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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant | X |
Filed by a Party other than the Registrant |___|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
LADENBURG THALMANN FINANCIAL SERVICES INC.
------------------------------------------------
(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)
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
---------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
---------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------------
(5) Total fee paid:
---------------------------------------------------------------------------
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
---------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
---------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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LADENBURG THALMANN FINANCIAL SERVICES INC.
590 Madison Avenue, 34th Floor
New York, New York 10022
---------------------------------------
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 17, 2003
---------------------------------------
NOTICE IS HEREBY GIVEN that an annual meeting of shareholders of
Ladenburg Thalmann Financial Services Inc., a Florida corporation, will be held
at the offices of Ladenburg Thalmann & Co. Inc., our principal operating
subsidiary, located at 538 Broadhollow Road, Suite 200W, Melville, New York, on
Wednesday, September 17, 2003, at 10:00 a.m., for the following purposes, all as
more fully described in the attached proxy statement:
1. To elect eight directors to our board of directors to hold
office until the next annual meeting of shareholders and until
their successors are elected and qualified; and
2. 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 August 14,
2003, will be entitled to notice of, and to vote at, the meeting and any
postponements or adjournments.
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
Victor M. Rivas, President and Chief
Executive Officer
New York, New York
August 22, 2003
LADENBURG THALMANN FINANCIAL SERVICES INC.
-------------------------------------
PROXY STATEMENT
-------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 17, 2003
-------------------------------------
This proxy statement and the enclosed form of proxy are furnished in
connection with solicitation of proxies by our board directors for use at an
annual meeting of shareholders to be held on September 17, 2003, and any
postponements or adjournments.
On or about August 22, 2003, this proxy statement and the accompanying
form of proxy are being mailed to each shareholder of record at the close of
business on August 14, 2003.
The information provided in the "question and answer" format below 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.
What matters am I voting on?
You will be voting on the election of eight directors to hold office
until the next annual meeting of shareholders and until their successors are
elected and qualified. Additionally, you will be voting on any other business
that may properly come before the meeting.
Who is entitled to vote?
Holders of our common stock as of the close of business on August 14,
2003, the record date, are entitled to vote at the meeting. As of the record
date, we had issued and outstanding 42,859,432 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 FOR the election as
directors of the nominees listed below under Proposal 1. 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.
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.
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?
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 eight directors to be elected, the eight persons receiving the
highest votes will be elected if nominees other than those nominated by the
board are presented.
Any other proposal properly brought at the annual meeting must be
approved by a majority of the votes cast at the meeting with respect to the
proposal. Abstentions and shares deemed present at the meeting but not entitled
to vote with respect to each 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.
Annual Report
We will provide, without charge, a copy of our Annual Report on Form
10-K for the fiscal year ended December 31, 2002, which includes our audited
financial statements, upon the written request of any person stating that (s)he
is a beneficial holder of our common stock. Requests for copies and inquiries
should be sent in writing to Investor Relations Department, Ladenburg Thalmann
Financial Services Inc., 590 Madison Avenue, 34th Floor, New York, New York
10022.
2
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of August 14,
2003 with respect to the beneficial ownership of our common stock by (i) those
persons or groups known to beneficially own more than 5% of our voting
securities, (ii) each of our directors, (iii) each of the executive officers
named in the Summary Compensation Table below and (iv) all of our current
directors and executive officers as a group. Except as otherwise stated, the
business address of each of the below listed persons is c/o Ladenburg Thalmann
Financial Services Inc., 590 Madison Avenue, 34th Floor, New York, New York
10022.
Amount and Nature of Percent of Class
Name of Beneficial Owner Beneficial ownership(1) of Voting Securities
------------------------ ----------------------- --------------------
Phillip Frost, M.D. (2) 8,396,441(3) 16.9%
Berliner Effektengesellschaft AG(4) 5,575,556(5) 12.7%
Bennett S. LeBow(6) 4,361,314(7) 10.2%
Richard J. Rosenstock 3,884,679(8) 9.0%
New Valley Corporation(9) 3,944,216(10) 8.4%
Carl C. Icahn(11) 3,396,258(12) 7.9%
Mark Zeitchick 1,609,644(13) 3.7%
Vincent Mangone 1,609,644(14) 3.7%
Howard M. Lorber 1,535,878(15) 3.6%
Victor M. Rivas 779,466(16) 1.8%
Richard J. Lampen 58,367(17) *
Robert J. Eide 31,367(18) *
Henry C. Beinstein 31,361(19) *
Salvatore Giardina 11,666(20) *
All directors and executive officers
as a group (10 persons) 13,913,386(21) 31.4%
-----------------
* 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 numbers reported by the owner in documents
publicly filed with the SEC, publicly available information or
information made known to us. 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) The business address of Dr. Frost is c/o IVAX Corporation, 4400
Biscayne Boulevard, Miami, Florida 33137.
(3) Represents (i) 1,778,966 shares of common stock held by Frost Gamma
Investments Trust, a trust organized under Nevada law, (ii) 100,000
shares of common stock issuable upon exercise of an immediately
exercisable warrant held by Frost Gamma, (iii) 6,497,475 shares of
common stock issuable upon conversion of a senior convertible
promissory note held by Frost-Nevada Investments Trust, a trust
organized under Nevada law, and (iv) 20,000 shares of common stock
issuable upon exercise of currently exercisable options held by Dr.
Frost. Dr. Frost is the sole trustee of both Frost Gamma Investments
Trust and Frost-Nevada Investments Trust. Dr. Frost is also (a) the
sole limited partner of Frost Gamma Limited Partnership, the
beneficiary of Frost Gamma Investments Trust, and is the sole
shareholder of Frost-Nevada Corporation, the sole shareholder of Frost
Gamma Inc., the general partner of Frost Gamma Limited Partnership, (b)
one of the three limited partners of Frost-Nevada, Limited Partnership,
the beneficiary of Frost-Nevada Investments Trust, and is the sole
shareholder of Frost-Nevada Corporation, the general partner of
Frost-Nevada, Limited Partnership and (c) the sole shareholder of Frost
Beta, Inc., the sole general partner of Frost Beta, LLP, a limited
partner of Frost-Nevada, Limited Partnership. Record ownership of these
shares may be transferred from time to time among Dr. Frost and, in
addition to other entities that he may control, any or all of Frost
3
Gamma Investments Trust, Frost Gamma Limited Partnership, Frost Gamma
Inc., Frost-Nevada Investments Trust, Frost-Nevada, Limited
Partnership, Frost Beta, Inc., Frost Beta, LLP and Frost-Nevada
Corporation. Accordingly, solely for purposes of reporting beneficial
ownership of these shares pursuant to Section 13(d) of the Exchange
Act, each of these parties will be deemed to be the beneficial owner of
the shares held by any other of the parties. The foregoing information
was derived from an Amendment to Schedule 13D filed with the SEC on
September 10, 2001 as well as from information made known to us. (4)
The business address for Berliner Effektengesellschaft AG is
Kurfustendamm 119, 10711 Berlin, Germany. (5) Includes 955,055 shares
of common stock issuable upon conversion of a senior convertible
promissory note held by Berliner.
(6) Mr. LeBow is not standing for re-election and his term will expire at
this year's annual meeting.
(7) Represents (i) 758,205 shares of common stock held directly by Mr.
LeBow, (ii) 3,325,199 shares of common stock held by LeBow Gamma
Limited Partnership, a Nevada limited partnership, (iii) 110,336 shares
of common stock held by LeBow Alpha LLLP, a Delaware limited liability
limited partnership, (iv) 147,574 shares of common stock held by The
Bennett and Geraldine LeBow Foundation, Inc., a Florida not-for-profit
corporation, and (v) 20,000 shares of common stock issuable upon
exercise of currently exercisable options held by Mr. LeBow. Does not
include (i) 20,000 shares of common stock issuable upon exercise of
options held by Mr. LeBow that are not currently exercisable and that
will not become exercisable within 60 days and (ii) the shares of
common stock beneficially owned by New Valley Corporation of which Mr.
LeBow serves as an executive officer and director. Mr. LeBow indirectly
exercises sole voting power and sole dispositive power over the shares
of common stock held by the partnerships. LeBow Holdings, Inc., a
Nevada corporation, is the sole stockholder of LeBow Gamma, Inc., a
Nevada corporation, which is the general partner of LeBow Gamma Limited
Partnership, and is the general partner of LeBow Alpha LLLP. Mr. LeBow
is a director, officer and sole stockholder of LeBow Holdings, Inc. and
a director and officer of LeBow Gamma, Inc. Mr. LeBow and family
members serve as directors and executive officers of the Foundation and
Mr. LeBow possesses shared voting and shared dispositive power with the
other directors of the Foundation with respect to the Foundation's
shares of common stock. The foregoing information was derived from an
Amendment to Schedule 13D filed with the SEC on December 21, 2001 as
well as from information made known to us.
(8) Represents (i) 3,701,346 shares of common stock held of record by The
Richard J. Rosenstock Revocable Living Trust Dated 3/5/96, of which Mr.
Rosenstock is the sole trustee and beneficiary, and (ii) 183,333 shares
of common stock issuable upon exercise of currently exercisable options
held by Mr. Rosenstock. Does not include 166,667 shares of common stock
issuable upon exercise of options held by Mr. Rosenstock that are not
currently exercisable and that will not become exercisable within the
next 60 days.
(9) The business address for New Valley Corporation is 100 S. E. Second
Street, Miami, Florida 33131.
(10) Represents (i) 3,844,216 shares of common stock issuable upon
conversion of a senior convertible promissory note held by New Valley
and (ii) 100,000 shares of common stock issuable upon exercise of
immediately exercisable warrants held by New Valley.
(11) The business address for Mr. Icahn is c/o Icahn Associates Corp., 767
Fifth Avenue, 47th Floor, New York, New York 10153.
(12) Represents (i) 2,148,725 shares of common stock held by High River
Limited Partnership, (ii) 1,227,773 shares of common stock held by
Tortoise Corp. and (iii) 19,760 shares of common stock held by Little
Meadow Corp. Each of these entities are either directly or indirectly
100% owned by Mr. Icahn. As such, Mr. Icahn is in a position to
directly and indirectly determine the investment and voting decisions
made by these entities. Accordingly, Mr. Icahn may be deemed to be the
beneficial owner of these shares for purposes of reporting beneficial
ownership pursuant to Section 13(d) of the Exchange Act. However, Mr.
Icahn disclaims beneficial ownership of these shares for all other
purposes. The foregoing information was derived from a Schedule 13D
filed with the SEC on December 28, 2001.
(13) Represents (i) 1,414,211 shares of common stock held of record by MZ
Trading LLC, of which Mr. Zeitchick is the sole managing member, (ii)
12,100 shares of common stock held of record by Mr. Zeitchick and (iii)
183,333 shares of common stock issuable upon exercise of currently
exercisable options held by Mr. Zeitchick. Does not include 166,667
shares of common stock issuable upon exercise of options held by Mr.
4
Zeitchick that are not currently exercisable and that will not become
exercisable within the next 60 days.
(14) Represents (i) 1,426,311 shares of common stock held of record by The
Vincent A. Mangone Revocable Living Trust Dated 11/5/96, of which Mr.
Mangone is the sole trustee and beneficiary, and (ii) 183,333 shares of
common stock issuable upon exercise of currently exercisable options
held by Mr. Mangone. Does not include 166,667 shares of common stock
issuable upon exercise of options held by Mr. Mangone that are not
currently exercisable and that will not become exercisable within the
next 60 days.
(15) Represents (i) 1,392,251 shares of common stock held directly by Mr.
Lorber, (ii) 118,560 shares of common stock held by Lorber Alpha II
Partnership, a Nevada limited partnership, (iii) 5,067 shares of common
stock held by the Lorber Charitable Fund, a New York not-for-profit
corporation, and (iv) 20,000 shares of common stock issuable upon
exercise of currently exercisable options held by Mr. Lorber. Does not
include (i) 20,000 shares of common stock issuable upon exercise of
options held by Mr. Lorber that are not currently exercisable and that
will not become exercisable within 60 days and (ii) the shares of
common stock beneficially owned by New Valley Corporation of which Mr.
Lorber serves as an executive officer and director. Mr. Lorber
indirectly exercises sole voting power and sole dispositive power over
the shares of common stock held by the partnership. Lorber Alpha II,
Inc., a Nevada corporation, is the general partner of Lorber Alpha II
Partnership. Mr. Lorber is the director, officer and principal
stockholder of Lorber Alpha II, Inc. Mr. Lorber and family members
serve as directors and executive officers of Lorber Charitable Fund,
and Mr. Lorber possesses shared voting power and shared dispositive
power with the other directors of the fund with respect to the fund's
shares of our common stock. The foregoing information was derived from
an Amendment to Schedule 13D filed with the SEC on December 21, 2001 as
well as from information made known to us.
(16) Includes 766,666 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Rivas. Does not include
566,667 shares of common stock issuable upon exercise of options held
by Mr. Rivas that are not currently exercisable and that will not
become exercisable within the next 60 days.
(17) Includes 20,000 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Lampen. Does not include (i)
20,000 shares of common stock issuable upon exercise of options held by
Mr. Lampen that are not currently exercisable and that will not become
exercisable within the next 60 days and (ii) the shares of common stock
beneficially owned by New Valley Corporation of which Mr. Lampen serves
as an executive officer and director.
(18) Includes 20,000 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Eide. Does not include 20,000
shares of common stock issuable upon exercise of options held by Mr.
Eide that are not currently exercisable and that will not become
exercisable within 60 days.
(19) Includes (i) 823 shares of common stock held of record in the
individual retirement account of Mr. Beinstein's spouse and (ii) 20,000
shares of common stock issuable upon exercise of currently exercisable
options held by Mr. Beinstein. Does not include 20,000 shares of common
stock issuable upon exercise of options held by Mr. Beinstein that are
not currently exercisable and that will not become exercisable within
60 days.
(20) Includes 11,666 shares of common stock issuable upon exercise of
currently exercisable options held by Mr. Giardina. Does not include
23,334 shares of common stock issuable upon exercise of options held by
Mr. Giardina that are not currently exercisable and that will not
become exercisable within the next 60 days.
(21) Includes 1,408,331 shares of common stock issuable upon exercise of
currently exercisable options and excludes 1,170,002 shares of common
stock issuable upon exercise of options that are not currently
exercisable and that will not become exercisable within the next 60
days. See notes 7, 8, 13, 14, 15, 16, 17, 18, 19 and 20.
5
PROPOSAL I
ELECTION OF DIRECTORS
At this year's annual meeting of shareholders, eight directors will be
elected to hold office for a term of one year expiring at the next annual
meeting of shareholders. Each director will be elected to serve until a
successor is elected and qualified or until the director's earlier resignation
or removal.
Unless authority is withheld, the proxies solicited by the board of
directors will be voted FOR the election of these nominees. Our articles of
incorporation do not provide for cumulative voting. 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 eight nominees for directors,
their current positions with us, their term of office and their business
background are set forth below.
Howard M. Lorber, 54 years old, has been chairman of our board of
directors since May 2001. Since November 1994, he has been president, chief
operating officer and a member of the board of directors of New Valley, a
company engaged in the real estate business and seeking to acquire additional
operating companies. From January 1994 to January 2001, Mr. Lorber was a
consultant to Vector Group Ltd., a New York Stock Exchange-listed holding
company, with subsidiaries engaged in the manufacture and sale of cigarettes and
the principal shareholder of New Valley, and since January 2001 has served as
its president, chief operating officer and a member of its board of directors.
Mr. Lorber has been chairman of the board of directors of Hallman & Lorber
Associates Inc., consultants and actuaries of 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 NASD since 1984. Since 1990, 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. Mr.
Lorber also serves as a director of United Capital Corp., a real estate
investment and diversified manufacturing company, and of Prime Hospitality
Corp., a company doing business in the lodging industry. He is also a trustee of
Long Island University.
Victor M. Rivas, 59 years old, has been our president and chief
executive officer and a member of our board of directors since May 2001. Mr.
Rivas has been affiliated with Ladenburg Thalmann & Co. Inc., our primary
operating subsidiary, since September 1997 and has been its chairman and chief
executive officer since July 1999. He has been co-chairman of the board of
directors of Ladenburg Capital Management Inc., one of our previous operating
subsidiaries, since November 2001. Since October 1999, he has been a member of
the board of directors of New Valley. Prior to joining Ladenburg Thalmann & Co.,
Mr. Rivas served as an executive 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.
Vincent A. Mangone, 37 years old, has been our executive vice president
and a member of our board of directors since August 1999. Mr. Mangone has been a
registered representative with Ladenburg Thalmann & Co. since March 2001. Mr.
Mangone has also been affiliated with Ladenburg Capital Management since October
1993 and has been an executive vice president since September 1995.
Mark Zeitchick, 37 years old, has been our executive vice president and
a member of our board of directors since August 1999. Mr. Zeitchick has also
been a registered representative with Ladenburg Thalmann & Co. since March 2001.
Mr. Zeitchick has also been affiliated with Ladenburg Capital Management since
October 1993. Mr. Zeitchick has been Ladenburg Capital Management's co-chairman
since November 2001. From September 1995 until November 2001, he was an
executive vice president of Ladenburg Capital Management. From May 2001 until
6
November 2001, he served as chairman of Ladenburg Capital Management, and became
co-chairman in November 2001.
Henry C. Beinstein, 60 years old, has been a member of our board of
directors since May 2001. Mr. Beinstein has been a director of New Valley since
1994. Since August 2002, Mr. Beinstein has been an analyst and a registered
representative of Gagnon Securities, LLC, a broker-dealer and a member firm of
the NASD. He retired in August 2002 as the executive director of Schulte Roth &
Zabel LLP, a New York-based law firm, a position he had held since August 1997.
Before that, Mr. Beinstein had served as the managing director of Milbank,
Tweed, Hadley & McCloy LLP, a New York-based law firm, commencing in November
1995. From April 1985 through October 1995, Mr. Beinstein was the executive
director of Proskauer Rose LLP, a New York-based law firm. 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.
Robert J. Eide, 50 years old, has been a member of our board of
directors since May 2001. He has also been the chairman and treasurer of Aegis
Capital Corp. since before 1988. Mr. Eide also serves as a director of Nathan's
Famous, Vector Group and Vital Living, Inc., a marketer of nutritional
supplements.
Richard J. Lampen, 49 years old, has been a member of our board of
directors since January 2002. He has been the executive vice president and
general counsel of New Valley since October 1995 and a member of its board of
directors since July 1996. Since July 1996, Mr. Lampen has served as executive
vice president of Vector Group. Since January 1997, Mr. Lampen has served as a
director of CDSI Holdings Inc., a company with interests in the marketing
services business, and since November 1998 has been its president and chief
executive officer. From May 1992 to September 1995, Mr. Lampen was a partner at
Steel Hector & Davis, a law firm located in Miami, Florida. From January 1991 to
April 1992, Mr. Lampen was a managing director at Salomon Brothers Inc., an
investment bank, and was an employee at Salomon Brothers from 1986 to April
1992. Mr. Lampen has served as a director of a number of other companies,
including U.S. Can Corporation, The International Bank of Miami, N.A. and Spec's
Music Inc., as well as a court-appointed independent director of Trump Plaza
Funding, Inc.
Richard J. Rosenstock, 51 years old, has been a member of our board of
directors since August 1999. From May 2001 until December 2002, Mr. Rosenstock
served as vice chairman of our board of directors and from August 1999 until
December 2002, served as our chief operating officer. He also served as our
president from August 1999 until May 2001. Since January 2003, Mr. Rosenstock
has been a registered representative of Ladenburg Thalmann & Co. Mr. Rosenstock
had been affiliated with Ladenburg Capital Management from 1986 until December
2002. From May 2001 until December 2002, he served as Ladenburg Capital
Management's chief executive officer. From January 1994 until May 1998, he
served as an executive vice president of Ladenburg Capital Management and was
its president from May 1998 until November 2001.
Board and Committee Information
During the fiscal year ended December 31, 2002, our board of directors
met three times and acted by unanimous written consent nine times. Each of our
current directors attended at least 75% of the aggregate number of meetings of
the board and of each committee of which he was a member held in 2002. We have
standing audit and compensation committees of the board of directors. We do not
have a standing nominating committee.
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 sections set forth below
under the captions entitled "Compensation Committee Report on Executive
Compensation," "Audit Committee Information and Report" and "Stock Price
7
Performance Graph" will not be incorporated by reference in any of those prior
filings or any future filings by us.
Compensation Committee Information and Report
The compensation committee was established in November 1999 and is
currently comprised of Henry C. Beinstein, Robert J. Eide and Howard M. Lorber.
The compensation committee is responsible for administering our Annual Incentive
Bonus Plan ("Bonus Plan"), our Special Performance Incentive Plan ("Incentive
Plan") and our 1999 Performance Equity Plan ("Equity Plan"). During the fiscal
year ended December 31, 2002, the compensation committee acted by unanimous
written consent five times.
Compensation Committee Report on Executive Compensation
This report is made by our compensation committee, which consists of
three 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; and
o in administering each of these plans, the committee determines
who participates in the plans, establishes performance goals,
if any, and determines specific grants and bonuses to the
participants.
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.
Prior to the establishment of the compensation committee, we entered
into employment agreements with Messrs. Zeitchick and Mangone pursuant to which
they receive compensation that is based upon four components as set forth in
each of these officers' employment agreements. In May 2001, we amended these
agreements and entered into an employment agreement with Mr. Rivas that provides
for similar compensation to be paid to Mr. Rivas. The agreements provide them
with a base salary, which is not anticipated to be the sole component of their
total annual cash 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 our achieving specific criteria and
performance targets and a grant of stock options under our Equity Plan.
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 year ended December 31, 2002, the committee
determined at the beginning of the period that participating employees would
participate in a bonus pool equal to 25% of our net income before taxes and
before the accrual of compensation payable under this plan, provided that we
achieved a 10% return on equity before taxes at the end of the fiscal year. For
the fiscal year ended December 31, 2002, the predetermined target was not met
and no awards were made under this plan.
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
8
the committee within specific performance periods, which performance targets can
be based upon one or more selected business criteria. For the fiscal year ended
December 31, 2002, the committee determined that the participants would be
entitled to receive a bonus that is based upon total consolidated revenues
provided that specified commission levels are achieved. These bonuses are paid
monthly, based on the average monthly revenues 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 year ended
December 31, 2002, 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 our officers, directors, key employees and consultants 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. Zeitchick
and Mangone, options to purchase common stock were granted to each of these
individuals. In May 2001, in connection with us entering into the employment
agreement with Mr. Rivas, our shareholders approved our issuing an option to
purchase shares of common stock to Mr. Rivas. In January 2002, options to
purchase common stock were granted to each of Messrs. Rivas, Zeitchick and
Mangone as consideration for their continued employment with us. Subsequent
stock option grants to other officers and employees will continue to be based on
recommendations made by our senior management to the committee.
Compensation of the Chief Executive Officer
-------------------------------------------
Victor Rivas's base salary for the fiscal year ended December 31, 2002
was determined in accordance with the employment agreement that we entered into
in May 2001. Mr. Rivas' base salary is at the rate of $500,000 per year subject
to periodic increases as determined by our board of directors or our
compensation committee. As a portion of his compensation for the fiscal year
ended December 31, 2002, Mr. Rivas received a bonus of $500,000. The committee
also awarded to Mr. Rivas a cash bonus of $95,678 under our Incentive Plan. As
discussed above, this bonus level was determined by the committee based upon us
achieving specified performance targets during the fiscal year ended December
31, 2002. Due to our financial condition, Mr. Rivas voluntarily forfeited
accrued compensation due to him under this plan during 2002 of $305,000, in
addition to forfeiting compensation that would otherwise be due to him under
this plan for the remainder of the 2002 year.
The Members of the Compensation Committee
-----------------------------------------
Henry C. Beinstein
Robert J. Eide
Howard M. Lorber
Compensation Committee Interlocks and Insider Participation
Our compensation committee is comprised of Messrs. Beinstein, Eide and
Lorber. None of these individuals served as officers of our company or of our
subsidiaries.
Victor M. Rivas, our president and chief executive officer, serves as a
member of New Valley's board of directors, of which Mr. Lorber is president,
chief operating officer and a director. Additionally, Bennett S. LeBow, New
Valley's chairman of the board of directors and chief executive officer, and
Richard J. Lampen, New Valley's executive vice president, general counsel and
director, are members of our board of directors. Prior to October 2002, New
Valley's board of directors did not have a separate compensation committee and
acted on compensation matters as an entire body. No individual who is an
executive officer of ours currently serves on the New Valley compensation
committee.
9
Audit Committee Information and Report
Our audit committee was established in November 1999 and is currently
comprised of Henry C. Beinstein, Robert J. Eide and Richard J. Lampen. During
the fiscal year ended December 31, 2002, the audit committee met five times and
acted by unanimous written consent six times.
Audit Fees
For the fiscal year ended December 31, 2002, 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 $150,071.
Financial Information Systems Design and Implementation Fees
For the fiscal year ended December 31, 2002, 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 December 31, 2002, the aggregate fees billed
for all other professional services rendered by our independent auditors totaled
$68,490, primarily related to the preparation of our and certain of our
subsidiaries tax returns.
Audit Committee Report
Our audit committee is comprised of Henry C. Beinstein, Robert J. Eide
and Richard J. Lampen. Except as described below, the committee is required by
the American Stock Exchange to be made up of at least three "independent
directors" who are also "financially literate" as defined in the standards.
These 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 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). The Exchange allows
our audit committee to have one member that is not "independent" if, under
exceptional and limited circumstances, our board of directors determines that
membership by the non-independent director is required by our best interests and
those of our shareholders. Under the Exchange's definition of "independent
directors," Mr. Lampen would not be considered independent because he is
executive vice president and general counsel of New Valley Corporation, an
entity which has made various loans to us within the past year that totaled more
than 5% of our consolidated gross revenues for the same period. However, due to
our current financial condition and the reluctance of many highly competent
persons to serve as directors of publicly held corporations in light of the
recent adoption of The Sarbanes-Oxley Act of 2002 and other laws, rules and
regulations being promulgated, our board has determined that it is unable to
find a suitable replacement for Mr. Lampen to be appointed to the audit
committee. Additionally, notwithstanding the fact that Mr. Lampen would not
technically be an "independent director," our board believes that he will still
be able to exercise the independent judgment necessary to carry out the
responsibilities required for him to be a member of the committee. Accordingly,
we have relied on the Exchange's exception that allows Mr. Lampen to continue to
be a member of our audit committee.
Pursuant to the audit committee's written charter, which was adopted on
June 29, 2000, as amended and restated on August 12, 2003, our audit committee's
responsibilities include, among other things:
10
o reviewing and discussing with management and the independent
auditor the annual audited financial statements, and
recommending to the board whether the audited financial
statements should be included in our Form 10-K;
o discussing with management and the independent auditor
significant financial reporting issues and judgments made in
connection with the preparation of our financial statements;
o discussing with management and the independent auditor the
effect on our financial statements of (i) regulatory and
accounting initiatives and (ii) off-balance sheet structures;
o discussing with management major financial risk exposures and
the steps management has taken to monitor and control such
exposures, including our risk assessment and risk management
policies;
o reviewing disclosures made to the audit committee by our chief
executive officer and chief financial officer during their
certification process for our Form 10-K and Form 10-Q about
any significant deficiencies in the design or operation of
internal controls or material weaknesses therein and any fraud
involving management or other employees who have a significant
role in our internal controls;
o verifying the rotation of the lead (or coordinating) audit
partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required
by law;
o reviewing and approving all related-party transactions;
o inquiring and discussing with management our compliance with
applicable laws and regulations;
o pre-approving all auditing services and permitted non-audit
services to be performed by our independent auditor, including
the fees and terms of the services to be performed;
o appointing or replacing the independent auditor;
o determining the compensation and oversight of the work of the
independent auditor (including resolution of disagreements
between management and the independent auditor regarding
financial reporting) for the purpose of preparing or issuing
an audit report or related work; and
o establishing procedures for the receipt, retention and
treatment of complaints received by us regarding accounting,
internal accounting controls or reports which raise material
issues regarding our financial statements or accounting
policies.
A copy of the Amended and Restated Audit Committee Charter is attached as
Appendix A.
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
11
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 December 31, 2002.
The Members of the Audit Committee
----------------------------------
Henry C. Beinstein
Robert J. Eide
Richard J. Lampen
Executive Compensation
The following table shows the compensation paid by us to our chief
executive officer and to our other four most highly compensated executive
officers (collectively, the "Named Executive Officers") for the calendar years
2002 and 2001, for the period from October 1, 2000 until December 31, 2000
("Stub Period") and for the period from August 25, 1999 until September 30,
2000.
--------------------------------------- -------------- ---------------------------------- -------------------- ---------------------
Annual Compensation Long-Term
Compensation
---------------------------------- -------------------- All Other
Name and Principal Position Fiscal Period Salary ($) Bonus($) Options (#) Compensation
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
Victor M. Rivas 2002 500,000 595,678(1) 300,000 3,044(2)
President and Chief 2001 500,000(3) 867,826(4) 1,000,000 375,000(5)
Executive Officer
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
Mark Zeitchick 2002 90,000 378,055(6) 250,000 32,357(2)
Executive Vice President 2001 66,500 379,681(6) -0- 15,458(2)
Stub Period 30,000 150,651(6) -0- 2,981(2)
2000 130,000 2,482,017(7) -0- 278,394(8)
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
Vincent A. Mangone 2002 90,000 378,055(6) 250,000 40,341(2)
Executive Vice President 2001 66,500 379,681(6) -0- 10,752(2)
Stub Period 30,000 150,651(6) -0- 7,436(2)
2000 130,000 2,482,017(7) -0- 278,510(8)
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
Richard J. Rosenstock 2002 340,000 164,242(6) 250,000 641,580(9)
Former Vice Chairman and 2001 237,041 138,351(6) -0- -0-
Chief Operating Officer Stub Period 30,000 87,535(6) -0- 18,885(2)
2000 130,000 1,780,372(7) -0- 236,746(8)
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
Salvatore Giardina 2002 214,000 -0- 35,000 70(10)
Vice President and Chief 2001 214,000 3,500(11) -0- 709(10)
--------------------------------------- -------------- ----------------- ---------------- -------------------- ---------------------
(1) Represents (i) a $500,000 bonus paid by Ladenburg Thalmann & Co. and
(ii) a $95,678 bonus paid by us under our Incentive Plan.
(2) Represents commissions earned from customer accounts for which the
individual is a designated account representative.
12
(3) Represents $173,973 of salary paid by Ladenburg Thalmann & Co. prior to
the consummation of the stock purchase agreement with New Valley,
Berliner and Ladenburg Thalmann & Co. on May 7, 2001 and $326,027 of
salary paid thereafter by us.
(4) Represents (i) a $173,973 bonus paid by Ladenburg Thalmann & Co., (ii)
a $326,027 bonus paid by us pursuant to his employment agreement and
(iii) a $367,826 bonus paid by us under our Incentive Plan.
(5) Represents the portion of a fee paid by New Valley to Mr. Rivas which
was reimbursed by Ladenburg Thalmann & Co. for his services in
connection with the closing of the stock purchase agreement with New
Valley, Berliner and Ladenburg Thalmann & Co.
(6) Represents a bonus paid to the individual under our Incentive Plan.
(7) Represents bonuses paid under our Bonus Plan and Incentive Plan as
follows:
Bonus Plan ($) Incentive Plan ($)
-------------- ------------------
Rosenstock 821,128 959,244
Zeitchick 821,128 1,660,889
Mangone 821,128 1,660,889
(8) Represents commissions earned from customer accounts for which the
individual is a designated account representative, together with
override commissions earned in the following amounts: Rosenstock -
$39,841, Zeitchick - $67,925 and Mangone - $67,925.
(9) Represents (i) a $590,000 accrual for a buy-out of Mr. Rosenstock's
employment agreement and (ii) $51,580 of commissions earned from
customer accounts for which Mr. Rosenstock is a designated account
representative.
(10) Represents residual earnings from stock options surrendered with
respect to the 1995 merger of Ladenburg Thalmann and New Valley.
(11) Represents a discretionary bonus received by the individual.
Compensation Arrangements for Current Executive Officers
Victor M. Rivas is currently employed by us as our president and chief
executive officer until August 2004 under an employment agreement with Ladenburg
Thalmann & Co. The employment agreement provides for an annual base salary of
$500,000 subject to periodic increases as determined by our board of directors
or our compensation committee. The agreement also provides for a guaranteed
minimum annual bonus of $500,000. Mr. Rivas is entitled to participate in our
Bonus Plan and receive an override (as defined in our Incentive Plan) in
accordance with the terms of each plan. However, our compensation committee may
limit Mr. Rivas' participation in the plans so that:
o he may not receive in excess of 32.5% of the bonus pool
available under the Bonus Plan; and
o he may not receive an override 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.
Additionally, the committee may determine that $400,000 of Mr. Rivas' guaranteed
bonus will be credited against any amounts owed to him under the Incentive Plan.
Due to our financial condition, Mr. Rivas voluntarily forfeited accrued
compensation due to him under this plan during 2002 of $305,000, in addition to
forfeiting compensation that would otherwise be due to him under this plan for
the remainder of the 2002 year.
13
In connection with the agreement, we granted Mr. Rivas an option to
purchase 1,000,000 shares of our common stock. The option was granted under our
Equity Plan and is exercisable at a price of $3.05 per share. The options vest
in three annual installments commencing on May 7, 2002 and expire on May 7,
2011. The options provide that if a change of control occurs, all options not
yet vested will vest and become immediately exercisable.
Messrs. Zeitchick and Mangone are currently employed by us as executive
vice presidents until August 2004 under employment agreements with us and
Ladenburg Capital Management. Each of these officers receive an annual base
salary of $90,000 subject to periodic increases as determined by our board of
directors or our compensation committee. Pursuant to the agreements, Messrs.
Zeitchick and Mangone are entitled to participate in our Bonus Plan and receive
an override under the Incentive Plan in accordance with the terms of each plan.
However, our compensation committee may limit each of their participation in the
plans so that:
o neither may receive in excess of 22.5% of the bonus pool
available under the Bonus Plan (if either Messrs. Zeitchick or
Mangone receive less than 22.5% of the bonus pool available
under the Bonus Plan, he may terminate the employment
agreement for "reason" which entitles him to certain severance
benefits); and
o neither may receive an override in excess of a certain
percentage of our total consolidated revenues earned in each
year of the agreement ranging from 0.5067% for revenues up to
$150,000,000 to 0.4108% for revenues over $270,000,000.
Due to our financial condition, Messrs. Zeitchick and Mangone voluntarily
forfeited 25% of the compensation due to them under the Incentive Plan for the
period from September 1, 2002 through December 31, 2002.
The agreements with Messrs. Rivas, Zeitchick and Mangone provide that
they will not compete with us or our subsidiaries for a period of one year from
the date of their respective terminations.
Mr. Rosenstock, our former vice chairman and chief operating officer,
was previously employed by us under an employment agreement with us and
Ladenburg Capital Management pursuant to a five-year employment agreement dated
August 24, 1999. Due to our financial condition, effective September 1, 2002,
Mr. Rosenstock voluntarily forfeited 25% of the compensation due to him under
the Incentive Plan for the remainder of the 2002 calendar year. Effective
September 1, 2002, Mr. Rosenstock also voluntarily forfeited 25% of the
compensation due to him pursuant to his employment agreement for retail and
institutional brokerage commissions generated from various registered
representatives employed by our subsidiaries. Effective December 31, 2002, we
entered into an amendment to Mr. Rosenstock's agreement that provided for him to
terminate his employment with us as our vice chairman and chief operating
officer. The amendment provides for him to be employed with Ladenburg Thalmann &
Co. as a registered representative until December 31, 2005. Mr. Rosenstock
received $25,000 upon signing of the amendment and will receive a monthly base
salary of approximately $17,000 for the first year of the agreement and a
monthly base salary of $15,000 for the second and third years of the agreement.
Additionally, Mr. Rosenstock will receive 50% of all of his retail brokerage
production for the term of the agreement and 15% of any compensation received by
Ladenburg Thalmann & Co. or any of its affiliates as a finders fee for any
corporate finance transactions entered into within 18 months after the
introduction by Mr. Rosenstock to Ladenburg Thalmann & Co. However, he will no
longer be entitled to participate in the Incentive Plan and Bonus Plan. The
agreement provides that Mr. Rosenstock will not compete with us or our
subsidiaries for a period of one year from the date of his termination, but
allows him to deal with any of his prior or then existing customers or clients
without any restriction. Because Mr. Rosenstock is not obligated to perform
future services, the signing bonus and base salary are considered a buy-out for
accounting purposes and, accordingly, a total of $590,000 was accrued as of
December 31, 2002 and included in operating expenses for 2002.
14
Salvatore Giardina, our vice president and chief financial officer, is
an at-will employee. His compensation consists of an annual base salary of
$214,000 plus discretionary bonuses. Mr. Giardina received a bonus of $3,500 in
2001 and did not receive a bonus in 2002.
Compensation Arrangements for Directors
Directors who are employees of ours receive no cash compensation for
serving as directors. During 2002, we paid our non-employee directors an annual
fee of $12,000 payable in quarterly installments, for their service on our board
of directors. Effective February 1, 2003, our directors will each receive annual
fees of $15,000 and members of our audit committee and compensation committee
will receive an additional annual fee of $10,000 and $5,000, respectively. In
addition, each director will receive five hundred dollars per meeting that he
attends. Additionally, upon their election or re-election, as the case may be,
we grant our non-employee directors ten-year options under our Equity Plan to
purchase 20,000 shares of our common stock at fair market value on the date of
grant. On May 7, 2001, we granted to each of Messrs. Lorber, LeBow, Frost,
Beinstein, and Eide a ten-year option to purchase 20,000 shares of common stock
at an exercise price of $3.05 per share, which options vested in full on May 7,
2002. On January 10, 2002, we granted Mr. Lampen a ten-year option to purchase
20,000 shares of common stock at an exercise price of $0.88 per share, which
options vested in full on January 10, 2003. On November 15, 2002, we granted
each of Messrs. Lorber, LeBow, Beinstein, Eide and Lampen a ten-year option to
purchase 20,000 shares of common stock at an exercise price of $0.22 per share,
which options vest in full on November 15, 2003. All of our directors are
reimbursed for their costs incurred in attending meetings of the board of
directors or of the committees on which they serve.
Option Grants
The following table represents the stock options granted in the fiscal
year ended December 31, 2002, to the Named Executive Officers.
----------------------------------------------------------------------------------------------------------------------------------
STOCK OPTION GRANTS IN 2002
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Number of Percent of Total
Securities Options Granted to
Underlying Employees in Exercise Price Expiration Grant Date Present
Name of Executive Options Granted (#) Fiscal Year (%) of Options ($) Date Value(1)($)
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Victor M. Rivas 300,000 12.67% 0.88 1/10/12 $258,000
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Richard J. Rosenstock 250,000 10.56% 0.88 1/10/12 $215,000
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Mark Zeitchick 250,000 10.56% 0.88 1/10/12 $215,000
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Vincent A. Mangone 250,000 10.56% 0.88 1/10/12 $215,000
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
Salvatore Giardina 35,000 1.48% 0.60 3/19/12 $20,300
------------------------------ ------------------- ------------------------ ----------------- -------------- ---------------------
(1) The estimated present value at grant date of the options granted to
such individuals has been calculated using the Black-Scholes option
pricing model, based upon the following assumptions: volatility of
134.08%, a risk-free rate of 4.385%, an expected life of 10 years, a
dividend rate of 0% and no forfeiture. The approach used in developing
the assumptions upon which the Black-Scholes valuation was done is
consistent with the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation."
The following table sets forth the fiscal year-end option values of
outstanding options at December 31, 2002, and the dollar value of unexercised,
in-the-money options for our Named Executive Officers. There were no stock
options exercised by any of the Named Executive Officers in 2002.
15
------------------------------------------------------------------------------------------------------------------------
AGGREGATED FISCAL YEAR-END OPTION VALUES
------------------------------------------------------------------------------------------------------------------------
Number of Securities Underlying Dollar Value of Unexercised
Unexercised Options at in-the-money Options at
Fiscal Year End: Fiscal Year End
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Name Exercisable (#) Unexercisable (#) Exercisable ($) Unexercisable ($)
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Victor M. Rivas 333,333 966,667 -0- -0-
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Richard J. Rosenstock 89,508 260,492 -0- -0-
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Mark Zeitchick 98,460 251,540 -0- -0-
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Vincent A. Mangone 98,460 251,540 -0- -0-
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Salvatore Giardina 11,666 23,334 -0- -0-
------------------------------ ------------------- ----------------------- --------------------- -----------------------
Annual Incentive Bonus Plan
On August 23, 1999, our shareholders adopted the 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 December 31, 2002 and for the fiscal year ending December 31,
2003, our compensation committee determined that participating employees would
share in a bonus pool equal to 25% of our net income before taxes and before the
accrual of compensation payable under this plan provided that we achieve a 10%
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. The maximum award available to Victor M. Rivas under the plan is
limited to 32.5% of the Pool and the maximum award available to any other
participant under the plan is limited to 22.5% of the Pool. No awards were made
under the Bonus Plan for fiscal 2002 to Messrs. Rivas, Rosenstock, Zeitchick and
Mangone, the participants in the Bonus Plan for 2002. The compensation committee
has selected Messrs. Rivas, Zeitchick and Mangone to participate in the Bonus
Plan for fiscal 2003.
Special Performance Incentive Plan
On August 23, 1999, our shareholders adopted our Incentive Plan. The
Incentive Plan is similar in nature to the 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 the fiscal year ended December 31, 2002 and for the fiscal year
ending December 31, 2003, the compensation committee has determined that
participants are entitled to receive an incentive award that is based on our
total consolidated revenues provided that specified commission levels are
achieved. Awards are payable monthly, based on the average monthly revenues to
such date. However, final awards reflecting the performance for the last month
of the fiscal period and the fiscal period 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 period to any participant is
the lesser of $5,000,000 or a set percentage for the individual participants as
disclosed elsewhere in this report. Messrs. Rivas, Rosenstock, Zeitchick and
Mangone received bonuses under the Incentive Plan for fiscal 2002 as disclosed
in the Summary Compensation table above. The compensation committee has selected
Messrs. Rivas, Zeitchick and Mangone to participate in the Incentive Plan for
fiscal 2003.
16
1999 Performance Equity Plan
On August 23, 1999, our shareholders adopted the 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. On May 7, 2001, our
shareholders approved an amendment increasing the number of shares available for
issuance under the plan to 5,500,000 shares. On November 6, 2002, our
shareholders approved another amendment increasing the number of shares
available for issuance under the plan to 10,000,000 shares. The Equity Plan will
terminate when 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.
Ladenburg Thalmann Financial Services Inc. Employee Stock Purchase Plan
In November 2002, our shareholders approved the "Ladenburg Thalmann
Financial Services Inc. Employee Stock Purchase Plan," under which a total of
5,000,000 shares of common stock are available for issuance. Under this stock
purchase plan, as currently administered by the compensation committee, all
full-time employees may use a portion of their salary to acquire shares of our
common stock. Option periods have been initially set at three months long and
commence on January 1st, April 1st, July 1st and October 1st of each year and
end on March 31st, June 30th, September 30th and December 31st of each year. On
the first day of each option period, known as the "date of grant," each
participating employee is automatically granted an option to purchase shares of
our common stock to be automatically exercised on the last trading day of the
three-month purchase period comprising an option period. The last trading day of
an option period is known as an "exercise date." On the exercise date, the
amounts withheld will be applied to purchase shares for the employee from us.
The purchase price will be the lesser of 85% of the last sale price of our
common stock on the date of grant or on the exercise date. The Plan became
effective November 6, 2002 and the first option period ended June 30, 2003. As
of the date of this proxy, 834,221 shares of common stock have been issued under
the Ladenburg Thalmann Financial Services Inc. Employee Stock Purchase Plan.
Equity Compensation Plan Information
The following table sets forth certain information at December 31, 2002
with respect to our equity compensation plans that provide for the issuance of
options, warrants or rights to purchase our securities.
------------------------------ -------------------------------- ------------------------- ------------------------------------------
Number of Securities Remaining Available
Number of Securities to be Weighted-Average for Future Issuance under Equity
Issued upon Exercise of Exercise Price of Compensation Plans
Outstanding Options, Warrants Outstanding Options, (excluding securities
Plan Category and Rights Warrants and Rights reflected in the first column)
------------------------------ -------------------------------- ------------------------- ------------------------------------------
Equity Compensation
Plans Approved by 4,656,813 $2.08 5,343,187
Security Holders
------------------------------ -------------------------------- ------------------------- ------------------------------------------
Equity Compensation
Plans Not Approved by 200,000 $1.00 -0-
Security Holders(1)
------------------------------ -------------------------------- ------------------------- ------------------------------------------
(1) On August 31, 2001, New Valley and Frost-Nevada each loaned us
$1,000,000. As consideration for the loans, we issued to each of them a
five-year, immediately exercisable warrant to purchase 100,000 shares
17
of our common stock at an exercise price of $1.00 per share. These two
warrants are our only equity compensation "plans" not approved by our
shareholders.
Stock Price Performance Graph
The graph below compares the cumulative total return of our common
stock from October 29, 1997 (the day on which our common stock began trading on
the NASD OTC Bulletin Board) through December 31, 2002 with the cumulative total
return of companies comprising the Amex Composite Index (formerly the Amex
Market Value Index) and a peer group selected by us based on comparative
revenue. The graph plots the growth in value of an initial investment of $100 in
each of our common stock, the Amex Composite Index and the peer groups 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.
Our peer group is comprised of companies engaged in the same business
that we are, each with revenues comparable to ours, and consists of the
following companies: First Albany Companies, Inc., First Montauk Financial
Corp., The John Nuveen Co., Kirlin Holding Corp., M.H. Meyerson & Co., Inc.,
Olympic Cascade Financial Corp., Paulson Capital Corp., Siebert Financial Corp.
and Stifel Financial Corp. Hoenig Group, Inc. has been removed from the peer
group presented in our 2002 proxy statement as it was acquired by another
entity.
Cumulative Total Return
-------------------------------------------------------------
10/97 9/98 9/99 9/00 12/01 12/02
LADENBURG THALMANN FINANCIAL SERVICES, INC. 100.00 44.57 59.78 45.65 15.13 1.57
AMEX MARKET VALUE (U.S. & FOREIGN) 100.00 91.04 117.12 143.37 121.28 102.32
PEER GROUP 100.00 106.62 174.18 151.86 154.29 162.48
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 SEC. These reporting persons are also required to furnish us
with copies of all Section 16(a) forms they file. To our knowledge, based solely
on our review of the copies of these forms furnished to us and representations
that no other reports were required, all Section 16(a) reporting requirements
were complied with during the fiscal year ending December 31, 2002, except that
18
Dr. Frost, the beneficial holder of 16.9% of our common stock, filed one Form 4
late, which Form 4 included one transaction.
Certain Relationships and Related Transactions
On May 7, 2001, we consummated the stock purchase agreement, as
amended, with New Valley Corporation, Berliner Effektengesellschaft AG and
Ladenburg Thalmann & Co. in which we acquired all of the outstanding common
stock of Ladenburg Thalmann & Co. As partial consideration for the common stock
of Ladenburg Thalmann & Co., we issued:
o 18,598,098 shares of common stock and $8.01 million aggregate
principal amount of our senior convertible promissory notes,
currently convertible into 3,844,216 shares of common stock,
to New Valley; and
o 4,620,501 shares of common stock and $1.99 million aggregate
principal amount of our senior convertible promissory notes,
currently convertible into 955,055 shares of common stock, to
Berliner.
We also paid New Valley and Berliner $8.01 million and $1.99 million in cash,
respectively. The cash portion of the consideration paid to New Valley and
Berliner was obtained pursuant to a loan agreement with Frost-Nevada, Limited
Partnership under which Frost-Nevada provided us with $10 million in cash in
exchange for $10 million aggregate principal amount of our senior convertible
promissory notes, currently convertible into 6,497,475 shares of common stock.
As a result of these transactions, the following individuals became
affiliated with us:
o Howard M. Lorber, president and chief operating officer of New
Valley, is now the chairman of our board of directors;
o Bennett S. LeBow, chairman and chief executive officer of New
Valley, is now a member of our board of directors;
o Victor M. Rivas, chairman and chief executive officer of
Ladenburg Thalmann & Co. and a member of the board of
directors of New Valley, is now our president and chief
executive officer;
o Richard J. Lampen, executive vice president, general counsel
and a member of the board of directors of New Valley, is now a
member of our board of directors;
o Henry C. Beinstein, a member of the board of directors of New
Valley, is now a member of our board of directors; and
o Robert J. Eide, a member of the board of directors of Vector
Group, the parent of New Valley, is now a member of our board
of directors.
Upon becoming members of our board of directors in May 2001, each of Messrs.
Lorber, LeBow, Beinstein and Eide were granted a ten-year option to purchase
20,000 shares of common stock at $3.05 per share. The options vested in full on
May 7, 2002. Upon becoming a member of our board of directors in January 2002,
Mr. Lampen was granted a ten-year option to purchase 20,000 shares of common
stock at $0.88 per share. This option vested in full on January 10, 2003. Each
of these grants were made under our Equity Plan. In November 2002, we granted
each of Messrs. Lorber, LeBow, Beinstein, Eide and Lampen a ten-year option to
purchase 20,000 shares of common stock at $0.22 per share. The options vest in
full on November 15, 2003.
19
Pursuant to the employment agreement with Mr. Rivas in which he became
our president and chief executive officer, Mr. Rivas is entitled to receive an
annual base salary of $500,000, subject to periodic increases as determined by
LTS' board of directors, as well as a guaranteed minimum annual bonus of
$500,000. Mr. Rivas will also be entitled to participate in our Bonus Plan and
Incentive Plan in accordance with the terms of the plan and Mr. Rivas'
employment agreement. Additionally, we granted Mr. Rivas an option to purchase
1,000,000 shares of common stock at $3.05 per share under our Equity Plan. The
option vests in three equal annual installments commencing on May 7, 2002. The
option also provides that if a change of control occurs, the portion of the
option not yet vested will vest and become immediately exercisable.
The notes issued to New Valley and Berliner bear interest at a rate of
7.5% per year, payable quarterly, and are secured by a pledge of the shares of
common stock of Ladenburg Thalmann & Co. The notes are convertible, in whole or
in part, at any time, 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" is $2.0836498 and is subject to anti-dilution adjustment
for stock splits, dividends and other similar events. Additionally, 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. The notes also provide that 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.
The note issued to Frost-Nevada has the same terms as the notes issued
to New Valley and Berliner, except that the conversion price of the note is
$1.5390594 and pays interest at a rate of 8.5% per year. The note issued to
Frost-Nevada is also secured by a pledge of the shares of common stock of
Ladenburg Thalmann & Co.
On June 28, 2002, New Valley, Berliner and Frost-Nevada agreed with us
to forbear until May 15, 2003 payment of the interest due to them under the
senior convertible promissory notes held by these entities on the interest
payment dates of the notes commencing on June 30, 2002 through March 2003. On
March 3, 2003, the holders of the senior convertible promissory notes agreed to
extend the interest forbearance period to January 15, 2005 with respect to
interest payments due through December 31, 2004. Interest on the deferred
amounts accrues at 8% on the New Valley and Berliner notes and 9% on the
Frost-Nevada note. We also agreed to apply any net proceeds from any subsequent
public offerings to any such deferred amounts owed to the holders of the notes
to the extent possible.
Concurrently with the closing of the stock purchase agreement, New
Valley purchased 3,945,060 of our common stock at $1.00 per share from Joseph
Berland, our former chairman and chief executive officer. Additionally, on the
same date, Frost-Nevada purchased a total of 550,000 shares of our common stock
at $1.00 per share from Richard Rosenstock, our vice chairman and chief
operating officer, Mark Zeitchick and Vincent Mangone, our executive vice
presidents, and David Thalheim, our former administrator. In connection with
these sales, our board waived lock-up agreements between us and the individuals
in which the individuals had agreed that they would not, without our board's
prior written consent, sell, transfer or otherwise dispose of any of their
shares of our common stock until August 2001.
In connection with these transactions, we also entered into amendments
to the existing employment agreements with each of Messrs. Berland, Rosenstock,
Zeitchick and Mangone. Pursuant to the amendments:
o Mr. Berland resigned from his positions with us and became the
executive vice president of corporate finance of Ladenburg
Capital Management through May 2003 at an annual base salary
of $150,000;
20
o Mr. Rosenstock became our vice chairman and chief operating
officer and Ladenburg Capital Management's chief executive
officer through August 2004 at an annual base salary of
$340,000;
o Mr. Zeitchick remained as an executive vice president of ours
and became Ladenburg Capital Management's co-chairman of the
board through August 2004 at an annual base salary of $90,000;
and
o Mr. Mangone remained as an executive vice president of ours
and Ladenburg Capital Management through August 2004 at annual
base salary of $90,000.
Effective December 31, 2002, we entered into a further amendment to Mr.
Rosenstock's agreement that provided for him to no longer be employed by us.
However, he will continue to be a member of our board of directors and will be
employed by Ladenburg Thalmann & Co. as a registered representative until
December 31, 2005. Mr. Rosenstock received $25,000 upon signing of the amendment
and will receive a monthly base salary of $17,000 for the first year of the
agreement and a monthly base salary of $15,000 for the second and third years of
the agreement. Additionally, Mr. Rosenstock will receive 50% of all of his
retail brokerage production for the term of the agreement and 15% of any
compensation received by Ladenburg Thalmann & Co. or any of its affiliates as a
finders fee for any corporate finance transactions entered into within 18 months
after the introduction by Mr. Rosenstock to Ladenburg Thalmann & Co. However, he
will no longer be entitled to participate in the Incentive Plan and Bonus Plan.
The agreement provides that Mr. Rosenstock will not compete with us or our
subsidiaries for a period of one year from the date of his termination, but
allows him to deal with any of his prior or then existing customers or clients
without any restriction. The signing bonus and base salary are considered a
buy-out for accounting purposes, and accordingly, a total of $590,000 was
accrued as of December 31, 2002 and included in operating expenses for 2002.
Each of Messrs. Zeitchick and Mangone continue to be entitled to
participate in our Bonus Plan and Incentive Plan in accordance with the terms of
the respective plans and their respective employment agreements.
Prior to the consummation of the acquisition, New Valley maintained
office space at Ladenburg Thalmann & Co.'s principal offices. In connection with
the consummation of the transaction, New Valley entered into a license agreement
with Ladenburg Thalmann & Co. in which New Valley will continue to occupy this
space at no cost to New Valley. The license agreement is for one year and is
automatically renewed for successive one-year periods unless terminated by New
Valley. The space, which is not currently occupied by New Valley, has been
subleased on a short-term basis by Ladenburg Thalmann & Co. to an unaffiliated
third party.
From June 2001 until October 2002, J. Bryant Kirkland III, the vice
president, treasurer and chief financial officer of New Valley, served as our
chief financial officer and New Valley did not allocate any expense to us for
his services. In December 2002, we accrued compensation for Mr. Kirkland's
services, in the amount of $100,000, payable in four quarterly installments of
$25,000, commencing April 1, 2003.
On August 31, 2001, New Valley and Frost-Nevada each loaned us
$1,000,000. The loans were evidenced by promissory notes that matured on the
earlier of February 28, 2002 and the next business day after we received our
federal income tax refund for the fiscal year ending September 30, 2001. The
promissory notes bore interest at the Prime Rate as published in the Wall Street
Journal plus 1%. As consideration for the loans, we issued to each of New Valley
and Frost-Nevada a five-year, immediately exercisable warrant to purchase
100,000 shares of our common stock at an exercise price of $1.00 per share.
These loans were repaid in January 2002.
21
On March 27, 2002, we borrowed $2,500,000 from New Valley. The loan,
which bears interest at 1% above the prime rate, was due on the earlier of
December 31, 2003 or the completion of one or more equity financings where we
receive at least $5,000,000 in total proceeds. The terms of the loan restrict us
from incurring or assuming any indebtedness that is not subordinated to the loan
so long as the loan is outstanding. On July 16, 2002, we borrowed an additional
$2,500,000 from New Valley on the same terms as the March 2002 loan
(collectively, the "2002 Loans"). In November 2002, we renegotiated our current
clearing agreement with one of our clearing brokers whereby this clearing broker
became our primary clearing broker, clearing substantially all of our business.
As part of the new agreement with this clearing broker, an affiliate of the
clearing broker loaned us an aggregate of $3,500,000 (the "Clearing Loans"). In
connection with the Clearing Loans, New Valley agreed to extend the maturity of
the 2002 Loans to December 31, 2006 and to subordinate the 2002 Loans to the
repayment of the Clearing Loans.
On October 8, 2002, we borrowed an additional $2,000,000 from New
Valley. The loan, which bore interest at 1% above the prime rate, matured on the
earliest of December 31, 2002, the next business day after we received our
federal income tax refund for the fiscal year ended September 30, 2002, and the
next business day after we received a loan from an affiliate of our clearing
broker in connection with the conversion of additional clearing business to this
broker. This loan was repaid in December 2002 upon receipt of the Clearing
Loans.
We may from time to time borrow additional funds on a short-term basis
from New Valley or from other parties, including our shareholders and clearing
brokers, in order to supplement the liquidity of our broker-dealer operations.
Howard Lorber is chairman of the board of directors of Hallman & Lorber
Associates, Inc., a private consulting and actuarial firm, and related entities,
which receive commissions from insurance policies written for us. These
commissions amounted to approximately $106,000 in 2002.
Several members of the immediate families of our executive officers and
directors are employed as registered representatives of Ladenburg Thalmann & Co.
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. The arrangements we have
with these individuals are similar to the arrangements we have with our other
registered representatives. Oscar Sonkin and Richard Sonkin, the father-in-law
and brother-in-law, respectively, of Richard J. Rosenstock, received $72,000 and
$216,000, respectively, in compensation during 2002. Steven Zeitchick, the
brother of Mark Zeitchick, received $182,000 in compensation during 2002. It is
anticipated that each of these individuals will receive in excess of $60,000 in
compensation from us in 2003.
Independent Auditors
Our audit committee has selected Eisner LLP as our independent auditors
for the fiscal year ending December 31, 2003. Eisner LLP was our independent
auditors for the fiscal year ended December 31, 2002. Representatives of Eisner
LLP are expected to be present at the annual meeting. The representatives of
PricewaterhouseCoopers and Eisner will have the opportunity to make statements
and will be available to respond to appropriate questions from shareholders.
On September 30, 2002, we dismissed PricewaterhouseCoopers LLP as our
independent auditors. Our audit committee recommended and approved the decision
to change independent auditors. PricewaterhouseCoopers' reports on our financial
statements for the past two fiscal years did not contain any adverse opinion or
a disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for the two
most recent fiscal years and review of unaudited financial statements through
June 30, 2002 (the most recent unaudited financial statements subject to
review), there were no disagreements with PricewaterhouseCoopers on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
22
satisfaction of PricewaterhouseCoopers would have caused them to make reference
to the subject matter of the disagreement in connection with their report.
During the two most recent fiscal years and through September 30, 2002, there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K
promulgated by the SEC. A copy of PricewaterhouseCoopers' letter stating that it
agreed with the foregoing statements has been filed with the SEC.
On May 7, 2001, we dismissed Goldstein Golub Kessler LLP as our
independent auditors. Our board of directors recommended and approved the
decision to change independent auditors. Goldstein Golub Kessler's reports on
our financial statements for the past two fiscal years did not contain any
adverse opinion or a disclaimer of opinion and was not qualified or modified as
to uncertainty, audit scope or accounting principles. In connection with its
audits for the two most recent fiscal years and review of unaudited financial
statements through May 7, 2001, there were no disagreements with Goldstein Golub
Kessler on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Goldstein Golub Kessler would have caused them to make
reference to the subject matter of the disagreement in connection with their
report. During the two most recent fiscal years and through May 7, 2001, there
were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K
promulgated by the SEC. A copy of Goldstein Golub Kessler's letter stating that
it agreed with the foregoing statements has been filed with the SEC.
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.
2004 Annual Meeting Shareholder Proposals
In order for any shareholder proposal to be presented at the annual
meeting of shareholders to be held in 2004 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 April 24, 2004. 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 2004 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 New York, New York, not later
than July 8, 2004.
Other Matters
The board of directors knows of no matter which will be presented for
consideration at the special 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.
Victor M. Rivas, President and Chief Executive Officer
New York, New York
August 22, 2003
23
Appendix A
-----------
Adopted: August 12, 2003
AMENDED AND RESTATED
AUDIT COMMITTEE CHARTER
OF
LADENBURG THALMANN FINANCIAL SERVICES INC.
Purpose
The Audit Committee is appointed by the Board of Directors ("Board") of
Ladenburg Thalmann Financial Services Inc. ("Company") to assist the Board in
monitoring (1) the integrity of the annual, quarterly and other financial
statements of the Company, (2) the independent auditor's qualifications and
independence, (3) the performance of the Company's independent auditor and (4)
the compliance by the Company with legal and regulatory requirements. The Audit
Committee also shall review and approve all related-party transactions.
The Audit Committee shall prepare the report required by the rules of the
Securities and Exchange Commission ("Commission") to be included in the
Company's annual proxy statement.
Committee Membership
The Audit Committee shall consist of no fewer than three members, absent a
temporary vacancy. The Audit Committee shall meet the "Independent Directors and
Audit Committee" requirements of the American Stock Exchange and the
independence and experience requirements of Section 10A(m)(3) of the Securities
Exchange Act of 1934 ("Exchange Act") and the rules and regulations of the
Commission.
The members of the Audit Committee shall be appointed by the Board. Audit
Committee members may be replaced by the Board. There shall be a Chairman of the
Audit Committee which shall also be appointed by the Board. The Chairman of the
Audit Committee shall be a member of the Audit Committee and, if present, shall
preside at each meeting of the Audit Committee. He shall advise and counsel with
the executives of the Company, and shall perform such other duties as may from
time to time be assigned to him by the Audit Committee or the Board of
Directors.
Meetings
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management and the independent auditor in separate executive sessions. 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 Audit
Committee or to meet with any members of or consultants to, the Audit Committee.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint or replace the
independent auditor. The Audit Committee shall be directly responsible for
determining the compensation and oversight of the work of the independent
auditor (including resolution of disagreements between management and the
i
independent auditor regarding financial reporting) for the purpose of preparing
or issuing an audit report or related work. The independent auditor shall report
directly to the Audit Committee.
The Audit Committee shall pre-approve all auditing services and permitted
non-audit services to be performed for the Company by its independent auditor,
including the fees and terms thereof (subject to the de minimus exceptions for
non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which
are approved by the Audit Committee prior to the completion of the audit). The
Audit Committee may form and delegate authority to subcommittees of the Audit
Committee consisting of one or more members when appropriate, including the
authority to grant pre-approvals of audit and permitted non-audit services,
provided that decisions of such subcommittee to grant pre-approvals shall be
presented to the full Audit Committee at its next scheduled meeting.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Company shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to (i) the independent auditor for the
purpose of rendering or issuing an audit report and (ii) any advisors employed
by the Audit Committee.
The Audit Committee shall make regular reports to the Board. The Audit Committee
shall review and reassess the adequacy of this Charter annually and recommend
any proposed changes to the Board for approval. The Audit Committee annually
shall review the Audit Committee's own performance.
The Audit Committee shall:
Financial Statement and Disclosure Matters
------------------------------------------
1. Meet with the independent auditor prior to the audit to review the
scope, planning and staffing of the audit.
2. Review and discuss with management and the independent auditor the
annual audited financial statements, and recommend to the Board whether
the audited financial statements should be included in the Company's
Form 10-K.
3. Review and discuss with management and the independent auditor the
Company's quarterly financial statements prior to the filing of its
Form 10-Q, including the results of the independent auditor's review of
the quarterly financial statements.
4. Discuss with management and the independent auditor, as appropriate,
significant financial reporting issues and judgments made in connection
with the preparation of the Company's financial statements, including:
a. any significant changes in the Company's selection or
application of accounting principles;
b. the Company's critical accounting policies and practices;
c. all alternative treatments of financial information within
GAAP that have been discussed with management and the
ramifications of the use of such alternative accounting
principles;
d. any major issues as to the adequacy of the Company's internal
controls and any special steps adopted in light of material
control deficiencies; and
e. any material written communications between the independent
auditor and management, such as any management letter or
schedule of unadjusted differences.
ii
5. Discuss with management the Company's earnings press releases
generally, including the use of "pro forma" or "adjusted" non-GAAP
information, and any financial information and earnings guidance
provided to analysts and rating agencies. Such discussion may be
general and include the types of information to be disclosed and the
types of presentations to be made.
6. Discuss with management and the independent auditor the effect on the
Company's financial statements of (i) regulatory and accounting
initiatives and (ii) off-balance sheet structures.
7. Discuss with management the Company's major financial risk exposures
and the steps management has taken to monitor and control such
exposures, including the Company's risk assessment and risk management
policies.
8. 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, including any difficulties encountered in the
course of the audit work, any restrictions on the scope of activities
or access to requested information, and any significant disagreements
with management.
9. Review disclosures made to the Audit Committee by the Company's CEO and
CFO during their certification process for the Form 10-K and Form 10-Q
about any significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting and
any fraud involving management or other employees who have a
significant role in the Company's internal control over financial
reporting.
Oversight of the Company's Relationship with the Independent Auditor
--------------------------------------------------------------------
10. At least annually, obtain and review a report from the independent
auditor, consistent with Independence Standards Board Standard 1,
regarding (a) the independent auditor's internal quality-control
procedures, (b) any material issues raised by the most recent internal
quality-control review, or peer review, of the firm, or by any inquiry
or investigation by governmental or professional authorities within the
preceding five years respecting one or more independent audits carried
out by the firm, (c) any steps taken to deal with any such issues and
(d) all relationships between the independent auditor and the Company.
Evaluate the qualifications, performance and independence of the
independent auditor, including whether the auditor's quality controls
are adequate and the provision of permitted non-audit services is
compatible with maintaining the auditor's independence, and taking into
account the opinions of management and the internal auditor. The Audit
Committee shall present its conclusions with respect to the independent
auditor to the Board.
11. Verify the rotation of the lead (or coordinating) audit partner having
primary responsibility for the audit and the audit partner responsible
for reviewing the audit as required by law. Consider whether, in order
to assure continuing auditor independence, it is appropriate to adopt a
policy of rotating the independent auditing firm on a regular basis.
12. Oversee the Company's hiring of employees or former employees of the
independent auditor who participated in any capacity in the audit of
the Company.
13. Be available to the independent auditor during the year for
consultation purposes.
Compliance Oversight Responsibilities
-------------------------------------
14. Obtain assurance from the independent auditor that Section 10A(b) of
the Exchange Act has not been implicated.
iii
15. Review and approve all related-party transactions.
16. Inquire and discuss with management the Company's compliance with
applicable laws and regulations and with the Company's Code of Ethics
and Business Conduct in effect at such time, if any, and, where
applicable, recommend policies and procedures for future compliance.
17. Establish procedures (which may be incorporated in the Company's Code
of Ethics and Business Conduct, in effect at such time, if any) for the
receipt, retention and treatment of complaints received by the Company
regarding accounting, internal accounting controls or reports which
raise material issues regarding the Company's financial statements or
accounting policies.
18. Discuss with management and the independent auditor any correspondence
with regulators or governmental agencies and any published reports that
raise material issues regarding the Company's financial statements or
accounting policies.
19. Discuss with the Company's General Counsel legal matters that may have
a material impact on the financial statements or the Company's
compliance policies.
Limitation of Audit Committee's Role
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 and disclosures are
complete and accurate and are in accordance with generally accepted accounting
principles and applicable rules and regulations. These are the responsibilities
of management and the independent auditor.
iv
LADENBURG THALMANN FINANCIAL SERVICES INC. - PROXY
Solicited By The Board Of Directors
for Annual Meeting To Be Held on September 17, 2003,
The undersigned Shareholder(s) of Ladenburg
Thalmann Financial Services Inc., a Florida corporation
P ("Company"), hereby appoints Victor M. Rivas, Mark Zeitchick
or Salvatore Giardina, or any of them, with full power of
substitution and to act without the others, as the agents,
R 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 September 17, 2003
and at all adjournments thereof. This proxy will be voted in
O accordance with the instructions given on the reverse side.
If no instructions are given, this proxy will be voted FOR all
of the following proposals.
1. Election of the following Directors:
X FOR all nominees listed below except WITHHOLD AUTHORITY to vote
as marked to the contrary for all nominees listed
below |_| below |_|
Y
Howard M. Lorber, Victor M. Rivas, Richard J. Rosenstock,
Vincent A. Mangone, Mark Zeitchick, Henry C. Beinstein,
Robert J. Eide and Richard J. Lampen
INSTRUCTIONS: To withhold authority for any individual nominee,
write that nominee's name in the space below.
-----------------------------------------------------
2. In their discretion, the proxies are authorized to vote upon
such other business as may come before the meeting or any
adjournment thereof.
FOR |_| AGAINST |_| ABSTAIN |_|
|_| I plan on attending the Annual Meeting.
Date ______________________________
___________________________________
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.