASD") were each $5 1/16. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FSAC" and "MARKET PRICES OF
FSAC SECURITIES."
EBIC Acquisition Corp., a wholly owned subsidiary of FSAC ("Merger Sub"),
is a Delaware corporation organized on February 15, 1996 solely for purposes
of facilitating the Merger.
The mailing address of the principal executive office of each of FSAC and
Merger Sub is 667 Madison Avenue, New York, New York 10021, and the telephone
number is (212) 317-1000. "SPAC(Registered Trademark)" and "Specified Purpose
Acquisition Company(Registered Trademark)" are registered service marks of
GKN Securities Corp.
BUSINESS OF EBIC
Euro Brokers Investment Corporation ("EBIC"), through its subsidiaries,
acts as a wholesale broker of money market instruments, derivatives and
selected fixed income securities. EBIC functions primarily
1
<PAGE>
as an intermediary, matching the needs of financial institutions. EBIC
generally does not seek to take principal positions but rather relies almost
exclusively on commissions to generate revenues. EBIC's customers are
primarily multinational banks, securities dealers and other financial
institutions.
As an intermediary, EBIC assists in the efficient and rapid execution of
trades between financial and other institutions by identifying counterparties
with reciprocal interests and negotiating and executing transactions on their
behalf. EBIC's sales force, telecommunications network and proprietary screen
display systems provide customers with up-to-date market information,
including arbitrage opportunities, and access to an extensive worldwide
client base. In addition, by not disclosing the parties' identities until
execution or settlement of the trade, EBIC permits anonymity, which allows
the principals involved more flexibility within the market by not publicizing
their investment positions or intentions. EBIC's business falls into three
primary brokerage groups: (i) cash products, (ii) derivative products and
(iii) securities and repurchase agreements. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EBIC" and
"BUSINESS OF EBIC."
The mailing address of the principal executive offices of EBIC is Two
World Trade Center, Suite 8400, New York, New York 10048, and the telephone
number is (212) 748-7000.
RISK FACTORS
STOCKHOLDERS SHOULD CAREFULLY EVALUATE CERTAIN RISK FACTORS, INCLUDING THE
FOLLOWING, IN CONSIDERING THE MERGER. FOR A MORE COMPLETE DISCUSSION OF THE
RISK FACTORS NOTED BELOW, SEE "RISK FACTORS" AT PAGES 19-26 OF THIS PROXY
STATEMENT.
o LIMITED TRADING MARKET FOR FSAC COMMON STOCK AND FSAC WARRANTS. FSAC
Common Stock and the Redeemable Common Stock Purchase Warrants (all
series thereof, "FSAC Warrants") of FSAC are traded in the
over-the-counter market and quoted on the OTC Bulletin Board. There has
been only a limited trading market for such securities and there can be
no assurance that an active or regular trading market will develop
after the Merger. See "MARKET PRICES OF FSAC SECURITIES."
o POSSIBLE VOLATILITY OF PRICES FOR FSAC COMMON STOCK AND FSAC
WARRANTS. FSAC believes that before the public announcement of the
execution of the Merger Agreement, the market price of the FSAC Common
Stock was based primarily on the Distribution Amount in the event FSAC
was obligated to liquidate, and to a lesser degree upon the
anticipation of FSAC entering into a Business Combination. FSAC
believes that after the public announcement, the market price of FSAC
Common Stock continued to be based in part upon the Distribution
Amount, but to a greater degree upon the likelihood of consummation of
the Merger and the market perception of the prospects for EBIC's
business. If the Merger is consummated, it is anticipated that the
price of FSAC Common Stock will reflect the value of the combined
assets and business of FSAC and EBIC on a pro forma consolidated basis
and the increase in the amount of outstanding securities of FSAC, as
well as the liquidity of such securities. These and other factors could
cause market prices for FSAC securities to fluctuate significantly.
o SHARES ELIGIBLE FOR FUTURE SALE. A substantial amount of FSAC Common
Stock, including the shares to be issued in the Merger to the majority
stockholder of EBIC, are subject to agreements which prohibit their
sale for a period of time. When such shares become available for
resale, sales of substantial numbers of shares of FSAC Common Stock in
the public market could materially adversely affect the market prices
for FSAC Common Stock and FSAC Warrants. See "THE MERGER AGREEMENT
--Certain Related Agreements --Security Transfer Agreement."
o EFFECTS OF EXCHANGE OFFER. If the Exchange Offer does not occur and all
of the FSAC Warrants that will be outstanding following the Merger were
exercised, 15,133,332 shares of FSAC Common Stock would be issued, with
aggregate proceeds to FSAC from such exercises of approximately $75.7
million. If the Exchange Offer is made and consummated, significant
additional shares of FSAC Common
2
<PAGE>
Stock will be issued sooner than anticipated (the exact number
depending on the exchange ratio and the number of warrants tendered),
but fewer FSAC Warrants will remain outstanding, thereby resulting in
fewer shares of FSAC Common Stock being issued pursuant to future
exercises of FSAC Warrants.
o EFFECTS OF UNIT PURCHASE OPTION EXCHANGE. If the Unit Purchase Option
Exchange does not occur, 333,333 shares of FSAC Common Stock and
666,666 FSAC Warrants would be issued if all of the 333,333 Unit
Purchase Options currently outstanding were exercised, with aggregate
proceeds to FSAC from such exercises of approximately $3.3 million. An
additional 666,666 shares of FSAC Common Stock would be issued if the
666,666 FSAC Warrants received upon exercise of the Unit Purchase
Options were, in turn, exercised, with incremental aggregate proceeds
to FSAC of approximately $4.2 million. In addition, pursuant to the
Merger Agreement, the Merger Consideration would include an additional
agreed-upon amount of cash to reflect the fact that the Unit Purchase
Options are remaining outstanding or, if such amount cannot be agreed
upon, would include an aggregate of 333,333 newly-issued Unit Purchase
Options. If the Unit Purchase Option Exchange is consummated, an
additional 225,000 shares of FSAC Common Stock will be issued to the
current holders of the Unit Purchase Options, the aggregate Merger
Consideration will be increased by 225,000 shares of FSAC Common Stock
(but the additional agreed-upon cash component, or additional Unit
Purchase Options in lieu thereof, will be eliminated) and no Unit
Purchase Options will remain outstanding.
o DEPENDENCE ON KEY EMPLOYEES. EBIC is, and following consummation of the
Merger, FSAC will be, to a significant extent, dependent on the
customer connections, performance and experience of certain key
management and sales personnel. Although each of FSAC and EBIC has, or
expects to have at the time of the Merger, employment agreements with
many of these key persons, there can be no assurance that such
employment agreements will be renewed or effective in retaining such
persons' services or that other key personnel will remain with EBIC and
FSAC. See "PROPOSAL 1: THE MERGER --Interests of Certain Persons in the
Merger," "PROPOSAL 2: ELECTION OF DIRECTORS" and "MANAGEMENT OF EBIC."
o AUTHORITY OF FSAC TO ISSUE ADDITIONAL SECURITIES. FSAC's Certificate of
Incorporation currently authorizes the issuance of 14,000,000 shares of
FSAC Common Stock. Following consummation of the Merger, FSAC's
Certificate of Incorporation will authorize the issuance of 30,000,000
shares of FSAC Common Stock and it is expected (assuming consummation
of the Unit Purchase Option Exchange and no exercise by FSAC
stockholders of their Redemption Rights) that there will be outstanding
on a pro forma basis 9,283,332 shares of FSAC Common Stock, with
15,133,332 shares reserved for issuance upon exercise of the
outstanding FSAC Warrants and, subject to the approval of FSAC
stockholders, 1,800,000 shares reserved for issuance pursuant to the
FSAC 1996 Stock Option Plan (the "FSAC Option Plan"), leaving 3,783,336
authorized shares available for other issuances. Any additional
issuances of authorized but unissued (and unreserved) shares of FSAC
Common Stock may dilute the interests of FSAC's stockholders. See
"PROPOSAL 4: ADDITIONAL COMMON STOCK AMENDMENT" and "DESCRIPTION OF
FSAC CAPITAL STOCK."
o CONCENTRATION OF VOTING CONTROL; STAGGERED BOARD. Upon consummation of
the Merger, it is anticipated that Welsh, Carson, Anderson & Stowe, VI,
L.P., a Delaware limited partnership ("WCAS"), and its affiliates will
control approximately 27% of the outstanding shares of FSAC Common
Stock, with the current directors and officers of FSAC, the current
executive management of EBIC and other current employees of EBIC
together controlling an additional approximately 37% of such shares.
Such concentration of control in a single major stockholder and in
directors, officers and employees may have an adverse effect on the
market prices for FSAC securities. In addition, upon consummation of
the Merger, FSAC will have an eight-person, three-class staggered board
of directors, six of whom will be FSAC designees and two of whom will
be EBIC designees. The classified Board of Directors is likely to have
the effect of perpetuating control of FSAC in the current directors of
FSAC until at least the second annual meeting of FSAC stockholders
following the Merger. See "PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH."
3
<PAGE>
o DETERMINATION OF MERGER CONSIDERATION; ABSENCE OF FAIRNESS
OPINION. Prior to the Merger, there was no public market for the shares
of EBIC Common Stock. The Merger Consideration has been determined by
negotiations between FSAC and EBIC and may not be indicative, on a per
share basis, of the fair market value of a share of EBIC Common Stock.
Neither EBIC nor FSAC has sought or obtained an opinion from an
investment banker regarding the fairness of the Merger or the Merger
Consideration to the stockholders of either company. See "PROPOSAL 1:
THE MERGER --Reasons for the Merger; Recommendations of the Boards of
Directors," "--Interests of Certain Persons in the Merger" and
"--Absence of Fairness Opinion."
o CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED IN
CONNECTION WITH EXERCISE OF FSAC WARRANTS. FSAC will be able to issue
shares of FSAC Common Stock upon exercise of the FSAC Warrants
(including the Merger Warrants) only if there is then a current
prospectus relating to such shares under an effective registration
statement filed with the Securities and Exchange Commission, and only
if such shares are qualified for sale or exempt from qualification
under applicable state securities laws of the jurisdictions in which
the various holders of FSAC Warrants reside. Although FSAC is obligated
to use its best efforts to meet such requirements, there can be no
assurance that FSAC will be able to do so.
o POTENTIAL REDEMPTION OF FSAC WARRANTS. The FSAC Warrants (including the
Merger Warrants) may be redeemed by FSAC, at a price of $.01 per
warrant, at any time after they become exercisable, subject to not less
than 30 days' prior written notice to holders thereof, provided that
the last sale price of FSAC Common Stock has been at least $8.50 per
share for the 20 consecutive trading days ending on the third day prior
to the day on which notice is given.
o LOSS OF SPAC(REGISTERED TRADEMARK) PROTECTIONS. Once the Merger is
consummated, the funds in the Trust become unrestricted and the
provisions of Article SIXTH of FSAC's Certificate of Incorporation,
which, among other things, entitle holders of FSAC Public Shares to the
Distribution Amount upon a liquidation of FSAC and to Redemption Rights
in connection with a Business Combination, by their terms automatically
are no longer effective.
o EFFECT OF CHANGES IN GENERAL ECONOMIC AND FINANCIAL CONDITION. The
profitability and success of EBIC is, and, following the Merger, of
FSAC will be, dependent to a great extent upon general economic
conditions. EBIC's business may be directly affected by national and
international economic and political conditions, broad trends in
business and finance, the level and volatility of interest rates and
fluctuations in volume and price levels in the securities and
commodities markets.
o GOVERNMENT REGULATION. EBIC is subject to extensive regulation at
international, federal and state levels by various regulatory bodies
which are charged with safeguarding the integrity of the securities and
other financial markets and protecting the interests of customers.
Failure either to maintain compliance with existing applicable
regulations or to satisfy the requirements of new regulations could
result in the loss or suspension of licenses or permits or civil or
criminal liability or monetary penalties. See "PROPOSAL 1: THE MERGER
--Regulatory Approvals" and "BUSINESS OF EBIC --Regulation."
o CONSOLIDATING SUPERVISOR. Recently, the Securities and Futures
Authority (the "SFA") in the United Kingdom has issued new rules with
respect to European Community ("EC") directives regarding consolidated
supervision. The SFA has categorized EBIC's U.K. subsidiary as a
Category D firm which, as such, satisfies the SFA's capital adequacy
rules. However, should EBIC's UK business expand or change, such SFA
rules, if applied to EBIC and its subsidiaries, could result in EBIC
and/or its United Kingdom subsidiaries having to meet more stringent
capital adequacy requirements. See "PROPOSAL 1: THE MERGER --Regulatory
Approvals" and "BUSINESS OF EBIC --Regulation."
o COMPETITION. The financial brokerage industry is highly competitive and
EBIC encounters competition from several companies with significantly
greater resources than EBIC and access to wider pools of potential
clients. In addition, the development of new technologies may expose
the money brokerage industry to the possibility of losing clients to
companies and products that facilitate fully automated dealing, without
intermediaries. See "BUSINESS OF EBIC --Competition."
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o EUROPEAN MARKET UNIFICATION. The introduction of a single currency for
the EC would eliminate the European cross-currency market and could
have a significant impact on EBIC's business. Moreover, deregulation
within the EC could increase the competition faced by EBIC.
o LIABILITY FOR UNSETTLED TRADES. EBIC functions primarily as an
intermediary, matching the trading needs of financial institutions.
Some of these transactions are executed directly by both
counterparties; other transactions are completed with EBIC acting as a
matched riskless principal in which the respective counterparties know
EBIC as the counterparty. In the process of executing brokerage
transactions, from time to time miscommunications arise whereby
transactions are completed with only one counterparty ("out trades"),
thereby creating a potential liability for EBIC. Out trades typically
become known to EBIC on the day of the trade or, as a result of the
settlement process, within a few days of the trade. In general, EBIC
does not experience a high incidence of out trades, but in those
situations in which they occur, EBIC typically disposes of the
unmatched position within a short time frame. While out trades have not
had a significant adverse effect on EBIC to date, there can be no
guarantee that the incidence of such occurrences will not increase in
the future or that they will not have a material adverse effect on the
financial condition of EBIC.
o LACK OF BUSINESS DIVERSIFICATION. Upon consummation of the Merger, FSAC
will be a holding company which will have virtually no operations or
material assets other than all of the outstanding shares of EBIC Common
Stock.
o DIVIDENDS UNLIKELY. FSAC has not paid any dividends on the FSAC Common
Stock to date. It is the present intention of the Board of Directors to
retain all earnings, if any, for use in FSAC's business operations and
accordingly, the Board does not anticipate paying any dividends on FSAC
Common Stock in the foreseeable future.
FSAC SPECIAL MEETING
General
A Special Meeting of FSAC Stockholders (the "FSAC Special Meeting") will
be held on Thursday, August 15, 1996 at 10:00 a.m. local time at the offices
of FSAC located at 667 Madison Avenue in New York City. Only holders of
record of shares of FSAC Common Stock at the close of business on July 11,
1996 (the "FSAC Record Date") will be entitled to notice of and to vote at
the FSAC Special Meeting. Each share of FSAC Common Stock is entitled to one
vote. As at the FSAC Record Date there were 4,416,666 shares of FSAC Common
Stock outstanding and entitled to vote at the FSAC Special Meeting.
At the FSAC Special Meeting, holders of FSAC Common Stock will consider
and vote upon (i) a proposal to approve and adopt the Merger Agreement, (ii)
a proposal to elect eight persons to the FSAC Board of Directors (including
two EBIC representatives), (iii) a proposal to approve certain amendments to
FSAC's Certificate of Incorporation (the "Charter Amendments"), (iv) a
proposal to adopt the FSAC 1996 Stock Option Plan (the "FSAC Option Plan")
and (v) such other matters as may be properly brought before the meeting. The
Charter Amendments provide for (x) immediately prior to the effectiveness of
the Merger, (1) the name change of FSAC to "Financial Services Corporation"
(the "Name Change Amendment") and (2) an increase in the authorized shares of
FSAC Common Stock from 14,000,000 to 30,000,000 (the "Additional Common Stock
Amendment") and (y) immediately after the effectiveness of the Merger, (1)
the classification of the Board of Directors into three classes serving
staggered terms, with the initial number of directors to be eight (the
"Classified Board Amendment"), (2) the elimination of the ability of
stockholders to act by written consent (the "Special Meeting Amendment"), (3)
the restriction of the ability to call special meetings of stockholders to
the Chairman and the President of FSAC or to an affirmative vote of a
majority of the Board of Directors (the "Stockholders' Action Amendment") and
(4) a requirement of an 80% supermajority vote to amend any of the provisions
described in this clause (y) (the "Supermajority Amendment" and, together
with the Classified Board Amendment, the Special Meeting Amendment and the
Stockholders' Action Amendment, the "Amendment to Article SIXTH"). The full
text of the Charter Amendments is set forth in the Forms of Certificates of
Amendment to the Certificate of Incorporation of FSAC attached hereto as
Annex IV. See "PROPOSAL 1: THE
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MERGER," "PROPOSAL 2: ELECTION OF DIRECTORS," "PROPOSAL 3: AMENDMENT TO
ARTICLE SIXTH," "PROPOSAL 4: ADDITIONAL COMMON STOCK AMENDMENT," "PROPOSAL
5: NAME CHANGE AMENDMENT" and "PROPOSAL 6: FSAC OPTION PLAN." FSAC
STOCKHOLDER APPROVAL OF BOTH THE MERGER AGREEMENT AND THE CHARTER AMENDMENTS
ARE CONDITIONS TO CONSUMMATION OF THE MERGER. See "THE MERGER AGREEMENT
- --Conditions to Consummation of the Merger."
THE FSAC BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FSAC COMMON STOCK
VOTE "FOR" APPROVAL AND ADOPTION OF PROPOSALS 1 THROUGH 6, INCLUDING APPROVAL
OF THE MERGER AGREEMENT.
The presence at the FSAC Special Meeting, in person or by properly
executed proxy, of the holders of a majority of outstanding shares of FSAC
Common Stock entitled to vote at the FSAC Special Meeting will constitute a
quorum. Assuming a quorum is present at the FSAC Special Meeting, (i) the
affirmative vote by the holders of a majority of outstanding shares of FSAC
Common Stock is required to approve and adopt the Merger Agreement, (ii)
those nominees for director receiving a plurality of the votes cast at the
FSAC Special Meeting will be elected as directors, (iii) the affirmative vote
of a majority of the outstanding shares of FSAC Common Stock is required to
approve the Charter Amendments and (iv) the vote of a majority of the shares
present or represented by proxy at the FSAC Special Meeting is required to
approve adoption of the FSAC Option Plan.
With respect to approval and adoption of the Merger Agreement, the Initial
FSAC Stockholders are required to vote their Pre-IPO Shares (constituting
approximately 18.9% of the currently outstanding shares of FSAC Common Stock)
in accordance with the vote of the majority in interest of the 3,583,333
shares of FSAC Common Stock that were issued in the IPO (the "FSAC Public
Shares"). The Initial FSAC Stockholders also own an aggregate of 597,000 FSAC
Public Shares (constituting approximately 13.5% of the currently outstanding
shares) and have indicated that they currently intend to vote such shares in
favor of approval and adoption of the Merger Agreement. The six current
directors of FSAC (which include FSAC's only two officers) constitute all of
the Initial FSAC Stockholders. Assuming the Initial FSAC Stockholders vote
all 597,000 of their FSAC Public Shares in favor of the proposal to approve
and adopt the Merger Agreement, the proposal will be approved if an
additional 1,194,667 FSAC Public Shares are also voted in favor of the
proposal (and there are not more than 441,666 or, if the Unit Purchase Option
Exchange is consummated, 464,166 Redemption Shares).
EBIC SPECIAL MEETING
Approval of Merger Agreement
A Special Meeting of EBIC stockholders (the "EBIC Special Meeting") was
held on July 15, 1996. At the EBIC Special Meeting, holders of Class B Common
Stock, par value $.001 per share ("EBIC Common Stock"), of EBIC approved and
adopted the Merger Agreement by approximately a 97% vote. As of the record
date for the EBIC Special Meeting, there were 1,671,290 shares of EBIC Common
Stock outstanding.
Dissenting Shares
There were no written demands for appraisal delivered to the Secretary of
EBIC pursuant to Section 262 of the Delaware General Corporation Law ("DGCL")
before the vote at the EBIC Special Meeting on approval and adoption of the
Merger Agreement. Accordingly, there will be no shares of EBIC Common Stock
entitled to appraisal rights in connection with the Merger ("Dissenting
Shares").
PROPOSAL 1: THE MERGER
Form of Merger; Effective Time
The Merger Agreement, which is attached as Annex I to this Proxy
Statement, provides that as promptly as practicable after the approval and
adoption of the Merger Agreement by the respective
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stockholders of FSAC and EBIC and the satisfaction or, if permissible, waiver
of the other conditions to the Merger, a Certificate of Merger, the form of
which is attached as Annex III to this Proxy Statement, will be filed with
the Secretary of State of the State of Delaware. Pursuant to such
certificate, the Merger will become effective (the date and time of such
filing, or such later time as is specified in such certificate, being the
"Effective Time"). EBIC will be the surviving corporation (the "Surviving
Corporation") in the Merger and become a wholly owned subsidiary of FSAC. The
name of the Surviving Corporation will be "Euro Brokers Investment
Corporation." Pursuant to the Name Change Amendment, the name of FSAC will be
changed to "Financial Services Corporation."
Merger Consideration
Pursuant to the terms of the Merger Agreement, at the Effective Time each
outstanding share of EBIC Common Stock (other than shares held in the
treasury of EBIC, shares owned by any subsidiary of EBIC and shares owned by
FSAC, all of which will be cancelled, and other than Dissenting Shares will
be converted into the right to receive, subject to certain adjustments and
escrow arrangements (see "THE MERGER AGREEMENT --Certain Related Agreements
- --Escrow Agreement"), (i) 2.6426688 (the "Stock Exchange Ratio") newly-issued
shares of FSAC Common Stock, (ii) 4.5274405 (the "Warrant Exchange Ratio"
and, together with the Stock Exchange Ratio, the "Exchange Ratios")
newly-issued Series B Redeemable Common Stock Purchase Warrants ("Merger
Warrants") of FSAC and (iii) $9.5734433 in cash, without interest (the "Per
Share Cash Consideration" and, together with the per share consideration
described in the preceding clauses (i) and (ii), the "Merger Consideration").
The Merger Warrants, the form of which is attached as Annex II to this Proxy
Statement, will have substantially the same terms and conditions as the
Redeemable Common Stock Purchase Warrants of FSAC (all series thereof, "FSAC
Warrants") issued in the IPO. Cash will be paid in lieu of fractional shares
of FSAC Common Stock and fractional Merger Warrants.
The Exchange Ratios will be adjusted as necessary to provide that, at the
Closing, the stockholders of EBIC who do not exercise appraisal rights will
own in the aggregate, subject to certain escrow arrangements (see "THE MERGER
AGREEMENT --Certain Related Agreements --Escrow Agreement") and the payment
of cash in lieu of fractional interests, a 50% post-Merger interest in FSAC
by having acquired (i) a number of shares of FSAC Common Stock equal to the
number of shares of FSAC Common Stock outstanding immediately prior to the
Merger (after giving effect to (x) any exercise by FSAC stockholders of their
Redemption Rights and (y) the Unit Purchase Option Exchange, if any) (see
"PROPOSAL 1: THE MERGER --Certain Related Transactions --Unit Purchase Option
Exchange") and (ii) a number of Merger Warrants equal to the number of FSAC
Warrants outstanding immediately prior to the Merger. Consistent with the
foregoing intentions, and based on specific adjustments contemplated by the
Merger Agreement, it is expected that at the Closing the Stock Exchange Ratio
will neither exceed 2.7772954 nor be less than 2.2138588, and that the
Warrant Exchange Ratio will not have materially changed.
The Per Share Cash Consideration will also be adjusted prior to the Merger
to reflect the then-existing difference between the respective pre-Merger net
worths of FSAC and EBIC (on a consolidated basis), subject in each case to
certain other adjustments, with the intention generally of equalizing the
respective pre-Merger contributions of FSAC stockholders and EBIC
stockholders to the post-Merger consolidated net worth of FSAC. Based
primarily on increases in EBIC's net worth that have occurred since the
signing of the Merger Agreement, the Per Share Cash Consideration would have
been adjusted to approximately $11.37 if the Merger had occurred on March 31,
1996. Based on preliminary assessments of further increases in EBIC's net
worth that have occurred since March 31, 1996 , FSAC and EBIC estimate that
the Per Share Cash Consideration would have been adjusted further to
approximately $12.03 if the Merger had occurred on June 30, 1996. In
addition, to the extent that EBIC's net worth changes further during the
period between July 1, 1996 and the actual Closing (which is expected to
occur promptly after the FSAC Special Meeting), or actual increases in EBIC's
net worth from April 1, 1996 through June 30, 1996 vary from the preliminary
assessments and estimates of the same used by management in arriving at the
above $12.03 figure, the Per Share Cash Consideration will be adjusted
further, with every approximately $167,000 increase or decrease in EBIC net
worth having the effect of
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increasing or decreasing, as the case may be, the Per Share Cash
Consideration by approximately $.10. In addition, to the extent that holders
of FSAC Public Shares exercise their Redemption Rights, the Per Share Cash
Consideration will be increased by approximately $.32 for every approximately
100,000 Redemption Shares (up to an additional approximately $1.47 if there
are 464,166 Redemption Shares, the maximum number permitted under the Merger
Agreement without EBIC's consent, or, assuming such consent, up to a maximum
additional approximately $2.27 if there are 716,666 Redemption Shares, the
maximum number permitted by FSAC's Certificate of Incorporation).
Determination and Adjustment of Merger Consideration
In order to give effect to the intent of the parties that EBIC
stockholders who do not exercise appraisal rights receive a 50% aggregate
interest in the post-Merger capitalization of FSAC (subject to certain escrow
arrangements and the payment of cash in lieu of fractional interests), the
Stock Exchange Ratio was initially set at 2.6426688, the quotient obtained by
dividing 4,416,666, the number of shares of FSAC Common Stock outstanding as
of March 5, 1996, by 1,671,290, the number of shares of EBIC Common Stock
outstanding as of March 5, 1996 (the "Outstanding EBIC Shares"), and the
Warrant Exchange Ratio was initially set at 4.5274405, the quotient obtained
by dividing 7,566,666, the number of FSAC Warrants outstanding as of March 5,
1996, by the Outstanding EBIC Shares. The Merger Agreement provides for the
Exchange Ratios to be adjusted prior to the Merger, in order to maintain such
50% interest, by reflecting any changes to the number of outstanding shares
of FSAC Common Stock, FSAC Warrants and EBIC Common Stock that occur (or, for
purposes of such adjustments, are deemed to occur) prior to the Merger.
Pursuant to its underwriting agreement entered into in connection with the
IPO, FSAC has agreed that until it consummates a Business Combination it will
not issue any additional shares of FSAC Common Stock or any options or other
securities convertible into FSAC Common Stock. Accordingly, the number of
outstanding shares of FSAC Common Stock and outstanding FSAC Warrants should
remain at 4,416,666 and 7,566,666, respectively, as of the Effective Time.
However, for purposes of the quotients calculated above, the Merger Agreement
provides that the number of outstanding shares of FSAC Common Stock will be
deemed to increase by the 225,000 shares issued in the Unit Purchase Option
Exchange, if the Unit Purchase Option Exchange is consummated, and deemed to
decrease by the number of shares of FSAC Common Stock with respect to which
Redemption Rights are exercised. The Merger Agreement also prohibits EBIC
from issuing or redeeming any shares of its capital stock prior to the
Effective Time without the prior consent of FSAC and, as a result, it is
anticipated that the number of outstanding shares of EBIC Common Stock will
remain at 1,671,290 as of the Effective Time. Accordingly, it is not expected
(i) that the Stock Exchange Ratio will exceed 2.7772954 (the quotient
obtained by dividing (x) 4,416,666 plus 225,000 (the maximum number of shares
of FSAC Common Stock to be issued in the Unit Purchase Option Exchange) by
(y) 1,671,290) or be less than 2.2138588 (the quotient obtained by dividing
(x) 4,416,666 minus 716,666 (the maximum number of Redemption Shares at which
FSAC is still permitted, pursuant to its Certificate of Incorporation, to
consummate the Merger) by (y) 1,671,290) or (ii) that the Warrant Exchange
Ratio will materially change from 4.5274405. See "PROPOSAL 1: THE MERGER
- --Determination and Adjustment of Merger Consideration" and "THE MERGER
AGREEMENT --Adjustment of Exchange Ratios and Cash Consideration."
In order to give effect to the intent of the parties that the pre-Merger
respective contributions of FSAC stockholders and EBIC stockholders to the
post-Merger consolidated net worth of FSAC be equalized (subject to certain
adjustments), the Per Share Cash Consideration was initially set at the
quotient obtained by dividing $16 million, the parties' then-estimate of the
likely difference between the respective net worths (as determined in
accordance with the Merger Agreement) of FSAC and EBIC immediately prior to
the Merger, by the Outstanding EBIC Shares. The Merger Agreement provides for
the Per Share Cash Consideration to be adjusted prior to the Merger,
generally in order to maintain such equalization principle, by reflecting any
changes to the respective net worths (as determined in accordance with the
Merger Agreement) of FSAC and EBIC that occur (or, for purposes of such
adjustment, are deemed to occur) prior to the Merger (as well as any change
in the number of outstanding shares of EBIC Common Stock). For example,
amounts paid by FSAC to stockholders exercising their Redemption Rights will
be deemed to decrease the net worth of FSAC (and thereby increase the
aggregate cash portion of the Merger Consideration (the "Aggregate Cash
Consideration") by the same amount). Based
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primarily on increases in EBIC's net worth that have occurred since the
signing of the Merger Agreement, the Aggregate Cash Consideration would have
been adjusted from $16 million to approximately $19 million if the Merger had
occurred on March 31, 1996. Based on preliminary assessments of further
increases in EBIC's net worth that have occurred since March 31, 1996 , FSAC
and EBIC estimate that the Aggregate Cash Consideration would have been
adjusted further to approximately $20.1 million if the Merger had occurred on
June 30, 1996. In addition, to the extent that EBIC's net worth changes
further during the period between July 1, 1996 and the actual Closing (which
is expected to occur promptly after the FSAC Special Meeting), or actual
increases in EBIC's net worth from April 1, 1996 through June 30, 1996 vary
from the preliminary assessments and estimates of the same used by management
in arriving at the above $20.1 million figure, the Aggregate Cash
Consideration will be adjusted further, with every approximately $1.00
increase or decrease in EBIC net worth having the effect of increasing or
decreasing, as the case may be, the Aggregate Cash Consideration by
approximately the same amount. See "THE MERGER AGREEMENT --Adjustment of
Exchange Ratios and Cash Consideration" and "--Closing True-Up Procedures."
In addition, if the Unit Purchase Option Exchange is not consummated, the
Merger Agreement provides for the Merger Consideration to be increased (in
lieu of the additional 225,000 shares) by an additional amount of cash to be
agreed upon between FSAC and EBIC to reflect the fact that the Unit Purchase
Options will remain outstanding or, if such amount cannot be agreed upon, by
an aggregate of 333,333 newly-issued Unit Purchase Options. See "PROPOSAL 1:
THE MERGER --Certain Related Transactions --Unit Purchase Option Exchange."
Because of the variety of possible adjustments to the Merger Consideration
that may be necessary to maintain the intentions of the parties described
above, FSAC and EBIC have agreed to resolicit the approval of the Merger by
their respective stockholders if (subject to the escrow arrangements
described below) the final Stock Exchange Ratio falls outside of the range of
2.2138588 to 2.7772954, the final Warrant Exchange Ratio changes by more than
10% from 4.5274405 or the final Per Share Cash Consideration is less than
$9.00 or greater than $17.50.
The Merger Consideration to be received is also subject to certain escrow
arrangements entered into in connection with the Merger Agreement, pursuant
to which, among other things, 10% of the shares of FSAC Common Stock to be
issued in the Merger and $2 million of the aggregate cash portion of the
Merger Consideration will be escrowed for certain post-Merger periods and
certain purposes. See "THE MERGER AGREEMENT --Merger Agreement
Indemnification," "--Closing True-Up Procedures" and "--Certain Related
Agreements --Escrow Agreement."
THE FSAC BOARD UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FSAC COMMON STOCK
VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
CERTAIN RELATED TRANSACTIONS
Unit Purchase Option Exchange
In connection with the Merger, FSAC has entered into an agreement (the
"Unit Purchase Option Agreement") with the holders of its outstanding options
to acquire 333,333 Units of FSAC (the "Unit Purchase Options"), which options
were issued to the underwriters for the IPO and certain designees thereof.
The Unit Purchase Option Agreement provides for the exchange, contingent upon
and effective immediately following the Merger, of all Unit Purchase Options
for an aggregate of 225,000 newly-issued shares of FSAC Common Stock (the
"Unit Purchase Option Exchange"). See "RISK FACTORS --Effects of Unit
Purchase Option Exchange" and "PROPOSAL 1: THE MERGER --Certain Related
Transactions --Unit Purchase Option Exchange."
Exchange Offer
The Merger Agreement contemplates that as soon as reasonably practicable
following consummation of the Merger (subject, however, to the advice of its
financial advisors), FSAC will commence an exchange offer (the "Exchange
Offer") to acquire all FSAC Warrants (including the Merger Warrants) that are
then
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outstanding on the basis of one share of FSAC Common Stock for a number of
FSAC Warrants to be mutually agreed upon between FSAC and EBIC's majority
stockholder, WCAS. There can be no assurance, however, that the Exchange
Offer will be made or, if made, as to the exchange ratio at which it will
occur or the other terms and conditions thereof. See "RISK FACTORS --Effects
of Exchange Offer" and "PROPOSAL 1: THE MERGER --Certain Related Transactions
- --Exchange Offer." Certain stockholders of FSAC and EBIC have agreed, if the
Exchange Offer is made, to tender the FSAC Warrants held by them at such time
(including Merger Warrants) in numbers proportionate to the aggregate tenders
of FSAC Warrants made by other holders in the Exchange Offer. See "THE MERGER
AGREEMENT --Certain Related Agreements --Security Transfer Agreement."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
FSAC
The Board of Directors of FSAC has unanimously approved the Merger
Agreement (together with the Merger and all other transactions contemplated
thereby) and determined that the terms of the proposed Merger are fair to and
in the best interests of FSAC stockholders. The FSAC Board has also approved
the Charter Amendments and the FSAC Option Plan. THE FSAC BOARD UNANIMOUSLY
RECOMMENDS THAT HOLDERS OF FSAC COMMON STOCK VOTE "FOR" APPROVAL AND ADOPTION
OF PROPOSALS 1 THROUGH 6, INCLUDING APPROVAL OF THE MERGER AGREEMENT. See
"PROPOSAL 1: THE MERGER --Background of the Merger" and "--Reasons for the
Merger; Recommendations of the Boards of Directors."
EBIC
The Board of Directors of EBIC unanimously approved the Merger Agreement
(together with the Merger and all other transactions contemplated thereby)
and determined that the terms of the proposed Merger are fair to and in the
best interests of EBIC stockholders. See "PROPOSAL 1: THE MERGER --Background
of the Merger" and "--Reasons for the Merger; Recommendations of the Boards
of Directors."
REASONS FOR THE MERGER
FSAC
In reaching its conclusion to approve and adopt the Merger Agreement (and
the transactions contemplated thereby), the FSAC Board of Directors
considered a number of factors, including the results of its due diligence
investigation of EBIC, the Board's and management's belief that the
consideration to be paid to EBIC stockholders pursuant to the Merger
Agreement is fair to FSAC and its stockholders, the proposed terms and
conditions of the Merger Agreement and the related agreements provided for
therein, the experience and capabilities of FSAC's and EBIC's respective
Boards and managements and certain potential risks associated with the
transaction. See "PROPOSAL 1: THE MERGER --Reasons for the Merger;
Recommendations of the Boards of Directors." The FSAC Board also took into
account certain potential conflicts of interest of FSAC's directors, officers
and significant stockholders, including that unless FSAC consummates the
Merger or another Business Combination, such persons' Pre-IPO Shares and FSAC
Warrants will have no value. See "PROPOSAL 1: THE MERGER --Interests of
Certain Persons in the Merger."
EBIC
In reaching its conclusion to approve and adopt the Merger Agreement (and
the transactions contemplated thereby), the EBIC Board of Directors
considered that the Merger would enable EBIC stockholders to increase their
investment liquidity over the liquidity of their current investment in EBIC
by providing them with a public market, while at the same time retaining, as
stockholders of FSAC, an investment in the EBIC business and providing an
immediate return on their investment via the Per Share
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Cash Consideration. In reaching its conclusion, the EBIC Board evaluated a
number of factors, including the terms and conditions of the Merger
Agreement, the amount of cash available to FSAC, the business operations and
prospects of EBIC on a historical basis and of EBIC and FSAC on a pro forma
combined basis, the business experience of FSAC's management and the expenses
of completing a public offering of EBIC Common Stock. See "PROPOSAL 1: THE
MERGER --Reasons for the Merger; Recommendations of the Boards of Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stockholders should be aware that certain members of FSAC's and EBIC's
management and Boards of Directors and certain significant FSAC and EBIC
stockholders have certain interests in the Merger that are in addition to the
interests of stockholders of FSAC and EBIC generally. See "PROPOSAL 1: THE
MERGER --Interests of Certain Persons in the Merger."
Holdings of FSAC Securities
Each of the current directors and executive officers of FSAC owns Pre-IPO
Shares, as well as shares of FSAC Common Stock and FSAC Warrants purchased
pursuant to the IPO or thereafter in the open market or in privately
negotiated transactions. In the aggregate, the current directors and
executive officers of FSAC own 833,333 Pre-IPO Shares, 597,000 FSAC Public
Shares and 1,399,000 FSAC Warrants. If FSAC is liquidated as a result of its
failure to consummate the Merger or another Business Combination by December
7, 1996, neither the Pre-IPO Shares nor the FSAC Warrants would participate
in any distribution of FSAC assets and would be valueless. In addition, one
of the general partners of WCAS acquired in the IPO, and still owns, 100,000
FSAC Units.
Employment Agreements
In connection with the Merger Agreement, FSAC entered into an employment
agreement with Gilbert D. Scharf, its President and Chief Executive Officer,
and EBIC entered into employment agreements with Donald R.A. Marshall, its
President and Chief Executive Officer, and Keith E. Reihl, its Senior Vice
President and Treasurer (collectively, the "Employment Agreements"). The
Employment Agreements, among other things, provide each of Messrs. Scharf and
Marshall with initial annual salaries of $450,000, and Mr. Reihl with an
initial annual salary of $300,000. The Employment Agreements, although
executed as of March 8, 1996, are contingent upon, and do not become
effective until, consummation of the Merger.
FSAC Option Plan
The FSAC Option Plan has been adopted by the FSAC Board of Directors,
subject to the approval of FSAC stockholders. 1,800,000 shares of FSAC Common
Stock will be reserved for issuance under the FSAC Option Plan. Pursuant to
the FSAC Option Plan, no individual may be granted an option or options for
more than 500,000 shares of FSAC Common Stock in any calendar year. Although
no options have as yet been granted, it is expected that certain officers and
employees of FSAC and EBIC will receive grants following the Effective Time.
See "PROPOSAL 6: FSAC OPTION PLAN."
Boards of Directors
If all the nominees for election to the FSAC Board of Directors are
elected and the Merger is consummated, the members of the FSAC Board of
Directors will be Gilbert D. Scharf, Michael J. Scharf, Denis Martin, Larry
S. Kopp, William B. Wigton, Frederick B. Whittemore, Donald R.A. Marshall
and James W. Stevens. Each such nominee, other than Messrs. Marshall, Wigton
and Stevens, is currently a director and stockholder of FSAC. Mr. Marshall is
currently the Chairman, President, Chief Executive Officer and a director of
EBIC. Mr. Wigton is currently a Managing Partner at Merrion Group, L.P. Mr.
Stevens is a former Executive Vice-President of The Prudential Insurance
Company of America. See "PROPOSAL 2: ELECTION OF DIRECTORS." The Board of
Directors of the Surviving Corporation will initially consist of Messrs.
Marshall and Reihl, Patrick J. Welsh and Bruce K. Anderson, the current
11
<PAGE>
Board of Directors of EBIC, and, pursuant to the Merger Agreement, Gilbert D.
Scharf and Michael J. Scharf as designees of FSAC. It is contemplated that
Messrs. Welsh and Anderson will resign immediately following the Merger and
be replaced on the Surviving Corporation Board by Mr. Stevens and Mr. Daniel
G. Bergstein. It is also contemplated that Gilbert D. Scharf will be
appointed to the Board of Directors of a number of subsidiaries of the
Surviving Corporation. See "MANAGEMENT OF EBIC." Immediately following the
Merger, (i) EBIC and FSAC will take all action necessary to cause Gilbert
Scharf to become Vice-Chairman of EBIC and (ii) FSAC will use its best
efforts to take all necessary action to cause Donald Marshall to be appointed
Vice-Chairman of FSAC.
Indemnification
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
provide certain indemnification to the current directors and officers of
EBIC. See "THE MERGER AGREEMENT --Directors' Indemnification."
Registration Rights
Prior to and as a condition of the Merger, a Registration Rights Agreement
is to be executed by FSAC that will provide two demand registration rights
and certain ancillary registration rights, in each case effective only for
periods after November 30, 1996, with respect to all shares of FSAC Common
Stock (including shares received upon exchange or exercise of FSAC Warrants)
held by WCAS and certain related investors, the Initial FSAC Stockholders and
the five members of EBIC management ("EBIC Management") who are also parties
to the Security Transfer Agreement. See "THE MERGER AGREEMENT --Certain
Related Agreements --Registration Rights Agreement."
REDEMPTION RIGHTS
Holders of FSAC Public Shares who vote such shares against the proposal to
approve and adopt the Merger Agreement have the right to demand the
redemption of such shares for cash if the Merger is approved and consummated.
Notwithstanding the foregoing, if holders of 20% or more of the FSAC Public
Shares, or 716,667 shares, vote such shares against the proposal to approve
and adopt the Merger Agreement and properly exercise their right to demand
redemption of such shares ("Redemption Rights"), FSAC, pursuant to its
Certificate of Incorporation, is not permitted to consummate the Merger. See
"REDEMPTION RIGHTS." Moreover, EBIC has a right not to consummate the Merger
if the number of FSAC Public Shares with respect to which Redemption Rights
are duly demanded ("Redemption Shares") exceeds 10% of the number of shares
of FSAC Common Stock outstanding at the time of the Merger (giving effect to
the Unit Purchase Option Exchange, if any), although this right is in turn
subject to an FSAC stockholder right to cure. Accordingly, if 441,667 (or, if
the Unit Purchase Option Exchange is consummated, 464,167) FSAC Public Shares
are voted against the Merger Agreement (and have Redemption Rights duly
demanded with respect to them), EBIC (subject to such cure rights) is not
obligated to consummate the Merger. See "THE MERGER AGREEMENT --Conditions to
Consummation of the Merger." To be effective, Redemption Rights must be
exercised as described elsewhere in this Proxy Statement, with the holder of
such shares both (i) voting "AGAINST" the proposal to approve and adopt the
Merger Agreement at the FSAC Special Meeting and (ii) delivering to FSAC,
prior to the close of business on the date of the FSAC Special Meeting, both
(x) a written demand for such redemption and (y) the certificates
representing the shares requested to be redeemed, under cover of a properly
completed and executed letter of transmittal. The per share redemption price
will be equal to approximately $5.30 per share, calculated by dividing the
amount in the Trust as of the FSAC Record Date, including interest thereon,
by the number of FSAC Public Shares (the "Redemption Price"). Payment of the
Redemption Price in respect of Redemption Shares for which Redemption Rights
have been duly demanded will be made only if and when the Merger is approved
and consummated, and will be made promptly after any such consummation.
Holders of FSAC Public Shares may withdraw a tender of shares in connection
with their exercise of Redemption Rights at any time not later than 5:00 p.m.
(New York City time) on the day of the FSAC Special Meeting or, if the
Redemption Price is not theretofore paid, at any time after September 12, 1996.
FSAC stockholders have no appraisal or dissenters' rights with respect to the
Merger. See "REDEMPTION RIGHTS."
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<PAGE>
ACCOUNTING TREATMENT
For accounting and financial reporting purposes the Merger will be
accounted for as a recapitalization of EBIC, with the issuance of shares by
EBIC for the net assets of FSAC, consisting primarily of cash. Since FSAC is
a SPAC(Registered Trademark) with no business operations other than the
search for a suitable Target Business, its assets will be recorded in the
balance sheet of the combined company at book value. The unaudited pro forma
financial information contained in this Proxy Statement has been prepared on
this basis.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Holders of FSAC Common Stock who (i) vote against the Merger and exercise
their Redemption Rights in connection with such action or (ii) receive a
distribution upon dissolution of FSAC if the Merger or another Business
Combination is not consummated by December 7, 1996, generally will recognize
a capital gain or loss equal to the difference between the amount received
from FSAC and such stockholder's adjusted tax basis in the FSAC Common Stock,
provided that such payment neither is essentially equivalent to a dividend
nor has the effect of a distribution of a dividend. See "PROPOSAL 1: THE
MERGER --Certain Federal Income Tax Consequences." STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE PRECISE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF REDEMPTION OR LIQUIDATION.
CONDITIONS TO THE MERGER; TERMINATION OF THE MERGER AGREEMENT
The obligations of FSAC and EBIC to consummate the Merger are subject to
various conditions specified in the Merger Agreement, including (i) obtaining
the requisite FSAC and EBIC stockholder approvals of the Merger Agreement
(EBIC stockholder approval has already been obtained), (ii) the
representations and warranties of FSAC and EBIC in the Merger Agreement being
true and correct in all material respects at the Effective Time, (iii) the
covenants and agreements in the Merger Agreement having been performed and
complied with in all material respects, (iv) the absence of any pending
claim, action, suit, investigation or governmental proceeding or law which
would render the Merger unlawful, (v) the approval of the Charter Amendments
by the requisite vote of the holders of FSAC Common Stock, (vi) the receipt
of certain opinions of counsel, (vii) the execution and delivery of each of
the Related Agreements (as defined in the Merger Agreement) and (viii) the
receipt of certain necessary consents, approvals and waivers, including
expiration or termination of all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Early termination of such
waiting period was granted on April 16, 1996. In addition, it is a condition
of EBIC's obligation to consummate the Merger (subject to certain cure rights
of FSAC) that the number of Redemption Shares not exceed 10% of the number of
shares of FSAC Common Stock outstanding at the time of the Merger (giving
effect to the Unit Purchase Option Exchange, if any).
The Merger Agreement can be terminated by (i) mutual consent of FSAC and
EBIC, (ii) either party if the Merger is not consummated before August 31,
1996 (other than by reason of a breach by the terminating party), (iii)
either party if the other party materially breached any material agreement or
covenant in the Merger Agreement, which breach remains uncured after 30 days
following written notice thereof, (iv) either party if the other party's
representations and warranties were inaccurate and such inaccuracy has a
material adverse effect on such other party or (v) either party if there is a
final and nonappealable order preventing consummation of the Merger. In the
event of certain terminations of the Merger Agreement, EBIC is obligated to
pay FSAC certain termination fees. See "THE MERGER AGREEMENT --Fees and
Expenses."
NASDAQ NATIONAL MARKET LISTING
FSAC is obligated under the Merger Agreement to use its reasonable efforts
(i) to prepare and file an application with the NASD to list FSAC Common
Stock and FSAC Warrants (including the Merger Warrants) on the Nasdaq
National Market and (ii) to cause such application to be approved as soon as
reasonably practicable following the Effective Time. Such listing is not a
condition to consummation of the Merger.
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<PAGE>
REGULATORY APPROVALS REQUIRED
Certain aspects of the Merger will require notifications to, and/or
approvals from, certain United States (state and federal) authorities and
certain authorities in England, Canada, Japan and Hong Kong. See "PROPOSAL
1: THE MERGER --Regulatory Approvals."
CERTAIN RELATED AGREEMENTS
The following related agreements were entered into or the form was
negotiated in connection with the execution of the Merger Agreement. See "THE
MERGER AGREEMENT --Certain Related Agreements."
Escrow Agreement
In connection with the Merger, FSAC has entered into an Escrow Agreement,
dated as of March 8, 1996 (the "Escrow Agreement"), by and among FSAC, Merger
Sub, EBIC, Donald Marshall, WCAS and United States Trust Company of New York,
as escrow agent, which provides for, among other things, the deposit of (i)
10% of the shares of FSAC Common Stock to be issued in the Merger, in order
to pay, among other things, indemnities, if any, that become owed to FSAC
under the Merger Agreement, (ii) $2 million of the cash comprising the Merger
Consideration, to make certain Per Share Cash Consideration adjustments, if
any, and to make payment with respect to Dissenting Shares, if any, and (iii)
to the extent there are any Dissenting Shares, (x) an additional portion of
the cash comprising the Merger Consideration equal to the aggregate book
value of such Dissenting Shares and (y) additional stock and warrant
certificates representing FSAC Common Stock and Merger Warrants (the "Section
262 Securities") that, but for their demand of appraisal rights, the holders
of such Dissenting Shares would have received (in order to ensure that
non-dissenting EBIC stockholders own 50% of the outstanding shares of FSAC
Common Stock and FSAC Warrants after the Merger). As a result of the Escrow
Agreement and the arrangements contemplated thereby, holders of EBIC Common
Stock will initially receive less than the full Merger Consideration. The
existence and scope of any drawdowns of the amounts deposited in escrow will
determine whether holders of EBIC Common Stock ultimately receive a final
amount different from the Merger Consideration. See "THE MERGER AGREEMENT
- --Certain Related Agreements --Escrow Agreement."
Security Transfer Agreement
In connection with the Merger, FSAC has also entered into a Security
Transfer Agreement, dated as of March 8, 1996, with Gilbert Scharf, Michael
Scharf, WCAS, WCAS Information Partners, L.P., a Delaware limited
partnership, and EBIC Management which (i) prohibits any sales or other
dispositions (with certain exceptions) by such persons during the period
commencing at the Effective Time and continuing through November 30, 1996
with respect to any shares of FSAC Common Stock (other than Pre-IPO Shares,
which are separately held in escrow until December 7, 1997) and FSAC Warrants
held by such persons and (ii) obligates each such person to tender for
exchange (and not withdraw) in the Exchange Offer, if any, their FSAC
Warrants (including Merger Warrants) in numbers proportionate to the
aggregate tenders of FSAC Warrants made by other holders in the Exchange
Offer.
Majority Stockholders' Agreement
FSAC and Merger Sub have also entered into a Majority Stockholders'
Agreement, dated as of March 8, 1996, with WCAS, pursuant to which WCAS has
made certain representations and agreements in connection with the
transactions contemplated by the Merger Agreement.
Registration Rights Agreement
Prior to and as a condition of the Merger, a Registration Rights Agreement
will be executed by FSAC that will provide two demand registration rights,
and certain "piggy-back" registration rights, in each case effective only for
periods after November 30, 1996, with respect to all shares of FSAC Common
Stock (including shares received upon exchange or exercise of FSAC Warrants,
including Merger Warrants) held by WCAS and certain related investors, the
Initial FSAC Stockholders and EBIC Management. The first demand may only be
initiated by holders of at least a majority of the total outstanding shares
of
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<PAGE>
FSAC Common Stock issued in the Merger to WCAS and certain related investors
(excluding certain shares held in escrow), but will extend to the other
stockholders who are parties to the agreement. The second demand may be made
by holders of a majority of the total outstanding shares of FSAC Common Stock
held by all stockholders who are parties to the agreement (excluding certain
shares held in escrow). In certain circumstances the shares to be registered
pursuant to an underwritten public offering may be reduced or the
registration may be delayed.
PROPOSAL 2: ELECTION OF DIRECTORS
At the FSAC Special Meeting, eight directors are to be elected to the FSAC
Board of Directors. The nominees for directors are Gilbert D. Scharf, Michael
J. Scharf, Denis Martin, Larry S. Kopp, William B. Wigton, Frederick B.
Whittemore, Donald R.A. Marshall and James W. Stevens. All such nominees,
other than Messrs. Marshall, Wigton and Stevens, are currently directors of
FSAC. Messrs. Marshall and Stevens are designees of EBIC. Mr. Wigton is
replacing Mr. William D. Birch, who has tendered his resignation effective
upon consummation of the Merger. The election of directors is conditional on
consummation of the Merger and approval of the Classified Board Amendment,
which, among other things, expands the FSAC Board of Directors to eight
directors. See "PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH --Classified Board
Amendment." If the Merger is not consummated, the current directors of FSAC
will continue as directors (including Mr. Birch). See "PROPOSAL 2: ELECTION
OF DIRECTORS."
THE FSAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" ELECTION OF THE EIGHT
NOMINEES LISTED ABOVE AS DIRECTORS.
PROPOSALS 3, 4 AND 5: THE CHARTER AMENDMENTS
At the FSAC Special Meeting, stockholders will vote on a series of related
amendments to FSAC's Certificate of Incorporation, approval of which is a
condition to consummation of the Merger. The Charter Amendments have been
adopted by the FSAC Board, subject to the approval by FSAC stockholders, but
will not become effective unless and until the Merger has been or is about to
be consummated. Depending on the specific amendment, effectiveness of the
Charter Amendments will be either immediately prior to or immediately after
consummation of the Merger.
THE FSAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF EACH OF THE
CHARTER AMENDMENTS.
The Classified Board Amendment
The Classified Board Amendment provides (i) that the Board of Directors
shall consist of not less than three nor more than twelve directors, the
exact number of directors to be determined from time to time by resolution
adopted by the affirmative vote of a majority of the entire Board of
Directors; (ii) for the classification of the Board of Directors into three
classes serving staggered terms, with each class to be as nearly equal in
size as possible; and (iii) that, subject to the requirements of the DGCL,
any vacancy on the Board of Directors be filled only by the remaining
directors then in office, even if such directors constitute less than a
quorum. The number of directors will initially be set at eight. The
classified Board of Directors is likely to have the effect of perpetuating
control of FSAC in the current directors of FSAC, at least through the second
annual meeting of stockholders of FSAC following the Merger. In addition,
although the Classified Board Amendment is also intended to encourage persons
seeking to acquire control of FSAC to initiate such an acquisition through
arm's length negotiations with the Board of Directors, the overall effect of
the Classified Board Amendment, together with the Stockholders' Action
Amendment, the Special Meeting Amendment and the Supermajority Amendment, may
be to discourage a third party from making a tender offer, hostile or
otherwise, for a portion or all of FSAC Common Stock (including an offer at a
premium over the then prevailing market value of FSAC's equity securities) or
otherwise attempting to obtain a substantial position in the equity
securities of FSAC in order to commence a proxy contest or engage in other
takeover-related actions even though some or a majority of FSAC's
stockholders might believe such actions to be beneficial. See "RISK FACTORS
- --Concentration of Voting Control; Staggered Board" and "PROPOSAL 3:
AMENDMENT TO ARTICLE SIXTH --Classified Board Amendment."
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<PAGE>
Stockholders' Action Amendment
The Stockholders' Action Amendment, prohibiting stockholder action by
written consent, would give all stockholders of FSAC the opportunity to
participate in determining any proposed action and would prevent the holders
of a majority of the voting stock from using the written consent procedure to
take stockholder action without affording all stockholders an opportunity to
participate. On the other hand, this amendment would prevent stockholders
from taking action other than at an annual or special meeting of stockholders
at which the proposal is submitted to stockholders in accordance with the
advance notice provisions of the FSAC By-laws. Moreover, if the Special
Meeting Amendment is adopted, FSAC stockholders will not have the ability to
call a special meeting of stockholders. See "PROPOSAL 3: AMENDMENT TO ARTICLE
SIXTH --Stockholders' Action Amendment."
Special Meeting Amendment
The Special Meeting Amendment would eliminate the ability of stockholders
to call special meetings. Eliminating the ability of stockholders to call
special meetings would mean that proposals for stockholder action such as,
for example, proposed amendments to the By-laws or removals of directors for
cause could, if the Board of Directors desired, be delayed until the next
annual meeting of stockholders. See "PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH
- --Special Meeting Amendment."
Supermajority Amendment
Amendments to FSAC's Certificate of Incorporation currently require the
approval of the holders of a majority of the outstanding shares of stock
entitled to vote thereon and, in certain cases, a majority of the outstanding
shares of each class of stock entitled to vote thereon as a class. The DGCL
permits provisions in a corporation's certificate of incorporation that
require a greater vote than the vote otherwise required by law for any
corporate action. Pursuant to the proposed Charter Amendments, the
affirmative vote of the holders of at least 80% of FSAC's capital stock
issued and outstanding and entitled to vote thereon would be required for the
amendment or repeal of or the adoption of any provisions inconsistent with
the Classified Board Amendment, the Stockholders' Action Amendment, the
Special Meeting Amendment or the Supermajority Amendment. See "PROPOSAL 3:
AMENDMENT TO ARTICLE SIXTH --Supermajority Amendment."
Deletion of Certain SPAC(Registered Trademark)-Related Provisions
The current provisions of Article SIXTH of FSAC's Certificate of
Incorporation relate to the following SPAC(Registered Trademark)
characteristics: the requirement of stockholder approval of a Business
Combination, the availability of Redemption Rights, the requirement of
liquidation in the event that FSAC fails to consummate a Business Combination
by a certain date, the prohibition of distributions from the Trust to holders
of FSAC Public Shares, other than pursuant to Redemption Rights or
liquidation, and the implementation of a two class staggered Board of
Directors. See "BUSINESS OF FSAC --Characteristics of a Specified Purpose
Acquisition Company(Registered Trademark)." Under FSAC's Certificate of
Incorporation, the provisions of its Article SIXTH cease to be effective upon
consummation of a Business Combination. As a matter of completeness, the
Amendment to Article SIXTH deletes these provisions, effective immediately
after the Effective Time. See "PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH
- --Deletion of Certain SPAC(Registered Trademark)-Related Provisions."
Additional Common Stock Amendment
The Additional Common Stock Amendment would increase the authorized shares
of FSAC Common Stock from 14,000,000 to 30,000,000. Although an increase in
authorized shares of FSAC Common Stock is necessary to permit consummation of
the various transactions contemplated by the Merger, the increase in FSAC
Common Stock contemplated by the Additional Common Stock Amendment will also
result in a significant increase in the amount of authorized but unissued and
unreserved shares, which would have the potential, depending on the amount of
additional issuances and the consideration, if any, received therefor, to
dilute the interests of FSAC stockholders after the Merger. See "PROPOSAL 4:
ADDITIONAL COMMON STOCK AMENDMENT" and "RISK FACTORS --Authority of FSAC to
Issue Additional Securities."
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<PAGE>
Name Change Amendment
The Name Change Amendment would, immediately prior to the Effective Time,
change the name of FSAC to "Financial Services Corporation." See "PROPOSAL 5:
NAME CHANGE AMENDMENT."
PROPOSAL 6: THE FSAC OPTION PLAN
The FSAC Option Plan has been adopted by the FSAC Board of Directors,
subject to the approval of FSAC stockholders. 1,800,000 shares of FSAC Common
Stock have been reserved for issuance under the FSAC Option Plan. Pursuant to
the FSAC Option Plan, no individual may be granted an option or options for
more than 500,000 shares of FSAC Common Stock in any calendar year. No
options may be granted under the FSAC Option Plan after the tenth anniversary
of its adoption. Options may be either "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonqualified stock options and will generally have an exercise price equal to
the fair market value of a share of FSAC Common Stock on the date of grant.
The aggregate fair market value of "incentive stock options" granted to any
optionee under the FSAC Option Plan, or any similar plan, that first become
exercisable in any calendar year is not to exceed $100,000. It is anticipated
that the initial grant of options under the FSAC Option Plan will provide
that each option will become exercisable as to 20% of the FSAC Common Stock
covered by the option on the first anniversary of the date the option was
granted and as to an additional 20% of the FSAC Common Stock covered by the
option on each successive anniversary of the date the option was granted.
Unless the terms of any specific grant provide otherwise, each option will
expire on the tenth anniversary of its grant or upon a specified period after
the termination of the optionee's employment, as set forth in the FSAC Option
Plan. If the Merger is not consummated, the FSAC Option Plan will not take
effect. See "PROPOSAL 6: FSAC OPTION PLAN."
THE FSAC BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE FSAC
OPTION PLAN.
MARKET PRICES OF FSAC SECURITIES
FSAC Common Stock, FSAC Warrants (each entitling the holder thereof to
purchase one share of FSAC Common Stock for $5.00 per share) and FSAC Units
(each consisting of one share of FSAC Common Stock and two FSAC Warrants) are
quoted on the OTC Bulletin Board under the symbols "FSAT," "FSATW" and
"FSATU," respectively.
The following table sets forth the range of high and low closing bid
prices for each of the FSAC Units, FSAC Common Stock and FSAC Warrants for
the period since December 7, 1994, when the FSAC Common Stock and FSAC
Warrants commenced public trading, as reported by the OTC Bulletin Board. The
price per FSAC Unit in the IPO was $6.00. The OTC Bulletin Board is a NASD
sponsored and operated automated inter-dealer quotation system for equity
securities not included in the Nasdaq Stock Market National Market System.
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect
actual transactions. FSAC has never paid cash dividends on any of its capital
stock.
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<PAGE>
<TABLE>
<CAPTION>
FSAC FSAC FSAC
COMMON STOCK WARRANTS UNITS
------------------ ------------------ -----------------
HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1994:
Fourth Quarter (beginning December 7) .... $4 1/4 $ 4 1/4 $ 7/8 $ 7/8 $6 $5 3/4
1995:
First Quarter ............................. $4 3/8 $4 1/4 $ 7/8 $ 5/8 $5 3/4 $5 3/4
Second Quarter ............................ 4 9/16 4 1/4 3/4 5/8 5 3/4 5 3/4
Third Quarter ............................. 4 5/8 4 1/2 3/4 11/16 5 3/4 5 3/4
Fourth Quarter ............................ 4 5/8 4 3/8 11/16 1/2 5 3/4 5 3/4
1996:
First Quarter ............................. $4 7/8 $4 5/8 $ 27/32 $ 1/2 $5 3/4 $5 3/4
Second Quarter ............................ 5 1/16 4 7/8 1 1/16 23/32 6 1/8 5 3/4
Third Quarter (through July 15) ........... 5 1/16 5 1/16 1 1 6 1/8 6
</TABLE>
On July 15, 1996, the most recent date for which it was practicable to
obtain market price information before the printing of this Proxy Statement,
the high and low closing bid prices, as reported on the OTC Bulletin Board,
were (i) for FSAC Common Stock, a high and a low of $5 1/16, (ii) for FSAC
Warrants, a high and a low of $1 and (iii) for FSAC Units, a high and a low of
$6. Based on such bid prices for FSAC Common Stock and FSAC Warrants, and
assuming an estimated Per Share Cash Consideration of $12.03, the Merger
Consideration (prior to giving effect to any further adjustments or escrow
arrangements) would have an indicated per share value of $29.94.
FSAC stockholders are urged to obtain current market quotations for FSAC
Common Stock and FSAC Warrants.
NO PUBLIC MARKET FOR EBIC SECURITIES
EBIC Common Stock is not registered under the Exchange Act, listed on any
securities exchange or traded in the over-the-counter market. There have been
no dividends paid on any shares of the capital stock of EBIC in its current,
or either of its last two, fiscal years. As of March 31, 1996, the unaudited
per share book value of EBIC Common Stock was $20.72.
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<PAGE>
RISK FACTORS
THE FOLLOWING ARE CERTAIN RISK FACTORS OR INVESTMENT CONSIDERATIONS THAT
SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE MERGER, IN ADDITION TO THE
RISKS AND OTHER INFORMATION DESCRIBED ELSEWHERE IN THIS PROXY STATEMENT.
LIMITED TRADING MARKET FOR FSAC COMMON STOCK AND FSAC WARRANTS
FSAC Common Stock and FSAC Warrants are currently traded in the
over-the-counter market and quoted on the OTC Bulletin Board (the "OTC
Bulletin Board") of the National Association of Securities Dealers, Inc. (the
"NASD"). There has been only a limited trading market for FSAC Common Stock
and FSAC Warrants (and the bundled FSAC Units, each of which is comprised of
one share of FSAC Common Stock and two FSAC Warrants ("FSAC Units")). There
can be no assurance that an active or regular trading market will develop or
continue after the Merger for either FSAC Common Stock or FSAC Warrants
(including the Merger Warrants). Consequently, the holders of FSAC Common
Stock and FSAC Warrants may not be able to sell them at any particular time
or at prices that reflect their actual value. FSAC will apply to have FSAC
Common Stock and FSAC Warrants included in the Nasdaq National Market
following consummation of the Merger, but no assurance can be given that such
listings will occur or be maintained, and such listings are not a condition
to the Merger.
POSSIBLE VOLATILITY OF PRICES FOR FSAC COMMON STOCK AND FSAC WARRANTS
FSAC believes that before the public announcement of the execution of the
Merger Agreement, the market price of FSAC Common Stock was based primarily
on the Distribution Amount from the Trust in the event FSAC was obligated to
liquidate, and to a lesser degree upon the anticipation of FSAC fulfilling
its business objective of acquiring an operating business in the financial
services industry (a "Target Business") by merger, exchange of capital stock,
asset or stock acquisition or other similar type of transaction (a "Business
Combination"). The market price of FSAC Warrants, which are not entitled to
share in the Distribution Amount, was believed to be based primarily on their
exercise price, the likelihood of a Business Combination being announced and
consummated and the anticipated effects on the market price of FSAC Common
Stock if such a Business Combination were consummated. FSAC believes that
after the public announcement, the market price of FSAC Common Stock
continued to be based in part upon the Distribution Amount, but to a greater
degree upon the likelihood of consummation of the Merger and the market
perception of the prospects for EBIC's business.
If the Merger is consummated, it is anticipated that the price of FSAC
Common Stock will reflect the value of the assets and business of FSAC and
EBIC on a pro forma consolidated basis and the increase in the amount of
outstanding securities of FSAC, as well as the liquidity of such securities.
On a pro forma basis (see "CAPITALIZATION"), and assuming no FSAC
stockholders exercise their Redemption Rights (see "REDEMPTION RIGHTS"), it
is expected that (i) the number of outstanding shares of FSAC Common Stock
will increase from 4,416,666 to 8,833,332 (or 9,283,332 if the Unit Purchase
Option Exchange is consummated), (ii) the number of outstanding FSAC Warrants
will increase from 7,566,666 to 15,133,332 and (iii) the total stockholders'
equity of FSAC will approximately double (depending upon the number of
Dissenting Shares, the final adjustments to the cash portion of the Merger
Consideration and a number of other factors). The large number of shares of
FSAC Common Stock and FSAC Warrants outstanding, the prospect of substantial
exercises of FSAC Warrants (prior to any Exchange Offer or possible
redemption of FSAC Warrants by FSAC), notwithstanding that such exercises
would contribute significant cash amounts to FSAC, and the prospect of
issuances of options under the FSAC Option Plan, if approved by FSAC
stockholders, may have a material adverse impact on the market prices for
FSAC Common Stock and FSAC Warrants. In addition, anticipation of the
Exchange Offer and/or consummation of the same could have a similar effect,
since the Exchange Offer, although it would reduce the number of outstanding
FSAC Warrants, would result in the issuance of additional shares of FSAC
Common Stock (the exact number depending upon the final exchange ratio that
is agreed upon and the number of FSAC Warrants that are tendered) without the
payment of any cash or other consideration that would add to FSAC's total
stockholders' equity. Finally, factors following the Merger, such as
announcements of quarterly financial results, competitive developments,
changes in U.S. or foreign
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<PAGE>
government regulations or capital requirements, sales of substantial blocks
of FSAC securities by the holders thereof (see "--Shares Eligible for Future
Sale"), and the issuance of additional FSAC securities in connection with
possible future acquisitions or financings, if any, among other things, could
cause the market prices for FSAC Common Stock and FSAC Warrants to fluctuate
significantly.
SHARES ELIGIBLE FOR FUTURE SALE
Approximately 4,088,210 (4,271,006 if the Unit Purchase Option Exchange is
consummated) shares of FSAC Common Stock, consisting of 81% of the FSAC
Common Stock to be issued in the Merger and 11% of the currently outstanding
FSAC Common Stock, and 7,197,350 FSAC Warrants, consisting of 81% of the
Merger Warrants and 14% of the currently outstanding FSAC Warrants, will be
subject to the terms of the Security Transfer Agreement, dated as of March 8,
1996 (the "Security Transfer Agreement"), by and among Gilbert Scharf,
Michael Scharf, WCAS, WCAS Information Partners, L.P., a Delaware limited
partnership ("WCAS Info"), and certain members of EBIC management ("EBIC
Management", which effectively prohibits their sale or other disposition
(other than by gift or laws of descent) prior to November 30, 1996. See "THE
MERGER AGREEMENT --Certain Related Agreements --Security Transfer Agreement."
Separately, 10% of all shares of FSAC Common Stock issued in the Merger,
including shares subject to the Security Transfer Agreement (the "Escrow
Shares"), will be subject to the restrictions of the Escrow Agreement, dated
as of March 8, 1996 (the "Escrow Agreement"), by and among FSAC, Merger Sub,
EBIC, Donald Marshall, WCAS and United States Trust Company of New York, as
escrow agent (the "Escrow Agent"). See "THE MERGER AGREEMENT --Certain
Related Agreements --Escrow Agreement." Moreover, all 833,333 Pre-IPO Shares,
constituting an additional approximately 18.9% of the currently outstanding
shares of FSAC Common Stock, are subject to separate lock-up agreements with
the IPO underwriters (the "IPO Lock-up Agreements") prohibiting their sale or
disposition prior to December 7, 1997. Consequently, of the total 9,283,332
shares potentially outstanding immediately following the Merger (assuming
consummation of the Unit Purchase Option Exchange, no Dissenting Shares and
no exercise by FSAC stockholders of their Redemption Rights) the only shares
of FSAC Common Stock available for resale in the public market (until at
least November 30, 1996) would be approximately an aggregate 4,091,927
shares. These shares would be comprised of (i) the approximately 3,083,333
currently outstanding shares of FSAC Common Stock that are not and will not
be subject to any agreements which preclude sale or transfer, (ii) the
approximately 870,660 shares of FSAC Common Stock to be issued in the Merger
that will not be subject to the Security Transfer Agreement (less the 10%
thereof, or 87,066 shares, that will be subject to the Escrow Agreement) and
(iii) the 225,000 shares of FSAC Common Stock to be issued to the holders of
the Unit Purchase Options in the Unit Purchase Option Exchange. In addition,
(x) shares of FSAC Common Stock issued upon exercise of the existing FSAC
Warrants (other than the approximately 14% of the existing FSAC Warrants held
by persons who are signatories to the Security Transfer Agreement), (y)
shares of FSAC Common Stock received upon exercise of the Merger Warrants
(other than the approximately 81% of the Merger Warrants that will be held by
persons who are signatories to the Security Transfer Agreement) and (z) if
the Unit Purchase Option Exchange is not consummated, shares of FSAC Common
Stock received upon exercise of the Unit Purchase Options (and upon exercise
of the FSAC Warrants received upon exercise thereof), would be available for
resale in the public market. After November 30, 1996, all of the shares of
FSAC Common Stock outstanding (other than the Pre-IPO Shares and the Escrow
Shares) or receivable upon exercise of any of the FSAC Warrants outstanding
will be available for resale in the public market (subject to the limitations
of Rule 144 under the Securities Act, where applicable). Moreover, pursuant
to the Registration Rights Agreement to be entered into prior to and as a
condition of the Merger by FSAC, WCAS and certain related investors, WCAS
Info, EBIC Management and the Initial FSAC Stockholders (the "Registration
Rights Agreement"), persons holding in the aggregate what will be
approximately 4,102,646 shares, or 44%, of the outstanding FSAC Common Stock
following the Merger (assuming consummation of the Unit Purchase Option
Exchange and excluding any such shares that are Escrow Shares or subject to
the IPO Lock-up Agreements) and approximately 7,748,744, or 51%, of the
outstanding FSAC Warrants following the Merger (without giving effect to any
Exchange Offer) will be entitled, effective only for periods after November
30, 1996, to certain demand and ancillary registration rights with respect to
their shares of FSAC Common Stock (including shares received upon exchange or
exercise of their FSAC Warrants). See "THE MERGER AGREEMENT --Certain Related
20
<PAGE>
Agreements --Registration Rights Agreement." Sales of substantial numbers of
shares of FSAC Common Stock in the public market could materially adversely
affect the market prices for FSAC Common Stock and FSAC Warrants.
EFFECTS OF EXCHANGE OFFER
If the Exchange Offer does not occur, 15,133,332 shares of FSAC Common
Stock could be issued if all of the FSAC Warrants that will be outstanding
following the Merger were exercised, with aggregate proceeds to FSAC from
such exercises of approximately $75.7 million. If the Exchange Offer is made
and consummated, a significant number of additional shares of FSAC Common
Stock will be issued sooner than anticipated (the exact number depending upon
the exchange ratio that is agreed upon and the number of FSAC Warrants
tendered), but fewer FSAC Warrants will remain outstanding, thereby resulting
in fewer shares of FSAC Common Stock being issued pursuant to future
exercises of FSAC Warrants. Determination of the precise exchange ratio will
depend on a number of factors, including the outcome of discussions between
FSAC and WCAS, the post-Merger trading prices of FSAC Common Stock and FSAC
Warrants, the results of any financial advice sought by either or both of
FSAC and WCAS and a review of the terms of warrant exchange offers made by
other SPACs(Registered Trademark). Because the Exchange Offer will not
involve any cash or other consideration (other than the cancellation of the
FSAC Warrants), there will be no effect on FSAC's cash or total stockholders'
equity (other than transaction costs), but there will be a dilutive effect on
FSAC's stockholders' equity on a per share basis, as well as on voting power
and FSAC's earnings per share. There can be no assurance, however, that the
Exchange Offer will be made or, if made, as to the exchange ratio at which it
will occur or the other terms and conditions thereof.
EFFECTS OF UNIT PURCHASE OPTION EXCHANGE
If the Unit Purchase Option Exchange does not occur, 333,333 shares of
FSAC Common Stock and 666,666 FSAC Warrants will be issued if all of the
333,333 Unit Purchase Options currently outstanding are exercised, with
aggregate proceeds to FSAC from such exercises of approximately $3.3 million.
An additional 666,666 shares of FSAC Common Stock will be issued if the
666,666 FSAC Warrants received upon exercise of the Unit Purchase Options
are, in turn, exercised, with incremental aggregate proceeds to FSAC of
approximately $4.2 million. In addition, pursuant to the Merger Agreement,
the Merger Consideration will include an additional agreed-upon amount of
cash to reflect the fact that the Unit Purchase Options will remain
outstanding or, if such amount cannot be agreed upon, will include an
aggregate of 333,333 newly-issued Unit Purchase Options. If the Unit Purchase
Option Exchange is consummated, an additional 225,000 shares of FSAC Common
Stock will be issued to the current holders of the Unit Purchase Options, the
aggregate Merger Consideration will be increased by 225,000 shares of FSAC
Common Stock (but the additional agreed-upon cash component, or additional
Unit Purchase Options in lieu thereof, will be eliminated) and no Unit
Purchase Options will remain outstanding. Because the Unit Purchase Option
Exchange will not involve any cash or consideration (other than the
cancellation of the Unit Purchase Options), there will be no effect on FSAC's
cash or total stockholders' equity (other than transaction costs), but there
will be a dilutive effect on FSAC's stockholders' equity on a per share
basis, as well as on voting power and FSAC's earnings per share.
DEPENDENCE ON KEY EMPLOYEES
The brokerage business is inherently reliant on relationships with clients
that develop over time, and certain of EBIC's brokers have established
long-term associations with customers. EBIC's and, following the Merger,
FSAC's success depends to a significant extent on these connections and on
the performance and experience of a number of key management and sales
personnel. The loss of one or more of these key employees could have a
material adverse effect on EBIC and, following the Merger, FSAC. While EBIC
and FSAC have entered into, or at the time of the Merger expect to have
entered into, employment agreements with many of their key employees, and
neither EBIC nor FSAC has any reason to believe that other key personnel will
not remain with EBIC and, following the Merger, FSAC, there can be no
assurance that such employment agreements will be renewed or effective in
retaining such persons'
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<PAGE>
services or that other key personnel will remain with EBIC and FSAC
indefinitely. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF EBIC," "PROPOSAL 1: THE MERGER
- --Interests of Certain Persons in the Merger --Employment Agreements,"
"MANAGEMENT OF EBIC" and "PROPOSAL 2: ELECTION OF DIRECTORS." Nor can there
be any guarantee that EBIC or FSAC will be able to attract and retain
qualified, experienced individuals, whether to replace current personnel or
as a result of expansion, because competition within the brokerage industry
for such individuals is intense. EBIC maintains key person insurance on the
lives of certain of its employees, but any proceeds therefrom would not
necessarily fully mitigate the consequences to EBIC's business of their
deaths. See "MANAGEMENT OF EBIC."
AUTHORITY OF FSAC TO ISSUE ADDITIONAL SECURITIES
FSAC's Certificate of Incorporation currently authorizes the issuance of
14,000,000 shares of FSAC Common Stock. As of the date of this Proxy
Statement, there were 4,416,666 shares of FSAC Common Stock outstanding and
8,566,665 shares reserved for issuance upon exercise of outstanding FSAC
Warrants and Unit Purchase Options (and the FSAC Warrants included therein),
leaving 1,016,669 authorized shares available for other issuances. Following
consummation of the Merger, which is conditioned upon, among other things,
approval of the Charter Amendments, FSAC's Certificate of Incorporation will
authorize the issuance of 30,000,000 shares of FSAC Common Stock (see
"PROPOSAL 4: Additional Common Stock Amendment"), and it is expected that
there will be outstanding, on a pro forma basis (assuming consummation of the
Unit Purchase Option Exchange, no Dissenting Shares and no exercise by FSAC
stockholders of their Redemption Rights), 9,283,332 shares of FSAC Common
Stock, with 15,133,332 shares reserved for issuance upon exercise of
then-outstanding FSAC Warrants, leaving 5,583,336 authorized shares available
for other issuances (including under the FSAC Option Plan; see "PROPOSAL 6:
FSAC Option Plan"). Assuming the Exchange Offer is made and consummated
following the Merger, the number of shares of FSAC Common Stock outstanding
would increase and the shares reserved for issuance with respect to FSAC
Warrants would decrease (in accordance with the agreed-upon exchange ratio
and depending on the number of FSAC Warrants tendered). Because it is
expected that a greater number of FSAC Warrants would be exchanged for a
lesser number of shares of FSAC Common Stock, the number of authorized shares
available for other issuances would increase. Subject to the rules of the
NASD, the FSAC Board is empowered, without stockholder approval, to issue any
or all of the authorized but unissued (and unreserved) shares of FSAC Common
Stock. Any such additional issuances (depending on the consideration, if any,
received) may dilute the interests of FSAC stockholders.
In addition, FSAC's Certificate of Incorporation currently authorizes (and
following effectiveness of the Charter Amendments will continue to authorize)
the issuance of 1,000,000 shares of Preferred Stock, par value $.001 per
share ("FSAC Preferred Stock"), with such designations, rights and
preferences as may be determined from time to time by the FSAC Board. Subject
to the rules of the NASD, the FSAC Board is empowered, without stockholder
approval, to issue FSAC Preferred Stock with dividend, liquidation,
conversion, voting or other rights that could adversely affect the voting
power or other rights of the holders of FSAC Common Stock and FSAC Warrants.
Moreover, FSAC Common Stock and FSAC Preferred Stock could be utilized, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of FSAC. Except as contemplated by the Merger and the
related transactions, as discussed in this Proxy Statement, FSAC has no
current intention to issue any FSAC Common Stock or FSAC Preferred Stock. See
"DESCRIPTION OF FSAC CAPITAL STOCK."
CONCENTRATION OF VOTING CONTROL; STAGGERED BOARD
Upon consummation of the Merger, it is anticipated that WCAS and its
affiliates will hold approximately 27% of the outstanding shares of FSAC
Common Stock, with the current directors and officers of FSAC holding an
additional approximately 14%, EBIC Management holding an additional
approximately 15% and other current employees of EBIC controlling an
additional approximately 8%. Such concentration of control in a single major
stockholder and in directors, officers and employees may have an adverse
effect on the market prices for FSAC securities.
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<PAGE>
In addition, upon consummation of the Merger, as a result of the Charter
Amendment providing for a classified Board of Directors and the election of
directors at the FSAC Special Meeting, FSAC will have an eight-person,
three-class staggered Board of Directors, on which two of the representatives
will be designees of EBIC. The classified Board of Directors is likely to
have the effect of perpetuating control of FSAC, at least through the second
annual meeting of stockholders of FSAC following the Merger, in the current
directors of FSAC, and may, in conjunction with the other Charter Amendments
amending Article SIXTH of FSAC's Certificate of Incorporation, have the
effect of discouraging, delaying or preventing a change in control of FSAC
and/or have an adverse effect on the market prices for FSAC securities. See
"PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH."
DETERMINATION OF MERGER CONSIDERATION; ABSENCE OF FAIRNESS OPINION
Prior to the Merger, there has been no public market for the shares of
EBIC Common Stock. The Merger Consideration has been determined by
negotiations between FSAC and EBIC, and is intended, subject to certain
adjustments and escrow arrangements, (i) to provide EBIC stockholders who do
not exercise appraisal rights with a post-Merger 50% ownership interest in
FSAC and (ii) to include sufficient cash consideration generally to equalize
the pre-Merger respective contributions of FSAC stockholders and EBIC
stockholders to the post-Merger consolidated net worth of FSAC. See "PROPOSAL
1: THE MERGER --Merger Consideration." There can be no assurance that the
Merger Consideration on a per share basis is indicative of the fair market
value of a share of EBIC Common Stock. Neither EBIC nor FSAC has sought or
obtained an opinion from an investment banker regarding the fairness of the
Merger or the Merger Consideration to the stockholders of either company. See
"PROPOSAL 1: THE MERGER --Reasons for the Merger; Recommendations of the
Boards of Directors" and "--Interests of Certain Persons in the Merger." In
addition, it is a requirement for FSAC that its initial Target Business have
a fair market value, as determined by the FSAC Board, of at least 80% of the
net assets of FSAC. FSAC is not required to obtain the opinion of an
investment banking firm as to the fair market value of the Target Business
unless the FSAC Board determines that the financial statements of the Target
Business do not clearly indicate that such Target Business has a sufficient
fair market value. The FSAC Board has determined that EBIC has a fair market
value of at least 80% of FSAC's net assets and that an opinion of an
investment banking firm is not required. See "PROPOSAL 1: THE MERGER
- --Absence of Fairness Opinion."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED IN CONNECTION
WITH EXERCISE OF FSAC WARRANTS
FSAC will be able to issue shares of FSAC Common Stock upon exercise of
FSAC Warrants (including the Merger Warrants) only if there is then a current
prospectus relating to the underlying FSAC Common Stock under an effective
registration statement filed with the Commission, and only if such FSAC
Common Stock is qualified for sale or exempt from qualification under
applicable state securities laws of the jurisdictions in which the various
holders of FSAC Warrants reside. Although FSAC is obligated to use its best
efforts to meet such requirements, there can be no assurance that FSAC will
be able to do so. FSAC Warrants may be deprived of any value and the market
for FSAC Warrants may be limited if a current prospectus covering the
underlying FSAC Common Stock is not then effective or if such FSAC Common
Stock is not qualified or exempt from qualification in the jurisdictions in
which the holders of FSAC Warrants reside.
POTENTIAL REDEMPTION OF FSAC WARRANTS
FSAC Warrants (including the Merger Warrants) may be redeemed by FSAC, at
a price of $.01 per warrant, at any time after they become exercisable,
subject to not less than 30 days' prior written notice to the holders
thereof, provided that the last sale price of FSAC Common Stock has been at
least $8.50 per share for the 20 consecutive trading days ending on the third
day prior to the day on which notice is given. Notice of the redemption of
FSAC Warrants could force the holders thereof to exercise FSAC Warrants and
pay the exercise price at a time when it may be disadvantageous for them to
do so, to sell FSAC Warrants at the then current market price when they might
otherwise wish to continue to hold FSAC Warrants, or to accept the $.01 per
warrant redemption price.
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LOSS OF SPAC(REGISTERED TRADEMARK) PROTECTIONS
Once the Merger is consummated, the funds in the Trust become unrestricted
and the provisions of Article SIXTH of FSAC's Certificate of Incorporation,
which, among other things, entitle holders of FSAC Public Shares to the
Distribution Amount upon a liquidation of FSAC and to Redemption Rights in
connection with FSAC's initial Business Combination, by their terms
automatically are no longer effective. See "PROPOSAL 3: Amendment to Article
SIXTH --Deletion of certain SPAC(Registered Trademark)-Related Provisions."
EFFECT OF CHANGES IN GENERAL ECONOMIC AND FINANCIAL CONDITIONS
The profitability and success of EBIC is, and, following the Merger, of
FSAC will be, dependent to a great extent upon general economic conditions.
EBIC's business may be directly affected by national and international
economic and political conditions, broad trends in business and finance, the
level and volatility of interest rates and fluctuations in volume and price
levels in the securities and commodities markets. Lower price levels of
securities may result in reduced volume of transactions, and may also result
in other losses.
GOVERNMENT REGULATION
EBIC and its subsidiaries, in the ordinary course of their business, are
subject to extensive regulation at international, federal and state levels by
various regulatory bodies which are charged with safeguarding the integrity
of the securities and other financial markets and protecting the interests of
customers. These regulations include both initial licensing thresholds and
ongoing disclosure obligations. In the United States, EBIC and/or its
subsidiaries are subject to the jurisdiction, regulations and requirements of
the Commission, the NASD, the National Futures Association (the "NFA"), the
Commodities Futures Trading Commission, the New York Cotton Exchange and
applicable state regulatory entities. During May 1996, EBIC's U.S.
broker-dealer subsidiary became a member of Government Securities Clearing
Corporation. In addition, EBIC and/or its subsidiaries must comply with the
requirements of several foreign agencies charged with monitoring participants
in the brokerage industry. These authorities include The Bank of England, the
Securities and Futures Authority (the "SFA") and the Director General of Fair
Trading in the United Kingdom, the Ontario Securities Commission, the Hong
Kong Foreign Exchange and Deposit Brokers' Association, the Bank of Japan and
the Japanese Ministry of Finance. See "PROPOSAL 1: THE MERGER --Regulatory
Approvals" and "BUSINESS OF EBIC --Regulation." The compliance requirements
of these different overseer bodies may include, but are not limited to, net
capital or stockholders' equity requirements. Failure either to maintain
compliance with existing applicable regulations or to satisfy the
requirements of new regulations could result in the loss or suspension of
licenses or permits or civil or criminal liability or monetary penalties.
While EBIC believes that it, its subsidiaries and their respective employees
are currently in compliance with applicable regulatory obligations, there can
be no assurance that future changes or developments relating to the
regulation of the business of EBIC and its subsidiaries will not have a
material adverse effect on their financial condition.
CONSOLIDATING SUPERVISOR
In addition to the requirements of the various countries and jurisdictions
discussed above, as part of the harmonization process within the European
Community (the "EC"), member countries are required to adopt European
legislation, including an Investment Services Directive ("ISD") and Capital
Adequacy Directive ("CAD") which are designed to regulate the European
market, with the result that the qualification thresholds and ongoing
compliance requirements affecting EBIC have recently undergone change. The
SFA has issued new rules with respect to the ISD and CAD of the EC, and in
particular regarding consolidated supervision. These rules impose varying
capital thresholds on EBIC's U.K. subsidiaries depending upon, among other
things, the activities of such subsidiaries. The application of these rules
to EBIC and its subsidiaries could result in EBIC and/or its subsidiaries
having to meet more stringent capital adequacy requirements. The SFA has
conditionally confirmed the categorization of EBIC's U.K. subsidiary, Euro
Brokers Financial Services Limited ("EBFSL"), as a "Category D" firm
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<PAGE>
which, as such, is not subject to the consolidated supervision rules.
Accordingly, EBIC believes that none of the currently conducted operations of
EBFSL or its other U.K. subsidiaries subject any of them to any capital
requirements of the SFA for which they are not in compliance. It is possible
that future activities of such subsidiaries, including any activities that
cause the loss of EBFSL's categorization as a Category D Firm, may require
the allocation of additional capital. The SFA had also raised a concern
regarding the technical solvency of EBIC's U.K. holding subsidiary, Euro
Brokers Holdings Limited ("EBHL"), which concern was resolved principally by
restructuring the capital of EBHL. See "BUSINESS OF EBIC --Regulation."
COMPETITION
The financial brokerage industry is highly competitive. The success of a
company within this industry is dependent on the experience of and extent of
client networks developed by its personnel, its range of products, its
commission rates (including volume discounting) and the general quality,
speed and reliability of its service. While there are not many large
international money brokers and entry into this industry is costly, EBIC
encounters competition from several companies which are divisions of much
larger financial services conglomerates and therefore have significantly
greater resources than EBIC, in addition to access to a wider pool of
potential clients. Moreover, all brokerage firms are subject to the pressures
of offering their services at a lower price. The use of volume discounting
has become more widespread in recent years. As a result, increases in market
volumes do not necessarily result in proportionate increases in brokerage
commissions and revenues.
As global communication advances and new technologies are developed, the
money brokerage industry will become more susceptible to the possibility of
losing clients to companies and products that facilitate fully automated
dealing, allowing principals to circumvent the intermediary and obviating the
need for the money broker. In particular, Electronic Brokering Systems and
Reuters 2000-2 are each electronic systems that have reduced the need for
voice brokering by matching parties via a computerized network. While these
systems so far are viable only in markets involving very standardized
products, and EBIC believes that more complex financial vehicles, in
particular derivatives, are not amenable to fully electronic matching, there
can be no guarantee that such systems will not be developed in the future. If
developed, such systems could have a significant adverse effect on EBIC's
business.
EUROPEAN MARKET UNIFICATION
The introduction of a single currency for the EC would eliminate the
European cross-currency market and have a significant adverse impact on
EBIC's business. Moreover, deregulation within the EC will allow brokers from
any EC country to conduct business in any other EC country without the
necessity of complying with the specific local regulations, and could
increase the competitive challenges faced by EBIC.
LIABILITY FOR UNSETTLED TRADES
EBIC functions primarily as an intermediary, matching the trading needs of
financial institutions by providing specialized services. Some of these
transactions are executed on a name give-up basis, that is, once the specific
economic terms of a proposed transaction are agreed, the names of the
individual counterparties are disclosed and, subject to acceptance of credit,
the transaction is completed directly by both counterparties. Other
transactions are completed with EBIC acting as a matched riskless principal
in which the respective counterparties to the transaction know EBIC as a
counterparty. The transactions are then settled through a clearing
institution. In the process of executing brokerage transactions, from time to
time in the fast moving markets in which EBIC operates, miscommunications can
arise whereby transactions are completed with only one counterparty ("out
trades"), thereby creating a potential liability for EBIC. These occurrences
typically become known to EBIC on the day of the trade or, as a result of the
settlement process, within a few days of the trade. Out trades generally
increase with increases in the volatility of the market, particularly in
Emerging Market debt products. In general, EBIC does not experience a high
incidence of out trades, but in those situations in which they occur, EBIC
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<PAGE>
typically disposes of the unmatched position within a short time frame. While
out trades have not had a significant adverse affect on EBIC to date, there
can be no guarantee that the incidence of such occurrences will not increase
in the future or that they will not have a material adverse effect on the
financial condition of EBIC.
LACK OF BUSINESS DIVERSIFICATION
Upon consummation of the Merger, FSAC will be a holding company which will
have virtually no operations or material assets other than all of the
outstanding shares of EBIC Common Stock. Accordingly, the prospects for
FSAC's performance and the market prices for FSAC securities may be entirely
dependent upon the future performance of EBIC, and FSAC may not have the
resources to diversify its operations or benefit from the possible spreading
of risks or offsetting of losses.
DIVIDENDS UNLIKELY
FSAC has not paid any dividends on the FSAC Common Stock to date. Nor has
EBIC paid any dividends on shares of its capital stock in its current, or
either of its last two, fiscal years. The payment of dividends after the
Merger will be contingent upon FSAC's consolidated revenues and earnings, if
any, capital requirements and general financial condition. It is the present
intention of FSAC's Board of Directors to retain all earnings, if any, for
use in FSAC's business operations and, accordingly, FSAC does not anticipate
paying any dividends on FSAC Common Stock in the foreseeable future.
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SELECTED FINANCIAL DATA OF FSAC
The following selected historical financial data as of December 31, 1994
and December 31, 1995, and for the periods then ended, are derived from the
financial statements of FSAC, which have been audited by BDO Seidman, LLP,
independent certified public accountants, and are included elsewhere in this
Proxy Statement. The selected historical financial data as of March 31, 1996
and for the three months ended March 31, 1995 and March 31, 1996 and for the
period August 18, 1994 (inception) to March 31, 1996 is derived from the
unaudited financial statements of FSAC, also included elsewhere herein. Such
unaudited data includes, in FSAC management's opinion, all normal recurring
adjustments necessary to present fairly the results of operations and
financial position of FSAC for such periods. Results for interim periods are
not necessarily indicative of the results to be expected for an entire fiscal
year. The data should be read in conjunction with the financial statements,
together with the related notes thereto, of FSAC included elsewhere herein
and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF FSAC."
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 18, 1994 AUGUST 18, 1994
(INCEPTION) TO YEAR ENDED THREE MONTHS THREE MONTHS (INCEPTION) TO
DECEMBER 31, DECEMBER 31, ENDED MARCH 31, ENDED MARCH 31, MARCH 31,
1994 1995 1995 1996 1996
--------------- -------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Income:
Interest income ............. $ 67,014 $1,102,027 $ 275,666 $ 244,118 $1,413,159
Expenses:
Acquisition costs ........... -- 239,817 -- -- 239,817
General, administrative,
occupancy and other ........ 73,990 245,078 71,147 61,898 380,966
Taxes ....................... -- 219,000 86,000 62,000 281,000
Net income (loss) ............ (6,976) 398,132 118,519 120,220 511,376
Net income (loss) per share . (.00) .09 .03 .03
Weighted average common
shares outstanding .......... 1,446,296 4,416,666 4,416,666 4,416,666
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
----------------- ----------------- --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................... $ 1,783,022 $ 159,657 $ 38,395
Short-term investment and accrued interest
thereon .................................... -- 1,116,214 1,008,094
U.S. Government security deposited in trust
fund and accrued interest thereon .......... 17,475,598 18,489,353 18,718,730
Total assets ................................ 19,323,238 19,881,750 20,435,972
Total liabilities ........................... 135,116 295,496 729,498
Common stock subject to possible conversion 3,493,372 3,696,022 3,741,874
Stockholders' equity ........................ 15,694,750 15,890,232 15,964,600
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FSAC
FSAC is a Specified Purpose Acquisition Company(Registered Trademark)
("SPAC(Registered Trademark)"), the objective of which is to acquire an
operating business in the financial services industry (a "Target Business")
by merger, exchange of capital stock, asset or stock acquisition or other
similar type of transaction (a "Business Combination"). The financial
services industry includes entities of various types which provide a broad
array of financial services to their customers, including commercial banks,
thrift institutions, investment banking and securities brokerage firms, money
management firms, insurance companies and businesses which provide support
services for financial institutions.
In August 1994, FSAC issued 833,333 Pre-IPO Shares for an aggregate
purchase price of $25,000, or $0.03 per share, to six initial stockholders
(the "Initial FSAC Stockholders"). In September 1994, FSAC raised $200,000 in
bridge financing (the "Bridge Financing") in order to pay certain
organizational expenses, certain costs of the Bridge Financing and certain
costs of FSAC's IPO. Thirteen investors in the Bridge Financing loaned an
aggregate of $200,000 to FSAC and were issued promissory notes in that amount
payable at the consummation of the IPO, bearing interest at the rate of 10%
per annum, and 400,000 bridge warrants (the "Bridge Warrants").
The IPO was consummated in December 1994, and FSAC received net proceeds
of approximately $19,150,000 after payment of offering expenses. From these
proceeds, FSAC repaid the Bridge Financing promissory notes and interest.
FSAC's management had broad discretion with respect to the specific
application of the net proceeds of the IPO, although substantially all of the
net proceeds were intended to be generally applied toward consummating a
Business Combination with a Target Business. A majority of the net proceeds
(approximately $17,415,000) was placed in the Trust until the earlier of
FSAC's consummation of a Business Combination or liquidation of FSAC. The
agreement governing the Trust limits Trust investments to U.S. Government
securities with a maturity of 180 days or less. As of March 31, 1996,
December 31, 1995 and December 31, 1994, the Trust consisted of approximately
$18,719,000, $18,489,000 and $17,476,000, respectively, in U.S. Government
securities (including accrued interest thereon). If the Merger is
consummated, it is anticipated that all or substantially all of the IPO
proceeds held in the Trust will be paid to holders of EBIC Common Stock
(subject to certain escrow arrangements) as the cash portion of the aggregate
Merger Consideration. The remaining proceeds of the IPO, and the interest
thereon, have been and are being used to pay for business, legal and
accounting due diligence in connection with prospective acquisitions, and for
continuing general and administrative expenses, as well as other expenses.
During the quarter ended March 31, 1996, general and administrative,
occupancy and other expenses (other than acquisition costs) were
approximately $62,000, as compared to approximately $71,000 in the quarter
ended March 31, 1995. As of March 31, 1996, December 31, 1995 and December
31, 1994, FSAC had approximately $1,046,000, $1,276,000 and $1,783,000,
respectively, of cash and cash equivalents and short-term investments, other
than assets held in the Trust.
On May 16, 1995, FSAC announced that it had entered into a letter of
intent with respect to a potential Business Combination. On July 14, 1995,
FSAC announced that negotiations with respect to that proposed acquisition
had been terminated. See "PROPOSAL 1: THE MERGER --Background of the Merger."
Approximately $240,000 of costs relating to negotiation of the proposed
transaction were expensed during the year ended December 31, 1995.
On March 8, 1996, FSAC announced that it had entered into the Merger
Agreement. The Merger Agreement provides that, as a result of the Merger,
each outstanding share of EBIC Common Stock (other than shares, if any, held
in the treasury of EBIC, owned by any subsidiary of EBIC or owned by FSAC,
all of which will be cancelled, and other than Dissenting Shares, if any),
will be converted into the right to receive, subject to certain adjustments
and escrow arrangements, approximately (i) 2.64 newly-issued shares of FSAC
Common Stock, (ii) 4.53 Merger Warrants and (iii) $9.57 in cash (which, based
on the March 31, 1996 net worths of FSAC and EBIC, would have been adjusted
to approximately $11.37 if the Merger had been consummated at such time),
without interest. See "PROPOSAL 1: THE MERGER --Merger Consideration" and
"--Determination and Adjustment of Merger Consideration."
28
<PAGE>
In the event FSAC does not consummate the Merger or an alternative
Business Combination by December 7, 1996, FSAC will be dissolved and will
distribute to all holders of FSAC Public Shares in proportion to their
respective interests in all such FSAC Public Shares, an aggregate sum equal
to the amount in the Trust, inclusive of any after-tax interest thereon, plus
any remaining net assets of FSAC. The holders of the Pre-IPO Shares and of
FSAC Warrants have no rights to participate in any such distribution from the
Trust. During the quarter ended March 31, 1996, FSAC earned approximately
$229,000 of interest on amounts deposited in the Trust, as compared to
$247,000 during the quarter ended March 31, 1995. A holder of FSAC Public
Shares also is entitled to receive funds from the Trust in the event that
such holder exercises his or her Redemption Rights, although FSAC is not
permitted to consummate a Business Combination if Redemption Rights have been
exercised with respect to 20% or more of the FSAC Public Shares.
Substantially all of FSAC's working capital needs are attributable to the
identification, evaluation and selection of a suitable Target Business and
thereafter, to the structuring, negotiation and consummation of a Business
Combination with such Target Business. Such working capital needs have been,
and are expected to continue to be, satisfied from the net proceeds of the
IPO.
29
<PAGE>
SELECTED FINANCIAL DATA OF EBIC
The following selected financial information as of and for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 is derived from the consolidated
financial statements of EBIC, some of which appear elsewhere herein and have
been audited by Price Waterhouse LLP, independent accountants. The selected
financial data as of and for the periods ended March 31, 1995 and 1996 have
been derived from unaudited financial statements also appearing herein and
which, in the opinion of the management of EBIC, include all adjustments,
consisting only of normal recurring adjustments, necessary for the fair
statement of the results of unaudited periods. The data should be read in
conjunction with the financial statements of EBIC, together with the related
notes thereto included elsewhere herein and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF EBIC." Amounts
presented below include reclassifications of certain revenue and expense
items which are not directly associated with operations. Such
reclassifications include interest income, interest expenses, foreign
exchange effects and other non-operating items.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
------------- -------------- -------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS:
Revenue:
Commission income ... $95,046,059 $113,931,938 $135,577,625 $144,586,661 $171,576,327 $43,659,170 $48,339,964
Other income ........ 665,382 424,094 722,838 207,522 518,052 74,748 33,477
------------- -------------- -------------- -------------- -------------- ------------- -------------
95,711,441 114,356,032 136,300,463 144,794,183 172,094,379 43,733,918 48,373,441
------------- -------------- -------------- -------------- -------------- ------------- -------------
Operating Costs:
Payroll and related
costs .............. 57,047,879 71,104,552 86,763,854 96,207,365 110,915,257 28,569,041 28,353,853
Communication costs . 10,825,592 12,412,982 12,987,800 15,633,010 17,187,573 4,683,240 3,948,713
Travel and
entertainment ...... 6,304,249 7,671,840 8,681,483 10,493,903 10,224,384 2,540,839 2,609,881
Depreciation and
amortization ....... 4,762,289 3,857,122 4,192,404 4,248,181 4,568,164 1,157,164 1,171,970
Occupancy costs ..... 2,662,968 2,868,475 4,452,232 5,640,070 5,854,525 1,520,584 1,500,966
Clearing fees ....... 863,445 3,647,556 3,777,710 1,285,906 1,191,695
General and
administrative ...... 4,844,250 5,312,106 7,148,335 6,817,988 7,550,059 2,098,590 1,979,489
Write-off of goodwill 12,643,948
------------- -------------- -------------- -------------- -------------- ------------- -------------
86,447,227 103,227,077 137,733,501 142,688,073 160,077,672 41,855,364 40,756,567
------------- -------------- -------------- -------------- -------------- ------------- -------------
Operating Profit
(Loss) .............. 9,264,214 11,128,955 (1,433,038) 2,106,110 12,016,707 1,878,554 7,616,874
------------- -------------- -------------- -------------- -------------- ------------- -------------
Other Non-Operating
Income (Expenses):
Interest expense .... (3,291,086) (3,264,992) (2,702,759) (1,635,547) (775,077) (205,342) (148,058)
Other non-operating
expenses ........... (634,900) (631,900) (2,086,718) (520,607) (295,344) (25,281)
Other non-operating
income ............. 1,487,918 490,000
Interest income ..... 1,857,328 1,450,349 1,203,082 1,090,789 1,462,744 310,956 418,772
Foreign exchange gain
(loss) .............. 352,587 (1,581,467) 64,003 (17,139) 214,295 75,682 41,248
------------- -------------- -------------- -------------- -------------- ------------- -------------
(1,716,071) (4,028,010) (2,034,474) (592,504) 606,618 181,296 286,681
------------- -------------- -------------- -------------- -------------- ------------- -------------
Income (Loss) before
provision for income
taxes and minority
interest ............ 7,548,143 7,100,945 (3,467,512) 1,513,606 12,623,325 2,059,850 7,903,555
Provision for Income
Taxes ............... 4,627,623 6,037,250 4,858,901 3,333,989 7,393,196 1,625,860 4,099,528
------------- -------------- -------------- -------------- -------------- ------------- -------------
Income (Loss) Before
Minority Interest ... 2,920,520 1,063,695 (8,326,413) (1,820,383) 5,230,129 433,990 3,804,027
Minority Interest .... (227,850) 371,020 (442,673) (250,480) (1,767,854) (531,299) (350,852)
------------- -------------- -------------- -------------- -------------- ------------- -------------
Net Income (Loss) .... $ 2,692,670 $ 1,434,715 $ (8,769,086) $ (2,070,863) $ 3,462,275 $ (97,309) $ 3,453,175
============= ============== ============== ============== ============== ============= =============
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------------------------- ---------------
1991 1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets .................. $64,326,171 $72,163,710 $76,631,544 $71,914,532 $82,078,742 $80,313,989
Obligations under capitalized
leases ....................... 3,164,984 3,209,983 2,766,961 2,804,836 2,284,806 2,298,188
Notes payable ................. 28,164,336 28,236,068 27,080,598 9,830,284 7,880,032 7,834,318
Total liabilities ............. 50,321,819 52,452,868 65,695,698 43,360,381 50,185,747 45,285,692
Minority interest ............. 772,215 1,321,410 548,179 492,154 501,731 395,397
Stockholders' equity .......... 13,232,137 18,389,432 10,387,667 28,061,997 31,391,264 34,632,900
PER SHARE INFORMATION (A):
Book value .................... $ 15.67 $ 16.84 $ 9.51 $ 20.40 $ 18.78 $ 20.72
Weighted average common shares
outstanding .................. 2,069,514 1,092,071 1,091,896 1,375,513 1,671,290 1,671,290
</TABLE>
- ------------
(a) The computation of per share information for each year reflects the
inclusion of certain common stock equivalents where such effects are
dilutive.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF EBIC
HISTORY
EBIC was incorporated in 1986 in connection with the acquisition of
certain businesses, which broker cash deposits and interest rate derivatives,
from various subsidiaries of MAI plc., a public company in the United
Kingdom. The purchase consideration approximated $25 million and included a
deferred purchase price note of $9 million due in three equal annual
installments beginning on November 30, 1989, and a convertible purchase price
note of approximately $10 million due in five equal annual installments
beginning on November 30, 1995. Such notes include interest at 6 1/8%. The
conversion feature of the convertible purchase price note expired unexercised
on December 1, 1993.
In separate transactions in December 1986 and December 1988, EBIC issued
an aggregate 217,450 shares of its Class A Common Stock, par value $.01 per
share ("EBIC Class A Common Stock"), to Trilon Bancorp Inc. ("Trilon") for
approximately $3.7 million and an aggregate 977,143 warrants for
approximately $5.1 million, which entitled the holder to purchase one share
of EBIC Class A Common Stock per warrant at any time through 1994, as
extended. In addition, EBIC executed two subordinated promissory notes in the
aggregate amount of $17,660,000, payable to Annetinvest B.V., an affiliate of
Trilon; $13,000,000 of the notes were due on December 16, 1996 and $4,660,000
were due on January 31, 1999. The shares of EBIC Class A Common Stock and the
warrants were all subsequently transferred to Eurobrokers International Inc.,
a subsidiary of Trilon ("EII").
In February 1994, WCAS invested $23 million in EBIC, evidenced by a Senior
Secured Note due December 31, 1995 (the "Note") in that principal amount. The
Note was secured by the pledge of stock of certain EBIC subsidiaries, and the
proceeds were used to retire the outstanding EBIC Class A Common Stock,
warrants and notes of EBIC held by EII and its affiliates (which stock and
warrants had represented a majority of the outstanding equity of EBIC, on a
fully diluted basis). In May 1994, WCAS and several related investors
purchased an aggregate 910,150 shares of EBIC Common Stock, representing
approximately 54% of the outstanding EBIC Common Stock, for an aggregate
purchase price of $25 million, or a per share price of $27.47. As partial
payment for the 850,884 shares WCAS purchased in this transaction, it
tendered the Note to EBIC for cancellation and released the pledged stock.
OVERVIEW
EBIC functions primarily as an intermediary, matching the needs of
financial institutions. EBIC's transactions are principally of two types, (i)
transactions whereby EBIC acts only as a matching broker and (ii)
transactions whereby EBIC acts as a matched riskless principal. In
transactions involving cash deposits, derivative products and repurchase
agreements, the trades are executed on a name give-up basis and settled
directly between the counterparties with EBIC acting solely as a matching
broker. In these transactions EBIC is never a counterparty. In the second
type of transaction, primarily securities transactions, EBIC acts as a
matched riskless principal connecting buyers and sellers at exact prices.
EBIC does not earn a "spread" on any such transaction; rather earnings are
received through commissions. These transactions are settled through clearing
institutions within a few days of the transaction date. Except for short-term
positions in connection with its municipal securities brokerage (see
"BUSINESS OF EBIC --Products"), EBIC does not seek to take positions for its
own account.
In the process of executing brokerage transactions, from time to time in
the fast moving markets in which EBIC operates, miscommunications can arise
whereby transactions are completed with only one counterparty ("out trades"),
thereby creating a potential liability for EBIC. These occurrences typically
become known to EBIC on the day of the trade or, as a result of the
settlement process, within a few days of the trade. Out trades generally
increase with increases in the volatility of the market, particularly in
Emerging Market debt products. In general, EBIC does not experience a high
incidence of out trades, but in those situations in which they occur, EBIC
typically disposes of the unmatched position within a short time frame.
EBIC's revenues are derived almost exclusively from commissions generated
by its operating subsidiaries in New York, London, Tokyo and other major
international financial centers and through
32
<PAGE>
correspondent relationships with other brokers throughout the world.
Generally, EBIC receives a commission from both counterparties in a trade,
although in trades of certain products only one party pays a commission. The
dollar amount of the average EBIC transaction varies significantly by the
type of product and the duration of the transaction. Generally, the average
size of the transaction decreases as the term of the transaction or of the
underlying instrument increases. Overnight cash deposits average $100
million, however, transactions may exceed $500 million. Derivative
transactions average $25 million, but may exceed $100 million. Repurchase
agreements average $25 million and may exceed $500 million.
The largest single component of EBIC's expenses is compensation paid to
its brokers. Attracting and retaining qualified brokerage personnel with
strong customer relationships is a prerequisite in EBIC's business and in the
brokerage business in general. Brokers are generally compensated by a
combination of fixed salary and incentive payments based on commissions
generated by them or on the net profitability of their particular products.
For this purpose, revenue and direct expenses are regularly tracked by desk
(which may involve one or more products) at each location. Direct client
contact, including entertainment, is also an integral part of EBIC's
marketing program and represents another significant component of its
expenses.
The cost of maintaining its sophisticated trading room environments and
worldwide telecommunications network also comprises another significant
portion of EBIC's expenses. It is this infrastructure that enables EBIC to
support its existing client base and improve and expand its existing product
lines, as well as provide a base for offering brokerage services in newly
developing financial instruments. During the last five years, EBIC has added
to its product base such financial products as Emerging Market debt
instruments, energy related commodity swaps, Yen derivatives, including
options, and, for a period through a joint venture interest in 1992,
repurchase agreements and options on non-dollar denominated government bonds.
Expansion also generally leads to an increase in the number of brokerage
personnel since the market usually requires brokers to specialize in a single
product or group of related products, rather than to function as market
generalists.
The following table sets forth, for the periods indicated, summary
financial information for each of EBIC's geographic locations. Amounts
include the consolidation of the results of the operations of the Tokyo
Partnership (as hereinafter defined) and Hong Kong; EBIC's actual share, net
of minority interest, approximates 50%. The table also includes a summary of
the number of personnel in each EBIC office:
33
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1991 1992 1993 1994 1995
--------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Commission Income:
New York .................. $48,355,742 $ 57,134,705 $ 63,143,793 $ 66,090,388 $ 69,081,547
London .................... 35,544,904 46,790,505 63,266,608 61,226,002 65,715,235
Canada .................... 4,547,855 3,191,624 2,790,582 3,091,433 3,452,205
Tokyo ..................... -- -- -- 6,965,106 24,601,532
Hong Kong ................. 6,597,558 6,815,104 6,376,642 7,213,732 8,725,808
--------------- -------------- -------------- -------------- --------------
Total .................... $95,046,059 $113,931,938 $135,577,625 $144,586,661 $171,576,327
=============== ============== ============== ============== ==============
Operating Profit (Loss):
New York .................. $ 9,849,991 $ 10,580,582 $ 2,541,645 $ 4,301,375 $ 3,021,226
London .................... (2,464,450) 309,484 (1,529,404) (2,960,188) 2,901,237
Canada .................... 895,266 144,593 66,735 (249,413) (874,440)
Tokyo ..................... 503,173 372,767 (1,522,512) 1,140,723 6,985,361
Hong Kong ................. 480,234 (278,471) (989,502) (126,387) (16,677)
--------------- -------------- -------------- -------------- --------------
Total .................... $ 9,264,214 $ 11,128,955 $ (1,433,038) $ 2,106,110 $ 12,016,707
=============== ============== ============== ============== ==============
Income (Loss) Before
Tax and Minority Interest:
New York .................. $ 6,968,124 $ 9,438,512 $ 225,565 $ 3,089,709 $ 2,645,217
London .................... (1,424,125) (2,772,853) (1,305,441) (2,447,859) 3,783,500
Canada .................... 996,399 217,838 116,387 (219,617) (841,294)
Tokyo ..................... 503,173 372,767 (1,522,512) 1,204,470 7,017,027
Hong Kong ................. 504,572 (155,319) (981,511) (113,097) 18,875
--------------- -------------- -------------- -------------- --------------
Total .................... $ 7,548,143 $ 7,100,945 $ (3,467,512) $ 1,513,606 $ 12,623,325
=============== ============== ============== ============== ==============
Net Income (Loss):
New York .................. $ 2,908,084 $ 4,511,963 $ (571,236) $ 418,316 $ 440,773
London .................... (1,445,466) (3,478,362) (5,922,785) (2,428,422) 1,711,233
Canada .................... 526,133 111,143 46,008 (176,748) (688,849)
Tokyo ..................... 503,173 372,767 (1,522,512) 173,672 1,989,492
Hong Kong ................. 200,746 (82,796) (798,561) (57,681) 9,626
--------------- -------------- -------------- -------------- --------------
Total .................... $ 2,692,670 $ 1,434,715 $ (8,769,086) ($ 2,070,863) $ 3,462,275
=============== ============== ============== ============== ==============
At December 31,
-------------------------------------------------------------------------------
1991 1992 1993 1994 1995
--------------- -------------- -------------- -------------- --------------
Identifiable Assets:
New York .................. $27,149,833 $ 31,477,851 $ 38,677,487 $ 35,347,675 $ 38,962,574
London .................... 29,343,369 32,954,232 32,383,739 29,412,600 31,767,594
Canada .................... 2,003,976 1,660,273 1,618,533 1,573,157 1,789,815
Tokyo ..................... 3,011,407 3,355,156 2,189,856 3,823,416 7,656,963
Hong Kong ................. 2,875,659 2,716,198 1,761,929 1,757,684 1,901,796
--------------- -------------- -------------- -------------- --------------
Total .................... $64,384,244 $ 72,163,710 $ 76,631,544 $ 71,914,532 $ 82,078,742
=============== ============== ============== ============== ==============
Employees:
Brokers
New York .................. 191 196 218 244 254
London .................... 197 274 264 294 243
Canada .................... 18 18 16 24 23
Tokyo ..................... -- -- -- 28 37
Hong Kong ................. 60 64 64 65 62
--------------- -------------- -------------- -------------- --------------
Total Brokers ............ 466 552 562 655 619
Administrative Staff ..... 95 99 137 153 163
--------------- -------------- -------------- -------------- --------------
Total Employees .......... 561 651 699 808 782
=============== ============== ============== ============== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1995 1996
------------- -------------
<S> <C> <C>
Commission Income:
New York .................. $17,482,337 $19,825,139
London .................... 17,197,289 19,947,614
Canada .................... 930,180 876,026
Tokyo ..................... 5,737,633 6,000,053
Hong Kong ................. 2,311,731 1,691,132
------------- -------------
Total .................... $43,659,170 $48,339,964
============= =============
Operating Profit (Loss):
New York .................. $ 665,483 $ 1,775,932
London .................... (683,371) 4,067,247
Canada .................... (149,659) (96,857)
Tokyo ..................... 1,987,267 2,083,172
Hong Kong ................. 58,834 (212,620)
------------- -------------
Total .................... $ 1,878,554 $ 7,616,874
============= =============
Income (Loss) Before
Tax and Minority Interest:
New York .................. $ 614,458 $ 1,758,491
London .................... (695,522) 4,345,310
Canada .................... (142,529) (91,821)
Tokyo ..................... 2,212,842 2,108,463
Hong Kong ................. 70,601 (216,888)
------------- -------------
Total .................... $ 2,059,850 $ 7,903,555
============= =============
Net Income (Loss):
New York .................. $ 44,258 $ 671,844
London .................... (699,476) 2,683,174
Canada .................... (96,255) (91,821)
Tokyo ..................... 618,157 300,591
Hong Kong ................. 36,007 (110,613)
------------- -------------
Total .................... $ (97,309) $ 3,453,175
============= =============
At March 31,
-------------
1996
-------------
Identifiable Assets:
New York .................. $36,220,688
London .................... 34,137,882
Canada .................... 1,681,227
Tokyo ..................... 6,568,256
Hong Kong ................. 1,705,936
-------------
Total .................... $80,313,989
=============
Employees:
Brokers
New York .................. 246
London .................... 253
Canada .................... 21
Tokyo ..................... 41
Hong Kong ................. 59
-------
Total Brokers ............ 620
Administrative Staff ..... 163
-------
Total Employees .......... 783
=======
</TABLE>
34
<PAGE>
As noted from the above table, significant growth in commission income
occurred from 1991 through 1993. During this period, EBIC maintained
significant market share in most of its traditional products including
currency deposits, interest rate swaps and other derivative products. In
addition, EBIC enjoyed excellent growth from its new product expansion
efforts including, among others, Emerging Market debt and energy related
commodity swaps. In 1992, EBIC entered into a joint venture with Liberty
Brokerage, Inc., a U.S. government securities broker, to form Liberty Euro
Brokers ("LEB"), which offers services in non-dollar government securities
and repurchase agreements. From 1991 to 1993, commission income increased
$40.6 million, from $95.0 million to $135.6 million, of which the New York
and London offices accounted for $14.7 million and $27.7 million,
respectively (offset by a $1.8 million decrease in Canada). The commission
income increase in the New York office resulted from expansion into commodity
swaps and Emerging Market debt products, which in total accounted for $12.5
million of this increase. The London office increase resulted from a
combination of factors, including the success of LEB, the expansion of
Emerging Market debt and the extreme volatility of European currencies
resulting from the attempt at EC monetary unification. The above factors
accounted for $7.7 million, $4.3 million, and $5.8 million of the commission
income increase, respectively. The balance of the increase related to growth
in EBIC's traditional products, primarily interest rate derivatives. The
decrease in Canada was principally due to the loss of the Canadian Treasury
bill unit to a competitor of EBIC.
In 1993, in recognition of certain business conditions and events, EBIC
reviewed the recorded value of its goodwill based on an evaluation of the net
present value of future cash flows from certain of its foreign subsidiaries
and affiliates. As a result, it was determined that there had been an other
than temporary impairment of goodwill and, accordingly, $12,643,948
attributable to such goodwill was written off.
In 1994, EBIC suffered the effects of several adverse factors. First, due
to preliminary merger discussions with a competitor of LEB, EBIC sold its
interest in LEB in the latter part of 1993 and in connection with such sale
EBIC's results of operations no longer include the results of that joint
venture. Second, a competitor attempted an aggressive entry into the interest
rate derivatives market, historically EBIC's most profitable product, by
offering above market compensation arrangements to brokers and substantially
discounted commission rates to customers. In connection therewith, EBIC lost
a number of its key employees both in New York and London, and was forced to
increase compensation arrangements to retain many others of its staff.
Additionally, commission rates came under intense pressure, and were
ultimately reduced for many products by as much as 50%. Separately, several
key brokers who worked in EBIC's commodity swap department left to set up
their own competing brokerage operation. Third, the unexpected increase in
U.S. interest rates, negative publicity surrounding the improper use of
derivatives and a lack of volatility in the EC all combined to reduce trading
volumes dramatically from previous levels. Fourth, EBIC proceeded with
efforts to expand into U.S. government securities, Yen derivatives in London
and Tokyo, forward Yen in London and New York and equity derivatives in Hong
Kong. Although some of these efforts proved successful, some did not.
Considering the difficult financial times being experienced in the
marketplace in general and by EBIC in particular, a number of operations were
subsequently discontinued. These factors taken together resulted in reduced
commissions for many of EBIC's products. At the same time, overall expenses
increased. In 1994, EBIC also entered into a partnership (the "Tokyo
Partnership") with Yagi Euro Corporation ("Yagi Euro"), in which EBIC holds a
15% equity interest, to broker certain derivative products in Tokyo. EBIC
holds a 50% interest in the Tokyo Partnership, through its Euro Brokers Tokyo
subsidiary. The profitability of the Tokyo Partnership offset some of the
adverse effects of the above mentioned conditions in 1994.
1995 began with a difficult operating environment for EBIC and for other
money brokers. Operating results continued to suffer from reduced trading
volumes, brokerage reductions and high costs. Furthermore, EBIC suffered a
number of weakened market relationships due to the departure of certain key
employees during 1994. During 1995, EBIC reviewed each of its desks and
products and, based on its evaluation of future prospects, reduced operating
costs, eliminated and/or combined individual desks with others, renegotiated
compensation arrangements and reduced the total number of brokers it
employed. It also refocused its attention on being one of the top three
brokers in each of the product groups in which it operated. Further, EBIC
believed that investment in technology, whether in the form of computer
35
<PAGE>
pricing models, voice and data communication systems or its own proprietary
screen system, was of vital importance to its long-term future and thus
invested heavily in these areas. Additionally, EBIC hired several key
employees during the fourth quarter of 1995, and it anticipates that these
additions will have positive effects on its operating results in 1996.
Throughout 1995, EBIC maintained its significant market position in
Emerging Market debt products in New York and London, in Yen and other
currency derivatives in London and Tokyo, and in interest rate and bond
options in London. EBIC recognized significantly increased revenues and
income before tax from the Tokyo Partnership. This was largely caused by an
extremely volatile Yen market and the increased use of Yen derivatives by
dealers to hedge investment portfolios. EBIC's competitors have increased
their efforts in this market segment in 1995 and, accordingly, continued
growth in revenues and net income from the Tokyo Partnership cannot be
assured.
The first quarter of 1996 was marked by robust market activity in the
financial services industry. Market participants, including EBIC's customers,
many of whom were forced to operate under severely restricted trading limits
during much of 1995, adopted trading policies which allowed them more freedom
to take market positions. This increased market activity, combined with the
cost reductions and consolidation of certain operations implemented
throughout 1995, resulted in significantly increased profitability for EBIC
in the first quarter of 1996. Increases in commission income were experienced
by each of the New York, London and Tokyo operations. EBIC does not
anticipate an increase of the same magnitude in the second quarter of 1996.
EBIC has historically incurred a high effective tax rate due to the
non-deductibility of certain expenses, including entertainment expenses, and
amortization of intangibles. The impact of these adjustments on the effective
tax rate is affected by the level of pre-tax accounting income. In 1992, the
effective tax rate was also affected by certain losses resulting from foreign
exchange remeasurement, which were recorded in the statement of operations
without a corresponding tax benefit.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31,
1995
Commission income for the first three months of 1996 increased $4,680,794
to $48,339,964, compared to $43,659,170 for the comparable period in 1995 and
the increase related principally to increases in New York and London. The
products which contributed most significantly to the increase included
Emerging Market debt products, interest rate swaps, interest rate options,
repurchase agreements and energy related commodity swaps. The increased
commission income from these products was partially offset by decreases in
commission income from currency deposits and forward foreign exchange.
Interest income for the 1996 period increased $107,816 to $418,772,
compared to $310,956 for the 1995 period, due to increased cash available at
December 31, 1995 versus 1994. Cash and cash equivalents at March 31, 1996
reflect a decrease from December 1995 due to the fact that significant
semi-annual bonus payments are made at the end of February.
Other income for first quarter 1996 decreased $75,705 to $74,725, compared
to $150,430 for the same period in 1995, due to decreased income from equity
affiliates and a decrease in foreign exchange gains.
Payroll and related costs for first quarter 1996 decreased $215,188 to
$28,353,853, compared to $28,569,041 for first quarter 1995. These costs, as
a percentage of commission income, decreased from 65% to 59%. This decrease
is primarily the result of management's undertaking in 1995 to eliminate
and/or consolidate unprofitable departments and the increase in brokerage
revenues in 1996 noted above.
Communication costs for first quarter 1996 decreased $734,527 to
$3,948,713, compared to $4,683,240 for first quarter 1995, primarily as a
result of efforts in the U.K. to cancel any unnecessary information service
subscriptions upon their expiration.
Travel and entertainment costs for first quarter 1996 increased $69,042 to
$2,609,881, compared to $2,540,839 for first quarter 1995, although as a
percentage of commission income, travel and entertainment expenses decreased
from 5.8% to 5.4%. The decrease reflects continued efforts to control such
costs and the positive effects of the increase in 1996 revenues.
36
<PAGE>
Depreciation and amortization expense for the first three months of 1996
increased $14,806 to $1,171,970, compared to $1,157,164 for the same period
in 1995. This expense has remained relatively comparable from 1995 to 1996
and is reflective of the fact that EBIC completed the relocation of its
offices in 1993 and 1994 and has not incurred any major capital expenditures
since that time. Furniture and equipment, consisting primarily of
communications and computer equipment, is replaced and upgraded on a
continual basis.
Clearing fees for first quarter 1996 decreased $94,211 to $1,191,695,
compared to $1,285,906 for first quarter 1995. Such expense remained
relatively constant due to the offsetting effect of increased volume of
transactions and reduced per transaction fees.
General and administrative expenses for first quarter 1996 decreased by
$93,820 to $2,004,770, compared to $2,098,590 for first quarter 1995.
Interest expense for first quarter 1996 decreased by $57,284 to $148,058,
compared to $205,342 for first quarter 1995, primarily due to a paydown of
principal on EBIC's acquisition indebtedness.
Occupancy costs for first quarter 1996 decreased by $19,618 to $1,500,966,
compared to $1,520,584 for first quarter 1995, due to the elimination of
certain duplicate rental obligations in Toronto as a result of the relocation
of that office.
Provision for income taxes for first quarter 1996 increased by $2,473,668
to $4,099,528, compared to $1,625,860 for first quarter 1995. The increase
was primarily the result of an increase in taxable income. The effective tax
rate improved significantly during the first quarter of 1996 due to the
improved profitability of EBIC, and the interaction with the non-deductible
expenses, which remain fairly constant from period to period.
Minority interest in consolidated subsidiary for first quarter 1996
decreased by $180,447 to $350,852, compared to $531,299 for first quarter
1995.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Commission income for the year ended December 31, 1995 increased
$26,989,666 to $171,576,327, compared to $144,586,661 for the year ended
December 31, 1994. The increase in commission income in 1995 was the result
of the inclusion of a full year of operations for several initiatives
undertaken in 1994, primarily the Tokyo Partnership, Yen derivatives, options
on government bonds and equity options. Nonetheless, revenues were adversely
impacted by reductions in commissions from interest rate swaps, energy
related commodity swaps and repurchase agreements in New York.
Interest income for 1995 increased $371,955 to $1,462,744, compared to
$1,090,789 for 1994, due to an increase in the average cash and cash
equivalents balances, accompanied by an increase in the average interest
rates earned on short-term investments.
Other income for 1995 of $732,347 primarily reflects earnings from equity
affiliates, principally Yagi Euro, and other income for 1994 of $697,522
primarily reflects a gain on the sale of exchange memberships.
Payroll and related costs for 1995 increased $14,707,892 to $110,915,257,
compared to $96,207,365 for 1994. These costs, as a percentage of commission
income, remained consistent in 1994 and 1995 and, in general, increased
proportionally with revenues, since competitive pressures continue to require
fixed salary plus incentive arrangements based on an individual or desk
basis. The 1995 results also include the costs incurred in connection with
the consolidation and elimination of certain products, while the cost
reductions associated therewith will not be fully realized until 1996.
Communication costs for 1995 increased $1,554,563 to $17,187,573, compared
to $15,633,010 for 1994. Increased costs resulted from an expansion in the
communications network in Emerging Market debt and the addition of certain
new products (as noted above) by the New York, Tokyo, Toronto and Hong Kong
offices. Such increases were partially offset by a reduction of costs in
London resulting from a consolidation of certain desks.
37
<PAGE>
Travel and entertainment costs for 1995 decreased $269,519 to $10,224,384,
or 6.0% of commission income, compared to $10,493,903, or 7.3% of commission
income, for 1994. The reduction was the result of increased efforts to
control such expenses.
In 1995, depreciation and amortization expense, which consists principally
of depreciation of communication and computer equipment, automobile leases
and amortization of leasehold improvements, increased $319,983 to $4,568,164,
compared to $4,248,181 for 1994. This increase was the result of the
continued expansion of certain business in New York and the expansion of
EBIC's proprietary screen system in New York and London.
Clearing fees are fees for transaction settlements and credit enhancement
charged by clearing institutions in transactions where EBIC acts as the
riskless principal on a fully matched basis. These expenses increased
$130,154 to $3,777,710, compared to $3,647,556 for 1994, due to an increase
in the volume of transactions, offset by only a slight reduction in the per
transaction fee.
General and administrative expenses include such operating costs as
corporate insurance, office supplies and expenses, legal fees, audit and tax
fees, consulting fees, food costs and dues to various industry associations.
These expenses for 1995 increased $489,669 to $7,845,403, compared to
$7,355,734 for 1994, partially due to costs associated with the Tokyo
Partnership, which for 1995 reflect a full year of operations versus only a
partial year for 1994 (during which the partnership was formed).
Interest expense for 1995 decreased $860,470 to $775,077, compared to
$1,635,547 for 1994, due to the reduction of debt outstanding.
Provision for income taxes for 1995 increased $4,059,207 to $7,393,196,
compared to $3,333,989 for 1994. This increase was primarily the result of
the increase in taxable income. The 1995 effective tax rate includes the
effect of the non-deductibility of entertainment expenses, state and city
taxes and foreign income subject to higher income tax rates. The 1994
effective tax rate includes the effect of these elements and of foreign
losses for which no tax benefit was recognized.
Minority interest in consolidated subsidiary increased $1,517,374 to
$1,767,854 in 1995 from $250,480 in 1994 primarily due to increased
profitability of the Tokyo Partnership.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Commission income for 1994 increased $9,009,036 to $144,586,661, compared
to $135,577,625 for 1993. The increase in commission income was primarily the
result of revenue generated by the Tokyo Partnership. Commission income for
1994 is also reflective of increased business in the Emerging Market debt
products in New York and London due in part to the implementation of EBIC's
proprietary screen system and the establishment of a clearing arrangement
which allowed EBIC's customers to conduct business on an anonymous basis. The
increase in Tokyo and Emerging Market debt products was partially offset by
decreases in commission income related to commodity derivatives and
repurchase agreements and declining business conducted from the Los Angeles
office, which has since been closed.
Interest income for 1994 decreased $112,293 to $1,090,789, compared to
$1,203,082 for 1993, due to a decrease in the average interest rates earned
on short-term investments.
Other income for 1994 of $697,522 decreased by $1,577,237 from $2,274,759
in 1993, primarily due to the inclusion in 1993 of a gain of $1,487,918 on
the sale of EBIC's interest in LEB.
Payroll and related costs for 1994 increased $9,443,511 to $96,207,365,
compared to $86,763,854 for 1993. These costs increased from 64% of
commission income for 1993 to 66% of commission income for 1994. The increase
in the percentage of commission income was the result of competitive
pressures requiring higher fixed salary commitments, plus additional
incentive arrangements.
Communication costs for 1994 increased $2,645,210 to $15,633,010, compared
to $12,987,800 for 1993. The increase was the net result of higher
communication and information costs in the New York and London offices, as
well as an expansion of business in Hong Kong and Tokyo.
38
<PAGE>
Travel and entertainment costs for 1994 increased $1,812,420 to
$10,493,903, or 7.3% of commission income, compared to $8,681,483, or 6.4% of
commission income, for 1993. The overall increase is reflective of the growth
in EBIC's Emerging Market debt products. The increase as a percentage of
revenue is reflective of efforts to maintain market share in areas of
declining revenue. Some areas, such as U.S. government securities and the Los
Angeles office, were subsequently closed.
In 1994, depreciation and amortization expense, which consists principally
of depreciation of communication and computer equipment, automobile leases
and amortization of leasehold improvements, increased $55,777 to $4,248,181,
compared to $4,192,404 for 1993. This increase was reflective of increased
amortization of leasehold improvements of $50,000 and $300,000, respectively,
for new offices in New York and London, which were occupied in March 1993 and
October 1993, respectively. The increase was partially offset by a decrease
of $300,000 relating to depreciation recorded by LEB, in which EBIC sold its
interest during 1993.
Clearing fees increased $2,784,111 to $3,647,556 for 1994, compared to
$863,445 for 1993, due to the growth in the volume of transactions in
Emerging Market debt products which utilize the clearing facility that was
established in July 1993.
General and administrative expenses decreased $1,879,319 to $7,355,734 in
1994, compared to $9,235,053 in 1993. Approximately $1.6 million of the
decrease related to loss contingency provisions recorded in 1993 in
connection with interest rate swap transactions arranged on behalf of banks
and local authorities in the United Kingdom. See "BUSINESS OF EBIC --Legal
Proceedings."
Interest expense decreased $1,067,212 to $1,635,547 in 1994, compared to
$2,702,759 in 1993, due to the reduction of debt outstanding pursuant to the
purchase of stock by WCAS and related investors in May 1994, the proceeds to
EBIC of which were used to repay debt obligations.
Occupancy costs represent expenses incurred in connection with various
operating leases in respect of EBIC's office premises and include base rent
and related escalations, maintenance, electricity and real estate taxes.
These costs increased $1,187,838 to $5,640,070 for 1994, compared to
$4,452,232 for 1993. The increase was reflective of leases for new premises
in New York and London, which took effect in March 1993 and October 1993,
respectively, and cover significantly more space.
In recognition of certain business conditions and events, in 1993 EBIC
reviewed the recorded value of goodwill based on an evaluation of the net
present value of future cash flows from certain of EBIC's foreign
subsidiaries and affiliates. As a result of this review, EBIC determined that
there had been an other than temporary impairment in the value of goodwill
and, accordingly, amounts aggregating $10,839,790, which were previously
attributable to goodwill associated with the acquisition of foreign
subsidiaries, and amounts aggregating $1,804,158, which were previously
attributable to goodwill associated with EBIC's investment in an affiliated
company, were written off as of December 31, 1993.
Provision for income taxes decreased $1,524,912 to $3,333,989 for 1994,
compared to $4,858,901 for 1993 due to the reduction in taxable income. The
provision for 1993 reflects the effect of the non-deductibility of the
goodwill write-off and the non-deductibility of entertainment expenses,
amortization of intangibles and state and city taxes.
Minority interest of $250,480 for 1994 is primarily related to Yagi Euro's
share in earnings of the Tokyo Partnership. Minority interest of $442,673 for
1993 relates to the minority shareholder's share of earnings of LEB prior to
its sale.
LIQUIDITY AND CAPITAL RESOURCES
EBIC has historically sought to meet its investing and financing cash flow
requirements from operating cash flows. Net cash provided from operating
activities was $13,390,412 and $10,384,058 for the years ended December 31,
1993 and 1995, respectively. Net cash used in operating activities was
$1,208,344 for the year ended December 31, 1994; the decrease in 1994
primarily relates to the timing of the payment of accrued compensation
payable, which accrual related to profits generated in 1993.
39
<PAGE>
Major factors affecting operating cash flows are discussed in the Overview
section above, which describes significant trends in EBIC's business over the
three years ending December 31, 1995. On a regional basis, the London
operations experienced losses in 1994 and earlier, reflecting the costs of
efforts to expand the operations, and the write-off of goodwill in 1993. The
London operations were profitable in 1995 and the first quarter of 1996 and,
as a result of efforts taken in 1995 to refocus the business, many of the
conditions which led to losses in earlier periods are believed to have been
ameliorated.
In 1993, EBIC completed the relocation of its two principal offices, New
York and London. In New York, EBIC entered into a fifteen-year lease and
received a substantial build-out allowance and rent free period. The lease
provides EBIC an option to terminate after ten years at a cost of $1,200,000.
The cost of new communications equipment, leasehold improvements exceeding
the landlord's build-out allowance and other capital expenditures incurred in
connection with this relocation approximated $4.0 million and was funded from
EBIC's existing capital resources. In London, EBIC entered into a twenty-five
year lease and received a significant rent free period. The lease also
provides EBIC with an option to terminate after ten years at no cost other
than the costs of restoring the premises to their original condition, which
is standard market practice. EBIC was also required to provide the landlord
with a letter of credit equal to one year's rent, or pounds
sterling1,150,000, until certain operating income conditions have been met
for three consecutive years. The cost of new communication equipment,
leasehold improvements and other capital expenditures incurred in connection
with this relocation approximated $7.0 million and was funded from EBIC's
existing capital resources.
The costs of relocation of offices in 1993 and related purchases of
equipment were generally met from existing capital resources. Purchases of
fixed assets at such levels are not expected in the near future.
In February 1994, EBIC issued to WCAS the Note aggregating $23,000,000,
which was scheduled to mature on December 31, 1995. The proceeds of the Note
were used to repay an existing subordinated note of EBIC in the principal
amount of $17,660,000 and to repurchase all the EBIC Class A Common Stock and
warrants outstanding at December 31, 1993. In May 1994, the Note was
cancelled as consideration for the purchase of EBIC Common Stock by WCAS. In
December 1995, EBIC paid $2,037,502, representing the first of five equal
annual installments due on notes issued by EBIC in connection with the
acquisition of the predecessor businesses in December 1986.
The recapitalization of debt in 1994 has favorably impacted cash
requirements, eliminating the need for interest payments of approximately $2
million per annum and principal repayments related thereto. The annual
installments on the remaining notes payable in the aggregate principal amount
of $7,880,032 with interest thereon are expected to be met from operating
activities.
EBIC and its subsidiaries, in the ordinary course of their business, are
subject to extensive regulation at international, federal and state levels by
various regulatory bodies which are charged with safeguarding the integrity
of the securities and other financial markets and protecting the interests of
customers. See "BUSINESS OF EBIC --Regulation." The compliance requirements
of these different regulatory bodies may include, but are not limited to, net
capital or stockholders' equity requirements. In addition, the SFA has issued
new rules which could impose more stringent capital adequacy requirements on
EBIC in the United Kingdom in the future. EBIC has historically met
regulatory net capital or stockholders' equity requirements and believes it
will be able to continue to do so in the future.
40
<PAGE>
FSAC AND EBIC UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 and the three months ended March 31, 1996 and the
Unaudited Pro Forma Consolidated Statement of Financial Condition as of March
31, 1996, include the accounts of FSAC and EBIC. The unaudited pro forma
financial statements reflect the Merger accounted for as a recapitalization
of EBIC, with the issuance of shares by EBIC for the net assets of FSAC,
consisting primarily of cash. The pro forma financial statements were derived
by adjusting the historical financial statements of FSAC and EBIC for certain
transactions pursuant to the Merger described in the notes to the unaudited
pro forma consolidated financial statements.
The Unaudited Pro Forma Consolidated Statements of Operations for the year
ended December 31, 1995 and the three months ended March 31, 1996 were
prepared as if the Merger had occurred on January 1, 1995. The Unaudited Pro
Forma Consolidated Statement of Financial Condition was prepared as if the
Merger had occurred on March 31, 1996. The pro forma financial data does not
purport to be indicative of the results which actually could have been
obtained had such transaction been completed as of the assumed dates or which
may be obtained in the future.
The pro forma financial data should be read in conjunction with the
financial statements of FSAC and EBIC included elsewhere in this Proxy
Statement.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
FINANCIAL
PRO FORMA ADJUSTMENTS
SERVICES EURO BROKERS PRO FORMA PRO FORMA
ACQUISITION INVESTMENT ----------------------------- ASSUMING NO ASSUMING 10%
CORPORATION CORPORATION DR. CR. REDEMPTION(1) REDEMPTION(1)
------------- -------------- --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commission income ....... $ -- $171,576,327 $ -- $ -- $171,576,327 $171,576,327
Interest income ......... 1,102,027 1,462,744 $1,102,027(2) -- 1,462,744 1,462,744
Other income ............ -- 732,347 -- -- 732,347 732,347
------------- -------------- --------------- ------------ -------------- --------------
1,102,027 173,771,418 1,102,027 -- 173,771,418 173,771,418
------------- -------------- --------------- ------------ -------------- --------------
Costs and expenses:
Payroll and related costs -- 110,915,257 480,000(3) -- 111,395,257 111,395,257
Communication costs ..... -- 17,187,573 -- -- 17,187,573 17,187,573
Travel and entertainment -- 10,224,384 -- -- 10,224,384 10,224,384
Depreciation and
amortization ........... 13,092 4,568,164 -- -- 4,581,256 4,581,256
Clearing fees ........... -- 3,777,710 -- -- 3,777,710 3,777,710
General and
administrative expenses 158,986 7,845,403 -- -- 8,004,389 8,004,389
Interest expense ........ -- 775,077 -- -- 775,077 775,077
State franchise taxes ... 13,000 -- -- -- 13,000 13,000
Acquisition costs ....... 239,817 -- -- 239,817(4) -- --
Occupancy costs ......... 60,000 5,854,525 -- 60,000(5) 5,854,525 5,854,525
------------- -------------- --------------- ------------ -------------- --------------
484,895 161,148,093 480,000 299,817 161,813,171 161,813,171
------------- -------------- --------------- ------------ -------------- --------------
Income before provision
for income taxes and
minority interest ....... 617,132 12,623,325 1,582,027 299,817 11,958,247 11,958,247
Provision for income taxes 219,000 7,393,196 -- 513,000(6) 7,099,196 7,099,196
------------- -------------- --------------- ------------ -------------- --------------
Income before minority
interest ................. 398,132 5,230,129 1,582,027 812,817 4,859,051 4,859,051
Minority interest ........ -- (1,767,854) -- -- (1,767,854) (1,767,854)
------------- -------------- --------------- ------------ -------------- --------------
Net income ............... $ 398,132 $ 3,462,275 $1,582,027 $812,817 $ 3,091,197 $ 3,091,197
============= ============== =============== ============ ============== ==============
Common stock shares
outstanding .............. 4,416,666 1,671,290 9,283,332(7) 8,355,000(8)
Earnings per share ....... $ 0.09 $ 0.33(9) $ 0.37(9)
</TABLE>
41
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
FINANCIAL
PRO FORMA ADJUSTMENTS
SERVICES EURO BROKERS PRO FORMA PRO FORMA
ACQUISITION INVESTMENT ----------------------------- ASSUMING NO ASSUMING 10%
CORPORATION CORPORATION DR. CR. REDEMPTION(1) REDEMPTION(1)
------------- -------------- --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Commission income ....... $ -- $48,339,964 $ $-- $48,339,964 $48,339,964
Interest income ......... 244,118 418,772 244,118(2) -- 418,772 418,772
Other income ............ -- 74,725 -- 74,725 74,725
------------- -------------- --------------- ------------ -------------- --------------
244,118 48,833,461 244,118 -- 48,833,461 48,833,461
------------- -------------- --------------- ------------ -------------- --------------
Costs and expenses
Payroll and related costs -- 28,353,853 120,000(3) -- 28,473,853 28,473,853
Communication costs ..... -- 3,948,713 -- -- 3,948,713 3,948,713
Travel and entertainment -- 2,609,881 -- -- 2,609,881 2,609,881
Depreciation and
amortization ........... 3,273 1,171,970 -- -- 1,175,243 1,175,243
Clearing fees ........... -- 1,191,695 -- -- 1,191,695 1,191,695
General and
administrative expenses 40,375 2,004,770 -- -- 2,045,145 2,045,145
Interest expense ........ -- 148,058 -- -- 148,058 148,058
State franchise taxes ... 3,250 -- -- -- 3,250 3,250
Occupancy costs ......... 15,000 1,500,966 -- 15,000(5) 1,500,966 1,500,966
------------- -------------- --------------- ------------ -------------- --------------
61,898 40,929,906 120,000 15,000 41,096,804 41,096,804
------------- -------------- --------------- ------------ -------------- --------------
Income before provision
for income taxes and
minority interest ....... 182,220 7,903,555 364,118 15,000 7,736,657 7,736,657
Provision for income taxes 62,000 4,099,528 -- 139,000(6) 4,022,528 4,022,528
------------- -------------- --------------- ------------ -------------- --------------
Income (loss) before
minority interest ........ 120,220 3,804,027 364,118 154,000 3,714,129 3,714,129
Minority interest ........ -- (350,852) -- -- (350,852) (350,852)
------------- -------------- --------------- ------------ -------------- --------------
Net income ............... $ 120,220 $ 3,453,175 $364,118 $154,000 $ 3,363,277 $ 3,363,277
============= ============== =============== ============ ============== ==============
Common stock shares
outstanding .............. 4,416,666 1,671,290 9,283,332(7) 8,355,000(8)
Earnings per share ....... $ 0.03 $ 0.36(9) $ 0.40(9)
</TABLE>
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
1. The unaudited pro forma consolidated statement of operations is
presented, in the first instance, assuming that no FSAC stockholders
exercise Redemption Rights and, in the second instance, assuming that
holders of 464,166 shares of FSAC Common Stock exercise Redemption
Rights (representing the maximum number of shares with respect to which
redemption can be effected under the Merger Agreement without EBIC's
consent, assuming consummation of the Unit Purchase Option Exchange).
Pursuant to the FSAC Certificate of Incorporation, FSAC may not
consummate a Business Combination if holders with respect to 20% or
more in interest of the FSAC Public Shares vote against the Business
Combination and request redemption of such shares. However, the Merger
Agreement provides that as a condition to EBIC's obligation to
consummate the Merger, the number of shares of FSAC Common Stock with
respect to which redemption is actually effected may not exceed 10% of
the shares of FSAC Common Stock actually outstanding immediately prior
to the Merger (giving effect, however, to any Unit Purchase Option
Exchange).
2. For the year ended December 31, 1995, represents the elimination of
interest income of $1,102,027 on FSAC's short-term investments and
investment in a U.S. government security deposited in the Trust, which
will be liquidated upon consummation of the Merger to pay the cash
portion of the Merger Consideration. For the three months ended March
31, 1996, represents the quarterly elimination of interest income of
$244,118 on FSAC's short-term investments and investment in a U.S.
government security deposited in the Trust, which will be liquidated
upon consummation of the Merger to pay the cash portion of the Merger
Consideration.
3. For the year ended December 31, 1995, represents the annual salary to
be paid to the President of FSAC ($450,000) and the increase in annual
salaries to senior management of EBIC ($30,000) pursuant to the
Employment Agreements. For the three months ended March 31, 1996,
represents the quarterly portion of salary to be paid to the President
of FSAC ($112,500) and the quarterly portion of the increase in annual
salaries to senior management of EBIC ($7,500) pursuant to the
Employment Agreements.
4. For the year ended December 31, 1995, represents the elimination of
non-recurring costs, primarily professional fees, in connection with a
letter of intent relating to a proposed acquisition agreement which was
terminated in July 1995. These non-recurring costs are unrelated to the
Merger and would not have been incurred if the acquisition had occurred
on January 1, 1995.
5. Represents the elimination of FSAC occupancy expense due to the
consolidation of the office space of FSAC and EBIC.
6. Represents the income tax provision at an effective rate of 40% on the
adjustments described in notes 2 to 5 above.
7. This number is based on 4,416,666 shares of FSAC Common Stock currently
outstanding and the issuance of a like number of shares as part of the
Merger Consideration. In addition, this number of shares assumes
consummation of the Unit Purchase Option Exchange, in which all of the
outstanding 333,333 Unit Purchase Options will be exchanged, contingent
upon and immediately following effectiveness of the Merger, for 225,000
newly-issued shares of FSAC Common Stock. In such event, the aggregate
Merger Consideration, in order to maintain the 50% interest of EBIC
stockholders on a pro forma basis, will also be increased by 225,000
shares of FSAC Common Stock. If the Unit Purchase Option Exchange is
not consummated, this number would be 450,000 less, or 8,833,332.
8. This number of shares of FSAC Common Stock also assumes effectiveness
of the Unit Purchase Option Exchange. See note 7. If the Unit Purchase
Option Exchange is not consummated, this number would be 405,000 less,
or 7,950,000.
9. Based on market prices for FSAC Common Stock at and preceding March 31,
1996, the 15,133,332 FSAC Warrants that will be outstanding giving
effect to the Merger would have been anti-dilutive and, accordingly,
were not included in the per share calculations. If and when the
post-Merger market price of FSAC Common Stock exceeds the $5.00 per
share warrant exercise price, the FSAC Warrants will likely have a
significant dilutive impact on earnings per share (not taking into
account the effects of the Exchange Offer, if any).
43
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
AS OF MARCH 31, 1996
<TABLE>
<CAPTION>
FINANCIAL
PRO FORMA ADJUSTMENTS
SERVICES EURO BROKERS PRO FORMA PRO FORMA
ACQUISITION INVESTMENT ----------------------------- ASSUMING NO ASSUMING 10%
CORPORATION CORPORATION DR. CR. REDEMPTION(1) REDEMPTION(1)
------------- -------------- --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 38,395 $22,805,511 $18,718,730(2) $19,000,000(4) $23,577,002 $21,152,277
2,241,866(6) 1,227,500(3)
Restricted cash .......... -- 1,755,475 -- -- 1,755,475 1,755,475
Commissions receivable ... -- 21,687,505 -- -- 21,687,505 21,687,505
Equity in affiliated
companies ............... -- 2,815,865 -- -- 2,815,865 2,815,865
Receivable from clearing
firm .................... -- 3,976,787 -- -- 3,976,787 3,976,787
Short-term investment and
accrued interest thereon 1,008,094 -- -- -- 1,008,094 1,008,094
US Government security
deposited in Trust and
accrued interest thereon 18,718,730 -- -- 18,718,730(2) -- --
Prepaid expenses and other
assets .................. -- 7,241,065 -- -- 7,241,065 7,241,065
Exchange memberships ..... -- 140,000 -- -- 140,000 140,000
Deferred taxes ........... -- 4,748,281 -- -- 4,748,281 4,748,281
Furniture, equipment and
leasehold improvements .. -- 12,819,192 -- -- 12,819,192 12,819,192
Deferred acquisition costs 622,500 -- -- 622,500(3) -- --
Intangible assets ........ 48,253 2,324,308 -- -- 2,372,561 2,372,561
------------- -------------- --------------- ------------ -------------- --------------
Total assets ............ $20,435,972 $80,313,989 $20,960,596 $39,568,730 $82,141,827 $79,717,102
============= ============== =============== ============ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and
accrued liabilities .... $ 687,498 $14,668,515 $ 600,000(3) $ -- $14,756,013 $14,756,013
Accrued compensation
payable ................ -- 12,971,036 -- -- 12,971,036 12,971,036
Accrued interest payable -- 288,363 -- -- 288,363 288,363
Income taxes payable .... -- 6,633,746 -- -- 6,633,746 6,633,746
Obligations under
capitalized lease ...... -- 2,298,188 -- -- 2,298,188 2,298,188
Deferred taxes payable .. 42,000 591,526 -- -- 633,526 633,526
Notes payable ........... -- 7,834,318 -- -- 7,834,318 7,834,318
------------- -------------- --------------- ------------ -------------- --------------
729,498 45,285,692 600,000 -- 45,415,190 45,415,190
------------- -------------- --------------- ------------ -------------- --------------
Minority interest ....... -- 395,397 -- -- 395,397 395,397
------------- -------------- --------------- ------------ -------------- --------------
Common stock, subject to
possible redemption .... 3,741,874 -- 3,741,874(5) -- -- --
------------- -------------- --------------- ------------ -------------- --------------
Stockholders' equity:
Common stock, $.001 par
value .................. 3,700 -- -- 716(5) 9,283 8,355
-- 4,867(7)
Common stock ............ -- 1,671 1,671(7) -- -- --
Additional paid-in
capital ................ 15,710,140 38,018,520 19,000,000(4) 3,741,158(5) 37,467,382 35,043,585
1,250,000(3) 250,760(8)
3,196(7)
Retained earnings
(deficit) .............. 250,760 (3,797,866) 250,760(8) -- (3,797,866) (3,797,866)
Notes receivable from
stockholders ........... -- (2,241,866) -- 2,241,866(6) -- --
Foreign translation
adjustments ............ -- 2,652,441 -- -- 2,652,441 2,652,441
------------- -------------- --------------- ------------ -------------- --------------
Total stockholders'
equity ................. 15,964,600 34,632,900 20,505,627 6,239,367 36,331,240 33,906,515
------------- -------------- --------------- ------------ -------------- --------------
Total liabilities and
stockholders' equity ... $20,435,972 $80,313,989 $24,847,501 $ 6,239,367 $82,141,827 $79,717,102
============= ============== =============== ============ ============== ==============
</TABLE>
44
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
1. The unaudited pro forma consolidated statement of financial condition
is presented, in the first instance, assuming that no FSAC stockholders
exercise Redemption Rights and, in the second instance, assuming that
holders of 464,166 shares of FSAC Common Stock exercise Redemption
Rights (representing the maximum number of shares with respect to which
redemption can be effected under the Merger Agreement without EBIC's
consent, assuming consummation of the Unit Purchase Option Exchange).
Pursuant to the FSAC Certificate of Incorporation, FSAC may not
consummate a Business Combination if holders with respect to 20% or
more in interest of the FSAC Public Shares vote against the Business
Combination and request redemption of such shares. However, the Merger
Agreement provides that as a condition to EBIC's obligation to
consummate the Merger, the number of shares of FSAC Common Stock with
respect to which redemption is actually effected may not exceed 10% of
the shares of FSAC Common Stock actually outstanding immediately prior
to the Merger (giving effect, however, to any Unit Purchase Option
Exchange). Assuming such maximum redemption of 10% occurs, FSAC's cash
and stockholders' equity prior to the Merger would be reduced by
$2,424,725. Consequently, FSAC's unaudited pro forma consolidated
stockholders' equity would decrease from $36,331,240 to $33,906,515.
There were 1,671,290 shares of EBIC Common Stock outstanding as of
March 31, 1996. On a pro forma basis after the Merger, assuming no
redemption of shares of FSAC Common Stock, 9,283,332 shares of FSAC
Common Stock will be outstanding, which assumes 4,416,666 of previously
outstanding shares, 225,000 shares issued in respect of the Unit
Purchase Option Exchange, and 4,641,666 shares issued in exchange for
outstanding shares of EBIC Common Stock. If the Unit Purchase Option
Exchange is not consummated, 8,833,332 shares of FSAC Common Stock will
be outstanding. Where the maximum redemption of FSAC Common Stock of
10% permitted by the Merger Agreement is assumed, 8,355,000 shares of
FSAC Common Stock would be outstanding as of March 31, 1996, on a pro
forma basis, assuming consummation of the Unit Purchase Option Exchange
(7,950,000 shares if the Unit Purchase Option Exchange is not
consummated).
2. Represents the release of restricted cash from the Trust as a result of
the Merger.
3. Represents payment of $1,227,500 of the total estimated expenses of
$1,250,000 to be incurred by FSAC and EBIC in connection with the
Merger.
4. Represents payment of the estimated aggregate cash consideration of
$19,000,000 to holders of EBIC Common Stock under the terms of the
Merger Agreement (including adjustments to the cash consideration based
on changes in FSAC and EBIC's respective net worths through March 31,
1996).
5. Represents the reclassification of FSAC Common Stock subject to
possible redemption on the basis of the unaudited pro forma
consolidated statement of financial condition assumption that no FSAC
stockholders will exercise their Redemption Rights.
6. Represents the repayment of notes receivable from certain EBIC
stockholders concurrent with the Merger.
7. Represents the recapitalization of stockholders' equity based upon the
issuance of FSAC Common Stock in exchange for EBIC Common Stock.
8. Represents reclassification of FSAC retained earnings prior to the
Merger to additional paid-in capital.
45
<PAGE>
FSAC COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
PRO
HISTORICAL(1) FORMA(2)(3)
------------- -------------
<S> <C> <C>
Book Value per share at March 31, 1996 $4.46 $3.91
Cash Dividends per share:
Year ended December 31, 1995 .......... 0 0
Three Months ended March 31, 1996 .... 0 0
Net Income per share:
Year ended December 31, 1995 .......... $0.09 $0.33
Three Months ended March 31, 1996 .... $0.03 $0.36
</TABLE>
- ------------
(1) Calculated on the basis of 4,416,666 shares of FSAC Common Stock
outstanding.
(2) Calculated on the basis of 9,283,332 shares of FSAC Common Stock
outstanding on a pro forma basis, which assumes effectiveness of the
Unit Purchase Option Exchange and no FSAC stockholders exercising their
Redemption Rights.
(3) Based on market prices for FSAC Common Stock at and preceding March 31,
1996, the 15,133,332 FSAC Warrants that will be outstanding giving
effect to the Merger would have been anti-dilutive and, accordingly,
were not included in the per share calulations. If and when the
post-Merger market price of FSAC Common Stock exceeds the $5.00 per
share warrant exercise price, the FSAC Warrants will likely have a
significant dilutive impact on earnings per share (not taking into
account the effects of the Exchange Offer, if any).
46
<PAGE>
CAPITALIZATION
Set forth below is (i) the capitalization of FSAC as of March 31, 1996,
(ii) the consolidated capitalization of EBIC as of March 31, 1996 and (iii)
the pro forma consolidated capitalization of FSAC as of that date after
giving effect to the Merger. This information should be read in conjunction
with the other financial information pertaining to FSAC and EBIC, including
"FSAC AND EBIC UNAUDITED PRO FORMA FINANCIAL INFORMATION --Unaudited Pro
Forma Consolidated Statement of Financial Condition" included elsewhere
herein.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------------
FSAC EBIC
HISTORICAL HISTORICAL PRO FORMA(1)
------------- ------------- -------------
<S> <C> <C> <C>
Common Stock subject to redemption ...... $ 3,741,874 $ -- $ --
------------- ------------- -------------
Stockholders' Equity
Preferred Stock(2) ...................... -- -- --
Common Stock ............................ 3,700(3) 1,671(4) 9,283(3)
Additional Paid-in Capital .............. 15,710,140 38,018,520 37,467,382
Retained Earnings (Accumulated Deficit) 250,760 (3,797,866) (3,797,866)
Notes Receivable from Stockholders ..... -- (2,241,866) --
Foreign Translation Adjustments ........ -- 2,652,441 2,652,441
------------- ------------- -------------
Total Stockholders' Equity ............. 15,964,600 34,632,900 36,331,240
------------- ------------- -------------
Total Capitalization ..................... $19,706,474 $ 34,632,900 $ 36,331,240
============= ============= =============
</TABLE>
- ------------
(1) The pro forma capitalization assumes consummation of the Unit Purchase
Option Exchange, no exercise of Redemption Rights, resulting total
Merger Consideration consisting of 4,641,666 shares of FSAC Common
Stock, 7,566,666 Merger Warrants and $19 million in cash (without
further adjustments), and repayment of notes receivable from certain
EBIC stockholders.
(2) Preferred Stock, $.001 par value, of FSAC: shares authorized
--1,000,000, historical and 1,000,000, pro forma; issued and
outstanding --none, historical and pro forma. There is no authorized
Preferred Stock of EBIC.
(3) Common Stock, $.001 par value, of FSAC: shares authorized --14,000,000,
historical and 30,000,000, pro forma; issued and outstanding
--4,416,666, including 716,666 shares subject to possible redemption,
historical and 9,283,332, pro forma (assuming consummation of the Unit
Purchase Option Exchange and no exercise of Redemption Rights).
(4) Class A Common Stock, $0.01 par value, of EBIC: 2,000,000 shares
authorized, none outstanding. Class B Common Stock, $.001 par value, of
EBIC: 2,000,000 shares authorized, 1,671,290 issued and outstanding.
47
<PAGE>
MARKET PRICES OF FSAC SECURITIES
FSAC Common Stock, FSAC Warrants (each entitling the holder thereof to
purchase one share of FSAC Common Stock for $5.00 per share) and FSAC Units
(each consisting of one share of FSAC Common Stock and two FSAC Warrants) are
quoted on the OTC Bulletin Board under the symbols "FSAT," "FSATW" and
"FSATU," respectively.
The following table sets forth the range of high and low closing bid
prices for each of the FSAC Units, FSAC Common Stock and FSAC Warrants for
the period since December 7, 1994, when FSAC Common Stock and FSAC Warrants
commenced public trading, as reported by the OTC Bulletin Board. The price
per FSAC Unit in the IPO was $6.00. The OTC Bulletin Board is a NASD
sponsored and operated automated inter-dealer quotation system for equity
securities not included in the Nasdaq Stock Market National Market System.
Such over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
FSAC FSAC FSAC
COMMON STOCK WARRANTS UNITS
HIGH LOW HIGH LOW HIGH LOW
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
1994:
Fourth Quarter (beginning December 7) ... $ 4 1/4 $ 4 1/4 $ 7/8 $ 7/8 $6 $5 3/4
1995:
First Quarter ............................ $4 3/8 $4 1/4 $ 7/8 $ 5/8 $5 3/4 $5 3/4
Second Quarter ........................... 4 9/16 4 1/4 3/4 5/8 5 3/4 5 3/4
Third Quarter ............................ 4 5/8 4 1/2 3/4 11/16 5 3/4 5 3/4
Fourth Quarter ........................... 4 5/8 4 3/8 11/16 1/2 5 3/4 5 3/4
1996:
First Quarter ............................ $4 7/8 $4 5/8 $27/32 $ 1/2 $5 3/4 $5 3/4
Second Quarter ........................... 5 1/16 4 7/8 1 1/16 23/32 6 1/8 5 3/4
Third Quarter (through July 15) .......... 5 1/16 5 1/16 1 1 6 1/8 6
</TABLE>
On July 11, 1996, there were approximately 16 holders of record of FSAC
Common Stock and 22 holders of record of FSAC Warrants. FSAC believes that
certain holders of record hold a substantial number of shares of FSAC Common
Stock and FSAC Warrants as nominees for a significant number of beneficial
owners. Because the FSAC Units are separable into FSAC Common Stock and FSAC
Warrants, a transfer of FSAC Units is recorded by FSAC's transfer agent only
as a transfer of FSAC Common Stock and FSAC Warrants. Thus, the number of
holders of record of FSAC Units is not available.
On March 7, 1996, the last trading day before the public announcement of
the proposed Merger, the high and low closing bid prices, as reported on the
OTC Bulletin Board, were (i) for FSAC Common Stock, a high of $4 7/8 and a
low of $4 7/8, (ii) for FSAC Warrants, a high of $ 3/4 and a low of $ 3/4 and
(iii) for FSAC Units, a high of $5 3/4 and a low of $5 3/4.
On July 15, 1996, the most recent date for which it was practicable to
obtain market price information before the printing of this Proxy Statement,
the high and low closing bid prices, as reported on the OTC Bulletin Board,
were (i) for FSAC Common Stock, a high and a low of $5 1/16, (ii) for FSAC
Warrants, a high and a low of $1 and (iii) for FSAC Units, a high and a low of
$6. Based on such bid prices for FSAC Common Stock and FSAC Warrants, and
assuming an estimated Per Share Cash Consideration of $12.03, the Merger
Consideration (prior to giving effect to any further adjustments or escrow
arrangements) would have an indicated per share value of $29.94.
FSAC has never paid dividends on any of its capital stock. Following the
Merger, it is the present intention of FSAC's Board of Directors to retain
all earnings, if any, for use in FSAC's business operations and, accordingly,
FSAC does not anticipate paying any dividends on FSAC Common Stock in the
foreseeable future.
48
<PAGE>
FSAC stockholders are urged to obtain current market quotations for FSAC
Common Stock and FSAC Warrants.
STOCK PRICE PERFORMANCE COMPARISON
The following graph compares cumulative total return of FSAC Common Stock
with the cumulative total return of (i) the Standard & Poor's Midcap 400
Index (the "S&P Index") and (ii) an industry peer group index consisting of
ten other publicly-traded SPACs(Registered Trademark) (the "Peer Index"). The
graph assumes $100 was invested on December 7, 1994 (the day FSAC Common
Stock was first traded on the OTC Bulletin Board) in shares of FSAC Common
Stock, stocks comprising the S&P Index and stocks comprising the Peer Index,
and the reinvestment of dividends.
FSAC has used an index of other SPAC(Registered Trademark) stocks for an
industry peer group because of the unique business purpose of the
SPACs(Registered Trademark) and the features of their securities and rights
of their security holders. The Peer Index is comprised of the following
SPACs(Registered Trademark), some of which have already completed their
initial Business Combinations: HDS Corporation, Concord Health Group, Inc.,
SourceMedia, Inc., International Metals Acquisition Corporation, Bogen
Communications, Zydeco Energy, Inc., Kellstrom Industries, Restructuring
Acquisition Corporation, Production Systems Acquisition Corporation and Silver
Diner, Inc.
COMPARATIVE STOCK PRICE PERFORMANCE
Dec-94 Dec-94 Jan-95 Feb-95 Mar-95
S&P Midcap 400 $100.00 $102.37 $103.29 $108.48 $110.19
FSAC $100.00 $100.00 $100.00 $100.00 $100.00
SPAC $100.00 $ 98.77 $100.00 $104.43 $103.19
Apr-95 May-95 Jun-95 Jul-95 Aug-95
S&P Midcap 400 $111.97 $114.74 $119.25 $125.32 $127.41
FSAC $102.94 $105.88 $107.35 $105.88 $105.88
SPAC $100.34 $102.93 $104.70 $106.54 $108.11
Sep-95 Oct-95 Nov-95 Dec-95 Jan-96
S&P Midcap 400 $130.32 $128.82 $132.13 $131.62 $133.38
FSAC $108.82 $108.82 $107.35 $108.82 $108.82
SPAC $111.52 $111.92 $106.78 $104.09 $116.90
Feb-96 Mar-96 Apr-96 May-96 Jun-96
S&P Midcap 400 $137.68 $139.15 $143.24 $144.94 $142.59
FSAC $111.78 $114.71 $114.71 $119.12 $119.12
SPAC $119.08. $119.29 $112.13 $133.65 $151.55
49
<PAGE>
NO PUBLIC MARKET FOR EBIC SECURITIES
EBIC Common Stock is not registered under the Exchange Act, listed on any
securities exchange or traded in the over-the-counter market. Private
transactions occur from time to time, however, in which EBIC has been either
the buyer or the seller or the transaction has been entirely between
stockholders. WCAS and its affiliates acquired approximately 54% of the
outstanding shares of EBIC Common Stock in May 1994 at an average cost of
$27.47 per share. During 1995 and early 1996, sales and purchases between
stockholders (who were either current or former employees) occurred generally
at $18.50 per share. More recently, such sales and purchases have occurred at
prices of $21.00 per share. There have been no dividends paid on any shares
of the capital stock of EBIC in its current, or either of its last two,
fiscal years. As of March 31, 1996, the unaudited per share book value of
EBIC Common Stock was $20.72 (which does not give affect to the repayment of
approximately $2.2 million of notes receivables from EBIC stockholders, as
required concurrent with the Merger).
The foregoing data is solely for informational purposes, and is not
necessarily reflective of the fair market value of shares of EBIC Common
Stock at any time, which value may be significantly higher or lower than
prices set in privately negotiated transactions or book value.
THE SPECIAL MEETINGS
FSAC SPECIAL MEETING
Purpose of the Meeting
The FSAC Special Meeting will be held on Thursday, August 15, 1996 at
10:00 a.m. (local time) at the offices of FSAC located at 667 Madison Avenue
in New York City. At the FSAC Special Meeting, holders of FSAC Common Stock
will consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement, (ii) a proposal to elect eight persons to the FSAC Board of
Directors (including two EBIC representatives), (iii) a proposal to approve
the Charter Amendments, (iv) a proposal to adopt the FSAC Option Plan and (v)
such other matters as may be properly brought before the meeting or any
adjournments thereof. The Charter Amendments will, subject to satisfaction of
all other conditions to consummation of the Merger, provide for (x)
immediately prior to the effectiveness of the Merger, (1) the name change of
FSAC to "Financial Services Corporation" (the "Name Change Amendment") and
(2) an increase in the authorized shares of FSAC Common Stock from 14,000,000
shares to 30,000,000 shares (the "Additional Common Stock Amendment") and (y)
immediately after the effectiveness of the Merger, (1) the classification of
the Board of Directors into three classes serving staggered terms, with the
initial number of directors to be eight (the "Classified Board Amendment"),
(2) the elimination of the ability of stockholders to act by written consent
(the "Stockholders' Action Amendment"), (3) the restriction of the ability to
call special meetings of stockholders to the Chairman and the President of
FSAC or to an affirmative vote of a majority of the Board of Directors (the
"Special Meeting Amendment") and (4) a requirement of an 80% supermajority
vote to amend any of the provisions described in this clause (y) (the
"Supermajority Amendment" and, together with the Classified Board Amendment,
the Stockholders' Action Amendment and the Special Meeting Amendment, the
"Amendment to Article SIXTH"). The full text of the Charter Amendments is set
forth in the Forms of Certificates of Amendment to the Certificate of
Incorporation of FSAC attached hereto as Annex IV. See "PROPOSAL 1: THE
MERGER," "PROPOSAL 2: ELECTION OF DIRECTORS," "PROPOSAL 3: AMENDMENT TO
ARTICLE SIXTH," "PROPOSAL 4: ADDITIONAL COMMON STOCK AMENDMENT," "PROPOSAL 5:
NAME CHANGE AMENDMENT" and "PROPOSAL 6: FSAC OPTION PLAN."
THE BOARD OF DIRECTORS OF FSAC HAS UNANIMOUSLY DETERMINED THAT (I) THE
MERGER AGREEMENT AND THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED
THEREBY ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF FSAC
AND (II) THE FAIR MARKET VALUE OF EBIC AND ITS SUBSIDIARIES, BASED UPON
STANDARDS GENERALLY ACCEPTED BY THE FINANCIAL COMMUNITY, SUCH AS EARNINGS,
POTENTIAL SALES, CASH FLOW AND BOOK VALUE, EXCEEDS 80% OF THE NET ASSETS OF
FSAC. ACCORDINGLY, THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND MERGER AND RECOMMENDS A VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER
50
<PAGE>
AGREEMENT. THE BOARD OF DIRECTORS OF FSAC RECOMMENDS A VOTE "FOR" THE
ELECTION OF THE NOMINEES FOR DIRECTORS. THE BOARD OF DIRECTORS OF FSAC HAS
UNANIMOUSLY APPROVED THE CHARTER AMENDMENTS TO FSAC'S CERTIFICATE OF
INCORPORATION AND RECOMMENDS A VOTE "FOR" APPROVAL OF SUCH AMENDMENTS. THE
BOARD OF DIRECTORS OF FSAC HAS UNANIMOUSLY APPROVED THE FSAC OPTION PLAN AND
RECOMMENDS A VOTE "FOR" THE ADOPTION OF THE FSAC OPTION PLAN.
Record Date; Stock Entitled to Vote; Quorum
Only stockholders of record of FSAC Common Stock at the close of business
on the FSAC Record Date, July 11, 1996, will be entitled to receive notice of
the FSAC Special Meeting and only holders of record of FSAC Common Stock at
that time will be entitled to vote at the FSAC Special Meeting. As of the
FSAC Record Date, there were 4,416,666 shares of FSAC Common Stock
outstanding and entitled to vote at the FSAC Special Meeting (the
"Outstanding FSAC Shares"). Each share of FSAC Common Stock is entitled to
one vote. A majority of the Outstanding FSAC Shares must be represented in
person or by proxy at the FSAC Special Meeting in order for a quorum to be
present. A stockholder who abstains from a vote by registering an abstention
vote will be deemed present at the meeting for quorum purposes but will not
be deemed to have voted on the particular matter.
Votes Required
Assuming a quorum is present at the FSAC Special Meeting, the affirmative
vote by the holders of a majority of the Outstanding FSAC Shares is required
to approve and adopt the Merger Agreement. Abstentions on the proposal to
approve and adopt the Merger Agreement will have the effect of a negative
vote because the proposal requires the affirmative vote of a majority of the
Outstanding FSAC Shares.
With respect to the proposal to approve and adopt the Merger Agreement,
the Initial FSAC Stockholders are required to vote their Pre-IPO Shares
(constituting approximately 18.9% of the currently outstanding shares of FSAC
Common Stock) in accordance with the vote of the majority in interest of the
FSAC Public Shares. The Initial FSAC Stockholders also own an aggregate of
597,000 FSAC Public Shares (constituting approximately 13.5% of the currently
outstanding shares) and have indicated that they currently intend to vote
such shares in favor of such proposal. The six current directors of FSAC
(which include FSAC's only two officers) constitute all of the Initial FSAC
Stockholders. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF FSAC
AND EBIC." Assuming the Initial FSAC Stockholders vote all their 597,000 FSAC
Public Shares in favor of the proposal to approve and adopt the Merger
Agreement, the proposal will be approved if an additional 1,194,667 FSAC
Public Shares are also voted in favor of the proposal (and there are not more
than 441,666 or, if the Unit Purchase Option Exchange is consummated, 464,166
Redemption Shares).
Assuming a quorum is present at the FSAC Special Meeting and that the
Merger is ultimately consummated, those nominees for director receiving a
plurality of the votes cast at the FSAC Special Meeting will be elected as
directors. However, if the Merger is not consummated, the current directors
of FSAC will continue as directors. See "PROPOSAL 2: ELECTION OF DIRECTORS."
A "plurality" means that the nominees who receive the greatest number of
votes present or represented by proxy (up to the maximum number of directors
to be elected) are elected as the directors. Any shares not voted "FOR" a
particular director (whether as a result of a direction to withhold authority
or a broker non-vote) will not be counted for the purpose of determining a
plurality.
Assuming a quorum is present at the FSAC Special Meeting, the affirmative
vote of the holders of a majority of the Outstanding FSAC Shares is required
to approve the Charter Amendments. Abstentions on the proposals to approve
the various Charter Amendments will have the effect of a negative vote
because each proposal requires the affirmative vote of a majority of the
Outstanding FSAC Shares.
Assuming a quorum is present at the FSAC Special Meeting, the vote of a
majority of the shares of FSAC Common Stock present or represented by proxy
is required to approve the adoption of the FSAC Option Plan.
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Proxies
Shares represented by properly executed proxies received in time for the
FSAC Special Meeting will be voted at such meeting in the manner specified by
the holder thereof. IF A CHOICE IS NOT INDICATED, THE PROXY WILL BE VOTED
"FOR" EACH OF THE PROPOSALS TO BE VOTED ON AT THE FSAC SPECIAL MEETING. It is
not expected that any matters other than those referred to herein will be
brought before the FSAC Special Meeting. If, however, other matters are
properly presented, the persons named as proxies will have the discretion to
vote in accordance with their judgment with respect to such matters.
The grant of a proxy on the enclosed form does not preclude a stockholder
from voting in person. A stockholder may revoke a proxy at any time prior to
its exercise by submitting a new proxy at a later date, by filing with the
Secretary of FSAC a duly executed revocation of proxy bearing a later date or
by voting in person at the meeting. Attendance at the FSAC Special Meeting
will not of itself constitute revocation of a proxy.
Redemption Rights
Holders of FSAC Public Shares who vote such shares against the proposal to
approve and adopt the Merger Agreement have the right to demand the
redemption of such shares for cash if the Merger is approved and consummated.
Notwithstanding the foregoing, if holders of 20% or more of the FSAC Public
Shares, or 716,667 shares, vote such shares against the proposal to approve
and adopt the Merger Agreement and properly exercise their Redemption Rights,
see "REDEMPTION RIGHTS," FSAC, pursuant to its Certificate of Incorporation,
is not permitted to consummate the Merger. Moreover, EBIC has a right not to
consummate the Merger if the number of Redemption Shares exceeds 10% of the
number of shares of FSAC Common Stock outstanding at the time of the Merger
(giving effect to the Unit Purchase Option Exchange, if any), although this
right is in turn subject to an FSAC stockholder right to cure. Accordingly,
if 441,667 (or, if the Unit Purchase Option Exchange is consummated, 464,167)
FSAC Public Shares are voted against the Merger Agreement (and have
Redemption Rights duly demanded with respect to them), EBIC (subject to such
cure rights) is not obligated to consummate the Merger. See "THE MERGER
AGREEMENT --Conditions to Consummation of the Merger." To be effective,
Redemption Rights must be exercised as described elsewhere in this Proxy
Statement, with the holder of such shares both (i) voting "AGAINST" the
proposal to approve and adopt the Merger Agreement at the FSAC Special
Meeting and (ii) delivering to FSAC, prior to the close of business on the
date of the FSAC Special Meeting, both (x) a written demand for such
redemption and (y) the certificates representing the shares requested to be
redeemed, under cover of a properly completed and executed letter of
transmittal. See "REDEMPTION RIGHTS." The per share redemption price will be
equal to approximately $5.30 per share, calculated by dividing the amount in
the Trust as of the FSAC Record Date, including interest thereon, by the
number of FSAC Public Shares (the "Redemption Price"). Payment of the
Redemption Price in respect of Redemption Shares for which Redemption Rights
have been duly demanded will be made only if and when the Merger is approved
and consummated, and will be made promptly after any such consummation.
Holders of FSAC Public Shares may withdraw a tender of shares in connection
with their exercise of Redemption Rights at any time not later than 5:00 p.m.
(New York City time) on the day of the FSAC Special Meeting or, if the
Redemption Price is not theretofore paid, at any time after September 12,
1996. FSAC stockholders have no appraisal or dissenters' rights with respect
to the Merger. See "REDEMPTION RIGHTS."
FSAC Liquidation if No Business Combination
In the event that FSAC does not consummate the Merger or another Business
Combination by December 7, 1996, FSAC, pursuant to its Certificate of
Incorporation, is obligated to dissolve and distribute to holders of FSAC
Public Shares the Distribution Amount, estimated to be $5.40 per share,
calculated by dividing the amount estimated to be in the Trust as of such
date, including interest thereon, by the number of FSAC Public Shares, plus a
pro rata portion of any remaining net assets of FSAC. Pursuant to the IPO
Lock-up Agreements, the Initial FSAC Stockholders have waived their
respective rights to receive the Distribution Amount or any other liquidation
distribution with respect to their Pre-IPO Shares. Upon notice from FSAC, the
trustee will commence liquidating the investments constituting the Trust and
will turn over the proceeds to the transfer agent for FSAC Common Stock for
distribution to FSAC stockholders with respect to their FSAC Public Shares.
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EBIC SPECIAL MEETING
Approval of Merger Agreement
A Special Meeting of EBIC stockholders (the "EBIC Special Meeting") was
held on July 15, 1996. At the EBIC Special Meeting, holders of EBIC Common
Stock approved and adopted the Merger Agreement by approximately a 97% vote.
As of the record date for the EBIC Special Meeting there were 1,671,290
shares of EBIC Common Stock outstanding.
EBIC Stockholders' Appraisal Rights
Under Delaware law, stockholders of EBIC who did not vote in favor of the
Merger and who comply with the requirements of Section 262 ("Section 262") of
the Delaware General Corporation Law (the "DGCL") had the right, in
connection with the Merger, to have the "fair value" of their shares of EBIC
Common Stock judicially appraised and to be paid such appraisal value in
accordance with the provisions of Section 262. There were no written demands
for appraisal delivered to the Secretary of EBIC before the vote at the EBIC
Special Meeting on approval and adoption of the Merger Agreement.
Accordingly, there will be no shares of EBIC Common Stock entitled to
appraisal rights in connection with the Merger ("Dissenting Shares").
SOLICITATION OF PROXIES
FSAC and EBIC will each bear the cost of the solicitation of proxies from
its own stockholders, except that FSAC and EBIC will share equally the cost
of printing and filing this Proxy Statement and the Proxy Statement/
Prospectus distributed to EBIC stockholders. In addition to solicitation by
mail, the directors, officers and employees of each company and its
subsidiaries may solicit proxies from stockholders of such company by
telephone, facsimile or telegram or in person. Arrangements may also be made
with brokerage houses and other custodians, nominees and fiduciaries for the
forwarding of solicitation material to the beneficial owners of stock held of
record by such persons, and FSAC and EBIC will reimburse such custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses in
connection therewith.
D.F. King & Co., Inc. will assist in the solicitation of proxies by FSAC
and the tabulation of votes at the FSAC Special Meeting for a fee of $7,000,
plus reimbursement of its reasonable out-of-pocket expenses.
PROPOSAL 1: THE MERGER
The discussion in this Proxy Statement of the Merger and the other
transactions contemplated thereby, and the description of their principal
terms, are subject to and qualified in their entirety by reference to the
full text of the Merger Agreement, a copy of which is attached to this Proxy
Statement as Annex I, and to the other Annexes to this Proxy Statement, each
of which is incorporated herein by reference.
At the FSAC Special Meeting, FSAC stockholders will be asked to approve
and adopt the Merger Agreement. THE BOARD OF DIRECTORS OF FSAC HAS
UNANIMOUSLY APPROVED AND RECOMMENDS THAT HOLDERS OF FSAC COMMON STOCK VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AT THE FSAC SPECIAL
MEETING.
FORM OF MERGER; EFFECTIVE TIME
The Merger Agreement provides that as promptly as practicable after the
approval and adoption of the Merger Agreement by the respective stockholders
of FSAC and EBIC and the satisfaction or, if permissible, waiver of the other
conditions to the Merger, a Certificate of Merger, the form of which is
attached as Annex III to this Proxy Statement, will be filed with the
Secretary of State of the State of Delaware (the date and time of such
filing, or such later time as is specified in such certificate, being the
"Effective Time"). At the Effective Time, pursuant to such Certificate of
Merger, Merger Sub will be
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merged with and into EBIC, with EBIC being the surviving corporation (the
"Surviving Corporation") and becoming a wholly owned subsidiary of FSAC. The
name of the Surviving Corporation will be "Euro Brokers Investment
Corporation." At the Effective Time, pursuant to the Name Change Amendment,
the name of FSAC will be changed to "Financial Services Corporation."
MERGER CONSIDERATION
Pursuant to the terms of the Merger Agreement, at the Effective Time, each
share of EBIC Common Stock (other than shares held in the treasury of EBIC,
shares owned by any subsidiary of EBIC and shares owned by FSAC, all of which
will be cancelled, and other than Dissenting Shares, if any) will be
converted into the right to receive the Merger Consideration, which, subject
to certain adjustments and escrow arrangements (see "THE MERGER AGREEMENT
- --Certain Related Agreements --Escrow Agreement"), will consist of (i)
2.6426688 newly-issued shares of FSAC Common Stock, (ii) 4.5274405
newly-issued Merger Warrants and (iii) $9.5734433 in cash, without interest.
The Merger Warrants, the form of which is attached as Annex II to this Proxy
Statement, will entitle the holder to receive the same securities for the
same exercise price as are receivable by the holders of the FSAC Warrants
sold in the IPO upon any exercise of such FSAC Warrants after the Effective
Time. Cash will be paid in lieu of fractional shares of FSAC Common Stock and
fractional Merger Warrants.
The Exchange Ratios were originally calculated to result in, and will be
adjusted as necessary at the Closing to continue to result in, the holders of
EBIC Common Stock who do not exercise appraisal rights owning in the
aggregate (subject to certain escrow arrangements (see "THE MERGER AGREEMENT
- --Certain Related Agreements --Escrow Agreement") and disregarding cash
payments in lieu of fractional interests) a 50% post-Merger interest in FSAC
by acquiring in the Merger (i) a number of shares of FSAC Common Stock equal
to the number of shares of FSAC Common Stock outstanding immediately prior to
the Merger (after giving effect to (x) any exercise by FSAC stockholders of
their Redemption Rights and (y) the Unit Purchase Option Exchange, if any)
and (ii) a number of Merger Warrants equal to the number of FSAC Warrants
outstanding immediately prior to the Merger. Consistent with the foregoing
intentions, and based on the specific adjustments contemplated by the Merger
Agreement, it is expected that at the Closing the Stock Exchange Ratio will
neither exceed 2.7772954 nor be less than 2,21385588, and that the Warrant
Exchange Ratio will not have materially changed.
The Per Share Cash Consideration, which was originally determined for
purposes of the Merger Agreement by reference to the difference between FSAC
and EBIC's respective net worths at December 31, 1995, will also be adjusted
immediately prior to the Merger to reflect the then-existing difference
between the respective pre-Merger net worths of FSAC and EBIC (on a
consolidated basis), subject in each case to certain other adjustments, with
the intention generally of equalizing the respective pre-Merger contributions
of FSAC stockholders and EBIC stockholders to the post-Merger consolidated
net worth of FSAC. Based primarily on increases in EBIC's net worth that have
occurred since the signing of the Merger Agreement, the Per Share Cash
Consideration would have been increased by an aggregate of approximately $3
million, or to approximately $11.37 on a per share basis, if the Merger had
occurred on March 31, 1996. Based on preliminary assessments of further
increases in EBIC's net worth that have occurred since March 31, 1996, FSAC
and EBIC estimate that the Per Share Cash Consideration would have been
increased further by an aggregate of approximately $1.1 million, or to
approximately $12.03 on a per share basis, if the Merger had occurred on June
30, 1996. In addition, to the extent that EBIC's net worth changes further
during the period between July 1, 1996 and the actual Closing (which is
expected to occur promptly after the FSAC Special Meeting), or actual
increases in EBIC's net worth from April 1, 1996 through June 30, 1996 vary
from the preliminary assessments and estimates of the same used by management
in arriving at the above $1.1 million and $12.03 figures, the Per Share Cash
Consideration will be adjusted further, with every approximately $167,000
increase or decrease in EBIC net worth having the effect of increasing or
decreasing, as the case may be, the Per Share Cash Consideration by
approximately $.10. In addition, to the extent that holders of FSAC Public
Shares exercise their Redemption Rights, the Per Share Cash Consideration
will be increased by approximately $.32 for every approximately 100,000
Redemption Shares (up to an additional approximately $1.47 if there are
464,166 Redemption Shares, the maximum number permitted under the Merger
Agreement without EBIC's
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consent, or, assuming such consent, up to a maximum additional approximately
$2.27 if there are 716,666 Redemption Shares, the maximum number permitted by
FSAC's Certificate of Incorporation). See "THE MERGER AGREEMENT --Adjustment
of Exchange Ratios and Cash Considerations" and " --Closing True-Up
Procedures."
In the aggregate, it is expected that approximately 4,416,666 shares of
FSAC Common Stock (subject to increase by 225,000 shares if the Unit Purchase
Option Exchange is consummated and subject to decrease to the extent of any
Redemption Shares), 7,566,666 Merger Warrants and $20,100,000 in cash will be
paid as the Merger Consideration (subject to certain adjustments and escrow
arrangements), having an overall value of approximately $50 million, based on
closing per share bid prices for FSAC Common Stock and FSAC Warrants on July
15, 1996.
All shares of EBIC Common Stock converted into the right to receive the
Merger Consideration in the Merger will no longer be outstanding and will
automatically be cancelled and will cease to exist, and each certificate
previously representing any such shares will thereafter represent solely the
right to receive the Merger Consideration. Certificates previously
representing shares of EBIC Common Stock will be exchanged for the Merger
Consideration in consideration therefor, without interest but subject to
certain adjustments and escrow arrangements (see "THE MERGER AGREEMENT
- --Certain Related Agreements --Escrow Agreement"), upon the surrender of such
certificates.
Each share of common stock, par value $.01 per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time will be converted
into one validly issued, fully paid and nonassessable share of common stock,
par value $.01 per share, of the Surviving Corporation.
DETERMINATION AND ADJUSTMENT OF MERGER CONSIDERATION
The Exchange Ratios are based on the 4,416,666 outstanding shares of FSAC
Common Stock, the 7,566,666 outstanding FSAC Warrants and the 1,671,290
outstanding shares of EBIC Common Stock that, in each case, were respectively
outstanding as of March 5, 1996. In order to give effect to the intent of the
parties that EBIC stockholders who do not exercise appraisal rights receive a
50% aggregate interest in the post-Merger capitalization of FSAC (subject to
certain escrow arrangements and the payment of cash in lieu of fractional
interests), the Stock Exchange Ratio was initially set at 2.6426688, the
quotient obtained by dividing the 4,416,666 shares of FSAC Common Stock that
were outstanding as of March 5, 1996 by the 1,671,290 shares of EBIC Common
Stock that were outstanding as of March 5, 1996 (the "Outstanding EBIC
Shares"), and the Warrant Exchange Ratio was initially set at 4.5274405, the
quotient obtained by dividing the 7,566,666 FSAC Warrants that were
outstanding as of March 5, 1996 by the Outstanding EBIC Shares. The Merger
Agreement provides for the Exchange Ratios to be adjusted prior to the
Merger, in order to maintain such 50% interest, by reflecting any changes to
the number of outstanding shares of FSAC Common Stock, FSAC Warrants and EBIC
Common Stock that occur (or for purposes of such adjustments are deemed to
occur) prior to the Merger. Pursuant to its underwriting agreement entered
into in connection with the IPO, FSAC has agreed that until it consummates a
Business Combination it will not issue any additional shares of FSAC Common
Stock or any options or other securities convertible into FSAC Common Stock.
Accordingly, the number of outstanding shares of FSAC Common Stock and
outstanding FSAC Warrants should remain at 4,416,666 and 7,566,666,
respectively, as of the Effective Time. However, for purposes of the
quotients calculated above, the Merger Agreement provides that the number of
outstanding shares of FSAC Common Stock will be deemed to increase by the
225,000 shares issued in the Unit Purchase Option Exchange, if the Unit
Purchase Option Exchange is consummated, and be deemed to decrease by the
number of any Redemption Shares. The Merger Agreement also prohibits EBIC
from issuing or redeeming any shares of its capital stock prior to the
Effective Time without the prior consent of FSAC and, as a result, it is
anticipated that the number of outstanding shares of EBIC Common Stock will
remain at 1,671,290 as of the Effective Time. Accordingly, it is not expected
(i) that the Stock Exchange Ratio will exceed 2.7772954 (the quotient
obtained by dividing (x) 4,416,666 plus 225,000 (the maximum number of shares
of FSAC Common Stock to be issued in the Unit Purchase Option Exchange) by
(y) 1,671,290) or be less than 2.2138588 (the quotient obtained by dividing
(x) 4,416,666 minus 716,666 (the maximum number of Redemption Shares at which
FSAC is still permitted, pursuant to its Certificate of Incorporation, to
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consummate the Merger) by (y) 1,671,290) or (ii) that the Warrant Exchange
Ratio will change from 4.5274405. In any event, the final Exchange Ratios,
whether or not required to be adjusted, will result (subject to certain
escrow arrangements provided for in the Merger Agreement and disregarding
cash payments in lieu of fractional interests) in holders of EBIC Common
Stock who do not exercise appraisal rights receiving in the aggregate a
post-Merger 50% interest in the outstanding shares of FSAC Common Stock and
FSAC Warrants. See "THE MERGER AGREEMENT --Adjustment of Exchange Ratios and
Cash Consideration."
In order to give effect to the intent of the parties that the pre-Merger
respective contributions of FSAC stockholders and EBIC stockholders to the
post-Merger consolidated net worth of FSAC generally be equalized, the Per
Share Cash Consideration was initially set at the quotient obtained by
dividing $16 million, the parties' then-estimate of the likely difference
between the respective net worths (as determined in accordance with the
Merger Agreement) of FSAC and EBIC immediately prior to the Merger, by the
Outstanding EBIC Shares. The Merger Agreement provides for the Per Share Cash
Consideration to be adjusted prior to the Merger, in order to maintain such
equalization principle, by reflecting any changes to the respective net
worths (as determined in accordance with the Merger Agreement) of FSAC and
EBIC that occur (or for purposes of such adjustment are deemed to occur)
prior to the Merger (as well as any change in the number of outstanding
shares of EBIC Common Stock). For example, amounts paid by FSAC with respect
to Redemption Shares, if any, will be deemed to decrease such net worth of
FSAC (and thereby increase the aggregate cash portion of the Merger
Consideration (the "Aggregate Cash Consideration") by the same amount). Based
primarily on increases in EBIC's net worth that have occurred since the
signing of the Merger Agreement, the Aggregate Cash Consideration would have
been adjusted from $16 million to approximately $19 million if the Merger had
occurred on March 31, 1996. Based on preliminary assessments of further
increases in EBIC's net worth that have occurred since March 31, 1996, FSAC
and EBIC estimate that the Aggregate Cash Consideration would have been
adjusted further to approximately $20.1 million if the Merger had occurred on
June 30, 1996. In addition, to the extent that EBIC's net worth changes
further during the period between July 1, 1996 and the actual Closing (which
is expected to occur promptly after the FSAC Special Meeting), or actual
increases in EBIC's net worth from April 1, 1996 through June 30, 1996 vary
from the preliminary assessments and estimates of the same used by management
in arriving at the above $20.1 million figure, the Aggregate Cash
Consideration will be adjusted further, with every approximately $1.00
increase or decrease in EBIC net worth having the effect of increasing or
decreasing, as the case may be, the Aggregate Cash Consideration by
approximately the same amount. See "THE MERGER AGREEMENT --Adjustment of
Exchange Ratios and Cash Consideration" and "--Closing True-Up Procedures."
The Merger Consideration is also subject to adjustment depending upon
whether or not the Unit Purchase Option Exchange is consummated. See
"PROPOSAL 1: THE MERGER --Certain Related Transactions --Unit Purchase Option
Exchange."
Because of the variety of possible adjustments to the Merger Consideration
that may be necessary to maintain the intentions of the parties described
above, FSAC and EBIC have agreed to resolicit the approval of the Merger by
their respective stockholders if (subject to the escrow arrangements
described below) the final Stock Exchange Ratio falls outside of the range of
2.2138588 to 2.7772954, the final Warrant Exchange Ratio changes by more than
10% from 4.5274405 or the final Per Share Cash Consideration is less than
$9.00 or greater than $17.50.
The Merger Consideration to be received is also subject to certain escrow
arrangements entered into in connection with the Merger Agreement, pursuant
to which, for varying post-Merger periods, (i) the Escrow Shares, comprising
10% of the shares of FSAC Common Stock to be issued in the Merger, will be
escrowed to pay indemnities, if any, owed to FSAC under the Merger Agreement,
(ii) if there are any Dissenting Shares, (x) a portion of the Aggregate Cash
Consideration equal to the aggregate book value (as determined in accordance
with the Merger Agreement) of such Dissenting Shares will be escrowed to
assist in making payments under Section 262 with respect to such Dissenting
Shares and (y) additional stock and warrant certificates representing the
shares of FSAC Common Stock and Merger Warrants that, but for their demand of
appraisal rights, holders of such Dissenting Shares would have received in
the
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Merger, will be escrowed to be released to non-dissenting holders of EBIC
Common Stock (including dissenting holders who subsequently fail to perfect
their appraisal rights) in order to maintain such holders' post-Merger 50%
interest in FSAC, (iii) $2 million of the Aggregate Cash Consideration will
be escrowed to make additional payments under Section 262 with respect to
Dissenting Shares, if necessary, and to pay any post-Merger balance sheet
"true-ups" owed to FSAC, and (iv) additional cash, up to a maximum of $2
million, will be escrowed by FSAC to pay any post-Merger balance sheet
"true-ups" owed to EBIC. See "THE MERGER AGREEMENT --Merger Agreement
Indemnification," " --Closing True-Up Procedures" and " --Certain Related
Agreements --Escrow Agreement."
CONDITIONS TO THE MERGER
The Merger is subject to certain customary conditions, some of which may
be waived by EBIC and/or FSAC. The Merger is also subject to certain other
conditions which are not waivable. See "THE MERGER AGREEMENT --Conditions to
Consummation of the Merger." One such non-waivable condition was approval by
EBIC stockholders of the Merger Agreement, which has already been obtained.
See "THE SPECIAL MEETINGS --FSAC Special Meeting." In addition, stockholders
of FSAC must approve and adopt the Merger Agreement and the transactions
contemplated thereby, including the Charter Amendments. Such approvals are
being sought pursuant to this Proxy Statement, and holders of FSAC Common
Stock as of the FSAC Record Date will vote for or against such approvals at
the FSAC Special Meeting.
If the Merger is not consummated on or before August 31, 1996, either
party may terminate the Merger Agreement unless the failure to so consummate
the Merger by such date is due to the action or failure to act of the party
(or its stockholders or subsidiaries) seeking termination. See "THE MERGER
AGREEMENT --Termination."
CERTAIN RELATED TRANSACTIONS
Exchange Offer
The Merger Agreement contemplates that as soon as reasonably practicable
following consummation of the Merger (subject, however, to the advice of its
financial advisors), FSAC will commence the Exchange Offer to acquire all
FSAC Warrants (including the Merger Warrants) that are then outstanding on
the basis of one share of FSAC Common Stock for a number of FSAC Warrants to
be mutually agreed upon between FSAC and WCAS. Determination of the precise
exchange ratio will depend on a number of factors, including the outcome of
discussions between FSAC and WCAS, the post-Merger trading prices of FSAC
Common Stock and FSAC Warrants, the results of any financial advice sought by
either or both of FSAC and WCAS and a review of the terms of warrant exchange
offers made by other SPACs(Registered Trademark). See "RISK FACTORS --Effects
of Exchange Offer." In any event, there can be no assurance that the Exchange
Offer will be made or consummated or, if made, as to the timing, pricing or
other terms and conditions thereof. Pursuant to the Security Transfer
Agreement, certain stockholders of FSAC and EBIC have agreed, if the Exchange
Offer is made, to tender the FSAC Warrants held by them at such time
(including Merger Warrants) in numbers proportionate to the aggregate tenders
of FSAC Warrants made by other holders in the Exchange Offer. See "THE MERGER
AGREEMENT --Certain Related Agreements --Security Transfer Agreement."
If the Exchange Offer does not occur, 15,133,332 shares of FSAC Common
Stock could be issued, in addition to the pro forma 9,283,332 shares
anticipated to be outstanding following the Merger (assuming consummation of
the Unit Purchase Option Exchange and no exercise by FSAC stockholders of
their Redemption Rights), if all of the FSAC Warrants that will be
outstanding following the Merger were exercised, with aggregate proceeds to
FSAC from such exercises of approximately $75.7 million. If the Exchange
Offer is made and consummated, a significant number of shares of FSAC Common
Stock, in addition to the 9,283,332 shares, would be issued sooner than
anticipated, the exact number depending upon the exchange ratio that is
agreed upon and the number of FSAC Warrants tendered, but fewer FSAC Warrants
would remain outstanding, therefore resulting in fewer shares of FSAC Common
Stock being issued pursuant to future exercises of FSAC Warrants.
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Unit Purchase Option Exchange
In connection with the IPO, FSAC sold the Unit Purchase Options to
purchase up to an aggregate of 333,333 Advisor Units to the underwriters for
the IPO and certain designees thereof. The Advisor Units are identical to the
FSAC Units, except that the warrants contained in the Advisor Units are
exercisable at $6.25 per share and expire on November 30, 1999. The Unit
Purchase Options are exercisable initially at $9.90 per Advisor Unit for the
four-year period ending November 30, 1999. In connection with the Merger,
FSAC has entered into the Unit Purchase Option Agreement with such holders of
the Unit Purchase Options, providing for the Unit Purchase Option Exchange,
which, contingent upon and effective immediately following the Merger, will
involve the exchange of all of the Unit Purchase Options for an aggregate of
225,000 newly-issued shares of FSAC Common Stock. The Unit Purchase Option
Agreement is attached as an exhibit to the Registration Statement, and is
incorporated herein by reference.
If the Unit Purchase Option Exchange is consummated, 225,000 newly-issued
shares of FSAC Common Stock will be issued to the holders of the Unit
Purchase Options and, pursuant to the Merger Agreement, the aggregate Merger
Consideration will be increased by 225,000 shares of FSAC Common Stock (with
the Stock Exchange Ratio adjusted accordingly). If the Unit Purchase Option
Exchange is not consummated, the Merger Agreement provides for the Merger
Consideration to be increased (in lieu of the additional 225,000 shares) by
an additional amount of cash to be agreed upon between FSAC and EBIC to
reflect the fact that the Unit Purchase Options will remain outstanding or,
if such amount cannot be agreed upon, by an aggregate of 333,333 newly-issued
Unit Purchase Options.
BACKGROUND OF THE MERGER
Following the IPO, FSAC initiated efforts to select and evaluate Target
Businesses in the financial services industry. Beginning in January 1995,
FSAC management met with investment bankers, consultants, business brokers,
leveraged buy-out firms, venture capitalists and others to identify potential
acquisition candidates. FSAC initially analyzed and evaluated a variety of
possible Target Businesses, including investment banks, securities and
brokerage firms, commercial banks, savings banks, insurance companies (life,
property and casualty and motor), mortgage banks, inter-dealer brokers, New
York Stock Exchange specialists, asset management companies and leasing
companies. FSAC ultimately decided to focus on the securities and brokerage
business given the abilities and experience of FSAC's management in this
particular sector. FSAC also decided that its limited capital base dictated
focusing on a Target Business whose business would not require capital to
support security positions. Management believed that the inter-dealer
brokerage business represented an attractive opportunity because, although
capital is required for regulatory purposes and credit standing, it is not
necessarily needed to support brokered trades, since the brokers do not seek
to take a proprietary position in the securities.
In April 1995, FSAC management met with Mabon Securities Corporation
("Mabon") and its advisors to discuss the possible acquisition of Mabon's
wholly owned subsidiary, Cedar Street Securities Corp. ("Cedar Street"). On
May 16, 1995, FSAC signed a letter of intent to acquire Cedar Street. Cedar
Street was a full service inter-dealer brokerage firm specializing in
brokering corporate bonds, preferred stocks, convertible bonds, U.S. Treasury
Zero Coupon bonds, Yankee bonds, and Emerging Market debt in New York and
Eurobonds and domestic European securities in London. On July 14, 1995, FSAC
terminated negotiations to acquire Cedar Street after it was unable to reach
mutually satisfactory definitive documentation to implement the terms of the
letter of intent.
During July 1995, FSAC resumed its search for a Target Business. At this
time, Gilbert Scharf, President and Chief Executive Officer of FSAC, renewed
a series of informal discussions he had over the course of the last year with
Russell L. Carson, a general partner of WCAS, with respect to the majority
stake investment in EBIC that had been acquired by WCAS in May 1994. Mr.
Scharf and Mr. Carson are friends, and Mr. Carson was an initial investor in
FSAC's IPO (acquiring 100,000 FSAC Units for his own account). As a result of
these discussions, Mr. Scharf met on August 15, 1995 with members of WCAS,
including Messrs. Welsh and Anderson, and with Donald Marshall, Chairman and
President of EBIC, to discuss the potential acquisition of EBIC by FSAC.
FSAC's preliminary investigation of EBIC revealed certain attractive
characteristics, including that EBIC had (i) a presence in the world's
leading financial
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centers, (ii) a quality infrastructure with the potential to expand, (iii)
advanced technology and communications, (iv) an experienced senior management
team and (v) a leading position in certain products.
On August 22, 1995, FSAC signed a confidentiality agreement with EBIC, and
EBIC subsequently provided FSAC with financial and other information
concerning EBIC. Beginning in early September 1995 (and continuing until
execution of the Merger Agreement) FSAC and its representatives periodically
met with EBIC management and its representatives to conduct initial business
due diligence.
Based on the results of such due diligence, on December 11, 1995, FSAC and
EBIC signed a letter agreement providing for a thirty-day exclusive
negotiating period with respect to a possible acquisition of EBIC by FSAC and
outlining the principle that the existing EBIC capital stock would be
converted into a 50% fully-diluted interest in FSAC (after equalization of
their respective net worths). On December 19, 1995, as required by FSAC's
underwriting agreement in connection with the IPO, EBIC signed a letter
agreement waiving any claim it might have for or against monies in the Trust
as a result of any negotiations, contracts or agreements with FSAC, other
than a claim for monies due upon consummation of a Business Combination.
Thereafter, representatives from Skadden, Arps, Slate, Meagher & Flom,
special counsel to FSAC ("Skadden Arps"), and from Theodore Goddard, FSAC's
special counsel in the United Kingdom, conducted legal, regulatory and
further due diligence with respect to EBIC. Separately, FSAC management
continued its due diligence, including meeting with EBIC management in their
offices in New York and London.
On January 10, 1996, FSAC and EBIC agreed to extend the exclusive
negotiating period through the end of January 1996. On January 16, 1996,
Skadden Arps delivered a draft of the Merger Agreement to EBIC's counsel,
Reboul, MacMurray, Hewitt, Maynard & Kristol ("Reboul MacMurray").
Negotiations with respect thereto and with respect to related documents
continued through the rest of January and February 1996. During this time,
the parties continued to extend the exclusive negotiating period.
On February 28, 1996, the FSAC Board held a special meeting, with all
directors and Skadden Arps present, to discuss and review the status of the
proposed transaction. Management first reviewed for the Board its efforts
since the IPO at finding a suitable Target Business. Management then
described for and extensively discussed with the Board the business,
financial condition and prospects of EBIC and why management believed EBIC to
be an attractive acquisition candidate. Counsel then reviewed for the
directors the structure of the proposed transaction and the terms of the
then-current drafts of the Merger Agreement, the Security Transfer Agreement,
the Majority Stockholders' Agreement, the Registration Rights Agreement, the
Employment Agreements (as hereinafter defined), the Charter Amendments and
the FSAC Option Plan. Because negotiations with respect to these documents
were still ongoing, the FSAC Board determined to adjourn the meeting.
The FSAC Board reconvened the special meeting on March 1, 1996, again with
all directors and Skadden Arps present. Counsel reviewed for the Board the
current state of negotiations. The Board then discussed further the proposed
transaction and the business, financial results and prospects of EBIC. The
Board then voted unanimously to approve and adopt the Merger Agreement
(together with the Merger, the Charter Amendments, the FSAC Option Plan and
the other transactions contemplated thereby), and to recommend approval and
adoption of the Merger Agreement, the Charter Amendments and the FSAC Option
Plan to FSAC stockholders, subject, however, to the satisfactory final
negotiation and execution of the Merger Agreement.
On March 5, 1996, the EBIC Board of Directors held a special meeting at
which all the directors were present. In addition, Reboul MacMurray was
present. The structure, terms and conditions of the proposed transaction,
including the most recent draft of the Merger Agreement and the state of
negotiations with FSAC were discussed. The Board of Directors of EBIC then
voted unanimously to approve the Merger Agreement, subject to satisfactory
resolution of the still outstanding terms, and (subject to resolution of said
terms) to recommend to EBIC stockholders that they approve and adopt the
Merger Agreement.
On March 8, 1996, FSAC, Merger Sub and EBIC executed the Merger Agreement
and the related documents and jointly announced the proposed Merger in a
press release. On April 26, 1996, FSAC, Merger Sub and EBIC executed an
amendment to the Merger Agreement.
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On April 19, 1996, FSAC filed preliminary proxy materials with respect to
the proposed Merger. On June 25, 1996, FSAC filed the Registration Statement
and was declared effective by the Commission. On June 25, 1996, EBIC mailed
the Proxy Statement/Prospectus forming a part of the Registration Statement
to it stockholders.
On July 15, 1996, the EBIC Special Meeting was held at which EBIC
stockholders approved the Merger Agreement.
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
FSAC
At its March 1, 1996 meeting, the FSAC Board of Directors determined that
the Merger and the transactions contemplated thereby are fair to, and in the
best interests of, FSAC stockholders and determined to approve the Merger
Agreement (together with the Merger and all other transactions contemplated
thereby) and to recommend approval and adoption of the same by FSAC
stockholders. In arriving at and making these determinations, the FSAC Board
considered the following material factors:
1. The results of its due diligence investigation of EBIC, including
information concerning EBIC's assets and liabilities, financial
performance, results of operations, business condition and prospects.
Specifically, the FSAC Board viewed favorably EBIC's recent profitability,
EBIC's role as a "riskless" principal in its brokerage transactions and
the potential for growth of existing and new businesses of EBIC.
2. The belief of FSAC's Board and Management that the consideration to
be paid to EBIC stockholders pursuant to the Merger Agreement was fair to
FSAC and its stockholders. In this regard, the Board considered a number
of factors, including that current FSAC stockholders could be expected to
own, on a pro forma basis, approximately 50% of a post-Merger FSAC having
approximately twice the stockholders' equity (on a consolidated basis) of
the pre-Merger FSAC, and that such ownership would afford current FSAC
stockholders the opportunity to participate in the future possible growth
and anticipated profitability of EBIC.
3. The Board and management's belief that the fair market value of
EBIC and its subsidiaries, based upon standards generally accepted by the
financial community, such as earnings, potential sales, cash flow and book
value, exceeds 80% of the net assets of FSAC, and that, therefore, EBIC is
a permitted Target Business for a Business Combination. In arriving at
this view, the Board reviewed and relied upon the audited historical
financial statements of EBIC for each year in the two-year period ended
December 31, 1994 and the unaudited historical financial statements of
EBIC for the year ended December 31, 1995 and the month ended January 31,
1996. See " --Absence of Fairness Opinion."
4. The proposed terms and conditions of the Merger Agreement and the
related agreements provided for therein. Specifically, the Board viewed
favorably (i) the scope of the representations of EBIC in the Merger
Agreement and FSAC's indemnification and escrow remedies for inaccuracies
therein, (ii) EBIC's obligation to pay a $2 million termination fee to
FSAC under certain circumstances if the Merger is not consummated, (iii)
the restrictions on certain resales of FSAC securities provided for in the
Security Transfer Agreement, (iv) WCAS's execution of the Majority
Stockholders' Agreement, (v) FSAC's six-person representation on, and the
existence of, a post-Merger eight-person, three-class FSAC Board of
Directors and (vi) the effect of the Employment Agreements and the FSAC
Option Plan in motivating and retaining key FSAC and EBIC personnel.
5. The extensive experience and capabilities of FSAC's Board and
management in the securities industry, combined with the extensive
experience and capabilities of EBIC's management team and the fact that
management and certain other key personnel will have a significant equity
stake in the success of the post-Merger FSAC.
6. Certain potential risks associated with the transaction, including
(i) the potential "overhang" on the post-Merger market price of FSAC
securities pending the making and consummation of the
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Exchange Offer and/or from the registration rights afforded WCAS and other
stockholders, (ii) the dependence, to a certain extent, of EBIC's business
on the customer connections, performance and experience of key management
and sales personnel, (iii) EBIC's losses from operations for its 1994
fiscal year and the uncertainties associated with sustaining EBIC's more
recent profitability in late fiscal 1995 and early fiscal 1996 and (iv)
the amount of time likely to be needed to consummate the Merger, the
conditions to the Merger and the attendant risks of non-consummation and,
in such event, the potential difficulties associated with FSAC's finding a
suitable alternative Target Business for a Business Combination prior to
the date for FSAC's required liquidation.
In view of the wide variety of factors considered by the FSAC Board, it
did not find it practicable to quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its
determination. However, as a general matter, the FSAC Board believed that the
factors discussed in paragraphs 1 through 5 supported its decision to approve
the Merger Agreement and outweighed the factors and the risks associated
therewith referred to in paragraph 6.
In reaching its conclusion to approve and adopt the Merger Agreement, the
FSAC Board also was aware of certain conflicts of interest of FSAC's
directors, officers and significant stockholders, including that unless FSAC
consummates the Merger or another Business Combination, such persons' Pre-IPO
Shares and FSAC Warrants would have no value. See "PROPOSAL 1: THE MERGER
- --Interests of Certain Persons in the Merger." The FSAC Board did not
consider liquidation as a desirable alternative business strategy to
consummating the Merger because it believed that the Merger is fair to, and
in the best interests of, FSAC and its stockholders and is consistent with
FSAC's business objective of effecting a Business Combination with a suitable
Target Business and because of certain applicable SPAC(Registered Trademark)
characteristics, including the stockholder approval requirement and the
availability of Redemption Rights.
EBIC
The Board of Directors of EBIC believes that the Merger is in the best
interests of EBIC stockholders and that the Merger would allow EBIC and its
stockholders to realize the following objectives.
In determining to approve the Merger, the EBIC Board considered that the
Merger would provide EBIC stockholders with a public market for their equity
ownership in EBIC. The Board considered the alternative of an initial public
offering of EBIC Common Stock but determined that, in light of the costs of
such a transaction and the absence of any assurances that an offering could
be completed, the Merger provided a preferable means for EBIC stockholders,
after the expiration of any applicable restrictions on transferability of the
FSAC Common Stock and Merger Warrants to be received in the Merger, to
increase their investment liquidity over the liquidity of their current
investment in EBIC for which there is no public market. The EBIC Board
concluded that, at the same time, the Merger will allow EBIC stockholders to
retain an investment in the EBIC business by becoming stockholders of FSAC,
EBIC's new direct parent company. In addition, the cash component of the
Merger Consideration would provide EBIC stockholders with an immediate return
on their investment in EBIC.
In reaching its conclusion, the EBIC Board evaluated a number of factors,
including the terms and conditions of the Merger Agreement, the amount of
cash available in FSAC, the business operations and prospects of EBIC on a
historical basis and of EBIC and FSAC on a pro forma combined basis, the
business experience of FSAC's President, Gilbert D. Scharf, and the expenses
of completing a public offering of EBIC Common Stock. The Board of Directors
of EBIC did not consider one factor more than the others, or assign relative
weights to the factors it considered in arriving at its determination. The
Board of Directors of EBIC unanimously recommended that holders of EBIC
Common Stock vote for approval and adoption of the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger, stockholders should be aware that certain
members of FSAC and EBIC's management and Boards of Directors and certain
significant FSAC and EBIC stockholders have certain
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interests in the Merger that are in addition to the interests of stockholders
of FSAC and EBIC generally. The Boards of Directors of FSAC and EBIC were
aware of these interests and considered them, among other matters, in
approving the Merger Agreement and the transactions contemplated thereby.
Holdings of FSAC Securities
Each of the current directors and executive officers of FSAC owns Pre-IPO
Shares, as well as shares of FSAC Common Stock and/or FSAC Warrants purchased
pursuant to the IPO or thereafter in the open market or in privately
negotiated transactions. Such persons (who constitute all of the Initial FSAC
Stockholders) hold a total of 833,333 Pre-IPO Shares acquired for an
aggregate consideration of $25,000 (or $.03 per share). In addition, certain
of such persons acquired a total of 597,000 FSAC Units in the IPO (each FSAC
Unit consisting of one share of FSAC Common Stock and two FSAC Warrants) for
an aggregate consideration of $3,582,000 (or $6.00 per FSAC Unit).
Thereafter, certain of such persons acquired a total of 205,000 FSAC Warrants
in privately negotiated transactions for an aggregate consideration of
$186,550 (or $.91 per FSAC Warrant). In addition, one of the general partners
of WCAS acquired in the IPO, and still owns, 100,000 FSAC Units.
If FSAC is liquidated as a result of its failure to consummate the Merger
or another Business Combination by December 7, 1996, the current directors
and executive officers of FSAC would not participate in any Distribution
Amount with respect to their Pre-IPO Shares. Thus, unless FSAC consummates
the Merger or another Business Combination, such persons' Pre-IPO Shares and
FSAC Warrants will have no value. Moreover, if the Merger or another Business
Combination is not consummated, the Distribution Amount to be distributed to
all holders of FSAC Public Shares, including such persons with respect to
their aggregate 597,000 FSAC Public Shares, estimated to be $5.40 per share,
will be less than the IPO price of $6.00 per FSAC Unit.
Employment Agreements
In connection with the Merger Agreement, as of March 8, 1996, FSAC entered
into an employment agreement with Gilbert Scharf, its President and Chief
Executive Officer, and EBIC entered into employment agreements with Donald
Marshall, its President and Chief Executive Officer, and Keith Reihl, its
Senior Vice President and Treasurer (collectively, the "Employment
Agreements"). The Employment Agreements, although executed, are contingent
upon, and do not become effective unless and until, consummation of the
Merger.
The following is a summary of the material provisions of the Employment
Agreements. The term of each of the Employment Agreements is three years,
beginning on the date of the Effective Time, with annual, automatic one-year
extensions beginning on the second anniversary of such date unless either
party gives notice of nonrenewal at least 90 days prior to such anniversary.
Mr. Scharf's Employment Agreement provides that he will be Chairman of the
FSAC Board of Directors, President and Chief Executive Officer of FSAC and
Vice-Chairman of the Board of Directors of EBIC, with an annual salary of
$450,000, as from time to time increased by the FSAC Board of Directors. Mr.
Marshall's Employment Agreement provides that he will be Chairman of the EBIC
Board of Directors, President and Chief Executive Officer of EBIC and
Vice-Chairman of the FSAC Board of Directors, with an annual salary of
$450,000, as from time to time increased by the EBIC Board of Directors. Mr.
Reihl's Employment Agreement provides that he will be Chief Financial Officer
and a member of the EBIC Board of Directors, with an annual salary of
$300,000, as from time to time increased by the EBIC Board of Directors. Each
Employment Agreement provides for annual bonuses that will be determined by
the applicable board of directors, but only if the book value per share of
FSAC Common Stock increases during the applicable period, and for
participation in current and future employee benefit plans. If the
executive's employment is terminated by death, by the employer for "cause"
(as defined in the Employment Agreement) or by the executive other than for
"good reason" (as defined in the Employment Agreement), he will be entitled
to no further payments under the agreement. If the executive's employment is
terminated for "disability" (as defined in the Employment Agreement), he will
be entitled to an additional six months of base salary, followed by such
benefits as are provided under the applicable disability plan. If the
executive's employment is terminated by the employer without "cause" or by
the executive for "good reason," the executive will be entitled to (i)
continuation of base salary to
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the end of the employment term or, if longer, for one year; and (ii)
continuation of coverage under all health, medical and life insurance benefit
plans for the longer of one year and the remainder of the employment term or,
if earlier, until the executive is reemployed and is entitled to similar
benefits from his new employer. Each executive is prohibited from disclosing
confidential information at any time during and after termination of
employment and is subject to noncompetition covenants under specified
conditions and for specified periods.
FSAC Option Plan
The FSAC Option Plan has been adopted by the FSAC Board of Directors,
subject to the approval of FSAC stockholders. 1,800,000 shares of FSAC Common
Stock will be reserved for issuance under the FSAC Option Plan. Pursuant to
the FSAC Option Plan, no individual may be granted an option or options for
more than 500,000 shares of FSAC Common Stock in any calendar year. Although
no options have as yet been granted, it is expected that certain officers and
employees of FSAC and EBIC will receive grants following the Effective Time.
See "PROPOSAL 6: FSAC OPTION PLAN."
Board of Directors
If all the nominees for election to the FSAC Board of Directors are
elected and the Merger is consummated, the members of the FSAC Board of
Directors will be Gilbert D. Scharf, Michael J. Scharf, Denis Martin, Larry
S. Kopp, William B. Wigton, Frederick B. Whittemore, Donald R.A. Marshall and
James W. Stevens. Each such nominee, other than Messrs. Marshall, Wigton and
Stevens, is currently a director and stockholder of FSAC. Mr. Marshall is
currently the Chairman, President, Chief Executive Officer and a director of
EBIC. Mr. Wigton is currently a Managing Partner at Merrion Group, L.P. Mr.
Stevens is a former Executive Vice President of The Prudential Insurance
Company of America. See "PROPOSAL 2: ELECTION OF DIRECTORS."
The Board of Directors of the Surviving Corporation will initially consist
of Donald R.A. Marshall, Keith E. Reihl, Patrick J. Welsh and Bruce K.
Anderson, the current Board of Directors of EBIC, and, pursuant to the Merger
Agreement, Gilbert D. Scharf and Michael J. Scharf, as designees of FSAC. It
is contemplated that Messrs. Welsh and Anderson will resign immediately
following the Merger and be replaced on the Board of the Surviving
Corporation by Mr. Stevens and Mr. Daniel G. Bergstein, a partner at the law
firm of Paul, Hastings, Janofsky & Walker, one of EBIC's outside counsel. It
is also contemplated that Gilbert Scharf will be appointed to the Board of
Directors of a number of subsidiaries of the Surviving Corporation. See
"MANAGEMENT OF EBIC."
The Merger Agreement provides that immediately following the Effective
Time, (i) EBIC and FSAC will take all action necessary to cause Gilbert
Scharf to become Vice-Chairman of EBIC and (ii) FSAC with use its best
efforts to take all necessary action to cause Donald Marshall to be appointed
Vice-Chairman of FSAC.
Indemnification
Pursuant to the Merger Agreement, the Surviving Corporation has agreed to
provide certain indemnification to current directors and officers of EBIC.
See "THE MERGER AGREEMENT --Directors' Indemnification."
Registration Rights
Prior to, and as a condition of, the Merger, the Registration Rights
Agreement is to be executed by FSAC and will provide two demand registration
rights and certain ancillary registration rights (in each case, effective
only for periods after November 30, 1996) with respect to all shares of FSAC
Common Stock (including shares received upon exchange or exercise of FSAC
Warrants) held by WCAS and certain related investors, the Initial FSAC
Stockholders and the five members of EBIC Management who are also parties to
the Security Transfer Agreement. See "THE MERGER AGREEMENT --Certain Related
Agreements --Registration Rights Agreement."
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NASDAQ LISTING
The Merger Agreement requires FSAC to use its reasonable efforts (i) to
prepare and file an application with the NASD to list the FSAC Common Stock
and the FSAC Warrants (including the Merger Warrants) on the Nasdaq National
Market and (ii) to cause such application to be approved as soon as
reasonably practicable following the Effective Time. Such listings are not a
condition to the Merger, and there can be no assurance that the FSAC
securities will be deemed eligible for such listings or that such listings
will occur (or remain in effect) at any time after the Merger.
REGULATORY APPROVALS
Consummation of the Merger is subject to the expiration or termination of
all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Early termination of such waiting period
was granted on April 16, 1996. Issuance of shares of FSAC Common Stock and
Merger Warrants in the Merger is subject to the Registration Statement being
declared effective by the Commission (which occurred on June 25, 1996) and
the qualification for sale or exemption from qualification under applicable
state securities laws of the jurisdictions in which the various holders of
EBIC Common Stock reside.
Certain aspects of the Merger will also require notifications to, and/or
approvals from, certain other United States (state and federal) authorities
and certain authorities in England, Canada, Japan and Hong Kong. The indirect
change of control of EBIC's U.K. subsidiary, EBFSL, to be effected by the
Merger requires prior notification to, and the consent of, the SFA. Such
notification was made on April 17, 1996. EBIC has no reason to believe that
the SFA's consent will not be forthcoming, although the time period between
filing and receipt thereof can be as long as two to three months. In the case
of EBIC's subsidiary, Euro Brokers International Ltd., the Merger requires
prior notification to The Bank of England. Such notification was also made on
April 17, 1996. Prior notification is also required in connection with the
regulation of Euro Brokers Canada Ltd. by the Ontario Securities Commission,
which notification was provided on March 15, 1996.
As a matter of regulation, certain other notifications are only required
subsequent to the consummation of the Merger, although, as a matter of
protocol, EBIC expects to make most of such notifications prior to the
Effective Time. Although EBIC has already informed the NASD, The New York
Cotton Exchange and the NFA of the indirect ownership changes with respect to
EBIC's U.S. broker-dealer subsidiary, Euro Brokers Maxcor Inc., that will be
effected by the Merger, formal subsequent notification and filing of amended
forms, is also required and is expected to be made immediately following the
Effective Time. Subsequent notification of the indirect ownership changes
will also be provided to the appropriate regulators in Tokyo and Hong Kong
with respect to EBIC's operations in these locales. Other regulators or
self-regulatory organizations receiving subsequent notifications are likely
to include the Director General of Fair Trading (U.K.), the Hong Kong
Association of Banks and Market Practices Committee and the Hong Kong Foreign
Exchange and Deposit Brokers' Association.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences to holders of FSAC Common Stock who (i) exercise their
Redemption Rights or (ii) receive a distribution upon dissolution of FSAC if
a Business Combination is not consummated by December 7, 1996. The summary
does not address all aspects of federal income taxation that may be relevant
to particular stockholders and thus, for example, may not be applicable to
stockholders who are not citizens or residents of the United States or
stockholders who are employees and who acquired their stock pursuant to the
exercise of incentive stock options or as compensation; nor does this summary
address the effect of any applicable foreign, state, local or other tax laws.
The discussion assumes that each holder of FSAC Common Stock holds such stock
as a capital asset within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code").
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Redemption or Liquidation
If a stockholder of FSAC duly exercises his or her Redemption Rights (see
"REDEMPTION RIGHTS"), the redemption will result in a complete termination of
the stockholder's interest in FSAC. Such redemption generally will be treated
as a sale or exchange for federal income tax purposes. If FSAC dissolves, the
distribution to FSAC stockholders in complete liquidation of FSAC will also
be treated as a sale or exchange for federal income tax purposes (see "THE
SPECIAL MEETINGS --FSAC Special Meeting --FSAC Liquidation if No Business
Combination"). In either case, the holder of FSAC Common Stock will recognize
capital gain or loss in an amount equal to the difference between the amount
realized and the stockholder's adjusted tax basis in the FSAC Common Stock,
provided that such payment neither is essentially equivalent to a dividend
nor has the effect of a distribution of a dividend. The amount realized will
equal the sum of the amount of cash and fair market value of any property
transferred to the stockholder in redemption or upon liquidation of such
stockholder's FSAC Common Stock. Such gain or loss will be long-term capital
gain or loss if the stockholder has held such stock for more than one year.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to the amount
received by FSAC stockholders upon redemption or liquidation in the Merger if
the amount received constitutes "reportable payments." Federal income tax law
requires that a stockholder receiving cash consideration upon redemption or
liquidation must provide FSAC (as payor) with such stockholder's correct
taxpayer identification number ("TIN"), which, in the case of a stockholder
who is an individual, is his or her social security number, and certain other
information, or otherwise establish a basis for exemption from backup
withholding. Exempt stockholders (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding
and information reporting requirements.
If FSAC is not provided with the correct TIN or an adequate basis for
exemption, the stockholder may be subject to a penalty imposed by the
Internal Revenue Service (the "IRS") and the amount received by the
stockholder may be subject to a 31% backup withholding tax. If withholding
results in an overpayment of taxes, a refund or credit may be obtained,
provided the required information is provided to the IRS.
To prevent backup withholding, each stockholder must complete the
Substitute Form W-9 that will be provided by FSAC upon request and either (i)
provide the stockholder's correct taxpayer identification number and certain
other information under penalties of perjury or (ii) provide an adequate
basis for exemption.
THE FOREGOING IS A SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND MAY NOT BE APPLICABLE TO ALL STOCKHOLDERS. ACCORDINGLY,
EACH HOLDER OF FSAC COMMON STOCK EXERCISING HIS OR HER REDEMPTION RIGHTS OR
RECEIVING CASH UPON LIQUIDATION SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES TO SUCH HOLDER OF THE REDEMPTION OR LIQUIDATION.
ACCOUNTING TREATMENT
For accounting and financial reporting purposes, the Merger will be
accounted for as a recapitalization of EBIC, with the issuance of shares by
EBIC for the net assets of FSAC, consisting primarily of cash. Since FSAC is
a SPAC(Registered Trademark) with no business operations other than the
search for a suitable Target Business, its assets will be recorded in the
balance sheet of the combined company at book value. The unaudited pro forma
financial information contained in this Proxy Statement has been prepared on
this basis.
RESALES OF FSAC SECURITIES
The shares of FSAC Common Stock and the Merger Warrants issued pursuant to
the Merger will be freely transferable under the Securities Act, except for
shares issued to any stockholder who may be deemed to be an "affiliate" of
EBIC for purposes of Rule 145 under the Securities Act as of the date of
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the EBIC Special Meeting. Affiliates are persons that directly or indirectly
control, are controlled by, or are under common control with, EBIC. For these
purposes, WCAS and the directors and certain officers of EBIC will be deemed
to be affiliates.
Subject to the restrictions of the Security Transfer Agreement (See "THE
MERGER AGREEMENT --Certain Related Agreements --Security Transfer
Agreement"), Rule 145 affiliates may generally offer and sell shares of FSAC
Common Stock and FSAC Warrants received in the Merger as long as: (i) FSAC
has filed with the Commission all reports required to be filed pursuant to
Section 13 of the Exchange Act during the 12 months preceding the sale, (ii)
the number of shares of FSAC Common Stock or FSAC Warrants sold by each such
affiliate within any three-month period does not exceed the greater of (x) 1%
of the outstanding shares of FSAC Common Stock or FSAC Warrants, as the case
may be, (y) the average weekly reported volume of trading in shares of FSAC
Common Stock or FSAC Warrants, as the case may be, on all national securities
exchanges and/or reported through the automated quotation system of a
registered securities association during the four calendar weeks preceding
the filing of the notice required by Rule 144(h) under the Securities Act, or
if no such notice is required, the date of execution of the transaction
directly with a market maker, or (z) the average weekly volume of trading in
such securities reported through the consolidated transaction reporting
system contemplated by Rule 11Aa3-1 under the Exchange Act during the
four-week period specified above, (iii) all shares of FSAC Common Stock or
FSAC Warrants, as the case may be, are sold in brokerage transactions and no
orders are solicited in connection with the sale and (iv) the broker does not
receive more than the usual and customary broker's commission in connection
with the sale.
In addition, affiliates who are parties to the Registration Rights
Agreement, subject to the terms and conditions of the Registration Rights
Agreement (see "THE MERGER AGREEMENT --Certain Related Agreements
- --Registration Rights Agreement"), may sell shares of FSAC Common Stock
(including shares received upon exchange or exercise of their FSAC Warrants)
under a current registration statement of FSAC effected pursuant to the
demand registration rights provided for in the Registration Rights Agreement
or, pursuant to the ancillary registration rights provided for in the
Registration Rights Agreement, under certain other current registration
statements of FSAC effected for other purposes, if any.
Regardless of whether the holder is an affiliate of EBIC or FSAC, the
terms of the FSAC Warrants (including the Merger Warrants) do not permit FSAC
to issue shares of FSAC Common Stock upon their exercise unless there is then
a current prospectus relating to such shares of FSAC Common Stock under an
effective registration statement filed with the Commission, and only if such
shares of FSAC Common Stock are qualified for sale or exempt from
qualification under applicable state securities laws of the jurisdictions in
which such holder resides. Although the Registration Statement on Form S-1
filed by FSAC with the Commission in connection with the IPO covers the
shares of FSAC Common Stock issuable upon exercise of the FSAC Warrants sold
in the IPO, and the Registration Statement covers the Warrant Shares issuable
upon exercise of the Merger Warrants, neither will necessarily be current
following consummation of the Merger unless FSAC prepares and files a new or
amended registration statement containing an updated prospectus. Although
FSAC is obligated to use its best efforts to meet the above requirements for
issuance of shares of FSAC Common Stock upon FSAC Warrants becoming
exercisable, there can be no assurance that FSAC will be able to do so.
ABSENCE OF FAIRNESS OPINION
Neither EBIC nor FSAC has sought or obtained an opinion from an investment
banker regarding the fairness of the Merger to the stockholders of either
company. It is a condition of the IPO prospectus that a Target Business have
a fair market value, as determined by the FSAC Board, of at least 80% of the
net assets of FSAC. FSAC is not required to obtain the opinion of an
investment banking firm as to the fair market value of the Target Business
unless the FSAC board determines that the financial statements of the Target
Business do not clearly indicate that such Target Business has a sufficient
fair market value. The FSAC board has determined that EBIC has and, at the
time of the Merger, will have a fair market value of at least 80% of FSAC's
net assets and that an opinion of an investment banking firm is not required.
In arriving at this determination, the Board reviewed and relied upon the
audited historical
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financial statements of EBIC for each year in the two-year period ended
December 31, 1994 and the unaudited historical financial statements of EBIC
for the year ended December 31, 1995 and the month ended January 31, 1996.
The Board also took into account that the structure of the Merger, and in
particular the principles of having EBIC stockholders receive a post-Merger
50% interest in FSAC and adjusting the Per Share Cash Consideration to
reflect the difference (as adjusted) between the respective net worths of
FSAC and EBIC at the Closing, permits the Merger to be viewed as a
recapitalization of EBIC in which the fair market value of EBIC at the time
of the Merger is being reduced (through the payment of the Per Share Cash
Consideration) to 100% of the fair market value of FSAC. The Board did not
determine a specific fair market value for EBIC, but believed that in the
financial services industry (and particularly in the case of EBIC, given the
large cash component of its balance sheet) a company's book value serves as a
reasonable indicator of fair market value. In this regard, the Board also
noted that EBIC's unaudited stockholders' equity at December 31, 1995 was in
excess of $32 million, as compared to FSAC's net assets at such time of
approximately $15.7 million. The Board also reviewed other financial results
and measurements of EBIC at various times and over various periods that it
believed to be relevant, including EBIC's commission income, pre-tax income,
net income, cash flows and return on revenues.
REDEMPTION RIGHTS
In accordance with FSAC's Certificate of Incorporation and the procedures
set out below, a holder of FSAC Public Shares who votes against the proposal
to approve and adopt the Merger Agreement has the right to demand redemption
of such shares for cash if the Merger is approved and consummated. However,
if 20% or more of the FSAC Public Shares, or 716,667 shares, are voted
against the Merger Agreement (and have Redemption Rights duly demanded with
respect to them), FSAC, pursuant to its Certificate of Incorporation, is not
permitted to consummate the Merger. Moreover, it is a condition to EBIC's
obligation to consummate the Merger that the number of Redemption Shares not
constitute more than 10% of the number of shares of FSAC Common Stock
outstanding immediately prior to the Merger (giving effect to the Unit
Purchase Option Exchange, if any). Accordingly, if 441,667 (or, if the Unit
Purchase Option Exchange is consummated, 464,167) FSAC Public Shares are
voted against the Merger Agreement (and have Redemption Rights duly demanded
with respect to them), EBIC is not obligated to consummate the Merger.
Notwithstanding the foregoing, any one or more of the current stockholders of
FSAC has the right under the Merger Agreement, but not the obligation, to
satisfy any non-fulfillment of such 10% condition by arranging within ten
days to pay FSAC the amount necessary to pay the aggregate Redemption Price
for the Excess Redemption Shares (up to the maximum 20% of the FSAC Public
Shares threshold permitted by FSAC's Certificate of Incorporation), and FSAC
shall thereafter issue to such stockholder or stockholders a number of shares
of FSAC Common Stock equal to the number of such Excess Redemption Shares.
The per share Redemption Price will be equal to approximately $5.30 per
share, calculated by dividing the amount in the Trust as of the FSAC Record
Date, including interest thereon, by the number of FSAC Public Shares. The
Initial FSAC Stockholders do not have any Redemption Rights with respect to
their Pre-IPO Shares.
IN ORDER TO EXERCISE REDEMPTION RIGHTS, A HOLDER OF FSAC PUBLIC SHARES
MUST COMPLY WITH ALL REQUIREMENTS OF THE REDEMPTION PROCEDURES SET FORTH
BELOW. FAILURE TO SATISFY EACH AND EVERY REQUIREMENT WILL RESULT IN
TERMINATION OF SUCH HOLDER'S REDEMPTION RIGHTS.
A HOLDER OF FSAC PUBLIC SHARES DESIRING TO EXERCISE HIS OR HER REDEMPTION
RIGHTS (A "REDEEMING STOCKHOLDER") MUST BOTH (I) VOTE SUCH SHARES, IN PERSON
OR BY PROPERLY EXECUTED PROXY, "AGAINST" THE PROPOSAL TO APPROVE AND ADOPT
THE MERGER AGREEMENT AND (II) DELIVER TO FSAC, NOT LATER THAN 5:00 P.M., NEW
YORK CITY TIME, ON THE DAY OF THE FSAC SPECIAL MEETING (AUGUST 15, 1996),
BOTH (X) A WRITTEN DEMAND FOR REDEMPTION OF SUCH SHARES (THE "REDEMPTION
DEMAND") AND (Y) THE CERTIFICATES (THE "CERTIFICATES") REPRESENTING SUCH
SHARES, UNDER COVER OF A PROPERLY COMPLETED AND EXECUTED TRANSMITTAL LETTER
(AS DEFINED BELOW). Delivery of a proxy directing a vote against the proposal
to approve and adopt the Merger Agreement will not constitute a sufficient
Redemption Demand. Moreover, Redemption Rights will not be considered to have
been duly demanded if only a Redemption Demand is delivered,
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without also delivering the Certificates as to which Redemption Rights are
being demanded and a properly completed and executed Transmittal Letter with
respect to such Certificates. Payments in respect of any Redemption Shares
for which Redemption Rights have been duly demanded will only be made if and
when the Merger is approved and consummated. If the Merger Agreement and the
Charter Amendments are approved at the FSAC Special Meeting, it is expected
that the Merger will be consummated promptly thereafter.
A Redeeming Stockholder must vote "AGAINST" the proposal to approve and
adopt the Merger Agreement. An FSAC stockholder who fails to vote against
such proposal will be foreclosed from exercising Redemption Rights. An FSAC
stockholder who executes and returns an unmarked proxy will have such shares
voted "FOR" the proposal to approve the Merger Agreement, and therefore will
be foreclosed from exercising Redemption Rights. Redemption Rights will not
be affected by a stockholder's vote on any other proposal being submitted to
stockholders.
The Redemption Demand and Transmittal Letter (each being a "Demand
Document") must both (i) state that the Redeeming Stockholder demands that
all or a portion of such stockholder's shares be redeemed if the Merger is
consummated and (ii) specify the number of shares for which redemption has
been requested by such stockholder. Each Demand Document must be signed by
the Redeeming Stockholder (or such stockholder's duly authorized
representative) as the holder's name appears on the proxy card accompanying
this Proxy Statement. If shares are owned jointly, each holder must sign each
Demand Document. Any person signing a Demand Document on behalf of a
partnership or a corporation or in any representative capacity (such as
attorney-in-fact, executor, administrator, trustee or guardian) must indicate
such individual's title and, if FSAC so requests, furnish written proof of
such individual's capacity and authority to sign the Demand Document. If a
Redemption Demand or Transmittal Letter with respect to FSAC Public Shares is
signed by a person other than the registered holder(s) thereof, the
Certificate(s) surrendered by the Transmittal Letter must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Certificate(s).
Accordingly, persons who beneficially own shares held of record by
fiduciaries, nominees or others and who wish to exercise their Redemption
Rights should instruct the record holders of their shares to satisfy the
conditions described herein or otherwise arrange with such holders for the
satisfaction of such conditions.
A Redeeming Stockholder must deliver (and FSAC must receive) the
Redemption Demand, the Transmittal Letter and the Certificates not later than
5:00 p.m., New York City time, on the day of the FSAC Special Meeting (August
15, 1996), at the following address: Financial Services Acquisition
Corporation, Attention: Michael J. Scharf, Secretary, 667 Madison Avenue, New
York, New York 10021. A Redeeming Stockholder should send the Redemption
Demand, Transmittal Letter and the Certificates in a manner that ensures such
documents are received by FSAC by such time.
Letters of transmittal for use by Redeeming Stockholders in delivering
their Certificates to FSAC ("Transmittal Letters") are available upon request
from FSAC at the above address or from the transfer agent for FSAC Common
Stock, Continental Stock Transfer & Trust Company ("Continental"), 2
Broadway, New York, New York 10004, and will also be available at the FSAC
Special Meeting. The form of Transmittal Letter is also included as an
exhibit to the Schedule 13E-4 filed by FSAC with the Commission in connection
with the Redemption Rights.
Promptly after the consummation of the Merger, FSAC will distribute to
each Redeeming Stockholder an amount equal to the Redemption Price,
multiplied by the number of shares for which redemption has been requested by
such Redeeming Stockholder. Upon FSAC's payment of the aggregate Redemption
Price, each Redeeming Stockholder will cease to have any interest with
respect to such shares. If the Merger is not approved at the FSAC Special
Meeting or otherwise not consummated, FSAC will promptly return any
Certificates theretofore tendered for redemption.
A Redeeming Stockholder may withdraw a Redemption Demand at any time not
later than 5:00 p.m., New York City time, on the day of the FSAC Special
Meeting or, if the Redemption Price has not theretofore been paid, at any
time after September 12, 1996. FSAC stockholders have no appraisal or
dissenters' rights with respect to the Merger.
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All questions as to validity, form, eligibility (including time of
receipt), acceptance and withdrawal with respect to Redemption Rights will be
determined by FSAC in its sole discretion, which determination will be final
and binding.
Holders of FSAC Warrants and of the Pre-IPO Shares do not have Redemption
Rights. Redemption Rights only apply to the initial Business Combination
effected by FSAC. If the Merger is consummated, FSAC stockholders will not
have Redemption Rights in connection with future FSAC business combinations
or transactions, if any.
REDEEMING STOCKHOLDERS SHOULD FORWARD TO FSAC, AND ARE RESPONSIBLE FOR
ENSURING THAT FSAC RECEIVES, THEIR PROPERLY COMPLETED AND EXECUTED REDEMPTION
DEMANDS AND CERTIFICATES, WITH PROPERLY COMPLETED AND EXECUTED TRANSMITTAL
LETTERS, NO LATER THAN 5:00 P.M., LOCAL TIME, ON THE DAY OF THE FSAC SPECIAL
MEETING.
THE MERGER AGREEMENT
The discussion in this Proxy Statement of the Merger Agreement, and the
description of its principal terms, is subject to and qualified in its
entirety by reference to the full text of the Merger Agreement, a copy of
which is attached to this Proxy Statement as Annex I and incorporated herein
by reference. For the purposes of this discussion and to ensure consistency
with definitions used in the Merger Agreement, EBIC is sometimes referred to
herein as the "Company."
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
FSAC and EBIC relating to, among other things: (i) the due organization,
existence and good standing of, and similar corporate matters with respect
to, each party and its subsidiaries, (ii) each party's capital structure,
including outstanding rights, options and other interests with respect to its
capital stock, (iii) the authorization, execution, delivery, performance by
each party and enforceability of the Merger Agreement and the transactions
contemplated thereby, (iv) the absence of any conflict with the Certificate
of Incorporation or By-laws of each party and its subsidiaries, (v) the
consents necessary under certain contracts and required governmental or
regulatory authorizations, consents or approvals, (vi) compliance with
applicable law, (vii) the financial statements of each party, and the absence
of undisclosed liabilities, (viii) certain matters relating to commissions
receivable of EBIC, (ix) documents filed or to be filed with applicable
regulatory authorities and the accuracy of the information contained therein,
(x) the conduct of business in the ordinary course and the absence of certain
changes or events having a material adverse effect, (xi) the absence of
certain litigations, (xii) the qualification, operation and liability under
certain employee benefit plans of EBIC, (xiii) the termination of certain
existing agreements to which EBIC is a party, and the release and termination
of certain security interests relating thereto, (xiv) certain tax matters and
the payment of taxes, (xv) the identification of affiliate transactions,
(xvi) the absence of certain unlawful business practices and transactions
relating to EBIC or any of its subsidiaries, directors, officers, agents or
employees, (xvii) compliance by EBIC with applicable environmental laws,
(xviii) the ownership or leasehold of real and personal property by EBIC and
its subsidiaries, (xix) ownership or leasehold of material properties or
assets by FSAC or Merger Sub, (xx) the condition of certain assets of EBIC
and its subsidiaries, (xxi) the adequacy of insurance coverage by EBIC and
its subsidiaries, (xxii) ownership of intellectual property rights by EBIC
and its subsidiaries, (xxiii) the availability of the funds in the Trust for
payment of the Merger Consideration, (xxiv) the stockholder votes required to
approve the Merger Agreement and (xxv) the absence of any broker or finder's
fees.
CONDUCT OF BUSINESS OF EBIC PENDING THE MERGER
EBIC has agreed that prior to the Effective Time, unless otherwise
consented to by FSAC in writing, EBIC will, and will cause its Subsidiaries
(as defined in the Merger Agreement) (i) to conduct its business only in the
ordinary and usual course consistent with past practice and (ii) to preserve
intact its business organizations, retain the services of its respective
officers and key employees and preserve the goodwill of those with which it
has business relationships.
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In addition, EBIC will not, and will not permit any of its Subsidiaries,
unless otherwise consented to by FSAC in writing, to (i)(A) amend its
charter, by-laws or other organizational documents, (B) split, combine or
reclassify any shares of its outstanding capital stock, (C) declare, set
aside or pay any dividend or other distribution payable in cash, stock or
property (with certain exceptions for wholly-owned Subsidiaries) or (D)
directly or indirectly redeem or otherwise acquire any shares of its capital
stock or shares of the capital stock of any of its Subsidiaries; (ii)(A)
issue or sell any shares of, or rights or securities of any kind to acquire
or convertible into any shares of, its capital stock or shares of the capital
stock of any of its Subsidiaries, (B) merge or consolidate with another
entity (except as specifically permitted), (C) acquire or purchase an equity
interest in or a substantial portion of the assets of another corporation,
partnership or other business organization or otherwise acquire any assets,
or otherwise, except in the ordinary and usual course of business and
consistent with past practices, enter into any material contract, commitment
or transaction, (D) sell or otherwise dispose of any of its assets outside
the ordinary and usual course of business and consistent with past practices,
(E) incur, discharge or prepay any material lien, any material indebtedness
or any other material liabilities other than in the ordinary course of
business and consistent with past practices, (F) assume or otherwise become
liable or responsible for the obligations of any other person other than a
Subsidiary of EBIC in the ordinary course of business and consistent with
past practices, (G) make any loans, advances or capital contributions to, or
investments in, any other person, other than to a Subsidiary of EBIC or other
than in the ordinary course of business and consistent with past practice
over the twelve-month period immediately prior to March 8, 1996, (H) except
after reasonable advance consultation with FSAC (although approval of FSAC is
not required), authorize or make capital expenditures in excess of $100,000
individually or $250,000 in the aggregate, (I) permit any insurance policy
naming EBIC or any of its Subsidiaries as a beneficiary or a loss payee to be
cancelled or terminated other than in the ordinary course of business or (J)
enter into any contract or arrangement providing for a matter not permitted
under this clause (ii); (iii)(A) amend (so as to increase the benefits
thereunder), adopt or enter into (except as may be required by applicable
law) any company plan or other arrangement for the current or future benefit
or welfare of any director, officer or current or former employee; provided,
however, that EBIC will be permitted to enter into employment agreements in
the ordinary course of business and consistent with past practices where such
employment agreements do not include any unusual or extraordinary provision
with respect to bonuses, options, pools, or other employment compensation;
provided, however, that EBIC will not enter into any such employment
agreement without reasonable advance consultation with FSAC (although
approval by FSAC is not required) if such employment agreement provides for
an annual base salary equal to or greater than $200,000, (B) increase in any
manner the compensation or fringe benefits of, or pay or agree to pay any
bonus to, any director, officer or employee (except in the ordinary course of
business consistent with past practices) or (C) take any action to fund or in
any other way secure (except after reasonable advance consultation with FSAC
(although approval by FSAC is not required)) or to accelerate or otherwise
remove restrictions with respect to, the payment of compensation or benefits
under any employee plan, agreement, contract, arrangement or other EBIC plan;
or (iv) take any action with respect to, or make any material change in, its
accounting or tax policies or procedures.
FSAC has agreed that prior to the Effective Time, unless otherwise
consented to by EBIC in writing, FSAC will (i) not conduct any business,
incur any material liabilities or enter into any contracts, other than in
each case in connection with its cash investments, Trust management, general
office administration, preparation for and consummation of the transactions
contemplated by the Merger Agreement and, provided that FSAC does not enter
into any material binding commitment with respect thereto, in preparation for
the post-Merger activities of FSAC and its subsidiaries; (ii) use its
reasonable efforts to preserve intact the present business organization, to
keep available the services of its present officers and key employees, and
preserve the goodwill of those having business relationships with it; (iii)
not (A) amend its Certificate of Incorporation (other than pursuant to the
Charter Amendments) or By-laws, (B) split, combine or reclassify any shares
of its outstanding capital stock or (C) declare, set aside or pay any
dividend or other distribution payable in cash, stock or property; (iv) not
issue or sell any shares of, or rights or securities of any kind to acquire
or convertible into any shares of, its capital stock, except as permitted by
the Merger Agreement; and (v) not take any action with respect to, or make
any material change in, its accounting or tax policies or procedures. Prior
to the Effective Time, Merger Sub will not engage in any activities of any
nature except as provided in or contemplated by the Merger Agreement.
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CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of FSAC, Merger Sub and EBIC to consummate the Merger are
subject to the satisfaction or waiver of various conditions, including (i)
the effectiveness of the Registration Statement, the absence of any stop
order suspending the effectiveness thereof and any proceedings for that
purpose initiated by the Commission, and the receipt by FSAC of all state
securities law permits and other authorizations necessary to issue securities
pursuant to the Merger Agreement, (ii) the approval and adoption of the
Merger Agreement and the transactions contemplated thereby by the requisite
holders of FSAC Common Stock and EBIC Common Stock under applicable law and
Redemption Rights being exercised with respect to less than 20% in interest
of the FSAC Public Shares, (iii) no governmental entity or federal or state
court of competent jurisdiction having enacted, issued, promulgated, enforced
or entered any statute, rule, regulation, executive order, judgment, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is in effect and which materially restricts, prevents or prohibits
consummation of the Merger or consummation of the transactions contemplated
thereby, (iv) the applicable waiting period under the HSR Act having expired
or been terminated and the absence of certain actions challenging or
enjoining the consummation of the Merger, (v) the receipt or filing, as the
case may be, of certain authorizations, consents, waivers, orders or
declarations and (vi) approval of the Charter Amendments by the requisite
vote of FSAC stockholders and Additional Common Stock Amendment having become
effective.
The obligations of FSAC and Merger Sub to effect the Merger and the
transactions contemplated by the Merger Agreement are also subject to the
following conditions: (i) the aggregate effect of all inaccuracies in the
representations and warranties of EBIC contained in the Merger Agreement and
of WCAS contained in the Majority Stockholders' Agreement not having a
material adverse effect on EBIC, (ii) the representations and warranties of
EBIC set forth in the Merger Agreement and of WCAS set forth in the Majority
Stockholders Agreement that have a materiality qualification being true and
correct and the representations and warranties that do not have such a
qualification being true and correct in all material respects, in each case
as of March 8, 1996 and, except in certain circumstances, as of the Effective
Time, and FSAC having received certain certificates to that effect, (iii)
EBIC and its Subsidiaries and WCAS having performed in all material respects
all obligations required by the Merger Agreement and the Majority
Stockholders' Agreement to be performed at or prior to the Effective Time,
and FSAC having received certain certificates to that effect, (iv) the
aggregate number of Dissenting Shares not exceeding 10% of the number of
Outstanding EBIC Shares, (v) EBIC's estimated net worth not being less than
$30 million and EBIC's estimated cash and cash equivalents (determined in
accordance with the Merger Agreement) not being less than $15 million, (vi)
EBIC, and certain members of EBIC management, having executed and delivered
certain agreements and performed certain obligations thereunder, (vii) FSAC
having received the opinion of Reboul MacMurray, counsel to EBIC, dated the
day of the Effective Time, addressed to FSAC and Merger Sub and reasonably
acceptable to FSAC, addressing certain matters set forth in the Merger
Agreement, (viii) FSAC having received from each person who has been
identified by EBIC to FSAC as an "affiliate" (as defined in the Merger
Agreement), a signed agreement to the effect as set forth in the Merger
Agreement, (ix) the U.K. Subsidiaries of EBIC being in compliance with
certain rules of their Consolidating Supervisor (as used in the Merger
Agreement) and such rules as applied not showing any regulatory capital
deficit (subject to certain waivers or other arrangements), and (x) FSAC
having received a certificate from EBIC to the effect that all outstanding
shares of capital stock of EBIC's Subsidiaries are beneficially owned,
directly or indirectly, by EBIC and held free and clear of liens, other than
as disclosed.
The obligations of EBIC to effect the Merger and the other transactions
contemplated by the Merger Agreement are also subject to the following
conditions: (i) the aggregate effect of all inaccuracies in the
representations and warranties of FSAC and Merger Sub contained in the Merger
Agreement not having a material adverse effect on FSAC, (ii) the
representations and warranties of FSAC and Merger Sub set forth in the Merger
Agreement that have a materiality qualification being true and correct and
the representations and warranties that do not have such a qualification
being true and correct in all material respects as of March 8, 1996 and,
except in certain circumstances, as of the Effective Time, and EBIC having
received a certificate to that effect, (iii) FSAC and Merger Sub having
performed in all material
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respects all obligations required by the Merger Agreement to be performed at
or prior to the Effective Time and EBIC having received certain certificates
to that effect, (iv) EBIC having received the opinion of Skadden Arps,
special counsel to FSAC and Merger Sub, dated as of the Effective Time,
addressed to EBIC and reasonably acceptable to EBIC, addressing certain
matters set forth in the Merger Agreement, (v) FSAC having delivered to EBIC
a certificate of the trustee of the Trust (or other satisfactory evidence) to
the effect that the cash proceeds of the Trust as of the Closing Date (as
defined in the Merger Agreement) (disregarding amounts payable to Redeeming
Stockholders) will be at least $18 million, (vi) the number of Redemption
Shares (subject to certain cure rights of FSAC) not exceeding 10% of the
number of shares of FSAC Common Stock outstanding at the time of the Merger
(giving effect for these purposes to the Unit Purchase Option Exchange, if
any) and (vii) FSAC, Merger Sub, Gilbert Scharf and Michael Scharf having
executed and delivered certain agreements and performed certain obligations
thereunder.
NO SOLICITATION
The Merger Agreement provides that prior to the Effective Time neither
EBIC, nor any of its subsidiaries or its affiliates, nor any of the
respective directors, partners, officers, employees, agents or
representatives of the foregoing, will, directly or indirectly, solicit,
initiate, facilitate or encourage any Acquisition Transaction (as defined in
the Merger Agreement), or negotiate, explore or otherwise engage in
substantive discussions with any person with respect to any Acquisition
Transaction. EBIC has an obligation to notify FSAC immediately of any
inquiries or proposals (or desires to make a proposal) received by (or
indicated to) EBIC or its representatives with respect to an Acquisition
Transaction. The Merger Agreement further provides that prior to the
Effective Time neither FSAC, nor any of its affiliates, nor any of the
respective directors, officers, employees, agents or representatives of the
foregoing, will, directly or indirectly, solicit, initiate, facilitate or
encourage, or negotiate, explore or otherwise engage in substantive
discussions with, any person with respect to any business acquisition by FSAC
(other than an acquisition that would not qualify as an initial acquisition
of a Target Business).
CERTAIN OTHER COVENANTS
The Merger Agreement contains various covenants of FSAC and EBIC relating
to, among other things: (i) each party using its reasonable best efforts to
have the Registration Statement declared effective, (ii) each party convening
a meeting of its stockholders and recommending approval and adoption of the
Merger Agreement by such stockholders, (iii) each party using its reasonable
best efforts to consummate and make effective the Merger and other
transactions contemplated by the Merger Agreement, (iv) FSAC using its
reasonable best efforts to solicit FSAC stockholder approval for the Charter
Amendments and the FSAC Option Plan, (v) the Unit Purchase Option Exchange,
(vi) FSAC using its reasonable best efforts to list FSAC Common Stock and
FSAC Warrants on the Nasdaq National Market, (vii) the Exchange Offer, (viii)
the making of public announcements with respect to the Merger, (ix) the
repayment of loans made by EBIC to employees to facilitate EBIC Common Stock
purchases, (x) the post-Merger board composition and managements of FSAC and
EBIC and (xi) FSAC's obligations with respect to excess Redemption Shares.
AMENDMENT AND WAIVER
The Merger Agreement may be amended, modified, or supplemented by written
agreement of FSAC and EBIC; provided, that after approval and adoption of the
Merger Agreement by the stockholders of FSAC or EBIC, no such amendment,
modification or supplementation can be made which under applicable law
requires the approval of such stockholders, without the further approval of
such stockholders.
At any time prior to the Effective Time, FSAC and Merger Sub, on the one
hand, or EBIC, on the other hand, may (i) extend the time for the performance
of any of the obligations or other acts of the other, (ii) waive any
inaccuracies in the representations and warranties of the other contained in
the Merger Agreement or in any document delivered pursuant thereto and (iii)
waive compliance by the other with any of the agreements or conditions
contained in the Merger Agreement which legally may be waived.
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DIRECTORS' INDEMNIFICATION
All rights to indemnification, advancement of litigation expenses and
limitation of personal liability existing in favor of the directors and
officers of EBIC under the provisions existing on March 8, 1996 in EBIC's
Certificate of Incorporation or By-laws will, with respect to any matter
existing or occurring at or prior to the Effective Time (including the
transactions contemplated by the Merger Agreement), survive the Effective
Time, and, as of the Effective Time, the Surviving Corporation will assume
all obligations of EBIC in respect thereof as to any claim or claims asserted
prior to or within a six-year period immediately after the Effective Time.
Pursuant to the By-laws of the Surviving Corporation, the Surviving
Corporation will (i) indemnify any person who is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding by reason of the fact that he is or was a director or officer of
the Surviving Corporation against expenses (including attorneys' fees),
judgments, fines and settlement payments actually incurred if such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interests of the Surviving Corporation and, with
respect to any criminal proceeding, had no reasonable cause to believe such
person's conduct was unlawful, and (ii) pay in advance of the final
disposition of such action, suit or proceeding the expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Surviving
Corporation as authorized by the By-laws of the Surviving Corporation.
MERGER AGREEMENT INDEMNIFICATION
All representations and warranties made by EBIC in the Merger Agreement
will survive the Effective Time and will terminate at the close of business
on the day which is 12 months after the Effective Time. The covenants and
agreements of the parties to the Merger Agreement (including the Surviving
Corporation after the Merger) shall survive the Effective Time without
limitation (except for those which, by their terms, contemplate a shorter
survival period).
From and after the Effective Time, to the extent provided in the Merger
Agreement, FSAC, including any person or entity that was a stockholder,
director, officer, employee or agent of FSAC or Merger Sub as of immediately
prior to the Effective Time (FSAC and such other persons and entities defined
as the "Indemnified Parties") will be entitled to be indemnified and held
harmless from and against any Damages (as defined in the Merger Agreement)
asserted against, resulting to, imposed upon or incurred by an Indemnified
Party by reason of, resulting from or arising out of: (i) a breach of or
inaccuracy in any representation or warranty of EBIC or WCAS contained in the
Merger Agreement or certain related agreements; or (ii) any breach of any
covenant or agreement of EBIC or WCAS contained in the Merger Agreement or
certain related agreements.
The foregoing indemnification rights of FSAC are limited to claims made
within the first 12 months after the Effective Time. Indemnified Parties are
entitled to seek Damages only when the aggregate Damages for all claims
exceeds $100,000, provided, however, that once such threshold is attained,
the Damages sought may include the initial $100,000. Total Damages are
limited to the total amount of, and are only payable through releases of, the
Escrow Shares. The Escrow Shares will consist of 10%, or 441,666 shares
(464,167 shares if the Unit Purchase Option Exchange is consummated), of the
FSAC Common Stock to be issued in the Merger. Based on the high closing bid
price for FSAC Common Stock on July 15, 1996, the Escrow Shares (assuming
consummation of the Unit Purchase Option Exchange) have an indicated
aggregate value of approximately $2.35 million.
TERMINATION
The Merger Agreement can be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of EBIC or FSAC,
by (i) mutual consent of FSAC and EBIC; (ii) either party, if the Merger is
not consummated before August 31, 1996 (unless such failure is due to a
breach of the Merger Agreement by the party seeking termination); (iii)
either party, if there is any
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order which is final and nonappealable preventing the consummation of the
Merger; (iv) by FSAC, if (A) there has been a breach of any representations
or warranties of EBIC in the Merger Agreement or of WCAS in the Majority
Stockholders' Agreement, which has a material adverse effect on EBIC, (B)
there has been a breach in any material respect of any of the covenants or
agreements in the Merger Agreement or the Majority Stockholders' Agreement on
the part of EBIC or WCAS (as the case may be), which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by FSAC to EBIC or WCAS (as the case may be), (C) the
stockholders of EBIC fail to approve and adopt the Merger Agreement or (D)
the number of Dissenting Shares is more than 10% of the Outstanding EBIC
Shares; (v) by EBIC if (A) there has been a breach of any representations or
warranties of FSAC in the Merger Agreement which has a material adverse
effect on FSAC, (B) there has been a breach in any material respect of any of
the covenants or agreements in the Merger Agreement on the part of FSAC or
Merger Sub, which breach is not curable or, if curable, is not cured within
30 days after written notice of such breach is given by EBIC to FSAC, (C) the
stockholders of FSAC fail to approve and adopt the Merger Agreement and the
issuance of FSAC Common Stock, Merger Warrants and Warrant Shares, or
Redemption Rights are exercised with respect to 20% or more in interest of
the FSAC Public Shares or (D) the number of Redemption Shares exceeds 10% of
the outstanding shares of FSAC Common Stock as of immediately prior to the
Effective Time (giving effect for these purposes to the Unit Purchase Option
Exchange, if any) and no stockholders of FSAC arrange to pay FSAC the
aggregate Redemption Price with respect to the Excess Redemption Shares.
FEES AND EXPENSES
Under the Merger Agreement, except as described below, whether or not the
Merger is consummated, all costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby, will be borne
solely and entirely by the party which has incurred such expenses; provided,
that all costs and expenses incurred in connection with (i) printing the
Registration Statement (including the Proxy Statement/Prospectus delivered to
EBIC stockholders) and this Proxy Statement, (ii) the filing fees with the
Commission relating to such documents and (iii) the filing fee under the HSR
Act, will be shared equally by FSAC and EBIC.
If the Merger Agreement is terminated (i) by FSAC pursuant to clause
(iv)(A), (B) or (C) of the section above entitled "Termination" (the
"Termination Section"), or pursuant to clause (iv)(D) of the Termination
Section to the extent that the 10% threshold would not have been exceeded if
Dissenting Shares held by any of the Investor Stockholders or the EBIC
Management Stockholders (as such terms are defined in the Registration Rights
Agreement) were disregarded, or (ii) by EBIC pursuant to clause (v) of the
Termination Section at a time when FSAC is already permitted to terminate the
Merger Agreement pursuant to clause (iv)(A), (B), (C) of the Termination
Section or, as described in clause (i) of this sentence, clause (iv)(D) of
the Termination Section, then in any such case EBIC will promptly, but in no
event later than two business days after the date of such termination, pay
FSAC a termination fee of $2 million, which amount (the "Termination
Payment") will be payable in same day funds, provided that no fee will be
paid if EBIC is already permitted to terminate the Merger Agreement pursuant
to clause (v) of the Termination Section other than under the circumstances
described in clause (ii) of this sentence. Payment by EBIC of the Termination
Payment will constitute full liquidated damages and will be the sole remedy
of FSAC and Merger Sub against EBIC (except for remedies that cannot be
waived as a matter of law) for any termination or breach (if there is a
termination) of any representation, warranty or covenant under the Merger
Agreement, and against WCAS for any termination or breach (if there is a
termination) of any representation, warranty or covenant under the Majority
Stockholders' Agreement or the Security Transfer Agreement, provided that
FSAC will be entitled to reimbursement of its reasonable costs and expenses
incurred, if any, in enforcing its right to collect the Termination Payment.
CLOSING TRUE-UP PROCEDURES
Commencing no later than 20 business days prior to the Closing Date (as
defined in the Merger Agreement), each of FSAC and EBIC will cause its
respective chief financial officers and independent
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certified public accountants to consult with each other in good faith in
order to reach mutual agreement upon, and deliver to each other, no later
than 5 business days prior to the Closing Date, (x) in the case of FSAC, a
good-faith estimate of the FSAC Closing Balance Sheet (as defined in the
Merger Agreement) and a good faith estimate of FSAC Closing Cash Equivalents
(as defined in the Merger Agreement) as derived therefrom and (y) in the case
of EBIC, a good-faith estimate of the Company's Closing Balance Sheet (as
defined in the Merger Agreement) and good faith estimates of the Company's
Closing Defined Net Worth, the Company's Closing Cash Equivalents and the Per
Share Book Value (each as defined in the Merger Agreement), each as derived
therefrom. EBIC, in preparing the Company's Closing Balance Sheet, is
obligated pursuant to the Merger Agreement to make certain adjustments
thereto (solely for such purpose) relating to, among other things, goodwill,
treatment of certain reserves and treatment of certain notes receivable from
or loans to stockholders. If, after making good faith efforts to do so, FSAC
and EBIC have not, prior to the close of business on the business day
immediately preceding the Closing Date, agreed upon the estimates of both
FSAC Closing Cash Equivalents and the Company's Closing Defined Net Worth,
and the aggregate amount of the disagreements with respect to such estimates
is in excess of $1 million (the "Disputed Estimates"), FSAC and EBIC will
immediately refer the Disputed Estimates to an arbitrator for resolution in
accordance with certain expedited procedures. The Closing Date and certain
adjustments will be delayed (and, if implicated, the right of termination at
August 31, 1996 tolled) until a determination is made in accordance with such
procedures.
If, based on such estimates (as finally agreed or determined), the Amount
(defined in the Merger Agreement as the difference obtained by subtracting
(i) the amount of the FSAC Closing Cash Equivalents as finally determined
from (ii) the amount of the Company's Closing Defined Net Worth as finally
determined) would be in excess of $16 million (the "Estimated Aggregate Cash
Consideration"), the Estimated Aggregate Cash Consideration will be adjusted
(before the deposit of monies with the Exchange Agent, as hereinafter
defined) by increasing it by the amount of such excess. If, based on such
estimates (as finally agreed or determined), the Amount as so calculated
would be less than the Estimated Aggregate Cash Consideration, the Estimated
Aggregate Cash Consideration will be adjusted (before the deposit of monies
with the Exchange Agent) by decreasing it by the amount of such shortfall.
As soon as practicable, but in no event later than 30 days following the
Closing Date, (i) FSAC will prepare and deliver to EBIC and the
Representatives (as defined in the Merger Agreement) a final statement of
FSAC Closing Cash Equivalents (the "FSAC Final Statement"), together with the
FSAC Closing Balance Sheet and (ii) EBIC will prepare and deliver to FSAC a
final statement of the Company's Closing Defined Net Worth (the "Company's
Final Statement" and, together with the FSAC Final Statement, the "Final
Statements"), and the Company's Closing Balance Sheet. The Merger Agreement
includes a mechanism to resolve any dispute with respect to either or both of
the Final Statements.
After the final determination of the FSAC Closing Cash Equivalents and the
Company's Closing Defined Net Worth, the parties will calculate the Amount.
If the Amount is greater than the Estimated Aggregate Cash Consideration (as
previously adjusted), FSAC will deliver to the Escrow Agent, as an addition
to the Cash Escrow Amount (as hereinafter defined), an amount of cash equal
to such excess (the "Positive Cash Adjustment"); provided, however, that in
no event will FSAC be required to pay a Positive Cash Adjustment in excess of
$2 million. If the Estimated Aggregate Cash Consideration (as previously
adjusted) is greater than the Amount, FSAC, Merger Sub and EBIC will instruct
the Escrow Agent to release to FSAC such portion of the Cash Escrow Amount as
is equal to such excess (the "Negative Cash Adjustment"), provided, however,
that in no event will FSAC be entitled to receive a payment of a Negative
Cash Adjustment in excess of $2 million.
ADJUSTMENT OF EXCHANGE RATIOS AND CASH CONSIDERATION
FSAC, by its chief executive officer, will certify to EBIC (i) on, or
immediately following, the Closing Date, (x) the actual number of shares of
FSAC Common Stock outstanding as of immediately prior to the Effective Time,
including after giving effect to the Unit Purchase Option Exchange, if any
(the "Actual Outstanding FSAC Shares") and (y) the actual number of FSAC
Warrants outstanding as of immediately prior to the Effective Time (the
"Actual Outstanding FSAC Warrants") and (ii) promptly following the FSAC
stockholder meeting, the aggregate number of Redemption Shares. EBIC by its
chief executive
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officer, will certify to FSAC on, or immediately following, the Closing Date,
the actual number of shares of EBIC Common Stock outstanding on a
fully-diluted basis as of immediately prior to the Effective Time (the
"Actual Company Stock Number").
In accordance with such certifications: (i) the Stock Exchange Ratio will
be adjusted to equal the quotient obtained by dividing (x) the difference
obtained by subtracting (A) the Redemption Shares (reduced by the number of
Excess Redemption Shares, if any, for which FSAC stockholders have arranged
to pay FSAC the aggregate Redemption Price) from (B) the Actual Outstanding
FSAC Shares, by (y) the Actual Company Stock Number; (ii) the Warrant
Exchange Ratio will be adjusted to equal the quotient obtained by dividing
(x) the Actual Outstanding FSAC Warrants by (y) the Actual Company Stock
Number; and (iii) the Per Share Cash Consideration will be adjusted to equal
the quotient obtained by dividing (x) the Estimated Aggregate Cash
Consideration (as adjusted, if applicable, pursuant to the provisions
described above in the first two paragraphs of the section entitled "Closing
True-Up Procedures") by (y) the Actual Company Stock Number.
NO FRACTIONAL SECURITIES
No certificates or scrip representing fractional interests in shares of
FSAC Common Stock or Merger Warrants will be issued in the Merger (including
in connection with any releases of such securities from any escrow
arrangements contemplated by the Merger Agreement). All such fractional
interests will be aggregated. If, after such aggregation, a fractional
interest in a share of FSAC Common Stock or a Merger Warrant would result,
such holder will be entitled to receive, in lieu thereof, an amount in cash
determined by multiplying (i) the fractional interest in a share of FSAC
Common Stock or a Merger Warrant, as the case may be, to which such holder
would otherwise be entitled by (ii) the average of the per share closing bid
price of a share of FSAC Common Stock or an FSAC Warrant, as the case may be,
(x) on the OTC Bulletin Board or (y) if not quoted at such time on the OTC
Bulletin Board, in the NQB Pink Sheets published by the National Quotation
Bureau Incorporated, in each case for the five trading days immediately
preceding the Effective Time. Pending such payment, no fractional interest in
a share of FSAC Common Stock or a Merger Warrant shall entitle the owner to
vote or to any other rights of a security holder.
DEPOSIT OF MERGER CONSIDERATION
Prior to the Closing Date, FSAC will designate a bank or trust company
reasonably acceptable to EBIC to act as Exchange Agent under the Merger
Agreement (the "Exchange Agent"). As soon as practicable after the Effective
Time, and after giving effect to certain adjustments, FSAC will deposit with
or for the account of the Exchange Agent (i) stock certificates representing
the aggregate number of whole shares of FSAC Common Stock issuable pursuant
to the Merger Agreement in exchange for outstanding shares of EBIC Common
Stock (less certificates representing the shares of FSAC Common Stock to be
deposited in escrow pursuant to the Escrow Agreement), (ii) warrant
certificates representing the aggregate number of whole Merger Warrants
issuable pursuant to the Merger Agreement in exchange for outstanding shares
of EBIC Common Stock, (iii) the Estimated Aggregate Cash Consideration (as
adjusted, but less the cash to be deposited in escrow pursuant to the Escrow
Agreement) and (iv) sufficient cash to make payments in lieu of fractional
interests of FSAC Common Stock and Merger Warrants (the "Fractional Cash
Amount"). If and to the extent that, at any time that FSAC is obligated to
deposit the Estimated Aggregate Cash Consideration and the Fractional Cash
Amount or make certain other payments under the Merger Agreement, and FSAC's
cash and cash equivalents on hand (including proceeds of the Trust) are
insufficient to do so, or would leave FSAC, on a stand-alone basis, with
liabilities in excess of assets, FSAC will make such deposits or payments by
obtaining the additional necessary funds from EBIC and/or its subsidiaries
(by dividend, distribution, intercompany loan or otherwise).
CERTAIN RELATED AGREEMENTS
Escrow Agreement
The following is a summary of the material provisions of the Escrow
Agreement, which is attached as Annex VI to this Proxy Statement and is
incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the Escrow
Agreement.
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The Escrow Agreement provides that FSAC will deposit at the Effective Time
with the Escrow Agent (i) the Escrow Shares, comprising 10% of the FSAC
Common Stock to be issued in the Merger, (ii) $2 million of the Aggregate
Cash Consideration (the "Cash Escrow Amount"), (iii) to the extent there are
any Dissenting Shares, (x) an additional portion of the Aggregate Cash
Consideration equal to the product of the Per Share Book Value (as defined in
the Merger Agreement) of EBIC Common Stock and the number of Dissenting
Shares and (y) additional stock and warrant certificates representing the
shares of FSAC Common Stock and Merger Warrants that, but for their demand of
appraisal rights, holders of such Dissenting Shares would have received in
the Merger (the "Section 262 Securities") and (iv) if there is a Positive
Cash Adjustment, a cash amount, as an addition to the Cash Escrow Amount,
equal to such Positive Cash Adjustment. The Escrow Agent is to hold the cash
escrow funds in certain instruments or otherwise as agreed.
The Cash Escrow Amount will be released (i) to make payments to FSAC, to
reflect any Negative Cash Adjustment and (ii) to reimburse EBIC for any
payments its makes to dissenters with respect to their Dissenting Shares. To
the extent the Cash Escrow Amount is insufficient for such payments with
respect to Dissenting Shares, Escrow Shares will be released to make such
payments. Once the status of Dissenting Shares is resolved, the Section 262
Securities will be released, first to pay the non-cash portion of the Merger
Consideration to those dissenters who failed to perfect their appraisal
rights, and then pro rata to all former holders of EBIC Common Stock who did
not exercise and perfect appraisal rights (to ensure that such holders
received in the Merger 50% of the outstanding shares of FSAC Common Stock and
FSAC Warrants on a pro forma basis). The remaining Escrow Shares will be
released, if necessary, to pay indemnities owed to FSAC under the Merger
Agreement, and then, if there are no indemnity claims pending one year after
the Effective Time, pro rata to all former holders of EBIC Common Stock who
did not exercise and perfect appraisal rights. The Escrow Agreement provides
(i) a mechanism for FSAC and certain other persons to claim indemnification
and demand that Escrow Shares be released and (ii) arbitration procedures to
resolve any disputes.
As a result of the Escrow Agreement and the arrangements contemplated
thereby, holders of EBIC Common Stock will initially receive less than the
full Merger Consideration. The existence and scope of any drawdowns of the
amounts deposited in escrow will determine whether holders of EBIC Common
Stock ultimately receive a final amount different from the Merger
Consideration. If there are no Dissenting Shares, and no indemnities or
post-Merger balance sheet adjustments become payable to FSAC under the Merger
Agreement, there will be a delay in the receipt, but no change to the amount,
of the Merger Consideration. If there are post-Merger balance sheet
adjustments payable to EBIC under the Merger Agreement, the Per Share Cash
Consideration will increase. If there are Dissenting Shares, the Per Share
Cash Consideration will decrease, but the amount of FSAC Common Stock and
Merger Warrants received by former holders of EBIC Common Stock who did not
exercise and perfect appraisal rights will increase as a result of the
release to such holders of the Section 262 Securities. Reference is made to
Article III of the Merger Agreement and the full text of the Escrow
Agreement, attached hereto respectively as Annexes I and VI, for further
detail on the exact mechanisms of the Escrow Agreement and the arrangements
contemplated thereby.
Security Transfer Agreement
The following is a summary of the material provisions of the Security
Transfer Agreement, which is attached as Annex VII to this Proxy Statement
and is incorporated herein by reference. The following summary does not
purport to be complete and is qualified in its entirety by reference to the
Security Transfer Agreement.
The Security Transfer Agreement (i) prohibits any sales or other
dispositions (with certain exceptions) by Gilbert Scharf, Michael Scharf,
WCAS, WCAS Info and EBIC Management, during the period commencing at the
Effective Time and continuing through November 30, 1996, with respect to any
shares of FSAC Common Stock (other than the Pre-IPO Shares, which are
separately held in escrow until December 7, 1997) and FSAC Warrants
(including Merger Warrants) held by such persons and (ii) obligates each such
person to tender for exchange (and not withdraw) in the Exchange Offer, if
any, their FSAC Warrants in numbers proportionate to the aggregate tenders of
FSAC Warrants made by other holders in the Exchange Offer.
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Majority Stockholders' Agreement
The following is a summary of the material provisions of the Majority
Stockholders' Agreement, which is attached as Annex VIII to this Proxy
Statement and is incorporated herein by reference. The following summary does
not purport to be complete and is qualified in its entirety by reference to
the Majority Stockholders' Agreement.
Pursuant to the Majority Stockholders' Agreement, WCAS has made certain
agreements to facilitate the transactions contemplated by the Merger
Agreement, including a non-solicitation agreement and an agreement to use its
reasonable efforts to take action necessary to consummate and make the Merger
effective. WCAS has also made certain representations and warranties to FSAC
and Merger Sub, including as to: (i) due organization and existence, (ii)
authorization, execution, delivery, performance and enforceability of the
Merger Agreement, (iii) absence of conflict with its organizational documents
or with certain contracts and the absence of any required governmental or
regulatory authorization, consent or approval, (iv) documents to be filed
with the Commission and the accuracy of information contained therein, (v)
termination of certain existing agreements and the release and termination of
certain security interests and (vi) the absence of any broker or finder's
fees.
Registration Rights Agreement
The following is a summary of the material provisions of the Registration
Rights Agreement, to be executed prior to and as a condition of the Merger,
by and among FSAC, Gilbert Scharf, Michael Scharf, WCAS, certain WCAS
affiliates, EBIC Management and certain other FSAC and EBIC stockholders, the
form of which is attached as Annex IX to this Proxy Statement and is
incorporated herein by reference. The following summary does not purport to
be complete and is qualified in its entirety by reference to the form of
Registration Rights Agreement.
The Registration Rights Agreement provides for two demand registration
rights, which may not be requested prior to October 1, 1996 and which in any
event may not become effective until after November 30, 1996, with respect to
all shares of FSAC Common Stock (including shares received upon exchange or
exercise of FSAC Warrants) held by WCAS and certain related investors, the
Initial FSAC Stockholders and EBIC Management. The first request may only be
initiated by holders of at least a majority of the total outstanding FSAC
Common Stock issued in the Merger to WCAS and certain related investors
(excluding certain shares held in escrow) but will extend to the other
stockholders who are parties to the agreement. The second request may be made
by holders of at least a majority of the total outstanding FSAC Common Stock
held by all stockholders who are parties to the agreement (excluding certain
shares held in escrow). The requests must specify the manner of sale (which
may be an underwritten public offering) and whether all or a portion of such
shares will be sold. Upon receipt of such requests, FSAC will notify other
holders of shares of FSAC Common Stock registrable under the agreement and
use its best efforts to register for public sale in accordance with the
method of disposition specified in such requests, the number of shares
specified in the request or in certain notices received from other holders.
FSAC may include in the registration statement certain shares to be sold for
its own account. In certain circumstances, the shares to be included in any
registration statement (if the method of disposition is an underwritten
public offering) may be reduced if the managing underwriter considers that
such inclusion would adversely affect the marketing of the stock to be sold.
The number of shares to be included in any registration statement (other than
an underwritten public offering) will not (subject to certain exceptions),
prior to June 30, 1997, exceed 50% of the number of registrable shares of
FSAC Common Stock. FSAC may postpone, generally for a maximum of up to 60
days, filing a registration statement in certain circumstances.
If FSAC, at any time after November 30, 1996 (other than in connection
with the Exchange Offer or certain other circumstances), proposes to register
FSAC Common Stock, it will offer the parties to the Registration Rights
Agreement certain "piggy-back" registration rights. In the event that any
such registration is an underwritten public offering, the shares to be
included on this basis may be reduced if the managing underwriter considers
that such inclusion would adversely affect the marketing of the stock to be
sold.
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The expenses of FSAC incurred in complying with the demand rights and
"piggy-back" rights will be paid by FSAC, except for underwriting discounts,
selling commissions and transfer taxes and certain other expenses, which will
be borne by the participating sellers in proportion to the number of shares
sold by each, or otherwise as agreed. The Registration Rights Agreement
includes detailed provisions with respect to the procedures for registration
and indemnification.
DESCRIPTION OF FSAC CAPITAL STOCK
GENERAL
FSAC is authorized to issue 14,000,000 shares of FSAC Common Stock, and
1,000,000 shares of FSAC Preferred Stock. As of the date of this Proxy
Statement, there were 4,416,666 shares of FSAC Common Stock (including
833,333 Pre-IPO Shares) issued and outstanding, no shares of FSAC Preferred
Stock issued and outstanding and FSAC Warrants to purchase 7,566,666 shares
of FSAC Common Stock (including Bridge Warrants to acquire 400,000 shares of
FSAC Common Stock) issued and outstanding. The following description of
FSAC's capital stock does not purport to be complete and is subject, and
qualified in its entirety by reference, to the provisions of the DGCL and to
FSAC's Certificate of Incorporation, the Warrant Agreement, dated November
30, 1994, between FSAC and Continental, as warrant agent, governing the
Bridge Warrants, the FSAC Warrants issued in the IPO and the FSAC Warrants
issuable upon exercise of the Unit Purchase Options, and the Warrant
Agreement, dated June 5, 1996, between FSAC and Continental, as warrant
agent, governing the Merger Warrants, each of which is attached or
incorporated by reference as an exhibit to the Registration Statement.
FSAC UNITS
Pursuant to the IPO, FSAC sold 3,333,333 FSAC Units (and an additional
250,000 FSAC Units as part of the underwriters' over-allotment) at $6.00 per
unit, each FSAC Unit consisting of one share of FSAC Common Stock and two
FSAC Warrants. The securities comprising the FSAC Units became separate and
transferable upon consummation of the IPO on December 7, 1994 and are
currently listed separately on the OTC Bulletin Board.
FSAC COMMON STOCK
The holders of FSAC Common Stock are entitled to one vote for each share
held of record on all matters voted on by stockholders. There is no
cumulative voting with respect to the election of directors, and therefore
the holders of more than 50% of the shares voting for the election of
directors can elect all directors then being elected. The FSAC Board is
currently divided into two classes such that each class of directors is
elected in alternating years. However, upon consummation of the Merger,
FSAC's Certificate of Incorporation will be amended to implement a staggered
board consisting of three classes such that each class of directors is
elected every third year. See "PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH
- --Classified Board Amendment." The holders of FSAC Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors, out
of funds legally available therefore.
In the event of a liquidation, dissolution or winding up of FSAC, the
holders of FSAC Common Stock (excluding Pre-IPO shares, with respect to which
the Initial FSAC Stockholders have waived any rights to share in any
distribution relating to a liquidation of FSAC due to FSAC's failure to
consummate a Business Combination) are entitled to share ratably in the
proceeds of the Trust and all other assets remaining available for
distribution to them after payment of liabilities and after provision has
been made for each class of stock, if any, having preference over the FSAC
Common Stock. Holders of FSAC Common Stock as such have no preemptive or
other subscription rights. Except for the Redemption Rights, see "REDEMPTION
RIGHTS," there are no redemption provisions applicable to the FSAC Common
Stock. All of the outstanding FSAC Common Stock is fully paid and
nonassessable. Pursuant to its IPO underwriting agreement with GKN Securities
Corp. ("GKN") and Barington Capital Group, L.P. (the "Underwriting
Agreement"), FSAC has agreed not to issue any additional shares of FSAC
Common Stock prior to consummation of a Business Combination.
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PREFERRED STOCK
FSAC's Certificate of Incorporation authorizes the issuance of 1,000,000
shares of FSAC Preferred Stock with such designations, rights and preferences
as may be determined from time to time by the Board of Directors.
Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power or other
rights of the holders of FSAC's Common Stock, although the Underwriting
Agreement prohibits FSAC, prior to a Business Combination, from issuing
Preferred Stock which participates in any manner in the proceeds of the Trust
or which votes as a class with the FSAC Common Stock on a Business
Combination. The rights of holders of FSAC Common Stock will be subject to,
and may be adversely affected by, the rights of holders of any FSAC Preferred
Stock that may be issued in the future. In addition, the issuance of FSAC
Preferred Stock could have the effect of discouraging, delaying or preventing
a change of control of FSAC. Although FSAC does not currently intend to issue
any shares of FSAC Preferred Stock, there can be no assurance that it will
not do so in the future.
FSAC WARRANTS
Each FSAC Warrant (excluding FSAC Warrants issuable in connection with the
Unit Purchase Options) entitles the registered holder to purchase one share
of FSAC Common Stock for $5.00. The exercise price and the number of shares
of FSAC Common Stock issuable upon exercise of each FSAC Warrant are subject
to adjustment in certain circumstances, including in the event of a stock
dividend or recapitalization of FSAC. However, FSAC Warrants are not subject
to adjustment for issuances of FSAC Common Stock at a price below their
exercise price. FSAC Warrants (excluding the Bridge Warrants) will become
exercisable upon the consummation of a Business Combination and will expire
on November 30, 2001, although FSAC has the right, in its sole discretion, to
extend the expiration date of FSAC Warrants. FSAC may call FSAC Warrants for
redemption, in whole but not in part, at a price of $.01 per warrant, at any
time after they become exercisable, upon not less than 30 days' prior written
notice to the holders thereof, provided that the last sale price of FSAC
Common Stock has been at least $8.50 per share for the 20 consecutive trading
days ending on the third day prior to the day on which notice is given.
FSAC Warrants can be exercised upon surrender of FSAC Warrant certificates
on or prior to the expiration date at the offices of Continental, with the
exercise form on the reverse side of the certificate completed and executed
as indicated, accompanied by full payment of the exercise price (by certified
check payable to FSAC) for the number of FSAC Warrants being exercised. Prior
to the exercise of FSAC Warrants, the holders of FSAC Warrants do not have
the rights or privileges of holders of the underlying shares of FSAC Common
Stock. Pursuant to the Underwriting Agreement, FSAC has agreed not to issue
any additional options or other securities convertible into FSAC Common Stock
prior to consummation of a Business Combination.
No FSAC Warrants are exercisable unless at the time of exercise there is a
current prospectus covering the shares of FSAC Common Stock issuable upon
exercise of such FSAC Warrants under an effective registration statement
filed with the Commission and such shares have been qualified for sale or are
exempt from qualification under the securities laws of the state of residence
of the holder of such FSAC Warrants. Although FSAC is obligated to use its
best efforts to meet such requirements, there can be no assurance that FSAC
will be able to do so.
No fractional shares will be issued upon exercise of FSAC Warrants.
However, if a holder of FSAC Warrants exercises all FSAC Warrants then owned
of record by such holder, FSAC will pay to such holder, in lieu of any
fractional share which is otherwise issuable to such holder, an amount in
cash based on the market value of FSAC Common Stock on the last trading day
prior to the date of exercise.
Upon the exercise of FSAC Warrants (not including the Merger Warrants),
FSAC has agreed (subject to certain conditions) to pay to GKN a commission
equal to 5% of the exercise price for each FSAC Warrant exercised. However,
no compensation will be paid to GKN in connection with the exercise of FSAC
Warrants if the market price of the underlying shares of FSAC Common Stock is
equal to or less than the exercise price, FSAC Warrants are held in a
discretionary account or FSAC Warrants are exercised in an unsolicited
transaction.
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MERGER WARRANTS
The Merger Warrants will be denominated as "Series B Redeemable Common
Stock Purchase Warrants" of FSAC. The form of the Merger Warrant is attached
hereto as Annex II and will entitle the holder to receive the same securities
for the same exercise price as are receivable by the holders of FSAC Warrants
issued in the IPO upon any exercise of such FSAC Warrants after the Effective
Time. The Merger Warrants will also have the same redemption terms,
adjustment provisions and expiration date as such FSAC Warrants and will
otherwise have substantially the same terms and conditions as such FSAC
Warrants. However, no commission will be payable to GKN in connection with
exercises of the Merger Warrants.
ADVISOR UNITS AND BRIDGE WARRANTS
In connection with the IPO, FSAC sold the Unit Purchase Options,
representing the right to purchase an aggregate 333,333 Advisor Units at
$9.90 per unit, to the underwriters of the IPO and certain designees thereof.
The Advisor Units are identical to the FSAC Units, except that FSAC Warrants
contained in the Advisor Units are exercisable at $6.25 per share and expire
on November 30, 1999. In addition, the holders of the Unit Purchase Options
are entitled to certain "piggy-back" and demand registration rights for
periods of seven and five years, respectively, from the date of the IPO
prospectus with respect to the Advisor Units and the other FSAC securities
directly and indirectly issuable upon exercise thereof. In connection with
the Merger, FSAC has entered into the Unit Purchase Option Agreement with the
holders of the Unit Purchase Options which provides for the exchange,
contingent upon and effective immediately following the Merger, of all Unit
Purchase Options for an aggregate of 225,000 newly issued shares of FSAC
Common Stock. See "PROPOSAL 1: THE MERGER --Certain Related Transactions
- --Unit Purchase Option Exchange."
In September 1994, FSAC consummated the Bridge Financing to pay certain
organizational expenses and certain costs of the IPO. In connection with the
Bridge Financing, FSAC issued 400,000 Bridge Warrants to thirteen investors
in the Bridge Financing. The Bridge Warrants are identical to the FSAC
Warrants issued in the IPO, except that the Bridge Warrants are not
redeemable by FSAC until 90 days after consummation of a Business
Combination. The holders of the Bridge Warrants have agreed not to transfer
them until after the consummation of a Business Combination and not to
exercise them until 90 days after such consummation. In addition, the holders
of the Bridge Warrants are entitled to certain "piggy-back" registration
rights for the Bridge Warrants and the FSAC Common Stock underlying the
Bridge Warrants. Pursuant to the terms of the Merger Agreement, the Exchange
Offer, if made, will extend to the Bridge Warrants. See "PROPOSAL 1: THE
MERGER --Certain Related Transactions --Exchange Offer."
DELAWARE ANTI-TAKEOVER LAW
Under Section 203 of the DGCL (the "Delaware anti-takeover law"), certain
"business combinations" between a Delaware corporation, whose stock generally
is publicly traded or held of record by more than 2,000 stockholders, and an
"interested stockholder" are prohibited for a three-year period following the
date that such stockholder became an interested stockholder, unless (i) the
corporation has elected in its certificate of incorporation or by-laws not to
be governed by the Delaware anti-takeover law (FSAC has not made such an
election), (ii) the business combination was approved by the board of
directors of the corporation before the other party to the business
combination became an interested stockholder, (iii) upon consummation of the
transaction that made it an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock
owned by directors who are also officers or held in employee stock plans in
which the employees do not have a right to determine confidentially whether
to tender or vote stock held by the plan), or (iv) the business combination
was approved by the board of directors of the corporation and ratified by 66
2/3% of the voting stock which the interested stockholder did not own. The
three-year prohibition does not apply to certain business combinations
proposed by an interested stockholder following the announcement or
notification of certain extraordinary transactions involving the corporation
and a person who had not been an interested stockholder during the previous
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three years or who became an interested stockholder with the approval of a
majority of the corporations's directors. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an interested stockholder, transactions with an interested
stockholder involving the assets or stock of the corporation or its
majority-owned subsidiaries and transactions which increase an interested
stockholder's percentage ownership of stock. The term "interested
stockholder" is defined generally as a stockholder who becomes the beneficial
owner of 15% or more of a Delaware corporation's voting stock. Section 203
could have the effect of delaying, deferring or preventing a change in
control of FSAC.
BUSINESS OF FSAC
GENERAL
FSAC was organized on August 18, 1994 as a Specified Purpose Acquisition
Company(Registered Trademark), or SPAC(Registered Trademark), with the
objective of acquiring a Target Business in the financial services industry.
The financial services industry includes entities of various types which
provide a broad array of financial services to their customers, including
commercial banks, thrift institutions, investment banking and securities
brokerage firms, money management firms, insurance companies and businesses
which provide support services for financial institutions.
Since its inception, FSAC has not engaged in any substantive commercial
business and its sole activities have been to evaluate and select a suitable
Target Business and to structure, negotiate and consummate a Business
Combination with such Target Business. FSAC may ultimately acquire more than
one business; however, FSAC's initial Business Combination must be with a
Target Business whose fair market value is at least 80% of the net assets of
FSAC at the time of the Business Combination. See " --Characteristics of a
Specified Purpose Acquisition Company(Registered Trademark) --Fair Market
Value of Target Business."
In August 1994, FSAC issued 833,333 Pre-IPO shares for an aggregate
purchase price of $25,000, or $.03 per share, to the Initial FSAC
Stockholders. In September 1994, FSAC raised $200,000 in the Bridge Financing
and issued 400,000 Bridge Warrants. In December 1994, pursuant to the IPO,
FSAC sold 3,333,333 FSAC Units (and an additional 250,000 FSAC Units as part
of the underwriters' over-allotment) at $6.00 per Unit, each Unit consisting
of one share of FSAC Common Stock and two FSAC Warrants. Each FSAC Warrant
issued in the IPO entitles the holder to purchase from FSAC, during the
period commencing upon consummation of a Business Combination until the close
of business on November 30, 2001, one share of FSAC Common Stock at $5.00 per
share, subject to adjustment in certain circumstances, including in the event
of a stock dividend or recapitalization of FSAC. FSAC may call FSAC Warrants
for redemption, upon thirty days' prior written notice to the holders
thereof, at a price of $.01 per FSAC Warrant, at any time after they become
exercisable, if the last sale price of FSAC Common Stock has been at least
$8.50 per share for the 20 consecutive trading days ending on the third day
prior to the date on which notice of redemption is given. The Bridge Warrants
are identical to such FSAC Warrants except that they are not redeemable by
FSAC until 90 days after consummation of a Business Combination. FSAC also
sold 333,333 Unit Purchase Options to the IPO underwriters and certain of
their designees. Each Unit Purchase Option entitles the holder thereof to
acquire one share of FSAC Common Stock and two FSAC Warrants (which are
identical to FSAC Warrants sold in the IPO except that the exercise price per
warrant is $6.25 and their expiration date is November 30, 1999), for an
exercise price of $9.90 per option. See "DESCRIPTION OF FSAC CAPITAL STOCK
- --Advisor Units and Bridge Warrants." FSAC received net proceeds from the IPO
of approximately $19,150,000 after payment of offering expenses, a
substantial portion of which (approximately $17,415,000) was placed in the
interest-bearing Trust. See " --Characteristics of a Specified Purpose
Acquisition Company(Registered Trademark) --Offering Proceeds Held in Trust."
FSAC also used such proceeds to repay the Bridge Financing. The remaining
proceeds of the IPO have been and are being used by FSAC to pay for costs
incurred in connection with evaluating and negotiating prospective
acquisitions, including the proposed Merger, and for the general,
administrative and organizational expenses and taxes (on interest income) of
FSAC.
Since the IPO, management of FSAC has considered and evaluated numerous
potential Target Businesses. In May 1995, FSAC entered into a letter of
intent with one such business and proceeded with
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the negotiation of a stock purchase agreement for the acquisition thereof.
Ultimately, those negotiations failed and were terminated in July 1995. After
that time, FSAC management continued its search process, focusing primarily
on brokerage businesses, resulting in the Merger Agreement and the proposed
Merger. See "PROPOSAL 1: THE MERGER --Background of the Merger."
CHARACTERISTICS OF A SPECIFIED PURPOSE ACQUISITION COMPANY(REGISTERED
TRADEMARK)
A SPAC(Registered Trademark) is an entity incorporating the selected
investor safeguards set forth below. Immediately after the consummation of a
Business Combination, these provisions (other than as described under "Escrow
of Pre-IPO Shares") will no longer apply.
Offering Proceeds Held in Trust
FSAC completed the IPO in December 1994 and received net proceeds of
approximately $19,150,000 after payment of offering expenses. A substantial
portion of such net proceeds ($17,415,000) was placed in the Trust. Amounts
in the Trust may not be released until the earlier of (i) FSAC's consummation
of a Business Combination or (ii) the liquidation of FSAC. The remaining net
proceeds of the IPO that were not placed in the Trust, and the interest
earned thereon, have been used by FSAC to identify, evaluate and select a
suitable Target Business, to structure, negotiate and consummate a Business
Combination, including the Merger, and for general, administrative and
organizational expenses, including taxes on interest income. As of March 31,
1996, there was approximately $18,719,000 (including accrued interest
thereon) in the Trust, and FSAC held approximately $1,046,000 in cash and
cash equivalents and short-term investments outside of the Trust. If the
Merger is consummated, it is anticipated that all or substantially all of the
IPO proceeds held in the Trust, together with interest earned thereon, will
be paid to holders of EBIC Common Stock (subject to certain escrow
arrangements) as the Aggregate Cash Consideration.
Fair Market Value of Target Business
FSAC may not acquire a Target Business unless the fair market value of
such business (as determined by the FSAC Board of Directors based upon
standards generally accepted by the financial community, such as earnings,
potential sales, cash flow and book value), is equal to at least 80% of the
net assets of FSAC at the time of such acquisition. If the Board of Directors
of FSAC determines that the financial statements of a proposed Target
Business do not clearly indicate that the Target Business has a sufficient
fair market value, FSAC has agreed to obtain an opinion from an unaffiliated,
independent investment banking firm (which is a member of the NASD) with
respect to the satisfaction of such criteria. In connection with the Merger
Agreement, the FSAC Board determined that the foregoing fair market value
criterion was satisfied, and accordingly did not seek or obtain such an
opinion. See "PROPOSAL 1: THE MERGER --Reasons for the Merger;
Recommendations of the Board of Directors" and " --Absence of Fairness
Opinion."
Stockholder Approval of Business Combination
FSAC, after signing a definitive agreement for the acquisition of a Target
Business, but prior to the consummation of any Business Combination, is
required to submit such transaction to its stockholders for their approval,
even if such acquisition would not ordinarily require stockholder approval
under applicable state law. In the event that FSAC stockholders holding 20%
or more of the outstanding FSAC Public Shares, or 716,667 shares, vote such
shares against the Business Combination and properly exercise their
Redemption Rights with respect to such shares, FSAC, pursuant to its
Certificate of Incorporation, is not permitted to consummate such Business
Combination. FSAC may only consummate a Business Combination if less than 20%
of the outstanding FSAC Public Shares are voted against the Business
Combination (and have Redemption Rights properly demanded with respect to
them), and at least a majority in interest of the outstanding shares of FSAC
Common Stock vote in favor of the Business Combination.
With respect to approval and adoption of a Business Combination, the
Initial FSAC Stockholders have agreed to vote all of their Pre-IPO Shares
(constituting approximately 18.9% of the currently
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outstanding shares of FSAC Common Stock) in accordance with the vote of the
majority in interest of the FSAC Public Shares. The Initial FSAC Stockholders
also own an aggregate of 597,000 FSAC Public Shares (constituting
approximately 13.5% of the currently outstanding shares) that they may vote
for or against a Business Combination, as they desire, although they have
indicated their current intention to vote all such shares in favor of
approval and adoption of the Merger Agreement.
Redemption Rights
Holders of FSAC Public Shares who vote against a Business Combination such
as the Merger have the right to demand the cash redemption of their shares if
such Business Combination is approved and consummated. However, if 20% or
more of the FSAC Public Shares are voted against the Business Combination
(and have Redemption Rights duly demanded with respect thereto), the Business
Combination will not be consummated. See " --Characteristics of a Specified
Purpose Acquisition Company(Registered Trademark)" and " --Liquidation if No
Business Combination." The per share Redemption Price will be equal to the
amount in the Trust, inclusive of interest, as of the FSAC Record Date (in
the case of the Merger), divided by the number of FSAC Public Shares. A
stockholder who fails to comply with all of the requirements with respect to
the redemption of his or her shares, including a timely written demand
therefor and delivery of a certificate or certificates representing such
shares, under cover of a properly completed and executed Transmittal Letter,
will forfeit his or her Redemption Rights. See "REDEMPTION RIGHTS." There
will be no distribution from the Trust with respect to any of the FSAC
Warrants. The FSAC Initial Stockholders do not have any Redemption Rights
with respect to the Pre-IPO Shares. In connection with the Merger, it is
estimated that the Redemption Price will be approximately $5.30 per FSAC
Public Share.
Escrow of Pre-IPO Shares
The 833,333 Pre-IPO Shares (constituting approximately 18.9% of the
currently outstanding shares of FSAC Common Stock) are held until December 7,
1997 in escrow with Continental, as escrow agent. During such escrow period,
the Initial FSAC Stockholders are not able to sell or otherwise transfer
their respective Pre-IPO Shares, except (i) in a transaction subsequent to
the consummation of a Business Combination which is offered to all FSAC
stockholders or (ii) to family members or pursuant to the laws of descent.
Accordingly, the Initial FSAC Stockholders cannot separately negotiate the
purchase of any portion of their Pre-IPO Shares as part of a Business
Combination.
Liquidation if No Business Combination
If FSAC does not consummate the Merger or another Business Combination by
December 7, 1996, FSAC is obligated to dissolve and distribute to holders of
FSAC Public Shares the amount in the Trust, including any interest earned
thereon, estimated to be $5.40 per share as of such date, plus any remaining
net assets of FSAC. Pursuant to the IPO Lock-up Agreements, the Initial FSAC
Stockholders have waived any right to participate in any such liquidating
distribution with respect to their Pre-IPO Shares.
SUBSIDIARIES
FSAC's sole subsidiary is Merger Sub. Merger Sub is a Delaware corporation
and a wholly owned subsidiary of FSAC organized on February 15, 1996 solely
for purposes of facilitating the Merger. Except in connection with its
organization, the Merger Agreement and the Merger, Merger Sub has not engaged
in any business or substantive activities since its incorporation.
COMPETITION
If the Merger is consummated, FSAC will become subject to competition from
competitors of EBIC. See "BUSINESS OF EBIC --Competition."
MANAGEMENT AND EMPLOYEES
The executive officers of FSAC are Gilbert D. Scharf (Chairman of the
Board, Chief Executive Officer and President) and Michael J. Scharf (Vice
President, Secretary and Treasurer). Pursuant to the
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Merger Agreement, immediately following the Effective Time, FSAC will take
all action necessary to cause Donald Marshall to be appointed Vice-Chairman
of FSAC. FSAC has one other employee. Since FSAC's inception, no executive
officer has received any cash compensation from FSAC for services rendered,
although Gilbert Scharf has entered into one of the Employment Agreements
that will become effective upon consummation of the Merger (see "THE MERGER
AGREEMENT --Interests of Certain Persons in the Merger --Employment
Agreements"), and it is expected that any other full-time executive officers
will receive compensation, in amounts not yet determined, subsequent to
consummation of the Merger. Prior to consummation of a Business Combination,
none of FSAC's officers or directors has received or will receive any
compensation other than a $5,000 per month administrative fee payable to
Scharf Advisors, Inc., a corporation wholly owned by Gilbert Scharf, and
reimbursement for out-of-pocket expenses incurred in connection with FSAC's
business. There is no limit on the amount of such out-of-pocket expenses and
there has not been nor will there be any review of the reasonableness of such
expenses by anyone other than the FSAC Board, which includes persons who have
received, and may seek, reimbursement. None of FSAC's officers or directors
(who collectively constitute all of the Initial FSAC Stockholders) or their
respective affiliates will receive any consulting or finder's fee or other
compensation in connection with the introduction of FSAC to, or the
evaluation of, a Target Business or consummation of a Business Combination.
See "PROPOSAL 2: ELECTION OF DIRECTORS."
PROPERTIES
Scharf Advisors, Inc. has provided office space and certain office and
secretarial services to FSAC for which FSAC pays $5,000 per month. This
arrangement, by its terms, currently terminates upon consummation of a
Business Combination.
LEGAL PROCEEDINGS
There are no legal proceedings pending against FSAC.
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BUSINESS OF EBIC
OVERVIEW
EBIC, through its subsidiaries and affiliates, is a wholesale broker of
money market instruments, derivative products, and selected fixed income
securities. It conducts its business through offices in major financial
centers, including New York, London, Toronto, Tokyo and Hong Kong, and by
means of correspondent relationships with other brokers throughout the world.
In addition to its wholly owned subsidiaries in New York, London and Canada,
EBIC has a 51% interest in Yagi Euro (Hong Kong) Limited, a 50% interest in
the Tokyo Partnership and a 15% minority interest in Yagi Euro, its partner
in the Tokyo Partnership. EBIC's customers are primarily well capitalized
banks, investment banks and broker dealers. EBIC functions primarily as an
intermediary, matching the needs of financial institutions. EBIC'S
transactions are principally of two types, (i) transactions whereby EBIC acts
only as a matching broker and (ii) transactions whereby EBIC acts as a
matched riskless principal. In transactions involving cash deposits,
derivative products and repurchase agreements, the trades are executed on a
name give-up basis and settled directly between the counterparties with EBIC
acting solely as an agent. In these transactions EBIC is never a
counterparty. In the second type of transaction, primarily securities
transactions, EBIC acts as a matched riskless principal connecting buyers and
sellers at exact prices. EBIC does not earn a "spread" on any such
transaction; rather earnings are received through commissions. These
transactions are settled through clearing institutions within a few days of
the transaction date. Except for short-term positions in connection with its
municipal brokerage described below, EBIC does not, as a matter of practice,
take positions for its own account. At March 31, 1996 EBIC employed
approximately 783 personnel worldwide.
EBIC assists its customers in executing trades by identifying
counterparties with reciprocal interests. Securities traders and market
makers use these "match maker" services for several reasons. First, a
customer can benefit from using the larger sales force of a brokerage firm.
This is increasingly important as securities firms and banks have scaled down
their own sales operations in order to reduce overhead. Second, customers can
function anonymously until the point of a trade execution, thereby achieving
increased flexibility without signaling their intentions to the marketplace.
Third, a broker can provide market information, trading possibilities and
arbitrage opportunities. EBIC provides these services by means of a worldwide
telecommunications network, with direct lines to most of its approximately
2,000 institutional clients.
PRODUCTS
EBIC introduces customers, negotiates and executes transactions on their
behalf and receives a per transaction commission, which is either billed at
month end, or is retained in the process of clearing. EBIC's business falls
into the brokerage of three broad groups of products: (i) cash products, (ii)
derivative products and (iii) securities products and repurchase agreements.
Cash Products
In general, cash products take the form of deposits placed by one
financial institution with another, at an agreed-upon rate of interest, for a
fixed period of time. The most traditional product in this category is the
Eurodollar deposit. Eurodollars are U.S. dollar deposits placed with
financial institutions domiciled outside the United States, including the
branches of U.S. banks. Eurodollar deposits are brokered throughout EBIC's
entire network. Additionally, each EBIC office brokers domestic deposits
applicable to its local country, such as domestic Sterling. EBIC also brokers
other Eurocurrencies, such as Euro Swiss Francs, Euro Deutchemarks and Euro
Yen. EBIC brokers cash products predominantly to multinational banks.
Derivative Products
A derivative products transaction is an agreement entered into by two
parties, in which each commits to a series of payments based upon the price
performance of an underlying financial instrument or
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commodity for a specific period of time. This category includes a broad range
of sophisticated financing techniques employed by multinational banks,
financial institutions, securities dealers and corporations. Some of the
types of derivatives most frequently brokered by EBIC are interest rate
swaps, forward rate agreements, commodity swaps and asset conversion swaps.
In an interest rate swap, two parties agree to exchange interest rate
payment obligations on a notional principal amount over the term of the swap.
No principal is exchanged, and market risk is limited to differences in the
interest payments. Swaps enable institutions that may not be able to obtain
low cost fixed rate funding, but who can borrow lower cost floating rate
funds, to swap those floating rate obligations for fixed rate obligations and
obtain a fixed rate cost of funds that they could not otherwise access.
Additional swap instruments for which EBIC provides brokering services
include asset conversion swaps in which fixed rate and floating rate debt
instruments are swapped; and commodity swaps (including options and physical
contracts based on oil, natural gas and electricity) in which payments based
on fixed and floating commodities indices are exchanged.
Forward rate agreements ("FRAs") are over-the-counter, off-balance sheet
instruments similar to interest rate futures, designed to give the
counterparties protection against a shift in interest rates for time
deposits. The buyer, or borrower, of an FRA agrees to pay the seller, or
lender, at some specified future settlement date, an amount of interest based
on a notional principal at a fixed rate for a specified period of time. The
seller agrees to pay the buyer, on the same future settlement date, an amount
of interest based on the same amount of notional principal and the same
period of time but based on the then prevailing market rate for the time
period. No actual principal is exchanged. On the settlement date, the buyer
and the seller calculate the present value of the net interest owed, and one
party pays the other accordingly.
EBIC also brokers trades in cross currency swaps and various options. In
both the U.K. and Tokyo, a large portion of EBIC's derivative products
business is non-dollar denominated. EBIC brokers derivative products
predominantly to multinational banks and investment banks.
Securities Products and Repurchase Agreements
Products brokered by EBIC in this category include debt obligations issued
by governments, banks and corporations. EBIC brokers transactions in banker's
acceptances, certificates of deposit, commercial paper, floating rate notes,
federal agency securities, municipal securities, Brady bonds, Euro bonds, and
zero coupon bonds. EBIC also arranges investment agreements between municipal
bond issuers and financial providers.
Repurchase agreements ("repos") are contractual obligations entered into
by two counterparties, first to sell securities and then to repurchase those
same securities (or the reverse in the case of a buyer), at an agreed upon
future date and price. EBIC acts as an intermediary for the U.S. Primary
Government Dealer community (approximately 37 banks and dealers licensed to
participate in auctions of U.S. Treasury securities), as well as for a number
of U.S. regional banks, in the negotiation and execution of U.S. Treasury
repos. EBIC disseminates repo market information via proprietary,
computerized screens located in customers' offices. EBIC also provides a repo
service that is "voice brokered" directly to regional banks, which allows
EBIC broad penetration of the market. Repos on Canadian government securities
are brokered from EBIC's Toronto office to the Canadian dealer community in a
similar fashion.
Using the same proprietary screen systems, Emerging Market debt, including
Brady bonds, local sovereign issues, Euro bonds and options on Brady bonds,
are brokered by specialized teams located in New York and London. Their
market coverage includes North and South America and Europe.
In June 1996, EBIC began brokering municipal securities, generally acting
as a matched riskless principal. Unlike in its other businesses, EBIC's
brokers of municipal securities are permitted to take limited positions in
municipal securities for short periods of time (generally less than 5 days)
to facilitate anticipated customer needs. EBIC's policy with respect to such
trading and positions requires manage-
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ment to monitor such positions on a daily basis to assure compliance with
established limits. In addition, any such positions are marked to market on a
daily basis using independently obtained market prices.
EBIC brokers securities products and repurchase agreements predominantly
to banks, investment banks and other financial institutions.
COMMUNICATIONS NETWORK AND INFORMATION SYSTEMS
EBIC has a global communications network through which it conducts its
business and sophisticated computerized information systems over which it
receives instantaneous market information. Its teams of computer and
communications specialists provide technological support to the network. EBIC
is continually upgrading its technological facilities in order to access and
collate market information and redistribute it instantaneously throughout its
network. Through the continued development and use of proprietary software,
computerized screen displays, digital networks and interactive capabilities,
EBIC keeps its communication technology and information systems as current as
possible.
Due to the need for instantaneous communication, the majority of EBIC's
customers are connected to EBIC via direct point to point telephone lines
around the world. EBIC's sophisticated host computer system with digital
facilities is used to connect via one network EBIC offices and specific
customers who trade in certain products, including Emerging Markets debt,
repurchase agreements, bond options, bankers acceptances and certificates of
deposit. In this way, all parties have access simultaneously to market bids
and offers.
Most of the markets in which EBIC operates are highly efficient, offering
participants immediate access and enormous liquidity. Some markets are
subject to a high degree of volatility. Even the slightest variation in price
can make the difference between missing and executing a transaction.
Consequently, EBIC's business depends heavily on the use of advanced
telephone equipment, computer systems and pricing software. Direct line voice
communication, live computerized screen systems and instantaneous access to
financial information and trade execution for its clients are all imperative
for EBIC's continued success. For this reason, EBIC intends to continue to
expand and enhance its communication and information system networks.
PERSONNEL
As of March 31, 1996, EBIC employed approximately 783 full time staff,
including directors and senior managers. A summary of these employees by
geographic location is included below:
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------
BROKERS ADMINISTRATION TOTAL
--------- -------------- -------
<S> <C> <C> <C>
New York .... 246 71 317
London ...... 253 67 320
Canada ...... 21 5 26
Tokyo ....... 41 -- 41
Hong Kong .. 59 20 79
--------- -------------- -------
620 163 783
========= ============== =======
</TABLE>
In common with all companies operating within the industry, EBIC's
business is heavily dependent on relationships that exist between brokers and
their clients. EBIC emphasizes building, nurturing and preserving those
relationships. Many brokers have performance related compensation packages.
Staff compensation constitutes the largest component of EBIC's expenses.
Significant amounts are also spent in connection with the continual marketing
of products and resources through direct personal contact and entertainment.
These expenses are an important and integral part of EBIC's marketing policy
and are encouraged in a controlled manner by EBIC's senior management.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both federal and state laws. As a registered broker-dealer,
Euro Brokers Maxcor Inc., a wholly owned subsidiary of EBIC,
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<PAGE>
is regulated by the Commission, the NASD, the Commodity Futures Trading
Commission, the National Futures Association and the New York Cotton
Exchange, as well as by various state authorities. As a registered investment
advisor, Euro Brokers Inc., is subject to regulations issued pursuant to the
Investment Advisors Act of 1940. Certain non-U.S. subsidiaries are subject to
regulation in the jurisdictions in which they conduct their businesses.
EBIC's principal non-U.S. regulated subsidiaries are Euro Brokers
International Ltd. and EBFSL, which are subject to regulation in the United
Kingdom by the Bank of England and the SFA, respectively. Recently, the SFA
has issued new rules with respect to the Investment Services Directive and
the Capital Adequacy Directive of the EC, in particular regarding
consolidated supervision rules which impose various capital thresholds on
investment, holding and service companies depending on, among other things,
the activities of such company. The SFA has conditionally confirmed the
categorization of EBFSL as a Category D firm and, as such, EBFSL satisfies
the capital adequacy requirements and is not subject to the consolidated
supervision rules of the SFA. Should EBFSL decide in the future to change or
expand the nature of its business, it may be required to comply with the
consolidated supervision requirements, which requirements the London group,
including EBFSL, may not satisfy with its current capitalization. The SFA had
also raised a concern regarding the technical solvency of EBHL, which concern
has been resolved principally by restructuring the capital of EBHL.
Euro Brokers Canada Ltd. is regulated by the Ontario Securities
Commission. Yagi Euro (Hong Kong) Limited is regulated by the Foreign
Exchange and Deposit Brokers Association. EBIC also holds a 15% equity
interest in Yagi Euro, which is subject to regulation in Japan by the
Ministry of Finance.
COMPETITION
EBIC faces intense competition in all aspects of its cash, money market,
derivatives, securities and repurchase agreements business. Constant
competition comes from other money and securities brokers, from information
providers through their use of sophisticated communication networks and
systems, from electronic execution systems such as those implemented by
Reuters and EBS (a company owned by a consortium of commercial banks), and
from certain of EBIC's own customers, themselves seeking to expand and/or
diversify their own businesses. To remain competitive, EBIC must be able to
respond to customer needs by anticipating changes in the marketplace and by
making constant improvements in the services it provides. It must continue to
invest in the expansion and increased functionality of its proprietary screen
system, and the use of specialized data and communication facilities. It must
maintain sufficient capital to sustain its creditworthiness in transactions
in order to facilitate trades where it acts either on a name give-up basis,
or as riskless principal. Perhaps most importantly, EBIC must retain its
ability to recruit, incentivize and retain key personnel.
FACILITIES
EBIC's principal executive offices are located in approximately 48,800
square feet of space in New York City leased by EBIC pursuant to various
lease agreements that expire no earlier than September 2004. EBIC and its
subsidiaries also lease approximately 35,800 square feet of space in London
pursuant to a lease that expires in 2018 and includes an option to terminate
in 2003, at EBIC's discretion. In addition, EBIC and its subsidiaries lease
space in Toronto, Canada and Hong Kong. EBIC believes that its current
facilities are adequate for its existing needs.
LEGAL PROCEEDINGS
In common with other money brokers, a subsidiary of EBIC has, in the past,
received commissions on a number of interest rate swap transactions which
were booked on behalf of banks and local authorities in the United Kingdom.
Following the ruling by the House of Lords that the nature of these contracts
was "ultra vires," or beyond the scope of the power of the local authorities,
some claims in a material amount have been received for the return of certain
of this brokerage. In addition, EBIC has been named as a defendant in other
civil actions that seek significant damages; management believes these suits
lack merit and intends to vigorously contest them.
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<PAGE>
The future outcome of these matters cannot be predicted with certainty
and, accordingly, it is possible that the ultimate disposition of the above
noted matters could be material to the results of operations in any given
period. Based upon discussions with legal counsel, however, it is the opinion
of management that the ultimate disposition of the above matters will not
have a material adverse effect on the consolidated financial condition of
EBIC, its results of operations or liquidity.
PROPOSED JOINT VENTURE
EBIC and Global Financial Information Corporation ("GFIC") have recently
executed a letter of intent providing for the establishment of a joint
venture (the "Venture") for the purpose of designing, developing,
implementing and distributing information and data generated or otherwise
collected by EBIC and its subsidiaries in certain Emerging Market debt
products, including Brady bonds. In general, EBIC would supply certain
information and data on a nonexclusive basis, except for competing uses, and
GFIC would supply electronic distribution capacity, as well as certain global
financial market information at no cost to the Venture. In addition, EBIC
would acquire an option to purchase up to one million shares of common stock
of GFIC at a price of $6.50 per share (the most recent issue price for such
shares at the time the letter of intent was signed). The option would be
exercisable for a period of five years, but only to the extent that the
aggregate exercise price did not exceed the share of Venture profits
allocated to EBIC during that period. GFIC is an affiliate of EBIC by reason
of the fact that a majority of GFIC voting stock is held by WCAS and other
partnerships affiliated with WCAS.
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<PAGE>
MANAGEMENT OF EBIC
Upon completion of the Merger, the officers of EBIC immediately prior to
the Effective Time will continue to be the officers of the Surviving
Corporation and, pursuant to the Merger Agreement, immediately following the
Effective Time, FSAC and EBIC will take all action necessary to cause Gilbert
Scharf to be appointed as Vice-Chairman of EBIC.
The Surviving Corporation will initially have a Board of Directors
consisting of the EBIC Board of Directors and, pursuant to the Merger
Agreement, immediately following the Effective Time, FSAC and EBIC will take
all action necessary to cause Gilbert Scharf and Michael Scharf to be
appointed to the Board of Directors of EBIC. It is contemplated that Messrs.
Welsh and Anderson will resign immediately following the Merger and be
replaced on the EBIC Board by Messrs. Stevens and Bergstein.
EXECUTIVE COMPENSATION
The following table sets forth all compensation earned by or paid to the
Chief Executive Officer and each of the four other most highly compensated
executive officers of EBIC (collectively, the "EBIC Named Executive
Officers") for the fiscal year ended December 31, 1995. EBIC does not have
any stock option or other long-term compensation plans.
<TABLE>
<CAPTION>
ALL OTHER
COMPENSATION
NAME AND POSITION SALARY (1) BONUS (2)
- ------------------------------------- ---------- ---------- --------------
<S> <C> <C> <C>
Donald R. A. Marshall (3)... President $451,000 $100,000 $12,359
and Chief Executive Officer
Keith E. Reihl ............ Senior Vice 271,000 90,000 4,812
President, Treasurer
Alistair Johnstone..... Executive Vice 316,000 0 6,819
President
Brian Clark ............ Executive Vice 271,000 0 5,952
President, Secretary
Walter Dulski... Senior Vice President 271,000 0 2,065
</TABLE>
- ------------
(1) Includes, for each EBIC Named Executive Officer, a $1,000
contribution by EBIC to its 401(k) Plan.
(2) Amounts, for each EBIC Named Executive Officer, are comprised of (i)
an annual premium of $785 paid by EBIC on travel accident insurance
policies providing coverage of $2.5 million for Mr. Marshall and $1
million for each other EBIC Named Executive Officer and (ii) annual
premiums paid by EBIC on long-term disability policies providing the
following coverage in the event of disability: monthly payments for
life to Mr. Marshall of $12,000 and to each of Messrs. Reihl,
Johnstone and Clark of $6,000; monthly payments for two years to Mr.
Dulski of $3,000.
(3) EBIC has agreed, in the event of Mr. Marshall's death, to purchase
his shares of EBIC Common Stock for an amount equal to the greater of
(i) 50% of the proceeds payable to EBIC under a key person life
insurance policy maintained by EBIC on Mr. Marshall and (ii) the fair
market value of the shares. Amounts disclosed in the table do not
reflect this agreement.
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<PAGE>
Employment Agreements
In connection with the Merger, as of March 8, 1996, EBIC entered into
employment agreements with Donald R.A. Marshall and Keith E. Reihl (the "EBIC
Employment Agreements"). Although the EBIC Employment Agreements have been
executed, they are contingent upon, and do not become effective until
consummation of the Merger. Mr. Marshall's employment agreement provides that
he will be Chairman of the EBIC Board of Directors, President and Chief
Executive Officer of EBIC and Vice Chairman of the FSAC Board of Directors,
with an annual base salary of $450,000, as from time to time increased by the
EBIC Board of Directors, with bonuses to be determined by the EBIC Board of
Directors, but only if the book value per share of FSAC Common Stock
increases during the applicable period. Pursuant to Mr. Reihl's employment
agreement he will be Chief Financial Officer of EBIC and a member of the EBIC
Board of Directors with an annual base salary of $300,000, as from time to
time increased by the EBIC Board of Directors with bonuses to be determined
by the EBIC Board of Directors, but only if the book value per share of FSAC
Common Stock increases during the applicable period. The term of the EBIC
Employment Agreements is three years, beginning on the date of the Effective
Time, with annual, automatic one-year extensions beginning on the second
anniversary of such date unless either party gives notice of nonrenewal at
least 90 days prior to such anniversary.
Pursuant to the EBIC Employment Agreements, both Mr. Marshall and Mr.
Reihl are prohibited from disclosing confidential information at any time
during and after termination of employment and are subject to noncompetition
covenants under specified conditions and for specified periods. See "PROPOSAL
1: THE MERGER--Interests of Certain Persons in the Merger--Employment
Agreements."
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF FSAC AND EBIC
Set forth below is certain information concerning beneficial ownership of
FSAC Common Stock, as of May 31, 1996 (without giving effect to the
transactions contemplated by the Merger), by (i) each director and director
nominee of FSAC, (ii) each executive officer of FSAC, (iii) all executive
officers and directors of FSAC as a group and (iv) persons known to FSAC to
be the beneficial owners of 5% or more of the outstanding shares of FSAC
Common Stock.
BENEFICIAL OWNERSHIP OF SHARES OF FSAC COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF BENEFICIALLY
NAME SHARES(1) OWNED(1)(2)
- ---------------------------------------------- ----------------- --------------------
<S> <C> <C>
Gilbert D. Scharf (3)(4) ...................... 831,666 18.8
Michael J. Scharf (3)(4) ...................... 386,667 8.8
Woodland Partners and affiliated entities (5) 355,000 8.0
Denis Martin (3)(4)(6) ........................ 45,000 1.0
Larry S. Kopp (3)(4) .......................... 33,000 *
William D. Birch (3)(4) ....................... 109,000 2.5
Frederick B. Whittemore (3)(4) ................ 25,000 *
All executive officers and directors
as a group (6 persons) ....................... 1,430,333 32.4
</TABLE>
- ------------
* Less than 1%
(1) Excludes shares of FSAC Common Stock issuable upon exercise of FSAC
Warrants. Gilbert Scharf beneficially owns 716,666 FSAC Warrants,
Michael Scharf beneficially owns 333,334 FSAC Warrants, Mr. Birch
beneficially owns 268,000 FSAC Warrants, Mr. Whittemore beneficially
owns 50,000 FSAC Warrants, Mr. Martin beneficially owns 10,000 FSAC
Warrants (jointly with his wife) and Mr. Kopp beneficially owns
21,000 FSAC Warrants.
(2) On a pro forma basis, assuming that (i) the Exchange Ratios are not
adjusted (see "THE MERGER AGREEMENT--Adjustment of Exchange Ratios
and Cash Consideration") and (ii) no FSAC Warrants are exercised
immediately after the Effective Time, it is anticipated that the
percentage beneficial ownership of the specified persons will be
reduced by approximately 50% immediately after the Effective Time.
(3) The stockholder's address is c/o Financial Services Acquisition
Corporation, 667 Madison Avenue, New York, New York 10021.
(4) The aggregate 833,333 Pre-IPO Shares were placed in escrow with
Continental Stock Transfer & Trust Company, as escrow agent, for a
period ending on November 30, 1997. During such escrow period, such
persons are not able to sell or otherwise transfer the Pre-IPO
Shares. However, persons retain voting rights with respect to the
Pre-IPO Shares. Gilbert Scharf beneficially owns 498,333 Pre-IPO
Shares, Michael Scharf beneficially owns 220,000 Pre-IPO Shares, Mr.
Martin beneficially owns 40,000 Pre-IPO Shares and each of Messrs.
Birch, Whittemore and Kopp beneficially owns 25,000 Pre-IPO Shares.
(5) Based on information set forth in a Schedule 13D filed with the
Commission on December 12, 1994, Woodland Partners, a limited
partnership organized under the laws of the State of New York, is a
general partnership of which the general partners are Barry
Rubenstein and Marilyn Rubenstein. The general partners individually,
as well as The Marilyn and Barry Rubenstein Family Foundation,
Woodland Venture Fund, Seneca Ventures and Woodland Services Corp.,
entities with which they are affiliated, may be deemed the beneficial
owners of the shares indicated. The address of Woodland Partners, as
well as such other beneficial owners, is 39 Woodland Road, Roslyn,
New York 11576.
(6) Includes 5,000 shares of FSAC Common Stock beneficially owned
jointly with Mr. Martin's wife.
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<PAGE>
The following table sets forth certain information with respect to the
beneficial ownership of EBIC Common Stock as of May 31, 1996 by (i) each
person known to EBIC to be the beneficial owner of more than 5% of the
outstanding shares of EBIC Common Stock, (ii) each of EBIC's directors, (iii)
each EBIC Named Executive Officer and (iv) all directors and executive
officers of EBIC as a group.
BENEFICIAL OWNERSHIP OF SHARES OF EBIC COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF BENEFICIALLY
NAME SHARES OWNED(5)
- --------------------------------------------- ----------- --------------
<S> <C> <C>
Welsh, Carson, Anderson & Stowe VI, L.P. (1) 907,602 54.31
Donald R. A. Marshall (2) .................... 197,823 11.8
Alistair H. Johnstone (2) .................... 119,870 7.2
Brian G. Clark (2) ........................... 70,320 4.2
Walter E. Dulski (2) ......................... 53,977 3.2
Keith E. Reihl (2) ........................... 50,362 3.0
Bruce K. Anderson (3)(4) ..................... 874,038 52.3
Patrick J. Welsh (3)(4) ...................... 874,038 52.3
All directors and executive officers
as a group (7 persons) (3)(4) ............... 1,366,390 81.8
</TABLE>
- ------------
(1) The stockholder's address is One World Financial Center, Suite 3601,
New York, New York 10281 and the amount shown includes 56,718 shares
of EBIC Common Stock held by affiliates. See "BUSINESS OF
EBIC--Proposed Joint Venture."
(2) The stockholder's address is c/o EBIC, Two World Trade Center, Suite
8400, New York, New York 10048.
(3) The stockholder's address is c/o WCAS, One World Financial Center,
Suite 3601, New York, New York 10281.
(4) The amount shown includes an aggregate 865,446 shares of EBIC Common
Stock owned by WCAS and WCAS Info. Messrs. Anderson and Welsh are
general partners of the sole general partners of each of these
entities but disclaim beneficial ownership of these shares.
(5) On a pro forma basis, assuming that no FSAC Warrants are exercised
immediately after the Effective Time, it is anticipated that the
percentage beneficial ownership in FSAC immediately after the
Effective Time of the specified persons will be approximately 50% of
the percentages specified.
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<PAGE>
PROPOSAL 2: ELECTION OF DIRECTORS
At the FSAC Special meeting, eight directors are to be elected to the FSAC
Board of Directors. The nominees for directors are: Gilbert D. Scharf,
Michael J. Scharf, Denis Martin, Larry S. Kopp, William B. Wigton, Frederick
B. Whittemore, Donald R.A. Marshall and James W. Stevens. All such nominees,
other than Messrs. Marshall, Wigton and Stevens, are currently directors of
FSAC. Messrs. Marshall and Stevens are designees of EBIC. Mr. Wigton is
replacing William D. Birch, a current director of FSAC, who has tendered his
resignation effective upon consummation of the Merger. Assuming a quorum is
present at the FSAC Special Meeting, those nominees for director receiving a
plurality of the votes cast at the FSAC Special Meeting will be elected as
directors. A "plurality" means that the nominees who receive the greatest
number of votes present or represented by proxy (up to the maximum number of
directors to be elected) are elected as the directors. Any shares not voted
"FOR" a particular director (whether as a result of a direction to withhold
authority or a broker non-vote) will not be counted for the purpose of
determining a plurality.
In the event any nominee is unable to serve as a director, the shares
represented by the proxy will be voted for the person, if any, who is
designated by the FSAC Board of Directors to replace the nominee. All
nominees have consented to be named and have indicated their intent to serve
if elected. The FSAC Board has no reason to believe that any nominee will be
unable to serve or that any vacancy on the FSAC Board will occur.
If the Merger is not consummated, this Proposal will not take effect since
it is expressly conditioned upon the satisfaction of all conditions to the
consummation of the Merger, including approval of the Classified Board
Amendment, which among other things, expands the Board of Directors to eight
members and divides it into a three-class staggered board. See "PROPOSAL 3:
AMENDMENT TO ARTICLE SIXTH--Classified Board Amendment." In such event, the
current members of the FSAC Board of Directors will continue to serve in such
capacity (including Mr. Birch) until the earlier of (i) the next special
meeting of FSAC stockholders in connection with another proposed Business
Combination (if any, and if directors are to be elected in connection
therewith), (ii) the liquidation of FSAC or (iii) if a Business Combination
other than the Merger occurs (and directors are not elected in connection
therewith), the 1997 annual meeting of FSAC stockholders (see "THE SPECIAL
MEETINGS --FSAC Special Meeting --FSAC Liquidation if No Business
Combination").
The nominees, their proposed classes, ages and the year in which each
first became a director are as follows:
<TABLE>
<CAPTION>
YEAR FIRST
CLASS OF BECAME
NOMINEE DIRECTOR AGE DIRECTOR
- ------------------------ ----------- ----- ------------
<S> <C> <C> <C>
Gilbert D. Scharf ....... Class III 47 1994
Michael J. Scharf ....... Class III 53 1994
Larry S. Kopp ........... Class III 53 1994
Donald R. A. Marshall .. Class II 51 N/A
Denis Martin ............ Class II 46 1994
William B. Wigton ....... Class II 49 N/A
James W. Stevens ........ Class I 59 N/A
Frederick B. Whittemore Class I 64 1994
</TABLE>
GILBERT D. SCHARF has been Chairman of the Board, President and Chief
Executive Officer of FSAC since its inception. Since April 1993, Mr. Scharf
has been Vice President, Secretary, Treasurer and a director of International
Metals Acquisition Corporation, a holding company with operating subsidiaries
in the business of manufacturing cold drawn steel bars ("IMAC"). Since 1989,
Mr. Scharf has been a private investor and Chairman of Scharf Advisors, Inc.
("Scharf Advisors"), a financial advisory firm. From 1985 to January 1989,
Mr. Scharf was a Managing Director of Lazard Brothers & Co. Ltd. in London,
where he was responsible for establishing and managing capital market
activities. From 1983 to 1985, Mr. Scharf was the General Partner of Mendez,
Scharf & Co., a private investment partnership. Prior thereto, Mr. Scharf was
a Managing Director at Morgan Stanley & Co. ("Morgan Stanley") from
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<PAGE>
1978 to 1983, where he managed all corporate and international bond trading
and new issue commitments and the money market department, and was
co-chairman of the risk management committee. Upon consummation of the
Merger, Mr. Scharf will also become Vice-Chairman of EBIC. Mr. Scharf earned
a B.A. degree from Duke University.
MICHAEL J. SCHARF has been Vice President, Secretary, Treasurer and a
director of FSAC since its inception. Since April 1994, Mr. Scharf has been
Chairman of the Board, President and Chief Executive Officer of IMAC. From
August 1989 to April 1994, he was a private investor. From October 1983 to
August 1989, Mr. Scharf was the Chairman and Chief Executive Officer of
Edgcomb Steel of New England, Inc. and its successor corporation, Edgcomb
Corporation, which was, from 1984 to 1989, one of the largest independent
metals service center and distribution companies in the United States.
Edgcomb Corporation was sold in 1989 to a company controlled by The
Blackstone Group. Mr. Scharf received an A.B. degree from Princeton
University and an M.B.A. from Harvard Business School.
DENIS MARTIN has been a director of FSAC since its inception. Since July
1993, Mr. Martin has been a private investor. From January 1992 to July 1993,
Mr. Martin served as risk investment manager at Cragnotti & Partners Capital
Investment. From January 1990 to December 1991, Mr. Martin headed the
Investment Group at BNP Securities, and from 1985 to December 1989, he was a
partner in the Lazard Brothers Capital Group, where he was responsible for
risk management. From 1980 to 1985, Mr. Martin was a Eurobond market-maker at
Morgan Stanley and prior thereto, he was in the actuarial and investment
departments at Legal and General Assurance, a major U.K. insurance company.
Mr. Martin earned a B.S. degree from the University of Leicester, England.
LARRY S. KOPP has been a director of FSAC since its inception. Since
November 1992, Mr. Kopp has been Managing Director of Frank Russell and
Company, a pension consulting firm which currently has $600 billion under
advisement and $22 billion in investment funds. From 1978 to November 1992,
Mr. Kopp held several senior management positions in strategic growth areas
of Citicorp, including General Manager of its bank card business and Chairman
of Citicorp Insurance Services. From 1974 to 1978, Mr. Kopp was involved in
venture capital transactions and was an advisor at E.M. Warburg Pincus and
Company, where he served as a consultant to corporations regarding strategic
planning, turnarounds, financial restructuring and sales of assets. Mr. Kopp
earned B.A. and M.B.A. degrees from Stanford University.
FREDERICK B. WHITTEMORE has been a director of FSAC since its inception.
Mr. Whittemore currently serves as a member of the Boards of Directors of
Partner Re Services Ltd., Southern Pacific Petroleum, Integon Insurance and
Chesapeake Energy Corporation. Since 1989, Mr. Whittemore has been an
Advisory Director at Morgan Stanley and he is Chairman of several of Morgan
Stanley's mutual funds. Mr. Whittemore started at Morgan Stanley in 1958; he
was a Partner from 1967 to 1970 and a Managing Director from 1970 until 1988.
He was a senior banker in Corporate Finance, Mergers and Acquisitions and
Capital Markets, and Syndicate Manager responsible for organizing and pricing
all public offerings. Mr. Whittemore has also been a member of the Council of
Foreign Relations since 1983 and was Chairman of the Board, Amos Tuck School
of Business Administration at Dartmouth College from 1988 to June 1992. From
1977 to 1984, Mr. Whittemore was a Governor of the American Stock Exchange
("AMEX") and from 1982 to 1984 he was Vice Chairman of AMEX. Mr. Whittemore
earned an A.B. degree from Dartmouth College and an M.B.A. from the Amos Tuck
School of Business Administration.
WILLIAM B. WIGTON was a founding member and has been a managing partner of
Merrion Group, L.P., a broker-dealer, since its inception in 1989. He is also
a managing director of and investor in Merrion Investors, L.P., a private
investment fund, and in 1996 was appointed a director of Munn, Bernhard &
Associates, a registered investment advisor. From 1981 to 1989, Mr. Wigton
was employed at Lazard Freres & Co. and was a general partner from 1987 to
1989, with responsibility for corporate bond sales. From 1979 to 1981, Mr.
Wigton was a senior vice president at Dillon Read & Co. Inc. ("Dillon Read").
Prior thereto, he was associated with Morgan Stanley (1975 to 1979) and
Morgan Guaranty Trust Company (1970 to 1975). Mr. Wigton received his B.A.
from Lynchburg College.
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<PAGE>
DONALD R. A. MARSHALL was a director of the predecessor business to EBIC
and has been a director of EBIC since its inception. He has been President
and Chief Executive Officer and the director of EBIC's various domestic and
international subsidiaries and affiliates since 1986. Prior to joining EBIC,
Mr. Marshall was a money market specialist with Nesbitt Thompson and Co.
Ltd., a Canadian investment firm. Upon consummation of the Merger, Mr.
Marshall will become Vice-Chairman of FSAC. Mr. Marshall, who currently
serves as a member of the Boards of Directors of Trilon International
Securities Ltd. and Century IBC Management Inc., received his B.A. from
Trinity College, University of Toronto and his M.B.A. from Stanford
University.
JAMES W. STEVENS held various senior positions at The Prudential Insurance
Company of America ("Prudential") from October 1987 through December 1994 .
Mr. Stevens retired from Prudential in January 1995. As an Executive Vice
President, from October 1987 to December 1994, his responsibilities included
serving on the Operating Council since 1993 and serving as Chairman and Chief
Executive Officer of the Prudential Asset Management Group with
responsibility for global institutional money management since 1993. From
April 1985 to October 1987, he was a Managing Director of Dillon Read in its
investment banking and private investment origination group. From 1974 to
1985, Mr. Stevens held several senior positions at Citicorp, including
Chairman of Citicorp Venture Capital Ltd. and Group Executive of the Capital
Markets Group, responsible for the Western Hemisphere merchant banking and
Investment Management activities of Citicorp. Mr. Stevens currently serves on
the board of directors of the following companies: Biogen, Inc., Markem
Corporation, MSO America, Polyfibron Technologies, Inc., Walsh International,
Inc. and Prudential Equity Investors. Mr. Stevens received his B.A. degree
from Williams College and his M.B.A. from New York University.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires FSAC's directors, executive
officers, and persons who own greater than 10% of a registered class of
FSAC's equity securities ("10% Stockholders") to file with the Commission
initial reports of ownership and reports of changes in ownership of FSAC
Common Stock and other equity securities of FSAC and to furnish FSAC with
copies of all such forms. Based solely on its review of the copies of such
forms furnished to it, FSAC believes that during the fiscal year ended
December 31, 1995 each of its officers, directors and 10% Stockholders
complied with the Section 16(a) reporting requirements.
EXECUTIVE COMPENSATION
Upon consummation of the Merger, it is expected that directors of FSAC who
are not full-time employees will be paid a retainer fee. The amount of such
fees has not yet been determined.
No executive officer of FSAC has received any cash compensation from FSAC
since its inception for services rendered, but it is anticipated that in
addition to the Employment Agreements (see "PROPOSAL 1: THE MERGER
- --Interests of Certain Persons in the Merger --Employment Agreements"),
full-time executive officers will receive compensation, in amounts yet to be
determined, subsequent to consummation of the Merger. Except as described
below with respect to Scharf Advisors, prior to the consummation of a
Business Combination, none of FSAC's officers, directors or stockholders will
receive any compensation other than reimbursement for any out-of-pocket
expenses incurred in connection with activities on behalf of FSAC. There is
no limit on the amount of such out-of-pocket expenses and there will be no
review of the reasonableness of such expenses by anyone other than the FSAC
Board of Directors, which includes persons who may seek reimbursement. Under
no circumstances can the amount of such reimbursable expenses, together with
all of FSAC's other expenses related to the investigation and selection of a
Target Business and the negotiation of an agreement to acquire a Target
Business, be in excess of the amount of the net proceeds of the IPO not held
in the Trust, unless FSAC consummates a Business Combination, in which event
the proceeds of the Trust may be used to make such reimbursement and pay such
expenses.
CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
In August 1994, FSAC issued an aggregate 833,333 Pre-IPO Shares for an
aggregate purchase price of $25,000, or $.03 per share, to the Initial FSAC
Stockholders.
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In September 1994, FSAC consummated the Bridge Financing. The thirteen
investors in the Bridge Financing loaned an aggregate of $200,000 to FSAC and
were issued promissory notes in that amount, bearing interest at the rate of
10% per annum and payable at the consummation of the IPO, and 400,000 Bridge
Warrants. None of the investors in the Bridge Financing were affiliated with
FSAC or the Initial FSAC stockholders. Three of the investors are minority
stockholders (each owning less than 2%) of GKN Holdings Corp., the sole
stockholder of GKN. The Bridge Warrants are identical to the FSAC Warrants
issued in the IPO except that they are not redeemable by FSAC until 90 days
after the consummation of a Business Combination. The holders of the Bridge
Warrants have agreed not to transfer them until after the consummation of a
Business Combination and not to exercise them until 90 days after such
consummation. FSAC registered the Bridge Warrants and the underlying shares
of FSAC Common Stock pursuant to the registration statement FSAC filed in
connection with the IPO and granted the investors certain "piggy-back"
registration rights for the Bridge Warrants and such underlying shares. The
Exchange Offer, if made, would extend to the Bridge Warrants.
In connection with the IPO, Scharf Advisors agreed that, until the
acquisition of the Target Business, it will make available to FSAC its office
space, as well as certain office and secretarial services as may be required
by FSAC from time to time. FSAC has agreed to pay Scharf Advisors $5,000 per
month for such services. In addition, Scharf Advisors receives reimbursement
for any out-of-pocket expenses incurred in connection with activities on
behalf of FSAC. Gilbert Scharf is the sole officer, director and stockholder
of Scharf Advisors. Management of FSAC believes that the arrangement with
Scharf Advisors is on terms at least as favorable as would be available from
an unaffiliated third party.
Gilbert D. Scharf and Michael J. Scharf are brothers. There are no other
family relationships among FSAC's directors, executive officers or persons
nominated or chosen by FSAC to become a director or executive officer.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF
THE EIGHT NOMINEES LISTED ABOVE.
PROPOSAL 3: AMENDMENT TO ARTICLE SIXTH
GENERAL
At the FSAC Special Meeting, FSAC stockholders will be asked to adopt an
amendment to FSAC's Certificate of Incorporation to include a new Article
SIXTH, to be effective immediately after the Effective Time, which would
effect the following changes: CLASSIFIED BOARD AMENDMENT--to initially expand
the Board of Directors to eight directors and classify the Board into three
classes of directors serving staggered terms; STOCKHOLDERS' ACTION
AMENDMENT--to require that stockholder action be taken at an annual or
special meeting of stockholders and prohibit stockholder action by written
consent; SPECIAL MEETING AMENDMENT--to restrict the ability to call a special
meeting of stockholders to the Chairman and the President of FSAC or to an
affirmative vote of the majority of the Board of Directors; SUPERMAJORITY
AMENDMENT--to require an 80% supermajority vote to amend Article SIXTH; and
the DELETION OF CERTAIN SPAC(REGISTERED TRADEMARK)-RELATED PROVISIONS--as a
matter of completeness, to physically delete provisions that by their own
terms will have ceased to be in effect. A copy of the proposed form of
Amendment to Article SIXTH is attached to this Proxy Statement as Annex IV
and is incorporated herein by reference. Assuming a quorum is present at the
FSAC Special Meeting, the affirmative vote of the holders of a majority of
the Outstanding FSAC Shares is required to approve the Amendment to Article
SIXTH. If the Merger is not consummated, the Amendment to Article SIXTH will
not take effect, since it is expressly conditioned upon satisfaction of all
other conditions to consummation of the Merger. Conversely, if FSAC
stockholders fail to approve the Amendment to Article SIXTH, the parties are
not obligated to consummate the Merger.
The following description of the Amendment to Article SIXTH is qualified
in its entirety by reference to the entire text of the proposed amendment.
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CLASSIFIED BOARD AMENDMENT
The Classified Board Amendment provides (i) that the Board of Directors
will consist of not less than three nor more than twelve directors, the exact
number of directors to be determined from time to time by resolution adopted
by the affirmative vote of a majority of the entire Board of Directors, with
the initial number of directors to be set at eight; (ii) for the
classification of the Board of Directors into three classes serving staggered
terms, with each class to be as nearly equal in size as possible; and (iii)
that, subject to the requirements of the DGCL, any vacancy on the Board of
Directors be filled only by the remaining directors then in office, even if
such directors constitute less than a quorum. If the Classified Board
Amendment is adopted, FSAC's directors will be divided into three classes:
Class I Directors, Class II Directors and Class III Directors. Two Class I
Directors will be elected for an initial one-year term expiring at the 1997
annual meeting, three Class II Directors will be elected for an initial
two-year term expiring at the 1998 annual meeting and three Class III
Directors will be elected for an initial three-year term expiring at the 1999
annual meeting, in each case until their respective successors are duly
elected and qualified. Starting with the 1997 annual meeting and continuing
for each succeeding annual meeting, successors to the class of directors
whose term expires at that annual meeting will be elected for a three-year
term. For information concerning the current nominees for election as
directors at the FSAC Special Meeting and the terms for which they will
initially serve if the Classified Board Amendment is adopted, see "PROPOSAL
2: ELECTION OF DIRECTORS."
If at any time the size of the Board of Directors is changed, the increase
or decrease in the number of directors will be apportioned among the three
classes to make all classes as nearly as equal in size as possible. The Board
of Directors has no present plans, arrangements, commitments or understanding
with respect to increasing or decreasing the size of the Board of Directors
or of any class of directors, except as discussed herein.
Except as the DGCL may otherwise require, pursuant to the Classified Board
Amendment any vacancies in the Board of Directors occurring for any reason,
including by reason of an increase in the number of directors or a removal of
a director for cause, will be filled only by the Board of Directors acting by
the affirmative vote of a majority of the remaining directors, even if less
than a quorum. In addition, the Classified Board Amendment provides that any
director elected to the Board of Directors to replace another director will
hold office for the unexpired term of the replaced director, and a director
elected by the Board of Directors to fill a vacancy created by an increase in
the number of directors will hold office until the next election for the
class to which he or she was elected.
The DGCL provides that directors serving on a classified board of
directors can be removed by the stockholders only for cause, unless the
certificate of incorporation provides otherwise. Since FSAC's Certificate of
Incorporation does not contain such a provision, a result of the Classified
Board Amendment would be that directors of FSAC could be removed by FSAC
stockholders only for cause.
The classification of directors is likely to have the effect of making it
more difficult to change the then or future composition of the Board of
Directors (see "PROPOSAL 2: ELECTION OF DIRECTORS"). At least two stockholder
meetings instead of one would be required to effect a change in the majority
control of the Board of Directors, except in the event of vacancies resulting
from removal for cause or other reason (in which case the remaining directors
will fill the vacancies so created). Accordingly, the classified Board of
Directors is likely to have the effect of perpetuating the control of FSAC,
at least through the second annual meeting of stockholders of FSAC following
the Merger, in the current directors of FSAC and may, in conjunction with the
Stockholders' Action Amendment and Special Meeting Amendment, have the effect
of discouraging, delaying or preventing a change in control of FSAC.
The Board of Directors recommends the adoption of the Classified Board
Amendment in order to promote continuity and stability in the leadership and
policies of FSAC since a majority of FSAC's directors at any given time will
have prior experience as directors of FSAC. The Board of Directors further
believes that such continuity and stability will facilitate long-range
planning for FSAC's business and have a positive effect on employee loyalty.
In addition, the Board of Directors believes that the classified board will
discourage certain types of tactics which could involve actual or threatened
changes
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of control that are not in the best interests of FSAC stockholders. It is
often the case that the accumulation of substantial stock positions in public
companies by third parties is a prelude to proposing a takeover,
restructuring or sale of all or part of the company or other similar
extraordinary corporate action. Such actions are often undertaken by a third
party without advance notice to or consultation with the company's board of
directors. In many cases, such third party seeks representation on the
company's board of directors. The purchaser may commence a proxy contest to
have its nominees elected to the board in place of certain directors or the
entire board. In some cases, the purchaser may not be interested in taking
over the company but instead uses the threat of a proxy fight and/or a bid to
take over the company as a means of pressuring the company to repurchase the
purchaser's equity position at a substantial premium over market price. In
such event, the company faces the risk that if it does not do so, its
business and management will be disrupted, perhaps irreparably.
The Classified Board Amendment cannot, and is not intended to, prevent a
purchase of all or a majority of the equity securities of FSAC, nor is it
intended to deter bids for such securities. Rather, the FSAC Board believes
that the Classified Board Amendment will discourage disruptive tactics and
encourage persons who may seek to acquire control of FSAC to initiate such an
acquisition through negotiations with the Board of Directors. The Board of
Directors believes that it will therefore be in a better position to protect
the interests of all FSAC stockholders.
Takeovers or changes in the board of directors of a company that are
proposed and effected without prior consultation and negotiation with the
company are not necessarily detrimental to such company and its stockholders.
However, the Board of Directors feels that the benefits of seeking to protect
the ability of FSAC to negotiate effectively through directors who have
previously been elected by the stockholders as a whole and are familiar with
FSAC outweigh any disadvantage of discouraging such unsolicited proposals.
STOCKHOLDERS' ACTION AMENDMENT
Pursuant to the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken by stockholders
of a company may be taken without a meeting and without a stockholder vote if
a written consent setting forth the action to be taken is signed by the
holders of shares of outstanding stock having the requisite number of votes
that would be necessary to authorize such action at a meeting of
stockholders. The FSAC Certificate of Incorporation does not currently
otherwise provide. Moreover, the FSAC By-laws currently provide for
stockholder action by written consent. The proposed Stockholders' Action
Amendment will require that stockholder action be taken at an annual or
special meeting of stockholders and will prohibit stockholder action by
written consent.
The provision prohibiting stockholder action by written consent will give
all stockholders of FSAC the opportunity to participate in determining any
proposed action and will prevent the holders of a majority of the voting
stock from using the written consent procedure to take stockholder action
without affording all stockholders an opportunity to participate. On the
other hand, the Stockholders' Action Amendment will prevent stockholders from
taking action other than at an annual or special meeting of stockholders at
which the proposal is submitted to stockholders in accordance with the
advance notice provisions of the FSAC By-laws. Moreover, if the Special
Meeting Amendment is adopted, stockholders will not have the ability to call
a special meeting of stockholders of FSAC. Accordingly, the Stockholders'
Action Amendment, in conjunction with the Classified Board Amendment, the
Special Meeting Amendment and the Supermajority Amendment, may have the
effect of discouraging, delaying or preventing a change in control of FSAC.
For example, a proposal for the removal of directors for cause could, if the
Board of Directors desired, be delayed until the next annual meeting of FSAC
stockholders.
SPECIAL MEETING AMENDMENT
Under FSAC's current By-laws, a special meeting of stockholders may be
called by the Chairman or the President and is required to be called by the
Chairman, President or Secretary at the request in writing of a majority of
the Board of Directors or stockholders owning not less than fifty percent of
the FSAC Common Stock issued and outstanding and entitled to vote. The
Special Meeting Amendment will
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eliminate the ability of stockholders to call a special meeting. Such
elimination would mean that proposals for stockholder action such as, for
example, a proposed amendment to the By-laws or a proposal for the removal of
directors for cause could, if the Board of Directors desired, be delayed
until the next annual meeting of FSAC stockholders.
SUPERMAJORITY AMENDMENT
Amendments to FSAC's Certificate of Incorporation currently require the
approval of the holders of a majority of the outstanding shares of stock
entitled to vote thereon and in certain cases, a majority of the outstanding
shares of each class of stock entitled to vote thereon as a class. The DGCL
permits provisions in a company's certificate of incorporation that require a
greater vote than the vote otherwise required by law for any corporate
action. Pursuant to the Supermajority Amendment, the affirmative vote of the
holders of at least 80% of FSAC's capital stock issued and outstanding and
entitled to vote generally in the election of directors, voting as a single
class, would be required to alter, amend or repeal Article SIXTH or to adopt
any provisions inconsistent therewith. Adoption of the Supermajority
Amendment requires only the approval of a majority of the Outstanding FSAC
Shares, accordingly, in the event that the proposed Supermajority Amendment
is adopted by less than an 80% vote, stockholders having the same percentage
of voting power as those who voted in favor of its adoption will not have
sufficient voting power to alter, amend or repeal Article SIXTH at a later
date. The requirement of an 80% stockholder vote for amendment of the
provisions of Article SIXTH is designed to prevent a stockholder with only a
majority of FSAC's stock from avoiding the requirements of Article SIXTH by
simply amending the provisions of FSAC's Certificate of Incorporation and
thereby defeating the purposes of the Amendment to Article SIXTH.
DELETION OF CERTAIN SPAC(Registered Trademark)-RELATED PROVISIONS
The current provisions of Article SIXTH of FSAC's Certificate of
Incorporation relate to the following SPAC(Registered Trademark)
characteristics: the requirement of stockholder approval of a Business
Combination, the availability of Redemption Rights, the requirement of
liquidation in the event that FSAC fails to consummate a Business Combination
by a certain date, the prohibition of distributions from the Trust to holders
of FSAC Public Shares, other than pursuant to Redemption Rights or
liquidation, and the implementation of a two-class staggered Board of
Directors. See "BUSINESS OF FSAC --Characteristics of a Specified Purpose
Acquisition Company(Registered Trademark)." Under FSAC's Certificate of
Incorporation, the provisions of Article SIXTH by their own terms cease to be
effective upon the consummation of any Business Combination. As a matter of
completeness, the Amendment to Article SIXTH deletes these provisions,
effective immediately after the Effective Time.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
"FOR" THE AMENDMENT TO ARTICLE SIXTH.
PROPOSAL 4: ADDITIONAL COMMON STOCK AMENDMENT
GENERAL
At the FSAC Special Meeting, FSAC stockholders will be asked to adopt an
amendment to FSAC's Certificate of Incorporation to include a new Article
FOURTH, to be effective immediately before the Effective Time, to increase
the number of authorized shares of FSAC capital stock to 31,000,000, of which
30,000,000 shares will be FSAC Common Stock and 1,000,000 shares will be FSAC
Preferred Stock. FSAC's Certificate of Incorporation currently authorizes it
to issue 14,000,000 shares of FSAC Common Stock and 1,000,000 shares of FSAC
Preferred Stock. See "DESCRIPTION OF FSAC CAPITAL STOCK." A copy of the
proposed Additional Common Stock Amendment is attached to this Proxy
Statement as Annex IV and is incorporated herein by reference. Assuming a
quorum is present at the FSAC Special Meeting, the affirmative vote of the
holders of a majority of the Outstanding FSAC Shares is required to approve
the Additional Common Stock Amendment. If the Merger is not consummated, the
Additional Common Stock Amendment will not take effect, since it is expressly
conditioned upon satisfaction of all other conditions to consummation of the
Merger. Conversely, unless FSAC stockholders approve the Additional Common
Stock Amendment, the Merger will not be consummated.
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ADDITIONAL COMMON STOCK
FSAC is currently authorized to issue 14,000,000 shares of FSAC Common
Stock. As of the date of this Proxy Statement, there were 4,416,666 shares of
FSAC Common Stock outstanding and 8,566,665 shares reserved for issuance upon
exercise of outstanding FSAC Warrants and Unit Purchase Options (and the FSAC
Warrants included therein), leaving 1,016,669 authorized shares available for
other issuances. As a result of the Merger, on a pro forma basis (see
"CAPITALIZATION"), and assuming consummation of the Unit Purchase Option
Exchange and that no FSAC stockholders exercise their Redemption Rights (see
"REDEMPTION RIGHTS"), it is expected that the number of outstanding shares of
FSAC Common Stock will increase from 4,416,666 to 9,283,332 with 15,133,332
shares reserved for issuance upon exercise of then-outstanding FSAC Warrants
(including the Merger Warrants), leaving 5,583,336 authorized shares
available for other issuances (including the issuance of up to 1,800,000
shares under the FSAC Option Plan; see "PROPOSAL 6: FSAC OPTION PLAN").
Accordingly, FSAC must increase its authorized shares of FSAC Common Stock to
enable it validly to consummate the Merger and the other transactions
contemplated by the Merger Agreement. In addition, the Board of Directors
believes that the availability of an adequate supply of authorized and
unissued stock provides flexibility by allowing shares to be issued without
the expense and delay of a special stockholders' meeting, unless stockholder
action is required in a specific case by applicable law or the rules of any
exchange on which FSAC's securities may then be listed. The authorized but
unissued shares of FSAC Common Stock could be utilized for any number of
general corporate purposes, including acquisitions, equity financings, stock
dividends and other stock distributions. Moreover, the authorization of the
additional shares of FSAC Common Stock would provide FSAC with some
flexibility to respond to attempts to take control of FSAC.
On the other hand, such additional issuances (depending on the
consideration, if any, received), including possible issuances of FSAC
Preferred Stock, may dilute the interests of FSAC's stockholders and may have
a material adverse impact on the market prices for FSAC Common Stock and FSAC
Warrants. See "RISK FACTORS--Authority of FSAC to Issue Additional
Securities." In addition, anticipation of the Exchange Offer and/or
consummation of the same could have a similar effect, since the Exchange
Offer, although it would reduce the number of outstanding FSAC Warrants,
would result in the issuance of additional shares of FSAC Common Stock (the
exact number depending upon the final exchange ratio that is agreed upon and
the number of FSAC Warrants that are tendered) without the payment of any
cash or other consideration that would add to FSAC's total stockholders'
equity. Finally, the issuance of additional FSAC securities in connection
with possible future acquisitions or financings, if any, among other things,
could cause the market prices for FSAC Common Stock and FSAC Warrants to
fluctuate significantly. See "RISK FACTORS--Possible Volatility of Prices for
FSAC Common Stock and FSAC Warrants."
The additional FSAC Common Stock will not have any preemptive rights,
Redemption Rights or subscription rights and, when fully paid, will not be
liable for further calls or assessments.
As of the date hereof, except as disclosed in this Proxy Statement, there
are no other plans, understandings, agreements or arrangements concerning the
issuance of additional shares of FSAC Common Stock. If any plans,
understandings, agreements or arrangements are made concerning the issuance
of any such shares, holders of the then outstanding shares of FSAC's capital
stock may or may not be given the opportunity to vote thereon, depending upon
the nature of any such transactions, the law applicable thereto and the
judgment of the Board of Directors regarding the submission thereof to FSAC's
stockholders.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
"FOR" APPROVAL OF THE ADDITIONAL COMMON STOCK AMENDMENT.
PROPOSAL 5: NAME CHANGE AMENDMENT
At the FSAC Special Meeting, FSAC stockholders will be asked to adopt an
amendment to FSAC's Certificate of Incorporation to include a new Article
FIRST, to be effective immediately before the Effective Time, to change the
name of FSAC to "Financial Services Corporation." A copy of the proposed
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form of Name Change Amendment is attached to this Proxy Statement as Annex IV
and is incorporated herein by reference. Assuming a quorum is present at the
FSAC Special Meeting, the affirmative vote of the holders of a majority of
the Outstanding FSAC Shares is required to approve the Name Change Amendment.
If the Merger is not consummated, the Name Change Amendment will not take
effect, since it is expressly conditioned upon satisfaction of all other
conditions to consummation of the Merger. Conversely, if FSAC stockholders
fail to approve the Name Change Amendment, the parties are not obligated to
consummate the Merger.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
"FOR" APPROVAL OF THE NAME CHANGE AMENDMENT.
PROPOSAL 6: FSAC OPTION PLAN
GENERAL
At the FSAC Special Meeting, FSAC stockholders will be asked to approve
the FSAC Option Plan. A copy of the FSAC Option Plan is attached to this
Proxy Statement as Annex V and is incorporated herein by reference. The
description below of the FSAC Option Plan is qualified in its entirety by
reference to the complete text of the FSAC Option Plan. Assuming a quorum is
present at the Special Meeting, the affirmative vote of the holders of a
majority of the shares of FSAC Common Stock present or represented by proxy
is required to approve the adoption of the FSAC Option Plan. If the Merger is
not consummated, the FSAC Option Plan will not take effect, since it is
expressly conditioned upon satisfaction of all conditions to consummation of
the Merger.
DESCRIPTION OF PRINCIPAL FEATURES OF THE PLAN
The FSAC Option Plan is intended to satisfy the requirements of Rule 16b-3
promulgated under Section 16 of the Exchange Act, as from time to time
amended ("Rule 16b-3"), and to serve as a qualified performance-based
compensation program under Section 162(m) ("Section 162(m)") of the Code.
Section 162(m) limits the deductibility of certain compensation in excess of
$1 million per year paid by a publicly traded corporation to the chief
executive officer and the four other executive officers named in the summary
compensation table of the corporation's proxy statement, if such officer is
employed by the corporation at the end of the corporation's tax year.
Compensation that qualifies as "performance-based" compensation is, however,
exempt from the $1 million deductibility limitation. In order for
compensation granted pursuant to the FSAC Option Plan to qualify for this
exemption, among other things, the material terms under which the
compensation is to be paid must be disclosed to and approved by stockholders
in a separate vote prior to payment.
The purpose of the FSAC Option Plan is to align the interests of executive
officers and other key employees of FSAC and EBIC and its subsidiaries with
those of FSAC's stockholders and to afford additional incentives to such
officers and employees to continue as employees, to increase their efforts on
behalf of FSAC and EBIC and its subsidiaries and to promote the success of
the business of FSAC and EBIC and its subsidiaries, through the grant of
options to purchase shares of FSAC Common Stock.
Selected executive officers and key employees of FSAC and EBIC and its
subsidiaries, as determined by the Committee (as hereinafter defined), will
be eligible to participate in the FSAC Option Plan. It is expected that,
initially, approximately 50 key employees of FSAC and EBIC and its
subsidiaries will be eligible to participate in the FSAC Option Plan, two of
whom are executive officers of FSAC.
The FSAC Option Plan will be administered by a committee ("Committee") of
the FSAC Board of Directors, each member of which will be a "disinterested
person" within the meaning of Rule 16b-3 and an "outside director" within the
meaning of Section 162(m).
The FSAC Option Plan authorizes the granting of "incentive stock options,"
within the meaning of section 422 of the Code ("ISOs"), and nonqualified
stock options ("NQSOs" and, collectively with ISOs, "Options"), pursuant to
the applicable terms and conditions of the FSAC Option Plan and of the
agreement ("Agreement") evidencing such grant. The aggregate fair market
value of the ISOs granted to any optionee under the FSAC Option Plan, or any
similar plan, that first become exercisable in any calendar year may not
exceed $100,000.
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The aggregate number of shares of FSAC Common Stock reserved for issuance
pursuant to the FSAC Option Plan is 1,800,000, subject to adjustment as
provided in the FSAC Option Plan. No employee may be granted Options in any
one year to purchase more than 500,000 shares, subject to adjustment as
provided in the FSAC Option Plan.
The Option exercise price per share may not be less than the fair market
value of a share of FSAC Common Stock on the date on which the Option is
granted unless, in the case of NQSOs, the Committee determines otherwise.
Such exercise price must be paid in full, at the time of exercise, in cash or
in shares of FSAC Common Stock having a fair market value equal to such
exercise price, in a combination of cash and FSAC Common Stock or, unless the
Committee determines otherwise, through a cashless exercise procedure. The
exercisability schedule relating to an Option will be provided in each
Agreement. It is anticipated that the initial grant of Options under the FSAC
Option Plan will provide that each Option will become exercisable as to 20%
of the FSAC Common Stock covered by the Option on the first anniversary of
the date the Option was granted and as to an additional 20% of the FSAC
Common Stock covered by the Option on each successive anniversary of the
grant date. The Committee will have the authority to accelerate the
exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. Upon a
"change in control of FSAC" (as defined in the FSAC Option Plan), all Options
that are outstanding at such time will become immediately exercisable in
full. Unless the terms of any specific grant provide otherwise, Options will
expire on the earliest of (i) 10 years after grant, (ii) one month after
termination of employment for any reason other than death, "disability,"
"retirement" or "cause" (each as defined in the FSAC Option Plan) and (iii)
one year after termination of employment by reason of death, disability or
retirement. Options that are not yet exercisable on the date of termination
of employment will be forfeited. Upon the exercise of a NQSO, an optionee may
satisfy any withholding tax obligations with cash or shares of already owned
FSAC Common Stock.
Options granted under the FSAC Option Plan will not be transferable
otherwise than by will or by the laws of descent and distribution, and awards
may be exercised during the lifetime of the optionee only by the optionee or
by his or her guardian or legal representative.
The Board of Directors may from time to time amend the FSAC Option Plan,
but may not, without the approval of FSAC's stockholders, adopt any amendment
for which stockholder approval is required under applicable Delaware law or
in order for the FSAC Option Plan to continue to comply with Rule 16b-3 or
Section 162(m). No Options can be granted after the tenth anniversary of the
effective date of the FSAC Option Plan.
Inasmuch as Options will be granted under the FSAC Option Plan at the
discretion of the Committee, benefits under the FSAC Option Plan are not
determinable. However, for market price information of FSAC Common Stock, see
"MARKET PRICES OF FSAC SECURITIES."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of the principal federal income tax
consequences under current federal income tax laws relating to Options under
the FSAC Option Plan. This summary is not intended to be exhaustive and,
among other things, does not describe state, local or foreign income and
other tax consequences.
Certain Federal Income Tax Consequences--Incentive Stock Options
FSAC understands the federal income tax consequences of ISOs to be
generally as follows: An employee receiving an ISO will not be in receipt of
taxable income upon the grant of the ISO or upon its timely exercise.
Exercise of an ISO will be timely if made during its term and if the optionee
remains an employee of FSAC or EBIC or its subsidiaries at all times during
the period beginning on the date of the grant of the ISO and ending on the
date three months before the date of exercise (or one year before the date of
exercise in the case of a disabled optionee). Exercise of an ISO will also be
timely if made at any time (provided it is exercisable by its terms) by the
legal representative of an optionee who dies (i) while in the employ of the
FSAC or EBIC or its subsidiaries or (ii) within three months after
termination of employment. The FSAC Option Plan, however, limits the right of
the legal representative of any optionee
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to exercise an option to the one-year period following death. Upon ultimate
sale of the stock received upon such exercise, except as noted below, the
optionee will recognize capital gain or loss (if the stock is a capital asset
of the optionee) equal to the difference between the amount realized upon
such sale and the Option exercise price. FSAC, under these circumstances,
will not be entitled to any federal income tax deduction in connection with
either the exercise of the ISO or the sale of such stock by the optionee.
If, however, the stock acquired pursuant to such exercise of an ISO is
disposed of by the optionee prior to the expiration of two years from the
date of grant of the ISO or within one year from the date that such stock is
transferred to the optionee upon exercise (a "disqualifying disposition"),
any gain realized by the optionee generally will be taxable at the time of
such disqualifying disposition as follows: (i) as ordinary income to the
extent of the difference between the Option exercise price and the lesser of
the fair market value of the stock on the date the ISO is exercised and the
amount realized on such disqualifying disposition and (ii) if the stock is a
capital asset of the optionee, as capital gain to the extent of any excess of
the amount realized on such disqualifying disposition over the fair market
value of the stock on the date that governs the determination of his or her
ordinary income. In such case, FSAC may claim a federal income tax deduction
at the time of such disqualifying disposition for the amount taxable to the
optionee as ordinary income. (Different rules may apply in the case of an
optionee whose sale of shares at a profit could subject the optionee to suit
under Section 16(b) of the Act.)
The amount by which the fair market value of the stock on the exercise
date of an ISO exceeds the Option exercise price will constitute an item of
tax adjustment for purposes of the "alternative minimum tax" set forth in the
Code.
Certain Federal Income Tax Consequences--Nonqualified Stock Options
In the case of NQSOs, FSAC understands that the optionee will not
generally be taxed upon grant of any such option. Rather, at the time of
exercise of an NQSO (and in the case of an untimely exercise of an ISO), the
optionee will, except as noted below, realize ordinary income for federal tax
purposes in an amount equal to the excess of the fair market value of the
shares purchased over the Option exercise price. FSAC will generally be
entitled to a tax deduction at such time and in the same amount that the
optionee realizes ordinary income. If stock so acquired is later sold or
exchanged, then the difference between the sales price and the fair market
value of such stock on the date of exercise of the Option is generally
taxable as capital gain or loss. Such capital gain or loss will be taxed as
long-term capital gain or loss if such stock is held for at least one year.
(Different rules may apply in the case of an optionee whose sale of shares at
a profit could subject the optionee to suit under Section 16(b) of the Act.)
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE
"FOR" APPROVAL OF THE FSAC OPTION PLAN.
OTHER MATTERS
The FSAC Board of Directors is not aware of any other matters not set
forth herein that may come before the FSAC Special Meeting.
EXPERTS
The financial statements of FSAC included herein have been audited by BDO
Seidman, LLP, independent, certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report. FSAC has requested that a
representative of BDO Seidman, LLP attend the FSAC Special Meeting. Such
representative will have an opportunity to make a statement, if he or she
desires, and will be available to respond to appropriate questions of
stockholders.
The consolidated financial statements of EBIC and its subsidiaries as of
December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 included in this Proxy Statement have been so
included in reliance upon the report of Price Waterhouse LLP, independent
accountants, appearing elsewhere herein, given on the authority of said firm
as experts in accounting and auditing.
105
<PAGE>
STOCKHOLDER PROPOSALS
Assuming the Merger is consummated, any stockholder of what will then be
named Financial Services Corporation ("FSC") who wishes to submit a proposal
for presentation to the 1997 Annual Meeting of Stockholders must submit the
proposal to Financial Services Corporation, 667 Madison Avenue, New York, New
York, Attn: Secretary, no later than January 1, 1997, for inclusion, if
appropriate, in FSC's proxy statement and form of proxy relating to the 1997
Annual Meeting. FSC reserves the right to exclude any proposal which does not
meet all requirements for inclusion established by the Commission and in
effect at that time.
106
<PAGE>
INDEX TO FINANCIAL STATEMENTS
FINANCIAL SERVICES ACQUISITION CORPORATION
<TABLE>
<CAPTION>
<S> <C>
PERIODS ENDED DECEMBER 31, 1994 AND 1995 (AUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
Report of BDO Seidman, LLP, Independent Certified Public Accountants ................... F-2
Balance Sheets ......................................................................... F-3
Statements of Operations ............................................................... F-4
Statement of Common Stock, Common Stock Subject to Possible Conversion, Preferred
Stock, Additional Paid-In Capital and Retained Earnings (Deficit) Accumulated During
the Development Stage ................................................................. F-5
Statements of Cash Flows ............................................................... F-6
Notes to Financial Statements .......................................................... F-7
EURO BROKERS INVESTMENT CORPORATION
AT DECEMBER 31, 1994 AND 1995 AND FOR THE YEARS ENDED
DECEMBER 31, 1993, 1994 AND 1995 (AUDITED)
THREE-MONTH PERIODS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
Report of Price Waterhouse LLP, Independent Accountants ................................ F-11
Consolidated Statement of Financial Condition .......................................... F-12
Consolidated Statement of Operations ................................................... F-13
Consolidated Statement of Changes in Stockholders' Equity .............................. F-14
Consolidated Statement of Cash Flows ................................................... F-15
Notes to Consolidated Financial Statements ............................................. F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Financial Services Acquisition Corporation
New York, New York
We have audited the accompanying balance sheets of Financial Services
Acquisition Corporation (a corporation in the development stage) as of
December 31, 1994 and 1995, and the related statements of operations, common
stock, common stock subject to possible conversion, preferred stock,
additional paid-in capital and retained earnings (deficit) accumulated during
the development stage, and cash flows for the period from August 18, 1994
(inception) to December 31, 1994 and the year ended December 31, 1995. 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.
As discussed in Note 2, the Company's Certificate of Incorporation
provides for mandatory liquidation of the Company, without stockholder
approval, in the event that the Company does not consummate a business
combination within 24 months from the consummation of its Public Offering of
common stock (see Note 3). This 24-month period ends during December 1996.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Financial Services
Acquisition Corporation as of December 31, 1994 and 1995 and the results of
its operations and its cash flows for the period from August 18, 1994
(inception) to December 31, 1994 and the year ended December 31, 1995 in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
/s/ BDO SEIDMAN, LLP
New York, New York
March 8, 1996
F-2
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, DECEMBER 31, 1996
1994 1995 (UNAUDITED)
-------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents .............................. $ 1,783,022 $ 159,657 $ 38,395
Short-term investment and accrued interest thereon .... -- 1,116,214 1,008,094
U.S. Government security deposited in Trust Fund and
accrued interest thereon (Note 2) ..................... 17,475,598 18,489,353 18,718,730
Deferred acquisition costs (Note 8) .................... -- 60,000 622,500
Prepaid expenses ....................................... -- 5,000 --
Organization costs, less amortization of $845, $13,937
and $17,210 ........................................... 64,618 51,526 48,253
-------------- -------------- -------------
$19,323,238 $19,881,750 $20,435,972
============== ============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and taxes ............................. $ 135,116 $ 253,496 $ 687,498
Deferred income taxes .................................. -- 42,000 42,000
Commitment (Note 4)
Common stock, subject to possible conversion, 716,666
shares at conversion value (Note 2) ................... 3,493,372 3,696,022 3,741,874
Preferred stock, $.001 par value --shares authorized
1,000,000; none issued (Note 5) ....................... -- -- --
Common stock, $.001 par value --shares authorized
14,000,000; issued and outstanding 4,416,666 (which
includes 716,666 shares subject to possible
conversion) (Notes 3 and 6) ........................... 3,700 3,700 3,700
Additional paid-in capital ............................. 15,710,140 15,710,140 15,710,140
Retained earnings (deficit) accumulated during the
development stage ..................................... (19,090) 176,392 250,760
-------------- -------------- -------------
$19,323,238 $19,881,750 $20,435,972
============== ============== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM THREE THREE PERIOD FROM
AUGUST 18, 1994 MONTHS MONTHS AUGUST 18, 1994
(INCEPTION) TO YEAR ENDED ENDED MARCH ENDED MARCH (INCEPTION) TO
DECEMBER 31, DECEMBER 31, 31, 1995 31, 1996 MARCH 31, 1996
1994 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
INCOME:
Interest ........................ $ 67,014 $1,102,027 $ 275,666 $ 244,118 $1,413,159
--------------- -------------- ----------- ----------- ---------------
EXPENSES:
General and administrative ..... 20,845 158,986 48,324 40,375 220,206
Acquisition costs (Note 7) ..... -- 239,817 -- -- 239,817
Occupancy (Note 4) .............. 5,000 60,000 15,000 15,000 80,000
Amortization of financing costs,
debt discount and organization
costs .......................... 40,345 13,092 3,273 3,273 56,710
State franchise taxes ........... 3,964 13,000 4,550 3,250 20,214
Interest (Note 3) ............... 3,836 -- -- -- 3,836
--------------- -------------- ----------- ----------- ---------------
Total expenses ................. 73,990 484,895 71,147 61,898 620,783
--------------- -------------- ----------- ----------- ---------------
Net income (loss) before taxes
on income ..................... (6,976) 617,132 204,519 182,220 792,376
Taxes on income (current) ........ -- 177,000 86,000 62,000 239,000
Taxes on income (deferred) ...... -- 42,000 -- -- 42,000
--------------- -------------- ----------- ----------- ---------------
Net income (loss) ................ $ (6,976) $ 398,132 $ 118,519 $ 120,220 $ 511,376
=============== ============== =========== =========== ===============
Net income per share ............. $ (.00) $ .09 $ .03 $ .03
=============== ============== =========== ===========
Weighted average common shares
outstanding ..................... 1,446,296 4,416,666 4,416,666 4,416,666
=============== ============== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENT OF COMMON STOCK, COMMON STOCK SUBJECT TO POSSIBLE CONVERSION,
PREFERRED STOCK, ADDITIONAL PAID-IN CAPITAL AND RETAINED EARNINGS (DEFICIT)
ACCUMULATED DURING THE DEVELOPMENT STAGE
PERIOD FROM AUGUST 18, 1994 (INCEPTION) TO MARCH 31, 1996
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK SUBJECT EARNINGS
COMMON STOCK TO POSSIBLE CONVERSION PREFERRED STOCK (DEFICIT)
--------------------- ---------------------------------------------- ACCUMULATED
ADDITIONAL DURING THE
NUMBER OF NUMBER OF NUMBER OF PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE
----------- -------- ----------- ------------ ----------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 18, 1994 -- $ -- -- $ -- -- $-- $ -- $ --
Original issuance of
common stock .......... 833,333 833 -- -- -- -- 24,167 --
Issuance of warrants to
purchase common stock . -- -- -- -- -- -- 20,000 --
Sale of 3,583,333 units,
net of underwriting
discounts and offering
expenses .............. 2,866,667 2,867 716,666 3,481,258 -- -- 15,665,973 --
Net loss for the period -- -- -- -- -- -- -- (6,976)
Accretion to conversion
value of common stock . -- -- -- 12,114 -- -- -- (12,114)
----------- -------- ----------- ------------ ----------- -------- ------------- -------------
BALANCE, DECEMBER 31,
1994 .................. 3,700,000 $3,700 716,666 $3,493,372 -- $-- $15,710,140 $ (19,090)
Net income for the year -- -- -- -- -- -- -- 398,132
Accretion to conversion
value of common stock . -- -- -- 202,650 -- -- -- (202,650)
----------- -------- ----------- ------------ ----------- -------- ------------- -------------
BALANCE, DECEMBER 31,
1995 .................. 3,700,000 $3,700 716,666 $3,696,022 -- $-- $15,710,140 $ 176,392
Net Income for the
quarter (unaudited) ... -- -- -- -- -- -- -- 120,220
Accretion to conversion
value of common stock
(unaudited) ........... -- -- -- 45,852 -- -- -- (45,852)
----------- -------- ----------- ------------ ----------- -------- ------------- -------------
BALANCE MARCH 31, 1996
(UNAUDITED) ........... 3,700,000 $3,700 716,666 $3,741,874 -- $-- $15,710,140 $ 250,760
=========== ======== =========== ============ =========== ======== ============= =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(A CORPORATION IN THE DEVELOPMENT STAGE)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
PERIOD FROM THREE MONTHS THREE MONTHS AUGUST 18, 1994
AUGUST 18, 1994 YEAR ENDED ENDED MARCH ENDED MARCH (INCEPTION) TO
(INCEPTION) TO DECEMBER 31, 31, 1995 31, 1996 MARCH 31, 1996
DECEMBER 31, 1994 1995 (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ......................... $ (6,976) $ 398,132 $ 118,519 $ 120,220 $ 511,376
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Deferred income taxes ................... -- 42,000 -- -- 42,000
Amortization of financing costs, debt
discount and organization costs ....... 40,345 13,092 3,273 3,273 56,710
Interest on U.S. Government securities
in Trust Fund .......................... (60,600) (1,013,755) (247,291) (229,377) (1,303,732)
Interest on short-term investment ...... -- (16,222) -- (12,395) (28,617)
(Increase) decrease in prepaid expenses -- (5,000) (27,932) 5,000 --
Increase (decrease) in accrued expenses
and taxes .............................. 135,116 118,380 (39,660) 434,002 687,498
----------------- -------------- -------------- -------------- ---------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ...................... 107,885 (463,373) (193,091) 320,723 (34,765)
----------------- -------------- -------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
U.S. Government security deposited in
Trust Fund--December 1994 ................ (17,414,998) -- -- -- (17,414,998)
Cumulative maturities of U.S. Government
securities deposited in Trust Fund ...... -- 72,044,713 -- 18,616,000 90,660,713
Cumulative acquisitions of U.S. Government
securities reinvested in Trust Fund ..... -- (72,044,713) -- (18,616,000) (90,660,713)
Cumulative maturities of short-term
investments .............................. -- -- -- 1,120,000 1,120,000
Cumulative acquisitions of short-term
investments .............................. -- (1,099,992) -- (999,485) (2,099,477)
Deferred acquisition costs ................ (60,000) -- (562,500) (622,500)
----------------- -------------- -------------- -------------- ---------------
NET CASH USED IN INVESTING ACTIVITIES ... (17,414,998) (1,159,992) -- (441,985) (19,016,972)
----------------- -------------- -------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and issuance
of warrants .............................. 200,000 -- -- -- 200,000
Proceeds from public offering of
3,583,333 units, net of underwriting
discounts and offering expenses .......... 19,150,098 -- -- -- 19,150,098
Repayment of notes payable ................ (200,000) -- -- -- (200,000)
Proceeds from sale of 833,333 shares of
common stock to founding stockholders ... 25,000 -- -- -- 25,000
Deferred financing costs .................. (19,500) -- -- -- (19,500)
Organization costs ........................ (65,463) -- -- -- (65,463)
----------------- -------------- -------------- -------------- ---------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES ............................. 19,090,135 -- -- -- 19,090,135
----------------- -------------- -------------- -------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ............................... 1,783,022 (1,623,365) (193,091) (121,262) 38,395
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD .................................... -- 1,783,022 1,783,022 159,657 --
----------------- -------------- -------------- -------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .. $ 1,783,022 $ 159,657 $1,589,931 $ 38,395 $ 38,395
================= ============== ============== ============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for:
Interest ................................. $ 3,836 $ -- $ -- $ -- $ 3,836
Income taxes ............................. -- -- -- 179,680 179,680
================= ============== ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited.)
1. SUMMARY OF ACCOUNTING POLICIES
Income Taxes
Financial Services Acquisition Corporation (the "Company") follows
Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's financial statements or tax returns ("temporary
differences"). Temporary differences resulted from the Company using the cash
basis for income tax purposes.
Organization Costs
Organization costs are being amortized over 60 months.
Net Income Per Share
Net income per common share is computed on the basis of the weighted
average number of common shares outstanding during the period including
common stock equivalents (unless antidilutive) which would arise from the
exercise of stock warrants.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents (other than instruments deposited in
Trust Fund or described below under "Short-term Investment").
Trust Fund
U.S. Government security deposited in Trust Fund at December 31, 1995
represents a U.S. Treasury bill purchased on November 16, 1995 which matured
on February 15, 1996. The cost of the security was $18,364,716. U.S.
Government security deposited in Trust Fund at March 31, 1996 represents a
U.S. Treasury bill purchased on February 15, 1996 and maturing April 25,
1996. The cost of the security was $18,616,195.
Short-term Investment
The short-term investment at December 31, 1995 represents a U.S. Treasury
bill purchased on September 22, 1995 at a cost of $1,099,992 which matured on
January 25, 1996. The short-term investment at March 31, 1996 represents a
U.S Treasury bill purchased on January 26, 1996 at a cost of $999,485 which
matures on April 25, 1996.
Investments
The Company follows Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities" with no material impact on the Company's financial position.
Interim Results (unaudited)
The accompanying balance sheet as of March 31, 1996 and the related
statements of operations, common stock, common stock subject to possible
conversion, preferred stock, additional paid-in capital
F-7
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited.)
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
and retained earnings (deficit) accumulated during the development stage and
cash flows for the three months ended March 31, 1995 and 1996 are unaudited.
In the opinion of management, these financial statements have been prepared
on the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of financial data for such periods. The interim
operating results are not necessarily indicative of the results for a full
year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. ORGANIZATION AND BUSINESS OPERATIONS
The Company was incorporated in Delaware on August 18, 1994 with the
objective of acquiring or merging with an operating business in the financial
services industry. The Company's founding stockholders (the "Initial
Stockholders") purchased 833,333 of its common shares, $.001 par value (the
"Pre-IPO Shares"), for $25,000 in August 1994.
The registration statement for the Company's initial public offering
("Offering") was effective November 30, 1994. The Company consummated the
Offering in December 1994 and raised net proceeds of $19,150,098 (Note 3).
The Company's management had broad discretion with respect to the specific
application of the net proceeds of the Offering, although substantially all
of the net proceeds of the Offering were intended to be generally applied
toward consummating a business combination with an operating business in the
financial services industry ("Business Combination"). There is no assurance
that the Company will be able to successfully effect a Business Combination.
$17,414,998 of the Offering's proceeds was deposited in an interest-bearing
trust account ("Trust Fund") to be held until the earlier of (i) the
consummation of a Business Combination or (ii) liquidation of the Company.
The Trust Fund indenture limits investments to U.S. Government securities
with maturities of 180 days or less. The remaining proceeds will be used to
pay for business, legal and accounting due diligence on prospective
acquisitions, and continuing general and administrative expenses in addition
to other expenses.
The Company, after signing a definitive agreement for a Business
Combination, is required to submit such transaction for stockholder approval.
In connection with the vote on such Business Combination all of the Initial
Stockholders, consisting of all of the current officers and directors of the
Company, have agreed that all Pre-IPO Shares owned by them will be voted with
the majority of all the shares of common stock sold in the Offering (the
"Public Shares"). After consummation of the Company's first Business
Combination, this voting provision will no longer be applicable.
With respect to the first Business Combination which is approved and
consummated, any holder of Public Shares who votes against the Business
Combination may demand that the Company convert his or her shares into cash.
The per share conversion price will equal the amount in the Trust Fund as of
the record date for determination of stockholders entitled to vote on the
Business Combination divided by the number of Public Shares. The Company will
not consummate a Business Combination if 20% or more of the Public Shares are
voted against the Business Combination and have conversion rights with
respect
F-8
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited.)
2. ORGANIZATION AND BUSINESS OPERATIONS (Continued)
to them exercised. Accordingly, 19.99% of the aggregate number of Public
Shares may be converted to cash in the event of a Business Combination.
Holders of shares exercising such conversion rights are entitled to receive
their per share interest in the Trust Fund computed without regard to the
Pre-IPO Shares. Accordingly, a portion of the net proceeds from the Offering
(19.99% of the amount held in the Trust Fund) has been classified as common
stock subject to possible conversion in the accompanying balance sheet at the
conversion value.
The Company's Certificate of Incorporation provides for mandatory
liquidation of the Company in the event that the Company does not consummate
a Business Combination within 24 months from the consummation of the
Offering. In the event of liquidation, it is likely that the per share value
of the residual assets remaining available for distribution (including Trust
Fund assets) will be less than the initial public offering price per share in
the Offering (assuming no value is attributed to the Warrants contained in
the Units offered in the Offering discussed in Note 3).
3. PUBLIC OFFERING
On December 7, 1994, the Company sold 3,333,333 units ("Units") in the
Offering. On December 20, 1994, a further 250,000 Units were sold. Each Unit
consists of one share of the Company's common stock, $.001 par value, and two
Redeemable Common Stock Purchase Warrants ("Warrants"). Each Warrant entitles
the holder to purchase from the Company one share of common stock at an
exercise price of $5.00 during the period commencing on the consummation of a
Business Combination and ending November 30, 2001. The Warrants will be
redeemable at a price of $.01 per Warrant upon 30 days' notice at any time,
only in the event that the last sale price of the common stock is at least
$8.50 per share for 20 consecutive trading days ending on the third day prior
to the date on which notice of redemption is given.
The Company issued an aggregate of $200,000 of promissory notes to certain
accredited investors. These notes bore interest at the rate of 10% per annum
and were repaid on the consummation of the Company's Offering with accrued
interest thereon of $3,836. In addition, the investors were issued 400,000
warrants ("Bridge Warrants") (valued at $0.05 per warrant --aggregate
$20,000) which are identical to the Warrants discussed above, except that
they are not redeemable by the Company until 90 days after the consummation
of a Business Combination.
In connection with the Offering, the Company also sold 333,333 Unit
Purchase Options (the "IPO Options") to the Offering underwriters and certain
of their designees. Each IPO Option entitles the holder thereof to acquire
one share of common stock and two warrants (which are identical to the
Warrants discussed above, except that the exercise price per warrant is $6.25
and their expiration date is November 30, 1999).
4. COMMITMENT
The Company presently occupies office space provided by an affiliate of
certain stockholders of the Company. Such affiliate has agreed that,
commencing on the effective date of the Offering through the consummation of
a Business Combination, it will make its office space and certain office and
secretarial services available to the Company, as may be required by the
Company from time to time. The Company has been paying $5,000 per month for
such services.
5. PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock
with such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
F-9
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
(a corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Information as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 is unaudited.)
6. COMMON STOCK
At each of December 31, 1995 and March 31, 1996, 8,566,665 shares of
common stock were reserved for issuance upon exercise of the Warrants, the
Bridge Warrants, the IPO Options and the warrants issuable upon exercise of
the IPO Options.
7. ACQUISITION COSTS
On May 16, 1995, the Company executed a letter of intent to acquire all of
the outstanding capital stock of Cedar Street Securities Corp. and a seat on
the New York Stock Exchange. On July 14, 1995, the letter of intent was
terminated. The costs of $239,817 relating to this proposed acquisition were
expensed during the year ended December 31, 1995.
8. PROPOSED ACQUISITION
On March 8, 1996, the Company entered into an agreement to acquire Euro
Brokers Investment Corporation ("Euro Brokers"), a privately held
international and domestic inter-dealer broker for a broad range of financial
instruments. Under the terms of the agreement, each outstanding share of Euro
Brokers common stock will be converted into the right to receive, subject to
certain adjustments, approximately (i) 2.64 shares of the Company's common
stock (approximately 4,416,666 shares), (ii) 4.53 of the Company's redeemable
common stock purchase warrants (approximately 7,566,666 warrants), and (iii)
$9.57 in cash (which, if the transaction had been consummated as of March 31,
1996, would have been adjusted to approximately $11.37 per share, aggregating
to approximately $19 million). Completion of this transaction is subject to
certain conditions, including stockholders approvals and receipt of certain
regulatory approvals. Costs relating to this proposed acquisition, primarily
professional fees, aggregated $622,500 at March 31, 1996, and have been
deferred.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors
and Stockholders of
Euro Brokers Investment Corporation
In our opinion, the accompanying consolidated statement of financial
condition and the related consolidated statements of operations, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Euro Brokers Investment Corporation and its
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
/s/ PRICE WATERHOUSE LLP
New York, New York
February 26, 1996,
except as to Note 2
which is as of March 8, 1996
F-11
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MARCH 31, 1996
DECEMBER 31, DECEMBER 31, ----------------------------------
1994 1995 ACTUAL PRO FORMA (NOTE 2)
-------------- -------------- ------------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents ......... $ 21,355,273 $ 27,013,350 $22,805,511 $22,805,511
Restricted cash (Note 15) ......... 1,799,175 1,785,490 1,755,475 1,755,475
Commissions receivable ............ 16,851,230 18,502,261 21,687,505 21,687,505
Equity in affiliated companies ... 2,543,149 2,951,864 2,815,865 2,815,865
Receivable from clearing firm .... 2,444,484 3,668,952 3,976,787 3,976,787
Securities owned .................. 967,500
Prepaid expenses and other assets 6,542,004 6,804,925 7,241,065 7,241,065
Exchange memberships .............. 101,000 140,000 140,000 140,000
Deferred taxes .................... 1,081,275 5,520,348 4,748,281 4,748,281
Furniture, equipment and leasehold
improvements ..................... 15,392,656 13,264,743 12,819,192 12,819,192
Intangible assets ................. 2,836,786 2,426,809 2,324,308 2,324,308
-------------- -------------- ------------- -------------------
Total assets ................... $ 71,914,532 $ 82,078,742 $80,313,989 $80,313,989
============== ============== ============= ===================
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Accounts payable and accrued
liabilities .................... $ 16,169,212 $ 15,835,131 $14,668,515 $14,668,515
Accrued compensation payable ... 10,446,615 15,998,721 12,971,036 12,971,036
Accrued interest payable ........ 177,609 166,789 288,363 288,363
Income taxes payable ............ 1,873,276 7,328,244 6,633,746 6,633,746
Obligations under capitalized
leases ......................... 2,804,836 2,284,806 2,298,188 2,298,188
Securities sold, not yet
purchased ...................... 1,280,000
Deferred taxes payable .......... 778,549 692,024 591,526 591,526
Notes payable ................... 9,830,284 7,880,032 7,834,318 7,834,318
Return of capital payable ...... 16,758,134
-------------- -------------- ------------- -------------------
43,360,381 50,185,747 45,285,692 62,043,826
-------------- -------------- ------------- -------------------
Minority interest ................. 492,154 501,731 395,397 395,397
-------------- -------------- ------------- -------------------
Commitments and contingencies
(Notes 15 and 16)
Stockholders' equity:
Common Stock; Class A $.01 par
value:
2,000,000 shares authorized,
none issued and outstanding;
Class B $.001 par value:
2,000,000 authorized,
1,671,290 issued and
outstanding at December 31,
1994 and 1995 and March 31,
1996 ............................. 4,258 4,258 1,671 1,671
Additional paid-in capital ...... 48,200,186 48,193,040 38,018,520 19,018,520
Treasury stock, at cost, 217,450
shares of Class A and 412,610
shares of Class B at December
31, 1994 and 1995; none at
March 31, 1996 .................. (10,177,107) (10,177,107)
Accumulated deficit .............. (10,713,316) (7,251,041) (3,797,866) (3,797,866)
Notes receivable from
stockholders .................... (2,283,886) (2,243,709) (2,241,866) --
Foreign translation adjustment .. 3,031,862 2,865,823 2,652,441 2,652,441
-------------- -------------- ------------- -------------------
Total stockholders' equity .... 28,061,997 31,391,264 34,632,900 17,874,766
-------------- -------------- ------------- -------------------
Total liabilities and
stockholders' equity .......... $ 71,914,532 $ 82,078,742 $80,313,989 $80,313,989
============== ============== ============= ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
---------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Commission income ............ $135,577,625 $144,586,661 $171,576,327 $43,659,170 $48,339,964
Interest income .............. 1,203,082 1,090,789 1,462,744 310,956 418,772
Other income ................. 2,274,759 697,522 732,347 150,430 74,725
-------------- -------------- -------------- ------------- -------------
139,055,466 146,374,972 173,771,418 44,120,556 48,833,461
-------------- -------------- -------------- ------------- -------------
Costs and expenses:
Payroll and related costs ... 86,763,854 96,207,365 110,915,257 28,569,041 28,353,853
Communication costs .......... 12,987,800 15,633,010 17,187,573 4,683,240 3,948,713
Travel and entertainment .... 8,681,483 10,493,903 10,224,384 2,540,839 2,609,881
Depreciation and amortization 4,192,404 4,248,181 4,568,164 1,157,164 1,171,970
Clearing fees ................ 863,445 3,647,556 3,777,710 1,285,906 1,191,695
General and administrative
expenses .................... 9,235,053 7,355,734 7,845,403 2,098,590 2,004,770
Interest expense ............. 2,702,759 1,635,547 775,077 205,342 148,058
Occupancy costs .............. 4,452,232 5,640,070 5,854,525 1,520,584 1,500,966
Write-off of goodwill ........ 12,643,948
-------------- -------------- -------------- ------------- -------------
142,522,978 144,861,366 161,148,093 42,060,706 40,929,906
-------------- -------------- -------------- ------------- -------------
Income (loss) before provision
for income taxes and minority
interest ..................... (3,467,512) 1,513,606 12,623,325 2,059,850 7,903,555
Provision for income taxes ... 4,858,901 3,333,989 7,393,196 1,625,860 4,099,528
-------------- -------------- -------------- ------------- -------------
Income (loss) before minority
interest ..................... (8,326,413) (1,820,383) 5,230,129 433,990 3,804,027
Minority interest ............. (442,673) (250,480) (1,767,854) (531,299) (350,852)
-------------- -------------- -------------- ------------- -------------
Net income (loss) ............. ($ 8,769,086) ($ 2,070,863) $ 3,462,275 ($ 97,309) $ 3,453,175
============== ============== ============== ============= =============
Pro forma earnings per share
(note 2) ..................... $ .40 $ .40
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-13
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN
STOCK CAPITAL TREASURY STOCK
--------- -------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1992 . $ 3,348 $ 18,442,515 ($ 3,623,839)
Net loss ......................
Repayment of stockholder notes
Foreign translation adjustment
--------- -------------- --------------
Balance at December 31, 1993 . 3,348 18,442,515 (3,623,839)
Retirement of warrants ........ 5,141,145
Net loss ......................
Acquisition of treasury stock (6,553,268)
Issuance of common stock,
net of expenses .............. 910 24,616,526
Repayment of stockholder notes
Foreign translation adjustment
--------- -------------- --------------
Balance at December 31, 1994 . 4,258 48,200,186 (10,177,107)
Net income ....................
Expenses relating to
acquisition of common stock . (7,146)
Repayment of stockholder notes
Foreign translation adjustment
--------- -------------- --------------
Balance at December 31, 1995 . 4,258 48,193,040 (10,177,107)
Net income (unaudited) ........
Repayment of stockholders
notes (unaudited) ............
Foreign translation adjustment
(unaudited) ..................
Retirement of treasury stock
(unaudited) .................. (2,587) (10,174,520) 10,177,107
--------- -------------- --------------
Balance at March 31, 1996
(unaudited) .................. $ 1.671 $ 38,018,520
========= ============== ==============
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED NOTES
EARNINGS/ RECEIVABLE FOREIGN
(ACCUMULATED FROM TRANSLATION
DEFICIT) WARRANTS STOCKHOLDERS ADJUSTMENT TOTAL
-------------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 . $ 126,633 $ 5,141,145 ($ 3,989,714) $2,289,344 $18,389,432
Net loss ...................... (8,769,086) (8,769,086)
Repayment of stockholder notes 269,363 269,363
Foreign translation adjustment 497,958 497,958
-------------- ------------- -------------- ------------- -------------
Balance at December 31, 1993 . (8,642,453) 5,141,145 (3,720,351) 2,787,302 10,387,667
Retirement of warrants ........ (5,141,145)
Net loss ...................... (2,070,863) (2,070,863)
Acquisition of treasury stock (6,553,268)
Issuance of common stock,
net of expenses .............. 24,617,436
Repayment of stockholder notes 1,436,465 1,436,465
Foreign translation adjustment 244,560 244,560
-------------- ------------- -------------- ------------- -------------
Balance at December 31, 1994 . (10,713,316) (2,283,886) 3,031,862 28,061,997
Net income .................... 3,462,275 3,462,275
Expenses relating to
acquisition of common stock . (7,146)
Repayment of stockholder notes 40,177 40,177
Foreign translation adjustment (166,039) (166,039)
-------------- ------------- -------------- ------------- -------------
Balance at December 31, 1995 . (7,251,041) (2,243,709) 2,865,823 31,391,264
Net income (unaudited) ........ 3,453,175 3,453,175
Repayment of stockholders
notes (unaudited) ............ 1,843 1,843
Foreign translation adjustment
(unaudited) .................. (213,382) (213,382)
Retirement of treasury stock
(unaudited) ..................
-------------- ------------- -------------- ------------- -------------
Balance at March 31, 1996
(unaudited) .................. ($ 3,797,866) ($ 2,241,866) $2,652,441 $34,632,900
============== ============= ============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
---------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ..................... ($ 8,769,086) ($ 2,070,863) $ 3,462,275 ($ 7,309) $ 3,453,175
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization ......... 4,192,404 4,248,181 4,568,164 1,157,164 1,171,970
Provision for doubtful accounts ...... 87,492 (196,300) (48,956) 3,857 18,689
Gain on sale of exchange memberships . (490,000) (14,000)
Gain on sale of subsidiary ............ (1,487,918)
Write off of goodwill ................. 12,643,948
Unrealized foreign exchange loss ..... 166,940
Undistributed earnings of affiliates . (281,645) (137,775) (537,571) (1,096,181) (1,064,957)
Gain on sale of short-term investments (3,890)
Minority interest ..................... 94,012 (55,416) 9,249 34,594 (106,275)
Imputed interest expense .............. 110,529 120,806 129,358 32,565 26,266
Amortization of deferred expenses .... 19,963 12,031 5,269 2,270 364
Deferred income taxes ................. (227,514) 1,971,504 (4,522,662) (70,235) 677,806
Change in assets and liabilities:
Increase in restricted cash ........... (1,701,425)
(Increase) decrease in commissions
receivable ............................ (567,689) 1,894,546 (1,654,378) (2,367,566) (3,328,499)
Increase in receivable from clearing
firm .................................. (1,203,810) (1,155,733) (1,024,931) (1,255,849) (308,674)
Decrease (increase) in securities .... (967,500) 967,500 598,750
Increase in receivable from affiliates (811,890)
Decrease (increase) in insurance claim
receivable ............................ (2,330,000)
(Increase) decrease in prepaid
expenses and other assets ............ (1,680,342) (2,398,411) (478,684) 122,686 551,217
Increase (decrease) in accounts
payable and accrued liabilities ..... 5,607,377 1,473,250 (239,114) 959,983 (1,023,147)
Increase (decrease) in accrued
compensation payable ................. 10,236,008 (7,887,478) 5,552,106 (2,593,129) (2,934,126)
Decrease in accrued interest payable . (488,142) (300,161) (4,289) 162,835 121,791
(Decrease) increase in securities
owned, not yet purchased ............. 1,280,000 (1,280,000) (805,625)
Increase (decrease) in income taxes
payable ............................... (214,910) (1,345,847) 5,494,722 1,105,731 (559,366)
-------------- -------------- -------------- ------------- -------------
Net cash provided by (used in)
operating activities .................. 13,390,412 (1,208,344) 10,384,058 (4,105,459) (3,303,766)
-------------- -------------- -------------- ------------- -------------
Cash flows from investing activities:
Purchase of fixed assets .............. (10,226,268) (4,340,179) (2,059,449) (390,198) (758,850)
Proceeds from sale of subsidiary in
excess of carrying value of
investment ............................ 1,503,024
Net sale (purchase) of short-term
investments ........................... (139,979) 2,957,056
Investment in equity affiliates ...... 36,885 (93,745) 40,319 64,869
Minority interest in consolidated
subsidiary ............................ (733,285)
Purchase of exchange memberships ..... (101,000) (75,000)
Proceeds from sale of exchange
memberships ........................... 1,762,000 50,000
-------------- -------------- -------------- ------------- -------------
Net cash (used in) provided by
investing activities .................. (9,596,508) 314,762 (2,178,194) (349,879) (693,981)
-------------- -------------- -------------- ------------- -------------
Cash flows from financing activities:
Repayment of note payable ............. (2,037,502)
Repayment of subordinated note payable (1,459,536) (17,660,000)
Issuance of common stock, net of
expenses .............................. 1,617,436 (7,146) (7,146)
Issuance of secured demand note ...... 23,000,000
Decrease in obligations under
capitalized leases .................... (374,125) (119,010) (507,946) (214,185) 51,666
Acquisition of treasury stock ......... (5,221,260)
Repayments of notes receivable from
stockholders .......................... 269,363 105,676 40,177 1,150 1,843
-------------- -------------- -------------- ------------- -------------
</TABLE>
EURO BROKERS INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE THREE MONTHS ENDED
---------------------------------------------- ----------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by
financing activities .................. (1,564,298) 1,722,842 (2,512,417) (220,181) 53,509
-------------- -------------- -------------- ------------- -------------
Effect of exchange rate changes on cash 234,779 233,079 (35,370) 209,394 (263,601)
-------------- -------------- -------------- ------------- -------------
Net increase in cash and cash
equivalents ........................... 2,464,385 1,062,339 5,658,077 (4,466,125) (4,207,839)
Cash and cash equivalents at beginning
of year ............................... 17,828,549 20,292,934 21,355,273 21,355,273 27,013,350
-------------- -------------- -------------- ------------- -------------
Cash and cash equivalents at end of
year .................................. $ 20,292,934 $ 21,355,273 $27,013,350 $16,889,148 $22,805,511
============== ============== ============== ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid .......................... $ 2,771,710 $ 1,736,028 $ 650,007 -- --
Income taxes paid ...................... 4,230,493 2,828,794 881,875 $ 46,397 $ 3,306,459
SUPPLEMENTAL DISCLOSURE OF NON-CASH
ACTIVITIES:
Reduction of notes receivable from
stockholders in connection with
acquisition of treasury stock ......... $ 1,330,789
Conversion of secured demand note to
equity ................................ 23,000,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 1 --ORGANIZATION AND OPERATIONS:
Euro Brokers Investment Corporation ("the Company"), incorporated in
December 1986, is the parent company to Euro Brokers Holdings, Inc. ("EBHI").
EBHI was incorporated in October 1986 for the purpose of acquiring certain
businesses from various subsidiaries of MAI plc, a public company in the
United Kingdom.
The Company, through its affiliates, conducts the business of a broker of
money market instruments, securities and capital market products in New York,
London, Tokyo, Toronto and Hong Kong.
NOTE 2 --PROPOSED MERGER TRANSACTION:
On March 8, 1996, the Company entered into an Agreement and Plan of Merger
with Financial Services Acquisition Corporation ("FSAC") and EBIC Acquisition
Corp. ("Merger Sub"), a wholly owned subsidiary of FSAC, providing for, among
other things, the merger of Merger Sub with and into the Company, with the
Company surviving the merger as a wholly owned subsidiary of FSAC. At the
effective time of the merger, each outstanding share of Class B Common Stock
of the Company will be converted into the right to receive, subject to
certain adjustments and escrow arrangements, consideration comprising
approximately (i) 2.64 newly issued shares of FSAC's common stock, (ii) 4.53
newly issued redeemable common stock purchase warrants of FSAC, and (iii)
$9.57 in cash.
The consideration will be adjusted as necessary to provide that, upon
consummation of the merger, the current stockholders of the Company will own,
in the aggregate, a number of shares of FSAC common stock equal to the number
of shares of FSAC common stock outstanding immediately prior to the merger,
and (ii) a number of warrants equal to the number of warrants outstanding
immediately prior to the merger. The cash portion of the consideration will
also be adjusted prior to the merger to reflect the differences between the
respective pre-merger net worths of FSAC and the Company, subject to certain
adjustments, with the intention generally of equalizing the respective
pre-merger contributions of FSAC stockholders and Company stockholders to the
post-merger consolidation net worth FSAC.
The completion of this transaction is subject to certain conditions
including, among other things, the approval of the merger by the stockholders
of the Company and FSAC and receipt of certain regulatory approvals. There
can be no assurance that the proposed transaction will be consummated.
The accompanying unaudited pro forma balance sheet as of March 31, 1996
has been prepared to reflect as a liability and a reduction of stockholders'
equity in an amount equal to $16,758,134, representing $19,000,000 of cash to
be paid to the Company's shareholders as a return of capital upon
consummation of the merger (including adjustments to the cash consideration
based on changes in net worth through March 31, 1996), less cash to be
received upon the repayment of $2,241,866 of notes receivable from
stockholders as required concurrent with the merger. Such pro forma balance
sheet does not give effect to the adjustments, such as the merger of FSAC
assets and liabilities into the Company and the recapitalization, that will
occur upon completion of the transaction.
The merger will result, subject to certain escrow arrangements, in the
Company's current stockholders having a 50% ownership of the merged entity.
For accounting and financial purposes, the merger will be treated as an
issuance of shares by the Company for the net assets of FSAC, consisting
primarily of cash. The surviving corporation will reflect in its consolidated
financial statements the assets and liabilities of both companies at their
book values, and the historical earnings of the Company will be presented as
the historical earnings of the merged entity.
Pro forma earnings per share have been computed using weighted average
common shares outstanding of 8,588,880. Such pro forma shares outstanding
have been computed as the sum of (i) 4,641,666, which treats the 1,671,290
currently outstanding shares of the Company as if they had been recapitalized
into 4,641,666 shares (reflecting the merger stock exchange ratio of
approximately 2.78,
F-16
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 2 --PROPOSED MERGER TRANSACTION: (Continued)
which assumes no exercise of redemption rights by FSAC stockholders and the
issuance of 225,000 additional shares of FSAC common stock under a unit
purchase option agreement), and (ii) 3,947,214, which represents the number
of new shares that would have to be issued at a pro forma "IPO" price of
$4.25 per share to pay the pro forma return of capital liability of
$16,758,134 as of March 31, 1996 that is presented on the pro forma
consolidated statement of financial condition. The pro forma "IPO" price is
based on the ratio of the net assets of FSAC of $19,706,474 as of March 31,
1996 to the 4,641,666 new shares that would be issued (assuming the same
stock exchange ratio) if the merger were to be consummated on that date.
NOTE 3 --SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation:
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries and other entities over which it
exercises control. All significant intercompany balances and transactions
have been eliminated. Investments in unconsolidated affiliates where the
Company exercises significant influence over operating and financial policies
have been accounted for using the equity method. Earnings from investments
accounted for under the equity method have been reflected as other income in
the statement of operations.
Revenue recognition:
Commission income is recognized on a trade date basis.
Securities transactions:
Securities transactions, executed as riskless principal, are recorded on a
trade date basis. From time to time, the Company may be obliged to fulfill an
obligation by entering into one side of a trade which consequently results in
the Company recording securities positions. It is the Company's policy not to
carry such positions for any significant length of time. Any such security
positions are carried at market value. Substantially all of the securities
transactions are cleared on a fully disclosed basis and, as such, the
accounts are carried on the books of the Company's clearing firm.
Furniture, equipment and leasehold improvements:
Depreciation of furniture and equipment is computed on a straight line
basis using estimated useful lives of 3 to 5 years. Leasehold improvements
are amortized over the terms of the related leases or estimated useful lives
of the improvements, whichever period is shorter.
Exchange memberships:
The Company carries its exchange memberships at cost. At December 31, 1994
and 1995 and at March 31, 1996, the market value of these memberships
approximated cost.
During 1994, the Company sold its exchange memberships which it held at
December 31, 1993 realizing a gain of $490,000. During 1994, the Company also
purchased exchange memberships for an aggregate cost of $101,000.
During 1995, the Company sold two of its exchange memberships for $50,000,
realizing a gain of $14,000, and purchased an exchange membership at a cost
of $75,000.
F-17
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 3 --SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Intangible assets:
Intangible assets principally include the values assigned to customer
lists and are being amortized on a straight line basis over their estimated
useful lives, which approximate 15 years. Accumulated amortization of
intangible assets aggregated $6,346,588, $6,756,592 and $6,839,093 at
December 31, 1994, December 31, 1995 and March 31, 1996, respectively.
The Company has a policy of reviewing the carrying value of intangible
assets to consider whether events or changes in circumstances have occurred
- --such as the loss of significant customers, a significant change in the
revenues received from customers or a significant change in the nature of the
brokerage business --which would indicate that the carrying amount of such
assets may not be recoverable, in which case the Company would evaluate the
estimated future cash flows expected to result from the asset. Should the
expected future cash flows be less than the carrying amount of the asset, an
impairment loss would be recognized to the extent that the carrying value
exceeds the fair value of the asset. There have been no impairment losses
with respect to intangible assets.
Goodwill:
The excess purchase price over net assets of businesses acquired was
originally recorded as goodwill and was being amortized as a straight line
basis over twenty years.
In recognition of certain business conditions and events, in 1993 the
Company reviewed the recorded value of goodwill based on an evaluation of the
net present value of future cash flows from certain of the Company's foreign
subsidiaries and affiliates. As a result of this reevaluation, it was
determined that there had been an other than temporary impairment in the
value of goodwill and, accordingly, amounts aggregating $10,839,790 which
were previously attributable to goodwill associated with the acquisition of
foreign subsidiaries and amounts aggregating $1,804,158 which were previously
attributable to goodwill associated with the Company's investment in an
affiliated company (see Note 6) were written off as of December 31, 1993.
Foreign currency translation:
Assets and liabilities denominated in foreign currencies are translated to
U.S. dollars using exchange rates at the end of the year; revenues and
expenses are translated at average rates for the year.
Gains and losses on foreign currency translation of the financial
statements of operations whose functional currency is other than the U.S.
dollar, together with related hedges and tax effects, are reflected in the
foreign translation adjustment account in stockholders' equity. Foreign
currency exchange gains and losses from transactions and balances denominated
in a currency other than the related operating subsidiary's functional
currency are recorded in income.
Fair value of financial instruments:
The Company's securities owned and securities sold, not yet purchased are
carried at market value. Additionally, off-balance sheet financial
instruments, as described in Note 15, are valued at market with unrealized
gains and losses recorded in the financial statements.
Management estimates that the aggregate net fair value of other financial
instruments recognized on the statement of financial condition (including
cash equivalents, commissions and other receivables, and notes payable)
approximates their carrying value, as such financial instruments are
short-term in nature, bear interest at current market rates, or, in the case
of notes payable, bear interest at rates which management believes are
comparable to current rates which could be obtained in similar financing.
F-18
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 3 --SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Income taxes:
The Company files a consolidated federal income tax return which includes
U.S. subsidiaries in which the Company's ownership percentage is 80% or
greater. The Company and such U.S. subsidiaries also file separate and/or
combined income tax returns in various state and local tax jurisdictions.
The Company and its subsidiaries account for certain income and expense
items in a period different from that reported for tax purposes. The tax
effects of transactions are generally recognized in the financial statements
in the same period as the related items of income and expense, regardless of
when they are recognized for tax purposes.
During 1993, the Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). The adoption
of SFAS 109 had no material impact on the financial statements of the
Company.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited information:
All unaudited information for the interim periods presented, in the
opinion of management, includes all adjustments, consisting only of normal
recurring accruals, necessary for fair presentation.
NOTE 4 --CASH AND CASH EQUIVALENTS:
For the purpose of the statement of cash flows, the Company considers all
short-term investments with an initial maturity of three months or less to be
cash equivalents. Such investments are generally overnight Euro dollar
deposits.
NOTE 5 --COMMISSIONS RECEIVABLE:
Commissions receivable are reflected in the statement of financial
condition net of allowance for doubtful accounts of $520,600, $471,100 and
$487,800 at December 31, 1994 and 1995 and March 31, 1996, respectively.
NOTE 6 --RELATED PARTY TRANSACTIONS:
The Company incurred interest expense which was in respect of debt payable
to its majority shareholders aggregating $1,848,700 and $789,200, for the
years ended December 31, 1993 and 1994, respectively. As described in Note
10, all such debt was repaid during 1994.
F-19
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 6 --RELATED PARTY TRANSACTIONS: (Continued)
Prepaid expenses and other assets include loans to employees aggregating
$1,732,300 and $2,317,500 at December 31, 1994 and 1995, respectively. Such
loans generally bear interest at the prime rate and are short term in nature.
NOTE 7 --EQUITY IN AFFILIATED COMPANIES:
The Company's equity in affiliated companies principally consists of a 15%
equity interest in Yagi Euro Corporation ("Yagi Euro"), which operates the
business of a broker of money market and foreign exchange and derivative
products in Tokyo and is 85% owned by Yagi Tanshi Company, Limited.
In addition, in 1994 the Company entered into a partnership arrangement
with Yagi Euro to broker certain derivative products in Tokyo. The results of
such business are consolidated in the Company's financial statements and Yagi
Euro's approximately 50% interest in the related profit or loss is presented
as minority interest.
During 1995, the Company purchased a 33% interest in Pacific Brokers
International, LLC, a broker of off-balance sheet products in the Far East.
The Company's investments in equity affiliates are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
-------------- -------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Yagi Euro .......................... $2,543,149 $2,794,211 $2,659,968
Pacific Brokers International, LLC 157,653 155,897
-------------- -------------- ------------
$2,543,149 $2,951,864 $2,815,865
============== ============== ============
</TABLE>
Summarized financial information for Yagi Euro is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
-------------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Total assets ...... $ 20,237,126 $21,740,692 $24,597,832
Total liabilities 3,391,834 3,266,547 6,864,714
Revenues .......... 18,946,665 14,310,972 2,747,688
Net income ........ 925,844 2,735,871 190,596
</TABLE>
NOTE 8 --ACQUISITION AND SALE OF SUBSIDIARY:
In 1992, the Company acquired a 51% interest in Liberty Euro Brokers
("LEB"), a newly formed broker of certain non-dollar denominated government
securities which conducts business in the United Kingdom.
Effective as of August 12, 1993, the Company sold its interest in LEB for
approximately $2,258,000, which resulted in a gain of approximately
$1,488,000 recorded in other income.
F-20
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 9 --FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
-------------- -------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and telephone equipment ................ $ 11,672,050 $ 11,512,903 $ 11,543,713
Leasehold improvements ........................... 6,373,214 6,329,807 6,275,149
Computer and related equipment ................... 6,460,324 7,265,569 7,691,968
Automobiles ...................................... 3,846,861 3,113,004 3,020,687
-------------- -------------- --------------
28,352,449 28,221,283 28,531,517
Less --Accumulated depreciation and amortization (12,959,793) (14,956,540) (15,712,325)
-------------- -------------- --------------
$ 15,392,656 $ 13,264,743 $ 12,819,192
============== ============== ==============
</TABLE>
NOTE 10 --OBLIGATIONS UNDER CAPITALIZED LEASES:
The Company has purchased automobiles and telecommunications equipment
under capitalized leases. The lease terms generally do not exceed three
years. The following is a schedule of future minimum lease payments under
capitalized leases together with the present value of the net minimum lease
payments as of December 31, 1995:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
<S> <C>
1996 ..................................... $1,304,805
1997 ..................................... 744,317
1998 ..................................... 566,233
------------
Total net minimum lease payments ........... 2,615,355
Less: amount representing interest ........ 330,549
------------
Present value of net minimum lease payments $2,284,806
============
</TABLE>
The gross amount of assets under capitalized leases are $2,804,800 and
$2,284,800 at December 31, 1994 and 1995, respectively. Such amounts are
principally automobiles and are included in furniture, equipment and
leasehold improvements on the statement of financial condition.
The charges to income resulting from the amortization of assets recorded
under capitalized leases were approximately $625,500, $681,200 and $644,700
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$167,900 and $132,900 for the three months ended March 31, 1995 and 1996,
respectively.
NOTE 11 --NOTES PAYABLE:
Notes payable at December 31, 1994 and 1995 represent convertible purchase
price notes which were issued in December 1986 in connection with the
acquisition of the predecessor businesses and bear interest at a stated rate
of 6 1/8% per annum. The conversion feature expired on November 30, 1993. The
notes are due in equal annual installments each November 30 from 1995 through
1999. The notes have been adjusted for financial reporting purposes to
reflect imputed interest at fair market rates at the time of issuance which
vary from 6.125% to 7.71%. The notes are subordinated to the claims of
financial
F-21
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 11 --NOTES PAYABLE: (Continued)
institutions to a maximum aggregate amount of $10,000,000. Approximately 54%
and 55% of the reported balance for the purchase price notes was denominated
in British pounds sterling at December 31, 1995 and December 31, 1994,
respectively.
On December 16, 1986, the Company executed a subordinated promissory note
in the amount of $13,000,000 payable to Annetinvest B.V., an affiliate of
Eurobrokers International Inc. ("EII"), a shareholder of the Company at that
time. The note was due on December 16, 1996 bearing interest at a fixed rate
of 9.25% per annum plus additional interest based on the profitability of the
Company up to a maximum of 4.5% per annum of the principal balance
outstanding. In November 1988, the Company executed a second subordinated
promissory note in the amount of $4,660,000, also payable to Annetinvest
B.V., which was due on January 31, 1999 bearing interest at a variable rate
of prime plus 1%.
In February 1994, the Company entered into a secured demand note payable
aggregating $23,000,000, which was scheduled to mature on December 31, 1995.
The note had a stated interest rate of 10% during 1994 and 12% during 1995.
The Company pledged certain assets and stock of certain subsidiaries as
collateral for the loan. The proceeds of the loan were used to repay the
Company's subordinated notes payable of $17,660,000, and to repurchase all of
the Class A common stock and warrants outstanding at December 31, 1993 as
described in Note 13. In May, 1994, the $23,000,000 note was repaid in
connection with a stock purchase transaction as described in Note 13.
The change in notes payable is as follows:
<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED
------------------------------ ---------------
DECEMBER 31, DECEMBER 31, MARCH 31,
1994 1995 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
Balance at beginning of year ............ $ 27,080,598 $ 9,830,284 $7,880,032
Repayment of subordinated note .......... (17,660,000)
Repayment of principal .................. (2,037,502)
Secured demand note issued .............. 23,000,000
Secured demand note converted to equity (23,000,000)
Exchange rate difference ................ 288,880 (42,107) (71,980)
Imputed interest ........................ 120,806 129,357 26,266
-------------- -------------- ---------------
Balance at end of year .................. $ 9,830,284 $ 7,880,032 $7,834,318
============== ============== ===============
</TABLE>
NOTE 12 --EMPLOYEE BENEFIT PLANS:
The Company maintains a 401(k) defined contribution plan for the Company's
U.S. operations covering substantially all salaried employees. The Company's
contributions to the 401(k) plan are based upon a percentage of employee
contributions. Total 401(k) plan expense approximated $161,000, $216,000 and
$222,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
F-22
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 13 --INCOME TAXES:
Income (loss) from continuing operations before provision for income tax
and minority interest was taxed under the following jurisdictions:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ------------------- -----------------
<S> <C> <C> <C>
Domestic .. $ 225,567 $ 3,089,709 $ 2,645,217
Foreign .... (3,693,077) (1,576,103) 9,978,108
----------------- ------------------- -----------------
Total ...... ($ 3,467,512) $ 1,513,606 $12,623,325
================= =================== =================
</TABLE>
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- ------------------- -----------------
<S> <C> <C> <C>
Current
Federal ......... $ 385,879 $1,103,197 $ 2,745,733
State and local 701,500 706,747 931,547
Foreign ......... 3,778,047 (76,684) 8,510,075
----------------- ------------------- -----------------
4,865,426 1,733,260 12,187,355
----------------- ------------------- -----------------
Deferred
Federal ......... (99,515) 504,938 (1,946,254)
State and local (191,063) 411,633 (164,502)
Foreign ......... 284,053 684,158 (2,683,403)
----------------- ------------------- -----------------
(6,525) 1,600,729 (4,794,159)
----------------- ------------------- -----------------
Total ............ $4,858,901 $3,333,989 $ 7,393,196
================= =================== =================
</TABLE>
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
Assets
Bad debt reserve ........................... $ 138,000 $ 161,000
Amortization of leasehold improvements .... 172,361 221,354
Rent reserve ............................... 214,774 211,830
Deferred compensation ...................... 251,850 4,415,679
Miscellaneous reserves ..................... 304,290 510,485
Foreign tax credits ........................ 2,675,017
Deferred tax asset valuation allowance .... (2,675,017)
----------------- -----------------
Gross deferred tax assets, after valuation
allowance ................................ $1,081,275 $ 5,520,348
================= =================
Liabilities
Depreciation ............................... (612,924) (447,092)
Unrealized foreign exchange (gain) loss ... (165,625) (244,932)
----------------- -----------------
Gross deferred tax liabilities ............ ($ 778,549) ($ 692,024)
================= =================
</TABLE>
F-23
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 13 --INCOME TAXES: (Continued)
The valuation allowance for deferred tax assets for the year ended
December 31, 1995 was established for foreign tax credit carryforward
benefits generated during 1995, due to the uncertainty regarding their
realizability. The foreign tax credit carryforward will expire in the year
ended December 31, 2000.
Not reflected above are the tax effects of foreign currency translation
adjustments related to the hedging of foreign net investments. These tax
effects are recorded directly in stockholders' equity. Such amounts recorded
in stockholders' equity are a tax benefit (expense) of $221,000, ($370,000),
and $20,600 in the years ended December 31, 1993, 1994 and 1995,
respectively.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate
to pretax income from continuing operations as a result of the following
differences:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Tax at U.S. statutory rate ...................... ($1,178,954) $ 514,626 $4,291,930
Increase (decrease) in tax resulting from:
Higher effective rates on earnings of foreign
operations and tax benefit of foreign losses
not recognized ................................. 1,351,406 1,283,444 1,847,061
Nondeductible meals and entertainment ........... 398,923 869,536 868,507
Write-off of goodwill ........................... 4,089,856
State and local taxes, net ...................... 369,617 738,131 506,259
Other ........................................... (171,947) (71,748) (120,561)
-------------- -------------- --------------
$4,858,901 $3,333,989 $7,393,196
============== ============== ==============
</TABLE>
NOTE 14 --STOCKHOLDERS' EQUITY:
Common stock:
There are 2,000,000 shares of Class B ($.001 par value) common stock of
the Company authorized, of which 1,671,290 shares were issued and outstanding
at December 31, 1994 and 1995, and at March 31, 1996.
In May 1994, the holder of the $23,000,000 secured demand note (see Note
10), Welsh, Carson, Anderson & Stowe VI ("WCAS VI"), executed a stock
purchase agreement pursuant to which WCAS VI acquired 910,150 shares of Class
B common stock, representing a majority equity interest. The total
consideration paid was $25,000,000, which was comprised of the delivery of
the $23,000,000 secured demand note, and $2,000,000 in cash.
The minority interest of Class B common stock, not held by WCAS VI is held
by management and employees. Pursuant to a stock purchase agreement, the
Company has the option to repurchase its shares of Class B common stock from
minority shareholders if the owner of such shares is no longer employed by
the Company or its subsidiaries. The repurchase price depends upon a number
of factors, including the employee's length of service and the fair market
value of such stock as determined by the Board of Directors.
F-24
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 14 --STOCKHOLDERS' EQUITY: (Continued)
The Company held 412,610 shares of Class B common stock in its treasury
at December 31, 1994 and 1995.
At December 31, 1994 and 1995, and March 31, 1996 there were 2,000,000
shares of Class A ($.01 par value) common stock of the Company authorized;
there were no shares outstanding and 217,450 held in treasury. During 1994,
the Company repurchased all of its Class A common stock in connection with
the stock purchase agreement referred to above.
At March 31, 1996, the Company retired the Class A and Class B common
stock which was held in its treasury.
Warrants:
At December 31, 1993, the Company had outstanding 977,143 warrants which
entitled the holder to purchase, at any time through March 31, 1994, one
share of Class A common stock per warrant. 622,450 warrants were exercisable
at $20.885 per share and 354,693 were exercisable at $13.14 per share. All of
the warrants were held by EII and were exercisable in whole and not in part.
The warrants were retired by the Company in February 1994, pursuant to the
secured demand note transaction described in Note 11.
Notes receivable from stockholders:
Notes receivable from stockholders of $2,243,709 and $2,283,886 at
December 31, 1995 and 1994, respectively, and $2,241,866 at March 31, 1996
represent amounts due to the Company for the purchase of common stock of the
Company by certain of its employees. The notes have all matured and are
currently payable on demand. The notes bear interest at rates ranging from 5%
to 5.6% per annum, and are collateralized by the stock purchased therewith.
The notes have been reflected as a decrease to stockholders' equity.
NOTE 15 --COMMITMENTS:
The Company is obligated under certain non-cancelable leases for office
space and telecommunication services.
The Company has executed various operating leases in respect of premises,
which contain escalation clauses for base rent, maintenance, electricity and
real estate tax increases.
At December 31, 1995, the Company had the following commitments under
long-term non-cancelable operating leases:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
<S> <C>
1996 .......................... $ 8,941,275
1997 .......................... 4,468,010
1998 .......................... 3,818,402
1999 .......................... 3,699,943
2000 and thereafter ........... 18,362,690
------------
Total minimum lease payments ... $39,290,320
============
</TABLE>
F-25
<PAGE>
EURO BROKERS INVESTMENT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 --(Continued)
(Information as of and for the three-month periods ended March 31, 1996 and
1995 is unaudited)
NOTE 15 --COMMITMENTS: (Continued)
The Company has pledged pounds sterling 1,150,000 in cash with a bank in
respect of a guarantee of its London premises lease. This amount has been
reflected as restricted cash on the statement of financial condition.
At December 31, 1994, the Company had forward contracts of approximately
$1,000,000 outstanding to buy foreign currency at various rates and dates
extending through September 16, 1996.
At December 31, 1995, the Company has forward contracts outstanding to buy
Sterling for $935,000 and sell 180,000,000 yen at various rates and dates
extending through September 30, 1996. Unrealized gains and losses have been
recognized in the statement of operations.
NOTE 16 --CONTINGENCIES:
In common with other money brokers, a subsidiary of the Company has, in
the past, received commissions on a number of interest rate swap transactions
which were booked on behalf of banks and local authorities in the United
Kingdom. Following the ruling by the House of Lords that the nature of these
contracts was "ultra vires," or beyond the scope of power of the local
authorities, some claims in a material amount have been received for the
return of certain of this brokerage.
The Company has been named as a defendant in other civil actions that seek
significant damages. Management believes the suits lack merit and intends to
vigorously contest the suits.
Management believes it has adequately accrued for the reasonably estimated
costs associated with resolving these matters. The future outcome of these
matters cannot be predicted with certainty and, accordingly, it is possible
that the ultimate disposition of the above noted matters could be material to
the results of operations in any given period. However, based upon
discussions with legal counsel, it is the opinion of management that the
ultimate disposition of the above noted matters will not have a material
adverse effect on the consolidated financial condition of the Company, its
results of operations or liquidity.
NOTE 17 --CONCENTRATION OF CREDIT RISK:
The Company has a policy of reviewing, on an ongoing basis, the credit
standing of its customers, which are primarily financial institutions, as
well as the credit worthiness of the clearing firm used by the Company.
Financial instruments subject to credit risk are primarily commissions
receivable, which are unsecured and short-term in nature. Receivable from
clearing firm represents a concentration of credit risk, and is related to
securities transactions cleared primarily through one correspondent broker.
NOTE 18 --GEOGRAPHIC DATA:
Financial information by geographic location is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations of
EBIC.
F-26
<PAGE>
NOTE 18 --GEOGRAPHIC DATA: (Continued)
ANNEX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FINANCIAL SERVICES ACQUISITION CORPORATION,
EBIC ACQUISITION CORP.
AND
EURO BROKERS INVESTMENT CORPORATION,
DATED AS OF MARCH 8, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
ARTICLE I
THE MERGER ................................................... 1-2
Section 1.1 The Merger ................................................... 1-2
Section 1.2 Effective Time of the Merger ................................. 1-2
Section 1.3 Closing ...................................................... 1-2
ARTICLE II
THE SURVIVING CORPORATION .................................... 1-2
Section 2.1 Certificate of Incorporation ................................. 1-2
Section 2.2 By-Laws ...................................................... 1-2
Section 2.3 Directors and Officers of Surviving Corporation .............. 1-2
ARTICLE III
CONVERSION OF SHARES AND OTHER MATTERS ....................... 1-2
Section 3.1 Intended Effects of Merger ................................... 1-2
Section 3.2 Conversion of Shares ......................................... 1-3
Section 3.3 Escrowed Merger Consideration ................................ 1-4
Section 3.4 Dissenting Shares; Certain Releases from Escrow .............. 1-4
Section 3.5 No Fractional Securities ..................................... 1-5
Section 3.6 Adjustment of Exchange Ratios and Cash Consideration ........ 1-6
Section 3.7 Closing True-Up Procedures ................................... 1-6
Section 3.8 Exchange of Company Stock; Other Procedures .................. 1-9
Section 3.9 Dividends; Escheat ........................................... 1-10
Section 3.10 Closing of Company Transfer Books ............................ 1-10
Section 3.11 Further Assurances ........................................... 1-10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................ 1-11
Section 4.1 Organization ................................................. 1-11
Section 4.2 Capitalization ............................................... 1-11
Section 4.3 Company Subsidiaries ......................................... 1-11
Section 4.4 Authority Relative to this Agreement ......................... 1-12
Section 4.5 Consents; No Violations ...................................... 1-12
Section 4.6 Reports and Financial Statements; Undisclosed Liabilities ... 1-12
Section 4.7 Absence of Certain Changes ................................... 1-13
Section 4.8 Approvals .................................................... 1-13
Section 4.9 Litigation ................................................... 1-13
Section 4.10 No Default ................................................... 1-13
Section 4.11 Taxes ........................................................ 1-14
Section 4.12 Title to Properties; Encumbrances ............................ 1-16
Section 4.13 List of Properties, Contracts and Other Data ................. 1-16
Section 4.14 Intellectual Property; Trade Secrets ......................... 1-17
Section 4.15 Compliance with Applicable Law ............................... 1-18
Information in Disclosure Documents and Registration
Section 4.16 Statement .................................................... 1-20
Section 4.17 Employee Benefit Plans; ERISA ................................ 1-21
Section 4.18 Environmental Laws and Regulations ........................... 1-22
i
<PAGE>
PAGE
------
Section 4.19 Condition of Assets .......................................... 1-22
Section 4.20 Insurance .................................................... 1-22
Section 4.21 Absence of Certain Business Practices ........................ 1-23
Section 4.22 Vote Required ................................................ 1-23
Section 4.23 DGCL Section 203 ............................................. 1-23
Section 4.24 Affiliate Transactions ....................................... 1-23
Section 4.25 Brokers ...................................................... 1-23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FSAC ....................... 1-24
Section 5.1 Organization ................................................. 1-24
Section 5.2 Capitalization ............................................... 1-24
Section 5.3 Authority Relative to this Agreement ......................... 1-24
Section 5.4 Consents; No Violations ...................................... 1-25
Section 5.5 Reports and Financial Statements; Undisclosed Liabilities ... 1-25
Section 5.6 Absence of Certain Changes; Business of FSAC ................. 1-26
Section 5.7 Approvals .................................................... 1-26
Section 5.8 Litigation ................................................... 1-26
Section 5.9 No Default ................................................... 1-26
Section 5.10 Taxes ........................................................ 1-26
Section 5.11 Compliance with Applicable Law ............................... 1-27
Information in Disclosure Documents and Registration
Section 5.12 Statement .................................................... 1-27
Section 5.13 Vote Required ................................................ 1-27
Section 5.14 List of Contracts ............................................ 1-27
Section 5.15 Funds ........................................................ 1-28
Section 5.16 Brokers ...................................................... 1-28
Section 5.17 Affiliate Transactions ....................................... 1-28
Section 5.18 No Properties, Encumbrances, Leasehold Interests or Insurance 1-28
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER ....................... 1-28
Section 6.1 Conduct of Business by the Company Pending the Merger ....... 1-28
Section 6.2 Conduct of Business by FSAC Pending the Merger ............... 1-29
Section 6.3 Conduct of Business of Sub ................................... 1-30
ARTICLE VII
ADDITIONAL AGREEMENTS ........................................ 1-30
Section 7.1 Access and Information ....................................... 1-30
Section 7.2 No Solicitation. ............................................. 1-30
Section 7.3 Registration Statement ....................................... 1-31
Section 7.4 Proxy Statements; Stockholder Approvals ...................... 1-31
Section 7.5 Compliance with the Securities Act ........................... 1-32
Section 7.6 Reasonable Best Efforts ...................................... 1-32
Section 7.7 Related Agreements ........................................... 1-33
Section 7.8 FSAC Option Plan ............................................. 1-33
Section 7.9 Unit Purchase Option Exchange ................................ 1-33
Section 7.10 Charter Amendments ........................................... 1-33
Section 7.11 NASDAQ National Market ....................................... 1-33
ii
<PAGE>
PAGE
------
Section 7.12 Exchange Offer ............................................... 1-34
Section 7.13 Stockholder Loans ............................................ 1-34
Section 7.14 Directors and Officers ....................................... 1-34
Section 7.15 Public Announcements ......................................... 1-34
Section 7.16 Directors' and Officers' Indemnification ..................... 1-34
Section 7.17 Expenses ..................................................... 1-35
Section 7.18 Supplemental Disclosure ...................................... 1-35
Section 7.19 Letters of Accountants ....................................... 1-35
Section 7.20 Conversion Share Excess ...................................... 1-35
ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER ..................... 1-36
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger .. 1-36
Conditions to Obligations of FSAC and Sub to Effect the
Section 8.2 Merger ....................................................... 1-36
Section 8.3 Conditions to Obligation of the Company to Effect the Merger 1-37
ARTICLE IX
TERMINATION .................................................. 1-38
Section 9.1 Termination .................................................. 1-38
Section 9.2 Effect of Termination ........................................ 1-39
ARTICLE X
INDEMNIFICATION .............................................. 1-40
Section 10.1 Survival of Representations and Warranties ................... 1-40
Section 10.2 Indemnification of FSAC81 .................................... 1-40
Section 10.3 Escrow Deposit; Recourse Against Escrow Securities .......... 1-40
Section 10.4 Representatives .............................................. 1-40
Section 10.5 Certain Limitations on Liability ............................. 1-41
Section 10.6 Exclusive Remedy ............................................. 1-41
ARTICLE XI
GENERAL PROVISIONS ........................................... 1-41
Section 11.1 Amendment and Modification ................................... 1-41
Section 11.2 Waiver ....................................................... 1-41
Section 11.3 Investigations ............................................... 1-42
Section 11.4 Notices ...................................................... 1-42
Section 11.5 Descriptive Headings; Interpretation ......................... 1-42
Section 11.6 Entire Agreement; Assignment ................................. 1-43
Section 11.7 Governing Law ................................................ 1-43
Section 11.8 Severability ................................................. 1-43
Section 11.9 Consolidating Supervisor ..................................... 1-43
Section 11.10 Counterparts ................................................. 1-43
</TABLE>
Exhibit A --Form of Escrow Agreement
Exhibit B --Form of Security Transfer Agreement
Exhibit C --Form of Majority Stockholders' Agreement
Exhibit D --Form of Registration Rights Agreement
Exhibit E --Form of Warrant Certificate
Exhibit F --Form of Affiliate Letter
iii
<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ------------------------------------------ ----------------
<S> <C>
Acquisition Transaction ................... 7.2(a)
Actual Company Stock Number ............... 3.6(a)
Actual Dissenting Shares .................. 3.4(a)
Actual Outstanding FSAC Shares ............ 3.6(a)
Actual Outstanding FSAC Warrants .......... 3.6(a)
Adjusted Conversion Shares ................ 3.6(b)
Affiliates ................................ 7.5(a)
Affiliate Letters ......................... 7.5(b)
Agreement ................................. Preamble
Amount .................................... 3.7(e)
Applicable Law ............................ 4.15(a)
Arbitrator ................................ 3.7(d)(ii)
Bank ...................................... 4.15(c)(iv)
Cash Escrow Amount ........................ 3.3
Certificates .............................. 3.1
Charter Amendment ......................... Preamble
Class A Company Common Stock .............. 3.2(a)
Closing ................................... 1.3
Closing Date .............................. 1.3
Company ................................... Preamble
Company's Closing Balance Sheet ........... 3.7(h)
Company's Closing Cash Equivalents ....... 8.2(c)
Company's Closing Defined Net Worth ...... 3.7(h)
Company Common Stock ...................... 3.2(a)
Company's Final Statement ................. 3.7(b)
Company Financial Statements .............. 4.6(a)
Company Material Adverse Effect ........... 4.1
Company Permits ........................... 4.15(b)
Company Plans ............................. 4.17(a)
Company Rights ............................ 3.1
Company Stock ............................. 3.2(a)
Company Stock Number ...................... 3.2(a)
Computer Software ......................... 4.14(e)
Confidentiality Agreement ................. 7.1
Contract .................................. 4.5
Conversion Rights ......................... 3.6(a)
Conversion Shares ......................... 3.6(a)
Currently Outstanding FSAC Shares ........ 3.2(a)
Currently Outstanding FSAC Warrants ...... 3.2(a)
Damages ................................... 10.2
Disputed Estimates ........................ 3.7(a)(i)
DGCL ...................................... Preamble
Dissenter ................................. 3.4(a)
Dissenting Shares ......................... 3.4(a)
EBCL ...................................... 4.15(c)(vi)
EBFSL ..................................... 4.15(c)(iii)
EBIL ...................................... 4.15(c)(iv)
EBMI ...................................... 4.15(c)(i)
iv
<PAGE>
GLOSSARY OF TERMS
TERM SECTION
- ------------------------------------------ ----------------
Effective Time ............................ 1.2
Employment Agreements ..................... Preamble
Environmental Laws ........................ 4.18(a)
ERISA ..................................... 4.17(a)
ERISA Affiliate ........................... 4.17(a)
Escrow Agent .............................. Preamble
Escrow Agreement .......................... Preamble
Escrow Stock .............................. 3.3
Estimated Aggregate Cash Consideration ... 3.2(a)
Excess Conversion Amount .................. 8.3(d)
Excess Conversion Shares .................. 8.3(d)
Exchange Act .............................. 4.15(c)(i)
Exchange Agent ............................ 3.8(a)
Exchange Offer ............................ 7.12
Exchange Ratio ............................ 3.2(a)
Failed Dissenter .......................... 3.4(d)
Final Statements .......................... 3.7(b)
Fractional Cash Amount .................... 3.8(a)
FSA ....................................... 4.15(c)(iii)
FSAC ...................................... Preamble
FSAC Closing Balance Sheet ................ 3.7(g)
FSAC Closing Cash Equivalents ............. 3.7(g)
FSAC Common Stock ......................... Preamble
FSAC Final Statement ...................... 3.7(b)
FSAC Financial Statements ................. 5.5(a)
FSAC Material Adverse Effect .............. 5.1
FSAC Option Plan .......................... 7.8
FSAC Preferred Stock ...................... 5.2(a)
FSAC SEC Reports .......................... 5.5(a)
FSAC Warrants ............................. Preamble
GAAP ...................................... 3.7(d)(iii)
Governmental Entity ....................... 4.5
Grey Paper ................................ 4.15(c)(iv)
HKFE ...................................... 4.15(c)(v)
Holder .................................... 3.1
HSR Act ................................... 7.6
IDAC ...................................... 4.15(c)(vii)
Indemnified Parties ....................... 10.2
Insurance Policy .......................... 4.20
Intellectual Property ..................... 4.14(a)
Liabilities ............................... 4.6(b)
Liens ..................................... 4.3
Majority Stockholders' Agreement .......... Preamble
Management ................................ Preamble
Merger .................................... 1.1
Merger Consideration ...................... 3.2(a)
Merger Warrants ........................... 3.1
Merger Stock .............................. 3.1
NASD ...................................... 3.5
NFA ....................................... 4.15(c)(ii)
v
<PAGE>
TERM SECTION
- ------------------------------------------ ----------------
Negative Cash Adjustment .................. 3.7(f)(ii)
New Options ............................... 7.9
1994 Prospectus ........................... 3.1
Notice of Disagreement .................... 3.7(c)
Ontario Acts .............................. 4.15(c)(vi)
OTC Bulletin Board ........................ 3.5
Participating Holder ...................... 3.4(d)
Per Share Book Value ...................... 3.3
Per Share Cash Consideration .............. 3.2(a)
Pink Sheets ............................... 3.5
Positive Cash Adjustment .................. 3.7(f)(i)
Proportionate Interest .................... 3.4(f)
Proxy Statements .......................... 4.16
Public Stockholders ....................... 3.6(a)
Registration Rights Agreement ............. Preamble
Registration Statement .................... 4.16
Related Agreements ........................ Preamble
SEC ....................................... 4.15(c)(i)
Section 262 Escrow Securities ............. 3.3
Securities Act ............................ 5.5(a)
Security Transfer Agreement ............... Preamble
Service ................................... 4.11(a)
SFA ....................................... 4.15(c)(iii)
Stock Exchange Ratio ...................... 3.2(a)
Stock Purchase Agreement .................. 4.10(b)
Stockholder Loans ......................... 3.7(h)
Sub ....................................... Preamble
Sub Common Stock .......................... 3.2(c)
Subsidiary ................................ 3.2(b)
Surviving Corporation ..................... 1.1
Taxes ..................................... 4.11(c)
Tax Return ................................ 4.11(c)
Termination Payment ....................... 9.2(b)
TSA ....................................... 4.15(c)(iii)
UK Subsidiaries ........................... 4.11(b)
Unaudited Balance Sheet ................... 4.6(a)
Unit Purchase Option Exchange ............. 7.9
Warrant Agreement ......................... 3.1
Warrant Exchange Ratio .................... 3.2(a)
Warrant Shares ............................ 4.16
WCAS ...................................... Preamble
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 8, 1996 (this
"Agreement"), by and among Financial Services Acquisition Corporation, a
Delaware corporation ("FSAC"), EBIC Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of FSAC ("Sub"), and Euro Brokers Investment
Corporation, a Delaware corporation (the "Company").
WHEREAS, the Boards of Directors of each of FSAC, Sub and the Company deem
it advisable and in the best interests of their respective companies and
stockholders that FSAC acquire the Company pursuant to the terms and
conditions of this Agreement, and, in furtherance of such acquisition, such
Boards of Directors have approved the Merger (as hereinafter defined) of Sub
with and into the Company in accordance with the terms of this Agreement and
the General Corporation Law of the State of Delaware (the "DGCL");
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to FSAC and Sub's willingness to enter into
this Agreement, the Company is entering into an escrow agreement with FSAC,
Sub and United States Trust Company of New York, as escrow agent (the "Escrow
Agent"), in the form attached hereto as Exhibit A (the "Escrow Agreement")
with respect to certain of the shares of Common Stock, par value $.001 per
share (the "FSAC Common Stock"), of FSAC, warrants and cash to be issued as
consideration in the Merger;
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to FSAC and Sub's willingness to enter into
this Agreement, FSAC, FSAC's Chairman, Gilbert Scharf, FSAC's Secretary,
Michael Scharf, Welsh, Carson, Anderson & Stowe VI, L.P., a Delaware limited
partnership ("WCAS"), and certain members of management of the Company (the
"Management") are entering into a Security Transfer Agreement in the form
attached hereto as Exhibit B (the "Security Transfer Agreement") imposing
certain restrictions on certain dispositions of shares of FSAC Common Stock
(including certain shares of Merger Stock, as hereinafter defined) and of the
Redeemable Common Stock Purchase Warrants of FSAC (all series thereof,
including the Merger Warrants as hereinafter defined, collectively the "FSAC
Warrants");
WHEREAS, concurrently with the execution and delivery of this Agreement
and as a condition and inducement to FSAC and Sub's willingness to enter into
this Agreement, FSAC, Sub and WCAS are entering into a Majority Stockholders'
Agreement, in the form attached hereto as Exhibit C (the "Majority
Stockholders' Agreement") with respect to, among other things, the making of
certain representations and certain agreements by WCAS in connection with the
Merger and the transactions contemplated thereby;
WHEREAS, in connection with the transactions contemplated by this
Agreement, certain key officers of the Company and FSAC have entered into
employment agreements with the Company and FSAC respectively (the "Employment
Agreements"), the effectiveness of which is conditioned upon consummation of
the Merger;
WHEREAS, in connection with the transactions contemplated by this
Agreement and as a condition to consummation of the Merger, FSAC, certain
stockholders of FSAC and certain stockholders of the Company will enter into
a Registration Rights Agreement in the form attached hereto as Exhibit D (the
"Registration Rights Agreement" and, together with the Escrow Agreement, the
Security Transfer Agreement, the Majority Stockholders' Agreement, the
Warrant Agreement (as hereinafter defined) and the Employment Agreements, the
"Related Agreements") with respect to certain shares of FSAC Common Stock;
and
WHEREAS, the Board of Directors of FSAC has approved amendments to FSAC's
Certificate of Incorporation that, subject to adoption thereof by the
stockholders of FSAC, will (i) increase the number of authorized shares of
FSAC Common Stock from 14,000,000 to 30,000,000 and (ii) upon consummation of
the Merger (w) delete certain provisions of the Certificate of Incorporation
that are no longer relevant, (x) implement a three-class staggered board of
directors for FSAC, (y) prohibit actions by written consent of stockholders
and (z) change the name of FSAC to Financial Services Corporation (the
"Charter Amendments").
1-1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. In accordance with the provisions of this
Agreement and the DGCL, at the Effective Time (as hereinafter defined), Sub
shall be merged with and into the Company (the "Merger"), the separate
corporate existence of Sub shall thereupon cease, and the Company shall be
the surviving corporation in the Merger (sometimes hereinafter called the
"Surviving Corporation") and shall continue its corporate existence under the
laws of the State of Delaware. The Merger shall have the effects set forth in
Section 259 of the DGCL.
Section 1.2 Effective Time of the Merger. The Merger shall become
effective at the time of filing of, or at such later time specified in, a
properly executed Certificate of Merger, in the form required by and executed
in accordance with the DGCL, filed with the Secretary of State of the State
of Delaware in accordance with the provisions of Section 251 of the DGCL.
Such filing shall be made as soon as practicable after the Closing (as
hereinafter defined). When used in this Agreement, the term "Effective Time"
shall mean the date and time at which the Merger shall become effective.
Section 1.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom, 919 Third Avenue, New York, New York, at 10:00 a.m.,
local time, on the day on which all of the conditions set forth in Article
VIII are satisfied or waived or on such other date and at such other time and
place as FSAC and the Company shall agree (such date, the "Closing Date").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation. The Certificate of Incorporation
of Sub in effect at the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until amended in accordance with
applicable law, except that the name of the Surviving Corporation shall be
"Euro Brokers Investment Corporation."
Section 2.2 By-Laws. The By-Laws of Sub as in effect at the Effective Time
shall be the By-Laws of the Surviving Corporation until amended in accordance
with applicable law.
Section 2.3 Directors and Officers of Surviving Corporation.
(a) The directors of the Company at the Effective Time shall be the
initial directors of the Surviving Corporation and, subject to the provisions
of Section 7.14(b), shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the
manner provided in the Certificate of Incorporation or By-Laws of the
Surviving Corporation or as otherwise provided by law.
(b) The officers of the Company at the Effective Time shall be the initial
officers of the Surviving Corporation and, subject to the provisions of
Section 7.14(b), shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the
manner provided in the Certificate of Incorporation or By-Laws of the
Surviving Corporation, or as otherwise provided by law.
ARTICLE III
CONVERSION OF SHARES AND OTHER MATTERS
Section 3.1 Intended Effects of Merger. It is the intention of the
parties that (i) as a result of and immediately following consummation of the
Merger, the holders of record (each, a "Holder" and, collectively, the
"Holders") of a certificate or certificates which immediately prior to the
Effective Time
1-2
<PAGE>
represented outstanding shares of Company Stock (as hereinafter defined)
(each, a "Certificate" and, collectively, the "Certificates") will (subject
to the terms of the Escrow Agreement) acquire, in the aggregate, assuming
there are no Dissenting Shares (as hereinafter defined) and no outstanding
options, warrants or other rights to acquire shares of Company Stock
("Company Rights"), and disregarding any payments of cash in lieu of
fractional interests, a fifty percent (50%) interest in FSAC by acquiring a
number of shares of newly-issued FSAC Common Stock (the "Merger Stock") and a
number of newly-issued FSAC Warrants, which warrants will be denominated as
"Series B Redeemable Stock Purchase Warrants" of FSAC, will be represented by
certificates substantially in the form attached hereto as Exhibit E, will
entitle the holder to receive the same securities for the same exercise price
as are receivable by the holders of the existing FSAC Warrants upon any
exercise of such FSAC Warrants after the Effective Time, and will otherwise
have substantially the same terms and conditions as the FSAC Warrants sold
pursuant to the Prospectus, dated November 30, 1994, of FSAC (hereinafter the
"1994 Prospectus"), except that the warrants will be issued pursuant to a new
warrant agreement (the "Warrant Agreement") between FSAC and such warrant
agent as is mutually agreed to by FSAC and the Company (the "Merger
Warrants"), equal to the number of shares of FSAC Common Stock and the number
of FSAC Warrants outstanding, respectively, immediately prior to the
Effective Time ((x) reduced by the number of any Conversion Shares (as
hereinafter defined) or, alternatively, if applicable as a result of the
satisfaction of the requirements of the proviso to Section 8.3(d), the number
of any Adjusted Conversion Shares (as hereinafter defined) and (y) after
giving effect, if it occurs, to the Unit Purchase Option Exchange (as defined
in and contemplated by Section 7.9)) and (ii) the respective pre-Merger
contributions of FSAC and the Company to the post-Merger consolidated net
worth of FSAC be equalized (subject to the adjustments contemplated by
Sections 3.7(h) and 3.7(j)) by the payment by FSAC (using funds, to the
extent necessary, obtained from the Company as provided by Section 3.8(a)) to
the Holders in the Merger of cash consideration (in addition to the Merger
Stock, the Merger Warrants and any payments in lieu of fractional shares).
Section 3.2 Conversion of Shares. In order to implement the intention of
the parties stated in Section 3.1, by virtue of the Merger and without any
action on the part of the holder thereof:
(a) Each share of Class B Common Stock, par value $.001 per share (the
"Company Common Stock") and Class A Common Stock, par value $.01 per share
(the "Class A Company Common Stock" and, together with the Company Common
Stock, the "Company Stock"), of the Company issued and outstanding
immediately prior to the Effective Time shall, except as otherwise provided
in Sections 3.2(b), 3.4 and 3.5 (and subject to the provisions of Section
3.3), be converted into the right to receive: (i) 2.6426688 shares of Merger
Stock (as adjusted pursuant to Section 3.6, the "Stock Exchange Ratio"), (ii)
4.5274405 Merger Warrants (as adjusted pursuant to Section 3.6, the "Warrant
Exchange Ratio" and, together with the Stock Exchange Ratio, the "Exchange
Ratios") and (iii) $9.5734433 in cash, without interest (as adjusted pursuant
to Sections 3.6(b) and 3.7, the "Per Share Cash Consideration" and, together
with the per share amounts payable pursuant to the Exchange Ratios,
hereinafter the "Merger Consideration"). The Exchange Ratios and the Per
Share Cash Consideration set forth above have been determined based on an
estimate of the cash portion of the Merger Consideration as described in
clause (ii) of Section 3.1 equal to $16 million (the "Estimated Aggregate
Cash Consideration"), the 4,416,666 shares of FSAC Common Stock (the
"Currently Outstanding FSAC Shares") and 7,566,666 FSAC Warrants (the
"Currently Outstanding FSAC Warrants") that were outstanding as of March 5,
1996 and the 1,671,290 shares of Company Common Stock that were outstanding
on a fully-diluted basis (the "Company Stock Number") as of March 5, 1996,
and are each subject to adjustment as set forth in this Article III to
reflect certain changes that may have occurred as of the Effective Time in
such number of shares, warrants and rights outstanding. Payment of the Merger
Consideration shall be made only in accordance with, and is subject to the
provisions and adjustments of, this Article III and the Escrow Agreement.
(b) All shares of Company Stock that are (i) held by the Company as
treasury shares or owned by any Subsidiary (as hereinafter defined) of the
Company or (ii) owned by FSAC shall be cancelled and retired and cease to
exist, and no securities of FSAC, cash or other consideration shall be
delivered in exchange therefor. As used in this Agreement, the term
"Subsidiary" means, with respect to any party, any
1-3
<PAGE>
corporation or other organization, whether incorporated or unincorporated,
of which (x) such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of
the voting interest in such partnership) or (y) at least a majority of the
securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly
or indirectly owned or controlled by such party and/or one or more of its
Subsidiaries.
(c) Each share of Common Stock, par value $.01 per share ("Sub Common
Stock"), of Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and become one fully paid and nonassessable
share of Common Stock, par value $.01 per share, of the Surviving
Corporation.
Section 3.3 Escrowed Merger Consideration. Notwithstanding Section 3.2,
at the Effective Time, FSAC shall deposit with the Escrow Agent under the
Escrow Agreement, the following portions of the aggregate Merger
Consideration: (i) 10 percent (10%) of the Merger Stock (the "Escrow Stock")
and (ii) an amount in cash (the "Cash Escrow Amount") equal to the sum of (x)
$2,000,000 plus (y) the product of (1) the number of Dissenting Shares and
(2) the book value per share of Company Stock (the "Per Share Book Value") as
determined by dividing the Stockholders' Equity reflected on the Company's
Closing Balance Sheet (as hereinafter defined) by the Actual Company Stock
Number (as hereinafter defined). In addition, to the extent there are any
Dissenting Shares, FSAC shall also deposit at such time with the Escrow Agent
under the Escrow Agreement, additional stock and warrant certificates
representing the aggregate whole number of shares of Merger Stock and Merger
Warrants that, in the absence of the exercise of their appraisal rights,
would have been payable as Merger Consideration to Dissenters (as hereinafter
defined), if any, with respect to Dissenting Shares (the "Section 262 Escrow
Securities"). The Merger Consideration otherwise distributable as of the
Effective Time to each Holder in connection with the Merger as provided in
Section 3.2 shall be proportionally reduced to reflect the deposit in escrow
of those portions of the aggregate Merger Consideration required to be
deposited in escrow as described in this Section 3.3, and such portions of
the Merger Consideration so deposited in escrow shall be released to Holders,
FSAC or the Company, as the case may be, only in accordance with the terms of
the Escrow Agreement and this Agreement.
Section 3.4 Dissenting Shares; Certain Releases from Escrow.
(a) Notwithstanding Section 3.2, each share of Company Stock outstanding
as of immediately prior to the Effective Time and as to which appraisal
rights shall have been duly demanded under the DGCL ("Dissenting Shares")
shall be converted into the right to receive, in lieu of the Merger
Consideration, payment by the Surviving Corporation of the appraised value of
such share to the extent permitted by and in accordance with the provisions
of Section 262 of the DGCL; provided, however, that (i) if any holder of
Dissenting Shares (a "Dissenter") shall, under the circumstances permitted by
the DGCL, subsequently deliver a written withdrawal of such holder's demand
for appraisal of such shares, or fail to establish such holder's entitlement
to rights to payment as provided in said Section 262, or (ii) if neither any
Dissenter nor the Surviving Corporation has filed a petition demanding a
determination of the value of all Dissenting Shares within the time provided
in said Section 262, such Dissenter or Dissenters (as the case may be) shall
forfeit such right to payment for such Dissenting Shares and such Dissenting
Shares shall thereupon be deemed to have been converted into the right to
receive, without interest, the Merger Consideration as of the Effective Time.
The Dissenting Shares, less any such shares with respect to which a Dissenter
fails to perfect his or her appraisal rights as contemplated by this Section
3.4(a), are hereinafter referred to as the "Actual Dissenting Shares." The
Surviving Corporation shall be solely responsible for, and shall pay out of
its own funds any amounts which become due and payable to holders of
Dissenting Shares, and, subject to the other provisions of this Section 3.4,
such amounts shall not be paid directly or indirectly by FSAC.
(b) The Company shall promptly provide FSAC with copies of any written
demand for appraisal rights received by the Company, and FSAC shall have the
right to participate in all negotiations and proceedings with respect to any
such demand. The Company shall not, except with the prior written consent of
FSAC, make any payment with respect to, or settle or offer to settle, any
such demand.
1-4
<PAGE>
(c) To the extent that the Surviving Corporation makes any payments to
Dissenters with respect to their Dissenting Shares, the Surviving Corporation
shall be entitled to and shall draw down (i) from the Cash Escrow Amount such
portion as is equal to the aggregate amount of such payments and (ii) to the
extent the Cash Escrow Amount then remaining is insufficient, from the Escrow
Stock for the balance thereof, in each case in accordance with the terms and
the provisions of the Escrow Agreement and this Article III.
(d) After payments have been made (or the right to payment has been
forfeited) with respect to all Dissenting Shares, the Escrow Agent shall be
instructed by all parties to release the Section 262 Escrow Securities as
follows: (i) first, to pay the Merger Consideration (other than the Per Share
Cash Consideration) to any Dissenter who failed to perfect his or her
appraisal rights (as contemplated by Section 3.4(a)) and therefore did not
receive any payment for his or her Dissenting Shares (a "Failed Dissenter");
and (ii) second, to pay to each Holder who did not duly demand appraisal
rights or who is a Failed Dissenter (each a "Participating Holder"), as
additional consideration in connection with the Merger, such Participating
Holder's Proportionate Interest (as hereinafter defined) in the shares of
Merger Stock and the Merger Warrants, respectively, comprising the Section
262 Escrow Securities that remain after any releases of the same made
pursuant to the immediately preceding clause (i). Any payments made pursuant
to this Section 3.4(d) shall be subject to Section 3.5 below and, in the case
of clause (ii) above, shall be deemed to constitute additional Merger
Consideration.
(e) Following the making of whichever of the two adjustments contemplated
by Sections 3.7(f)(i) and (ii) below is applicable, and provided that all
payments have been made (or the right to payment has been forfeited) with
respect to all Dissenting Shares, the Escrow Agent shall be instructed by all
parties to release the remaining Cash Escrow Amount, if any, as follows: (i)
first, to pay to any Failed Dissenter the same portion of the Per Share Cash
Consideration actually paid to the other Holders (other than Dissenters)
following the Effective Time after giving effect to the deposit of the Cash
Escrow Amount in escrow as provided in Section 3.3; and (ii) second, to pay
to each Participating Holder the balance of the Per Share Cash Consideration
to which such Participating Holder will be entitled as a result of the
release of the Cash Escrow Amount, it being understood that the amount of the
Cash Escrow Amount to be released to each such Participating Holder (and the
only balance of the Per Share Cash Consideration to which such Participating
Holder will be entitled), shall be such Participating Holder's Proportionate
Interest in the remaining cash, if any, comprising the Cash Escrow Amount.
(f) A Holder's "Proportionate Interest" shall mean the fraction obtained
by dividing (i) the number of shares of Company Stock held of record by such
Holder as of immediately prior to the Effective Time by (ii) the number of
shares remaining after subtracting (x) the Actual Dissenting Shares from (y)
the Actual Company Stock Number (as hereinafter defined).
Section 3.5 No Fractional Securities. No certificates or scrip
representing fractional interests in shares of Merger Stock or Merger
Warrants shall be issued in the Merger (including in connection with any
releases of such securities from any escrow arrangements contemplated by this
Agreement). All fractional interests in a share of Merger Stock that a Holder
would otherwise be entitled to receive as a result of the Merger shall be
aggregated, and all fractional interests in a Merger Warrant that a Holder
would otherwise be entitled to receive as a result of the Merger shall be
aggregated. If, after such aggregation, a fractional interest in a share of
Merger Stock or a Merger Warrant would result, such Holder shall be entitled
to receive, in lieu thereof, an amount in cash determined by multiplying (i)
the fractional interest in a share of Merger Stock or a Merger Warrant, as
the case may be, to which such Holder would otherwise be entitled and (ii)
the average of the per share closing bid price of a share of FSAC Common
Stock or an FSAC Warrant, as the case may be, (x) on the OTC Bulletin Board
(the "OTC Bulletin Board") of the National Association of Securities Dealers
(the "NASD") or (y) if not quoted at such time on the OTC Bulletin Board, in
the NQB Pink Sheets published by the National Quotation Bureau Incorporated
(the "Pink Sheets"), in each case for the five trading days immediately
preceding the Effective Time. Any amounts paid to a Holder pursuant to this
Section 3.5 shall be deemed to be part of the Merger Consideration. Pending
such payment, no fractional interest in a share of Merger Stock or a Merger
Warrant shall entitle the owner thereof to vote or to any rights of a
security holder.
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Section 3.6 Adjustment of Exchange Ratios and Cash Consideration.
(a) (i) FSAC, by its chief executive officer, shall certify to the Company
on, or immediately following, the Closing Date, (x) the actual number of
shares of FSAC Common Stock outstanding as of immediately prior to the
Effective Time, including after giving effect to any Unit Purchase Option
Exchange as provided in Section 7.9 (the "Actual Outstanding FSAC Shares")
and (y) the actual number of FSAC Warrants outstanding as of immediately
prior to the Effective Time (the "Actual Outstanding FSAC Warrants"), (ii)
FSAC, by its chief executive officer, shall certify to the Company promptly
following the FSAC stockholder meeting contemplated by Section 7.4(b), the
aggregate number of shares of FSAC Common Stock (the "Conversion Shares") as
to which Public Stockholders (as such term is defined in the 1994 Prospectus,
hereinafter the "Public Stockholders") have duly requested conversion rights
("Conversion Rights") in connection with the Merger and in accordance with
FSAC's Certificate of Incorporation, and (iii) the Company, by its chief
executive officer, shall certify to FSAC on, or immediately following, the
Closing Date, the actual number of shares of Company Stock outstanding on a
fully-diluted basis as of immediately prior to the Effective Time (the
"Actual Company Stock Number"). Such certifications shall be treated as
additional representations and warranties made under this Agreement.
(b) In accordance with such certifications: (i) the Stock Exchange Ratio
shall be adjusted to equal the quotient obtained by dividing (x) the
difference obtained by subtracting (A) the Conversion Shares (reduced by the
number of Excess Conversion Shares (as hereinafter defined), if any, for
which the requirements of the proviso in Section 8.3(d) have been satisfied,
hereinafter the "Adjusted Conversion Shares") from (B) the Actual Outstanding
FSAC Shares, by (y) the Actual Company Stock Number; (ii) the Warrant
Exchange Ratio shall be adjusted to equal the quotient obtained by dividing
(x) the Actual Outstanding FSAC Warrants by (y) the Actual Company Stock
Number; and (iii) the Per Share Cash Consideration shall be adjusted to equal
the quotient obtained by dividing (x) the Estimated Aggregate Cash
Consideration (as adjusted, if applicable, pursuant to Section 3.7(a)(ii)) by
(y) the Actual Company Stock Number.
Section 3.7 Closing True-Up Procedures.
(a) (i) Commencing no later than twenty (20) business days prior to the
Closing Date, each of FSAC and the Company shall cause its respective chief
financial officers and independent certified public accountants to consult
with each other in good faith in order to reach mutual agreement upon, and
deliver to each other, no later than five (5) business days prior to the
Closing Date, (x) in the case of FSAC, a good-faith estimate of the FSAC
Closing Balance Sheet (as hereinafter defined) and a good-faith estimate of
FSAC Closing Cash Equivalents (as hereinafter defined) as derived therefrom
and (y) in the case of the Company, a good-faith estimate of the Company's
Closing Balance Sheet (as hereinafter defined) and good-faith estimates of
the Company's Closing Defined Net Worth, the Company's Closing Cash
Equivalents and the Per Share Book Value (each as hereinafter defined), each
as derived therefrom. If, after making good-faith efforts to do so, FSAC and
the Company have not, prior to the close of business on the business day
immediately preceding the Closing Date, agreed upon the estimates of both
FSAC Closing Cash Equivalents and the Company's Closing Defined Net Worth,
and the aggregate amount of the disagreements with respect to such estimates
is in excess of $1 million (the "Disputed Estimates"), FSAC and the Company
shall immediately refer the Disputed Estimates to the Arbitrator (as
hereinafter defined) for resolution in accordance with the expedited
procedures set forth on Schedule 3.7(a). The Closing Date and the adjustments
contemplated below by Section 3.7(a)(ii) shall be delayed (and, if
implicated, the termination right in Section 9.1(b) tolled) until the
Arbitrator has made a determination in accordance with such procedures.
(ii) If, based on such estimates (as finally agreed or determined), the
Amount (as hereinafter defined) required to be calculated pursuant to Section
3.7(e) below would be in excess of the Estimated Aggregate Cash
Consideration, the Estimated Aggregate Cash Consideration shall be adjusted
(before the deposit of monies with the Exchange Agent, as hereinafter
defined, contemplated by Section 3.8(a)) by increasing it by the amount of
such excess. If, based on such estimates (as finally agreed or
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determined), the Amount as so calculated would be less than the Estimated
Aggregate Cash Consideration, the Estimated Aggregate Cash Consideration
shall be adjusted (before the deposit of monies with the Exchange Agent
contemplated by Section 3.8(a)) by decreasing it by the amount of such
shortfall.
(b) As soon as practicable, but in no event later than thirty (30) days
following the Closing Date, (i) FSAC shall prepare and deliver to the Company
and the Representatives (as hereinafter defined) a final statement of FSAC
Closing Cash Equivalents (the "FSAC Final Statement"), together with the FSAC
Closing Balance Sheet and (ii) the Company shall prepare and deliver to FSAC
a final statement of the Company's Closing Defined Net Worth (the "Company's
Final Statement" and, together with the FSAC Final Statement, the "Final
Statements"), and the Company's Closing Balance Sheet. Each party's Final
Statement shall be accompanied by a certificate attesting to its accuracy of
such party's chief financial officer or independent certified public
accountants.
(c) Each party shall be entitled to inspect all of the work papers,
schedules and other supporting papers of the other (and the other's
accountants) relating to the other's estimates to be delivered pursuant to
Section 3.7(a)(i), the other's Final Statement and the Company's Closing
Balance Sheet and the FSAC Closing Balance Sheet, both during the period of
their preparation and after their delivery. If any party in good faith
disputes the accuracy or fairness of the Final Statement of the other (it
being understood that any mutual agreement or Arbitrator's decision reached
on the estimates provided pursuant to Section 3.7(a)(i) shall not prejudice
any party's right to dispute the other's Final Statement), such party shall
so notify the other within thirty (30) days after receipt thereof, which
notice (the "Notice of Disagreement") shall specify in reasonable detail the
nature of the reasons for such party's objections and what such party
believes is the correct amount to be set forth in such Final Statement. If a
party does not timely deliver a Notice of Disagreement with respect thereto,
then the FSAC Closing Cash Equivalents and/or the Company's Closing Defined
Net Worth, as the case may be, shall be as stated in the relevant Final
Statement. If a Notice of Disagreement is timely delivered, then the FSAC
Closing Cash Equivalents and/or the Company's Closing Defined Net Worth shall
be determined as provided in Section 3.7(d).
(d) (i) If a Notice of Disagreement(s) is timely given, FSAC and the
Representatives shall use their respective good faith efforts to resolve the
disputed matters and, if they are able to do so, the FSAC Closing Cash
Equivalents and/or the Company's Closing Defined Net Worth, as the case may
be, shall be determined in accordance with such parties' agreement.
(ii) If, within fifteen (15) days after delivery of a Notice of
Disagreement, no agreement has been reached with respect thereto, the
disputed items shall, at the initiation of either FSAC or the
Representatives, be referred to an audit partner knowledgeable about the
financial services industry at KPMG Peat Marwick LLP, New York, New York, or
such other "big six" accounting firm and office as FSAC and the
Representatives may agree upon (the "Arbitrator"), for determination in
accordance with the terms of this Agreement. The Arbitrator shall be
instructed to render its determination as soon as reasonably practicable, but
in no event later than forty-five (45) days after referral of the matter(s)
in dispute. The FSAC Closing Cash Equivalents and/or the Company's Closing
Defined Net Worth, as the case may be, shall then be determined by the
Arbitrator.
(iii) The determinations of the Arbitrator shall be made in accordance
with generally accepted accounting principles ("GAAP") and the terms of this
Agreement and shall be final and binding upon the parties and shall not, in
the absence of manifest error, be subject to judicial review.
(iv) The fees and expenses of the Arbitrator shall be paid by FSAC.
(e) After the final determination of the FSAC Closing Cash Equivalents and
the Company's Closing Defined Net Worth, the parties shall calculate the
difference obtained (the "Amount") by subtracting (i) the amount of the FSAC
Closing Cash Equivalents as so determined from (ii) the amount of the
Company's Closing Defined Net Worth as so determined.
(f) (i) If the Amount is greater than the Estimated Aggregate Cash
Consideration (as adjusted pursuant to Section 3.7(a)(ii) above), FSAC shall
deliver to the Escrow Agent, as an addition to the Cash Escrow Amount, an
amount of cash equal to such excess (the "Positive Cash Adjustment");
provided, however, that in no event shall FSAC be required to pay a Positive
Cash Adjustment in excess of $2 million.
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(ii) If the Estimated Aggregate Cash Consideration (as adjusted pursuant
to Section 3.7(a)(ii) above) is greater than the Amount, all parties shall
instruct the Escrow Agent to release to FSAC such portion of the Cash Escrow
Amount as is equal to such excess (the "Negative Cash Adjustment"), provided,
however, that in no event shall FSAC be entitled to receive a payment of a
Negative Cash Adjustment in excess of $2 million.
(g) The term "FSAC Closing Cash Equivalents" shall mean the sum of the
following balance sheet line items of FSAC, as reflected on a consolidated
balance sheet of FSAC prepared as of the close of business on the business
day immediately preceding the Effective Time (the "FSAC Closing Balance
Sheet"), in accordance with GAAP and on a basis consistent with the
preparation of the audited Balance Sheet of FSAC as of December 31, 1994: (i)
cash and cash equivalents (after giving effect to any payments or accruals
with respect to Public Stockholders in respect of the Conversion Shares (or,
if applicable, the Adjusted Conversion Shares, in which event, effect will
also be given to the payments to FSAC of the Excess Conversion Amounts)),
plus (ii) U.S. Government and government agency securities deposited in the
Trust Fund (as defined in the 1994 Prospectus) and accrued interest thereon,
plus (iii) prepaid expenses, minus (iv) accounts payable and other
liabilities (including accrued liabilities) of FSAC (other than (x) accounts
payable and other liabilities in respect of expenses to be shared by FSAC and
the Company pursuant to Section 7.17 and Schedule 3.7(a) and (y) accrued
liabilities with respect to the possible exercise of Conversion Rights). FSAC
agrees to use the FSAC Closing Balance Sheet to prepare its estimate of the
FSAC Closing Cash Equivalents and FSAC's Final Statement that are
contemplated by this Section 3.7.
(h) The term "Company's Closing Defined Net Worth" shall mean the
stockholders' equity of the Company, as reflected on a consolidated balance
sheet of the Company prepared as of the close of business on the business day
immediately preceding the Effective Time (the "Company's Closing Balance
Sheet"), in accordance with GAAP and on a basis consistent with the
preparation of the audited consolidated Balance Sheet of the Company as of
December 31, 1995, with the following adjustments: (i) goodwill shall not
exceed $2.4 million, (ii) assets shall not include any notes receivable from
or loans to stockholders (evidenced in writing or otherwise) with respect to
the purchase of Common Stock of the Company (the "Stockholder Loans") (except
to the extent such loans or notes have been repaid in cash in accordance with
Section 7.13), (iii) compensation loans and loans related to clearing member
seats, to the extent reflected in assets, shall for the purposes of such
calculation be deemed offset by an equal liability, (iv) reserves of the
Company shall, for the purposes of such calculation, be deemed to be
established, increased, reversed or otherwise varied as FSAC and the Company
may separately agree in writing prior to the Closing and (v) with respect to
adjustments, accruals and other items that are normally made or assessed
under GAAP or the Company's standard accounting practices at the end of a
monthly, quarterly, semi-annual, annual or other period that would end after
the Closing Date, a pro-rated portion of such adjustment, accrual or other
item shall be made for the portion of such period ending as of the Closing
Date (including, without limitation, a pro-rated portion of all bonuses
payable to officers and employees for the six-month period ending June 30,
1996).
(i) The Company agrees to use the Company's Closing Balance Sheet, as so
adjusted, to prepare its estimate of the Company's Closing Defined Net Worth
and the Company's Final Statement that are contemplated by this Section 3.7.
Notwithstanding the foregoing, the parties agree and acknowledge that the
adjustments to the Company's Closing Balance Sheet required or permitted by
Section 3.7(h): (i) reflect the results of their economic bargaining and are
not necessarily reflective of the requirements of GAAP or prudent financial
statements, (ii) are intended to be binding solely for purposes of preparing
the Company's Closing Balance Sheet and making the Merger Consideration
adjustments contemplated by Article III and (iii) are not intended to be
binding on the Company in the preparation of its future financial statements.
(j) The Company and FSAC acknowledge that the audited consolidated balance
sheet of the Company as of December 31, 1995 includes a reserve of $450,000
that may or may not prove necessary depending on the outcome of certain other
events, which outcome is expected to be known no later than December 31,
1996. If the outcome is definitively known prior to the Closing Date, the
reserve shall be retained, reversed or adjusted in accordance with the
outcome for purposes of the Company's Closing
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Balance Sheet. If (i) the outcome becomes definitively known after the
Closing Date but on or prior to December 31, 1996 and (ii) does not require
full utilization of the reserve, it is agreed that, promptly after the
outcome, but no later than January 15, 1997, the Surviving Corporation shall
distribute to Participating Holders, as additional Merger Consideration
hereunder in accordance with their respective Proportionate Interests, the
unutilized portion of the reserve. If the outcome does not become
definitively known until after December 31, 1996, no such distribution shall
be made.
(k) Any amounts payable pursuant to the preceding Section 3.7(f) shall be
released or paid not later than five (5) business days after the final
determination of the FSAC Closing Cash Equivalents and the Company's Closing
Defined Net Worth pursuant to Sections 3.7(c) or 3.7(d), as the case may be.
All amounts released from Escrow shall be released with interest earned
thereon as specified in the Escrow Agreement. All other payments (other than
any payment pursuant to Section 3.7(j)) shall include interest for the period
from, but not including, the Closing Date through the date of such payment,
at the rate for 30-day commercial paper set forth in the "Money Rates" column
of The Wall Street Journal published on the Closing Date.
Section 3.8 Exchange of Company Stock; Other Procedures.
(a) Prior to the Closing Date, FSAC shall designate a bank or trust
company reasonably acceptable to the Company to act as Exchange Agent
hereunder (the "Exchange Agent"). As soon as practicable after the Effective
Time, and after giving effect to the adjustments contemplated by Section
3.7(a)(ii) and any upstreaming of funds contemplated by the last sentence of
this Section 3.8(a), FSAC shall deposit with or for the account of the
Exchange Agent (i) stock certificates representing the aggregate number of
whole shares of Merger Stock issuable pursuant to Section 3.2 (as adjusted
pursuant to Section 3.6) in exchange for outstanding shares of Company Stock
(less certificates representing the shares of Escrow Stock to be deposited in
escrow pursuant to the Escrow Agreement, as contemplated by Section 3.3),
which shares of Merger Stock shall be deemed to have been issued at the
Effective Time, (ii) warrant certificates representing the aggregate number
of whole Merger Warrants issuable pursuant to Section 3.2 (as adjusted
pursuant to Section 3.6) in exchange for outstanding shares of Company Stock,
which Merger Warrants shall be deemed to have been issued at the Effective
Time, (iii) the Estimated Aggregate Cash Consideration (as adjusted pursuant
to Sections 3.6 and 3.7, but less the Cash Escrow Amount to be deposited in
escrow pursuant to the Escrow Agreement, as contemplated by Section 3.3) and
(iv) sufficient cash to pay the amounts contemplated by Section 3.5 (the
"Fractional Cash Amount"). Notwithstanding the foregoing or anything else to
the contrary in this Agreement, it is understood and agreed by the parties
that if and to the extent that, at any time that FSAC is obligated to deposit
the Estimated Aggregate Cash Consideration and the Fractional Cash Amount
pursuant to this Section 3.8(a) or pay a Positive Cash Adjustment pursuant to
Section 3.7(f)(i), FSAC's cash and cash equivalents on hand (including
proceeds of the Trust Fund) are insufficient to do so, or would leave FSAC,
on a stand-alone basis, with liabilities in excess of assets, FSAC shall make
such deposits or payments by obtaining the additional necessary funds from
the Company and/or its Subsidiaries (by dividend, distribution, intercompany
loan or otherwise).
(b) As soon as practicable after the Effective Time, FSAC shall cause the
Exchange Agent to mail to each Holder of a Certificate or Certificates that
were converted pursuant to Section 3.2 into the right to receive the Merger
Consideration (i) a form of letter of transmittal specifying that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent and (ii)
instructions for use in surrendering such Certificates in exchange for the
Merger Consideration (subject to the portions thereof that have been
deposited in escrow). Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor
the Merger Consideration (subject to the portions thereof that have been
deposited in escrow), after giving effect to any required tax withholdings,
and the Certificate so surrendered shall forthwith be cancelled. In the event
of a transfer of ownership of Company Stock which is not registered in the
transfer records of the Company, the Merger Consideration (subject to the
portions thereof that have been deposited in escrow) may be issued to a
transferee if the Certificate representing such Company Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and
effect such
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transfer, and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 3.8(b), each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration
(subject to the portions thereof that have been deposited in escrow) as
contemplated by this Article III.
Section 3.9 Dividends; Escheat. No dividends or distributions that are
declared on shares of FSAC Common Stock or FSAC Warrants will be paid to a
person entitled to receive certificates representing shares of Merger Stock
or Merger Warrants until such person surrenders his, her or its Certificates.
Upon such surrender, there shall be paid to the person in whose name the
certificates representing such shares of Merger Stock or Merger Warrants
shall be issued, any dividends or distributions with respect to such shares
of Merger Stock or Merger Warrants, as the case may be, which have a record
date after the Effective Time and shall have become payable between the
Effective Time and the time of such surrender. In no event shall the person
entitled to receive such dividends or distributions be entitled to receive
interest thereon. Promptly following the date which is six months after the
Effective Time, the Exchange Agent shall deliver to FSAC all cash,
certificates and other documents in its possession relating to the
transactions described in this Agreement, and any holders of Company Stock
who have not theretofore complied with this Article III shall look thereafter
only to FSAC for the Merger Consideration to which they are entitled pursuant
to this Article III. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to a holder of Company Stock for
any Merger Consideration delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 3.10 Closing of Company Transfer Books. As of the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Stock shall thereafter be made. If, after the Effective
Time, Certificates are presented to the Surviving Corporation or FSAC, they
shall be cancelled and exchanged as provided in this Article III.
Section 3.11 Further Assurances. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary
or desirable to vest, perfect or confirm of record or otherwise in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of either of Sub or the Company acquired or to
be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers of
the Surviving Corporation shall be authorized to execute and deliver, in the
name and on behalf of each of Sub and the Company or otherwise, all such
deeds, bills of sale, assignments and assurances and to take and do, in such
names and on such behalves or otherwise, all such other actions and things as
may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this
Agreement.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to FSAC and Sub as follows:
Section 4.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power to carry on its business as it is now being
conducted and presently is proposed to be conducted. The Company is duly
qualified as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of its properties owned or held
under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not have a
material adverse effect, individually or in the aggregate, on the financial
condition, results of operations, business, assets, liabilities, prospects or
properties of the Company and its Subsidiaries taken as a whole, or the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement (a "Company Material Adverse Effect").
Section 4.2 Capitalization.
(a) The authorized capital stock of the Company consists of 2,000,000
shares of Company Common Stock and 2,000,000 shares of Class A Company Common
Stock. As of March 5, 1996, (i) 1,671,290 shares of Company Common Stock were
outstanding and no shares of Company Common Stock were held in treasury and
(ii) no shares of Class A Company Common Stock were outstanding and 217,450
shares of Class A Company Common Stock were held in treasury. All of the
issued and outstanding shares of Company Common Stock are validly issued,
fully paid and nonassessable. The outstanding shares of capital stock of the
Company and its Subsidiaries are not subject to, nor were they issued in
violation of, any preemptive rights of stockholders or to any right of first
refusal or other similar right in favor of any person. All of the outstanding
shares of capital stock of the Company are owned of record and, to the
knowledge of the Company, beneficially as set forth in Schedule 4.2(a).
(b) Except as set forth in Schedule 4.2(b), (i) there is no outstanding
right, subscription, warrant, call, unsatisfied preemptive right, option or
other agreement or arrangement of any kind (contingent or other) to purchase
or otherwise to receive from the Company or any of its Subsidiaries any of
the authorized but unissued (or treasury) shares of the capital stock or any
other security of the Company or any of its Subsidiaries, (ii) there is no
outstanding security of any kind convertible into or exchangeable for such
capital stock, (iii) none of the Company or any of its Subsidiaries has any
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof, (iv) there is no
voting trust or other agreement or understanding to which the Company or any
of its Subsidiaries is a party or is bound with respect to the voting of the
capital stock of the Company or any of its Subsidiaries and (v) there is no
written agreement or written arrangement between the Company or any of its
Subsidiaries and any other person (including any current officer or employee)
with respect to the sharing of revenues, profits or earnings of the Company
or any of its Subsidiaries, business units or desks.
Section 4.3 Company Subsidiaries. Schedule 4.3 contains a complete and
accurate list of all direct and indirect Subsidiaries of the Company, setting
forth as to each such Subsidiary the jurisdiction of its incorporation, the
number of shares of each class of its authorized and outstanding capital
stock and the record and beneficial ownership of all such outstanding shares.
Each Subsidiary of the Company that is a corporation is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each Subsidiary of the Company that is a
partnership is duly formed and validly existing under the laws of its
jurisdiction of formation. Each Subsidiary of the Company has the corporate
power or the partnership power, as the case may be, to carry on its business
as it is now being conducted or presently proposed to be conducted. Each
Subsidiary of the Company is duly qualified as a foreign corporation or a
foreign partnership, as the case may be, authorized to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified will not
have a Company Material Adverse Effect. All of the outstanding shares of
capital stock of the
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Subsidiaries of the Company that are corporations are validly issued, fully
paid and nonassessable. Except as set forth in Schedule 4.3, all of the
outstanding shares of capital stock of, or other ownership interests in, each
Subsidiary of the Company are owned by the Company or a Subsidiary of the
Company free and clear of any liens, pledges, security interests, claims,
charges or other encumbrances of any kind whatsoever ("Liens").
Section 4.4 Authority Relative to this Agreement. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all Related Agreements and other agreements to be executed by it pursuant
to this Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and all Related
Agreements and other agreements to be executed by the Company pursuant to
this Agreement, and the consummation by the Company of the transactions
contemplated on its part hereby and thereby, have been duly authorized by the
Company's Board of Directors and, except for the approval of the Company's
stockholders to be sought at the stockholders' meeting contemplated by
Section 7.4(a) with respect to this Agreement, no other corporate proceedings
on the part of the Company are necessary to authorize this Agreement or any
Related Agreement or other agreement to be executed by the Company pursuant
to this Agreement or for the Company to consummate the transactions
contemplated hereby or thereby. Each of this Agreement and all Related
Agreements and other agreements to be executed by the Company pursuant to
this Agreement has been duly and validly executed and delivered by the
Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its respective terms.
Section 4.5 Consents; No Violations. Neither the execution, delivery and
performance by the Company of this Agreement nor any Related Agreement or
other agreement to be executed by the Company pursuant to this Agreement, nor
the consummation by the Company of the transactions contemplated hereby or
thereby, will (i) conflict with or result in any breach of any provisions of
the charter, by-laws or other organizational documents of the Company or any
of its Subsidiaries, (ii) except as set forth in Schedule 4.5, result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of a Lien on
any property or asset of the Company or any of its Subsidiaries pursuant to,
any of the terms, conditions or provisions of any note, bond, mortgage,
security and pledge agreement, indenture, or any material license, contract,
agreement, commitment or other instrument or obligation (each, a "Contract")
to which the Company or any of its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, (iii) except as set
forth in Schedule 4.5, constitute a change of control under, or require the
consent from or the giving of notice to a third party pursuant to, the terms,
conditions or provisions of any such Contract, or (iv) violate any law,
order, writ, injunction, decree, statute, rule or regulation of any federal,
state, local or foreign court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or
administrative agency or commission or of any self-regulatory organization
(collectively, a "Governmental Entity") applicable to the Company, any of its
Subsidiaries or any of their properties or assets.
Section 4.6 Reports and Financial Statements; Undisclosed Liabilities.
(a) The Company has furnished or made available to FSAC (i) the audited
consolidated balance sheets of the Company and its Subsidiaries as of
December 31, 1992, 1993, 1994 and 1995 and the related consolidated
statements of income, stockholders' equity and cash flows for the fiscal
years then ended, certified by Price Waterhouse LLP, and (ii) the unaudited
consolidated balance sheet of the Company and it Subsidiaries as of January
31, 1996 (the "Unaudited Balance Sheet") and the related unaudited
consolidated statements of income, stockholders' equity and cashflows for the
one-month period then ended (collectively, the "Company Financial
Statements"). The Company Financial Statements (other than the Unaudited
Balance Sheet) have been prepared in accordance with GAAP consistently
applied throughout the periods indicated (except as otherwise noted therein)
and fairly present the consolidated financial position of the Company and its
Subsidiaries as at the dates thereof and the consolidated results of
operations and cash flows of the Company and its Subsidiaries for the periods
then ended. The Unaudited Balance Sheet has been prepared in accordance with
the Company's internal accounting
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practices on a basis consistent with the preparation of its monthly
Management Reports during 1995. Except as set forth in Schedule 4.6(a), since
December 31, 1995, there has been no change in any of the significant
accounting (including tax accounting) policies, practices or procedures of
the Company or any of its consolidated Subsidiaries.
(b) Except as reflected in the Company Financial Statements or the notes
thereto or as set forth in Schedule 4.6 hereto, none of the Company or its
Subsidiaries had any obligations or liabilities, absolute, accrued or
contingent ("Liabilities"), as of the respective dates of the balance sheets
included in the Company Financial Statements of a type required by GAAP to be
reflected in a consolidated balance sheet (or the notes thereto). Except as
will be reflected in the Company's Closing Balance Sheet or the notes
thereto, none of the Company or its Subsidiaries will have any material
Liabilities as of the date thereof. Since December 31, 1995, none of the
Company or its Subsidiaries has incurred any material Liabilities, except in
connection with the transactions contemplated by this Agreement and except in
the ordinary course of business and consistent with past practices.
(c) The commissions receivable reflected on the Unaudited Balance Sheet
and that will be reflected on the Company's Closing Balance Sheet are and
will be bona fide commissions receivable created in the ordinary course of
business and are and will be good and collectible within periods of time
normally prevailing in the industry at the aggregate recorded amounts
thereof, net of reserves for doubtful accounts reflected on the Company's
Closing Balance Sheet.
Section 4.7 Absence of Certain Changes. Except as set forth in Schedule
4.7, since December 31, 1995, (a) neither the Company nor any of its
Subsidiaries has conducted its business and operations other than in the
ordinary course of business and consistent with past practices or taken any
actions that, if it had been in effect, would have violated or been
inconsistent with the provisions of Section 6.1 and (b) there has not been
any fact, event, circumstance or change affecting or relating to the Company
or any of its Subsidiaries which has had or would have a Company Material
Adverse Effect.
Section 4.8 Approvals. Except as set forth in Schedule 4.8, no filing
with, or a permit, authorization, notification, consent or approval of, any
Governmental Entity is required or necessary for (i) the valid execution,
delivery and performance by the Company of this Agreement and all Related
Agreements and other agreements to be executed by the Company pursuant to
this Agreement, (ii) the consummation by the Company of the transactions
contemplated hereby or thereby or (iii) the conduct of the business of the
Company and its Subsidiaries after the Effective Time in substantially the
manner in which it is currently being conducted.
Section 4.9 Litigation. Except as set forth in Schedule 4.9 hereto, there
is no action, suit, arbitration, investigation or proceeding pending or, to
the knowledge of the Company, threatened against or affecting the Company,
any of its Subsidiaries, or any of its or their respective properties or
rights, nor is there any judgment, decree, injunction or order of any
Governmental Entity against the Company or any of its Subsidiaries, which in
any such case will or is reasonably likely to have a Company Material Adverse
Effect. Nor, to the knowledge of the Company, does there exist any basis for
any such action, suit, arbitration, investigation, proceeding, judgment,
decree, injunction or order.
Section 4.10 No Default.
(a) Except as set forth in Schedule 4.10, neither the Company nor any
Subsidiary of the Company is in default or violation (and no event has
occurred which with notice or the lapse of time or both would constitute a
default or violation) of any term, condition or provision of (i) its charter,
by-laws or comparable organizational documents, (ii) any provision of the
convertible purchase price notes of certain Subsidiaries of the Company or
(iii) any Contract to which the Company or any of its Subsidiaries is a party
or by which they or any of their properties or assets may be bound, except,
in the case of clause (iii), for defaults or violations which would not have
a Company Material Adverse Effect.
(b) In connection with the Stock Purchase Agreement, dated as of May 10,
1994, among the Company, WCAS and certain others (the "Stock Purchase
Agreement") and the transactions contemplated thereby, the following events
have heretofore occurred or will occur prior to the Closing (defined terms
used in the balance of this Section 4.10(b) shall have the meanings assigned
to them in the Stock
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Purchase Agreement): (i) the termination of the Stockholders Agreement, the
Pledge Agreement, the Escrow Agreement (without having effected the
Recapitalization and without the Company or its Subsidiaries having incurred
any liability in connection therewith, whether to its debt or equity holders
or otherwise), the Note Purchase Agreement and the agreements listed on
Schedule 4.02(d) to the Stock Purchase Agreement, (ii) the release and
termination of all security interests held by WCAS in the assets of the
Company and its Subsidiaries (including by the filing of UCC-3 financing
statements in the jurisdictions listed on Schedule 4.02(c) to the Stock
Purchase Agreement) and (iii) the delivery to the Company of all of the notes
and stock certificates listed on Schedule 4.02(e) to the Stock Purchase
Agreement, together with stock powers and other transfer forms, as
applicable, duly executed in blank.
Section 4.11 Taxes.
(a) The Company has heretofore delivered or will make available to FSAC
true, correct and complete copies of the consolidated federal, state, local
and foreign income, franchise sales and other Tax Returns (as hereinafter
defined) filed by the Company and the Company's Subsidiaries for each of the
Company's fiscal years ended December 31, 1990, 1991, 1992, 1993 and 1994
inclusive. The Company has duly filed, and each of its Subsidiaries has duly
filed, all material federal, state, local and foreign income, franchise,
sales and other Tax Returns required to be filed by the Company or any of its
Subsidiaries. All such Tax Returns are true, correct and complete in all
material respects, and the Company and each of its Subsidiaries has duly
paid, all Taxes (as hereinafter defined) required to be paid in respect of
the periods covered by such returns and has made adequate provision for
payment of all accrued but unpaid Taxes anticipated in respect of all periods
since the periods covered by such Tax Returns. Except as set forth in
Schedule 4.11, all deficiencies assessed as a result of any examination of
Tax Returns of the Company or any of its Subsidiaries by federal, state,
local or foreign tax authorities have been paid or reserved on the Company
Financial Statements in accordance with GAAP consistently applied, and true,
correct and complete copies of all revenue agent's reports, "30-day letters,"
or "90-day letters" or similar statements proposing or asserting any Tax
deficiency against the Company or any of its Subsidiaries for any open year
have been heretofore delivered to FSAC. The Company has heretofore delivered
or will make available to FSAC true, correct and complete copies of all
written tax-sharing agreements and written descriptions of all such unwritten
agreement or arrangements to which the Company or any of its Subsidiaries is
a party. Except as set forth in Schedule 4.11, no issue has been raised
during the past five years by any federal, state, local or foreign taxing
authority which, if raised with regard to any other period not so examined,
could reasonably be expected to result in a proposed deficiency for any other
period not so examined. Except as set forth in Schedule 4.11, neither the
Company nor any of its Subsidiaries has granted any extension or waiver of
the statutory period of limitations applicable to any claim for Taxes. The
consolidated federal income tax returns of the Company and its Subsidiaries
have not been examined by the Internal Revenue Service (the "Service").
Except as set forth in Schedule 4.11, (i) neither the Company nor any of its
Subsidiaries is a party to any agreement, contract or arrangement that would
result, separately or in the aggregate, in the payment of any "excess
parachute payments" within the meaning of Section 280G of the Code; (ii) no
consent has been filed under Section 341(f) of the Code with respect to any
of the Company or its Subsidiaries; (iii) neither the Company nor any of its
Subsidiaries has participated in, or cooperated with, an international
boycott within the meaning of Section 999 of the Code; and (iv) neither the
Company nor any of its Subsidiaries has issued or assumed any corporate
acquisition indebtedness, as defined in Section 279(b) of the Code, or any
obligations described in Section 279(a)(2) of the Code. The Company and each
Subsidiary of the Company have complied (and until the Effective Time will
comply) in all material respects with all applicable laws, rules and
regulations relating to the payment and withholding of Taxes (including,
without limitation, withholding of Taxes pursuant to Sections 1441 and 1442
of the Code or similar provisions under any foreign laws) and have, within
the time and in the manner prescribed by law, withheld from employee wages
and paid over to the proper governmental authorities all amounts required to
be so withheld and paid over under all applicable laws.
(b) With respect to each of the Company's subsidiaries organized under the
laws of, or operating in, the United Kingdom (collectively, the "UK
Subsidiaries"):
(i) There are no current arrangements, agreements, exemptions or
dispensations obtained by any UK Subsidiary from any Tax authority
permitting payment without deduction for or on account of Tax.
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(ii) The UK Subsidiaries have no outstanding entitlement to make any
claim, election, appeal or postponement for relief or repayment under any
Tax statute other than those claims, elections, appeals or postponements
which the UK Subsidiaries normally make in the course of completing their
tax affairs.
(iii) The UK Subsidiaries have not taken any action which has had or
might have the result of altering, prejudicing or in any way disturbing,
in all cases in any material respect, any arrangement or agreement which
it has previously negotiated in respect of Tax.
(iv) Except as disclosed on Schedule 4.11, the UK Subsidiaries will
not become liable to pay or make reimbursement or indemnity in respect of
any Tax in consequence of the failure by any other person to discharge
that Tax.
(v) No rents, interest, annual payments or other sums of an income
nature which the UK Subsidiaries are under an existing obligation to pay
in the future are or, so far as the Company is aware, may be wholly or
partially disallowable as deductions or charges in computing profits for
the purposes of Tax.
(vi) Except as disclosed on Schedule 4.11, the UK Subsidiaries have
not been involved in any transaction or series of transactions, which, or
any part of which, may for any Tax purposes be disregarded or
reconstructed by reason of any motive to avoid, reduce or delay a possible
liability to Tax.
(vii) The UK Subsidiaries are persons registered and fully liable for
the purposes of United Kingdom value added tax and no such registration is
subject to any conditions. The UK Subsidiaries are not part of a group for
the purpose of United Kingdom value added tax. The UK Subsidiaries have
materially complied with all statutory provisions, rules, regulations,
orders and directions concerning United Kingdom value added tax.
(viii) The UK Subsidiaries have only disposed of or acquired an asset
in circumstances such that the disposal or acquisition would be treated
for Tax purposes as an arms length transaction. No election has been made
either under Section 35 TCGA 1992 (re-basing) or Sections 152 to 162 or
165 (inclusive) of the Taxation of Changeable Gains Act 1992 (replacement
of business assets) in respect of any assets held by a UK Subsidiary.
(ix) No legally binding arrangement or agreement has been entered into
by a UK Subsidiary under which Tax losses or Tax reliefs for any period
commencing after the Closing are obliged or agreed to be surrendered or
claimed and there exist no obligations on any UK Subsidiary to make any
payment for any such Tax losses or Tax reliefs.
(x) No securities issued by any UK Subsidiary and remaining in issue
at the date hereof were issued in such circumstances that the interest or
part thereof payable thereon falls to be treated as a distribution under
section 209 of the Income & Corporation Taxes Act 1988 (meaning of
"distribution").
(xi) Except as disclosed on Schedule 4.11, the UK Subsidiaries have
not at any time entered into any transactions for which consent from the
United Kingdom treasury or other Tax authority was required without having
obtained such consent.
(xii) The UK Subsidiaries have not been a party to any transaction or
arrangement whereby they are liable for Tax or stamp duty reserve tax
under or by virtue of operating or being deemed to operate as a branch,
agency or broker.
(xiii) All documents in the possession or under the control of any UK
Subsidiary to which a UK Subsidiary is a party and which attract stamp
duty have been duly stamped and no claim for exemption from or reduction
of stamp duty is outstanding. The UK Subsidiaries have not since December
31, 1995 entered into any transactions in respect of which it may be
liable for stamp duty reserve tax.
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(c) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, charges, fees, levies, duties, imports or other assessments,
including, without limitation, income, gross receipts, excise, property,
sales, use, transfer, gains, license, payroll, withholding, capital stock and
franchise taxes, corporation tax, advance corporation tax, capital gains tax,
national insurance contributions, indenture tax and asset taxes imposed by
the United States, or any state, local or foreign government or subdivision
or agency thereof, including any interest, penalties or additions thereto.
For purposes of this Agreement, the term "Tax Return" shall mean any report,
return or other information or document required to be supplied to a taxing
authority in connection with Taxes.
Section 4.12 Title to Properties; Encumbrances; Leasehold Interests.
(a) Except as described in the following sentence, each of the Company and
its Subsidiaries has good, valid and marketable title to, or a valid
leasehold interest in, all of its material properties and assets (real,
personal and mixed, tangible and intangible), including, without limitation,
all the properties and assets reflected in the Unaudited Balance Sheet
(except for properties and assets disposed of in the ordinary course of
business and consistent with past practices since February 1, 1996).
(b) None of such properties or assets are subject to any Liens (whether
absolute, accrued, contingent or otherwise), except (i) as set forth in
Schedule 4.12, (ii) liens for current taxes or assessments not yet due or
payable or which are being contested in good faith by the Company, (iii)
mechanic's, materialmen's and similar liens which may have arisen in the
ordinary course of business and (iv) minor imperfections of title and
encumbrance, if any, which are not substantial in amount and do not
materially detract from the value of the property or assets subject thereto
and do not impair the operations of any of the Company and its Subsidiaries.
(c) Each lease or agreement to which the Company or any of its
Subsidiaries is a party and under which it is a lessee of any property, real
or personal, owned by any third party is a valid and subsisting agreement, in
each case without any material default of the Company or its Subsidiaries, as
the case may be, thereunder and, to the knowledge of the Company, without any
material default thereunder of any other party thereto. The possession by the
Company or its Subsidiaries of such property has not been disturbed nor has
any material claim been asserted against the Company or any of its
Subsidiaries adverse to its or their respective rights in such leasehold
interests.
(d) None of the UK Subsidiaries has any material actual or contingent
liabilities in respect of any freehold or leasehold land or buildings other
than those properties specified in Schedule 4.13(i), whether as present or
former freeholder or leaseholder or surety or otherwise.
Section 4.13 List of Properties, Contracts and Other Data. Annexed hereto
as Schedule 4.13 is a list setting forth the following:
(i) all leases of real property and all material leases of personal
property to which the Company or any of its Subsidiaries is a party,
either as lessee or lessor;
(ii) all collective bargaining agreements, employment and consulting
agreements, executive compensation plans, bonus plans, deferred
compensation agreements, employee pension plans or retirement plans,
employee profit sharing plans, employee stock purchase and stock option
plans, group life insurance, hospitalization insurance or other similar
plans or arrangements providing for benefits to directors, officers or
employees of, or independent contractors or other agents for, the Company
or any of its Subsidiaries;
(iii) all Contracts to which the Company or any of its Subsidiaries is
a party, or to which it or any of its or their respective assets or
properties are subject and which are not specifically referred to in
clause (i) or (ii) above and which (A) is a Contract or group of related
Contracts which exceeds $50,000 per annum in amount, (B) contains
warranties by the Company or such Subsidiary in excess of those customary
in its business or (C) cannot be performed in the normal course within 180
days after the Effective Time or canceled within such period by the
Company or such Subsidiary, as the case may be, or any assignee, without
breach or greater than nominal penalty;
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(iv) the names and current salaries (as of January 1, 1996) and
bonuses paid or declared in the last twelve months of all officers and
employees of the Company and its Subsidiaries which were $50,000 or more
(broken down by desk); and
(v) all licenses, registrations, qualifications, permits, franchises
and other authorizations held or required to be held by or issued to the
Company or any of its Subsidiaries in connection with ownership of its or
their respective assets and properties or the conduct of its or their
respective business by any Governmental Entity or pursuant to any
Applicable Law (as hereinafter defined), other than any of the same which
(i) are not, in the aggregate, material to the Company and its
Subsidiaries, taken as a whole, and (ii) do not relate to regulation of
the business activities of the Company or any of its Subsidiaries.
True and complete copies of all documents and complete descriptions of all
oral contracts (if any) referred to in Schedule 4.13 have been provided or
made available to FSAC. Except as set forth in Schedule 4.13, all material
provisions of the Contracts referred to in Schedule 4.13 are valid and
enforceable obligations of each of the Company and its Subsidiaries and, to
the knowledge of the Company, of the other parties thereto. Except as set
forth in Schedule 4.13, neither the Company nor any of its Subsidiaries has
been notified in writing of any claim that any Contract referred to in
Schedule 4.13 is not valid and enforceable in accordance with its terms for
the periods stated therein, or that there is under any such Contract any
existing default or event of default or event which with notice or lapse of
time or both would constitute such a default, other than defaults which would
not have a Company Material Adverse Effect.
Section 4.14 Intellectual Property; Trade Secrets.
(a) Except as set forth in Schedule 4.14(a), the Company and its
Subsidiaries are the sole and exclusive owners of all patents, patent
applications, patent rights, trademarks, trademark rights, trade names, trade
name rights, copyrights, services marks, trade secrets, registrations for and
applications for registration of trademarks, service marks and copyrights,
technology and know-how, rights in Computer Software (as hereinafter defined)
and other proprietary rights and information and all technical and user
manuals and documentation made or used in connection with any of the
foregoing (collectively, the "Intellectual Property") used or held for use in
connection with the businesses of the Company or any of its Subsidiaries as
currently conducted, free and clear of all Liens.
(b) Schedule 4.14(b) sets forth a complete and accurate list of (i) all
grants, registrations and applications for Intellectual Property, (ii) all
proprietary Computer Software owned by the Company or any of its
Subsidiaries, and (iii) all material non-proprietary Computer Software
included in the Intellectual Property. The Intellectual Property set forth in
Schedule 4.14(b)(i) and (ii), and to the Company's knowledge in Schedule
4.14(b)(iii), is valid, subsisting, in proper form and enforceable, and, to
the extent that any of the same is registered under Applicable Law, such
registration has been duly maintained, including the submission of all
necessary filings and fees in accordance with the legal and administrative
requirements of the appropriate jurisdictions, and no application or
registration therefor is the subject of any legal or governmental proceeding
before any registration authority in any jurisdiction.
(c) The Company and each of its Subsidiaries owns or has the right to use
all of the Intellectual Property used by it or held for use by it in
connection with its business. To the knowledge of the Company, there are no
conflicts with or infringements of any Intellectual Property by any third
party. The conduct of the businesses of the Company and its Subsidiaries as
currently conducted does not conflict with or infringe in any way any
proprietary right of any third party, which conflict or infringement would or
is reasonably likely to have a Company Material Adverse Effect or restrict in
any material fashion the current or currently proposed conduct of such
businesses, and there is no claim, suit, action or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries (i) alleging any such conflict or infringement with any third
party's proprietary rights or (ii) challenging the ownership, use, validity
or enforceability of any of the Intellectual Property.
(d) The Computer Software used in the conduct of the business of the
Company or any of its Subsidiaries is either: (i) owned by the Company or
such Subsidiary of the Company, as the case may be,
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as the result of internal development by an employee of the Company or such
Subsidiary of the Company; (ii) developed on behalf of the Company or any of
its Subsidiaries by a consultant or contractor and all ownership rights
therein have been assigned or otherwise transferred to or vested in the
Company or such Subsidiary of the Company, as the case may be; or (iii)
licensed or acquired from a third party pursuant to a written license,
assignment, or other Contract which is in full force and effect and of which
neither the Company nor any of its Subsidiaries have been in material breach.
Except as set forth in Schedule 4.14(d), (x) unless party to a confidential
relationship, no third party has had access to any of the source code for any
of the proprietary Computer Software and (y) no act has been done or omitted
to be done by the Company or any of its Subsidiaries to impair or dedicate to
the public or entitle any Governmental Entity to hold abandoned any of the
Computer Software.
(e) For purposes of this Agreement, the term "Computer Software" shall
mean (i) any and all computer programs consisting of sets of statements and
instructions to be used directly or indirectly in computer software or
firmware, (ii) databases and compilations, including without limitation any
and all data and collections of data, whether machine readable or otherwise,
(iii) all versions of the foregoing (x) including without limitation all
screen displays and designs thereof, and all component modules of source code
or object code or natural language code therefor, and (y) whether recorded on
papers, magnetic media or other electronic or non-electronic device, (iv) all
descriptions, flow-charts and other work product used to design, plan,
organize and develop any of the foregoing, and (v) all documentation,
including, without limitation, all technical and user manuals and training
materials, relating to the foregoing.
(f) (i) No third party has claimed or notified the Company or any of its
Subsidiaries that any person employed by or otherwise affiliated with the
Company or any of its Subsidiaries has, in respect of his or her activities
to date, violated any of the terms or conditions of his or her employment
contract with any third party, or disclosed or utilized any trade secrets or
proprietary information or documentation of any third party, or interfered in
the employment relationship between any third party and any of its employees,
and (ii) to the knowledge of the Company, no person employed by or otherwise
affiliated with the Company or its Subsidiaries has employed any trade
secrets or any information or documentation proprietary to any former
employer, or violated any confidential relationship which such person may
have had with any third party, in connection with the business of, or
development or sale of any products of, the Company or any of its
Subsidiaries.
Section 4.15 Compliance with Applicable Law.
(a) The business and activities of the Company and each of its
Subsidiaries have been and are being conducted in compliance with all
provisions of all applicable laws, statutes, ordinances, rules, regulations,
judgments, decrees or orders of any Governmental Entity ("Applicable Law"),
except for violations or possible violations of laws, statutes, ordinances,
rules or regulations which do not have and would not have a Company Material
Adverse Effect. Neither the Company nor any of its Subsidiaries has received
any written or, to the knowledge of the Company, oral notice of any alleged
violations of any of the foregoing. Except for routine supervisory
investigations and reviews (none of which has had or is reasonably expected
to have a Company Material Adverse Effect), to the knowledge of the Company,
no investigation or review by any Governmental Entity with respect to the
Company or its Subsidiaries is pending or threatened and no Governmental
Entity has indicated an intention to conduct the same.
(b) Each of the Company and its Subsidiaries holds all licenses, permits,
franchises and other governmental authorizations necessary to the ownership
of its properties or the current or proposed conduct of its business
("Company Permits"), and all such Company Permits will remain in full force
and effect immediately following the Effective Time and will not in any way
be affected by, or terminate or lapse by reason of, the consummation of the
transactions contemplated by this Agreement or the Related Agreements. No
action or proceeding is pending or, to the Company's knowledge, threatened,
and to the Company's knowledge, no fact exists or event has occurred, in any
case, that has a reasonable possibility of resulting in a revocation,
non-renewal, termination, suspension or other material impairment of any
material Company Permits.
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(c) Without limiting the generality of the representations and warranties
made in Sections 4.15(a) and (b) above:
(i) Euro Brokers Maxcor, Inc. ("EBMI") is duly registered as a
broker-dealer under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is a member in good standing of the NASD, and the
Form BD filed by EBMI with the Securities and Exchange Commission (the
"SEC") pursuant to the Exchange Act complies as to form with the
requirements of the Exchange Act and the rules and regulations of the SEC
thereunder, is in full force and effect and does not contain an untrue
statement of material fact or omit to state a material fact necessary to
make the statements therein not misleading. EBMI is in compliance with all
Applicable Law in connection with its acting as a broker-dealer and as a
member of any self-regulatory organization, including, without limitation,
the net capital rules set forth in Rule 15c3-1 promulgated under the
Exchange Act, the reserve requirements of Rule 15c3-3 promulgated under
the Exchange Act, the margin rules promulgated by the Federal Reserve
Board under Section 8 of the Exchange Act, the recordkeeping and reporting
requirements relating to broker-dealer trading systems set forth in Rule
17a-23 promulgated under the Exchange Act, and the rules and regulations
promulgated pursuant to Sections 15(b)(3), (4), (6) and Section 15(c) of
the Exchange Act.
(ii) EBMI is a duly registered futures commission merchant member
under the Commodities Exchange Act, is a member in good standing of the
National Futures Association (the "NFA"), and is a member in good standing
of the New York Cotton Exchange, and the Form 7-R filed by EBMI with the
NFA complies as to form with the requirements of the NFA, is in full force
and effect and does not contain an untrue statement of material fact or
omit to state a material fact necessary to make the statements therein not
misleading.
(iii) (u) Euro Brokers Financial Services Limited ("EBFSL") is a
member of the Securities and Futures Authority Limited (the "SFA"), and is
in compliance, and has at all times complied, with the rules of the SFA
and (while they were in force) the rules of The Securities Association
("TSA"), and with the Financial Services Act 1986 (the "FSA") and the
regulations made under the FSA, other than any such non-compliance which
would not have a Company Material Adverse Effect, (v) EBFSL is not and has
not been subject to any exercise of monitoring, intervention or
disciplinary powers by the TSA or the SFA (other than any regular
monitoring visits by the TSA or the SFA), (w) all returns, documents and
other information which ought to be provided by EBFSL to the TSA or the
SFA in accordance with TSA and SFA's rules have been so provided in a form
which was complete and accurate in all material respects and within the
time limits prescribed, other than any such nonprovision which would not
have a Company Material Adverse Effect, (x) no notice or advice has been
received from the SFA and, to the knowledge of the Company, no
circumstances exist which would lead to any alteration in the way EBFSL
carries on its business, restrict the same in any way, or lead to
expulsion from membership of SFA or the imposition of any restrictions or
conditions or other requirements by the SFA, (y) EBFSL does not and has
not appointed any appointed representatives as defined in Section 44 of
the FSA and (z) no complaints have been made to EBFSL or to any regulatory
authority to which EBFSL is subject by any EBFSL's customers or
counterparties, and there are no matters currently in existence which
would be likely to give rise to any such complaint, other than any of the
same which would not have a Material Adverse Effect.
(iv) (t) Euro Brokers International Limited ("EBIL") is included in
the list maintained by the Bank of England (the "Bank") for the purposes
of Section 43 of the FSA, (u) since the commencement of Section 3 of the
FSA, EBIL has not carried on any investment business (as defined in the
FSA) other than transactions to which Schedule 5 of the FSA applies or
things done for the purposes of such transactions, (v) EBIL is in
compliance, and has at all times complied, with the requirements published
in the Bank paper dated April 1988 entitled "The regulations of the
wholesale markets in sterling, foreign exchange and bullion" and in the
Bank Paper dated December 1995 entitled "The regulation of the whole sale
cash and OTC derivatives markets (in sterling, foreign currency and
bullion)(together, the "Grey Paper"), and the paper published by the Bank
entitled "The London Code of Conduct" as in force from time to time, other
than any such non-compliance which would not have a Company Material
Adverse Effect, (w) all returns, documents and other
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information which ought to be provided by EBIL to the Bank in accordance
with the Grey Paper or the London Code of Conduct have been so provided in
a form which was complete and accurate in all material respects and within
the time limits prescribed, other than any such nonprovision which would
not have a Company Material Adverse Effect, (x) no notice or advice has
been received from the Bank, and to the knowledge of the Company, no
circumstances exist which would lead to any alterations in the way EBIL
carries on its business, restrict the same in any way or lead to removal
from the list maintained by the Bank for the purposes of Section 43 of the
FSA or the imposition of any restrictions or conditions or other
requirements by the Bank, (y) no notice or advice has been received from
the Bank that the Bank has not at any time been, or is not, satisfied that
the businesses of EBIL have been and are being carried on in compliance
with the Grey Paper and the London Code of Conduct and that EBIL has
satisfied and satisfies the conditions imposed by the Bank for admission
to the list maintained by the Bank for the purposes of Section 43 of the
FSA and (z) no complaints have been made to EBIL or to any Governmental
Entity to which EBIL is subject by any of the respective counterparties or
customers of EBIL, and there are no matters currently in existence which
would be likely to give rise to any such complaint, other than any of the
same which would not have a Company Material Adverse Effect.
(v) Yagi Euro (Hong Kong) Ltd. is a member of good standing of The
Hong Kong Foreign Exchange and Deposit Brokers Association ("HKFE"), and
is in compliance, and has at all times complied with the rules and
regulations of the HKFE, other than any such non-compliance which would
not have a Company Material Adverse Effect. The business and operations of
Yagi Euro (Hong Kong) Ltd. do not require it to comply with Section 48 of
the Hong Kong Securities Ordinance.
(vi) Euro Brokers Canada Limited ("EBCL") is duly registered as a
limited market dealer under the Securities Act (Ontario) and the Commodity
Futures Act (Ontario) (the "Ontario Acts") and is a member in good
standing of the Investment Dealers Association of Canada, and all forms
filed by EBCL with the Ontario Securities Commission pursuant to the
Ontario Acts comply as to form with the requirements of the Ontario Acts
and the rules and regulations of the Ontario Securities Commission
thereunder, are in full force and effect and do not contain an untrue
statement of material fact or omit to state a material fact necessary to
make the statements therein not misleading.
(vii) EBCL is duly registered as an inter-dealer bond broker under the
by-laws and regulations for the Investment Dealers Association of Canada
("IDAC") and is a member in good standing, and is in compliance, and has
at all times complied, with the by-laws and regulations of IDAC, other
than any such non-compliance which would not have a Company Material
Adverse Effect.
(viii) Euro Brokers Inc. is not required to be registered as a
broker-dealer under the Exchange Act, nor is it required to comply with
Section 48 of the Hong Kong Securities Ordinance.
(ix) The operations of Euro Brokers Tokyo, Inc. do not bring it within
the control of the Bank of Japan, Ministry of Finance of Japan or any
other Governmental Entity in Japan.
(d) There are no pending or, to the knowledge of the Company, proposed
laws, statutes, ordinances, rules or regulations of any Governmental Entity
relating to any of the businesses of the Company and its Subsidiaries that,
if enacted, would or is reasonably likely to have a Company Material Adverse
Effect.
Section 4.16 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by the Company or any of
its Subsidiaries for inclusion in (i) the Registration Statement to be filed
with the SEC by FSAC on Form S-4 under the Exchange Act for the purpose of
registering the shares of Merger Stock, the Merger Warrants and the shares of
FSAC Common Stock issuable upon exercise of the Merger Warrants (the "Warrant
Shares")(the "Registration Statement") or (ii) the joint or separate proxy
statements to be distributed in connection with FSAC's and the Company's
meetings of stockholders to vote upon this Agreement (the "Proxy
Statements"), will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, or, in the case of the Proxy
Statements or any amendments thereof or supplements thereto, at the time of
the mailing of the
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Proxy Statements and any amendments or supplements thereto, and at the time
of the meeting of stockholders of the Company to be held in connection with
the Merger, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading.
Section 4.17 Employee Benefit Plans; ERISA.
(a) Schedule 4.13(ii) hereto sets forth a true and complete list of each
employee benefit plan, arrangement or agreement that is maintained (the
"Company Plans") by the Company or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with the Company would be
deemed a "single employer" within the meaning of Section 4001 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Company
does not have any understandings or agreements (oral or written) for the
payment of bonuses or other contingent compensation to any of the directors,
officers or employees of it or any of its Subsidiaries, which bonuses or
other compensation have not been paid or accrued for on the Company's
Financial Statements (or will be accrued for on the Company's Closing Balance
Sheet).
(b) Each of the Company Plans that is subject to ERISA is in compliance
with ERISA; each of the Company Plans intended to be "qualified" within the
meaning of Section 401(a) of the Code is so qualified; no Company Plan has an
accumulated or waived funding deficiency within the meaning of Section 412 of
the Code; neither the Company nor an ERISA Affiliate has incurred, directly
or indirectly, any material liability (including any material contingent
liability) pursuant to Title IV of ERISA; no proceedings have been instituted
to terminate any Company Plan that is subject to Title IV of ERISA; no
"reportable event," as such term is defined in Section 4043(b) of ERISA, has
occurred with respect to any Company Plan; neither the Company nor any ERISA
Affiliate has any announced plan or legally binding commitment to create any
additional Company Plans or to amend or modify any existing Company Plans;
and no condition exists that presents a material risk to the Company or an
ERISA Affiliate of incurring a liability pursuant to Title IV of ERISA.
(c) The current value of the assets of each of the Company Plans that is
subject to Title IV of ERISA, based upon the actuarial assumptions (to the
extent reasonable) presently used by the Company Plans, exceeds the present
value of the accrued benefits under each such Company Plan; no Company Plan
is a multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA)
and no Company Plan is a multiple employer plan as defined in Section 413 of
the Code; and all contributions or other amounts payable by the Company as of
the Effective Time with respect to each Company Plan in respect of current or
prior plan years have been either paid or accrued on the balance sheet of the
Company. There are no material pending, threatened or, to the knowledge of
the Company, anticipated claims (other than routine claims for benefits) by,
on behalf of or against any of the Company Plans or any trusts related
thereto.
(d) Neither the Company nor any ERISA Affiliate, nor any Company Plan, nor
any trust created thereunder, nor any trustee or administrator thereof has
engaged in a transaction in connection with which the Company or any ERISA
Affiliate, any Company Plan, any such trust, or any trustee or administrator
thereof, or any party dealing with any Company Plan or any such trust could
be subject to either a material civil penalty assessed pursuant to section
409 or 502(i) of ERISA or a material tax imposed pursuant to section 4975 or
4976 of the Code. No amounts payable under the Company Plans will,
individually or in the aggregate, fail to be deductible for federal income
tax purposes by virtue of section 280G of the Code.
(e) Except (i) for coverage mandated by Applicable Law, (ii) as provided
in any insurance policy listed in Schedule 4.20, (iii) any employment
agreement listed in Schedule 4.13(ii) or (iv) as expressly contemplated by
this Agreement or the Employment Agreements, neither the Company nor any
ERISA Affiliate has committed itself, orally or in writing, (x) to provide or
cause to be provided to any person any payments or provision of any "welfare"
or "pension" benefits (as defined in Sections 3(1) and 3(2) of ERISA) in
addition to, or in lieu of, those payments or benefits set forth under any
Company Plan, (y) to continue the payment of, or accelerate the payment of,
benefits under any Company Plan, except as expressly set forth thereunder, or
(z) to provide or cause to be provided any postemployment benefit,
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salary continuation, termination, disability, death, retirement, health or
medical benefit to any person (including without limitation any former
current employee) except for death benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA and benefits in the
nature of severance/redundancy pay.
(f) To the knowledge of the Company, there is no activity involving any
employees of the Company or its Subsidiaries seeking to certify a collective
bargaining unit or engaging in any other organizational activity.
Section 4.18 Environmental Laws and Regulations.
(a) Except as set forth in Schedule 4.18(a): (i) the Company and its
Subsidiaries are in material compliance with, and there are no outstanding
allegations by any person or entity that the Company or its Subsidiaries has
not been in compliance with, all applicable laws, rules, regulations, common
law, ordinances, decrees, orders or other binding legal requirements relating
to pollution (including the treatment, storage and disposal of wastes and the
remediation of releases and threatened releases of materials), the
preservation of the environment, and the exposure to materials in the
environment or work place ("Environmental Laws") and (ii) the Company and its
Subsidiaries currently hold all permits, licenses, registrations and other
governmental authorizations (including exemptions, waivers, and the like) and
financial assurance required under Environmental Laws for the Company and its
Subsidiaries to operate their businesses as currently conducted.
(b) Except as set forth in Schedule 4.18(b), (i) to the knowledge of the
Company there is no friable asbestos-containing material in or on any real
property currently owned, leased or operated by the Company or its
Subsidiaries and (ii) there are and to the knowledge of the Company there
have been no underground storage tanks (whether or not required to be
registered under any Applicable Law), dumps, landfills, lagoons, surface
impoundments, injection wells or other land disposal units in or on any
property currently owned, leased or operated by the Company or its
Subsidiaries.
(c) Except as set forth in Schedule 4.18(c), (i) neither the Company nor
its Subsidiaries has received (x) any written communication from any person
stating or alleging that any of them may be a potentially responsible party
under any Environmental Law (including, without limitation, the Federal
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended) with respect to any actual or alleged environmental
contamination or (y) any request for information under any Environmental Law
from any Governmental Entity with respect to any actual or alleged material
environmental contamination; and (ii) none of the Company, its Subsidiaries
or any Governmental Entity is conducting or has conducted (or, to the
knowledge of the Company, is threatening to conduct) any environmental
remediation or investigation which could result in a material liability of
the Company or its Subsidiaries under any Environmental Law.
Section 4.19 Condition of Assets. All material tangible personal property,
fixtures and equipment comprising the assets of the Company and its
Subsidiaries are in good state of repair (ordinary wear and tear excepted)
and operating condition and are sufficient and adequate to conduct the
business of the Company and its Subsidiaries on the date hereof.
Section 4.20 Insurance. All policies of fire, liability, workers'
compensation, and other forms of insurance for events or occurrences arising
or taking place in the case of occurrence type insurance, and for claims made
and/or suits commenced in the case of claims-made type insurance (each an
"Insurance Policy"), and providing insurance coverage to or for the Company
or its Subsidiaries between the date of this Agreement and the Effective
Time, are listed in Schedule 4.20 hereto and, except as set forth in said
Schedule 4.20, all premiums with respect thereto covering all periods up to
and including any date as of which this representation is being made have
been paid or accrued, and no notice of cancellation or termination has been
received with respect to any such Insurance Policy. All such Insurance
Policies are in full force and effect and provide insurance, including
without limitation liability insurance, in such amounts and against such
risks as is customary for companies engaged in similar businesses to the
Company and its Subsidiaries to protect the employees, properties, assets,
businesses and operations of
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the Company and its Subsidiaries. All such Insurance Policies will remain in
full force and effect immediately following the Effective Time and will not
in any way be affected by, or terminate or lapse by reason of, the
consummation of the transactions contemplated hereby or by any of the Related
Agreements.
Section 4.21 Absence of Certain Business Practices. To the knowledge of
the Company, neither the Company nor any of its Subsidiaries, nor any
officer, director, employee or agent thereof, nor any other person or entity
acting on behalf of either the Company or any of its Subsidiaries, acting
alone or together, has (i) received, directly or indirectly, any rebates,
payments, commissions, promotional allowances or any other economic benefits,
regardless of their nature or type, from any customer, supplier, governmental
employee or other person or entity with whom either the Company or any of its
Subsidiaries has done business directly or indirectly, or (ii) directly or
indirectly, given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person or entity who is or
may be in a position to help or hinder the business (or assist either the
Company or any of its Subsidiaries in connection with any actual or proposed
transaction), which in the case of either clause (i) or (ii) above, (x) would
reasonably be expected to subject either the Company or any of its
Subsidiaries to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (y) if not given in the past, would reasonably be
expected to have had a Company Material Adverse Effect or (z) if not
continued in the future, would reasonably be expected to have a Company
Material Adverse Effect.
Section 4.22 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Company entitled
to vote thereon, consisting of Company Common Stock, is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve the Merger. The Board of Directors of the Company (at a meeting duly
called and held) has (i) approved this Agreement, the Security Transfer
Agreement, the Majority Stockholder Agreement, the Employment Agreements, the
Escrow Agreement and all other agreements to be executed by the Company
pursuant to this Agreement, (ii) determined that the transactions
contemplated hereby and thereby are fair to and in the best interests of the
holders of Company Common Stock and (iii) determined to recommend this
Agreement, the Merger and the other transactions contemplated hereby and
thereby to such holders for approval and adoption. Such approval is
sufficient to remove (for purposes of the exchange of shares provided for in
the Merger only) the restrictions on voluntary or involuntary transfer that
may be applicable to any shares of Company Stock pledged to the Company
pursuant to various Subscription and Pledge Agreements entered into in
connection with loans made by the Company to finance employee purchases of
shares of Company Stock.
Section 4.23 DGCL Section 203. Prior to the date hereof, the Board of
Directors of the Company has approved this Agreement, the Security Transfer
Agreement, the Majority Stockholder Agreement, the Employment Agreements, the
Escrow Agreement and all other agreements to be executed by the Company
pursuant to this Agreement, and the Merger and the other transactions
contemplated hereby and thereby, and such approval is sufficient to render
inapplicable to the Merger and any of such other transactions the provisions
of Section 203 of the DGCL.
Section 4.24 Affiliate Transactions. Except as set forth in Schedule 4.24
and other than such advances, loans and payments between the Company and its
Subsidiaries made in the ordinary course of business and consistent with past
practices, neither the Company nor any Subsidiary owes any amount or has any
contract or commitment or obligation that will survive the Effective Time, to
or with any affiliate of the Company or any of its Subsidiaries, or any of
the stockholders thereof, any officer or director of the Company or any of
its Subsidiaries, or any affiliate, associate or family member thereof, and
none of such persons owes any amount of money in excess of $10,000 to the
Company or any of its Subsidiaries. Except as set forth in Schedule 4.24,
none of the persons referred to in the first sentence of this Section 4.24
has any material interest in any significant property, real or personal,
tangible or intangible, of the Company or any of its Subsidiaries.
Section 4.25 Brokers. No broker, finder or financial advisor has acted on
behalf of the Company in connection with this Agreement, and there are no
brokerage, finder's or other fees or commissions payable in connection with
the Merger or the transactions contemplated by this Agreement based upon any
arrangements made by or on behalf of the Company.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FSAC
FSAC represents and warrants to the Company as follows:
Section 5.1 Organization. FSAC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power to carry on its business as it is now being conducted and
is proposed to be conducted. FSAC is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities make such qualification necessary, except where the failure to be
so qualified will not have a material adverse effect, individually or in the
aggregate, on the financial condition, results of operations, business,
assets, liabilities, prospects or properties of FSAC and its Subsidiaries
taken as a whole, or the ability of FSAC to consummate the Merger and the
other transactions contemplated by this Agreement (an "FSAC Material Adverse
Effect"). Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sub has not engaged in any
business (other than in connection with this Agreement and the transactions
contemplated hereby) since the date of its incorporation. Except for Sub,
there are no other Subsidiaries of FSAC.
Section 5.2 Capitalization.
(a) The authorized capital stock of FSAC (prior to the Charter Amendments)
consists of 14,000,000 shares of FSAC Common Stock and 1,000,000 shares of
Preferred Stock, par value $.001 per share ("FSAC Preferred Stock"), of FSAC.
As of March 5, 1996, (i) 4,416,666 shares of FSAC Common Stock were issued
and outstanding and FSAC Warrants to purchase 7,566,666 shares of FSAC Common
Stock (including Bridge Warrants, as defined in the 1994 Prospectus, to
acquire 400,000 shares of FSAC Common Stock) were issued and outstanding, and
(ii) no shares of FSAC Preferred Stock were issued and outstanding. A single
share of FSAC Common Stock is sometimes bundled with two FSAC Warrants as a
Unit. Subject to approval and adoption of the Charter Amendments, all of the
shares of FSAC Common Stock, all of the Merger Warrants issuable in exchange
for shares of Company Stock at the Effective Time in accordance with this
Agreement and all Warrant Shares will be, when so issued, duly authorized,
validly issued, fully paid (subject to the payment of the exercise price with
respect to the Warrant Shares) and nonassessable.
(b) The authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock, of which 100 shares, as of the date hereof, were issued and
outstanding. All of such outstanding shares are owned by FSAC, and are
validly issued, fully paid and nonassessable.
(c) Except as set forth in Schedule 5.2(c) or in the 1994 Prospectus, and
except for the transactions contemplated by this Agreement (including the
making of the Exchange Offer contemplated by (and as defined in) Section 7.12
and the adoption of the FSAC Option Plan contemplated by (and as defined in)
Section 7.8), (i) there is no outstanding right, subscription, warrant, call,
unsatisfied preemptive right, option or other agreement or arrangement of any
kind to purchase or otherwise to receive from FSAC or Sub any of the
authorized but unissued or treasury shares of the capital stock or any other
security of FSAC or Sub, (ii) there is no outstanding security of any kind
convertible into or exchangeable for such capital stock, (iii) there is no
obligation (contingent or otherwise) of FSAC to purchase, redeem or otherwise
acquire any shares of its capital stock or any interest therein or to pay any
dividend or make any other distribution in respect thereof and (iv) there is
no voting trust or other agreement or understanding to which FSAC or Sub is a
party or is bound with respect to the voting of the capital stock of FSAC or
Sub.
Section 5.3 Authority Relative to this Agreement. Each of FSAC and Sub has
the requisite corporate power and authority to execute and deliver this
Agreement and all Related Agreements and other agreements to be executed by
it pursuant to this Agreement and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and all
Related Agreements and other agreements to be executed by FSAC or Sub
pursuant to this Agreement, and the consummation by each of FSAC and Sub of
the transactions contemplated on its part hereby and thereby,
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have been duly authorized (i) in the case of FSAC, by FSAC's Board of
Directors and, except for the approvals of FSAC's stockholders to be sought
at the stockholders' meeting contemplated by Section 7.4(b) with respect to
this Agreement and the Merger (including not having 20% or more in interest
of the Public Stockholders exercise their Conversion Rights) and the Charter
Amendments, no other corporate proceedings on the part of FSAC are necessary
to authorize this Agreement or any Related Agreement or other agreement to be
executed by FSAC pursuant to this Agreement or for FSAC to consummate the
transactions contemplated hereby or thereby and (ii) in the case of Sub, by
Sub's Board of Directors and by FSAC, as the sole stockholder of Sub, and no
other corporate proceedings on the part of Sub are necessary to authorize
this Agreement or any Related Agreement or other agreement to be executed by
Sub pursuant to this Agreement or for Sub to consummate the transactions
contemplated hereby or thereby. Each of this Agreement and all Related
Agreements and other agreements to be executed by FSAC pursuant to this
Agreement has been duly and validly executed and delivered by FSAC and
constitutes a valid and binding agreement of FSAC, enforceable against FSAC
in accordance with its terms. Each of this Agreement and all Related
Agreements and other agreements to be executed by Sub pursuant to this
Agreement has been duly and validly executed and delivered by Sub and
constitutes a valid and binding agreement of Sub, enforceable against Sub in
accordance with its terms.
Section 5.4 Consents; No Violations. Neither the execution, delivery and
performance of this Agreement nor any Related Agreement or other agreement to
be executed by FSAC or Sub pursuant to this Agreement by FSAC or Sub, nor the
consummation by FSAC and Sub of the transactions contemplated hereby or
thereby, will (i) subject to approval and adoption of this Agreement, the
Merger and the Charter Amendment by FSAC stockholders (including not having
20% or more in interest of the Public Stockholders exercise their Conversion
Rights), conflict with or result in any breach of any provisions of the
Certificate of Incorporation or By-Laws of FSAC or of Sub, (ii) except as set
forth in Schedule 5.4, result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise
to any right of termination, cancellation or acceleration) under, or result
in the creation of a Lien on any property or asset of FSAC or Sub pursuant
to, any of the terms, conditions or provisions of any Contract to which FSAC
or Sub is a party or by which either of them or any of their properties or
assets may be bound, (iii) except as set forth in Schedule 5.4, constitute a
change of control under, or require the consent from or the giving of notice
to a third party pursuant to, the terms, conditions or provisions of any such
Contract, or (iv) violate any law, order, writ, injunction, decree, statute,
rule or regulation of any Governmental Entity applicable to FSAC, Sub or any
of their properties or assets.
Section 5.5 Reports and Financial Statements; Undisclosed Liabilities.
(a) FSAC has furnished or made available to the Company true and complete
copies of all reports filed by FSAC with the SEC pursuant to the Exchange Act
or the Securities Act of 1933, as amended (the "Securities Act") since
January 1, 1995 (collectively, the "FSAC SEC Reports"). Such FSAC SEC
Reports, as of their respective dates, complied in all material respects with
the applicable requirements of the Securities Act and the Exchange Act, as
the case may be, and none of such SEC Reports contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of FSAC included in the FSAC SEC Reports, including, without
limitation, the FSAC Balance Sheet and the unaudited balance sheet of FSAC as
of September 30, 1995 (the "FSAC Financial Statements"), have been prepared
in accordance with GAAP consistently applied throughout the periods indicated
(except as otherwise noted therein or, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) and fairly present (subject, in the
case of unaudited statements, to normal, recurring year-end adjustments and
any other adjustments described therein) the financial position of FSAC as at
the dates thereof and the results of operations and cash flows of FSAC for
the periods then ended. Since January 1, 1995, there has been no change in
any of the significant accounting (including tax accounting) policies,
practices or procedures of FSAC.
(b) Except as reflected in the FSAC Financial Statements or the notes
thereto, neither FSAC nor Sub had any material Liabilities as of the
respective dates of the balance sheets included in the FSAC Financial
Statements. Since September 30, 1995, neither FSAC nor Sub has incurred any
material
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Liabilities, except for (i) general and administrative expenses (in amounts
consistent with past such expenses), (ii) costs and expenses incurred in
connection with FSAC's purpose of acquiring an operating business in the
financial services industry (including in connection with the transactions
contemplated by this Agreement), (iii) lease occupancy costs, (iv) Delaware
state franchise taxes, (v) amortization of organization costs and (vi)
federal, state and local income taxes payable on FSAC's cash interest income.
Section 5.6 Absence of Certain Changes; Business of FSAC. Except as set
forth in the FSAC SEC Reports, since December 31, 1994, (i) FSAC has not
conducted any business or material operations other than in connection with
its organization and related financings, its initial public offering, cash
investment and Trust Fund management and attempted acquisitions of an
operating business in the financial services industry (including the Company)
and (ii) there has not been any fact, event, circumstance or change affecting
or relating to FSAC or Sub which has had or would have an FSAC Material
Adverse Effect.
Section 5.7 Approvals. Except as set forth in Schedule 5.7, no filing
with, or a permit, authorization, notification, consent or approval of, any
Governmental Entity is required or necessary for (i) the valid execution,
delivery and performance by FSAC or Sub of this Agreement and all Related
Agreements and other agreements to be executed by FSAC or Sub pursuant to
this Agreement or (ii) the consummation by FSAC and Sub of the transactions
contemplated hereby or thereby.
Section 5.8 Litigation. There is no suit, action, arbitration,
investigation or proceeding pending or, to the knowledge of FSAC, threatened
against or affecting FSAC or Sub, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity against FSAC or Sub,
which, in any such case will or is reasonably likely to have an FSAC Material
Adverse Effect. Nor, to the knowledge of FSAC, does there exist any basis for
any such action, suit, arbitration, investigation, proceeding, judgment,
decree, injunction or order.
Section 5.9 No Default. Except as set forth in Schedule 5.9, neither FSAC
nor Sub is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation)
of any term, condition or provision of (i) its Certificate of Incorporation
or By-Laws or (ii) any Contract to which FSAC or Sub is a party or by which
they or any of their properties or assets may be bound, except, in the case
of clause (ii), for defaults or violations which would not have an FSAC
Material Adverse Effect.
Section 5.10 Taxes. FSAC has heretofore delivered or will make available
to the Company true, correct and complete copies of the federal, state, local
and foreign income, franchise, sales and other Tax Returns filed by FSAC for
FSAC's year ended December 31, 1994, and FSAC was not required to file any
Tax Returns for any period ending prior to December 31, 1994. FSAC has duly
filed all material federal, state, local and foreign income, franchise, sales
and other Tax Returns required to be filed by FSAC. All such Tax Returns are
true, correct and complete in all material respects, and FSAC has duly paid
all Taxes required to be paid in respect of the periods covered by such
returns and has paid or made adequate provision for payment of all accrued
but unpaid Taxes anticipated in respect of all periods since the periods
covered by such Tax Returns. All deficiencies assessed as a result of any
examination of Tax Returns of FSAC by federal, state, local or foreign tax
authorities have been paid or reserved on FSAC Financial Statements in
accordance with GAAP consistently applied, and true, correct and complete
copies of all revenue agent's reports, "30-day letters," or "90-day letters"
or similar statements proposing or asserting any Tax deficiency against FSAC
for any open year have been heretofore delivered to the Company. FSAC has
heretofore delivered or will make available to the Company true, correct and
complete copies of all written tax-sharing agreements and written
descriptions of all such unwritten agreement or arrangements to which FSAC is
a party. No issue has been raised during the past five years by any federal,
state, local or foreign taxing authority which, if raised with regard to any
other period not so examined, could reasonably be expected to result in a
proposed deficiency for any other period not so examined. FSAC has not
granted any extension or waiver of the statutory period of limitations
applicable to any claim for Taxes. The federal income tax returns of FSAC
have not been examined by and settled with the Service. FSAC is not a party
to any agreement, contract or arrangement that would result, separately or in
the aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code; no consent has been filed under Section
341(f) of the Code with respect to
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FSAC; FSAC has not participated in, or cooperated with, an international
boycott within the meaning of Section 999 of the Code; and FSAC has not
issued or assumed any corporate acquisition indebtedness, as defined in
Section 279(b) of the Code, or any obligations described in Section 279(a)(2)
of the Code. FSAC has complied (and until the Effective Time will comply) in
all material respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes (including, without
limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the
Code or similar provisions under any foreign laws) and has, within the time
and in the manner prescribed by law, withheld from employee wages and paid
over to the proper governmental authorities all amounts required to be so
withheld and paid over under all applicable laws.
Section 5.11 Compliance with Applicable Law. The business and activities
of FSAC and Sub have been and are being conducted in compliance with all
provisions of all Applicable Law, except for violations or possible
violations of laws, statutes, ordinances, rules or regulations which do not
have and are reasonably likely not to have an FSAC Material Adverse Effect.
FSAC has not received any written or, to the knowledge of FSAC, oral notice
of any alleged violations of any of the foregoing. To the knowledge of FSAC,
no investigation or review by any Governmental Entity with respect to FSAC is
pending or threatened and no Governmental Entity has indicated an intention
to conduct the same.
Section 5.12 Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by FSAC or Sub for
inclusion in (i) the Registration Statement or (ii) the Proxy Statements
will, in the case of the Registration Statement, at the time it becomes
effective and at the Effective Time, or, in the case of the Proxy Statements
or any amendments thereof or supplements thereto, at the time of the mailing
of the Proxy Statements and any amendments or supplements thereto, and at the
time of the meeting of stockholders of FSAC to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading. The Registration Statement and the Proxy Statements will
comply as to form in all material respects with the applicable provisions of
the Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder, except that no representation is made by FSAC with
respect to statements made therein based on information supplied by the
Company, any of its Subsidiaries, WCAS or their respective representatives
for inclusion in either the Registration Statement or the Proxy Statements or
with respect to information concerning the Company or any of its
Subsidiaries, WCAS incorporated by reference in either the Registration
Statement or the Proxy Statements.
Section 5.13 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of FSAC Common Stock (provided, however,
that less than 20% in interest of the Public Stockholders exercise their
Conversion Rights) is the only vote of the holders of any class or series of
FSAC capital stock necessary to approve the Merger, the issuance of shares of
Merger Stock and Merger Warrants pursuant thereto (and the issuance of
Warrant Shares pursuant to the exercise of the Merger Warrants), and the
Charter Amendments. The affirmative vote of FSAC, as the sole stockholder of
all outstanding shares of Sub Common Stock, is the only vote of the holders
of any class or series of Sub capital stock necessary to approve the Merger.
The Board of Directors of FSAC (at a meeting duly called and held) has (i)
approved this Agreement, the Escrow Agreement, the Majority Stockholders'
Agreement, the Security Transfer Agreement, the Registration Rights Agreement
and all other agreements to be executed by FSAC pursuant to this Agreement,
(ii) determined that the transactions contemplated hereby and thereby are
fair to and in the best interests of the holders of FSAC Common Stock, (iii)
determined to recommend this Agreement, the Merger, the Charter Amendments
and the other transactions contemplated hereby and thereby to such holders,
(iv) determined that, as of February 28, 1996, the fair market value of the
Company and its Subsidiaries, based upon standards generally accepted by the
financial community, such as earnings, potential sales, cash flow and book
value, is equal to or greater than 80% of the net assets of FSAC, and (v)
determined to cause FSAC, as the sole stockholder of Sub, to approve and
adopt this Agreement. The Board of Directors of Sub (by unanimous written
consent) has approved this Agreement.
Section 5.14 List of Contracts. Except as set forth on Schedule 5.14 and
except for this Agreement and the Related Agreements, neither FSAC nor Sub
(i) is a party to any Contract or group of related
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Contracts which either exceed $50,000 per annum in amount or are otherwise
material to FSAC or Sub, contains warranties by FSAC or Sub in excess of
those customary in its business or cannot be performed in the normal course
within 180 days after the Effective Time or cancelled within such period by
FSAC or Sub or any assignee, as the case may be, without breach or greater
than nominal penalty, (ii) is or has been a party to any employment agreement
or has paid or declared any bonuses since their respective inceptions except
with respect to secretarial staff or (iii) has any employee benefits plans.
Section 5.15 Funds. At the time required by Section 3.8(a) for payment of
the Estimated Aggregate Cash Consideration to the Exchange Agent, FSAC will
have obtained the release from the Trust Fund of all funds therein.
Section 5.16 Brokers. No broker, finder or financial advisor has acted on
behalf of FSAC or Sub in connection with this Agreement, and there are no
brokerage, finder's or other fees or commissions payable in connection with
the Merger or the transactions contemplated by this Agreement (other than
fees that may be payable to GKN Securities Corp. in connection with the
Exchange Offer or exercise of FSAC Warrants) based upon any arrangements made
by or on behalf of FSAC or Sub.
Section 5.17 Affiliate Transactions. Except as described in the 1994
Prospectus or as set forth in Schedule 5.17, and except for the Employment
Agreements, neither FSAC nor Sub owes any material amount or has any material
contract or commitment or obligation that, in either case, will survive the
Effective Time, to or with any affiliate of FSAC, any of the stockholders
thereof, any officer or director of FSAC or any affiliate, associate or
family member thereof, and none of such persons owes any material amount of
money to FSAC or Sub. Except as described in the 1994 Prospectus or as set
forth in Schedule 5.17, and except for the Employment Agreements and their
ownership of FSAC Common Stock and/or FSAC Warrants, none of the persons
referred to in the first sentence of this Section 5.17 has any material
interest in any significant property, real or personal, tangible or
intangible, of FSAC or Sub.
Section 5.18 No Properties, Encumbrances, Leasehold Interests or
Insurance. Except for (i) the funds in the Trust Fund, which currently are
comprised of a treasury bill maturing on April 25, 1996 in the amount of
$18,775,000, (ii) funds comprised of a treasury bill maturing on April 25,
1996 in the amount of $1,012,000, (iii) cash as of February 26, 1996 in the
amount of approximately $255,442, and (iv) as set forth in Schedule 5.17 or
Schedule 5.18 hereto, neither FSAC nor Sub owns directly or indirectly or has
a leasehold interest in any material properties or assets (real, personal and
mixed, tangible and intangible), and neither FSAC, nor Sub holds any
Insurance Policy.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business by the Company Pending the Merger. Prior
to the Effective Time, unless FSAC shall otherwise agree in writing, or
except as otherwise expressly contemplated by this Agreement:
(a) the Company shall conduct, and cause each of its Subsidiaries to
conduct, its business only in the ordinary and usual course consistent
with past practices and the Company shall use, and cause each of its
Subsidiaries to use, its reasonable best efforts to preserve intact the
present business organization, keep available the services of its present
officers and key employees, and preserve the goodwill of those having
business relationships with it;
(b) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) amend its charter, by-laws or other organizational documents, (ii)
split, combine or reclassify any shares of its outstanding capital stock,
(iii) declare, set aside or pay any dividend or other distribution payable
in cash, stock or property (except with respect to dividends or other
distributions from any wholly-owned Subsidiary of the Company to the
Company or any other wholly-owned Subsidiary of the Company), or (iv)
directly or indirectly redeem or otherwise acquire any shares of its
capital stock or shares of the capital stock of any of its Subsidiaries;
(c) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) authorize for issuance, issue or sell or agree to issue or sell
any shares (including shares held in treasury) of, or
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rights or securities of any kind to acquire or convertible into any
shares of, its capital stock or shares of the capital stock of any of its
Subsidiaries (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise);
(ii) merge or consolidate with another entity, (except as specifically
described in paragraph B) of Schedule 4.7 hereto); (iii) acquire or
purchase an equity interest in or a substantial portion of the assets of
another corporation, partnership or other business organization or
otherwise acquire any assets, or otherwise, except in the ordinary and
usual course of business and consistent with past practices, enter into
any material contract, commitment or transaction; (iv) sell, lease,
license, waive, release, transfer, encumber, compromise or otherwise
dispose of any of its assets outside the ordinary and usual course of
business and consistent with past practices; (v) incur, assume, discharge
or prepay any material Lien, any material indebtedness or any other
material Liabilities other than in the ordinary course of business and
consistent with past practices; (vi) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person other than a Subsidiary
of the Company in the ordinary course of business and consistent with past
practices; (vii) make any loans, advances or capital contributions to, or
investments in, any other person, other than to a Subsidiary of the
Company or other than in the ordinary course of business and consistent
with past practice over the twelve-month period immediately prior to the
date hereof; (viii) except after reasonable advance consultation with FSAC
(it being understood that approval by FSAC shall not be required),
authorize or make capital expenditures in excess of $100,000 individually
or $250,000 in the aggregate; (ix) permit any insurance policy naming the
Company or any Subsidiary of the Company as a beneficiary or a loss payee
to be cancelled or terminated other than in the ordinary course of
business; or (x) enter into any contract, agreement, commitment or
arrangement providing for a matter not permitted by clauses (i) through
(ix) above.
(d) the Company shall not, nor shall it permit any of its Subsidiaries
to, (i) amend (so as to increase the benefits thereunder), adopt or enter
into, (except as may be required by Applicable Law) any Company Plan or
other arrangement for the current or future benefit or welfare of any
director, officer or current or former employee; provided, however, that
the Company shall be permitted to enter into employment agreements in the
ordinary course of business and consistent with past practices where such
employment agreements do not include any unusual or extraordinary
provision with respect to bonuses, options, pools, or other employment
compensation; provided, further, that it is understood that the Company
will not enter into any such employment agreement permitted by the
preceding proviso without reasonable advance consultation with FSAC (it
being understood that approval by FSAC shall not be required) if such
employment agreement provides for an annual base salary equal to or
greater than $200,000; (ii) increase in any manner the compensation or
fringe benefits of, or pay or agree to pay any bonus to, any director,
officer or employee (except in the ordinary course of business consistent
with past practices), or (iii) take any action to fund or in any other way
secure (except after reasonable advance consultation with FSAC it being
understood that FSAC approval shall not be required) or to accelerate or
otherwise remove restrictions with respect to, the payment of compensation
or benefits under any employee plan, agreement, contract, arrangement or
other Company Plan; and
(e) the Company shall not, nor shall it permit its Subsidiaries to,
take any action with respect to, or make any material change in, its
accounting or tax policies or procedures.
Section 6.2 Conduct of Business by FSAC Pending the Merger. Prior to the
Effective Time, unless the Company shall otherwise agree in writing, or
except as otherwise expressly contemplated by this Agreement:
(a) FSAC shall not conduct any business, incur any material
liabilities or enter into any Contracts, other than in each case in
connection with cash investments, Trust Fund management, general office
administration, preparation for and consummation of the transactions
contemplated by this Agreement and the Related Agreements and, provided
that FSAC does not enter into any material binding commitment with respect
thereto, in preparation for the post-Merger activities of FSAC and its
Subsidiaries;
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(b) FSAC shall use its reasonable efforts to preserve intact the
present business organization, to keep available the services of its
present officers and key employees, and preserve the goodwill of those
having business relationships with it;
(c) FSAC shall not (i) amend its Certificate of Incorporation (other
than pursuant to the Charter Amendments) or By-Laws; (ii) split, combine
or reclassify any shares of its outstanding capital stock; or (iii)
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property;
(d) FSAC shall not authorize for issuance, issue or sell or agree to
issue or sell any shares of, or rights or securities of any kind to
acquire or convertible into any shares of, its capital stock (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise), except for (i) the
issuance of shares of FSAC Common Stock upon the exercise or exchange of
FSAC Warrants or Unit Purchase Options (as defined in the 1994 Prospectus)
outstanding on the date of this Agreement (including pursuant to the Unit
Purchase Option Exchange contemplated by Section 7.9) and (ii) any
agreement, pursuant to the Employment Agreements or otherwise, to issue
options to acquire FSAC Common Stock under the FSAC Option Plan
contemplated by Section 7.8; and
(e) neither FSAC nor Sub shall take any action with respect to, or
make any material change in, its accounting or tax policies or procedures.
Section 6.3 Conduct of Business of Sub. During the period from the date of
this Agreement to the Effective Time, Sub shall not engage in any activities
of any nature except as provided in or contemplated by this Agreement or any
of the Related Agreements.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. Each of the Company and FSAC shall
(and shall cause its Subsidiaries and its and their respective officers,
directors, employees, auditors and agents to) afford to the other and to the
other's officers, employees, financial advisors, legal counsel, accountants,
consultants and other representatives reasonable access during normal
business hours throughout the period prior to the Effective Time to all of
its books and records (other than attorney-client privileged documents) and
its properties, facilities and personnel and, during such period, each shall
furnish promptly to the other a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of federal
securities laws or, in the case of the Company and its Subsidiaries, pursuant
to the rules or regulations of any self-regulatory organization, provided
that no investigation pursuant to this Section 7.1 shall affect any
representations or warranties made herein or the conditions to the
obligations of the respective parties to consummate the Merger. The Company
will also provide FSAC with copies of its monthly unaudited financial
statements promptly after their preparation. Unless otherwise required by
law, each party agrees that it (and its Subsidiaries and its and their
respective representatives) shall treat and hold in confidence all non-public
information so acquired (consistent, in the case of FSAC, with the terms of
the separate confidentiality agreement dated August 22, 1995 between FSAC and
the Company (the "Confidentiality Agreement")).
Section 7.2 No Solicitation.
(a) Prior to the Effective Time, the Company agrees that neither it, any
of its Subsidiaries or its affiliates, nor any of the respective directors,
partners, officers, employees, agents or representatives of the foregoing,
will, directly or indirectly, solicit, initiate, facilitate or encourage
(including by way of furnishing or disclosing non-public information) any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving the Company, or any
Subsidiary of the Company or the acquisition of all or any significant assets
or any capital stock of the Company, or any Subsidiary of the Company (an
"Acquisition Transaction"), or negotiate, explore or otherwise engage in
substantive discussions with any person (other than FSAC and its
representatives) with respect to any
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Acquisition Transaction or enter into any agreement, arrangement or
understanding with respect to any such Acquisition Transaction or which would
require it to abandon, terminate or fail to consummate the Merger or any
other transaction contemplated by this Agreement. The Company agrees to
immediately advise FSAC in writing of any inquiries or proposals (or desire
to make a proposal) received by (or indicated to), any such information
requested from, or any such negotiations or discussions sought to be
initiated or continued with, any of it, its Subsidiaries or affiliates, or
any of the respective directors, partners, officers, employees, agents or
representatives of the foregoing, in each case from a person (other than FSAC
and its representatives) with respect to an Acquisition Transaction, and the
terms thereof, including the identity of such third party, and to update on
an ongoing basis or upon FSAC's request, the status thereof.
(b) Prior to the Effective Time, FSAC agrees that neither it, its
affiliates, nor any of the respective directors, officers, employees, agents
or representatives of the foregoing, will, directly or indirectly, solicit,
initiate, facilitate or encourage, or negotiate, explore or otherwise engage
in substantive discussions with, any person (other than the Company, WCAS and
their respective representatives) with respect to any acquisition (whether by
purchase, merger, business combination or otherwise) by FSAC of any equity
interest or material assets of any corporation or other business organization
other than the Company and its Subsidiaries (and other than any such
acquisition that would not qualify as the initial acquisition of a Target
Business by FSAC, as described and defined in the 1994 Prospectus, but rather
is intended to enhance the operations of FSAC after the acquisition of the
Company as such a Target Business), or enter into any agreement, arrangement
or understanding with respect to any such acquisition or which would require
it to abandon, terminate or fail to consummate the Merger or any other
transaction contemplated by this Agreement.
Section 7.3 Registration Statement. As promptly as practicable, FSAC and
the Company shall in consultation with each other prepare and file with the
SEC the Proxy Statements and FSAC in consultation with the Company shall
prepare and file with the SEC the Registration Statement. Each of FSAC and
the Company shall use its reasonable best efforts to have the Registration
Statement declared effective. FSAC shall also use its reasonable best efforts
to take any action required to be taken under state securities or blue sky
laws in connection with the issuance of the shares of FSAC Common Stock
pursuant to this Agreement in the Merger. The Company shall furnish FSAC with
all information concerning the Company and the holders of its capital stock
and shall take such other action as FSAC may reasonably request in connection
with the Registration Statement and the issuance of shares of FSAC Common
Stock (including Warrant Shares) and Merger Warrants. If at any time prior to
the Effective Time any event or circumstance relating to FSAC, Sub, the
Company, any Subsidiary of the Company, or their respective officers or
directors should be discovered by such party which should be set forth in an
amendment or a supplement to either the Registration Statement or the Proxy
Statements, such party shall promptly inform the other thereof and take
appropriate action in respect thereof.
Section 7.4 Proxy Statements; Stockholder Approvals.
(a) The Company, acting through its Board of Directors, shall, in
accordance with applicable law and its Certificate of Incorporation and
By-Laws, promptly and duly call, give notice of, convene and hold as soon as
practicable following the date upon which the Registration Statement becomes
effective a special meeting of the holders of Company Stock for the purpose
of voting to approve and adopt this Agreement and the transactions
contemplated hereby, and (i) recommend approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of the
Company and include in the Proxy Statements such recommendation, and (ii)
take all reasonable and lawful action to solicit and obtain such approval.
(b) FSAC, acting through its Board of Directors, shall, in accordance with
applicable law and its Certificate of Incorporation and By-Laws, promptly and
duly call, give notice of, convene and hold as soon as practicable following
the date of the Company's special meeting of holders of Company Stock
referred to in Section 7.4(a) a special meeting of the holders of FSAC Common
Stock for the purpose of (i) voting to approve and adopt this Agreement, the
Charter Amendments and the other transactions contemplated hereby and (ii)
electing directors for all three classes of directors of FSAC to be
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implemented by the staggered board provisions of the Charter Amendments,
including the two designees of the Company contemplated by Section 7.14(a),
to serve following, and conditioned upon, consummation of the Merger, and,
subject to the fiduciary duties of the Board of Directors of FSAC under
applicable law as advised by outside counsel, (i) recommend approval and
adoption of this Agreement, the Charter Amendments and the transactions
contemplated hereby, by the stockholders of FSAC and include in the Proxy
Statements such recommendation, and (ii) take all reasonable and lawful
action to solicit and obtain such approval.
(c) FSAC and the Company, as promptly as practicable (or with such other
timing as they mutually agree), shall cause the definitive Proxy Statements
to be mailed to their stockholders. At the stockholders' meetings, each of
FSAC and the Company shall vote or cause to be voted in favor of approval and
adoption of this Agreement and the transactions contemplated hereby all
shares of FSAC Common Stock or shares of Company Stock, respectively, as to
which it holds proxies or is otherwise entitled to vote at such time.
(d) At or prior to the Closing, each of FSAC and the Company shall deliver
to the other a certificate of its Secretary setting forth the voting results
from its stockholders' meeting.
Section 7.5 Compliance with the Securities Act.
(a) At least 30 days prior to the Effective Time, the Company shall cause
to be delivered to FSAC a list identifying all persons who were, in its
reasonable judgment, at the record date for its stockholders' meeting
convened in accordance with Section 7.4(a) hereof, "affiliates" of the
Company as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act (the "Affiliates").
(b) The Company shall use its reasonable best efforts to cause each person
who is identified as one of its Affiliates in its list referred to in Section
7.5(a) above to deliver to FSAC, at or prior to the Effective Time, a written
agreement, in the form attached hereto as Exhibit F (the "Affiliate
Letters").
(c) If any Affiliate of the Company refuses to provide an Affiliate
Letter, FSAC may place appropriate legends on the certificates evidencing the
shares of Merger Stock and Merger Warrants to be received by such Affiliate
pursuant to the terms of this Agreement and to issue appropriate stop
transfer instructions to the transfer agent for shares of FSAC Common Stock
and FSAC Warrants to the effect that the shares of Merger Stock and Merger
Warrants received by such Affiliate pursuant to this Agreement only may be
sold, transferred or otherwise conveyed (i) pursuant to an effective
registration statement under the Securities Act, (ii) in compliance with Rule
145 promulgated under the Securities Act, or (iii) pursuant to another
exemption under the Securities Act.
Section 7.6 Reasonable Best Efforts. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Related Agreements, including, without limitation, the
obtaining of all necessary waivers, consents and approvals and the effecting
of all necessary registrations and filings. Without limiting the generality
of the foregoing, as promptly as practicable, the Company, FSAC and Sub (in
conjunction with WCAS as provided in the Majority Stockholders' Agreement)
shall (i) make all filings and submissions under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") as may be
reasonably required to be made in connection with this Agreement, the Related
Agreements and the transactions contemplated hereby and thereby; and (ii)
make all filings and submissions as may be reasonably required in connection
with this Agreement, the Related Agreements and the transactions contemplated
hereby and thereby by any of the Commodity Futures Trading Commission, the
NFA, the Bank, The SFA, the Ontario Securities Commission, the IDAC, the
HKFE, the Bank of Japan and the Ministry of Finance (Japan). The Company will
also use its reasonable best efforts to obtain any third-party consents or
approvals listed on Schedule 4.5(ii) or (iii), and FSAC will also use its
reasonable best efforts to obtain any third party consents or approvals
listed on Schedule 5.4. Subject to Section 7.1 and the Confidentiality
Agreement, the Company will furnish to FSAC and Sub, and FSAC and Sub will
furnish to the Company, such information and assistance as the other may
reasonably request in connection with the preparation
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of any such filings or submissions. Subject to Section 7.1 and the
Confidentiality Agreement, the Company will provide FSAC and Sub, and FSAC
and Sub will provide the Company, with copies of all material written
correspondence, filings and communications (or memoranda setting forth the
substance thereof) between such party or any of its representatives and any
Governmental Entity, with respect to the obtaining of any waivers, consent or
approvals and the making of any registrations or filings, in each case that
is necessary to consummate the Merger and the other transactions contemplated
hereby. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the
proper officers or employees of FSAC and the Surviving Corporation shall take
all such necessary action.
Section 7.7 Related Agreements. As an essential inducement for the parties
hereto to enter into this Agreement, certain parties hereto (as applicable)
are concurrently entering into the Majority Stockholders' Agreement, the
Escrow Agreement and the Security Transfer Agreement and have negotiated to
substantially final form the other Related Agreements. Each of the parties
hereto agrees that, prior to and as a condition to the Closing, it will
execute and deliver each such other Related Agreement to which it is a party.
Section 7.8 FSAC Option Plan. FSAC agrees to use its reasonable best
efforts to solicit in the Proxy Statement and obtain FSAC stockholder
approval for an employee stock option plan (the "FSAC Option Plan"). Subject
to the receipt of such approval, FSAC agrees to prepare and file with the
SEC, as soon as practicable after the Effective Time, a Registration
Statement on Form S-8 under the Securities Act in connection with the FSAC
Option Plan for purposes of registering the FSAC Common Stock issuable
thereunder.
Section 7.9 Unit Purchase Option Exchange. FSAC agrees to use its
reasonable best efforts to enter into an agreement with the holder(s) of the
Unit Purchase Options providing for the exchange, contingent upon the Merger,
but effective as of immediately prior to the Effective Time, of a number of
shares of FSAC Common Stock and/or other consideration, to be determined by
agreement of FSAC, the Company and such holders, for all, but not less than
all, of such Unit Purchase Options (the "Unit Purchase Option Exchange"). The
determination of the Actual Outstanding FSAC Shares (and, if applicable, the
Actual Outstanding FSAC Warrants and/or the FSAC Closing Cash Equivalents)
contemplated by Section 3.6 shall take into account the results of the Unit
Purchase Option Exchange. If the Unit Purchase Option Exchange is not agreed
to or does not occur as of immediately prior to the Effective Time, the
Merger Consideration shall be increased to include either (i) such additional
Per Share Cash Consideration as FSAC and the Company may mutually agree or
(ii) in the absence of such agreement, a number of new unit purchase options,
with terms entitling the holders thereof to receive the same securities for
the same exercise price as are receivable by the holders of the Unit Purchase
Options after the Effective Time and otherwise substantially identical to the
Unit Purchase Options (except that no registration rights, separate from the
Registration Rights Agreement, shall be applicable thereto) (the "New
Options"), equal to the quotient obtained by dividing 333,333 by the Actual
Company Stock Number. If applicable, all interests in a New Option that a
Holder would otherwise be entitled to receive as a result of the preceding
sentence shall be aggregated and if, after such aggregation, a fractional
interest in a New Option would result, such fractional interest shall be
rounded down so that each Holder is only issued a whole number of New
Options.
Section 7.10 Charter Amendments. FSAC agrees to use its reasonable best
efforts to solicit in the Proxy Statement relating to its meeting of
stockholders and obtain FSAC stockholder approval for the Charter Amendments.
Subject to the receipt of such approval, FSAC agrees to file the necessary
Certificate of Amendment with respect to the Charter Amendments with the
Secretary of State of the State of Delaware immediately prior to the
Effective Time (in the case of the Charter Agreement increasing FSAC's
authorized capital stock) and immediately after the Effective Time (in the
case of the Charter Amendment implementing a staggered board).
Section 7.11 NASDAQ National Market. FSAC shall use its reasonable best
efforts (i) to prepare and file an application with the NASD to list on the
NASDAQ National Market the FSAC Common Stock and the FSAC Warrants and (ii)
to cause such application to be approved as soon as reasonably practicable
following the Effective Time. It is understood that such listing is not a
condition to the occurrence of the Closing.
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Section 7.12 Exchange Offer. It is contemplated that as soon as
reasonably practicable following consummation of the Merger (subject,
however, to the advice of its financial advisors), FSAC will commence an
exchange offer (the "Exchange Offer") to acquire all FSAC Warrants that are
outstanding, including if not theretofore exchanged, the Bridge Warrants (as
defined in the 1994 Prospectus), on the basis of one share of FSAC Common
Stock for a number of FSAC Warrants to be mutually agreed post-Closing
between FSAC and WCAS. In connection therewith, it is contemplated that FSAC
will, prior to the Exchange Offer, attempt to enter into separate agreements
with the holders of the Bridge Warrants and the Unit Purchase Options (if any
such units, or warrants issuable thereunder, are outstanding) pursuant to
which such holders will agree to exchange such securities, subject to
consummation of the Exchange Offer, for shares of FSAC Common Stock on a
basis to be negotiated and set forth in such agreements. In connection with
the Exchange Offer, certain stockholders of FSAC and the Company have made
certain commitments that are set forth in the Security Transfer Agreement.
Section 7.13 Stockholder Loans. From the date of this Agreement until two
(2) days prior to the Closing Date, the Company shall use its reasonable best
efforts to cause each of the Stockholder Loans to be either (i) repaid in
cash and/or (ii) agreed to be repaid with the cash portion of the Merger
Consideration otherwise distributable to such stockholder as evidenced by an
assignment and consent agreement (in a form reasonably acceptable to FSAC)
executed and delivered by such stockholder to the Company (and copied to
FSAC). To the extent that any Stockholder Loan is not so repaid or agreed to
be repaid in full, the Company shall assign (in exchange for cash
consideration equal to the outstanding principal amount thereof, together
with accrued and unpaid interest) the balance of such Stockholder Loan to
members of the Management and/or one or more designees of the foregoing
(other than the Company and its Subsidiaries) of any or all of the foregoing
at least two (2) days prior to the Closing Date.
Section 7.14 Directors and Officers.
(a) The Company (i) hereby designates Donald R.A. Marshall and (ii) prior
to the preparation and mailing of the Proxy Statements, shall designate one
additional person, reasonably acceptable to FSAC, to serve as its nominees
for election as directors to the first (initial term of one year) and second
(initial term of two years) classes, respectively, of directors of FSAC to be
implemented by the Charter Amendment (it being understood that the
effectiveness of the staggered board provisions of the Charter Amendment and
of the election of such designees will be conditioned upon consummation of
the Merger). FSAC agrees to effect the nomination of such designees, to
recommend to FSAC stockholders the election of such designees, to include
such recommendation in the Proxy Statement relating to its meeting of
stockholders and otherwise to use its best efforts to effect their election.
Immediately following the Closing, FSAC will also use its best efforts to
take all actions necessary to cause Donald Marshall to be appointed
Vice-Chairman of FSAC.
(b) Immediately following the Closing, it is agreed that FSAC and the
Company will take all action necessary to cause (i) Gilbert Scharf and
Michael Scharf to be appointed to the Board of Directors of the Company, (ii)
Gilbert Scharf to be appointed to the Board of Directors of each of Euro
Brokers Holdings Ltd. and Euro Brokers Holdings Inc., (iii) the Company to
establish an Operations Committee of the Company consisting of three
individuals, one of whom will be Gilbert Scharf, and the other two of whom
shall be reasonably acceptable to the Boards of Directors of FSAC and the
Company and (iv) Gilbert Scharf to become Vice-Chairman of the Company.
Section 7.15 Public Announcements. Each of FSAC, Sub and the Company
agrees that it will not issue or cause to be issued any press release or
otherwise make any public statement with respect to this Agreement, the
Related Agreements or the transactions contemplated hereby or thereby without
the prior consent of the other parties, which consent shall not be
unreasonably withheld or delayed; provided, however, that such disclosure can
be made without obtaining such prior consent if (i) the disclosure is
required by Applicable Law and (ii) the party making such disclosure has
first used its reasonable best efforts to consult with the other parties
about the form and substance of such disclosure.
Section 7.16 Directors' and Officers' Indemnification. All rights to
indemnification, advancement of litigation expenses and limitation of
personal liability existing in favor of the directors and officers of the
Company under the provisions existing on the date hereof in the Company's
Certificate of
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Incorporation or By-Laws shall, with respect to any matter existing or
occurring at or prior to the Effective Time (including the transactions
contemplated by this Agreement), survive the Effective Time, and, as of the
Effective Time, the Surviving Corporation shall assume all obligations of the
Company in respect thereof as to any claim or claims asserted prior to or
within a six-year period immediately after the Effective Time.
Section 7.17 Expenses. Except as otherwise set forth in Section 9.2(b) and
Schedule 3.7(a), whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement, the Related Agreements
and the transactions contemplated hereby and thereby shall be paid by the
party incurring such expenses, except that (i) the filing fee in connection
with filings under the HSR Act, (ii) the expenses incurred in connection with
printing the Registration Statement and the Proxy Statement and (iii) the
filing fees with the SEC relating to the Registration Statement and the Proxy
Statement will be shared equally by FSAC and the Company.
Section 7.18 Supplemental Disclosure. The Company shall give prompt notice
to FSAC, and FSAC shall give prompt notice to the Company, of (i) the
occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause (x) any representation or
warranty contained in this Agreement of the party giving such notice to be
untrue or inaccurate or (y) any covenant, condition or agreement contained in
this Agreement of the party giving such notice not to be complied with or
satisfied and (ii) any failure of which it becomes aware of any party hereto
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by such party hereunder; provided, however, that the
delivery of any notice pursuant to this Section 7.18 shall not have any
effect for the purpose of determining the satisfaction of the conditions set
forth in Article VIII of this Agreement or otherwise limit, offset or
otherwise affect the remedies available hereunder to any party.
Section 7.19 Letters of Accountants.
(a) FSAC shall use its reasonable best efforts to cause to be delivered to
the Company a letter of BDO Seidman, LLP, FSAC's independent auditors, dated
a date within two business days before the date on which the Registration
Statement shall become effective and addressed to the Company, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
Statement, which letter shall be brought down to the Effective Time.
(b) The Company shall use its reasonable best efforts to cause to be
delivered to FSAC a letter of Price Waterhouse LLP, the Company's independent
auditors, dated a date within two business days before the date on which the
Registration Statement shall become effective and addressed to FSAC, in form
and substance reasonably satisfactory to FSAC and customary in scope and
substance for letters delivered by independent public accountants in
connection with registration statements similar to the Registration
Statement, which letter shall be brought down to the Effective Time.
Section 7.20 Conversion Share Excess. FSAC agrees that if the number of
Conversion Shares exceeds 10% of the Actual Outstanding FSAC Shares as
described in Section 8.3(d) and any one or more stockholders of FSAC satisfy
each of the requirements set forth in accordance with the proviso to Section
8.3(d), FSAC shall enter into a binding commitment prior to the Effective
Time with such stockholders to sell, immediately after and contingent upon
the Effective Time, a number of authorized but unissued shares of FSAC Common
Stock equal to the Excess Conversion Shares (as hereinafter defined) for an
aggregate purchase price equal to the Excess Conversion Amount (as
hereinafter defined).
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ARTICLE VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions, unless waived in writing (if permissible under
Applicable Law) by each of FSAC and the Company:
(a) HSR Approval. Any waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated, and no
action shall have been instituted by the Department of Justice or Federal
Trade Commission challenging or seeking to enjoin the consummation of this
transaction, which action shall have not been withdrawn or terminated.
(b) Stockholder Approval and FSAC Conversion Rights. (i) This
Agreement and the transactions contemplated hereby shall have been
approved and adopted by (x) the requisite vote (as described in Section
4.22) of the stockholders of the Company in accordance with Applicable Law
and (y) by the requisite vote (as described in Section 5.13) of the
stockholders of FSAC, in accordance with Applicable Law and (ii) less than
twenty percent (20%) in interest of FSAC's Public Stockholders shall have
exercised their Conversion Rights.
(c) Registration Statement. The Registration Statement shall have
become effective under the Exchange Act and shall not be the subject of
any stop order or proceeding by the SEC seeking a stop order.
(d) No Order. No Governmental Entity (including a federal or state
court) of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which materially restricts, prevents or
prohibits consummation of the Merger or any transaction contemplated by
this Agreement or the Related Agreements; provided, however, that the
parties shall use their reasonable best efforts to cause any such decree,
judgment, injunction or other order to be vacated or lifted.
(e) Approvals. Other than the filing of Merger documents in accordance
with the DGCL, all authorizations, consents, waivers, orders or approvals
of, or declarations or filings with, or expirations of waiting periods
imposed by, any Governmental Entity that are listed on Schedule 8.1(e), or
the failure of which to obtain, make or occur prior to the Effective Time
would have a material adverse effect at or after the Effective Time on (i)
FSAC or (ii) the Surviving Corporation and its Subsidiaries taken as a
whole, shall have been obtained, been filed or have occurred. FSAC shall
have received all state securities or "blue sky" permits and other
authorizations necessary to issue the shares of Merger Stock, Merger
Warrants and Warrant Shares pursuant to this Agreement.
(f) Charter Amendments. Each of the Charter Amendments shall have been
approved by the requisite vote of the stockholders of FSAC, and the
Charter Amendment providing for the increase in FSAC's authorized capital
stock shall have been filed with the Secretary of State of the State of
Delaware and have become effective in accordance with the DGCL.
Section 8.2 Conditions to Obligations of FSAC and Sub to Effect the
Merger. The obligations of FSAC and Sub to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by FSAC:
(a) Representations and Warranties. (i) The aggregate effect of all
inaccuracies in the representations and warranties of the Company set
forth in this Agreement and of WCAS set forth in the Majority
Stockholders' Agreement do not and will not have a Company Material
Adverse Effect and (ii) the representations and warranties of the Company
set forth in this Agreement and of WCAS set forth in the Majority
Stockholders' Agreement that are qualified with reference to a Company
Material Adverse Effect or materiality shall be true and correct and the
representations and warranties that are not so qualified shall be true and
correct in all material respects, in each case as of the date hereof, and,
except to the extent such representations and warranties speak as of an
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earlier date, as of the Effective Time as though made at and as of the
Effective Time, and FSAC shall have received certificates signed on behalf
of each of the Company and WCAS by the chief executive officer or the
chief financial officer of the Company and WCAS respectively, to such
effect.
(b) Performance of Obligations. Each of the Company, its Subsidiaries
and WCAS shall have performed in all material respects all obligations
required to be performed by it under this Agreement or the Majority
Stockholders' Agreement, as the case may be, at or prior to the Effective
Time, and FSAC shall have received certificates signed on behalf of each
of the Company and WCAS by the chief executive officer or the chief
financial officer of the Company and WCAS respectively, to such effect.
(c) Certain Valuations. Each of the following shall be true: (i) the
Company's Closing Defined Net Worth, as estimated pursuant to Section
3.7(a)(i), shall not be less than $30 million and (ii) the cash and cash
equivalents of the Company as reflected on the Company's Closing Balance
Sheet, in accordance with GAAP and on a basis consistent with the
preparation of the audited consolidated Balance Sheet of the Company as of
December 31, 1995 (the "Company's Closing Cash Equivalents"), as estimated
pursuant to Section 3.7(a), shall not be less than $15 million.
(d) Related Agreements. Each of the Company and WCAS and each member
of Management shall have executed and delivered each of the Related
Agreements to which it or he is a party and performed all obligations of
it required thereunder to be performed at or prior to the Effective Time.
(e) Affiliate Letters. FSAC shall have received the Affiliate Letters
from each of the Affiliates of the Company, as contemplated by Section
7.5.
(f) Dissenting Shares. The aggregate number of Dissenting Shares shall
not constitute more than 10% of the Company Stock Number.
(g) Legal Opinion. FSAC shall have received an opinion of Reboul,
MacMurray, Hewitt, Maynard and Kristol, counsel to the Company, dated the
day of the Effective Time, addressed to FSAC and Sub and reasonably
acceptable to FSAC, addressing each of the matters set forth in Schedule
8.2(g).
(h) Consolidating Supervisor. The UK Subsidiaries (separately and on a
consolidated basis) shall be in compliance (without the necessity of
restricting their operations as currently or historically conducted) with
all applicable rules and regulations of their Consolidating Supervisor
(whether the SFA or the Bank of England) in relation to capital adequacy
and financial resources requirements, and their consolidated position
under such rules and regulations as applied shall not show any regulatory
capital deficit (subject to any waivers or non-enforcement arrangements
granted by the Consolidating Supervisor if all restructurings or
recapitalizations necessary to maintain in effect such waivers or
arrangements have been completed).
(i) Additional Officer's Certificate. FSAC shall have received a
certificate of the Company, by its chief executive officer or chief
financial officer, to the effect that all outstanding shares of capital
stock of the Company's Subsidiaries are beneficially owned, either
directly or indirectly, by the Company and are held free and clear of all
Liens (other than the Liens disclosed in the last paragraph of Schedule
4.12).
Section 8.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
additional conditions, unless waived in writing by the Company:
(a) Representations and Warranties. (i) The aggregate effect of all
inaccuracies in the representations and warranties of FSAC set forth in
this Agreement does not and will not have an FSAC Material Adverse Effect
and (ii) the representations and warranties of FSAC contained in this
Agreement that are qualified with reference to an FSAC Material Adverse
Effect or materiality shall be true and correct and the representations
and warranties that are not so qualified shall be true and correct in all
material respects as of the date hereof, and, except to the extent such
representations
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and warranties speak as of an earlier date, as of the Effective Time as
though made on and as of the Effective Time, and the Company shall have
received a certificate signed on behalf of FSAC by the chief executive
officer or the chief operating officer of FSAC to such effect.
(b) Performance of Obligations. Each of FSAC and Sub shall have
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective Time,
and the Company shall have received a certificate signed on behalf of FSAC
and Sub by the chief executive officer or the chief operating officer of
FSAC and Sub, respectively, to such effect.
(c) Certain Valuations. FSAC shall have delivered to the Company a
certificate of the Trustee (or other evidence reasonably satisfactory to
the Company) to the effect that the cash proceeds of the Trust Fund as of
the Closing Date (disregarding any amounts payable to Public Stockholders
in respect of Conversion Shares) will be at least $18 million.
(d) FSAC Conversion Rights. The number of Conversion Shares shall not
exceed 10% of the Actual Outstanding FSAC Shares, provided, however, that
if the number of Conversion Shares exceeds 10% (but not more than 20%) of
the Actual Outstanding FSAC Shares (such excess being referred to herein
as the "Excess Conversion Shares"), then any one or more of the current
stockholders of FSAC shall have the right, but not the obligation, of
satisfying the condition set forth in this Section 8.3(d) by (i) giving
written notice to the Company, within ten days after delivery of the
certificate as to the number of Conversion Shares as required by Section
3.6(a)(ii), of the exercise by such stockholders of such right, and (ii)
delivering to the Company within such ten-day period written evidence of
financing sufficient to pay to FSAC an amount in cash equal to the
aggregate amount payable to stockholders of FSAC in respect of the Excess
Conversion Shares (the "Excess Conversion Amount").
(e) Related Agreements. Each of FSAC, Sub, Gilbert Scharf and Michael
Scharf shall have executed and delivered each of the Related Agreements to
which it or he is a party and performed all obligations of it required
thereunder to be performed at or prior to the Effective Time.
(f) Legal Opinion. The Company shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom, special counsel to FSAC, dated the
day of the Effective Time, addressed to the Company, and reasonably
accepted to the Company, addressing each of the matters set forth in
Schedule 8.3(f).
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of FSAC or the Company:
(a) by mutual consent of FSAC and the Company;
(b) by either FSAC or the Company, if the Merger shall not have been
consummated before July 31, 1996 (unless the failure to so consummate the
Merger by such date shall be due to the action or failure to act of the party
(or its stockholders or Subsidiaries) seeking to terminate this Agreement,
which action or failure to act constitutes or constituted a breach of this
Agreement);
(c) by either FSAC or the Company, if any permanent injunction or
action by any Governmental Entity of competent jurisdiction preventing the
consummation of the Merger shall have become final and nonappealable;
(d) by FSAC, if (i) there has been a breach of any representations or
warranties of the Company set forth herein or of WCAS set forth in the
Majority Stockholders' Agreement, the effect of which is a Company
Material Adverse Effect, (ii) there has been a breach in any material
respect of any of the covenants or agreements set forth in this Agreement
or the Majority Stockholders' Agreement on the part of the Company or WCAS
(as the case may be), which breach is not curable or, if curable,
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is not cured within 30 days after written notice of such breach is given
by FSAC to the Company or WCAS (as the case may be), (iii) the
stockholders of the Company fail to approve and adopt this Agreement and
the Merger at the stockholders' meeting of the Company contemplated by
Section 7.4 or (iv) the number of Dissenting Shares is more than 10% of
the Company Stock Number.
(e) by the Company, if (i) there has been a breach of any
representations or warranties of FSAC set forth herein the effect of which
is an FSAC Material Adverse Effect, (ii) there has been a breach in any
material respect of any of the covenants or agreements set forth in this
Agreement on the part of FSAC or Sub, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach
is given by the Company to FSAC, (iii) the stockholders of FSAC fail to
approve and adopt this Agreement and the issuance of FSAC Common Stock,
Merger Warrants and Warrant Shares pursuant thereto at the stockholders'
meeting of FSAC contemplated by Section 7.4, or 20% or more in interest of
the Public Stockholders exercise their Conversion Rights or (iv) the
number of Conversion Shares exceeds 10% of the Actual Outstanding FSAC
Shares as described in Section 8.3(d) and the condition has remained
unsatisfied in accordance with the proviso to said Section 8.3(d) for a
period of 10 days after the certification provided by FSAC pursuant to
Section 3.6(a)(ii).
Section 9.2 Effect of Termination.
(a) In the event of a termination of this Agreement pursuant to
this Article IX, the Merger shall be deemed abandoned and this
Agreement shall forthwith become void, without liability on the part
of any party hereto, except as provided in this Section 9.2, Section
7.1 and Section 7.17, and except that nothing herein shall relieve any
party from liability for any breach of this Agreement or any Related
Agreement.
(b) If this Agreement shall have been terminated (i) by FSAC
pursuant to Sections 9.1(d)(i), (ii) or (iii), or pursuant to Section
9.1(d)(iv) to the extent that the 10% threshold would not have been
exceeded if Dissenting Shares held by any of the Investor Stockholders
or the EBIC Management Stockholders (as such terms are defined in the
Registration Rights Agreement) were disregarded, or (ii) by the
Company pursuant to Section 9.1(e) at a time when FSAC is already
permitted to terminate this Agreement pursuant to said Section 9.1(d)
(i), (ii), (iii) or, as described in clause (i) above, (iv), then in
any such case the Company shall promptly, but in no event later than
two business days after the date of such termination, pay FSAC a
termination fee of $2 million, which amount (the "Termination
Payment") shall be payable in same day funds; provided, however, that
no fee shall be paid pursuant to this Section 9.2(b) if the Company is
already permitted to terminate this Agreement pursuant to Section
9.1(e) other than under the circumstances described in clause (ii)
above.
(c) Payment by the Company of the Termination Payment shall
constitute full liquidated damages and will be the sole remedy of FSAC
and Sub (i) against the Company (except for remedies that cannot be
waived as a matter of law) for any termination or breach (if there is
a termination) of any representation, warranty or covenant hereunder
and (ii) against WCAS for any termination or breach (if there is a
termination) of any representation, warranty or covenant under the
Majority Stockholders' Agreement or the Security Transfer Agreement;
provided, however, that FSAC shall be entitled to reimbursement of its
reasonable costs and expenses (including attorney's fees) incurred, if
any, in enforcing its right to collect the Termination Payment.
(d) For the avoidance of doubt, the Company confirms and agrees
that, pursuant to the letter, dated December 19, 1995, from the
Company to FSAC with respect to the Trust Fund, in the event that the
Merger is not consummated for any reason, the Company is not entitled
to make or pursue any right or claim whatsoever that, directly or
indirectly, seeks any of the funds of, or other remedy with respect
to, the Trust Fund.
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ARTICLE X
INDEMNIFICATION
Section 10.1 Survival of Representations and Warranties. All
representations and warranties made by the Company in this Agreement shall
survive the Effective Time and shall terminate at the close of business on
the day which is 12 months after the Effective Time. The covenants and
agreements of the parties hereto (including the Surviving Corporation after
the Merger) shall survive the Effective Time without limitation (except for
those which, by their terms, contemplate a shorter survival period).
Section 10.2 Indemnification of FSAC. From and after the Effective Time,
to the extent provided in this Article X, FSAC, including any person or
entity that was a stockholder, director, officer, employee or agent of FSAC
or Sub as of immediately prior to the Effective Time (FSAC and such other
persons and entities are collectively hereinafter referred to as the
"Indemnified Parties") shall be entitled to be indemnified and held harmless,
but only to the extent of the Escrow Stock, from and against any liabilities,
claims, demands, judgments, losses, costs, damages or expenses whatsoever
(including reasonable attorneys', consultants' and other professional fees
and disbursements of every kind, nature and description) (collectively,
"Damages") asserted against, resulting to, imposed upon or incurred by an
Indemnified Party by reason of, resulting from or arising out of:
(i) a breach of or inaccuracy in any representation or warranty of the
Company or WCAS contained in this Agreement or any Related Agreement; or
(ii) any breach of any covenant or agreement of the Company or WCAS
contained in this Agreement or any Related Agreement.
For purposes of determining whether FSAC, as an Indemnified Party, shall have
had any Damages asserted against, resulting to, imposed upon or incurred by
it in connection with any of the matters described in the immediately
preceding clauses (i) or (ii), FSAC shall be deemed to have had asserted
against, resulting to, imposed upon or incurred by it any and all Damages
asserted against, resulting to, imposed upon or incurred by the Surviving
Corporation or any Subsidiary thereof in connection with any of such matters.
Section 10.3 Escrow Deposit; Recourse Against Escrow Securities. At the
Effective Time, FSAC shall deposit the Escrow Stock with the Escrow Agent
pursuant to the Escrow Agreement. Any claims by an Indemnified Party for
indemnification pursuant to this Article X from the Holders shall be
satisfied solely by recourse to the Escrow Stock. Any claim by an Indemnified
Party for payment of such indemnification shall be made by giving written
notice of such claim, including in reasonable detail the basis and the amount
thereof, to each of the Representatives (as hereinafter defined) and the
Escrow Agent. As set forth more specifically in the Escrow Agreement, the
claim, and the amount of Damages permitted thereunder, shall be resolved by
(i) the failure of either of the Representatives to timely challenge it, (ii)
the mutual agreement of the Indemnified Party and the Representatives or
(iii) in the absence of timely mutual agreement, binding arbitration. In
accordance with the terms of the Escrow Agreement, the Escrow Agent shall
release to FSAC shares of Escrow Stock having an aggregate value equal to the
Damages ultimately allowed under such claim. FSAC shall thereupon retire (and
hold in treasury) or cancel such released shares and, if the Indemnified
Party with respect to such Damages is not FSAC, pay or cause to be paid such
damages to such Indemnified Party. For all purposes under this Article X, a
share of the Escrow Stock shall be valued at the average of the closing bid
price of a share of FSAC Common Stock as reported (x) on the OTC Bulletin
Board or (y) if not quoted at such time on the OTC Bulletin Board, in the
Pink Sheets, in each case for the last five trading days prior to the
Effective Time.
Section 10.4 Representatives.
(a) Authority. For purposes of this Article X and the Escrow
Agreement, in view of the fact that successful claims for indemnification
will ultimately have the effect of reducing the Merger Consideration
payable to each Holder, WCAS shall act as the Representative on behalf of
itself and all of the other Holders who are WCAS affiliates and Donald
R.A. Marshall shall act as the
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Representative on behalf of himself and all other Holders, in each case,
subject to the provisions of Section 10.4(b) below. Each Representative
shall keep the Holders for which it is acting as Representative reasonably
informed of its decisions of a material nature. Each Representative (i) is
authorized to take any action deemed by it appropriate or reasonably
necessary to carry out the provisions of, and is authorized to act on
behalf of, the Holders for which it is acting as Representative for all
purposes related to this Article X, including the acceptance of service of
process upon such Holders and the acceptance or compromise of claims for
indemnification, and (ii) all decisions and actions of each Representative
shall be binding and conclusive upon the Holders for which it is acting as
Representative and may be relied upon by the Indemnified Parties and the
Escrow Agent.
(b) Standard of Conduct. Each Representative shall not be liable to
any of the Holders or any other party for any error of judgment, act done
or omitted by it in good faith, or mistake of fact or law unless caused by
its own gross negligence or willful misconduct. In taking any action or
refraining from taking any action whatsoever each Representative shall be
protected in relying upon any notice, paper or other document reasonably
believed by it to be genuine, or upon any evidence reasonably deemed by it
to be sufficient. Each Representative may consult with counsel in
connection with its duties and shall be fully protected in any act taken,
suffered or permitted by it in good faith in accordance with the advice of
counsel. No Representative shall be responsible for determining or
verifying the authority of any person acting or purporting to act on
behalf of any party to this Agreement or the Escrow Agreement.
Section 10.5 Certain Limitations on Liability.
(a) The indemnification obligations pursuant to this Article X shall
be applicable only to claims as to which written notice has been furnished
hereunder within 12 months after the Effective Time.
(b) Notwithstanding anything in the foregoing provisions of this
Article X to the contrary, the Indemnified Parties shall be entitled to
seek indemnification under this Article X only when the aggregate of all
claims for Damages under this Article X exceeds $100,000, after which the
Indemnified Parties shall be entitled to seek indemnification starting
with the first dollar of such Damages.
(c) In no event shall any Holder have any right, whether by way of
contribution or otherwise, to reimbursement from FSAC, the Surviving
Corporation, the Company or any of its Subsidiaries for any
indemnification payments made by release of Escrow Stock pursuant to this
Article X.
Section 10.6 Exclusive Remedy. Except for remedies that cannot be waived
as a matter of law, if the Merger is consummated as contemplated herein, this
Article X shall be the exclusive remedy for breach of the representations and
warranties of the Company contained herein or of WCAS contained in the
Majority Stockholders' Agreement or in any certificate delivered pursuant
hereto.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Amendment and Modification. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only
by written agreement (referring specifically to this Agreement) of FSAC and
the Company with respect to any of the terms contained herein; provided,
however, that after any approval and adoption of this Agreement by the
stockholders of FSAC or the Company, no such amendment, modification or
supplementation shall be made which under Applicable Law requires the
approval of such stockholders, without the further approval of such
stockholders.
Section 11.2 Waiver. At any time prior to the Effective Time, FSAC and
Sub, on the one hand, and the Company, on the other hand, may (i) extend the
time for the performance of any of the obligations or other acts of the
other, (ii) waive any inaccuracies in the representations and warranties of
the other contained herein or in any documents delivered pursuant hereto and
(iii) waive compliance by
1-41
<PAGE>
the other with any of the agreements or conditions contained herein which
may legally be waived. Any such extension or waiver shall be valid only if
set forth in an instrument in writing specifically referring to this
Agreement and signed on behalf of such party.
Section 11.3 Investigations. The respective representations and warranties
of FSAC and the Company contained herein or in any certificates or other
documents delivered prior to or as of the Effective Time shall not be deemed
waived or otherwise affected by any investigation made by any party hereto.
Section 11.4 Notices. All notices and other communications hereunder shall
be in writing and shall be delivered personally or by next-day courier or
telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof). Any such notice shall be effective upon
receipt, if personally delivered or telecopied, or one day after delivery to
a courier for next-day delivery.
(a) If to FSAC or Sub, to:
Financial Services Acquisition
Corporation
667 Madison Avenue
11th Floor
New York, NY 10021
Attention: Gilbert Scharf
Telecopy: (212) 246-1514
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Roger Schwed, Esq.
Telecopy: (212) 735-2000
(b) if to the Company, to:
Euro Brokers Investment Corporation
Two World Trade Center
Suite 8400
New York, NY 10048
Attention: Donald Marshall
Telecopy: (212) 748-7329
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: William J. Hewitt, Esq.
Telecopy: (212) 841-5725
Section 11.5 Descriptive Headings; Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. References in this
Agreement to Sections, Schedules, Exhibits or Articles mean a Section,
Schedule, Exhibit or Article of this Agreement unless otherwise indicated.
References to this Agreement shall be deemed to include the Exhibits and
Schedules hereto, unless the context otherwise requires. The term "person"
shall mean and include an individual, a partnership, a joint venture, a
corporation, a trust, a Governmental Entity or an unincorporated
organization. References herein to "the knowledge of the
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<PAGE>
Company" or "the Company's knowledge" shall mean the actual knowledge, of
any one or more of the following: Donald Marshall, Walter Dulski, Keith
Reihl, Alistair Johnstone, Brian Clark, Susan Tysk, Cindy Buggins, Michael
Morrison, Stefan Stosik, David Coomber, Jeannette Wilste, Charles Cheung and
George Bart Peaslee.
Section 11.6 Entire Agreement; Assignment. This Agreement (including the
Schedules, Exhibits and other agreements, certificates, documents and
instruments referred to herein or contemplated hereby), together with the
Related Agreements, the Confidentiality Agreement, the letter, dated December
19, 1995, from the Company to FSAC with respect to the Trust Fund, and the
letter, dated March 8, 1996, from FSAC to the Company (and acknowledged by
the Company) with respect to certain other matters, constitute the entire
agreement and supersede all other prior agreements and understandings, both
written and oral, among the parties or any of them, with respect to the
subject matter hereof. Except for the Indemnified Parties, this Agreement is
not intended to confer upon any person not a party hereto any rights or
remedies hereunder. This Agreement shall not be assigned by operation of law
or otherwise; provided that FSAC or Sub may assign its rights and obligations
hereunder to a direct or indirect subsidiary of FSAC, but no such assignment
shall relieve FSAC or Sub, as the case may be, of its obligations hereunder.
Section 11.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 11.8 Severability.
(a) The provisions of this Agreement shall be deemed severable and the
invalidity or unenforceability of any provisions hereof shall not affect
the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or
entity or any circumstances, is invalid or unenforceable, (i) a suitable
and equitable provision shall be substituted therefor in order to carry
out, so far as may be valid and enforceable, the intent and purpose of
such invalid and unenforceable provision and (ii) the remainder of this
Agreement and the application of such provision to other persons, entities
or circumstances shall not be affected by such invalidity or
unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof,
in any other jurisdiction; provided, however, that no application of this
Section 11.8 shall be made that defeats the economic intentions of the
parties as described in Section 3.1.
(b) Notwithstanding any other provision of this Agreement, no
provision of this Agreement which is of such a nature as to make the
Agreement liable to registration under the United Kingdom Restrictive
Trade Practices Act 1976 shall take effect until the day after that on
which particulars thereof have been duly furnished to the Director General
of Fair Trading pursuant to the said Act. For the purpose of this Section
11.8(b), "Agreement" shall include any agreement forming part of the same
arrangement.
Section 11.9 Consolidating Supervisor. The parties acknowledge and agree
that the UK Subsidiaries are currently in technical non-compliance with the
rules and regulations of the SFA, in its capacity as their Consolidating
Supervisor, relating to capital adequacy and financial resources requirements
and that such non-compliance, notwithstanding anything to the contrary in
Article IV, shall not constitute a breach of or inaccuracy in any of the
representations or warranties made by the Company in said Article IV.
Section 11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREFORE, each of FSAC, Sub and the Company has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FINANCIAL SERVICES ACQUISITION
CORPORATION
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman, President and
Chief Executive Officer
EBIC ACQUISITION CORP.
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman and President
EURO BROKERS INVESTMENT
CORPORATION
By: /s/ Donald R.A. Marshall
-----------------------------------
Name: Donald R.A. Marshall
Title: President and Chief
Executive Officer
1-44
<PAGE>
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1, dated as of April 23, 1996 (this "Amendment"),
entered into among Financial Services Acquisition Corporation, a Delaware
corporation ("FSAC"), EBIC Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of FSAC ("Sub"), and Euro Brokers Investment
Corporation, a Delaware corporation (the "Company"). FSAC, Sub and the
Company are collectively referred to as the "Parties."
Whereas, the Parties have previously entered into an Agreement and Plan of
Merger, dated as of March 8, 1996 (the "Merger Agreement");
Whereas, the Parties desire to amend the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged the
Parties hereby agree as follows:
1. Amendment. Section 9.1(b) of the Merger Agreement is hereby amended
by substituting the date "August 31, 1996" therein for the date "July 31,
1996" that is currently therein.
2. Effect of Amendment. Except as expressly amended by this Amendment,
the Merger Agreement shall remain in full force and effect according to
its terms.
3. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement.
4. Governing Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
the provisions thereof relating to conflicts of law.
IN WITNESS WHEREFORE, each of FSAC, Sub and the Company has caused this
Amendment to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FINANCIAL SERVICES ACQUISITION
CORPORATION
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman, President and
Chief Executive Officer
EBIC ACQUISITION CORP.
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman and President
EURO BROKERS INVESTMENT
CORPORATION
By: /s/ Donald R.A. Marshall
-----------------------------------
Name: Donald R.A. Marshall
Title: President and Chief
Executive Officer
1-45
<PAGE>
ANNEX II
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
VOID AFTER 5:00 PM NEW YORK CITY TIME --ON NOVEMBER 30, 2001
Number of Warrants
FINANCIAL SERVICES ACQUISITION CORPORATION
CUSIP
THIS CERTIFIES THAT, for value received
, or registered assigns
("Registered Holder") is the owner of the number of Series B Redeemable
Common Stock Purchase Warrants ("Warrants") of Financial Services Acquisition
Corporation, a Delaware corporation ("Company"), specified above. Each
Warrant initially entitles the Registered Holder to purchase, subject to the
terms and conditions set forth in this Warrant Certificate and in the Warrant
Agreement (as hereinafter defined), one fully paid and nonassessable share
(subject to adjustment as hereinafter provided) of the Common Stock, par
value $.001 per share ("Common Stock"), of the Company at any time after the
issuance hereof and before the Expiration Date (as hereinafter defined) upon
the presentation and surrender of this Warrant Certificate with the
Subscription Form on the reverse hereof duly executed, at the office of
Continental Stock Transfer & Trust Company, as warrant agent, or its
successor ("Warrant Agent") accompanied by payment of the $5.00 ("Purchase
Price") per Warrant, subject to adjustment as hereinafter provided, in lawful
money of the United States in cash, or by good certified or official bank
check payable to the order of the Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms set forth in the
Warrant Agreement ("Warrant Agreement") dated as of June 5, 1996 by and
between the Company and the Warrant Agent, to all the terms and provisions of
which the Registered Holder, by acceptance of this Warrant Certificate,
hereby assents. In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price and the number of shares of Common
Stock subject to purchase upon the exercise of each Warrant represented
hereby are subject to modification or adjustment. Reference is made to the
Warrant Agreement for a more complete statement of the rights and limitations
of the Registered Holder hereof, the rights and duties of the Warrant Agent
and the rights and obligations of the Company thereunder. Copies of the
Warrant Agreement are on file at the corporate trust office of the Warrant
Agent.
The term "Expiration Date" shall mean 5:00 p.m. New York City time, on
November 30, 2001, or such earlier date as the Warrant shall be redeemed. If
such date shall be in the City of New York a holiday or a day on which the
banks are authorized to close, "Expiration Date" shall mean 5:00 p.m. (New
York City time) the next following day which in the City of New York is not a
holiday or a day on which banks are authorized to close.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder. The Company shall not be required upon the exercise of the
Warrants represented hereby to issue any fractions of shares, but shall make
an adjustment therefor in cash on the basis of the market value of such
fractional interest (computed as provided in the Warrant Agreement). In case
this Warrant is exercised with respect to less than all of such Warrants, a
new Warrant Certificate or Certificates will be issued on such surrender for
the number of Warrants represented hereby which were not so exercised. Prior
to the exercise of any Warrant represented hereby the Registered Holder shall
not be entitled with respect to the shares of Common Stock to which this
Warrant Certificate relates to any rights of a stockholder of the Company
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceeding of the Company except as provided in said Warrant Agreement. Prior
to the due presentment for registration of transfer of this Warrant
Certificate,
2-1
<PAGE>
the Company and the Warrant Agent may deem and treat the Registered Holder
as the absolute holder hereof and each Warrant represented hereby
(notwithstanding any notation of ownership or other writing hereon by anyone
other than a duly authorized officer of the Company or the Warrant Agent),
for all purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
This Warrant Certificate is exchangeable upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an
equal aggregate number of Warrants, each of such Warrant Certificates to
represent such number of Warrants as shall be designated by such Registered
Holder at the time of such surrender.
Upon due presentment together with any tax or any governmental charge
imposed in connection therewith, for registration of transfer of this Warrant
Certificate at such office, a new Warrant Certificate or Warrant Certificates
representing an equal aggregate number of Warrants, will be issued to the
transferee in exchange therefor, subject to the limitations provided in the
Warrant Agreement.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of any Warrant unless a registration statement under the
Securities Act of 1933 with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement
or a post-effective amendment to its existing registration statement and will
use its best efforts to cause the same to become effective and to keep it
current while any of the Warrants are outstanding and exercisable. The
Warrants represented hereby shall not be exercisable by a Registered Holder
in any state where such exercise would be unlawful.
The Warrants may be redeemed at the option of the Company, in whole but
not in part, by paying in cash or certified or bank check therefor $.01 per
Warrant, upon at least thirty days written notice mailed to the Registered
Holders at any time, if the last sales price of the Common Stock was at least
$8.50 per share subject to adjustment as provided in the Warrant Agreement,
on each of the twenty consecutive trading days during a period ending on the
third day prior to the date on which the notice of redemption is given. Each
Warrant that is the subject of such redemption and that has not been
exercised on or before the date called for in such notice shall become void,
and all rights thereunder shall terminate.
If this Warrant shall be surrendered for exercise within any period during
which the transfer books for Common Stock or other securities purchasable
upon the exercise of this Warrant are closed for any purpose, the Company
shall not be required to make delivery of certificates for the securities
purchasable upon such exercise until the date of re-opening of said transfer
books.
This Warrant Certificate and each Warrant represented hereby shall be
construed in accordance with and governed by the laws of the State of New
York.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated:
- --------------------------------------------
COUNTERSIGNED:
By: CONTINENTAL STOCK TRANSFER
AND TRUST COMPANY
AUTHORIZED OFFICER
FINANCIAL SERVICES ACQUISITION
CORPORATION
ATTEST:
By:
- ----------------------------------------------
Vice President, Secretary and Treasurer
By:
- ----------------------------------------------
Chairman of the Board and Chief Executive
Officer
2-3
<PAGE>
PURCHASE FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANT CERTIFICATE
TO:
The undersigned hereby exercises, according to the terms and conditions
thereof, the right to purchase shares of Common Stock, evidenced by the
within Warrant Certificate, and herewith makes payment of the Purchase Price
in full.
NAME:
- ----------------------------------------------
ADDRESS:
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
DATED:
- ----------------------------------------------
- ----------------------------------------------
PAYMENT ENCLOSED
- ----------------------------------------------
Social Security No. of Warrant Holder
SIGNATURE:
- ----------------------------------------------
TRANSFER FORM
For value received hereby sells, assigns and transfers unto
Warrants to purchase
shares of Common Stock represented by the within Warrant Certificate and does
hereby irrevocably constitute and appoint
Attorney to transfer such warrants on the books of the within
named Company with full power of substitution in the premises.
DATED:
- -----------------------------------------------------------------------------
Notice:
- -----------------------------------------------------------------------------
The Signature to this assignment must correspond with the name as written
upon the face of this Warrant Certificate in every particular.
- -----------------------------------------------------------------------------
Social Security Number of Assignee
or other identifying number
[Note: The Warrant Agent shall be entitled to demand signatures which are
Medallion guaranteed by an Eligible Institution.]
2-4
<PAGE>
ANNEX III
CERTIFICATE OF MERGER
OF
EBIC ACQUISITION CORP.
INTO
EURO BROKERS INVESTMENT CORPORATION
PURSUANT TO SECTION 251(C) OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Euro Brokers Investment Corporation, a Delaware corporation, does hereby
certify to the following facts relating to the merger of EBIC Acquisition
Corp. into Euro Brokers Investment Corporation (the "Merger"):
FIRST: The names and states of incorporation of the constituent
corporations to the Merger are as follows:
<TABLE>
<CAPTION>
NAME STATE
- --------------------------------------- ------------
<S> <C>
Euro Brokers Investment Corporation Delaware
EBIC Acquisition Corp. Delaware
</TABLE>
SECOND: The Agreement and Plan of Merger, dated as of March 8, 1996 (as
amended, the "Merger Agreement"), by and among Financial Services Acquisition
Corporation, EBIC Acquisition Corp. and Euro Brokers Investment Corporation,
has been approved, adopted, certified, executed and acknowledged by each of
the constituent corporations in accordance with Section 251 of the General
Corporation Law of the State of Delaware.
THIRD: The name of the corporation surviving the Merger is Euro Brokers
Investment Corporation, a Delaware corporation (the "Surviving Corporation").
FOURTH: The Restated Certificate of Incorporation of Euro Brokers
Investment Corporation shall be amended pursuant to the Merger to read in its
entirety as set forth in Exhibit A attached hereto and, as amended, shall be
the Restated Certificate of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law.
FIFTH: An executed copy of the Merger Agreement is on file at the
principal place of business of the Surviving Corporation, the address of
which is Two World Trade Center, Suite 8400, New York, NY 10048.
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving
Corporation on request and without cost to any stockholder of either of the
constituent corporations.
3-1
<PAGE>
IN WITNESS WHEREOF, Euro Brokers Investment Corporation has caused its
corporate seal to be affixed hereto and this Certificate of Merger to be
executed in its corporate name and attested to by its officers thereunto duly
authorized this day of , 1996.
EURO BROKERS INVESTMENT CORPORATION
By:
--------------------------------------
Name:
Title:
ATTEST:
By:
- -----------------------------------------------------------------------------
Name:
Title:
(CORPORATE SEAL)
3-2
<PAGE>
EXHIBIT A
RESTATED CERTIFICATE OF INCORPORATION
OF
EURO BROKERS INVESTMENT CORPORATION
FIRST: The name of the Corporation is Euro Brokers Investment Corporation
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand (1,000) shares of Common Stock, each
having a par value of One Cent ($.01).
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
(3) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless
the By-Laws so provide.
(4) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article FIFTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-Laws
adopted by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been
adopted.
SIXTH: Meetings of stockholders may be held within or without the State of
Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation.
SEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
3-3
<PAGE>
ANNEX IV
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
FINANCIAL SERVICES ACQUISITION CORPORATION
Financial Services Acquisition Corporation, a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to
be advisable and directing that said amendment be submitted to the
stockholders of the Corporation for consideration thereof at a Special
Meeting of Stockholders.
SECOND: That the proposed amendment to the Corporation's Certificate of
Incorporation is as follows:
1. Article FIRST of the Corporation's Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"FIRST: The name of the Corporation is Financial Services Corporation."
2. The first sentence of Article FOURTH of the Corporation's Certificate
of Incorporation is hereby amended to read in its entirety as follows:
"FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is 31,000,000, of which
30,000,000 shares shall be Common Stock of the par value of $0.001 per share
and 1,000,000 shares shall be Preferred Stock of the par value of $0.001 per
share."
THIRD: That thereafter, pursuant to resolutions of its Board of Directors,
a Special Meeting of the Stockholders of Financial Services Acquisition
Corporation was duly called and held, upon notice in accordance with Section
222 of the General Corporation Law of the State of Delaware, at which meeting
the necessary number of shares as required by statute were voted in favor of
the amendment.
FOURTH: That said amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury, that this Certificate is the act and deed
of the Corporation and the facts stated herein are true.
Date:
Gilbert Scharf,
Chairman of the Board,
Chief Executive Officer
and President
Attest:
Michael Scharf,
Secretary
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<PAGE>
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
FINANCIAL SERVICES CORPORATION
Financial Services Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:
FIRST: That the name of the Corporation is Financial Services Corporation,
and that the Corporation was originally incorporated under the name Financial
Services Acquisition Corporation.
SECOND: That at a meeting of the Board of Directors of the Corporation,
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of the Corporation, declaring said amendment to
be advisable and directing that said amendment be submitted to the
stockholders of the Corporation for consideration thereof at a Special
Meeting of Stockholders.
THIRD: That the proposed amendment to the Corporation's Certificate of
Incorporation is as follows:
1. Article SIXTH of the Corporation's Certificate of Incorporation is
hereby amended to read in its entirety as follows:
"SIXTH: A. The business of the Corporation shall be managed by or under
the direction of its Board of Directors, which shall consist of not less than
three nor more than twelve directors, the exact number of directors to be
determined from time to time by resolution adopted by affirmative vote of a
majority of the entire Board of Directors. The directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class
shall consist, as nearly as may be possible, of one-third of the total number
of directors constituting the entire Board of Directors. Initially, the
number of directors shall be eight, with two Class I directors elected for a
one-year term, three Class II directors elected for a two-year term, and
three Class III directors elected for a three-year term. At each succeeding
annual meeting of stockholders beginning in 1997, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible, and any additional
director of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting of the stockholders for the year in which his
or her term expires and until his or her successor shall be elected and
qualified, subject, however, to prior death, resignation, retirement or
removal from office for cause. Except as the GCL may otherwise require, any
vacancy on the Board of Directors that results from an increase in the
authorized number of directors or any other vacancy occurring in the Board of
Directors (including any unfilled vacancy resulting from the removal of any
director for cause) may be filled by a majority of the remaining directors
then in office, although less than a quorum, or by a sole remaining director.
Any director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor or, if such director has no predecessor, as that of the class of
directors to which such director has been elected. Notwithstanding the
foregoing, whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately by series,
to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of this Certificate of
Incorporation or any Preferred Stock Designation pursuant to Article FOURTH
or as may be permitted by the GCL, and such directors so elected shall not be
divided into classes pursuant to this Article SIXTH unless expressly provided
by such terms.
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B. Subject to the rights of the holders of shares of any series of
Preferred Stock to elect additional directors under specified circumstances
or to consent to actions taken by the Corporation which specifically require
the approval of such holders, any action required or permitted to be taken by
the stockholders of the Corporation must be effected at an annual or special
meeting of stockholders of the Corporation and may not be effected by any
consent in writing in lieu of a meeting of such stockholders.
C. Subject to the rights of the holders of any class or series of
Preferred Stock, and notwithstanding anything to the contrary in the By-Laws
of the Corporation, special meetings of the Corporation may be called only by
the Chairman of the Board, the President of the Corporation or by the
affirmative vote of a majority of the members of the Board of Directors.
D. Notwithstanding any other provision of this Certificate of
Incorporation or the By-Laws of the Corporation, the affirmative vote of the
holders of record of shares of Voting Stock representing at least eighty
percent (80%) of the votes entitled to be cast by holders of all the then
outstanding shares of Voting Stock, voting together as a single class,
without a separate vote of the holders of the Preferred Stock, or any series
thereof, unless a vote of any such holders is required pursuant to any
Preferred Stock Designation, shall be required to alter, amend or repeal this
Article SIXTH or to adopt any provision inconsistent herewith."
FOURTH: That thereafter, pursuant to resolutions of its Board of
Directors, a Special Meeting of the Stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary
number of shares as required by statute were voted in favor of the amendment.
FIFTH: That said amendment has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned have signed this Certificate and
affirm, under penalties of perjury, that this Certificate is the act and deed
of the Corporation and the facts stated herein are true.
Date:
Gilbert Scharf,
Chairman of the Board,
Chief Executive Officer
and President
Attest:
Michael Scharf,
Secretary
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ANNEX V
FINANCIAL SERVICES ACQUISITION CORPORATION
1996 STOCK OPTION PLAN
1. Purpose; Types of Awards; Construction.
The purpose of the Financial Services Acquisition Corporation 1996 Stock
Option Plan (the "Plan") is to align the interests of executive officers and
other key employees of Financial Services Acquisition Corporation and its
subsidiaries with those of the stockholders of Financial Services Acquisition
Corporation, to afford an incentive to such officers and employees to
continue as employees, to increase their efforts on behalf of the Company and
to promote the success of the Company's business. To further such purposes,
the Committee may grant options to purchase shares of the Company's common
stock. The provisions of the Plan are intended to satisfy the requirements of
Section 16(b) of the Securities Exchange Act of 1934 and of Section 162(m) of
the Internal Revenue Code of 1986, and shall be interpreted in a manner
consistent with the requirements thereof, as now or hereafter construed,
interpreted and applied by regulations, rulings and cases.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated below:
(a) "Agreement" shall mean a written agreement entered into between
the Company and an Optionee in connection with an award under the Plan.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cause," when used in connection with the termination of an
Optionee's employment by the Company, shall mean (i) the conviction of the
Optionee for the commission of a felony, (ii) the willful and continued
failure by the Optionee substantially to perform his duties and
obligations to the Company or a Subsidiary (other than any such failure
resulting from his incapacity due to physical or mental illness), or (iii)
the willful engaging by the Optionee in misconduct that is materially
injurious to the Company or a Subsidiary. For purposes of this Section
2(c), no act, or failure to act, on an Optionee's part shall be considered
"willful" unless done, or omitted to be done, by the Optionee in bad faith
and without reasonable belief that his action or omission was in the best
interest of the Company. The Committee shall determine whether a
termination of employment is for Cause for purposes of the Plan.
(d) "Change in Control" shall mean the occurrence of the event set
forth in any of the following paragraphs:
(i) any Person (as defined below) is or becomes the beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended), directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
subsidiaries) representing 50% or more of the combined voting power of
the Company's then outstanding securities; or
(ii) the following individuals cease for any reason to constitute a
majority of the number of directors then serving: individuals who, on
the date hereof, constitute the Board and any new director (other than
a director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company) whose appointment or election by the Board or nomination for
election by the Company's stockholders was approved or recommended by
a vote of at least two-thirds ( 2/3) of the directors then still in
office who either were directors on the date hereof or whose
appointment, election or nomination for election was previously so
approved or recommended; or
(iii) there is consummated a merger or consolidation of the Company
or a direct or indirect subsidiary thereof with any other corporation,
other than (A) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to such
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merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof), in combination with the
ownership of any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the securities of the Company or such surviving entity
or any parent thereof outstanding immediately after such merger or
consolidation, or (B) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
Person is or becomes the beneficial owner, directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Company or its subsidiaries) representing 50% or more of the
combined voting power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation or dissolution of the Company or there is consummated an
agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets, other than a sale or
disposition by the Company of all or substantially all of the
Company's assets to an entity, at least 50% of the combined voting
power of the voting securities of which are owned by Persons in
substantially the same proportions as their ownership of the Company
immediately prior to such sale.
For purposes of this Section 2(d), "Person" shall have the meaning given
in Section 3(a)(9) of the Exchange Act, as modified and used in Sections
13(d) and 14(d) thereof, except that such term shall not include (i) the
Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, (iii) an underwriter temporarily holding securities pursuant to
an offering of such securities, or (iv) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" shall mean a committee established by the Board to
administer the Plan.
(g) "Common Stock" shall mean shares of common stock, par value $.001
per share, of the Company.
(h) "Company" shall mean Financial Services Acquisition Corporation, a
corporation organized under the laws of the State of Delaware, or any
successor corporation.
(i) "Disability" shall mean an Optionee's inability to perform his
duties with the Company by reason of any medically determinable physical
or mental impairment, as determined by a physician selected by the
Optionee and acceptable to the Company.
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted
and applied by regulations, rulings and cases.
(k) "Fair Market Value" per share as of a particular date shall mean
(i) if the shares of Common Stock are then listed on a national securities
exchange, the closing sales price per share of Common Stock on the
national securities exchange on which the Common Stock is principally
traded for the last preceding date on which there was a sale of such
Common Stock on such exchange, or (ii) if the shares of Common Stock are
then traded in an over-the-counter market, the average of the closing bid
and asked prices for the shares of Common Stock in such over-the-counter
market for the last preceding date on which there was a sale of such
Common Stock in such market, or (iii) if the shares of Common Stock are
not then listed on a national securities exchange or traded in an
over-the-counter market, such value as the Committee, in its sole
discretion, shall determine.
(l) "Incentive Stock Option" shall mean any option intended to be and
designated as an incentive stock option within the meaning of Section 422
of the Code.
(m) "Nonqualified Option" shall mean an Option that is not an
Incentive Stock Option.
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(n) "Option" shall mean the right, granted hereunder, to purchase
shares of Common Stock. Options granted by the Committee pursuant to the
Plan may constitute either Incentive Stock Options or Nonqualified Stock
Options.
(o) "Optionee" shall mean a person who receives a grant of an Option.
(p) "Option Price" shall mean the exercise price of the shares of
Common Stock covered by an Option.
(q) "Parent" shall mean any company (other than the Company) in an
unbroken chain of companies ending with the Company if, at the time of
granting an Option, each of the companies other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other companies in such chain.
(r) "Plan" shall mean this Financial Services Acquisition Corporation
1996 Stock Option Plan.
(s) "Retirement" shall mean an Optionee's retirement in accordance
with the terms of any tax-qualified retirement plan maintained by the
Company or a Subsidiary in which the Optionee participates.
(t) "Rule 16b-3" shall mean Rule 16b-3, as from time to time in
effect, promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, including any successor to such Rule.
(u) "Subsidiary" shall mean any company (other than the Company) in an
unbroken chain of companies beginning with the Company if, at the time of
granting an Option, each of the companies other than the last company in
the unbroken chain owns stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the
other companies in such chain.
(v) "Ten Percent Stockholder" shall mean an Optionee who, at the time
an Incentive Stock Option is granted, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock
of the Company or any Parent or Subsidiary.
3. Administration.
The Plan shall be administered by the Committee, the members of which
shall, except as may otherwise be determined by the Board, be "disinterested
directors" under Rule 16b-3 and "outside directors" under Section 162(m) of
the Code.
The Committee shall have the authority in its discretion, subject to and
not inconsistent with the express provisions of the Plan, to administer the
Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Options;
to determine which Options shall constitute Incentive Stock Options and which
Options shall constitute Nonqualified Stock Options; to determine the
purchase price of the shares of Common Stock covered by each Option; to
determine the persons to whom, and the time or times at which awards shall be
granted; to determine the number of shares to be covered by each award; to
interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Agreements
(which need not be identical) and to cancel or suspend awards, as necessary;
and to make all other determinations deemed necessary or advisable for the
administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility the
Committee or such person may have under the Plan. All decisions,
determination and interpretations of the Committee shall be final and binding
on all Optionees of any awards under this Plan.
The Board shall have the authority to fill all vacancies, however caused,
in the Committee. The Board may from time to time appoint additional members
to the Committee, and may at any time remove one
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or more Committee members. One member of the Committee shall be selected by
the Board as chairman. The Committee shall hold its meetings at such times
and places as it shall deem advisable. All determinations of the Committee
shall be made by a majority of its members either present in person or
participating by conference telephone at a meeting or by written consent. The
Committee may appoint a secretary and make such rules and regulations for the
conduct of its business as it shall deem advisable, and shall keep minutes of
its meetings.
No member of the Board or Committee shall be liable for any action taken
or determination made in good faith with respect to the Plan or any award
granted hereunder.
4. Eligibility.
Awards may be granted to executive officers and other key employees of the
Company, EBIC and their Subsidiaries, including officers and directors who
are employees. In determining the persons to whom awards shall be granted and
the number of shares to be covered by each award, the Committee shall take
into account the duties of the respective persons, their present and
potential contributions to the success of the Company and such other factors
as the Committee shall deem relevant in connection with accomplishing the
purpose of the Plan.
5. Stock.
The maximum number of shares of Common Stock reserved for the grant of
awards under the Plan shall be 1,800,000, subject to adjustment as provided
in Section 9 hereof. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company.
If any outstanding award under the Plan should for any reason expire, be
cancelled or be forfeited without having been exercised in full, the shares
of Common Stock allocable to the unexercised, cancelled or terminated portion
of such award shall (unless the Plan shall have been terminated) become
available for subsequent grants of awards under the Plan.
In no event may an Optionee be granted during any calendar year an Option
to acquire more than 500,000 shares of Common Stock.
6. Terms and Conditions of Options.
Each Option granted pursuant to the Plan shall be evidenced by an
Agreement, in such form and containing such terms and conditions as the
Committee shall from time to time approve, which Agreement shall comply with
and be subject to the following terms and conditions, unless otherwise
specifically provided in such Option Agreement:
(a) Number of Shares. Each Option Agreement shall state the number of
shares of Common Stock to which the Option relates.
(b) Type of Option. Each Option Agreement shall specifically state
that the Option constitutes an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Option Price. Each Option Agreement shall state the Option Price,
which shall not be less than one hundred percent (100%) of the Fair Market
Value of the shares of Common Stock covered by the Option on the date of
grant unless, with respect to Nonqualified Stock Options, otherwise
determined by the Committee. The Option Price shall be subject to
adjustment as provided in Section 9 hereof. The date as of which the
Committee adopts a resolution expressly granting an Option shall be
considered the day on which such Option is granted, unless such resolution
specifies a different date.
(d) Medium and Time of Payment. The Option Price shall be paid in
full, at the time of exercise, in cash or in shares of Common Stock then
owned by the Optionee having a Fair Market Value equal to such Option
Price or in a combination of cash and Common Stock or, unless the
Committee shall determine otherwise, by a cashless exercise procedure
through a broker-dealer.
(e) Term and Exercisability of Options. Each Option Agreement shall
provide the exercise schedule for the Option as determined by the
Committee; provided, however, that, the Committee
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shall have the authority to accelerate the exercisability of any
outstanding Option at such time and under such circumstances as it, in its
sole discretion, deems appropriate. The exercise period will be ten (10)
years from the date of the grant of the Option unless otherwise determined
by the Committee; provided, however, that, in the case of an Incentive
Stock Option, such exercise period shall not exceed ten (10) years from
the date of grant of such Option. The exercise period shall be subject to
earlier termination as provided in Sections 6(f) and 6(g) hereof. An
Option may be exercised, as to any or all full shares of Common Stock as
to which the Option has become exercisable, by written notice delivered in
person or by mail to the Secretary of the Company, specifying the number
of shares of Common Stock with respect to which the Option is being
exercised.
(f) Termination. Except as provided in this Section 6(f) and in
Section 6(g) hereof, an Option may not be exercised unless the Optionee is
then in the employ of the Company or a Subsidiary (or a company or a
Parent or Subsidiary company of such company issuing or assuming the
Option in a transaction to which Section 424(a) of the Code applies), and
unless the Optionee has remained continuously so employed since the date
of grant of the Option. In the event that the employment of an Optionee
shall terminate (other than by reason of death, Disability, Retirement or
Cause), all Options of such Optionee that are exercisable at the time of
such termination may, unless earlier terminated in accordance with their
terms, be exercised within thirty (30) days after the date of such
termination (or such different period as the Committee shall prescribe).
(g) Death, Disability or Retirement of Optionee. If an Optionee shall
die while employed by the Company or a Subsidiary, or within thirty (30)
days after the date of termination of such Optionee's employment (or
within such different period as the Committee may have provided pursuant
to Section 6(f) hereof), or if the Optionee's employment shall terminate
by reason of Disability or Retirement, all Options theretofore granted to
such Optionee (to the extent otherwise exercisable) may, unless earlier
terminated in accordance with their terms, be exercised by the Optionee or
by the Optionee's estate or by a person who acquired the right to exercise
such Options by bequest or inheritance or otherwise by reason of death or
Disability of the Optionee, at any time within one year after the death,
Disability or Retirement of the Optionee (or such different period as the
Committee shall prescribe). In the event that an Option granted hereunder
shall be exercised by the legal representatives of a deceased or former
Optionee, written notice of such exercise shall be accompanied by a
certified copy of letters testamentary or equivalent proof of the right of
such legal representative to exercise such Option. Unless otherwise
determined by the Committee, Options not otherwise exercisable on the date
of termination of employment shall be forfeited as of such date.
(h) Other Provisions. The Option Agreements evidencing awards under
the Plan shall contain such other terms and conditions not inconsistent
with the Plan as the Committee may determine.
7. Nonqualified Stock Options.
Options granted pursuant to this Section 7 are intended to constitute
Nonqualified Stock Options and shall be subject only to the general terms and
conditions specified in Section 6 hereof.
8. Incentive Stock Options.
Options granted pursuant to this Section 8 are intended to constitute
Incentive Stock Options and shall be subject to the following special terms
and conditions, in addition to the general terms and conditions specified in
Section 6 hereof.
(a) Value of Shares. The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Common Stock
with respect to which Incentive Stock Options granted under this Plan and all
other option plans of any subsidiary become exercisable for the first time by
each Optionee during any calendar year shall not exceed $100,000.
(b) Ten Percent Stockholder. In the case of an Incentive Stock Option
granted to a Ten Percent Stockholder, (i) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair Market Value of the shares of
Common Stock on the date of grant of such Incentive Stock Option, and (ii)
the exercise period shall not exceed five (5) years from the date of grant of
such Incentive Stock Option.
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9. Effect of Certain Changes.
(a) In the event of any extraordinary dividend, stock dividend,
recapitalization, merger, consolidation, stock split, warrant or rights
issuance, or combination or exchange of such shares, or other similar
transactions, each of the number of shares of Common Stock available for
awards, the number of such shares covered by outstanding awards, and the
price per share of Options, as appropriate, shall be equitably adjusted by
the Committee to reflect such event and preserve the value of such awards;
provided, however, that any fractional shares resulting from such adjustment
shall be eliminated.
(b) Upon the occurrence of a Change in Control, each Option granted under
the Plan and then outstanding but not yet exercisable shall thereupon become
fully exercisable.
10. Surrender and Exchange of Awards.
The Committee may permit the voluntary surrender of all or a portion of
any Option granted under the Plan or any option granted under any other plan,
program or arrangement of the Company or any Subsidiary ("Surrendered
Option"), to be conditioned upon the granting to the Optionee of a new Option
for the same number of shares of Common Stock as the Surrendered Option, or
may require such voluntary surrender as a condition precedent to a grant of a
new Option to such Optionee. Subject to the provisions of the Plan, such new
Option may be an Incentive Stock Option or a Nonqualified Stock Option, and
shall be exercisable at the price, during such period and on such other terms
and conditions as are specified by the Committee at the time the new Option
is granted.
11. Period During Which Awards May Be Granted.
Awards may be granted pursuant to the Plan from time to time within a
period of ten (10) years from the date the Plan is adopted by the Board, or
the date the Plan is approved by the shareholders of the Company, whichever
is earlier, unless the Board shall terminate the Plan at an earlier date.
12. Nontransferability of Awards.
Awards granted under the Plan shall not be transferable otherwise than by
will or by the laws of descent and distribution, and awards may be exercised
or otherwise realized, during the lifetime of the Optionee, only by the
Optionee or by his guardian or legal representative.
13. Approval of Shareholders.
The Plan shall take effect upon its adoption by the Board and shall
terminate on the tenth anniversary of such date, but the Plan (and any grants
of awards made prior to the shareholder approval mentioned herein) shall be
subject to the approval of Company's shareholders, which approval must occur
within twelve months of the date the Plan is adopted by the Board.
14. Agreement by Optionee Regarding Withholding Taxes.
If the Committee shall so require, as a condition of exercise of an Option
(a "Tax Event"), each Optionee shall agree that no later than the date of the
Tax Event, the Optionee will pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any federal, state or
local taxes of any kind required by law to be withheld upon the Tax Event.
Alternatively, the Committee may provide that an Optionee may elect, to the
extent permitted or required by law, to have the Company deduct federal,
state and local taxes of any kind required by law to be withheld upon the Tax
Event from any payment of any kind due to the Optionee. The withholding
obligation may be satisfied by the withholding or delivery of Common Stock.
15. Amendment and Termination of the Plan.
The Board at any time and from time to time may suspend, terminate, modify
or amend the Plan; provided, however, that, unless otherwise determined by
the Board, an amendment that requires stockholder approval in order for the
Plan to continue to comply with Rule 16b-3, Section 162(m) of the Code or any
other law, regulation or stock exchange requirement shall not be effective
unless approved by the requisite vote of stockholders. Except as provided in
Section 9(a) hereof, no suspension, termination, modification or amendment of
the Plan may adversely affect any award previously granted, unless the
written consent of the Optionee is obtained.
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16. Rights as a Shareholder.
An Optionee or a transferee of an award shall have no rights as a
shareholder with respect to any shares covered by the award until the date of
the issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distribution of other rights for which the
record date is prior to the date such stock certificate is issued, except as
provided in Section 9(a) hereof.
17. No Rights to Employment.
Nothing in the Plan or in any award granted or Agreement entered into
pursuant hereto shall confer upon any Optionee the right to continue in the
employ of the Company or any Subsidiary or to be entitled to any remuneration
or benefits not set forth in the Plan or such Agreement or to interfere with
or limit in any way the right of the Company or any such Subsidiary to
terminate such Optionee's employment. Awards granted under the Plan shall not
be affected by any change in duties or position of an Optionee as long as
such Optionee continues to be employed by the Company or any Subsidiary.
18. Beneficiary.
An Optionee may file with the Committee a written designation of a
beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Optionee, the executor or administrator of the Optionee's estate
shall be deemed to be the Optionee's beneficiary.
19. Governing Law.
The Plan and all determinations made and actions taken pursuant hereto
shall be governed by the laws of the State of Delaware.
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ANNEX VI
ESCROW AGREEMENT
ESCROW AGREEMENT (this "Agreement"), dated as of March 8, 1996 by and
among Financial Services Acquisition Corporation, a Delaware corporation
("FSAC"), EBIC Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of FSAC ("Sub"), Euro Brokers Investment Corporation, a Delaware
corporation (the "Company"), Donald R.A. Marshall, President of the Company,
Welsh, Carson, Anderson & Stowe VI, L.P., a Delaware limited partnership
("WCAS VI" and, together with Mr. Marshall, sometimes hereinafter referred to
each as a "Representative" and together as the "Representatives") and United
States Trust Company of New York, as escrow agent (the "Escrow Agent").
WHEREAS, FSAC, Sub and the Company, concurrently with the execution and
delivery of this Agreement will enter into an Agreement and Plan of Merger,
dated as of the date hereof (the "Merger Agreement"), providing for, among
other things, the merger (the "Merger") of Sub with and into the Company, as
a result of which the outstanding shares of Class B Common Stock, par value
$.001 per share ("Company Common Stock"), of the Company will be converted
into the right to receive (x) Common Stock, par value $.001 per share
("Merger Stock"), of FSAC, (y) Series B Redeemable Common Stock Purchase
Warrants ("Merger Warrants"), of FSAC and (z) cash, without interest (the
"Cash Consideration");
WHEREAS, capitalized terms used but not defined herein shall have the
meanings assigned to such terms in the Merger Agreement;
WHEREAS, Article III of the Merger Agreement provides that (a) at the
Effective Time, FSAC shall deposit with the Escrow Agent (i) 10% of the
Merger Stock and (ii) $2 million of the Cash Consideration and (iii) to the
extent there are any Dissenting Shares, (x) that portion of the Merger Stock
and Merger Warrants that otherwise would have been paid to the Dissenters and
(y) an additional portion of the Cash Consideration equal to the product of
the Per Share Book Value and the number of Dissenting Shares, and (b) after
the making of the adjustments contemplated by Section 3.7 of the Merger
Agreement, FSAC shall deposit with the Escrow Agent, if applicable, the
Positive Cash Adjustment;
WHEREAS, all such securities and cash that are deposited from time to time
with the Escrow Agent (together with all interest thereon, all accretions
thereto and all dividends with respect to the Escrow Stock, hereinafter the
"Escrow Funds") are to be held and released by the Escrow Agent in accordance
with the terms of this Agreement and the Merger Agreement;
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE I
DELIVERY OF ESCROW FUNDS
Section 1.1. (a) At the Effective Time, FSAC shall deposit with the
Escrow Agent (i) the Escrow Stock, (ii) the Cash Escrow Amount and (iii) to
the extent there are any Dissenting Shares, the Section 262 Escrow Securities
and (b) after the making of the adjustments contemplated by Section 3.7 of
the Merger Agreement, FSAC shall deposit with the Escrow Agent, if
applicable, the Positive Cash Adjustment in accordance with and subject to
the limitations of Section 3.7(f)(i) of the Merger Agreement (any Positive
Cash Adjustment so deposited shall, for purposes of this Agreement, be deemed
to become part of the Cash Escrow Amount). The Escrow Agent hereby
acknowledges receipt of the specific Escrow Funds identified on Schedule 1.1
hereto. The Escrow Agent agrees to accept and hold all Escrow Funds on
deposit with it from time to time in accordance with the terms of this
Agreement.
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ARTICLE II
INVESTMENT OF CASH ESCROW AMOUNT
Section 2.1. The Escrow Agent shall promptly invest the Cash Escrow
Amount, in such instruments and of such maturities, as FSAC and the
Representatives may from time to time jointly instruct the Escrow Agent in
writing. In the absence of such instructions (including if such instructions
are not provided at the Effective Time), the Escrow Agent shall promptly
invest the Cash Escrow Amount, at its own discretion, in any or all of the
following instruments; provided, however, that no such investment shall be of
more than forty-five (45) days' duration: (i) direct obligations of the
United States Treasury; (ii) commercial paper having a rating respectively of
P-1 and A-1+ from Moody's Investor's Service ("Moody's") and Standard and
Poor's Corporation ("S&P"); provided, however, that the long-term unsecured
debt rating of the issuing entity issued from Moody's is at least Aa3; (iii)
demand or time deposits in, or bankers acceptance or certificates of deposit
issued by, a bank with commercial paper ratings from Moody's and S&P of
respectively P-1 and A-1+ and an unsecured long-term debt rating from Moody's
of at least Aa3; or (iv) shares in the Money Fund, Government Money Fund and
Treasury Money Fund issued by UST Master Funds.
ARTICLE III
DEMANDS FOR PAYMENT AND RELEASE OF
CASH ESCROW AMOUNT AND SECTION 262 ESCROW SECURITIES
Section 3.1. In the event that after the adjustments required by Section
3.7 of the Merger Agreement there is a Negative Cash Adjustment, FSAC and the
Representatives shall jointly instruct the Escrow Agent to release to FSAC
from the Cash Escrow Amount the amount of such Negative Cash Adjustment in
accordance with and subject to the limitations of Section 3.7 (f)(ii) of the
Merger Agreement, and the Escrow Agent shall promptly release to FSAC from
the Cash Escrow Amount the amount of such Negative Cash Adjustment, in
accordance with such instruction.
Section 3.2. After payments have been made (or the right to payment has
been forfeited) with respect to all Dissenting Shares, FSAC and the
Representatives shall jointly instruct the Escrow Agent to release the
Section 262 Securities in accordance with the provisions of Section 3.4(d) of
the Merger Agreement, and the Escrow Agent shall promptly release such
Section 262 Escrow Securities, in accordance with such instruction.
Section 3.3. To the extent that the Surviving Corporation makes any
payments to Dissenters with respect to their Dissenting Shares (either
pursuant to a settlement with such Dissenters with the prior written approval
of FSAC or pursuant to Delaware court appraisal proceedings), FSAC and the
Representatives shall jointly instruct the Escrow Agent (i) to release to the
Surviving Corporation from the Cash Escrow Amount the amount of such payments
and (ii) to the extent the Cash Escrow Amount then remaining is insufficient
therefor, to release to FSAC such portion of the Escrow Stock as is equal to
such shortfall (valued in accordance with Section 4.8 hereof), and the Escrow
Agent shall promptly release the amount of such payments to the Surviving
Corporation from the Cash Escrow Amount (and, if applicable, to FSAC from the
Escrow Stock), in accordance with such instruction.
Section 3.4. Following the making of whichever of the two adjustments
contemplated by Sections 3.7(f)(i) and (ii) of the Merger Agreement is
applicable, and provided that all payments have been made (or the right to
payment has been forfeited) with respect to all Dissenting Shares, FSAC and
the Representatives shall jointly instruct the Escrow Agent to release the
remaining Cash Escrow Amount, if any, in accordance with the provisions of
Section 3.4(e) of the Merger Agreement, and the Escrow Agent shall promptly
release such remaining portion of the Cash Escrow Amount, in accordance with
such instruction.
Section 3.5. In the event that any of FSAC or the Representatives at any
time believes that the terms of the Merger Agreement and/or Article III of
this Agreement require the provision of a joint instruction to the Escrow
Agent with respect to the release of Escrow Funds, and either or both of the
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others do not agree (or do not agree on the contents of the instruction),
any of FSAC or the Representatives may (i) with the consent of the others,
initiate arbitration in accordance with Article V of this Agreement to
resolve such dispute or (ii) absent such consent, initiate suit in a court of
appropriate jurisdiction to resolve such dispute.
ARTICLE IV
DEMANDS FOR PAYMENT AND RELEASE OF ESCROW STOCK
Section 4.1. If an Indemnified Party, including FSAC (the "Payee") claims
indemnification from and against Damages in accordance with Article X of the
Merger Agreement, the Payee may deliver to the Escrow Agent a certificate
(the "Certificate") demanding that the Escrow Agent release to the Payee a
number of shares of the Escrow Stock (the "Demand Amount") having a valuation
(pursuant to Section 4.8 hereof) that is equal to the Damages. The
Certificate shall (i) specify the amount of the Damages and the Demand
Amount, (ii) attach the calculation of the Damages and the Demand Amount,
including in reasonable detail the basis thereof, and (iii) certify that each
Representative and FSAC (if not the Payee) have been delivered a copy of the
Certificate. Upon its receipt, the Escrow Agent shall also promptly forward a
copy of the Certificate to FSAC (if not the Payee) and each Representative.
Section 4.2. Unless each of the Escrow Agent, FSAC (if not the Payee) and
the Payee receives a written notice of objection (an "Objection") to the
Certificate from a Representative within twenty (20) business days after the
date of the Escrow Agent's forwarding to such Representative of the
Certificate, the Representatives shall be deemed to have consented to the
release from the Escrow Funds of the Demand Amount specified in the
Certificate (the "Deemed Consent Amount"), and the Certificate shall
automatically become effective without further action. Any Objection
delivered by a Representative shall also certify that such Objection has been
delivered to each of FSAC (if not the Payee) and the Payee. Upon its receipt,
the Escrow Agent shall also promptly forward a copy of such Objection to FSAC
(if not the Payee) and the Payee.
Section 4.3. Any release of Escrow Stock pursuant to this Agreement,
regardless of the identity of the Payee delivering the Certificate, shall be
made only to FSAC. FSAC shall thereupon retire (and hold in treasury) or
cancel, in its discretion, such released shares and, if the Payee is not
FSAC, pay or cause to be paid to the Payee, promptly following FSAC's receipt
of such released Escrow Stock, an amount of cash equal to the valuation of
such Escrow Stock (pursuant to Section 4.8 hereof).
Section 4.4. Notwithstanding anything to the contrary in Sections 4.2, 4.5
or 4.6, the Escrow Agent shall not release Escrow Stock until the aggregate
amount of the Cleared Damages (as hereinafter defined) exceeds One Hundred
Thousand Dollars ($100,000). Once the aggregate amount of such Cleared
Damages exceeds $100,000, the Escrow Agent shall release to FSAC the full
amount of such Cleared Damages (including the amounts aggregating to less
than the $100,000 threshold). For each subsequent Certificate delivered by a
Payee to the Escrow Agent, the Escrow Agent shall release to FSAC, in
satisfaction of any Cleared Damages with respect to such Certificate, an
amount equal to the lesser of (i) such Cleared Damages and (ii) the remaining
balance of the Escrow Stock. The term "Cleared Damages" shall refer to and
mean as many of the following as are applicable to any Certificate: (i) the
Deemed Consent Amount, (ii) the Unchallenged Amount (as hereinafter defined),
(iii) the Award Amount (as hereinafter defined) and (iv) the Instructed
Amount (as hereinafter defined).
Section 4.5. In the event that a Representative delivers to the Escrow
Agent, FSAC (if not the Payee) and the Payee an Objection to the Certificate
within the time frame specified in Section 4.2, the Escrow Agent shall not
release any of the Escrow Stock to FSAC in satisfaction of the Demand Amount
unless and until the Escrow Agent receives (i) a certified copy of an award
in arbitration from the Arbitrator (as defined below) specifying the amount
of Escrow Stock, if any, so to be released (the "Award Amount") or (ii) a
subsequent joint instruction from FSAC and the Representatives instructing
the amount of Escrow Stock so to be released (the "Instructed Amount"). If
both Representatives deliver an Objection within the time frame specified in
Section 4.2, the arbitrations with respect to each Objection shall be heard
together. Promptly upon receipt of such a certified copy of an award (or a
subsequent joint
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instruction), the Escrow Agent shall release the portion of the Escrow Stock
as specified therein, if any, to FSAC in accordance with such award (or
instruction), and such release shall be deemed to satisfy the Demand Amount
of the Certificate.
Section 4.6. In any Objection to the Certificate, a Representative may
state an objection to all or a portion of the Demand Amount sought in the
Certificate. If such Representative objects to only a portion of such Demand
Amount, such Objection shall instruct the Escrow Agent to release, and the
Escrow Agent shall release, to FSAC, in satisfaction of the unobjected-to
portion of the Demand Amount, a portion of the Escrow Stock equal to such
unobjected-to portion (the "Unchallenged Amount"). If both Representatives
deliver Objections which object to only a portion of the Demand Amount, the
Escrow Agent shall release a portion of the Escrow Stock equal to (and the
Unchallenged Amount shall constitute) the lesser unobjected-to portion of the
Demand Amount.
Section 4.7. Notwithstanding anything to the contrary contained in this
Agreement, the Escrow Agent shall release to each Holder a number of whole
shares of Escrow Stock equal to such Holder's Proportionate Interest in the
remaining Escrow Stock upon the date which shall be 12 months after the
Effective Time, unless prior to such date any Payee has delivered a
Certificate to the Escrow Agent and such Payee's entitlement to Escrow Stock
has not been finally determined and satisfied in accordance with the terms of
this Agreement, in which case, the Escrow Stock shall not be released to any
Holder until final determination and satisfaction of all such pending
Certificates.
Section 4.8. For all purposes under this Agreement, a share of Escrow
Stock shall be valued at the average closing bid price of a share of FSAC
Common Stock as reported (i) on the OTC Bulletin Board or (ii) if not quoted
at such time on the OTC Bulletin Board, the Pink Sheets, in each case for the
last five trading days immediately preceding the Effective Time.
Section 4.9. Notwithstanding anything to the contrary contained in this
Agreement, the Escrow Agent shall release the Escrow Funds, or any portion
thereof, in accordance with any instrument in writing expressly referring to
this Agreement and signed by FSAC and each Representative.
ARTICLE V
ARBITRATION
Section 5.1 Each Representative shall be entitled to dispute a
Certificate, provided that such Representative raises such dispute in an
Objection delivered to the Escrow Agent within the time frame specified in
Section 4.2. Any Objection delivered by a Representative as to the
Certificate shall specify in reasonable detail the nature of and the reasons
for the objections described therein and what such Representative believes
the Damages and the Demand Amount should be, if any, including in reasonable
detail the basis thereof.
Section 5.2 If, within 20 business days after delivery of an Objection,
the Payee, FSAC (if not the Payee) and each Representative have been unable
to reach agreement with respect to any Demand Amount that is the subject of
such Objection (the "Challenged Amount"), the dispute shall, at the instance
of either FSAC or either Representative, be referred to the Arbitrator (as
defined in the Merger Agreement) or, if any of FSAC or the Representatives
object, to a partner knowledgeable about the financial services industry at
such other nationally-recognized accounting firm as the parties may agree and
which is not affiliated and does not have a conflict with any of the parties
(the "Arbitrator").
Section 5.3. The Arbitrator shall be charged with making a determination,
in accordance with the Merger Agreement and this Agreement, of the Challenged
Amount and the Demand Amount. The parties making the submission shall request
the Arbitrator to render a decision within 60 days. Any such determination of
the Arbitrator shall be final and binding upon the parties and shall not, in
the absence of manifest error, be subject to judicial review.
Section 5.4. The fees and expenses of the Arbitrator shall be paid by
FSAC.
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Section 5.5. The parties (on behalf of themselves and any Holders they
represent) agree that any dispute arising as to the amount of any payment to
be made pursuant to Article X of the Merger Agreement shall be resolved
solely and exclusively pursuant to the procedures set forth or contemplated
in such Article X and this Article V.
ARTICLE VI
RIGHTS OF AGENT
Section 6.1. The Escrow Agent shall have no duties or responsibilities
except those expressly set forth herein.
Section 6.2. No person, firm or corporation will be recognized by the
Escrow Agent as a successor or assignee of FSAC, Sub, the Company or either
Representative until there shall be presented to the Escrow Agent evidence
satisfactory to it of such succession or assignment.
Section 6.3. The Escrow Agent may rely upon any instrument in writing
believed in good faith by it to be genuine and sufficient and properly
presented and shall not be liable or responsible for any action taken or
omitted in accordance with the provisions thereof.
Section 6.4. The Escrow Agent shall not be liable or responsible for any
act it may do or omit to do except for its negligence, bad faith or willful
misconduct. The Escrow Agent may consult with counsel and shall be fully
protected with respect to any action taken or omitted by it in good faith on
written advice of counsel.
Section 6.5. FSAC shall (i) reimburse the Escrow Agent for all reasonable
expenses incurred by the Escrow Agent in connection with its duties hereunder
and (ii) indemnify and hold harmless the Escrow Agent against any and all
losses, claims, liabilities, costs, payments and expenses, including
reasonable legal fees for counsel who may be selected by the Escrow Agent,
which may be imposed upon or incurred by the Escrow Agent hereunder, except
as a result of the negligence, bad faith or willful misconduct of the Escrow
Agent. The compensation of the Escrow Agent shall be $5,000 per annum for
each year following the Effective Time (payable in full at the Effective Time
for the first year and thereafter payable quarterly in advance) or as
otherwise agreed upon from time to time by FSAC, the Representatives and the
Escrow Agent.
Section 6.6. Each party shall from time to time deliver to the Escrow
Agent certificates as to the identity of the persons authorized to give
instructions, certificates and notices hereunder and otherwise to act on
behalf of such party, which certificates shall contain specimens of such
persons' signatures.
ARTICLE VII
NO FRACTIONS; PAYMENT OF INTEREST
Section 7.1. No certificates or scrip representing fractional interests in
shares of Escrow Stock or in Section 262 Securities shall be released by the
Escrow Agent. All fractional interests in a share of Escrow Stock or in
Section 262 Securities that a person at any given time would otherwise be
entitled to receive under this Agreement shall be aggregated. If after such
aggregation, a fractional interest in a share of Escrow Stock or in Section
262 Securities would result, such fractional interest shall be disregarded
and such person shall only be entitled to receive the resulting whole number
of shares of Escrow Stock and/or Section 262 Securities.
Section 7.2. All releases of cash or securities from the Escrow Funds
shall include, in the case of cash, a pro rata amount of any interest earned
thereon while in escrow and, in the case of securities, any dividends or
distributions made thereon or other accretions thereon while in escrow.
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ARTICLE VIII
MISCELLANEOUS
Section 8.1. FSAC, each Representative and any other relevant party to
this Agreement shall attempt in good faith to resolve any disputes arising
hereunder promptly.
Section 8.2. This Agreement shall terminate after all Escrow Funds have
been released in accordance with the terms hereof.
Section 8.3. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.4. All notices, requests, demands, certificates or other
communications required or permitted to be given hereunder shall be in
writing and shall be deemed given if delivered personally (including by
courier), or sent by facsimile transmission. Any such notice shall be deemed
given when so delivered personally, or if sent by facsimile transmission,
when transmitted, to the following addresses, or to such other addresses
(with copies to such other persons) as shall be notified subsequently in
writing in accordance herewith:
(a) if to FSAC, the Company or Sub, to:
Financial Services Acquisition Corporation
667 Madison Avenue
11th Floor
New York, NY 10021
Attention: Gilbert Scharf
Telecopy: (212) 246-1514
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Roger Schwed, Esq.
Telecopy: (212) 735-2000
(b) if to WCAS VI, to:
Welsh, Carson, Anderson & Stowe VI, L.P.
One World Financial Center
Suite 3601
New York, NY 10281
Attention: Patrick J. Welsh
Telecopy: (212) 945-2016
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: William J. Hewitt, Esq.
Telecopy: (212) 841-5725
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(c) if to Mr. Marshall:
Euro Brokers Investment Corporation
Two World Trade Center
Suite 8400
New York, NY 10048
Attention: Donald R. A. Marshall
Telecopy: (212) 748-7329
(d) if to the Escrow Agent:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
Attention: Margaret Ciesmelewski
Telecopy: (212) 852-1626
A copy of any notice, request, demand, certificate or other communication
given hereunder by any party shall be delivered to each other party to this
Agreement as well as to the addressee at the same time as it is given to the
addressee.
Section 8.5. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
Section 8.6. This Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective heirs, executors, personal
representatives, successors and assigns, provided that any assignment of this
Agreement or the rights hereunder by any party hereto without the written
consent of the other parties shall be void. Except for Indemnified Parties,
nothing in this Agreement, express or implied, is intended to confer upon any
other person any rights or remedies under or by reason of this Agreement.
Section 8.7. Subject to the arbitration provisions hereof, this Agreement
shall be governed by and construed and enforced in accordance with the laws
of the State of Delaware.
Section 8.8. No consent or waiver, expressed or implied, by any party to
or of any breach or default by any other in the performance by the other of
its obligations hereunder shall be deemed or construed to be a consent or
waiver to or of any other breach or default in the performance by such party
of the same or any obligations of the party. Except as otherwise expressly
provided herein, failure on the part of any party to complain of any act or
failure to act of the other party or to declare the other party in default,
irrespective of how long such failure continues, shall not constitute a
waiver by that party of its rights under this Agreement or otherwise.
Section 8.9. No modification, waiver or discharge of this Agreement shall
bind any party unless it is writing, specifically refers to this Agreement
and is signed by or on behalf of such party by a duly authorized officer (in
the case of a party that is a corporation) thereof.
Section 8.10. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provisions hereof shall not
affect the validity and enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or
entity or any circumstances, is invalid or unenforceable, (i) a suitable and
equitable provision shall be substituted therefor in order to carry out, so
far as may be valid and enforceable, the intent and purpose of such invalid
and unenforceable provision and (ii) the remainder of this Agreement and the
application of such provision to other persons, entities or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
Section 8.11. In the event of any conflict between the terms of this
Agreement and the Merger Agreement, the terms of the Merger Agreement shall
control.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their authorized representatives, all as of the date first
above written.
FINANCIAL SERVICES ACQUISITION
CORPORATION
By /s/ Gilbert Scharf
-------------------------------------
Name: Gilbert Scharf
Title: Chairman, President
and Chief Executive Officer
EBIC ACQUISITION CORP.
By /s/ Gilbert Scharf
-------------------------------------
Name: Gilbert Scharf
Title: Chairman and President
EURO BROKERS INVESTMENT
CORPORATION
By /s/ Keith E. Reihl
-------------------------------------
Name: Keith E. Reihl
Title: Senior Vice President
WELSH, CARSON, ANDERSON
& STOWE VI, L.P.
By WCAS VI Partners, L.P.
General Partner
By /s/ Patrick J. Welsh
-------------------------------------
DONALD R. A. MARSHALL
/s/ Donald R.A. Marshall
-------------------------------------
UNITED STATES TRUST COMPANY
OF NEW YORK
By /s/ Margaret M. Ciesmelewski
-------------------------------------
Name: Margaret M. Ciesmelewski
Title: Assistant Vice President
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ANNEX VII
SECURITY TRANSFER AGREEMENT
SECURITY TRANSFER AGREEMENT (this "Agreement"), dated as of March 8, 1996
by and among Financial Services Acquisition Corporation, a Delaware
corporation ("FSAC"), Gilbert Scharf, the Chairman of FSAC, Michael Scharf,
the Secretary of FSAC, Welsh, Carson, Anderson & Stowe, VI, L.P., a Delaware
limited partnership ("WCAS VI"), WCAS Information Partners, L.P., a Delaware
limited partnership ("WCAS Info") and each other person set forth on the
execution pages hereof (each, together with Gilbert Scharf, Michael Scharf,
WCAS VI and WCAS Info, a "Stockholder" and, collectively the "Stockholders")
WHEREAS, FSAC, EBIC Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of FSAC ("Sub"), and Euro Brokers Investment Corporation, a
Delaware corporation ("EBIC"), concurrently with the execution and delivery
of this Agreement will enter into an Agreement and Plan of Merger, dated as
of the date hereof (the "Merger Agreement"), providing for, among other
things, the merger (the "Merger") of Sub with and into EBIC, as a result of
which the outstanding shares of Common Stock, par value $.001 per share
("EBIC Common Stock"), of EBIC will be converted into the right to receive
(i) Common Stock, par value $.001 per share ("FSAC Common Stock"), of FSAC
(any shares of FSAC Common Stock so received in the Merger, hereinafter the
"Merger Shares"), (ii) Series B Redeemable Common Stock Purchase Warrants of
FSAC (the "Merger Warrants") and (iii) cash, without interest;
WHEREAS, it is contemplated that as soon as reasonably practicable
following consummation of the Merger (subject, however, to the advice of its
financial advisors), FSAC will commence an exchange offer (the "Exchange
Offer") to acquire all Redeemable Common Stock Purchase Warrants ("FSAC
Warrants") of FSAC (including the Merger Warrants and, if not theretofore
exchanged, the Bridge Warrants (as defined in the Prospectus, dated November
30, 1994, of FSAC)) that are outstanding, on the basis of one share of FSAC
Common Stock for a number of FSAC Warrants (the "Warrant Exchange Ratio") to
be mutually agreed post-closing between FSAC and WCAS VI.
WHEREAS, certain of the shares of FSAC Common Stock held by each of
Michael Scharf and Gilbert Scharf are subject to the terms of that certain
Escrow Agreement, dated November 30, 1994 (the "Escrow Shares");
WHEREAS, concurrently with the execution and delivery of the Merger
Agreement and as a condition and inducement to FSAC, EBIC and Sub's
willingness to enter into the Merger Agreement, the parties have agreed to
enter into this Agreement (i) imposing certain restrictions on post-Merger
dispositions by such parties (other than FSAC) of (x) shares of FSAC Common
Stock (other than the Escrow Shares) held or acquired by them following the
Effective Time (as defined in the Merger Agreement), including, without
limitation, any Merger Shares and any shares of FSAC Common Stock obtained
upon conversion of any FSAC Warrants (including any Merger Warrants) (any
such shares so held or acquired, hereinafter the "Shares") and (y) FSAC
Warrants (including any Merger Warrants) held or acquired by them following
the Effective Time (any warrants so held or acquired, hereinafter the
"Warrants") and (ii) imposing certain obligations on the parties (other than
FSAC) to tender certain of their Warrants in the Exchange Offer, if and when
made.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
SECURITY TRANSFER RESTRICTIONS
AND EXCHANGE OFFER OBLIGATION
SECTION 1.1 Restriction. Each Stockholder covenants and agrees with each
other Stockholder and FSAC not to, for the period commencing on the Effective
Time (as defined in the Merger Agreement) and ending on November 30, 1996,
sell, pledge, encumber, dispose, grant a security interest
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in or otherwise dispose of or transfer (collectively, "Sell", the doing
thereof being a "Sale") any Shares or Warrants owned or acquired,
beneficially or of record, by such Stockholder following the Effective Time
and any such Sale or attempted Sale shall be void. Notwithstanding the
foregoing, a Stockholder who is a natural person may Sell any of the Shares
or Warrants so held (i) by means of a gift to a member of such Stockholder's
immediate family or to a trust, the beneficiary of which is such Stockholder
or a member of such Stockholder's immediate family or (ii) by virtue of the
laws of descent and distribution upon the death of such Stockholder;
provided, however, that the transferee in any such Sale (a "Permitted
Transferee") shall agree in writing to be bound by the terms and conditions
of this Agreement. During the term of this Agreement, FSAC covenants and
agrees not to transfer or recognize any transfer on its books and records by
a Stockholder or a Permitted Transferee of any Shares or Warrants except for
a Sale permitted hereby and made in compliance herewith.
SECTION 1.2 Exchange Offer. Notwithstanding anything to the contrary in
Section 1.1, each Stockholder hereby agrees with each other Stockholder and
FSAC to tender for exchange (and not withdraw) in the Exchange Offer, at the
Warrant Exchange Ratio, that portion of the Warrants held by such Stockholder
as is equal to the amount, expressed as a percentage, obtained by dividing
(i) the number of FSAC Warrants (including the Bridge Warrants), if any,
tendered for exchange in the Exchange Offer by persons or entities other than
the Stockholders and their Permitted Transferees (the "Public Warrant
Holders"), by (ii) the total number of FSAC Warrants (including the Bridge
Warrants) held by the Public Warrant Holders immediately prior to the
consummation of the Exchange Offer.
ARTICLE II.
STOCK CERTIFICATE LEGEND
SECTION 2.1 Each certificate representing any Shares or Warrants to which
this Agreement applies shall conspicuously bear a legend in substantially the
following form:
"THE TRANSFER OF THE SECURITY REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED UNDER AND SUBJECT TO THE TERMS OF AN AGREEMENT TO WHICH THE
COMPANY IS A PARTY, AS SUCH AGREEMENT MAY BE AMENDED, SUPPLEMENTED, OR
OTHERWISE MODIFIED FROM TIME TO TIME (THE "AGREEMENT"). A COPY OF THE
AGREEMENT IS ON FILE AT THE COMPANY'S OFFICE. THE HOLDER OF THIS
CERTIFICATE, BY HIS OR HER ACCEPTANCE HEREOF, AGREES TO BE BOUND BY
THE PROVISIONS OF THE AGREEMENT."
SECTION 2.2 At such time as any Shares or Warrants shall no longer be
subject to any of the restrictions of this Agreement, FSAC shall take or
cause to be taken, at the request of any holder of such Shares or Warrants,
such action as shall be necessary so that such holder shall be issued
replacement certificates representing such Shares or Warrants that do not
refer to such restrictions.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to each other Stockholder
and FSAC as follows:
SECTION 3.1 Authority Relative to this Agreement. Such Stockholder (if it
is a corporation, partnership or other legal entity) is duly organized and
validly existing under the laws of the jurisdiction of its incorporation or
organization. Such Stockholder has all necessary power and authority
(corporate or otherwise) to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by such Stockholder and
the consummation by such Stockholder of the transactions contemplated hereby
have been duly and validly authorized by all necessary action (corporate or
otherwise) on the part of such Stockholder, and no other proceedings
(corporate or otherwise) on the part of such Stockholder are
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necessary to authorize this Agreement or to consummate such transactions.
This Agreement has been duly and validly executed and delivered by or on
behalf of such Stockholder and constitutes a valid and binding obligation of
such Stockholder, enforceable against such Stockholder in accordance with its
terms.
SECTION 3.2 No Conflict. The execution and delivery of this Agreement by
such Stockholder do not, and the performance of this Agreement by such
Stockholder will not, (i) conflict with or violate the charter, by-laws,
partnership agreement or comparable organizational documents of such
Stockholder (in the case of a Stockholder that is a corporation, partnership
or other legal entity), (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to such Stockholder or by
which the Owned Shares (as defined below) or Shares or Warrants held or to be
held by such Stockholder are or will be (during the term hereof) bound or
affected, (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance of any
kind on any of such Owned Shares or Shares or Warrants pursuant to, any
agreement, contract, indenture, notice or instrument to which such
Stockholder is or will be (during the term hereof) a party or by which such
Stockholder or such Owned Shares or Shares or Warrants are or will be (during
the term hereof) bound or affected, or (iv) except for applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended,
require on behalf of such Stockholder any filing with or notification to, or
any permit, authorization consent or approval of, any governmental or
regulatory authority, domestic or foreign.
SECTION 3.3 Title to Shares. The shares set forth opposite such
Stockholder's name on the signature pages hereof (the "Owned Shares")
constitute all of the shares of FSAC Common Stock (other than Escrow Shares)
or EBIC Common Stock owned as of the date hereof (either beneficially or of
record) by such Stockholder.
ARTICLE IV.
COVENANTS OF THE STOCKHOLDERS
SECTION 4.1 No Inconsistent Arrangements. Each Stockholder hereby
covenants and agrees that, during the term of this Agreement, it shall not
enter into any contract, agreement, understanding or other arrangement with
respect to any of the Shares or Warrants held by it that would involve a
Sale, or a commitment to make a Sale, in violation of the terms hereof, that
would cause any of such Stockholder's representations in Section 3.2 hereof
to become untrue (if made as of the time of such arrangement) or that would
otherwise be inconsistent with the terms hereof.
SECTION 4.2 Certain Events. Each Stockholder hereby covenants and agrees
with each other Stockholder and FSAC that this Agreement, and the obligations
hereunder, shall attach during the term hereof to any shares of FSAC Common
Stock (other than the Escrow Shares) or FSAC Warrants held or acquired
(including, without limitation, by dividend, purchase or exercise of an
option or warrant) by such Stockholder following the Effective Time and shall
be binding upon any person or entity to which legal or beneficial ownership
of such FSAC Common Stock or FSAC Warrants shall pass by operation of law,
including without limitation such Stockholder's administrators or successors.
SECTION 4.3 Dissenter Shares. Each Stockholder (other than Gilbert and
Michael Scharf) hereby covenants and agrees with and for the benefit of FSAC
that he, she or it will not, directly or indirectly, solicit, facilitate or
encourage the assertion or exercise in connection with the Merger, by any
other holder of EBIC Common Stock, of such other holder's right to an
appraisal under Section 262 of the Delaware General Corporation Law of the
fair value of such holder's shares of EBIC Common Stock.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1 Duration. This Agreement shall remain in effect until the
earlier to occur of (i) the termination of the Merger Agreement and (ii)
November 30, 1996, and thereafter this Agreement shall
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automatically terminate without further action by any party hereto;
provided, however, that Section 2.2 shall survive a termination described in
the preceding clause (ii) and, if the Exchange Offer has not theretofore been
consummated, Section 1.2 shall survive a termination described in the
preceding clause (ii) until the earlier of (x) the consummation of the
Exchange Offer and (y) November 30, 1997.
SECTION 5.2 Specific Performance. The parties hereto agree that if any of
the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached, irreparable damage would occur, no
adequate remedy at law would exist and damages would be difficult to
determine, and that the parties shall be entitled to specific performance of
the terms hereof, without any requirement for securing or posting any bond,
in addition to any other remedy at law or equity.
SECTION 5.3 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, both written and
oral, among the parties hereto with respect to the subject matter hereof.
SECTION 5.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto and specifically
referencing this Agreement.
SECTION 5.5 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provisions hereof
shall not affect the validity and enforceability of the other provisions
hereof. If any provision of this Agreement, or the application thereof to any
person or entity or any circumstances, is invalid or unenforceable, (i) a
suitable and equitable provision shall be substituted therefor in order to
carry out, so far as may be valid and enforceable, the intent and purpose of
such invalid and unenforceable provision and (ii) the remainder of this
Agreement and the application of such provision to other persons, entities or
circumstances shall not be affected by such invalidity or unenforceability,
nor shall such invalidity or unenforceability affect the validity or
enforceability of such provision, or the application thereof, in any other
jurisdiction.
SECTION 5.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without
giving effect to the provisions thereof relating to conflicts of law.
SECTION 5.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective as to any Stockholder when one or more counterparts
have been signed by FSAC and such Stockholder and delivered to FSAC and such
Stockholder.
SECTION 5.8 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof
of delivery) to the parties at the addresses specified below (or at such
other address for a party as shall be specified by like notice): (i) if to
FSAC, Gilbert Scharf or Michael Scharf to the address of FSAC set forth in
Section 11.4 of the Merger Agreement; and (ii) if to any other Stockholder,
to the address for such Stockholder set forth opposite such Stockholder's
name on the execution pages hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the Stockholders and FSAC, have caused this
Agreement to be duly executed on the date hereof.
<TABLE>
<CAPTION>
<S> <C>
One World Financial Center WELSH, CARSON, ANDERSON
Suite 3601 & STOWE VI, L.P.
New York, New York 10281
By WCAS VI Partners, L.P.
General Partner
850,884 shares of EBIC Common Stock By: /s/ Patrick J. Welsh
Name:
Title:
One World Financial Center WCAS INFORMATION
Suite 3601 PARTNERS, L.P.
New York, New York 10281
By WCAS INFO Partners,
General Partner
14,562 shares of EBIC Common Stock By: /s/ Patrick J. Welsh
Name:
Title:
Two World Financial Center DONALD R.A. MARSHALL
Suite 8400
New York, New York 10281
197,823 shares of EBIC Common Stock /s/ Donald R.A. Marshall
Two World Financial Center ALISTAIR H. JOHNSTONE
Suite 8400
New York, New York 10281
119,870 shares of EBIC Common Stock /s/ Alistair H. Johnstone
Two World Financial Center KEITH E. REIHL
Suite 8400
New York, New York 10281
50,362 shares of EBIC Common Stock /s/ Keith E. Reihl
Two World Financial Center BRIAN G. CLARK
Suite 8400
New York, New York 10281
70,320 shares of EBIC Common Stock /s/ Brian G. Clark
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<PAGE>
Two World Financial Center WALTER E. DULSKI
Suite 8400
New York, New York 10281
53,977 shares of EBIC Common Stock /s/ Walter E. Dulski
GILBERT SCHARF
333,333 shares of FSAC Common Stock /s/ Gilbert Scharf
MICHAEL SCHARF
166,667 shares of FSAC Common Stock /s/ Michael Scharf
FINANCIAL SERVICES
ACQUISITION CORPORATION
By: /s/ Gilbert Scharf
Name: Gilbert Scharf
Title: Chairman, President and
Chief Executive Officer
</TABLE>
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<PAGE>
ANNEX VIII
MAJORITY STOCKHOLDERS' AGREEMENT
MAJORITY STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of March 8,
1996, by and among Financial Services Acquisition Corporation, a Delaware
corporation ("FSAC"), EBIC Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of FSAC ("Sub") and Welsh, Carson, Anderson & Stowe,
VI, L.P., a Delaware limited partnership ("WCAS VI").
WHEREAS, FSAC, Sub and Euro Brokers Investment Corporation, a Delaware
corporation ("EBIC"), concurrently with the execution and delivery of this
Agreement will enter into an Agreement and Plan of Merger, dated as of the
date hereof (the "Merger Agreement"), providing for, among other things, the
merger (the "Merger") of Sub with and into EBIC, as a result of which the
outstanding shares of Common Stock, par value $.001 per share ("EBIC Common
Stock"), of EBIC will be converted into the right to receive (x) Common
Stock, par value $.001 per share, of FSAC, (y) Series B Redeemable Common
Stock Purchase Warrants of FSAC and (z) cash, without interest;
WHEREAS, as of the date hereof, WCAS VI owns (either beneficially or of
record) 850,884 shares of EBIC Common Stock;
WHEREAS, concurrently with the execution and delivery of the Merger
Agreement and as a condition and inducement to FSAC and Sub's willingness to
enter into the Merger Agreement, FSAC, Sub and WCAS VI are entering into this
Agreement with respect to, among other things, the making of certain
representations and certain agreements by WCAS VI in connection with the
Merger and the transactions contemplated thereby.
NOW, THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Defined terms used in this Agreement without separate definition shall,
unless otherwise noted, have the meaning ascribed to such terms in the Merger
Agreement. Each of the parties hereto acknowledges receipt and review of a
copy of the Merger Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF WCAS VI
WCAS VI represents and warrants to each of FSAC and Sub as follows:
Section 2.1. Organization. WCAS VI is a limited partnership duly organized
and validly existing under the laws of the State of Delaware. The sole
general partner of WCAS VI is WCAS VI Partners, L.P., a limited partnership
duly organized and validly existing under the laws of the State of Delaware,
and the general partners of WCAS VI Partners, L.P. are the individuals
identified on a separate list heretofore furnished by WCAS VI to FSAC.
Section 2.2. Authority Relative to this Agreement. WCAS VI has the
requisite partnership power and authority to execute and deliver this
Agreement and all Related Agreements and other agreements to be executed by
it as contemplated by the Merger Agreement (collectively, the "WCAS
Documents") and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the WCAS Documents
and the consummation by WCAS VI of the transactions contemplated on its part
hereby and thereby, have been duly authorized by WCAS VI Partners, as the
general partner of WCAS VI, and no other partnership proceedings on the part
of WCAS VI are necessary to authorize this Agreement or any WCAS Documents or
for WCAS VI to consummate the
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<PAGE>
transactions contemplated hereby or thereby. Each of this Agreement and all
WCAS Documents has been duly and validly executed and delivered by WCAS VI
and constitutes a valid and binding agreement of WCAS VI, enforceable against
WCAS VI in accordance with its respective terms.
Section 2.3. Consents; No Violations. Neither the execution, delivery and
performance by WCAS VI of this Agreement nor any WCAS Documents, nor the
consummation by WCAS VI of the transactions contemplated hereby or thereby,
will (i) conflict with or result in any breach of any provisions of the
partnership agreement or other organizational documents of WCAS VI, (ii)
result in a violation or breach of, or constitute (with or without due notice
or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation
of a Lien on any property or asset of the Company or any of its Subsidiaries
pursuant to, any of the terms, conditions or provisions of any Contract to
which WCAS VI is a party, (iii) require the consent from or the giving of
notice to a third party pursuant to, the terms, conditions or provisions of
any such Contract, or (iv) violate any law, order, writ, injunction, decree,
statute, rule or regulation of any Governmental Entity applicable to WCAS VI.
Section 2.4. Approvals. Except as set forth in Schedule 4.8 to the Merger
Agreement, no filing with, or a permit, authorization, notification, consent
or approval of, any Governmental Entity is required or necessary for (i) the
valid execution, delivery and performance by WCAS VI of this Agreement and
all WCAS Documents or (ii) the consummation by WCAS VI of the transactions
contemplated hereby or thereby.
Section 2.5. Information in Disclosure Documents and Registration
Statement. None of the information to be supplied by WCAS VI with respect to
itself for inclusion in (i) the Registration Statement or (ii) the Proxy
Statement, will, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time or, in the case of the Proxy
Statement or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy Statement and any amendments or supplements thereto,
and at the time of the meeting of stockholders of EBIC to be held in
connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
Section 2.6. 1994 Stock Acquisition. In connection with the Stock Purchase
Agreement, dated as of May 10, 1994, among EBIC, WCAS VI and certain others
(the "Stock Purchase Agreement"), and the transactions contemplated thereby,
the following events have heretofore occurred or will occur prior to the
Closing of the Merger (defined terms used in the balance of this Section 2.6
shall have the meanings assigned to them in the Stock Purchase Agreement):
(i) the termination of the Stockholders Agreement, the Pledge Agreement, the
Escrow Agreement (without having effected the Recapitalization and without
having incurred any liability to EBIC, its debt or equity holders, or any of
its Subsidiaries), the Note Purchase Agreement and the agreements listed on
Schedule 4.02(d) to the Stock Purchase Agreement, (ii) the release and
termination of all security interests held by WCAS VI in the assets of EBIC
and its Subsidiaries (including by the filing of UCC-3 financing statements
in the jurisdictions listed on Schedule 4.02(c) to the Stock Purchase
Agreement) and (iii) the delivery to EBIC of all of the notes and stock
certificates listed on Schedule 4.02(e) to the Stock Purchase Agreement,
together with stock powers and other transfer forms, as applicable, duly
executed in blank.
Section 2.7. Brokers. No broker, finder or financial advisor has acted on
behalf of WCAS VI in connection with this Agreement or the Merger, and there
are no brokerage, finder's or other fees or commissions payable in connection
with this Agreement or the Merger based upon any arrangements made by or on
behalf of WCAS VI.
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<PAGE>
ARTICLE III
COVENANTS AND AGREEMENTS OF WCAS VI
WCAS VI covenants and agrees with each of FSAC and Sub as follows:
Section 3.1. No Solicitation. Prior to the Effective Time, WCAS VI agrees
that neither it, nor any of its directors, partners, officers, employees,
agents or representatives of the foregoing, will, directly or indirectly,
solicit, initiate, facilitate or encourage (including by way of furnishing or
disclosing non-public information) any inquiries or the making of any
proposal with respect to any merger, consolidation or other business
combination involving EBIC, or any of its Subsidiaries, or the acquisition of
all or any significant assets or any capital stock of EBIC (including any of
the shares of EBIC Common Stock held by WCAS VI), or any of its Subsidiaries
(an "Acquisition Transaction"), or negotiate, explore or otherwise engage in
substantive discussions with any person (other than FSAC, EBIC and their
respective representatives) with respect to any Acquisition Transaction or
enter into any agreement, arrangement or understanding with respect to (or
consummate) any such Acquisition Transaction or which would require EBIC to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated by the Merger Agreement. WCAS VI agrees to immediately advise
FSAC in writing of any inquiries or proposals (or desire to make a proposal)
received by (or indicated to), any such information requested from, or any
such negotiations or discussions sought to be initiated or continued with,
any of it, its Subsidiaries, or any of the respective directors, partners,
officers, employees, agents or representatives of the foregoing, in each case
from a person (other than FSAC, EBIC and their respective representatives)
with respect to an Acquisition Transaction, and the terms thereof, including
the identity of such third party, and to update on an ongoing basis or upon
FSAC's request, the status thereof.
Section 3.2. Reasonable Efforts. Subject to the terms and conditions
herein provided, WCAS VI hereby agrees to use its reasonable efforts to take,
or cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement, the Merger Agreement and the Related Agreements to which it is a
party, including, without limitation, the obtaining of all necessary waivers,
consents and approvals and the effecting of all necessary registrations and
filings required to be obtained by WCAS VI. Without limiting the generality
of the foregoing, as promptly as practicable, WCAS VI (in conjunction with
EBIC, FSAC and Sub as provided in the Merger Agreement) shall (i) make all
filings and submissions under the HSR Act as may be reasonably required to be
made by it in connection with this Agreement, the Merger Agreement, the
Related Agreements and the transactions contemplated hereby and thereby; and
(ii) make all filings and submissions as may be reasonably required to be
made by it in connection with this Agreement, the Merger Agreement, the
Related Agreements and the transactions contemplated hereby and thereby to or
with any of the Commodity Futures Trading Commission, the NFA, the Bank, The
SFA, the Ontario Securities Commission, the IDAC, the HKFE, the Bank of Japan
and the Ministry of Finance (Japan). WCAS VI will furnish to FSAC and Sub,
and FSAC and Sub will furnish to WCAS VI, such information and assistance as
the other may reasonably request in connection with the preparation of any
such filings or submissions. WCAS VI will provide FSAC and Sub, and FSAC and
Sub will provide WCAS VI, with copies of all material written correspondence,
filings and communications (or memoranda setting forth the substance thereof)
between such party or any of its representatives and any Governmental Entity,
with respect to the obtaining of any waivers, consent or approvals and the
making of any registrations or filings, in each case that is necessary to
consummate the Merger and the other transactions contemplated in the Merger
Agreement and this Agreement. Unless otherwise required by law, each party
agrees that it (and its Subsidiaries and its and their respective
representatives) shall treat and hold in confidence all non-public
information so provided or shared with the other.
Section 3.3. Public Announcements. WCAS VI agrees that it will not issue
or cause to be issued any press release or otherwise make any public
statement with respect to this Agreement, the Merger Agreement, the Related
Agreements or the transactions contemplated hereby or thereby without the
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<PAGE>
prior consent of FSAC, which consent shall not be unreasonably withheld or
delayed; provided, however, that such disclosure can be made without
obtaining such prior consent if (i) the disclosure is required by Applicable
Law and (ii) WCAS VI has first used its reasonable efforts to consult with
FSAC about the form and substance of such disclosure.
Section 3.4. Supplemental Disclosure. Until the Effective Time, WCAS VI
shall give prompt notice to FSAC of the occurrence, or non-occurrence, of any
event the occurrence, or non-occurrence, of which would be likely to cause
(i) any representation or warranty of WCAS VI contained in this Agreement to
be untrue or inaccurate or (ii) any covenant or agreement of WCAS VI
contained in this Agreement not to be complied with or satisfied; provided,
however, that the delivery of any notice pursuant to this Section 3.4 shall
not have any effect for the purpose of determining the satisfaction of the
conditions set forth in Article VIII of the Merger Agreement or otherwise
limit, offset or otherwise affect any remedies available to any party.
ARTICLE IV
TERMINATION
Section 4.1. Termination. This Agreement shall automatically terminate
upon any termination of the Merger Agreement, without the requirement of any
further action by any party hereto.
ARTICLE V
GENERAL PROVISIONS
Section 5.1. Survival of Representations and Warranties. All
representations and warranties made by WCAS VI in this Agreement shall
survive the Effective Time and shall terminate at the close of business on
the day which is 12 months after the Effective Time.
Section 5.2. Amendment and Modification. At any time prior to the
Effective Time, this Agreement may be amended, modified or supplemented only
by written agreement (referring specifically to this Agreement) of FSAC and
WCAS VI with respect to any of the terms contained herein.
Section 5.3. Waiver. At any time prior to the Effective Time, FSAC and
Sub, on the one hand, and WCAS VI, on the other hand, may (i) extend the time
for the performance of any of the obligations or other acts of the other,
(ii) waive any inaccuracies in the representations and warranties of the
other contained herein or in any documents delivered pursuant hereto and
(iii) waive compliance by the other with any of the agreements or conditions
contained herein which may legally be waived. Any such extension or waiver
shall be valid only if set forth in an instrument in writing specifically
referring to this Agreement and signed on behalf of such party.
Section 5.4. Investigations. The representations and warranties of WCAS VI
contained herein shall not be deemed waived or otherwise affected by any
investigation made by any party hereto.
Section 5.5. Notices. All notices and other communications hereunder
shall be in writing and shall be delivered personally or by next-day courier
or telecopied with confirmation of receipt, to the parties at the addresses
specified below (or at such other address for a party as shall be specified
by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof). Any such notice shall be effective upon
receipt, if personally delivered or telecopied, or one day after delivery to
a courier for next-day delivery.
(a) If to FSAC or Sub, to:
Financial Services Acquisition Corporation
667 Madison Avenue
11th Floor
New York, NY 10021
Attention: Gilbert Scharf
Telecopy: (212) 246-1514
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<PAGE>
with copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Roger Schwed, Esq.
Telecopy: (212) 735-2000
(b) if to WCAS VI to:
Welsh, Carson, Anderson
& Stowe VI, L.P.
One World Financial Center
Suite 3601
New York, NY 10281
Attention: Patrick Welsh
Telecopy: (212) 945-2016
with a copy to:
Reboul, MacMurray, Hewitt,
Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: William J. Hewitt, Esq.
Telecopy: (212) 841-5725
Section 5.6. Descriptive Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
Section 5.7. Entire Agreement; Assignment. This Agreement constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them, with
respect to the subject matter hereof. This Agreement is not intended to
confer upon any person not a party hereto any rights or remedies hereunder.
This Agreement shall not be assigned by operation of law or otherwise;
provided that FSAC or Sub may assign its rights and obligations hereunder to
a direct or indirect subsidiary of FSAC, but no such assignment shall relieve
FSAC or Sub, as the case may be, of its obligations hereunder.
Section 5.8. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without giving
effect to the provisions thereof relating to conflicts of law.
Section 5.9. Severability. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provisions
hereof shall not affect the validity and enforceability of the other
provisions hereof. If any provision of this Agreement, or the application
thereof to any person or entity or any circumstances, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid and unenforceable provision and (ii) the
remainder of this Agreement and the application of such provision to other
persons, entities or circumstances shall not be affected by such invalidity
or unenforceability, nor shall such invalidity or unenforceability affect the
validity or enforceability of such provision, or the application thereof, in
any other jurisdiction.
Section 5.10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREFORE, each of FSAC, Sub, and WCAS VI has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FINANCIAL SERVICES ACQUISITION
CORPORATION
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman, President and
Chief Executive Officer
EBIC ACQUISITION CORP.
By: /s/ Gilbert Scharf
-----------------------------------
Name: Gilbert Scharf
Title: Chairman and President
WELSH, CARSON, ANDERSON &
STOWE VI, L.P.
By WCAS VI Partners, L.P.,
General Partner
By: /s/ Patrick J. Welsh
-----------------------------------
Name: Patrick J. Welsh
Title: General Partner
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<PAGE>
ANNEX IX
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of , 1996, by
and among Financial Services Acquisition Corporation, a Delaware corporation
(the "Company"), and the stockholders listed on Annexes I, II and III hereto
and signatory hereto (the "Stockholders").
WHEREAS, the Company has entered into an Agreement and Plan of Merger,
dated as of March 8, 1996 (the "Merger Agreement"), with EBIC Acquisition
Corp., a Delaware corporation and a wholly owned subsidiary of the Company
("Sub"), and Euro Brokers Investment Corporation, a Delaware corporation
("Euro Brokers"), providing for, among other things, the merger (the
"Merger") of Sub with and into Euro Brokers; and
WHEREAS, this Agreement is being entered into in connection with and as a
condition to the parties thereto closing the Merger and the other
transactions contemplated under the Merger Agreement;
NOW THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties signatory hereto agree as follows:
1. CERTAIN DEFINITIONS.
As used herein, the following terms shall have the following respective
meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.001 par value, of the
Company as constituted as of the date of this Agreement, subject to
adjustment pursuant to the provisions of Section 7 hereof.
"EBIC Management Shares" shall mean (i) all shares of Common Stock
(including without limitation the Merger Escrow Shares and any shares of
Common Stock issued in respect of New Options (as defined in the Merger
Agreement)) issued to the EBIC Management Stockholders in connection with
the Merger and (ii) any additional shares of Common Stock issued in
respect of the Merger Warrants held by the EBIC Management Stockholders
(including any Warrants issued as part of the New Options), whether upon
exercise thereof pursuant to their terms, upon the exchange thereof
pursuant to the Exchange Offer (as defined in the Merger Agreement) or
otherwise.
"EBIC Management Stockholders" shall mean those persons listed on
Annex II hereto.
"Exchange Act" shall mean the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Existing Registration Obligations" shall mean (i) the registration
obligations of the Company under that certain Warrant Agreement, dated
November 30, 1994, between the Company and Continental Stock Transfer
Trust Company, and (ii) the registration obligations of the Company under
that certain Unit Purchase Option, dated November 30, 1994 and granted by
the Company to certain persons and entities.
"FSAC Management Escrow Shares" shall mean all 833,333 FSAC Management
Shares that have been deposited in escrow pursuant to the terms of that
certain Stock Escrow Agreement, dated November 30, 1994, between the
Company, Continental Stock Transfer & Trust Company and the FSAC
Management Stockholders.
"FSAC Management Shares" shall mean (i) the aggregate 1,430,333 shares
of Common Stock currently held by the Management Stockholders (including
the FSAC Management Escrow Shares) and (ii) any additional shares of
Common Stock issued in respect of the conversion, pursuant to their terms,
or the exchange, pursuant to the Exchange Offer (as defined in the Merger
Agreement) or otherwise, of the FSAC Management Warrants.
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"FSAC Management Stockholders" shall mean those persons listed on
Annex III hereto.
"FSAC Management Warrants" shall mean (i) the aggregate 1,399,000
Warrants currently held by the FSAC Management Stockholders and (ii) any
securities (other than Common Stock) issued upon exchange, adjustment or
transfer of any such Warrants.
"Investor Shares" shall mean (i) all shares of Common Stock (including
without limitation the Merger Escrow Shares and any shares of Common Stock
issued in respect of New Options) issued to the Investor Stockholders in
connection with the Merger and (ii) any additional shares of Common Stock
issued in respect of the Merger Warrants held by the Investor Stockholders
(including any Warrants issued as part of the New Options), whether upon
the exercise thereof pursuant to their terms, upon the exchange thereof
pursuant to the Exchange Offer (as defined in the Merger Agreement) or
otherwise.
"Investor Stockholders" shall mean those persons listed on Annex I
hereto.
"Management Shares" shall mean, collectively, the EBIC Management
Shares and the FSAC Management Shares.
"Management Stockholders" shall mean, collectively, the EBIC
Management Stockholders and the FSAC Management Stockholders.
"Merger Escrow Shares" shall mean all Investor Shares and EBIC
Management Shares that, pursuant to the terms of the Merger Agreement and
that certain Escrow Agreement, dated as of March 8, 1996, among the
Company, Sub, Euro Brokers, United States Trust Company of New York, as
escrow agent, and certain others, have been deposited into escrow to pay,
if applicable, certain indemnification and other obligations arising under
the Merger Agreement.
"Merger Warrants" shall mean (i) all Warrants issued to the Investor
Stockholders and the EBIC Management Stockholders in connection with the
Merger and (ii) any securities (other than Common Stock) issued upon
exchange, adjustment or transfer of any such Warrants.
"Public Sale" shall mean any sale or other disposition of Common Stock
to the public pursuant to an offering registered under the Securities Act
or pursuant to the provisions of Rule 144 (or any successor or similar
rule) adopted under the Securities Act.
"Registrable Stock" shall mean the Investor Shares, the Management
Shares and any securities issued upon exchange, adjustment or transfer of
any of such shares, subject to adjustment pursuant to the provisions of
Section 7 hereof, provided, however, that neither the Merger Escrow Shares
nor the FSAC Management Escrow Shares shall be deemed to constitute shares
of Registrable Stock for purposes of the registration rights granted
pursuant to Sections 2 or 3 below until such time as such shares shall
have been released from escrow. As to any particular Registrable Stock,
such securities shall cease to be Registrable Stock when they have been
sold or otherwise disposed of pursuant to a Public Sale.
"Registration Expenses" shall mean the expenses so described in
Section 5 hereof.
"Securities Act" shall mean the Securities Act of 1933 or any similar
federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 5
hereof.
"Warrants" shall mean the Redeemable Common Stock Purchase Warrants of
the Company.
2. REQUIRED REGISTRATION.
(a) At any time after October 1, 1996, (i) in the case of the first such
request, the holders of Investor Shares representing at least a majority of
the total outstanding Investor Shares constituting Registrable Stock at such
time, and (ii) in the case of the second such request, the holders of at
least a majority of the total outstanding Registrable Stock at such time, may
request the Company to register under the Securities Act all or any portion
of the Registrable Stock held by such requesting holder or holders for
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sale in the manner specified in such notice, provided, however, that (x) the
only securities which the Company shall be required to register pursuant
hereto shall be shares of Common Stock and (y) the Company shall take all
necessary steps to ensure that the first registration of Registrable Stock
pursuant to a request made under this Section 2 is not declared or deemed
effective by the Commission prior to November 30, 1996.
(b) Promptly following receipt of any notice under paragraph (a) above,
the Company shall notify each holder of Management Shares and any other
holders of Registrable Stock of whom the Company is aware from whom notice
has not been received and shall, subject to the proviso to said paragraph
(a), use its best efforts to register under the Securities Act, for Public
Sale in accordance with the method of disposition specified in such notice
from requesting holders, the number of shares of Registrable Stock specified
in such notice (and in any notices received from other holders pursuant to
this paragraph (b) within 20 days after their receipt of such notice from the
Company). If the holders of a majority of the Registrable Stock requesting
registration specify an underwritten public offering, the Company shall
designate the managing underwriter of such offering, subject to the approval
of the holders of a majority of the Registrable Stock covered by the
offering, which approval shall not be unreasonably withheld. The Company
shall be obligated to register Registrable Stock pursuant to this Section 2
on two occasions only. Notwithstanding anything to the contrary contained
herein, the obligation of the Company under this Section 2 shall be deemed
satisfied only when a registration statement covering all shares of
Registrable Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition (subject to clauses (i) and (ii) of
paragraph (d) below) specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment
underwritten public offering, all such shares shall have been sold pursuant
thereto.
(c) The Company shall be entitled to include in any registration statement
referred to in this Section 2, for sale in accordance with the method of
disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent that, in
the opinion of the managing underwriter (if such method of disposition shall
be an underwritten public offering), such inclusion would adversely affect
the marketing of the Registrable Stock to be sold. Except as provided in this
paragraph (c), the Company will not effect any registration of its Common
Stock to be sold for cash for its own account from the date of receipt of a
notice from requesting holders pursuant to this Section 2 until the
completion of the period of distribution of the registration contemplated
thereby or withdrawal of the registration.
(d) Notwithstanding anything to the contrary contained in this Section 2:
(i) The number of Management Shares included in the Registrable Stock
to be included in any registration statement referred to in this Section 2
for which the requested method of disposition is an underwritten public
offering may be reduced (pro rata among the requesting holders of
Management Shares based upon the number of Management Shares so requested
to be registered) if and to the extent that in the opinion of the managing
underwriter, such inclusion would adversely affect the marketing of the
Registrable Stock to be sold, provided, however, that if the Company has
determined to include in such registration statement shares of Common
Stock to be sold for its own account, as contemplated by Section 2(c)
above, any reduction shall first be made, if and to the extent necessary,
from such shares (including a reduction to zero) before any reduction is
made from the shares requested to be registered by the requesting holders
of Management Shares.
(ii) The number of shares of Registrable Stock to be included in any
registration statement referred to in this Section 2 for which the method
of disposition is other than an underwritten public offering shall not,
prior to June 30, 1997, exceed a number equal to 50% of the number of
shares of Registrable Stock then outstanding, provided, however, that such
limitation shall not apply if, at any time prior to the request for such
registration, the product obtained by multiplying (x) the number of
outstanding shares of Common Stock by (y) the closing price of a share of
Common Stock in the principal securities market in which the Common Stock
shall be traded shall have exceeded $100 million for 20 consecutive
trading days.
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(iii) The Company shall not be required to file a registration
statement pursuant to this Section 2, (x) during any period of time when
(A) the Company is contemplating an underwritten public offering of its
equity securities and, in the judgment of the managing underwriter
thereof, such filing would adversely affect the contemplated offering, (B)
the Company is in possession of material nonpublic information the
disclosure of which in such registration statement it reasonably believes
would be detrimental to the Company at such time or (C) the Company is
required under the Securities Act to include audited financial statements
for any period in such registration statement and such financial
statements are not yet available for inclusion therein or (y) during the
pendency of the Exchange Offer or within 60 days after the consummation or
termination thereof. The aggregate delays or postponements by the Company
of the filing of a registration statement pursuant to clause (x) of this
Section 2(d)(iii) shall not exceed 60 days.
3. INCIDENTAL REGISTRATION.
If the Company at any time after November 30, 1996 (other than pursuant to
Section 2 hereof or in connection with the Exchange Offer or pursuant to its
Existing Registration Obligations) proposes to register any of its Common
Stock under the Securities Act for sale to the public, whether for its own
account or for the account of other securityholders or both (except with
respect to registration statements on Forms S-4 or S-8 (or any successor
forms), a registration pursuant to an employee benefit plan or a registration
of securities on a form which does not permit the inclusion of securities
sold in a secondary offering), it will give written notice at such time to
all holders of whom it is aware of outstanding Registrable Stock of its
intention to do so. Upon the written request of any such holder, given within
30 days after receipt of any such notice by the Company, to register any of
its Registrable Stock (in accordance, subject to the following sentence, with
the method of disposition being used by the Company as specified in the
Company's notice), the Company will use its best efforts to cause the
Registrable Stock as to which registration shall have been so requested, to
be included in the securities to be covered by the registration statement
proposed to be filed by the Company, all to the extent requisite to permit
the sale or other disposition by the holder of such Registrable Stock so
requested to be registered. In the event that any registration pursuant to
this Section 3 shall be, in whole or in part, an underwritten public offering
of Common Stock, any request by a holder pursuant to this Section 3 to
register Registrable Stock shall specify that either (i) such Registrable
Stock is to be included in the underwriting on the same terms and conditions
as the shares of Common Stock otherwise being sold through underwriters under
such registration or (ii) such Registrable Stock is to be sold in the open
market without any underwriting, on terms and conditions comparable to those
normally applicable to offerings of common stock in reasonably similar
circumstances. The number of shares of Registrable Stock to be included in
such an underwriting may be reduced (pro rata among the requesting holders
based upon the number of shares so requested to be registered) if and to the
extent that the managing underwriter shall be of the opinion that such
inclusion would adversely affect the marketing of the securities to be sold
by the Company therein, provided, however, that no reduction of the number of
shares of Registrable Stock so to be included in such registration shall be
made if any shares are to be included therein for the account of any person
other than the Company or another holder pursuant to a demand registration
right existing at the date of this Agreement or permitted hereby.
Notwithstanding the foregoing, the Company may at any time in its
discretion withdraw, without the consent of any requesting holders, a
registration statement that the Company had filed or proposed to file
pursuant to this Section 3 and abandon the proposed offering in which any
requesting holder or holders had requested to participate.
4. REGISTRATION PROCEDURES.
(a) If and whenever the Company is required by the provisions of Section 2
or 3 hereof to use its best efforts to effect the registration of any of the
Registrable Stock under the Securities Act, the Company will:
(i) prepare (and afford a single counsel for the selling holders of
Registrable Stock reasonable opportunity to review and comment thereon)
and file with the Commission as soon as practicable
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(but in a any event within 60 days of receipt of a request from
requesting holders pursuant to Section 2 hereof) a registration statement
on any form for which the Company then qualifies or which counsel for the
Company shall deem appropriate and which form shall be available for the
underwritten sale of the Registrable Stock (which, in the case of an
underwritten public offering pursuant to Section 2 hereof, shall be Form
S-1, S-3 or another form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statement
to become effective and to remain effective until, in the case of a firm
commitment underwritten public offering, until each underwriter has
completed the distribution of all securities purchased by it, and, in the
case of any other registration, until the earlier of (x) the sale of all
Registrable Stock covered thereby and (y) 120 days after the effective
date thereof.
(ii) prepare (and afford a single counsel for the selling holders of
Registrable Stock reasonable opportunity to review and comment thereon)
and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the
period specified in paragraph (i) above and as comply with the provisions
of the Securities Act with respect to the disposition of all Registrable
Stock covered by such registration statement in accordance with the
method(s) of disposition set forth in such registration statement for such
period;
(iii) furnish to each seller and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus) as such persons may reasonably
request in order to facilitate the Public Sale of the Registrable Stock
covered by such registration statement;
(iv) use its best efforts to register or qualify the Registrable Stock
covered by such registration statement under the securities or blue sky
laws of such jurisdictions as a majority in interest of the sellers of
Registrable Stock or, in the case of an underwritten public offering, the
managing underwriter, shall reasonably request (provided that the Company
will not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (iv) or (y) take any action that would subject it to
taxation in any such jurisdiction or to general service of process in any
jurisdiction);
(v) immediately notify each seller under such registration statement
and each underwriter, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus contained in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(vi) use its reasonable best efforts (if the offering is underwritten)
to furnish, at the request of holders of a majority in interest of the
Registrable Stock being sold, on the date that Registrable Stock is
delivered to the underwriters for sale pursuant to such registration: (x)
an opinion, dated such date, of counsel representing the Company for the
purposes of such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become effective
under the Securities Act and that (A) to the knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act, (B) the registration statement, the
related prospectus, and each amendment or supplement thereof, comply as to
form in all material respects with the requirements of the Securities Act
and the applicable rules and regulations of the Commission thereunder
(except that such counsel need express no opinion as to financial
statements contained therein) and (C) to such other effects as are
customarily covered in such opinions given in connection with such
registrations and are reasonably requested by counsel for the underwriters
or by such sellers or their counsel, and (y) a letter dated such date from
the independent public accountants retained by the Company, addressed to
the underwriters and to such sellers, stating that they are independent
public accountants within the meaning of the Securities Act and that, in
the opinion of such accountants, the financial statements of the Company
included in the registration
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<PAGE>
statement or the prospectus, or any amendment or supplement thereof,
comply as to form in all material respects with the applicable accounting
requirements of the Securities Act, and such letter shall additionally
cover such other financial matters with respect to the registration in
respect of which such letter is being given as are customarily covered in
such letters given in connection with such registrations and are
reasonably requested by such underwriters or sellers;
(vii) make available for inspection by each seller, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by such seller or
underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in connection
with such registration statement, in each case, subject to the Company's
prior receipt from such persons of appropriate agreements to maintain the
confidentiality of any such records, documents and information; and
(viii) if such registration covers a firm commitment underwritten
public offering, enter into a written agreement with the managing
underwriter selected in the manner herein provided in such form and
containing such provisions as are customary in the securities business for
such an arrangement between major underwriters and companies of the
Company's size and investment stature, provided that such agreement shall
not contain any such provision applicable to the Company which is
inconsistent with the provisions hereof and provided, further, that the
time and place of the closing under said agreement shall be as mutually
agreed upon between the Company and such managing underwriter.
(b) In connection with each registration hereunder, the selling holders of
Registrable Stock will:
(i) furnish to the Company in writing such information with respect to
themselves and the proposed distribution by them as shall be reasonably
necessary in order to assure compliance with federal and applicable state
securities laws or as shall reasonably be requested by the Company or its
counsel; and
(ii) not effect any public sale or distribution of the issue being
registered or any equity security of the Company, or any securities
convertible into or exchangeable or exercisable for such equity
securities, including a sale pursuant to Rule 144 under the Securities
Act, during the 14 days prior to, and during the 90-day period beginning
on, the effective date of such registration statement (except as part of
such registration), if and to the extent requested by the Company or the
managing underwriter.
(c) Each seller of Registrable Stock agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described
in Section 4(a)(v) that requires the preparation of a supplement or amendment
to such prospectus, such seller will forthwith discontinue disposition of
Registrable Stock pursuant to the registration statement covering such
Registrable Stock until such seller's receipt of the copies of the
supplemented or amended prospectus, and, if so directed by the Company, such
seller will deliver to the Company all copies, other than permanent file
copies, then in such seller's possession, of the most recent prospectus
covering such Registrable Stock at the time of receipt of such notice. In the
event the Company shall give such notice, the Company shall extend the period
during which such registration statement shall be maintained effective by the
number of days during the period from and including the date of the giving of
notice hereof to the date when the Company shall make available to the
sellers of Registrable Stock a supplemented or amended prospectus.
(d) In connection with each registration pursuant to Sections 2 and 3
hereof covering an underwritten public offering, no holder of Registrable
Stock may participate in any registration hereunder unless such holder (i)
agrees to sell its Registrable Stock on the basis provided in the
underwriting arrangements applicable to such registration (appropriately
modified if such sales are not covered by such underwriting) and (ii)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents as are required to be executed
under the terms of such underwriting arrangements, subject, however, to the
provisions of Section 6 hereof.
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5. EXPENSES.
All expenses incurred by the Company in complying with Sections 2 and 3
hereof, including without limitation all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, costs
of insurance and reasonable fees and expenses of a single counsel for the
sellers of Registrable Stock, but excluding any Selling Expenses, are herein
called "Registration Expenses." All underwriting discounts, selling
commissions and transfer taxes applicable to the sale of Registrable Stock
and any out-of-pocket expenses (other than the single counsel described
above) of the sellers (or agents who manage their accounts) are herein called
"Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 2 or 3 hereof. All Selling
Expenses in connection with any registration statement filed pursuant to
Section 2 or 3 hereof shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such persons other
than the Company (except to the extent the Company shall be a seller) as they
may agree.
6. INDEMNIFICATION.
In the event of a registration of any of the Registrable Stock under the
Securities Act pursuant to Section 2 or 3 hereof, the Company will indemnify
and hold harmless each seller of such Registrable Stock thereunder and each
underwriter of Registrable Stock thereunder and each officer, director and
each other person, if any, who controls such seller or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or
controlling person becomes subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Registrable Stock was registered under the Securities Act
pursuant to Section 2 or 3, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereof, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each such seller, each such
underwriter and each such controlling person for any reasonable legal or
other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, provided,
however, that the Company will not be liable in any such case if and to the
extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in conformity with information furnished by or on
behalf of such seller, such underwriter or such controlling person in writing
specifically for use in such registration statement or prospectus or any
amendment or supplement thereof.
In the event of a registration of any of the Registrable Stock under the
Securities Act pursuant to Section 2 or 3 hereof, each seller of such
Registrable Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company and each officer, director and each other person,
if any, who controls the Company within the meaning of the Securities Act,
each officer of the Company who signs the registration statement, each
director of the Company, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which the Company or
such officer or director or underwriter or controlling person becomes subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Registrable
Stock was registered under the Securities Act pursuant to Section 2 or 3, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter
and controlling person for any reasonable legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability or
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action, provided, however, that such seller will be liable hereunder in any
such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in conformity with
information pertaining to such seller, as such, furnished in writing to the
Company by such seller specifically for use in such registration statement or
prospectus or any amendment or supplement thereof, provided, further,
however, that the liability of each seller hereunder shall be limited to the
proportion of any such loss, claim, damage, liability or expense which is
equal to the proportion that the public offering price of shares sold by such
seller under such registration statement bears to the total public offering
price of all securities sold thereunder, but not to exceed the proceeds
received by such seller from the sale of Registrable Stock covered by such
registration statement.
Promptly after receipt by an indemnified party hereunder of notice of the
commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to
notify the indemnifying party shall not relieve it from any liability which
it may have to any indemnified party other than under this Section 8. In case
any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in and, to the extent it shall wish,
to assume and undertake the defense thereof with counsel reasonably
satisfactory to such indemnified party, and, after notice from the
indemnifying party to such indemnified party of its election so to assume and
undertake the defense thereof, the indemnifying party shall not be liable to
such indemnified party under this Section 6 for any legal expenses
subsequently incurred by such indemnified party in connection with the
defense thereof, provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and, in
the opinion of counsel reasonably satisfactory to the indemnifying party a
material conflict of interest exists between the indemnifying party and the
indemnified party in connection with such action, the indemnified party shall
have the right to select a separate counsel (reasonably acceptable to the
Company) and to assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such
separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.
Notwithstanding the foregoing, any indemnified party shall have the right
to retain its own counsel in any such action, but the fees and disbursements
of such counsel shall be at the expense of such indemnified party unless (i)
the indemnifying party shall have failed to retain counsel for the
indemnified person as aforesaid or (ii) the indemnifying party and such
indemnified party shall have mutually agreed to the retention of such
counsel. It is understood that the indemnifying party shall not, in
connection with any action or related actions in the same jurisdiction, be
liable for the fees and disbursements of more than one separate firm
qualified in such jurisdiction to act as counsel for all indemnified parties.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment.
If the indemnification provided for in the first two paragraphs of this
Section 6 is unavailable or insufficient to hold harmless an indemnified
party under such paragraphs in respect of any losses, claims, damages or
liabilities or actions in respect thereof referred to therein, then each
indemnifying party shall in lieu of indemnifying such indemnified party
contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or actions in such
proportion as appropriate to reflect the relative fault of the Company, on
the one hand, and the sellers of such Registrable Stock, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by the Company, on the one
hand, or the sellers of such Registrable Stock, on the other, and to the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the sellers of
Registrable Stock agree that it would not be just and equitable if
contributions pursuant to this
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paragraph were determined by pro rata allocation (even if all of the sellers
of such Registrable Stock were treated as one entity for such purpose) or by
any other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or action in respect thereof, referred to above in this
paragraph, shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
paragraph, the sellers of such Registrable Stock shall not be required to
contribute any amount in excess of the amount, if any, by which the total
price at which the Common Stock sold by each of them was offered to the
public exceeds the amount of any damages which they would have otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission. No person guilty of fraudulent misrepresentations (within the
meaning of Section 11(f) of the Securities Act), shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
7. CHANGES IN COMMON STOCK.
If, and as often as, there are any changes in the Common Stock by way of
stock split, stock dividend, combination or reclassification, or through
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof, as may
be required, so that the rights and privileges granted hereby shall continue
with respect to the Common Stock as so changed and shall apply to any
securities received in any such transaction.
8. RULE 144 REPORTING.
The Company covenants that it will file any reports required to be filed
by it under the Securities Act and the Exchange Act and that it will take
such further action as any holder of Registrable Stock may reasonably
request, all to the extent required from time to time to enable such holder
to sell Registrable Stock without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time. Upon the
request of such holder, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
9. OTHER REGISTRATION RIGHTS AGREEMENTS.
(a) All rights heretofore granted by the Company or Euro Brokers (i) to
the FSAC Management Stockholders relating to the registration of the FSAC
Management Shares or (ii) to the Investor Stockholders or the EBIC Management
Stockholders pursuant to the Registration Rights Agreement dated as of May
19, 1994 (the "Original Registration Rights Agreement") among Euro Brokers,
the Investor Stockholders and the EBIC Management Stockholders, are hereby
terminated and superseded by the rights granted by the Company as provided in
this Agreement, and the Original Registration Rights Agreement and any and
all previously existing registration rights granted to the Management
Stockholders or the Investor Stockholders are hereby canceled, waived and
shall have no further force or effect. Notwithstanding the foregoing, nothing
in this Agreement shall cancel, waive or otherwise affect any of the Existing
Registration Obligations (or constitute a cancellation or waiver of any
rights of any person or entity under any of the Existing Registration
Obligations).
(b) Nothing herein shall prohibit or limit the Company from entering into
an agreement providing holders of securities which may hereafter be issued by
the Company with such registration rights exercisable at such time or times
and in such manner as the Board of Directors shall deem in the best interests
of the Company so long as the performance by the Company of its obligations
under such other agreement will not cause the Company to breach its
obligations to the holders of Registrable Stock hereunder.
10. MISCELLANEOUS.
(a) All covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto, including, without limitation, the
rights to indemnification under Section 6 hereof, shall bind and
9-9
<PAGE>
inure to the benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the generality of the
foregoing, the registration rights conferred herein on the holders of
Registrable Stock shall inure to the benefit of any and all subsequent
holders from time to time of the Registrable Stock (but only so long as such
Registrable Stock remains Registrable Stock).
(b) So long as Registrable Stock remains subject to this agreement, the
Company will not enter into any merger, consolidation, sale of substantially
all of its assets or other transaction in which it is not the surviving
entity unless the acquiror shall expressly assume by a supplemental
agreement, executed and delivered to the remaining holders of Registrable
Stock, in form satisfactory to holders of a majority of the Registrable Stock
then remaining, the due and punctual performance of every covenant of this
Agreement on the part of the Company to be performed and observed with
respect to the Registrable Stock after such transaction.
(c) All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by first class registered mail,
postage prepaid, addressed as follows:
if to the Company, to it at 667 Madison Avenue, 11th Floor, New York,
New York 10021, Attention: Gilbert Scharf;
if to any holder of Registrable Stock, to it at its address as set
forth in Annex I, Annex II or Annex III hereto;
if to any subsequent holder of Registrable Stock, to it at such
address as may have been furnished to the Company in writing by such
holder;
or, in any case, at such other address or addresses as shall have been
furnished in writing to the Company (in the case of a holder of Registrable
Stock), or to the holders of Registrable Stock (in the case of the Company).
(D) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
(e) This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all other prior
agreements and understandings, whether oral or written, relating to the
subject matter hereof. This Agreement may not be modified or amended, and the
provisions hereof may not be waived, except in writing signed by each of (i)
the Company, (ii) Management Stockholders then holding, in the aggregate, a
majority of the Registrable Stock then held by all Management Stockholders as
a whole and (iii) Investor stockholders then holding, in the aggregate, a
majority of the Registrable Stock then held by all Investor Stockholders as a
whole.
(f) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument, and shall become effective as to each holder of
Registrable Stock upon such holder's execution of a counterpart after
execution of a counterpart by the Company.
(g) The Company shall not hereafter enter into any agreement with respect
to its securities that grants any person or entity any registration rights
with respect to the Company's securities that take precedence over the rights
granted to the Stockholders hereunder, provided, however that the Company
shall have the right to grant registration rights on a basis substantially
identical to those provided in this Agreement with respect to additional
shares of Common Stock (or securities convertible into or exercisable for
shares of Common Stock) issued to any stockholder.
9-10
<PAGE>
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this Agreement, whereupon this Agreement shall
become binding upon the Company and you.
Very truly yours,
FINANCIAL SERVICES ACQUISITION
CORPORATION
By
-----------------------------------
Title:
AGREED TO AND ACCEPTED
as of the date first
above written.
WELSH, CARSON, ANDERSON & STOWE VI, L.P. By WCAS VI Partners, L.P., General
Partner
By
-------------------------------------------------
General Partner
WCAS INFORMATION PARTNERS, L.P.
By WCAS INFO Partners, General Partner
By
-------------------------------------------------
General Partner
- --------------------------------------------------
Patrick J. Welsh
- --------------------------------------------------
Russell L. Carson
- --------------------------------------------------
Bruce K. Anderson
- --------------------------------------------------
Richard H. Stowe
DE CHARTER TRUST CO., as Trustee FBO the
IRA/Rollover of Richard H. Stowe
By
-------------------------------------------------
- --------------------------------------------------
Thomas E. McInerney
- --------------------------------------------------
Andrew M. Paul
- --------------------------------------------------
James B. Hoover
9-11
<PAGE>
DE CHARTER TRUST CO., as Trustee FBO the
IRA/Rollover of James B. Hoover
By
-------------------------------------------------
- --------------------------------------------------
Robert A. Minicucci
- --------------------------------------------------
Anthony J. DeNicola
- --------------------------------------------------
Laura Van Buren
David F. Bellet, Trustee, Profit Sharing Plan
DCJSC --Custodian FBO David F. Bellet
- --------------------------------------------------
David F. Bellet
- --------------------------------------------------
Donald R.A. Marshall
- --------------------------------------------------
Alistair H. Johnstone
- --------------------------------------------------
Keith E. Reihl
- --------------------------------------------------
Brian G. Clark
- --------------------------------------------------
Walter E. Dulski
- --------------------------------------------------
Gilbert Scharf
- --------------------------------------------------
Michael J. Scharf
- --------------------------------------------------
Denis Martin
- --------------------------------------------------
Larry S. Kopp
- --------------------------------------------------
William D. Birch
- --------------------------------------------------
Frederick B. Whittemore
9-12
<PAGE>
ANNEX I
INVESTOR STOCKHOLDERS
Welsh, Carson, Anderson & Stowe VI, L.P.
WCAS Information Partners, L.P.
Patrick J. Welsh
Russell L. Carson
Bruce K. Anderson
Richard H. Stowe
DE Charter Trust Co., as Trustee
FBO the IRA/Rollover of
Richard H. Stowe
Thomas E. McInerney
Andrew M. Paul
James B. Hoover
DE Charter Trust Co., as Trustee
FBO the IRA/Rollover of
James B. Hoover
Robert A. Minicucci
Anthony J. deNicola
Laura Van Buren
David F. Bellet, Trustee, Profit
Sharing Plan DLJSC --Custodian
FBO David F. Bellet
c/o Welsh, Carson, Anderson & Stowe
One World Financial Center
New York, New York 10281
9-13
<PAGE>
ANNEX II
EBIC MANAGEMENT STOCKHOLDERS
Donald R.A. Marshall
[Address]
Alistair H. Johnstone
[Address]
Keith E. Reihl
[Address]
Brian G. Clark
[Address]
Walter E. Dulski
[Address]
9-14
<PAGE>
ANNEX III
FSAC MANAGEMENT STOCKHOLDERS
Gilbert Scharf
[Address]
Michael J. Scharf
[Address]
Denis Martin
[Address]
Larry S. Kopp
[Address]
William D. Birch
[Address]
Frederick B. Whittemore
[Address]
9-15
<PAGE>
FINANCIAL SERVICES ACQUISITION CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 15, 1996
The undersigned hereby appoints Gilbert D. Scharf and Michael J. Scharf as
Proxies, each with the power to appoint such stockholder's substitute, and
hereby authorizes them, or either one of them, to represent and to vote, as
designated below, all of the shares of the Common Stock, par value $.001 per
share ("FSAC Common Stock"), of Financial Services Acquisition Corporation
("FSAC") held of record by the undersigned on July 11, 1996 at the Special
Meeting of Stockholders to be held on August 15, 1996 at 10:00 a.m. local time
and any and all adjournments or postponements thereof. Any and all proxies
heretofore given are hereby revoked.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2, 3, 4, 5 AND
6.
1. Proposal 1 --Approval and adoption of the Agreement and Plan of Merger,
dated March 8, 1996, as amended, among FSAC, EBIC Acquisition Corp., a wholly
owned subsidiary of FSAC ("Merger Sub") and Euro Brokers Investment
Corporation ("EBIC"), providing for the merger of Merger Sub with and into
EBIC (the "Merger"), with EBIC being the surviving corporation and becoming a
wholly owned subsidiary of FSAC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal 2 --Election of Directors (subject to satisfaction of all
conditions to consummation of the Merger, including Proposal 3 below)
- --Nominees are (i) Class I Directors (initial one year term) --Frederick B.
Whittemore and James W. Stevens, (ii) Class II Directors (initial two-year
term) --William B. Wigton, Donald R. A. Marshall and Denis Martin, and (iii)
Class III Directors (initial three year term) --Gilbert D. Scharf, Michael J.
Scharf and Larry S. Kopp.
[ ] FOR all Nominees, for their initial designated terms [ ] WITHHOLD
AUTHORITY to vote for all Nominees
INSTRUCTIONS: To withhold authority to vote for any individual nominee, write
that nominee's name in the space below.
(CONTINUED, AND TO BE SIGNED, ON THE OTHER SIDE)
<PAGE>
3. Proposal 3 --Amendment to Article SIXTH (subject to satisfaction of all
other conditions to consummation of the Merger) --approval of an amendment to
Article SIXTH of FSAC's Certificate of Incorporation to (i) classify the
Board of Directors into three classes serving staggered terms, (ii) eliminate
stockholders' ability to act by written consent, (iii) restrict the ability
to call special meetings of stockholders to the Chairman and the President of
FSAC or to an affirmative vote of a majority of the Board of Directors and
(iv) require an 80% supermajority vote to amend the provisions of Article
SIXTH.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Proposal 4 --Additional Common Stock Amendment (subject to satisfaction of
all other conditions to consummation of the Merger) --approval of an
amendment to FSAC's Certificate of Incorporation to increase the number of
authorized shares of FSAC Common Stock to 30,000,000.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Proposal 5 --Name Change Amendment (subject to satisfaction of all other
conditions to consummation of the Merger) --approval of an amendment to
FSAC's Certificate of Incorporation to change the name of FSAC to "Financial
Services Corporation."
[ ] FOR [ ] AGAINST [ ] ABSTAIN
6. Proposal 6 --FSAC Option Plan (subject to satisfaction of all conditions
to consummation of the Merger) --approval and adoption of the FSAC 1996 Stock
Option Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the Special Meeting and any and all
adjournments or postponements thereof.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
"FOR" PROPOSALS 1, 2, 3, 4, 5 AND 6.
Dated: , 1996
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
PLEASE SIGN EXACTLY AS YOUR NAME
APPEARS HEREIN. IF SHARES ARE HELD
BY JOINT TENANTS, BOTH MUST SIGN.
WHEN SIGNING AS AN ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE,
OR GUARDIAN, GIVE YOUR FULL TITLE
AS SUCH. IF SHARES ARE HELD BY A
CORPORATION, THE CORPORATION'S
PRESIDENT OR OTHER AUTHORIZED
OFFICER MUST SIGN USING THE
CORPORATION'S FULL NAME. IF SHARES
ARE HELD BY A PARTNERSHIP, AN
AUTHORIZED PERSON MUST SIGN USING
THE PARTNERSHIP'S FULL NAME.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
