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 (Amendment No. )
Filed by the registrant X
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Filed by a party other than the registrant ____
Check the appropriate box:
____ Preliminary proxy statement ___ Confidential, For Use of the
X Definitive proxy statement ___ Commission Only (as
____ Definitive additional materials ___ permitted by Rule 14a-6(e)(2))
____ Soliciting material pursuant to
Rule 14a-12
GBI CAPITAL MANAGEMENT CORP.
(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):
___ No fee required.
___ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rules 14a-6(I)(1) and 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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X Fee paid previously with preliminary materials: $6,168.23
___ 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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GBI CAPITAL MANAGEMENT CORP.
1055 Stewart Avenue
Bethpage, New York 11714
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON APRIL 18, 2001
NOTICE IS HEREBY GIVEN that an annual meeting of shareholders of GBI
Capital Management Corp., a Florida corporation, will be held at our offices
located at 1055 Stewart Avenue, Bethpage, New York 11714, on Wednesday, April
18, 2001, at 10:00 a.m., for the following purposes, all as more fully
described in the attached proxy statement:
1. To consider and vote upon:
o the issuance of 18,181,818 shares of our common stock and
$10,000,000 aggregate principal amount of our senior convertible
promissory notes in partial consideration of the acquisition by
us of the outstanding common stock of Ladenburg, Thalmann & Co.
Inc., pursuant to the terms of a stock purchase agreement, dated
as of February 8, 2001, among our company, New Valley
Corporation, Ladenburg, Thalmann Group Inc., a wholly owned
subsidiary of New Valley, Berliner Effektengesellschaft AG and
Ladenburg, Thalmann & Co. Inc.; and
o the issuance of an additional $10,000,000 aggregate principal
amount of our senior convertible promissory notes pursuant to the
terms of a loan agreement, dated as of February 8, 2001, among
our company and Frost-Nevada, Limited Partnership to provide the
funds for our acquisition of the common stock of Ladenburg,
Thalmann & Co., conditional on consummation of the acquisition of
the common stock of Ladenburg, Thalmann & Co.;
2. To elect nine directors to our board of directors, conditional on
consummation of the acquisition of the common stock of Ladenburg,
Thalmann & Co., three of whom are members of our current board of
directors and six of whom have been designated by New Valley,
Ladenburg, Thalmann & Co.'s current parent, effective on the
consummation of the stock purchase agreement, loan agreement and
other related transactions;
3. To authorize an amendment to our articles of incorporation,
conditional on consummation of the acquisition of the common stock
of Ladenburg, Thalmann & Co., to change our name from "GBI Capital
Management Corp." to "Ladenburg Thalmann Financial Services Inc.";
4. To authorize an amendment to our 1999 Performance Equity Plan to
increase the number of shares of common stock available for issuance
under the plan from 3,000,000 shares to 5,500,000 shares; and
5. To transact such other business as may properly come before the
meeting, and any or all postponements or adjournments thereof.
Only shareholders of record at the close of business on March 23, 2001,
will be entitled to notice of, and to vote at, the meeting and any postponements
or adjournments thereof.
You are urged to read the attached proxy statement, which contains
information relevant to the actions to be taken at the meeting. Whether or not
you expect to attend the meeting in person, please sign and date the
accompanying proxy card and mail it promptly in the enclosed addressed,
postage-prepaid envelope. You may revoke your proxy if you so desire at any time
before it is voted.
By Order of the Board of Directors
Joseph Berland, Chairman
Bethpage, New York
March 28, 2001
GBI CAPITAL MANAGEMENT CORP.
_____________________________
PROXY STATEMENT
_____________________________
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 18, 2001
____________________________
This proxy statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by our board directors for use at our
annual meeting of shareholders to be held on April 18, 2001, and any
postponements or adjournments.
On or about March 28, 2001, this proxy statement and the accompanying
form of proxy, together with a copy of our annual report to shareholders for the
year ended September 30, 2000, including financial statements, are being mailed
to each shareholder of record at the close of business on March 23, 2001.
What matters am I voting on?
o approval of:
o our issuance of 18,181,818 shares of our common stock and
$10,000,000 aggregate principal amount of our senior convertible
promissory notes in partial consideration of our acquisition of
the outstanding common stock of Ladenburg, Thalmann & Co. Inc.
according to the terms of a stock purchase agreement among our
company, New Valley Corporation, Ladenburg, Thalmann Group Inc.,
a wholly owned subsidiary of New Valley, Berliner
Effektengesellschaft AG and Ladenburg, Thalmann & Co. Inc.; and
o our issuance of an additional $10,000,000 aggregate principal
amount of our senior convertible promissory notes according to
the terms of a loan agreement with Frost-Nevada, Limited
Partnership to provide the funds for our acquisition of the
common stock of Ladenburg, Thalmann & Co.;
o election of nine directors to our board of directors, conditional on
consummation of the acquisition of the common stock of Ladenburg,
Thalmann & Co., three of whom are members of our current board of
directors and six of whom have been designated by New Valley
Corporation, Ladenburg, Thalmann & Co.'s current parent, effective on
consummation of the stock purchase agreement, loan agreement and other
related transactions;
o authorization of an amendment to our articles of incorporation,
conditional on consummation of the acquisition of the common stock of
Ladenburg, Thalmann & Co., to change our name from "GBI Capital
Management Corp." to "Ladenburg Thalmann Financial Services Inc.";
o authorization of an amendment to our 1999 Performance Equity Plan to
increase the number of shares of common stock available for issuance
under the plan from 3,000,000 to 5,500,000; and
o any other business that may properly come before the meeting.
Summary of Stock Purchase Transactions
This summary highlights the material terms of the stock purchase agreement
and the related transaction documents, but does not contain all of the
information that may be important to you. We urge you to read this entire proxy
statement carefully, including the Appendices and the other documents we refer
to in this proxy statement.
o We have entered into a stock purchase agreement that provides for us
to purchase all of the outstanding common stock of Ladenburg, Thalmann
& Co. in return for 18,181,818 shares of our common stock, $10,000,000
aggregate principal amount of our senior convertible promissory notes
and $10,000,000 in cash. Ladenburg, Thalmann & Co. is a full-service
broker-dealer that has been a member of the New York Stock Exchange
since 1879. To raise the cash necessary to close the transaction, we
have entered into a loan agreement under which Frost-Nevada will loan
us $10,000,000 in consideration for $10,000,000 aggregate principal
amount of our senior convertible promissory notes. The transactions
contemplated by the stock purchase agreement and the loan agreement
are collectively referred to as the "Stock Purchase Transactions." For
a more detailed description of the Stock Purchase Transactions, the
consideration to be paid by us in the Stock Purchase Transactions, see
the general discussion of the Stock Purchase Transactions under
Proposal 1 and the section entitled "Stock Purchase Transactions -
Consideration" below.
o As a result of the Stock Purchase Transactions, among other things,
New Valley, the current parent of Ladenburg, Thalmann & Co., will
acquire ownership of approximately 50.1% of our common stock that will
be outstanding and Ladenburg, Thalmann & Co. will become our wholly
owned subsidiary. For a more detailed discussion of New Valley's
ownership of our common stock and our operations following the Stock
Purchase Transactions, see the sections entitled "Security Ownership
of Certain Beneficial Owners and Management" and "Stock Purchase
Transactions - Management and Operations After Closing Date" below.
o In connection with the Stock Purchase Transactions, Joseph Berland,
our chairman and chief executive officer, will be selling 3,945,060
shares of our common stock to New Valley and several other of our
employees, officers and directors will be selling an aggregate of up
to 550,000 shares of our common stock to Frost-Nevada, all at $1.00
per share. For a more detailed discussion of the sales of our common
stock by our employees, officers and directors, see the section
entitled "Stock Purchase Transactions - Interest of Certain Parties"
below.
o On the date of the consummation of the Stock Purchase Transactions
("Closing Date"), Howard M. Lorber, president and chief operating
officer of New Valley, will become our chairman and Victor M. Rivas,
chairman and chief executive officer of Ladenburg, Thalmann & Co.,
will become our president and chief executive officer while retaining
his positions with Ladenburg, Thalmann & Co. We have also entered into
amended employment agreements with Joseph Berland, our current
chairman and chief executive officer, Richard J. Rosenstock, our
current president and chief operating officer, Vincent Mangone and
Mark Zeitchick, our executive vice presidents, and David Thalheim, our
administrator, that will become effective on the Closing Date. For a
more detailed discussion of our management from and after the Closing
Date, see the section entitled "Stock Purchase Transactions -
Management and Operations After Closing Date" below.
2
o Following the Closing Date, we intend to operate Ladenburg, Thalmann &
Co. and our wholly owned subsidiary, GBI Capital Partners Inc.
initially as separate wholly owned subsidiaries. For a more detailed
discussion of the structure of our operations on the Closing Date, see
the section entitled "Stock Purchase Transactions - Management and
Operations After Closing Date" below.
o The Stock Purchase Transactions provide for us to recommend for
election as directors the nominees set forth under Proposal 2 and to
change our corporate name as set forth under Proposal 3. The closing
of the Stock Purchase Transactions is conditioned on approval of these
proposals by our shareholders. Thus, neither the Stock Purchase
Transactions, the change of our corporate name nor the election of the
nominees for directors will be effected unless all of the proposals
are approved. For a more detailed discussion of the conditions to
consummation of the stock purchase agreement, see the section entitled
"Stock Purchase Transactions - Closing Conditions" below.
o Under the stock purchase agreement, our board of directors is
restricted from discussing alternative transactions to the stock
purchase agreement and is entitled to terminate the stock purchase
agreement only in certain limited circumstances. If our board
determines to terminate the stock purchase agreement, we may be
required to pay a termination fee to New Valley and Berliner. For a
more detailed discussion of our board's ability to receive alternative
proposals and to terminate the stock purchase agreement, see the
sections entitled "Stock Purchase Transactions - Termination" and "-
Exclusivity" below.
o Our board of directors unanimously recommends that you vote for the
approval and adoption of the Stock Purchase Transactions. For a more
detailed discussion of the board's reasons, see the section entitled
"Stock Purchase Transactions - Fairness Opinion" below.
o Before we signed the stock purchase agreement and the loan agreement,
our board received an opinion from Roth Capital Partners, LLC, our
financial advisor, dated February 8, 2001, stating that, as of that
date, the consideration to be paid by us for Ladenburg, Thalmann &
Co.'s stock was fair from a financial point of view to the holders of
our common stock. For a more detailed discussion of this fairness
opinion, see the sections entitled "Stock Purchase Transactions -
Fairness Opinion" and "- Background of and Reasons for the Stock
Purchase Transactions" below.
o The acquisition of Ladenburg, Thalmann & Co.'s common stock will be
accounted for as an acquisition by Ladenburg, Thalmann & Co. of our
company. As a result of this accounting treatment, upon consummation
of the Stock Purchase Transactions, we will become a calendar year
reporting company and our fiscal year end will change from September
30 to December 31. Additionally, following consummation of the Stock
Purchase Transactions, we anticipate retaining PricewaterhouseCoopers
LLP as our principal accountants. For a more detailed discussion of
the accounting treatment of the Stock Purchase Transactions, see the
section entitled "Stock Purchase Transactions - Accounting Treatment"
below.
o We are required by the rules of the American Stock Exchange to obtain
the approval of our shareholders for the Stock Purchase Transactions.
3
Several of our officers, directors and key employees have entered into
a proxy and voting agreement in which these individuals agreed to vote
all of our common stock owned by them (a total of 12,426,939 shares,
representing approximately 66% of our outstanding common stock) in
favor of approving the Stock Purchase Transactions. Accordingly, the
Stock Purchase Transactions will be approved regardless of how the
other shareholders vote on these issues. For a more detailed
discussion of the vote needed to approve the Stock Purchase
Transactions and the proxy and voting agreement, see the sections
entitled "Stock Purchase Transactions - Proxy and Voting Agreement"
below.
4
Table of Contents
Summary of Stock Purchase Transactions........................................2
The Annual Meeting............................................................7
Who is entitled to vote?.............................................7
What is the effect of giving a proxy?................................7
Can I change my vote after I return my proxy card?...................7
What is a quorum?....................................................7
How may I vote?......................................................8
How many votes are needed for approval of each matter?...............8
What should I read to understand the Stock Purchase Transactions?....9
Security Ownership of Certain Beneficial Owners and Management................9
PROPOSAL 1 - Stock Purchase Transactions.....................................12
Parties to the Stock Purchase Transactions..........................12
Consideration.......................................................14
Background of and Reasons for the Stock Purchase Transactions.......17
Fairness Opinion....................................................19
Exclusivity.........................................................22
Termination.........................................................23
Certain Representations.............................................24
Operations Pending Closing..........................................26
Enforcement Committee...............................................26
Indemnification.....................................................26
Closing Conditions..................................................28
Non-Competition.....................................................28
Management and Operations After the Closing Date....................29
Interest of Certain Parties.........................................31
Proxy and Voting Agreement..........................................32
Investor Rights Agreement...........................................33
No Dissenter's Rights...............................................34
Accounting Treatment................................................34
Regulatory and Other Consents and Approvals.........................35
Comparative Per Share Data..........................................36
Pro Forma Financial Information.....................................37
Selected Financial Data of Ladenburg, Thalmann & Co.................43
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Ladenburg, Thalmann & Co......44
Our Selected Financial Data.........................................47
Management's Discussion and Analysis of Our Financial Condition
and Results of Operations..................................48
PROPOSAL 2 - Election of Directors...........................................54
Information About the Nominees......................................54
Other Current Directors.............................................56
Other Executive Officer.............................................56
5
Key Employees.......................................................56
Board and Committee Information.....................................56
Compensation Committee Information and Report.......................57
Audit Committee Information and Report..............................59
Executive Compensation..............................................61
Compensation Arrangements for Current Executive Officers
and Key Employees.........................................62
Compensation Arrangements for Directors.............................63
Option Grants.......................................................63
Annual Incentive Bonus Plan.........................................64
Special Performance Incentive Plan..................................64
1999 Performance Equity Plan........................................65
Stock Price Performance Graph.......................................65
Section 16(a) Beneficial Ownership Reporting Compliance.............66
Certain Relationships and Related Transactions......................66
PROPOSAL 3 - Approval of the Amendment to our Articles
of Incorporation to Change our Name.................................67
PROPOSAL 4 - Approval of the Amendment to our 1999 Performance
Equity Plan to Increase the Number of Shares Issuable
Upon Grants of Awards Under the Plan................................68
Summary of the Equity Plan..........................................68
Federal Income Tax Consequences.....................................72
Independent Auditors.........................................................75
Solicitation of Proxies......................................................75
2002 Annual Meeting Shareholder Proposals....................................75
Other Matters................................................................75
Appendix A - Stock Purchase Agreement
Appendix B - Form of Convertible Promissory Note to be Issued to New Valley and
Berliner
Appendix C - Loan Agreement
Appendix D - Form of Convertible Promissory Note to be Issued to Frost-Nevada
Appendix E - Proxy and Voting Agreement
Appendix F - Form of Pledge and Security Agreement
Appendix G - Investor Rights Agreement
Appendix H - Opinion of Roth Capital Partners, LLC
Appendix I - Audit Committee Charter
Appendix J - (1) Financial Statements of GBI Capital Management Corp.
(2) Financial Statements of Ladenburg, Thalmann & Co. Inc.
Form of Proxy
6
The Annual Meeting
Who is entitled to vote?
Holders of our common stock as of the close of business on March 23, 2001,
the record date, are entitled to vote at the meeting. As of the record date, we
had issued and outstanding 18,806,612 shares of common stock, our only class of
voting securities outstanding. Each holder of our common stock is entitled to
one vote for each share held on the record date.
What is the effect of giving a proxy?
Proxies in the form enclosed are solicited by and on behalf of our board.
The persons named in the proxy have been designated as proxies by our board. If
you sign and return the proxy in accordance with the procedures set forth in
this proxy statement, the persons designated as proxies by the board will vote
your shares at the meeting as specified in your proxy.
If you sign and return your proxy in accordance with the procedures set
forth in this proxy statement but you do not provide any instructions as to how
your shares should be voted, your shares will be voted as follows:
o FOR the approval of the Stock Purchase Transactions as described below
under Proposal 1;
o FOR the election as directors of the nominees listed below under
Proposal 2;
o FOR the approval of the amendment to our articles of incorporation to
change our name to "Ladenburg Thalmann Financial Services Inc." as
described below under Proposal 3; and
o FOR the approval of the amendment to our 1999 Performance Equity Plan
as described below under Proposal 4.
If you give your proxy, your shares also will be voted in the discretion of
the proxies named on the proxy card with respect to any other matters properly
brought before the meeting.
Can I change my vote after I return my proxy card?
You may revoke your proxy at any time before it is exercised by:
o delivering written notification of your revocation to our secretary;
o voting in person at the meeting; or
o delivering another proxy bearing a later date.
Please note that your attendance at the meeting will not alone serve to
revoke your proxy.
What is a quorum?
A quorum is the minimum number for shares required to be present at the
meeting for the meeting to be properly held under our bylaws and Florida law.
7
The presence, in person or by proxy, of a majority of all outstanding shares of
common stock entitled to vote at the meeting will constitute a quorum at the
meeting. A proxy submitted by a shareholder may indicate that all or a portion
of the shares represented by the proxy are not being voted ("shareholder
withholding") with respect to a particular matter. Similarly, a broker may not
be permitted to vote stock ("broker non-vote") held in street name on a
particular matter in the absence of instructions from the beneficial owner of
the stock. The shares subject to a proxy which are not being voted on a
particular matter because of either shareholder withholding or broker non-vote
will not be considered shares present and entitled to vote on that matter. These
shares, however, may be considered present and entitled to vote on other matters
and will count for purposes of determining the presence of a quorum if the
shares are being voted with respect to any matter at the meeting. If the proxy
indicates that the shares are not being voted on any matter at the meeting, the
shares will not be counted for purposes of determining the presence of a quorum.
Abstentions are voted neither "for" nor "against" a matter but are counted in
the determination of a quorum. Several of our officers, directors and key
employees holding 12,426,939 shares (representing approximately 66% of our
outstanding common stock) have agreed with New Valley to be present at the
meeting. Accordingly, we expect to have a quorum at the meeting even if no other
shares are present.
How may I vote?
You may vote your shares by mail. Date, sign and return the accompanying
proxy in the envelope enclosed for that purpose (to which no postage need to be
affixed if mailed in the United States). You may specify your choices by marking
the appropriate boxes on the proxy card. If you attend the meeting, you may
deliver your completed proxy card in person or fill out and return a ballot that
will be supplied to you.
How many votes are needed for approval of each matter?
o The Stock Purchase Transactions must be approved by a majority of the
votes cast at the meeting with respect to the proposal (Proposal 1).
o The election of directors requires a plurality vote of the shares of
common stock voted at the meeting. "Plurality" means that the
individuals who receive the largest number of votes cast "FOR" are
elected as directors. Consequently, any shares not voted "FOR" a
particular nominee (whether as a result of a direction of the
securities holder to withhold authority, abstentions or a broker
non-vote) will not be counted in such nominee's favor. As there are
nine directors to be elected, the nine persons receiving the highest
votes will be elected if nominees other than those nominated by the
board are presented (Proposal 2).
o The amendment to our articles of incorporation to change our name to
"Ladenburg Thalmann Financial Services Inc."must be approved by a
majority of the votes cast at the meeting with respect to the proposal
(Proposal 3).
o The amendment to our 1999 Performance Equity Plan to increase the
number of shares we may issue under the plan must be approved by a
majority of the votes cast at the meeting with respect to the proposal
(Proposal 4).
Abstentions and shares deemed present at the meeting but not entitled to
vote with respect to all of the proposals (because of either shareholder
withholding or broker non-vote) are not deemed voted and therefore will have no
effect on such vote.
8
What should I read to understand the Stock Purchase Transactions?
The information provided in the summary and in the "question and answer"
format above is for your convenience only and is merely a summary of the
information contained in this proxy statement. You should read this proxy
statement carefully, including the attached appendices and the documents we
refer to in this proxy statement.
Security Ownership of Certain Beneficial Owners and Management
As of the record date, 18,806,612 shares of our common stock were
outstanding. Each share of common stock is entitled to one vote. The following
table sets forth certain information as of the record date with respect to the
beneficial ownership of our common stock before and after giving effect to the
Stock Purchase Transactions, assuming the approval of the issuance of 18,181,818
shares of our common stock and $20 million aggregate principal amount of senior
convertible promissory notes and assuming no issuances or conversions of other
outstanding convertible securities prior to the proposed transactions, by (i)
those persons or groups known to beneficially own more than 5% of our voting
securities prior to the Closing Date, (ii) those persons or groups known to
beneficially own more than 5% of our voting securities on and after the Closing
Date, (iii) each director and director nominee, (iv) our chief executive officer
and our other four most highly compensated executive officers whose compensation
was $100,000 or greater for the fiscal year ended September 30, 2000, (v) all
current directors and executive officers as a group and (vi) all directors and
executive officers on and after the Closing Date as a group. Several of our
officers, directors and key employees have agreed to vote an aggregate of
12,426,939 shares of our common stock owned by them in favor of approving the
Stock Purchase Transactions and have given New Valley irrevocable proxies to
vote these shares accordingly. New Valley may therefore be deemed to
beneficially own these shares. For purposes of presentation, however, these
shares are not included in New Valley's beneficial ownership. Except as
otherwise stated, the address of each of such persons is c/o GBI Capital
Management Corp., 1055 Stewart Avenue, Bethpage, New York 11714.
Beneficial ownership(1) of Beneficial ownership of
our common stock before our common stock on and after
the Closing Date the Closing Date
---------------- ----------------
Number of Number of
Name of Beneficial Owner Shares Percent Shares Percent
------------------------ -------- ------- -------- -------
Joseph Berland 3,989,814(2)(3) 21.2% 44,754(4) *
Richard J. Rosenstock 3,989,814(5)(3) 21.2% 3,734,000(6) 10.1%
Mark Zeitchick 1,561,503(7)(3) 8.3% 1,463,441(7) 4.0%
Vincent Mangone 1,561,503(8)(3) 8.3% 1,463,441(9) 4.0%
David Thalheim 1,561,503(10)(3) 8.3% 1,463,441(11) 4.0%
Diane Chillemi 26,917(12) * 26,917(12) *
Steven A. Rosen 60,000(13) * 60,000(13) *
Benjamin D. Pelton 60,000(13) * 60,000(13) *
Kenneth Sperber 46,500(14) * 46,500(14) *
New Valley Corporation(15) 0 0% 21,589,465(16) 53.9%
Phillip Frost, M.D.(17) 701,966 3.7% 6,251,966(18) 14.9%
Berliner Effektengesellschaft AG(19) 0 0% 4,383,566(20) 11.6%
Bennett S. LeBow(21) 0 0% 0(22) 0%
Howard M. Lorber(21) 0 0% 0 0%
Victor M. Rivas(23) 0 0% 0(24) 0%
Henry C. Beinstein 0 0% 0 0%
Robert J. Eide 0 0% 0 0%
9
Beneficial ownership(1) of Beneficial ownership of
our common stock before our common stock on and after
the Closing Date the Closing Date
---------------- ----------------
Number of Number of
Name of Beneficial Owner Shares Percent Shares Percent
------------------------ -------- ------- -------- -------
All directors and executive officers as a group (8 11,296,051(25) 59.0% 12,939,765(27) 30.7%
persons prior to and 10 persons on and after the
Closing Date)(24)
* Less than 1 percent
(1) Beneficial ownership is determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934. The information concerning the
shareholders is based upon information furnished to us by these
shareholders. Except as otherwise indicated, all of the shares of common
stock are owned of record and beneficially and the persons identified have
sole voting and investment power with respect thereto.
(2) Represents 3,945,060 shares held of record by the Joseph Berland Revocable
Living Trust Dated 4/16/97, of which Mr. Berland is the sole trustee and
beneficiary, and 44,754 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Berland. Does not include 55,246
shares of common stock issuable upon exercise of options held by Mr.
Berland that are not currently exercisable and will not become exercisable
within the next 60 days.
(3) Messrs. Berland, Rosenstock, Zeitchick, Mangone and Thalheim have agreed to
vote all the shares beneficially owned by them in favor of approving the
Stock Purchase Transactions and have given New Valley irrevocable proxies
to vote the shares accordingly.
(4) Represents 44,754 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Berland. Does not include 55,246
shares of common stock issuable upon exercise of options held by Mr.
Berland that are not currently exercisable and will not become exercisable
within the next 60 days.
(5) Represents 3,945,060 shares held of record by The Richard J. Rosenstock
Revocable Living Trust Dated 3/5/96, of which Mr. Rosenstock is sole
trustee and beneficiary, and 44,754 shares of common stock issuable upon
exercise of currently exercisable options held by Mr. Rosenstock. Does not
include 55,246 shares of common stock issuable upon exercise of options
held by Mr. Rosenstock that are not currently exercisable and will not
become exercisable within the next 60 days.
(6) Represents 3,689,246 shares held of record by The Richard J. Rosenstock
Revocable Living Trust Dated 3/5/96 and 44,754 shares of common stock
issuable upon exercise of currently exercisable options held by Mr.
Rosenstock. Does not include 55,246 shares of common stock issuable upon
exercise of options held by Mr. Rosenstock that are not currently
exercisable and will not become exercisable within the next 60 days.
(7) Includes 49,230 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Zeitchick. Does not include
50,770 shares of common stock issuable upon exercise of options held by
Mr. Zeitchick that are not currently exercisable within the next 60 days.
(8) Represents 1,512,273 shares held of record by The Vincent A. Mangone
Revocable Living Trust Dated 11/5/96, of which Mr. Mangone is sole trustee
and beneficiary, and 49,230 shares of common stock issuable upon exercise
of currently exercisable options held by Mr. Mangone. Does not include
50,770 shares of common stock issuable upon exercise of options held by Mr.
Mangone that are not currently exercisable and will not become exercisable
within the next 60 days.
(9) Represents 1,414,211 shares held of record by The Vincent A. Mangone
Revocable Living Trust Dated 11/5/96 and 49,230 shares of common stock
issuable upon exercise of currently exercisable options held by Mr.
Mangone. Does not include 50,770 shares of common stock issuable upon
exercise of options held by Mr. Mangone that are not currently exercisable
and will not become exercisable within the next 60 days.
(10) Reprsents 1,512,273 shares held of record by The David Thalheim Revocable
Living Trust Dated 3/5/96, of which Mr. Thalheim is sole trustee and
beneficiary, and 49,230 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Thalheim. Does not include 50,770
shares of common stock issuable upon exercise of options held by Mr.
Thalheim that are not currently exercisable and will not become exercisable
within the next 60 days.
10
(11) Represents 1,414,211 shares held of record by The David Thalheim Revocable
Living Trust Dated 3/5/96 and 49,230 shares of common stock issuable upon
exercise of currently exercisable options held by Mr. Thalheim. Does not
include 50,770 shares of common stock issuable upon exercise of options
held by Mr. Thalheim that are not currently exercisable and will not become
exercisable within the next 60 days.
(12) Includes 5,000 shares of common stock issuable upon exercise of currently
exercisable options. Does not include 10,000 shares of common stock
issuable upon exercise of options that are not currently exercisable and
will not become exercisable within the next 60 days.
(13) Includes 60,000 shares of common stock issuable upon exercise of currently
exercisable options.
(14) Includes 40,000 shares of common stock issuable upon exercise of currently
exercisable options.
(15) The business address for New Valley is 100 S.E. Second Street, 32nd Floor,
Miami, Florida 33131.
(16) Represents 18,508,696 shares of our common stock and 3,080,769 shares of
common stock issuable upon conversion of senior convertible promissory
notes at an initial conversion price of $2.60 per share. These shares are
held by Ladenburg, Thalmann Group, a wholly owned subsidiary of New Valley.
(17) The business address of Dr. Frost is c/o IVAX Corporation, 4400 Biscayne
Boulevard, Miami, Florida 33137.
(18) Includes 1,251,966 shares of common stock and 5,000,000 shares of common
stock issuable upon conversion of a senior convertible promissory note at
an initial conversion rate of $2.00 per share. These shares are held by
Frost-Nevada, Limited Partnership of which Dr. Frost is the sole limited
partner. Dr. Frost is also the sole shareholder and an officer and a
director of Frost-Nevada Corporation, the general partner of Frost-Nevada.
(19) The business address of Berliner is Kurfustendamm 119, 10711 Berlin,
Germany.
(20) Includes 765,385 shares of common stock issuable upon conversion of senior
convertible promissory notes at an initial conversion price of $2.60 per
share.
(21) The business address of these individuals is c/o New Valley Corporation,
100 S.E. Second Street, Miami, Florida 33131.
(22) Excludes the shares of common stock beneficially owned by New Valley, of
which the holder claims beneficial ownership.
(23) The business address of Mr. Rivas is c/o Ladenburg, Thalmann & Co. Inc.,
590 Madison Avenue, New York, New York 10022.
(24) Does not include 1,000,000 shares of common stock issuable upon exercise
of options that are not currently exercisable and will not become
exercisable within the next 60 days.
(25) Prior to the Closing Date, this group included Joseph Berland, Richard J.
Rosenstock, Mark Zeitchick, Vincent Mangone, Steven A. Rosen, Benjamin D.
Pelton, Kenneth Sperber and Diane Chillemi. After the Closing Date, this
group will include Victor M. Rivas, Howard M. Lorber, Bennett S. LeBow,
Phillip Frost, Henry C. Beinstein, Robert J. Eide, Richard J. Rosenstock,
Mark Zeitchick, Vincent Mangone and Diane Chillemi.
(26) Includes 352,968 shares of common stock issuable upon exercise of currently
exercisable options. See notes 2, 5, 7, 8, 12, 13 and 14.
(27) Includes 148,214 shares of common stock issuable upon exercise of currently
exercisable options and 5,000,000 shares of common stock issuable upon
conversion of senior convertible promissory notes. See notes 6, 7, 9, 12
and 18. Excludes the shares of common stock beneficially owned by New
Valley. See note 22.
11
PROPOSAL 1
Stock Purchase Transactions
The following is a brief summary of certain provisions of the stock
purchase agreement and the Stock Purchase Transactions. This summary does not
purport to be complete and is qualified in its entirely by reference to the
stock purchase agreement and the ancillary agreements, attached as Appendix A
through Appendix H and incorporated herein by reference. Our shareholders are
urged to read all of these agreements carefully.
Pursuant to the terms of the stock purchase agreement and a separate stock
purchase agreement between New Valley and one of our officers, New Valley will
acquire ownership of approximately 50.1% of our common stock to be outstanding
upon the Closing Date and Ladenburg, Thalmann & Co. will become our wholly owned
subsidiary. Frost-Nevada has entered into several individual stock purchase
agreements with certain of our employees, officers and directors pursuant to
which they have agreed to sell, concurrently with the closing of the Stock
Purchase Transactions, up to an aggregate of 550,000 shares of our common stock
currently owned by them to Frost-Nevada, at $1.00 per share. As a result of its
purchase of such stock and the convertible note it will be issued in making the
loan to us as described below, Frost-Nevada, of which Dr. Phillip Frost is the
sole limited partner and sole shareholder of the general partner, will
beneficially own approximately 14.9% of the common stock to be outstanding after
the Stock Purchase Transactions are completed.
It is contemplated that the Stock Purchase Transactions will be consummated
shortly after the meeting if shareholders approve this proposal, elect the
nominees set forth under Proposal 2 and approve the change of our corporate name
set forth under Proposal 3.
Parties to the Stock Purchase Transactions
GBI Capital Management Corp.
We are a holding company engaged in the retail and institutional securities
brokerage business and provide investment banking and research services through
our primary operating subsidiary, GBI Capital Partners, Inc. Our common stock is
traded on the American Stock Exchange under the symbol GBC. GBI Capital Partners
is registered as a broker-dealer with the Securities and Exchange Commission and
is a member firm of the National Association of Securities Dealers, Inc. and the
Securities Investor Protection Corporation. GBI Capital Partners' business
activities consist primarily of retail sales and trading of exchange listed and
over-the-counter equity securities, options and mutual funds, as well as
investment banking and research services. GBI Capital Partners currently has
385 registered representatives and 340 other full time employees.
In November 1999, we expanded our operations to include money management
services by establishing a private investment fund, GBI 1500 Focus Fund,
L.P.,which invests its capital in publicly traded equity securities. At
September 30, 2000, net partners' capital in this fund amounted to approximately
$10,400,000. Our wholly-owned subsidiary, GBI Fund Management Corp., is the
general partner of this fund and receives an annual management fee based on the
net assets of the fund and an incentive fee based on the performance of the fund
each year.
We have also instituted wholesale trading operations in our Ft. Lauderdale,
Florida office. We currently employ eleven traders and traders assistants who at
March 1, 2001, made markets in approximately 1,000 securities and who also
execute trades for institutional and high net worth investors.
12
We were incorporated under the laws of the State of Florida on February 5,
1996. GBI Capital Partners was incorporated under the laws of the State of New
York in August 1983. GBI Capital Partners became our wholly owned subsidiary on
August 24, 1999 pursuant to a merger with FHGB Acquisition Corporation, our
wholly owned subsidiary, with GBI Capital Partners surviving the merger. Our
principal executive offices are located at 1055 Stewart Avenue, Bethpage, New
York 11714 and our telephone number is (516) 470-1000.
New Valley Corporation
New Valley is principally engaged in the investment banking and brokerage
business, though its operating subsidiary Ladenburg, Thalmann & Co., and the
real estate business in Russia, through BrookeMil Ltd. and Western Realty. New
Valley's common stock is listed on the Nasdaq Small Cap Market under the symbol
NVAL and its warrants are listed on the Nasdaq SmallCap Market under the symbol
NVALW. New Valley is controlled by Bennett S. LeBow and Vector Group Ltd. New
Valley was incorporated under the laws of the State of Delaware on May 20, 1996.
New Valley's principal executive offices are located at 100 S.E. Second Street,
Miami, Florida 33131, and its telephone number is (305) 579-8000.
New Valley was originally organized under the laws of New York in 1851 and
operated for many years as Western Union Corporation. In 1991, bankruptcy
proceedings were commenced against New Valley from which it emerged in January
1995. As part of the bankruptcy plan, New Valley sold the Western Union money
transfer and messaging services businesses and all allowed claims in the
bankruptcy were paid in full.
Ladenburg, Thalmann Group Inc. is a wholly owned subsidiary of New Valley
which directly or indirectly holds New Valley's equity interests in several
companies, including an 80.1% interest in Ladenburg, Thalmann & Co. and all of
the shares of Ladenburg, Thalmann International Ltd., which will be transferred
to us at the Closing Date.
Ladenburg, Thalmann Group was incorporated under the laws of the State of
Delaware on April 19, 1995. Ladenburg, Thalmann Group's principal executive
offices are located at 100 S.E. Second Street, 32nd Floor, Miami, Florida 33131
and its telephone number is (305) 579-8009.
Ladenburg, Thalmann & Co. Inc.
Ladenburg, Thalmann & Co. is a full service broker-dealer that has been a
member of the New York Stock Exchange since 1879. It provides its services
principally for middle market and emerging growth companies and high net worth
individuals through a coordinated effort among corporate finance, research,
capital markets, investment management, brokerage and trading professionals.
Ladenburg, Thalmann & Co. is subject to regulation by the SEC, the New York
Stock Exchange and the National Association of Securities Dealers. Ladenburg,
Thalmann & Co. currently has 250 registered representatives and 104 other full
time employees. Ladenburg, Thalmann & Co. was incorporated under the laws of the
State of Delaware on December 3, 1971. Ladenburg, Thalmann & Co.'s principal
executive offices are located at 590 Madison Avenue, New York, New York 10022
and its telephone number is (212) 409-2000.
13
Ladenburg, Thalmann & Co.'s investment banking area maintains relationships
with businesses and provides them with research, advisory and investor relations
support. Services include merger and acquisition consulting, management of and
participation in underwriting of equity and debt financing, private debt and
equity financing, and rendering appraisals, financial evaluations and fairness
opinions. Ladenburg, Thalmann & Co.'s listed securities, fixed income and
over-the-counter trading areas trade a variety of financial instruments. Its
client services and institutional sales departments serve more than 20,000
accounts worldwide and its asset management area provides investment management
and financial planning services to numerous individuals and institutions.
On May 31, 1995, New Valley acquired all of the outstanding shares of
common stock and other equity interests of Ladenburg, Thalmann & Co. for $25.8
million, net of cash acquired, subject to adjustment. On December 23, 1999, New
Valley sold a 19.9% interest in Ladenburg, Thalmann & Co. to Berliner. New
Valley received approximately $10.2 million in cash and Berliner shares valued
in accordance with the purchase agreement. There is presently no trading market
for Ladenburg, Thalmann & Co.'s common stock.
Berliner Effektengesellschaft AG
Berliner is a public financial holding company with subsidiaries involved
in securities trading, corporate finance, private banking and intermediate
financing for stock exchange candidates in the free market (Freiverkehr),
regulated market (Geregelter Markt) and the new market (Neuer Markt) of the
Berlin and Frankfurt stock exchanges. In addition, Berliner is a market
specialist for over 5,000 companies.
Berliner was incorporated under the laws of Germany on May 13, 1997.
Berliner's principal executive offices are located at Kurfustendamm 119, 10711
Berlin, Germany, and its telephone number is 011-49-30-8902-196 (when dialed
from the United States).
Frost-Nevada, Limited Partnership
Frost-Nevada is a holding company that holds a wide variety of investments.
Dr. Phillip Frost is the sole limited partner of Frost-Nevada. The general
partner of Frost-Nevada is Frost-Nevada Corporation of which Dr. Frost is also
the sole shareholder, and an officer and a director.
Frost-Nevada was formed under the laws of Nevada on December 29, 1986.
Frost-Nevada's principal executive offices are located at 3500 Lakeside Court,
Suite 200, Reno, Nevada 89509 and its telephone number is (775) 827-2000.
Consideration
As consideration for all of the outstanding common stock of Ladenburg,
Thalmann & Co., we will be issuing to New Valley and Berliner:
o 18,181,818 shares of our common stock;
o $10,000,000 principal amount of our senior convertible notes; and
14
o $10,000,000 cash, which we intend to fund from the proceeds of the
loan to us by Frost-Nevada. Of the $10,000,000 cash to be paid,
$500,000 will be placed in escrow pursuant to an escrow agreement
between us, Berliner and Continental Stock Transfer & Trust Company,
as escrow agent, to secure Berliner's purchase price adjustment
obligations described below and certain indemnification obligations
described below under the section entitled "Indemnification."
All payments will be made in the proportion of 80.1% to New Valley and 19.9% to
Berliner.
New Valley will also transfer to us all of the common stock of
Ladenburg Thalmann International Ltd., the investment advisor to the Societe
Generale Ladenburg Thalmann Ukraine Fund, for no additional consideration. The
investment manager of the Ukraine Fund, a closed end company incorporated in
Guernsey with limited liability, is SG Asset Management Emerging Markets
Limited. The fund's investment objective is to seek capital growth by investing
primarily in companies in Ukraine, the securities of which appear, in the
opinion of the investment manager, to be attractive either in relationship to
their underlying assets, or from the standpoint of their potential long-term
profit growth.
If, on the Closing Date, the net worth of Ladenburg, Thalmann & Co. and its
subsidiaries on a consolidated basis is less than $28.6 million, New Valley and
Berliner are required to contribute to Ladenburg, Thalmann & Co. an amount in
cash equal to the difference between the such amount and $28.6 million, and if
the net worth of Ladenburg, Thalmann & Co. and its subsidiaries on a
consolidated basis is greater than $30.6 million, we are required to pay to New
Valley and Berliner, in cash, the difference between such amount and $30.6
million.
The 18,181,818 shares of our common stock to be issued to New Valley and
Berliner will represent approximately 49% of our common stock that will then be
outstanding. Of the 18,181,818 shares to be issued, New Valley will be issued
14,563,636 shares and Berliner will be issued 3,618,182 shares. New Valley
will also be purchasing 3,945,060 shares of our common stock pursuant to the
Stock Purchase Agreement with Joseph Berland. As a result of these transactions,
New Valley will own approximately 50.1% of our common stock to be outstanding on
the Closing Date. Accordingly, after the Closing Date, New Valley will have the
unilateral ability to approve most, if not all, of our corporate actions,
including the election of directors and the appointment of officers. In
addition, if New Valley and Berliner convert the full amounts of the senior
convertible promissory notes to be issued to them, we will be required to issue
an additional 3,846,154 shares of our common stock. On consummation of the Stock
Purchase Transactions and assuming this conversion, New Valley will be the
beneficial owner of 53.9% of our common stock and Berliner will be the
beneficial owner of 11.6% of our common stock.
Common Stock
Our common stock became eligible for quotation on the NASD OTC Bulletin
Board in October 1997 under the symbol FHAN. On August 24, 1999, we changed our
name to GBI Capital Management Corp. and on August 25, 1999, our common stock
began quotation on the NASD OTC Bulletin Board under the symbol GBIC. On April
14, 2000, our common stock began trading on the American Stock Exchange under
the symbol GBC. The following table sets forth the high and low closing prices
(for the AMEX) and last sale prices (for the OTC Bulletin Board) for the common
stock as reported by Bloomberg for the periods specified.
Period High($) Low($)
------ -------- ------
Fiscal 2001
Second Quarter (through 3/22/01) 3.15 2.00
First Quarter (10/00 - 12/00) 2.75 2.25
Fiscal 2000
Fourth Quarter (7/00-9/00) 3.00 2.5625
Third Quarter (4/00-6/00) 3.50 2.50
Second Quarter (1/00-3/00) 3.375 2.625
First Quarter (10/99-12/99) 3.75 2.50
15
Period High($) Low($)
------ -------- ------
Fiscal 1999
Fourth Quarter (7/99-9/99) 4.875 2.875
Third Quarter (4/99-6/99) 5.125 2.75
Second Quarter (1/98-3/99) 3.00 2.375
First Quarter (10/98-12/98) 4.25 2.00
On February 7, 2001, the last full trading day for which last sale
information is available prior to the public announcement of the execution and
delivery of stock purchase agreement, the closing price of our common stock as
reported on the AMEX was $2.50. On March 22, 2001, the most recent date for
which it was practicable to obtain market price information prior to the
printing of this proxy statement, the closing price was $2.00.
On March 23, 2001, there were 66 holders of record of our common stock.
We believe there are over 500 beneficial owners of our common stock.
To date, we have not paid or declared any dividends on our common stock.
The payment of future dividends, if any, will be at the discretion of our board
of directors after taking into account various factors, including our financial
condition, operating results, current anticipated cash needs as well as any
other factors that our board of directors may deem relevant. Our ability to pay
dividends in the future also may be restricted by the obligations of GBI Capital
Partners and Ladenburg, Thalmann & Co. (if the Stock Purchase Transactions are
consummated) to comply with the net capital requirements imposed on broker-
dealers by the SEC and the NASD. We do not intend to declare any dividends in
the foreseeable future, but instead intend on retaining all earnings for use in
our business.
Terms of the Convertible Notes
The notes to be issued to New Valley and Berliner will bear interest at a
rate of 7-1/2% per annum, payable quarterly, and will be secured by a pledge of
the shares of Ladenburg, Thalmann & Co.'s common stock we are purchasing under
the stock purchase agreement pursuant to a pledge and security agreement between
New Valley, Berliner, Frost-Nevada and U.S. Bank Trust National Association, as
collateral agent. Principal on the notes will be payable on December 31, 2005.
We do not have any right to make prepayments under the notes.
Conversion
The principal and accrued interest on the notes will be convertible, in
whole or in part, at any time, at the election of the holder, into that number
of shares of common stock determined by dividing the principal and interest to
be converted by the "conversion price." The "conversion price" will initially be
$2.60 and will be subject to anti-dilution adjustment for stock splits,
dividends and similar events. If, during any period of 20 consecutive trading
days, the closing sale price of our common stock is at least $8.00, the
principal and all accrued interest on the notes will be automatically converted
into shares of common stock at the conversion price then in effect.
16
Change of Control
If a change of control occurs, as defined in the notes, we must offer to
purchase all of the outstanding notes at a purchase price equal to the unpaid
principal amount of the notes and the accrued interest thereon.
Default
Following an event of a default, holders of notes may accelerate them, and
interest on the unpaid principal amount of the notes will accrue at 15% per
annum. For this purpose, an event of default will include:
o a failure to make any payment of principal on the notes on the date
required for the payment;
o a failure to make any payment of interest on the notes or any other
payment due under the notes or the pledge and security agreement
described below within 10 days after it is due;
o certain events of bankruptcy or insolvency;
o if we or Ladenburg, Thalmann & Co. default under certain circumstances
with respect to any indebtedness of $250,000 or more for borrowed
money;
o if we fail to observe covenants in the notes or in the pledge
agreement, subject to certain exceptions, and we do not cure the
breach within 30 days after notice from the secured parties under the
pledge agreement, or if the lien under the pledge agreement at any
time not does constitute a first perfected lien on the collateral
intended to be covered by the pledge agreement; or
o if any judgment against us or Ladenburg, Thalmann & Co. in excess of
$250,000 in the aggregate remains unpaid, or is not dismissed or
stayed for 60 days or more, after its entry.
Terms of the Frost-Nevada Loan
The cash portion of the consideration to be paid to New Valley and Berliner
will be obtained pursuant to a loan agreement between us and Frost-Nevada under
which Frost-Nevada has committed to lend us $10,000,000. The loan is to be
evidenced by a senior convertible promissory note which will rank pari passu in
all respects to the notes issued to New Valley and Berliner. The note to be
issued to Frost-Nevada will bear interest at a rate of 8-1/2% per annum. The
note will have the same material terms as the notes issued to New Valley and
Berliner, except that the conversion price of the note to be issued to
Frost-Nevada will initially be $2.00. The note to be issued to Frost-Nevada will
also be secured by a pledge of Ladenburg, Thalmann & Co.'s common stock under
the same pledge agreement by which the New Valley and Berliner notes will be
secured.
Background of and Reasons for the Stock Purchase Transactions
In the latter part of 2000, our directors concluded that we needed to
enlarge the size of our business and the scope of services we provide in order
to maintain our viability as a participant in today's financial markets. In
reviewing possible alternatives, we learned that New Valley and Berliner were
considering the sale of their interests in Ladenburg, Thalmann & Co. Based on
17
preliminary discussions between us and New Valley regarding a possible business
combination in 1998 and again in 1999, Ladenburg, Thalmann & Co. was known to us
as a high quality financial services firm of outstanding reputation that was one
of the longest-standing member firms of the New York Stock Exchange, having
become a member in 1879. In August 2000, we commenced negotiations with New
Valley for an acquisition by us of the stock of Ladenburg, Thalmann & Co.
Meetings with the principals of New Valley and Ladenburg, Thalmann & Co. led us
to conclude that the combination of our business with that of Ladenburg,
Thalmann & Co. could provide the desired enlargement of our business base that
we believed was necessary. In October 2000, we engaged a financial advisor
("Prior Advisor") to assist us in our investigation and evaluation of Ladenburg,
Thalmann & Co. and to provide an opinion regarding the fairness of the
transaction to our shareholders from a financial point of view.
The principal executives of the parties met a number of times and had
numerous telephone conversations during October and early November 2000 and
exchanged information about their respective businesses during this period. A
term sheet outlining the material provisions of the proposed transaction and a
confidentiality letter was signed on November 7, 2000. These terms provided that
we would acquire all of the stock of Ladenburg, Thalmann & Co. for an agreed
purchase price of $45 million, of which $30 million would be paid in cash at the
closing, $7.5 million would be paid by the issuance of shares of our common
stock and $7.5 million would be paid in the form of a convertible promissory
note due on December 31, 2005. Drafting of the transaction documents was
immediately begun.
We also approached Dr. Phillip Frost to assist us in raising some of the
cash that would be required to close the transaction. Dr. Frost, through several
entities controlled by him, was one of our principal shareholders prior to the
reorganization by which GBI Capital Partners Inc. was merged into our subsidiary
in August 1999 to create our firm as it is presently structured. Dr. Frost
indicated that he would be willing to provide up to $10,000,000 of the necessary
cash as a loan through an entity controlled by him.
Subsequent to the signing of the term sheet, executives of the parties met
and had frequent telephone conversations in connection with the drafting of the
transaction documents. On December 11, 2000, Richard Lampen, New Valley's
executive vice president and general counsel, and Victor Rivas, Ladenburg,
Thalmann & Co.'s chairman and chief executive officer, and their counsel met
with Richard Rosenstock, our president, and Mark Zeitchick, our executive vice
president, and our counsel to discuss issues raised in the course of drafting
the documents. Howard Lorber, New Valley's president and chief operating
officer, joined this meeting shortly prior to its conclusion.
As negotiations continued, the structure of the transaction changed.
Instead of paying $30 million in cash and $7.5 million in the form of a
convertible promissory as initially proposed, we would now be paying $25 million
cash and $12.5 million secured convertible promissory notes along with the $7.5
million of common stock. On January 4, 2001, after several meetings during the
latter part of 2000 in which the board considered the transaction, our board of
directors met and unanimously authorized our executive officers to continue the
negotiations and enter into definitive agreements encompassing the transaction
in its new structure. The loan from Dr. Frost's entity was also unanimously
approved, in the form of a secured convertible promissory note similar to those
to be given to New Valley and Berliner. Representatives of the Prior Advisor
were present at this meeting and made a presentation regarding the transaction.
Based on the structure of the transaction at that time, the representatives of
the Prior Advisor advised the board that they believed they would be able to
render an opinion stating that the transaction was fair to our shareholders
from a financial point of view, subject to further evaluation of expected cost
savings and revenue enhancements associated with the transaction.
Representatives of Graubard Miller, our outside general counsel, were also
present to answer legal questions that were posed by our board.
18
During the continued course of the discussions and due diligence
investigations, it became apparent to the parties that the transaction, as
originally structured, required more cash to be expended for the acquisition
than might be prudent given the expected liquidity needs of the ongoing
business. As a consequence, the transaction was restructured into its present
form by substantially increasing the number of shares to be issued as part of
the consideration and reducing the cash and notes to be issued. However, the
Prior Advisor advised us that the greater number of shares to be issued under
the revised structure could have a significant dilutive effect on our earnings
per share and, accordingly, that it would be unable to render its opinion. We
thereupon engaged Roth Capital Partners, LLC in late January 2001 to act as our
financial advisor and render a fairness opinion if it concluded it could do so.
The revised form of transaction was considered by our board of directors at
a meeting on February 7, 2001. A representative of Roth Capital Partners was
present at the meeting and expressed his opinion that the transaction, as
restructured, was fair to our shareholders from a financial point of view.
Representatives of Graubard Miller were again also present to answer legal
questions that were posed by our board. In approving the revised form of
transaction, the board considered various factors including, among other things:
o the change of control of our company and our new management;
o the direction our operations would take following the transaction;
o the expanded broker base and increased order flow of the combined
entities;
o the possibility of offering a wider choice of markets for our
customers;
o the increased debt that we would be incurring;
o the dilutive effect of the transaction on our existing shareholders;
o the possibility of a loss of registered representatives as a result of
the acquisition; and
o the interest of certain insiders in the transactions.
Based on the totality of the information available to the board, the transaction
in its current form was unanimously approved and on February 8, 2001, we
announced that definitive transaction documents were signed.
Fairness Opinion
Roth Capital Partners has delivered its opinion dated February 8, 2001 to
our board of directors that, based on the various considerations set forth in
its opinion, the consideration we will pay in exchange for Ladenburg, Thalmann &
Co.'s stock is fair to our shareholders from a financial point of view. The
following is merely a summary of the material financial analyses used by Roth
Capital Partners in coming to its conclusions and is not intended to be a
complete description of the analyses performed by Roth Capital Partners.
19
The full text of Roth Capital Partners' opinion, attached as Appendix H
to this proxy statement, identifies assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion. You are
urged to read this opinion in its entirety.
Roth Capital Partners, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Roth Capital Partners
provides a full range of financial advisory and securities services and, in the
course of its normal trading activities, may from time to time effect
transactions and hold our securities for its own account and for the accounts of
customers.
Pursuant to a letter agreement, dated January 28, 2001, we engaged Roth
Capital Partners to act as our financial advisor in connection with our
acquisition of Ladenburg, Thalmann & Co. We determined to use the services of
Roth Capital Partners because it is a recognized investment banking firm that
has substantial experience in similar transactions. The letter agreement
provides that we will pay Roth Capital Partners an advisory fee of $150,000 and
will reimburse Roth Capital Partners for its reasonable out-of-pocket expenses,
including attorneys' fees. We have also agreed to indemnify Roth Capital
Partners against certain liabilities, including various liabilities under the
federal securities laws. Roth Capital Partners may provide investment banking
services to the parties to the Stock Purchase Transactions in the future.
Although the consideration to be paid by us for Ladenburg, Thalmann & Co.'s
stock was initially determined by our board of directors, Roth Capital Partners
came to the independent conclusion that the consideration was fair to our
shareholders from a financial point of view as of the date of its opinion. In
reaching its conclusions, Roth Capital Partners looked at various documents
including:
o the various agreements surrounding the Stock Purchase Transactions;
o the annual reports of our company and those of New Valley for the past
two years;
o various quarterly reports of our company and New Valley;
o certain audited and unaudited financial information for our company
and Ladenburg, Thalmann & Co.; and
o certain financial analyses for our company and Ladenburg, Thalmann &
Co. prepared by each company's management.
Roth Capital Partners also held discussions with our senior management and that
of Ladenburg, Thalmann & Co. regarding their assessment of the strategic
rationale for, and the potential benefits of, the Stock Purchase Transactions,
and the current business operations, financial condition, and future prospects
of their respective companies. In addition, Roth Capital Partners:
o compared certain financial and other information for Ladenburg,
Thalmann & Co. and certain financial and stock market information for
our company with similar information for other companies whose
securities are publicly traded; and
20
o reviewed the financial terms of various recent business combinations
in the investment banking and brokerage industries as well as other
industries.
Roth Capital Partners relied upon and assumed the accuracy and completeness of
all of the financial and other information discussed with or reviewed by it for
purposes of rendering its opinion. In addition, Roth Capital Partners did not
make an independent evaluation or appraisal of the assets and liabilities,
contingent or otherwise, of our company or Ladenburg, Thalmann & Co. or each
company's subsidiaries and was not furnished with any such evaluation or
appraisal. Roth Capital Partners provided its advisory services and opinion in
order to aid our board of directors in determining whether the consideration to
be paid by us under the Stock Purchase Transactions was fair from a financial
point of view. Roth Capital Partners' opinion does not constitute a
recommendation as to how any of our shareholders should vote with respect to the
Stock Purchase Transactions.
Roth Capital Partners used two different valuation methods in determining
that the consideration to be paid by us pursuant to the Stock Purchase Agreement
was fair to our shareholders from a financial point of view. For this purpose,
Roth Capital Partners considered the value of the aggregate consideration we
will pay pursuant to the Stock Purchase Agreement to be $61 million without
taking into account any synergies that would result from the amalgamation of our
operations with those of Ladenburg, Thalmann & Co. This amount consist of the
following components:
o the face amount of the senior convertible notes to be given by us to
New Valley and Berliner;
o the markekt value of our common stock to be issued in the
transaction; and
o the cash portion of the consideration.
The first analysis that Roth Capital Partners undertook was a
comparable enterprise value analysis. In this analysis, Roth Capital Partners
determined the enterprise value (market capitalization plus net debt) for a
group of investment banks and brokerages it deemed comparable to us and
Ladenburg, Thalmann & Co. based upon the closing price per share as of January
31, 2001, using publicly available information. Included in this group of
companies were, among others, Morgan Keegan, First Albany Companies and Tucker
Anthony Sutro. The theory underlying this analysis is that companies in the same
industry with similar operating characteristics should have certain valuation
benchmarks in common.
In making this analysis, Roth Capital Partners calculated a series of
multiples for the selected companies by dividing their enterprise values by
their revenues, net income and book value for the year 2000 based upon publicly
available research analysts' estimates. The average and median values for these
companies were 1.22 and 1.12, 15.84 and 15.66 and 2.46 and 2.36, respectively.
Applying these multiples to Ladenburg, Thalmann & Co.'s three year average
revenues and net income and book value at December 31, 2000 yielded derived
enterprise values for Ladenburg, Thalmann & Co. of $93.5 million and $86.2
million, $79.1 million and $78.2 million and $74.3 million and $71.1 million,
respectively, which, our board of directors believes, compare favorably to the
value of the aggregate consideration we will pay pursuant to the stock purchase
agreement.
The second analysis that Roth Capital Partners undertook was a
comparable transaction analysis in which the aggregate consideration offered in
comparable market transactions that were announced between April 1999 and
December 2000 was compared to the revenues, net income and book values of the
acquired companies. The theory underlying the comparable transaction analysis is
that transactions that involve acquisitions of controlling interests in similar
companies have similar valuation benchmarks. In the transactions considered by
Roth Capital Partners, the average and median ratios for these comparisons were
2.53 and 1.92, 97.32 and 25.69 and 3.38 and 3.27, respectively. Applying these
multiples to Ladenburg, Thalmann & Co.'s three year average revenues and net
income and book value at December 31, 2000 yielded derived aggregate
considerations of $194.8 million and $147.6 million, $485.9 million and $128.3
million and $102.0 million and $98.7 million, respectively, which, our board of
directors believes, also compare favorably to the value of the aggregate
consideration we will pay pursuant to the stock purchase agreement.
21
The analyses performed by Roth Capital Partners were prepared solely for
our board of directors in order to provide us with its opinion as to the
fairness, from a financial point of view, of the total consideration proposed to
be paid by us in the stock purchase agreement. These analyses are not appraisals
and do not necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested. Because the analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or their respective advisors, neither Roth Capital Partners nor the
parties to the Stock Purchase Transactions assume responsibility if future
results are materially different from those forecast.
As described above, Roth Capital Partner's opinion was just one of the many
factors taken into account by our board of directors in making its determination
to approve the Stock Purchase Transactions and the related transactions.
Exclusivity
The agreement prohibits us from doing anything to initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any proposal or offer with respect to:
o a merger, consolidation, or other business combination involving us or
any of our subsidiaries;
o any acquisition or similar transaction involving the purchase of all
or any significant portion of our or our subsidiaries' assets taken as
a whole or 20% or more of our outstanding common stock;
o the issuance of our common stock which would constitute, after
issuance, 20% or more of our then outstanding common stock.
We may not provide any confidential information to or have any discussions with
any person relating to or otherwise facilitate an alternative transaction.
However, if we receive an unsolicited written proposal for any alternative
transaction from a third party, we will be entitled to communicate with the
third party and give the third party information about our company if:
o our board of directors concludes in good faith that such proposal is
reasonably likely to result in a transaction superior to the Stock
Purchase Transactions. For purposes of this section, a superior
transaction means any alternative transaction that:
22
o relates to more than 50% of our outstanding common stock or the
issuance or potential issuance of shares of our common stock that
would constitute, after issuance, 50% or more of our common stock
then outstanding or all or substantially all of our assets and
the assets of our subsidiaries taken as a whole;
o is not conditioned on the receipt of financing;
o is made by a person who our board of directors has reasonably
concluded in good faith will have adequate sources of financing
to, and will not encounter significant regulatory obstacles in
order to, consummate the alternative transaction; and
o is on terms that our board of directors determines in good faith,
based on the written advice of a financial advisor of
nationally-recognized reputation, taking into account all the
terms and conditions of the alternative transaction, including
any break-up fees, expense reimbursement provisions and
conditions to consummation, are more favorable and provide
greater value to our shareholders than the stock purchase
agreement and the Stock Purchase Transactions taken as a whole.
o our board of directors, based on the advice of outside counsel,
determines in good faith that such action is required for the board of
directors to comply with its fiduciary duties to our shareholders
imposed by law;
o we have entered into a confidentiality agreement with such party in
customary form and having terms and conditions no less favorable to us
than the one entered into in connection with the stock purchase
agreement;
o prior to furnishing information to, or entering into discussions with,
such person, we provide written notice to New Valley and Berliner to
the effect that we are furnishing information to, or entering into
discussions with, such person, which notice shall identify such person
and the proposed terms of the alternative transaction in reasonable
detail; and
o we keep New Valley and Berliner informed of the status of the
alternative transaction and all material information with respect to
any such discussions.
Termination
The stock purchase agreement may be terminated only in the following
limited circumstances:
o by mutual written consent of us, New Valley and Berliner;
o by us or New Valley if any competent regulatory authority issues an
order making illegal or otherwise restricting the transactions
contemplated by the stock purchase agreement, and such order has
become final and non-appealable;
23
o by us or New Valley if the closing of the stock purchase agreement has
not occurred by September 30, 2001 for any reason other than breach by
the party seeking to terminate;
o by New Valley if our board of directors (or any committee thereof) (a)
fails to recommend or withdraws or modifies in a manner adverse to New
Valley and Berliner its approval or recommendation of the stock
purchase agreement and any of the transactions contemplated thereby,
(b) recommends or takes no position with respect to a proposal for an
alternative transaction or (c) following the public announcement of a
proposal for an alternative transaction, fails to reconfirm its
recommendation of the stock purchase agreement and the transactions
contemplated thereby within five business days following a written
request for such reconfirmation by New Valley; or
o by us if our board of directors determines in good faith, based on
advice of outside legal counsel, that failure to terminate the stock
purchase agreement is reasonably likely to result in the board of
directors breaching its fiduciary duties to our shareholders under
applicable law by reason of the pendency of an unsolicited, bona fide
written proposal for a superior transaction, but only if we have
complied with all of our obligations under the termination provisions
of the stock purchase agreement. We may not terminate the stock
purchase agreement for this reason until 48 hours have elapsed after
delivery by us to New Valley of a written notice of such determination
by our board of directors and we have paid to New Valley the
termination fee and expenses described below.
If:
o New Valley terminates the stock purchase agreement pursuant to the
fourth bullet point above or we terminate the stock purchase agreement
pursuant to the fifth bullet point above; or
o either New Valley or we terminate the stock purchase agreement
pursuant to the third bullet point above following the public
announcement of a proposal for an alternative transaction by any
person, and, within one year after such termination, we have entered
into a binding agreement providing for the consummation of, or shall
have consummated, an alternative transaction,
we will be required to pay New Valley and Berliner a $1.75 million termination
fee and to reimburse them for their out-of-pocket expenses incurred in
connection with the stock purchase agreement. Other than this termination fee
provision, there will be no liability following termination of the agreement
absent a party's willful breach.
Certain Representations
The stock purchase agreement contains various representations and
warranties made by New Valley and Berliner, to us, and by us to them, including
representations and warranties relating to:
o the due incorporation, valid existence and good standing of the
various parties;
24
o the corporate power of the various parties to enter into the Stock
Purchase Transactions;
o the absence of conflicts between the Stock Purchase Transactions and
the party's charter or bylaws, applicable laws, regulations, orders or
other contracts;
o capitalization and stock ownership;
o customer complaints;
o governmental licenses;
o litigation;
o taxes;
o consents, approvals and other actions necessary to perform the stock
purchase agreement;
o the absence of undisclosed changes to each party's business since
December 31, 2000;
o compensation arrangements;
o financial statements;
o compliance;
o transactions with affiliates;
o benefit plans;
o insurance policies;
o intellectual property rights;
o property owned or leased;
o the absence of material undisclosed liabilities or obligations;
o certain brokerage matters; and
o the absence of any illegal or improper transactions.
The representations and warranties in the stock purchase agreement
concerning each party's taxes will survive for a period of two months after the
expiration of the statute of limitations for each respective tax. The
representations and warranties concerning each party's organization and
capitalization and ownership of securities will survive without limitation as to
time. All other representations and warranties contained in the stock purchase
agreement will survive for a period of two years from the Closing Date.
25
Operations Pending Closing
The stock purchase agreement contains covenants with respect to the
operation of our business and that of Ladenburg, Thalmann & Co. until the
closing, including the requirements that the companies conduct their operations
in the ordinary course, not pledge, sell, transfer or dispose of any material
property or rights, not make any distribution on their outstanding stock, not
announce any general salary or benefit increase, not make any capital
expenditures in excess of $100,000 in the aggregate, not amend their
certificates of incorporation or bylaws and not merge or consolidate with
another entity.
Pursuant to the stock purchase agreement, we have agreed to cause
Ladenburg, Thalmann & Co. to maintain directors' and officers' insurance
coverage for a period of six years from the Closing Date.
The stock purchase agreement also provides that we include in this proxy
statement a recommendation by our board of directors stating that shareholders
vote in favor of the Stock Purchase Transactions, the proposal to elect the
nominees to our board of directors as set forth under Proposal 2 and the change
of our corporate name as set forth under Proposal 3. We have also covenanted to
use our reasonable best efforts to obtain the required shareholder approval for
these transactions.
Enforcement Committee
Pursuant to the stock purchase agreement, a committee comprised of Messrs.
Rosenstock, Zeitchick and Rivas will make determinations as to whether any
claim, demand, suit or action on our behalf should be instituted to enforce our
rights under the agreement. If any member of this enforcement committee resigns
or otherwise ceases to serve, his successor will be selected by the remaining
members, except that if the member ceasing to serve is either Mr. Rosenstock or
Mr. Zietchick, the other shall select the successor. Members of the enforcement
committee must act in a manner consistent with the fiduciary duties of a
director. No agreement executed in connection with the Stock Purchase
Transactions can be amended without the approval of a majority of the members of
the enforcement committee.
Indemnification
Under the stock purchase agreement, we will indemnify and hold harmless New
Valley and Berliner from and against, and reimburse them for, any amounts which
may be sustained, suffered or incurred by them for loss, damage, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements, incurred in, or as a result of, any action or proceeding,
including third party claims, which arise or result from or in connection with,
or are attributable to, the breach of any of our covenants, representations,
warranties, agreements, obligations or undertakings contained in the stock
purchase agreement. A claim for indemnification may be made for two years after
the Closing Date. However:
o with regard to any claim, demand, suit, proceeding or action brought
as a result of a breach of the representations concerning our
corporate existence and capitalization, New Valley and Berliner will
be entitled to make a claim for indemnification without limitation as
to time; and
o with regard to any claim, demand, suit, proceeding or action brought
as a result of a breach of the representations concerning our tax
returns, taxes and audits, New Valley and Berliner will be entitled to
make a claim for indemnification until two months after the expiration
of the statute of limitations for each respective tax.
26
Similarly, New Valley and Berliner will indemnify and hold us harmless, and
after the Closing Date, will indemnify and hold Ladenburg, Thalmann & Co.
harmless, from and against, and will reimburse us, and after the Closing Date,
will reimburse Ladenburg, Thalmann & Co., for, any amounts which may be
sustained, suffered or incurred by them for loss, damage, expense or liability,
including, without limitation, reasonable attorneys' fees and disbursements,
incurred in, or as a result of, any action or proceeding, including third party
claims, which arise or result from or in connection with, or are attributable
to:
o the breach of any of New Valley's, Ladenburg, Thalmann & Co.'s and
Berliner's covenants, representations, warranties, agreements,
obligations or undertakings contained in the stock purchase agreement;
o any claim, demand, suit, proceeding or action made against Ladenburg,
Thalmann & Co. with respect to liabilities and obligations of any
affiliate of Ladenburg, Thalmann & Co., for taxes as a result of
Ladenburg, Thalmann & Co. being part of a consolidated group with such
affiliate for federal, state or local income tax purposes, in each
case in excess of any reserves therefor taken into account in
determining the closing net worth of Ladenburg, Thalmann & Co.; and
o the use of Ladenburg, Thalmann & Co.'s name after the Closing Date by
any affiliate of New Valley other than us and our subsidiaries .
A claim for indemnification by us or, after the Closing Date, by Ladenburg,
Thalmann & Co., may be made for two years after the Closing Date. However:
o with regard to any claim, demand, suit, proceeding or action brought
as a result of a breach of the representations concerning the
corporate existence and capitalization of New Valley, Ladenburg,
Thalmann & Co. and Berliner, we and, after the Closing Date,
Ladenburg, Thalmann & Co., will be entitled to make a claim for
indemnification without limitation as to time; and
o with regard to any claim, demand, suit, proceeding or action brought
as a result of a breach of the representations concerning taxes, we
and, after the Closing Date, Ladenburg, Thalmann & Co., will be
entitled to make a claim for indemnification until two months after
the expiration of the statute of limitations for each respective tax.
None of the parties will be entitled to indemnification unless the aggregate of
all amounts for which indemnity would otherwise be due exceeds $1,500,000 plus
any unapplied portion of a specified reserve. If New Valley or Berliner is
required to make a payment under this section, it may do so by delivery of an
amount of senior convertible promissory notes obtained by the party in the Stock
Purchase Transactions in a principal amount, together with accrued interest,
equal to the amount of the required payment. Prior to the maturity of the notes,
we will not be able to offset any claims we may have against New Valley or
Berliner against amounts due under the notes.
27
Closing Conditions
The obligations of the parties to consummate the stock purchase agreement
and Stock Purchase Transactions are subject to the satisfaction of certain
conditions including:
o approval by our shareholders of the Stock Purchase Transactions, the
election by our shareholders of the nominees listed below under
Proposal 2 and the approval by our shareholders of the change of our
corporate name described below under Proposal 3;
o listing of the shares issuable in the Stock Purchase Transactions on
the American Stock Exchange;
o approval of regulatory authorities, including the New York Stock
Exchange and the National Association of Securities Dealers
Regulation, Inc.;
o expiration of all required waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended;
o obtaining any necessary third party consents; and
o in our case, Ladenburg, Thalmann & Co. having, on the Closing Date,
cash held at banks, marketable securities and net cash balances in
proprietary accounts at clearing brokers in an amount not less than
$18,000,000.
The absence of a breach of representations or covenants is not a condition to
closing of the stock purchase agreement.
Non-Competition
Pursuant to the stock purchase agreement, New Valley has agreed that it
will not, and will cause all of its subsidiaries not to, during the 30-month
period commencing on the Closing Date, within the United States, directly or
indirectly:
o engage in the broker-dealer business in any capacity (other than an
owner of less than 5% of the shares of any publicly traded company);
o hire or solicit for employment, other than general public
solicitations not directed at any specific person or group, any
employee of our company or any of our subsidiaries, or any person who
was such an employee within six months of such hiring or solicitation;
or
o interfere with, disrupt or attempt to disrupt the relationship between
Ladenburg, Thalmann & Co., our company or our subsidiaries and any of
their lessors or customers.
This provision is not intended to prohibit New Valley and its affiliates from
making investments for their own account or from owning our common stock or
engaging in any transactions contemplated by the Stock Purchase Transaction
documents.
28
Management and Operations After the Closing Date
Following the Closing Date, Ladenburg, Thalmann & Co. and GBI Capital
Partners intend to continue to be operated as separate wholly owned
subsidiaries, at least initially. Ladenburg, Thalmann & Co. leases approximately
74,000 square feet of office space at its principal offices in New York pursuant
to a lease that expires in June 2015. Ladenburg, Thalmann & Co. has subleased
to a third party approximately 13,125 square feet of office space under a
sublease which expires in October 2009. New Valley currently maintains office
space at Ladenburg, Thalmann & Co.'s principal offices in New York. Following
consummation of the Stock Purchase Transactions, New Valley will occupy the
space it is currently using under a sublease from Ladenburg, Thalmann & Co. at
no cost.
Effective upon the Closing Date, Howard M. Lorber, president and chief
operating officer of New Valley, will become our chairman and Victor M. Rivas,
chairman and chief executive officer of Ladenburg, Thalmann & Co., will become
our president and chief executive officer. Mr. Rivas will also retain his
positions with Ladenburg, Thalmann & Co.
In connection with the stock purchase agreement, each of our principal
shareholders has entered into an amendment to his existing employment agreement
with us and GBI Capital Partners, each dated August 24, 1999. Pursuant to these
amendments, when the Stock Purchase Transactions are consummated:
o Joseph Berland will resign from his positions with us and will become
the executive vice president of corporate finance of GBI Capital
Partners;
o Richard J. Rosenstock will remain as GBI Capital Partner's president
and will become its chief executive officer and our vice chairman and
chief operating officer;
o Mark Zeitchick will retain his current position with us and will
become chairman of GBI Capital Partners; and
o Vincent Mangone and David Thalheim will each retain their current
positions with both companies.
In connection with the amendments to the employment agreements, we guaranteed
all of GBI Capital Partner's obligations to make payments to these individuals
under the original employment agreements and the amendments.
Victor M. Rivas
In connection with the stock purchase agreement, Ladenburg, Thalmann & Co.
entered into a new employment agreement with Mr. Rivas pursuant to which,
effective upon the Closing Date, he will be employed by Ladenburg, Thalmann &
Co. as its chairman and chief executive officer and by us as our president and
chief executive officer through August 24, 2004.
29
The agreement provides for an annual base salary of $500,000 subject to
periodic increases as determined by our board of directors. The agreement also
provides for a guaranteed minimum annual bonus of $500,000. Mr. Rivas will be
entitled to participate in our Annual Incentive Bonus Plan in accordance with
the terms of the plan. Our compensation committee, however, may limit Mr. Rivas'
participation in the Bonus Plan so that Mr. Rivas may not receive in excess of
32.5% of the bonus pool available under the plan. Mr. Rivas will also be
entitled to receive an override (as defined in our Special Performance Incentive
Plan) in accordance with the terms of the Incentive Plan. Mr. Rivas'
participation in the Incentive Plan may be limited by our compensation committee
so that Mr. Rivas may not receive in excess of a certain percentage of our total
consolidated revenues earned in each year of the agreement ranging from 0.6167%
for revenues up to $150,000,000 to 0.5% for revenues over $270,000,000.
The agreement also provides that, on the Closing Date, Mr. Rivas will be
granted options to purchase 1,000,000 shares of our common stock, 300,000 of
which will be issued under our 1999 Performance Equity Plan. The options will
vest in three annual installments commencing on the first anniversary of the
Closing Date. The options provide that if a change of control occurs, all
options not yet vested will vest and become immediately exercisable.
Under the agreement, provided that Ladenburg, Thalmann & Co. has made and
is continuing to make all required payments to Mr. Rivas under the new
employment agreement, Mr. Rivas will not, for a period commencing on the date of
Mr. Rivas' termination and ending on the earlier of 12 months from such date and
August 24, 2004, directly or indirectly:
o solicit, hire or contact any prior (within six months) or then current
employee of Ladenburg, Thalmann & Co., us or GBI Capital Partners nor
any of their subsidiaries;
o solicit or transact any business with any prior (within six months of
termination) or then current customer or client of Ladenburg, Thalmann
& Co., us or GBI Capital Partners nor any of their subsidiaries; or
o engage or have any financial interest in any business which is in
competition with any business of ours or our subsidiaries.
Ladenburg, Thalmann & Co. has also agreed to continue to maintain directors' and
officers' indemnification and insurance policies as described below under the
section entitled "- Interest of Certain Parties."
Joseph Berland
We have entered into an amendment to Joseph Berland's existing employment
agreement pursuant to which, effective on the Closing Date, Mr. Berland will be
employed by GBI Capital Partners as executive vice president of corporate
finance until the second anniversary of the Closing Date. The amendment provides
for an annual base salary of $180,000. Pursuant to the amendment, Mr. Berland
will continue to participate in our Bonus Plan and Incentive Plan as provided in
Mr. Berland's original employment agreement until the end of the commission
month in which the Closing Date occurs. Thereafter, Mr. Berland will not be
entitled to participate in the Bonus Plan and the Incentive Plan. The amended
agreement contains non-solicitation provisions similar to those described above
for Mr. Rivas but allows Mr. Berland to deal with any of his prior or then
existing customers or clients without any restriction.
Richard J. Rosenstock
We have entered into an amendment to Richard Rosenstock's existing
employment agreement pursuant to which, effective on the Closing Date, Mr.
Rosenstock will be employed by us as our vice chairman and chief operating
officer and by GBI Capital Partners as its president and chief executive officer
until August 2004. The amendment provides for an annual base salary of $500,000.
Mr. Rosenstock will be entitled to a minimum annual guaranteed bonus of
$250,000, prorated for partial years. Pursuant to the amendment, Mr. Rosenstock
30
will continue to participate in our Bonus Plan and Incentive Plan as provided in
Mr. Rosenstock's original employment agreement until the last day of the
commission month in which the Closing Date occurs. Thereafter, Mr. Rosenstock
will be entitled to participate in the Bonus Plan in accordance with the terms
of such plan but will not be entitled to participate in the Incentive Plan. Mr.
Rosenstock's participation in the Bonus Plan may be limited by our compensation
committee so that Mr. Rosenstock may not receive in excess of 22.5% of the bonus
pool available under the plan. The amendment to Mr. Rosenstock's agreement
contains the same non-competition clauses as Mr. Rivas' agreement.
Vincent Mangone and Mark Zeitchick
We have entered into amendments to Messrs. Mangone's and Zeitchick's
existing employment agreements pursuant to which, effective on the Closing Date,
each will continue to be employed by us and GBI Capital Partners as an executive
vice president until August 2004. In addition, Mr. Zeitchick will become
chairman of GBI Capital Partners. Each individual's salary will remain at
$120,000. Pursuant to the amendments, commencing October 1, 2000 and ending on
the Closing Date, Messrs. Mangone and Zeitchick will continue to participate in
our Bonus Plan and Incentive Plan as provided in their original employment
agreements. Thereafter, each will be entitled to participate in the Bonus Plan
and Incentive Plan in accordance with the terms of each such plan. However,
neither may receive in excess of 22.5% of the bonus pool available under the
Bonus Plan and in excess in excess of a certain percentage of our total
consolidated revenues earned in each year of the agreement ranging from 0.6167%
for revenues up to $150,000,000 to 0.5% for revenues over $270,000,000. The
amendments contain the same non- competition clauses as Mr. Rivas' agreement.
David Thalheim
We have entered into an amendment to Mr. Thalheim's existing employment
agreement pursuant to which, effective on the Closing Date, Mr. Thalheim will
continue to be employed by us and GBI Capital Partners as administrator until
the second anniversary of the Closing Date. The amendment provides for annual
base compensation of $200,000. Pursuant to the amendment, Mr. Thalheim will
continue to participate in our Bonus Plan and Incentive Plan as provided in Mr.
Thalheim's original employment agreement until the end of the commission month
in which the Closing Date occurs. Thereafter, Mr. Thalheim will not be entitled
to participate in the Bonus Plan and the Incentive Plan. The amendment contains
the same non-competition clauses as Mr. Rivas' agreement.
Interest of Certain Parties
A number of our directors, officers and key employees have interests in the
Stock Purchase Transactions different from those of our other shareholders. In
connection with the stock purchase agreement, we entered into the employment
agreement with Victor Rivas and entered into amendments to the existing
employment agreements with Messrs. Berland, Rosenstock, Mangone, Zeitchick and
Thalheim as described above.
Concurrently with execution of the stock purchase agreement, Joseph
Berland, our chairman and chief executive officer, has entered into a stock
purchase agreement with New Valley, pursuant to which he will sell, concurrently
with the closing of the Stock Purchase Transactions, all of the 3,945,060 shares
of our common stock that he currently owns to New Valley for $1.00 per share.
Messrs. Rosenstock, Mangone, Zeitchick and Thalheim have entered into
individual stock sale agreements pursuant to which they have agreed to sell,
31
concurrently with the closing of the Stock Purchase Transactions, shares of our
common stock currently owned by them to Frost-Nevada for $1.00 per share as
follows:
o Richard J. Rosenstock, our president and chief operating officer, has
agreed to sell up to 255,814 shares of our common stock; and
o Vincent Mangone and Mark Zeitchick, executive vice presidents, and
David Thalheim, our administrator, have each agreed to sell up to
98,062 shares of our common stock.
In connection with the sales, our board waived certain lock-up agreements
between us and the individuals pursuant to which the individuals had agreed that
they would not, without the board's prior written consent, until August 2001,
sell, transfer or otherwise dispose of any of their shares of our common stock.
Additionally, we entered into an Investor Rights Agreement under which these
individuals received certain registration rights, tag-along rights and rights to
elect directors as described below.
The stock purchase agreement also provides that we and Ladenburg, Thalmann
& Co. will maintain directors' and officers' liability insurance policies for
each of our directors and officers that are currently in effect to the extent
that these policies provide coverage for our directors and officers with respect
to claims arising from facts or events that occur prior to the Closing Date.
However, we are not required to maintain these policies to the extent that the
annual premiums of these policies exceed 200% of the annual premiums currently
paid by us for these policies.
In coming to its conclusions, Roth Capital Partners, financial advisor to
our board of directors in connection with the Stock Purchase Transactions, was
aware of these differing interests and considered them when determining that the
total consideration to be paid by us was fair to our shareholders from a
financial point of view. Our board of directors was also aware of these
differing interests when approving the Stock Purchase Transactions.
Proxy and Voting Agreement
Concurrently with the signing of the stock purchase agreement, New Valley,
Berliner and Messrs. Berland, Mangone, Zeitchick, Rosenstock and Thalheim
entered into a proxy and voting agreement. Pursuant to the agreement, Messrs.
Berland, Mangone, Zeitchick, Rosenstock and Thalheim have agreed:
o prior to the Closing Date, not to transfer any of the total of
12,426,939 shares of our common stock currently owned by them,
representing approximately 66% of our outstanding stock, as well as
any additional shares of our common stock acquired by them prior to
the Closing Date; and
o to vote these shares in favor of the Stock Purchase Transactions and
any other matter that may be necessary for the consummation of the
stock purchase agreement and the related transactions.
Each of these individuals delivered an irrevocable proxy to New Valley to
vote such shares in accordance with the agreement. The proxies expire on the
approval of the Stock Purchase Transactions or the earlier termination of the
stock purchase agreement in accordance with its terms. Additionally, each of
these individuals agreed not to initiate, solicit or encourage any alternative
transaction that may be proposed and to vote against any such alternative
transaction if proposed. However, each of these individuals may take various
actions necessary to avoid breaching his fiduciary obligations as permitted
under the stock purchase agreement.
32
Investor Rights Agreement
Concurrently with the signing of the stock purchase agreement, we entered
into an investor rights agreement with New Valley, Berliner, Frost-Nevada and
Messrs. Rosenstock, Mangone, Zeitchick and Thalheim.
Registration Statement
We have agreed, no later than six months from the Closing Date, to have
declared effective a registration statement under the Securities Act of 1933, as
amended, with the SEC registering for resale:
o the shares of common stock issued to New Valley and Berliner under the
stock purchase agreement;
o the shares of common stock underlying the convertible notes to be
issued to New Valley, Berliner and Frost-Nevada; and
o any additional shares of our common stock issued or distributed by
reason of a dividend, stock split or other distribution in respect of
such shares.
Additionally, Messrs. Rosenstock, Mangone, Zeitchick and Thalheim have the right
to require us to include any of their shares in this registration statement. We
must use our best efforts to have the registration statement declared effective
by the SEC and kept current and effective until all the common stock covered by
the registration statement is sold or can be sold freely under an appropriate
exemption without limitation.
In connection with these registration rights, we agreed to indemnify the
selling shareholders and related persons against losses resulting from
violations of the securities laws.
Tag Along Rights
If New Valley proposes to transfer more than 5% of our common stock to any
person not a party to the agreement, it must generally give written notice to
each of Frost-Nevada and Messrs. Rosenstock, Mangone, Zeitchick and Thalheim and
permit them to join in the proposed sale pro rata with respect to our common
stock owned by them.
Holdback Agreement
On a firm commitment underwriting of our common stock, and on the request
of the managing underwriter, the parties agreed that they will not sell, assign,
transfer or pledge any shares of our common stock for a period of at least 180
days from the date the registration statement becomes effective.
33
Board Nominees
Until such time as Messrs. Rosenstock, Mangone, Zeitchick and Thalheim
collectively own less than 10% of our common stock, they have the right to
nominate three individuals reasonably acceptable to us for election to our board
of directors. New Valley and Berliner have agreed to vote all of our common
stock owned by them for these three nominees. Pursuant to this right, we have
agreed to take all actions necessary to appoint Messrs. Zeitchick, Mangone and
Rosenstock to our board of directors.
Right of First Refusal
Between the Closing Date and December 31, 2005, if either Berliner or
Frost-Nevada proposes to sell, transfer or otherwise dispose of any of its note
or shares of common stock underlying the note, such party must give New Valley
at least one business day's prior written notice of such sale or transfer. New
Valley will have the right to purchase any or all of such shares proposed to be
sold or transferred on the proposed terms.
No Dissenter's Rights
Under Florida law, our shareholders will not be entitled to dissenter's
rights in connection with the Stock Purchase Transactions.
Accounting Treatment
The acquisition of Ladenburg, Thalmann & Co. will be accounted for under
the purchase method as a reverse acquisition (an acquisition by Ladenburg,
Thalmann & Co. of us) as Ladenburg, Thalmann & Co.'s stockholders will
beneficially hold a majority of our outstanding common stock after the Closing
Date. As a result of the reverse acquisition accounting treatment, on
consummation of the Stock Purchase Transactions, Ladenburg, Thalmann & Co.'s
historical financial statements will become ours. Ladenburg, Thalmann & Co. is a
calender year reporting company which means that its fiscal year ends December
31 of each year. Thus, upon the Closing Date, we will become a calendar year
reporting company and our fiscal year end will change from September 30 to
December 31.
Additionally, it is anticipated that upon consummation of the Stock
Purchase Transactions, we will retain PricewaterhouseCoopers LLP, currently
Ladenburg, Thalmann & Co.'s and New Valley's accountants, as our principal
accountants. The change in accounting firms from our current accountants,
Goldstein Golub & Kessler LLP, to PricewaterhouseCoopers is a direct result of
the reverse acquisition. During Goldstein Golub & Kessler's engagement as our
principal accountants and through the date of this proxy statement, there have
been no disagreements with Goldstein Golub & Kessler on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure. Additionally, we have not had any disagreements with Goldstein Golub
& Kessler on these matters at any prior time.
Representatives of Goldstein Golub & Kessler LLP, our current principal
accountants, and of PricewaterhouseCoopers, our anticipated principal
accountants upon consummation of the Stock Purchase Transactions, are expected
to be present at the meeting and will have the opportunity to make statements if
they desire to do so and are expected to be available to respond to appropriate
questions.
34
Regulatory and Other Consents and Approvals
Pursuant to the terms and conditions of the stock purchase agreement, the
parties have agreed to use their best efforts to obtain all authorizations,
consents, orders and approvals of all federal, state and other regulatory bodies
and officials that are required for the consummation of the Stock Purchase
Transactions and the related transactions, including the SEC, the New York Stock
Exchange, the American Stock Exchange, National Association of Securities
Dealers Regulation, Inc., the Department of Justice and the Federal Trade
Commission and other self-regulatory agencies having jurisdiction. The parties
have agreed to cooperate fully with each other in connection with obtaining
government approvals and making any required filings including any necessary
filings under the Hart-Scott-Rodino Antitrust Improvements Act.
The Hart-Scott-Rodino Act requires that the parties give certain
information to the Antitrust Division of the Department of Justice and the
Federal Trade Commission. After this submission, a waiting period must expire or
be terminated before the Stock Purchase Transactions can be completed. We have
made all the required filings and all applicable waiting periods have expired.
OUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE STOCK PURCHASE
TRANSACTIONS AND BELIEVES THAT THEY ARE FAIR TO, AND IN THE BEST INTERESTS OF,
OUR SHAREHOLDERS. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS APPROVE THE STOCK PURCHASE TRANSACTIONS.
35
Comparative Per Share Data
The following tables set forth unaudited data concerning the net income,
dividends and book value per share for us and Ladenburg, Thalmann & Co. (i) on a
combined pro forma basis after giving effect to the Stock Purchase Transactions
and (ii) on a historical basis. The following comparative per share data should
be read in conjunction with our consolidated financial statements and the
financial statements of Ladenburg, Thalmann & Co. and the unaudited pro forma
condensed financial information, all appearing elsewhere in this proxy
statement.
Pro Forma Combined for Our Company and Year Ended
Ladenburg, Thalmann & Co. 12/31/00
--------
Net income per share (basic)...................... $ 0.21
Net income per share (diluted) 0.19
Dividends paid per share.......................... 0.00
Book value per share at end of period............. 1.62
Weighted average common and equivalent
shares (basic)................................ 36,988,430
Weighted average common and equivalent
shares (diluted).............................. 45,835,321
GBI Capital Management Corp.'s Historical
Net income (loss) per share....................... $ 0.31
Dividends paid per share.......................... 0.00
Book value per share at end of period............. 1.05
Weighted average common and equivalent shares..... 18,806,612
Ladenburg, Thalmann & Co. Historical
Net income (loss) per share....................... $ 0.91
Dividends paid per share.......................... 0.00
Book value per share at end of period............. 5.41
Weighted average common and equivalent shares..... 5,600,000
---------------------------
36
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
December 31, 2000
(Dollars in thousands)
The unaudited pro forma condensed consolidated statement of operations
and balance sheet of Ladenburg Thalmann Financial Services Inc. for the year
ended and as of December 31, 2000 have been prepared giving effect to the Stock
Purchase Transactions. The unaudited pro forma condensed consolidated statement
of operations gives effect to the Stock Purchase Transactions as if they
occurred on January 1, 2000. The unaudited pro forma condensed consolidated
balance sheet has been prepared to give effect to the Stock Purchase
Transactions as if they had occurred on December 31, 2000.
The unaudited pro forma financial information has been prepared
accounting for the Stock Purchase Transactions as a reverse acquisition under
the purchase method of accounting. For a more detailed discussion of the
accounting treatment, see the section entitled "Stock Purchase Transactions -
Accounting Treatment."
The unaudited pro forma financial information do not purport to show
the results which would actually have occurred had such transactions been
completed as of the date and for the period presented or which may occur in the
future. The unaudited pro forma financial information should be read in
conjunction with our financial statements and those of Ladenburg, Thalmann & Co.
appearing elsewhere in this proxy statement.
37
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
December 31, 2000
(Dollars in thousands)
Ladenburg
GBI Thalmann
Ladenburg, Capital Financial
Thalmann Management Pro Forma Services
& Co.(a) Corp.(b) Adjustments(c) Pro Forma
---------- ---------- --------------- ----------
Assets
Cash and cash equivalents........... $ 3,927 $ 5,193 $ 9,120
Securities owned, at market value... 20,946 2,382 23,328
Due from clearing brokers........... 10,125 8,579 18,704
Exchange memberships owned, at
acquisition cost................ 1,505 -- 1,505
Furniture, equipment and leasehold
improvements, net............... 6,544 4,113 10,657
Deferred tax assets................. 2,050 1,326 3,376
Restricted assets................... -- 1,494 1,494
Intangible assets................... 176 -- 30,958 31,134
Other assets........................ 5,081 3,773 8,854
------- ------- ----------- ---------
Total assets................ $50,354 $26,860 $30,958 $108,172
====== ====== ====== =======
Liabilities and Stockholders' Equity
Securities sold, but not yet purchased,
at market value................. $ 3,570 $ 1,020 $ 4,590
Accrued expenses and other
Liabilities..................... 10,759 6,085 1,000 17,844
Deferred rent credit................ 5,725 -- 5,725
Convertible notes payable........... -- -- 20,000 20,000
----------- ---------- ------ ------
Total liabilities........... 20,054 7,105 21,000 48,159
------ ------- ------- --------
Stockholders' equity:
Common stock.................... 56 2 (54) 4
Paid in capital................. 38,928 7,532 22,233 68,693
Accumulated deficit............. (8,684) 12,221 (12,221) (8,684)
------- ------ ------- ---------
Total stockholders' equity.. 30,300 19,755 9,958 60,013
------ ------ ----- --------
Total liabilities and
stockholders' equity.... $50,354 $26,860 $30,958 $108,172
====== ====== ====== =======
The accompanying notes are an integral part of these condensed financial
statements
38
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
Twelve Months Ended December 31, 2000
(Dollars in thousands)
Ladenburg
GBI Thalmann
Ladenburg, Capital Financial
Thalmann Management Pro Forma Services
& Co.(a) Corp.(b) Adjustments Pro Forma
--------- ---------- -------------- -----------
Revenues:
Commissions......................... $33,067 $104,459 $137,526
Investment banking fees............. 15,937 -- 15,937
Net gain on principal transactions.. 28,275 -- 28,275
Dividends and interest.............. 5,240 3,010 8,250
Syndications and underwritings...... 417 4,432 4,849
Investment advisory fees............ 3,109 -- 3,109
Other............................... 3,539 138 3,677
------- --------- ----------- ---------
Total revenues.................. 89,584 112,039 201,623
------ ------- ----------- -------
Expenses:
Compensation and benefits........... 56,222 70,838 127,060
Clearance and floor brokerage....... 5,037 6,981 12,018
Communications and market data...... 4,874 4,185 9,059
Occupancy........................... 5,596 7,038 12,634
Professional fees................... 2,557 2,862 5,419
Interest............................ 223 -- 1,600(d) 1,823
Amortization of intangible assets... 16 -- 2,064(e) 2,080
Other............................... 8,847 10,005 18,852
------- -------- --------- --------
Total expenses.................. 83,372 101,909 3,664 188,945
------ ------- ------ -------
Income before income tax
expense..................... 6,212 10,130 (3,664) 12,678
Income tax expense (benefit)............ 1,121 4,347 (640)(f) 4,828
------- --------- --------- ---------
Net income...................... $ 5,091 $ 5,783 $(3,024) $ 7,850
======= ========= ====== =========
Income per Common Share (basic)......... $ 0.91 $ 0.31 $ 0.21
======= ======== =========
Number of shares used in computation.... 5,600,000 18,806,612 12,581,818(g) 36,988,430
========= ========== ========== ==========
Income per Common Share (diluted)....... $ 0.91 $ 0.31 $ 0.19
======= ======== =========
Number of shares used in computation... 5,600,000 18,807,349 21,427,972(g) 45,835,321
========= ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements
39
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
(a) Reflects the historical financial position of Ladenburg, Thalmann & Co.
at December 31, 2000.
(b) Reflects our historical financial position at December 31, 2000.
(c) Pro forma adjustments to record the Stock Purchase Transactions as of
December 31, 2000 reflect:
o an increase in paid in capital of $47,017 relating to the issuance
of 18,806,612 shares of our common stock. The 18,806,612 shares of
our common stock was valued based on a price per share of
$2.50, which was the average market price of our stock a few
days before and after the transaction was announced;
o an increase in accrued expenses and a corresponding increase in
goodwill and other intangible assets of approximately $1,000
relating to the incurrence of transaction costs by us and
Ladenburg, Thalmann & Co.
o an increase in stockholders' equity of $2,696 to recognize the
value of the 1,664,113 stock options presently outstanding to our
employees, based on a weighted average fair value of $1.62 per
option. The fair value of the options was determined using the
Black-Scholes option pricing model and was based on the following
weighted-average assumptions: expected volatility of 89.81%;
expected lives of 5 years; a risk-free interest rate of 4.90%; and
no expected dividend yield or forfeiture.
o a decrease of $20,000 in stockholders' equity relating to the
issuance of $10,000 of convertible notes and the payment of
$10,000 of cash to the stockholders of Ladenburg, Thalmann & Co.
as part of the consideration in the Stock Purchase Transactions;
o a decrease in stockholders' equity of $19,755 relating to the
elimination of our historical stockholders' equity; and
o the preliminary allocation of the excess of the purchase price,
including transaction costs, over the book value of the net assets
acquired to goodwill and other intangible assets in the amount of
$30,958.
40
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
The final allocation of the purchase price will be determined after the
completion of the Stock Purchase Transactions and will be based on a
comprehensive final evaluation of the fair value of our tangible and
identifiable intangible assets acquired and liabilities assumed, at the
time of the closing of the Stock Purchase Transactions. The preliminary
allocation is summarized in the following table:
Calculation of Purchase Price:
Common stock...................................... $47,017
Stock options..................................... 2,696
Transaction costs................................. 1,000
-------
Total purchase price.......................... $50,713
======
Allocation of Purchase Price:
Assets:
GBI Capital Management Corp.'s historical assets. $26,860
Goodwill and other intangible assets............. 27,262
Stock options.................................... 2,696
Transaction costs................................ 1,000
Liabilities:
GBI Capital Management Corp.'s historical liabilities (7,105)
-------
Total purchase price.......................... $50,713
======
Our other assets and liabilities have not been adjusted because their
cost approximates fair value in all material respects.
A reconciliation of the above adjustments to reflect the Stock Purchase
Transactions is set forth below:
Allocation Fair Value Reclassification Elimination
Issuance Increase of Excess of our Issuance of of Ladenburg, of our Total Pro
of Common in Accrued Purchase Stock Convertible Thalmann & Co.'s Historical Forma
Stock Expenses Price Options Notes equity Equity Adjustments
Goodwill $ 1,000 $ 27,262 2,696 $ 30,958
Accrued 1,000 1,000
liabilities
Convertible notes 20,000 20,000
Common stock (52) (2) (54)
Paid in capital 47,017 2,696 (20,000) 52 (7,532) 22,233
Accumulated (12,221) (12,221)
Deficit
41
LADENBURG THALMANN FINANCIAL SERVICES INC.
UNAUDITED NOTES TO THE PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
(d) Pro forma adjustments to record the issuance in the Stock Purchase
Transactions of $20,000 of convertible notes payable, bearing a weighted
average interest rate of 8%, result in an increase of $1,600 in interest
expense for the year ended December 31, 2000.
(e) Pro forma adjustments to record the Stock Purchase Transactions for the
year ended December 31, 2000 result in an increase of $2,064 in
amortization of goodwill and other intangible assets relating to the
amortization of the excess of the purchase price over the book value of
net assets acquired, which has been allocated to goodwill and other
intangible assets and is amortized on a straight-line basis over a
15-year period.
(f) Pro forma adjustment to reflect income tax impact of interest expense
deduction at statutory rate of 40%.
(g) Reflects the effective recapitalization of Ladenburg, Thalmann & Co.
common stock into equivalent shares of our common stock. Diluted shares
include 8,846,154 additional shares issuable upon conversion of
convertible notes payable.
42
SELECTED FINANCIAL DATA OF LADENBURG, THALMANN & CO.
The selected historical financial data of Ladenburg, Thalmann & Co. has
been derived from the audited historical consolidated financial statements and
related notes of Ladenburg, Thalmann & Co., Inc. for each of the five years
ended December 31, 2000, 1999, 1998, 1997 and 1996. The historical data is only
a summary and you should read it in conjunction with the historical financial
statements attached to this document as Appendix J(2).
For the year ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except share, per share and Other Data)
(Unaudited)
Statement of Operations Data:
Revenues....................... $ 89,584 $ 77,171 $ 66,569 $ 56,197 $ 71,960
Expenses....................... 83,372 74,107 72,741 67,654 72,305
Income before income taxes..... 6,212 3,064 (6,172) (11,458) (345)
Net income (loss).............. 5,091 4,007 (6,175) (10,272) (1,593)
Basic and diluted income (loss)
per common share.......... $ 0.91 $ 0.72 $ (1.10) $ (1.83) $ (0.28)
Weighted average common
shares outstanding - basic
and diluted............... 5,600,000 5,600,000 5,600,000 5,600,000 5,600,000
Balance Sheet Data:
Total assets................... $ 50,354 $ 49,139 $ 55,671 $ 78,522 $ 77,226
Subordinated debt.............. -- -- 18,500 10,000 4,000
Total liabilities.............. 20,054 23,930 40,798 57,377 46,808
Stockholders' equity........... 30,300 25,209 14,874 21,145 30,418
Other Data:
Ratio of assets to stockholders'
equity.................... 1.66 1.95 3.74 3.71 2.54
Return on average equity....... 18.3% 20.0% (34.3%) (39.8%) (5.1%)
Return on average equity
before income taxes....... 22.4% 15.3% (34.3%) (38.6%) (1.1%)
Book value per share........... $ 5.41 $ 4.50 $ 2.66 $ 3.78 $ 5.43
Registered representatives..... 250 171 200 191 52
43
Management's Discussion and Analysis of Financial Condition
and Results of Operations of Ladenburg, Thalmann & Co.
(Dollars in thousands)
Fiscal year ended December 31, 2000 compared to Fiscal year ended December 31,
1999
Ladenburg, Thalmann & Co.'s revenues for 2000 increased $12,413 from 1999
primarily as a result of increased principal transactions of $8,553, an increase
in investment banking fees of $7,597 offset by a decrease in commissions of
$5,746.
Ladenburg, Thalmann & Co.'s expenses for 2000 increased $9,265 primarily
as a result of increased employee compensation of $7,304.
Ladenburg, Thalmann & Co.'s revenues for 2000 consisted of commissions of
$33,067, principal transactions of $28,275, investment banking fees of $15,937,
syndicate and underwriting income of $417, dividends and interest of $5,241 and
other income of $6,647. Ladenburg, Thalmann & Co.'s revenues for 1999 consisted
of commissions of $38,813, principal transactions of $19,722, investment banking
fees of $4,838, syndicate and underwriting income of $1,912, dividends and
interest of $3,546 and other income of $8,388. Expenses of Ladenburg, Thalmann &
Co. for 2000 consisted of employee compensation and benefits of $56,222 and
other expenses of $27,150. Expenses of Ladenburg, Thalmann & Co. for 1999
consisted of employee compensation and benefits of $48,918 and other expenses of
$25,189.
The $8,553 (43.4%) increase in principal transactions was primarily the
result of expanding Ladenburg, Thalmann & Co.'s trading and brokerage
activities.
The $7,597 (91.1%) increase in investment banking fees was primarily the
result of increased revenue from private placement and advisory activities.
The $5,746 (14.8%) decrease in commissions was the result of a less
active market for equity securities in the fourth quarter of 2000 versus 1999.
The increase in compensation expense was the result of an increase in
performance-based compensation.
Income tax expense for 2000 was $1,121 compared to an income tax benefit
of $943 in 1999. The income tax rate did not bear a customary relationship to
effective tax rates as a result of management's evaluation and changes in the
Ladenburg, Thalmann & Co.'s valuation allowance for deferred taxes and
utilization of Ladenberg Thalmann & Co.'s net operating loss carryforwards.
Fiscal year ended December 31, 1999 compared to Fiscal year ended December 31,
1998
Ladenburg, Thalmann & Co.'s revenues for 1999 increased $10,602 from 1998
primarily as a result of increased commissions of $10,529 and increased
principal transactions of $8,446 offset by a decrease in investment banking fees
of $6,334.
Ladenburg, Thalmann & Co.'s expenses for 1999 increased $1,366 primarily
as a result of increased employee compensation of $1,073.
44
Ladenburg, Thalmann & Co.'s revenues for 1999 consisted of commissions of
$38,813, principal transactions of $19,722, investment banking fees of $8,340,
syndicate and underwriting income of $1,912, dividends and interest of $3,546
and other income of $4,838. Ladenburg, Thalmann & Co.'s revenues for 1998
consisted of commissions of $28,284, principal transactions of $11,276,
investment banking fees of $14,674, syndicate and underwriting income of $2,834,
dividends and interest of $6,530 and other income of $2,971. Expenses of
Ladenburg, Thalmann & Co. for 1999 consisted of employee compensation and
benefits of $48,918 and other expenses of $25,189. Expenses of Ladenburg,
Thalmann & Co. for 1998 consisted of employee compensation and benefits of
$47,845 and other expenses of $24,896.
The $10,529 (37.2%) increase in commissions was the result of an active
market for equity securities.
The $8,446 (74.9%) increase in principal transactions was the result of
higher profitability by Ladenburg, Thalmann & Co.'s proprietary traders.
The $6,334 (43.2%) decrease in investment banking fees was the result of
the closing of a significant mergers and acquisitions advisory assignment during
1998.
The increase in compensation expense was the result of an increase in
performance-based compensation.
Income tax benefit for 1999 was $943 compared to an income tax expense of
$3 in 1998. The income tax rate did not bear a customary relationship to
effective tax rates as a result of management's evaluation and changes in the
Ladenburg, Thalmann & Co.'s valuation allowance for deferred taxes in 1999 and
the utilization of net operating losses in 1999 and 1998.
Liquidity and Capital Resources
Cash used by operating activities for the year ended December 31, 2000
was $219 as compared to cash provided by operating activities of $13,291 for the
prior year. The difference is primarily due to the reduction in receivable from
clearing brokers of $777 in 2000 versus $11,658 in 1999 and a net increase in
Ladenburg, Thalmann & Co.'s net trading securities of $6,195. The amounts were
offset by a decrease in accrued compensation in 1999 of $2,750 and increased net
income in 2000 of $1,084.
Cash provided by operating activities for the year ended December 31,
1999 increased to $13,291 as compared to cash used by operating activities of
$17,913 for the prior year. The difference is primarily due to the reduction in
receivable from clearing brokers of $11,658 in 1999 versus an increase of
$21,356 in 1998 and an increase in net income of $10,182 in 1999 offset by a net
decrease in Ladenburg, Thalmann & Co.'s net trading securities of $14,457 in
1999.
Cash flows used by investing activities for the year ended December 31,
2000 were $764 compared to cash flows used by investing activities of $583 for
the year ended December 31, 1999. The difference is primarily attributable to
to an increase in purchases of furniture, equipment and leasehold improvements.
45
Cash flows used by investing activities for the year ended December 31,
1999 were $583 compared to cash flows provided by investing activities of $2,071
for the year ended December 31, 1998. The difference is primarily attributable
to the assignment of a $2,500 net receivable to New Valley in 1998.
The capital expenditures of $764 in 2000, $584 in 1999 and $428 in 1998
related principally to the enhancements and improvements to computer equipment
and furniture and fixtures.
Cash flows used by financing activities were $10,000 for the year ended
December 31, 1999 compared to cash flows provided by financing activities of
$16,000 in the 1998 period. The difference consisted of the retirement of
$10,000 of subordinated notes payable in the 1999 period compared with the net
issuance in 1998 of $11,000 of subordinated notes payable and a $5,000 capital
contribution in 1998.
Ladenburg, Thalmann & Co. has a $2.5 million junior subordinated
revolving credit agreement that extends through October 31, 2001 with its
clearing broker under which outstanding borrowings incur interest at LIBOR plus
2 points. As of December 31, 2000 and 1999, no borrowings were outstanding.
Market Risk
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates, equity and commodity
prices, changes in the implied volatility of interest rates, foreign exchange
rates, equity and commodity prices and also changes in the credit ratings of
either the issuer or its related country of origin. Market risk is inherent to
both derivative and non-derivative financial instruments, and accordingly, the
scope of Ladenburg, Thalmann & Co.'s market risk management procedures extends
beyond derivatives to include all market risk sensitive financial instruments.
Current and proposed underwriting, corporate finance, merchant banking
and other commitments are subject to due diligence reviews by Ladenburg,
Thalmann & Co.'s senior management, as well as professionals in the appropriate
business and support units involved. Credit risk related to various financing
activities is reduced by the industry practice of obtaining and maintaining
collateral. Ladenburg, Thalmann & Co. monitors its exposure to counter party
risk through the use of credit exposure information, the monitoring of
collateral values and the establishment of credit limits.
Ladenburg, Thalmann & Co. maintained inventories of trading securities at
December 31, 2000 with fair market values of $18,349 in long positions and
$3,570 in short positions. Ladenburg, Thalmann & Co. performed an entity-wide
analysis of its financial instruments and assessed the related risk. Based on
this analysis, in the opinion of management, the market risk associated with the
Ladenburg, Thalmann & Co.'s financial instruments at December 31, 2000 will not
have a material adverse effect on the its consolidated financial position or
results of operations.
46
Our Selected Financial Data
The selected consolidated financial data presented below for each of the
three fiscal years ended August 31, 1996, 1997 and 1998, for the period from
September 1, 1998 to August 24, 1999, for the period from August 25, 1999 to
September 30, 2000 and for the quarter ended December 31, 2000 have been derived
from our consolidated financial statements. This data should be read in
conjunction with our consolidated financial statements, related notes and other
financial information included elsewhere in this proxy statement. The
information below is in thousands except for per share data and other data.
Three Months Fiscal Period Fiscal
Ended Ended Period
December September Ended Fiscal Year Ended August 31,
31, 30, August 24, ----------------------------
2000 2000(*) 1999(**) 1998 1997 1996
------------ -------- -------- ---- ---- ----
Income Statement Data:
---------------------
Total revenues................. $10,735 $125,702 $56,983 $57,895 $62,355 $39,944
Total expenses................. 13,352 110,459 57,420 57,108 54,879 38,896
Pre-tax (loss) income...... (2,616) 15,242 (437) 787 7,476 1,048
Net (loss) income.......... (1,508) 8,777 (324) 352 4,178 448
Basic and diluted earnings
(loss) per common share.... (0.08) 0.47 (.02) .03 .38 .05
Weighted average shares
outstanding - Basic and
Diluted.................... 18,806,612 18,806,612 16,473,748 11,421,819 10,870,832 9,950,308
Balance Sheet Data:
------------------
Total assets.................. 26,860 39,420 $17,133 $16,645 $20,700 $6,276
Total liabilities (excluding
subordinated debt)......... 7,105 18,157 9,067 10,266 13,986 4,051
Subordinated debt............. -- -- -- 1,000 1,000 1,000
Stockholders' equity.......... 19,756 21,263 8,066 5,379 5,714 1,225
Other Data:
----------
Ratio of assets to
stockholders' equity....... 1.36 1.85 2.12 3.09 3.62 5.12
Return on average equity...... (7.35%) 59.8% (4.8%) 6.4% 120.4% 45.1%
Pre-tax return on average
equity..................... (12.75%) 104% (6.5%) 14.2% 215.5% 105.5%
Book value per share.......... 1.05 1.13 .50 .31 .49 12
Registered representatives.... 385 407 296 233 270 114
---------------
* Period from August 25, 1999 to September 30, 2000.
** Period from September 1, 1998 to August 24, 1999.
47
Management's Discussion and Analysis of Our Financial Condition
and Results of Operations
Overview
The following discussion and analysis should be read in conjunction with
our consolidated financial statements. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.
We are engaged in the securities brokerage and trading business and provide
investment banking and research services. Revenues are primarily generated by
retail sales and trading of listed and OTC equity securities, options and mutual
funds, investment banking and research services. We earn commissions from the
buying and selling of equity securities on an agency basis. As a principal, we
buy and sell securities, both for proprietary trading and to facilitate sales to
our retail customers and other dealers. These securities are purchased in
secondary markets or from the underwriters of new issues. Principal transactions
with customers are effected at a net price equal to the current inter-dealer
price plus or minus a mark-up or mark-down within the guidelines of applicable
securities regulations. The revenues derived from our transactions as principal
reflect realized and unrealized gains and losses on such transactions.
The following discussion does not reflect our acquisition of the common
stock of Ladenburg, Thalmann & Co. and does not take into account the issuance
of the aggregate $20 million principal amount of convertible promissory notes. A
new basis of accounting will be established along with good will amortization.
The following discussion should be read in conjunction with the pro forma
financial information contained in this proxy statement as well as the section
entitled "Stock Purchase Transactions - Accounting Treatment" to better
understand the impact of the Stock Purchase Transactions on our financial
condition, results of operation and our liquidity and capital resources.
Results of Operations
Three Months Ended December 31, 2000 vs. Three Months Ended December 31, 1999
Revenues
Commissions and trading income for the three months ended December 31, 2000
decreased 58% to $9,942,162 from the three months ended December 31, 1999. This
decrease is due primarily to a decrease in trading volume, which reflected
deteriorating market conditions.
Interest and dividend income, net for the three months ended December 31,
2000, increased 82% to $669,866 from the comparable period in 1999. The increase
is due primarily to rising interest rates and an increase in the percentage of
margin interest our clearing broker shares with us.
Underwriting fees for the three months ended December 31, 2000 decreased
97% to $11,996 from $343,127 during the comparable period in 1999. The decrease
is the result of our not participating in any underwritten public offering as a
co-manager during the 2000 period, as opposed to our participation as a
co-manager in three public offerings for the comparable period in 1999.
Other revenues for the three months ended December 31, 2000 increased 158%
to $111,159 from the three months ended December 31, 1999. This increase is due
primarily to an insurance claim for business interruption, which was settled in
November 2000 and management fees from the GBI 1500 Focus Fund.
48
Expenses
Employee compensation and benefits for the three months ended December 31,
2000 decreased 58%, to $6,764,823 from the comparable period in 1999. The
decrease is primarily attributable to the decrease in revenues since employee
compensation to our traders and registered representatives is directly related
to certain components of revenue. The three months ended December 31, 2000 had
no bonus accruals as compared to $825,000 accrued and $490,000 paid for the
comparable period in 1999.
Brokerage, clearance and exchange fees for the three months ended December
31, 2000 decreased 17.5%, to $1,270,906, from the comparable period in 1999 as a
result of lower ticket volume and reduced ticket charges.
Communications expense for the three months ended December 31, 2000
increased 50%, to $1,054,037, from the comparable period in 1999. This increase
is a result of the increase in registered representatives in Bethpage and the
New York City office and the rollout of computers to every registered
representative, resulting in a 79% increase in news services.
Occupancy and equipment costs for the three months ended December 31, 2000
increased 14.1%, to $1,528,216, from the comparable period in 1999. This
increase is a result primarily of an increase in depreciation expense attributed
to the purchase of additional computer equipment.
Professional fees for the three months ended December 31, 2000 increased
104.5%, to $661,274, from the comparable period in 1999. This increase is due to
higher legal and consulting fees.
Business development costs for the three months ended December 31, 2000
increased 41.8% to $686,795, from the comparable period in 1999. This increase
is due to an increase in recruiting expenses.
Other expenses for the three months ended December 31, 2000 increased 10.8%
to $1,385,562 from the corresponding period in 1999. This increase is primarily
a result of an increase in bad debt expense.
Income tax benefit for the three months ended December 31, 2000 was
$1,108,885 as compared to the income tax provision of $1,009,292 for the three
months ended December 31, 1999, which was consistent with the decrease in income
before this income tax benefit.
Net loss of $1,507,545 for the three months ended December 31, 2000,
compares to net income of $1,486,619 for the three months ended December 31,
1999. This resulted primarily from the decrease in revenues partially offset by
decreases in expenses as discussed above.
For the Period From August 25, 1999 to September 30, 2000 ("fiscal 2000") vs.
the Period From September 1, 1998 to August 24, 1999 ("fiscal 1999")
49
Revenue
Commissions and trading income for fiscal 2000 increased 116.3%, to
$118,160,646 from fiscal 1999. The increase is a result of the addition of
registered representatives and an active market in equity securities.
Interest and dividend income, net for fiscal 2000, increased 193.6%, to
$2,707,738 from fiscal 1999. The increase is primarily due to higher average
cash balances with our clearing broker.
Underwriting fees and investment banking for fiscal 2000 increased 343.5%,
to $4,762,978 from fiscal 1999. The increase is primarily a result of our
participation in one underwritten public offering where we acted as a co-manager
during fiscal 2000 as opposed to not participating as a co-manager in any public
offerings for the comparable period in fiscal 1999.
Other revenues for fiscal 2000 increased by 43.2%, to $70,159 from fiscal
1999. The increase is the result of the settlement of an insurance claim for a
faulty telephone switch.
Expenses
Employee compensation and benefits for fiscal 2000 increased 105.9%, to
$80,334,416 from fiscal 1999. The increase is primarily attributable to the
increase in revenue (and is roughly comparable) since employee compensation to
our registered representatives and traders is directly related to certain
components of revenue.
Brokerage, clearance and exchange fees for fiscal 2000 increased 170.7%, to
$7,249,951 from fiscal 1999 as a result of higher ticket volume.
Communications expense for fiscal 2000 increased 51.3%, to $3,833,744 from
fiscal 1999. The increase is a result of the increase in registered
representatives in Bethpage, the establishment and operations of an additional
branch office in Florida and the expansion of the New York City office.
Occupancy and equipment costs for fiscal 2000 increased 33.9%, to
$6,849,701 from fiscal 1999. The increase is a result of the establishment of an
additional branch office in Florida and the relocation to a larger facility in
New York City.
Professional fees for the period from fiscal 2000 increased 19.1%, to
$2,524,596 from fiscal 1999. The increase is primarily a result of costs
associated with expanding our business, complying with regulatory requirements
and litigation expenses.
Business development costs for fiscal 2000 increased 58.3%, to $2,429,977
from fiscal 1999. The increase is the result of increased promotional and
recruiting expenses, and an increase in registered representatives and broker
trainees, and the purchase of additional prospective customer lists used to
generate new business.
50
Other expenses for fiscal 2000 increased 63.7%, to $7,236,972 from fiscal
1999. The increase is the result of an increase in reserves for potential
litigation and an increase in underwriting activities and the expenses related
to them.
Income tax provision for fiscal 2000 was $6,464,884 as compared to the
income tax benefit of $112,470 for fiscal 1999, which is consistent with the
increase in income before this income tax provision.
Net income of $8,777,659 for fiscal 2000 compares to net loss of $324,576
for fiscal 1999. This resulted primarily from the increase in revenues offset by
increases in expenses as discussed above.
For the Period From September 1, 1998 to August 24, 1999 ("fiscal 1999") vs.
Year Ended August 31, 1998 ("fiscal 1998")
Revenue
Commissions and trading income for fiscal 1999 increased 5.0%, to
$54,625,262 from fiscal 1998. The increase is a result of the addition of
registered representatives and an active market in equity securities.
Interest and dividend income, net for fiscal 1999 was comparable to fiscal
1998.
Underwriting fees and investment banking for fiscal 1999 decreased by 71%,
to $1,386,588 from fiscal 1998. The decrease is the result of our not
participating in any underwritten public offerings where we acted as a manager
or co-manager during fiscal 1999, while we participated in four public offerings
for our investment banking clients, raising approximately $141 million, in
fiscal 1998.
Other revenues for fiscal 1999 decreased by 66.7%, to $49,007 from fiscal
1998. The decrease is the result of the decrease in consulting activities from
which we derive fees.
Expenses
Employee compensation and benefits for fiscal 1999 decreased 3.8%, to
$39,018,835 from fiscal 1998. The decrease is due primarily to the elimination
of investment banking personnel and the reduction in bonuses due to our
decreased profitability.
Brokerage, clearance and exchange fees for fiscal 1999 increased 13.8%, to
$2,678,741 from fiscal 1998 as a result of higher ticket volume.
Communications expense for fiscal 1999 increased 1.1%, to $2,534,013 from
fiscal 1998. The increase is a result of the establishment and operations of an
additional branch office.
Occupancy and equipment costs for fiscal 1999 increased 6.2%, to $5,113,830
from fiscal 1998. The increase is a result of the establishment of an additional
branch office in Florida and the relocation to a larger facility in New York
City.
Professional fees for fiscal 1999 increased 157.2%, to $2,119,803 from
fiscal 1998. The increase is primarily a result of costs associated with
expanding our business, complying with regulatory requirements and litigation
expenses.
Business development costs for fiscal 1999 decreased 17.7%, to $1,534,638
from fiscal 1998. The decrease is primarily the result of decreased promotional
expenses.
51
Other expenses for fiscal 1999 increased 5.7%, to $4,420,419 from fiscal
1998. The increase is the result of an increase in reserve for potential
litigation.
Income tax benefit for fiscal 1999 was $112,470 as compared to the income
tax provision of $435,177 for fiscal 1998, which was consistent with the
decrease in income before this income tax benefit.
Net loss of $324,576 for fiscal 1999 compares to net income of $352,270 for
fiscal 1998. This resulted primarily from the decrease in revenues and increases
in expenses as discussed above.
Liquidity and Capital Resources
In connection with the Stock Purchase Transactions, we will be issuing
$20,000,000 aggregate principal amount of senior convertible promissory notes,
$10,000,000 of which will be issued in connection with the acquisition of the
common stock of Ladenburg, Thalmann & Co. and $10,000,000 of which will be
issued to evidence the loan to us from Frost-Nevada. For a more detailed
description of the terms of the senior convertible promissory notes and loan
from Frost-Nevada, see the sections entitled "Stock Purchase Transactions -
Consideration - Terms of the Convertible Notes" and "-Consideration - Terms of
the Frost-Nevada Loan" above. The following description of our liquidity and
capital resources does not take the Stock Purchase Transactions into account.
You should read this section in conjunction with the pro forma financial
information contained in this proxy statement to better understand the impact of
the Stock Purchase Transactions on our liquidity and capital resources
Approximately 60.1% and 77% of our assets at December 31, 2000 and
September 30, 2000, respectively, were highly liquid, consisting primarily of
cash and cash equivalents, securities inventories, and receivables from other
broker-dealers, all of which fluctuate, depending upon the levels of customer
business and trading activity. Receivables from broker-dealers, which are
primarily from our clearing broker, turn over rapidly. As a securities dealer,
we may carry significant levels of securities inventories to meet customer
needs. Our inventory of market-making securities is readily marketable; however,
holding large blocks of the same security may limit liquidity and prevent
realization of full market value for the securities. A relatively small
percentage of our total assets are fixed. The total assets or the individual
components of total assets may vary significantly from period to period because
of changes relating to customer demand, economic and market conditions, and
proprietary trading strategies.
GBI Capital Partners, our brokerage subsidiary, is subject to net capital
rules of the NASD and the SEC. Therefore, it is subject to certain restrictions
on the use of capital and its related liquidity. GBI Capital Partner's net
capital position as of December 31, 2000, was $3,413,577, which was $2,413,577,
in excess of its net capital requirement. GBI Capital Partners' net capital
position as of September 30, 2000, and August 24, 1999, was $11,033,845, and
$2,773,730, respectively, which was $9,970,297 and $2,211,230, respectively, in
excess of its net capital requirements.
Our overall capital and funding needs are continually reviewed to ensure
that our capital base can support the estimated needs of our business units.
These reviews take into account business needs as well as regulatory capital
requirements of GBI Capital Partners. Based upon these reviews, our management
believes that our capital structure is adequate for current operations. From
time to time, we consider certain expansion opportunities, including possible
acquisitions of other companies. In connection with pursuing such opportunities,
we may need to seek external financing.
GBI Capital Partners, as guarantor of its customer accounts to its
clearing broker, is exposed to off-balance-sheet risks in the event that its
customers do not fulfill their obligations with the clearing broker. In
addition, to the extent we maintain a short position in certain securities, we
are exposed to a further off-balance-sheet market risk, since our ultimate
obligation may exceed the amount recognized in the financial statements.
52
Quantitative and Qualitative Disclosure about Market Risk
Our market making, investing and underwriting activities often involve the
purchase, sale or short sale of securities as principal. Such activities subject
our capital to significant risks from markets that may be characterized by
relative illiquidity or may be particularly susceptible to rapid fluctuation in
liquidity. Such market conditions could limit our ability to resell securities
purchased or to purchase securities sold short. These activities subject our
capital to significant risks, including market, credit counterparty and
liquidity risks. Market risk relates to the risk of fluctuating values based on
market prices without action on our part. Our primary credit risk is settlement
or counterparty risk, which relates to whether a counterparty will fulfill its
contractual obligations, such as delivery of securities or payment of funds.
Liquidity risk relates to our inability to liquidate assets or redirect the
deployment of assets contained in illiquid investments. In addition, our market
and liquidity risks and risks associated with asset revaluation are increased
because these risks for us are concentrated.
53
PROPOSAL 2
Election of Directors
Pursuant to the stock purchase agreement, all nine nominees listed below
have been nominated as candidates for election as directors of our board to
serve commencing effective with the Closing Date and until the next annual
meeting of shareholders and until their respective successors have been elected
and qualified. Three nominees are currently members of our board of directors
and six nominees have been designated by New Valley. If a nominee of New Valley
resigns, the parties to the Investor Rights Agreement have agreed that New
Valley will have the right to nominate his replacement.
The closing of the Stock Purchase Transactions is conditioned upon the
election of the nominees to our board of directors set forth below and the
approval of our shareholders to change our corporate name to "Ladenburg Thalmann
Financial Services Inc." Each of these proposals is conditioned on the other
proposals. Thus, neither the Stock Purchase Transactions, the election of the
nominees for directors nor the change of our corporate name will be effected
unless all of the proposals are approved. If one of the required proposals is
not approved, we will hold another annual meeting at a later date to elect a new
slate of directors. Several of our officers, directors and key employees have
entered into a proxy and voting agreement in which these individuals agreed to
vote all of our common stock owned by them (a total of 12,426,939 shares,
representing approximately 66% of our outstanding common stock) in favor of the
nominees set forth below.
Unless authority is withheld, the proxies solicited by the board of
directors will be voted FOR the election of these nominees. In case any of the
nominees becomes unavailable for election to the board of directors, an event
which is not anticipated, the persons named as proxies, or their substitutes,
will have full discretion and authority to vote or refrain from voting for any
other candidate in accordance with their judgment. The nine nominees for
directors, their current positions with us, their term of office and their
business background are set forth below. For a description of our executive
officers upon the Closing Date, see "Stock Purchase Transactions - Management
and Operations after the Closing Date" in Proposal 1 above.
Each of our directors serves for a term of one year. Each director serves
from the date of his election until the end of his term. Our articles of
incorporation do not provide for cumulative voting.
Information About the Nominees
Richard Rosenstock, 49 years old, joined GBI Capital Partners in 1986. He
has served as a director of our company since August 1999 and of GBI Capital
Partners since January 1994. He served as an executive vice president of GBI
Capital Partners from January 1994 until May 1998, at which time he became
president of GBI Capital Partners. Mr. Rosenstock became our president in August
1999.
Mark Zeitchick, 35 years old, joined GBI Capital Partners in October 1993
and since September 1995 has served as its executive vice president. Mr.
Zeitchick became a member of our board of directors in August 1999 and has since
served as an executive vice president.
Vincent Mangone, 35 years old, joined GBI Capital Partners as a registered
representative in October 1993 and since September 1995 has served as its
executive vice president. Mr. Mangone became a member of our board of directors
in August 1999 and has since served as an executive vice president.
54
Bennett S. LeBow, 63 years old, has been the chairman of the board of New
Valley since January 1988 and chief executive officer since November 1994 and
currently holds various positions with New Valley's subsidiaries. Since June
1990, Mr. LeBow has been the chairman and chief executive officer of Vector
Group Ltd., a New York Stock Exchange-listed holding company, and since October
1986 has been a director of Vector Group. Since November 1990, he has been
chairman and chief executive officer of BGLS Inc., which directly or indirectly
holds Vector Group's equity interests in several private and public companies.
Mr. LeBow has been a director of Liggett Group Inc., a manufacturer and seller
of cigarettes, since June 1990. Liggett is a wholly owned subsidiary of BGLS.
Howard M. Lorber, 52 years old, has been president and chief operating
officer of New Valley since November 1994. Since January 2001, Mr. Lorber has
served as president and chief operating officer of Vector Group and as a
director of New Valley. Mr. Lorber has been chairman of the board of directors
and chief executive officer of Hallman & Lorber Assoc., Inc., consultants and
actuaries to qualified pension and profit sharing plans, and various of its
affiliates since 1975. Mr. Lorber has been a stockholder and a registered
representative of Aegis Capital Corp., a broker-dealer and a member firm of the
National Association of Securities Dealers since 1984. Since 1987, Mr. Lorber
has been chairman of the board of directors of Nathan's Famous, Inc., a chain of
fast food restaurants, and has been its chief executive officer since 1993. From
January 1994 to January 2001, Mr. Lorber was a consultant to Vector Group and
Liggett. Since 1991, he has been a director and member of the audit committee of
United Capital Corp., a real estate investment and diversified manufacturing
company. Since May 1994, he has been a director and member of the audit
committee of Prime Hospitality Corp., a company doing business in the lodging
industry. Since January 1999, he has been a director of PLM International Inc.,
a leasing company.
Victor M. Rivas, 57 years old, has been chairman and chief executive
officer of Ladenburg, Thalmann & Co. since July 1999 and an employee of that
firm since September 1997. Prior to joining Ladenburg, Thalmann & Co., Mr. Rivas
served as an officer of the brokerage firms of Rickel & Associates, Inc. from
March 1997 to September 1997 and Janssen-Meyers Associates, L.P. from January
1996 to March 1997. Mr. Rivas had previously served as chairman of the board and
chief executive officer of Conquest Industries Inc. and its subsidiary, Conquest
Airlines Corp.
Phillip Frost, M.D., 64 years old, has served as chairman of the board of
directors and chief executive officer of IVAX Corporation since 1987. IVAX is a
Florida holding company with subsidiaries engaged in the research, development,
manufacturing and marketing of branded and generic pharmaceuticals and
veterinary and diagnostic products in the United States and international
markets. Dr. Frost served as IVAX's president from July 1991 until January 1995.
He was the chairman of the Department of Dermatology at Mt. Sinai Medical Center
of Greater Miami, Miami Beach, Florida from 1972 to 1990. Dr. Frost was chairman
of the board of directors of Key Pharmaceutical, Inc. from 1972 to 1986. He is
chairman of the board of directors of Whitman Education Group (proprietary
education) and IVAX Diagnostics, Inc. (diagnostic products), a subsidiary of
IVAX Corporation, vice chairman of the board of directors of Continucare
Corporation (integrated health care), and a director of Northrup Grumman
(aerospace). He is a trustee of the University of Miami and a member of the
Board of Governors of the American Stock Exchange.
Henry C. Beinstein, 58 years old, has been a director of New Valley since
1994. In August 1997, Mr. Beinstein became the executive director of Schulte
Roth & Zabel LLP, a New York-based law firm. Before that, Mr. Beinstein had
served as the managing director of Milbank, Tweed, Hadley & McCloy LLP, a New
York-based law firm, commencing November 1995. Mr. Beinstein was the executive
director of Proskauer Rose LLP, a New York-based law firm, from April 1985
through October 1995. Mr. Beinstein is a certified public accountant in New York
and New Jersey and prior to joining Proskauer was a partner and national
director of finance and administration at Coopers & Lybrand.
55
Robert J. Eide, 48 years old, has been the chairman and treasurer of Aegis
Capital Corp., a registered broker-dealer, since before 1988. Mr. Eide also
serves as a director of Nathan's Famous, Inc., a restaurant chain, and Vector
Group.
Other Current Directors
Joseph Berland, 61 years old, is the co-founder of GBI Capital Partners.
He has served as chairman and chief executive officer of GBI Capital Partners
since October 1983 and as our chairman and chief executive officer since August
1999.
Benjamin D. Pelton, 49 years old, has been a director since August 1999.
Mr. Pelton is an attorney and has been a partner in the law firm of Pelton,
Balland, Young, Demsky, Baskin & O'Malie, P.C. since 1978.
Steven A. Rosen, 55 years old, has been a director since August 1999. Mr.
Rosen is a dentist and has been the owner and senior officer of Unique Dental
Care, a corporation which operates a multi- professional dental practice, for
more than the past five years.
Kenneth Sperber, 60 years old, has been a director since June 2000. Mr.
Sperber has been a property manager for Warehouse Property Management, Inc.
since March 1997. From 1991 through July 1996, he was general manager of
Elmhurst Dairy.
None of these directors is standing for re-election at the meeting.
Other Executive Officer
Diane Chillemi, 42 years old, became our chief financial officer in August
1999. Ms. Chillemi joined GBI Capital Partners in February 1997 as its director
of finance and since July 1997 she has served as its chief financial officer.
She served as an accounting manager at CT Legal Information Services, a service
provider to the legal community, from September 1996 until February 1997, was a
consultant to GBI Capital Partners from May 1996 until September 1996, and was a
financial services manager with Darby Group Co., Inc., a manufacturer and
distributor of generic drugs and medical supplies, from July 1984 until March
1996.
Key Employees
David Thalheim, 46 years old, became our administrator and the
administrator of GBI Capital Partners in August 1999. Since January 1991, Mr.
Thalheim has been the president of Imperial International Group, Inc., which has
rendered consulting services to GBI Capital Partners since 1993. From 1977
through 1990, Mr. Thalheim served as vice president and then president of
Thalheim Expositions, Inc., an independent trade show and exposition management
company.
Michael Avella, 46 years old, joined GBI Capital Partners as its chief
compliance officer in March 1994. Since May 1995 he has been the chief
information technology officer and since September 1996 has been vice president
and chief operating officer of GBI Capital Partners.
Board and Committee Information
During fiscal year ended September 30, 2000, our board of directors met
four times and acted by unanimous written consent once. Our entire board
participated in each of the four meetings. We have standing audit and
compensation committees of the board of directors. We do not have a nominating
committee.
56
Compensation Committee Information and Report
The compensation committee was established in November 1999 and is
currently comprised of Benjamin D. Pelton and Steven A. Rosen. The compensation
committee is responsible for administering our Special Performance Incentive
Plan, our Annual Incentive Bonus Plan and our 1999 Performance Equity Plan.
During the fiscal year ended September 30, 2000, the compensation committee met
twice and acted by unanimous written consent once. The compensation committee
also met twice following completion of the fiscal year ended September 30, 2000.
Notwithstanding anything to the contrary set forth in our previous filings
under the Securities Act or the Exchange Act that might incorporate future
filings made by us under those statutes, the following sections entitled
"Compensation Committee Report on Executive Compensation" and "Stock Price
Performance Graph" will not be incorporated by reference in any of those prior
filings or any future filings by us.
Compensation Committee Report on Executive Compensation
This report is made by our compensation committee, which consists of two
non-employee directors. The responsibilities of the committee include:
o establishing the general compensation policy for our executive
officers, including our chief executive officer;
o administering our Bonus Plan, Incentive Plan and Equity Plan, each of
which is designed to comply with the requirements of Section 162(m) of
the Internal Revenue Code;
o in administering each of these plans, the committee determines who
participates in such plans, establishes performance goals, if any, and
determines specific grants and bonus to the participants; and
o approving any related party transactions between us and our directors,
executive officers and principal shareholders.
The committee's executive compensation policies are generally designed to
provide competitive levels of compensation that integrate pay with our annual
performance and reward above average corporate performance, recognize individual
initiative and achievements, and assist us in attracting and retaining qualified
executives.
Messrs. Berland, Rosenstock, Mangone and Zeitchick receive compensation
that is based upon four components as set forth in each of these officers'
employment agreements which were entered into prior to the establishment of the
committee. These agreements provide them with a base salary, which was not
anticipated to be the largest or sole component of their total annual
compensation, brokerage commissions with respect to customer accounts for which
they are the designated account representatives, participation in our Bonus Plan
and Incentive Plan that is designed to provide additional cash compensation
based upon specific criteria and performance and a grant of stock options.
57
Our Bonus Plan is a performance-based compensation plan which provides for
the payment of bonuses to participants selected by the committee if performance
targets established by the committee are met within the specified performance
periods. For the fiscal period ended September 30, 2000, the committee
determined at the beginning of the year that participating employees would
participate in a bonus pool equal to a percentage of our net income before taxes
and before the accrual of compensation payable under this plan, provided that we
achieved a specified return on equity before taxes at the end of the fiscal
year. For the fiscal period ended September 30, 2000, the predetermined target
was met and it was determined that each of the participants would share equally
in the bonus pool.
Our Incentive Plan is similar in nature to our Bonus Plan in that
participants selected by the committee at the beginning of the year are
permitted to receive bonuses upon reaching performance targets established by
the committee within specific performance periods, which performance targets can
be based upon one or more selected business criteria. For the fiscal period
ended September 30, 2000, the committee determined that for each of the next
five fiscal years, the participants would be entitled to receive a bonus that is
based upon a percentage of the retail and institutional brokerage commissions
that we generated provided that specific commission levels are achieved. These
bonuses are paid monthly, based on the average monthly retail institutional
commissions to such date. Final awards reflecting the performance for the last
month of the fiscal year and the fiscal year overall are not paid until the
financial results for the year are reconciled and the committee has approved and
certified that the established performance requirements have been achieved.
During the fiscal period ended September 30, 2000, the performance targets were
achieved and bonuses were paid to the participants based upon percentages
established by the committee when it selected the participants.
Our Equity Plan was adopted by our shareholders in August 1999 under which
officers, directors, key employees and consultants of our company are eligible
to receive stock options, stock appreciation rights, restricted stock awards and
other stock based awards. Prior to the establishment of the committee, and in
connection with entering into the employment agreements with Messrs. Berland,
Rosenstock, Mangone and Zeitchick, options to purchase common stock were granted
to each of these individuals.
Stock option grants to other officers and employees were recommended to the
committee by senior management and stock options were granted by the committee
to these officers and employees based upon such recommendations.
Diane Chillemi receives a base salary, cash bonus and stock option grant
based upon the recommendation of our senior management that was designed to
provide a competitive level of overall compensation. Based upon her increased
responsibilities after we became a public company, her total cash compensation
was substantially increased for the fiscal period ended September 30, 2000 and
she was awarded stock options.
Compensation of the Chief Executive Officer
As stated above, Mr. Berland's base salary for the fiscal period ended
September 30, 2000 was determined in accordance with his employment agreement in
effect before that year. Mr. Berland's base salary is at the rate of $120,000
per annum, and for the fiscal period ended September 30, 2000 was $130,000 based
upon a 13-month fiscal period. This base salary was not intended to be the most
significant component of Mr. Berland's total compensation. As a portion of his
compensation for the fiscal period ended September 30, 2000, the committee
awarded to Mr. Berland a cash bonus of $821,128 under our Bonus Plan and a cash
bonus of $959,244 under our Incentive Plan. As discussed above, these bonus
levels were determined by the committee based upon us achieving specified
performance targets during the fiscal period ended September 30, 2000. As also
58
discussed above, the performance targets are based upon objective criteria that
were determined by the committee. The only subjective criteria that was an
element of Mr. Berland's compensation was the determination by the committee
that Mr. Berland would participate equally in the bonus pool established under
our Bonus Plan with the other participants.
The Members of the Compensation Committee
Benjamin Pelton
Steven Rosen
Compensation Committee Interlocks and Insider Participation
Our compensation committee was established in November 1999 and is
currently comprised of Benjamin D. Pelton and Steven A. Rosen. Neither of these
individuals served as an officer or employee of ours during the fiscal period
ended September 30, 2000.
Audit Committee Information and Report
Our audit committee was established in November 1999 and is currently
comprised of Benjamin D. Pelton, Steven A. Rosen and Kenneth Sperber. During the
fiscal year ended September 30, 2000, the audit committee did not meet. The
audit committee did meet twice, however, following the fiscal year ended
September 30, 2000 and prior to the completion of the audit for the fiscal year.
Audit Fees
For the fiscal year ended September 30, 2000, the aggregate fees billed for
professional services rendered for the audit of our annual financial statements
and the reviews of our financial statements included in our quarterly reports
totaled $90,700.
Financial Information Systems Design and Implementation Fees
For the fiscal year ended September 30, 2000, there were no fees billed for
professional services by our independent auditors rendered in connection with,
directly or indirectly, operating or supervising the operation of our
information system or managing our local area network.
All Other Fees
For the fiscal year ended September 30, 2000, the aggregate fees billed for
all other professional services rendered by our independent auditors totaled
$47,252.
Audit Committee Report
Each member of the audit committee is an "independent director" and is
"financially literate" as defined under the recently adopted AMEX listing
standards. The AMEX listing standards define an "independent director" generally
as a person, other than an officer of the company, who does not have a
relationship with the company that would interfere with the director's exercise
of independent judgment. The AMEX's listing standards define "financially
literate" as being able to read and understand fundamental financial statements
(including a company's balance sheet, income statement and cash flow statement).
59
Pursuant to the audit committee's written charter, which was adopted on
June 29, 2000, our audit committee's responsibilities include, among other
things:
o annually reviewing and reassessing the adequacy of the committee's
formal charter;
o reviewing our annual audited financial statements with our management
and our independent auditors and the adequacy of our internal
accounting controls;
o reviewing analyses prepared by our management and independent auditors
concerning significant financial reporting issues and judgments made
in connection with the preparation of our financial statements;
o making recommendations concerning the engagement of the independent
auditor;
o reviewing the independence of the independent auditors;
o reviewing our auditing and accounting principles and practices with
the independent auditors and reviewing major changes to our auditing
and accounting principles and practices as suggested by the
independent auditor or our management;
o recommending the appointment of the independent auditor to the board
of directors, which firm is ultimately accountable to the audit
committee and the board of directors;
o approving professional services provided by the independent auditors,
including the range of audit and nonaudit fees; and
o reviewing all related party transactions on an ongoing basis for
potential conflict of interest situations.
A copy of the audit committee charter is attached as Appendix I.
Our audit committee has met and held discussions with management and our
independent auditors. Management represented to the committee that our
consolidated financial statements were prepared in accordance with generally
accepted accounting principles, and the committee has reviewed and discussed the
consolidated financial statements with management and the independent auditors.
The committee discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees). Our independent auditors also provided the audit committee with the
written disclosures required by Independence Standards Board Standard No.
1(Independence Discussions with Audit Committees) and the committee discussed
with the independent auditors and management the auditors' independence,
including with regard to fees for services rendered during the fiscal year and
for all other professional services rendered by our independent auditors. Based
upon the committee's discussion with management and the independent auditors and
the committee's review of the representations of management and the report of
the independent auditors to the audit committee, the committee recommended that
the board of directors include the audited consolidated financial statements in
our annual report on Form 10-K for the fiscal year ended September 30, 2000.
Benjamin D. Pelton
Steven A. Rosen
Kenneth Sperber
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Executive Compensation
The following table sets forth the compensation paid by us during the
fiscal periods August 25, 1999 to September 30, 2000 (approximately 13 months)
and September 1, 1998 to August 24, 1999, for our chief executive officer and to
our other four most highly compensated executive officers whose compensation
exceeded $100,000 for those fiscal periods.
Summary Compensation Table
Annual Long-Term All Other
Compensation Compensation Compensation
Fiscal ------------------------ ----------------------------
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)
---------------------------- ------ ---------- ------------ ----------- ----------
Joseph Berland 2000 130,000 1,780,372(1) -0- 297,734(2)
Chairman of the Board and Chief 1999 233,058 56,404 100,000 407,838(3)
Executive Officer
Richard J. Rosenstock 2000 130,000 1,780,372(1) -0- 236,746(2)
President and Chief Operating 1999 217,672 63,761 100,000 407,838(3)
Officer
Mark Zeitchick 2000 130,000 2,482,017(1) -0- 278,394(2)
Executive Vice President 1999 -0- 221,622 100,000 960,837(4)
Vincent Mangone 2000 130,000 2,482,017(1) -0- 278,510(2)
Executive Vice President 1999 -0- 221,622 100,000 958,041(5)
Diane Chillemi 2000 144,519 50,000 15,000 -0-
Chief Financial Officer 1999 92,692 47,513 -0- -0-
(1) Represents bonuses paid under our Annual Incentive Bonus Plan and Special
Performance Bonus Plan for fiscal 2000 as follows:
Annual Incentive ($) Special Performance ($)
-------------------- -----------------------
Berland 821,128 959,244
Rosenstock 821,128 959,244
Mangone 821,128 1,660,889
Zeitchick 821,128 1,660,889
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(2) Represent commissions earned from customer accounts for which the named
officer is a designated account representative, together with override
commissions earned during the period August 25, 1999 through September 30,
1999 in the following amounts: Berland- $39,881, Rosenstock - $39,841,
Mangone- $67,925 and Zeitchick - $67,925.
(3) Represents override commissions.
(4) Represents $108,534 of commissions earned from customer accounts for which
Mr. Zeitchick is a designated account representative and $852,303 of
override commissions.
(5) Represents $105,738 of commissions earned from customer accounts for which
Mr. Mangone is a designated account representative and $852,303 of override
commissions.
Compensation Arrangements for Current Executive Officers and Key Employees
Messrs. Berland, Rosenstock, Zeitchick and Mangone are employed by us
pursuant to five-year employment agreements entered into on August 24, 1999.
These agreements are terminable by the employee upon 30 days' notice to us. Each
of these officers receives an annual base salary of $120,000, subject to
periodic increases at the discretion of our board of directors or our
compensation committee. The employment agreements provide that each person is
entitled to participate in our various incentive compensation plans and provides
for the grant of stock options to purchase 100,000 shares of our common stock
upon the consummation of the merger between FHGB Acquisition Corporation and GBI
Capital Partners. The employment agreements prohibit the employee from competing
with us for one year after his employment terminates unless termination was by
the employee for good reason or if his employment is terminated by us without
cause. The employment agreements also provide that if a change of control of our
company occurs, other than with approval by our board of directors, each person
is entitled to receive a severance payment equal to all compensation due him
under the remaining term of his employment agreement in a lump sum payment.
In connection with the stock purchase agreement, each of these employment
agreements will be amended effective the Closing Date as described above under
the section entitled "Stock Purchase Transactions - Management and Operations
After the Closing Date."
David Thalheim, our administrator, is employed by us under a five-year
employment agreement entered into on August 24, 1999. This agreement is
substantively identical to the employment agreements which we have with Messrs.
Berland, Rosenstock, Zeitchick and Mangone. In accordance with his agreement, on
August 24, 1999 he was granted ten-year options to purchase 100,000 shares of
common stock at an exercise price of 4.0625, vesting in four annual installments
of 24,615 shares on each of August 24, 1999, 2000, 2001, and 2002, and in a
fifth installment of 1,540 shares on August 24, 2003. In the fiscal year ended
September 30, 2000, Mr. Thalheim received a salary of $130,000, a bonus of
$821,128 under the Bonus Plan and $24,109 in commissions earned from customer
accounts for which he is a designated account representative. In addition, Mr.
Thalheim's firm, Imperial International Group, Inc., as the designee of Mr.
Thalheim and a consultant to GBI Capital Partners, received $750,793 under the
Incentive Plan for the year ended September 30, 2000 and additional fees of
$36,557 for the period August 25, 1999 to September 30, 1999. Mr. Thalheim's
employment agreement was also amended in connection with the stock purchase
agreement, effective the Closing Date, as described above under the section
entitled "Stock Purchase Transactions - Management and Operations After the
Closing Date."
62
During fiscal 2000, Diane Chillemi received a salary at the rate of
$135,000 per year and was awarded a bonus of $50,000.
Compensation Arrangements for Directors
Our directors receive no cash compensation for serving as directors,
although they are reimbursed for their costs incurred in attending meetings of
the board of directors or of the committees on which they serve. On December 20,
2000, each of Steven Rosen, Kenneth Sperber and Benjamin Pelton, our three non-
employee directors, were granted ten-year options to purchase 20,000 shares of
common stock at an exercise price of $2.125 per share, which options vested
immediately. On February 7, 2001, we granted each of these individuals ten-year
options to purchase 20,000 shares of common stock at an exercise price of $2.52
per share, which options vested immediately.
Option Grants
The following table represents the stock options granted in the fiscal year
ended September 30, 2000, to the executive officers identified in the Summary
Compensation table above.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Potential
Percent of Realizable Value
Total at Assumed
Number of Options Annual Rates of
Securities Granted to Exercise Stock Price
Underlying Employees Price of Appreciation for
Options in Fiscal Options Expiration Option Term(1) ($)
Name of Executive Granted (#) Year (%) ($) Date 5% 10%
----------------- ---------- --------- -------- ---------- ---------------------
Diane Chillemi 15,000(2) 1.4 3.00 12/12/09 28,301 71,718
(1) The above information concerning five per cent and ten per cent assumed
annual rates of compounded stock price appreciation is mandated by the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or to any other optionee that there will be appreciation
of the stock price over the option term or that the optionee will realize
any gains with respect to the options.
(2) These options become exercisable as to 5,000 shares on each of December 13,
2000, 2001, and 2002.
The following table sets forth the fiscal year end option values of
outstanding options at September 30,2000, and the dollar value of unexercised,
in-the-money options for the executive officers identified in the Summary
Compensation table above.
63
AGGREGATED OPTION/SAR FY-END OPTION VALUES
Dollar Value of Unexercised in-the-Money
Options at Fiscal Year End
----------------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
(#) (#) ($) ($)
----- ----------- ------------- ---------- -------------
Joseph Berland 44,754 55,246 -0- -0-
Richard J. Rosenstock 44,754 55,246 -0- -0-
Mark Zeitchick 49,230 50,770 -0- -0-
Vincent Mangone 49,230 54,770 -0- -0-
Diane Chillemi 5,000 10,000 -0- -0-
Annual Incentive Bonus Plan
On August 23, 1999 our shareholders adopted the Annual Incentive Bonus
Plan, which is a performance-based compensation plan for our executive officers
and other key employees. The plan is administered by our compensation committee
and is intended to comply with the regulations issued under Section 162(m) of
the Internal Revenue Code. Under this plan, bonuses are paid to participants
selected by our compensation committee if performance targets established by our
compensation committee are met within the specified performance periods. For the
fiscal year ended September 30, 2000, our compensation committee has determined
that participating employees will participate in a bonus pool equal to a
percentage of our net income before taxes and before the accrual of compensation
payable under this plan provided that we achieve a specified return on equity
before taxes at the end of the fiscal year. The maximum award payable annually
to any participant under this plan is limited to a percentage of the bonus pool
created and is subject to the maximum limit of $5,000,000 for any person.
Messrs. Berland, Rosenstock, Zeitchick, Mangone and Thalheim received bonuses in
fiscal 2000 disclosed elsewhere in this report. The compensation committee has
selected these same persons to participate in the Bonus Plan for fiscal 2001
subject to the terms of the amendments to their employment agreements entered
into in connection with the Stock Purchase Transactions. Additionally, after
consummation of the Stock Purchase Transactions, Mr. Rivas will be entitled to
participate in the Bonus Plan subject to the terms of his employment agreement.
Special Performance Incentive Plan
On August 23, 1999 our shareholders adopted our Special Performance
Incentive Plan. The Special Performance Incentive Plan is similar in nature to
the Annual Incentive Bonus Plan in seeking to provide performance-based
compensation within the meaning of Section 162(m) of the Internal Revenue Code.
Executive officers and key employees selected by our compensation committee may
receive bonuses upon reaching performance targets established by our
compensation committee within specific performance periods, which performance
targets may be based upon one or more selected business criteria. For each of
64
the current and next four fiscal years ending September 30, 2000 through 2004,
the compensation committee has determined that participants are entitled to
receive an incentive award that is based on the percentage of the retail and
institutional brokerage commissions generated by our company provided that
specified commission levels are achieved. Awards are payable monthly, based on
the average monthly retail and institutional commissions to such date. However,
final awards reflecting the performance for the last month of the fiscal year
and the fiscal year overall are not paid until all financial results for the
year are reconciled and the compensation committee has approved and certified
that the established performance requirements have been achieved. The maximum
award payable for any fiscal year to any participant is $5,000,000. The
compensation committee has determined that Messrs. Berland, Rosenstock,
Zeitchick, Mangone and Thalheim will currently be entitled to participate in
this plan subject to the terms of the amendments to each of these individuals'
employment agreements entered into in connection with the Stock Purchase
Transactions. After consummation of the Stock Purchase Transactions, Mr. Rivas
will also be entitled to participate in the Incentive Plan subject to the terms
of his employment agreement.
1999 Performance Equity Plan
On August 23, 1999, our shareholders adopted the 1999 Performance Equity
Plan covering 3,000,000 shares of our common stock, under which our officers,
directors, key employees and consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation rights, restricted stock awards,
deferred stock, stock reload options and other stock based awards. We are
seeking to amend the plan to increase the number of shares available for
issuance under the plan to 5,500,000 shares. For a more detailed discussion of
the proposal to amend the plan, see the discussion under Proposal 4. The
Performance Equity Plan will terminate at such time no further awards may be
granted and awards granted are no longer outstanding, provided that incentive
options may only be granted until May 26, 2009. The plan is intended to comply
with the regulations issued under Section 162(m) of the Internal Revenue Code
and is administered by our compensation committee. To the extent permitted under
the provisions of the plan, the compensation committee has authority to
determine the selection of participants, allotment of shares, price, and other
conditions of awards.
Stock Price Performance Graph
The graph below compares the cumulative total return of our common stock
from October 29, 1997 (the date on which our common stock started trading on the
NASD OTC Bulletin Board) through September 30, 2000 with the cumulative total
return of companies comprising the Amex market value and a market capitalization
peer group selected by us. The graph plots the growth in value of an initial
investment of $100 in each of our common stock, the Amex market value and the
peer group selected by us over the indicated time periods, and assuming
reinvestment of all dividends, if any, paid on our the securities. We have not
paid any cash dividends and, therefore, the cumulative total return calculation
for us is based solely upon stock price appreciation and not upon reinvestment
of cash dividends. The stock price performance shown on the graph is not
necessarily indicative of future price performance.
The market capitalization peer group selected by us is comprised of
companies engaged in the same business that we are, each with a market
capitalization similar to ours, and consists of the following companies: Shochet
Holding Corp., Olympic Cascade Financial Corp., Paulson Capital Corp., Morgan
Keegan, Inc., First Albany Companies Inc., Stifel Financial Corp., Hoenig Group
Inc., Globalnet Financial.com, Inc., Tucker Anthony Sutro, Kirlin Holding Corp.
and JB Oxford Holdings, Inc.
65
10/27/97 9/98 9/99 9/00
-------- ---- ---- ----
GBI Capital Management Corp. 100.00 44.57 59.78 45.65
Peer Group 100.00 98.08 120.47 149.71
Amex Market Value 100.00 96.27 116.52 132.96
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers, directors and persons who beneficially own more than ten percent
of our common stock to file reports of ownership and changes in ownership with
the Securities and Exchange Commission. These reporting persons are also
required to furnish us with copies of all Section 16(a) forms they file. To our
knowledge, for the fiscal year ended September 30, 2000, no person who is a
director, officer or beneficial owner of more than ten percent of our
outstanding common stock or any other person subject to Section 16 of the
Exchange Act failed to file on a timely basis, reports required by Section 16(a)
of the Exchange Act.
Certain Relationships and Related Transactions
Several members of the immediate families of some of our executive officers
and directors are employed as registered representatives of GBI Capital
Partners. As such they receive a percentage of commissions generated from
customer accounts for which they are designated account representatives and are
eligible to receive bonuses in the discretion of management. Each received the
compensation listed below in fiscal 2000 and is expected to receive in excess of
$60,000 in compensation in fiscal 2001. These registered representatives are as
follows:
Fiscal 2000
Registered Representative Relationship Officer and Director Compensation
------------------------- ------------ -------------------- ------------
Richard Berland Brother Joseph Berland $206,469
Oscar Sonkin Father-in-law Richard Rosenstock $114,745
Richard Sonkin Brother-in-law Richard Rosenstock $613,089
Steven Zeitchick Brother Mark Zeitchick $415,061
66
PROPOSAL 3
Amendment to our Articles
of Incorporation to Change our Name
Pursuant to the stock purchase agreement, we are required on consummation
of the Stock Purchase Transactions to change our corporate name from "GBI
Capital Management Corp." to "Ladenburg Thalmann Financial Services Inc."
Consequently, unless this condition is waived by New Valley and Berliner, even
if the stock purchase agreement is approved, the sale will not be consummated
and the Stock Purchase Transactions will not be consummated if the proposal to
change our name is not approved at the meeting. Similarly, if the proposal to
change our name is approved but the stock purchase agreement is not approved,
our name will not be changed.
In the judgment of our board of directors, the change of our corporate name
is desirable to reflect our acquisition of Ladenburg, Thalmann & Co. The
Ladenburg name has been a recognized name in the financial community for over
120 years.
The affirmative vote of the holders of a majority of all outstanding shares
of common stock is required for adoption of this proposal.
Shareholders will not be required to exchange outstanding stock
certificates for new certificates if the amendment is adopted.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE APPROVAL OF
THE PROPOSAL TO AMEND OUR ARTICLES OF INCORPORATION TO CHANGE OUR NAME.
67
PROPOSAL 4
Amendment to our 1999 Performance
Equity Plan to Increase the Number of Shares Issuable
Upon Grants of Awards Under the Plan
On August 23, 1999, our shareholders adopted the 1999 Performance Equity
Plan covering 3,000,000 shares of our common stock, under which our officers,
directors, key employees and consultants are eligible to receive incentive or
non-qualified stock options, stock appreciation rights, restricted stock awards,
deferred stock, stock reload options and other stock based awards. As of the
record date, there were outstanding grants under the Equity Plan of options to
purchase an aggregate of 1,891,229 shares of common stock. On the Closing Date,
Mr. Rivas will be granted an option under the plan in connection with his
employment agreement to purchase an additional 300,000 shares of common stock.
Thereafter, we will have 808,771 shares of common stock available for future
grant under the plan. Our board proposes to amend the plan to increase the
number of shares issuable under the plan by an additional 2,500,000 shares. The
board believes that the increase in the size of the plan is necessary to enable
us to continue to attract and retain employees and consultants of the highest
caliber and provide increased incentive for them to promote our well-being
through the grant of options.
If the plan, as summarized below, is amended as proposed, then, if all the
shares reserved thereunder were issued upon the exercise of options and other
awards, such shares would constitute 12.9% of the total shares that would then
be outstanding (assuming no exercise of other outstanding options and
convertible securities or other stock issuances).
Summary of the Equity Plan
The following summary of the Equity Plan does not purport to be complete,
and is subject to and qualified in its entirety by reference to the Equity Plan.
Administration
Our 1999 Performance Equity Plan is administered by our compensation
committee designated by our board of directors to administer the plan. Each
member of our compensation committee will be a "non-employee director" as
defined in Rule 16b-3 promulgated under the Exchange Act and an "outside
director" as defined in regulations issued under Section 162(m) of the Internal
Revenue Code.
Eligibility for Awards
The purpose of our Equity Plan is to enable us to offer to our key
employees, officers, directors and consultants who have made, or who have the
potential for making important contributions to us and our subsidiaries an
opportunity to acquire an ownership interest our company.
Shares Available under Plan
A total of 3,000,000 shares of our common stock have currently been
reserved and are available for grant under our Equity Plan. Shares of our common
stock that are awarded under the Equity Plan may be either treasury shares or
authorized but unissued shares. Shares of our common stock reserved for issuance
pursuant to stock options that cease to be subject to such options, and any
shares of stock subject to other awards that are forfeited or otherwise
terminated will be available for future award grants under the plan.
Notwithstanding any other provision of the Equity Plan, the compensation
committee will not grant to any one holder in any one calendar year awards for
more than 300,000 shares of common stock in the aggregate.
68
Under the Equity Plan, on a change in the shares of our common stock as a
result of a stock split, reverse stock split, stock dividend payable on our
shares of common stock, combination or exchange of shares, or other
extraordinary event occurring after the grant of an award, our compensation
committee may determine whether such change equitably requires adjusting the
terms of the award or the aggregate number of shares reserved for issuance under
the Equity Plan.
Types of Awards
Stock Options. Under the Equity Plan, our compensation committee may award
to participants stock options that (i) are intended to qualify as "incentive
stock options" within the meaning of Section 422 of the Code or (ii) options
that are not intended to be so qualified. Incentive stock options may only be
awarded to our employees and those of our subsidiaries. To the extent that any
stock option intended to qualify as an incentive stock option does not so
qualify, it shall constitute a non-incentive stock option.
Our compensation committee will fix the term of each stock option, except
that an incentive stock option may be granted only within the ten-year period
commencing from the effective date of the Equity Plan and may only be exercised
within ten years from the date of grant, or five years from the date of grant in
the case of a participant who at the time the stock option is granted owns more
than 10% of the total combined voting power of all of our classes of voting
securities.
The exercise price of stock options granted under the Equity Plan will be
determined by our compensation committee at the time of the grant, but in no
event will such price be less than the fair market value of the underlying
common stock on the last trading day preceding the date the stock option is
granted. However, the exercise price of an incentive stock option granted to a
10% shareholder will not be less than 110% of the fair market value of the
shares on the last trading day preceding the date the stock option is granted.
The number of shares covered by incentive stock options which may be exercised
by participants in any year cannot have an aggregate fair market value in excess
of $100,000, measured at the date of grant.
The compensation committee will determine when stock options will become
exercisable and the terms and conditions thereof. Any requirement that options
be exercised in installments may be waived in whole or in part by the
compensation committee.
Payment of the exercise price may be made in cash, or in shares of our
common stock owned by the participant, partly in cash and partly in such shares,
or otherwise, as reflected in the applicable award agreement. A participant has
no rights as a shareholder with respect to the shares of our common stock
underlying stock option granted under the Equity Plan until such shares are
issued upon exercise of the stock option.
Stock options may not be assigned or transferred by a participant except by
will or by the laws of descent and distribution, and during the lifetime of a
participant, the stock options may only be exercisable by the person to whom it
was granted.
If the employment of a participant who is an employee of ours or a
subsidiary of ours is terminated by reason of the participant's death or
disability, any stock option held by the participant will become fully vested
and may be exercised by the disabled participant, or by his legal representative
or legatee, as the case may be, for a period of one year or such greater or
lesser period, as may be specified by the compensation committee in the grant,
from the date of the death or disability, or until the expiration of the
exercise period for the stock option, which ever is shorter.
69
Unless otherwise provided in the grant of a stock option, if a
participant's employment with us or any of our subsidiaries is terminated for
any reason other than due to death or disability, the participant's stock option
will automatically terminate. However, if the participant's employment is
terminated without cause or due to retirement on or after the age of 65, then
the portion of his or her stock option which has vested as the date of
termination may be exercised for three months after termination or for the
balance of the stock option's exercise period, which ever is shorter.
Stock Reload Options. Our compensation committee may grant to a
participant, concurrently with the grant of an incentive stock option, and at or
after the time of grant in the case of a non-incentive stock option, an option
covering a number of shares up to the amount of shares of our common stock held
by the participant for at least six months and used to pay all or part of the
exercise price of an option, and any shares withheld by us as payment for
withholding taxes. Any stock reload option will have an exercise price equal to
the fair market value of our common stock as of the date of grant of the stock
reload option. Unless otherwise provided in the stock reload option grant, a
stock reload option may be exercised commencing one year after it is granted and
shall expire on the date of expiration of the stock option to which the reload
option is related.
Stock Appreciation Rights. Under the Equity Plan, our compensation
committee may grant stock appreciation rights to participants who have received
stock options. A stock appreciation right entitles the holder to surrender to us
all or a portion of a stock option in exchange for a number of shares of our
common stock determined by dividing the excess of the fair market price per
share of our common stock on the exercise date over the exercise price per share
by the fair market value of the stock option on the date the stock appreciation
right is exercised. In the case of an incentive stock option, a stock
appreciation right may only be granted simultaneously with the grant of the
underlying incentive stock option. In the case of non- incentive stock option, a
stock appreciation right may be granted at or after the time of the grant of the
underlying non-incentive stock option. A stock appreciation right will terminate
upon termination or exercise of the related stock option. Upon exercise of a
stock appreciation right, the underlying stock option will be deemed to have
been exercised, and the related shares of our common stock will no longer be
available for issuance under the Equity Plan.
Restricted Stock Awards. Our compensation committee may award shares of our
common stock which are subject to such restrictions as the compensation
committee may determine in addition to, or in lieu of, other awards granted to
participants under the Equity Plan. The compensation committee will determine at
the time of the award, the period during which the award may be subject to
forfeiture and the vesting schedule of the shares under the award. A participant
will have the right to vote the restricted stock granted to him and to receive
dividend payments distributed on the shares in the form of cash or cash
equivalents. However, during the time that restricted stock is subject to
forfeiture and until the restricted stock is fully vested, we will retain
custody of the stock certificate representing the restricted shares and will
retain custody of all distributions, other than payment of dividends in cash or
in cash equivalents, made or declared with respect to the restricted stock. If
the participant breaches the terms or conditions set forth in the Equity Plan or
in the award agreement pertaining to the restricted stock award, or if the
restricted stock otherwise does not vest, then the participant will forfeit the
award of restricted stock and any distributions which were retained by us
related to the restricted stock.
Deferred Stock. Our compensation committee may award shares of our common
stock to be received at the end of a specified deferral period and upon
satisfaction of any other applicable restrictions, terms and conditions provided
70
for in the grant of the award. Any deferred stock that does not vest shall be
forfeited. A participant will not have any rights as a shareholder by virtue of
the award of deferred stock until the expiration of the applicable deferral
period and the issuance by of a stock certificate evidencing the award of the
deferred stock. A participant may request that the compensation committee defer
issuance of an award of deferred shares for an additional specified period,
subject to certain conditions.
Other Stock-Based Awards. Our compensation committee may award other
stock-based awards in addition to, or in lieu of, other awards granted to
participants under the Equity Plan. These other stock-based awards are payable
in, valued in, or otherwise based on, or related to, our shares of common stock.
These other stock-based awards may be in the form of the right to purchase
shares of our common stock which are not subject to any restrictions or
conditions, convertible or exchangeable debentures or other rights convertible
into shares of our common stock, as well as awards valued by reference to the
value of securities of, or the performance of, one of our subsidiaries.
Accelerated Vesting and Exercisablility of Awards
If any "person," as is defined in Sections 13(d) and 14(d) of the Exchange
Act, is or becomes the "beneficial owner," as referred in Rule 13d-3 under the
Exchange Act, directly or indirectly, of our securities representing 25% or more
of the combined voting power of our then outstanding voting securities in one or
more transactions, and our board of directors does not authorize or approve the
acquisition, then the vesting periods with respect to options and awards granted
and outstanding under the Equity Plan will be accelerated and will immediately
vest, and each participant of an option and award will have the immediate right
to purchase and receive all shares of our common stock subject to the option and
award in accordance with the terms set forth in the Equity Plan and in the
corresponding award agreements.
Withholding Taxes
We may withhold, or require participants to remit to us, an amount
sufficient to satisfy any federal, state or local withholding tax requirements
associated with awards under the Equity Plan. If permitted by our compensation
committee, tax withholding may be settled with shares of our common stock,
including shares that are part of the award that gives rise to the withholding
requirement.
Term and Amendments
The Equity Plan will terminate at such time no further awards may be
granted and awards granted are no longer outstanding, provided that incentive
options may only be granted until May 26, 2009. Our board of directors has the
right to amend, suspend or discontinue any provision of the Equity Plan,
provided that no such action may adversely affect awards previously granted
between a participant and us without the participant's consent.
Holding Period and Forfeitures
For a period of six months after the date of any award under the Equity
Plan, a participant may not dispose of any (i) derivative security, as defined
in Rule 16a-1 under the Exchange Act, issued to the participant under the Equity
Plan or (ii) common stock purchased or granted pursuant to an award under the
Equity Plan. If a participant's employment with us or a subsidiary of ours is
terminated for any reason and within eighteen months of the termination, the
person accepts employment with any competitor of, or otherwise engages in
competition with, our business, the compensation committee may require the
participant to return to us the economic value of any award which was obtained
by the participant during the period beginning six months prior to the date the
participant's employment with us was terminated. If a participant is terminated
for cause, the compensation committee may require that the participant return to
us the economic value of any award which was obtained by the participant during
the six month period. Shares of our common stock available for award under the
Equity Plan have not been registered under the Securities Act, and we are not
required to so register the stock.
71
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of
participation in the Equity Plan is only a summary of the general rules
applicable to the grant and exercise of stock options and other awards and does
not give specific details or cover, among other things, state, local and foreign
tax treatment of participation in the Equity Plan. The information contained in
this section is based on present law and regulations, which are subject to being
changed prospectively or retroactively.
Incentive Stock Options
The participant will recognize no taxable income upon the grant or exercise
of an incentive stock option. We will not qualify for any deduction in
connection with the grant or exercise of incentive stock options. Upon a
disposition of the shares after the later of two years from the date of grant or
one year after the transfer of the shares to the participant, the participant
will recognize the difference, if any, between the amount realized and the
exercise price as long-term capital gain or long-term capital loss, as the case
may be, if the shares are capital assets. The excess, if any, of the fair market
value of the shares on the date of exercise of an incentive stock option over
the exercise price will be treated as an item of adjustment for a participant's
taxable year in which the exercise occurs and may result in an alternative
minimum tax liability for the participant.
If common stock acquired upon the exercise of an incentive stock option is
disposed of prior to the expiration of the holding periods described above, (i)
the participant will recognize ordinary compensation income in the taxable year
of disposition in an amount equal to the excess, if any, of the lesser of the
fair market value of the shares on the date of exercise or the amount realized
on the disposition of the shares, over the exercise price paid for such shares
and (ii) we will qualify for a deduction equal to any such amount recognized,
subject to the limitation that the compensation be reasonable. In the case of a
disposition of shares earlier than two years from the date of the grant or in
the same taxable year as the exercise, where the amount realized on the
disposition is less than the fair market value of the shares on the date of
exercise, there will be no adjustment since the amount treated as an item of
adjustment, for alternative minimum tax purposes, is limited to the excess of
the amount realized on such disposition over the exercise price, which is the
same amount included in regular taxable income.
Non-Incentive Stock Options
With respect to non-incentive stock options (i) upon grant of the stock
option, the participant will recognize no income, provided that the exercise
price was not less than the fair market value of our common stock on the date of
grant, (ii) upon exercise of the stock option, if the shares of common stock are
not subject to a substantial risk of forfeiture, the participant will recognize
ordinary compensation income in an amount equal to the excess, if any, of the
fair market value of the shares on the date of exercise over the exercise price,
and we will qualify for a deduction in the same amount, subject to the
requirement that the compensation be reasonable and (iii) we will be required to
comply with applicable federal income tax withholding requirements with respect
to the amount of ordinary compensation income recognized by the participant. On
a disposition of the shares, the participant will recognize gain or loss equal
to the difference between the amount realized and the sum of the exercise price
and the ordinary compensation income recognized. Such gain or loss will be
treated as capital gain or loss if the shares are capital assets and as
short-term or long-term capital gain or loss, depending upon the length of time
that the participant held the shares.
72
If the shares acquired upon exercise of a non-incentive stock option are
subject to a substantial risk of forfeiture, the participant will recognize
ordinary income at the time when the substantial risk of forfeiture is removed,
unless the participant timely files under Code Section 83(b) to elect to be
taxed on the receipt of shares, and we will qualify for a corresponding
deduction at such time. The amount of ordinary income will be equal to the
excess of the fair market value of the shares at the time the income is
recognized over the amount, if any, paid for the shares.
Stock Appreciation Rights
Upon the grant of a stock appreciation right, the participant recognizes no
taxable income and we receive no deduction. The participant recognizes ordinary
income and we receive a deduction at the time of exercise equal to the cash and
fair market value of common stock payable upon the exercise.
Restricted Stock
A participant who receives restricted stock will recognize no income on the
grant of the restricted stock and we will not qualify for any deduction. At the
time the restricted stock is no longer subject to a substantial risk of
forfeiture, a participant will recognize ordinary compensation income in an
amount equal to the excess, if any, of the fair market value of the restricted
stock at the time the restriction lapses over the consideration paid for the
restricted stock. A participant's shares are treated as being subject to a
substantial risk of forfeiture so long as his or her sale of the shares at a
profit could subject him or her to a suit under Section 16 (b) of the Exchange
Act. The holding period to determine whether the participant has long-term or
short-term capital gain or loss begins when the restriction period expires, and
the tax basis for the shares will generally be the fair market value of the
shares on such date.
A participant may elect, under Section 83(b) of the Code, within 30 days of
the transfer of the restricted stock, to recognize ordinary compensation income
on the date of transfer in an amount equal to the excess, if any, of the fair
market value on the date of such transfer of the shares of restricted stock,
determined without regard to the restrictions, over the consideration paid for
the restricted stock. If a participant makes such election and thereafter
forfeits the shares, no ordinary loss deduction will be allowed. Such forfeiture
will be treated as a sale or exchange upon which there is realized loss equal to
the excess, if any, of the consideration paid for the shares over the amount
realized on such forfeiture. Such loss will be a capital loss if the shares are
capital assets. If a participant makes an election under Section 83(b), the
holding period will commence on the day after the date of transfer and the tax
basis will equal the fair market value of shares, determined without regard to
the restrictions, on the date of transfer.
On a disposition of the shares, a participant will recognize gain or loss
equal to the difference between the amount realized and the tax basis for the
shares.
Whether or not the participant makes an election under Section 83(b), we
generally will qualify for a deduction, subject to the reasonableness of
compensation limitation, equal to the amount that is taxable as ordinary income
to the participant, in its taxable year in which such income is included in the
participant's gross income. The income recognized by the participant will be
subject to applicable withholding tax requirements.
73
Dividends paid on restricted stock which is subject to a substantial risk
of forfeiture generally will be treated as compensation that is taxable as
ordinary compensation income to the participant and will be deductible by us
subject to the reasonableness limitation. If, however, the participant makes a
Section 83(b) election, the dividends will be treated as dividends and taxable
as ordinary income to the participant, but will not be deductible by us.
Deferred Stock
A participant who receives an award of deferred stock will recognize no
income on the grant of such award. However, he or she will recognize ordinary
compensation income on the transfer of the deferred stock, or the later lapse of
a substantial risk of forfeiture to which the deferred stock is subject, if the
participant does not make a Section 83(b) election, in accordance with the same
rules as discussed above under the caption "Restricted Stock."
Other Stock-Based Awards
The federal income tax treatment of other stock-based awards will depend on
the nature of any such award and the restrictions applicable to such award.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
AMEND THE PLAN TO INCREASE THE NUMBER OF SHARES ISSUABLE UPON THE GRANT OF
OPTIONS AND OTHER AWARDS THEREUNDER.
74
Independent Auditors
We anticipate that, as a result of the Stock Purchase Transactions, we will
select PricewaterhouseCoopers LLP as our independent auditors for the fiscal
year ending September 30, 2001, although the audit committee of our board of
directors has made no formal recommendation as of the date of this proxy
statement. A representative of Goldstein Golub Kessler LLP, our independent
auditors for the fiscal year ending September 30, 2000, is expected to be
present at the annual meeting. Additionally, a representative of
PricewaterhouseCoopers is expected to be present at the annual meeting. The
representatives of Goldstein Golub Kessler and PricewaterhouseCoopers will have
the opportunity to make statements and will be available to respond to
appropriate questions from shareholders.
Solicitation of Proxies
The solicitation of proxies in the enclosed form is made on behalf of our
board of directors and we are paying the cost of this solicitation. In addition
to the use of the mails, proxies may be solicited personally or over the
telephone by our directors, officers and regular employees at nominal cost. We
will reimburse banks, brokerage firms and other custodians, nominees and
fiduciaries for expenses incurred in sending proxy material to beneficial owners
of our stock.
2002 Annual Meeting Shareholder Proposals
In order for any shareholder proposal to be presented at the annual meeting
of shareholders to be held in 2002 or to be eligible for inclusion in our proxy
statement for such meeting, it must be received by us at our principal executive
offices by November 28, 2001. Pursuant to Rule 14a-4 promulgated by the
Securities and Exchange Commission, shareholders are advised that our management
shall be permitted to exercise discretionary voting authority under proxies it
solicits and obtains for our 2002 annual meeting of shareholders with respect to
any proposal presented by a shareholder at such meeting, without any discussion
of the proposal in our proxy statement for such meeting, unless we receive
notice of such proposal at our principal office in Bethpage, New York, not later
than February 11, 2002.
Other Matters
The board of directors knows of no matter which will be presented for
consideration at the annual meeting other than the matters referred to in this
proxy statement. Should any other matter properly come before the special
meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their best judgment.
Joseph Berland, Chairman
Bethpage, New York
March 28, 2001
75
Appendix A
===============================================================================
STOCK PURCHASE AGREEMENT
among
GBI CAPITAL MANAGEMENT CORP.,
NEW VALLEY CORPORATION,
LADENBURG, THALMANN GROUP INC.,
BERLINER EFFEKTENGESELLSCHAFT AG,
and
LADENBURG, THALMANN & CO. INC.
Dated February 8, 2001
===============================================================================
Table of Contents
Page
ARTICLE I PURCHASE AND SALE OF LADENBURG STOCK..............................1
SECTION 1.1 Definitions...........................................1
SECTION 1.2 Purchase and Sale.....................................1
SECTION 1.3 Purchase Price........................................1
SECTION 1.4 Allocation of Purchase Price..........................2
ARTICLE II THE CLOSING......................................................2
SECTION 2.1 The Closing...........................................2
SECTION 2.2 Sellers' Deliveries...................................2
SECTION 2.3 Purchaser's Deliveries................................3
SECTION 2.4 Net Worth Adjustment..................................3
SECTION 2.5 Pledge and Security Agreement.........................4
SECTION 2.6 Proxy and Voting Agreement............................4
SECTION 2.7 Further Assurances; Post-Closing Cooperation..........4
SECTION 2.8 Directors and Officers................................5
SECTION 2.9 Enforcement of Claims; Amendment......................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES...........6
SECTION 3.1 Organization..........................................6
SECTION 3.2 Authority and Corporate Action........................7
SECTION 3.3 No Conflicts, etc.....................................7
SECTION 3.4 Capitalization; Ownership of Securities...............8
SECTION 3.5 Compliance with Law; Customer Complaints..............9
SECTION 3.6 Financial Statements..................................10
SECTION 3.7 Licenses, Permits, Etc................................10
SECTION 3.8 Marketable Securities.................................10
SECTION 3.9 Real Property; Leased Properties; Contracts...........11
SECTION 3.10 Litigation............................................11
SECTION 3.11 Taxes, Tax Returns and Audits.........................11
SECTION 3.12 Consents and Approvals................................12
SECTION 3.13 Absence of Certain Changes............................12
SECTION 3.14 Employment Agreements and Bonus Plans.................13
SECTION 3.15 Employee Plans........................................13
SECTION 3.16 Insurance Policies....................................14
SECTION 3.17 Intangible Rights.....................................14
SECTION 3.18 Title to Properties...................................14
SECTION 3.19 No Guarantees.........................................15
SECTION 3.20 Labor Matters.........................................15
SECTION 3.21 Brokers...............................................15
SECTION 3.22 Records...............................................15
SECTION 3.23 No Undisclosed Liabilities............................15
SECTION 3.24 No Illegal or Improper Transactions...................15
SECTION 3.25 Related Transactions..................................16
SECTION 3.26 Disclosure............................................16
SECTION 3.27 Ownership of Purchaser Common Stock...................16
SECTION 3.28 Investment Representations............................16
SECTION 3.29 Bank Accounts.........................................17
SECTION 3.30 Certain Brokerage Matters.............................17
SECTION 3.31 Warrants, etc.........................................17
SECTION 3.32 Survival of Representations and Warranties............17
SECTION 3.33 Ukraine Fund..........................................17
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER..................18
SECTION 4.1 Organization..........................................18
SECTION 4.2 Authority and Corporate Action........................18
SECTION 4.3 Capitalization; Ownership of Securities...............20
SECTION 4.4 SEC Reports; Financial Statements.....................20
SECTION 4.5 Consents and Approvals................................21
SECTION 4.6 Disclosure............................................21
SECTION 4.7 Absence of Certain Changes............................21
SECTION 4.8 Vote Required.........................................21
SECTION 4.9 Opinion of Financial Advisor..........................22
SECTION 4.10 Sections 607.0901 and 607.0902 of the
Florida Business Corporation Act Not Applicable.......22
SECTION 4.11 Financing.............................................22
SECTION 4.12 Investment Representations............................22
SECTION 4.13 Compliance with Law; Customer Complaints..............22
SECTION 4.14 Licenses, Permits, Etc................................23
SECTION 4.15 Real Property; Leased Properties; Contracts...........23
SECTION 4.16 Litigation............................................24
SECTION 4.17 Taxes, Tax Returns and Audits.........................24
SECTION 4.18 Employment Agreements and Bonus Plans.................25
SECTION 4.19 Employee Plans........................................25
SECTION 4.20 Insurance Policies....................................26
SECTION 4.21 Intangible Rights.....................................26
SECTION 4.22 Title to Properties...................................27
SECTION 4.23 No Guarantees.........................................27
SECTION 4.24 Labor Matters.........................................27
SECTION 4.25 Brokers...............................................27
SECTION 4.26 Records...............................................27
ii
SECTION 4.27 No Undisclosed Liabilities............................27
SECTION 4.28 No Illegal or Improper Transactions...................28
SECTION 4.29 Related Transactions..................................28
SECTION 4.30 Bank Accounts.........................................28
SECTION 4.31 Certain Brokerage Matters.............................28
SECTION 4.32 Survival of Representations and Warranties............29
ARTICLE V COVENANTS.........................................................29
SECTION 5.1 Conduct of Business...................................29
SECTION 5.2 Access to Information; Confidentiality................30
SECTION 5.3 Maintenance of Assets; Insurance......................31
SECTION 5.4 Non-Use of Name.......................................31
SECTION 5.5 No Other Negotiations.................................31
SECTION 5.6 No Securities Transactions............................32
SECTION 5.7 Cancellation of Intercompany Agreements...............32
SECTION 5.8 Disclosure of Certain Matters.........................32
SECTION 5.9 Non-Competition.......................................32
SECTION 5.10 Stockholder Meeting...................................33
SECTION 5.11 Proxy Statement.......................................33
SECTION 5.12 Information Supplied..................................34
SECTION 5.13 Information for Proxy Statement.......................34
SECTION 5.14 Intercompany Debt.....................................34
SECTION 5.15 General Release.......................................35
SECTION 5.16 No Purchaser Solicitations............................35
SECTION 5.17 Additional Agreements.................................36
SECTION 5.18 Financing.............................................37
SECTION 5.19 Continuation of Insurance.............................37
SECTION 5.20 AMEX Listing..........................................37
SECTION 5.21 Further Action........................................38
SECTION 5.22 Schedules.............................................38
SECTION 5.23 Regulatory and Other Authorizations...................38
ARTICLE VI CONDITIONS TO CLOSING............................................38
SECTION 6.1 Conditions to Each Party's Obligations................38
SECTION 6.2 Conditions to Obligations of the Selling Parties......39
SECTION 6.3 Conditions to Obligations of the Purchaser............39
ARTICLE VII INDEMNIFICATION.................................................40
SECTION 7.1 Indemnification by the Sellers........................40
SECTION 7.2 Indemnification by the Purchaser......................41
SECTION 7.3 Notice, etc...........................................41
SECTION 7.4 Adjustment to Purchase Price..........................44
iii
SECTION 7.5 Limitations...........................................44
SECTION 7.6 Payment of Claims.....................................45
SECTION 7.7 Representations and Warranties........................45
SECTION 7.8 Exclusivity...........................................45
SECTION 7.9 Tax Benefits..........................................45
ARTICLE VIII TERMINATION AND ABANDONMENT....................................47
SECTION 8.1 Methods of Termination................................47
SECTION 8.2 Effect of Termination.................................47
ARTICLE IX DEFINITIONS......................................................49
SECTION 9.1 Certain Defined Terms.................................49
ARTICLE X GENERAL PROVISIONS................................................53
SECTION 10.1 Expenses.............................................53
SECTION 10.2 Notices..............................................54
SECTION 10.3 Press Release; Public Announcements; Filings.........56
SECTION 10.4 Amendment............................................56
SECTION 10.5 Waiver...............................................56
SECTION 10.6 Headings.............................................56
SECTION 10.7 Severability.........................................56
SECTION 10.8 Entire Agreement.....................................56
SECTION 10.9 Benefit..............................................57
SECTION 10.10 Governing Law........................................57
SECTION 10.11 Counterparts.........................................57
SECTION 10.12 Consent to Jurisdiction and Service of Process.......57
SECTION 10.13 Waiver of Jury Trial.................................58
SECTION 10.14 Specific Performance.................................58
iv
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Promissory Notes
Exhibit C Pledge and Security Agreement
Exhibit D Proxy and Voting Agreement
Exhibit E Investor Rights Agreement
Exhibit F Employment Agreement between Ladenburg and Victor Rivas
Exhibits G-1
through G-5 Amendment to Employment Agreement between GBI Capital
Partners, Inc. and each of the Principals and Joseph Berland,
respectively
Exhibit H Stock Purchase Agreement between Berland and LTGI
Exhibit I Legal Opinion from Graubard Mollen & Miller
Exhibit J Legal Opinion from Milbank, Tweed, Hadley & McCloy LLP
Exhibit K Press Release
v
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT ("Agreement") dated February 8, 2001, among
GBI CAPITAL MANAGEMENT CORP., a Florida corporation (the "Purchaser"), NEW
VALLEY CORPORATION, a Delaware corporation ("New Valley"), LADENBURG, THALMANN
GROUP INC., a Delaware corporation and wholly owned subsidiary of New Valley
("LTGI" and, together with New Valley, the "New Valley Parties"), BERLINER
EFFEKTENGESELLSCHAFT AG, a German corporation ("Berliner"), and LADENBURG,
THALMANN & CO. INC., a Delaware corporation ("Ladenburg").
WHEREAS, Ladenburg is engaged in the securities business, including
investment banking, the institutional and retail sale of securities, securities
research and related securities activities;
WHEREAS, LTGI and Berliner are the record and beneficial owners of all
of the issued and outstanding shares of the common stock, par value $0.01 per
share, of Ladenburg ("Ladenburg Stock"); and
WHEREAS, subject to the terms and conditions of this Agreement, the
Parties desire that the Purchaser purchase from LTGI and Berliner all of the
Ladenburg Stock;
IT IS AGREED:
ARTICLE I
PURCHASE AND SALE OF LADENBURG STOCK
SECTION 1.1 Definitions. Certain capitalized terms used in this
Agreement shall have the meanings specified in Article IX.
SECTION 1.2 Purchase and Sale. Upon the terms and subject to the
conditions hereof, at the Closing (as defined in Section 2.1), LTGI and Berliner
(collectively, the "Sellers") shall sell, transfer, assign and convey to the
Purchaser, and the Purchaser shall purchase from the Sellers, all of the right,
title and interest of Sellers in and to the Ladenburg Stock. In addition, at the
Closing, New Valley shall cause to be transferred, assigned and conveyed to the
Purchaser all of the issued and outstanding shares of common stock (the "LTI
Stock") of Ladenburg Thalmann International Ltd. ("LTI") for no consideration in
excess of the portion of the Purchase Price to be paid to New Valley pursuant to
Section 1.3.
SECTION 1.3 Purchase Price. Subject to adjustment as hereinafter set
forth, the purchase price ("Purchase Price") to be paid by the Purchaser to the
Sellers for the Ladenburg Stock shall be the following, payable at the Closing:
(a) $10,000,000 to be paid to the Sellers by wire transfer of
immediately available United States funds to accounts of the Sellers specified
by the Sellers in written notice given to the Purchaser no later than two
Business Days prior to the Closing Date (as defined in Section 2.1); provided
that $500,000 of the cash portion of the Purchase Price to be paid to Berliner
shall be delivered by the Purchaser by wire transfer of immediately available
United States funds to Continental Stock Transfer & Trust Company, as escrow
agent (the "Escrow Agent") under an escrow agreement to be entered into on the
Closing Date by Berliner, the Purchaser and the Escrow Agent in the form amended
hereto as Exhibit A (the "Escrow Agreement");
(b) promissory notes in the aggregate principal amount of
$10,000,000, to be delivered to the Sellers in the form annexed hereto as
Exhibit B, each appropriately completed and executed (the "Notes"); and
(c) certificates representing, in the aggregate, 18,181,818 shares
of Purchaser's common stock, par value $0.0001 per share ("Purchaser Common
Stock"), to be delivered to the Sellers. If, prior to the Closing Date, the
Purchaser shall effect an Adjustment Event with respect to the Purchaser Common
Stock, the number of shares of Purchaser Common Stock to be delivered to the
Sellers pursuant to this Section 1.3(c) shall be appropriately adjusted (and any
appropriate actions shall be taken by the Purchaser) so that the Sellers shall
be entitled to receive the number of shares of Purchaser Common Stock (or other
securities of Purchaser) that the Sellers would have owned or would have been
entitled to receive upon or by reason of such Adjustment Event had 18,181,818
shares of Purchaser Common Stock been delivered to the Sellers immediately prior
to the occurrence of the Adjustment Event.
SECTION 1.4 Allocation of Purchase Price. All payments of the Purchase
Price shall be made in the proportion of 80.1% to LTGI and 19.9% to Berliner.
The Parties hereby acknowledge that the Purchase Price will be paid in
connection with the acquisition of the business of Ladenburg, and no part
thereof will be paid in connection with any assignment (whether deemed or
otherwise) of any leases of the Ladenburg Companies.
ARTICLE II
THE CLOSING
SECTION 2.1 The Closing. Subject to the terms and conditions of this
Agreement, the consummation of the transactions contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at 10:00 a.m., local
time, on the fourth Business Day after the date on which the last of the
conditions to Closing set forth in Sections 6.1(a) and (c) is fulfilled, at the
offices of Graubard Mollen & Miller, 600 Third Avenue, New York, New York 10016,
or at such other time, date or place as the Parties may agree upon in writing.
The date on which the Closing occurs is referred to herein as the "Closing
Date."
SECTION 2.2 Sellers' Deliveries. At the Closing, (i) the Sellers will
assign and transfer to Purchaser all of Sellers' right, title and interest in
and to the Ladenburg Stock by delivering to the Purchaser the certificates
2
representing the Ladenburg Stock, duly endorsed for transfer and free and clear
of all Liens, (ii) New Valley will assign and transfer to Purchaser all of New
Valley's right, title and interest in and to the LTI Stock by delivering to the
Purchaser the certificates representing the LTI Stock, duly endorsed for
transfer and free and clear of all Liens, and (iii) New Valley, LTGI, Berliner
and Ladenburg (collectively, the "Selling Parties") shall deliver to the
Purchaser the certificates, opinions and other agreements and instruments
contemplated by Article VI hereof and the other provisions of this Agreement.
SECTION 2.3 Purchaser's Deliveries. At the Closing, the Purchaser shall
deliver to the Sellers (i) the portions of cash, Notes and shares of Purchaser
Common Stock representing the Purchase Price to which each Seller is entitled
pursuant to Sections 1.3 and 1.4, and (ii) the certificates, opinions and other
agreements and instruments contemplated by Article VI hereof and the other
provisions of this Agreement.
SECTION 2.4 Net Worth Adjustment.
(a) Promptly after the Closing, the individuals serving as the
chief financial officers of Ladenburg and New Valley on the date hereof (or, if
either such individual is not so serving on the Closing Date, a substitute
individual mutually selected by the Purchaser and New Valley) shall cooperate
with each other to cause Ladenburg to prepare a consolidated balance sheet of
Ladenburg and its subsidiaries as at the Closing Date (but without giving effect
to the consummation of the transactions contemplated hereby) from which the net
worth of Ladenburg and such subsidiaries on a consolidated basis on such date
(the "Closing Net Worth") shall be determined in accordance with GAAP, applied
consistently as in the Financial Statements except that, if not required by
GAAP, appropriate reserves and accruals shall nevertheless be made for the cost
of the annual audit and preparation of tax returns for Ladenburg for the year
ended December 31, 2000. Upon its preparation, such balance sheet and
determination of Closing Net Worth shall be submitted to the Enforcement
Committee (as defined in Section 2.9), New Valley and Berliner and shall be
deemed conclusively accepted unless written objection thereto is given by any
Party to the other Parties within 30 days after submission.
(b) If, within the 30-day period specified in Section 2.4(a), an
objection is made pursuant to the last sentence of paragraph (a) above, the
Purchaser's Accountants and the Sellers' Accountants shall jointly review the
balance sheet and the determination of the Closing Net Worth prepared by
Ladenburg (the "Initial Determination") and attempt to reach a mutually
satisfactory determination of the Closing Net Worth. If the Purchaser's
Accountants and the Sellers' Accountants are unable to reach such a mutually
satisfactory determination within 30 days after the Initial Determination has
been submitted to them for their joint review, they shall promptly submit the
Initial Determination to a firm of independent accountants jointly selected by
them. The independent third firm shall submit its determination of Closing Net
Worth to New Valley, Berliner and the Enforcement Committee within 30 days of
its receipt of the Initial Determination, and the determination of the Closing
Net Worth by such third firm shall be final and conclusive upon the Parties. The
Purchaser shall pay the fees and expenses of the Purchaser's Accountants and New
Valley and Berliner shall pay the fees and expenses of the Sellers' Accountants.
The fees and expenses of any independent third firm shall be paid 50% by the
Purchaser and 50% by New Valley and Berliner.
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(c) If the Closing Net Worth, as finally determined, is less than
$28.6 million, the New Valley Parties and Berliner shall promptly contribute to
the capital of Ladenburg an amount, in cash, equal to the difference between
$28.6 million and the Closing Net Worth.
(d) If the Closing Net Worth, as finally determined, is more than
$30.6 million, the Purchaser shall promptly pay to the Sellers, as an addition
to the Purchase Price, cash equal to the difference between the Closing Net
Worth and $30.6 million. Such payment shall be made by wire transfer to the
accounts of the Sellers specified pursuant to Section 1.3(a).
(e) Payments by and to the New Valley Parties and Berliner pursuant
to this Section 2.4 shall be made in the proportion of 80.1% by or to the LTGI
and 19.9% by or to Berliner.
SECTION 2.5 Pledge and Security Agreement. To secure payment of amounts
due under the Notes, the Purchaser shall grant to the Sellers a pledge of the
shares of Ladenburg Stock to be purchased by it hereunder pursuant to a Pledge
and Security Agreement (the "Pledge and Security Agreement") in the form annexed
hereto as Exhibit C to be entered into at the Closing by the parties named
therein and shall deliver to the collateral agent party thereto the certificates
representing such shares together with duly executed stock powers endorsed in
blank, all in accordance with the provisions of the Pledge and Security
Agreement.
SECTION 2.6 Proxy and Voting Agreement. The Principals, Joseph Berland,
New Valley Parties and Berliner have, concurrently with the execution and
delivery of this Agreement, entered into a Proxy and Voting Agreement (the
"Proxy and Voting Agreement") in the form annexed hereto as Exhibit D.
SECTION 2.7 Further Assurances; Post-Closing Cooperation.
(a) Subject to the terms and conditions of this Agreement, at any
time or from time to time after the Closing, each of the Parties hereto shall
execute and deliver such other documents and instruments, provide such materials
and information and take such other actions as may reasonably be necessary,
proper or advisable, to the extent permitted by law, to fulfill its obligations
under this Agreement and the other Transaction Documents to which it is a party.
(b) Following the Closing, each Party will afford the other
Party(ies), its counsel and its accountants, during normal business hours,
reasonable access to the books, records and other data relating to the business,
prospects or financial condition of Ladenburg and its subsidiaries in its
possession with respect to periods prior to the Closing and the right to make
copies and extracts therefrom, to the extent that such access may be reasonably
required by the requesting Party in connection with (i) the preparation of Tax
Returns, (ii) compliance with the requirements of any governmental or regulatory
authority, (iii) the determination or enforcement of the rights and obligations
of any Party to this Agreement or any of the other Transaction Documents or (iv)
in connection with any actual or threatened Proceeding. Further, each Party
agrees for a period extending eight years after the Closing Date not to destroy
or otherwise dispose of any such books, records and other data unless such Party
shall first offer in writing to surrender such books, records and other data to
the other Party and such other Party shall not agree in writing to take
4
possession thereof during the ten day period after such offer is made. If at the
end of such eight year period, either Party is under Tax audit or a party to
another legal proceeding related to certain records which are being maintained
by Ladenburg or New Valley, each Party may request the other Party to continue
to retain such records, provided at least one month's advance notice is given.
(c) The Parties shall without further consideration reasonably
cooperate with each other and shall cause their respective Affiliates and
Representatives to reasonably cooperate with each other in connection the
preparation of Tax Returns and the conduct of any Tax audit or other proceedings
in respect of Taxes. If any Tax audit, Tax hearing or other Tax proceeding
involving any of the Ladenburg Companies for which either the Purchaser or any
of the Selling Parties may be liable under this Agreement, each Party shall
provide reasonable notification to the other Party prior to the commencement of
such event. During any such Tax proceeding, each Party shall reasonably consult
with and take into account the views (in a manner consistent with positions
taken prior to the Closing) of the other Party. Each Party shall also have the
right to request that a Representative be present during such Tax audit, Tax
hearing or other Tax proceeding. At New Valley's request, the Purchaser and
Ladenburg shall execute a Power of Attorney authorizing New Valley's
Representative to argue at any Tax proceeding for any Taxes arising in any
period for which the Selling Parties may be liable under this Agreement.
(d) If, in order properly to prepare its Tax Returns, other
documents or reports required to be filed with governmental or regulatory
authorities or its financial statements or to fulfill its obligations hereunder,
it is necessary that a Party be furnished with additional information, documents
or records relating to the business, prospects or financial condition of
Ladenburg not referred to in paragraph (b) above, and such information,
documents or records are in the possession or control of the other Party, such
other Party agrees to use its best efforts to furnish or make available such
information, documents or records (or copies thereof) at the recipient's
request, cost and expense. Any information obtained by the New Valley Parties
and Berliner in accordance with this paragraph shall be held confidential by
them in accordance with Section 5.2. The New Valley Parties shall furnish to
Purchaser, with reasonable time for review and comment, copies of all
unconsolidated Tax Returns of the Ladenburg Companies or other information
proposed to be filed by them with any governmental or regulatory authority that
relates solely to the Ladenburg Companies for any period prior to the Closing
Date.
(e) Notwithstanding anything to the contrary contained in this
Section, if the Parties are in an adversarial relationship in litigation or
arbitration, the furnishing of information, documents or records in accordance
with any provision of this Section shall be subject to applicable rules relating
to discovery.
SECTION 2.8 Directors and Officers. The Parties shall take such actions
as are necessary so that, effective as of the Closing Date, the directors and
officers of the Purchaser are the persons listed on Schedule 2.8(a), the
directors and officers of GBI Capital Partners, Inc. are the persons listed on
Schedule 2.8(b) and the directors and officers of Ladenburg are the persons
listed on Schedule 2.8(c).
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SECTION 2.9 Enforcement of Claims; Amendment.
(a) The authority to assert Claims on behalf of the Purchaser
and determine whether any action should be instituted to enforce the Purchaser's
rights under this Agreement after the Closing Date, including without
limitation, rights pursuant to Article VII, shall be vested solely in a
committee (the "Enforcement Committee") consisting of Messrs. Richard
Rosenstock, Mark Zeitchick and Victor Rivas, who shall act by the decision of a
majority thereof and whose authority in such capacity shall continue whether or
not any or all of them continue as directors of the Purchaser. If any member of
the Enforcement Committee shall resign or otherwise cease to serve thereon, his
successor shall be selected by the remaining members, except that if the member
ceasing to serve is either Mr. Rosenstock or Mr. Zeitchick, the other shall
select the successor. In discharging their functions, the members of the
Enforcement Committee shall be subject to the same duties as directors of the
Purchaser.
(b) After the Closing Date, no Transaction Document to which
the Purchaser is a party shall be amended without the approval of a majority of
the members of the Enforcement Committee.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLING PARTIES
New Valley, LTGI and Ladenburg (the "New Valley Companies"), on the one
hand, and Berliner, on the other hand, severally and not jointly represent and
warrant to the Purchaser as follows (except that, where a representation and
warranty is stated as being made by either the New Valley Companies or Berliner,
it is made by such Person(s) only):
SECTION 3.1 Organization.
(a) New Valley. The New Valley Companies represent and warrant that
New Valley is a corporation duly incorporated, validly existing and in good
standing under the law of the State of Delaware.
(b) LTGI. The New Valley Companies represent and warrant that LTGI
is a corporation duly incorporated, validly existing and in good standing under
the law of the State of Delaware.
(c) Ladenburg. Ladenburg is a corporation duly incorporated,
validly existing and in good standing under the law of the State of Delaware.
Except for the entities listed in Schedule 3.1(c) (the "Ladenburg Subsidiaries")
and as disclosed in Schedule 3.1(c), Ladenburg does not own, other than in the
ordinary course of its business, directly or indirectly, any capital stock or
other securities of any issuer or any equity interest in any other entity and is
not a party to any agreement to acquire any such securities or interest.
Ladenburg is qualified to do business in each state where the nature of the
business it conducts or the properties it owns, leases or operates requires it
6
to so qualify, which states are listed in Schedule 3.1(c), except for those
states in which the adverse effect of all such failures by Ladenburg to be
qualified could not in the aggregate reasonably be expected to have a material
adverse effect on the business, assets, prospects or financial condition of
Ladenburg. Ladenburg has all requisite corporate power to own, lease and operate
its properties and to carry on its business as now being conducted.
(d) Berliner. Berliner represents and warrants that it is a
corporation duly organized, validly existing and in good standing under the laws
of the Federal Republic of Germany.
(e) The Ladenburg Subsidiaries. Each of the Ladenburg Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the law of its state of incorporation, which states are listed in Schedule
3.1(e). Other than in the ordinary course of its securities business or as
listed in Schedule 3.1(e), none of the Ladenburg Subsidiaries owns, directly or
indirectly, any capital stock or other securities of any issuer or any equity
interest in any other entity and is not a party to any agreement to acquire any
such securities or interest. Each of the Ladenburg Subsidiaries is qualified to
do business in each state where the nature of the business it conducts or the
properties it owns, leases or operates requires it to so qualify, which states
are listed in Schedule 3.1(e), except for those states in which all failures by
the Ladenburg Subsidiaries to be qualified could not in the aggregate reasonably
be expected to have a material adverse effect on the business, assets, prospects
or financial condition of Ladenburg and the Ladenburg Subsidiaries
(collectively, the "Ladenburg Companies"), taken as a whole. Each of the
Ladenburg Subsidiaries has all requisite corporate power to own, lease and
operate its properties and to carry on its business as now being conducted.
SECTION 3.2 Authority and Corporate Action. Such Selling Party has all
necessary corporate power and authority to enter into this Agreement, the
Investor Rights Agreement, the Pledge and Security Agreement, the Escrow
Agreement and the other instruments and agreements to be executed and delivered
by such Selling Party in connection with the transactions contemplated by this
Agreement (collectively, the "Seller Transaction Documents") and to consummate
the transactions contemplated thereby. All corporate action necessary to be
taken by such Selling Party to authorize the execution, delivery and performance
of the Seller Transaction Documents has or will at Closing have been duly and
validly taken. Each of the Seller Transaction Documents to which it is a party
constitutes, or upon the execution and delivery by such Selling Party will
constitute, the valid, binding and enforceable obligation of such Selling Party,
enforceable in accordance with its terms, except (i) as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or similar laws of general application now or hereafter in
effect affecting the rights and remedies of creditors and by general principles
of equity (regardless of whether enforcement is sought in a proceeding at law or
in equity) and (ii) as enforceability of any indemnification provision may be
limited by federal and state securities laws and public policy.
SECTION 3.3 No Conflicts, etc. Subject to receipt of the approvals and
filings set forth in Schedule 3.3, neither the execution and delivery of the
Seller Transaction Documents to which it is a party by such Selling Party nor
7
the consummation of the transactions contemplated thereby will, except as
disclosed in Schedule 3.3 or except as would occur solely as a result of the
identity or legal or regulatory status of the Purchaser and its Affiliates, (i)
conflict with, result in a breach or violation of or constitute (or with notice
of lapse of time or both constitute) a default under, (A) the Certificate of
Incorporation or By-Laws (or similar constituent documents) of any of the
Selling Parties or Ladenburg Subsidiaries or (B) any law, statute, regulation,
order, judgment or decree or any instrument, contract or other agreement to
which any of the Selling Parties or Ladenburg Subsidiaries is a party or by
which any of the Selling Parties or Ladenburg Subsidiaries (or any of their
respective properties) is subject or bound, except where any such conflict,
breach, violation or default, singly or in the aggregate, would not reasonably
be expected to have a material adverse effect upon the business, assets,
prospects or financial condition of the Ladenburg Companies, taken as a whole;
(ii) result in the creation of, or give any party the right to create, any lien,
charge, option, security interest or other encumbrance ("Lien") upon the assets
of any of the Selling Parties or the Ladenburg Subsidiaries, except where such
Lien, singly or in the aggregate, would not reasonably be expected to have a
material adverse effect upon the business, assets, prospects or financial
condition of the Ladenburg Companies, taken as a whole; (iii) terminate or
modify, or give any third party the right to terminate or modify, the provisions
or terms of any contract to which any of the Selling Parties or the Ladenburg
Subsidiaries is a party, except where such termination or modification, singly
or in the aggregate, would not reasonably be expected to have a material adverse
effect upon the business, assets, prospects or financial condition of the
Ladenburg Companies, taken as a whole; or (iv) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
qualification, authorization or approval applicable to any of the Selling
Parties or Ladenburg Subsidiaries, except where such suspension, revocation,
impairment, forfeiture or nonrenewal, singly or in the aggregate, would not
reasonably be expected to have a material adverse effect upon the business,
assets, prospects or financial condition of the Ladenburg Companies, taken as a
whole.
SECTION 3.4 Capitalization; Ownership of Securities.
(a) Capitalization. The capitalization of Ladenburg and each of the
Ladenburg Subsidiaries is set forth in Schedule 3.4(a).
(b) Ownership.
(i) LTGI and Berliner are the record and beneficial owners of
80.1% and 19.9%, respectively, of the outstanding shares of Ladenburg Stock,
free and clear of all Liens. Except as disclosed in Schedule 3.4(b), there are
no options, warrants or other contractual rights outstanding which require, or
give any person the right to require, the issuance of any capital stock of
Ladenburg whether or not such rights are presently exercisable.
(ii) The record and beneficial ownership of all of the
outstanding shares of capital stock of each of the Ladenburg Subsidiaries is set
forth in Schedule 3.4(b). Except as disclosed in Schedule 3.4(b), all of the
outstanding shares of capital stock of each Ladenburg Subsidiary are owned,
beneficially and of record, by Ladenburg or subsidiaries wholly owned by
Ladenburg, free and clear of all Liens. There are no options, warrants or other
8
contractual rights outstanding which require, or give any person the right to
require, the issuance of any capital stock of any of the Ladenburg Subsidiaries
whether or not such rights are presently exercisable.
(iii) New Valley represents and warrants that LTI owns all of
the issued and outstanding shares of common stock of Ladenburg Thalmann Ukraine
Ltd., the investment advisor to the Societe Generale Ladenburg Thalmann Ukraine
Fund Limited (the "Ukraine Fund").
SECTION 3.5 Compliance with Law; Customer Complaints.
(a) The businesses of the Ladenburg Companies are, and since May
31, 1995 have been, conducted in compliance in all material respects with all
applicable laws, rules, regulations, court or administrative orders and
processes and rules, directives and orders of regulatory and self-regulatory
agencies and bodies (including, without limitation, the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the Investment Advisers Act of 1940, as
amended, and any laws, rules, regulations, orders and directives that relate to
broker-dealer regulation, consumer protection, products and services,
proprietary rights, anti-competitive practices, collective bargaining, ERISA,
equal opportunity and improper payments), except as would not reasonably be
expected, singly or in the aggregate, to be materially adverse to the business,
assets, prospects or financial condition of the Ladenburg Companies, taken as a
whole. Except as set forth in Schedule 3.5(a), the Ladenburg Companies (i) are
not, and since May 31, 1995 have not been, in violation of, or not in compliance
with, in any material respect, any such applicable law, rule, regulation, order,
directive or process with respect to the conduct of their respective businesses,
and (ii) have not received any notice from any governmental authority or
regulatory or self-regulatory agency or body, and to the Selling Parties'
Knowledge none is threatened, alleging that any of the Ladenburg Companies is
violating or has, since May 31, 1995, violated, or is not complying or has not,
since May 31, 1995, complied with, any of the foregoing the effect of which,
individually or in the aggregate with other such violations and non-compliance,
would reasonably be expected to be materially adverse to the business, assets,
prospects or financial condition of the Ladenburg Companies, taken as a whole.
(b) Customer complaints reportable on Form U-4 or otherwise which
have been made against any of the Ladenburg Companies or any of their registered
representatives since May 31, 1995 are set forth in Schedule 3.5(b) and copies
of each such complaint have been furnished or made available to the Purchaser.
Such complaints which are pending as of the date of this Agreement are
appropriately noted on Schedule 3.5(b). The Signing Balance Sheet (as defined in
Section 3.6) contains adequate reserves to the extent required by GAAP for the
costs (including costs of settlement, judgments and attorneys' fees and
expenses) to be incurred by the Ladenburg Companies in connection with all
customer complaints pending as of its date. Except as disclosed in Schedule
3.5(b), none of such complaints which have been disposed of as of the date
hereof requires any payment or other action to be made by any of the Ladenburg
Companies after the date of this Agreement in excess of $50,000 with respect to
any single claim.
9
SECTION 3.6 Financial Statements. The Selling Parties have delivered to
the Purchaser a consolidated balance sheet of the Ladenburg Companies at
December 31, 1999, and statements of income, stockholders' equity and source and
application of funds for the year then ended, all certified by the Sellers'
Accountants, and the notes, comments, schedules, and supplemental data therein
(the "Audited 1999 Financial Statement"). In addition, the Selling Parties have
delivered to the Purchaser an unaudited consolidated balance sheet of the
Ladenburg Companies at December 31, 2000 (the "Signing Balance Sheet") and
statement of income for the year ended December 31, 2000, the "Signing Income
Statement"), and Ladenburg's FOCUS Report for the period ended December 31,
2000, copies of which are attached hereto as Schedule 3.6. The Audited 1999
Financial Statement, the Signing Balance Sheet and the Signing Income Statement
(collectively, the "Financial Statements") and Ladenburg's FOCUS Report have
been prepared in all material respects in accordance with generally accepted
accounting principles applied in the United States ("GAAP") throughout the
periods indicated, except as may be otherwise noted therein, subject to normal
year-end audit adjustments in the case of all such Financial Statements that are
interim or unaudited financial statements, and fairly present the financial
condition of the Ladenburg Companies at their respective dates and the results
of the operations of the Ladenburg Companies for the periods covered thereby in
accordance with GAAP in all material respects.
SECTION 3.7 Licenses, Permits, Etc. Except as set forth in Schedule
3.7, the Ladenburg Companies and their officers, directors and employees possess
all applicable governmental registrations, licenses, permits, authorizations and
approvals (collectively referred to herein as "Permits"), including those
necessary to enable them to sell securities in any jurisdiction in which any of
the Ladenburg Companies engages in the sale of securities, and those necessary
to own and operate the business of the Ladenburg Companies, except where the
failure to obtain or possess such Permits would not in the aggregate reasonably
be expected to have a material adverse effect on the business, assets, prospects
or financial condition of the Ladenburg Companies, taken as a whole. True,
complete and correct copies of such Permits have previously been delivered to
the Purchaser. All such Permits are in full force and effect and the Ladenburg
Companies and their officers, directors and employees have complied in all
material respects with all terms of such Permits. The Ladenburg Companies are
not in default in any material respect under any of such Permits and no event
has occurred and no condition exists which, with the giving of notice, the
passage of time, or both, would constitute such a default thereunder. Schedule
3.7 includes a listing of all branch offices of the Ladenburg Companies,
including their addresses and dates of approval from appropriate state
regulatory authorities to operate such branch offices.
SECTION 3.8 Marketable Securities. Except as disclosed in Schedule 3.8,
all securities carried in the Signing Balance Sheet as marketable securities or
which will be taken into account in the determination of the Closing Net Worth
as marketable securities are readily marketable in established markets at values
established in accordance with GAAP, and are, in the Signing Balance Sheet, or
will be, in the determination of the Closing Net Worth, valued in accordance
with GAAP and, except for pledges in the ordinary course of business, are not
subject to any restriction (contractual or otherwise) that would materially
impair the ability of the entity holding such securities to dispose freely of
such securities at any time.
10
SECTION 3.9 Real Property; Leased Properties; Contracts.
(a) None of the Ladenburg Companies owns any real property.
(b) All leases for the real property ("Leases") leased by the
Ladenburg Companies are listed on Schedule 3.9(b), and copies thereof have been
furnished to the Purchaser.
(c) All material leases for personal property and all material
contracts and commitments ("Contracts") to which any of the Ladenburg Companies
is a party are listed on Schedule 3.9(c). For purposes of this Section 3.9, a
material lease, contract or commitment means any lease, contract or commitment
which cannot be terminated on 30 days notice or less without material cost and,
if requiring the payment of money, pursuant to which the unliquidated amount
required to be paid by a Ladenburg Company or which a Ladenburg Company is
entitled to receive, as of the date hereof, is $100,000 or more. Copies of the
Contracts of the Ladenburg Companies have been furnished to the Purchaser.
(d) All Contracts and Leases of the Ladenburg Companies are valid
and binding agreements of the relevant Ladenburg Companies, enforceable in
accordance with their terms, and there is no default by any of the Ladenburg
Companies, or, to the Selling Parties' Knowledge, any other party thereto, under
any such Contract or Lease, except for such defaults which, singly or in the
aggregate, would not reasonably be expected to have a material adverse effect
upon the business, assets, prospects or financial condition of the Ladenburg
Companies, taken as a whole. None of the other parties to the Contracts or
Leases has notified any of the Selling Parties of any intention to terminate its
Contract or Lease.
(e) The Clearance Agreement dated December 5, 1978 between
Ladenburg and Paine, Webber, Jackson & Curtis and Paine, Webber, Mitchell
Hutchins, Incorporated may be terminated by Ladenburg at any time on 90 days
prior written notice.
SECTION 3.10 Litigation. Except as set forth in Schedule 3.10, there
are no actions, suits, arbitrations or other proceedings ("Proceedings")
(including arbitrations with any registered representative or customer of any
Ladenburg Company) pending or, to the Selling Parties' Knowledge, threatened or
reasonably likely to be asserted against any Ladenburg Company at law or in
equity before any court, federal, state, municipal or other governmental
department or agency or other tribunal. Except as set forth in Schedule 3.10, no
such Proceeding would reasonably be expected to have a material adverse effect
on the ability of the Selling Parties to consummate the transactions
contemplated hereby or have a material adverse effect on the business, assets,
prospects or financial condition of the Ladenburg Companies, taken as a whole.
None of the Ladenburg Companies or their property is subject to any order,
judgment, injunction or decree which would reasonably be expected to materially
adversely affect the business, assets, prospects or financial condition of the
Ladenburg Companies taken as a whole.
SECTION 3.11 Taxes, Tax Returns and Audits. (a) All material federal,
state, local and foreign Taxes due and payable by the Ladenburg Companies for
all periods ending on or before December 31, 2000, have been paid in full or
have been adequately reserved against on the Signing Balance Sheet as required
11
by GAAP; (b) the Ladenburg Companies have filed all material federal, state,
local and foreign income, excise, property, sales, social security, information
returns, and other Tax returns, reports and related information ("Returns")
required to have been filed by them, or, as set forth in Schedule 3.11,
extensions of the time for filing such Returns are presently in effect; the
Returns that have been filed have been accurately prepared and have been timely
filed except for such inaccuracies as would not reasonably be expected to have a
material adverse effect on the Ladenburg Companies; (c) the Ladenburg Companies'
federal income tax returns have been audited by the Internal Revenue Service
through 1995, and their state and local income tax returns have been audited by
the respective state and local tax agencies through March 31, 1993, and, to the
Selling Parties' Knowledge, all audit reports are final; (d) except as set forth
in Schedule 3.11, there are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of any Return or
the payment of any Tax by any of the Ladenburg Companies other than Taxes that
have been adequately reserved or are not material; (e) except as set forth in
Schedule 3.11, there are no actions, suits, proceedings, investigations or
claims pending or, to the Selling Parties' Knowledge, threatened against any
Ladenburg Company in respect of Taxes or any matter under discussion with any
governmental authority relating to Taxes asserted by any such authority other
than Taxes that have been adequately reserved or are not material; and (f) as of
the Closing Date, any net operating loss carry-forwards, as determined under
Treasury Regulations Section 1.1502-21 for federal income tax purposes, will be
allocated to Ladenburg and the Ladenburg Subsidiaries.
SECTION 3.12 Consents and Approvals. Except as set forth in Schedule
3.12, the execution and delivery of this Agreement by such Selling Party do not,
and the performance of this Agreement by such Selling Party will not, require
such Selling Party or the Ladenburg Companies to obtain any consent, approval,
authorization or other action by, or to make any filing with or notification to,
any governmental or regulatory authority or other third party, except where
failure to obtain such consents, approvals, authorizations or actions, or to
make any such filings or notifications, would not reasonably be expected to
prevent the Selling Parties from performing any of their obligations under this
Agreement or would not reasonably be expected to materially and adversely affect
the business, assets, prospects or financial condition of the Ladenburg
Companies, taken as a whole, or except as would be required as a result of the
identity or legal or regulatory status of the Purchaser and its Affiliates.
SECTION 3.13 Absence of Certain Changes. Except as set forth in
Schedule 3.13, the Ladenburg Companies, taken as a whole, have not, since
December 31, 2000, taken any action that would constitute a breach of any of
their obligations under Section 5.1 or suffered any material adverse change, in
any case or in the aggregate, in their assets, liabilities, financial condition,
results of operations, prospects or business, except for those occurring as a
result of general economic or financial conditions affecting the United States
as a whole or the region in which the Ladenburg Companies conduct their business
or developments that are not unique to the Ladenburg Companies but also affect
other Persons engaged or participating in the brokerage industry generally or as
a consequence of the transactions contemplated by the Transaction Documents.
12
SECTION 3.14 Employment Agreements and Bonus Plans. Except as set forth
in Schedule 3.14, there are, and have been, no bonus, stock option, incentive or
other compensation plans, arrangements, agreements or programs between any of
the Ladenburg Companies and any of its employees, including but not limited to
any thereof relating to severance, and there are no employment, severance,
change in control or other agreements or arrangements between any of the
Ladenburg Companies and any of its employees which are not terminable by a
Ladenburg Company on more than thirty (30) days notice without liability,
penalty or premium.
SECTION 3.15 Employee Plans.
(a) Except as set forth on Schedule 3.15, none of the Ladenburg
Companies maintains or contributes to, has maintained or contributed to or is or
was a party to a participating employer in, or a sponsor or contributor to any
"employee pension benefit plan," as defined in Section 3(2) of ERISA
(collectively, "Employee Benefit Plans"). None of the Ladenburg Companies is a
party to any multiemployer plan as defined in Section 3(37) of ERISA.
(b) Except as set forth on Schedule 3.15 or as would not reasonably
be expected to have a material adverse effect on the business, assets, prospects
or financial condition of the Ladenburg Companies, taken as a whole, each
Employee Benefit Plan (i) except with respect to any Employee Benefit Plan not
intended to qualify under Section 401(a) of the Code, has received a
determination letter from the Internal Revenue Service to the effect that such
plan satisfies the requirements of Section 401(a) of the Code and that any
related trust is exempt from tax pursuant to Section 501(a) of the Code; (ii)
has been operated in all material respects in accordance with the provisions
thereof, ERISA, the Code and all other applicable law; (iii) has not engaged in
any prohibited transactions (as such term is defined for purposes of ERISA and
the Code) (other than those that are exempt pursuant to statute, regulation or
otherwise) which would subject any of the Ladenburg Companies to a material
liability under Section 4975 of the Code or a penalty under Section 502(i) of
ERISA; (iv) has not, since the last annual report filed, been amended so as to
materially increase benefits thereunder (other than as a direct or indirect
result of changes in applicable law or regulations) or experienced a material
increase (more than 20%) in the number of participants covered thereunder; and
(v) if terminated on the date hereof, would not subject any of the Ladenburg
Companies to liability in excess of $25,000 to the PBGC pursuant to the
provisions of Title IV of ERISA.
(c) Except as set forth in Schedule 3.15, there are no "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA) ("Employee Welfare
Plans") maintained by any of the Ladenburg Companies or to which any of the
Ladenburg Companies contributes or is required to contribute.
(d) The Selling Parties have furnished to the Purchaser true and
complete copies of the following items with respect to each Employee Benefit
Plan and each Employee Welfare Plan of the Ladenburg Companies (i) each plan
document; (ii) each related trust document; (iii) each determination letter
13
issued by the Internal Revenue Service relating to qualification of the
respective plans under the Code; (iv) the most recently filed annual reports, if
any; and (v) the most recent actuarial valuation, if any.
(e) Each of the Ladenburg Companies has filed all reports and other
documents required to be filed with any governmental agency with respect to the
Employee Benefit Plans and Employee Welfare Plans of the Ladenburg Companies or
has received currently effective extensions for any such reports and other
documents which have not been filed other than any failure to file which would
not reasonably be expected to have a material adverse effect upon the business,
assets, prospects or financial condition of the Ladenburg Companies, taken as a
whole.
SECTION 3.16 Insurance Policies. Schedule 3.16 sets forth a complete
list of all material insurance policies maintained by the Ladenburg Companies
and which are in force as of the date hereof.
SECTION 3.17 Intangible Rights. Set forth in Schedule 3.17 is a list of
all material trademarks, trade names, copyrights and applications therefor owned
by or registered in the name of any of the Ladenburg Companies or in which any
of the Ladenburg Companies has any rights as licensee or otherwise, and which
are presently used in the operation of the Ladenburg Companies' businesses
(other than packaged computer software that is used in accordance with the
licenses therefor). Except as disclosed in Schedule 3.17, no interest in any of
such material trademarks, trade names, copyrights or applications therefor, or
any trade secrets owned or used by any Ladenburg Company, has been assigned,
transferred or licensed to any third party by a Ladenburg Company, and to the
Selling Parties' Knowledge there is no infringement or asserted infringement by
any Ladenburg Company of any trademarks, trade names, copyrights or application
therefor of another the effect of which, in either case, individually or in the
aggregate, would reasonably be expected to be materially adverse to the
business, assets, prospects or financial condition of the Ladenburg Companies,
taken as a whole. Except as disclosed in Schedule 3.17, (i) no claim is pending
by any of the Ladenburg Companies against others to the effect that the present
or past operations of such parties infringe upon or conflict with the rights of
such Ladenburg Company, and, to the Selling Parties' Knowledge, no reasonable
grounds for such action exist, and (ii) to the Selling Parties' Knowledge, there
are no pending or threatened cancellations or revocations of any agreement
granting to any Ladenburg Company rights under trademarks, trade names,
copyrights or "know-how" of others, the effect of which, individually or in the
aggregate, could reasonably be expected to be materially adverse to the
business, assets, prospects or financial condition of the Ladenburg Companies,
taken as a whole.
SECTION 3.18 Title to Properties. Each of the Ladenburg Companies has
good title to all its tangible personal properties and assets material,
individually or in the aggregate, to the business of the Ladenburg Companies.
Except for Liens (i) reflected in the Financial Statements or (ii) relating to
margin requirements or other borrowings in respect of securities positions, none
of such properties and assets is subject to any Lien or adverse claim of any
nature whatsoever, direct or indirect, whether accrued, absolute, contingent or
otherwise, other than (i) any Lien for Taxes not yet due or delinquent or being
contested in good faith by appropriate proceedings for which adequate reserves
have been established in accordance with GAAP, (ii) any statutory Lien arising
14
in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent and (iii) any minor imperfection in
title or similar Lien which individually or in the aggregate with such other
Liens would not reasonably be expected to materially adversely affect the
business, assets, prospects or financial condition of the Ladenburg Companies,
taken as a whole. The tangible properties and assets owned or leased by the
Ladenburg Companies are, in all material respects, in good operating condition
and repair, ordinary wear and tear excepted.
SECTION 3.19 No Guarantees. Other than as incurred in the ordinary
course of business, none of the Ladenburg Companies is a party to or bound by
any agreement of guarantee, indemnification, assumption, or endorsement or any
other like commitment in an amount in excess of $50,000 in any single instance
and $500,000 in the aggregate to satisfy the obligations, liabilities
(contingent or otherwise) or indebtedness of any other person, firm or
corporation other than another Ladenburg Company.
SECTION 3.20 Labor Matters. None of the Ladenburg Companies is a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by it in connection with the operation of its business.
SECTION 3.21 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of such Selling Party.
SECTION 3.22 Records. To the Selling Parties' Knowledge, the books of
account, minute books, stock certificate books and stock transfer ledgers of the
Ladenburg Companies are complete and correct in all material respects, and there
have been no material transactions involving any of the Ladenburg Companies
which are required to be set forth therein and which have not been so set forth.
SECTION 3.23 No Undisclosed Liabilities. Except as set forth in
Schedules 3.5(a), 3.5(b), 3.10 and 3.23 and pursuant to executory provisions
under the Contracts and Leases to which any Ladenburg Company is a party, none
of the Ladenburg Companies has any liabilities, whether known or unknown,
absolute, accrued, contingent or otherwise of a nature that would be required to
be reflected on a consolidated balance sheet of the Ladenburg Companies
(including the footnotes), except (a) as and to the extent disclosed, reflected
or reserved against on the Signing Balance Sheet, including all notes thereto,
(b) those incurred since December 31, 2000 in the ordinary course of business
and consistent with prior practice, and (c) those which would not reasonably be
expected to materially and adversely affect the business, assets, prospects or
financial condition of the Ladenburg Companies, taken as a whole.
SECTION 3.24 No Illegal or Improper Transactions. Since May 31, 1995,
no Ladenburg Company or any officer, director, employee, agent or Affiliate of
any of the Ladenburg Companies on their behalf has offered, paid or agreed to
pay to any person or entity (including any governmental official) or solicited,
received or agreed to receive from any such person or entity, directly or
indirectly, any money or anything of value for the purpose or with the intent of
(a) obtaining or maintaining business for a Ladenburg Company, (b) facilitating
15
the purchase or sale of any product or service, or (c) avoiding the imposition
of any fine or penalty, in any manner which is in violation of any applicable
ordinance, regulation or law, the effect of which, individually or in the
aggregate, would reasonably be expected to be materially adverse to the
business, assets, prospects or financial condition of the Ladenburg Companies,
taken as a whole.
SECTION 3.25 Related Transactions. Except as set forth in Schedule 3.25
and except for compensation to employees for services rendered and brokerage
accounts in the ordinary course, neither New Valley nor, to the knowledge of
such Selling Party, any director, officer, employee or shareholder or any
associate (as defined in the rules promulgated under the 1934 Act) of any of the
Ladenburg Companies is presently, or since January 1, 1998 has been a party to
any material transaction with any of the Ladenburg Companies (including, but not
limited to, any contract, agreement or other arrangements providing for the
furnishing of services by, or rental of real or personal property from, or
otherwise requiring payments to, any such director, officer, employee or
shareholder or such associate).
SECTION 3.26 Disclosure. No representation or warranty by such Selling
Party contained in this Agreement and no information contained in any Schedule
furnished to the Purchaser by such Selling Party pursuant to this Agreement or
in connection with the transactions contemplated hereby contains any untrue
statement of a material fact or omits a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which such statements were made. Any furnishing of information
to the Purchaser by a Selling Party pursuant to, or otherwise in connection
with, this Agreement (other than information contained in this Agreement, the
Schedules or the Exhibits hereto), including, without limitation, any
information contained in any document, contract, book or record of any of the
Ladenburg Companies to which the Purchaser shall have access or any information
obtained by, or made available to, the Purchaser as a result of any
investigation made by or on behalf of the Purchaser prior to or after the date
of this Agreement, shall not affect the Purchaser's right to rely on any
representation, warranty, covenant or agreement made by such Selling Party in
this Agreement and shall not be deemed a waiver thereof.
SECTION 3.27 Ownership of Purchaser Common Stock. Neither such Selling
Party nor any Ladenburg Company nor any of their respective Affiliates owns,
directly or indirectly, any Purchaser Common Stock, or options or other rights
to acquire Purchaser Common Stock or securities convertible into Purchaser
Common Stock, other than in the ordinary course of its broker-dealer business.
SECTION 3.28 Investment Representations. All shares of Purchaser Common
Stock to be acquired by such Selling Party pursuant to this Agreement (including
shares issuable upon conversion of the Notes) will be acquired for its account
and not with a view towards distribution thereof. Such Selling Party understands
that it must bear the economic risk of its investment in Purchaser Common Stock,
which cannot be sold by it unless registered under the Securities Act of 1933,
as amended (the "1933 Act"), or an exemption therefrom is available thereunder.
Such Selling Party has had both the opportunity to ask questions and receive
answers from the officers and directors of the Purchaser and all persons acting
on its behalf concerning the business and operations of the Purchaser and to
16
obtain any additional information to the extent the Purchaser possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of such information. New Valley and
Berliner each acknowledges receiving and reviewing copies of the Purchaser SEC
Filings referred to in Section 4.4. The certificates representing the Purchaser
Common Stock to be received by the Sellers as part of the Purchase Price shall
bear a legend (which shall be removed on furnishing to the Purchaser an opinion
of counsel to such Seller reasonably satisfactory to the Purchaser that such
legend is no longer required) to the effect that the shares represented thereby
may not be transferred except upon compliance with the registration requirements
of the 1933 Act (or an exemption therefrom).
SECTION 3.29 Bank Accounts. Schedule 3.29 sets forth the name of each
bank in which any of the Ladenburg Companies has an account or safe deposit box,
vault, lock-box or other arrangement, the account number and description of each
account at each bank and the names of all persons authorized to draw thereon or
to have access thereto; and the names of all persons, if any, holding tax or
other powers of attorney from any of the Ladenburg Companies other than in the
ordinary course of business.
SECTION 3.30 Certain Brokerage Matters.
(a) None of the Ladenburg Companies has in effect any "soft dollar"
arrangements with any of its customers that do not come within the "safe harbor"
provisions of Section 28(e) of the 1934 Act.
(b) All sales literature used by the Ladenburg Companies since May
31, 1995 does not contain any misstatement of a material fact and does not omit
to state a material fact necessary to make the statements therein not misleading
in the light of the circumstances in which such statements are made.
SECTION 3.31 Warrants, etc. Schedule 3.31 lists all warrants,
underwriters' purchase options and similar consideration received by any of the
Ladenburg Companies as underwriting compensation since May 31, 1995, whether or
not owned by any of the Ladenburg Companies on the date hereof ("Underwriters'
Warrants"). Except as set forth in Schedule 3.31, no Person other than a
Ladenburg Company has any right with respect to the Underwriters' Warrants,
including the right to share in appreciation in the value thereof.
SECTION 3.32 Survival of Representations and Warranties. The
representations and warranties of the Selling Parties set forth in this
Agreement shall survive the Closing for a period of two years after the Closing
Date, except that the representations and warranties in Sections 3.1 and 3.4
shall survive without limitation as to time and the representations and
warranties in Section 3.11 shall survive for a period of two months after the
expiration of the statute of limitations for each respective Tax (as extended
from time to time).
SECTION 3.33 Ukraine Fund. Ladenburg Thalmann Ukraine Ltd. has incurred
no liability for serving as investment advisor to the Ukraine Fund, except those
which would not reasonably be expected to materially and adversely affect the
17
business, assets, prospects or financial condition of the LTI and the Ladenburg
Companies, taken as a whole. Except as set forth in Section 3.4(b)(iii) and this
Section 3.33, no representations or warranties are made by any Selling Party
with respect to the Ukraine Fund.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Selling Parties as
follows:
SECTION 4.1 Organization.
(a) The Purchaser. The Purchaser is a corporation duly
incorporated, validly existing and in good standing under the law of Florida.
Except for the other corporations listed in Schedule 4.1(a) (the "Purchaser
Subsidiaries"), and as otherwise set forth in Schedule 4.1(a), the Purchaser
does not own, directly or indirectly, any capital stock or other securities of
any issuer or any equity interest in any other entity and is not a party to any
agreement to acquire any such securities or interest. The Purchaser is a holding
company and does not conduct any business except through the Purchaser
Subsidiaries.
(b) The Purchaser Subsidiaries. Each of the Purchaser Subsidiaries
is a corporation duly incorporated, validly existing and in good standing under
the law of its state of incorporation, which states are listed in Schedule
4.1(b). Other than in the ordinary course of its securities business or as
listed in Schedule 4.1(b), none of the Purchaser Subsidiaries owns, directly or
indirectly, any capital stock or other securities of any issuer or any equity
interest in any other entity and is not a party to any agreement to acquire any
such securities or interest. Each of the Purchaser Subsidiaries is qualified to
do business in each state where the nature of the business it conducts or the
properties it owns, leases or operates requires it to so qualify, which states
are listed in Schedule 4.1(b), except for those states in which all such
failures by the Purchaser Subsidiaries to be qualified could not in the
aggregate reasonably be expected to have a material adverse effect on the
business, assets, prospects or financial condition of the Purchaser and the
Purchaser Subsidiaries (collectively, the "Purchaser Companies"), taken as a
whole. Each of the Purchaser Subsidiaries has all requisite corporate power to
own, lease and operate its properties and to carry on its business as now being
conducted.
SECTION 4.2 Authority and Corporate Action.
(a) Other than the Stockholder Approval, the Purchaser has all
necessary corporate power and authority to enter into this Agreement, the Escrow
Agreement, the Notes, the Investor Rights Agreement, the Pledge and Security
Agreement and the other instruments and agreements to be executed and delivered
by the Purchaser in connection with the transactions contemplated by this
Agreement (collectively, the "Purchaser Transaction Documents") and to
consummate the transactions contemplated thereby. All corporate action necessary
to be taken by the Purchaser to authorize the execution, delivery and
18
performance of the Purchaser Transaction Documents has or will at the Closing
have been duly and validly taken. Each Purchaser Transaction Document
constitutes, or will constitute upon execution and delivery thereof, the valid,
binding and enforceable obligation of the Purchaser, enforceable in accordance
with its terms, except (i) as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
similar laws of general application now or hereafter in effect affecting the
rights and remedies of creditors and by general principles of equity (regardless
of whether enforcement is sought in a proceeding at law or in equity) and (ii)
as enforceability of any indemnification provision may be limited by federal and
state securities laws and public policy.
(b) Subject to receipt of the approvals and filings set forth in
Schedule 4.2(b), neither the execution and delivery of the Purchaser Transaction
Documents by the Purchaser nor the consummation of the transactions contemplated
thereby will, except as disclosed in Schedule 4.2(b) or except as would occur
solely as a result of the identity or legal or regulatory status of the Sellers
or Ladenburg and their respective Affiliates (i) conflict with, result in a
breach or violation of or constitute (or with notice of lapse of time or both
constitute) a default under, (A) the Certificate of Incorporation or By-Laws (or
similar constituent documents) of the Purchaser or any of the Purchaser
Subsidiaries or (B) any law, statute, regulation, order, judgment or decree or
any instrument, contract or other agreement to which the Purchaser or any of the
Purchaser Subsidiaries is a party or by which the Purchaser or any of the
Purchaser Subsidiaries (or any of their respective properties) is subject or
bound, except where any such conflict, breach, violation or default, singly or
in the aggregate, would not reasonably be expected to have a material adverse
effect upon the business, assets, prospects or financial condition of the
Purchaser or any of the Purchaser Subsidiaries; (ii) result in the creation of,
or give any party the right to create, any Lien upon the assets of the Purchaser
or any of the Purchaser Subsidiaries, except where such Lien, singly or in the
aggregate, would not reasonably be expected to have a material adverse effect
upon the business, assets, prospects or financial condition of the Purchaser
Companies, taken as a whole; (iii) terminate or modify, or give any third party
the right to terminate or modify, the provisions or terms of any contract to
which the Purchaser or any of the Purchaser Subsidiaries is a party, except
where such termination or modification, singly or in the aggregate, would not
reasonably be expected to have a material adverse effect upon the business,
assets, prospects or financial condition of the Purchaser Companies, taken as a
whole; or (iv) result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, qualification, authorization or approval
applicable to the Purchaser or any of the Purchaser Subsidiaries, except where
such suspension, revocation, impairment, forfeiture or nonrenewal, singly or in
the aggregate, would not reasonably be expected to have a material adverse
effect upon the business, assets, prospects or financial condition of the
Purchaser Companies, taken as a whole.
(c) Upon issuance and payment therefor in accordance with the terms
and conditions of this Agreement, the shares of Purchaser Common Stock to be
issued and delivered to the Sellers at the Closing will be duly authorized,
validly issued, fully-paid and non-assessable. Upon conversion of a Note by the
holder thereof in accordance with its terms, the shares of Purchaser Common
Stock to be issued and delivered to such holder upon such conversion will be
duly authorized, validly issued, fully-paid and non-assessable.
19
SECTION 4.3 Capitalization; Ownership of Securities.
(a) Capitalization. The capitalization of the Purchaser is set
forth in Schedule 4.3(a). All of the issued and outstanding shares of the
Purchaser Common Stock are, and all shares reserved for issuance will be, upon
issuance in accordance with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized, validly issued, fully paid
and nonassessable. Except pursuant to the Transaction Documents and except as
set forth in Schedule 4.3(a), there are no outstanding options, warrants or
other contractual rights which require, or give any person the right to require,
the issuance of any capital stock of Purchaser, whether or not such rights are
presently exercisable.
(b) Ownership. The Purchaser is the record and beneficial owner of
all of the outstanding shares of capital stock of each of the Purchaser
Subsidiaries, free and clear of all Liens. There are no options, warrants or
other contractual rights outstanding which require, or give any person the right
to require, the issuance of any capital stock of any of the Purchaser
Subsidiaries whether or not such rights are presently exercisable.
SECTION 4.4 SEC Reports; Financial Statements. The Purchaser has
delivered to the Selling Parties prior to the execution of this Agreement true
and complete copies of all forms, reports, schedules, registration statements,
proxy statements and other documents filed by it or its Subsidiaries with the
Securities and Exchange Commission (the "Commission") since August 24, 1999
including without limitation its Annual Reports on Form 10-K for the fiscal
years ended August 24, 1999 and September 30, 2000 ("10-Ks") and the amendments
to the Annual Reports for the fiscal year ended August 24, 1999 and September
30, 2000 on Form 10-K/A ("10-K/As"), its Quarterly Reports on Form 10-Q for the
period August 25, 1999 to September 30, 1999 and the quarters ended December 31,
1999, March 31, 2000 and June 30, 2000 ("10-Qs") and its Current Report on Form
8-K for event dated August 24, 1999 ("8-K" and, collectively with the 10-Ks, the
10-K/As, the 10-Qs and all such other documents, the "Purchaser SEC Filings").
Each of the Purchaser SEC Filings, as of its filing date, complied in all
material respects with the requirements of the rules and regulations promulgated
by the Commission with respect thereto and did not contain any untrue statement
of a material fact or omit a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances in
which such statements were made. The Purchaser SEC Filings constitute all of the
reports under the 1934 Act that were required to be filed by the Purchaser as of
the date hereof and the Purchaser has otherwise complied with all material
requirements of the 1933 Act and the 1934 Act. The financial statements of the
Purchaser included in the Purchaser SEC Filings (the "Purchaser Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the
Commission with respect thereto, and the Purchaser Financial Statements, as well
as the financial statements of the Purchaser as of December 31, 2000 and the
Purchaser's FOCUS Report for the period ended December 31, 2000 (copies of which
have been delivered to the Selling Parties), have been prepared in accordance
with GAAP applied on a consistent basis during the periods covered, except as
may be otherwise noted therein, subject to normal year-end audit adjustments in
the case of all financial statements that are interim or unaudited financial
statements, and fairly present the financial condition of the Purchaser
20
Companies as of their respective dates and the results of operations of the
Purchaser Companies for the periods covered thereby in accordance with GAAP in
all material respects.
SECTION 4.5 Consents and Approvals. Except as set forth in Schedule
4.5, the execution and delivery of this Agreement by the Purchaser do not, and
the performance of this Agreement by the Purchaser will not, require the
Purchaser to obtain any consent, approval, authorization or other action by, or
to make any filing with or notification to, any governmental or regulatory
authority or other third party, except where failure to obtain such consents,
approvals, authorizations or actions, or to make such filings or notifications,
would not reasonably be expected to prevent the Purchaser from performing any of
its obligations under this Agreement and would not reasonably be expected to
materially adversely affect the business, assets, prospects or financial
condition of the Purchaser Companies, taken as a whole, or except as would be
required as a result of the identity or legal or regulatory status of the
Sellers and their respective Affiliates.
SECTION 4.6 Disclosure. No representation or warranty by the Purchaser
contained in this Agreement and no information contained in any Schedule
furnished by the Purchaser pursuant to this Agreement or in connection with the
transactions contemplated hereby, when taken together with the Purchaser SEC
Filings, contains any untrue statement of a material fact or omits a material
fact necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which such statements were made. Any
furnishing of information to the Selling Parties by the Purchaser pursuant to,
or otherwise in connection with, this Agreement (other than information
contained in this Agreement, the Schedules or the Exhibits hereto), including,
without limitation, any information contained in any document, contract, book or
record of any of the Purchaser Companies to which the Selling Parties shall have
access or any information obtained by, or made available to, the Selling Parties
as a result of any investigation made by or on behalf of the Selling Parties
prior to or after the date of this Agreement, shall not affect the Selling
Parties' right to rely on any representation, warranty, covenant or agreement
made by the Purchaser in this Agreement and shall not be deemed a waiver
thereof.
SECTION 4.7 Absence of Certain Changes. Except as set forth in Schedule
4.7, the Purchaser Companies, taken as a whole, have not, since December 31,
2000, taken any action that would constitute a breach of any of their
obligations under Section 5.1 or suffered any material adverse change, in any
case or in the aggregate, in their assets, liabilities, financial condition,
results of operations, prospects or business, except for those occurring as a
result of general economic or financial conditions affecting the United States
as a whole or the region in which the Purchaser Companies conduct their business
or developments that are not unique to the Purchaser Companies but also affect
other Persons engaged or participating in the brokerage industry generally or as
a consequence of the transactions contemplated by the Transaction Documents.
SECTION 4.8 Vote Required. The affirmative vote of the holders of
record of at least a majority of the shares of Purchaser Common Stock present at
the Purchaser Stockholder Meeting with respect to the matters referred to in
21
Section 5.10 hereof is the only vote of the holders of any class or series of
the capital stock of the Purchaser required to approve the transactions
contemplated hereby.
SECTION 4.9 Opinion of Financial Advisor. The Purchaser has received
the opinion of Roth Capital Partners, Inc., dated February 8, 2001, to the
effect that the consideration to be paid by the Purchaser for the Ladenburg
Stock is fair from a financial point of view to the Purchaser, and a true and
complete copy of such opinion has been delivered to the New Valley Parties and
Berliner prior to the execution of this Agreement.
SECTION 4.10 Sections 607.0901 and 607.0902 of the Florida Business
Corporation Act Not Applicable. The Board of Directors of the Purchaser has, to
the extent required by applicable law, duly and validly authorized and approved
by all necessary corporate action, the Purchaser Transaction Documents and the
transactions contemplated thereby so that by the execution and delivery thereof
no restrictive provision of any "fair price," "moratorium," "control-share
acquisition," "interested shareholders" or other similar anti-takeover statute
or regulation (including, without limitation, Sections 607.0901 and 607.0902 of
the Florida Business Corporation Act) or restrictive provision of any applicable
anti-takeover provision in the Articles of Incorporation or By-Laws of the
Purchaser is, or will be, applicable to the Sellers or any transaction
contemplated by the Purchaser Transaction Documents.
SECTION 4.11 Financing. The Purchaser and Frost-Nevada, Limited
Partnership (the "Lender") have entered into an agreement (and the Purchaser has
provided New Valley and Berliner with an executed copy thereof) pursuant to
which the Lender will provide the $10,000,000 of funds required by Purchaser to
pay the Purchase Price.
SECTION 4.12 Investment Representations. All shares of Ladenburg Stock
to be acquired by the Purchaser pursuant to this Agreement will be acquired for
its account and not with a view to distribution. The Purchaser understands that
it must bear the economic risk of its investment in the Ladenburg Stock, which
cannot be sold by it unless registered under the 1933 Act or an exemption
therefrom is available thereunder. The Purchaser has had both the opportunity to
ask questions and receive answers from the officers and directors of Ladenburg
and all persons acting on its behalf concerning the business and operations of
Ladenburg and to obtain any additional information to the extent the Seller
possess or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of such information.
SECTION 4.13 Compliance with Law; Customer Complaints.
(a) The businesses of the Purchaser Companies are, and since May
31, 1995 have been, conducted in compliance in all material respects with all
applicable laws, rules, regulations, court or administrative orders and
processes and rules, directives and orders of regulatory and self-regulatory
agencies and bodies (including, without limitation, the 1934 Act, the Investment
Advisers Act of 1940, as amended, and any laws, rules, regulations, orders and
directives that relate to broker-dealer regulation, consumer protection,
products and services, proprietary rights, anti-competitive practices,
collective bargaining, ERISA, equal opportunity and improper payments), except
22
as would not reasonably be expected, singly or in the aggregate, to be
materially adverse to the business, assets, prospects or financial condition of
the Purchaser Companies, taken as a whole. Except as set forth in Schedule
4.13(a), the Purchaser Companies (i) are not, and since May 31, 1995 have not
been, in violation of, or not in compliance with, in any material respect, any
such applicable law, rule, regulation, order, directive or process with respect
to the conduct of their respective businesses, and (ii) have not received any
notice from any governmental authority or regulatory or self-regulatory agency
or body, and to the Purchaser's Knowledge none is threatened, alleging that any
of the Purchaser Companies is violating or has, since May 31, 1995, violated, or
is not complying or has not, since May 31, 1995, complied with, any of the
foregoing the effect of which, individually or in the aggregate with other such
violations and non-compliance, would reasonably be expected to be materially
adverse to the business, assets, prospects or financial condition of the
Purchaser Companies, taken as a whole.
(b) Customer complaints reportable on Form U-4 or otherwise which
have been made against any of the Purchaser Companies or any of their registered
representatives since May 31, 1995 are set forth in Schedule 4.13(b) and copies
of each such complaint have been furnished or made available to the Selling
Parties. Such complaints which are pending as of the date of this Agreement are
appropriately noted on Schedule 4.13(b). The balance sheet included in
Purchaser's financial statements as of December 31, 2000 (the "Purchaser Balance
Sheet") contains adequate reserves to the extent required by GAAP for the costs
(including costs of settlement, judgments and attorneys' fees and expenses) to
be incurred by the Purchaser Companies in connection with all customer
complaints pending as of its date. Except as disclosed in Schedule 4.13(b), none
of such complaints which have been disposed of as of the date hereof requires
any payment or other action to be made by any of the Purchaser Companies after
the date of this Agreement in excess of $50,000 with respect to any single
claim.
SECTION 4.14 Licenses, Permits, Etc. Except as set forth in Schedule
4.14, the Purchaser Companies and their officers, directors and employees
possess all applicable Permits including those necessary to enable them to sell
securities in any jurisdiction in which any of the Purchaser Companies engages
in the sale of securities, and those necessary to own and operate the business
of the Purchaser Companies, except where the failure to obtain or possess such
Permits would not in the aggregate reasonably be expected to have a material
adverse effect on the business, assets, prospects or financial condition of the
Purchaser Companies, taken as a whole. True, complete and correct copies of such
Permits have previously been delivered to the Purchaser. All such Permits are in
full force and effect and the Purchaser Companies and their officers, directors
and employees have complied in all material respects with all terms of such
Permits. The Purchaser Companies are not in default in any material respect
under any of such Permits and no event has occurred and no condition exists
which, with the giving of notice, the passage of time, or both, would constitute
such a default thereunder. Schedule 4.14 includes a listing of all branch
offices of the Purchaser Companies, including their addresses and dates of
approval from appropriate state regulatory authorities to operate such branch
offices.
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SECTION 4.15 Real Property; Leased Properties; Contracts.
(a) None of the Purchaser Companies owns any real property.
(b) All Leases for the real property leased by the Purchaser
Companies are listed on Schedule 4.15(b), and copies thereof have been furnished
to the Selling Parties.
(c) All material Contracts to which any of the Purchaser Companies
is a party are listed on Schedule 4.15(c). For purposes of this Section 4.15, a
material lease, contract or commitment means any lease, contract or commitment
which cannot be terminated on 30 days notice or less without material cost and,
if requiring the payment of money, pursuant to which the unliquidated amount
required to be paid by a Purchaser Company or which a Purchaser Company is
entitled to receive, as of the date hereof, is $100,000 or more. Copies of the
Contracts in the Purchaser Companies have been furnished to the Selling Parties.
(d) All Contracts and Leases of the Purchaser Companies are valid
and binding agreements of the relevant Purchaser Companies, enforceable in
accordance with their terms, and there is no default by any of the Purchaser
Companies, or, to the Purchaser's Knowledge, any other party thereto, under any
such Contract or Lease, except for such defaults which, singly or in the
aggregate, would not reasonably be expected to have a material adverse effect
upon the business, assets, prospects or financial condition of the Purchaser
Companies, taken as a whole. None of the other parties to the Contracts or
Leases has notified any of the Purchaser Companies of any intention to terminate
its Contract or Lease.
(e) The Clearance Agreement dated April 30, 1985 between GBI
Capital Partners, Inc. and Bear Stearns & Co., Inc. may be terminated by GBI
Capital Partners, Inc. at any time on no more than 90 days prior written notice.
SECTION 4.16 Litigation. Except as set forth in Schedule 4.16, there
are no Proceedings (including arbitrations with any registered representative or
customer of any Purchaser Company) pending or, to the Purchaser's Knowledge,
threatened or reasonably likely to be asserted against any Purchaser Company at
law or in equity before any court, federal, state, municipal or other
governmental department or agency or other tribunal. Except as set forth in
Schedule 4.16, no such Proceeding would reasonably be expected to have a
material adverse effect on the ability of the Purchaser to consummate the
transactions contemplated hereby or have a material adverse effect on the
business, assets, prospects or financial condition of the Purchaser Companies,
taken as a whole. None of the Purchaser Companies or their property is subject
to any order, judgment, injunction or decree which would reasonably be expected
to materially adversely affect the business, assets, prospects or financial
condition of the Purchaser Companies taken as a whole.
SECTION 4.17 Taxes, Tax Returns and Audits. (a) All material federal,
state, local and foreign Taxes due and payable by the Purchaser Companies for
all periods ending on or before December 31, 2000, have been paid in full or
have been adequately reserved against on the Purchaser Balance Sheet as required
by GAAP; (b) the Purchaser Companies have filed all material federal, state,
local and foreign income, excise, property, sales, social security, information
24
returns, and other Tax Returns required to have been filed by them, or, as set
forth in Schedule 4.17, extensions of the time for filing such Returns are
presently in effect; the Returns that have been filed have been accurately
prepared and have been timely filed except for such inaccuracies as would not
reasonably be expected to have a material adverse effect on the Purchaser
Companies; (c) except as set forth in Schedule 4.17, there are no agreements,
waivers or other arrangements providing for an extension of time with respect to
the filing of any Return or the payment of any Tax by any of the Purchaser
Companies other than Taxes that have been adequately reserved or are not
material; and (d) except as set forth in Schedule 4.17, there are no actions,
suits, proceedings, investigations or claims pending or, to the Purchaser's
Knowledge, threatened against any Purchaser Company in respect of Taxes or any
matter under discussion with any governmental authority relating to Taxes
asserted by any such authority other than Taxes that have been adequately
reserved or are not material.
SECTION 4.18 Employment Agreements and Bonus Plans. Except as set forth
in Schedule 4.18, there are, and have been, no bonus, stock option, incentive or
other compensation plans, arrangements, agreements, or programs between any of
the Purchaser Companies and any of its employees, including but not limited to
any thereof relating to severance, and there are no employment, severance,
change in control or other agreements or arrangements between any of the
Purchaser Companies and any of its employees which are not terminable by a
Purchaser Company on more than thirty (30) days notice without liability,
penalty or premium.
SECTION 4.19 Employee Plans.
(a) Except as set forth on Schedule 4.19, none of the Purchaser
Companies maintains or contributes to, has maintained or contributed to or is or
was a party to a participating employer in, or a sponsor or contributor to any
Employee Benefit Plan. None of the Purchaser Companies is a party to any
multiemployer plan as defined in Section 3(37) of ERISA.
(b) Except as set forth on Schedule 4.19 or as would not reasonably
be expected to have a material adverse effect on the business, assets, prospects
or financial condition of the Purchaser Companies, taken as a whole, each
Employee Benefit Plan (i) except with respect to any Employee Benefit Plan not
intended to qualify under Section 401(a) of the Code, has received a
determination letter from the Internal Revenue Service to the effect that such
plan satisfies the requirements of Section 401(a) of the Code and that any
related trust is exempt from tax pursuant to Section 501(a) of the Code; (ii)
has been operated in all material respects in accordance with the provisions
thereof, ERISA, the Code and all other applicable law; (iii) has not engaged in
any prohibited transactions (as such term is defined for purposes of ERISA and
the Code) (other than those that are exempt pursuant to statute, regulation or
otherwise) which would subject any of the Purchaser Companies to a material
liability under Section 4975 of the Code or a penalty under Section 502(i) of
ERISA; (iv) has not, since the last annual report filed, been amended so as to
materially increase benefits thereunder (other than as a direct or indirect
result of changes in applicable law or regulations) or experienced a material
increase (more than 20%) in the number of participants covered thereunder; and
(v) if terminated on the date hereof, would not subject any of the Purchaser
Companies to liability in excess of $25,000 to the PBGC pursuant to the
provisions of Title IV of ERISA.
25
(c) Except as set forth in Schedule 4.19, there are no Employee
Welfare Plans maintained by any of the Purchaser Companies or to which any of
the Purchaser Companies contributes or is required to contribute.
(d) The Purchaser has furnished to the Selling Parties true and
complete copies of the following items with respect to each Employee Benefit
Plan and each Employee Welfare Plan of the Purchaser Companies (i) each plan
document; (ii) each related trust document; (iii) each determination letter
issued by the Internal Revenue Service relating to qualification of the
respective plans under the Code; (iv) the most recently filed annual reports, if
any; and (v) the most recent actuarial valuation, if any.
(e) Each of the Purchaser Companies has filed all reports and other
documents required to be filed with any governmental agency with respect to the
Employee Benefit Plans and Employee Welfare Plans of the Purchaser Companies or
has received currently effective extensions for any such reports and other
documents which have not been filed other than any failure to file which would
not reasonably be expected to have a material adverse effect upon the business,
assets, prospects or financial condition of the Purchaser Companies, taken as a
whole.
SECTION 4.20 Insurance Policies. Schedule 4.20 sets forth a complete
list of all material insurance policies maintained by the Purchaser Companies
and which are in force as of the date hereof.
SECTION 4.21 Intangible Rights. Set forth in Schedule 4.21 is a list of
all material trademarks, trade names, copyrights and applications therefor owned
by or registered in the name of any of the Purchaser Companies or in which any
of the Purchaser Companies has any rights as licensee or otherwise, and which
are presently used in the operation of the Purchaser Companies' businesses
(other than packaged computer software that is used in accordance with the
licenses therefor). Except as disclosed in Schedule 4.21, no interest in any of
such material trademarks, trade names, copyrights or applications therefor, or
any trade secrets owned or used by any Purchaser Company, has been assigned,
transferred or licensed to any third party by a Purchaser Company, and to the
Purchaser's Knowledge there is no infringement or asserted infringement by any
Purchaser Company of any trademarks, trade names, copyrights or application
therefor of another the effect of which, in either case, individually or in the
aggregate, would reasonably be expected to be materially adverse to the
business, assets, prospects or financial condition of the Purchaser Companies,
taken as a whole. Except as disclosed in Schedule 4.21, (i) no claim is pending
by any of the Purchaser Companies against others to the effect that the present
or past operations of such parties infringe upon or conflict with the rights of
such Purchaser Company, and, to the Purchaser's Knowledge, no reasonable grounds
for such action exist, and (ii) to the Purchaser's Knowledge, there are no
pending or threatened cancellations or revocations of any agreement granting to
any Purchaser Company rights under trademarks, trade names, copyrights or
"know-how" of others, the effect of which, individually or in the aggregate,
could reasonably be expected to be materially adverse to the business, assets,
prospects or financial condition of the Purchaser Companies, taken as a whole.
26
SECTION 4.22 Title to Properties. Each of the Purchaser Companies has
good title to all its tangible personal properties and assets material,
individually or in the aggregate, to the business of the Purchaser Companies.
Except for Liens (i) reflected in the Purchaser Financial Statements or (ii)
relating to margin requirements or other borrowings in respect of securities
positions, none of such properties and assets is subject to any Lien or adverse
claim of any nature whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise, other than (i) any Lien for Taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP, (ii) any
statutory Lien arising in the ordinary course of business by operation of law
with respect to a liability that is not yet due or delinquent and (iii) any
minor imperfection in title or similar Lien which individually or in the
aggregate with such other Liens would not reasonably be expected to materially
adversely affect the business, assets, prospects or financial condition of the
Purchaser Companies, taken as a whole. The tangible properties and assets owned
or leased by the Purchaser Companies are, in all material respects, in good
operating condition and repair, ordinary wear and tear excepted.
SECTION 4.23 No Guarantees. Other than as incurred in the ordinary
course of business, none of the Purchaser Companies is a party to or bound by
any agreement of guarantee, indemnification, assumption, or endorsement or any
other like commitment in an amount in excess of $50,000 in any single instance
and $500,000 in the aggregate to satisfy the obligations, liabilities
(contingent or otherwise) or indebtedness of any other person, firm or
corporation other than another Purchaser Company.
SECTION 4.24 Labor Matters. None of the Purchaser Companies is a party
to any collective bargaining agreement or other labor union contract applicable
to persons employed by it in connection with the operation of its business.
SECTION 4.25 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Purchaser other than the fees of any investment
banking firms engaged by the Purchaser, the fees of which will be paid by the
Purchaser.
SECTION 4.26 Records. To the Purchaser's Knowledge, the books of
account, minute books, stock certificate books and stock transfer ledgers of the
Purchaser Companies are complete and correct in all material respects, and there
have been no material transactions involving any of the Purchaser Companies
which are required to be set forth therein and which have not been so set forth.
SECTION 4.27 No Undisclosed Liabilities. Except as set forth in
Schedules 4.13(a), 4.13(b), 4.16 and 4.27 and pursuant to executory provisions
under the Contracts and Leases to which any Purchaser Company is a party, none
of the Purchaser Companies has any liabilities, whether known or unknown,
absolute, accrued, contingent or otherwise of a nature that would be required to
be reflected on a consolidated balance sheet of the Purchaser Companies
(including the footnotes), except (a) as and to the extent disclosed, reflected
27
or reserved against the Purchaser Balance Sheet, including all notes thereto,
(b) those incurred since December 31, 2000 in the ordinary course of business
and consistent with prior practice, and (c) those which would not reasonably be
expected to materially and adversely affect the business, assets, prospects or
financial condition of the Purchaser Companies, taken as a whole.
SECTION 4.28 No Illegal or Improper Transactions. Since May 31, 1995,
no Purchaser Company or any officer, director, employee, agent or Affiliate of
any of the Purchaser Companies on their behalf has offered, paid or agreed to
pay to any person or entity (including any governmental official) or solicited,
received or agreed to receive from any such person or entity, directly or
indirectly, any money or anything of value for the purpose or with the intent of
(a) obtaining or maintaining business for a Purchaser Company, (b) facilitating
the purchase or sale of any product or service, or (c) avoiding the imposition
of any fine or penalty, in any manner which is in violation of any applicable
ordinance, regulation or law, the effect of which, individually or in the
aggregate, would reasonably be expected to be materially adverse to the
business, assets, prospects or financial condition of the Purchaser Companies,
taken as a whole.
SECTION 4.29 Related Transactions. Except as set forth in the Purchaser
SEC Filings and Schedule 4.29 and except for compensation to employees for
services rendered and brokerage accounts in the ordinary course, neither the
Purchaser nor, to the Purchaser's Knowledge, any director, officer, employee or
shareholder or any associate (as defined in the rules promulgated under the 1934
Act) of any of the Purchaser Companies is presently, or since January 1, 1998
has been a party to any material transaction with any of the Purchaser Companies
(including, but not limited to, any contract, agreement or other arrangements
providing for the furnishing of services by, or rental of real or personal
property from, or otherwise requiring payments to, any such director, officer,
employee or shareholder or such associate).
SECTION 4.30 Bank Accounts. Schedule 4.30 sets forth the name of each
bank in which any of the Purchaser Companies has an account or safe deposit box,
vault, lock-box or other arrangement, the account number and description of each
account at each bank and the names of all persons authorized to draw thereon or
to have access thereto; and the names of all persons, if any, holding tax or
other powers of attorney from any of the Purchaser Companies other than in the
ordinary course of business.
SECTION 4.31 Certain Brokerage Matters.
(a) None of the Purchaser Companies has in effect any "soft dollar"
arrangements with any of its customers that do not come within the "safe harbor"
provisions of Section 28(e) of the 1934 Act.
(b) All sales literature used by the Purchaser Companies since May
31, 1995 does not contain any misstatement of a material fact and does not omit
to state a material fact necessary to make the statements therein not misleading
in the light of the circumstances in which such statements are made.
28
SECTION 4.32 Survival of Representations and Warranties. The
representations and warranties of the Purchaser set forth in this Agreement
shall survive the Closing for a period of two years after the Closing Date,
except that the representations and warranties in Sections 4.1 and 4.3 shall
survive without limitation as to time and the representations and warranties in
Section 4.17 shall survive for a period of two months after the expiration of
the statute of limitations for each respective Tax (as extended from time to
time).
ARTICLE V
COVENANTS
SECTION 5.1 Conduct of Business. Except as set forth in Schedule 5.1(a)
with respect to the Selling Parties and Schedule 5.1(b) with respect to the
Purchaser, from the date hereof through the Closing Date, except as otherwise
set forth in this Agreement, the Selling Parties shall cause the Ladenburg
Companies to, and the Purchaser shall, as applicable:
(a) conduct their respective businesses only in the ordinary course
and in a manner consistent with the current practice of such businesses, and use
commercially reasonable efforts, to the extent they believe in their respective
best interests, to preserve substantially intact their respective business
organizations, keep available the services of their respective current employees
(subject to dismissals and retirements in the ordinary course), preserve their
respective current relationships with key customers and other persons with which
they have significant business relations and comply with all requirements of law
the violation of which would reasonably be expected to have a material adverse
effect on the business, assets, prospects or financial condition of such Party,
taken as a whole;
(b) not pledge, sell, transfer, dispose of or otherwise encumber or
grant any rights or interests to others of any kind with respect to all or any
part of the capital stock of any of the Ladenburg Companies or the Purchaser
Subsidiaries or enter into any discussions or negotiations with any other party
to do so;
(c) not pledge, sell, lease, transfer, dispose of or otherwise
encumber any material property or assets of any of the Ladenburg Companies or
the Purchaser Companies other than consistent with past practices and in the
ordinary course of business or enter into any discussions or negotiations with
any other party to do so;
(d) not issue any shares of capital stock of any Ladenburg Company
or Purchaser Company, any securities convertible into or exchangeable for
capital stock of any Ladenburg Company or Purchaser Company or any other class
of securities, whether debt (other than debt incurred in the ordinary course of
business and consistent with past practice) or equity, of any Ladenburg Company
or Purchaser Company, as the case may be, other than, in the case of the
Purchaser, pursuant to stock option plans in existence on the date of this
Agreement;
29
(e) not declare any dividend or make any distribution in cash,
securities or otherwise on the outstanding shares of capital stock of any
Ladenburg Company or Purchaser Company, as the case may be, or directly or
indirectly redeem or purchase any such capital stock, except that the Ladenburg
Subsidiaries and the Purchaser Subsidiaries may pay dividends to their parents;
(f) not, in any manner whatsoever, advance, transfer (other than
pursuant to contracts in existence on the date hereof or in payment for goods
received or services rendered in the ordinary course of business) or distribute
to a stockholder of any of the Ladenburg Companies or the Purchaser Companies or
any of their respective Affiliates or otherwise withdraw cash or cash
equivalents in any manner inconsistent with established cash management
practices, except to pay existing indebtedness;
(g) not make, agree to make or announce any general wage or salary
increase or enter into any employment contract or, unless provided for on or
before the date of this Agreement, increase the compensation payable or to
become payable to any officer or employee of any of the Ladenburg Companies or
the Purchaser Companies or adopt or increase the benefits of any bonus,
insurance, pension or other employee benefit plan, payment or arrangement,
except for those increases, consistent with past practices, normally occurring
as the result of regularly scheduled salary reviews and increases, normal
year-end bonuses in amounts and to persons consistent with prior practice and
increases directly or indirectly required as a result of changes in applicable
law or regulations;
(h) not make any capital expenditures in excess of $100,000 in the
aggregate;
(i) not amend the Certificate or Articles of Incorporation or
By-Laws of any of the Ladenburg Companies or Purchaser Companies;
(j) not merge or consolidate with, or acquire all or substantially
all of the assets of, or otherwise acquire any business operations of, any
person or entity; and
(k) not enter into any agreement with respect to any of the
foregoing.
SECTION 5.2 Access to Information; Confidentiality. Between the date of
this Agreement and the Closing Date, New Valley and Ladenburg will permit the
Purchaser and its Representatives and the Purchaser will permit Sellers and
their Representatives reasonable access to all of the books, records, reports
and other related materials, offices and other facilities and properties of the
Ladenburg Companies or the Purchaser Companies, as the case may be, and to make
such inspections thereof as it may reasonably request; and New Valley and
Ladenburg will furnish the Purchaser and its Representatives and the Purchaser
will furnish New Valley and its Representatives with such financial and
operating data (including without limitation the work papers) and other
information with respect to the Ladenburg Companies or the Purchaser Companies,
as the case may be, and as it may from time to time reasonably request. Any such
information or material obtained pursuant to this Section 5.2 that constitutes
"Evaluation Material" (as such term is defined in the letter agreement dated as
30
of November 8, 2000 among New Valley, Ladenburg and the Purchaser (the
"Confidentiality Agreement")) shall be governed by the terms of the
Confidentiality Agreement.
SECTION 5.3 Maintenance of Assets; Insurance.
(a) New Valley and Ladenburg shall, and shall cause the Ladenburg
Companies to, continue to maintain and service the assets of the Ladenburg
Companies consistent with past practice. Through the Closing Date, New Valley
and Ladenburg shall cause the Ladenburg Companies to maintain insurance policies
providing insurance coverage for the business and the assets of the Ladenburg
Companies substantially of the kinds, in the amounts and against the risks as
are currently in effect.
(b) The Purchaser shall, and shall cause the Purchaser Subsidiaries
to, continue to maintain and service the assets of the Purchaser Companies
consistent with past practice. Through the Closing Date, the Purchaser shall,
and shall cause the Purchaser Subsidiaries to, maintain insurance policies
providing insurance coverage for the business and the assets of the Purchaser
Companies substantially of the kinds, in the amounts and against the risks as
are currently in effect.
SECTION 5.4 Non-Use of Name. From and after the Closing Date, neither
New Valley nor any of its Affiliates shall establish or otherwise be associated
with, as an owner, partner, shareholder, employee or otherwise, any firm other
than the Purchaser engaged in any aspect of the securities business which
utilizes the name "Ladenburg" or any variant thereof as part of its business
name or grant to any other person or entity the right to use any such name or
any variant thereof in connection with any aspect of the securities business.
The foregoing notwithstanding, New Valley subsidiaries organized outside the
United States that have the word "Ladenburg" in their names (all of which are
listed in Schedule 5.4) may retain such names until they are changed pursuant to
the following sentence. As promptly as possible after the Closing, New Valley
shall cause each of its subsidiaries referred to in the previous sentence to
change its name to some other name not utilizing the name "Ladenburg" as any
part thereof and from and after the Closing and prior to the date on which its
name is so changed shall, to the extent allowed under local law, conduct all its
business under such other name or a derivation thereof as an assumed name.
SECTION 5.5 No Other Negotiations. Until the earlier of the Closing or
the termination of this Agreement, none of the Selling Parties shall (a)
solicit, encourage, directly or indirectly, any inquiries, discussions or
proposals for, (b) continue, propose or enter into any negotiations or
discussions looking toward or (c) enter into any agreement or understanding
providing for any acquisition of any capital stock of any Ladenburg Company or
except in the ordinary course of business, any part of their respective assets,
nor shall any of the Selling Parties provide any information to any Person for
the purpose of evaluating or determining whether to make or pursue any such
inquiries or proposals with respect to any such acquisition. Each Selling Party
shall immediately notify the Purchaser of any such inquiries or proposals or
requests for information for such purpose. Each of the Selling Parties shall use
its best efforts to cause its directors, officers, employees, agents and
Representatives to comply with the provisions of this Section.
31
SECTION 5.6 No Securities Transactions. Other than in the ordinary
course of business, no Party shall engage in any transactions involving the
securities of the other Parties hereto prior to the time of the making of a
public announcement of the transactions contemplated by this Agreement. The
Parties shall use their best efforts to cause their respective officers,
directors, employees, agents and Representatives to comply with the foregoing
requirement.
SECTION 5.7 Cancellation of Intercompany Agreements. Except for the
agreements listed on Schedule 5.7(a), the New Valley Parties, Ladenburg and
Berliner hereby terminate and cancel, effective upon the Closing, all agreements
between or among any of them to which Ladenburg is a party, including without
limitation the Shareholders' Agreement dated December 8, 1999, among Berliner,
LTGI, New Valley and Ladenburg, which termination and cancellation also
terminates and cancels all options to purchase shares of Ladenburg Stock granted
by New Valley or any of its Affiliates to Berliner. All such terminated
agreements are listed on Schedule 5.7(b).
SECTION 5.8 Disclosure of Certain Matters. During the period from the
date hereof through the Closing Date, except as prohibited by law, each Party
shall give each other Party prompt written notice of any event or development
known to such Party that (a) had it existed or been known on the date hereof
would have been required to be disclosed by it under this Agreement, (b) would
cause any of its representations and warranties contained herein to be
inaccurate or otherwise misleading, (c) could reasonably be expected to result
in any of the conditions to the Purchaser's obligations (in the case of the
Selling Parties), or the Selling Parties' obligations (in the case of the
Purchaser), set forth in Article VI not being satisfied or (d) is materially
adverse to the business, assets, prospects or financial condition of any of the
Ladenburg Companies, taken as a whole (in the case of the Selling Parties), or
the Purchaser Companies, taken as a whole (in the case of the Purchaser).
SECTION 5.9 Non-Competition. New Valley hereby agrees that it will not,
and will cause all of its subsidiaries not to, during the 30 month period
commencing on the Closing Date, within the United States, directly or
indirectly, (i) engage in the broker-dealer business, whether as an owner (other
than as an owner of less than 5% of the shares of any publicly traded company)
or an investor or any other capacity whatsoever; (ii) hire or solicit for
employment (other than general public solicitations not directed at any specific
person or group) any employee of any Ladenburg Company or Purchaser Company or
any Person who was such an employee within six months of such hiring or
solicitation; or (iii) interfere with, disrupt or attempt to disrupt the
relationship between any Ladenburg Company, Purchaser or Purchaser Subsidiary
and any of its lessors or customers. Notwithstanding clause (i) above, nothing
herein shall prohibit New Valley and such Affiliates from making investments for
their own accounts or from owning Purchaser Common Stock or engaging in any
transactions contemplated by the Transaction Documents. New Valley expressly
waives any right to assert inadequacy of consideration as a defense to
enforcement of the non-competition provision of this Section 5.9 should such
enforcement ever become necessary. New Valley also acknowledges that a remedy at
law for any breach or attempted breach of this Section 5.9 will be inadequate
and further agrees that any breach of this Section 5.9 will result in
irreparable harm to the business of the Ladenburg Companies and the Purchaser
Companies, and covenants and agrees not to oppose any demand for specific
performance and injunctive and other equitable relief in case of any such breach
or attempted breach. Whenever possible, each provision of this Section 5.9 shall
32
be interpreted in such manner as to be effective and valid under applicable law
but if any provision of this Section 5.9 shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Section 5.9. If any provision of this
Section 5.9 shall, for any reason, be judged by any court of competent
jurisdiction to be invalid or unenforceable, such judgment shall not affect,
impair or invalidate the remainder of this Section 5.9 but shall be confined in
its operation to the provision of this Section 5.9 directly involved in the
controversy in which such judgment shall have been rendered. In the event that
the provisions of this Section 5.9 should ever be deemed to exceed the time or
geographic limitations permitted by the applicable laws, then such provision
shall be reformed to the maximum time or geographic limitations permitted by
applicable law.
SECTION 5.10 Stockholder Meeting. The Purchaser shall cause a meeting
of its stockholders (the "Purchaser Stockholder Meeting") to be duly called and
held as soon as reasonably practicable after the date of execution of this
Agreement for the purposes of voting on (a) the issuance by Purchaser of shares
of Purchaser Common Stock and the acquisition by Purchaser of the LTI Stock
pursuant to the terms of the Transaction Documents, (b) election of the
directors listed on Schedule 2.8(a), (c) the change of the corporate name of the
Purchaser to "Ladenburg Thalmann Financial Services, Inc." effective upon the
Closing, and (d) such other matters as may be mutually agreed upon by the
Parties. In connection with such meeting, the Purchaser (i) will mail to its
stockholders as promptly as practicable the Proxy Statement referred to in
Section 5.11 and all other proxy materials for such meeting, (ii) will use its
best efforts to obtain the necessary approvals by its stockholders of such
matters and any related matters (the "Stockholder Approval") and (iii) will
otherwise comply with all legal requirements applicable to such meeting. In the
event that the Stockholder Approval is not obtained on the date on which the
Purchaser Stockholder Meeting is initially convened, the Board of Directors of
the Purchaser shall adjourn the Purchaser Stockholder Meeting from time to time
as necessary for the purpose of obtaining the Stockholder Approval and shall use
its best efforts during any such adjournments to obtain the Stockholder
Approval.
SECTION 5.11 Proxy Statement.
(a) The Purchaser will prepare and file with the Commission as soon
as reasonably practicable after the date of execution of this Agreement a proxy
statement under the 1934 Act with respect to the matters to be acted upon at the
Purchaser Stockholder Meeting (the "Proxy Statement") and will distribute such
Proxy Statement to its stockholders in connection with the Purchaser Stockholder
Meeting. The Purchaser, New Valley and Berliner shall cooperate with each other
in the preparation of the Proxy Statement and any amendment or supplement
thereto. The Purchaser shall notify New Valley and Berliner of the receipt of
any comments of the Commission with respect to the Proxy Statement and any
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requests by the Commission for any amendment or supplement thereto or for
additional information, and shall provide to them promptly copies of any
correspondence between the Purchaser or any of its Representatives and the
Commission with respect to the Proxy Statement. The Purchaser shall give New
Valley and Berliner and their counsel the opportunity to review the Proxy
Statement and all responses to requests for additional information by and
replies to comments of the Commission before their being filed with, or sent to,
the Commission. The Purchaser will use its best efforts, after consultation with
the other Parties, to respond promptly to all such comments of and requests by
the Commission and to cause the Proxy Statement to be mailed to the holders of
Purchaser Common Stock entitled to vote at the Purchaser Stockholder Meeting at
the earliest practicable time.
(b) The Purchaser, acting through its Board of Directors, shall
include in the Proxy Statement the recommendation of its Board of Directors that
the stockholders of the Purchaser vote in favor of the matters presented in the
Proxy Statement for approval by vote of the stockholders and shall otherwise use
its reasonable best efforts to obtain the Stockholder Approval.
SECTION 5.12 Information Supplied. The Purchaser covenants that the
documents to be filed by it with the Commission or any other governmental or
regulatory authority in connection with the transactions contemplated hereby
will comply as to form in all material respects with the requirements of the
1934 Act and other applicable regulatory requirements, and will not, on the date
of its filing or at the date the Proxy Statement is mailed to stockholders of
the Purchaser or at the time of the Purchaser Stockholder Meeting, 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, except
that the foregoing shall not apply with respect to information supplied in
writing by or on behalf of the New Valley Parties or Berliner expressly for
inclusion therein.
SECTION 5.13 Information for Proxy Statement. The Selling Parties
covenant that they will cooperate with the Purchaser in the preparation of the
Proxy Statement and will furnish to the Purchaser all information concerning
themselves and the Ladenburg Companies as the Purchaser or its counsel may
reasonably request and that is required or customary for inclusion in the Proxy
Statement. The Selling Parties further covenant that all written information
furnished by the Selling Parties for inclusion in the Proxy Statement will
comply in all material respects with the applicable provisions of the 1934 Act
and will not at the time of the mailing of the Proxy Statement or at the time of
the Purchaser Stockholder Meeting contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein and
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
SECTION 5.14 Intercompany Debt. On or before the Closing, New Valley
and its subsidiaries, on the one hand, and the Ladenburg Companies, on the other
hand, shall pay to one another all monetary obligations owing by New Valley or
any of its subsidiaries to any of the Ladenburg Companies or by any of the
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Ladenburg Companies to New Valley or any of its Affiliates, as set forth on
Schedule 5.14(a). All intercompany debt as of December 31, 2000 or thereafter
incurred which is not to be paid on or before the Closing is listed in Schedule
5.14(b).
SECTION 5.15 General Release. After giving effect to payments required
to be made pursuant to Section 5.14, New Valley, on behalf of itself and its
subsidiaries, hereby releases the Ladenburg Companies, effective as of the
Closing, from all obligations owing to any of them by any of the Ladenburg
Companies, to the extent that any of such obligations shall exist on the Closing
Date except such obligations as are listed on Schedule 5.14(b) or arise under or
in connection with the Transaction Documents and the transactions contemplated
thereby. After giving effect to payments required to be made pursuant to Section
5.14, Ladenburg, on behalf of itself and the Ladenburg Subsidiaries, hereby
releases, effective as of the Closing, New Valley and its subsidiaries from all
obligations owing to any of them by New Valley or any of its subsidiaries to the
extent that any of such obligations shall exist on the Closing Date except such
obligations as are listed on Schedule 5.14(b) or arise under or in connection
with the Transaction Documents and the transactions contemplated thereby.
SECTION 5.16 No Purchaser Solicitations. Prior to the Closing, the
Purchaser agrees (a) that neither it nor any of its subsidiaries or other
Affiliates shall, and they shall use their best efforts to cause their
respective Representatives not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to Purchaser
shareholders) with respect to a merger, consolidation or other business
combination including the Purchaser or any of its subsidiaries, or any
acquisition or similar transaction (including, without limitation, a tender or
exchange offer) involving the purchase of all or any significant portion of the
assets of the Purchaser and its subsidiaries taken as a whole or 20% or more of
the outstanding shares of Purchaser Common Stock or the issuance of shares of
Purchaser Common Stock which would constitute, after issuance, 20% or more of
the shares of Purchaser Common Stock then outstanding (any such transaction,
other than the transactions contemplated by this Agreement, being hereinafter
referred to as a "Purchaser Alternative Transaction"), or engage in any
negotiations concerning, or provide any confidential information or data to or
have any discussions with any person relating to, or otherwise facilitate any
effort or attempt to make or implement, a Purchaser Alternative Transaction; (b)
that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any person with respect to any of
the foregoing, and it will take the necessary steps to inform such person of its
obligation under this Section; and (c) that it will notify the Sellers within 24
hours if any such inquiries, proposals or offers are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with it by any person; provided, however,
that nothing contained in this Section 5.16 or in Section 5.11 shall prohibit
the Board of Directors of the Purchaser from (i) furnishing information to or
entering into discussions or negotiations with any person that makes a bona fide
unsolicited written proposal for a Purchaser Alternative Transaction if, and
only to the extent that, (A) the Board of Directors of the Purchaser concludes
in good faith that such proposal is reasonably likely to result in a Superior
Purchaser Transaction, (B) the Board of Directors of the Purchaser, based upon
the advice of outside counsel, determines in good faith that such action is
required for the Board of Directors to comply with its fiduciary duties to
shareholders imposed by law, (C) the Purchaser shall have entered into a
35
confidentiality agreement with such person in customary form and having terms
and conditions no less favorable to the Purchaser than the Confidentiality
Agreement, (D) prior to furnishing such information to, or entering into
discussions or negotiations with, such person, the Purchaser provides written
notice to the Sellers to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such person, which notice shall
identify such person and the proposed terms of such Purchaser Alternative
Transaction in reasonable detail, and (E) the Purchaser keeps the Sellers
informed of the status and all material information with respect to any such
discussions or negotiations; and (ii) to the extent required, complying with
Rules 14d-9 and 14e-2 promulgated under the 1934 Act with regard to any proposal
relating to a Purchaser Alternative Transaction. Nothing in this Section 5.16
shall (x) permit the Purchaser to terminate this Agreement (except in accordance
with Section 8.1), (y) permit the Purchaser to enter into any agreement with
respect to a Purchaser Alternative Transaction for so long as this Agreement
remains in effect (other than a confidentiality agreement under the
circumstances described above), or (z) affect any other obligation of the
Purchaser under this Agreement. For purposes of this Agreement, "Superior
Purchaser Transaction" means any Purchaser Alternative Transaction which (i)
relates to more than 50% of the outstanding shares of Purchaser Common Stock or
the issuance or potential issuance of shares of Purchaser Common Stock which
would constitute, after issuance, 50% or more of the shares of Purchaser Common
Stock then outstanding or all or substantially all of the assets of the
Purchaser and its subsidiaries taken as a whole, (ii) is not conditioned on the
receipt of financing, (iii) is made by a person who the Board of Directors of
the Purchaser has reasonably concluded in good faith will have adequate sources
of financing to, and will not encounter significant regulatory obstacles in
order to, consummate such Purchaser Alternative Transaction and (iv) is on terms
that the Board of Directors of the Purchaser determines in its good faith
judgment (based on the written advice of a financial advisor of
nationally-recognized reputation, taking into account all the terms and
conditions of the Purchaser Alternative Transaction, including any break-up
fees, expense reimbursement provisions and conditions to consummation) are more
favorable and provide greater value to all of the Purchaser's stockholders than
this Agreement and the transactions contemplated hereby taken as a whole.
SECTION 5.17 Additional Agreements. Concurrently with the execution of
this Agreement, the Parties and certain other persons have executed and
delivered the following agreements, the effectiveness of each of which is
subject to the Closing:
(a) an Investor Rights Agreement among the Purchaser, New Valley,
the Sellers, the Lender and Messrs. Richard Rosenstock, Mark Zeitchick, David
Thalheim and Vincent Mangone (the latter four persons collectively, the
"Principals"), in the form of Exhibit E annexed hereto;
(b) an Employment Agreement between Ladenburg and Victor M. Rivas,
in the form of Exhibit F annexed hereto;
(c) Amendments to Employment Agreements between GBI Capital
Partners, Inc. and, separately, each of the Principals and Joseph Berland, in
the forms of Exhibits G-1, G-2, G-3, G-4 and G-5, respectively, each of which
shall be guaranteed by the Purchaser;
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(d) a Stock Purchase Agreement between Joseph Berland and LTGI
pursuant to which Mr. Berland shall sell to LTGI an aggregate of 3, 945,060
shares of Purchaser Common Stock, in the form of Exhibit H annexed hereto.
SECTION 5.18 Financing. From the date hereof through the Closing Date,
the Purchaser shall not amend, modify or otherwise alter the terms and
conditions pursuant to which the Lender is to provide the Purchaser with funds
as set forth in Section 4.11.
SECTION 5.19 Continuation of Insurance.
(a) Subsequent to the Closing, for a period of two years
thereafter, the Purchaser shall cause Ladenburg to, and Ladenburg shall,
continue to maintain the insurance policies listed on Schedule 5.19(a).
(b) For a period of six (6) years after the Closing Date, the
Purchaser shall maintain in effect the current policies of directors' and
officers' liability insurance maintained by the Purchaser to the extent that
such policies provide coverage for the Purchaser's directors and officers (or
policies of at least the same coverage and amounts containing terms and
conditions that are no less advantageous) with respect to claims arising from
facts or events that occurred before the Closing Date; provided further that
Purchaser shall not be required to maintain such policies to the extent that the
annual premiums (or incremental annual premiums in the case of substitute
policies that provide coverage to other Persons or for other matters) exceed
200% of the most recent annual premium paid for such policies by the Purchaser.
(c) The Purchaser shall remain liable for any indemnification
obligations to its current directors and officers in all capacities, in which
such directors or officers served the Purchaser prior to the Closing Date, as
set forth in the Purchaser's Articles of Incorporation and By-Laws as they exist
on the date hereof to the extent such indemnification by the Purchaser is
permitted under the Florida Business Corporation Act.
(d) If, after the Closing Date, the Purchaser or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of the Purchaser assume the obligations set forth in this Section 5.19.
(e) The provisions of this Section 5.19 are intended to be for the
benefit of, and shall be enforceable by, each indemnified party and his or her
heirs and representatives.
SECTION 5.20 AMEX Listing. The Purchaser shall use its best efforts to
cause the shares of Purchaser Common Stock to be issued pursuant to Section 1.3
including, when applicable, those shares to be issued upon conversion of the
Notes to be approved for listing or admitted for trading on AMEX, subject to
official notice of issuance, prior to the Closing Date.
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SECTION 5.21 Further Action. Each of the Parties shall execute such
documents and other papers and take such further actions as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Upon the terms and subject to the conditions hereof, each
of the Parties shall use its reasonable best efforts to take, or cause to be
taken, all reasonable actions and to do, or cause to be done, all other things
reasonably necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
SECTION 5.22 Schedules. The Parties shall have the obligation to
supplement or amend the Schedules being delivered concurrently with the
execution of this Agreement and annexed hereto with respect to any matter known
to them hereafter arising or discovered which, if existing or known at the date
of this Agreement, would have been required to be set forth or described in the
Schedules. The obligations of the Parties to amend or supplement the Schedules
being delivered herewith shall terminate on the Closing Date.
SECTION 5.23 Regulatory and Other Authorizations.
(a) The Parties will promptly make all necessary filings, provide
reasonably requested information, and use their best efforts to obtain all
authorizations, consents, orders and approvals of all federal, state and other
regulatory bodies and officials that are required for the consummation of the
transactions contemplated by this Agreement, including but not limited to the
Commission, The New York Stock Exchange, Inc. ("NYSE"), the AMEX, NASD
Regulation, Inc., the Department of Justice and the Federal Trade Commission and
other self-regulatory agencies, and will cooperate fully with each other in
connection therewith.
(b) Each Party will provide prompt notification to the others when
any such consent, approval, action, filing or notice referred to in paragraph
(a) above is obtained, taken, made or given, as applicable, and will advise the
others of any communications (and, unless precluded by law, provide copies of
any such communications that are in writing) with any governmental or regulatory
authority regarding any of the transactions contemplated by this Agreement or
any of the Transaction Documents.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 Conditions to Each Party's Obligations. The respective
obligations of each Party to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions:
(a) Regulatory Approvals. The NYSE, the AMEX, NASD Regulation,
Inc., the Department of Justice and the Federal Trade Commission and any other
federal, state or local governmental agency or self-regulatory agency whose
approval or consent is required for the consummation of the transactions
contemplated by this Agreement each shall have unconditionally approved such
38
transactions (including, without limitation, issuing the approvals and consents
listed in Schedules 3.12 and 4.5), and all required waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired; and
(b) No Governmental Order or Regulation. There shall not be in
effect any order, decree or injunction (whether preliminary, final or
appealable) of a United States federal or state court of competent jurisdiction,
and no regulation shall have been enacted or promulgated by any governmental
authority or agency, that prohibits consummation of the transactions
contemplated by this Agreement.
(c) Stockholder Approval. The Stockholder Approval shall be
obtained by the necessary affirmative vote of the stockholders of the Purchaser
with respect to each matter for which the Stockholder Approval shall be
solicited pursuant to Section 5.10.
SECTION 6.2 Conditions to Obligations of the Selling Parties. The
obligations of the Selling Parties to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment, at or prior to the
Closing, of each of the following conditions:
(a) Legal Opinion. The New Valley Parties and Berliner shall have
received from Graubard Mollen & Miller, counsel to the Purchaser, a legal
opinion addressed to the New Valley Parties and Berliner and dated the Closing
Date, in the form of Exhibit I annexed hereto;
(b) Necessary Proceedings. All proceedings, corporate or otherwise,
to be taken by the Purchaser in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by officers of the Purchaser as of the Closing, shall
have been delivered to the New Valley Parties and Berliner;
(c) Pledge and Security Agreement. The Purchaser shall have
executed and delivered the Pledge and Security Agreement and shall have made the
deliveries referred to in Section 2.5 to the collateral agent named therein;
(d) Deliveries. The Purchaser shall have delivered to the New
Valley Parties and Berliner all documents required to be delivered by the
Purchaser pursuant to the Purchaser Transaction Documents at or before the
Closing; and
(e) Consents. The Purchaser shall have obtained and delivered to
the New Valley Parties and Berliner the consents set forth in Schedule 4.5.
SECTION 6.3 Conditions to Obligations of the Purchaser. The obligations
of the Purchaser to consummate the transactions contemplated by this Agreement
shall be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Legal Opinion. The Purchaser shall have received from Milbank,
Tweed, Hadley & McCloy LLP, special counsel to the New Valley Companies, a legal
opinion addressed to the Purchaser, dated the Closing Date, in form of Exhibit J
annexed hereto;
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(b) Consents. The Selling Parties shall have obtained and delivered
to the Purchaser the consents set forth in Schedule 3.12;
(c) Necessary Proceedings. All proceedings, corporate or otherwise,
to be taken by the Selling Parties in connection with the consummation of the
transactions contemplated by this Agreement shall have been duly and validly
taken, and copies of all documents, resolutions and certificates incident
thereto, duly certified by the officers of the Selling Parties, as appropriate,
as of the Closing, shall have been delivered to the Purchaser;
(d) Cash and Marketable Securities. As of the close of business of
the Business Day immediately preceding the Closing Date, Ladenburg shall have
cash held at banks, marketable securities and net cash balances in proprietary
accounts at clearing brokers in an amount not less than $18,000,000; and
(e) Deliveries. The Selling Parties shall have delivered to the
Purchaser all documents required to be delivered by the Selling Parties pursuant
to the Seller Transaction Documents at or before the Closing.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 Indemnification by the Sellers. The New Valley Parties, on
the one hand, and Berliner, on the other hand, severally (in proportion to their
ownership of the Ladenburg Stock with respect to representations, warranties and
covenants that are made by or apply to both of them) shall indemnify and hold
harmless the Purchaser and, after the Closing, Ladenburg from and against, and
shall reimburse the Purchaser and, after the Closing, Ladenburg for, any Damages
which may be sustained, suffered or incurred by them, whether as a result of any
Third Party Claim or otherwise, and which arise from or in connection with or
are attributable to (i) the breach of any of the covenants, representations,
warranties, agreements, obligations or undertakings of the Selling Parties
contained in this Agreement, (ii) all Claims made against Ladenburg with respect
to liabilities and obligations of any Affiliate of Ladenburg (other than a
Ladenburg Company) for Taxes as a result of Ladenburg being part of a
consolidated group with such Affiliate for federal, state or local income tax
purposes, (iii) the matter listed in Schedule 7.1, and (iv) the use of the
"Ladenburg" name after the Closing Date by any Affiliate of New Valley, in the
case of each of the preceding clauses (ii) and (iii), in excess of any reserves
therefor taken into account in the determination of the Closing Net Worth, and
notwithstanding, with respect to the preceding clauses (ii) and (iii), that any
such Proceeding or other Claim, Tax or failure is disclosed in the Seller
Transaction Documents or any Schedule thereto. This indemnity shall survive the
Closing for a period of two years after the Closing Date, except that with
respect to Claims arising as a result of a breach of the representations and
warranties in (A) Sections 3.1 and 3.4 and with respect to Claims arising
pursuant to the preceding clause (iii), it shall survive without limitation as
to time, and (B) Section 3.11 and with respect to Claims arising pursuant to the
40
preceding clause (ii), it shall survive for a period of two months after the
expiration of the statute of limitations for each respective Tax. Any Claim for
indemnity asserted within the relevant period shall survive until resolved.
SECTION 7.2 Indemnification by the Purchaser. The Purchaser shall
indemnify and hold harmless the New Valley Parties and Berliner from and
against, and shall reimburse the Sellers for, any Damages which may be
sustained, suffered or incurred by the New Valley Parties or Berliner, whether
as a result of Third Party Claims or otherwise, and which arise or result from
or in connection with or are attributable to the breach of any of the
Purchaser's covenants, representations, warranties, agreements, obligations or
undertakings contained in this Agreement. This indemnity shall survive the
Closing for a period of two years after the Closing Date, except that with
respect to Claims arising as a result of a breach of the representations and
warranties in (A) Sections 4.1 and 4.3, it shall survive without limitation as
to time, and (B) Section 4.17, it shall survive for a period of two months after
the expiration of the statute of limitations for each respective Tax. Any Claim
for indemnity asserted within the relevant period shall survive until resolved.
SECTION 7.3 Notice, etc. A Party required to make an indemnification
payment pursuant to this Agreement ("Indemnifying Party") shall have no
liability with respect to Third Party Claims or otherwise with respect to any
covenant, representation, warranty, agreement, undertaking or obligation under
this Agreement, unless the Party entitled to receive such indemnification
payment ("Indemnified Party") gives notice to the Indemnifying Party in
accordance with terms hereof, as soon as practical following the time at which
the Indemnified Party discovered or reasonably should have discovered such Claim
(except to the extent the Indemnifying Party is not prejudiced by any delay in
the delivery of such notice) and in any event prior to the applicable date
specified in Section 7.1 or 7.2, specifying (i) the covenant, representation or
warranty, agreement, undertaking or obligation contained herein which it asserts
has been breached, (ii) in reasonable detail, the nature and dollar amount of
any Claim the Indemnified Party may have against the Indemnifying Party by
reason thereof under this Agreement, and (iii) whether or not the Claim is a
Third Party Claim. All Claims by any Indemnified Party under this Article VII
shall be asserted and resolved as follows:
(a) Third-Party Claims.
(i) In the event that an Indemnified Party becomes aware of a
Third Party Claim for which an Indemnifying Party would be liable to an
Indemnified Party hereunder, the Indemnified Party shall with reasonable
promptness notify in writing the Indemnifying Party of such Claim, identifying
the basis for such Claim or demand, and the amount or the estimated amount
thereof to the extent then determinable (which estimate shall not be conclusive
of the final amount of such Claim and demand; the "Claim Notice"); provided,
however, that any failure to give such Claim Notice will not be deemed a waiver
of any rights of the Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced by such failure. The Indemnifying
Party will notify the Indemnified Party as soon as practicable whether the
Indemnifying Party desires, at its sole cost and expense, to defend the
Indemnified Party against such Third Party Claim. If the Indemnifying Party
notifies the Indemnified Party that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
7.3(a), the Indemnifying Party shall retain counsel (who shall be reasonably
41
acceptable to the Indemnified Party) to represent the Indemnified Party and the
Indemnifying Party shall pay the reasonable fees and disbursements of such
counsel with regard thereto; provided, however, that any Indemnified Party is
hereby authorized, prior to the date on which it receives written notice from
the Indemnifying Party designating such counsel, to retain counsel, whose fees
and expenses shall be at the expense of the Indemnifying Party, to file any
motion, answer or other pleading and take such other action which it reasonably
shall deem necessary to protect its interests or those of the Indemnifying Party
until the date on which the Indemnified Party receives such notice from the
Indemnifying Party (it being understood and agreed that, if an Indemnified Party
takes any such action that is prejudicial and causes a final adjudication that
is adverse to the Indemnifying Party, the Indemnifying Party will be relieved of
its obligations hereunder with respect to the portion of such Third Party Claim
prejudiced by the Indemnified Party's action). After the Indemnifying Party
shall retain such counsel, the Indemnified Party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (x) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(y) the named parties of any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate because a conflict or
potential conflict exists between the Indemnifying Party and the Indemnified
Party which makes representation of both Parties inappropriate under applicable
standards of professional conduct. The Indemnifying Party shall not, in
connection with any proceedings or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one such firm for the
Indemnified Party (except to the extent the Indemnified Party retained counsel
to protect its (or the Indemnifying Party's) rights prior to the selection of
counsel by the Indemnifying Party). If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any claim or demand which the Indemnifying Party defends
or, if appropriate and related to the Third Party Claim in question, in making
any counterclaim against the Person asserting the Third Party Claim or any
cross-complaint against any Person (other than the Indemnified Party or any of
its Affiliates). A Claim or demand may not be settled by either party without
the prior written consent of the other party (which consent will not be
unreasonably withheld or delayed) unless, as part of such settlement, the
Indemnifying Party shall receive a full and unconditional release reasonably
satisfactory to the Indemnifying Party. Notwithstanding the foregoing, the
Indemnifying Party shall not settle any claim without the prior written consent
of the Indemnified Party if such Claim is not exclusively for monetary Damages.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party that the Indemnifying Party desires to defend the Third Party Claim
pursuant to the preceding paragraph then the Indemnified Party will have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings will be
vigorously and diligently prosecuted by the Indemnified Party to a final
conclusion or will be settled at the discretion of the Indemnified Party (with
the consent of the Indemnifying Party, which consent will not be unreasonably
withheld). The Indemnified Party will have full control of such defense and
proceedings, including (except as provided in the immediately preceding
42
sentence) any settlement thereof; provided, however, that if requested by the
Indemnified Party, the Indemnifying Party will, at the sole cost and expense of
the Indemnifying Party, cooperate with the Indemnified Party and its counsel in
contesting any Third Party Claim which the Indemnified Party is contesting, or,
if appropriate and related to the Third Party Claim in question, in making any
counterclaim against the Person asserting the Third Party Claim, or any
cross-complaint against any Person (other than the Indemnifying Party or any of
its Affiliates). Notwithstanding the foregoing provisions of this paragraph, if
the Indemnifying Party has notified the Indemnified Party that the Indemnifying
Party disputes its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party the Indemnifying Party will not be required to bear the costs
and expenses of the Indemnified Party's defense pursuant to this paragraph or of
the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party will reimburse the Indemnifying Party in
connection with such litigation. The Indemnifying Party may retain separate
counsel to represent it in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this paragraph, and the
Indemnifying Party will bear its own costs and expenses with respect to such
participation.
(b) Direct Claims. In the event any Indemnified Party shall have a
Direct Claim against any Indemnifying Party hereunder, the Indemnified Party
shall send a Claim Notice with respect to such Claim to the Indemnifying Party.
(c) Books and Records. In the event of any Claim for indemnity
under Section 7.1, the Purchaser agrees to give each Seller and its
Representatives reasonable access to the books and records and employees of
Ladenburg and its subsidiaries in connection with the matters for which
indemnification is sought to the extent Seller reasonably deems necessary in
connection with its rights and obligations under this Article VII. After
delivery of a Claim Notice, so long as any right to indemnification exists
pursuant to this Article VII, the affected Parties each agree to retain all
books and records related to such Claim Notice. In each instance, the
Indemnified Party shall have the right to be kept fully informed by the
Indemnifying Party and its legal counsel with respect to any legal proceedings.
(d) Representative.
(i) Berliner hereby irrevocably appoints New Valley as its
agent hereunder (the "Agent") with respect to the assertion or contest of
indemnity claims hereunder and authorizes New Valley to take such actions on its
behalf and to exercise such powers as are reasonably incidental thereto.
(ii) In acting as Agent, New Valley shall have the rights and
powers in its capacity as a Seller as stated in this Agreement and the other
Transaction Documents and may exercise the same as though it were not the Agent,
and may engage in any kind of business with the Purchaser or any Subsidiary or
other Affiliate thereof as if it were not the Agent hereunder.
(iii) The Agent shall not have any duties or obligations
except those expressly set forth in this Section 7.3(d). Without limiting the
generality of the foregoing, (a) the Agent shall not be subject to any fiduciary
or other implied duties, (b) the Agent shall not have any duty to take any
43
discretionary action or exercise any discretionary powers, and (c) the Agent
shall not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to the Purchaser or any of its subsidiaries
that is communicated to or obtained by it or any of its Affiliates in any
capacity. The Agent shall not be liable for any action taken or not taken by it.
The Agent shall not be responsible for or have any duty to ascertain or inquire
into (i) any statement, warranty or representation made in or in connection with
this Agreement or any other Transaction Document, (ii) the contents of any
certificate, report or other document delivered hereunder or thereunder or in
connection herewith or therewith, (iii) the performance or observance of any of
the covenants, agreements or other terms or conditions set forth herein or
therein, or (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Transaction Document or any other agreement,
instrument or document.
(iv) The Agent shall be entitled to rely upon, and shall not
incur any liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person. The Agent also may rely
upon any statement made to it orally or by telephone and believed by it to be
made by the proper Person, and shall not incur any liability for relying
thereon. The Agent may consult with legal counsel (who may be counsel for the
Purchaser), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
(v) The Agent may perform any and all its duties and exercise
its rights and powers by or through any one or more sub-agents appointed by the
Agent. The Agent and any such sub-agent may perform any and all its duties and
exercise its rights and powers through their respective Affiliates. The
exculpatory provisions of the preceding paragraphs shall apply to any such
sub-agent and to the Affiliates of the Agent and any such sub-agent.
(vi) To the extent that the Purchaser fails to pay any such
amount, Berliner agrees to pay to the Agent 19.9% of all out-of-pocket expenses
incurred by the Agent (including the fees, expenses and disbursements of its
Affiliates and its Representatives) in its capacity as such.
SECTION 7.4 Adjustment to Purchase Price. Any indemnification payments
made pursuant to this Article VII shall be deemed to be an adjustment to the
Purchase Price.
SECTION 7.5 Limitations. Other than for Claims under Sections 3.21 and
4.25 and the third sentence of Section 10.1, no Party shall be required to
indemnify another Party under this Article VII (i) unless with respect to Claims
for breaches of representations or warranties, the aggregate of all amounts for
which indemnity would otherwise be due against it exceeds the sum of $1,500,000
plus any unapplied portion of the reserve included in the Signing Balance Sheet
for the matter listed on Schedule 7.5 (the "Basket"), in which case the amount
for which indemnity shall be due shall be equal to the excess over that amount;
provided, however, that, with respect to Claims with respect to the matter
listed in Schedule 7.1, the Basket shall not apply and Damages arising
thereunder shall be wholly indemnifiable from the first dollar; (ii) to the
44
extent that the Indemnified Party had a reasonable opportunity, but failed, in
good faith to mitigate the Damages, including but not limited to the failure to
use commercially reasonable efforts to recover under a policy of insurance or
under a contractual right of reimbursement, set-off or indemnity or risk sharing
arrangement; or (iii) to the extent the Damages arise from or were caused by
actions taken or failed to be taken by the Indemnified Party or any of its
Affiliates after the Closing or were reflected in the calculation of Closing Net
Worth or in reserves accrued in the financial statements. For purposes of clause
(i) of this Section 7.5, the New Valley Parties and Berliner shall be considered
as a single Party.
SECTION 7.6 Payment of Claims. Prior to the maturity of the Notes, the
Purchaser shall not offset against amounts due under the Notes any Claims
against the New Valley Parties or Berliner prior to settlement or the entry of a
final judgment and the expiration of all applicable appeal periods and the
failure of the New Valley Parties and Berliner to pay such Claim within ten (10)
Business Days after such settlement or expiration. In the event any payment of
the indemnity obligations of the New Valley Parties and Berliner set forth in
Section 7.1 is required to be made, the New Valley Parties and Berliner may
satisfy such payment by delivery to the Purchaser of Notes acquired by them
pursuant to this Agreement in a principal amount, together with accrued
interest, equal to the amount of the Claims for which payment is required.
SECTION 7.7 Representations and Warranties. For purposes of indemnity
under this Article VII for breach of a representation or warranty of a Party,
the representations and warranties shall be the representations and warranties
of a Party made herein as of the date hereof, and shall be deemed to be made
again as of the Closing Date without regard to supplementation, modification or
amendment pursuant to Section 5.23, and in each instance without regard to any
materiality qualifications or standards otherwise contained therein. If payment
is made by an Indemnified Party consistent with the provisions of Section 7.3 in
settlement of or upon judgment or award granted in a Third Party Claim which is
the proper basis for a claim for indemnification hereunder, such payment shall
be deemed to be conclusive evidence of the truthfulness of the allegations in
such Third Party Claim in determining whether or not a breach of a warranty or
representation has occurred.
SECTION 7.8 Exclusivity. After the Closing, to the extent permitted by
law, the indemnities set forth in this Article VII shall be the exclusive
remedies of the Purchaser, the New Valley Parties and Berliner and their
respective officers, directors, Representatives and Affiliates for any
misrepresentation or breach of warranty contained in this Agreement, and the
Parties shall not be entitled to a rescission of this Agreement or to any
further indemnification rights or claims of any nature whatsoever in respect
thereof, all of which the Parties hereto hereby waive.
SECTION 7.9 Tax Benefits.
(a) If an Indemnified Party is entitled to receive an
indemnification payment pursuant to this Agreement, then the Indemnifying Party
shall, in addition to making the indemnification payment, pay to the Indemnified
Party an additional amount with respect to federal, state and local income and
franchise Taxes, computed without taking into account credits and unused net
operating loss carry-forwards ("Attributable Taxes"), if any, that may be
45
payable by the Indemnified Party in respect of the receipt of indemnification
payments under this Agreement, determined and payable as described below (the
"Gross Up Amount").
(b) If, as a result of any Damages, the Indemnified Party or
Ladenburg is entitled to a deduction in determining its Attributable Taxes, the
Indemnified Party (or, as to Damages incurred by Ladenburg, the Purchaser) shall
pay to the Indemnifying Party the amount of the reduction in Attributable Taxes
payable by the Indemnified Party or Ladenburg, determined and payable as
described below (the "Tax Benefit Amount"), plus interest thereon, from the date
the related indemnification payment is made by the Indemnifying Party to the
date the Tax Benefit Amount is paid by the Indemnified Party, at an annual rate
of interest equal to the mid-term applicable federal rate.
(c) The Gross Up Amount with respect to each applicable Tax shall
be the amount that, after deduction of the amount of such Tax (taking into
account the effect thereon of any other federal, state or local Tax which is
deductible in computing such Tax) required to be paid by the Indemnified Party
in respect of the receipt of payment of Damages and the Gross Up Amount, shall
equal the amount of such Damages. The amount of the Tax to be deducted shall be
determined at the marginal tax rate at which the Indemnified Party is subject to
such Tax for the taxable year in which the Indemnified Party was required to
include the payment of Damages in income with respect to such Tax, such rate to
be determined from the particular income or franchise Tax Return filed by the
Indemnified Party for such taxable year. The Gross Up Amount shall be payable
immediately after each Return has been filed, provided, however, that no payment
need be made by the Indemnifying Party unless the Indemnified Party has provided
the Indemnifying Party with (i) a statement certified by the Indemnified Party
(or an officer or general partner thereof, as the case may be) setting forth the
calculations used in determining the Gross Up Amount and (ii) true copies of the
applicable Tax Returns.
(d) The Tax Benefit Amount with respect to each applicable Tax in
any taxable year shall be an amount equal to the excess of (i) the amount of
such Tax which would have been payable in respect of that year by the
Indemnified Party or, if the Purchaser is the Indemnified Party, by Ladenburg,
if no Damages had been incurred or a Gross Up Amount paid, over (ii) the amount
of such Tax that would have been payable by such Party in respect of that year
assuming it had incurred Damages in an amount equal to the amount of Damages
determined pursuant to Section 7.1 or 7.2 (without reduction for the amount of
any Basket), such Taxes to be determined from the particular income or franchise
Tax Return filed by such party for such taxable year. The Tax Benefit Amount
shall be payable immediately after each such Return has been filed. At any time
a Party is obligated to make a payment of a Tax Benefit Amount to an Indemnified
Party, such Party shall give notice thereof to the Indemnified Party and shall
furnish the Indemnifying Party with (i) a statement certified by such party (or
an officer or general partner thereof, as the case may be) setting forth the
calculations used in determining the Tax Benefit Amount and (ii) true copies of
the applicable Tax Returns.
46
(e) If there is a disallowance or a reduction in the Indemnified
Party's or Ladenburg's Attributable Taxes with respect to which reduction a
payment of a Tax Benefit Amount was made, such disallowance shall be treated as
Damages and shall be subject to the indemnification provisions of this
Agreement.
ARTICLE VIII
TERMINATION AND ABANDONMENT
SECTION 8.1 Methods of Termination. The transactions contemplated
herein may be terminated and/or abandoned at any time but not later than the
Closing:
(a) By mutual written consent of the Purchaser and the Sellers;
(b) By the Purchaser or New Valley if any competent regulatory
authority shall have issued an order making illegal or otherwise restricting,
preventing, prohibiting or refusing to approve the transactions contemplated
hereby, and such order shall have become final and non-appealable;
(c) By the Purchaser or New Valley if the Closing has not occurred
by September 30, 2001 for any reason other than breach by the Party seeking to
terminate unless the Parties agree to an extension in writing;
(d) By New Valley if the Board of Directors of the Purchaser (or
any committee thereof) shall have (i) failed to recommend or withdrawn or
modified in a manner adverse to the Sellers its approval or recommendation of
this Agreement and any of the transactions contemplated hereby, (ii) recommended
or taken no position with respect to a proposal for a Purchaser Alternative
Transaction or (iii) following the public announcement of a proposal for a
Purchaser Alternative Transaction, failed to reconfirm its recommendation of
this Agreement and any of the transactions contemplated hereby within five
business days following a written request for such reconfirmation by New Valley;
or
(e) By the Purchaser if the Board of Directors of the Purchaser
shall have determined in good faith, based upon the advice of outside legal
counsel, that failure to terminate this Agreement is reasonably likely to result
in the Board of Directors breaching its fiduciary duties to stockholders under
applicable law by reason of the pendency of an unsolicited, bona fide written
proposal for a Superior Purchaser Transaction, but only if the Purchaser and its
subsidiaries and other Representatives of the Purchaser shall have complied with
their obligations under Section 5.16; provided, however, that the Purchaser may
not terminate this Agreement pursuant to this clause (e) unless (x) 48 hours
shall have elapsed after delivery to New Valley of a written notice of such
determination by the Board of Directors and (y) the Purchaser shall have paid to
New Valley any amounts owed by it pursuant to Section 8.2(b).
SECTION 8.2 Effect of Termination. (a) In the event of termination by a
Party, or both Parties, pursuant to Section 8.1 hereof, written notice thereof
shall forthwith be given to the other Party and, except as set forth in this
Section 8.2, all further obligations of the Parties shall terminate, no Party
47
shall have any right against the other Party hereto or its officers, directors,
employees, Representatives or Affiliates, and each Party shall bear its own
costs and expenses, except that if this Agreement is so terminated by one Party
because one or more of the conditions to such Party's obligations hereunder is
not satisfied as a result of the other Party's willful failure to comply with
its obligations under this Agreement, it is expressly agreed and understood that
the terminating Party's right to pursue all legal remedies for breach of
contract or otherwise, including, without limitation, Damages relating thereto,
shall survive such termination unimpaired. If the transactions contemplated by
this Agreement are terminated and/or abandoned as provided herein:
(i) Each Party hereto will return all documents, work papers
and other material (and all copies thereof) of the other Party, and, in the case
of the Purchaser, of the Ladenburg Companies, whether so obtained before or
after the execution hereof, to the Party furnishing the same; and
(ii) All confidential information received by either Party
hereto with respect to the business of the other Party shall be treated in
accordance with the Confidentiality Agreement.
(b) If (I) New Valley shall have terminated this Agreement pursuant
to Section 8.1(d) or the Purchaser shall have terminated this Agreement pursuant
to Section 8.1(e), or (II) either New Valley or the Purchaser shall have
terminated this Agreement pursuant to Section 8.1(c) following the public
announcement of a proposal for a Purchaser Alternative Transaction by any person
and, within one year after any termination described in this clause (II), the
Purchaser (or any of its subsidiaries) shall have entered into a binding
agreement providing for the consummation of, or shall have consummated, a
Purchaser Alternative Transaction, then, in any of such cases, the Purchaser
shall pay the Sellers a termination fee of $1,750,000, plus an amount equal to
all documented out-of-pocket expenses and fees incurred by the Sellers and their
Affiliates in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, fees and expenses payable to their
respective agents and counsel). Any fee payable under this Section 8.2(b) shall
be paid by wire transfer of immediately available funds (A) within two Business
Days after a termination described in clause (I), or (B) concurrent with or
prior to the entering into of the binding agreement with respect to, or (in the
absence of a binding agreement) the consummation of, such Purchaser Alternative
Transaction, in the case of a termination described in clause (II).
(c) The Purchaser acknowledges that the agreements contained in the
preceding paragraph are an integral part of the transactions contemplated by
this Agreement and that, without these agreements, neither Seller would enter
into this Agreement; accordingly, if the Purchaser fails promptly to pay the
amount due pursuant to such paragraph, and in order to obtain such payment, a
Seller commences a suit which results in a judgment against the other for the
amounts set forth in such paragraph, the party which brings such suit shall be
entitled to have its cost and expenses (including reasonable attorneys' fees and
expenses) reimbursed in connection with such suit, together with interest on the
amount of the fee at the prime rate of The Chase Manhattan Bank in effect on the
date such payment was required to be made.
48
(d) Termination of this Agreement pursuant to Section 8.1(d) or
8.1(e) shall also entitle the Purchaser to cancel the Purchaser Stockholder
Meeting.
ARTICLE IX
DEFINITIONS
SECTION 9.1 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Adjustment Event" means, with respect to the Purchaser Common Stock,
reclassifications, stock splits, stock dividends, share combinations and similar
changes affecting the Purchaser Common Stock as a whole and all holders thereof.
"Affiliate" means, with respect to a person or entity, any other person
or entity controlling, controlled by or under common control with such first
person or entity.
"Agreed Disclosure" has the meaning specified in Section 10.3.
"Agreement" has the meaning specified in the Recitals.
"AMEX" means The American Stock Exchange, Inc.
"Attributable Taxes" has the meaning specified in Section 7.9(a).
"Audited 1999 Financial Statement" has the meaning specified in Section
3.6.
"Basket" has the meaning specified in Section 7.5.
"Berliner" has the meaning specified in the Recitals.
"Business Day" means a day of the year on which banks are not required
or authorized to be closed in the City of New York.
"Claim" has the meaning specified in the definition of "Third Party
Claim."
"Claim Notice" has the meaning specified in Section 7.3(a).
"Closing" has the meaning specified in Section 2.1.
"Closing Date" has the meaning specified in Section 2.1.
"Closing Net Worth" has the meaning specified in Section 2.4(a).
"Code" means the Internal Revenue Code of 1986, as amended.
49
"Commission" has the meaning specified in Section 4.4.
"Confidentiality Agreement" has the meaning specified in Section 5.2.
"Contracts" has the meaning specified in Section 3.9(c).
"Damages" means the dollar amount of any loss, damage, expense or
liability, including, without limitation, reasonable attorneys' fees and
disbursements incurred by an Indemnified Party in any action or proceeding
between the Indemnified Party and the Indemnifying Party or between the
Indemnified Party and a third party, which is determined (as provided in Article
VII) to have been sustained, suffered or incurred by a Party and to have arisen
from an event or state of facts which is subject to indemnification under this
Agreement; the amount of Damages shall be the amount finally determined by a
court of competent jurisdiction or appropriate governmental administrative
agency (after the exhaustion of all appeals) or the amount agreed to upon
settlement in accordance with the terms of this Agreement, if a Third Party
Claim, or by the Parties, if a Direct Claim.
"Direct Claim" means any Claim other than a Third Party Claim.
"8-K" has the meaning specified in Section 4.4.
"Employee Benefit Plans" has the meaning specified in Section 3.15(a).
"Employee Welfare Plans" has the meaning specified in Section 3.15(c).
"Enforcement Committee" has the meaning specified in Section 2.9.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" has the meaning specified in Section 1.3(a).
"Escrow Agreement" has the meaning specified in Section 1.3(a).
"Evaluation Material" has the meaning specified in Section 5.2.
"Financial Statements" has the meaning specified in Section 3.6.
"GAAP" has the meaning specified in Section 3.6.
"Gross Up Amount" has the meaning specified in Section 7.9(a).
"Indemnified Party" has the meaning specified in Section 7.3.
"Indemnifying Party" has the meaning specified in Section 7.3.
"Initial Determination" has the meaning specified in Section 2.4(b).
"Ladenburg" has the meaning specified in the Recitals.
50
"Ladenburg Companies" has the meaning specified in Section 3.1(e).
"Ladenburg Stock" has the meaning specified in the Recitals.
"Ladenburg Subsidiaries" has the meaning specified in Section 3.1(c).
"Leases" has the meaning specified in Section 3.9(b).
"Lender" has the meaning specified in Section 4.11.
"Lien" has the meaning specified in Section 3.3.
"LTGI" has the meaning specified in the Recitals.
"LTI" has the meaning specified in Section 1.2.
"LTI Stock" has the meaning specified in Section 1.2.
"New Valley" has the meaning specified in the Recitals.
"New Valley Companies" has the meaning specified in the introductory
clause of Article III.
"New Valley Parties" has the meaning specified in the Recitals.
"1933 Act" has the meaning specified in Section 3.28.
"1934 Act" has the meaning specified in Section 3.5(a).
"Notes" has the meaning specified in Section 1.3(b).
"NYSE" has the meaning specified in Section 5.23(a).
"Party" means, as the context requires, the Selling Parties or any of
them, on the one hand, and the Purchaser, on the other hand (collectively, the
"Parties").
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"Permits" has the meaning specified in Section 3.7.
"Pledge and Security Agreement" has the meaning specified in Section
2.5.
"Principals" has the meaning specified in Section 5.17(a).
"Proceedings" has the meaning specified in Section 3.10.
"Proxy and Voting Agreement" has the meaning specified in Section 2.6.
51
"Proxy Statement" has the meaning specified in Section 5.11.
"Purchaser" has the meaning specified in the Recitals.
"Purchaser Alternative Transaction" has the meaning specified in
Section 5.16.
"Purchase Price" has the meaning specified in Section 1.3.
"Purchaser Balance Sheet" has the meaning specified in Section 4.13(b).
"Purchaser Common Stock" has the meaning specified in Section 1.3(c).
"Purchaser Companies" has the meaning specified in Section 4.1(b)).
"Purchaser Financial Statements" has the meaning specified in Section
4.4.
"Purchaser SEC Filings" has the meaning specified in Section 4.4.
"Purchaser Stockholder Meeting" has the meaning specified in Section
5.10.
"Purchaser Subsidiaries" has the meaning specified in Section 4.1(a).
"Purchaser Transaction Documents" has the meaning specified in Section
4.2(a).
"Purchaser's Accountants" means Richard A. Eisner & Company, LLP or any
successor firm appointed by the Purchaser.
"Purchaser's Knowledge" means the actual knowledge of the Principals,
Joseph Berland, Joseph Pickard and Diane Chillemi.
"Representatives" of any Party means such Party's employees,
accountants, auditors, actuaries, counsel, financial advisors, bankers,
investment bankers and consultants.
"Returns" has the meaning specified in Section 3.11.
"Seller Transaction Documents" has the meaning specified in Section
3.2.
"Sellers" has the meaning specified in Section 1.2.
"Sellers' Accountants" means PricewaterhouseCoopers LLP or any
successor firm appointed by New Valley.
"Selling Parties" has the meaning specified in Section 2.2.
"Selling Parties' Knowledge" means the actual knowledge of Holger Timm
and Wolfgang Janka (in the case of Berliner) and Howard Lorber, Richard Lampen
and J. Bryant Kirkland III (in the case of New Valley).
52
"Signing Balance Sheet" has the meaning specified in Section 3.6.
"Signing 8-Ks" has the meaning specified in Section 10.3.
"Signing Income Statement" has the meaning specified in Section 3.6.
"Signing Release" has the meaning specified in Section 10.3.
"Stockholder Approval" has the meaning specified in Section 5.10.
"Superior Purchaser Transaction" has the meaning specified in Section
5.16.
"Tax" or "Taxes" means all income, gross receipts, sales, stock
transfer, excise, bulk transfer, use, employment, franchise, profits, property
or other taxes, fees, stamp taxes and duties, assessments, levies or charges of
any kind whatsoever (whether payable directly or by with the Purchaser),
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority with respect thereto.
"Tax Benefit Amount" has the meaning specified in Section 7.9(b).
"10-Ks" has the meaning specified in Section 4.4.
"10-K/As" has the meaning specified in Section 4.4.
"10-Qs" has the meaning specified in Section 4.4.
"Third Party Claim" means a claim, demand, suit, proceeding or action
("Claim") by a person, firm, corporation or government entity other than a Party
hereto or any Affiliate of such Party.
"Transaction Documents" mean, collectively, the Seller Transaction
Documents and the Purchaser Transaction Documents.
"Underwriters' Warrants" has the meaning specified in Section 3.31.
"Ukraine Fund" has the meaning specified in Section 3.4(b).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as otherwise provided herein, all costs
and expenses, including, without limitation, fees and disbursements of
Representatives, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such costs and
expenses, whether or not the Closing shall have occurred. The New Valley Parties
53
and Berliner shall pay all such expenses incurred at and prior to the Closing by
the Ladenburg Companies. Notwithstanding the foregoing, the Purchaser and New
Valley shall share equally the cost of all filing fees required to be paid by
either of them or any of their Affiliates, whether before or after the Closing,
in connection with the transactions contemplated by this Agreement with respect
to filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. New Valley and Berliner acknowledge and agree that the Purchaser has
disclosed that it is obligated and will become further obligated for the
reasonable fees and expenses of its Representatives (including Richard A. Eisner
& Company, LLP and Graubard Mollen & Miller) in connection with this Agreement
and the transactions contemplated hereby. It is understood and agreed that
certain of such fees and expenses have been paid by the Purchaser prior to the
execution of this Agreement, other of such fees and expenses will be paid prior
to the Closing and the balance of such fees and expenses that are due and owing
will be paid promptly thereafter.
SECTION 10.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered personally or by nationally recognized
courier or by telecopy to the Parties at the following addresses (or at such
other address for a Party as shall be specified by like notice):
(a) If to New Valley:
New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Howard M. Lorber
Telecopier No.: 305-579-8001
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: Mark Weissler, Esq.
Telecopier No.: 212-530-5219
(b) If to LTGI:
Ladenburg Thalmann Group Inc.
c/o New Valley Corporation
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard Lampen
Telecopier No.: 305-579-8009
with a copy to:
54
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: Mark Weissler, Esq.
Telecopier No.: 212-530-5219
(c) If to Ladenburg:
Ladenburg, Thalmann & Co. Inc.
590 Madison Avenue
New York, New York 10022
Attention: Victor Rivas
Telecopier No.: 212-317-8192
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: Mark Weissler, Esq.
Telecopier No.: 212-530-5219
(d) If to Berliner:
Berliner Effektengesellschaft AG
Kurfurstendamm 119
10711 Berlin, Germany
Attention: Dr. Wolfgang Janka
Telecopier No.: 01149-30-8902-196
(e) If to the Purchaser:
GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, New York 11714
Attention: Richard Rosenstock
Telecopier No.: 516-470-1050
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopier No.: 212-818-8881
55
SECTION 10.3 Press Release; Public Announcements; Filings. Promptly
after execution of this Agreement, the Parties shall issue a press release in
the form of Exhibit K annexed hereto (the "Signing Release"). The Purchaser and
New Valley shall also each file with the Commission a Report on Form 8-K with
respect to the transactions contemplated hereby (the "Signing 8-Ks" and together
with the Signing Release, the "Agreed Disclosure"). Each Signing 8-K shall be
provided by its preparer to the other Party prior to filing and the other Party
shall be given a reasonable opportunity to comment thereon. Upon acceptance of
the Signing 8-Ks by both the Purchaser and New Valley, the Agreed Disclosure
shall serve as the basis for any public disclosure by the Parties of the
transactions contemplated hereby. The Parties shall not make any other public
announcements in respect of this Agreement or the transactions contemplated
herein inconsistent with the Agreed Disclosure without prior consultation and
approval as to the form and content thereof except to the extent required by
law. Notwithstanding the foregoing, a Party may make any disclosure which its
counsel advises is required by applicable law or regulation, in which case the
other Party shall be given such reasonable advance notice as is practicable in
the circumstances and the Parties shall use their best efforts to cause a
mutually agreeable release or announcement to be issued. The Parties may also
make appropriate disclosure of the transactions contemplated by this Agreement
to their officers, directors and Representatives.
SECTION 10.4 Amendment. Subject to Section 2.9, this Agreement may not
be amended or modified except by an instrument in writing signed by the Parties.
SECTION 10.5 Waiver. A Party may (a) extend the time for the
performance of any of the obligations or other acts of the other Party, (b)
waive any inaccuracies in the representations and warranties contained herein or
in any document delivered pursuant hereto and (c) waive compliance with any of
the agreements or conditions contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the Party
to be bound thereby. No waiver by any party of any term or condition of this
Agreement, in any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on any
future occasion.
SECTION 10.6 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 10.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party.
SECTION 10.8 Entire Agreement. This Agreement, the Schedules and
Exhibits hereto and the Confidentiality Agreement constitute the entire
agreement and supersede all prior agreements and undertakings, both written and
oral, among the Parties with respect to the subject matter hereof and, except as
otherwise expressly provided herein, are not intended to confer upon any other
person any rights or remedies hereunder. Without limitation of the foregoing,
(a) no representations or warranties with respect to the business, operations,
financial condition, prospects, income, assets or liabilities of the Ladenburg
56
Companies have been made to the Purchaser, and the Purchaser has not relied upon
any representations or warranties, except as explicitly set forth in the Seller
Transaction Documents, and no representations or warranties have been made to
the Purchaser with respect to the intentions of any employee (or group of
employees comprising an operating unit) of Ladenburg to remain in the employ of
the Ladenburg Companies from and after the Closing, and the Purchaser has not
relied upon any such representation or warranty and (b) no representations or
warranties with respect to the business, operations, financial condition,
prospects, income, assets or liabilities of the Purchaser have been made to the
Selling Parties, and the Selling Parties have not relied upon any
representations or warranties, except as explicitly set forth in the Purchaser
Transaction Documents.
SECTION 10.9 Benefit. This Agreement may not be assigned. This
Agreement shall inure to the benefit of and be binding upon the successors of
the Parties. The terms and provisions of this Agreement are intended solely for
the benefit of each Party hereto and their respective successors or permitted
assigns, and it is not the intention of the Parties to confer third-party
beneficiary rights upon any other person or entity other than any person or
entity entitled to indemnity under Article VII, and except that the directors,
officers and employees of the Purchaser are intended to be third party
beneficiaries solely for the purpose of claims they may have under Section 5.19.
SECTION 10.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York without giving
effect to principles of conflicts of law.
SECTION 10.11 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different Parties in separate counterparts, each
of which when executed shall be deemed to be an original but all of which when
taken together shall constitute one and the same agreement.
SECTION 10.12 Consent to Jurisdiction and Service of Process. New
Valley and each Seller hereby irrevocably appoints the President of New Valley
Corporation, at its offices at 590 Madison Avenue, 35th Floor, New York, New
York 10022, and the Purchaser hereby irrevocably appoints the President of GBI
Capital Management Corp., at its offices at 1055 Stewart Avenue, Bethpage, New
York 11714, its lawful agent and attorney to accept and acknowledge service of
any and all process against it in any action, suit or proceeding arising out of
or relating to this Agreement or any of the Transaction Documents or any of the
transactions contemplated thereby and upon whom such process may be served, with
the same effect as if such Party were a resident of the State of New York and
had been lawfully served with such process in such jurisdiction, and waives all
claims of error by reason of such service, provided that in the case of any
service upon such agent and attorney, the Party effecting such service shall
also deliver a copy thereof to the other Parties at the address and in the
manner specified in Section 10.2. New Valley, the Sellers and the Purchaser will
enter into such agreements with such agents as may be necessary to constitute
and continue the appointment of such agents hereunder. In the event that such
agent and attorney resigns or otherwise becomes incapable of acting as such,
such Party will appoint a successor agent and attorney in the City of New York,
57
reasonably satisfactory to the other Parties, with like powers. Each Party
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York or any court of the State
of New York located in the Borough of Manhattan in the City of New York in any
such action, suit or proceeding arising out of or relating to this Agreement or
any of the Transaction Documents or any of the transactions contemplated
thereby, and agrees that any such action, suit or proceeding shall be brought
only in such court; provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this Section 10.12 and shall not be deemed
to be a general submission to the jurisdiction of said courts or in the State of
New York other than for such purpose. Each Party hereby irrevocably waives, to
the fullest extent permitted by law, any objection that it may now or hereafter
have to the laying of the venue of any such action, suit or proceeding brought
in such a court and any claim that any such action, suit or proceeding brought
in such a court has been brought in an inconvenient forum.
SECTION 10.13 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE PARTIES HERETO IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
SECTION 10.14 Specific Performance. The Parties hereto acknowledge and
agree that any remedy at law for any breach of the provisions of this Agreement
would be inadequate, and each Party hereto hereby consents to the granting by
any court of an injunction or other equitable relief, without the necessity of
actual monetary loss being proved, in order that the breach or threatened breach
of such provisions may be effectively restrained.
[The next page is the signature page.]
58
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed as of the date first written above.
GBI CAPITAL MANAGEMENT CORP.
/s/ Richard J. Rosenstock
By:____________________________________
Name: Richard J. Rosenstock
Title: President
NEW VALLEY CORPORATION
/s/ Richard J. Lampen
By:____________________________________
Name: Richard J. Lampen
Title:
BERLINER EFFEKTENGESELLSCHAFT AG
/s/ Holger Timm
By:____________________________________
Name: Holger Timm
Title: CEO
LADENBURG, THALMANN GROUP INC.
/s/ Victor Rivas
By:____________________________________
Name: Victor Rivas
Title:
LADENBURG, THALMANN & CO. INC.
/s/ Victor Rivas
By:____________________________________
Name: Victor Rivas
Title: CEO
Appendix B
SENIOR CONVERTIBLE PROMISSORY NOTE
$10,000,000.00 [Aggregate to Sellers] __________, 2001
FOR VALUE RECEIVED, GBI CAPITAL MANAGEMENT CORP., a Florida corporation
("Maker"), having an address at 1055 Stewart Avenue, Bethpage, New York 11714,
hereby promises to pay to _____________________________, a ______________
corporation, its successors and/or permitted assigns (any of which is
hereinafter referred to as "Holder"), at
_______________________________________, in lawful money of the United States,
the sum of ______________ Dollars and No Cents ($_________.00) on December 31,
2005. Interest on the unpaid principal amount of this Note shall be paid at the
rate of seven and one half percent (7-1/2%) per annum on each March 31, June 30,
September 30 and December 31, commencing June 30, 2001 or the lesser of fifteen
percent(15%) per annum or the maximum interest rate permitted by applicable law
following an Event of Default. At the Holder's request payments shall be made by
wire transfer to an account designated by the Holder. If a payment date is not a
business day, payment may be made on the next business day and interest shall
accrue for the intervening period. This Note may not be prepaid.
The Holder may, with or without notice to the Maker or any guarantor or
other party liable herefor, extend or renew this Note, or extend the time for
making payment of any amount provided for herein, or accept any amount in
advance, all without affecting the liability of the Maker or any other party or
guarantor liable herefor.
This Note is issued pursuant to the terms of that certain Stock
Purchase Agreement ("Stock Purchase Agreement") dated February 8, 2001 between
the Maker, New Valley Corporation, Ladenburg, Thalmann Group Inc., Ladenburg,
Thalmann & Co. Inc. and Berliner Effektengesellschaft AG. and the Holder and the
Maker are entitled to the benefits provided for therein. Terms used but not
defined herein shall have their respective meanings assigned in the Stock
Purchase Agreement. This Note is entitled to the benefits of the security for
the payment hereof provided pursuant to that certain Pledge and Security
Agreement dated February 8, 2001 between the Maker, the Secured Parties named
therein and U.S. Bank Trust National Association, as Collateral Agent ("Pledge
Agreement").
1. Conversion of Note
The principal of and accrued interest on this Note shall be
convertible, in whole or in part, at any time, at the election of the Holder,
into that number of fully paid and non-assessable shares of the Maker's common
stock, par value $0.0001 per share ("Common Stock"), determined by dividing the
amount of principal and interest to be so converted by the "Conversion Price"
(as hereinafter defined) in effect at the time notice of conversion is given to
the Maker as set forth below. As used herein, "Conversion Price" means,
initially, $2.60. If, at any time after the date hereof, there occurs, with
respect to the Common Stock, a reclassification, stock split, stock dividend,
spin-off or distribution, share combination or other similar change affecting
the Common Stock as a whole and all holders thereof or if the Maker shall
consolidate with, or merge with or into, any other entity, sell or transfer all
or substantially all its assets or engage in any reorganization,
reclassification or recapitalization which is effected in such a manner that the
holders of Common Stock are entitled to receive stock, securities, cash or other
assets with respect to or in exchange for Common Stock (each, an "Adjustment
Event"), the Conversion Price and the kind and amount of stock, securities, cash
or other assets issuable upon conversion of this Note in effect at the time of
the record date for such dividend or distribution or of the effective date of
such share combination, split, consolidation, merger, sale, transfer,
reorganization, reclassification or recapitalization shall be appropriately
adjusted so that the conversion of the Note after such time shall entitle the
Holder to receive the aggregate number of shares of Common Stock or securities,
cash and other assets which, if this Note hade been converted immediately prior
to such time, the Holder would have owned upon such conversion and been entitled
to receive by virtue of such Adjustment Event, provided that if the kind or
amount of securities, cash and other property is not the same for each share of
Common Stock held immediately prior to such reclassification, change,
consolidation, merger, sale, transfer, or conveyance, any Holder who fails to
exercise any right of election shall receive per share the kind and amount of
securities, cash or other property received per share by a plurality of such
shares.
Promptly after an Adjustment Event, the Maker shall mail to
the Holder a notice of the adjustment together with a certificate from the
Maker's independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it.
If (i) the Maker takes any action that would cause an
Adjustment Event, (ii) there is a liquidation or dissolution of the Maker or
(iii) the Maker declares a cash dividend, the Maker shall mail to the Holder a
notice stating the proposed record date for a dividend or distribution or the
proposed effective date of a subdivision, combination, reclassification,
consolidation, merger, transfer, lease, liquidation or dissolution, the Maker
shall mail the notice at least 15 days before such date.
If, during any period of twenty (20) consecutive trading days,
the closing sale price of the Common Stock is at least $8.00 per share (as
adjusted for all Adjustment Events occurring after the date of this Note), the
principal of and all accrued interest on this Note shall be automatically
2
converted, without further action on the part of the Holder, into shares of
Common Stock at the Conversion Price in effect on the last Trading Day of such
period.
In connection with any conversion of this Note, the Holder
shall surrender this Note and deliver it, together with written instructions to
convert in the form attached hereto, to the Maker at its principal executive
office. The date of such delivery shall be deemed the date of conversion. The
Maker shall, as soon as practicable, issue and deliver to a location in the
United States designated by the Holder certificates representing the securities
(or other assets) to which the Holder is entitled as a result of such conversion
together with a note for the unconverted balance.
The Maker shall not be required to issue fractions of shares
of Common Stock upon conversion and in lieu thereof any fractional share shall
be rounded up or down to the nearest whole share. The Maker shall reserve and
shall at all times have reserved out of its authorized but unissued shares of
Common Stock sufficient shares of Common Stock to permit the conversion of the
unpaid principal amount and accrued interest as provided for herein. The Maker
shall list such shares on any national securities exchange on which the Common
Stock is then listed. If the Holder converts this Note, the Maker shall pay any
documentary, stamp or similar issue or transfer tax due on such conversion
except that the Holder shall pay any such tax due because the shares are issued
in a name other than the Holder's.
The certificates representing shares of Common Stock issued
upon conversion of this Note shall bear a legend to the effect that such shares
are not registered under the 1933 Act and may not be sold, assigned or otherwise
transferred or hypothecated except in accordance with the registration
provisions of the 1933 Act or an exemption therefrom and in accordance with the
provisions of that certain Investor Rights Agreement dated as of February 8,
2001 among New Valley Corporation, Ladenburg, Thalmann Group Inc., Berliner
Effektengesellschaft AG, the Maker, Frost-Nevada, Limited Partnership and the
Principals party thereto ("Investor Rights Agreement"). This legend shall be
removed on receipt of an opinion of counsel reasonably satisfactory to the Maker
that such legend is no longer required.
2. Change of Control
(i) Promptly after the occurrence of a Change of Control (as
hereinafter defined) (the date of such occurrence being the "Change of Control
Date"), the Maker shall commence (or cause to be commenced) an offer to purchase
all outstanding Notes pursuant to the terms described in paragraph (iii) of this
"Change of Control" section (the "Change of Control Offer") at a purchase price
equal to the unpaid principal amount of this Note and accrued interest thereon
(the "Change of Control Amount") on the Change of Control Payment Date (as
hereinafter defined), and shall purchase (or cause the purchase of) any Notes
tendered in the Change of Control Offer pursuant to the terms hereof. As used in
this Note, the term "Notes" means all Convertible Promissory Notes of the Maker
3
of like tenor to this Note (except as to principal amount, interest rate and
Conversion Price). The Change of Control Amount shall be payable in cash.
(ii) Within 10 days following a Change in Control Date, the Maker
shall send, by first-class mail, postage prepaid, a notice to the Holder. Such
notice shall contain all instructions and materials necessary to enable the
Holder to tender this Note pursuant to the Change of Control Offer and shall
state:
(a) that a Change of Control has occurred, that a Change of
Control Offer is being made pursuant to this "Change of Control" section and
that all Notes validly tendered and not withdrawn will be accepted for payment;
(b) the Change of Control Amount and the purchase date (which
must be no earlier than 10 days nor later than 20 days from the date such notice
is mailed, other than as may be required by law) (the "Change of Control Payment
Date");
(c) that any Notes not tendered will continue to accrue
interest;
(d) that, unless the Maker defaults in making payment
therefor, any Note accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(e) that holders electing to have any Notes purchased pursuant
to a Change of Control Offer will be required to surrender such Notes, properly
endorsed for transfer, together with such other customary documents as the Maker
may reasonably request to the Maker at the address specified in the notice prior
to the close of business on the business day prior to the Change of Control
Payment Date;
(f) that holders of Notes will be entitled to withdraw their
election if the Maker receives, not later than two business days prior to the
Change of Control Payment Date, a telegram, facsimile transmission or letter
setting forth the name of the holder, the principal amount of the Notes the
holder delivered for purchase and a statement that such holder is withdrawing
its election to have such Notes purchased;
(g) that holders who tender only a portion of their Notes
will, upon purchase of the Notes tendered, be issued a Note representing the
Notes not purchased; and
(h) the circumstances and relevant facts regarding such Change
of Control (including information with respect to pro forma historical income,
cash flow and capitalization after giving effect to such Change of Control).
(iii) The Maker will comply with any tender offer rules under the
Exchange Act which then may be applicable in connection with any offer made by
the Maker to repurchase the Notes as a result of a Change of Control. If the
provisions of any securities laws or regulations conflict with provisions of
this Note, in reliance on an opinion of counsel, the Maker may comply with the
4
applicable securities laws and regulations and shall not be deemed to have
breached its obligation under this Note by virtue thereof.
(iv) On the Change of Control Payment Date, the Maker shall (A)
accept for payment the Notes validly tendered pursuant to the Change of Control
Offer, (B) pay to the holders of Notes so accepted the Change of Control Amount
therefor in cash as provided above and (C) cancel each surrendered Note. Unless
the Maker defaults in the payment for the Notes tendered pursuant to the Change
of Control Offer, interest will cease to accrue with respect to the Notes
tendered and all rights of holders of such tendered Notes will terminate, except
for the right to receive payment therefor on the Change of Control Payment Date.
(v) To accept the Change of Control Offer, the holder of a Note
shall deliver, prior to the close of business on the business day prior to the
Change of Control Payment Date, written notice to the Maker (or an agent
designated by the Maker for such purpose) of such holder's acceptance, together
with the Notes with respect to which the Change of Control Offer is being
accepted, duly endorsed for transfer.
(vi) For the avoidance of doubt, nothing in this "Change of
Control" section shall restrict the right of the holders of Notes, in connection
with a Change of Control, to convert and to receive the kind and amount of
consideration payable to holders of Common Stock in respect of the Common Stock
into which the Notes may be converted.
(vii) As used in this "Change of Control" section,
"Change of Control" means: (a) the sale, lease, transfer,
conveyance, merger, consolidation or other disposition (other
than a merger or consolidation that does not result in any
change in the Maker's stock and in which a majority of the
successor's voting securities is held by holders of the
Maker's Common Stock immediately before such transaction ), in
one or a series of related transactions, of all or
substantially all the assets of the Maker and its
subsidiaries, taken as a whole, to any "person" (as such term
is used in Section 13(d)(3) of the Exchange Act), (b) the
consummation of any transaction (including any merger or
consolidation) the result of which is that any "person" (as
defined above), other than the Principals party to the
Investor Rights Agreement, New Valley Corporation, Ladenburg,
Thalmann Group Inc., Berliner Effektengesellschaft AG and Dr.
Phillip Frost, individually or collectively, becomes the
beneficial owner (as determined in accordance with Rules 13d-3
and 13d-5 under the Exchange Act, except that a person will be
deemed to have beneficial ownership of all Voting Securities
(as hereinafter defined) that such person has the right to
acquire, whether such right is exercisable immediately or only
after the passage of time), directly or indirectly, of more
5
than 50% of the Voting Securities of the Maker, or (c) the
first day on which a majority of the members of the Board of
Directors of the Maker are not Continuing Directors;
"Continuing Directors" means individuals who constituted the
Board of Directors of the Maker on the date hereof (the
"Incumbent Directors"); provided that any individual becoming
a director after the date hereof shall be considered to be an
Incumbent Director if such individual's election, appointment
or nomination was recommended or approved by at least
two-thirds of the other Incumbent Directors continuing in
office following such election, appointment or nomination
present, in person or by telephone, at any meeting of the
Board of Directors of the Maker, after the giving of a
sufficient notice to each Incumbent Director so as to provide
a reasonable opportunity for such Incumbent Directors to be
present at such meeting; and
"Voting Securities" means securities of the Maker ordinarily
having the power to vote for the election of directors of the
Maker.
3. Events of Default
Upon the occurrence of any of the following events (herein
called "Events of Default"):
(i) The Maker shall fail to make any payment of principal on this
Note on the date specified herein for such payment;
(ii) The Maker shall fail to make any payment of interest on this
Note or any other payment due under this Note or the Pledge Agreement within ten
(10) days after it is due;
(iii) (a) The Maker or Ladenburg shall commence, or consent to the
entry of an order for relief in, any proceeding or other action relating to it
in bankruptcy or seek reorganization, arrangement, readjustment of its debts,
receivership, dissolution, liquidation, winding-up, composition or any other
relief under any bankruptcy law, or under any other insolvency, reorganization,
liquidation, dissolution, arrangement, composition, readjustment of debt or any
other similar act or law, of any jurisdiction, domestic or foreign, now or
hereafter existing; or (b) the Maker or Ladenburg shall admit the material
allegations of any petition or pleading in connection with any such proceeding;
or (c) the Maker or Ladenburg shall apply for, or consent or acquiesce to, the
appointment of a receiver, conservator, trustee or similar officer for it or for
all or a substantial part of its property; or (d) the Maker or Ladenburg shall
make a general assignment for the benefit of creditors; or (e) the Maker or
Ladenburg shall become unable, admit in writing its inability or fail generally
to pay its debts as they become due;
(iv) (a) The commencement of any proceedings or the taking of any
other action against the Maker or Ladenburg in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts, liquidation,
6
dissolution, arrangement, composition, or any other relief under any bankruptcy
law or any other similar act or law of any jurisdiction, domestic or foreign,
now or hereafter existing and the continuance of any of such events for sixty
(60) days undismissed, unbonded or undischarged; or (b) the appointment of a
receiver, conservator, trustee or similar officer for the Maker or Ladenburg for
any of its property and the continuance of any of such events for sixty (60)
days undismissed, unbonded or undischarged; or (c) the issuance of a warrant of
attachment, execution or similar process against any of the property of the
Maker or Ladenburg and the continuance of such event for sixty (60) days
undismissed, unbonded and undischarged;
(v) The Maker or Ladenburg shall default with respect to any
indebtedness of $250,000 or more for borrowed money if either (a) such default
is a payment default or the effect of such default is to accelerate the maturity
of such indebtedness (in each instance giving effect to any applicable grace
periods) or (b) the holder of such indebtedness declares the Maker or Ladenburg
to be in default (giving effect to any applicable grace periods);
(vi) The failure by the Maker to observe any of the covenants
contained in this Note (other than the covenants to pay principal and interest
and the covenants in Sections 2 or 5) or in the Pledge Agreement (other than
Section 4.14) which failure is not cured within 30 days after notice thereof is
given to the Maker by any of the Secured Parties thereunder (or, if such failure
is not capable of being cured within such 30-day period, the failure of the
Maker to continue to proceed in a diligent matter to effect such cure);
(vii) The failure by the Maker to observe any of the covenants
contained in Sections 2 or 5 of this Note or in Section 4.14 of the Pledge
Agreement or the lien of Pledge Agreement will at any time not constitute a
first perfected lien on the collateral intended to be covered thereby; or
(viii) Any judgment or judgments against the Maker or Ladenburg or
any attachment, levy or execution against any of its properties for any amount
in excess of $250,000 in the aggregate shall remain unpaid, or shall not be
released, discharged, dismissed, stayed or fully bonded for a period of sixty
(60) days or more after its entry, issue or levy, as the case may be;
then, and in any such event, the Holder, at its option and with written notice
to the Maker, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived. The Events of Default listed herein are solely for the purpose
of protecting the interests of the Holder of this Note. If the Note is not paid
in full upon acceleration, as required above, interest shall accrue on the
outstanding principal of and interest on this Note from the date of the Event of
7
Default up to and including the date of payment at a rate equal to the lesser of
fifteen percent (15%) per annum or the maximum interest rate permitted by
applicable law.
Upon the occurrence a default under this Note (whether or not it has
become an Event of Default), the Maker agrees to pay the costs, expenses,
attorneys' and other fees paid or incurred by the Holder, or adjudged by a
court, including: (i) costs of suit and such amount as the court adjudges for
the fees of an attorney in an action to enforce this Note in whole or in part;
and (ii) reasonable costs of collection, costs and expenses of, and attorneys'
fees incurred or paid towards, the collection, enforcement, or sale of this Note
in whole or in part, or of any security for it.
4. Payment of Claims
Pursuant to Section 7.6 of the Stock Purchase Agreement, the Maker may
offset against amounts due under this Note any amounts owed by the Holder to the
Maker except that, prior to December 31, 2005, the Maker shall not offset
against amounts due under this Note any Claims against the Holder prior to
settlement or the entry of a final judgment and the expiration of all applicable
appeal periods and the failure of the Holder to pay such Claim within ten (10)
Business Days after such settlement or expiration. If any payment of the
indemnity obligations of the Holder pursuant to Section 8.1 of the Stock
Purchase Agreement is required to be made, the Holder may satisfy such payment
by delivery to the Maker of Notes acquired by it pursuant to the Stock Purchase
Agreement in a principal amount, together with accrued interest, equal to the
amount of the Claims for which payment is required in which case the Maker will
issue a new Note to the Holder for the remainder.
5. Consolidation and Mergers.
The Maker shall not consolidate or merge into, or transfer or lease all
or substantially all of its assets to, any person unless (1) the person is a
corporation; (2) the person assumes in a writing reasonably acceptable to the
Holder all the obligations of the Maker under this Note; and (3) immediately
after the transaction no Event of Default exists. The surviving, transferee or
lessee corporation shall be the successor Maker, but the predecessor Maker in
the case of a transfer or lease shall not be released from the obligation to pay
the principal of and interest of this Note.
6. Additional Provisions
The Maker and each other party liable herefor, whether principal,
endorser, guarantor or otherwise, jointly and severally hereby (i) waive
presentment, demand, protest, notice of dishonor and/or protest, notice of
non-payment and all other notices or demands in connection with the delivery,
acceptance, performance, default, enforcement or guaranty of this Note, and (ii)
waive recourse to suretyship defenses generally, including extensions of time,
releases of security and other indulgences which may be granted from time to
time by the Holder to the Maker or any party liable herefor.
8
Nothing contained in this Note or in any other agreement between the
Maker and the Holder shall require the Maker to pay, or the Holder to accept,
interest in an amount which would subject the Holder to any penalty or
forfeiture under applicable law. In no event shall the total of all charges
payable hereunder, whether of interest or of such other charges which may or
might be characterized as interest, exceed the maximum rate permitted to be
charged under applicable law. Should the Holder receive any payment which is or
would be in excess of that permitted to be charged under such applicable law,
such payment shall have been and shall be deemed to have been made in error and
shall automatically be applied to reduce the principal balance outstanding on
this Note.
The Holder shall not, by any act, delay, omission or otherwise, be
deemed to have waived any of its rights and/or remedies hereunder, and no waiver
whatsoever shall be valid unless in writing, signed by the Holder, and then only
to the extent therein set forth. The making of any demands or the giving of any
notices by the Holder or a waiver by the Holder of any right and/or remedy
hereunder on any one occasion shall not be construed as a bar to or waiver of
any right and/or remedy which the Holder would otherwise have on any future
occasion. All rights and remedies of the Holder shall be cumulative and may be
exercised singly or concurrently.
The terms and provisions hereof shall survive the payment, cancellation
or surrender of this Note. Any instrument taken by the Holder in payment of, or
for application against, any obligation of the Maker or any other party liable
herefor shall not operate as a discharge of such obligation until the instrument
is finally paid, notwithstanding the fact that a bank may be the maker, drawer
or acceptor of such instrument.
This Note may be assigned by the Holder only as permitted by the
provisions of the Investor Rights Agreement. In the event of a permitted
assignment of less than the entire unpaid principal amount of this Note, at the
request of the Holder the Maker shall issue new Notes to the transferee and the
Holder in the amounts assigned and not assigned, respectively. If this Note is
lost, destroyed or wrongfully taken, the Maker shall issue a replacement Note.
The Maker may require a reasonable indemnity bond.
The authority to assert, and to determine to defend against, claims
with respect to this Note on behalf of the Maker shall be vested solely in the
Enforcement Committee established under the Stock Purchase Agreement. This Note
may not be amended and no rights of the Maker hereunder may be waived except
with the consent of the Enforcement Committee.
This Note shall be governed by, and construed in accordance with, the
law of the State of New York without giving effect to principles of conflicts of
law. The provisions of Section 10.2 (Notices) and 10.12 of the Stock Purchase
Agreement (Consent to Jurisdiction and Service of Process) shall apply to this
Note as if fully set forth herein. THE MAKER HEREBY WAIVES ALL RIGHT TO TRIAL BY
9
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF THIS NOTE OR ANY
TRANSACTION RELATING THERETO.
GBI CAPITAL MANAGEMENT CORP.
By:______________________________
Richard Rosenstock, President
Appendix C
LOAN AGREEMENT
AGREEMENT dated as of February 8, 2001, between GBI CAPITAL MANAGEMENT
CORP., a Florida corporation, having an address at 1055 Stewart Avenue,
Bethpage, New York 11714 ("Borrower"), and FROST-NEVADA, LIMITED PARTNERSHIP, a
Nevada limited partnership, having an address at 3500 Lakeside Court, Suite 200,
Reno, Nevada 89509 ("Lender").
W I T N E S S E T H:
ARTICLE I
THE LOAN
SECTION 1.1 Commitment and Loan. (a) Subject to the terms and
conditions of this Agreement, at the request of Borrower, Lender agrees to lend
to Borrower the aggregate sum of Ten Million Dollars ($10,000,000) (the
"Commitment"). Lender shall advance the funds due under the Commitment to
Borrower (the "Loan") concurrently with, and subject to, the closing ("Closing")
of the transactions contemplated by that certain Stock Purchase Agreement dated
February 8, 2001, among Borrower, New Valley Corporation, Ladenburg, Thalmann
Group Inc. ("LTGI"), Ladenburg, Thalmann & Co. Inc. ("Ladenburg") and Berliner
(the "Stock Purchase Agreement").
SECTION 1.2 Maturity of Loan. The Loan, together with interest thereon,
shall be repayable by Borrower on December 31, 2005.
SECTION 1.3 Interest. The Loan shall bear interest until maturity at
the rate of eight and one half percent (8-1/2%) per annum, payable on March 31,
June 30, September 30 and December 31 of each year, commencing June 30, 2001. If
the Loan is not paid in full when due, the Loan shall bear interest at the rate
of 15% per annum on the unpaid principal amount thereof, payable on demand.
SECTION 1.4 Promissory Note. Upon the advance of the Loan to Borrower,
Borrower shall execute and deliver to Lender a promissory note in the form of
Exhibit I annexed hereto (the "Lender Note"). The terms and conditions of the
Lender Note are incorporated herein by reference as if fully set forth herein.
In the event of conflict between the provisions of this Agreement and the
provisions of the Lender Note, the provisions of the Lender Note shall govern.
SECTION 1.5 Use of Proceeds. The proceeds of the Loan shall be used by
Borrower only for making payment of the cash portion of the Purchase Price (as
defined in the Stock Purchase Agreement).
SECTION 1.6 Security. To secure Borrower's obligation to repay the
Loan, Borrower hereby grants to Lender a security interest in and to the
Ladenburg Stock (as defined in the Stock Purchase Agreement) and the proceeds
thereof, in accordance with the provisions of a Pledge and Security Agreement in
the form annexed hereto as Exhibit II to be entered into by the Borrower, LTGI ,
Berliner and the Collateral Agent party thereto upon the Closing ("Pledge
Agreement"). The terms and conditions of the Pledge Agreement are incorporated
herein by reference as if fully set forth herein. In the event of a conflict
between the provisions of this Agreement and the provisions of the Pledge
Agreement, the provisions of the Pledge Agreement shall govern.
SECTION 1.7 Conditions. The obligation of Lender to fund the Loan shall
be subject to the Closing under the Stock Purchase Agreement and the delivery by
Borrower of the Lender Note and the Pledge Agreement and the Ladenburg Stock
pursuant to the Pledge Agreement.
SECTION 1.8 Nature of the Notes. The Lender Note and the notes to be
issued to the Sellers pursuant to the Stock Purchase Agreement in partial
payment of the Purchase Price thereunder (the "Purchase Notes") shall be pari
passu in all respects and shall be entitled to share ratably in all payments
made and security granted with respect to any of them. No modification shall be
made to any of the Purchaser Notes or any of the terms thereof without the prior
written consent of the Lender.
2
ARTICLE II
REPRESENTATIONS
SECTION 2.1 Representations of Borrower. In order to induce Lender to
make the Loan, Borrower hereby represents and warrants to Lender as follows:
(a) Borrower is a corporation duly incorporated, organized,
validly existing and in good standing under the laws of the state of its
incorporation and has all requisite power to own its properties and to carry on
its business as now conducted and as proposed to be conducted.
(b) Borrower has full power and authority to enter into this
Agreement, to make the borrowing hereunder, to execute and deliver the Lender
Note and the Pledge Agreement (collectively with this Agreement, the "Loan
Documents"), and to incur and perform all the obligations provided for herein
and therein but subject to the receipt of the Stockholder Approval (as defined
in the Stock Purchase Agreement). The execution and delivery by Borrower of, and
the performance by Borrower of its obligations under, this Agreement and the
other Loan Documents have been duly authorized by all necessary corporate action
other than the Stockholder Approval.
(c) This Agreement constitutes, and the other Loan Documents
when executed and delivered pursuant hereto will constitute, the valid and
legally binding obligations of the Borrower, enforceable in accordance with
their respective terms, except to the extent limited by bankruptcy, insolvency,
reorganization, liquidation, readjustment of debt or other law of general
application relating to or affecting the enforcement of creditors' rights and to
the discretion of the courts with respect to the enforceability of equitable
remedies.
(d) At the Closing there will exist no material security
interests, liens, mortgages, encumbrances or other restrictions upon the
Collateral (as defined in the Pledge Agreement) other than the security interest
granted pursuant to the Pledge Agreement.
3
(e) The execution, delivery and performance by Borrower of
this Agreement and the other Loan Documents does not contravene any law,
regulation, order or contractual restriction binding on or affecting Borrower
and material to Borrower, its business, operations and properties.
(f) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by Borrower of this
Agreement or the matters contemplated herein and for Lender to enjoy the
benefits conferred hereby except such filings as may be necessary to perfect the
security interest granted under the Pledge Agreement.
(g) Borrower is not in breach of or in default under any
material judgment, decree or order applicable to Borrower or any of Borrower's
properties.
(h) There is no pending or threatened action or proceeding
affecting Borrower before any court, governmental agency or arbitrator which may
materially adversely affect the financial condition of Borrower or Borrower's
ability to perform its obligations hereunder or under the other Loan Documents.
SECTION 2.2 Representations of Lender. The Lender Note and all shares
of Purchaser Common Stock (as defined in the Stock Purchase Agreement) issuable
upon conversion of the Lender Note are being acquired by Lender for its own
account and not with a view towards distribution thereof. Lender understands
that it must bear the economic risk of its investment in the Lender Note and
such Purchaser Common Stock, which cannot be sold by it unless registered under
the 1933 Act (as defined in the Stock Purchase Agreement) or an exemption
therefrom is available thereunder. Lender has had both the opportunity to ask
questions and receive answers from the officers and directors of Borrower and
all persons acting on its behalf concerning the business and operations of
Borrower and to obtain any additional information to the extent Borrower
possesses or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of such information. Lender
acknowledges receiving and reviewing copies of the Purchaser SEC Filings
referred to in Section 4.4 of the Stock Purchase Agreement. The
4
certificates representing the Purchaser Common Stock issuable upon conversion of
the Lender Note shall bear a legend (which shall be removed on furnishing to
Borrower an opinion of counsel to Lender reasonably satisfactory to Borrower
that such legend is no longer required) to the effect that the shares
represented thereby may not be transferred except upon compliance with the
registration requirements of the 1933 Act (or an exemption therefrom) and the
provisions of the Investor Rights Agreement referred to in the Stock Purchase
Agreement.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 Notices. Any and all notices, requests, demands, consents,
approvals or other communications required or permitted to be given under any
provision of this Agreement shall be in writing and shall be deemed given upon
personal delivery or the mailing thereof by first class, registered or certified
mail, return receipt requested, postage prepaid, by telecopier or facsimile, or
by overnight delivery service or by courier service to the addresses listed at
the head of this Agreement or the telecopier/facsimile number listed beneath the
respective signatures hereto. Any party may change its address for the purposes
of this Agreement by notice to the other party given as aforesaid. Copies of all
notices given to Borrower shall be sent to Graubard Mollen & Miller, 600 Third
Avenue, New York, New York 10016, Attention: David Alan Miller, Esq.,
Telecopier: 212- 818-8881 and copies of all notices given to Lender shall be
sent to Akerman, Senterfitt & Eidson, P.A., SunTrust International Center, One
Southeast Third Avenue, 28th Floor, Miami, Florida 33131- 1714, Attention: Teddy
D. Klinghoffer, Esq., Telecopier: 305-374-5095.
SECTION 3.2 No Waiver; Cumulative Remedies; Amendments. No failure to
exercise and no delay in exercising, on the part of Lender, any right, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided are cumulative and not exclusive of any rights or remedies provided by
law. No modification, or waiver of any provision of this Agreement or the other
Loan Documents, no consent to any departure by Borrower from the provisions
hereof or thereof shall be effective unless the same shall be effective only in
5
the specific instance and for the purpose for which it is given. No notice to
Borrower shall entitle Borrower to any other or further notice in other or
similar circumstances unless expressly provided for herein. No course of dealing
between Borrower and Lender shall operate as a waiver of any of the rights of
Lenders under this Agreement. Lender acknowledges that the obligations of
Borrower under the Stock Purchase Agreement are not conditioned upon the
extending of the Loan by Lender and that the breach by Lender of its obligation
to extend the Loan if requested by Borrower will cause irreparable harm to
Borrower for which any remedy at law will be inadequate and agrees not to oppose
any demand for specific performance and injunctive and other equitable relief in
case of any such breach or attempted breach.
SECTION 3.3 Captions. The captions of the various sections and
subsections of this Agreement have been inserted only for the purposes of
convenience, and shall not be deemed in any manner to modify, explain, enlarge
or restrict any of the provisions of this Agreement.
SECTION 3.4 Survival of Agreements. All agreements, representations and
warranties made herein and in any certificates delivered pursuant hereto shall
survive the execution and delivery of this Agreement and the other Loan
Documents, and the making of the Loan hereunder, and shall continue in full
force and effect until the indebtedness of Borrower under the Lender Note and
all other obligations hereunder and thereunder have been paid in full.
SECTION 3.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns, except that Borrower may not transfer or assign any of
its rights or interests hereunder without the prior written consent of Lender.
SECTION 3.6 Construction. This Agreement and the rights and obligations
of the parties hereunder shall be governed by, and construed and interpreted in
accordance with, the law of the State of New York. BORROWER, IN ANY LITIGATION
IN WHICH LENDER SHALL BE AN ADVERSE PARTY, WAIVES TRIAL BY JURY, WAIVES THE
RIGHT TO CLAIM THAT A FORUM SPECIFIED HEREIN IS AN INCONVENIENT FORUM AND WAIVES
THE RIGHT TO INTERPOSE ANY SETOFF, DEDUCTION OR COUNTERCLAIM OF
6
ANY NATURE OR DESCRIPTION AND CONSENTS TO THE JURISDICTION OF THE COURTS (CITY,
STATE AND FEDERAL) LOCATED IN THE CITY, COUNTY AND STATE OF NEW YORK AND TO
SERVICE OF PROCESS BY REGISTERED MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET
FORTH ABOVE OR SUCH OTHER ADDRESS AS BORROWER SHALL NOTIFY LENDER IN WRITING IS
TO BE
USED FOR SUCH PURPOSE. If any of the provisions of this Agreement shall be or
become illegal or unenforceable under any law, the other provisions shall remain
in full force and effect.
SECTION 3.7 Interest. Anything in the Agreement or the other Loan
Documents to the contrary notwithstanding, Lender shall not charge, take or
receive, and Borrower shall not be obligated to pay, interest in excess of the
maximum rate from time to time permitted by applicable law.
SECTION 3.8 Currency. All amounts of currency expressed hereunder or
under the other Loan Documents shall refer to United States dollars.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GBI CAPITAL MANAGEMENT CORP.
/s/ Richard Rosenstock
By:___________________________________________
Name: Richard Rosenstock
Title: President
Telecopier No.: 516-470-1050
FROST-NEVADA, LIMITED PARTNERSHIP
By: Frost-Nevada Corporation, General Partner
/s/ David Moskowitz
By:_______________________________________
Name: David Moskowitz
Title: President
Telecopier No.: 775-827-2185
7
Appendix D
SENIOR CONVERTIBLE PROMISSORY NOTE
$10,000,000.00 __________, 2001
FOR VALUE RECEIVED, GBI CAPITAL MANAGEMENT CORP., a Florida
corporation ("Maker"), having an address at 1055 Stewart Avenue, Bethpage, New
York 11714, hereby promises to pay to Frost-Nevada, Limited Partnership, a
Nevada limited partnership, its successors and/or permitted assigns (any of
which is hereinafter referred to as "Holder"), at 3500 Lakeside Court, Suite
200, Reno, Nevada 89509, in lawful money of the United States, the sum of Ten
Million Dollars and No Cents ($10,000,000.00) on December 31, 2005. Interest on
the unpaid principal amount of this Note shall be paid at the rate of eight and
one-half percent (8-1/2%) per annum on each March 31, June 30, September 30 and
December 31, commencing June 30, 2001 or the lesser of fifteen percent (15%) per
annum or the maximum interest rate permitted by applicable law following an
Event of Default. At the Holder's request payments shall be made by wire
transfer to an account designated by the Holder. If a payment date is not a
business day, payment may be made on the next business day and interest shall
accrue for the intervening period. This Note may not be prepaid.
The Holder may, with or without notice to the Maker or any guarantor or
other party liable herefor, extend or renew this Note, or extend the time for
making payment of any amount provided for herein, or accept any amount in
advance, all without affecting the liability of the Maker or any other party or
guarantor liable herefor.
This Note is issued pursuant to the terms of that certain Loan
Agreement ("Loan Agreement") dated as of February 8, 2001 between the Maker and
Frost-Nevada, Limited Partnership and the Maker and the Holder are entitled to
the benefits provided for therein. Terms used but not defined herein shall have
their respective meanings assigned in the Loan Agreement. This Note is entitled
to the benefits of the security for the payment hereof provided pursuant to that
certain Pledge and Security Agreement dated February 8, 2001 between the Maker,
the Secured Parties party thereto and US Bank Trust National Association, as
Collateral Agent ("Pledge Agreement").
1. Conversion of Note
The principal of and accrued interest on this Note shall be
convertible, in whole or in part, at any time, at the election of the Holder,
into that number of fully paid and non-assessable shares of the Maker's common
stock, par value $0.0001 per share ("Common Stock"), determined by dividing the
amount of principal and interest to be so converted by the "Conversion Price"
(as hereinafter defined) in effect at the time notice of conversion is given to
the Maker as set forth below. As used herein, "Conversion Price" means,
initially, $2.00. If, at any time after the date hereof, there occurs, with
respect to the Common Stock, a reclassification, stock split, stock dividend,
spin-off or distribution, share combination or other similar change affecting
the Common Stock as a whole and all holders thereof or if the Maker shall
consolidate with, or merge with or into, any other entity, sell or transfer all
or substantially all its assets or engage in any reorganization,
reclassification or recapitalization which is effected in such a manner that the
holders of Common Stock are entitled to receive stock, securities, cash or other
assets with respect to or in exchange for Common Stock (each, an "Adjustment
Event"), the Conversion Price and the kind and amount of stock, securities, cash
or other assets issuable upon conversion of this Note in effect at the time of
the record date for such dividend or distribution or of the effective date of
such share combination, split, consolidation, merger, sale, transfer,
reorganization, reclassification or recapitalization shall be appropriately
adjusted so that the conversion of the Note after such time shall entitle the
Holder to receive the aggregate number of shares of Common Stock or securities,
cash and other assets which, if this Note hade been converted immediately prior
to such time, the Holder would have owned upon such conversion and been entitled
to receive by virtue of such Adjustment Event, provided that if the kind or
amount of securities, cash and other property is not the same for each share of
Common Stock held immediately prior to such reclassification, change,
consolidation, merger, sale, transfer, or conveyance, any Holder who fails to
exercise any right of election shall receive per share the kind and amount of
securities, cash or other property received per share by a plurality of such
shares.
Promptly after an Adjustment Event, the Maker shall mail to the
Holder a notice of the adjustment together with a certificate from the Maker's
independent public accountants briefly stating the facts requiring the
adjustment and the manner of computing it.
If (i) the Maker takes any action that would cause an Adjustment
Event, (ii) there is a liquidation or dissolution of the Maker or (iii) the
Maker declares a cash dividend, the Maker shall mail to the Holder a notice
stating the proposed record date for a dividend or distribution or the proposed
effective date of a subdivision, combination, reclassification, consolidation,
merger, transfer, lease, liquidation or dissolution, the Maker shall mail the
notice at least 15 days before such date.
If, during any period of twenty (20) consecutive trading days,
the closing sale price of the Common Stock is at least $8.00 per share (as
adjusted for all Adjustment Events occurring after the date of this Note), the
principal of and all accrued interest on this Note shall be automatically
converted, without further action on the part of the Holder, into shares of
Common Stock at the Conversion Price in effect on the last trading day of such
period.
In connection with any conversion of this Note, the Holder shall
surrender this Note and deliver it, together with written instructions to
convert in the form attached hereto, to the Maker at its principal executive
office. The date of such delivery shall be deemed the date of conversion. The
Maker shall, as soon as practicable, issue and deliver to a location in the
United States designated by the Holder certificates representing the securities
(or other assets) to which the Holder is entitled as a result of such conversion
together with a note representing the unconverted balance.
The Maker shall not be required to issue fractions of shares of
Common Stock upon conversion and in lieu thereof any fractional share shall be
2
rounded up or down to the nearest whole share. The Maker shall reserve and shall
at all times have reserved out of its authorized but unissued shares of Common
Stock sufficient shares of Common Stock to permit the conversion of the unpaid
principal amount and accrued interest as provided for herein. The Maker shall
list such shares on any national securities exchange on which the Common Stock
is then listed. If the Holder converts this Note, the Maker shall pay any
documentary, stamp or similar issue or transfer tax due on such conversion,
except that the Holder shall pay any such tax due because the shares are issued
in a name other than the Holder's.
The certificates representing shares of Common Stock issued upon
conversion of this Note shall bear a legend to the effect that such shares are
not registered under the 1933 Act and may not be sold, assigned or otherwise
transferred or hypothecated except in accordance with the registration
provisions of the 1933 Act or an exemption therefrom and in accordance with the
provisions of that certain Investor Rights Agreement dated as of February 8,
2001 among New Valley Corporation, Ladenburg, Thalmann Group Inc., Berliner
Effektengesellschaft AG, the Maker and the Principals party thereto and
Frost-Nevada, Limited Partnership ("Investor Rights Agreement"). This legend
shall be removed on receipt of an opinion of counsel reasonably satisfactory to
the Maker that such legend is no longer required.
2. Change of Control
(i) Promptly after the occurrence of a Change of
Control (as hereinafter defined) (the date of such occurrence being
the "Change of Control Date"), the Maker shall commence (or cause
to be commenced) an offer to purchase all outstanding Notes
pursuant to the terms described in paragraph (iii) of this "Change
of Control" section (the "Change of Control Offer") at a purchase
price equal to the unpaid principal amount of this Note and accrued
interest thereon (the "Change of Control Amount") on the Change of
Control Payment Date (as hereinafter defined), and shall purchase
(or cause the purchase of) any Notes tendered in the Change of
Control Offer pursuant to the terms hereof. As used in this Note,
the term "Notes" means all Convertible Promissory Notes of the
Maker of like tenor to this Note (except as to principal amount,
interest rate and Conversion Price). The Change of Control Amount
shall be payable in cash.
(ii) Within 10 days following a Change in Control
Date, the Maker shall send, by first-class mail, postage prepaid, a
notice to the Holder. Such notice shall contain all instructions
and materials necessary to enable the Holder to tender this Note
pursuant to the Change of Control Offer and shall state:
(a) that a Change of Control has occurred, that a
Change of Control Offer is being made pursuant to this
"Change of Control" section and that all Notes validly
tendered and not withdrawn will be accepted for payment;
3
(b) the Change of Control Amount and the purchase
date (which must be no earlier than 10 days nor later than
20 days from the date such notice is mailed, other than as
may be required by law) (the "Change of Control Payment
Date");
(c) that any Notes not tendered will continue to
accrue interest;
(d) that, unless the Maker defaults in making
payment therefor, any Note accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(e) that holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be
required to surrender such Notes, properly endorsed for
transfer, together with such other customary documents as
the Maker may reasonably request to the Maker at the address
specified in the notice prior to the close of business on
the business day prior to the Change of Control Payment
Date;
(f) that holders of Notes will be entitled to
withdraw their election if the Maker receives, not later
than two business days prior to the Change of Control
Payment Date, a telegram, facsimile transmission or letter
setting forth the name of the holder, the principal amount
of the Notes the holder delivered for purchase and a
statement that such holder is withdrawing its election to
have such Notes purchased;
(g) that holders who tender only a portion of
their Notes will, upon purchase of the Notes tendered, be
issued a Note representing the Notes not purchased; and
(h) the circumstances and relevant facts regarding
such Change of Control (including information with respect
to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control).
(iii) The Maker will comply with any tender offer rules
under the Exchange Act which then may be applicable in connection with
any offer made by the Maker to repurchase the Notes as a result of a
Change of Control. If the provisions of any securities laws or
regulations conflict with provisions of this Note, in reliance on an
opinion of counsel, the Maker may comply with the applicable
securities laws and regulations and shall not be deemed to have
breached its obligation under this Note by virtue thereof.
(iv) On the Change of Control Payment Date, the Maker shall
(A) accept for payment the Notes validly tendered pursuant to the
Change of Control Offer, (B) pay to the holders of Notes so accepted
the Change of Control Amount therefor in cash as provided above and
(C) cancel each surrendered Note. Unless the Maker defaults in the
payment for the Notes tendered pursuant to the Change of Control
Offer, interest will cease to accrue with respect to the Notes
tendered and all rights of holders of such tendered Notes will
terminate, except for the right to receive payment therefor on the
Change of Control Payment Date.
4
(v) To accept the Change of Control Offer, the holder of a
Note shall deliver, prior to the close of business on the business day
prior to the Change of Control Payment Date, written notice to the
Maker (or an agent designated by the Maker for such purpose) of such
holder's acceptance, together with the Notes with respect to which the
Change of Control Offer is being accepted, duly endorsed for transfer.
(vi) For the avoidance of doubt, nothing in this "Change of
Control" section shall restrict the right of the holders of Notes, in
connection with a Change of Control, to convert and to receive the
kind and amount of consideration payable to holders of Common Stock in
respect of the Common Stock into which the Notes may be converted.
(vii) As used in this "Change of Control" section,
"Change of Control" means: (a) the sale, lease, transfer,
conveyance, merger, consolidation or other disposition
(other than a merger or consolidation that does not result
in any change in the Maker's stock and in which a majority
of the successor's voting securities is held by holders of
the Maker's Common Stock immediately before such transaction
), in one or a series of related transactions, of all or
substantially all the assets of the Maker and its
subsidiaries, taken as a whole, to any "person" (as such
term is used in Section 13(d)(3) of the Exchange Act), (b)
the consummation of any transaction (including any merger or
consolidation) the result of which is that any "person" (as
defined above), other than the Principals party to the
Investor Rights Agreement, New Valley Corporation,
Ladenburg, Thalmann Group Inc., Berliner
Effektengesellschaft AG and Dr. Phillip Frost, individually
or collectively, becomes the beneficial owner (as determined
in accordance with Rules 13d-3 and 13d-5 under the Exchange
Act, except that a person will be deemed to have beneficial
ownership of all Voting Securities (as hereinafter defined)
that such person has the right to acquire, whether such
right is exercisable immediately or only after the passage
of time), directly or indirectly, of more than 50% of the
Voting Securities of the Maker, or (c) the first day on
which a majority of the members of the Board of Directors of
the Maker are not Continuing Directors;
"Continuing Directors" means individuals who constituted the
Board of Directors of the Maker on the date hereof (the
"Incumbent Directors"); provided that any individual
becoming a director after the date hereof shall be
considered to be an Incumbent Director if such individual's
election, appointment or nomination was recommended or
approved by at least two-thirds of the other Incumbent
Directors continuing in office following such election,
appointment or nomination present, in person or by
telephone, at any meeting of the Board of Directors of the
Maker, after the giving of a sufficient notice to each
Incumbent Director so as to provide a reasonable opportunity
for such Incumbent Directors to be present at such meeting;
and
5
"Voting Securities" means securities of the Maker ordinarily
having the power to vote for the election of directors of
the Maker.
3. Events of Default
Upon the occurrence of any of the following events (herein called
"Events of Default"):
(i) The Maker shall fail to make any payment of principal on
this Note on the date specified herein for such payment;
(ii) The Maker shall fail to make any payment of interest on
this Note or any other payment due under this Note or the Pledge
Agreement within ten (10) days after it is due;
(iii) (a) The Maker or Ladenburg shall commence, or consent
to the entry of an order for relief in, any proceeding or other action
relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation,
winding-up, composition or any other relief under any bankruptcy law,
or under any other insolvency, reorganization, liquidation,
dissolution, arrangement, composition, readjustment of debt or any
other similar act or law, of any jurisdiction, domestic or foreign,
now or hereafter existing; or (b) the Maker or Ladenburg shall admit
the material allegations of any petition or pleading in connection
with any such proceeding; or (c) the Maker or Ladenburg shall apply
for, or consent or acquiesce to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a
substantial part of its property; or (d) the Maker or Ladenburg shall
make a general assignment for the benefit of creditors; or (e) the
Maker or Ladenburg shall become unable, admit in writing its inability
or fail generally to pay its debts as they become due;
(iv) (a) The commencement of any proceedings or the taking
of any other action against the Maker or Ladenburg in bankruptcy or
seeking reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, arrangement, composition, or any other
relief under any bankruptcy law or any other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing and the
continuance of any of such events for sixty (60) days undismissed,
unbonded or undischarged; or (b) the appointment of a receiver,
conservator, trustee or similar officer for the Maker or Ladenburg for
any of its property and the continuance of any of such events for
sixty (60) days undismissed, unbonded or undischarged; or (c) the
issuance of a warrant of attachment, execution or similar process
against any of the property of the Maker or Ladenburg and the
continuance of such event for sixty (60) days undismissed, unbonded
and undischarged;
(v) The Maker or Ladenburg shall default with respect to any
indebtedness of $250,000 or more for borrowed money if either (a) such
default is a payment default or the effect of such default is to
accelerate the maturity of such indebtedness (in each instance giving
effect to any applicable grace periods) or (b) the holder of such
indebtedness declares the Maker or Ladenburg to be in default (giving
effect to any applicable grace periods);
6
(vi) The failure by the Maker to observe any of the
covenants contained in this Note (other than the covenants to pay
principal and interest and the covenants in Sections 2 or 5) or in the
Pledge Agreement (other than Section 4.14) which failure is not cured
within 30 days after notice thereof is given to the Maker by any of
the Secured Parties thereunder (or, if such failure is not capable of
being cured within such 30-day period, the failure of the Maker to
continue to proceed in a diligent matter to effect such cure);
(vii) The failure by the Maker to observe any of the
covenants contained in Sections 2 or 5 of this Note or in Section 4.14
of the Pledge Agreement or the lien of Pledge Agreement will at any
time not constitute a first perfected lien on the collateral intended
to be covered thereby; or
(viii) Any judgment or judgments against the Maker or
Ladenburg or any attachment, levy or execution against any of its
properties for any amount in excess of $250,000 in the aggregate shall
remain unpaid, or shall not be released, discharged, dismissed, stayed
or fully bonded for a period of sixty (60) days or more after its
entry, issue or levy, as the case may be;
then, and in any such event, the Holder, at its option and with written notice
to the Maker, may declare the entire principal amount of this Note then
outstanding together with accrued unpaid interest thereon immediately due and
payable, and the same shall forthwith become immediately due and payable without
presentment, demand, protest, or other notice of any kind, all of which are
expressly waived. The Events of Default listed herein are solely for the purpose
of protecting the interests of the Holder of this Note. If the Note is not paid
in full upon acceleration, as required above, interest shall accrue on the
outstanding principal of and interest on this Note from the date of the Event of
Default up to and including the date of payment at a rate equal to the lesser of
fifteen percent (15%) per annum or the maximum interest rate permitted by
applicable law.
Upon the occurrence of a default under this Note (whether or not
it has become an Event of Default), the Maker agrees to pay the costs, expenses,
attorneys' and other fees paid or incurred by the Holder, or adjudged by a
court, including: (i) costs of suit and such amount as the court adjudges for
the fees of an attorney in an action to enforce this Note in whole or in part;
and (ii) reasonable costs of collection, costs and expenses of, and attorneys'
fees incurred or paid towards, the collection, enforcement, or sale of this Note
in whole or in part, or of any security for it.
4. Consolidation and Mergers.
The Maker shall not consolidate or merge into, or transfer or
lease all or substantially all of its assets to, any person unless (1) the
person is a corporation; (2) the person assumes in a writing reasonably
acceptable to the Holder all the obligations of the Maker under this Note; and
7
(3) immediately after the transaction no Event of Default exists. The surviving,
transferee or lessee corporation shall be the successor Maker, but the
predecessor Maker in the case of a transfer or lease shall not be released from
the obligation to pay the principal of and interest of this Note.
5. Additional Provisions
The Maker and each other party liable herefor, whether principal,
endorser, guarantor or otherwise, jointly and severally hereby (i) waive
presentment, demand, protest, notice of dishonor and/or protest, notice of
non-payment and all other notices or demands in connection with the delivery,
acceptance, performance, default, enforcement or guaranty of this Note, and (ii)
waive recourse to suretyship defenses generally, including extensions of time,
releases of security and other indulgences which may be granted from time to
time by the Holder to the Maker or any party liable herefor.
Nothing contained in this Note or in any other agreement between
the Maker and the Holder shall require the Maker to pay, or the Holder to
accept, interest in an amount which would subject the Holder to any penalty or
forfeiture under applicable law. In no event shall the total of all charges
payable hereunder, whether of interest or of such other charges which may or
might be characterized as interest, exceed the maximum rate permitted to be
charged under applicable law. Should the Holder receive any payment which is or
would be in excess of that permitted to be charged under such applicable law,
such payment shall have been and shall be deemed to have been made in error and
shall automatically be applied to reduce the principal balance outstanding on
this Note.
The Holder shall not, by any act, delay, omission or otherwise,
be deemed to have waived any of its rights and/or remedies hereunder, and no
waiver whatsoever shall be valid unless in writing, signed by the Holder, and
then only to the extent therein set forth. The making of any demands or the
giving of any notices by the Holder or a waiver by the Holder of any right
and/or remedy hereunder on any one occasion shall not be construed as a bar to
or waiver of any right and/or remedy which the Holder would otherwise have on
any future occasion. All rights and remedies of the Holder shall be cumulative
and may be exercised singly or concurrently.
The terms and provisions hereof shall survive the payment,
cancellation or surrender of this Note. Any instrument taken by the Holder in
payment of, or for application against, any obligation of the Maker or any other
party liable herefor shall not operate as a discharge of such obligation until
the instrument is finally paid, notwithstanding the fact that a bank may be the
maker, drawer or acceptor of such instrument.
This Note may be assigned by the Holder only as permitted by the
provisions of the Investor Rights Agreement. In the event of a permitted
assignment of less than the entire unpaid principal amount of this Note, at the
request of the Holder the Maker shall issue new Notes to the transferee and the
Holder in the amounts assigned and not assigned, respectively. If this Note is
lost, destroyed or wrongfully taken, the Maker shall issue a replacement Note.
The Maker may require a reasonable indemnity bond.
8
This Note shall be governed by, and construed in accordance with,
the law of the State of New York without giving effect to principles of
conflicts of law. The Maker hereby irrevocably appoints the President of GBI
Capital Management Corp., at its offices at 1055 Stewart Avenue, Bethpage, New
York 11714, its lawful agent and attorney to accept and acknowledge service of
any and all process against it in any action, suit or proceeding arising out of
or relating to this Note and upon whom such process may be served, with the same
effect as if the Maker were a resident of the State of New York and had been
lawfully served with such process in such jurisdiction, and waives all claims of
error by reason of such service. The Maker will enter into such agreements with
such agents as may be necessary to constitute and continue the appointment of
such agents hereunder. In the event that such agent and attorney resigns or
otherwise becomes incapable of acting as such, the Maker will appoint a
successor agent and attorney in the City of New York, reasonably satisfactory to
the Holder, with like powers. The Maker hereby irrevocably submits to the
exclusive jurisdiction of the United States District Court for the Southern
District of New York or any court of the State of New York located in the
Borough of Manhattan in the City of New York in any such action, suit or
proceeding arising out of or relating to this Note or any transaction relating
thereto, and agrees that any such action, suit or proceeding shall be brought
only in such court, provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this paragraph and shall not be deemed to
be a general submission to the jurisdiction of said courts or in the State of
New York other than for such purpose. The Maker hereby irrevocably waives, to
the fullest extent permitted by Law, any objection that it may now or hereafter
have to the laying of the venue of any such action, suit or proceeding brought
in such a court and any claim that any such action, suit or proceeding brought
in such a court has been brought in an inconvenient forum. THE MAKER HEREBY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF THIS NOTE OR ANY TRANSACTION RELATING THERETO.
GBI CAPITAL MANAGEMENT CORP.
By: ___________________________
Richard Rosenstock, President
9
Appendix E
PROXY AND VOTING AGREEMENT, dated as of February 8, 2001 (this
"Agreement"), among New Valley Corporation, a Delaware corporation ("New
Valley"), Ladenburg, Thalmann Group Inc., a Delaware corporation ("LTGI"),
Berliner Effektengesellschaft AG, a German corporation ("Berliner") and the
individual stockholders of GBI Capital Management Corp. listed on Schedule A
hereto (collectively, the "Principals"). As used in this Agreement, the term
"Principal" means, with respect to each individual listed on Schedule A hereto,
such individual and, where applicable, the Living Trust set forth below his
name.
WHEREAS, the Selling Parties, GBI Capital Management Corp., a Florida
corporation (the "Purchaser"), and Ladenburg, Thalmann & Co. Inc., a Delaware
corporation ("Ladenburg"), are parties to a Stock Purchase Agreement dated
February 8, 2001 (the "Stock Purchase Agreement"; capitalized terms not defined
herein shall have the meanings ascribed to them in the Stock Purchase
Agreement), pursuant to which the Purchaser shall acquire all of the outstanding
shares of capital stock of Ladenburg from the Selling Parties;
WHEREAS, the Sellers have the right to acquire shares of Purchaser
Common Stock pursuant to the Stock Purchase Agreement; and
WHEREAS, the Selling Parties are entering into the Stock Purchase
Agreement in reliance upon the execution and delivery of this Agreement by the
Principals;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. Representations and Warranties. Each Principal represents and
warrants to the Selling Parties that:
(a) Such Principal owns, beneficially and of record, as of the date
hereof, the number of shares of Purchaser Common Stock set forth next to his
name in Schedule A hereto (collectively, the "Shares"), subject to no rights of
others and free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on the Principal's
voting rights, charges and other encumbrances of any nature whatsoever other
than those imposed by federal and state securities laws. On the date hereof, the
Shares constitute all of the shares of Purchaser Common Stock beneficially owned
by each such Principal. Except as provided in those certain agreements between
Frost-Nevada, Limited Partnership ("Frost-Nevada") and each of Messrs.
Rosenstock, Mangone, Thalheim and Zeitchick, respectively (copies of which has
been provided to New Valley), to sell an aggregate of 550,000 shares of
Purchaser Common Stock to Frost-Nevada, such Principal's right to vote or
dispose of the Shares beneficially owned by such Principal is not subject to any
voting trust, voting agreement, voting arrangement or proxy and such Principal
has not entered into any contract, option or other arrangement or undertaking
with respect thereto.
(b) Each Principal has the legal capacity to execute, deliver
and perform this Agreement. This Agreement constitutes a valid and binding
obligation of each Principal enforceable against him in accordance with its
terms. If each Principal is married and the Shares constitute community property
under applicable law, this Agreement has been duly authorized, executed and
delivered by, and constitutes the valid and binding agreement of, the
Principal's spouse enforceable against such spouse in accordance with its terms.
(c) The execution, delivery and performance by each Principal
of this Agreement and the consummation of the transactions contemplated hereby
do not and will not (i) result in any breach or violation of or be in conflict
with or constitute a default under the terms of any law, order, regulation or
agreement or arrangement to which he is a party or by which he is bound, (ii)
require any filing with or authorization by any governmental entity or (iii)
require any consent or other action by any person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration or
to a loss of any benefit to which he is entitled under any provision of any
agreement or other instrument binding on him.
Section 2. Voting Agreement. (a) Until the Closing Date, no Principal will
assign, sell, pledge, hypothecate or otherwise transfer or dispose of any of the
shares of Purchaser Common Stock beneficially owned by such Principal, or any
other securities of the Purchaser with respect to which he otherwise has the
right to vote, or any interest therein, deposit any of such shares or securities
into a voting trust or enter into a voting agreement or arrangement or grant any
proxy with respect thereto (except as contemplated by this Proxy and Voting
Agreement) or enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect transfer or disposition of
any of the shares or securities. In the case of any transfer by operation of
law, this Agreement shall be binding upon the transferee.
(b) Each Principal will, with respect to those shares of
Purchaser Common Stock or other securities of the Purchaser that such Principal
either owns for voting at the Purchaser Stockholder Meeting to be held for the
purpose of voting on the adoption of the Transaction Documents and the issuance
of shares of Purchaser Common Stock pursuant to the Transaction Documents or for
granting any written consent in connection with the solicitation of written
consents in lieu of such a meeting or with respect to which such Principal
otherwise controls the vote, vote or cause to be voted such shares (or execute
written consents with respect to such shares) (i) to approve the Transaction
Documents, the issuance of shares of Purchaser Common Stock pursuant to the
Transaction Documents and the transactions contemplated thereby, (ii) against
any Purchaser Alternative Transaction and (iii) in favor of any other matter
necessary for the consummation of the transactions contemplated by the
Transaction Documents.
(c) Each Principal acknowledges that concurrently with the
execution of this Agreement, such Principal has executed and delivered to LTGI
an Irrevocable Proxy, pursuant to Section 607.0722 of the Florida Business
Corporation Act, coupled with an interest, the form of which is attached hereto
as Exhibit A, so as to vote such shares in accordance with this Section 2 and
each Principal hereby grants to LTGI such irrevocable proxy. The terms of this
proxy shall expire upon approval by the requisite vote of the Purchaser's
stockholders at the Purchaser Stockholder Meeting or at any adjournment thereof
2
of the adoption of the Transaction Documents and issuance of the Purchaser
Common Stock as contemplated thereby or upon the earlier termination of the
Stock Purchase Agreement in accordance with the provisions thereof.
(d) The Principals, New Valley and LTGI shall use commercially
reasonable efforts to cause the agreements in this Section 2 to be appropriately
disclosed in filings with the Commission, including the Proxy Statement referred
to in the Stock Purchase Agreement.
Section 3. No Solicitation. Prior to the Closing Date, no Principal shall, and
each Principal shall use best efforts to cause such Principal's Affiliates
(other than the Purchaser) and Representatives not to, initiate, solicit or
encourage, directly or indirectly, any inquiries or the making or implementation
of any Purchaser Alternative Transaction, or engage in any negotiations
concerning, or provide any confidential information or otherwise facilitate any
effort or attempt to make or implement, a Purchaser Alternative Transaction. The
Principals will promptly notify the Selling Parties if any such inquiries,
proposals or offers are received by, any such information is requested from, or
any such negotiations or discussions are sought to be initiated or continued
with, such Principal or any of such Persons. Notwithstanding the foregoing,
nothing in this Section shall prevent any Principal from taking the actions
referred to in Section 5.16 of the Stock Purchase Agreement, but only in the
circumstances and subject to the conditions specified therein.
Section 4. Binding Effect. All covenants, representations, warranties and other
stipulations in this Agreement and other documents referred to herein, given by
or on behalf of any of the parties hereto, shall bind and inure to the benefit
of the respective successors, heirs, personal representatives and assigns of the
parties hereto.
Section 5. Entire Agreement. This Agreement contains the entire agreement among
the parties with respect to the subject matter hereof and supersedes all prior
arrangements or understandings with respect hereto.
Section 6. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument and shall be deemed to have been duly given when delivered in
person, by telecopy, by nationally-recognized overnight courier, or by first
class registered or certified mail, postage prepaid, addressed to such party at
the address set forth below or such other address as may hereafter be designated
in writing by the addressee to the addressor at the address and telecopier
numbers set forth in the Stock Purchase Agreement, with respect to the Selling
Parties, and at the addresses and telecopier numbers set forth in Schedule A for
the Principals. All such notices, requests, consents and other communications
shall be deemed to have been delivered when received.
Section 7. Modifications; Amendments; Waivers. The terms and provisions of this
Agreement may not be modified or amended, nor any provision hereof waived,
except pursuant to a writing signed by the parties hereto (including their
assigns). No waiver by any party of any term of this Agreement in any one or
more instances shall be deemed or construed as a waiver of such term on any
future occasion.
3
Section 8. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
Section 9. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed to be a
part of this Agreement.
Section 10. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under
the law and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any provision of this Agreement would be held in any
jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be
invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such
jurisdiction, be so narrowly drawn, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
Section 11. Governing Law. This Agreement shall be governed by and construed in
accordance with the law of the State of New York, without giving effect to
principles governing conflicts of laws, except to the extent that provisions of
the Florida Business Corporation Act apply, which provisions the parties cannot
legally waive or otherwise exclude, exempt or release themselves from by
contract.
Section 12. Specific Performance: Remedies. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity. Except as otherwise expressly provided for herein, no
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not constitute a
waiver by any such party of the right to pursue any other available remedies.
Section 13. Consent to Jurisdiction; Service of Process. Each of the parties
hereto hereby irrevocably submits to the exclusive jurisdiction of the courts of
the State of New York and to the jurisdiction of the United States District
Court for the Southern District of New York or any court of the State of New
York located in the Borough of Manhattan in the City of New York, for the
purpose of any action or proceeding arising out of or relating to this Agreement
and each of the parties hereto hereby irrevocably agrees that all claims in
respect to such action or proceeding shall be heard and determined exclusively
in any New York state or federal court. Each of the parties hereto agrees that a
final judgment in any action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Each of the parties hereto irrevocably consents to the service
4
of the summons and complaint and any other process in any other action or
proceeding relating to the transactions contemplated by this Agreement, on
behalf of itself or its property, by personal delivery of copies of such process
to such party. Nothing in this Section 13 shall affect the right of any party to
serve legal process in any other manner permitted by law.
Section 14. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
Section 15. Further Assurances. Each party will take such further actions as may
reasonably be requested by another party to effect the purposes of this
Agreement.
Section 16. Termination. This Agreement shall terminate upon a termination of
the Stock Purchase Agreement in accordance with the provisions of its terms.
[Signature Page Immediately Follows]
5
IN WITNESS WHEREOF, the parties hereto have executed this Proxy and
Voting Agreement on the date first written above.
NEW VALLEY CORPORATION
/s/ Richard J. Lampen
By:_________________________________
Name: Richard J. Lampen
Title: Executive Vice President
LADENBURG, THALMANN GROUP INC.
/s/ Victor Rivas
By:_________________________________
Name: Victor Rivas
Title:
BERLINER EFFEKTENGESELLSCHAFT AG
/s/ Holger Timm
By:_________________________________
Name: Holger Timm
Title: Chief Executive Officer
PRINCIPALS:
/s/ Joseph Berland
_______________________________________
JOSEPH BERLAND
JOSEPH BERLAND REVOCABLE LIVING TRUST DTD 4/16/97
/s/ Joseph Berland
By:_______________________________________________
Name: Joseph Berland
Title:
/s/ Richard J. Rosenstock
_____________________________________________
RICHARD J. ROSENSTOCK
RICHARD J. ROSENSTOCK REVOCABLE LIVING TRUST DTD 3/5/96
/s/ Richard J. Rosenstock
By:___________________________________________________
Name: Richard J. Rosenstock
Title:
/s/ Mark Zeitchick
___________________________________________________
MARK ZEITCHICK
/s/ Vincent A. Mangone
___________________________________________________
VINCENT A. MANGONE
VINCENT A. MANGONE REVOCABLE LIVING TRUST DTD 11/5/96
/s/ Vincent A. Mangone
By:________________________________________________
Name: Vincent A. Mangone
Title:
/s/ David Thalheim
___________________________________________________
DAVID THALHEIM
DAVID THALHEIM REVOCABLE LIVING TRUST DTD 3/5/96
/s/ David Thalheim
By:________________________________________________
Name: /s/ David Thalheim
Title:
6
SCHEDULE A
Name, Address and Fax Number Number of Shares
----------------------------- ----------------
Joseph Berland 3,945,060
Joseph Berland Revocable Living Trust dated 4/16/97
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
Richard J. Rosenstock 3,945,060
Richard J. Rosenstock Revocable Living Trust dated 3/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
Mark Zeitchick 1,512,273
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
Vincent a. Mangone 1,512,273
Vincent A. Mangone Revocable Living Trust dated 11/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
David Thalheim 1,512,273
David Thalheim Revocable Living Trust dated 3/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
EXHIBIT A
IRREVOCABLE PROXY
Each of the undersigned shareholders of GBI Capital Management
Corp., a Florida corporation (the "Purchaser"), hereby irrevocably (to the
fullest extent provided by law, but subject to automatic termination and
revocation as provided below) appoints Ladenburg, Thalmann Group Inc., a
Delaware corporation ("LTGI"), or any designee of LTGI, the attorney and proxy
of each of the undersigned, with full power of substitution and resubstitution,
to the full extent of each of the undersigned's rights with respect to the
shares of capital stock of the Purchaser owned beneficially or of record by each
of the undersigned, which shares are listed in Schedule A to the Proxy and
Voting Agreement referred to below, and any and all other shares or securities
of the Purchaser issued or issuable with respect thereof or otherwise acquired
by the undersigned shareholders on or after the date hereof, until the
termination date specified in the Proxy and Voting Agreement (the "Shares").
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares are hereby revoked and no subsequent proxies will be given
as to the matters covered hereby prior to the earlier of the date of termination
of the Proxy and Voting Agreement pursuant to Section 16 thereof (the
"Termination Date") and the Closing Date of the Stock Purchase Agreement (such
earlier date being hereinafter referred to as the "Proxy Termination Date").
This proxy is irrevocable (to the fullest extent provided by law, but subject to
automatic termination and revocation as provided below), coupled with an
interest, and is granted in connection with the Proxy and Voting Agreement,
dated as of February 8, 2001, among New Valley Corporation, LTGI, Berliner
Effektengesellschaft AG and the individual stockholders listed on Schedule A
thereto, as the same may be amended from time to time (the "Proxy and Voting
Agreement", capitalized terms not otherwise defined herein being used herein as
therein defined), and is granted in consideration of the undersigned
shareholders entering into the Stock Purchase Agreement referred to therein.
The attorney and proxy named above will be empowered at any
time prior to the Proxy Termination Date to exercise all voting and other rights
with respect to the Shares (including, without limitation, the power to execute
and deliver written consents with respect to the Shares) of the undersigned
shareholders at every annual, special or adjourned meeting of shareholders of
the Purchaser held prior to the Proxy Termination Date and in connection with
every solicitation of written consents in lieu of such a meeting prior to the
Proxy Termination Date, or otherwise, to the extent that any of the following
matters is considered and voted on at any such meeting or in connection with any
such consent solicitation: (i) approval of the Transaction Documents, the
execution and delivery by the Purchaser of the Transaction Documents and the
approval of the terms thereof and each of the further actions contemplated by
the Transaction Documents, including the issuance of shares of Purchaser Common
Stock in connection therewith, and any actions required in furtherance thereof;
(ii) against any action, any failure to act, or agreement that would result in a
breach in any respect of any covenant, representation or warranty or any other
obligation or agreement of the Purchaser or any of the undersigned shareholders
under the Transaction Documents or the Proxy and Voting Agreement (before giving
effect to any materiality or similar qualifications contained therein); (iii)
against any Purchaser Alternative Proposal and (iv) in favor of any other matter
necessary for the consummation of the transactions contemplated by the
Transaction Documents.
The attorney and proxy named above may only exercise this
proxy to vote the Shares subject hereto in accordance with the preceding
paragraph, and may not exercise this proxy in respect of any other matter. The
undersigned shareholders may vote the Shares (or grant one or more proxies to
vote the Shares) on all other matters.
Any obligation of the undersigned shareholders hereunder shall
be binding upon the successors and assigns of the undersigned shareholders.
This proxy is irrevocable and coupled with an interest, but
shall automatically terminate and be revoked and be of no further force and
effect on and after the Proxy Termination Date.
/s/ Joseph Berland
Dated: February 8, 2001 -------------------------------
Joseph Berland
/s/ Richard J. Rosenstock
-------------------------------
Richard J. Rosenstock
/s/ Mark Zeitchick
-------------------------------
Mark Zeitchick
/s/ Vincent A. Mangone
-------------------------------
Vincent A. Mangone
/s/ David Thalheim
-------------------------------
David Thalheim
Appendix F
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of ________ _, 2001 between:
(1) GBI Capital Management Corp., a corporation duly organized
and validly existing under the laws of the State of Florida
(the "Securing Party");
(2) Ladenburg, Thalmann Group Inc. ("LTGI"), a corporation duly
organized and validly existing under the laws of the State
of Delaware;
(3) Berliner Effektengesellschaft AG ("Berliner"), a
corporation duly organized and validly existing under the
laws of Germany;
(4) Frost-Nevada, Limited Partnership, a Nevada limited
partnership (the "Lender"); and
(5) U.S. Bank Trust National Association, as collateral agent
for the Secured Parties (as defined below) (in such
capacity, together with its successors in such capacity,
the "Collateral Agent").
A. The Securing Party, New Valley Corporation, LTGI and Berliner are
parties to a Stock Purchase Agreement dated February 8, 2001 (the "Stock
Purchase Agreement") pursuant to which the Securing Party has agreed to purchase
from LTGI and Berliner all of the outstanding capital stock of Ladenburg,
Thalmann & Co. Inc. ("Ladenburg") and, in partial payment of the Purchase Price,
will issue to LTGI and Berliner convertible promissory notes in an aggregate
principal amount of $10,000,000 (the "Purchase Notes").
B. The Securing Party and the Lender are parties to a Loan Agreement
dated as of February 8, 2001 (the "Loan Agreement") pursuant to which the Lender
has agreed to lend to the Securing Party the sum of $10,000,000 that will be
evidenced by a convertible promissory note in that principal amount (the "Lender
Note" and, together with the Purchase Notes, the "Notes").
To induce LTGI, Berliner and the Lender (collectively, with all
permitted assigns of any of the Notes, the "Secured Parties") to enter into the
Stock Purchase Agreement and the Loan Agreement, as the case may be, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Securing Party, the Secured Parties and the Collateral
Agent have agreed as follows:
Section 1. Definitions. Terms used herein and not otherwise defined
herein shall have the meanings set forth in the Stock Purchase Agreement. The
following terms have the meanings ascribed to them below or in the Sections of
this Agreement indicated below:
"Collateral" shall have the meaning ascribed thereto in
Section 3 hereof.
"Default" shall mean any event or condition that constitutes
an Event of Default or will on notice, lapse of time or both become an
Event of Default.
"Event of Default" shall have the meaning ascribed thereto
in the Notes.
"Issuer" shall mean Ladenburg.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 3(a) hereof.
"Required Secured Parties" shall mean Secured Parties
holding a majority in principal amount of the Notes.
"Secured Obligations" shall mean the due and punctual
payment by the Securing Party of the principal of and interest on the
Notes, when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, and all other amounts
from time to time owing by the Securing Party to the Secured Parties
thereunder and hereunder.
"Stock Collateral" shall mean, collectively, the Pledged
Stock, together with all other certificates, shares, securities,
instruments, moneys, or other property as may from time to time be
pledged hereunder pursuant to Section 3(b) hereof and the proceeds of
and to any such property and, to the extent related to any such
property or such proceeds, all books, correspondence, credit files,
records, invoices and other papers.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. Representations and Warranties. The Securing Party
represents and warrants to the Secured Parties and the Collateral Agent that:
(a) It is the sole beneficial owner of the Collateral in
which it purports to grant a security interest pursuant to Section 3
hereof, no lien exists or will exist upon such Collateral at any time
(and no right or option to acquire the same exists in favor of any
other person or entity) and such pledge and security interest in favor
of the Collateral Agent for the benefit of the Secured Parties created
or provided for herein constitutes a first priority perfected pledge
and security interest in and to all of such Collateral.
(b) The Pledged Stock represented by the certificates
identified in Annex 1 hereto is, and all other Pledged Stock in which
the Securing Party shall hereafter grant a security interest pursuant
to Section 3 hereof will be, duly authorized, validly existing, fully
paid and non-assessable and none of such Pledged Stock is or will be
subject to any contractual restriction, or any restriction under the
charter or by-laws of the Issuer upon the transfer of such Pledged
Stock.
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(c) The Pledged Stock identified in Annex 1 hereto, and the
certificates, if any, representing such capital stock, constitute and
will continue to constitute all of the issued and outstanding shares
of capital stock of any class of the Issuer (all of which are
registered in the name of the Securing Party) and Annex 1 correctly
identifies, as at the date hereof, the class and par value of the
shares comprising such Pledged Stock and the number of shares
represented by each such certificate.
Section 3. Collateral. The Securing Party hereby assigns, pledges,
grants, transfers, and conveys to the Collateral Agent (for the benefit of each
of the Secured Parties as set forth herein) as collateral security for the
prompt payment in full when due (whether at stated maturity, by acceleration or
otherwise) of the Secured Obligations, a security interest in all of the
Securing Party's right, title and interest in the following property, whether
now owned by the Securing Party or hereafter acquired and whether now existing
or hereafter coming into existence (collectively, the "Collateral"):
(a) the shares of capital stock of the Issuer identified in
Annex 1 hereto and the certificates, if any, representing such capital
stock and all additional shares of capital stock of whatever class of
the Issuer, now or hereafter owned by the Securing Party, in each case
together with the certificates, if any, evidencing the same
(collectively, the "Pledged Stock");
(b) all certificates, shares, securities, instruments,
moneys or other property representing a dividend on any of the Pledged
Stock, or representing a distribution or return of capital upon or in
respect of the Pledged Stock, or resulting from a split-up, revision,
reclassification or other like change of the Pledged Stock or
otherwise received in exchange therefor or on redemption or conversion
hereof, and any subscription warrants, rights or options issued to the
holders of, or otherwise in respect of, the Pledged Stock other than
any of the foregoing the Securing Party is entitled to retain pursuant
to Section 4.03(b) and the other provisions of this Agreement;
(c) in the event of any consolidation or merger in which the
Issuer is not the surviving entity, all ownership interests of any
class or character of the successor entity formed by or resulting from
such consolidation or merger; and
(d) all proceeds, products, offspring, accessions, rents,
profits, income, benefits, substitutions and replacements of and to
any of the property described in the preceding clauses of this Section
3 (including, without limitation, all causes of action, claims and
warranties now or hereafter held by the Securing Party in respect of
any of the items listed above).
Section 4. Further Assurances; Remedies. In furtherance of the grant
of the pledge and security interest pursuant to Section 3 hereof, the Securing
Party hereby agrees with each Secured Party and the Collateral Agent as follows:
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4.01 Delivery and Other Perfection. The Securing Party
shall:
(a) if any of the shares, securities, moneys or properties
required to be pledged by the Securing Party under Section 3 hereof
are received by the Securing Party (other than any of such items the
Securing Party is entitled to retain pursuant to Section 4.03(b)
hereof), forthwith as the Collateral Agent may request either (i)
transfer and deliver to the Collateral Agent such shares, securities,
moneys and properties so received by the Securing Party (together with
the certificates for any such shares and securities duly endorsed in
blank or accompanied by undated stock powers duly executed in blank),
all of which thereafter shall be held by the Collateral Agent,
pursuant to the terms of this Agreement, as part of the Collateral or
(ii) take such other action as the Collateral Agent shall deem
necessary or appropriate to duly record the lien created hereunder in
such shares, securities, moneys or property in Section 3;
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers
that may be necessary or desirable (in the judgment of the Collateral
Agent) to create, preserve, perfect or validate the security interest
granted pursuant hereto or to enable the Collateral Agent to exercise
and enforce its rights hereunder with respect to such pledge and
security interest including without limitation registering the Pledged
Stock in the name of the Collateral Agent;
(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in such
manner as the Collateral Agent may reasonably require in order to
reflect the security interests granted by this Agreement; and
(d) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its books and records pertaining to the
Collateral and forward copies of any notices or communications
received by the Securing Party with respect to the Collateral, all in
such manner as the Collateral Agent may reasonably require.
4.02 Preservation of Rights. The Collateral Agent shall not
be required to take steps necessary to preserve any rights against
prior parties to any of the Collateral.
4.03 Special Provisions Relating to the Collateral.
(a) So long as no Event of Default shall have occurred and
be continuing, the Securing Party shall have the right to exercise all
voting, consensual and other powers of ownership pertaining to the
Stock Collateral for all purposes not inconsistent with the terms of
this Agreement, the Stock Purchase Agreement, the Notes or any other
instrument or agreement referred to herein or therein; and the
Collateral Agent shall execute and deliver to the Securing Party or
cause to be executed and delivered to the Securing Party all such
proxies, powers of attorney, dividend and other orders, and all such
instruments, without recourse, as the Securing Party may reasonably
request for the purpose of enabling the Securing Party to exercise the
rights and powers that it is entitled to exercise pursuant to this
Section 4.03(a).
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(b) Unless and until a Default has occurred and is
continuing, the Securing Party shall be entitled to receive and retain
all cash dividends on the Stock Collateral.
(c) If any Event of Default shall have occurred, then so
long as such Event of Default shall continue, and whether or not the
Collateral Agent or any Secured Party exercises any available right to
declare any Secured Obligation due and payable or seeks or pursues any
other relief or remedy available to it under applicable law or under
this Agreement, the Notes or any other agreement relating to such
Secured Obligation, and all dividends and other distributions on the
Stock Collateral shall be paid directly to the Collateral Agent as
part of the Stock Collateral, subject to the terms of this Agreement,
and, if the Collateral Agent shall so request in writing, the Securing
Party agrees to execute and deliver to the Collateral Agent
appropriate additional dividend, distribution and other orders and
documents to that end, provided that if such Event of Default is
cured, any such dividend or distribution theretofore paid to the
Collateral Agent shall, upon request of the Securing Party (except to
the extent theretofore applied to the Secured Obligations), be
returned by the Collateral Agent to the Securing Party.
4.04 Notice of Event of Default; Remedies. Upon the occurrence of an
Event of Default becoming known to it, the Securing Party or a Secured Party
shall give notice thereof to the Collateral Agent (with copies to each of the
other parties hereto). During the period during which an Event of Default shall
have occurred and be continuing, the Collateral Agent, as directed by Secured
Parties holding a majority of the outstanding principal amount of the Notes:
(a) may make any reasonable compromise or settlement deemed
desirable with respect to any of the Collateral and may extend the time
of payment, arrange for payment in installments, or otherwise modify
the terms of, any of the Collateral;
(b) shall have all of the rights and remedies with respect to
the Collateral of a secured party under the Uniform Commercial Code
(whether or not said Code is in effect in the jurisdiction where the
rights and remedies are asserted) and such additional rights and
remedies to which a secured party is entitled under the laws in effect
in any jurisdiction where any rights and remedies hereunder may be
asserted, including, without limitation, the right, to the maximum
extent permitted by law, to exercise all voting, consensual and other
powers of ownership pertaining to the Collateral as if the Collateral
Agent were the sole and absolute owner thereof (and the Securing Party
agrees to take all such action as may be appropriate to give effect to
such right);
(c) may, in its name or in the name of the Securing Party or
otherwise, demand, sue for, collect or receive any money or property at
any time payable or receivable on account of or in exchange for any of
the Collateral, but shall be under no obligation to do so;
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(d) may, upon ten (10) Business Days' prior written notice to
the Securing Party of the time and place, with respect to the
Collateral or any part thereof that shall then be or shall thereafter
come into the possession, custody or control of the Collateral Agent,
the Secured Parties or any of their respective agents, sell, lease,
assign or otherwise dispose of all or any part of such Collateral, at
such place or places as the Collateral Agent deems best, and for cash
or for credit or for future delivery (without thereby assuming any
credit risk), at public or private sale, without demand of performance
or notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Collateral Agent or any Secured
Party or any other person or entity may be the purchaser, lessee,
assignee or recipient of any or all of the Collateral so disposed of at
any public sale (or, to the extent permitted by law, at any private
sale) and thereafter hold the same absolutely, free from any claim or
right of whatsoever kind, including any right or equity of redemption
(statutory or otherwise) of the Securing Party, any such demand, notice
and right or equity being hereby expressly waived and released. The
Collateral Agent may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
4.04 shall be applied in accordance with Section 4.07 hereof.
The Securing Party recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws and regulatory requirements, the Collateral Agent may be
compelled, with respect to any sale of all or any part of the Collateral, to
limit purchasers to those who meet the requirements of the NYSE and other
regulatory agencies for the ownership of a broker-dealer and member of the NYSE
and who will agree, among other things, to acquire the Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. The Securing Party acknowledges that any such private sales may be at
prices and on terms less favorable to the Collateral Agent than those obtainable
through a public sale without such restrictions, and, notwithstanding such
circumstances, agree that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Collateral Agent shall
have no obligation to engage in public sales and no obligation to delay the sale
of any Collateral for the period of time necessary to permit the Issuer to
register it for public sale.
4.05 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 4.04 hereof are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Secured Obligations, the Securing Party shall remain liable for
any deficiency.
4.06 Private Sale. The Collateral Agent and the Secured Parties shall
incur no liability as a result of the sale of the Collateral, or any part
thereof, at any private sale pursuant to Section 4.04 hereof conducted in a
commercially reasonable manner. The Securing Party hereby waives any claims
against the Collateral Agent or any Secured Party arising by reason of the fact
that the price at which the Collateral may have been sold at such a private sale
was less than the price that might have been obtained at a public sale or was
less than the aggregate amount of the Secured Obligations.
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4.07 Application of Proceeds. Except as otherwise expressly provided
herein and except as provided below in this Section 4.07, the proceeds of any
collection, sale or other realization of all or any part of the Collateral
pursuant hereto, and any other cash at the time held by the Collateral Agent
under this Section 4, shall be applied by the Collateral Agent:
First, to the payment of the costs and expenses of such
collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Collateral Agent and the fees
and expenses of its agents and counsel, and all expenses incurred and
advances made by the Collateral Agent in connection therewith;
Next, to the payment in full of the Secured Obligations, in
each case ratably in accordance with the respective amounts thereof
then due and owing to each of the Secured Parties or as the Secured
Parties holding the same may otherwise agree; and
Finally, to the payment to the Securing Party, or its
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining.
As used in this Section 4, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in kind
of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Securing Party or the Issuer.
4.08 Attorney-in-Fact. Upon the occurrence and during the continuance
of any Event of Default the Collateral Agent is hereby appointed the
attorney-in-fact of the Securing Party for the purpose of carrying out the
provisions of this Agreement and taking any action and executing any instruments
that the Collateral Agent may deem necessary or advisable to accomplish the
purposes hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an interest. Without limiting the generality of the foregoing, so
long as the Collateral Agent shall be entitled under this Section 4 to make
collections in respect of the Collateral, the Collateral Agent shall have the
right and power to receive, endorse and collect all checks made payable to the
order of the Securing Party representing any dividend, payment or other
distribution in respect of the Collateral or any part thereof and to give full
discharge for the same. The Collateral Agent is hereby authorized to prepare and
file in the name of the Securing Party any financing statements describing the
Collateral and the security interests created hereby without the signature of
the Securing Party (to the extent permitted by applicable law).
4.09 Perfection. The Securing Party shall (a) at the Closing, deliver
to the Collateral Agent all certificates identified in Annex 1 hereto,
accompanied by undated stock powers duly executed in blank, and (b) in the event
of a substitution of Collateral pursuant to Section 4.12, execute and deliver to
the Collateral Agent for filing such financing statements and other documents in
such offices as the Collateral Agent may request to perfect the security
interests granted by Section 3 hereof.
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4.10 Termination. When all Secured Obligations shall have been paid in
full, the Securing Party shall give notice thereof to the Collateral Agent, with
copies to each Secured Party. This Agreement shall terminate, and the Collateral
Agent shall forthwith cause to be transferred and delivered, against receipt but
without any recourse, warranty or representation whatsoever, any remaining
Collateral and money received in respect thereof, to or on the order of the
Securing Party, five business days after such notice has been given; provided,
however, that if a Secured Party, within such five-day period, gives notice to
the Collateral Agent (with copies to the Securing Party and the other Secured
Parties) that it disputes that the Secured Obligations have been paid in full,
the Collateral Agent shall continue to retain the Collateral and money until it
receives a notice signed by the Secured Party giving such notice and the
Securing Party that such dispute has been resolved and providing for the release
of the Collateral and money to the Securing Party. The Collateral Agent shall
also execute and deliver to the Securing Party upon such termination such other
documentation as shall be reasonably requested by the Securing Party to effect
the termination and release of the liens on the Collateral.
4.11 Further Assurances. The Securing Party agrees that, from time to
time upon the written request of the Collateral Agent, the Securing Party will
execute and deliver such further documents and do such other acts and things as
the Collateral Agent may reasonably request in order fully to effect the
purposes of this Agreement.
4.12 Release and Substitution of Collateral. So long as no Event of
Default shall have occurred and be continuing, upon the request of the Securing
Party, at the Securing Party's expense, the Collateral Agent shall execute and
deliver to the Securing Party such instruments as the Securing Party shall
reasonably request to release the security interest of the Collateral Agent in
any Collateral pledged by the Securing Party upon the delivery to the Collateral
Agent of substitute collateral of (a) equivalent value to the unpaid amount of
the Secured Obligations if in the form of a letter of credit of a bank or
financial institution having a combined capital and surplus of not less than
$500,000,000, direct obligations of the United States government or any agency
thereof or obligations guaranteed by the United States government or an agency
thereof or other readily marketable financial instrument of substantially
equivalent creditworthiness or (b) 150% of the value of the unpaid amount of the
Secured Obligations if in any other form, in which event such substitution may
be made only upon the consent of the Secured Parties, which consent will not
unreasonably be withheld . Any substitute collateral delivered pursuant to this
Section 4.12 shall be deemed to be Collateral for all purposes of this
Agreement.
4.13 Affirmative Covenants. The Securing Party hereby covenants that
so long any of the Secured Obligations remains outstanding and unpaid, it will
cause the Issuer to, unless otherwise consented to in writing by the Secured
Parties:
(a) keep all of its material property in working order and
condition, ordinary wear and tear excepted; and maintain, with
financially sound and reputable insurance companies, insurance on its
properties in such amounts and against such risks as are mandated by
sound business practice;
(b) continue to engage in business of the same general type
as now conducted and contemplated to be conducted by it and preserve,
renew and keep in full force and effect its existence and take all
reasonable action to maintain its rights, privileges, licenses and
franchises necessary or desirable in the normal conduct of the
Issuer's business; and
8
(c) keep proper and accurate books and records of its
accounts and properties in which full, true and correct entries in
conformity with appropriate accounting principles and all requirements
of law shall be made of all dealings and transactions in relation to
its business and activities and, subject to appropriate agreements
respecting confidentiality, permit any Representatives of the Secured
Parties to visit and inspect any of its properties and examine and
make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired.
4.14 Negative Covenants. The Securing Party hereby covenants that so
long as any of the Secured Obligations remains outstanding and unpaid, it will
not grant any security interest in or lien on the Collateral to any person or
entity other than the lien granted hereby and will cause the Issuer not to
liquidate or dissolve itself (or suffer any liquidation or dissolution) or
convey, sell, lease, transfer or otherwise dispose of, in one transaction or a
series of related transactions, all or a substantial part of its property (real
or personal), business, or assets, or make any material change in the method of
conducting business presently contemplated unless, in either instance, otherwise
consented to in writing by the Secured Parties in advance.
4.15 Acknowledgment. The Issuer hereby acknowledges and consents to
the pledge of the Pledged Stock made by the Securing Party hereby, including
without limitation the rights and obligations of the Secured Parties, the
Securing Parties and the Collateral Agent with respect to developments and
distributions on the Pledge Stock.
Section 5. The Collateral Agent.
(a) Each of the Secured Parties hereby irrevocably appoints
the Collateral Agent as its agent hereunder and authorizes the
Collateral Agent to take such actions on its behalf and to exercise
such powers as are delegated to the Collateral Agent by the terms
hereof together with such actions and powers as are reasonably
incidental thereto.
(b) The person serving as the Collateral Agent hereunder
shall have the same rights and powers in its capacity as a Secured
Party as any other Secured Party and may exercise the same as though
it were not the Collateral Agent, and such Person and its Affiliates
may accept deposits from, lend money to and generally engage in any
kind of business with the Securing Party or any Subsidiary or other
Affiliate thereof as if it were not the Collateral Agent hereunder.
(c) The Collateral Agent shall not have any duties or
obligations except those expressly set forth herein. Without limiting
the generality of the foregoing, (i) the Collateral Agent shall not be
subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing, (ii) the Collateral
Agent shall not have any duty to take any discretionary action or
exercise any discretionary powers, except discretionary rights and
powers expressly contemplated hereby that the Collateral Agent is
9
required to exercise in writing by the Required Secured Parties, and
(iii) except as expressly set forth herein, the Collateral Agent shall
not have any duty to disclose, and shall not be liable for the failure
to disclose, any information relating to the Securing Party or any of
its Subsidiaries that is communicated to or obtained by the bank
serving as Collateral Agent or any of its affiliates in any capacity.
The Collateral Agent shall not be liable for any action taken or not
taken by it with the consent or at the request of the Required Secured
Parties or in the absence of its own gross negligence or willful
misconduct. The Collateral Agent shall be deemed not to have knowledge
of any Default unless and until written notice thereof is given to the
Collateral Agent by the Borrower or a Secured Party, and the Collateral
Agent shall not be responsible for or have any duty to ascertain or
inquire into (i) any statement, warranty or representation made in or
in connection with this Agreement, (ii) the contents of any
certificate, report or other document delivered hereunder or thereunder
or in connection herewith or therewith, (iii) the performance or
observance of any of the covenants, agreements or other terms or
conditions set forth herein or therein, or (iv) the validity,
enforceability, effectiveness or genuineness of this Agreement or any
other agreement instrument or document, or (v) the satisfaction of any
condition set forth herein other than to confirm receipt of items
expressly required to be delivered to the Collateral Agent.
(d) The Collateral Agent shall be entitled to rely upon, and
shall not incur any liability for relying upon, any notice, request,
certificate, consent, statement, instrument, document or other writing
believed by it to be genuine and to have been signed or sent by the
proper person. The Collateral Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the
proper person, and shall not incur any liability for relying thereon.
The Collateral Agent may consult with legal counsel, independent
accountants and other experts selected by it, and shall not be liable
for any action taken or not taken by it in accordance with the advice
of any such counsel, accountants or experts.
(e) The Collateral Agent may perform any and all its duties
and exercise its rights and powers by or through any one or more
sub-agents appointed by the Collateral Agent. The Collateral Agent and
any such sub-agent may perform any and all its duties and exercise its
rights and powers through their respective related parties. The
exculpatory provisions of the preceding paragraphs shall apply to any
such sub-agent and to the related parties of the Collateral Agent and
any such sub-agent, and shall apply to their respective activities in
connection with the syndication of the credit facilities provided for
herein as well as activities as Collateral Agent.
(f) The Collateral Agent may resign at any time by notifying
the Secured Parties and the Securing Party. Upon any such resignation,
the Required Secured Parties shall have the right, in consultation
with the Securing party, to appoint a successor. If no successor shall
have been so appointed by the Required Secured Parties and shall have
accepted such appointment Within 30 days after the retiring Collateral
Agent gives notice of its resignation, then the retiring Collateral
Agent's resignation shall nonetheless become effective and (i) the
retiring Collateral Agent shall be discharged from its duties and
10
obligations hereunder and (ii) the Required Secured Parties shall
perform the duties of the Collateral Agent (and all payments and
communications provided to be made by, to or through the Collateral
Agent shall instead be made by or to each Secured Party directly)
until such time as the Required Secured Parties appoint a successor
agent as provided for above in this paragraph. Upon the acceptance of
its appointment as Collateral Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring (or retired) Collateral
Agent and the retiring Collateral Agent shall be discharged from its
duties and obligations hereunder (if not already discharged therefrom
as provided above in this paragraph). After the Collateral Agent's
resignation hereunder, the provisions of this Section 5 shall continue
in effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Collateral Agent.
(g) Each Secured Party acknowledges that it has,
independently and without reliance upon the Collateral Agent or any
other Secured Party and based on such documents and information as it
has deemed appropriate, made its own credit analysis and decision to
enter into this Agreement. Each Secured Party also acknowledges that
it will, independently and without reliance upon the Collateral Agent
or any other Secured Party and based on such documents and information
as it shall from time to time deem appropriate, continue to make its
own decisions in taking or not taking action under or based upon this
Agreement or any related agreement or any document furnished hereunder
or thereunder.
(h) The Collateral Agent may, with the prior consent of the
Required Secured Parties (but not otherwise), consent to any
modification, supplement or waiver under this Agreement, provided
that, without the prior consent of each Secured Party, the Collateral
Agent shall not release all or substantially all of the collateral or
otherwise terminate all or substantially all of the liens under this
Agreement, agree to additional obligations being secured by all or
substantially all of such collateral security (unless the lien for
such additional obligations shall be junior to the lien in favor of
the other obligations secured hereby, in which event the Collateral
Agent may consent to such junior lien provided that It obtains the
consent of the Required Secured Parties thereto), alter the relative
priorities of the obligations entitled to the benefits of the liens
created hereunder with respect to all or substantially all of such
collateral, except that no such consent shall be required, and the
Collateral Agent is hereby authorized, to release any lien covering
property that is the subject of either a disposition of property
permitted hereunder or a disposition to which the Required Secured
Parties have consented.
(i) The Collateral Agent shall be entitled to receive the
fees set forth in Annex 2 hereto, which shall be paid by the Securing
Party.
Section 6. Miscellaneous.
6.01 No Waiver. No failure on the part of the Collateral Agent or any
Secured Party to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by the Collateral Agent
or any Secured Party of any right, power or remedy hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
11
6.02 Notices. All notices, requests, consents and demands hereunder
shall be in writing and telecopied or delivered by overnight delivery by a
nationally recognized express carrier to the intended recipient at its address
specified in Annex 3 and shall be deemed to be delivered on the date telecopied
or on the first business day following delivery to such express carrier.
6.03 Expenses. The Securing Party agrees to reimburse each of the
Secured Parties and the Collateral Agent for all reasonable costs and expenses
incurred by them in enforcing the rights granted to them hereunder (including,
without limitation, the reasonable fees and expenses of legal counsel) in
connection with (i) any Default and any enforcement or collection proceeding
resulting therefrom, including, without limitation, all manner of participation
in or other involvement with (w) performance by the Collateral Agent or a
Secured Party of any obligations of the Securing Party in respect of the
Collateral that the Securing Party has failed or refused to perform, (x)
bankruptcy, insolvency, receivership, foreclosure, winding up or liquidation
proceedings, or any actual or attempted sale, or any exchange, enforcement,
collection, compromise or settlement in respect of any of the Collateral, and
for the care of the Collateral and defending or asserting rights and claims of
the Collateral Agent in respect thereof, by litigation or otherwise, including
expenses of insurance, (y) judicial or regulatory proceedings and (z) workout,
restructuring or other negotiations or proceedings (whether or not the workout,
restructuring or transaction contemplated thereby is consummated) and (ii) the
enforcement of this Section 6.03, and all such costs and expenses shall be
Secured Obligations entitled to the benefits of the collateral security provided
pursuant to Section 3.
6.04 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the respective successors and assigns of the Securing
Party, the Collateral Agent, the Secured Parties and each holder of any of the
Secured Obligations.
6.05 Captions. The captions and section headings appearing herein are
included solely for convenience of reference and are not intended to affect the
interpretation of any provision of this Agreement.
6.06 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart. Delivery by telecopier of an executed counterpart of this
Agreement shall be effective as delivery of an original executed counterpart
thereof.
6.07 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the law of the State of New York, without giving effect to
principles of conflicts of law.
6.08 Agents and Attorneys-in-Fact. The Collateral Agent may employ
agents and attorneys-in-fact in connection herewith and shall not be responsible
for the negligence or misconduct of any such agents or attorneys-in-fact
selected by it in good faith.
12
6.09 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(a) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Collateral Agent
and the Secured Parties in order to carry out the intentions of the parties
hereto as nearly as may be possible and (b) the invalidity or unenforceability
of any provision hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
6.10 Consent to Jurisdiction and Service of Process. LTGI and Berliner
each hereby irrevocably appoints the President of New Valley Corporation, at its
office at 590 Madison Avenue, 35th Floor, New York, New York 10022, and the
Securing Party hereby irrevocably appoints the President of GBI Capital
Management Corp., at its offices at 1055 Stewart Avenue, Bethpage, New York
11714, its lawful agent and attorney to accept and acknowledge service of any
and all process against it in any action, suit or proceeding arising out of or
relating to this Agreement or any of the transactions contemplated hereby and
upon whom such process may be served, with the same effect as if such Party were
a resident of the State of New York and had been lawfully served with such
process in such jurisdiction, and waives all claims of error by reason of such
service, provided that in the case of any service upon such agent and attorney,
the Party effecting such service shall also deliver a copy thereof to the other
Parties at the address and in the manner specified in Section 6.02. LTGI,
Berliner and the Securing Party will enter into such agreements with such agents
as may be necessary to constitute and continue the appointment of such agents
hereunder. In the event that such agent and attorney resigns or otherwise
becomes incapable of acting as such, such Party will appoint a successor agent
and attorney in the City of New York, reasonably satisfactory to the other
Parties, with like powers. The Lender hereby agrees that service of process in
any action, suit or proceeding arising out of or relating to this Agreement or
any of the transactions contemplated hereby may be made upon it by registered
mail, return receipt requested, at the address specified in Section 3.1 of the
Loan Agreement. Each Party hereby irrevocably submits to the exclusive
jurisdiction of the United States District Court for the Southern District of
New York or any court of the State of New York located in the Borough of
Manhattan in the City of New York in any such action, suit or proceeding arising
out of or relating to this Agreement or any of the transactions contemplated
hereby, and agrees that any such action, suit or proceeding shall be brought
only in such court, provided, however, that such consent to jurisdiction is
solely for the purpose referred to in this Section 6.10 and shall not be deemed
to be a general submission to the jurisdiction of said courts or in the State of
New York other than for such purpose. Each Party hereby irrevocably waives, to
the fullest extent permitted by law, any objection that it may now or hereafter
have to the laying of the venue of any such action, suit or proceeding brought
in such a court and any claim that any such action, suit or proceeding brought
in such a court has been brought in an inconvenient forum. EACH PARTY HEREBY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF THIS AGREEMENT. As used in this Section 6.10, the term "Party"
includes the Collateral Agent, upon whom service of process may be made by
registered mail addressed to it at the address specified in Section 6.02.
[Signature page follows]
13
IN WITNESS WHEREOF, the parties hereto have caused this Pledge and
Security Agreement to be duly executed and delivered as of the day and year
first above written.
GBI CAPITAL MANAGEMENT CORP.
By:______________________________
Name: Richard Rosenstock
Title: President
LADENBURG, THALMANN GROUP INC.
By:______________________________
Name: Victor Rivas
Title:
BERLINER EFFEKTENGESELLSCHAFT AG
By:______________________________
Name: Holger Timm
Title: Chief Executive Officer
FROST-NEVADA, LIMITED PARTNERSHIP
By: Frost-Nevada Corporation, General Partner
By:______________________________
Name: David Moskowitz
Title: President
US BANK TRUST NATIONAL ASSOCIATION
By:______________________________
Name:
Title:
LADENBURG, THALMANN & CO. INC.
(with respect to Section 4.15 only)
By:______________________________
Name: Victor Rivas
Title:
14
ANNEX 1
PLEDGED STOCK
Class of Stock Certificate Nos. Number of Shares
-------------- ---------------- ----------------
15
ANNEX 2
FEES OF COLLATERAL AGENT
Initial Fee - $1,000 payable on execution of Agreement
Annual Fee - $1,500 payable annually on each anniversary of execution of
Agreement
16
ANNEX 3
NOTICE ADDRESSES
Securing Party
GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, New York 11741
Attention: Richard Rosenstock
Telecopier: 01149-30-8902-196
with a copy to:
Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopier: 212-818-8881
LTGI
Ladenburg, Thalmann Group Inc.
C/o New Valley Corporaiton
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
Attention: Richard Lampen
Telecopier: 305-579-8009
with a copy to:
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005-1413
Attention: Mark Weissler, Esq.
Telecopier: 212-530-5219
17
Berliner
Berliner Effektengesellschaft AG
Kurfurstendamm 119
10711 Berlin, German
Attention: Dr. Wolfgang Janka
Telecopier: 01149-30-8902-196
Lender
Frost-Nevada, Limited Partnership
3500 Lakeside Court
Suite 200
Reno, Nevada 89509
Telecopier:775-827-2185
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
SunTrust International Center
One Southeast Third Avenue, 28th Floor
Miami, Florida 33131-1714
Attention: Teddy D. Klinghoffer, Esq.
Telecopier: 305-374-5095
Collateral Agent
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Thomas M. Gronlund, Vice President
Telecopier: 775-827-2185
18
Appendix G
===============================================================================
INVESTOR RIGHTS AGREEMENT
dated as of February 8, 2001
among
NEW VALLEY CORPORATION,
LADENBURG, THALMANN GROUP INC.,
BERLINER EFFEKTENGESELLSCHAFT AG,
GBI CAPITAL MANAGEMENT CORP.,
FROST-NEVADA, LIMITED PARTNERSHIP
AND
THE PRINCIPALS
===============================================================================
INVESTOR RIGHTS AGREEMENT, dated as of February 8, 2001, among NEW
VALLEY CORPORATION, a Delaware corporation ("New Valley"), LADENBURG, THALMANN
GROUP INC., a Delaware corporation ("LTGI"), BERLINER EFFEKTENGESELLSCHAFT AG, a
German corporation ("Berliner"), GBI CAPITAL MANAGEMENT CORP., a Florida
corporation ("Corporation"), FROST-NEVADA, LIMITED PARTNERSHIP, a Nevada limited
partnership ("Lender"), and the individual stockholders of the Corporation
listed on Schedule A hereto ("Principals"). As used in this Agreement, the term
"Principal" means, with respect to each individual listed on Schedule A hereto,
such individual and, where applicable, the Living Trust set forth below his
name.
WHEREAS, New Valley, LTGI and Berliner (collectively, the "Selling
Parties"), the Corporation and Ladenburg, Thalmann & Co. Inc., a Delaware
corporation, are parties to a Stock Purchase Agreement dated February 8, 2001
("Stock Purchase Agreement");
WHEREAS, LTGI and Berliner ("Sellers") have the right to acquire shares
of the Corporation's Common Stock, $0.0001 par value per share (the "Common
Stock"), pursuant to the Stock Purchase Agreement;
WHEREAS, the Lender and the Corporation are parties to a Loan Agreement
dated as of February 8, 2001 ("Loan Agreement"), pursuant to which the
Corporation will borrow $10,000,000 from the Lender to pay a portion of the
Purchase Price under the Stock Purchase Agreement; and
WHEREAS, the Principals, together with Joseph Berland, are the only
persons who individually own more than 5% of the Common Stock on the date
hereof;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
Section 1. Definitions.
Capitalized terms used herein and not defined herein have the meanings
set forth in the Stock Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"beneficially owned" or words of similar import shall have the meaning
as determined pursuant to Rule 13d-3 of the 1934 Act.
"Notes" means, collectively, the Notes to be issued by the Corporation
to the Sellers pursuant to the Stock Purchase Agreement and the Lender Note to
be issued by the Corporation to the Lender pursuant to the Loan Agreement.
"Registrable Securities" means only (i) the shares of Common Stock
issued or issuable to the Sellers under the Stock Purchase Agreement, (ii)
shares of Common Stock issuable on conversion of the Notes and (iii) any
additional shares of Common Stock issued or distributed by way of a dividend,
stock split or other distribution in respect of such shares, and shall not
include any other securities of the Corporation acquired by or issued to the
parties hereto. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the 1933 Act and such securities shall have been disposed of in
accordance with such registration, (ii) they shall have been distributed to the
public pursuant to Rule 144 or (iii) they shall have ceased to be outstanding.
"Rule 144" means Rule 144 promulgated under the 1933 Act or any
successor rule thereto or any complementary rule thereto.
"Voting Securities" means all securities of the Corporation entitled to
vote in an election of directors.
Section 2. Effectiveness.
This Agreement shall become effective only upon the Closing of the
Stock Purchase Agreement. This Agreement shall become null and void on the
termination of the Stock Purchase Agreement prior to the consummation of the
transactions contemplated thereby.
Section 3. Registration Rights.
(a) Registration Statement.
(i) Grant of Right. The Corporation shall file, and use
commercially reasonable efforts to cause to be declared effective by
the Commission no later than six months following the Closing Date, a
registration statement (the "Required Registration Statement") to
register the Registrable Securities owned by the Sellers and the Lender
(the "Holders") for resale pursuant to the 1933 Act. Any of the
Principals may elect to have his shares of Common Stock included for
registration pursuant to the Required Registration Statement upon
written notice given to the Corporation at any time prior to the
declaration of effectiveness of the Required Registration Statement by
the Commission, in which event the term "Holders" as used in Sections 3
and 4 hereof shall include any Principal giving such notice, and for
purposes of Sections 3 and 4 only (and not for purposes of any other
provisions of this Agreement), the term "Registrable Securities" shall
include the shares of Common Stock held by such Principal on the date
hereof (and any shares underlying any options held by such Principal on
the date hereof) with respect to which any such notice is given.
(ii) Terms. The Corporation shall bear all fees and expenses
attendant to registering the Registrable Securities, but the Holders
shall pay any and all sales commissions and the expenses of any legal
counsel selected by them to represent them in connection with the sale
of the Registrable Securities. The Corporation shall use its best
efforts to cause any registration statement filed pursuant to Section
2
3(a) to remain effective until all the Registrable Securities
registered thereunder are sold or until the delivery to the Holders of
an opinion of counsel to the Corporation to the effect set forth in
Section 3(g).
(b) Indemnification.
(i) The Corporation will indemnify the Holders, their
directors and officers and each underwriter, if any, and each person
who controls any of them within the meaning of the 1933 Act or the 1934
Act against all claims, losses, damages and liabilities (or actions or
proceedings, commenced or threatened, in respect thereof), joint or
several, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any registration,
qualification or compliance pursuant to this Section 3 or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Corporation of the 1933
Act or any rule or regulation thereunder applicable to the Corporation
in connection with any such registration, qualification or compliance,
and will reimburse the Holders, their directors and officers, each such
underwriter and each person who controls any such underwriter within
the meaning of the 1933 Act or the 1934 Act for any legal and any other
expenses reasonably incurred in connection with investigating and
defending any such claim, loss, damage, liability or action or
proceeding; provided that the Corporation will not be liable to a
Holder in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Corporation by or on behalf of such Holder specifically stating that it
is intended for inclusion in any registration statement under which
Registrable Securities are registered. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on
behalf of a Holder or any such director, officer or controlling person,
and shall survive the transfer of such securities by any Holder.
(ii) Each of the Holders, severally and not jointly, shall
indemnify the Corporation, each of its directors and officers and each
underwriter, if any, of the Corporation's securities covered by such
registration statement, each person who controls the Corporation or
such underwriter within the meaning of the 1933 Act and the 1934 Act
and the rules and regulations thereunder, each other securityholder
participating in such distribution and each of their officers and
directors and each person controlling such other securityholder,
against all claims, losses, damages and liabilities (or actions or
proceedings, commenced or threatened, in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any 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 Corporation and such other security holders,
directors, officers, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or
action or proceeding, in each case to the extent, but only to the
3
extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such document in reliance
upon and in conformity with written information furnished to the
Corporation by or on behalf of such Holder specifically stating that it
is intended for inclusion in such document; provided, however, that the
obligations of each Holder hereunder shall be limited to an amount
equal to the proceeds received by such Holder of securities sold as
contemplated herein. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the
Corporation or any such director, officer or controlling person, and
shall survive the transfer of such securities by any Holder.
(iii) Each party desiring indemnification under this Section
3(b) or contribution under Section 3(c) hereof (the "Securities
Indemnified Party") shall give notice to the party required to provide
indemnification or contribution (the "Securities Indemnifying Party")
promptly after such Securities Indemnified Party has actual knowledge
of any claim as to which indemnity or contribution may be sought, and
shall permit the Securities Indemnifying Party to assume, at its sole
cost and expense, the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Securities
Indemnifying Party, who shall conduct the defense of such claim or any
litigation resulting therefrom, shall be approved by the Securities
Indemnified Party (whose approval shall not be unreasonably withheld).
The Securities Indemnified Party may participate in such defense at the
Securities Indemnified Party's expense unless (A) the employment of
counsel by the Securities Indemnified Party has been authorized in
writing by the Securities Indemnifying Party, (B) the Securities
Indemnified Party has been advised by such counsel employed by it that
there are legal defenses available to it involving potential conflict
with those of the Securities Indemnifying Party (in which case the
Securities Indemnifying Party will not have the right to direct the
defense of such action on behalf of the Securities Indemnified Party),
or (C) the Securities Indemnifying Party has not in fact employed
counsel to assume the defense of such action within a reasonable time
after receiving notice of the commencement of the action, in each of
which cases the reasonable fees and expenses of counsel for the
Securities Indemnified Party shall be at the expense of the Securities
Indemnifying Party. The failure of any Securities Indemnified Party to
give notice as provided herein shall not relieve the Securities
Indemnifying Party of its obligations under this Section 3(b) or
Section 3(c). No Securities Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each
Securities Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Securities
Indemnified Party of a release from all liability in respect to such
claim or litigation. No Securities Indemnified Party shall settle any
claim or demand without the prior written consent of the Securities
Indemnifying Party (which consent will not be unreasonably withheld).
Each Securities Indemnified Party shall furnish such information
regarding itself or the claim in question as the Securities
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with defense of such claim and
litigation resulting therefrom.
4
(iv) The provisions of this Section 3(b) shall be in addition
to any other rights to indemnification or contribution which an
Indemnified Party may have pursuant to law, equity, contract or
otherwise.
(c) Contribution Rights. In order to provide for just and equitable
contribution under the 1933 Act in any case in which (A) any person entitled to
indemnification under Section 3(b) makes a claim for indemnification pursuant
hereto but such indemnification is not enforced in such case notwithstanding the
fact that Section 3(b) provides for indemnification in such case, or (B)
contribution under the 1933 Act, the 1934 Act or otherwise is required on the
part of any such person in circumstances for which indemnification is provided
under Section 3(b), then, and in each such case, the Corporation and each of the
Holders shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by said indemnity agreement (including
legal and other expenses reasonably incurred in connection with investigation or
defense) incurred by the Corporation and the Holders, as incurred, in proportion
to their relative fault and the relative knowledge and access to information of
the Securities Indemnifying Party, on the one hand, and the Securities
Indemnified Party, on the other hand, concerning the matters resulting in such
losses, liabilities, claims, damages and expenses, the opportunity to correct
and prevent any untrue statement or omission, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission of a
material fact relates to information supplied by the Securities Indemnifying
Party, on the one hand, or the Securities Indemnified Party, on the other hand,
and any other equitable considerations appropriate under the circumstances;
provided that no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 3(c), each person, if any, who controls the Corporation within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as the Corporation.
(d) Information. Each of the Holders shall furnish to the Corporation
such information regarding itself and the distribution proposed by it as the
Corporation may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 3.
(e) 1934 Act Compliance. The Corporation shall comply with all of the
reporting requirements of the 1934 Act and with all other public information
reporting requirements of the Commission, which are conditions to the
availability of Rule 144 for the sale of the Common Stock. The Corporation shall
cooperate with each Holder in supplying such information as may be necessary for
such Holder to complete and file any information reporting forms presently or
hereafter required by the Commission as a condition to the availability of Rule
144.
(f) No Conflict of Rights. The Corporation represents and warrants to
the holders of Registrable Securities that the granting of the registration
rights to the Holders hereby does not and will not violate any agreement between
5
the Corporation and any other security holders with respect to registration
rights granted by the Corporation.
(g) Termination. The rights granted under this Section 3 shall
terminate upon delivery to the Holders of an opinion of counsel to the
Corporation reasonably satisfactory to the Holders to the effect that such
rights are no longer necessary for the public sale of the Registrable Securities
without restriction as to the number of securities that may be sold at any one
time or the manner of sale.
(h) Transferability. The rights granted under this Section 3 shall not
be transferable except, as to the Sellers, together with the Registrable
Securities to the other Seller or New Valley.
Section 4. Preparation and Filing.
If and whenever the Corporation is under an obligation pursuant to the
provisions of this Agreement to use its commercially reasonable efforts to
effect the registration of any Registrable Securities, the Corporation shall:
(a) furnish, as far in advance as reasonably practicable but
in no event less than five business days before filing a registration
statement that registers such Registrable Securities, a prospectus
relating thereto or any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the
holders of a majority of such Registrable Securities (the "Selling
Holders' Counsel"), copies of all such documents proposed to be filed
(it being understood that such five-business-day period need not apply
to successive drafts of the same document proposed to be filed so long
as such successive drafts are supplied to such counsel in advance of
the proposed filing by a period of time that is customary and
reasonable under the circumstances) and any Holder shall have the
opportunity to object to any information pertaining solely to such
holder that is contained therein and the Corporation will make the
corrections reasonably requested by such Holder with respect to such
information prior to filing any such registration statement or
amendment;
(b) notify in writing the Selling Holders' Counsel promptly
(i) of the receipt by the Corporation of comments by the Commission
with respect to such registration statement or prospectus or any
amendment or supplement thereto or any request by the Commission for
the amending or supplementing thereof or for additional information
with respect thereto, (ii) of the receipt by the Corporation of any
notification with respect to the effectiveness, or the issuance by the
Commission of any stop order suspending the effectiveness, of such
registration statement or prospectus or any amendment or supplement
thereto or the initiation or threatening of any proceeding for that
purpose and (iii) of the receipt by the Corporation of any notification
with respect to the suspension of the qualification of such Registrable
Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purposes;
6
(c) use its commercially reasonable efforts to register or
qualify such Registrable Securities under such other securities or blue
sky laws of such jurisdictions as any Holder reasonably requests and do
any and all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such Holder;
provided, however, that the Corporation will not be required to qualify
generally to do business, subject itself to general taxation or consent
to general service of process in any jurisdiction where it would not
otherwise be required so to do but for this paragraph (c);
(d) furnish to each Holder a conformed copy of the
registration statement, the exhibits thereto and such number of copies
of a summary prospectus or other prospectus, including a preliminary
prospectus, in conformity with the requirements of the 1933 Act, and
such other documents as such Holder may reasonably request in order to
facilitate the public sale or other disposition of its Registrable
Securities;
(e) use its commercially reasonable efforts to cause such
Registrable Securities to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of
the business and operations of the Corporation to enable the Holders to
consummate the disposition of such Registrable Securities;
(f) notify on a timely basis each Holder at any time when a
prospectus relating to such Registrable Securities is required to be
delivered under the 1933 Act within the appropriate period mentioned in
paragraph (a) of this Section, of the happening of any event as a
result of which the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing and, at the request of such Holder, prepare
and furnish to such Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the offerees of such shares, such
prospectus shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) subject to execution of customary confidentiality
agreements by the Inspectors (as defined below) make available for
inspection by the Selling Holders' Counsel or any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any
such underwriter (collectively, the "Inspectors") all pertinent
financial and other records, pertinent corporate documents and
properties of the Corporation as shall be reasonably necessary to
enable them to exercise their due diligence responsibility, and cause
the Corporation's officers, directors and employees to supply all such
information reasonably requested by any such Inspector in connection
with such registration statement;
7
(h) provide a transfer agent and registrar (which may be the
same entity and which may be the Corporation) for such Registrable
Securities;
(i) otherwise use its commercially reasonable efforts to
comply with all applicable rules and regulations of the Commission and
make available to its security holders, as soon as reasonably
practicable, earnings statements (which need not be audited) covering a
period of 12 months beginning within three months after the effective
date of the registration statement, which earnings statements shall
satisfy the provisions of Section 10(a) of the 1933 Act; and
(j) use its commercially reasonable efforts to take all other
steps necessary to effect the registration of such Registrable
Securities contemplated hereby.
Section 5. Tag Along Rights.
Except with respect to a sale or other transfer to an Affiliate of
LTGI, if LTGI proposes to sell or otherwise transfer, directly or indirectly, to
a person ("Third Party Purchaser") other than any other holder of Voting
Securities party to this Agreement (except in a pledge to a financial
institution, a merger or recapitalization of the Corporation in which all
holders of Voting Securities participate or a tender offer not opposed by the
Corporation) (a "Proposed Sale") more than 5% of the shares of Common Stock
beneficially owned by LTGI at the time of the Proposed Sale, LTGI (the "Selling
Holder") shall give written notice ("Sale Notice") of the Proposed Sale
(including the proposed per-share sale price and all other material terms of the
transaction) to each of the Lender and the Principals (each of the Lender and
Principals, a "Tag-Along Holder") no later than five (5) days prior to the
scheduled consummation of the Proposed Sale. Each Tag-Along Holder may, by
written notice ("Participation Notice") given to the Selling Holder within three
(3) days after the Sale Notice is given by the Selling Holder, elect to require
the Third Party Purchaser to purchase from each such Tag-Along Holder such
Tag-Along Holder's Proportionate Share (as hereinafter defined) of the shares of
Common Stock included in its Registrable Securities. The failure of a Tag-Along
Holder to respond within the three-day period following receipt of the Sale
Notice shall be deemed to be a waiver of the Tag-Along Holder's rights under
this Section 5. It shall be a condition to the consummation of the Proposed Sale
by the Selling Holder that the Third Party Purchaser purchase from each
Tag-Along Holder who has given a Participation Notice within the time period
specified above that number of shares of Common Stock constituting such
Tag-Along Holder's Proportionate Share on the same terms and conditions as
pertain to the shares of Common Stock to be sold by the Selling Holder in the
Proposed Sale except that the Tag-Along Holder shall not be required to make any
agreements or representations other than its ownership of the shares it is
selling. As used herein, "Proportionate Share" means, with respect to a
Tag-Along Holder, that number of shares of Common Stock equal to that percentage
of the shares of Common Stock included in its Registrable Securities determined
by multiplying (x) the total number of such shares of Common Stock then held by
the Tag-Along Holder by (y) a fraction, the numerator of which is the number of
shares of Common Stock proposed to be sold by the Selling Holder in the Proposed
Sale and the denominator of which is the number of shares of Common Stock then
8
owned by such Selling Holder (as adjusted for all Adjustment Events). The rights
set forth in this Section 5 shall not be transferable and shall expire at the
earlier of such time as (a) the Selling Holder beneficially owns less than 40%
of the outstanding Common Stock or (b) the Principals and Lenders collectively
beneficially own less than 10% of the outstanding Common Stock. For so long as
the rights set forth in this Section 5 shall exist, New Valley hereby agrees not
to transfer any of the outstanding shares of LTGI to a Third Party Purchaser
without the consent of the Principals and the Lender; provided, however, that
New Valley may transfer such shares to any of its Affiliates without the consent
of the Principals and the Lender, provided, further, that New Valley may only
transfer shares of LTGI stock to an Affiliate if such Affiliate agrees to be
bound by the terms of this Agreement.
Section 6. Holdback Agreement.
If there shall be a firm commitment underwriting of the Corporation's
Common Stock and the managing underwriter for such registration shall request,
the holders of Voting Securities who are party to this Agreement shall not sell,
sell short, offer or contract to sell, grant any option or warrant for the sale
of, or assign, transfer, pledge, hypothecate or otherwise encumber or dispose of
any legal or beneficial interest in, any Common Stock or Registrable Securities
without the prior written consent of the managing underwriter for a period
designated by the Corporation in writing to such holders, which period shall not
begin more than 30 days prior to the effectiveness of the registration statement
pursuant to which such public offering shall be made and shall not last more
than 180 days after the effective date of such registration statement.
Section 7. Board Nominee.
Effective upon the Closing, the Corporation and the Sellers shall take
such actions as are reasonably necessary to appoint Messrs. Mark Zeitchick,
Vincent Mangone and Richard Rosenstock as directors of the Corporation to serve
until the next meeting of stockholders at which directors are elected. Until
such time as the Principals collectively beneficially own less than ten percent
(10%) of Common Stock, the Principals may nominate three individuals reasonably
acceptable to the Corporation for election to the Corporation's Board of
Directors at all meetings of stockholders at which directors are elected. If any
of the Principals' nominees are elected and subsequently cease to be a director
on account of death, resignation, removal or otherwise, the Principals shall
have the right to designate a successor to such nominee, which successor nominee
shall be a person reasonably acceptable to the Corporation. The Principals may
remove, for any reason, at any time, the director it has designated without the
consent of any other stockholder. The Sellers shall vote all Voting Securities
they own or with respect to which they otherwise have the right to vote for the
election or removal (at the Principals' request) of the Principals' nominees.
Section 8. Representations and Warranties of the Parties.
Each of the parties hereto, severally and not jointly, hereby represent
and warrant to the other as follows:
9
(a) Authorization. Such party has the legal capacity to
execute, deliver and perform this Agreement. This Agreement constitutes
a valid and binding obligation of such party enforceable against such
party in accordance with its terms.
(b) No Conflict. The execution, delivery and performance by
such party of this Agreement and the consummation of the transactions
contemplated hereby do not and will not (i) result in any breach or
violation of or be in conflict with or constitute a default under the
terms of any law, order, regulation or agreement or arrangement to
which it is a party or by which it is bound, (ii) require any filing
with or authorization by any governmental entity other than any
Schedule 13D or 13G filings under the 1934 Act or (iii) require any
consent or other action by any person under, constitute a default
under, or give rise to any right of termination, cancellation or
acceleration or to a loss of any benefit to which it is entitled under
any provision of any agreement or other instrument binding on it.
(c) Reliance. Such party understands and acknowledges that the
other parties hereto are entering into the Stock Purchase Agreement and
the Loan Agreement in reliance upon its execution and delivery of this
Agreement.
Section 9. Right of First Refusal.
(a) From the Closing Date until December 31, 2005, if either
Berliner or the Lender (each of Berliner and the Lender, the "ROFR
Seller") proposes to sell, transfer or otherwise dispose of any of its
Notes or, upon conversion of such Notes, any of the shares of Common
Stock underlying such Notes, the ROFR Seller shall promptly give
written notice ("ROFR Notice") to LTGI at least one (1) business day
prior to the proposed closing date of such sale or transfer. The ROFR
Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of Notes (or
underlying shares, as the case may be) to be sold or transferred
("Offered Securities"), the nature of such sale or transfer, the
consideration to be paid, and, where applicable, the name and address
of each prospective purchaser or transferee. The giving of such notice
shall grant to LTGI the rights set forth in paragraph (b) below. LTGI
can elect to exercise rights under paragraph (b) or do nothing.
(b) LTGI shall have the right, exercisable no later than one
(1) business day after receipt of the ROFR Notice, to purchase any or
all of the Offered Securities on the same terms and conditions as set
forth in the ROFR Notice, by delivery of written notice to the ROFR
Seller within the aforesaid one (1) business day period (such purchase
to be consummated on the third business day after delivery of such
notice). If LTGI elects to purchase less than all of the Offered
Securities, the ROFR Seller may transfer those Offered Securities which
LTGI has elected not to purchase in accordance with paragraph (d)
below.
10
(c) LTGI's exercise or non-exercise of its right to purchase
Offered Securities shall not adversely affect its rights as to
subsequent sales of Notes (or underlying shares) subject to this
Section 9.
(d) If LTGI has not exercised its right to purchase any or all
the Offered Shares within the period specified in paragraph (b) above,
the ROFR Seller may, not later than sixty (60) days following delivery
to LTGI of the ROFR Notice, conclude a transfer of any or all of the
Offered Securities on terms and conditions not materially less
favorable to it from those described in the ROFR Notice. Any proposed
transfer on terms and conditions less favorable to it from those
described in the ROFR Notice, as well as any subsequent proposed
transfer of any of the Notes (or underlying shares) by the ROFR Seller
shall again be subject to the purchase rights of LTGI and shall require
compliance by the ROFR Seller with the procedures described in this
Section 9.
(e) Any attempt by Berliner or the Lender to transfer Notes
(or the underlying shares) in violation of Section 9 hereof shall be
void and the Corporation will not effect such a transfer nor will it
treat any alleged transferee as the holder of such securities.
Section 10. Assignment; Parties in Interest.
(a) Except as otherwise provided herein, this Agreement shall
bind and inure to the benefit of the parties and each of their
respective successors and permitted assigns.
(b) The Selling Parties shall not make any transfer of
Registrable Securities to any person or entity otherwise allowed by
such Section other than open market sales or sales under the Required
Registration Statement on the open market unless the transferee
executes an agreement, reasonably satisfactory to the Corporation,
agreeing to be bound by the provisions of this Agreement. Such
transferee shall have the benefits of a Selling Party under this
Agreement to the extent such benefits are specifically stated herein to
accrue to such transferee.
Section 11. Miscellaneous.
(a) Binding Effect. All covenants, representations, warranties
and other stipulations in this Agreement and other documents referred
to herein, given by or on behalf of any of the parties hereto, shall
bind and inure to the benefit of the respective successors, heirs,
personal representatives and assigns of the parties hereto.
(b) Entire Agreement. This Agreement contains the entire
agreement among the parties with respect to the subject matter hereof
and supersedes all prior arrangements or understandings with respect
hereto.
(c) Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient
if contained in a written instrument and shall be deemed to have been
duly given when delivered in person, by telecopy, by
nationally-recognized overnight courier, or by first class registered
11
or certified mail, postage prepaid, addressed to such party at the
address set forth below or such other address as may hereafter be
designated in writing by the addressee to the addressor at the address
and telecopier numbers set forth in the Stock Purchase Agreement, with
respect to the Selling Parties, in the Loan Agreement, with respect to
the Lender, and at the addresses and telecopier numbers set forth in
Schedule A for the Principals. All such notices, requests, consents and
other communications shall be deemed to have been delivered when
received.
(d) Modifications; Amendments; Waivers. The terms and
provisions of this Agreement may not be modified or amended, nor any
provision hereof waived, except pursuant to a writing signed by the
Corporation, the Holders (including their assigns) and the Principals;
provided, however, that only a writing signed by the Sellers and the
Lender is required to modify, amend or waive any of the provisions of,
Section 9 hereof. No waiver by any party of any term of this Agreement
in any one or more instances shall be deemed or construed as a waiver
of such term on any future occasion.
(e) Counterparts. This Agreement may be executed in any number
of counterparts, and each such counterpart hereof shall be deemed to be
an original instrument, but all such counterparts together shall
constitute but one agreement.
(f) Headings. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and
shall not be deemed to be a part of this Agreement.
(g) Severability. It is the desire and intent of the parties
that the provisions of this Agreement be enforced to the fullest extent
permissible under the law and public policies applied in each
jurisdiction in which enforcement is sought. Accordingly, if any
provision of this Agreement would be held in any jurisdiction to be
invalid, prohibited or unenforceable for any reason, such provision, as
to such jurisdiction, shall be ineffective, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such
jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn,
without invalidating the remaining provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York, without
giving effect to principles governing conflicts of laws, except to the
extent the provisions of the Florida Business Corporation Act apply.
(i) Specific Performance: Remedies. The parties hereto agree
that irreparable damage would occur in the event any provision of this
Agreement was not performed in accordance with the terms hereof and
that the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at law or equity. Except as
otherwise expressly provided for herein, no remedy conferred by any of
12
the specific provisions of this Agreement is intended to be exclusive
of any other remedy, and each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not
constitute a waiver by any such party of the right to pursue any other
available remedies.
(j) Consent to Jurisdiction.
(i) Each of the Selling Parties, the Lender, the
Corporation and the Principals hereby irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and to
the jurisdiction of the United States District Court for the Southern
District of New York or any court of the State of New York located in
the Borough of Manhattan in the City of New York, for the purpose of
any action or proceeding arising out of or relating to this Agreement
and each of the Selling Parties, the Lender, the Corporation and the
Principals hereby irrevocably agrees that all claims in respect to such
action or proceeding shall be heard and determined exclusively in any
New York state or federal court. Each of the Selling Parties, the
Lender, the Corporation and the Principals agrees that a final judgment
in any action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner
provided by law.
(ii) Each of the Selling Parties, the Corporation and the
Principals irrevocably consents to the service of the summons and
complaint and any other process in any other action or proceeding
relating to the transactions contemplated by this Agreement, on behalf
of itself or its property, by personal delivery of copies of such
process to such party. Nothing in this Section 11(j) shall affect the
right of any party to serve legal process in any other manner permitted
by law.
(k) WAIVER OF JURY TRIAL. EACH OF THE SELLING PARTIES, THE
LENDER, THE CORPORATION AND THE PRINCIPALS HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF THE SELLING PARTIES, THE
LENDER, THE CORPORATION AND THE PRINCIPALS IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
(l) Further Assurances. Each party will take such further
actions as may reasonably be requested by another party to effect the
purposes of this Agreement.
[Signature Page Immediately Follows]
13
IN WITNESS WHEREOF, the parties hereto have executed this Investor
Rights Agreement on the date first written above.
NEW VALLEY CORPORATION
/s/ Richard J. Lampen
By:_________________________________
Name: Richard J. Lampen
Title: Executive Vice President
LADENBURG, THALMANN GROUP INC.
/s/ Victor Rivas
By:_________________________________
Name: Victor Rivas
Title:
BERLINER EFFEKTENGESELLSCHAFT AG
/s/ Holger Timm
By:_________________________________
Name: Holger Timm
Title: Chief Executive Officer
GBI CAPITAL MANAGEMENT CORP.
/s/ Richard J. Rosenstock
By:_________________________________
Name: Richard J. Rosenstock
Title: President
FROST-NEVADA, LIMITED PARTNERSHIP
/s/ David Moskowitz
By: _________________________________
Name: David Moskowitz
Title: President
14
PRINCIPALS:
/s/ Richard J. Rosenstock
___________________________
RICHARD J. ROSENSTOCK
/s/ Mark Zeitchick
____________________________
MARK ZEITCHICK
/s/ Vincent A. Mangone
____________________________
VINCENT A. MANGONE
/s/ David Thalheim
____________________________
DAVID THALHEIM
SCHEDULE A
Name, Address and Fax Number Number of Shares
---------------------------- ----------------
RICHARD J. ROSENSTOCK 3,945,060
Richard J. Rosenstock Revocable Living Trust dated
3/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
MARK ZEITCHICK 1,512,273
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
VINCENT A. MANGONE 1,512,273
Vincent A. Mangone Revocable Living Trust dated
11/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
DAVID THALHEIM 1,512,273
David Thalheim Revocable Living Trust dated 3/5/96
c/o GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Facsimile No.: (516) 470-1050
Appendix H
Roth Capital Partners
PERSONAL AND CONFIDENTIAL
February 8, 2001
Board of Directors
GBI Capital Management Corp.
1055 Stewart Avenue
Bethpage, NY 11714
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to GBI Capital Management Corp. (the "Company") of the Total Consideration (as
defined below) proposed to be paid by the Company pursuant to the Stock Purchase
Agreement, dated as of February 8, 2001 (the "Agreement"), among the Company,
Ladenburg, Thalmann & Co. Inc. ("Ladenburg"), New Valley Corporation ("New
Valley"), Ladenburg, Thalmann Group Inc. ("Group") and Berliner
Effektengesellschaft AG ("BEAG"). Pursuant to the Agreement, the Company will
purchase from Group and BEAG all off the outstanding stock of Ladenburg in
consideration for 18,181,818 shares (the "Stock Consideration") of the Company's
Common Stock, par value $0.0001 per share (the "Shares"), $10,000,000 Senior
Convertible Promissory Notes (the "Notes") and $10,000,000 cash (the "Cash" and,
collectively with the Stock Consideration and the Notes, the "Total
Consideration").
In connection with this opinion, we have reviewed, among other things, (a) the
Agreement and the Exhibits thereto; (b) the Annual Reports on Form 10-K of the
Company for the years ended September 30, 1999 - 2000; (c) certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of the Company; (d)
certain other communications from the Company to its stockholders; (e) certain
financial and other information related to the Company including audited
financial statements for years ended August 24, 1998, August 31, 1999 and
September 30, 2000 and unaudited quarterly financial statements; (f) certain
internal financial analyses for the Company prepared by the management of the
Company; (g) audited historical financial statements of Ladenburg for the fiscal
years ended December 31, 1998-1999; (h) certain financial and other information
related to Ladenburg including unaudited quarterly financial statements for the
year 2000; (i) certain internal financial analyses for Ladenburg prepared by the
management of Ladenburg; (j) the Annual Reports on Form 10-K of the New Valley
for the years ended December 31, 1999 - 2000; and (k) certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of New Valley. We also have held
discussions with members of the senior management of the Company and Ladenburg
regarding their assessment of the strategic rationale for, and the potential
benefits of, the transaction contemplated by the agreements and the current
business operations, financial condition and future prospects of their
respective companies. In addition, we have compared certain financial and other
information for Ladenburg and certain financial and stock market information for
the Company with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the investment banking and brokerage industries
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate including the consideration of
existing stock market conditions and the relative revenue sources of the Company
and Ladenburg.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed or reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities,
contingent or otherwise, of the Company or Ladenburg or any of their
subsidiaries and we have not been furnished with any such evaluation or
appraisal. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to any such transaction.
Roth Capital Partners, LLC ("RCP"), as part of its investment banking business,
is continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. RCP may provide investment
banking services to the Company in the future. RCP provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities of the Company for its own account and for the accounts of customers.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Total
Consideration proposed to be paid by the Company pursuant to the Agreement is
fair from a financial point of view to the Company.
Very truly yours,
/s/ Roth Capital Partners, LLC
Roth Capital Partners, LLC
Appendix I
Adopted 6/29/00 GBI CAPITAL MANAGEMENT CORP.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board to assist the Board in monitoring
(1) the integrity of the financial statements of the Company, (2) the compliance
by the Company with legal and regulatory requirements and (3) the independence
and performance of the Company's external auditors.
The members of the Audit Committee shall meet the independence and experience
requirements of the American Stock Exchange. The members of the Audit Committee
shall be appointed by the Board.
The Audit Committee shall have the authority to retain special legal, accounting
or other consultants to advise the Committee. The Audit Committee may request
any officer or employee of the Company or the Company's outside counsel or
independent auditor to attend a meeting of the Committee or to meet with any
members of, or consultants to, the Committee.
The Audit Committee shall make regular reports to the Board.
The Audit Committee shall:
1. Review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval.
2. Review the annual audited financial statements with management and the
independent auditors, including major issues regarding accounting and
auditing principles and practices as well as the adequacy of the
Company's overall accounting and financial internal controls that could
significantly affect the Company's financial statements.
3. Review an analysis prepared by management and the independent auditor of
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements.
4. If requested by the Audit Committee, management or the independent
auditors, review with management and the independent auditor the
Company's quarterly financial statements prior to the filing of the
Company's Form 10-Q.
5. Meet periodically with management to review the Company's major financial
risk exposures and the steps management has taken to monitor and control
such exposures.
6. Review with the independent auditor the Company's auditing and accounting
principles and practices. Review major changes to the Company's auditing
and accounting principles and practices as suggested by the independent
auditor or management.
7. Recommend to the Board the appointment of the independent auditor, which
firm is ultimately accountable to the Audit Committee and the Board.
8. Approve the fees to be paid to the independent auditor.
9. Receive periodic reports from the independent auditor regarding the
auditor's independence consistent with Independence Standards Board
Standard 1, discuss such reports with the auditor, and if so determined
by the Audit Committee, take or recommend that the full Board take
appropriate action to oversee the independence of the auditor.
10. Evaluate together with the Board the performance of the independent
auditor and, if so determined by the Audit Committee, recommend that the
Board replace the independent auditor.
11. Meet with the independent auditor prior to the audit to review the scope,
planning and staffing of the audit.
12. Obtain from the independent auditor assurance that Section 10A of the
Securities Exchange Act of 1934 has not been implicated.
13. Discuss with the independent auditor the matters required to be discussed
by Statement on Auditing Standards No. 61 relating to the conduct of the
audit.
14. Review with the independent auditor their final report and any problems
or difficulties the auditor may have encountered in their audit and any
management letter provided by the auditor and the Company's response to
that letter. Such review should include:
(a) Any difficulties encountered in the course of the audit work,
including any restrictions on the scope of activities or access to
required information.
(b) Any changes required in the planned scope of the internal audit.
(c) The internal audit department responsibilities, budget and
staffing.
15. Recommend to the independent auditors to whom reports prepared by the
independent auditors should be submitted within the Company.
16. Be available to the independent auditors during the year for consultation
purposes.
17. Prepare the report required by the rules of the Securities and Exchange
Commission to be included in the Company's annual proxy statement.
18. Review with the Company's General Counsel legal matters that may have a
material impact on the financial statement and any material reports or
inquiries received from regulators or governmental agencies.
2
19. Meet at least annually with the chief financial officer and the
independent auditor in separate executive sessions.
20. Review all related party transactions on an ongoing basis for potential
conflict of interest situations.
While the Audit Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Audit Committee to plan or conduct audits or
to determine that the Company's financial statements are complete and accurate
and are in accordance with generally accepted accounting principles. This is the
responsibility of management and the independent auditor. Nor is it the duty of
the Audit Committee to conduct investigations, to resolve disagreements, if any,
between management and the independent auditor or to assure compliance with laws
and regulations.
3
Apprendix J(1)
GBI CAPITAL MANAGEMENT CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Goldstein Golub Kessler LLP F - 1
Consolidated Statements of Financial Condition
as of September 30, 2000 and August 24, 1999 F - 2
Consolidated Statements of Operations for the periods
from August 25, 1999 to September 30, 2000, and
September 1, 1998 to August 24, 1999, and for the
year ended August 31, 1998 F - 3
Consolidated Statements of Changes in Stockholders' Equity
for the periods from August 25, 1999 to September 30,
2000, and September 1, 1998 to August 24, 1999, and
for the year ended August 31, 1998 F - 4
Consolidated Statements of Cash Flows for the periods from
August 25, 1999 to September 30, 2000, and September 1,
1998 to August 24, 1999, and for the year ended
August 31, 1998 F - 5
Notes to Consolidated Financial Statements F - 6 - F - 11
Consolidated Statements of Financial Condition
as of December 31, 2000 F - 12
Consolidated Statements of Operations for the three
months ended December 31, 1999 and 2000 F - 13
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended December 31, 2000 F - 14
Consolidated Statements of Cash Flows for the three months
ended December 31, 2000 F - 15
Notes to Consolidated Financial Statements F - 16 - F - 18
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
GBI Capital Management Corp.
We have audited the accompanying consolidated statements of financial condition
of GBI Capital Management Corp. and Subsidiaries as of September 30, 2000 and
August 24, 1999, and the related consolidated statements of operations, changes
in stockholders' equity, and cash flows for the periods from August 25, 1999 to
September 30, 2000 and September 1, 1998 to August 24, 1999 and for the year
ended August 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of GBI Capital
Management Corp. and Subsidiaries as of September 30, 2000 and August 24, 1999,
and the results of their operations and their cash flows for the periods from
August 25, 1999 to September 30, 2000 and September 1, 1998 to August 24, 1999
and for the year ended August 31, 1998, in conformity with generally accepted
accounting principles.
/S/ GOLDSTEIN GOLUB KESSLER LLP
GOLDSTEIN GOLUB KESSLER LLP
November 11, 2000
F-1
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, August 24,
2000 1999
------------ ----------
ASSETS:
Cash and cash equivalents $ 5,255,669 $ 502,437
Receivable from broker 21,507,788 8,576,148
Securities owned, at market value 3,513,865 3,390,606
Furniture, fixtures and Leasehold Improvements, at cost, net of
accumulated depreciation and amortization of $2,831,499 and $2,051,418 at
September 30, 2000 and August 24, 1999, respectively. 4,166,744 2,468,361
Deferred tax asset 1,156,000 834,000
Investment in and receivable from affiliates 1,489,134 -
Other Assets 2,330,803 1,361,393
----------- ----------
Total assets $39,420,003 $17,132,945
================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Securities sold, not yet purchased, at market value $ 2,203,708 $ 3,918,091
Note payable - 243,667
Income taxes payable 182,788 84,600
Accrued expenses and other liabilities 15,770,427 4,820,811
----------- ----------
Total liabilities 18,156,923 9,067,169
----------- ----------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock - $.0001 par value
authorized 100,000,000 shares, issued and
outstanding 18,806,612 and 15,999,410 shares, respectively 1,881 1,600
Additional paid-in capital 7,531,763 3,112,020
Retained earnings 13,729,436 4,952,156
----------- ----------
Total stockholders' equity 21,263,080 8,065,776
----------- ----------
Total liabilities and stockholders' equity $39,420,003 $17,132,945
================= ================
See Notes to Consolidated Financial Statements
F-2
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Operations
For the period For the period
August 25,1999 September 1, 1998 For the Year Ended
to September 30, to August 24, August 31,
2000 1999 1998
---------------- ------------- -------------------
Revenues:
Commissions and trading income $ 118,160,646 $ 54,625,262 $ 52,025,409
Interest and dividends, net 2,707,738 922,376 927,356
Underwriting fees 4,762,978 1,386,588 4,795,185
Other 70,159 49,007 147,010
---------------- ------------- -------------------
125,701,521 56,983,233 57,894,960
---------------- ------------- -------------------
Expenses:
Compensation and benefits 80,334,416 39,018,835 40,561,426
Brokerage, clearance and exchange fees 7,249,951 2,678,741 2,354,440
Communications 3,833,744 2,534,013 2,505,735
Occupancy and equipment 6,849,701 5,113,830 4,814,782
Professional fees 2,524,596 2,119,803 824,101
Business development 2,429,977 1,534,638 1,864,315
Other 7,236,972 4,420,419 4,182,714
---------------- ------------- -------------------
110,459,357 57,420,279 57,107,513
---------------- ------------- -------------------
Income (loss) before provision
for income taxes 15,242,164 (437,046) 787,447
Income tax (provision) benefit (6,464,884) 112,470 (435,177)
---------------- ------------- -------------------
Net income (loss) $ 8,777,280 $ (324,576) $ 352,270
================ ============= ===================
Basic (loss) earnings per common share $ 0.47 $ (.02) $ 0.03
================ ============= ===================
Diluted (loss) earnings per comMon share $ 0.47 $ (.02) $ 0.03
================ ============= ===================
See Notes to Consolidated Financial Statements
F-3
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the period from September 1, 1997 to September 30, 2000
Common
Stock Additional Stock
------------------------ Paid-in Retained Treasury Subscription
Shares Par Value Capital Earnings Stock Receivable Total
---------- ------------ ----------- ----------- ------------ ---------- ----------
Stockholders' equity,
August 31, 1997 14,552,888 $ 1,455 $ 1,000,434 $ 4,924,462 $ (212,500) $ -- $ 5,713,851
Purchase of treasury stock -- -- -- -- (1,234,270) -- (1,234,270)
Sale of stock 2,586,206 259 2,507,971 -- 1,446,770 (3,407,667) 547,333
Net income -- -- -- 352,270 -- -- 352,270
---------- ------------ ----------- ----------- ------------ ---------- ----------
Stockholders' equity,
August 31, 1998 17,139,094 1,714 3,508,405 5,276,732 -- (3,407,667) 5,379,184
Cancellation of stock subscription (416,423) (42) (214,658) -- -- 214,700 --
Cash receipt for stock subscription -- -- -- -- -- 3,192,967 3,192,967
Purchase and retirement of stock (832,846) (83) (238,216) -- -- -- (238,299)
Issuance of stock 109,585 11 56,489 -- -- -- 56,500
Net loss -- -- -- (324,576) -- -- (324,576)
---------- ------------ ----------- ----------- ------------ ---------- ----------
Stockholders' equity,
August 24, 1999 15,999,410 1,600 3,112,020 4,952,156 -- -- 8,065,776
Net Income -- -- -- 684,711 -- -- 684,711
Stock Issued in connection with
reverse merger 2,807,202 281 4,424,781 -- -- -- 4,425,062
Stockholders' equity,
September 30, 1999 18,806,612 1,881 7,536,801 5,636,867 -- -- 13,175,549
Net Income -- -- -- 8,092,569 -- -- 8,092,569
Syndication Costs -- -- (5,038) -- -- -- (5,038)
---------- ----------- ----------- ----------- ------------ ---------- ----------
Stockholders' equity,
September 30, 2000 18,806,612 $ 1,881 $ 7,531,763 $ 13,729,436 $ -- $ -- $21,263,080
See Notes to Consolidated Financial Statements
F-4
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Cash Flows
For the period For the period
August 25,1999 September 1, 1998 For the Year Ended
to September 30, to August 24, August 31,
2000 1999 1998
------------ ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 8,777,280 $ (324,576) $ 352,270
Adjustments to reconcile net income (loss) to net cash
provided by (used in)operating activities:
Depreciation and amortization 780,080 710,076 553,094
Deferred income taxes (322,000) (284,100) (2,511,900)
Unrealized loss on investment in affiliate 90,027 -- --
Decrease (increase) in operating assets:
Receivable from clearing broker dealer (12,931,640) 857,340 146,809
Securities owned, at market value (123,259) (854,018) 4,768,726
Other assets (969,410) (787,673) 23,908
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased, at market value (1,714,383) 1,031,596 (3,311,056)
Income taxes payable 98,188 (2,249,122) 1,571,141
Accrued expenses and other liabilities 10,949,616 608,182 (850,988)
----------- ----------- -----------
Net cash (used in) provided by operating activities 4,634,499 (1,292,295) 742,004
----------- ----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (2,478,463) (139,901) (602,089)
Investment in affiliate (1,579,161) -- --
----------- ----------- -----------
Net cash (used in) investing activities (4,057,624) (139,901) (602,089)
----------- ----------- -----------
Cash flows from financing activities:
Collection of stock subscriptions receivable -- 3,192,967 --
Sale of common stock 4,425,062 56,500 547,333
Syndication costs (5,038) -- --
Purchase and retirement of common stock -- (238,299) --
Purchase of common stock into treasury -- -- (400,937)
Repayment of subordinated borrowing -- (1,000,000) --
Payment of note payable (243,667) (666,667) --
Proceeds from note payable -- 77,001 --
----------- ----------- -----------
Net cash provided by financing activities 4,176,357 1,421,502 146,396
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents 4,753,232 (10,694) 286,311
Cash and cash equivalents at beginning of period 502,437 513,131 226,820
----------- ----------- -----------
Cash and cash equivalents at end of period $ 5,255,669 $ 502,437 $ 513,131
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,033,646 $ 2,744,398 $ 1,706,236
============ =========== ==========
Income taxes $ 6,551,654 $ 2,606,431 $ 1,366,448
============ =========== ===========
See Notes to Consolidated Financial Statements
F-5
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GBI
Capital Management Corp, and its wholly owned subsidiaries, GBI
Capital Partners Inc., formerly Gaines, Berland Inc. ("GBI Capital")
and GBI Fund Management Corp. (the general partner of the GBI 1500
Focus Fund L.P., a private investment partnership formed in August
1999), and GBI Capital's wholly owned subsidiary, GBI Trading Corp.
("GBI Trading") (a development stage company), (collectively the
"Company"). GBI Trading was incorporated in February 1999 and GBI Fund
Management Corp. was incorporated in August 1999.
On August 24, 1999, GBI Capital Management Corp., formerly known
as Frost Hanna Capital Group, Inc., acquired all of the outstanding
common stock of GBI Capital. For accounting purposes, the acquisition
has been treated as a recapitalization of GBI Capital with GBI Capital
as the acquirer (reverse acquisition). The historical financial
statements prior to August 24, 1999, are those of GBI Capital. The
Company has changed its fiscal year end to September 30. The Company's
Statement of Operations, Statements of Changes in Stockholders Equity,
and Statement of Cash Flows for 1999 and 2000 are for the period
September 1, 1998 to August 24, 1999 and August 25, 1999 to September
30, 2000, respectively.
GBI Capital is a broker-dealer registered with the Securities and
Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. GBI Capital acts as an introducing broker,
market maker, underwriter and trader for its own account.
GBI Capital does not carry accounts for customers or perform
custodial functions related to customers' securities. GBI Capital
introduces all of its customer transactions, which are not reflected
in these financial statements, to its clearing broker, which maintains
the customers' accounts and clears such transactions. Additionally,
this clearing broker provides the clearing and depository operations
for GBI Capital's proprietary securities transactions. These
activities may expose the Company to off-balance-sheet risk in the
event that customers do not fulfill their obligations with the
clearing broker, as GBI Capital has agreed to indemnify the clearing
broker for any resulting losses.
At September 30, 2000, all of the securities owned and securities
sold, not yet purchased, and the amount receivable from clearing
broker reflected on the consolidated statement of financial condition
are security positions with and amounts due from this clearing broker.
The Company maintains cash in bank deposit accounts, which at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and believes it is not exposed
to any significant credit risk on cash.
Securities transactions, commission revenue and commission
expenses are recorded on a trade-date basis. Unrealized gains and
losses on securities transactions are included in principal
transactions in the consolidated statement of operations.
The financial statements have been prepared in conformity with
generally accepted accounting principles which require the use of
estimates by management.
Furniture and fixtures are depreciated on a straight-line basis
over the economic useful lives of the assets, not exceeding seven
years. Leasehold improvements are amortized over the lesser of their
economic useful lives or the expected term of the related lease.
The investment in affiliates consists of a limited partnership
investment in the GBI 1500 Focus Fund L.P. accounted for by the equity
method.
F-6
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a
material effect on the accompanying consolidated financial statements.
2. SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED:
Securities owned and securities sold, not yet purchased consists of:
2000 2000 1999 1999
Securities Securities Sold Securities Securities Sold
Owned Not Yet Purchased Owned Not Yet Purchased
------------------- ----------------------- ----------------- ------------------------
Equities $ 1,423,861 $ 2,131,341 $ 710,253 $ 3,886,145
Warrants 2,090,004 72,367 2,679,103 31,946
Options 1,250
------------------- ----------------------- ----------------- ------------------------
$ 3,513,865 $ 2,203,708 $ 3,390,606 $ 3,918,091
=================== ======================= ================= ========================
Securities owned, traded on a national exchange are valued at the bid
price. Securities sold, not yet purchased, traded on a national
exchange are valued at the ask price. The resulting unrealized gains
and losses are reflected in revenue.
Securities sold, not yet purchased, represent obligations of GBI
Capital to deliver specified securities by purchasing the securities in
the market at prevailing market prices. Accordingly, these transactions
result in off-balance-sheet market risk as GBI Capital's ultimate
obligation may exceed the amount recognized in the financial
statements.
Stock warrants may not be readily marketable and have been valued at
fair value as determined by management. The warrants are valued based
on a percentage of the market value of the underlying securities. The
resulting unrealized gains and losses are reflected in trading income.
3. INCOME TAXES:
The provision (benefit) for income taxes consists of:
Period from Period from
August 25, 1999 September 1, 1998 Year Ended
to September 30, to August 24, August 31,
2000 1999 1998
--------------------------- ---------------------- -----------------------
Current:
Federal $ 4,935,111 $ 79,678 $ 2,194,596
State and local 1,851,773 91,952 752,481
------------------- ---------------- ------------------
Total Current 6,786,884 171,630 2,947,077
------------------- ---------------- ------------------
Deferred:
Federal (242,000) (209,000) (1,804,000)
State and Local (80,000) (75,100) (707,900)
------------------- ---------------- ------------------
Total deferred (322,000) (284,100) (2,511,900)
------------------- ---------------- ------------------
Provision (benefit) $ 6,464,884 $ (112,470) $ 435,177
=================== ================ ==================
The provision (benefit) for income taxes for the periods ended
September 30, 2000, August 24, 1999 and August 31, 1998, differs from
the amount computed using the federal statutory rate of 34% as a result
of the following:
F-7
2000 1999 1998
------------- -------------- -------------
Tax (benefit) at federal statutory rate 34% (34%) 34%
State income taxes 9% 8% 9%
Other - - 12%
------------- -------------- -------------
43% (26%) 55%
============= ============== =============
The deferred tax asset results from the following:
2000 1999
---------------- ----------------
Deferred rent $ 179,000 $ 0
Acrued settlements 977,000 834,000
---------------- ----------------
Total deferred tax asset $ 1,156,000 $ 834,000
---------------------------
The Company files consolidated federal income tax returns, but each
constituent entity files separate state income tax returns.
4. NET CAPITAL REQUIREMENT
As a registered broker-dealer, GBI Capital is subject to the SEC's
Uniform Net Capital Rule 15c3-1 ("Net Capital Rule"), which requires
the maintenance of minimum net capital. GBI Capital computes its net
capital under the aggregate indebtedness method permitted by rule
15c3-1, which requires that GBI Capital maintain minimum net capital,
as defined, of the greater of 6-2/3% of aggregate indebtedness, as
defined, or $100,000, or an amount determined based on the market price
and number of securities in which GBI Capital is a market-maker, not to
exceed $1,000,000.
At September 30, 2000, August 24, 1999, and August 31, 1998, GBI
Capital had net capital, as defined, of $11,033,845, $2,773,730, and
$1,807,781, respectively, which exceeded minimum net capital
requirements of $1,063,548, $562,500 and $492,003 by $9,970,297,
$2,211,230 and $1,315,778, respectively.
5. PROFIT-SHARING PLAN
GBI Capital is a sponsor of a defined contribution profit-sharing plan
for its eligible employees. Contributions to the plan, if any, are
determined by the employer and come out of its current accumulated
profits not to exceed the amount permitted under the Internal Revenue
Code as a deductible expense. GBI Capital made no contribution to the
plan for the period from August 25, 1999 to September 30, 2000, the
period from September 1, 1998 to August 24, 1999 and the year ended
August 31, 1998.
6. SUBORDINATED BORROWING
GBI Capital repaid a subordinated loan on July 22, 1999. The
subordinated borrowing had been approved by the NASD for inclusion in
computing GBI Capital's net capital pursuant to the Net Capital Rule.
The loan had been established with a stockholder of GBI Capital and was
interest bearing at a rate of 7-7/8% per annum, resulting in interest
expense of approximately $71,000 for the period from September 1, 1998
to August 24, 1999, and approximately $80,000 for the year ended August
31, 1998.
F-8
7. COMMITMENTS AND CONTINGENCIES
GBI Capital leases office space at several locations including
Bethpage, NY, New York City, NY and Fort Lauderdale, FL. These leases
expire May 30, 2007, March 31, 2010 and May 31, 2001, respectively. GBI
Capital also occupies additional space for its branch in California
under month-to-month leases. The minimum annual rental payments for
these leases are as follows:
Year ending September 30,
2000 $ 1,920,032
2001 1,952,652
2002 1,986,088
2003 2,027,688
2004 2,143,380
Thereafter 5,339,622
----------------
$15,369,462
================
The leases contain provisions for escalations based on increases in
certain costs incurred by the lessor. GBI Capital has the option to
renew one of these leases for an additional three-year period. Rent
expense was $2,758,075 for the period ended September 30, 2000,
$1,618,970 for the period ended August 24, 1999, and $1,997,871 for the
year ended August 31, 1998.
The leases provide for rent abatements and scheduled increases in base
rent. Rent expense is charged to operations ratably over the term of
the leases which results in deferred rent payable which represents
cumulative rent expense charged to operations from inception of these
leases in excess of required lease payments.
As of September 30, 2000, the Company has employment agreements with
five key executives through August 2004. The agreements provide for
annual base salaries of $600,000 for the next five years. In addition,
the agreement provides for additional compensation based upon a
percentage of income as defined in the agreements.
GBI Capital has been named as defendant in certain legal actions in the
ordinary course of business. At September 30, 2000, August 24, 1999,
and August 31, 1998, GBI Capital had accrued $ 2,348,000, $2,004,000
and $1,400,000, respectively, for settlement of all such legal
proceedings.
8. FINANCIAL INSTRUMENTS
GBI Capital's activities include the purchase and sale of warrants.
Warrants give the buyer the right to purchase securities at a specific
price until a specified expiration date. These financial instruments
are used to conduct trading activities and manage market risk.
GBI Capital may receive warrants as a part of its underwriting
activities for initial public offerings.
Such transactions may result in credit exposure in the event the
counter party to the transaction is unable to fulfill its contractual
obligations. Substantially all of the warrants are traded on national
exchanges, which can be subject to market risk in the form of price
fluctuations.
F-9
9. EARNINGS PER SHARE
Net income (loss) per common share is calculated by dividing net income
by weighted average number of common shares outstanding. Stock options
outstanding have not been included in the computation of diluted EPS,
as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
August 25, 1999 September 1, 1998 Year Ended
to September 30, to August 24, August 31,
2000 1999 1998
---- ---- ----
Numerator for basic and diluted EPS:
Net income (loss) $ 8,777,280 $ (324,576) $ 352,270
=================== ======================= ===============
Denominator for basic and
dilutive EPS 18,806,612 16,473,748 11,421,819
=================== ======================= ===============
10. ACCRUED EXPENSES
At September 30, 2000, GBI Capital had accrued expenses of $15,770,427,
of which $4,500,178 was for commissions and salaries payable,
$5,750,375 was for bonus accrual, $2,348,000 was for settlements,
$998,198 was for deferred rent payable, and $2,173,376 was for other
accruals (none more than 5% of accrued expenses). At August 24, 1999,
GBI Capital had accrued expenses of $4,820,811, of which $1,400,000
was for commissions and salaries payable, $200,000 was for bonuses,
$2,022,561 was for settlements, $533,656 was for deferred rent, and
$664,594 was for other accruals (none more than 5% of accrued
expenses).
11. INTEREST EXPENSE
During the periods August 25, 1999 to September 30, 2000, and September
1, 1998 to August 24, 1999, and for the year ended August 31, 1998, the
Company incurred interest expense of $5,039,359, $2,815,422 and
$1,706,236, respectively.
F-10
12. STOCK OPTION PLAN
In 1999, the Company adopted the 1999 Performance Equity Plan (the "Plan")
which provides for the grant of stock options and stock purchase rights to
certain designated employees, officers and directors and certain other
persons performing services for the Company, as designated by the board of
directors. Pursuant to the Plan, an aggregate of 3,000,000 shares of common
stock have been reserved for issuance.
A summary of the status of the Plan at September 30, 2000, and changes
during the period ended September 30, 2000, is presented below:
Weighted Avg.
Shares Exercise Price
----------------------------------------------------------------------------
Granted 1,691,988 $ 3.36
Forfeited 27,875 3.00
----------------------------------------------------------------------------
Outstanding at end of period 1,664,113 3.36
----------------------------------------------------------------------------
Options exercisable at year-end 277,198 4.03
----------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at September 30, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding at Contractual Exercise Exercisable at Exercise
Prices September 30, 2000 Life (Years) Price September 30, 2000 Price
--------------- ---------------------- ------------------ ----------------- ---------------------- --------------
4.47 200,000 3.92 4.47 89,508 4.47
4.06 300,000 8.92 4.06 147,690 4.06
3.00 1,127,749 9.21 3.00 40,000 3.00
2.75 36,364 9.25 2.75 - 2.75
--------------- ---------------------- ------------------ ----------------- ---------------------- --------------
1,664,113 8.52 3.36 277,198 4.03
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. Accordingly, no compenstion cost has been
recognized for the stock option plans. Had compensation cost been
determined based on the fair value at the grant dates for those awards
consistent with the method of FASB Statement No. 123, the Company's net
income and net income per share for the year ended September 30, 2000,
would have been increased to the pro forma amounts indicated below:
-------------------------------------------------------------------------------
Net income:
As reported $8,777,280
--------------------------------------------------------------------------------
Pro forma 7,270,529
--------------------------------------------------------------------------------
Earnings per share:
As reported - Basic and diluted $ .47
--------------------------------------------------------------------------------
Pro forma - Basic and diluted $ .39
-------------------------------------------------------------------------------
The estimated grant date present value reflected in the above table is
determined using the Black-Scholes model. The material factors incorporated
in the Black-Scholes model in estimating the value of the options reflected
in the above table include the following: (i) the fair market value of the
underlying stock on the dates of grant, (ii) an option term ranging from 5
to 10 years, (iii) a risk-free rate range of 5.81% to 6.41% that represents
the interest rate on a U.S. Treasury security with a maturity date
corresponding to that of the option term, (iv) volatility of 97.73% and (v)
no annualized dividends paid with respect to a share of common stock at the
date of grant. The ultimate values of the options will depend on the future
price of the Company's common stock, which cannot be forecast with
reasonable accuracy.
F-11
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, September 30,
2000 2000
------------- ---------------
(Unaudited)
Assets
Cash and cash equivalents $ 5,193,168 $ 5,255,669
Receivable from brokers and dealers 8,579,276 21,507,788
Securities owned, at market value 2,381,971 3,513,865
Furniture, fixtures and leasehold improvements,
at cost net of accumulated depreciation and
amortization of $3,093,018 and $2,831,499
for December 31, 2000 andSeptember 30, 2000
respectively. 4,113,284 4,166,744
Deferred tax asset 1,326,000 1,156,000
Investment in and receivable from affiliates 1,493,667 1,489,134
Other assets 3,772,805 2,330,803
------------- ---------------
Total assets $ 26,860,171 $ 39,420,003
============= ===============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 1,019,800 $ 2,203,708
Income taxes payable - 182,788
Accrued expenses and other liabilities 6,084,836 15,770,427
------------- ---------------
Total liabilities 7,104,636 18,156,923
------------- ---------------
Stockholders' equity:
Common stock - $.0001 par value;
Authorized 100,000,000 shares, issued and outstanding
18,806,612 shares. 1,881 1,881
Additional paid-in capital 7,531,763 7,531,763
Retained earnings 12,221,891 13,729,436
------------- ---------------
Total stockholders' equity 19,755,535 21,263,080
------------- ---------------
Total liabilities and stockholders' equity $ 26,860,171 $ 39,420,003
============= ===============
See accompanying notes to financial statements.
F-12
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Operations
For the Three Months Ended
December 31, December 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
Revenues:
Commissions and trading income $ 9,942,162 $ 23,643,961
Interest and dividends, net 669,866 368,025
Underwriting fees 11,996 343,127
Other 111,159 43,092
------------ ------------
Total Revenues 10,735,183 24,398,205
------------ ------------
Expenses:
Compensation and benefits 6,764,823 16,261,551
Brokerage, clearance and exchange fees 1,270,906 1,540,143
Communications 1,054,037 702,473
Occupancy and equipment 1,528,216 1,339,360
Professional fees 661,274 323,444
Business development 686,795 484,444
Other 1,385,562 1,250,879
------------ ------------
Total Expenses 13,351,613 21,902,294
------------ ------------
Income (loss) before provision (benefit)
for income taxes (2,616,430) 2,495,911
Income tax provision (benefit) (1,108,885) 1,009,292
------------ ------------
Net Income (Loss) $ (1,507,545) $ 1,486,619
============ ============
Basic earnings per common share $ (0.08) $ 0.08
============ ============
Diluted earnings per common share $ (0.08) $ 0.08
============ ============
See accompanying notes to financial statements.
F-13
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Three months ended December 31, 2000
Additional
Common Stock Paid-in Retained
Shares Par Value Capital Earnings Total
--------- ---------- ------------ ------------ ----------
Balance at September 30, 2000 18,806,612 $ 1,881 $ 7,531,763 $ 13,729,436 $ 21,263,080
Net loss -- -- -- (1,507,545) (1,507,545)
---------- --------- ------------ ------------ ------------
Balance at December 31, 2000 18,806,612 $ 1,881 $ 7,531,763 $ 12,221,891 $ 19,755,535
========== ========= ============ ============ ============
See accompanying notes to financial statements.
F-14
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Consolidated Statement of Cash Flows
Three months ended December 31,
2000 1999
------------ ------------
(Unaudited) (Unaudited)
Operating activities:
Net (loss)/income $ (1,507,545) $ 1,486,619
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 261,519 151,408
Deferred taxes (170,000) (167,206)
Decrease (increase) in operating assets:
Receivable from brokers and dealers 12,928,512 (6,201,384)
Securities owned, at market value 1,131,894 (4,054,863)
Other assets (1,442,003) (312,611)
(Decrease) increase in operating liabilities:
Securities sold, not yet purchased (1,183,908) 4,769,698
Income taxes payable (182,788) 463,165
Accrued expenses and other liabilities (9,685,590) 3,881,769
--------------- -------------
Net cash provided by operating activities 150,091 16,595
--------------- -------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (208,059) (268,049)
Investment in affiliate (4,533) --
Syndication costs -- 5,038
-------------- -------------
Net cash used in investing activities (212,592) (273,087)
--------------- --------------
Net decrease in cash (62,501) (256,492)
Cash and cash equivalents at beginning of period 5,255,669 485,370
-------------- -------------------
Cash and cash equivalents at end of period $ 5,193,168 $ 228,878
============== ===================
Supplemental disclosure or cash flow information
Cash paid during the period for:
Interest $ 1,048,450 $ 874,429
Income Taxes $ 578,031 $ 709,435
See accompanying notes to financial statements.
F-15
GBI CAPITAL MANAGEMENT CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of GBI
Capital Management Corp, and its wholly owned subsidiaries, GBI Capital
Partners Inc., formerly Gaines, Berland Inc.("GBI Capital") and GBI
Fund Management Corp. (the general partner of the GBI 1500 Focus Fund
L.P., a private investment partnership formed in August 1999), and GBI
Capital's wholly owned subsidiary, GBI Trading Corp.("GBI Trading") (a
development stage company), (collectively the "Company"). GBI Trading
was incorporated in February 1999 and GBI Fund Management Corp. was
incorporated in August 1999.
On August 24, 1999 GBI Capital Management Corp., formerly known as
Frost Hanna Capital Group, Inc., acquired all of the outstanding common
stock of GBI Capital. For accounting purposes, the acquisition has been
treated as a recapitalization of GBI Capital with GBI Capital as the
acquirer (reverse acquisition). The historical financial statements
prior to August 24, 1999 are those of GBI Capital. The Company has
changed its fiscal year end to September 30th. The Company's Statement
of Operations, Statements of Changes in Stockholders Equity, and
Statement of Cash Flows are for the period October 1, 2000 to December
31, 2000.
GBI Capital is a broker-dealer registered with the Securities and
Exchange Commission and is a member of the National Association of
Securities Dealers, Inc. GBI Capital acts as an introducing broker,
market maker, underwriter and trader for its own account.
GBI Capital does not carry accounts for customers or perform custodial
functions related to customers' securities. GBI Capital introduces all
of its customer transactions, which are not reflected in these
financial statements, to its clearing broker, which maintains the
customers' accounts and clears such transactions. Additionally, this
clearing broker provides the clearing and depository operations for GBI
Capital's proprietary securities transactions. These activities may
expose the company to off-balance-sheet risk in the event that
customers do not fulfill their obligations with the clearing broker, as
GBI Capital has agreed to indemnify the clearing broker for any
resulting losses.
At December 31, 2000, all of the securities owned and securities sold,
not yet purchased, and the amount receivable from clearing broker
reflected on the consolidated statement of financial condition are
security positions with and amounts due from this clearing broker.
The Company maintains cash in bank deposit accounts, which at times,
may exceed federally insured limits. The Company has not experienced
any losses in such accounts and believes it is not exposed to any
significant credit risk on cash with respect to these cash balances.
Securities transactions, commission revenue and commission expenses are
recorded on a trade-date basis. Unrealized gains and losses on
securities transactions are included in trading income in the
consolidated statement of operations.
The financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of
America for interim financial information and with the instructions to
Form 10-Q. Accordingly they do not include all of the information and
footnotes as required by generally accepted accounting principles for
annual financial statements. These consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto for the year ended September 30, 2000,
contained in its Annual Report on Form 10-K. In the opinion of
management of the Company, all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation
have been included. The operations for the three months ended December
31, 2000 are not necessarily indicative of the results that may be
expected for the full year ending September 30, 2001.
F-16
Furniture and fixtures are depreciated on a straight-line basis over
the economic useful lives of the assets, not exceeding seven years.
Leasehold improvements are amortized over the lesser of their economic
useful lives or the expected term of the related lease.
Management does not believe that any recently issued, but not yet
effective, accounting standards, if currently adopted, would have a
material effect on the accompanying consolidated financial statements.
2. INCOME TAXES:
The Company files consolidated federal income tax returns, but each
constituent entity files separate state income tax returns. The
provision (benefit) for income taxes differs from the amount of income
taxes determined by applying the federal statutory rates principally
because of the effect of state taxes and permanent differences.
3. NET CAPITAL REQUIREMENT
As a registered broker-dealer, GBI Capital is subject to the SEC's
Uniform Net Capital Rule 15c3-1 ("Net Capital Rule"), which requires
the maintenance of minimum net capital. GBI Capital computes its net
capital under the aggregate indebtedness method permitted by rule
15c3-1, which requires that GBI Capital maintain minimum net capital,
as defined, of the greater of 6-2/3% of aggregate indebtedness, as
defined, or $100,000, or an amount determined based on the market price
and number of securities in which GBI Capital is a market-maker, not to
exceed $1,000,000.
At December 31, 2000, GBI Capital had net capital, as defined, of
$3,413,577, which exceeded minimum net capital requirements of
$1,000,000 by $2,413,577.
4. COMMITMENTS AND CONTINGENCIES
GBI Capital has been named as defendant in certain legal actions in the
ordinary course of business. At December 31, 2000 and September 30,
2000, GBI Capital had accrued $2,206,100 and $2,348,000, respectively,
for settlement of all such legal proceedings.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share ("EPS"):
Three months ended December 31,
-------------------------------
2000 1999
Numerator for basic and diluted EPS:
Net income (loss) $ (1,507,545) $ 1,486,619
============= ===========
Denominator for basic EPS 18,806,612 18,806,612
Denominator for diluted EPS 18,806,612 18,806,612
============= ===========
Basic EPS (0.08) 0.08
============= ===========
Diluted EPS (0.08) 0.08
============= ===========
F-17
6. ACCRUED EXPENSES
At December 31, 2000 GBI Capital had accrued expenses of $6,084,836, of
which $1,450,891 was for commissions and salaries payable, $2,206,100
was for settlements and $1,004,930 was for deferred rent payable.
7. SUBSEQUENT EVENTS
On February 8, 2001, the Company entered into a Stock Purchase Agreement
with New Valley Corporation ("New Valley"), Ladenburg Thalmann Group Inc.
("LTGI"), a wholly-owned subsidiary of New Valley, Berliner
Effektengesellshaft AG ("Berliner") and Ladenburg Thalmann & Co. Inc.
("Ladenburg"), a registered broker-dealer whose common stock is owned by
New Valley and Berliner. Pursuant to the Stock Purchase Agreement, the
Company will purchase all of the outstanding stock of Ladenburg from New
Valley and Berliner in exchange for (i) 18,181,819 shares of the
Company's newly-issued Common Stock, (ii) $10,000,000 principal amount of
the Company's convertible promissory notes and (iii) $10,000,000 in cash.
In connection with this transaction, certain of the Company's current
principal stockholders also will sell a portion of the Company's common
stock owned by them to LTGI for cash. As a result of these transactions,
Ladenburg will become a wholly-owned subsidiary of the Company and New
Valley will acquire beneficial ownership of approximately 50.1% of the
Company's outstanding common stock. The transactions are subject to
certain closing conditions, including approval of the transaction by the
Company's stockholders. The transactions will be more fully described in
a Current Report on Form 8-K to be filed by the Company shortly. The
convertible promissory notes to be issued by the Company to the sellers
mature on December 31, 2005. The Company will finance the cash portion of
the purchase price by issuing $10,000,000 principal amount of similar,
but not identical, convertible promissory notes to a third party.
F-18
Appendix J(2)
LADENBURG THALMANN & CO. INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants................................... F-2
Consolidated Statements of Financial Condition as of
December 31, 2000 and 1999.................................. F-3
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998............................ F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999 and 1998........ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998............................ F-6
Notes to Consolidated Financial Statements.......................... F-8
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the
Stockholders of Ladenburg Thalmann & Co. Inc.
In our opinion, the accompanying consolidated statements 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 Ladenburg Thalmann & Co. Inc. and its subsidiaries
(the "Company") at December 31, 2000 and December 31, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. 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 auditing standards generally
accepted in the United States of America, 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 our opinion.
/s/PricewaterhouseCoopers LLP
New York, NY
February 27, 2001
F-2
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Consolidated Statements of Financial Condition
As of December 31,
Assets 2000 1999
------ ---- ----
Cash and cash equivalents $ 3,927,696 $ 4,910,945
Securities owned (see Note 3) 20,946,305 18,305,297
Due from clearing brokers 10,125,895 10,902,508
Due from Parent -- 826,232
Due from affiliates 346,513 168,441
Exchange memberships owned, at acquisition cost 1,504,625 1,504,625
(market value: $3,019,750 and $3,115,175 at
December 31, 2000 and 1999, respectively)
Furniture, equipment and leasehold improvements,
net of accumulated depreciation 6,544,074 6,840,930
Deferred tax asset 2,050,000 1,500,000
Other assets 4,909,177 4,180,051
------------ ------------
Total assets $ 50,354,285 $ 49,139,029
----------- -----------
Liabilities and Stockholders' Equity
Securities sold, but not yet purchased, at market value $ 3,570,123 $ 7,625,333
Accrued compensation 7,141,894 7,003,800
Accrued expenses and other liabilities 3,483,990 4,025,810
Deferred rent credit 5,724,808 5,233,566
Payable to Parent 92,127 --
Payable to affiliate 44,186 41,156
----------- ----------
Total liabilities 20,054,128 23,929,665
----------- -----------
Stockholders' equity
Common stock, $.01 par value;
10,000,000 shares authorized;
5,600,000 shares issued and outstanding 56,000 56,000
Capital in excess of par value 38,928,596 38,928,596
Accumulated deficit (8,684,439) (13,775,232)
----------- ----------
30,300,157 25,209,364
----------- -----------
Total liabilities and stockholders' equity $ 50,354,285 $ 49,139,029
----------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Consolidated Statements of Operations
For the year ended December 31,
2000 1999 1998
---- ---- ----
Revenues:
Commissions $ 33,066,630 $ 38,812,953 $ 28,284,392
Investment banking fees 15,937,153 8,339,818 14,673,515
Net gain on principal transactions 28,275,205 19,721,731 11,275,917
Dividends and interest 5,240,918 3,546,397 6,529,750
Syndications and underwritings 416,877 1,912,357 2,833,815
Investment advisory fees 3,108,876 2,826,193 2,228,625
Other 3,538,430 2,011,535 742,575
------------ ------------ -------------
Total revenues 89,584,089 77,170,984 66,568,589
----------- ----------- -----------
Expenses:
Compensation and benefits 56,222,400 48,918,244 47,844,934
Clearance and floor brokerage 5,036,977 4,508,478 5,425,411
Communications and market data 4,873,982 4,762,292 4,644,590
Occupancy 4,435,717 4,157,050 4,279,876
Professional fees 2,556,566 2,308,302 1,646,040
Travel and entertainment 1,312,059 663,949 1,026,718
Office equipment rental 1,160,167 1,198,846 1,138,921
Depreciation and amortization 1,077,515 1,034,578 1,124,720
Interest 223,399 914,364 1,373,842
Other 6,473,714 5,641,002 4,236,248
------------ ------------ ------------
Total expenses 83,372,496 74,107,105 72,741,300
----------- ----------- -----------
Income before income taxes 6,211,593 3,063,879 (6,172,711)
Income tax expense (benefit) 1,120,800 (942,900) 2,500
------------ ------------- --------------
Net income (loss) $ 5,090,793 $ 4,006,779 $ (6,175,211)
============ ============ ===========
Net income (loss) per common share
- basic and diluted $.91 $.72 ($1.10)
=== === ====
Weighted average common shares
outstanding
- basic and diluted 5,600,000 5,600,000 5,600,000
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the three years ended December 31, 2000
Capital
Common Excess of Accumulated
Stock Par Value Deficit Total
----- --------- --------- -----
Balance, January 1, 1998......... $ 1 $32,752,089 $(11,606,800) $21,145,290
Common stock split............... 55,999 (55,999) -- --
Capital contribution............. -- 5,000,000 -- 5,000,000
Distribution..................... -- (5,096,494) -- (5,096,494)
Net loss......................... -- -- (6,175,211) (6,175,211)
------------- ------------- ------------ ----------
Balance, December 31, 1998....... 56,000 32,599,596 (17,782,011) 14,873,585
Capital contribution............. -- 7,500,000 -- 7,500,000
Offset of receivable from
Parent and affiliate........ -- (1,171,000) -- (1,171,000)
Net income....................... -- -- 4,006,779 4,006,779
------------- ------------ ------------ ------------
Balance, December 31, 1999....... 56,000 38,928,596 (13,775,232) 25,209,364
Net income....................... -- -- 5,090,793 5,090,793
------------- ------------ ------------ -----------
Balance, December 31, 2000....... $ 56,000 $38,928,596 $(8,684,439) $30,300,157
======= ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended December 31,
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $5,090,793 $4,006,779 $(6,175,211)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities
Depreciation and amortization 1,077,516 1,034,578 1,124,720
Amortization of deferred rent credit 491,242 493,956 179,412
Deferred taxes (550,000) (1,000,000) --
(Increase) decrease in operating assets
Securities owned (2,641,008) (3,490,295) 34,930,169
Due from clearing brokers 776,613 11,658,567 (21,355,740)
Advances to affiliates (178,072) (334,545) (1,336,469)
Due from Parent -- (761,970) 88,318
Other assets (745,801) 545,932 (108,868)
Increase (decrease) in operating liabilities
Securities sold, but not yet purchased (4,055,210) 2,989,378 (20,974,126)
Accrued compensation 138,094 (2,749,380) (462,202)
Due to clearing broker -- -- (3,239,039)
Accrued expenses and other liabilities (541,820) 856,997 (583,503)
Payable to Parent 918,359 -- --
Payable to affiliate 30 41,156 --
---------- --------- -----------
Net cash (used in) provided by
operating activities (219,264) 13,291,153 (17,912,539)
-------- ---------- -----------
Cash flows from investing activities:
Purchases of furniture, equipment
and leasehold improvements (763,985) (583,480) (428,256)
Assignment of net receivable from
affiliate to Parent -- -- 2,500,000
---------- ----------- ---------
Net cash (used in) provided by
investing activities (763,985) (583,480) 2,071,744
Cash flows from financing activities:
Payment of subordinated liabilities -- (10,000,000) (6,500,000)
Subordinated borrowing proceeds -- -- 17,500,000
Contributed capital -- -- 5,000,000
----------- -------------- -----------
Net cash (used in) provided by
financing activities -- (10,000,000) 16,000,000
---------- ----------- ----------
Net (decrease) increase in cash
and cash equivalents (983,249) 2,707,673 159,205
Cash equivalents, beginning of year 4,910,945 2,203,272 2,044,067
----------- ----------- -----------
Cash and cash equivalents, end of $ 3,927,696 $ 4,910,945 $ 2,203,272
========== ========== ==========
year
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
For the year ended December 31,
2000 1999 1998
---- ---- ----
Supplemental cash flow information:
Interest paid $ 223,399 $ 927,865 $ 1,364,341
Taxes paid 99,277 36,496 --
Supplemental schedule of non cash activity:
In-kind distribution of Parent -- -- 5,096,494
Subordinated borrowing in the amount of $2,500,000 which was financed by a
secured demand note receivable expired in 1998.
Pursuant to the sale of the minority stake in the Company, $7,500,000 of the
Company's subordinated liabilities, which were payable to the Parent, were
converted into capital in excess of par value; $1,000,000 of the Company's
subordinated liabilities, which were payable to the Parent, were used to reduce
the receivable from affiliate; and $1,171,000 of receivable from Parent and
affiliate were offset as a reduction of capital in excess of par value.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
1. Organization and Business
Ladenburg Thalmann & Co. Inc. (the "Company"), is a registered broker
and dealer in securities that clears its customer transactions through its
correspondent clearing brokers on a fully disclosed basis. The Company was a
wholly owned subsidiary of Ladenburg Thalmann Group Inc. ("LTGI"), whose parent
is New Valley Corporation (the "Parent"), until December 23, 1999, when a
minority stake in the Company was sold leaving the Parent with an 80.1%
ownership interest. The Company engages in various businesses of a broker-dealer
including principal and agency trading and investment banking and underwriting
activities.
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned. All significant
intercompany balances and transactions have been eliminated. The Company's
subsidiaries primarily provide asset management services.
2. Summary of Significant Accounting Policies
The preparation of these 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.
The Company considers all highly liquid financial instruments with an
original maturity of less than three months to be cash equivalents.
Securities owned and securities sold, but not yet purchased, which are
traded on a national securities exchange or listed on NASDAQ are valued at the
last reported sales prices of the year. Futures contracts are valued at their
last reported sales price. Securities owned, which have exercise or holding
period restrictions, are valued at fair value as determined by the Company's
management. Unrealized gains and losses resulting from changes in valuation are
reflected in net gain on principal transactions. The carrying values of all
other financial instruments approximate their fair values due to the relatively
short term nature of these instruments.
Principal transactions, agency commissions and related clearing
expenses are recorded on a trade-date basis.
Investment banking and investment advisory fees are recorded when the
earnings process is complete.
Dividends are recorded on an ex-dividend date basis and interest is
recorded on an accrual basis.
The Company and its subsidiaries are included in the consolidated
federal income tax return filed by the Parent. According to the tax sharing
agreement with LTGI, federal income taxes are calculated as if the companies
filed on a separate return basis and the amount of current tax or benefit
calculated is either remitted to or received from the Parent. The amount of
current and deferred taxes payable or refundable is recognized as of the date of
the financial statements, utilizing currently enacted tax laws and rates.
Deferred tax expenses or benefits are recognized in the financial statements for
the changes in deferred tax liabilities or assets between years. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.
Depreciation of furniture and equipment is provided by the straight-line
method over the estimated useful lives of the related assets. Leasehold
improvements are amortized on a straight-line basis over the lease term.
F-8
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
3. Securities Owned and Securities Sold, But Not Yet Purchased
The components of securities owned and securities sold, but not yet
purchased as of December 31 are as follows:
Securities
Securities Sold, But Not
Owned Yet Purchased
----------- --------------
2000
------
Common stock $14,670,512 3,169,783
Equity and index options 767,651 149,326
Government and government agency bonds 2,897,151 --
Municipal obligations 66,953 --
Corporate bonds 2,544,038 251,014
------------ ----------
$20,946,305 $3,570,123
========== =========
1999
Common stock $13,306,230 $6,522,138
Equity and index options 1,973,267 1,087,138
Government and government agency bonds 2,806,056 150
Municipal obligations 33,903 --
Corporate bonds 32,263 14,875
Warrants 153,578 1,032
------------- -------------
$18,305,297 $7,625,333
========== =========
As of December 31, 2000 approximately $18 million of the securities owned
are deposited with the Company's clearing brokers and pursuant to the
agreements, the securities may be sold or re-hypothecated by the clearing
brokers.
4. Net Capital and Other Regulatory Requirements
The Company is subject to the Securities and Exchange Commission's
("SEC") Uniform Net Capital Rule 15c3-1 and the Commodity Futures Trading
Commission's Regulation 1.17. The Company has elected to compute its net capital
under the alternative method allowed by these Rules. At December 31, 2000, the
Company had net capital of $11,404,751 which was $10,404,751 in excess of its
required net capital of $1,000,000. At December 31, 1999, the Company had net
capital of $6,062,460 which was $5,812,460 in excess of its required net capital
of $250,000.
The Company claims exemption from the provisions of the SEC's Rule
15c3-3 pursuant to paragraph (k)(2)(ii) as it clears its customer transactions
through its correspondent brokers on a fully disclosed basis.
5. Financial Instruments
In the normal course of its business, the Company enters into
transactions in financial instruments with off-balance sheet risk. These
financial instruments consist of financial futures contracts, written equity
index option contracts and securities sold, but not yet purchased.
Financial futures contracts provide for the delayed delivery of a
financial instrument with the seller agreeing to make delivery at a specified
future date, at a specified price. These futures contracts involve elements of
market risk which may exceed the amounts recognized in the consolidated
statement of financial condition. Risk arises from changes in the values of the
underlying financial instruments or indices.
F-9
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
Equity index options give the holder the right to buy or sell a specified
number of units of a stock market index, at a specified price, within a
specified time and are settled in cash. The Company generally enters into these
option contracts in order to reduce its exposure to market risk on securities
owned. Risk arises from the potential inability of the counterparties to perform
under the terms of the contracts and from changes in the value of a stock market
index. The Company believes it mitigates the market risk of its option positions
used for trading purposes because they generally are hedged transactions. As a
writer of options, the Company receives a premium in exchange for bearing the
risk of unfavorable changes in the price of the securities underlying the
option. Financial instruments have the following notional amounts:
December 31, 2000 December 31, 1999
Long Short Long Short
---- ----- ---- ------
Equity and index options $15,300,000 $51,755,000 $1,777,250 $1,938,375
Financial futures contracts -- 257,500 70,000 202,700
The table below discloses the fair value of these commitments, as well
as the average fair value during the period, based on monthly observations.
December 31, 2000 Average Average
Long Short Long Short
----------------------------------------------------------------------------
Equity and index options $767,651 $149,326 $1,491,420 $562,741
Financial futures contracts -- 133,500 789,990 554,468
December 31, 1999 Average Average
Long Short Long Short
Equity and index options $1,973,267 $1,087,138 $3,055,920 $1,628,253
Financial futures contracts 54,000 183,250 433,578 441,792
For the year ended December 31, 2000, 1999 and 1998, the net gain
arising from options and futures contracts without regard to the benefit derived
from market risk reduction was $1,186,347, $1,420,895 and $3,660,669,
respectively. The measurement of market risk is meaningful only when all related
and offsetting transactions are taken into consideration.
The Company has sold securities that it does not currently own and will
therefore be obligated to purchase such securities at a future date. The Company
has recorded these obligations in the financial statements at December 31, 2000
and 1999 at market values of the related securities and will incur a loss if the
market value of the securities subsequently increases.
On June 15, 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities. The standard, as amended by
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133, an amendment of FASB Statement No. 133, and Statement of
Financial Accounting Standards No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133 (referred to hereafter as "FAS 133"), is effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). FAS 133 requires that all derivative instruments be recorded on the
balance sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or in other comprehensive income,
depending on whether a derivative is designated as part of a hedging
relationship and, if it is, depending on the type of hedging relationship.
Management of the Company anticipates that, due to the Company's limited use of
derivative instruments, the adoption of FAS 133 will not have a significant
effect on the Company's results of operations or its financial position.
F-10
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
6. Furniture, Equipment and Leasehold Improvements
Components of furniture, equipment and leasehold improvements included in the
consolidated statement of financial condition were as follows:
As of December 31,
---------------------------
2000 1999
---- ----
Cost
Leasehold improvements $6,564,495 $6,432,475
Computer equipment 3,089,571 2,689,219
Furniture and fixtures 626,732 431,486
Other 100,787 100,786
----------- ----------
Total cost 10,381,585 9,653,966
Less, accumulated depreciation
and amortization (3,837,511) (2,813,036)
----------- ----------
Net book value 6,544,074 6,840,930
========= =========
7. Commitments and Contingencies
Operating leases
The Company is obligated under a noncancelable lease agreement for
office space, expiring in December 2015.
The following is a schedule, by fiscal year, of future minimum rental
payments required under the agreements that have noncancelable terms of one year
or more at December 31, 2000:
2001 $3,651,015
2002 3,820,373
2003 3,645,442
2004 3,640,071
2005 3,839,738
Thereafter 39,152,160
------------
$57,748,799
============
Certain leases have provisions for escalation based on specified
increases in costs incurred by the landlord.
Deferred rent credit of $5,724,808 and $5,233,566 at December 31, 2000
and 1999, respectively, represents the difference between rent payable
calculated over the life of the lease on a straight-line basis (net of lease
incentives) and rent payable on a cash basis.
F-11
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
Effective September 1, 1999, the Company is subleasing its office space
for approximately $797,000 per year with annual increases. The sublease expires
on August 31, 2009.
At December 31, 2000, the Company has utilized a letter of credit in
the amount of $2,500,000 which is collateralized by $2,597,273 of the Company's
marketable securities and $701 of cash. The letter of credit is used as
collateral for the lease for the Company's office space. As of December 31, 1999
the contingent liability under this letter of credit was $5,000,000 which was
collateralized by $2,598,161 of the Company's marketable securities and
$2,549,211 of cash. Effective January 1, 2000, the collateral required for the
letter of credit decreased to $2,500,000.
Litigation
The Company is a defendant in litigation and may be subject to
unasserted claims primarily in connection with its activities as a securities
broker-dealer and participation in public underwritings. Such litigation and
claims involve substantial or indeterminate amounts and are in varying stages of
legal proceedings. In the opinion of management, after consultation with
counsel, the ultimate resolution of these matters will not have a material
adverse effect on the Company's consolidated financial position and results of
operations.
8. Income Taxes
The Company files a consolidated federal income tax return with its
Parent. For financial reporting purposes, the Company determines its income tax
provision on a separate company basis.
The income tax expense (benefit) consists of the following:
State and
Federal Local Total
------- ---------- -----
2000:
Current $ 1,505,800 $ 165,000 $ 1,670,800
Deferred (467,500) (82,500) (550,000)
--------- -------- ---------
$ 1,038,300 $ 82,500 $ 1,120,800
========== ======== ==========
1999:
Current $ -- $ 57,100 $ 57,100
Deferred (1,000,000) -- (1,000,000)
---------- -------- ----------
$(1,000,000) $ 57,100 $ (942,900)
=========== ========= =========
1998:
Current $ (9,500) $ 12,000 $ 2,500
Deferred -- -- --
----------- --------- ---------
$ (9,500) $ 12,000 $ 2,500
=========== ========= =========
F-12
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
The effective tax rate differs from the provision calculated at the
federal statutory rate primarily because of the utilization of the Company's net
operating loss carryforwards, the reversal of the valuation allowance from 1999,
the effects of state and local taxes, and certain expenses not deductible for
tax purposes.
The Company accounts for taxes in accordance with SFAS 109, Accounting
for Income Taxes, which requires the recognition of tax benefits or expense on
the temporary differences between the tax basis and book basis of its assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. At December 31, 2000, the
Company had net deferred tax assets which are primarily due to timing
differences, such as accruals which are not currently deductible, unrealized
gains and losses on securities transactions, depreciation and amortization.
During 2000 and 1999 the Company recognized a deferred tax asset of $550,000 and
$1 million, respectively.
At December 31, 2000 and December 31, 1999, respectively, the Company's
consolidated statements of financial condition include net deferred tax assets
of $2,050,000 and $1,500,000 comprised of the following:
2000 1999
-------- ------
Deferred Tax Assets:
Net operating losses $ -- $ 1,900,000
Accrued expenses 968,000 901,000
Compensation and benefits 333,000 554,000
Depreciation and amortization 251,000 228,000
Unrealized losses 84,000 --
Other, net 414,000 221,000
----------- -----------
2,050,000 3,804,000
Less: valuation allowance(1) -- (1,267,000)
------------ -----------
Total deferred tax assets $ 2,050,000 $ 2,537,000
Deferred Tax Liabilities:
Unrealized gains -- 1,037,000
------------ -----------
Net deferred tax assets $ 2,050,000 $ 1,500,000
========== ==========
(1) Relates primarily to the ability to recognize tax benefits associated
mainly with net operating loss carryforwards.
Management of the Company has not established a valuation allowance at
December 31, 2000 because they concluded that it is more likely than not that
the benefit will be realized. At December 31, 1999, a valuation allowance of
approximately $1.3 million had been established for the gross deferred tax asset
of approximately $2.8 million, since, based upon available evidence, it appeared
more likely than not that this portion of the deferred tax asset would not be
realized. Management of the Company periodically re-evaluates the valuation
allowance. The reduction in the valuation allowance in 1999 reflects
management's revised view of the ultimate realizability of the asset.
F-13
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
The following table reconciles the U.S. federal statutory tax rate to the
Company's effective tax rate:
2000 1999 1998
-------- -------- ------
U.S. federal statutory income tax rate 34.00% 34.00% 34.00%
Increase (decrease) related to:
Reversal of prior year valuation allowance (1) (20.93) (110.30) --
State and local taxes, net of U.S. income tax effects .88 1.23 (.13)
Increase in valuation allowance -- -- (27.68)
Permanent differences 3.25 7.81 (1.31)
Utilization of NOL carryforwards -- 24.65 --
Other, net .84 11.83 (4.84)
Total tax expense (benefit) 18.04% (30.78%) .04%
(1) Relates primarily to the ability to recognize tax benefits associated
with net operating loss carryforwards.
9. Benefit Plans
The Company has a 401(k) retirement plan (the "Plan"), which allows
eligible employees to invest a percentage of their pretax compensation, limited
to the statutory maximum ($10,500 for 2000 and 1999 and $9,500 for 1998). The
Plan also allows the Company to make matching and/or discretionary
contributions. The Company elected to make matching contributions for the year
2000 in the amount of $258,682. The Company elected not to make such matching
contributions for 1999 or 1998.
The Company also had a profit sharing plan which was inactive and merged
into the Plan during 1998.
10. Off-Balance-Sheet Risk and Concentrations of Credit Risk
The Company's transactions are cleared by other brokers and dealers in
securities pursuant to clearance agreements. Although the Company primarily
clears its transactions through other brokers and dealers in securities, the
Company is exposed to off-balance-sheet risk in the event that customers or
other parties fail to satisfy their obligations. Should a customer fail to
deliver cash or securities as agreed, the Company may be required to purchase or
sell securities at unfavorable market prices.
The clearing operations for the Company's securities transactions are
provided by several clearing brokers. At December 31, 2000 and 1999,
substantially all of the securities owned and the amounts due from brokers
reflected in the consolidated statement of financial condition are positions
held at and amounts due from one clearing broker, a large financial institution.
The Company is subject to credit risk should this broker be unable to fulfill
its obligations.
11. Subordinated Liabilities
The Company has a $2.5 million junior subordinated revolving credit
agreement that extends through October 31, 2001 with its clearing broker under
which outstanding borrowings incur interest at LIBOR plus 2 points. As of
December 31, 2000 and 1999, no borrowings were outstanding.
F-14
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
12. Related Parties
As of December 31, 2000 and 1999, Due from affiliates includes a receivable
from Ladenburg Thalmann International ("LTI"), of $163,476 and $106,260,
respectively, relating to expenses paid on LTI's behalf. As of December 31,
2000, Payable to Parent of $92,127 represents expenses allocated to the
Parent for occupying office space at the Company's premises net of taxes payable
to the Parent related to the tax sharing agreement discussed in Note 2. As of
December 31, 1999, Due from Parent in the amount of $826,232 is primarily
related to the management fee for managing one of the Parent's portfolios.
Pursuant to a sales and purchase agreement with the Parent and the
owner of the minority interest in 1999, $7,500,000 of the Company's subordinated
borrowings, which were payable to the Parent, were converted to additional
paid-in capital, $1,000,000 of the Company's subordinated borrowings, which were
payable to the Parent, were used to reduce the receivable from LTI, and
$1,171,000 of receivable from Parent and LTI were offset as a reduction of
capital in excess of par value.
During 1998, the Parent contributed $5,000,000 to the Company and the
Company made an in-kind distribution to the Parent of assets which had a
carrying value of $5,096,494. Additionally, the Company assigned, transferred
and set forth over to the Parent all rights, title, and interest in the
Company's net receivable from LTI as of March 31, 1998 in the amount of
$2,551,726 for cash of $2,500,000 and a receivable from Parent of $51,726.
13. Employee Incentive Plan
The Company has an Employee Incentive Plan (the "Incentive Plan") under
which the Company may grant options to certain directors, employees and
consultants, at its discretion. The shares that may be issued under the
Incentive Plan shall not exceed, in the aggregate, 1,000,000 shares of common
stock, as adjusted to give effect to the anti-dilution provisions of the
Incentive Plan. On January 1, 1998, employees were granted options to acquire
965,000 shares of the Company's common stock. A total of 323,500, 321,500 and
320,000 options were forfeited in 2000, 1999 and 1998, respectively. The options
granted had an exercise price of $4.21. The exercise price represents the
adjusted book value of the Company's shares on the date of grant. There was no
compensation expense under the Incentive Plan. The options, which vested ratably
over three to five years from the date of grant, may have been exercised on a
cumulative basis during a period of ten years from the grant date. All options
expire ten years after date of grant. Through March 1, 2000, 321,500 options
were issued and outstanding under the Incentive Plan.
Effective March 1, 2000, the Company became a participant in the stock
option plan sponsored by the Parent that provides for the granting of stock
options in the Parent's common stock to certain directors, employees and
consultants, at its discretion. On March 22, 2000, 321,500 options granted under
the Incentive Plan were forfeited at the election of the employee in exchange
for an approximately equivalent participation in the Parent's stock option plan.
SFAS 123, Accounting for Stock-Based Compensation ("SFAS 123"), allows
the fair value of stock-based compensation to be included in expense over the
period earned; alternatively, if the fair value of stock-based compensation
awards is not included in expense, SFAS 123 requires disclosure of net income,
on a pro forma basis, as if expense treatment had been applied. As permitted by
SFAS 123, the Company continues to account for such compensation under
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock
Issued to Employees, pursuant to which no compensation cost has been recognized
in connection with the issuance of stock options. Had the Company elected to
recognize compensation expense for the stock option plan, consistent with the
method prescribed by SFAS No. 123, such election would not have had a material
effect on net income.
F-15
Ladenburg Thalmann & Co. Inc. and Subsidiaries
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------
The following assumptions were used to calculate the effects of SFAS
123:
Expected Expected
Risk-Free Life Weighted Dividends Expected
Interest In Expected Average Per Forfeiture
Date Rate Years Volatility Fair Value Share Rate
---- ---- ----- ---------- ---------- ----- ----
October 27, 2000 5.79% 10 54.74% $2.78 $0 0%
March 22, 2000 6.40% 10 44.45% $2.57 $0 0%
14. Subsequent Events
On February 9, 2001, the Parent and GBI Capital Management Corp.
("GBICM") entered into a definitive agreement under which New Valley will
acquire a controlling interest in GBICM and its operating subsidiary, GBI
Capital Partners ("GBICP"), a full-service securities and trading firm. Under
the terms of the agreement, LTGI and the minority shareholder of the Company
will sell all of their outstanding shares of the Company to GBICM for 18,181,818
shares of GBICM common stock, $10,000,000 of cash and $10,000,000 principal
amount of convertible notes. Upon closing, New Valley will acquire an additional
3,945,060 shares of GBICM from a current shareholder. Upon completion of these
transactions, the Parent will own approximately 50.1% of the outstanding shares
of GBICM, which will be renamed Ladenburg Thalmann Financial Services, Inc.
("LTFS"). The Company and GBICP will be operated as two separate wholly-owned
subsidiaries of LTFS. The transaction, which is expected to close in the second
quarter of 2001, is subject to customary closing conditions, including
regulatory approval and approval by GBICM shareholders.
F-16
GBI CAPITAL MANAGEMENT CORP. - PROXY
Solicited by the Board of Directors
for Annual Meeting to be held on April 18, 2001
The undersigned Shareholder(s) of GBI CAPITAL MANAGEMENT CORP., a Florida
corporation ("Company"), hereby appoints Joseph Berland and Richard J.
P Rosenstock, or either of them, with full power of substitution and to act
without the other, as the agents, attorneys and proxies of the undersigned,
to vote the shares standing in the name of the undersigned at the Annual
Meeting of Shareholders of the Company to be held on April 18, 2001 and at
all adjournments thereof. This proxy will be voted in accordance with the
instructions given below. If no instructions are given, this proxy will be
voted FOR all of the following proposals.
R 1. To consider and vote upon:
o the issuance of 18,181,818 shares of the Company's common stock
and $10,000,000 aggregate principal amount of the Company's
senior convertible promissory notes in partial consideration of
the Company's acquisition of the outstanding common stock of
O Ladenburg, Thalmann & Co. Inc., pursuant to the terms of a Stock
Purchase Agreement, dated as of February 8, 2001, among GBI
Capital Management Corp., New Valley Corporation, Ladenburg,
Thalmann Group Inc., Berliner Effektengesellschaft AG and
Ladenburg, Thalmann & Co. Inc.; and
X o the issuance of an additional $10,000,000 aggregate principal
amount of the Company's senior convertible promissory notes
pursuant to the terms of a Loan Agreement, dated as of February
8, 2001, among GBI Capital Management Corp. and Frost-Nevada,
Limited Partnership, to provide the funds for the Company's
acquisition of the common stock of Ladenburg, Thalmann & Co.
Y FOR |_| AGAINST |_| ABSTAIN |_|
2. Election of the following directors, conditional on consummation of the
acquisition of the common stock of Ladenburg, Thalmann & Co.:
FOR all nominees listed below, except WITHHOLD AUTHORITY to vote
as marked to the contrary below |_| for all nominees listed below |_|
Richard J. Rosenstock, Vincent Mangone, Mark Zeitchick, Bennett S. LeBow
Howard M. Lorber, Victor M. Rivas, Phillip Frost,
Henry C. Beinstein and Robert J. Eide
INSTRUCTIONS: To withhold authority to vote for any individual nominee,
write that nominee's name in the space below.
_________________________________________
3. To approve an amendment to the Articles of Incorporation, conditional
on consummation of the acquisition of the common stock of Ladenburg,
Thalmann & Co., to change the name of the Company from "GBI Capital
Management Corp." to "Ladenburg Thalmann Financial Services Inc."
FOR |_| AGAINST |_| ABSTAIN |_|
4. To approve an amendment to the 1999 Performance Equity Plan to
increase the number of shares available for issuance under the Plan.
FOR |_| AGAINST |_| ABSTAIN |_|
5. In their discretion, the proxies are authorized to vote upon such
other business as may come before the meeting or any adjournment
thereof.
|_| I plan to attend the Annual Meeting.
Date _____________________, 2001
_________________________________
Signature
_________________________________
Signature if held jointly
Please sign exactly as name appears above. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.