(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1001 NINETEENTH STREET NORTH
ARLINGTON, VA 22209
(703) 312-9500
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COPIES TO:
CRAIG M. WASSERMAN, ESQ. HOWARD B. ADLER, ESQ.
WACHTELL, LIPTON, ROSEN & KATZ GIBSON, DUNN & CRUTCHER LLP
51 WEST 52ND STREET 1050 CONNECTICUT AVENUE N.W.
NEW YORK, NY 10019 WASHINGTON, D.C. 20036
(212) 403-1000 (202) 955-8589
---------------
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CALCULATION OF REGISTRATION FEE
================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE (2) FEE
-------------------------------------------------------------------------------
Class A Common Stock, par
value $0.01 per share... -- -- -- --
-------------------------------------------------------------------------------
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(1) A total of 12,650,000 shares of Class A Common Stock have been registered,
including 7,793,579 shares of Class A Common Stock registered with the
filing of the Company's Form S-1 on October 30, 1997 and 4,856,421 shares
registered with the filing of Amendment No. 1 to the Company's Form S-1 on
December 8, 1997. All registration fees have been previously paid.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH
SECTION 8(A), MAY DETERMINE.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING LOCATION IN
PROSPECTUS OF PART I ITEMS OF FORM S-1
ITEM NUMBER AND HEADING IN FORM S-1
REGISTRATION STATEMENT LOCATION IN PROSPECTUS
------------------------------------------------------- ---------------------------------
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Outside
Back Cover Page
3.Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.......................... Prospectus Summary; Risk Factors
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... Outside Front Cover Page; Underwriting
6. Dilution............................................ Dilution
7. Selling Security Holders............................ Principal and Selling
Shareholders
8. Plan of Distribution................................ Outside and Inside Front Cover
Pages; Underwriting; Outside Back
Cover Page
9. Description of Securities to Be Registered.......... Prospectus Summary;
Capitalization; Description of
Capital Stock; Shares Eligible
for Future Sale
10. Interests of Named Experts and Counsel............. Legal Matters
11. Information with Respect to the Registrant......... Outside and Inside Front Cover
Pages; Prospectus Summary; Risk
Factors; Certain Transactions
Occurring Prior to Offering; Use
of Proceeds; Dividend Policy;
Dilution; Capitalization;
Selected Consolidated Financial
Data; Management's Discussion and
Analysis of Financial Condition
and Results of Operations;
Business; Management; Principal
and Selling Shareholders;
Description of Capital Stock;
Shares Eligible for Future Sale;
Consolidated Financial
Statements; Outside Back Cover
Page
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities..... Management
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY STATE. + |
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
PROSPECTUS
[LOGO OF FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. APPEARS HERE]
11,000,000 SHARES
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CLASS A COMMON STOCK
Of the 11,000,000 shares of Class A Common Stock, par value $0.01 per share ("Class A Common Stock"), of Friedman, Billings, Ramsey Group, Inc., a Virginia corporation ("FBR" or the "Company"), offered hereby (the "Offering"), 10,000,000 are being issued and sold by the Company and 1,000,000 are being sold by certain shareholders (the "Selling Shareholders") of the Company. The Company will not receive any of the proceeds of the sale of shares by the Selling Shareholders. Prior to the Offering, there has been no public market for the Class A Common Stock. It is currently estimated that the initial public offering price will be between $18.00 and $20.00 per share. The initial public offering price will be determined by agreement among the Company, the Selling Shareholders and the Underwriters (as defined herein) in accordance with the recommendation of a "qualified independent underwriter" as required by Rule 2720 of the Conduct Rules of the National Association of Securities Dealers, Inc. (the "NASD"). See "Underwriting" for a discussion of the factors considered in determining the initial public offering price. In addition to the shares of Common Stock (as defined herein) offered hereby, PNC Bank Corp. has agreed to acquire a number of shares of Class A Common Stock equal to 4.9% of the outstanding Common Stock upon the closing of the Offering (which, without giving effect to the exercise of the Over-allotment Option (as defined herein) will total 2,451,421 shares of Class A Common Stock) at a price equal to the initial public offering price less a 4% discount. The Company has applied for the listing of the Class A Common Stock on the New York Stock Exchange, Inc. ("NYSE") under the symbol "FBG."
The Company has two classes of stock outstanding: Class A Common Stock and Class B Common Stock, par value $0.01 per share ("Class B Common Stock" and together with Class A Common Stock, "Common Stock"). Class A Common Stock and Class B Common Stock have identical dividend and other rights, except that Class A Common Stock has one vote per share and Class B Common Stock has three votes per share. Class B Common Stock is converted into Class A Common Stock at the option of the Company in certain circumstances, including (i) upon a sale or other transfer, (ii) at the time the holder of such shares of Class B Common Stock ceases to be affiliated with the Company, and (iii) upon the sale of such shares in a registered public offering. See "Description of Capital Stock-- Common Stock."
Up to 1,000,000 shares of Class A Common Stock are being reserved for sale to certain Existing Shareholders (as defined herein), other employees and directors of the Company, and their family members at the initial public offering price less underwriting discount. See "Direct Offering." On December 15, 1997, the Company declared a dividend of $54 million to Existing Shareholders (the "S Corporation Distribution"). The Company intends to make the S Corporation Distribution on or before February 2, 1998. See "Certain Transactions Occurring Prior to the Offering--S Corporation Distribution and Termination of S Corporation Status."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS(2)
--------------------------------------------------------------------------------
Per Share..................... $ $ $ $
Total (3)..................... $ $ $ $
================================================================================
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(1) See "Underwriting" for indemnification arrangements with the several
Underwriters (as defined herein).
(2) Not including expenses payable by the Company, estimated at $ .
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 1,650,000 additional shares of Class A
Common Stock solely to cover over-allotments, if any (the "Over-allotment
Option"). If such option is exercised in full, the total Price to Public,
Underwriting Discount, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are offered by the several Underwriters subject to prior sale, receipt and acceptance by them and subject to the right of the Underwriters to reject any order in whole or in part and certain other conditions. It is expected that certificates for such shares will be available for delivery on or about , 1997 at the office of Friedman, Billings, Ramsey & Co., Inc. in Arlington, Virginia.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
LAZARD FRERES & CO. LLC
SALOMON SMITH BARNEY
December , 1997
[PHOTOGRAPHS OF WASHINGTON, D.C. AND EMPLOYEES OF THE COMPANY]
The Company intends to distribute to its shareholders annual reports containing consolidated financial statements audited by its independent auditors and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited financial information.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF CLASS A COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF SHARES OF CLASS A COMMON STOCK FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION IN CLASS A COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF CLASS A COMMON STOCK, AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed information and the financial statements and notes thereto appearing elsewhere in this Prospectus. This Prospectus contains forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this Prospectus. The terms "FBR" and the "Company," as used herein, refer to Friedman, Billings, Ramsey Group, Inc. and its predecessors and its consolidated subsidiaries, unless the context otherwise requires.
THE COMPANY
FBR is a full service investment banking firm focused on investment banking, research, institutional brokerage and asset management. FBR's strategy since inception has been to target specific industry sectors where it believes it can develop a unique research perspective. The Company then uses its research perspective together with its capital markets expertise to provide value for its clients. Using this approach, FBR has achieved a 50% compounded annualized growth rate in revenues since its inception in 1989 through November 30, 1997. FBR believes the success of its strategy is further demonstrated by its increasing market presence and the after-market performance of the companies for which it has acted as lead or co-manager. Year to date as of November 30, 1997, FBR was ranked sixth in terms of lead managed U.S. issuer initial public offering ("IPO") dollar volume, and for the period from January 1, 1996 through November 30, 1997 was ranked #1 in after-market performance among lead managers with at least ten lead managed IPOs, according to CommScan EQUIDESK. CommScan EQUIDESK defines "after-market performance" as the percentage change in the price of a share of stock from the price on the pricing date to the price of its last trade on the date of measurement, adjusted for splits.
FBR was founded in 1989 with the philosophy that an employee-friendly corporate culture would enhance performance results. FBR strives to maintain excellent employee relations through policies designed to create an enjoyable work environment for all employees such as flexible dress code, vacation policy and maternity leave. Other non-traditional benefits at FBR include corporate retreats, corporate gym and employee directed Company charitable donations. In addition, the Company has emphasized training and promoting its employees from within. The Company believes that as a result of this culture, FBR has averaged less than 3% turnover among exempt professional employees per year since inception. Low turnover has enhanced the Company's growth and efficiency.
Over the past 15 years, capital markets have evolved in depth and complexity, thereby radically altering the needs of both the companies accessing those markets and investors. The Company believes that in recent years, an increase in non-traditional issuers accompanied by significant inflows of cash into mutual funds and other managed funds has led to greater demand by both issuers and investors for focused advisory, capital markets, and capital management products and services.
The Company seeks to identify rapidly changing industries and those that are not fully understood or appropriately valued by the market. Once an industry is identified, the Company employs substantial effort to develop a thorough understanding of the fundamentals and opportunities of that industry. The Company employs a team approach in which all of its professionals contribute to and communicate the Company's expertise in an industry. For each industry on which the Company is focused, the Company offers significant underwriting capabilities and brokerage services as well as advisory services in mergers, acquisitions and strategic partnerships. In addition, FBR's asset management activities include hedge funds and public mutual funds as well as private equity investments and mezzanine finance in such industries.
FBR believes its strategy and culture has enabled and will enable it to succeed in this changing marketplace. Since commencing its investment banking activities in 1992, FBR has never failed to complete a capital raising
transaction it has brought to the public market as lead underwriter. Since its inception through November 30, 1997, FBR has completed $11.4 billion in capital raising transactions and $3.3 billion in merger and acquisition advisory transactions, which span a wide range of geographic regions and security types and a growing variety of industry sectors.
FBR has also applied its research focus and team-based approach to its asset management activities. The flagship FBR hedge fund, FBR Ashton, Limited Partnership, has provided annualized internal rates of return since inception in March 1992 of 41.8% gross and 34.1% net to its limited partners through November 30, 1997. FBR's three public mutual funds have provided total net return for the eleven months ended November 30, 1997 of 38.6%, 47.0% and 42.8%. The amount of assets under management has grown from $119.3 million at the beginning of 1996 to $444.9 million as of November 30, 1997, representing 373% growth.
FBR's revenues grew from $57.2 million for the year ended December 31, 1995, to $109.9 million for the year ended December 31, 1996, representing an increase of 92%, and from $84.8 million for the eleven months ended November 30, 1996, to $218.5 million for the eleven months ended November 30, 1997, representing an increase of 158%. FBR believes that its revenue growth, as well as the superior performance of its capital transactions and managed products, are the result of the Company's focus and dedication to developing research, capital markets and asset management expertise within a growing number of strategic industry sectors. FBR believes that its ability to combine superior industry knowledge with its capital markets expertise has made FBR a leading provider of investment banking, brokerage and asset management services and the largest independent investment bank in the rapidly growing Washington, D.C. metropolitan area.
FBR maintains executive offices in the Washington, D.C. area at Potomac Tower, 1001 Nineteenth Street North, Arlington, VA 22209; the telephone number is (703) 312-9500. The Company also maintains offices in Irvine, California; Boston, Massachusetts; and London, England. FBR's home page is located on the world wide web at http://www.fbr.com. Information contained on the Company's home page shall not be deemed to be a part of this Prospectus.
STRATEGIC RELATIONSHIP WITH PNC BANK CORP.
To further enhance its market position, FBR has formed a strategic business relationship with PNC Bank Corp., a diversified financial services company headquartered in Pittsburgh ("PNC"), pursuant to which PNC has agreed to acquire 4.9% of the shares of Common Stock issued and outstanding after the Offering (including any shares which may be issued pursuant to the Underwriters' Over-allotment Option), and FBR and PNC have agreed to work together on an arms-length basis to refer potential business to each other. FBR will be the exclusive independent broker-dealer to which PNC refers underwriting and high-yield business that is not conducted by PNC and PNC will work with FBR to provide enhanced derivatives, asset securitization, bridge lending and other bank debt financing products to FBR's client base. Without giving effect to exercise of the Over-allotment Option, PNC will acquire 2,451,421 shares of Class A Common Stock, all of which shares will be acquired from the Selling Shareholders at a price equal to the initial public offering price less a 4% discount (the "PNC Transaction"). See "Business -- Strategic Business Relationship with PNC Bank Corp."
RECENT DEVELOPMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
For the eleven months ended November 30, 1996 and November 30, 1997, the Company's unaudited results of operations were:
ELEVEN MONTHS ENDED NOVEMBER 30,
--------------------------------
(UNAUDITED)
-----------------------------------
1996 1997
---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA(1)
REVENUES:
Investment banking................... $ 43,013 $136,867
Corporate finance fees............... 5,439 42,321
Principal transactions............... 22,773 16,015
Agency commissions................... 6,791 11,081
Asset management fees................ 3,872(2) 6,610(2)
Interest and dividends............... 2,945 4,266
--------------- ----------------
Total revenues..................... 84,833 217,160
EXPENSES:
Compensation and benefits............ 43,500 137,495
Brokerage and clearance.............. 3,092 4,366
Occupancy and equipment.............. 1,466 2,406
Communications....................... 985 1,991
Interest............................. 2,372 3,341
Other................................ 9,440 24,215
--------------- ----------------
Total expenses..................... 60,855 173,814
--------------- ----------------
NET INCOME BEFORE TAXES................ 23,978 43,346
Pro forma tax provision.............. 9,808 17,834
--------------- ----------------
Pro forma net income................. $ 14,170 $ 25,512
=============== ================
Pro forma earnings per share......... $ 0.35 $ 0.61
=============== ================
TOTAL SHAREHOLDERS' EQUITY............. $ 47,249 $ 77,646
=============== ================
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(1) The information included in this table does not give effect to the S Corporation Distribution. See "Certain Transactions Occurring Prior to the Offering--S Corporation Distribution and Termination of S Corporation Status."
(2) Does not include performance fees of approximately $10.0 million as of November 30, 1997 which would be payable at December 31, 1997. Performance fees derived from the Company's asset management services are due and payable upon an anniversary date as defined by the relevant partnership agreements and management agreements. Generally, these anniversary dates coincide with calendar year end. Any performance fees calculated as of any date prior to the anniversary date are subject to adjustment based on future performance of the assets under management through the anniversary date. The Company does not consider the earnings process complete until the anniversary date and accordingly, does not record the related revenue until such time. The Company currently contemplates seeking amendment of certain of these partnership agreements to provide for quarterly recognition of certain of these fees. At current performance levels, these fees would result in a $4.5 million pre-tax contribution.
The results for the eleven-month period ended November 30, 1997 are unaudited interim results and are not necessarily indicative of the results to be expected for the entire year ending December 31, 1997, or any future interim or annual period.
SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
The following table adjusts the Company's historical consolidated statement of operations data for the eleven months ended November 30, 1997 to reflect revisions to the Company's compensation arrangements that will take effect on January 1, 1998 so long as the Offering has become effective by such date. Under the cash bonus component of the Company's recently adopted 1997 Stock and Annual Incentive Plan (the "New Plan"), the Named Executive Officers' (as defined herein) incentive compensation will be based on net income before taxes, rather than on gross revenues from certain of the Company's business lines which was the basis for computing their previous incentive compensation. In particular, cash bonus payments will be made from a pool equal to up to thirty percent of FBR's adjusted pre-tax net income (before annual cash bonus payments under the New Plan). The pool will be reduced to the extent the aggregate compensation and benefits expense for the year (including annual cash bonus payments under the New Plan) would exceed fifty-five percent of revenues; provided that such reduction will not reduce the pool for such fiscal year to less than ninety percent of the pool in the immediately preceding fiscal year. The financial information in the following table assumes that the New Plan was in effect for the eleven months ended November 30, 1997.
FOR THE
ELEVEN MONTHS
ENDED
NOVEMBER 30,
1997
-------------
(UNAUDITED)
TOTAL REVENUES................................................... $217,160
EXPENSES:
Compensation and benefits (adjusted; see introductory narrative
above)........................................................ 119,438
Other expenses................................................. 36,319
--------
Total expenses............................................... 155,757
--------
NET INCOME BEFORE TAXES:......................................... 61,403
Pro forma tax provision........................................ (25,263)
--------
Pro forma net income........................................... 36,140
========
Pro forma earnings per share................................... $ 0.86
========
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THE OFFERING
Class A Common Stock
offered by the Company..... 10,000,000 shares
Class A Common Stock
offered by the Selling
Shareholders............... 1,000,000 shares (1)
Class A Common Stock to be
outstanding after the
Offering................... 13,451,421 shares (1), (2), (3)
Class B Common Stock to be
outstanding after the
Offering................... 36,577,579 shares (3)
Total Common Stock to be
outstanding after the
Offering................... 50,029,000 shares (3)
Use of Proceeds............. General corporate purposes. The Company will not
receive any of the proceeds from the sale of
shares by the Selling Shareholders. See "Use of
Proceeds."
Proposed NYSE Symbol........ "FBG"
--------------------
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(1) Without giving effect to exercise of the Over-allotment Option, 3,451,421
shares of Class B Common Stock will be converted into Class A Common Stock
upon their sale by the Selling Shareholders in the Offering and the PNC
Transaction. Of these shares, 1,000,000 will be sold in the Offering and
2,451,421 will be sold to PNC in the PNC Transaction.
(2) Excludes 5,000,000 shares of Class A Common Stock reserved for issuance
under the Company's stock plans. The Company anticipates granting stock
options with respect to substantially all of such shares at an exercise
price equal to the initial public offering price at a time substantially
contemporaneous with the closing of the Offering. See "Management--1997
Stock and Annual Incentive Plan."
(3) If the Over-allotment Option is exercised, 15,174,921 shares of Class A Common Stock will be sold in the Offering and the PNC Transaction, and will be outstanding after the Offering. 11,500,000 of such shares will be issued by the Company. 3,674,921 Class B Common Stock shares will be converted into Class A Common Stock upon their sale by the Selling Shareholders in the Offering and the PNC Transaction, of which 1,150,000 shares of Class A Common Stock are being sold in the Offering and 2,524,921 shares of Class A Common Stock are being sold to PNC in the PNC Transaction. Giving effect to exercise of the Over-allotment Option, 36,354,079 shares of Class B Common Stock and a total of 51,529,000 shares of Common Stock will be outstanding after the Offering.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
YEAR ENDED DECEMBER 31, ACTUAL
----------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
------- -------- -------- -------- -------- ----------- --------
(UNAUDITED)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
REVENUES(2)
Investment banking....... $ 1,771 $ 35,232 $ 30,579 $ 16,075 $ 55,159 $ 25,615 $ 67,091
Corporate finance fees... 50 75 14,427 7,224 10,361 4,370 38,618
Principal transactions... 17,202 19,417 9,903 20,078 25,466 18,157 11,994
Agency commissions....... 2,268 2,908 1,935 4,483 7,555 5,060 7,898
Asset management fees
(3)..................... 116 1,164 444 6,747 7,808 2,635 6,256
Interest and dividends... 315 456 1,713 2,558 3,554 2,382 3,061
------- -------- -------- -------- -------- -------- --------
Total revenues........... 21,722 59,252 59,001 57,165 109,903 58,219 134,918
EXPENSES
Compensation and benefits
(4)..................... 11,824 24,269 23,456 27,623 55,004 28,604 85,138
Brokerage and clearance.. 1,186 1,025 1,474 2,350 3,484 2,314 3,138
Occupancy and equipment.. 406 554 944 1,187 1,683 1,103 1,934
Communications........... 284 354 764 823 1,109 799 1,536
Interest................. 73 316 1,773 1,523 2,665 2,039 2,301
Other (5)................ 1,077 3,353 13,049 8,362 14,620 6,584 17,041
------- -------- -------- -------- -------- -------- --------
Total expenses........... 14,850 29,871 41,460 41,868 78,565 41,443 111,088
INCOME BEFORE PRO-RATA
SUBCHAPTER "S"
CORPORATION STOCKHOLDER
COMPENSATION............. 6,872 29,381 17,541 15,297 31,338 16,776 23,830
Pro-rata subchapter S
corporation stockholder
compensation (6)........ 7,147 29,919 19,355 5,858 6,500 -- --
------- -------- -------- -------- -------- -------- --------
Net Income (loss)......... $ (275) $ (538) $ (1,814) $ 9,439 $ 24,838 $ 16,776 $ 23,830
======= ======== ======== ======== ======== ======== ========
PRO FORMA STATEMENTS OF OPERATIONS
DATA (UNAUDITED)(7)
Net income (loss), as
reported................ $ (275) $ (538) $ (1,814) $ 9,439 $ 24,838 $ 16,776 $ 23,830
Pro-rata S corporation
compensation............ 7,147 29,919 19,355 5,858 6,500 -- --
Pro forma tax provision.. (2,833) (12,064) (7,347) (5,683) (12,628) (6,862) (9,782)
Other pro forma
adjustment.............. -- -- -- -- (1,416) -- (1,416)
------- -------- -------- -------- -------- -------- --------
Pro forma net income..... $ 4,039 $ 17,317 $ 10,194 $ 9,614 $ 17,294 $ 9,914 $ 12,632
======= ======== ======== ======== ======== ======== ========
Pro forma earnings per
share................... $ 0.11 $ 0.45 $ 0.26 $ 0.24 $ 0.42 $ 0.24 $ 0.30
======= ======== ======== ======== ======== ======== ========
Weighted average shares
outstanding (8)......... 37,817 38,365 39,014 39,373 41,536 41,515 41,912
OPERATING DATA (UNAUDITED)
Total employees (9)...... 41 65 92 112 175 158 230
Revenue per average
employee (in thousands). $564 $1,118 $752 $560 $766 $575 $888
Annualized return on
average equity.......... 353% 461% 144% 82% 87% 69% 59%
Compensation and benefits
expense as a percentage
of revenues............. 54.4% 41.0% 39.8% 48.3% 50.0% 49.1% 63.1%
Income before pro rata
subchapter
S corporation stockholder
distributions as a
percentage of revenues
(4)..................... 31.6% 49.6% 29.7% 26.8% 28.5% 28.8% 17.7%
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SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED(10)
-------- ---------------
(UNAUDITED)
CONSOLIDATED
BALANCE SHEET
DATA
Total assets................. $119,215 $295,915
Total liabilities............ 61,097 115,097
Total Shareholders' equity... 58,118 179,403
Book value per common share
outstanding................. $ 1.45 $ 3.59
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(2) For a description of the items comprising each line item under Revenues see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Revenues."
(3) Does not include unrealized performance fees and special profit allocations of approximately $12.9 million as of September 30, 1997. Performance fees derived from the Company's asset management services are due and payable upon an anniversary date as defined by the relevant partnership agreements and such management agreements. Generally, these anniversary dates coincide with calendar year end. Any performance fees calculated as of any date prior to the anniversary date are subject to adjustment based on future performance of the assets under management through the anniversary date. The Company does not consider the earnings process complete until the anniversary date and accordingly, does not record the related revenue until such time. The Company currently contemplates seeking amendment of certain of these partnership agreements to provide for the quarterly recognition of certain of these fees.
(4) Excludes pro rata subchapter S corporation stockholder compensation.
(5) Includes business development, professional services and other operating expenses.
(6) Represents pro rata compensation paid to shareholders based on ownership interest as of the end of each period.
(7) For all periods presented, the Company elected to be treated as a subchapter S corporation and was not subject to federal or certain state income taxes. The pro forma statement of operations data reflects federal and state income taxes based on estimated applicable tax rates as if the Company had not elected subchapter S corporation status for the periods presented. Also included in the pro forma information is $1.4 million in compensation expense associated with the issuance of book value stock within twelve months of the Offering. See Notes 2 and 3 of Notes to Consolidated Financial Statements.
(8) See Note 2 of Notes to Consolidated Financial Statements for discussion of the computation of weighted average shares outstanding.
(9) As of end of the period reported.
(10) Adjusted to give effect to (i) the sale by the Company of 10 million shares of Class A Common Stock in the Offering at an assumed initial offering price of $19.00 per share (after deducting the estimated underwriting discount and offering expenses payable by the Company) and the application of the net proceeds therefrom; (ii) the distribution of $54 million to the Company's Existing Shareholders and (iii) the recognition of $1.4 million in compensation expense associated with the issuance of book value stock within twelve months of the Offering.
SUPPLEMENTAL CONDENSED FINANCIAL INFORMATION
The following table adjusts the Company's historical consolidated statement of operations data for the nine months ended September 30, 1997 to reflect revisions to the Company's compensation arrangements that will take effect on January 1, 1998 so long as the Offering has become effective by such date. Under the New Plan, the Named Executive Officers' incentive compensation will be based on net income before taxes, rather than on gross revenues from certain of the Company's business lines which was the basis for computing their previous incentive compensation. In particular, cash bonus payments will be made from a pool equal to up to thirty percent of FBR's adjusted pre-tax net income (before annual cash bonus payments under the New Plan). The pool will be reduced to the extent the aggregate compensation and benefits expense for the year (including annual cash bonus payments under the New Plan) would exceed fifty-five percent of revenues; provided that such reduction will not reduce the pool for such fiscal year to less than ninety percent of the pool in the immediately preceding fiscal year. The financial information in the following table assumes that the New Plan was in effect for the nine months ended September 30, 1997.
FOR THE NINE
MONTHS ENDED
SEPTEMBER
30, 1997
------------
(UNAUDITED)
TOTAL REVENUES:................................................... 134,918
EXPENSES:
Compensation and benefits (adjusted; See introductory narrative
above)......................................................... 74,205
Other expenses.................................................. 25,950
--------
Total expenses................................................ 100,155
--------
NET INCOME BEFORE TAXES: 34,763
Pro forma tax provisions........................................ (14,270)
Other pro forma adjustment...................................... (1,416)
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Pro forma net income............................................ 19,077
========
Pro forma earnings per share.................................... $ 0.46
========
Annualized return on average equity............................. 78%
Compensation and benefits expense as a percentage of revenues... 55%
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE
SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE PURCHASING THE CLASS A COMMON STOCK OFFERED HEREBY:
GENERAL SECURITIES BUSINESS RISKS
The securities business is, by its nature, subject to numerous and substantial risks, particularly in volatile or illiquid markets, and in markets influenced by sustained periods of low or negative economic growth, including the risk of losses resulting from the underwriting or ownership of securities, trading, principal activities, counterparty failure to meet commitments, customer fraud, employee errors, misconduct and fraud (including unauthorized transactions by traders), failures in connection with the processing of securities transactions, litigation, the risks of reduced revenues in periods of reduced demand for public offerings or reduced activity in the secondary markets and the risk of reduced spreads on the trading of securities.
REDUCED REVENUES DURING PERIODS OF DECLINING PRICES OR REDUCED DEMAND FOR
PUBLIC OFFERINGS
OR REDUCED ACTIVITY IN THE SECONDARY MARKETS IN SECTORS ON WHICH THE COMPANY
FOCUSES
The Company's revenues are likely to be lower during periods of declining prices or inactivity in the market for securities of companies in the sectors on which the Company is focused. The Company's business is particularly dependent on the market for equity offerings by companies in the financial services, technology and real estate industries. These markets have historically experienced significant volatility not only in the number and size of equity offerings, but also in the after-market trading volume and prices of newly issued securities.
The growth in the Company's revenues has arisen in large part from the significantly increased number and size of underwritten transactions by companies in the Company's targeted industries and by the related increase in aftermarket trading for such companies. Underwriting activities in the Company's targeted industries can decline for a number of reasons. For example, market conditions for securities of companies in the financial services, technology, and real estate sectors were negatively affected by increasing interest rates during the second half of 1994, which limited the amount of underwriting and corporate finance activity through the first half of 1995. Underwriting activity may also decrease during periods of market uncertainty occasioned by concerns over inflation, rising interest rates and related issues. Underwriting and brokerage activity can also be materially adversely affected for a company or industry segment by disappointments in quarterly performance relative to analysts' expectations or by changes in long-term prospects.
REDUCED REVENUES DUE TO ECONOMIC, POLITICAL AND MARKET CONDITIONS
Reductions in public offering, merger and acquisition and securities trading activities, due to any one or more changes in economic, political or market conditions could cause the Company's revenues from investment banking, trading and sales activities to decline materially. The amount and profitability of these activities are affected by many national and international factors, including economic, political and market conditions; level and volatility of interest rates; legislative and regulatory changes; currency values; inflation; flows of funds into and out of mutual and pension funds; and availability of short-term and long-term funding and capital.
REDUCED REVENUES DUE TO DECLINING MARKET VOLUME, PRICE OR LIQUIDITY
The Company's revenues may decrease in the event of a decline in market volume, prices or liquidity. Declines in the volume of securities transactions and in market liquidity generally result in lower revenues from trading activities and commissions. Lower price levels of securities may also result in a reduced volume of
underwriting transactions, and could cause a reduction in revenue from corporate finance fees, as well as losses from declines in the market value of securities held in trading, investment and underwriting positions, reduced asset management fees and withdrawals of funds under management. Sudden sharp declines in market values of securities can result in illiquid markets and the failure of issuers and counterparties to perform their obligations, as well as increases in claims and litigation. In such markets, the Company may incur reduced revenues or losses in its principal trading and market-making activities.
POSSIBILITY OF LOSSES ASSOCIATED WITH UNDERWRITING ACTIVITIES
Participation in underwritings involves both economic and regulatory risks. An underwriter may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate its commitment at less than the agreed purchase price. In addition, the trend, for competitive and other reasons, toward larger commitments on the part of lead underwriters means that, from time to time, an underwriter (including a co-manager) may retain significant position concentrations in individual securities. Increased competition has eroded and is expected to continue to erode underwriting spreads. Another result of increased competition is that revenues from individual underwriting transactions have been increasingly allocated among a greater number of co-managers, which has resulted in reduced revenues for certain transactions. However, the Company's underwriting business is very competitive and is expected to remain so in the near future.
NET CAPITAL REQUIREMENTS
Underwriting commitments require a charge against net capital and, accordingly, the Company's ability to make underwriting commitments may be limited by the requirement that it must at all times be in compliance with the applicable net capital regulations. See "Business--Net Capital Requirements."
REDUCED REVENUES DUE TO FOCUS ON RELATIVELY FEW INDUSTRIES
As a result of its dependence on revenues related to securities issued by companies in specific industry sectors, any downturn in the market for the securities of companies in these industries, or factors affecting such companies, could adversely affect the Company's operating results and financial condition. Securities offerings can vary significantly from industry to industry due to economic, legislative, regulatory and political factors. Underwriting activities in a particular industry can decline for a number of reasons. For example, underwriting activities in the financial services industry decreased significantly starting in the third quarter of calendar 1994, after interest rates in the United States increased. Underwriting and brokerage activity can also be materially adversely affected for a company or industry segment by disappointments in quarterly performance relative to analysts' expectations, or by changes in long-term prospects for particular companies, industries or industry segments.
The financial services, technology, real estate investment trust ("REIT") and consolidation sectors account for the majority of the Company's investment banking and research activities, exposing the Company to potential downturns in these industries. The Company also derives a significant portion of its revenues from institutional brokerage transactions related to the securities of companies in these sectors. In the past, revenues from such institutional brokerage transactions have declined when underwriting activities in these industry sectors declined, the volume of trading on The Nasdaq Stock Market ("Nasdaq") or the NYSE declined, or when industry sectors or individual companies reported results below investors' expectations.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's revenues and operating results may fluctuate from quarter to quarter and from year to year due to a combination of factors, including the number of underwriting and merger and acquisition transactions completed by the Company's clients, access to public markets for companies in which the Company has invested as a principal, the valuations of the Company's principal investments and the investments of funds managed by the Company, the level of institutional and retail brokerage transactions, the timing of recording of asset
management fees and special allocations of income, variations in expenditures for personnel, litigation expenses, and expenses of establishing new business units. The Company's revenues from an underwriting transaction are recorded only when the underwritten security commences trading, and revenues from merger and acquisition transactions are recorded only when retainer fees are received or the transaction closes. Accordingly, the timing of the Company's recognition of revenue from a significant transaction can materially affect the Company's quarterly operating results. The Company's cost structure currently is oriented to meet the level of demand for investment banking and corporate finance transactions experienced during the second half of 1996 and the first half of 1997. As a result, despite the variability of professional incentive compensation, the Company could experience losses if demand for these transactions declines more quickly than the Company's ability to change its cost structure. Due to the foregoing and other factors, there can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION FOR RETAINING AND RECRUITING PERSONNEL
The Company's business is dependent on the highly skilled, and often highly specialized, individuals it employs. Retention of research, investment banking, sales and trading, venture capital, and management and administrative professionals is particularly important to the Company's prospects. The Company's strategy is to establish relationships with the Company's prospective corporate clients in advance of any transaction, and to maintain such relationships over the long term by providing advisory services to corporate clients in equity, debt and merger and acquisition transactions. Such relationships depend in part upon the individual employees who represent the Company in its dealings with such clients. In addition, research professionals contribute significantly to the Company's ability to secure a role in managing public offerings and in executing trades in the secondary market. From time to time, other companies in the securities industry have experienced losses of research, investment banking and sales and trading professionals, including recent losses of research analysts. The level of competition for key personnel has increased recently, particularly due to the market entry efforts of certain non-brokerage financial services companies, commercial banks and other investment banks targeting or increasing their efforts in some of the same industries that the Company serves. While the Company has historically experienced little turnover in professional employees, there can be no assurance that losses of key personnel due to such competition or otherwise will not occur in the future. The loss of an investment banking, research or sales and trading professional, particularly a senior professional with a broad range of contacts in an industry, could materially and adversely affect the Company's operating results.
The Company expects further growth in the number of its personnel, particularly if current markets remain favorable to investment banking transactions. Competition for employees with the qualifications desired by the Company is intense, especially with respect to research and investment banking professionals with expertise in industries in which underwriting or advisory activity is robust. Competition for the recruiting and retention of employees has recently increased the Company's compensation costs, and the Company expects that continuing competition will cause its compensation costs to continue to increase. There can be no assurance that the Company will be able to recruit a sufficient number of new employees with the desired qualifications in a timely manner. The failure to recruit new employees could materially and adversely affect the Company's future operating results.
While the Company generally does not have employment agreements with its employees, it attempts to retain its employees with incentives, such as bonus plans and the ability to buy Company stock that vest over a number of years of employment. These incentives, however, may be insufficient in light of the increasing competition for experienced professionals in the securities industry, particularly if the value of the Company's stock declines or fails to appreciate sufficiently to be a competitive source of a portion of professional compensation. See "Business--Employees" and "Management."
In the past, the Company has issued Common Stock to certain employees subject to an agreement among the Company's shareholders (the "Shareholders Agreement"), which required shareholders leaving the Company's employ to sell their Common Stock to the Company at book value. In connection with the Offering,
the Shareholders Agreement will be terminated. Consequently, employee shareholders will no longer be required to sell at book value their Common Stock to the Company upon leaving employment at the Company and will be able to sell their Common Stock in the public market. This change could result in a higher level of attrition of senior employees than the Company has historically experienced. See "Description of Capital Stock--Voting Trust Agreement and Shareholders Agreement."
SIGNIFICANT COMPETITION FROM LARGER SECURITIES FIRMS
The Company is engaged in the highly competitive securities brokerage and financial services businesses. It competes directly with large Wall Street securities firms, securities subsidiaries of major commercial bank holding companies, major regional firms and smaller "niche" players. The Company's industry focus also subjects it to direct competition from a number of specialty securities firms and smaller investment banking boutiques that specialize in providing services to those industry sectors.
Competition from commercial banks has increased because of recent acquisitions of securities firms by commercial banks, as well as internal expansion by commercial banks into the securities business. In addition, the Company expects competition from domestic and international banks to increase as a result of recent and anticipated legislative and regulatory initiatives in the United States to remove or relieve certain restrictions on commercial banks. Such competition could adversely affect the Company's operating results, as well as its ability to attract and retain highly skilled individuals.
Many other companies have greater personnel and financial resources than the Company. Larger competitors are able to advertise their products and services on a national or regional basis and may have a greater number and variety of distribution outlets for their products, including retail distribution. Discount brokerage firms market their services through aggressive pricing and promotional efforts. In addition, some competitors have a much longer history of investment banking activities than the Company and, therefore, may possess a relative advantage with regard to access to deal flow and capital.
Recent rapid advancements in computing and communications technology are substantially changing the means by which financial services are delivered. These changes are providing consumers with more direct access to a wide variety of financial and investment services including market information and on-line trading and account information. Advancements in technology also create demand for more sophisticated levels of client services. Provision of these services may entail considerable cost without an offsetting source of revenue. See "Business--Competition."
REGULATION
The securities business is subject to extensive regulation under federal and state laws in the United States, and also is subject to regulation in the foreign countries in which FBR conducts its activities. One of the most important regulations with which the Company's broker-dealer subsidiaries must continually comply is the Securities and Exchange Commission (the "SEC") Rule 15c3-1 (the "Net Capital Rule"), and a similar rule of the United Kingdom's Securities and Futures Authority (the "SFA") with respect to Friedman, Billings, Ramsey International, Ltd., a U.K. company ("FBR International"), which require the broker-dealer subsidiaries of the Company to maintain a minimum amount of net capital, as defined under such regulations.
Compliance with many of the regulations applicable to the Company involves a number of risks, particularly in areas where applicable regulations may be subject to interpretation. In the event of non-compliance with an applicable regulation, governmental regulators and the NASD may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), issuance of cease-and-desist orders, deregistration or suspension of the non-compliant broker-dealer or investment adviser, suspension or disqualification of the broker-dealer's officers or employees or other adverse consequences. The imposition of any such penalties or orders on the Company could have a material adverse effect on the Company's operating results and financial condition.
The regulatory environment in which the Company operates is subject to change. The Company may be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other United States or foreign governmental regulatory authorities or the NASD. The Company also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and the NASD.
Additional regulation, changes in existing laws and rules, or changes in interpretations or enforcement of existing laws and rules often affect directly the method of operation and profitability of securities firms. The Company cannot predict what effect any such changes might have. Furthermore, the Company's businesses may be materially affected not only by regulations applicable to it as a financial market intermediary, but also by regulations of general application. For example, the volume of the Company's underwriting, merger and acquisition and principal investment businesses in a given time period could be affected by, among other things, existing and proposed tax legislation, antitrust policy and other governmental regulations and policies (including the interest rate policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board")) and changes in interpretation or enforcement of existing laws and rules that affect the business and financial communities. The level of business and financing activity in each of the industries on which the Company focuses can be affected not only by such legislation or regulations of general applicability, but also by industry- specific legislation or regulations. See "Business--Regulation."
POTENTIAL CONFLICTS OF INTEREST
Executive officers, directors and employees of the Company from time to time invest, or receive a profit interest, in investments in private or public companies or investment funds in which the Company, or an affiliate of the Company, is an investor or for which the Company carries out investment banking assignments, publishes research or acts as a market maker. In addition, the Company has in the past organized and may in the future organize businesses, such as FBR Ashton, Limited Partnership and FBR Private Equity Fund, L.P., in which employees of the Company may acquire minority interests. There are certain risks that, as a result of such investment or profits interest, a director, officer or employee may take actions which would conflict with the best interests of the Company. In addition, certain members of senior management of the Company are actively involved in managing hedge funds operated by the Company which could create a conflict of interest to the extent these officers are aware of inside information concerning potential investment targets from their other activities with the Company or to the extent these officials wish to invest in companies for which FBR is underwriting securities. The Company has in place compliance procedures and practices designed to ensure that such inside information is not used for making investment decisions on behalf of the hedge funds and to monitor hedge fund investment in the Company's investment banking clients. No assurance can be provided that these procedures and practices will be effective. In addition, this conflict and these procedures and practices may limit the freedom of such officials to make potentially profitable investments on behalf of those hedge funds. See "Business--Asset Management."
POSSIBILITY OF LOSSES ASSOCIATED WITH PRINCIPAL AND TRADING ACTIVITIES
The Company's securities trading and market-making activities are primarily conducted by the Company as principal and subject the Company's capital to significant risks, including market, credit, leverage, counterparty and liquidity risks. These activities often involve the purchase, sale or short sale of securities as principal in markets that may be characterized by relative illiquidity or that may be particularly susceptible to rapid fluctuations in liquidity and price. The Company from time to time has large position concentrations in securities of, or commitments to, a single issuer, or issuers engaged in a specific industry, particularly as a result of the Company's underwriting activities. The Company tends to concentrate its trading positions in a more limited number of industry sectors and companies than some other broker-dealers, which might result in higher trading losses than would occur if the Company's positions and activities were less concentrated. See "Business--Risk Management."
Much of the Company's market-making business involves securities traded on Nasdaq. Nasdaq has recently begun trading securities in sixteenths of a dollar (rather than in eighths). This change and further changes in this regard may adversely affect the Company's revenues from brokerage activities.
LITIGATION AND POTENTIAL SECURITIES LAWS LIABILITY
Many aspects of the Company's business involve substantial risks of liability. An underwriter is exposed to substantial liability under federal and state securities laws, other federal and state laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. For example, a firm that acts as an underwriter may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered or for statements made by its securities analysts or other personnel. While the Company has never been subject to litigation based upon a material misstatement or omission of fact in a prospectus, in recent years there has been an increasing incidence of litigation involving the securities industry, including class actions that seek substantial damages. The Company is also subject to the risk of litigation from its other business activities, including litigation that may be without merit. As the Company intends actively to defend any such litigation, significant legal expenses could be incurred. An adverse resolution of any future lawsuits against the Company could materially adversely affect the Company's operating results and financial condition. See "Business--Legal Proceedings."
DEPENDENCE ON CASH INFLOWS TO MUTUAL FUNDS
A slowdown or reversal of cash inflows to mutual funds and other pooled investment vehicles could lead to lower underwriting and brokerage revenues for the Company since mutual funds purchase a significant portion of the securities offered in public offerings and traded in the secondary markets. The recent demand for new equity offerings has been driven in part by institutional investors, particularly large mutual funds, seeking to invest cash received from the public. The public may withdraw additional cash from mutual funds as a result of a decline in the market generally or as a result of a decline in mutual fund net asset values. To the extent that a decline in cash inflows into mutual funds or a decline in net asset values of these funds reduces demand by fund managers for initial public or secondary offerings, the Company's business and results of operations could be materially adversely affected. Moreover, a slowdown in investment activity by mutual funds may have an adverse effect on the securities markets generally.
MANAGEMENT OF GROWTH
Over the past several years, the Company has experienced significant growth in its business activities and the number of its employees. This growth has required and will continue to require increased investment in management personnel, financial and management systems and controls and facilities, which, in the absence of continued revenue growth, would cause the Company's operating margins to decline from current levels. In addition, as is common in the securities industry, the Company is and will continue to be highly dependent on the effective and reliable operation of its communications and information systems. The Company believes that its current and anticipated future growth will require implementation of new and enhanced communications and information systems and training of its personnel to operate such systems. In addition, the scope of procedures for assuring compliance with applicable regulations and NASD rules has changed as the size and complexity of the Company's business has changed. As the Company has grown and continues to grow, the Company has implemented and continues to implement additional formal compliance procedures to reflect such growth. Any difficulty or significant delay in the implementation or operation of existing or new systems, compliance procedures or the training of personnel could adversely affect the Company's ability to manage growth. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Accounting, Administration and Operations."
DEPENDENCE ON SYSTEMS AND THIRD PARTIES
The Company's business is highly dependent on communications and information systems, including certain systems provided by its clearing broker. Any failure or interruption of the Company's systems, systems of the
Company's clearing broker or third party trading systems, could cause delays or other problems in the Company's securities trading activities, which could have a material adverse effect on the Company's operating results. Such failures and interruptions may result from the inability of certain computing systems (including those of the Company, its clearing broker, and other third party vendors) to recognize the year 2000. There can be no assurance that the year 2000 issue can be resolved prior to the upcoming change in the century. Although the Company may incur substantial costs, particularly costs resulting from charges by its third party service providers, in correcting year 2000 issues, such costs are not sufficiently certain to estimate at this time. In addition, the Company's principal disaster recovery system is provided by its clearing broker. There can be no assurance that the Company or its clearing broker will not suffer any systems failure or interruption, including one caused by an earthquake, fire, other natural disaster, power or telecommunications failure, act of God, act of war or otherwise, or that the Company's or its clearing broker's back-up procedures and capabilities in the event of any such failure or interruption will be adequate. See "Business-- Accounting, Administration and Operations."
TERMINATION OF SUBCHAPTER S CORPORATION STATUS; PAYMENT OF SUBSTANTIAL PRE- OFFERING EARNINGS TO CURRENT SHAREHOLDERS
Since inception, the Company has been treated for federal and certain state income tax purposes as a subchapter S corporation under the Internal Revenue Code of 1986, as amended (the "Code"). Prior to the Offering (the "Termination Date"), the Company terminated its status as an S corporation and declared a dividend to Existing Shareholders (as defined below). The dividend was calculated to cover the total amount of federal and state taxes payable by the Existing Shareholders on the Company's 1997 earnings (the "Tax Amount") plus an additional amount (the "Discretionary Distribution," and together with the Tax Amount, the "S Corporation Distribution"). The amount of the Discretionary Distribution was calculated on the basis of results of operations and capital requirements of the business through the date of the declaration of the S Corporation Distribution. Based on the Company's results of operations for the nine months ended September 30, 1997, the Tax Amount would have been $7.5 million and the amount of the Discretionary Distribution would have been $20 million for an aggregate S Corporation Distribution of $27.5 million. At September 30, 1997, the Company had sufficient cash, cash equivalents, marketable securities and short term investments to fund these distributions. Based on results of operations through November 30, 1997 and estimated results for the remainder of 1997, the Tax Amount was $24 million and the amount of the Discretionary Distribution was $30 million for an aggregate S Corporation Distribution of $54 million. The Company believes that its cash, cash equivalents, marketable securities and short term investments prior to the closing of the Offering will be sufficient to fund the S Corporation Distribution, which therefore will not constitute a use of proceeds of the Offering. Purchasers of Class A Common Stock in the Offering will not receive any portion of the S Corporation Distribution. Had the Company terminated its S corporation status at September 30, 1997, the amount of deferred tax liability would have been immaterial. As of the Termination Date, the Company will no longer be an S corporation and, accordingly, will become subject to federal and state income taxes. See "Certain Transactions Occurring Prior to the Offering--S Corporation Distribution and Termination of S Corporation Status."
DEPENDENCE UPON AVAILABILITY OF CAPITAL AND FUNDING
The Company's business is dependent upon the availability of adequate funding and regulatory capital under applicable regulatory requirements. Historically, the Company has satisfied these needs from internally generated funds and loans from third parties. The Company will declare the S Corporation Distribution prior to the date of the Offering, thereby reducing the Company's funds available for business operations. While the proceeds of the Offering, at least in the short term, can be expected to alleviate in part the Company's funding and capital needs, there can be no assurance that any, or sufficient, funding or regulatory capital will continue to be available to the Company in the future on terms that are acceptable to it. See "Business--Regulation," "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview," "--Liquidity and Capital Resources," "Certain Transactions Occurring Prior to the Offering--S Corporation Distribution and Termination of S Corporation Status."
NO SPECIFIC USE OF PROCEEDS
The Company has not designated any specific use for the net proceeds from the sale by the Company of Class A Common Stock offered hereby. Rather, the Company intends to use the net proceeds primarily for general corporate purposes, including working capital and principal investments. Accordingly, management will have significant flexibility in applying the net proceeds of the Offering. See "Use of Proceeds."
CORPORATE GOVERNANCE CONTROLLED BY INSIDERS
Following the Offering, the Company will have outstanding two classes of Common Stock: Class A Common Stock, which has one vote per share, and Class B Common Stock, which has three votes per share. The shares offered hereby are shares of Class A Common Stock. All of the outstanding shares of Class B Common Stock are held by the 24 individuals who were shareholders of the Company prior to the Offering (the "Existing Shareholders"). The shares held by the Existing Shareholders have been deposited in a voting trust (the "Voting Trust"), the trustees of which are Messrs. Friedman, Billings and Ramsey, the three senior executive officers of the Company. Under the terms of the Voting Trust, a majority of the three trustees have sole discretion to vote the shares held in the Voting Trust. As a result, a majority of Messrs. Friedman, Billings and Ramsey will be able to control 89.1% of the voting power of the Company following the Offering (87.8% if the Over-allotment Option is exercised in full) and will be able to control the outcome of all corporate actions requiring shareholder approval (other than corporate actions required to be approved by a vote of holders of shares of Class A Common Stock voting as a separate class). Accordingly, prospective investors should realize that their ownership of Class A Common Stock will not provide them with any ability to determine the outcome of matters requiring a shareholder vote, including the election of directors. See "Description of Capital Stock--Voting Trust Agreement and Shareholders Agreement" and "Principal and Selling Shareholders." As a result of the foregoing provisions, Messrs. Friedman, Billings and Ramsey will have control over the operations of the Company, including significant control over compensation decisions under the Company's benefit and compensation plans, including plans under which they will be direct beneficiaries. See "Management."
CONTROL OF THE COMPANY; ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
The Company's Articles of Incorporation and Bylaws, as well as Virginia corporate law, contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of Class A Common Stock. Certain of these provisions allow the Company to issue, without shareholder approval, preferred stock having rights senior to those of Common Stock. Other provisions impose various procedural and other requirements that could make it more difficult for shareholders to effect certain corporate actions. See "Description of Capital Stock--Certain Provisions of the Company's Articles of Incorporation and Bylaws and of Virginia Law."
ABSENCE OF PRIOR MARKET FOR COMMON STOCK AND FLUCTUATIONS OF MARKET PRICE
Prior to the Offering, there has been no public market for Class A Common Stock, and there can be no assurance that an active public market will develop or, if developed, will be sustained following the Offering. The initial public offering price of Class A Common Stock will be determined through negotiations among the Company, the Selling Shareholders and the Underwriters, based upon several factors, although under Rule 2720 of the NASD Conduct Rules, the initial public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. Lazard Freres & Co. LLC has agreed to serve in such role. For a discussion of the factors to be taken into account in determining the initial public offering price, see "Underwriting." Certain factors, such as sales of Class A Common Stock into the market by existing shareholders, fluctuations in operating results of the Company or its competitors, market conditions for similar stocks, and market conditions generally for other companies in the investment banking industry or in the financial services, technology or real estate industries could cause the market price of Class A Common Stock to fluctuate substantially. In addition, the stock market has experienced significant price and volume fluctuations that have
particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance of such companies. Accordingly, the market price of Class A Common Stock may decline even if the Company's operating results or prospects have not changed.
POTENTIAL DECREASES IN THE MARKET PRICE OF CLASS A COMMON STOCK RESULTING FROM FUTURE SALES OF CLASS A COMMON STOCK
Sales of a substantial number of shares of Class A Common Stock in the public market, whether by purchasers in the Offering or other shareholders of the Company, could adversely affect the prevailing market price of Class A Common Stock, and could impair the Company's future ability to raise capital through an offering of its equity securities. Without giving effect to exercise of the Underwriters' Over-allotment Option there will be 13,451,421 shares of Class A Common Stock outstanding immediately after completion of the Offering and the PNC Transaction, of which 11,000,000 will be freely tradeable in the public markets, subject, in certain cases, to the volume and other limitations set forth in Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). All of the 36,577,579 shares of Class B Common Stock outstanding immediately following the Offering will be subject to lockup restrictions (the "Lockup"), unless released by the Representatives (as defined herein). The Lockup prohibits the disposition of any such shares until the date 18 months after the date of this Prospectus, provided that from nine months after the date of this Prospectus, each shareholder may sell the greater of 10,000 shares or 5% of the shareholder's shares outstanding on the date of this Prospectus (an aggregate maximum of 1,828,878 shares). Any shares subject to the Lockup may be released at any time with or without notice to the public. See "Shares Eligible for Future Sale" and "Underwriting."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Class A Common Stock in the Offering will experience immediate dilution in net tangible book value of $15.41 per share, based on an assumed initial public offering price of $19.00 per share. To the extent that any options to be granted with respect to Class A Common Stock are exercised, purchasers of Class A Common Stock will experience additional dilution. See "Dilution" and "Management."
DIMINUTION IN AVAILABLE NET INCOME RESULTING FROM THE COMPANY'S CHARITABLE GIVING
The Company has historically contributed 2% to 3% of its pre-tax net income to charities and intends to continue to do so in the future. These contributions, to the extent they continue, will reduce the amount of net income available for distributions to shareholders and for other purposes.
CERTAIN TRANSACTIONS OCCURRING PRIOR TO THE OFFERING
CREATION OF HOLDING COMPANY STRUCTURE
On January 1, 1997, Friedman, Billings, Ramsey Group, Inc., a Delaware
corporation ("Old Holding Co."), and its current subsidiaries engaged in a
series of transactions to simplify its ownership structure, to form groups of
companies concentrated in similar business activities and to facilitate access
to capital. Effective January 1, 1997, the shareholders of Old Holding Co.
surrendered their stock in such subsidiaries in exchange for stock of Old
Holding Co. Old Holding Co. was formed to act as a non-operating holding
company for two subsidiary holding companies also formed in January 1997:
Friedman, Billings, Ramsey Capital Markets, Inc., a non-operating holding
company for companies engaged in brokerage, investment banking and corporate
finance related activities; and Friedman, Billings, Ramsey Asset Management,
Inc., a non-operating holding company for companies engaged in asset
management, investment fund and venture capital activities.
REINCORPORATION MERGER
Prior to the Offering, Old Holding Co. merged with and into the Company, a Virginia corporation, which was the surviving corporation in the merger (the "Reincorporation Merger"). In the Reincorporation Merger, the Existing Shareholders received 330 shares of Class B Common Stock for each of their shares of Old Holding Co. As part of the Reincorporation Merger, the Company also was recapitalized with Class A Common Stock, which is identical to Class B Common Stock in all material respects, except that Class A Common Stock has one vote per share and Class B Common Stock has three votes per share. Class B Common Stock converts to Class A Common Stock at the option of the Company in certain circumstances, including (i) upon a sale or other transfer, (ii) at the time the holder of such shares of Class B Common Stock ceases to be affiliated with the Company and (iii) upon the sale of such shares in a registered public offering. See "Description of Capital Stock--Common Stock."
S CORPORATION DISTRIBUTION AND TERMINATION OF S CORPORATION STATUS
Prior to the Offering, the Company has been treated as a subchapter S corporation under the Code for federal and certain state income tax purposes. As a result, the Company's earnings were taxed for federal and certain state tax purposes directly to its shareholders. Effective as of the Termination Date, the Company's status as an S corporation will be terminated and the Company will become subject to federal and state income taxes.
On December 15, 1997, the Board of Directors of Old Holding Co. declared the S Corporation Distribution. The amount of the S Corporation Distribution was calculated to be equal to the Tax Amount plus the Discretionary Distribution. The actual amount of the S Corporation Distribution was calculated on the basis of results of operations and capital requirements of the business through the date of the declaration of the S Corporation Distribution. Based on the Company's results of operations for the nine months ended September 30, 1997, the Tax Amount would have been $7.5 million and the amount of the S Corporation Distribution would have been $20 million for an aggregate S Corporation Distribution of $27.5 million. At September 30, 1997, the Company had sufficient cash, cash equivalents, marketable securities and short term investments to fund these distributions. Based on the Company's results of operations through November 30, 1997 and estimated results for the remainder of 1997, the Tax Amount was $24 million and the amount of the Discretionary Distribution was $30 million for an aggregate S Corporation Distribution of $54 million. The Company believes that its cash, cash equivalents, marketable securities and short term investments prior to the closing of the Offering will be sufficient to fund the S Corporation Distribution, which therefore will not constitute a use of proceeds of the Offering. See "Risk Factors-- Termination of Subchapter S Corporation Status; Payment of Substantial Pre- Offering Earnings to Current Shareholders."
The Company intends to structure the S Corporation Distribution so that no deferred tax liability will be recorded in connection with the termination of the Company's S corporation status. Had the Company terminated its S corporation status at September 30, 1997, the amount of such deferred tax liability would have been immaterial.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Class A Common Stock offered hereby, based on an assumed initial public offering price of $19.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses, are estimated to be between approximately $176.7 million (without giving effect to exercise of the Over-allotment Option) and approximately $203.2 million (assuming exercise of the Over- allotment Option). The proceeds will be used for general corporate purposes, including working capital and principal investments. The Company will not receive any of the proceeds of the sale of the Class A Common Stock by the Selling Shareholders. See "Principal and Selling Shareholders."
DIVIDEND POLICY
The Company has paid dividends to its subchapter S corporation shareholders generally to pay income tax liabilities but occasionally to distribute profits. After the Company has been converted to a C corporate consolidated group, the Company does not anticipate declaring or paying dividends in the foreseeable future. The timing and amount of future dividends, if any, will be determined by the Board of Directors of the Company and will depend, among other factors, upon the Company's earnings, financial condition and cash requirements at the time such payment is considered.
CAPITALIZATION
The following table sets forth the Company's capitalization as of September 30, 1997, on an actual basis and on a pro forma basis as adjusted to reflect the receipt by the Company of the net proceeds from the sale of the shares of Class A Common Stock offered hereby and as further adjusted as described in the footnotes below. This table should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto, "Selected Consolidated Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" appearing elsewhere in this Prospectus.
SEPTEMBER 30, 1997
-----------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS)
Long-term debt..................................... $ 1,669 $ 1,669
Shareholders' equity(2)
Preferred Stock, par value $0.01,
15 million shares authorized, no shares issued
and outstanding(3)............................... -- --
Class A Common Stock, par value $0.01 per share,
150 million shares authorized, 13,451,421 shares
issued
and outstanding(3)............................... -- 135
Class B Common Stock, par value $0.01 per share,
100 million shares authorized, 40,029,000 shares
issued
and outstanding, actual 36,577,579(3)............ 400 366
Additional paid-in capital......................... 22,479 179,257
Stock subscriptions receivable..................... (355) (355)
Retained earnings(4)............................... 35,594 --
------- --------
Total Shareholders' equity........................ 58,118 179,403
------- --------
Total long-term debt and Shareholders' equity..... $59,787 $181,072
======= ========
|
(1) Gives effect to: (i) a distribution of $54.0 million to the Company's
Existing Shareholders as described in "Certain Transactions Occurring
Prior to the Offering--S Corporation Distribution and Termination of S
Corporation Status," all of which is recorded as accrued dividends (see
Notes 2 and 3 of Notes to Consolidated Financial Statements) and (ii) the
sale of an aggregate of 10,000,000 shares of Class A Common Stock in the
Offering at an assumed offering price of $19.00 per share (after deducting
the estimated underwriting discount and estimated offering expenses).
(2) Excludes 5,000,000 shares of Class A Common Stock reserved for issuance
under the Company's stock plans.
(3) Gives effect to (i) the Reincorporation Merger; (ii) an amendment to the
Company's Articles of Incorporation which increases the number of
authorized shares of Class B Common Stock and authorizes the issuance of
Class A Common Stock and Preferred Stock; (iii) the issuance of 10 million
shares of Class A Common Stock offered for sale by the Company in the
Offering; and (iv) the conversion of 3,451,421 shares of Class B Common
Stock into the same number of shares of Class A Common Stock upon sale by
the Selling Shareholders (1,000,000 shares of which will be sold in the
Offering and 2,451,421 shares of which will be sold to PNC in the PNC
Transaction).
(4) Gives effect to the recognition of $1.4 million in compensation expense
associated with the issuance of book value stock within twelve months of
the Offering (see Note 2 to Notes to Consolidated Financial Statements),
the S Corporation Distribution, and reclassification of remaining retained
earnings to additional paid in capital.
DILUTION
Purchasers of Class A Common Stock offered hereby will experience an immediate and substantial dilution in the pro forma net tangible book value per share of their Class A Common Stock from the assumed initial public offering price. Net tangible book value of the Company as of September 30, 1997 was $58.1 million or $1.45 per share. Net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding. The pro forma net tangible book value of the Company as of September 30, 1997, after giving effect to (i) the distribution of $54 million to the Company's current shareholders, see "Certain Transactions Occurring Prior to the Offering--S Corporation Distribution and Termination of S Corporation Status," and (ii) the recording of compensation expense associated with book value stock issued within twelve months of the Offering, would have been $0.07 per share. After giving effect to the sale of an aggregate of 10 million shares of Class A Common Stock in the Offering (at an assumed price of $19.00 per share, after deducting estimated underwriting discounts and commissions and offering expenses), the pro forma as adjusted net tangible book value of the Company as of September 30, 1997 would have been $3.59 per share. This represents an immediate increase in pro forma net tangible book value of $3.52 per share to Existing Shareholders and an immediate dilution of $15.41 per share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share
of Class A Common Stock (1)................................ $19.00
Net tangible book value per share as of September 30, 1997.. $1.45
Decrease attributable to pro forma adjustments.............. (1.38)
Increase per share attributable to new investors............ 3.52
-----
Pro forma as adjusted net tangible book value per share af- 3.59
ter the Offering........................................... ------
Dilution per share to new investors......................... $15.41
======
|
The following table summarizes, on a pro forma basis as of September 30, 1997, the difference between the number of shares of Class A Common Stock purchased from the Company, the total consideration paid and the average price per share paid by the Existing Shareholders and by the investors purchasing shares of Class A Common Stock offered hereby:
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
Existing Shareholders......... 40,029,000 80% $ 22,879,000 11% $0.57
New Investors(1).............. 10,000,000 20 190,000,000 89 19.00
---------- --- ------------ ---
Total....................... 50,029,000 100% $212,879,000 100%
========== === ============ ===
|
The foregoing computations exclude 5,000,000 shares of Class A Common Stock reserved for issuance under the Company's stock plans, and also assumes no exercise of the Underwriters' Over-allotment Option.
The sale of shares by the Selling Shareholders in the Offering and the PNC Transaction will reduce the number of shares of Class B Common Stock held by the Existing Shareholders to 36,577,579 shares, or approximately 73.1% of the total number of shares of Common Stock outstanding immediately after the Offering, and will increase the number of shares of Class A Common Stock held by new investors to 13,451,421, or 26.9% of the total number of shares of Common Stock outstanding immediately after the Offering. See "Principal and Selling Shareholders."
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Prospectus. The consolidated balance sheet and consolidated statement of operations set forth below as of and for each of the five years ended December 31, 1996, and as of and for the nine month period ended September 30, 1997, are derived from the audited financial statements of the Company. The selected consolidated financial data for the nine months ended September 30, 1996 is derived from unaudited financial statements of the Company and has been prepared on the same basis as the audited financial statements to include, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations and the financial condition of the Company for such periods. The results for the nine-month period ended September 30, 1997, are not necessarily indicative of the results to be expected for the entire year ending December 31, 1997, or any future interim or annual period.
SELECTED CONSOLIDATED FINANCIAL INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
YEAR ENDED DECEMBER 31, ACTUAL
---------------------------------------------- --------------------
1992 1993 1994 1995 1996 1996 1997
--------------------------- ------- -------- ----------- --------
(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
REVENUES(2)
Investment banking..... $ 1,771 $ 35,232 $30,579 $16,075 $ 55,159 $ 25,615 $ 67,091
Corporate finance fees. 50 75 14,427 7,224 10,361 4,370 38,618
Principal transactions. 17,202 19,417 9,903 20,078 25,466 18,157 11,994
Agency commissions..... 2,268 2,908 1,935 4,483 7,555 5,060 7,898
Asset management fees
(3)................... 116 1,164 444 6,747 7,808 2,635 6,256
Interest and dividends. 315 456 1,713 2,558 3,554 2,382 3,061
-------- -------- ------- ------- -------- -------- --------
Total revenues......... 21,722 59,252 59,001 57,165 109,903 58,219 134,918
EXPENSES
Compensation and
benefits (4).......... 11,824 24,269 23,456 27,623 55,004 28,604 85,138
Brokerage and
clearance............. 1,186 1,025 1,474 2,350 3,484 2,314 3,138
Occupancy and
equipment............. 406 554 944 1,187 1,683 1,103 1,934
Communications......... 284 354 764 823 1,109 799 1,536
Interest............... 73 316 1,773 1,523 2,665 2,039 2,301
Other (5).............. 1,077 3,353 13,049 8,362 14,620 6,584 17,041
-------- -------- ------- ------- -------- -------- --------
Total expenses......... 14,850 29,871 41,460 41,868 78,565 41,443 111,088
Income before pro-rata
subchapter "S"
corporation
stockholder
compensation.......... 6,872 29,381 17,541 15,297 31,338 16,776 23,830
Pro-rata subchapter S
corporation
stockholder
contributions (6)..... 7,147 29,919 19,355 5,858 6,500 -- --
-------- -------- ------- ------- -------- -------- --------
Net Income (loss)...... $ (275) $ (538) $(1,814) $ 9,439 $ 24,838 $ 16,776 $ 23,830
======== ======== ======= ======= ======== ======== ========
PRO FORMA STATEMENTS OF OPERATIONS DATA
(UNAUDITED)(7)
Net income (loss), as
reported.............. $ (275) $ (538) $(1,814) $ 9,439 $ 24,838 $ 16,776 $ 23,830
Pro-rata S corporation
compensation.......... 7,147 29,919 19,355 5,858 6,500 -- --
Pro forma tax
provision............. (2,833) (12,064) (7,347) (5,683) (12,628) (6,862) (9,782)
Other pro forma
adjustment............ -- -- -- -- (1,416) -- (1,416)
-------- -------- ------- ------- -------- -------- --------
Pro forma net income... $ 4,039 $ 17,317 $10,194 $ 9,614 $ 17,294 $ 9,914 $ 12,632
======== ======== ======= ======= ======== ======== ========
Pro forma income per
share................. $ 0.11 $ 0.45 $ 0.26 $ 0.24 $ 0.42 $ 0.24 $ 0.30
======== ======== ======= ======= ======== ======== ========
Weighted average shares
outstanding (8)....... 37,817 38,365 39,014 39,373 41,536 41,515 41,912
OPERATING DATA
(UNAUDITED)
Total employees (9).... 41 65 92 112 175 158 230
Revenue per average
employee (in
thousands)............ $564 $1,118 $752 $560 $766 $575 $888
Annualized return on
average equity........ 353% 461% 144% 82% 87% 69% 59%
Compensation and
benefits expense as a
percentage of
revenues.............. 54.4% 41.0% 39.8% 48.3% 50.0% 49.1% 63.1%
Income before pro rata
subchapter S
corporation
stockholder
distributions as a
percentage of
revenues (4).......... 31.6% 49.6% 29.7% 26.8% 28.5% 28.8% 17.7%
|
DECEMBER 31, SEPTEMBER 30, 1997
--------------------------------------- -------------------------
1992 1993 1994 1995 1996 ACTUAL AS ADJUSTED (10)
------ ------- ------- ------- -------- -------- ----------------
(UNAUDITED)
CONSOLIDATED BALANCE
SHEET DATA
Total assets........... $3,071 $13,027 $20,918 $78,911 $125,438 $119,215 $295,915
Total liabilities...... 807 2,536 7,030 55,640 76,379 61,097 115,097
Total shareholders'
equity................ 2,264 10,491 13,888 23,271 49,059 58,118 179,403
Book value per common
share outstanding..... $ 0.07 $ 0.31 $ 0.40 $ 0.66 $ 1.31 $ 1.45 $ 3.59
|
(2) For a description of the items comprising each line item under Revenues see "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Revenues."
(3) Does not include unrealized performance fees and special profit allocations of approximately $12.9 million as of September 30, 1997. Performance fees derived from the Company's asset management services are due and payable upon an anniversary date as defined by the relevant partnership agreements and such management agreements. Generally, these anniversary dates coincide with calendar year end. Any performance fees calculated as of any date prior to the anniversary date are subject to adjustment based on future performance of the assets under management through the anniversary date. The Company does not consider the earnings process complete until the anniversary date and accordingly, does not record the related revenue until such time. The Company currently contemplates seeking amendment of certain of these partnership agreements to provide for the quarterly recognition of these fees.
(4) Excludes pro rata subchapter S corporation stockholder compensation.
(5) Includes business development, professional services and other operating expenses.
(6) Represents pro rata compensation paid to shareholders based on ownership interest as of the end of each period.
(7) For all periods presented, the Company elected to be treated as a subchapter S corporation and was not subject to federal or certain state income taxes. The pro forma statement of operations data reflects federal and state income taxes based on estimated applicable tax rates as if the Company had not elected subchapter S corporation status for the periods presented. Also included in the pro forma information is $1.4 million in compensation expense associated with the issuance of book value stock within twelve months of the Offering. See Notes 2 and 3 of Notes to Consolidated Financial Statements.
(8) See Note 2 of Notes to Consolidated Financial Statements for discussion of the computation of weighted average shares outstanding.
(9) As of end of the period reported.
(10) Adjusted to give effect to (i) the sale by the Company of 10 million shares of Class A Common Stock in the Offering at an assumed initial offering price of $19.00 per share (after deducting the estimated underwriting discount and offering expenses payable by the Company) and the application of the net proceeds therefrom; (ii) the distribution of $54 million to the Company's current shareholders; and (iii) the recognition of $1.4 million in compensation expense associated with the issuance of book value stock within twelve months of the Offering.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected Consolidated Financial Data" and the audited Consolidated Financial Statements as of December 31, 1996 and 1995, and the Notes thereto contained elsewhere in this Prospectus. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors, including those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
The Company's business depends primarily on the markets for the securities of companies in selected sectors. These markets are affected by general economic and market conditions, including fluctuations in interest rates, loan delinquency rates, volume and price levels of securities and flow of investor funds into and out of mutual funds, 401(k) plans and pension plans, and by factors that apply to particular industries, such as technological advances, changes in interest rates and changes in the regulatory environment. For example, market conditions for securities of companies in certain sectors were negatively affected by increasing interest rates during the second half of 1994, which limited the amount of underwriting and corporate finance activity through the first half of 1995. Declining interest rates and an improving economic environment contributed to a significant increase in activity in the equity markets in the United States during the later part of 1995, and continued throughout 1996 and the first nine months of 1997.
Fluctuations in the Company's results of operations can occur as a result of market conditions and other factors. As a result, there can be no assurance that operating results for any future period will be comparable to those attained in corresponding prior periods.
RESULTS OF OPERATIONS
Revenues
Total revenues are comprised primarily of investment banking revenue, corporate finance fees, principal transactions revenue, agency commissions, and asset management fees. The Company believes that revenue from principal transactions, agency commissions and investment banking is substantially dependent on the market for public offerings of equity and debt securities by the companies in the sectors within which the Company focuses its efforts, on the Company's ability to lead or co-manage public offerings of the securities of such companies and on Nasdaq trading volume and spreads in the securities of such companies. Accordingly, the Company's revenues have fluctuated, and are likely to continue to fluctuate, based on a variety of factors. See "Risk Factors."
Investment banking revenue consists of underwriting discounts, selling concessions, management fees and other underwriting fees, and reimbursed expenses associated with underwriting activities.
Corporate finance fees are comprised of the Company's merger and acquisition, private placement, mutual thrift conversion, and other corporate finance advisory fees and reimbursed expenses associated with such activities. Corporate finance fees have fluctuated, and are likely to continue in the future to fluctuate, based on the number and size of private placements by the Company.
Principal transactions revenue includes net revenue from the securities trading activities of the Company as principal in Nasdaq-listed and other over-the-counter ("OTC") securities, including principal sales credits and trading profits, and is primarily derived from the Company's activities as a market maker.
Agency commissions revenue includes revenue resulting from executing Nasdaq- listed and other OTC transactions as agent, and executing trades through a stock exchange.
Asset management fees are earned by the Company in its capacity as the investment manager to advisory clients and as general partner of several investment partnerships. Management fees, performance fees, income (losses) and special allocations on investment partnerships historically have been earned largely from one investment partnership which invests primarily in the securities of companies engaged in the financial services sector. Asset management fees are likely to fluctuate with securities in the sectors in which managed funds invest.
Expenses
Compensation and benefits expense includes incentive compensation paid to sales, trading, investment banking and corporate finance professionals and executive management. Incentive compensation varies primarily based on revenue production. Salaries, payroll taxes and employee benefits are relatively fixed in nature. Compensation expense does not include pro rata payments made to the shareholders of the Company in lieu of profit distribution. During the periods presented, the incentive compensation paid to the Named Executive Officers was based primarily on gross revenues, from certain of the Company's business lines. The Company's shareholders have adopted the 1997 Stock and Annual Incentive Plan (the "New Plan") under which the Named Executive Officers' incentive compensation, after the Offering, will be based on net income before taxes, rather than on gross revenues. In particular, the cash bonus payments made pursuant to the New Plan will be made from a pool equal to up to thirty percent of FBR's adjusted pre-tax net income (before annual cash bonus payments under the New Plan). The pool will be reduced to the extent the aggregate compensation and benefits expense for the year (including annual cash bonus payments under the New Plan) would exceed fifty-five percent of revenues; provided that such reduction will not reduce the pool for such fiscal year to less than 90% of the amount of the pool in the immediately preceding fiscal year. The effect of applying the New Plan to the Company's financial results for the nine month period ended September 30, 1997 would result in a reduction in compensation and benefits expense of $11.0 million.
Brokerage and clearance fees include the cost of securities clearing, floor brokerage and exchange fees.
Occupancy and equipment expense includes the rent and utility charges paid for facilities, expenditures for facilities repairs and upgrades, and depreciation of computer, telecommunications and office equipment.
Communications expense includes charges from third-party providers of telecommunications services and news and market data services.
Interest expense relates primarily to margin and subordinated loan interest charges from Friedman, Billings, Ramsey & Co., Inc.'s ("FBRC's") clearing organization and bank and finance company borrowings.
Other expenses include business development, investment banking, insurance, registration fees, printing and copying, postage and delivery services, charitable contribution and miscellaneous expenses. The Company has historically contributed from 2% to 3% of pre-tax net income annually to charities and intends to continue doing so in the future.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of revenues:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ -------- --------
CONSOLIDATED STATEMENT OF
OPERATIONS:
REVENUES:
Investment banking...... 8.2% 59.4% 51.8% 28.1% 50.2% 44.0% 49.7%
Corporate finance fees.. 0.2% 0.1% 24.4% 12.7% 9.4% 7.5% 28.6%
Principal transactions.. 79.2% 32.8% 16.8% 35.1% 23.2% 31.2% 8.9%
Agency commissions...... 10.4% 4.9% 3.3% 7.8% 6.9% 8.7% 5.9%
Asset management fees... 0.5% 2.0% 0.8% 11.8% 7.1% 4.5% 4.6%
Interest and dividends.. 1.5% 0.8% 2.9% 4.5% 3.2% 4.1% 2.3%
------ ------ ------ ------ ------ -------- --------
Total revenues.......... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
EXPENSES:
Compensation and
benefits (1)........... 54.4% 41.0% 39.8% 48.3% 50.1% 49.1% 63.1%
Brokerage and clearance. 5.5% 1.7% 2.5% 4.1% 3.2% 4.0% 2.3%
Occupancy and equipment. 1.9% 0.9% 1.6% 2.1% 1.5% 1.9% 1.4%
Communications.......... 1.3% 0.6% 1.3% 1.4% 1.0% 1.4% 1.2%
Interest................ 0.3% 0.5% 3.0% 2.7% 2.4% 3.5% 1.7%
Other (2)............... 5.0% 5.7% 22.1% 14.6% 13.3% 11.3% 12.6%
------ ------ ------ ------ ------ -------- --------
Total expenses.......... 68.4% 50.4% 70.3% 73.2% 71.5% 71.2% 82.3%
INCOME BEFORE PRO RATA
STOCKHOLDER
COMPENSATION............ 31.6% 49.6% 29.7% 26.8% 28.5% 28.8% 17.7%
|
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Total revenues increased 132% from $58.2 million in the first nine months of 1996 to $134.9 million in the first nine months of 1997 due primarily to increased investment banking and corporate finance activity.
Investment banking revenue increased 162% from $25.6 million in the first nine months of 1996 to $67.1 million in the first nine months of 1997 and increased as a percentage of revenues from 44% to 50%. This increase was due primarily to the increase in public offerings managed from 14 during the first nine months of 1996 to 20 during the same period in 1997, and to an increase in the average size of the equity offerings managed from $34 million in the first nine months of 1996 to $123 million in the first nine months of 1997.
Corporate finance fees increased 784% from $4.4 million in the first nine months of 1996 to $38.6 million in the first nine months of 1997. This increase was due primarily to the increased size in dollar terms of the Company's private placement activities as well as increased merger and acquisition activities fostered by the addition of a team of professionals dedicated to such activities.
Principal transactions revenue decreased 34% from $18.2 million in the first nine months of 1996 to $12.0 million in the first nine months of 1997. This decrease was due primarily to trading losses associated with the Company's market-making activities and losses associated with positions in certain securities which are held in the normal course of business and was partially offset by an increase in the Company's Nasdaq trading activity overall, as well as increased trading activity derived from the Company's expansion of its equity sales and trading personnel and capabilities, and from an enhanced research department.
Agency commissions increased 56% from $5.1 million in the first nine months of 1996 to $7.9 million in the first nine months of 1997. This increase was due to the expansion of the Company's institutional listed equity business fostered by an increase in the number of institutional brokers and their production, as well as the addition of a listed equity trader.
Asset management fees increased by 137% from $2.6 million in the first nine months of 1996 to $6.3 million in the first nine months of 1997. The increase was due primarily to an increase in assets under
management, principally in the Company's largest hedge fund, which focuses its investments in the financial services industry sector.
Total expenses increased 168% from $41.4 million in the first nine months of 1996 to $111.1 million in the first nine months of 1997 due primarily to the Company's growth.
Compensation and benefits expense increased 198% from $28.6 million in the first nine months of 1996 to $85.1 million in the first nine months of 1997. The increase was due primarily to increased incentive compensation which is paid to sales, trading, investment banking and corporate finance professionals and executive management. Compensation and benefits expense as a percentage of total revenues increased from 49% to 63%; this change was attributable to the net effect of a number of factors, including the change in revenue mix towards investment banking activities, reductions in sales payout rates and increased salaried headcount. Average employee headcount was 135 in the first nine months of 1996 compared to 203 in the first nine months of 1997. In connection with the Offering, the Company has established the 1997 Stock and Annual Incentive Plan (as defined herein). One component of the plan is a target ratio of compensation and benefits expense to gross revenues of 55%.
Brokerage and clearance expense increased 36% from $2.3 million in the first nine months of 1996 to $3.1 million in the first nine months of 1997 due to the increase in sales and trading activities. As a percentage of total revenues, brokerage and clearance expense decreased from 4% in the first nine months of 1996 to 2% in the first nine months of 1997, due primarily to the change in revenue mix towards investment banking activities.
Occupancy and equipment expense increased 75% from $1.1 million in the first nine months of 1996 to $1.9 million in the first nine months of 1997 as a result of rent and related expenditures to approximately double the Company's office space during 1997, and an increase in depreciation expense due to acquisitions of computer and telecommunications equipment and furniture and fixtures for the expanded staff and facilities.
Communications expense increased 92% from $.8 million in the first nine months of 1996 to $1.5 million in the first nine months of 1997. This increase was due primarily to increases in telecommunications expenses resulting from the increase in employees and expansion of facilities in 1996 and 1997, and the enhancement of network technology.
Interest expense increased by 13% from $2.0 million in the first nine months of 1996 to $2.3 million in the first nine months of 1997, primarily due to increases in subordinated loan borrowings to meet the regulatory capital requirements of the increased investment banking activities and increased margin interest expense due to increased securities position levels.
Other expenses increased 159% from $6.6 million in the first nine months of 1996 to $17.0 million in the first nine months of 1997. This increase was due primarily to increased investment banking expenses and to increased expenses associated with expanded office space.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Total revenues increased 92% from $57.2 million in 1995 to $109.9 million in 1996 due primarily to increased investment banking activity.
Investment banking revenue increased 243% from $16.1 million in 1995 to $55.2 million in 1996 and increased as a percentage of revenues from 28% to 50%. The Company managed 31 public offerings during 1996 compared to eight during 1995.
Corporate finance fees increased 43% from $7.2 million in 1995 to $10.4 million in 1996. This increase was primarily due to the Company's increasing focus on merger and acquisition activities.
Principal transactions revenue increased 27% from $20.1 million in 1995 to $25.5 million in 1996. This increase was due to the significant increase in underwriting activity, resulting in increased after-market trading,
an increase in Nasdaq market activity overall, and the benefit derived from expansion of equity sales and trading personnel and capabilities.
Agency commissions increased 69% from $4.5 million in 1995 to $7.6 million in 1996. This increase was due to the expansion of the Company's institutional listed-equity business fostered by an increase in the number of institutional brokers and in the average production of institutional brokers, as well as the benefit derived from the Company's enhanced research department.
Asset management fees increased by 16% from $6.7 million in 1995 to $7.8 million in 1996. The increase was primarily due to an increase in assets under management, principally in the Company's largest private hedge fund which focuses its investments in the financial services industry sector.
Total expenses increased 88% from $41.9 million in 1995 to $78.6 million in 1996.
Compensation and benefits expense increased 99% from $27.6 million in 1995 to $55.0 million in 1996. The increase was due primarily to increased incentive compensation which was paid to sales, trading, investment banking and corporate finance professionals and executive management. Compensation and benefits expense as a percentage of total revenues was 48% in 1995 and 50% in 1996. Average employee headcount was 102 in 1995 compared to 143 in 1996.
Brokerage and clearance expense increased 48% from $2.4 million in 1995 to $3.5 million in 1996 due to the increase in sales and trading activities. As a percentage of total revenues, brokerage and clearance expense decreased from 4% in 1995 to 3% in 1996. The percentage decline was due primarily to the change in revenue mix towards investment banking activities.
Occupancy and equipment expense increased 42% from $1.2 million in 1995 to $1.7 million in 1996 as a result of rent and related expenditures to approximately double the Company's office space during 1996 and an increase in depreciation expense due to acquisitions of computer and telecommunications equipment and furniture and fixtures for the expanded staff and facilities.
Communications expense increased 35% from $.8 million in 1995 to $1.1 million in 1996. This increase was due primarily to increases in telecommunications expenses resulting from the increase in employees and expansion of facilities in 1996.
Interest expense increased by 75% from $1.5 million in 1995 to $2.7 million in 1996 due primarily to increased subordinated loan borrowings to meet the regulatory capital requirements of the increased investment banking activities and increased margin interest expense due to increased securities position levels.
Other expenses increased 75% from $8.4 million in 1995 to $14.6 million in 1996. This increase was due primarily to the increased level of investment banking activity and increased expenses associated with expanded office space.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Total revenues decreased 3% from $59.0 million in 1994 to $57.2 million in 1995 due to lower investment banking revenues offset by increased principal revenues and agency commissions.
Investment banking revenue decreased 47% from $30.6 million in 1994 to $16.1 million in 1995, and decreased as a percentage of revenues from 52% to 28%. This decrease was primarily due to the deterioration of the market for new issues of securities in the financial services sector in late 1994 and early 1995. The Company managed eight public offerings during 1995 compared to 17 during 1994. Investment banking revenue in 1994 included two significant related real estate transactions with total associated revenue of $23.7 million, representing 40% of total revenues.
Corporate finance fees decreased 50% from $14.4 million in 1994 to $7.2 million in 1995. This decrease was due to the smaller-size private placement transactions executed during 1995.
Principal transactions revenue increased 103% from $9.9 million in 1994 to $20.1 million in 1995. This increase was due primarily to the improved markets for the debt and equity securities for which the Company made a market and a shift of focus away from debt which underperformed in 1994.
Agency commissions increased 132% from $1.9 million in 1994 to $4.5 million in 1995. As with principal transactions, this increase was due primarily to the improved markets for listed financial services equities.
Asset management fees increased 1,142% from $.4 million in 1994 to $6.7 million in 1995. This increase was due primarily to the decrease in interest rates in 1995 which dramatically improved the market performance of the financial services securities held in the largest hedge fund managed by the Company, and to an increase in assets under management in that fund.
Total expenses increased 1% from $41.5 million in 1994 to $41.9 million in 1995.
Compensation and benefits expense increased 18% from $23.5 million in 1994 to $27.6 million in 1995. As a percentage of total revenues, compensation and benefits expense increased from 40% in 1994 to 48% in 1995. This increase was due primarily to an increase in employee headcount and higher payouts associated with principal and agency activities, offset in part by lower investment banking compensation as a result of lower investment banking activities.
Brokerage and clearance expense increased 59% from $1.5 million in 1994 to $2.4 million in 1995 due to the increase in sales and trading activities. As a percentage of total revenues, brokerage and clearance expense increased from 2% in 1994 to 4% in 1995.
Occupancy and equipment expense increased 26% from $.9 million in 1994 to $1.2 million in 1995, as a result of increased rent expenditures from the relocation and expansion of the Company's office space in June 1994 and an increase in depreciation expense due to acquisitions of computer and telecommunications equipment and furniture and fixtures for the expanded staff and facilities.
Communications expense increased 8% from $764,000 in 1994 to $823,000 in 1995. This increase was due primarily to increases in telecommunications expenses resulting from additional employees and increased sales and trading volumes in 1995, partially offset by decreases in long-distance calling rates.
Interest expense decreased 14% from $1.8 million in 1994 to $1.5 million in 1995 as a net result of decreased subordinated borrowings and interest rates, partially offset by increased margin interest expenses associated with higher average security holdings.
Other expenses decreased 36% from $13.0 million in 1994 to $8.4 million in 1995. This decrease was due primarily to the reduced level of investment banking activities.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal assets consist of cash and cash equivalents, receivables from other broker dealers including its clearing broker, securities held for trading purposes, short-term investments and securities held for investment purposes and investments in investment partnerships where the Company serves as general partner. Short-term investments are comprised primarily of United States Treasury securities with maturities of less than one year. Although investments in investment partnerships are for the most part illiquid, the underlying investments of such partnerships are generally liquid and the valuations of the investment partnerships reflect that underlying liquidity.
The Company has historically satisfied its liquidity and regulatory capital needs through two primary sources: (1) equity capital contributions and internally generated funds; and (2) credit provided by the Company's banks, and its clearing broker and that broker's affiliates. The Company has frequently required the use, and reasonably believes that it will continue to require the use, of subordinated loans in connection with regulatory capital requirements for its underwriting activities.
As of December 31, 1996, the Company had liquid assets consisting primarily of cash and cash equivalents of $20.7 million and United States Treasury bills of $10.3 million. In addition, 97.2% of the Company's $55.0 million in securities in its trading and investment accounts are readily marketable. Additionally, the Company had an unsecured bank line of credit in the amount of $10.0 million, of which $3.0 million was available. This line of credit is personally guaranteed by certain of the Existing Shareholders.
As of December 31, 1996, the Company had available a total of $40.0 million in three committed subordinated revolving loans from its clearing broker and an affiliate of its clearing broker which are allowable for net capital purposes. Certain of these loans are personally guaranteed by certain of the Existing Shareholders. At December 31, 1996, $15.0 million was outstanding under these subordinated revolving loans.
As of September 30, 1997, the Company had liquid assets consisting primarily of $27.6 million of cash and cash investments and $10.4 million of United States Government obligations. In addition, the Company had $25.7 million in securities in its trading accounts, 94.0% of which were readily marketable. The Company also had an unsecured bank line of credit in the amount of $10.0 million, of which $1.5 million was available. This bank line of credit expires in January, 1998. This line of credit is personally guaranteed by certain of the Existing Shareholders.
As of September 30, 1997, the Company had available a total of $30.0 million in two committed subordinated revolving loans from its clearing broker and an affiliate of its clearing broker that are allowable for net capital purposes. An additional $10.0 million subordinated revolving loan was approved in October 1997. All of these loans are personally guaranteed by certain of the Existing Shareholders.
At the beginning of each year, the Company has allowed key management employees to buy stock at book value. On January 1, 1997, the Company issued 7,800 shares of the Company's stock (prior to the Reincorporation Merger) at book value to certain key management employees. Upon completion of the Offering and in the Company's financial statements for the period in which the Offering is completed, the Company will record a one time compensation charge of $1.4 million representing the difference between the estimated fair value and book value at the date of issuance.
FBRC, as a broker-dealer, is registered with the SEC and is a member of the NASD. As such, it is subject to the minimum net capital requirements promulgated by the SEC. FBRC's regulatory net capital has historically exceeded these minimum requirements. As of December 31, 1996 and September 30, 1997, FBRC was required to maintain minimum regulatory net capital of approximately $1.2 million and $1.5 million, respectively, and had total regulatory net capital of approximately $14.4 million and $31.5 million, respectively, in excess of its requirement. Regulatory net capital requirements increase when FBRC is involved in underwriting activities based upon a percentage of the amount being underwritten by FBRC.
The Company believes that its current level of equity capital and committed lines of credit, combined with funds anticipated to be generated from operations and the capital markets, will be adequate to meet its liquidity and regulatory capital requirements associated with its broker-dealer activities for at least the next two years.
BUSINESS
INDUSTRY BACKGROUND
Over the past 15 years, capital markets have evolved in depth and complexity, thereby radically altering the needs of both investors and the companies accessing those markets. According to Securities Data Company, in 1982, 122 IPOs were underwritten in the U.S. for a total of $1.3 billion and total public equity issued equaled $20.6 billion. In 1992, the value of new issues in the U.S. more than doubled the level achieved in any previous year reaching $39.9 billion, while the total public equity and high-yield debt raised equaled $95.0 billion and $51.6 billion respectively. In 1996, 874 initial public offerings were completed in the U.S., totaling $50.0 billion, total public equity issued equaled $191.1 billion, and high-yield debt issued totaled $87.5 billion. A significant portion of this growth has come from emerging industries that previously had limited access to the capital markets. The Company believes this significant increase in non-traditional issuers has been accompanied by significant increases in the flow of cash into mutual funds and other managed funds leading to greater demand by both issuers and investors for focused, industry-specific advisory and capital management products and services.
To succeed in the current environment, investment banks must be able to conceive and to communicate creative solutions which meet the capital needs of companies and the investment goals of investors.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
FBR is a full service investment banking firm focused on investment banking, research, institutional brokerage and asset management. FBR's strategy since inception has been to target specific industry sectors where it believes it can develop a unique research perspective. The Company then uses this research perspective together with its capital markets expertise to provide value for its clients. Using this approach FBR has achieved a 50% compounded annualized growth rate in revenues since its inception in 1989 through November 30, 1997. FBR believes the success of its strategy is further demonstrated by its increasing market presence and the aftermarket performance of the companies for which it has acted as lead or co-manager. Year to date as of November 30, 1997, FBR was ranked sixth in terms of lead managed U.S. issuer initial public offering dollar volume, and for the period from January 1, 1996 through November 30, 1997 was ranked #1 in aftermarket performance among lead managers with at least 10 lead managed U.S. IPOs, according to CommScan EQUIDESK. CommScan EQUIDESK defines "aftermarket performance" as the percentage change in the price of a share of stock from the price on the pricing date to the price of its last trade on the date of measurement, adjusted for splits. These rankings may change on a day to day basis with the completion of additional IPOs and the trading of securities.
FBR was founded in 1989 with the philosophy that an employee-friendly corporate culture would enhance performance results. FBR strives to maintain excellent employee relations through policies designed to create an enjoyable work environment for all employees such as flexible dress code, vacation policy and maternity leave. Other non-traditional benefits at FBR include corporate retreats, corporate gym and employee directed Company charitable donations. In addition, the Company has emphasized training and promoting its employees from within. The Company believes that, as a result of this culture, FBR has averaged less than 3% turnover among exempt professional employees per year since inception. Low turnover has enhanced the Company's growth and efficiency.
The Company believes that the increases in recent years, in the depth and complexity of the capital markets and in the number of non-traditional issuers coupled with significant inflows of cash into mutual funds and other managed funds, has led to greater demand by both issuers and investors for focused advisory, capital markets, and capital management products and services.
The Company seeks to identify rapidly changing industries and those that are not fully understood or appropriately valued by the market. Once an industry is identified, the Company employs substantial effort to develop a thorough understanding of the fundamentals and opportunities of that industry. The Company employs a team approach in which all of its professionals contribute to and communicate the Company's expertise in an
industry. For each industry on which the Company is focused, the Company offers significant underwriting capabilities and brokerage services as well as advisory services in mergers, acquisitions and strategic partnerships. In addition, FBR's asset management activities include hedge funds and public mutual funds as well as private equity investments and mezzanine finance in such industries.
FBR believes its strategy and culture has and will enable it to succeed in this changing marketplace. Since commencing its investment banking activities in 1992, FBR has never failed to complete a capital raising transaction it has brought to the public market as lead underwriter. Since its inception, FBR has completed $11.4 billion in capital raising transactions and $3.3 billion in merger and acquisition advisory transactions which span a wide range of geographic regions and security types and a growing variety of industry sectors.
FBR has also applied its research focus and team-based approach to its asset management activities. The flagship FBR hedge fund, FBR Ashton, Limited Partnership has provided annualized internal rates of return since inception in March 1992 of 41.8% gross and 34.1% net to its limited partners through November 30, 1997. FBR's three public mutual funds have provided a total net return for the eleven months ended November 30, 1997 of 38.6%, 47.0% and 42.8%. The amount of assets under management has grown from $119.3 million at the beginning of 1996 to over $444.9 million as of November 30, 1997, representing 373% growth.
FBR's revenues grew from $57.2 million for the year ended December 31, 1995, to $109.9 million, for the year ended December 31, 1996, representing an increase of 92%, and from $84.8 million for the eleven months ended November 30, 1996 to $218.5 million for the eleven months ended November 30, 1997, representing an increase of 158%. FBR believes that its revenue growth, as well as the superior performance of its capital transactions and managed products, are the result of the Company's focus and dedication to developing research, capital markets and asset management expertise within a growing number of strategic industry sectors. FBR believes that its superior industry knowledge coupled with its capital markets expertise has made FBR a leading provider of investment banking, brokerage and asset management services and the largest independent investment bank in the rapidly-growing Washington, D.C. metropolitan area.
CULTURE AND STRATEGY
FBR began as a secondary research and trading firm, solely dependent on its ability to identify undervalued investment opportunities. The principals have instilled a culture where ideas are developed as a team by the whole Company and communicated as a team to its clients. Although the Company has grown from 17 to over 263 people, it has sought to maintain a culture of teamwork and broad-based knowledge of investment theses. The Company believes its culture has significantly enhanced its continued ability to identify new strategic sectors and opportunities to create value. The Company intends to continue to emphasize its culture while executing the five core business strategies described below.
Continuously Identify Rapidly-evolving or Undervalued Industries. FBR continually searches for industries and sectors where it can produce innovative market insights through its integrated research-focused approach and provide value for its investment banking, institutional brokerage and money management clients.
Build on In-depth, Focused Industry Coverage. FBR believes that industry specialization is critical to meeting the requirements of its clients for sophisticated and non-traditional investment advice. The Company organizes its research and investment banking activities along industry specializations, continually re-examining its industry categories, and monitoring them to ensure coverage of emerging opportunities. The Company's strategy is to focus on selected segments within a limited number of undervalued, high potential industries and to offer FBR's full range of investment banking, sales and trading and asset management services within those industries.
Build and Maintain Lasting Relationships. The founders of the Company have built a core base of institutional brokerage and investment banking clients over the past 15 years, at FBR and their previous
employers. FBR believes that it has generated client loyalty and goodwill by virtue of its diligent service. FBR values these relationships and regards them as an essential part of the foundation for many of its businesses. FBR continues to establish, and intends to build, similar new relationships in the future.
Bring Under-valued Companies to Sophisticated Investors. FBR's strategy is to discover opportunities where sophisticated capital and undervalued companies intersect. FBR believes that its fundamental understanding and commitment to undervalued, high-potential industries has enabled the Company to build significant credibility in the issuer and investor communities, facilitating its strategy of bringing under-valued companies to sophisticated investors.
Offer Expanded Range of Services to Clients. FBR's strategy is to capture a greater share of the revenue opportunities available from FBR investment banking and brokerage clients. For issuers, FBR has expanded from its core equity capital raising and research capabilities to provide high yield debt, financial advisory (including merger and acquisition, stock buybacks, and dividend analysis), venture capital/private fund and corporate/high net worth services. For investors, FBR has expanded from its core sales and trading services to provide asset management and venture capital services. FBR believes its demonstrated success in providing its core services and strong client relationships is a key competitive advantage in its plans to expand its business.
STRATEGIC BUSINESS RELATIONSHIP WITH PNC BANK CORP.
Pursuant to an agreement between FBR and PNC dated October 29, 1997, PNC has agreed to purchase 4.9% of the shares of Common Stock issued and outstanding after the Offering (including shares issued pursuant to the Underwriters' Over-allotment Option). Without giving effect to exercise of the Over- allotment Option, PNC will acquire 2,451,421 shares of Class A Common Stock, all of which shares will be acquired from the Selling Shareholders at a price equal to the initial public offering price less a 4% discount. The closing of the PNC Transaction is anticipated to occur substantially contemporaneously with the closing of the Offering. The Company and PNC have submitted notice of the PNC Transaction to the Federal Trade Commission's Premerger Notification Office pursuant to the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended, and, if the waiting period applicable thereto has not expired prior to the closing of the Offering, the Company and PNC intend to delay the closing of the PNC Transaction or to close the PNC Transaction in a manner not requiring expiration of such waiting period. Consummation of the PNC Transaction is subject to the completion of the Offering prior to March 31, 1998 and certain other customary conditions.
In conjunction with the PNC Transaction and pursuant to a non-binding Memorandum of Understanding entered into by and between FBR and PNC on October 29, 1997 (the "MOU"), FBR and PNC intend to establish an ongoing strategic business relationship with respect to selected capital markets and related activities. The MOU provides a framework pursuant to which FBR and PNC will work together on an arms-length basis to refer potential business to each other. Specifically, FBR will be the exclusive independent broker-dealer to which PNC refers underwriting and high-yield business that is not conducted by PNC. Upon the receipt by PNC of full tier 2 equity powers, FBR will cooperate with PNC's "section 20" securities affiliate to include PNC as a co-lead underwriter or co-placement agent on such referred business. FBR will also work with PNC to provide enhanced derivatives, asset securitization, bridge lending and other bank financing products to FBR's clients.
FBR and PNC will explore both the possibility of forming bridge and/or equity and venture capital funds to serve the common needs of their respective client bases and potential strategic relationships in other business lines, including mergers and acquisitions advisory services, merchant banking and venture capital activities, asset management and real estate advisory services.
FBR believes that the strength of PNC's middle-market and industry specialty client relationship as well as the strength of PNC's product offerings will provide FBR with significant business opportunities going forward.
PNC, a registered bank holding company, is one of the largest diversified financial services companies in the United States with consolidated assets at September 30, 1997 of $71.8 billion. PNC offers a variety of
financial products and services in its primary geographic locations in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky and nationally through retail distribution networks and alternative delivery channels.
INVESTMENT BANKING AND CORPORATE FINANCE
FBR's investment banking and corporate finance activities consist of a broad range of services, including public and private offerings of a wide variety of securities and financial advisory services in merger, acquisition and strategic partnering transactions. Since commencing investment banking activities in late 1992, FBR has completed or advised on 160 investment banking and corporate finance transactions totalling $14.7 billion, with $11.4 billion in capital raising transactions and $3.3 billion in merger and acquisition advisory transactions as of November 30, 1997.
Capital Raising Activities
FBR's capital raising activities have encompassed a wide range of securities, structures and amounts. FBR is a leading underwriter of securities in its areas of focus and FBR is dedicated to the successful completion and aftermarket performance of each underwriting transaction it executes. FBR's investment banking, research, and sales professionals employ an integrated methodology, each leveraging off the others' capabilities to execute successfully underwriting assignments. FBR believes the focus and dedication of its underwriting, research and sales professionals results in superior aftermarket performance of the companies it chooses to underwrite. For the twelve month periods ending December 31, 1996 and November 30, 1997, FBR was ranked number one and number two respectively in terms of IPO aftermarket performance among lead managers with at least 10 lead managed U.S. IPOs, according to Securities Data Company.
IPO PERFORMANCE: TOP FIVE LEAD MANAGERS
MANAGER AFTERMARKET RANKINGS
(12 MONTHS ENDING 12/31/96)
AVG. %
# CHG. IPO TO
LEAD MANAGER NAME ISSUES CURRENT
----------------- ------ -----------
1. FRIEDMAN, BILLINGS, RAMSEY & CO., INC. 12 114.9
2. Donaldson, Lufkin & Jenrette Securities Corporation 28 64.6
3. Oppenheimer & Co., Inc. 13 61.6
4. Credit Suisse First Boston Corporation 13 61.3
5. BT Alex. Brown Incorporated 49 54.9
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MANAGER AFTERMARKET RANKINGS
(12 MONTHS ENDING 11/30/97)
AVG. %
# CHG. IPO TO
LEAD MANAGER NAME ISSUES CURRENT
----------------- ------ -----------
1. BT Alex. Brown Incorporated 24 42.7
2. FRIEDMAN, BILLINGS, RAMSEY & CO., INC. 11 38.9
3. Hambrecht & Quist LLC 15 38.1
4. Morgan Stanley, Dean Witter Discover 43 34.5
5. Credit Suisse First Boston Corporation 18 29.6
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Source: Information derived by the Company from the Securities Data Company database. Performance as of 11/30/97. Includes only firms with ten or more lead-managed U.S. IPOs during the period. These rankings may change on a day to day basis with the completion of additional IPOs and the trading of securities.
The successful execution of an underwritten transaction is predominantly determined by the lead manager. As a result, to enhance further the quality of its investment banking services delivered to corporate clients, FBR seeks to act as sole or lead manager of an offering. Of the 145 capital raising transactions FBR has completed since inception, raising $11.4 billion, FBR has acted as lead or sole manager in 106 transactions involving $8.2 billion or
more than 71% of such transactions. FBR has increased its percentage of sole or lead managed transactions (measured by dollar volume) from 79% for 1993 to 89% for 1996. The Company was the lead or sole underwriter in 64% of its 1997 transactions through the date hereof. From January 1, 1997 to November 30, 1997, FBR was ranked number six in terms of U.S. issuer IPO volume (including over-allotments) according to CommScan EQUIDESK.
RANKING OF LEAD OR SOLE MANAGERS
1997 YEAR TO DATE AS OF NOVEMBER 30, 1997--U.S. ISSUER IPOS
US AMOUNT+
OVER- NUMBER
ALLOT. OF
POSITION MANAGER ($MM) TRANSACTIONS % SHARE
-------- ------- ---------- ------------ -------
1 Goldman, Sachs & Co. ............... 5,901.89 26 16.91
Merrill Lynch, Pierce, Fenner &
2 Smith Incorporated.................. 4,309.83 25 12.35
3 Morgan Stanley & Co. Incorporated... 4,148.05 28 11.89
4 J.P. Morgan Securities, Inc. ....... 2,147.65 6 6.16
Donaldson, Lufkin & Jenrette
5 Securities Corporation.............. 1,845.50 18 5.29
FRIEDMAN, BILLINGS, RAMSEY & CO.,
6 INC................................. 1,816.68 9 5.21
NationsBanc Montgomery Securities
7 Inc. ............................... 1,397.21 30 4.00
8 Lehman Brothers Inc. ............... 1,380.72 16 3.96
9 BT Alex. Brown Incorporated......... 1,254.90 22 3.60
Credit Suisse First Boston
10 Corporation. ....................... 1,069.87 11 3.07
11 Prudential Securities Incorporated.. 1,067.84 12 3.06
12 Bear, Stearns & Co. Inc. ........... 1,004.06 8 2.88
13 Salomon Brothers Inc. .............. 993.65 9 2.85
14 Smith Barney Inc. .................. 858.65 15 2.46
15 BancAmerica Robertson Stephens...... 667.59 15 1.91
16 J.C. Bradford & Co. ................ 537.16 4 1.54
17 PaineWebber Incorporated............ 479.62 6 1.37
18 Hambrecht & Quist LLC............... 471.31 13 1.35
19 Raymond James & Associates, Inc. ... 376.57 8 1.08
20 SBC Warburg Dillon Read Inc. ....... 314.92 2 0.90
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Source: Information derived by the Company from the CommScan EQUIDESK database
FBR bases its decision to underwrite an offering of a company's securities on due diligence, company fundamentals, management's track record, historical financial results and financial projections. FBR chooses to underwrite clients which it believes will be able to execute long-term strategies that will deliver significant returns to investors. As a result, FBR's investment banking focus is nationwide and, to an increasing extent, international in scope. Of the 148 capital-raising transactions FBR has completed from inception of its investment banking business in late 1992 through the date hereof, 30.3% have been in the mid-Atlantic region, 31.1% have been in the West, 15.8% have been in the Southeast, 4.8% have been in the Northeast, and 18.0% have been in other regions. The Company has increased the number of its sole or lead managed underwriting transactions above $50.0 million from 7 in 1993, to 14 in 1996 and to 16 in 1997 through the date hereof. To date in 1997, FBR has managed 16 equity and high-yield debt underwriting transactions above $100 million, of which 10 were sole or lead-managed by FBR. Set forth below are the 148 capital-markets transactions completed by FBR as of November 30, 1997:
LIST OF CAPITAL MARKETS TRANSACTIONS
EQUITY
ISSUE
DATE COMPANY ISSUE AMOUNT
-------- ------- ----- ------------
11/26/97 Laser Mortgage Management,
Inc. ......................... Common--IPO $225,000,000
11/25/97 Consolidation Capital
Corporation................... Common--IPO 480,000,000
11/11/97 Prime Group Realty Trust...... Common--IPO 284,740,000
10/16/97 Imperial Credit Commercial
Mortgage Investment Corp. .... Common--IPO 517,500,000
10/15/97 BankUnited Financial
Corporation.................. Common--Secondary 46,920,000
10/8/97 Annaly Mortgage Management,
Inc. ........................ Common--IPO 117,493,200
9/30/97 Engel Developers Ltd. ........ Common--IPO 32,400,000
9/17/97 First Washington Realty Trust. Common--Secondary 49,680,000
9/12/97 First Alliance Corporation.... Common--Secondary 94,990,000
9/8/97 Local Financial Corporation... Private Placement 197,000,000
8/29/97 American Capital Strategies,
Ltd. ........................ Common--IPO 144,900,000
8/27/97 Prime Retail, Inc. ........... Common--Secondary 161,000,000
8/6/97 Ocwen Financial Corporation... Common--Secondary 130,500,000
7/15/97 Thornburg Mortgage Asset
Corp. ....................... Common--Secondary 47,512,500
5/15/97 First Sierra Financial, Inc. . Common--IPO 18,400,000
5/14/97 Ocwen Asset Investment Corp. . Common--IPO 276,000,000
5/1/97 Brookdale Living Communities,
Inc. ........................ Common--IPO 59,512,500
4/29/97 Long Beach Financial
Corporation.................. Common--IPO 162,500,000
4/18/97 Cornerstone Realty Income
Trust, Inc. ................. Common--IPO 54,337,500
3/24/97 Criimi Mae Inc. .............. Common--Secondary 79,203,125
3/17/97 Colonial Downs Holdings,
Inc. ........................ Common--IPO 40,375,000
2/20/97 American Business Financial
Services..................... Common--Secondary 23,000,000
2/14/97 Prime Retail, Inc. ........... Common--Secondary 29,878,750
2/11/97 Annaly Mortgage Management,
Inc. ........................ Private Placement 36,000,000
2/10/97 Ugly Duckling Corporation..... Private Placement 94,531,188
1/16/97 Washington Mutual, Inc. ...... Common--Secondary 693,008,328
12/19/96 Wilshire Financial............ Common--IPO 21,735,000
12/18/96 Credit Management Solutions,
Inc. ........................ Common--IPO 34,385,000
11/26/96 Resource America, Inc. ....... Common--Secondary 21,528,000
11/26/96 UOL Publishing, Inc. ......... Common--IPO 18,590,000
11/25/96 First Washington Realty Trust. Common--Secondary 35,996,250
11/21/96 Styling Technology
Corporation.................. Common--IPO 31,158,520
11/19/96 Mego Mortgage................. Common--IPO 23,000,000
11/14/96 MLC Holdings, Inc. ........... Common--IPO 10,062,500
11/11/96 Miami Computer Supply Corp. .. Common--IPO 9,775,000
11/1/96 Allin Communications Corp. ... Common--IPO 34,500,000
10/30/96 Ugly Duckling Corporation..... Common--Secondary 69,000,000
10/17/96 Digex, Inc.................... Common--IPO 52,396,875
9/25/96 Ocwen Financial Corporation... Common--IPO 34,500,000
8/22/96 R&G Financial................. Common--IPO 35,017,500
8/13/96 Life Savings Bank............. Private Placement 4,500,000
7/25/96 First Alliance Corp........... Common--IPO 68,425,000
6/27/96 Prime Retail, Inc. ........... Common--Secondary 43,187,100
6/25/96 Pacific America Money Center,
Inc.......................... Common--IPO 8,782,100
5/23/96 Security First Network Bank... Common--IPO 56,120,000
4/17/96 Imperial Thrift and Loan
Assoc........................ Common--Secondary 24,380,000
4/16/96 Atlantic Bank & Trust......... Common--IPO 11,643,750
4/15/96 Cardinal Bancshares, Inc...... Private Placement 5,114,760
2/23/96 OVATION, Inc.................. Private Placement 20,000,000
2/22/96 BankUnited Financial
Corporation.................. Common--Secondary 24,955,000
11/9/95 Bank Plus Corporation
(Fidelity Federal Bank)...... Common--Secondary 94,000,000
10/23/95 Imperial Thrift and Loan
Assoc........................ Common--IPO 59,800,000
6/27/95 First Washington Realty Trust. Common--Secondary 29,598,125
6/24/94 First Washington Realty Trust. Private Placement 29,912,821
8/24/94 Ambassador Apartments, Inc.
(Prime Residential, Inc.).... Common--IPO 143,336,400
6/22/94 RiverBank America............. Common--IPO 49,500,000
5/20/94 TeleBanc Financial
Corporation.................. Common--IPO 4,593,750
3/16/94 California Federal Bank....... Common Stock Rights
Offering 194,778,990
3/15/94 Prime Retail, Inc............. Common--IPO 54,625,000
10/28/93 PALFED, Inc................... Common Stock Rights
Offering 20,000,000
10/22/93 Riggs National Corporation.... Common--Secondary 38,750,000
9/30/93 Cardinal Bancshares, Inc...... Common--IPO 3,795,000
8/26/93 Glendale Federal Bank......... Recapitalization
w/rights offering 250,200,000
8/19/93 Crossland Federal Savings
Bank......................... Common--IPO 282,000,00
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EQUITY
ISSUE
DATE COMPANY ISSUE AMOUNT
-------- ------- ----- --------------
7/27/93 BNH Bancshares............. Common Stock Rights
Offering $ 14,000,000
4/23/93 Independent Bancorp of
Arizona................... Private Placement 147,047,912
12/30/92 Ameribanc Investors Group.. Common Stock Rights
Offering 36,462,084
--------------
$6,247,534,527
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HIGH YIELD AND PREFERRED
10/14/97 Mego Mortgage
Corporation............. Private--Senior Sub. Notes $ 40,000,000
9/8/97 Local Financial
Corporation............. Private--Senior Notes 81,505,000
8/7/97 Ocwen Capital Trust I... Private--Trust Preferred 125,000,000
8/22/97 Bay View Capital
Corporation............. Subordinated Notes 100,000,000
7/16/97 Resource America, Inc... Private--Senior Notes 115,000,000
7/3/97 Crown American Realty
Trust................... Preferred 125,000,000
3/14/97 Life Savings Bank....... Private--Sub. Debt 10,000,000
2/14/97 Prime Retail, Inc....... Preferred--Convertible 4,000,000
12/23/96 BankUnited Financial
Corp.................... Private--Trust Preferred 50,000,000
12/23/96 Walden Residential...... Preferred Stock with Warrants 100,000,000
12/19/96 Wilshire Financial...... Notes 84,245,000
12/10/96 Riggs National
Corporation............. Private--Trust Preferred 150,000,000
11/26/96 Chevy Chase Savings
Bank.................... Sub. Debt 100,000,000
11/26/96 Chevy Chase Preferred
Capital Corp............ Preferred 150,000,000
11/19/96 Mego Mortgage
Corporation............. Sub. Notes 40,000,000
9/25/96 Ocwen Financial
Corporation............. Notes 125,000,000
8/7/96 Criimi Mae, Inc. ....... Preferred--Convertible 60,375,000
7/1/96 Confia.................. Private--Mortgage Backed Bonds 25,000,000
6/24/96 Prime Retail, Inc....... Conversion to Common 105,225,000
5/7/96 HomeSide, Inc........... Senior Notes 200,000,000
4/23/96 Walden Residential...... Preferred--Convertible 45,000,000
12/19/95 The Prime Group, Inc.... Private--Secured Debt 40,000,000
11/30/95 Fort Bend Holding
Corporation............. Convt. Sub. Debt 12,000,000
11/9/95 Bank Plus Corporation
(Fidelity Federal
Bank);.................. Exchangeable Preferred 51,750,000
8/9/95 Beal Financial
Corporation............. Senior Notes 57,500,000
6/23/95 Coastal Bancorp......... Senior Notes 50,000,000
6/7/95 Berkeley Federal Bank &
Trust................... Sub. Debt 100,000,000
10/11/94 Monterey Homes.......... Private--Sub. Notes w/warrants 8,000,000
7/20/94 First Nationwide
Holdings, Inc.......... Senior Notes 200,000,000
7/20/94 First Nationwide Bank,
FSB.................... Preferred 275,000,000
6/28/94 Community Bank.......... Preferred Stock with Warrants 20,125,000
6/27/94 First Washington Realty
Trust.................. Preferred--Convertible 73,000,000
6/22/94 RiverBank America....... Preferred 35,000,000
5/11/94 Telebanc Financial...... Convt. Sub. Debt 15,000,000
3/23/94 B.F. Saul Real Estate
Inv. Trust............. Sr. Secured Notes 175,000,000
3/16/94 California Federal Bank. Preferred 172,500,000
3/15/94 Prime Retail, Inc....... Preferred 57,500,000
3/15/94 Prime Retail, Inc....... Preferred--Convertible 175,380.000
2/7/94 Sierra Tahoe Bancorp.... Convt. Sub. Debt 10,000,000
1/26/94 Riggs National
Corporation............ Sub. Notes 125,000,000
12/29/93 WSFS Financial
Corporation............ Senior Notes 32,000,000
12/28/93 MDC Holdings, Inc....... Senior Debt 190,000,000
12/28/93 MDC Holdings, Inc....... Convt. Sub. Debt 28,000,000
12/6/93 Pacific Crest Capital... Preferred--Convertible 15,000,000
11/17/93 Chevy Chase Savings
Bank................... Sub. Debt 150,000,000
10/22/93 Riggs National
Corporation............ Preferred 100,000,000
9/23/93 The Dime Savings Bank... Preferred--Exchanged to debt 100,000,000
8/26/93 Glendale Federal Bank... Preferred--Convertible 201,250,000
8/19/93 CrossLand Federal
Savings Bank........... Sub. Debt 50,000,000
8/11/93 Chevy Chase Savings
Bank................... Preferred 75,000,000
--------------
$4,429,349,450
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THRIFT CONVERSIONS
ISSUE
DATE COMPANY ISSUE AMOUNT
-------- ------- ----- ---------------
10/31/97 First SecurityFed Mutual Conversion $ 64,080,000
Financial, Inc. .........
4/3/97 Pulaski Savings Bank...... Mutual Holding Co. 9,522,000
9/30/96 Westwood Homestead Mutual Conversion 28,433,750
Financial Corporation ...
7/15/96 Pennwood Bancorp, Inc. ... Mutual Conversion 6,101,280
7/1/96 Kenwood Bancorp, Inc. .... Mutual Holding Co. 2nd 1,576,510
Step
7/1/96 Home Financial Bancorp.... Mutual Conversion 5,059,260
6/17/96 Commonwealth Bancorp, Mutual Holding Co. 2nd 98,721,550
Inc. .................... Step
6/4/96 First Federal Financial Mutual Conversion 6,717,830
Bancorp, Inc. ...........
4/1/96 Heritage Financial Mutual Conversion 4,933,200
Corporation..............
4/1/96 London Financial Mutual Conversion 5,290,000
Corporation..............
3/29/96 Crazy Woman Creek Bancorp Mutual Conversion 10,580,000
Incorporated.............
3/21/96 North Central Bancshares, Mutual Holding Co. 2nd 26,254,670
Inc. .................... Step
3/11/96 Washington Bancorp........ Mutual Conversion 6,575,190
1/9/96 Broadway Financial Mutual Conversion 8,926,880
Corporation..............
10/31/95 American National Bancorp, Mutual Holding Co. 2nd 21,821,250
Inc. .................... Step
12/29/95 Charter Financial, Inc. .. Mutual Holding Co. 2nd 33,396,210
Step
10/5/95 Klamath First Bancorp, Mutual Conversion 122,331,250
Inc. ....................
10/2/95 First Defiance Financial Mutual Holding Co. 2nd 64,769,140
Corp. ................... Step
9/29/95 Hardin Bancorp., SSB...... Mutual Conversion 10,580,000
7/20/95 Perpetual State Bank, Mutual Conversion $6,000,000
Inc., SSB................
6/30/95 HF Bancorp, Inc. ......... Mutual Conversion 52,900,000
6/28/95 Fort Thomas Financial Mutual Conversion 15,737,750
Corporation..............
6/28/95 Northeast Indiana Bancorp, Mutual Conversion 21,821,250
Inc. ....................
4/7/95 ISB Financial Corporation. Mutual Conversion 74,000,000
3/15/95 Horizon Bancorp, Inc. .... Mutual Conversion 3,684,212
9/30/93 Meritrust Federal Savings Mutual Conversion 5,000,000
Bank.....................
8/13/93 Cardinal Bancshares, Mutual Conversion 10,910,625
Inc. ....................
7/26/93 Albion Banc Corp. ........ Mutual Conversion 2,607,140
---------------
$ 728,330,947
TOTAL CAPITAL-RAISING TRANSACTIONS................ $11,405,214,924
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FBR's strategy is to maintain long-term relationships with its corporate clients by serving their capital needs beyond their initial access to capital markets. FBR has completed follow-on capital transactions for 23% of its corporate client base. FBR also seeks to increase its base of publicly held clients by serving as a lead or co-manager in follow-on offerings for companies which FBR believes have attractive investment characteristics, whether or not FBR participated as a lead or co-manager in the IPOs for such companies.
In connection with certain capital raising transactions, FBR has received and seeks to receive warrants for stock of the issuing corporation at the initial public offering price. FBR carries the warrants at a nominal value in its financial statements, and will recognize any potential, future revenues and profits, if any, only when realized. The Company anticipates that certain employees may receive a portion of the Company's warrants pursuant to incentive compensation plans. See "Management--Employee Incentive Compensation Plans." As of the date of this Prospectus, FBR had received warrants in client companies as set forth below:
CLOSING PRICE EXPIRATION
NUMBER OF EXERCISE ON DEC. 17, DATE OF
WARRANTS PRICE 1997 WARRANT
--------- -------- ------------- ----------
American Capital
Strategies, Ltd......... 442,751 $15.00 $16.88 8/29/02
Consolidation Capital
Corporation............. 1,130,000 20.00 15.50 11/25/01
Local Financial
Corporation............. 591,000 10.00 -- (1) 9/08/02
Styling Technology
Corporation............. 101,500 12.00 20.69 11/21/01
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(1) Not publicly traded.
In November 1997, the Company formed a new entity to pursue investment opportunities, including investments in certain of its corporate finance clients, and has invested $10 million in that entity. To date, the entity has made one investment of $10 million of common stock in Consolidation Capital Corporation.
Mergers and Acquisitions Advisory Services
FBR seeks to use its research capability, business valuation skills and secondary market experience to evaluate merger and acquisition candidates and opportunities. FBR believes that its research capacity and capital raising activities have created a network of relationships that enable it to identify and engineer mutually beneficial combinations between companies. As a financial advisor, FBR relies upon its experience gained through in-depth and daily involvement in the capital markets. Financial advisory services have included market comparable performance information, commentary on dividend policy, review of merger and acquisition opportunities and evaluation of stock repurchase programs. As of November 30, 1997, FBR had provided merger and acquisition advisory services in transactions valued at $3.3 billion in the aggregate.
RESEARCH SERVICES
FBR's creation in 1989 as a research and trading firm laid the foundation for FBR's understanding of the importance of research and the role research services play in the investment banking and institutional brokerage process. FBR's research analysts operate under two guiding principles: (i) to identify undervalued investment opportunities in the capital markets and (ii) to communicate effectively the fundamentals of these investment opportunities to Company professionals and potential investors. To achieve these objectives, FBR believes that industry specialization is necessary, and, as a result, FBR organizes its research staff along industry lines. As of November 30, 1997, FBR had 31 research analysts organized into 6 teams focused on industry sectors. Each industry team works together to identify and evaluate industry trends and developments. Within industry groups, analysts are further subdivided into specific areas of focus so that they can maintain and apply specific industry knowledge to each investment opportunity they address. To achieve this level of specialization, FBR seeks to recruit or train analysts with significant industry and technical expertise, in addition to securities industry expertise. In this manner, FBR believes that its analysts can assess the capital markets to identify attractive investment opportunities within their strategic niches, can assist investment banking personnel in valuing companies accessing the capital markets for the first time, and can effectively monitor and communicate developments relating to the scope of their research to the institutional sales force and institutional investors.
FBR has focused its research efforts in some of the fastest growing and most rapidly changing sectors of the United States and world economies. These sectors include REITs, financial services, homebuilding, Internet, healthcare, automotive retailing, information technology, electronic commerce, telecommunications, gaming and industry consolidators. FBR believes these industry sectors will have great demand for the products and services it offers in the future and provide ample diversification for its business.
After initiating coverage on a company, FBR's analysts seek to maintain a long-term relationship with that company and a long-term commitment to ensuring that new developments are effectively communicated to FBR's sales force and institutional investors. FBR produces full length research reports, notes or earnings estimates on more than 400 issues. FBR's analysts verbally update the sales force at two daily sales meetings. In addition, FBR analysts distribute written updates through the use of daily morning meeting notes, real-time electronic mail and other forms of immediate communication. FBR's investors can also receive analyst comments through electronic media such as Multex and First Call.
SALES AND TRADING
The Company focuses on institutional sales to and providing trading services for equity and high-yield debt investors in the United States, Europe and elsewhere and, as a result, institutional sales accounted for approximately 85% of sales and trading revenues for the year ended December 31, 1996. The Company executes securities transactions for institutional investors such as banks, mutual funds, insurance companies, hedge funds, money managers and pension and profit-sharing plans. Institutional investors normally purchase and sell securities in large quantities, which requires special marketing and trading expertise.
As of November 30, 1997, FBR had 62 sales professionals. The Company's sales professionals provide services to a nationwide institutional client base as well as to institutional clients in Europe and elsewhere. FBR's
sales professionals work closely with FBR's research analysts to provide the most up-to-date information to the Company's institutional clients. FBR's sales professionals rely on communicating with the research analysts at two daily sales meetings, as well as on the distribution of morning meeting notes, real-time electronic mail and frequent updates to research reports.
FBR trading professionals facilitate trading in equity and high-yield securities. As of November 30, 1997, FBR had 17 trading professionals involved in market-making in Nasdaq and other OTC securities, trading listed securities and servicing the trading desks of major institutions in the United States and Europe. FBR's trading professionals have direct access to the major stock exchanges, including the NYSE and the American Stock Exchange, Inc. as a result of FBR's relationship with its clearing broker. The most significant portion of the Company's trading revenues arises from trading in Nasdaq-listed securities. At November 30, 1997, FBR made a market in 372 securities. As of November 30, 1997, FBR was the top market maker in 100% of the Nasdaq-listed equity securities issued by companies for which FBR served as lead or co- manager in a public offering of the companies for which FBR makes a market. Source: Securities Data Company and Bloomberg L.P.
Corporate Services
Since its inception in 1989, FBR has provided retail brokerage services to
sophisticated individual investors, corporate executives, and small
institutions. FBR offers a wide range of investment services, including:
(i) differentiated investment ideas and brokerage services; (ii) the
development and implementation of investment strategies; and (iii) the
execution of corporate stock buyback plans. Since 1989, FBR has executed stock
buybacks for over 140 institutions.
Executive Services
On October 30, 1997, FBR established a Private Client Group ("PCG") currently consisting of 5 professionals. PCG seeks to offer creative money management solutions and investment ideas suited to high net worth individuals. Using a consultative approach, PCG professionals research, interpret, evaluate and select sophisticated investment strategies. PCG specializes in hedging and preserving significant equity positions as well as offering traditional brokerage services.
Additionally, PCG professionals are knowledgeable in various aspects of the sale of restricted and control stocks as well as the financing of employee stock options. Individuals who own restricted or control stock receive PCG assistance with the complex regulations and paperwork required to sell such securities. For individuals unable to sell positions, PCG offers a number of strategies for preserving value in such assets, as well as the ability to borrow funds at favorable rates to provide liquidity. Given FBR's strong investment banking relationships, including those with executives of companies underwritten by FBR, FBR believes that there are natural synergies between its PCG and its existing clients.
SYNDICATE
The Syndicate department coordinates FBR's participation as an underwriter in corporate securities distributions. In an underwriting transaction, FBR acts as sole or lead manager, co-manager, or member of an underwriting syndicate managed by other investment banks. In transactions in which FBR is the sole manager, the Syndicate department coordinates the marketing and book- building process, and participates in discussions with the issuer leading to the pricing of the offered securities on behalf of the underwriting group.
ASSET MANAGEMENT
FBR seeks to leverage the expertise of its research professionals and portfolio managers to develop and implement investment strategies on behalf of institutional and high net worth individual investors. At November
30, 1997, the Company had assets under management of more than $444.9 million, including more than $57.3 million in separately managed accounts. The amount of assets under management has grown by 373% since January 1, 1996.
Hedge and Offshore Funds
At November 30, 1997, the Company's hedge and offshore funds had $246.8 million under management. FBR Ashton, Limited Partnership, the largest of the Company's hedge funds, utilizes investment strategies primarily involving publicly-traded financial services companies' equity and fixed income securities. From March 9, 1992 (inception) through November 30, 1997, FBR Ashton, Limited Partnership delivered average annualized total returns of 41.8% (gross), calculated in accordance with the Association for Investment Management and Research's standards and before accrual of fees and expenses, and special allocations to Friedman, Billings, Ramsey Investment Management, Inc. ("FBRIM"), the investment manager. The average annualized total return to limited partners for FBR Ashton, Limited Partnership for the same period after accrual of fees and expenses of, and special allocations to, FBRIM was approximately 34.1%.
Private Equity and Venture Capital
At November 30, 1997, the Company's private equity and venture capital funds had approximately $57.0 million under management. FBR Private Equity Fund, L.P. was formed in June 1996 to make private investments, primarily in small financial services firms. As of November 30, 1997, it was fully invested. FBR Technology Venture Partners, L.P., a venture capital fund dedicated to technology investments in software, communication, and Internet companies, was formed in August 1997 and has commenced its investment operations.
Mutual Funds
The FBR Family of Funds, an open-end management type investment company registered under the Investment Company Act of 1940, began business in 1997 and currently is comprised of three series, the FBR Financial Services Fund, the FBR Small Cap Financial Services Fund, and the FBR Small Cap Growth/Value Fund. At November 30, 1997, total assets included in The FBR Family of Funds were approximately $83.8 million.
MUTUAL FUND PERFORMANCE
(TOTAL RETURNS)
YEAR TO DATE
9 MONTHS ENDED ENDED
SEPT. 30, 1997 NOV. 30, 1997
-------------- -------------
FBR FINANCIAL SERVICES............................. 34.17% 38.58%
Lipper Financial Services Index.................. 37.20% 39.51%
S&P 500 Index.................................... 29.64% 31.11%
FBR SMALL CAP FINANCIAL............................ 41.58% 47.00%
Lipper Financial Services Index.................. 37.20% 39.51%
Russell 2000 Index............................... 26.52% 20.07%
FBR SMALL CAP GROWTH/VALUE......................... 39.17% 42.75%
Lipper Small Cap Index........................... 22.21% 13.88%
Russell 2000 Index............................... 26.52% 20.07%
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No assurance can be provided as to the future performance of any of FBR's funds.
FBR Direct
During 1997, the Company established FBR Direct, Inc. ("FBR Direct"). The Company expects that FBR Direct will become the distributor of The FBR Family of Funds and the platform for the Private Client Group
after it obtains the requisite regulatory approval. FBR Direct is currently registered as a broker-dealer with the SEC and is a member of the NASD. It is seeking registration as a broker-dealer in all 50 states, and will seek registration with the SEC as an investment adviser. FBR Direct will operate primarily from the Company's headquarters building and will use telephone and the internet access to build on an existing base of clients and contacts of FBR's other groups, including the Private Client Group.
ACCOUNTING, ADMINISTRATION AND OPERATIONS
FBR's accounting, administration and operations personnel are responsible for financial controls, internal and external financial reporting, office and personnel services, the Company's management information and telecommunications systems, and the processing of the Company's securities transactions. With the exception of payroll processing, which is performed by an outside service bureau, and customer account processing, which is performed by the Company's clearing broker, most data processing functions are performed by the Company's management information systems department. The Company believes that future growth will require implementation of new and enhanced communications and information systems and training of its personnel to operate such systems as well as the hiring of additional personnel.
COMPETITION
The Company is engaged in the highly competitive securities brokerage and financial services businesses. The Company competes directly with large Wall Street securities firms, securities subsidiaries of major commercial bank holding companies, major regional firms and smaller niche players. To an increasing degree, the Company also competes for various segments of the financial services business with other institutions, such as commercial banks, savings institutions, mutual fund companies, life insurance companies and financial planning firms. The Company believes that following a strategy of offering superior service and investment advice in particular areas of expertise and to a particular client base differentiates it from competitors.
In addition to competing for investment clients, companies in the securities industry compete to attract and retain experienced and productive investment professionals. See "Risk Factors--Competition for Retaining and Recruiting Personnel."
Many competitors have greater personnel and financial resources than the Company. Larger competitors are able to advertise their products and services on a national or regional basis and may have a greater number and variety of distribution outlets for their products, including retail distribution. Discount brokerage firms market their services through aggressive pricing and promotional efforts. In addition, some competitors have much more extensive investment banking activities than the Company and therefore may possess a relative advantage with regard to access to deal flow and capital.
Recent rapid advancements in computing and communications technology are substantially changing the means by which financial services are delivered. These changes are providing consumers with more direct access to a wide variety of financial and investment services, including market information and on-line trading and account information. Advancements in technology also create demand for more sophisticated levels of client services. The Company is committed to utilizing technological advancements to provide a high level of client service. Provision of these services may entail considerable cost without an offsetting source of revenue.
EMPLOYEES
At November 30, 1997, the Company had a total of 263 full-time employees, of whom 39 were engaged in research, 68 in investment banking, 86 in sales, trading and syndicate, 19 in venture capital, principal investment and asset management activities and 51 in accounting, administration and operations. Of these employees, 189 were classified as professionals and 74 were in support positions. The Company also had 37 interns. None of the Company's employees are subject to a collective bargaining agreement. The Company believes that its relations with its employees are excellent.
PROPERTIES
The Company leases two floors of its headquarters building and its annex totaling 41,091 square feet and has an agreement to lease two additional floors totaling 36,166 square feet. Under these arrangements the Company has an option to extend the lease term on all four floors for an additional five year period. The Company also leases approximately 8,000 square feet for its satellite offices in Irvine, California, London, England and Boston, Massachusetts. The Company believes that its present facilities, together with its current options to extend lease terms and occupy additional space, are adequate for its current and presently projected needs.
LEGAL PROCEEDINGS
While the Company is not currently a defendant or plaintiff in any lawsuits or arbitrations, many aspects of the Company's business involve substantial risks of liability, litigation and arbitration. An underwriter is exposed to potential liability under federal and state securities laws, other federal and state laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. For example, a firm that acts as an underwriter may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered or for statements made by its securities analysts or other personnel.
If plaintiffs in any future suits against the Company were to prosecute their claims successfully, or if the Company were to settle such suits by making significant payments to the plaintiffs, the Company's operating results and financial condition could be materially and adversely affected. The Company carries very limited insurance which may cover only a portion of any such payments.
In recent years, there has been an increasing incidence of litigation involving the securities industry, including class actions that seek substantial damages and frequently name as defendants underwriters of a public offering and investment banks that provide advisory services in merger and acquisition transactions. The eventual impact of the recently passed Federal Private Securities Litigation Reform Act of 1995 on securities class action litigation is not yet known. FBR is not currently a defendant in any such lawsuits, and has never been named a defendant in a class action lawsuit or other suit alleging underwriter liability.
In addition to these financial costs and risks, the defense of litigation or arbitration may divert the efforts and attention of the Company's management and staff, and the Company may incur significant legal expenses in defending such litigation or arbitration. This may be the case even with respect to claims and litigation which management believes to be frivolous, and the Company intends to defend vigorously any frivolous claims against it. The amount of time that management and other employees may be required to devote in connection with the defense of litigation could be substantial and might materially divert their attention from other responsibilities within the Company.
The Company also may become a defendant in civil actions and arbitrations arising out of its other activities as a broker-dealer, as an investment adviser, as an employer and as a result of other business activities. There can be no assurance that substantial payments in connection with the resolution of disputed claims will not occur in the future.
In addition, the Company's charter documents allow indemnification of the Company's officers, directors and agents to the maximum extent permitted under Virginia law. The Company intends to enter into indemnification agreements with these persons. The Company has been and in the future may be the subject of indemnification assertions under these charter documents or agreements by officers, directors or agents of the Company who are or may become defendants in litigation.
RISK MANAGEMENT
The Company has established various policies and procedures for the management of its exposure to operating, principal and credit risk. There can be no assurance that the Company's risk management procedures
and internal controls will prevent or reduce any such risks. Operating risk arises out of the daily conduct of the Company's business and relates to the possibility that one or more of the Company's personnel could cause the Company to engage in imprudent business activities. Principal risk relates to the fact that the Company holds securities that are subject to changes in value, and such changes could result in the Company incurring material losses. Credit risk occurs because the Company extends credit through its clearing broker to various of its customers in the form of margin and other types of loan activities that are normal industry practices.
Operating risk is monitored by managers of the Company's business groups, and by the directors of each of the Company's operating subsidiaries. These directors review the overall business activities of each of the Company's subsidiaries, and issue directions to address issues which, in the judgment of the directors, could result in a material loss to the Company.
Principal risk is managed primarily by conducting real-time monitoring of the amount and types of securities held from time to time by the Company and by limiting the exposure to any one investment or type of investment. The two most common categories of securities owned are those related to the daily trading activities of the Company's brokerage operations and those which arise out of the Company's underwriting activities. The Company attempts to limit its exposure to market risk on securities held as a result of its daily trading activities by limiting its inventory of trading securities to the amount needed to provide the appropriate level of liquidity in the securities for which it is a market maker. The Company historically has not taken positions in securities as principal investments, and it seeks to balance trading security inventory positions daily.
Credit risk is monitored both by the Company's own operations personnel and by the Company's clearing broker. Margin calls are issued if the value of collateral declines below established margin requirements, and margin maintenance requirements are increased in the event that the concentration in a client's account exceeds certain levels.
REGULATION
In the United States, a number of federal regulatory agencies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets. The SEC is the federal agency that is primarily responsible for the regulation of broker-dealers and investment advisers doing business in the United States, and the Federal Reserve Board promulgates regulations applicable to securities credit transactions involving broker-dealers and certain other institutions in the United States. Much of the regulation of broker-dealers, however, has been delegated to self-regulatory organizations ("SROs"), principally the NASD (and its subsidiaries NASD Regulation, Inc. and Nasdaq), and the national securities exchanges. These SROs and exchanges adopt rules (which are subject to approval by the SEC) that govern the industry, monitor daily activity and conduct periodic examinations of member broker-dealers. While FBRC and the Company's other broker-dealer subsidiaries are not members of the NYSE, the Company's business is impacted by the NYSE rules.
Securities firms are also subject to regulation by state securities commissions in the states in which they are required to be registered. FBRC is registered as a broker-dealer with the SEC and in 48 states, Puerto Rico and the District of Columbia, and is a member of, and subject to regulation by, a number of SROs, including the NASD and the Municipal Securities Rulemaking Board. FBR Direct is registered as a broker-dealer with the SEC and is seeking registration in all 50 states, Puerto Rico and the District of Columbia; it is a member of the NASD.
As a result of federal and state registration and SRO memberships, FBRC and FBR Direct is subject to overlapping schemes of regulation which cover all aspects of their securities business. Such regulations cover matters including capital requirements, uses and safe-keeping of clients' funds, conduct of directors, officers and employees, record-keeping and reporting requirements, supervisory and organizational procedures intended to assure compliance with securities laws and to prevent improper trading on material nonpublic information, employee-related matters, including qualification and licensing of supervisory and sales personnel, limitations on extensions of credit in securities transactions, clearance and settlement procedures, requirements for the
registration, underwriting, sale and distribution of securities, and rules of the SROs designed to promote high standards of commercial honor and just and equitable principles of trade. A particular focus of the applicable regulations concerns the relationship between broker-dealers and their customers. As a result, the many aspects of the broker-dealer customer relationship are subject to regulation including, in some instances, "suitability" determinations as to certain customer transactions, limitations on the amounts that may be charged to customers, timing of proprietary trading in relation to customers' trades and disclosures to customers.
FBRC also is subject to "Risk Assessment Rules" imposed by the SEC which require, among other things, that certain broker-dealers maintain and preserve certain information, describe risk management policies and procedures and report on the financial condition of certain affiliates whose financial and securities activities are reasonably likely to have a material impact on the financial and operational condition of the broker-dealers. Certain "Material Associated Persons" (as defined in the Risk Assessment Rules) of the broker- dealers and the activities conducted by such Material Associated Persons may also be subject to regulation by the SEC. In addition, the possibility exists that, on the basis of the information it obtains under the Risk Assessment Rules, the SEC could seek authority over the Company's unregulated subsidiaries either directly or through its existing authority over the Company's regulated subsidiaries.
FBRIM, FBR Offshore Management, Inc., FBR Fund Advisers, Inc. ("FBR Fund Advisers") and FBR Venture Capital Managers, Inc. are registered as investment advisers with the SEC. As investment advisers registered with the SEC, they are subject to the requirements of the Investment Advisers Act of 1940 and the SEC's regulations thereunder, as well as certain state securities laws and regulations. Such requirements relate to, among other things, limitations on the ability of investment advisers to charge performance-based or non- refundable fees to clients, record-keeping and reporting requirements, disclosure requirements, limitations on principal transactions between an adviser or its affiliates and advisory clients, as well as general anti-fraud prohibitions. The state securities law requirements applicable to registered investment advisers are in certain cases more comprehensive than those imposed under the federal securities laws. In addition, FBR Fund Advisers and the mutual funds it manages are subject to the requirements of the Investment Company Act of 1940 and the SEC's regulations thereunder.
In the event of non-compliance with an applicable regulation, governmental regulators and the NASD may institute administrative or judicial proceedings that may result in censure, fine, civil penalties (including treble damages in the case of insider trading violations), the issuance of cease-and-desist orders, the deregistration or suspension of the non-compliant broker-dealer or investment adviser, the suspension or disqualification of the broker-dealer's officers or employees or other adverse consequences. The imposition of any such penalties or orders on the Company could have a material adverse effect on the Company's operating results and financial condition.
FBR's business is also subject to regulation by various foreign governments and regulatory bodies. FBRC is registered with and subject to regulation by the Ontario Securities Commission in Canada. FBR International is subject to regulation by the SFA in the United Kingdom pursuant to the United Kingdom Financial Services Act of 1986. FBR Investment Management (Bermuda) Ltd., which is a Bermuda company established to manage the Company's offshore funds, is subject to regulation by the Bermuda Monetary Authority. Foreign regulation may govern all aspects of the investment business, including regulatory capital, sales and trading practices, use and safekeeping of customer funds and securities, record-keeping, margin practices and procedures, registration standards for individuals, periodic reporting and settlement procedures.
In connection with the Company's hedge fund and venture capital activities, FBR and the hedge funds and the venture capital funds that it manages are relying on exemptions from registration under the Investment Company Act of 1940, and under certain state securities laws and the laws of various foreign countries. Failure to comply with the initial and continuing requirements of any such exemptions could have a material adverse effect on the manner in which the Company, its affiliates and these funds carry on their activities.
Additional legislation and regulations, including those relating to the activities of broker-dealers and investment advisers, changes in rules promulgated by the SEC or other United States or foreign governmental regulatory authorities and SROs or changes in the interpretation or enforcement of existing laws and rules may adversely affect the manner of operation and profitability of the Company. The Company's businesses may be materially affected not only by regulations applicable to it as a financial market intermediary, but also by regulations of general application. For example, the volume of FBR's underwriting, merger and acquisition, securities trading and asset management activities in any year could be affected by, among other things, existing and proposed tax legislation, antitrust policy and other governmental regulations and policies (including the interest rate policies of the Federal Reserve Board) and changes in interpretation or enforcement of existing laws and rules that affect the business and financial communities.
NET CAPITAL REQUIREMENTS
As broker-dealers registered with the SEC and as member firms of the NASD, FBRC and FBR Direct are subject to the capital requirements of the SEC and the NASD. FBR International is subject to the capital regulations of the SFA. These capital requirements specify minimum levels of capital, computed in accordance with regulatory requirements, that each firm is required to maintain and also limit the amount of leverage that each firm is able to obtain in its respective business.
FBRC computes its net capital requirement under the aggregate indebtedness method permitted by the SEC. Under this method, FBRC is required by the SEC to maintain regulatory net capital, computed in accordance with the SEC's regulations, equal to the greater of $250,000 or such amount that its aggregate indebtedness does not exceed 1,500% of its net capital.
"Net capital" is essentially defined as net worth (assets minus liabilities, as determined under generally accepted accounting principles), plus qualifying subordinated borrowings, less the value of all of a broker-dealer's assets that are not readily convertible into cash (such as goodwill, furniture, prepaid expenses and unsecured receivables), and further reduced by certain percentages (commonly called "haircuts") of the market value of a broker- dealer's positions in securities and other financial instruments.
The SEC's capital rules also (i) require that broker-dealers notify it, in writing, two business days prior to making withdrawals or other distributions of equity capital or lending money to certain related persons if those withdrawals would exceed, in any 30-day period, 30% of the broker-dealer's excess net capital, and that they provide such notice within two business days after any such withdrawal or loan that would exceed, in any 30-day period, 20% of the broker-dealer's excess net capital, (ii) prohibit a broker-dealer from withdrawing or otherwise distributing equity capital or making related party loans if after such distribution or loan, the broker-dealer has net capital of less than $300,000 or if the aggregate indebtedness of the broker-dealer's consolidated entities would exceed 1,000% of the broker-dealer's net capital and in certain other circumstances, and (iii) provide that the SEC may, by order, prohibit withdrawals of capital from a broker-dealer for a period of up to 20 business days, if the withdrawals would exceed, in any 30-day period, 30% of the broker-dealer's excess net capital and if the SEC believes such withdrawals would be detrimental to the financial integrity of the firm or would unduly jeopardize the broker-dealer's ability to pay its customer claims or other liabilities.
Compliance with regulatory net capital requirements could limit those operations that require the intensive use of capital, such as underwriting and trading activities, and also could restrict the Company's ability to withdraw capital from its affiliated broker-dealers, which in turn could limit its ability to pay dividends, repay debt and redeem or repurchase shares of its outstanding capital stock.
The Company believes that at all times FBRC and FBR Direct have been in compliance in all material respects with the applicable minimum net capital rules of the SEC and the NASD and FBR International has been in compliance in all material respects with the applicable minimum net capital rules of the SFA. As of September 30, 1997, FBRC was required to maintain minimum net capital, in accordance with SEC rules, of approximately $1.5 million and had total net capital of approximately $31.5 million, or approximately $30
million in excess of the minimum amount required. As of September 30, 1997, FBR Direct was required to maintain minimum net capital, in accordance with SEC rules, of $50,000 and had total net capital of approximately $122,000, or approximately $72,000 in excess of the minimum amount required. FBR International was required to maintain minimum net capital under SFA rules of 720,000 European Currency Units (ECUs) (approximately $820,000) and had total net capital of approximately $1.4 million, or approximately $600,000 in excess of the minimum amount required.
A failure of a broker-dealer to maintain its minimum required net capital would require it to cease executing customer transactions until it came back into compliance, and could cause it to lose its NASD membership, its registration with the SEC or require its liquidation. Further, the decline in a broker-dealer's net capital below certain "early warning levels," even though above minimum net capital requirements, could cause material adverse consequences to the broker-dealer.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of November 30, 1997 are as follows:
NAME AGE POSITIONS
---- --- ---------
Emanuel J. Friedman... 51 Chairman and Chief Executive Officer; Director
Eric F. Billings...... 45 Vice Chairman and Chief Operating Officer; Director
W. Russell Ramsey..... 37 President and Secretary; Director
Eric Y. Generous...... 37 Executive Vice President and Chief Financial Officer
Nicholas J. Nichols... 57 Executive Vice President and Director of Compliance
Robert S. Smith....... 38 General Counsel
Kurt R. Harrington.... 45 Treasurer and Chief Accounting Officer
Wallace L. Timmeny.... 60 Director Nominee
Mark R. Warner........ 42 Director Nominee
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Emanuel J. Friedman
Mr. Friedman is Chairman and Chief Executive Officer of FBR. He has continuously served as Chairman and Chief Executive Officer since co-founding the Company in 1989. Mr. Friedman is involved in FBR's investment banking, research, brokerage and asset management activities. He also manages FBR Ashton, Limited Partnership, a hedge fund sponsored by FBRIM. Mr. Friedman founded the Friedman, Billings, Ramsey Foundation, a charitable foundation, in 1993 and currently serves as a director. Mr. Friedman entered the securities industry in 1973 when he joined Legg Mason Wood Walker & Co., Inc., and from 1985 until 1989 he was Senior Vice President in the institutional sales group at Johnston, Lemon & Co., Incorporated, a Washington, D.C. brokerage firm.
Eric F. Billings
Mr. Billings is Vice Chairman and Chief Operating Officer of FBR. He has continuously served as Vice Chairman and Chief Operating Officer since co- founding the Company in 1989. Mr. Billings is involved in FBR's investment banking, research, brokerage and asset management activities. He also manages FBR Weston, Limited Partnership, a hedge fund sponsored by FBRIM. Mr. Billings entered the securities industry in 1982 when he joined Legg Mason Wood Walker & Co., Inc., and from 1984 until 1989 served as Senior Vice President in the institutional sales group at Johnston, Lemon & Co., Incorporated, a Washington, D.C. brokerage firm.
W. Russell Ramsey
Mr. Ramsey is President of FBR. He has continuously served as President since co-founding the Company in 1989. Mr. Ramsey is involved in FBR's investment banking, research, brokerage and asset management activities. Prior to co-founding FBR, Mr. Ramsey served as Vice President in the institutional sales group at Johnston, Lemon & Co., Incorporated, a Washington, D.C. brokerage firm. Mr. Ramsey serves as a director of Consolidation Capital Corporation, a publicly-held company engaged in the consolidation of distribution industries.
Eric Y. Generous
Mr. Generous is Chief Financial Officer and Executive Vice President of FBR. He has continuously served as an officer since joining the Company at its inception in 1989. Mr. Generous entered the securities industry in 1983 when he joined Legg Mason Wood Walker & Co., Inc., and from 1984 until 1989 served in the institutional sales group at Johnston, Lemon & Co., Incorporated, a Washington, D.C. brokerage firm.
Nicholas J. Nichols
Mr. Nichols joined the Company at its inception in 1989 and has been Director of Compliance throughout that period. Mr. Nichols entered the securities industry in 1968 when he joined Mason & Co., Inc. (currently Legg Mason Wood Walker & Co., Inc.). Mr. Nichols established Legg Mason Wood Walker & Co., Inc.'s institutional trading desk, and became a corporate officer and shareholder prior to leaving the firm in 1979. For the next seven years, Mr. Nichols monitored and evaluated congressional and regulatory securities activities as the Director of Legislative Affairs, American Institute of CPAs. Mr. Nichols joined the institutional sales group at Johnston, Lemon & Co., Incorporated as a Senior Vice President in 1986.
Robert S. Smith
Mr. Smith joined the Company as its General Counsel in January 1997. Prior to joining the Company, Mr. Smith was a partner of McGuire, Woods, Battle & Boothe, LLP, where he had been in practice since 1986, and represented the Company from its inception in 1989. Mr. Smith formerly practiced as a lawyer in the United Kingdom from 1982-1985.
Kurt R. Harrington
Mr. Harrington joined the Company in March, 1997, as Vice President, Finance/Treasurer. From September, 1996 to March, 1997, Mr. Harrington was a consultant to the venture capital industry. For the five years prior thereto, Mr. Harrington was Chief Financial Officer of Jupiter National, Inc., a publicly-traded venture capital company, and in this capacity served as a director of a number of companies, including Viasoft, Inc., a publicly-traded software company from January 1994 to October 1995. Mr. Harrington is a Certified Public Accountant.
Wallace L. Timmeny
Mr. Timmeny has been named to become a director of the Company on the Effective Date. Mr. Timmeny is a partner in the Washington, D.C. office of Dechert Price & Rhoads, which he joined in 1996. From 1984 to 1996, Mr. Timmeny was a partner in McGuire, Woods, Battle & Boothe, LLP in Washington, D.C. Mr. Timmeny is currently chairman of the Executive Council of the Securities Law Committee of the Federal Bar Association and past chairman of an American Bar Association ("ABA") task force on the SEC's criminal reference process, member of the ABA's task force on broker-dealer supervision and compliance, and adjunct professor at American University School of Law, George Mason University School of Law and Georgetown University School of Law. From 1965 to 1979, Mr. Timmeny was an attorney with the SEC, and ultimately the Deputy Director of the Division of Enforcement of the SEC. Mr. Timmeny has provided and may continue to provide legal services to the Company.
Mark R. Warner
Mr. Warner has been named to become a director of the Company on the Effective Date. For more than five years, Mr. Warner has served as a Managing Director of Columbia Capital Corporation, an investment company specializing in emerging technologies. As Managing Director of Columbia Capital, Mr. Warner helped found 4 public and 10 private companies. In 1996, Mr. Warner was the Democratic candidate in the race for U.S. Senator from Virginia. Mr. Warner was Chairman of the Democratic Party of Virginia from 1993 to 1995. Mr. Warner currently serves on the Executive Board of Directors of the Northern Virginia Business Roundtable, and he was founding Chairman of the Virginia Health Care Foundation. Mr. Warner also serves on the Boards of Directors of the Presidential Investment and Services Policy Advisory Committee, George Washington University and Virginia Union University.
EXECUTIVE COMPENSATION
The following table shows compensation earned during the fiscal year ended December 31, 1996 by (i) the Chief Executive Officer and (ii) the Company's four other most highly compensated individuals who were serving as officers on December 31, 1996 and whose salary plus bonus exceeded $100,000 for the year ended December 31, 1996 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
NAME AND OTHER ANNUAL PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) ------------------ --------- --------- ------------------ Emanuel J. Friedman .............. 600,000 2,809,122 1,825,154 Chairman, Chief Executive Officer and Director Eric F. Billings ................. 600,000 2,809,122 1,527,927 Vice Chairman, Chief Operating Officer and Director W. Russell Ramsey................. 600,000 2,809,122 1,457,927 President and Director Eric Y. Generous.................. 240,000 475,000 229,501 Executive Vice President and Chief Financial Officer Nicholas J. Nichols............... 240,000 120,000 114,550 Executive Vice President and Di- rector of Compliance |
COMMITTEES OF THE BOARD OF DIRECTORS
Upon completion of the Offering, the Company's Board of Directors will establish three committees: an Audit Committee, a Compensation Committee and an Executive Committee.
Audit Committee
The Audit Committee will meet with management to consider the adequacy of the internal controls and the objectivity of financial reporting. The Audit Committee also will meet with the independent auditors and with appropriate financial personnel of the Company regarding these matters. The Audit Committee will recommend to the Company's Board the appointment of independent auditors, subject to ratification by the shareholders of the Company at the annual meeting. The independent auditors will periodically meet alone with the Audit Committee and have unrestricted access to the Audit Committee. The Audit Committee is anticipated to consist of Mr. Timmeny and Mr. Warner, neither of whom is an employee of the Company.
Compensation Committee
The Compensation Committee's functions include administering management incentive compensation plans and making recommendations to the Company's Board and Executive Committee with respect to the compensation of directors and officers of the Company. The Compensation Committee will also supervise the Company's employee benefit plans. The Compensation Committee is anticipated to consist of Mr. Timmeny and Mr. Warner.
To the extent that any permitted action taken by the Company's Board conflicts with action taken by the Compensation Committee, the actions of the Company's Board shall control.
Executive Committee
The Executive Committee will be comprised of the employee directors; Messrs. Friedman, Billings and Ramsey. The Executive Committee will exercise the authority of the Board of Directors between meetings of the full Board (other than such authority as is reserved to the Audit Committee, the Compensation Committee, or the full Board).
COMPENSATION OF DIRECTORS
Each non-employee director will receive a single annual retainer ("Annual Retainer") of $20,000 for service on the Company's Board. All non-employee directors will also receive a fee of $1,000 for each in-person meeting of the Company's Board that they attend and a fee of $500 for each telephonic meeting of the Company's Board and each meeting of any committee of the Company's Board that they attend. The chair of the Audit Committee will receive an additional annual retainer of $5,000. Directors who are employees of the Company or any subsidiary of the Company will not receive additional compensation for service as directors.
THE NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
FBR has adopted the FBR Non-Employee Director Stock Compensation Plan (the "Director Stock Plan"). The purposes of the Director Stock Plan are to (i) promote a greater identity of interests between FBR's non-employee directors and its shareholders, and (ii) attract and retain individuals to serve as directors and to provide a more direct link between directors' compensation and shareholder value.
General
The Director Stock Plan will be administered by the Company's Board or a committee of the Company's Board designated for such purpose.
Pursuant to the terms of the Director Stock Plan, non-employee directors of FBR will be eligible to participate in the Director Stock Plan following the Offering (each, an "Eligible Director"). A total of 100,000 shares of Class A Common Stock will be reserved for issuance and available for grants under the Director Stock Plan.
In the event of any change in corporate capitalization (such as a stock split) or a corporate transaction (such as a merger, consolidation, separation, including a spin-off, or other distribution of stock or property of FBR, any reorganization or any complete liquidation of FBR), the Company's Board or the designated committee may make such substitutions or adjustments in the aggregate number and class of shares reserved for issuance under the Director Stock Plan, in the number, kind and option price of shares subject to outstanding options, in the number and kind of shares subject to other outstanding awards granted under the Director Stock Plan, and/or such other equitable substitutions or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any award must always be a whole number.
Class A Common Stock
With respect to the annual retainer and fees paid to directors (the "Director Fees"), each Eligible Director may make an annual irrevocable election to receive shares of Class A Common Stock in lieu of all or a portion (in 25% increments) of the Director Fees, provided that the election of cash and Class A Common Stock under the Director Stock Plan are alternatives and taken together, may not exceed 100% of such Director Fees. The number of shares of Class A Common Stock granted to an Eligible Director will be equal to the appropriate percentage of the Director Fees payable in each fiscal quarter divided by the fair market value (as defined in the Director Stock Plan) of a share of Class A Common Stock on the last business day of such fiscal quarter rounded to the nearest number of shares of Class A Common Stock. Fractional shares of Class A Common Stock will not be granted and any remainder in Director Fees which otherwise would have purchased fractional shares will be paid in cash.
Class A Options
On the day the Offering becomes effective, each Eligible Director shall be granted options ("Director Options") for 20,000 shares of Class A Common Stock. After each annual meeting of shareholders during such director's term, each Eligible Director shall be granted Director Options for 3,000 shares of Class A Common
Stock. The exercise price for the Director Options will be 100% of the fair market value of Class A Common Stock on the date of the grant of such Director Option; provided, that, Director Options granted prior to or upon consummation of the Offering will be granted at the initial public offering price. Each Director Option will become vested and exercisable on the first anniversary of the date of grant of such Director Option. Each vested Director Option shall terminate one year after the optionee's service as a director ceases for any reason, but no later than the 10th anniversary of the date of grant. Any unvested Director Options terminate and are cancelled as of the date the optionee's service as a Director ceases for any reason. All Director Options become fully vested and exercisable upon a Change of Control (as defined below).
Transferability
Grants and awards under the Director Stock Plan are nontransferable other than by will or laws of descent and distribution, or pursuant to qualified domestic relations order or by gift to members of the holder's immediate family, whether directly or indirectly or by means of a trust or partnership, and, during the Eligible Director's lifetime, may be exercised only by the Eligible Director or his or her legal representative.
Amendments
The Company's Board may at any time terminate, amend or modify the Director Stock Plan; provided that no termination, amendment, or modification will be made which will impair the rights of Eligible Directors with outstanding Director Options or awards and, to the extent required by law or stock exchange rule, no such amendment will be made without the approval of FBR's shareholders.
EMPLOYEE INCENTIVE COMPENSATION PLANS
The Company's philosophy is to compensate employees based on their individual performance and the Company's overall performance. Two main principles guiding this philosophy are to pay market rates and to provide long-term employee stock ownership. FBR considers equity ownership by employees to be critical to its long-term success. When calculating total compensation, FBR considers both cash compensation and equity awarded through stock or options that vest over time.
It is anticipated that, following the consummation of the Offering, the Compensation Committee of the Board of Directors will review all plans, policies and arrangements affecting employees of FBR and will consider what changes are appropriate, if any, for recommendation to the full Board of Directors.
It is anticipated that the Company will establish additional incentive, compensation and benefit plans comparable to those provided at other public investment banking firms, including plans allowing certain employees to receive a portion of the warrants in companies which issue warrants to FBR as a part of FBR's underwriting compensation and plans which allow certain employees to co-invest in the Company's principal investments.
THE 1997 STOCK AND ANNUAL INCENTIVE PLAN
FBR has adopted the Friedman, Billings, Ramsey Group, Inc. 1997 Stock and Annual Incentive Plan (the "1997 Stock and Annual Incentive Plan"). The 1997 Stock and Annual Incentive Plan is designed to promote the success and enhance the value of FBR by linking the interests of certain of the employees of FBR and its subsidiaries and affiliates ("Participants") to those of FBR's shareholders and by providing Participants with an incentive for outstanding performance. The 1997 Stock and Annual Incentive Plan is further intended to provide flexibility to FBR in its ability to motivate, attract and retain Participants upon whose judgment, interest and special efforts FBR's successful operation largely is dependent. As determined by the Compensation Committee, or any other designated committee of the Company's Board (the "Committee"), or by the Board or its Executive
Committee with respect to annual cash incentive awards, employees of FBR or its subsidiaries or affiliates, including employees who are members of the Company's Board, are eligible to participate in the 1997 Stock and Annual Incentive Plan. Non-employee directors are not eligible to participate in the 1997 Stock and Annual Incentive Plan. The 1997 Stock and Annual Incentive Plan is intended to remain in effect for 10 years, to 2007. The description below is intended as a summary of material terms only.
General
The 1997 Stock and Annual Incentive Plan will be administered by the Committee or the Board and provides for the grant of stock options (both non- qualified and incentive stock options) ("Options" or "Awards").
The 1997 Stock and Annual Incentive Plan provides that the total number of shares of Class A Common Stock available for grant under the 1997 Stock and Annual Incentive Plan may not exceed 4,900,000 shares.
The 1997 Stock and Annual Incentive Plan is not subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and is not qualified under Section 401(a) of the Code.
The term of Options granted under the 1997 Stock and Annual Incentive Plan may not exceed 10 years. Unless otherwise determined by the Committee or the Board, Options (other than "incentive stock options" under Section 401(a) of the Code) will generally vest from three to five years after the grant date. Unless otherwise determined by the Committee or the Board, Options will have a fair market value exercise price.
A Participant exercising an Option may pay the exercise price in full in cash, or, if approved by the Committee or the Board, with previously acquired shares of Class A Common Stock or in a combination thereof. The Committee or the Board, in its discretion, may allow cashless exercises of Options.
Options are nontransferable other than by will or laws of descent and distribution (and, in the case of a nonqualified Option, pursuant to a domestic relations order or by gift to members of the holder's immediate family, whether directly or indirectly, or by means of a trust or partnership or limited liability company), or any transferee described above, and, during the Participant's lifetime, may be exercised only by the Participant, any such transferee or a legal representative.
During the 60-day period following a Change of Control, any Participant will have the right to surrender all or part of any Option held by such Participant in lieu of payment of the exercise price, and to receive cash (or stock, if necessary to preserve pooling of interests accounting for the Change of Control) in an amount equal to the excess of (i) the higher of the price received for Class A Common Stock in connection with the Change of Control and the highest reported sales price of a share of Class A Common Stock on a national exchange or on Nasdaq during the 60-day period prior to and including the date of a Change of Control (the "Change of Control Price"), over (ii) the exercise price (the excess of (i) over (ii) being referred to as the "Spread") multiplied by the number of shares of Class A Common Stock granted in connection with the exercise of such Option; provided that, if the Option is an incentive stock option, the Change of Control Price will equal the fair market value of a share of the Class A Common Stock on the date, if any, that such Option is cancelled.
Other Awards
A stock appreciation right ("SAR") permits the Participant to receive in cash or in shares of Class A Common Stock (or a combination), as determined by the Committee or the Board, an amount equal to the excess of the fair market value of a share of Class A Common Stock on the date of exercise over the SAR exercise price, times the number of shares with respect to which the SAR is exercised. Restricted Stock may be granted subject to performance or service- based goals upon which restrictions will lapse. Performance units will be subject to performance goals and restrictions, and will be payable in cash or shares of Class A Common Stock (or a combination) as determined by the Committee or the Board. The Committee or the Board may grant dividend and interest equivalents with respect to awards.
Change of Control
In the event of a Change of Control, any Option that is not then exercisable
and vested will become fully exercisable and vested, Restricted Stock will
vest and performance units will be deemed earned. The 1997 Stock and Annual
Incentive Plan defines a change of control ("Change of Control") as generally
(i) the acquisition of 50% or more of the Common Stock or voting securities of
FBR by a person or group, (ii) a change in a majority of the Company's Board,
unless approved by the incumbent directors, (iii) the approval by FBR's
shareholders of certain mergers involving FBR and (iv) approval by FBR's
shareholders of a liquidation, dissolution or sale of substantially all of the
assets of FBR.
Federal Income Tax Considerations of Options
The following brief summary of the United States federal income tax rules currently applicable to nonqualified stock options and incentive stock options is not intended to be specific tax advice to Participants under the 1997 Stock and Annual Incentive Plan.
Two types of stock options may be granted under the 1997 Stock and Annual Incentive Plan: nonqualified stock options ("NQOs") and incentive stock options ("ISOs"). The grant of an Option generally has no immediate tax consequences to the Participant or the Company. Generally, Participants will recognize ordinary income upon the exercise of NQOs. In the case of NQOs, the amount of income recognized is measured by the difference between the exercise price and the fair market value of Common Stock on the date of exercise. The exercise of an ISO for cash generally has no immediate tax consequences to a Participant or to the Company. Participants may, in certain circumstances, recognize ordinary income upon the disposition of shares acquired by exercise of an ISO, depending upon how long such shares were held prior to disposition. Special rules apply to shares acquired by exercise of ISOs for previously held shares. In addition, special tax rules may result in the imposition of a 20% excise tax on any "excess parachute payments" that result from the acceleration of the vesting or exercisability of Awards upon a Change of Control.
The Company is generally required to withhold applicable income and payroll taxes ("employment taxes") from ordinary income which a Participant recognizes on the exercise or receipt of an Award. The Company thus may either require Participants to pay to the Company an amount equal to the employment taxes the Company is required to withhold or retain or sell without notice a sufficient number of the shares to cover the amount required to be withheld.
The Company generally will be entitled to a deduction for the amount includible in a Participant's gross income for federal income tax purposes upon the exercise of an NQO or upon a disqualifying disposition of shares acquired upon exercise of an ISO.
Annual Incentive Awards
An annual cash bonus payment may be made to the Named Executive Officers, Managing Directors, and certain other employees as specified in the 1997 Stock and Annual Incentive Plan. The annual cash bonus component of the plan (referred to above as the "New Plan") is intended to reward the senior executives responsible for the overall performance of the Company, (for their contribution to the profitability of the corporate group), to reward certain Managing Directors responsible for business groups (for the profitability of those groups), and to align the interests of those executives with the interests of the Company's shareholders. Each fiscal year after 1997, a pool equal to up to thirty percent of FBR's adjusted pre-tax net income (before annual cash bonus payments under the 1997 Stock and Annual Incentive Plan) will be established for participants in the annual cash bonus component of the plan, provided that the pool will be reduced to the extent that aggregate compensation and benefits expense for the year (including annual cash bonus payments under the plan) would otherwise exceed fifty-five percent of revenues; provided, that, if such reduction would cause the pool to be reduced below an amount equal to 90% of the pool for the immediately preceding fiscal year of the Company, the reduction shall be limited to such amount which would result in the pool being equal to 90% of the pool for
the immediately preceding fiscal year. The Board of Directors or its Executive Committee will determine the allocation of such pool. Substantially all of the pool is initially anticipated to be allocated to the Named Executive Officers. Upon a Change of Control, a bonus award shall be paid based upon net income and gross revenues through the date of the Change of Control, unless the Board of Directors determines to continue the bonus component for the full year. The Committee may make advance payments to participants during a fiscal year.
Amendments
The Company's Board may at any time terminate, amend, or modify the 1997 Stock and Annual Incentive Plan; provided that no termination, amendment, or modification will be made which will impair the rights of Award holders and, to the extent required by law or stock exchange rule, no such amendment will be made without the approval of FBR's shareholders.
THE KEY EMPLOYEE INCENTIVE PLAN
All key employees shall be eligible to participate in an annual bonus plan (the "Key Employee Plan"). Cash awards under the Key Employee Plan will be determined by the Committee upon the recommendations of the Chief Executive Officer. If termination of employment occurs because of the occurrence of certain events, a pro rated award will be paid.
THE EMPLOYEE STOCK PURCHASE PLAN
The Company's Board and shareholders have adopted and approved FBR's 1997 Employee Stock Purchase Plan (the "Purchase Plan"). Subject to meeting federal and state securities law requirements, the Purchase Plan will become effective at the consummation of the Offering, or as soon as practicable thereafter.
The purpose of the Purchase Plan is to further the long-term stability and financial success of FBR by providing a method for employees to increase their ownership of Common Stock. Under the Purchase Plan 1,000,000 shares of Class A Common Stock will be available for issuance and sale under the plan. Unless sooner terminated at the discretion of the Board of Directors, the plan will terminate when participants become entitled to purchase a number of shares greater than the remaining number of reserved shares available for purchase.
Eligibility
All employees of FBR and its designated subsidiaries are generally eligible to participate in the Purchase Plan, other than employees whose customary employment is twenty hours or less per week, or is for not more than five months in a calendar year or are ineligible to participate due to Code restrictions.
General Description
A participant in the Purchase Plan may authorize monthly salary deductions of a maximum of 15% and a minimum of 1% of base compensation. The fair market value of shares which may be purchased by any employee during any calendar year may not exceed $25,000. The amounts so deducted and contributed are applied to the purchase of full shares of Class A Common Stock at the lesser of 85% of the fair market value of such shares on the date of purchase or on the offering date. The offering dates will be January 1 and July 1 of each Purchase Plan year, provided that the initial offering period shall commence as soon as practicable following the consummation of the Offering. Shares will be purchased for participating employees on the last business days of June and December for each Purchase Plan year. Shares purchased under the Purchase Plan will be held in separate accounts for each participant and a delivery of shares from the account may be requested no more than twice during any 12- month period.
Participants may increase or decrease their payroll deductions at any time but not more than once during any offering period. Participants may also withdraw from participation in the Purchase Plan at any time. If a participant withdraws from the Purchase Plan, any contributions which have not been used to purchase shares shall be refunded. A participant who has withdrawn may not participate in the Purchase Plan again until the next offering period.
In the event of retirement or other termination of employment, any contributions which have not yet been used to purchase shares will be refunded and a certificate issued for the full shares in the participant's account. Alternatively, a participant may elect to have his or her shares sold and the proceeds, less selling expenses, remitted to him or her. In the event of a participant's death, any contributions which have not yet been used to purchase shares and all shares in his account will be delivered to the participant's beneficiary designated in writing and filed with FBR, or, if no beneficiary has been designated or survives the participant, to the participant's estate.
Amendments to the Purchase Plan
The Company's Board may at any time, or from time to time, amend the Purchase Plan in any respect; provided, however, that the shareholders of FBR must approve any amendment that would increase the number of securities that may be issued under the Purchase Plan, or would require shareholder approval under Section 423 of the Code.
EMPLOYEE SAVINGS PLAN
FBR has established a defined contribution plan covering all full-time salaried employees of FBR and its subsidiaries. The plan is intended to meet the requirements of Section 401(a) of the Code and includes a qualified cash or deferral arrangement under section 401(k) of the Code. The purpose of the plan is to encourage regular savings on the part of employees of FBR and to give such employees a proprietary interest in FBR, and, therefore, an additional incentive to remain in its employ and to promote its success.
Participants may elect to defer, in the form of contributions to the plan through regular payroll deductions, from 1% to 6% of their compensation (not exceeding $160,000 as indexed for cost of living increases) on a pre-tax basis and, at the discretion of the Board of Directors each year, receive a Company contribution to their account equal to 50% of their deferrals. Participants who elect to defer the full 6% of their compensation may defer, on a pre-tax but non-matched basis, additional amounts within the limits specified by the plan. Participants also may make after-tax contributions within the limits specified by the plan. Participants are fully vested at all times in their pre-tax and after-tax contributions and become fully vested with respect to FBR's matching contributions after two years of service, upon attaining age 65, disability or death.
SECURITIES TRADING FOR EMPLOYEES
Employees of the Company may buy or sell securities to or from FBRC where FBRC acts as agent in its capacity as a registered securities broker-dealer. Such transactions are generally executed on terms (i.e., commissions, mark-ups and mark-downs) more favorable to the employee-customer than those available to similarly-situated non-employee customers of the Company. As the Company incurs expenses in connection with such trades which may exceed the commission paid by the employee-customer, the Company may incur losses in connection with the execution of such trades.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation provide that, to the fullest extent that Virginia law permits the limitation or elimination of the liability of directors and officers, such directors and officers will not be liable to FBR or its shareholders. At this time, Virginia law does not permit any limitation of liability if a director engages in willful misconduct or a knowing violation of the criminal law.
To the fullest extent permitted by Virginia law, the Company's Articles of Incorporation require it to indemnify any director or officer of FBR who is made a party to any proceeding (including a proceeding by or in the right of FBR) because he or she was or is a director or officer of FBR, or because such individual is or was serving FBR or any other legal entity in any capacity while a director or officer of the Company, against any liability, including reasonable expenses and legal fees, incurred in the proceeding, except such liabilities and
expenses as are incurred as a result of such individual's willful misconduct or knowing violation of the criminal law. Under the Company's Articles of Incorporation, "proceeding" includes pending, threatened or completed actions of all types, whether civil, criminal, administrative or investigative. Similarly, "liability" is defined to include not only judgments but also settlements, penalties, fines and certain excise taxes. The Company's Articles of Incorporation also provide that FBR may, but is not obligated to, indemnify its other employees or agents. The Company must indemnify any director or officer who is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise while a director or officer of the Company, to the full extent provided by Virginia law. The indemnification provisions also require FBR to pay reasonable expenses incurred by a director or officer of FBR in a proceeding in advance of the final disposition of any such proceeding, provided that the indemnified person undertakes to repay FBR if it is ultimately determined that such person was not entitled to indemnification.
The rights of indemnification provided in the Company's Articles of Incorporation are not exclusive of any other rights which may be available under any insurance or other agreement, by vote of shareholders or disinterested directors or otherwise. In addition, the Company's Articles of Incorporation authorize FBR to maintain insurance on behalf of any person who is or was a director, officer, employee or agent of FBR, whether or not FBR would have the power to provide indemnification to such person. However, no person is entitled to indemnification by the Company to the extent such person is indemnified by another, including an insurer.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling FBR pursuant to the foregoing provisions, FBR has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to beneficial ownership of Common Stock as of November 30, 1997, and as adjusted to reflect the completion of the Offering, by (i) each Named Executive Officer, (ii) each director, (iii) each holder of more than 5% of Common Stock and (iv) all current directors and executive officers as a group. Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable.
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK TO BE
BENEFICIALLY BENEFICIALLY OWNED
OWNED PRIOR AFTER OFFERING AND
NAME TO OFFERING(1) PNC TRANSACTION(1),(4)
---- ------------------ --------------------------
DIRECTORS, NAMED NUMBER OF
EXECUTIVE OFFICERS AND SHARES
5% BENEFICIAL OWNERS NUMBER PERCENT OFFERED(3) NUMBER PERCENT
---------------------- ---------- ------- ---------- -------------- -----------
Emanuel J. Friedman..... 10,517,100 26.3% 0 10,517,100 21.0%
Eric F. Billings........ 8,804,400 22.0 0 8,804,400 17.6
W. Russell Ramsey....... 8,398,500 21.0 710,264(5) 5,947,079 11.9
Eric Y. Generous........ 1,320,000 3.3 194,123 650,000 1.3
Nicholas J. Nichols..... 660,000 1.6 95,613 330,000 0.7
Jonathan Billings....... 2,310,000 5.8 0 2,310,000 4.6
Wallace L. Timmeny...... 0 0.0 -- -- --
Mark D. Warner.......... 0 0.0 -- -- --
All executive officers
and directors as a
group (5 persons)...... 29,700,000 74.2% 1,000,000 26,248,579 52.5%
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(3) Does not include 1,741,157; 475,877; and 234,387 shares of Class A Common
Stock to be sold by W. Russell Ramsey (or the William Russell Ramsey
Charitable Trust), Eric Y. Generous and Nicholas J. Nichols, respectively,
to PNC in the PNC Transaction. See Note 5 and "Business--Strategic
Business Relationship with PNC Bank Corp."
(4) Without giving effect to exercise of the Over-allotment Option.
(5) Includes shares held of record by the William Russell Ramsey Charitable Trust.
DESCRIPTION OF CAPITAL STOCK
Prior to the closing of the Offering, the authorized capital stock of the Company will consist of 150 million shares of Class A Common Stock, 100 million shares of Class B Common Stock, and 15 million shares of preferred stock, $0.01 par value per share ("Preferred Stock").
COMMON STOCK
As of the date of this Prospectus, there were no shares of Class A Common Stock outstanding and 40,029,000 shares of Class B Common Stock were held of record by 24 shareholders. Holders of Class A Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders and holders of Class B Common Stock are entitled to three votes per share. Except as otherwise provided by law, the holders of shares of Common Stock vote as one class. After the completion of the Offering, the officers and directors of the Company will beneficially own shares of Class B Common Stock which, in the aggregate, account for approximately 73.1% of the outstanding Common Stock. In addition, all of the outstanding shares of Class B Common Stock have been deposited in the Voting Trust, the trustees of which are Messrs. Friedman, Billings and Ramsey. Under the terms of the Voting Trust, a majority of Messrs. Friedman, Billings and Ramsey will be able to control 89.1% of the voting power of the Company following the Offering (87.8% if the Over- allotment Option is exercised in full) and thus will be able to control the outcome of all corporate actions requiring shareholder approval (other than corporate actions required to be approved by a vote of the holders of shares of Class A Common Stock voting as a separate class), including elections of directors and amendments to the Company's Articles of Incorporation (the "Articles") and Bylaws. See "Risk Factors--Corporate Governance Controlled by Insiders" and "Principal and Selling Shareholders."
Subject to preferences that may be applicable to any outstanding series of Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Company's Board out of funds legally available therefor. Dividend payments and advances to the Company by FBRC and FBR Direct are restricted by the provisions of the net capital rules of the SEC and the NASD. See "Business--Net Capital Requirements." In the event of a liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior liquidation rights of Preferred Stock, if any, then outstanding. The Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are fully paid and non-assessable, and the shares of Common Stock to be outstanding upon completion of the Offering contemplated by this Prospectus will be fully paid and non-assessable. Shares of Class B Common Stock convert to shares of Class A Common Stock in certain circumstances, including (i) upon sale or other transfer, (ii) at the time the holder of such shares of Class B Common Stock ceases to be affiliated with the Company, and (iii) upon the sale of such shares in a registered public offering.
PREFERRED STOCK
The Articles authorize 15 million shares of Preferred Stock, none of which are outstanding. The Company's Board has the authority to issue the shares of Preferred Stock in one or more series, to fix the rights, preferences, privileges, limitations and restrictions granted to or imposed upon any unissued shares of Preferred Stock and to fix the number of shares constituting any series and the designations of such series, without any further vote or action by the stockholders. The Company's Board, without shareholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. The issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change of control of the Company. The Company has no present plans to issue any Preferred Stock.
VOTING TRUST AGREEMENT AND SHAREHOLDERS AGREEMENT
The Existing Shareholders have deposited the 40,029,000 shares of Class B Common Stock held by them into the Voting Trust. Pursuant to the terms of the Voting Trust, the trustees have sole discretion to vote the
shares of Class B Common Stock deposited in the Voting Trust. As long as there are three trustees, the vote of a majority of the trustees shall control. In the event that there are two trustees, any action requires the concurrence of both trustees; if a concurrence cannot be reached, the matter shall be brought to a vote of all of the shareholders whose shares have been deposited in the Voting Trust (the "Voting Trust Shareholders"). Upon consummation of the Offering, the shares in the Voting Trust will constitute approximately 89.1% of the voting power of the Company (87.8% if the Over-allotment Option is exercised in full). Accordingly, the trustees will retain sufficient voting power to control the outcome of all corporate actions submitted to a vote of shareholders (other than corporate actions required to be approved by a vote of holders of Class A Common Stock voting as a separate class). Amendment and termination of the Voting Trust must be approved by the unanimous vote of the trustees or by vote of the Voting Trust Shareholders. The agreement that governs the Voting Trust (the "Voting Trust Agreement") has been filed as an Exhibit to the Registration Statement of which this Prospectus forms a part and the description thereof is qualified in its entirety by reference to the Voting Trust Agreement.
Prior to the Offering, the Company had in place the Shareholders Agreement which, among other things, placed certain restrictions on the transfer and ownership of Common Stock. The Shareholders Agreement will be terminated by written agreement of the Company and the Existing Shareholders upon consummation of the Offering.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS AND OF VIRGINIA LAW
Certain provisions of the Articles and Bylaws and applicable law could make the acquisition of the Company by means of a tender offer, a proxy contest or otherwise and the removal of incumbent officers and directors more difficult. The Articles authorize the Company's Board to issue additional shares of Class A Common Stock and Class B Common Stock and to designate and issue Preferred Stock as described above. Such shares could be issued without additional shareholder approvals, subject to compliance with applicable NYSE rules. These authorized but unissued shares could be used for, among other purposes, additional securities offerings, grants of stock based incentives, stock dividends or stock splits, or the issuance of rights or warrants, including rights issued in connection with a shareholder rights plan. The issuance of such shares could have the effect of delaying, deterring or preventing a change of control of the Company or the removal of incumbent officers or directors.
The Articles also provide that, subject to the rights of the holders of any shares of Preferred Stock at the time outstanding to elect directors under specified circumstances, a director of the Company may be removed from office only for cause by the vote of at least a majority of the voting power of all voting stock at the time outstanding and entitled to vote in the election of directors generally, voting as a single class (the "Board Provision").
The Articles also require the affirmative vote of at least 80% of the voting power of all voting stock at the time outstanding and entitled to vote generally in the election of directors, voting together as a single class for the shareholders to adopt, amend or repeal Bylaws which (i) would require the Company to hold a special meeting of shareholders on the request or demand of any person or entity; or (ii) would govern the nomination of persons for election to the Board of Directors or the proposal of business to be considered by the shareholders at an annual or special meeting of shareholders (the "Bylaw Limitations"). The Bylaw Limitations do not affect the power of the Board to adopt, amend or repeal the Bylaws of the Company.
Under Virginia law, extraordinary matters, such as amendments to the Articles, mergers, share exchanges, sales of all or substantially all the assets of a corporation outside the ordinary course of business or dissolution must be approved by more than two-thirds of the votes entitled to be cast at a meeting at which a quorum is present unless otherwise provided in the Articles of Incorporation of the corporation. The Company's Articles contain a provision that reduces the shareholder vote required for approving such amendments, mergers, share exchanges and sales of all or substantially all the assets other than in the ordinary course of business from the statutory two- thirds vote to a majority vote of the voting power of all voting stock outstanding and entitled to vote generally in the election of directors of each voting group entitled to vote on the matter.
The Articles require the affirmative vote of at least 80% (the "Super
Majority Vote") of the voting power of all voting stock at the time
outstanding and entitled to vote generally in the election of directors,
voting together as a single class to approve amendments to the Articles (i) to
amend the voting provisions described in the immediately preceding paragraph;
(ii) to amend the Bylaw Limitations; and (iii) to amend the Articles to
include a provision which would require the Company to hold a special meeting
of shareholders on the request or demand of any person or entity, or govern
the nomination of persons for election to the Board of Directors or the
proposal of business to be considered by the shareholders at an annual or
special meeting of shareholders.
The Articles also contain a provision indemnifying its officers and directors to the maximum extent provided by applicable law. See "Management-- Limitation of Liability and Indemnification Matters."
The Company has opted not to be subject to the affiliated transaction provisions of the Virginia Stock Corporation Act (the "VSCA") or the control share acquisition provisions of the VSCA.
The Company's Bylaws also provide that a special meeting of shareholders may be called only by the Company's Chief Executive Officer, President, the Chairman, the Vice Chairman or a majority of the members of the Company's Board of Directors and contain procedural requirements generally setting forth a prior notice requirement of a minimum of 90 days and a maximum of 120 days for shareholders wishing to make nominations of directors or to present business for consideration at an annual shareholders meeting.
Through their control of the Voting Trust, Messrs. Friedman, Billings, and Ramsey will be able to amend the Articles and Bylaws, including, among other things, to provide for a classified Board of Directors and a "fair price" provision.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Class A Common Stock is American Stock Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, there are no shares of Class A Common Stock and 40,029,000 shares of Class B Common Stock outstanding. The 11,000,000 shares of Class A Common Stock offered hereby will be freely transferable without restriction or further registration under the Securities Act, except that any shares held by an "affiliate" of the Company (as that term is defined in Rule 144 under the Securities Act ) will be subject to the resale limitations contained in Rule 144. Of the Company's outstanding shares of Common Stock other than the shares of Common Stock offered hereby, 2,451,421 shares of Class A Common Stock and 36,577,579 shares of Class B Common Stock are "restricted securities" within the meaning of Rule 144 or are otherwise subject to the restrictions on sale under the Securities Act. Such restricted securities may not be sold except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from registration, such as the exemption provided by Rule 144 or Rule 145 under the Securities Act.
In general, Rule 144 provides that any person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year (as computed under Rule 144) is entitled to sell within any
three-month period the number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Class A Common Stock (approximately
134,514 shares after the Offering and the PNC Transaction, without giving
effect to exercise of the Over-allotment Option) and (ii) the average weekly
reported trading volume of the then outstanding shares of Class A Common Stock
during the four calendar weeks immediately preceding the date on which the
notice of sale is filed with the SEC. Sales under Rule 144 also are subject to
certain provisions relating to the manner and notice of sale and the
availability of current public information about the Company. A person (or
persons whose shares are aggregated) who is not deemed an affiliate of the
Company at any time during the 90 days immediately prior to a sale, and who
has beneficially owned shares for at least a two-year period (as computed
under Rule 144), would be entitled to sell such shares under Rule 144 (k)
without regard to the volume limitation and other conditions described above.
Rule 144A under the Securities Act permits the immediate sale by the current
holders of restricted securities of all or a portion of those securities to
certain qualified institutional buyers (as that term is defined in Rule 144A),
subject to certain conditions. The foregoing description of Rule 144 and Rule
144A is not intended to be a complete description of such rules.
All of the 36,577,579 shares of Class B Common Stock outstanding immediately following the Offering will be subject to the Lockup unless released by all of the Representatives. The Lockup agreements prohibit the disposition of any such shares until the date 18 months after the date of this Prospectus; provided, however, that from nine months after the date of this Prospectus, each shareholder may sell the greater of 10,000 shares or 5% of such shareholder's shares on the date of this Prospectus (an aggregate maximum of 1,828,878 shares). Any shares subject to the Lockup may be released at any time with or without notice to the public.
The Stock Purchase Agreement between FBR and PNC provides PNC with certain registration rights with respect to the shares of Class A Common Stock which it will acquire in the PNC Transaction. PNC will be able to exercise one "demand" registration right any time following 180 days after the closing of the Offering (the "Closing"), thereby requiring FBR to file a registration statement with the SEC to register some or all of PNC's shares of Class A Common Stock. In addition, PNC may, at any time following 180 days after the Closing, exercise up to two "piggyback" registration rights, thereby requiring FBR to register some or all of PNC's shares of Class A Common Stock in any registration statement filed by FBR for the sale of Class A Common Stock by either FBR or a third party.
No prediction can be made as to the effect, if any, that future sales of shares of Class A Common Stock or the availability of shares for future sale will have on the market price of the Class A Common Stock prevailing from time to time. Sales of substantial amounts of Class A Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market prices of Class A Common Stock and the Company's ability to raise capital in the future through the sale of additional securities.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement among the Company, the Selling Shareholders and the Underwriters (the "Underwriting Agreement"), the Underwriters named below, through their Representatives, Friedman, Billings, Ramsey & Co., Inc. and Lazard Freres & Co. LLC (which is acting as the "qualified independent underwriter" pursuant to the NASD Conduct Rules with respect to the Offering) have severally agreed to purchase from the Company and the Selling Shareholders the following respective numbers of shares of Class A Common Stock:
NUMBER OF
UNDERWRITER SHARES
----------- ---------
Friedman, Billings, Ramsey & Co., Inc. ............................
Bear, Stearns & Co. Inc............................................
Credit Suisse First Boston Corporation.............................
Lazard Freres & Co. LLC............................................
Smith Barney Inc...................................................
Total............................................................
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The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Class A Common Stock offered hereby if any of such shares are purchased. The offering of Class A Common Stock is made for delivery when, as and if accepted by the Underwriters and subject to prior sale and to withdrawal, cancellation or modification of the Offering without notice. The Underwriters reserve the right to reject an order for the purchase of shares in whole or in part.
The Underwriters propose to offer the shares of Class A Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may re-allow a concession not in excess of $ per share to certain other dealers. The Underwriters have informed the Company that they do not intend to confirm sales to any accounts over which they exercise discretionary authority. After the initial public offering of Class A Common Stock, the offering price and other selling terms may be changed by the Representatives of the Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters the Over-allotment Option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 1,650,000 additional shares of Class A Common Stock at the initial public offering price, less the underwriting discount, set forth on the cover page of this Prospectus. To the extent the Underwriters exercise such Over-allotment Option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Class A Common Stock to be purchased by it shown in the table above bears to the total number of shares of Class A Common Stock offered hereby. The Company and the Selling Shareholders will be obligated, pursuant to the Over-allotment Option, to sell shares to the Underwriters to the extent the Over-allotment Option is exercised. The Underwriters may exercise the Over-allotment Option only to cover over- allotments made in connection with the sale of Class A Common Stock offered hereby.
The Company and the Selling Shareholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public market for Class A Common Stock. The initial public offering price for Class A Common Stock will be determined by negotiation among the Company and the Representatives. Among the factors to be considered in determining the initial public offering price are prevailing market conditions, revenues and earnings of the Company, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present
state of the Company's business operations, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this Prospectus is subject to change as a result of market conditions and other factors. There can, however, be no assurance that the price at which the shares of Class A Common Stock will sell in the public market after the Offering will not be lower than the price at which they are sold by the Underwriters.
FBRC is an indirect, wholly owned subsidiary of the Company. FBRC has committed to purchase from the Company and the Selling Shareholders an aggregate of 17% of the shares of Class A Common Stock being underwritten by the Underwriters in the Offering on the same basis as the other Underwriters. To the extent that part or all of the shares of Class A Common Stock underwritten by FBRC are not resold, the consolidated equity of the Company will be reduced. Until resold, any such shares will be eliminated in consolidation as if they were not outstanding for purposes of any future computations of earnings per common share and book value per common share. FBRC intends to resell any shares that it is unable to resell in the Offering from time to time at prevailing market prices.
Under the provisions of Rule 2720 of the NASD Conduct Rules, when an NASD member such as FBRC participates in the distribution of its parent company's securities, the public offering price can be no higher than that recommended by a "qualified independent underwriter" meeting certain standards. In accordance with this requirement, Lazard Freres & Co. LLC has agreed to serve in such role and to recommend a price in compliance with the requirements of Rule 2720. In connection with the Offering, Lazard Freres & Co. LLC, in its role as qualified independent underwriter, performed due diligence investigation and reviewed and participated in the preparation of this Prospectus.
Lazard Freres & Co. LLC has provided financial advisory services to FBRC and has received customary fees in connection with such services. In addition, Lazard Freres & Co. LLC represented FBR in connection with the PNC Transaction, for which FBR or the Selling Shareholders will pay it a fee equal to 3% of the product of the initial public offering price and the number of shares of Class A Common Stock purchased by PNC in the PNC Transaction ($1,470,853 assuming the Over-allotment Option is not exercised and assuming an initial public offering price of $20 per share). See "Summary--Strategic Relationship with PNC Bank Corp." and "Business--Strategic Business Relationship with PNC Bank Corp."
Bear, Stearns Securities Corp., an affiliate of Bear, Stearns & Co. Inc., is the Company's clearing broker. The Company pays Bear, Stearns Securities Corp. customary charges for its services as clearing broker. In addition, the Company has borrowed from time to time subordinated loans from affiliates of Bear, Stearns & Co. Inc. to enable the Company to meet the net capital requirements resulting from specific underwriting transactions. As of November 30, 1997, the Company had available a total of $40.0 million in three committed subordinated revolving loan facilities from affiliates of Bear, Stearns & Co. Inc. The interest rate on borrowings under these loan facilities is equal to the Broker's Call Rate plus 2.0 percent (8.5 percent at September 30, 1997). On November 20, 1997, the Company borrowed an additional $150,000,000 subordinated loan from an affiliate of Bear, Stearns & Co. Inc. on the same terms. The loan was repaid on December 2, 1997.
Until the distribution of the Common Stock is completed, the rules of the SEC may limit the ability of the Underwriters and certain selling group members to bid for or purchase Class A Common Stock. As an exception to these rules, the Representatives are permitted to engage in certain transactions that stabilize the price of shares of Class A Common Stock. Such transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of shares of Class A Common Stock.
If the Underwriters create a short position in shares of Class A Common Stock in connection with the Offering, i.e., if they sell more shares of Class A Common Stock than are set forth on the cover page of this Prospectus, the Representatives may reduce that short position by purchasing shares of Class A Common Stock in the open market. The Representatives may also elect to reduce any short position by exercising all or part of the Over-allotment Option described above.
The Representatives may also impose a penalty bid on certain Underwriters and selling group members. This means that if the Representatives purchase shares of Class A Common Stock in the open market to reduce the Underwriters' short position or to stabilize the price of shares of Class A Common Stock, they may reclaim the amount of the selling concession from the Underwriters and selling group members who sold such shares of Class A Common Stock as part of the Offering.
In general, purchases of securities for the purpose of stabilization or to reduce a short position could cause the price of the security to be higher than it might be in the absence of such purchases. The imposition of a penalty bid might also have an effect on the price of a security to the extent that it were to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of shares of Class A Common Stock. In addition, neither the Company nor any of the Underwriters makes any representation that the Representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice.
The Company has agreed that it will not, without the Representatives' prior written consent, offer, sell or otherwise dispose of any shares of Class A Common Stock, options, rights or warrants to acquire shares of Class A Common Stock, or securities exchangeable for or convertible into shares of Class A Common Stock, during the 180-day period commencing on the date of this Prospectus, except that the Company may grant additional options under its stock option plans. In addition, the Existing Shareholders have agreed not to sell any shares of Class A Common Stock during the 18 month period commencing on the date of this Prospectus, provided that from nine months after the date of this Prospectus, each Existing Shareholder may sell the greater of 10,000 shares or 5% of such shareholder's shares outstanding on the date of this Prospectus.
SUBSEQUENT RESTRICTIONS
Rule 2720(m) of the NASD Conduct Rules prohibits employees of the Company, their spouses and, under certain circumstances, other members of their immediate families who purchase any of the shares offered hereby from selling, pledging, assigning, hypothecating or transferring such shares for a period of five months following the Effective Date. Rule 144 may also restrict the transferability of a portion of the shares of Class A Common Stock offered hereby in certain circumstances.
DIRECT OFFERING
As part of the Offering, up to 1,000,000 shares of Class A Common Stock are being offered for sale by the Company, by means of this Prospectus, to certain Existing Shareholders, other employees and directors of the Company, and their family members, at a price equal to the initial public offering price per share less the underwriting discount (the "Direct Offering"). The obligation of the investors to purchase shares in the Direct Offering is contingent on the purchase of shares by the Underwriters. There is no minimum number of shares to be purchased in the Direct Offering. Any proceeds from the sale of shares in the Direct Offering will be held in escrow until the closing of the underwritten offering and will be refunded to the investors if the Underwriters do not purchase shares in the underwritten offering. Resales of such securities by such investors are restricted by Rule 2720(m) of the NASD Conduct Rules. See "Underwriting--Subsequent Restrictions." If the Company sells shares to the Underwriters and to the investors in the Direct Offering, the proceeds of such sales will be used only for the purposes described in this Prospectus. If less than 1,000,000 shares are sold in the Direct Offering, any shares reserved for sale in the Direct Offering, but not sold in the Direct Offering, may be offered to persons or entities other than certain Existing Shareholders, other employees and directors of the Company, and their family members at the initial public offering price set forth on the cover page of this Prospectus.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Wachtell, Lipton, Rosen & Katz, New York, New York and for the Underwriters by Gibson, Dunn & Crutcher LLP, Washington, D.C. The validity of the shares of Class A Common Stock offered hereby will be passed upon for the Company by McGuire, Woods, Battle & Boothe, LLP, Washington, D.C. Each of these firms has in the past represented and continues to represent the Company and certain of the Underwriters on a regular basis and in a variety of matters other than the Offering.
EXPERTS
The audited financial statements included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, to the extent and for the periods indicated in their reports, and are included herein in reliance upon the authority of said firm as experts in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the SEC, Washington, D.C. 20549, a Registration Statement on Form S-1 under the Securities Act with respect to the Class A Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and such Class A Common Stock, reference is made to the Registration Statement and the exhibits and schedules filed as part thereof. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, if such contract or document is filed as an exhibit, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. A copy of the Registration Statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference facilities maintained by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices located at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York 10048, and copies of all or any part of the Registration Statement may be obtained from such offices upon the payment of the fees prescribed by the SEC. The SEC also maintains a world wide web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants such as the Company which file electronically with the SEC. The Registration Statement, including all exhibits thereto and amendments thereof, are available on this world wide web site.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants.................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996, and Septem-
ber 30, 1997............................................................. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1994, 1995, and 1996 and the Nine Month Periods Ended September 30, 1996
(unaudited) and 1997 .................................................... F-5
Consolidated Statements of changes in Shareholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996 and the Nine Month Periods Ended
September 30, 1997....................................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995, and 1996 and the Nine Month Periods Ended September 30, 1996
(unaudited) and 1997 .................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
|
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Friedman, Billings, Ramsey Group, Inc.:
We have audited the accompanying consolidated balance sheets of Friedman, Billings, Ramsey Group, Inc. (a Virginia corporation), as of December 31, 1995 and 1996 and September 30, 1997, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996 and for the nine months in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Friedman, Billings, Ramsey Group, Inc., as of December 31, 1995 and 1996 and September 30, 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, and for the nine months in the period ended September 30, 1997 in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.
December 18, 1997
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
------------------------ SEPTEMBER 30,
1995 1996 1997
----------- ------------ -------------
ASSETS
Cash and cash equivalents............... $10,390,784 $ 20,680,757 $ 27,568,469
Short-term investments, at market value. 10,275,610 10,267,710 10,372,680
Receivables:
Underwritings......................... 124,083 7,301,374 6,169,933
Asset management fees................. 5,203,361 1,436,837 1,754,903
Other................................. 126,722 502,666 563,093
Due from brokers, dealers and clearing
organizations.......................... 11,545,000 9,700,384 21,947,308
Marketable trading and investment
account securities,
at market value........................ 32,521,421 55,012,848 25,718,813
Investments in limited partnerships..... 1,578,807 6,424,409 10,892,241
Insurance deposit....................... 3,700,000 9,416,929 9,912,183
Furniture, equipment and leasehold
improvements, net of accumulated
depreciation and amortization of
$816,426, $1,314,118, and $1,997,703,
respectively........................... 1,983,266 3,103,003 3,463,387
Prepaid expenses and other assets....... 1,461,941 1,591,230 851,667
----------- ------------ ------------
Total assets........................ $78,910,995 $125,438,147 $119,214,677
=========== ============ ============
|
The accompanying notes are an integral part of these consolidated statements.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
PRO FORMA
DECEMBER 31, SEPTEMBER 30,
------------------------- SEPTEMBER 30, 1997
1995 1996 1997 (NOTE 2)
----------- ------------ ------------- -------------
(UNAUDITED)
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
Trading account
securities sold but
not yet purchased, at
market value......... $ 6,372,410 $ 39,813,811 $ 11,243,316 $ 11,243,316
Due to brokers,
dealers and clearing
organizations........ 20,566,243 -- -- --
Accounts payable and
accrued expenses..... 12,872,934 8,996,336 10,827,962 10,827,962
Accrued compensation
and benefits......... 1,517,843 3,484,769 22,705,213 22,705,213
Short-term
subordinated
revolving loan....... 10,000,000 15,000,000 -- --
Short-term lines of
credit............... 3,250,000 7,000,000 14,500,000 14,500,000
Accrued dividends
payable.............. -- -- -- 54,000,000
Long-term subordinated
loans................ 943,014 1,914,131 1,668,521 1,668,521
Other................. 117,083 170,051 151,514 151,514
----------- ------------ ------------ ------------
Total liabilities... 55,639,527 76,379,098 61,096,526 115,096,526
----------- ------------ ------------ ------------
Commitments and
contingencies (Note
12).................... -- -- -- --
Shareholders' equity:
Preferred Stock, $0.01
par value, 15,000,000
shares authorized,
none issued and
outstanding.......... -- -- -- --
Class A Common Stock,
$0.01 par value,
150,000,000 shares
authorized, none
issued and
outstanding.......... -- -- -- --
Class B Common Stock
$.01 par value,
100,000,000 shares
authorized,
35,271,060,
37,455,000, and
40,029,000 issued and
outstanding as of
December 31, 1995 and
1996, and September
30, 1997,
respectively......... 352,711 374,550 400,290 400,290
Additional paid-in
capital.............. 16,589,097 18,644,205 22,478,710 2,656,320
Stock subscriptions
receivable........... (67,444) (294,895) (355,173) (355,173)
Retained earnings..... 6,397,104 30,335,189 35,594,324 --
----------- ------------ ------------ ------------
Total shareholders'
equity............. 23,271,468 49,059,049 58,118,151 2,701,437
----------- ------------ ------------ ------------
Total liabilities
and shareholders'
equity............. $78,910,995 $125,438,147 $119,214,677 $117,797,963
=========== ============ ============ ============
|
The accompanying notes are an integral part of these consolidated statements.
FRIEDMAN BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
Revenues:
Investment banking.... $30,579,193 $16,075,113 $ 55,158,579 $25,614,880 $ 67,091,288
Corporate finance..... 14,426,555 7,224,266 10,361,515 4,370,703 38,617,810
Principal transac-
tions................ 9,903,251 20,077,397 25,465,898 18,156,968 11,994,020
Agency commissions.... 1,935,375 4,483,188 7,554,520 5,059,119 7,898,054
Asset management...... 443,567 6,747,607 7,808,617 2,636,001 6,255,299
Interest and divi-
dends................ 1,712,542 2,557,774 3,553,933 2,381,739 3,061,456
----------- ----------- ------------ ----------- ------------
Total revenues...... 59,000,483 57,165,345 109,903,062 58,219,410 134,917,927
Expenses:
Compensation and bene-
fits................. 42,811,016 33,480,839 61,503,652 28,604,341 85,138,035
Business development
and professional
services............. 11,384,268 5,617,699 11,481,557 4,729,600 13,395,319
Clearing and brokerage
fees................. 1,473,900 2,350,033 3,484,063 2,313,856 3,137,845
Occupancy and equip-
ment................. 944,184 1,186,724 1,682,526 1,102,971 1,933,813
Communications........ 763,597 823,201 1,109,001 798,504 1,535,790
Interest expense...... 1,772,912 1,523,368 2,665,171 2,039,050 2,301,035
Other operating ex-
penses............... 1,665,446 2,744,712 3,139,007 1,854,986 3,646,373
----------- ----------- ------------ ----------- ------------
Total expenses...... 60,815,323 47,726,576 85,064,977 41,443,308 111,088,210
----------- ----------- ------------ ----------- ------------
Net income (loss)... $(1,814,840) $ 9,438,769 $ 24,838,085 $16,776,102 $ 23,829,717
=========== =========== ============ =========== ============
Pro forma statements of
operations data (unau-
dited) (Note 2):
Net income, as
reported............. $ 24,838,085 $ 23,829,717
Pro rata S Corporation
compensation......... 6,500,000 --
Pro forma income tax
provision............ (12,628,000) (9,782,381)
Pro forma compensation
adjustment (Note 2).. (1,416,000) (1,416,000)
------------ ------------
Pro forma net income.. $ 17,294,085 $ 12,631,336
============ ============
Pro forma net income
per share............ $ 0.42 $ 0.30
============ ============
Weighted average
shares outstanding... 41,536,211 41,912,081
============ ============
|
The accompanying notes are an integral part of these consolidated statements.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(ACCUM.
NUMBER OF ADDITIONAL STOCK DEFICIT)/
COMMON COMMON PAID-IN SUBSCRIPTIONS RETAINED
SHARES STOCK CAPITAL RECEIVABLE EARNINGS TOTAL
---------- -------- ----------- -------------- ------------ ------------
Balances, December 31,
1993................... 33,908,820 $339,089 $11,276,303 $ (3,420) $ (1,121,053) $ 10,490,919
Net loss............... -- -- -- -- (1,814,840) (1,814,840)
Issuance of common
stock................. 649,440 6,494 191,922 -- -- 198,416
Capital contributions.. -- -- 5,016,000 -- -- 5,016,000
Repayment of stock
subscription
receivable............ -- -- -- 3,420 -- 3,420
Distributions.......... -- -- -- (5,772) (5,772)
---------- -------- ----------- ---------- ------------ ------------
Balances, December 31,
1994................... 34,558,260 345,583 16,484,225 -- (2,941,665) 13,888,143
Net income............. -- 9,438,769 9,438,769
Issuance of common
stock................. 712,800 7,128 104,872 (67,444) -- 44,556
Capital contributions.. -- -- -- -- -- --
Repayment of stock
subscription
receivable............ -- -- -- -- -- --
Distributions.......... -- -- -- -- (100,000) (100,000)
---------- -------- ----------- ---------- ------------ ------------
Balances, December 31,
1995................... 35,271,060 352,711 16,589,097 (67,444) 6,397,104 23,271,468
Net income............. -- -- -- -- 24,838,085 24,838,085
Issuance of common
stock................. 2,183,940 21,839 1,156,243 (251,427) -- 926,655
Capital contributions.. -- -- 898,865 -- -- 898,865
Repayment of stock
subscription
receivable............ -- -- -- 23,976 -- 23,976
Distributions.......... -- -- -- -- (900,000) (900,000)
---------- -------- ----------- ---------- ------------ ------------
Balances, December 31,
1996................... 37,455,000 374,550 18,644,205 (294,895) 30,335,189 49,059,049
Net income............. -- -- -- -- 23,829,717 23,829,717
Issuance of common
stock................. 2,574,000 25,740 3,658,123 (292,111) -- 3,391,752
Capital contributions.. -- -- 176,382 -- -- 176,382
Repayment of stock
subscription
receivable............ -- -- -- 231,833 -- 231,833
Distributions.......... -- -- -- -- (18,570,582) (18,570,582)
---------- -------- ----------- ---------- ------------ ------------
Balances, September 30,
1997................... 40,029,000 $400,290 $22,478,710 $ (355,173) $ 35,594,324 $ 58,118,151
========== ======== =========== ========== ============ ============
|
The accompanying notes are an integral part of these consolidated statements.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $(1,814,840) $ 9,438,769 $ 24,838,085 $ 16,776,102 $ 23,829,717
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities--
Income and special
allocations on
investments in
limited partnerships.. (54,968) (774,299) (3,974,352) (540,320) (4,255,769)
Depreciation and
amortization.......... 295,978 438,979 625,167 411,552 683,587
Loss on disposition of
assets................ 37,416 -- 53,249 -- --
Changes in operating
assets:
Receivables--
Due to/from brokers,
dealers and clearing
organizations, net.. 3,385,657 10,904,877 (18,721,627) (17,284,142) (12,246,924)
Underwritings........ 1,927,231 537,087 (7,177,291) (454,279) 1,131,441
Asset management
fees................ 191,058 (5,080,357) 3,766,524 2,611,205 (318,066)
Other................ (86,779) (40,096) (375,944) (378,985) (60,427)
Marketable trading
account securities... (9,444,047) (20,146,757) (22,491,427) 4,488,730 29,294,035
Prepaid expenses and
other assets......... 12,762 (1,296,694) (129,289) (134,663) 739,563
Insurance deposit..... -- (3,700,000) (5,716,929) -- (495,254)
Changes in operating
liabilities:
Trading account
securities sold but
not yet purchased.... 1,640,405 3,535,970 33,441,401 926,624 (28,570,495)
Net proceeds
(repayments) from
short-term
subordinated
revolving
borrowings........... -- 10,000,000 5,000,000 (10,000,000) (15,000,000)
Proceeds from
(repayments) short-
term line of credit.. 250,000 2,900,000 3,750,000 (3,250,000) 7,500,000
Accounts payable and
accrued expenses..... 1,260,672 11,008,474 (3,876,598) (7,051,063) 1,831,626
Accrued compensation
and benefits......... 286,747 604,791 1,966,926 4,148,563 19,220,444
Other................. (5,933) 58,311 52,968 39,847 (18,537)
----------- ------------ ------------ ------------ ------------
Net cash provided by
(used in) operating
activities.......... (2,118,641) 18,389,055 11,030,863 (9,690,829) 23,264,941
----------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
INVESTMENT ACTIVITIES:
Purchases of fixed
assets................ (1,939,050) (458,883) (1,798,153) (1,340,393) (1,043,970)
Investments in limited
partnerships.......... (50,000) (58,000) (500,000) (500,000) (425,000)
Withdrawals from
limited partnerships.. 134,666 6,487 -- -- 212,937
Net purchase (sales) of
short-term
investments........... (1,989,060) (7,980,194) 7,900 (113,225) (104,970)
----------- ------------ ------------ ------------ ------------
Net cash (used in)
investing
activities.......... (3,843,444) (8,490,590) (2,290,253) (1,953,618) (1,361,003)
----------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Borrowings of long-term
subordinated loans.... 1,092,042 -- 1,126,627 232,411 --
Repayments of long-term
subordinated loans.... (29,157) (119,871) (155,510) (83,147) (245,611)
Proceeds from issuance
of common stock,
including repayments
on stock subscriptions
receivable............ 201,836 44,556 950,631 1,424,140 3,623,585
Capital contributions.. 5,016,000 -- 527,615 -- 176,382
Distributions.......... (5,772) (44,556) (900,000) -- (18,570,582)
----------- ------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities.......... 6,274,949 (119,871) 1,549,363 1,573,404 (15,016,226)
----------- ------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ 312,864 9,778,594 10,289,973 (10,071,043) 6,887,712
Cash and cash
equivalents, beginning
of year................ 299,326 612,190 10,390,784 10,390,784 20,680,757
----------- ------------ ------------ ------------ ------------
Cash and cash
equivalents, end of
year................... $ 612,190 $ 10,390,784 $ 20,680,757 $ 319,741 $ 27,568,469
=========== ============ ============ ============ ============
SUPPLEMENTAL CASH FLOW
INFORMATION:
Contribution from
stockholders' of
ownership interest in
FBR Investments, LLC.. $ -- $ -- $ 371,250 $ -- $ --
=========== ============ ============ ============ ============
|
The accompanying notes are an integral part of these consolidated statements.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS:
Organization
Friedman, Billings, Ramsey Group, Inc., a Delaware corporation incorporated in 1996 (hereafter referred to as the "Old Holding Company"), is the sole parent holding company for two subsidiary holding companies, Friedman, Billings, Ramsey Capital Markets, Inc. ("FBRCM") and Friedman, Billings, Ramsey Asset Management , Inc. ("FBRAM"). FBRCM is the direct parent company of Friedman, Billings, Ramsey & Co., Inc. ("FBRC"), FBR Direct, Inc. ("FBR Direct") and Friedman, Billings, Ramsey International, Limited ("FBR International"). FBRAM is the sole parent company of Friedman, Billings, Ramsey Investment Management Company ("FBRIM"), FBR Offshore Management, Inc. ("FBR Offshore"), FBR Investment Management (Bermuda) Ltd. ("FBR Bermuda"), FBR Fund Advisers, Inc. ("FBR Fund Advisers"), and FBR Venture Capital Managers, Inc. The operating subsidiaries of FBRCM and FBRAM are hereafter collectively referred to as the "Operating Entities". FBR International, FBR Direct and FBR Venture Capital were formed subsequent to January 1, 1997.
Effective January 1, 1997, all of the shareholders of the then existing Operating Entities exchanged all of their outstanding stock in the Operating Entities for all of the outstanding stock of the Old Holding Company. In connection with the exchange, the Old Holding Company transferred all of the stock in those Operating Entities to FBRCM and FBRAM. As of and for all periods prior to the exchange, each of the Operating Entities was owned directly by the same shareholder group, consisting of the Company's officers, directors, and key employees, in the identical proportion. After the exchange, the same shareholder group owned all of the outstanding stock of the Old Holding Company, in the same proportion to their interests in the Operating Entities. As there was no change in ownership or assets as a result of the exchange of shares, the exchange lacked economic substance. As a result and in accordance with FASB Technical Bulletin 85-5, the assets and liabilities of the Company are recorded at their historical carrying amounts.
As a result of the common ownership both prior and subsequent to the exchange, the financial statements as of and prior to December 31, 1996, include the combined operations of the Operating Entities.
The primary objectives of the restructuring were (i) to simplify the ownership structure of the Operating Entities, (ii) to form groups of companies concentrated in similar business activities and (iii) to facilitate the availability and reduce the cost of capital.
FBRC is a member of the National Association of Securities Dealers, Inc. FBRC acts as an introducing broker executing transactions primarily for institutional customers and forwards all such transactions to clearing brokers on a fully disclosed basis. FBRC does not hold funds or securities for, or owe funds or securities to, customers. Any funds or securities received by FBRC are promptly forwarded to its clearing broker.
FBRC receives investment banking revenues from underwriting public offerings of debt and equity securities for corporations, real estate investment trusts ("REITS") and other issuers. These revenues are comprised of selling concessions and management and underwriting fees. FBRC also receives corporate finance fees from private placement offerings and from providing merger and acquisition, financial restructuring, and other advisory services. FBRC concentrates its investment banking activities primarily on bank, thrift and specialty finance institutions, technology companies and REITS.
FBRIM is a registered investment adviser that acts as the general partner of investment limited partnerships and also manages investment accounts. FBRIM owns 100 percent of FBR Investments LLC ("FBR Investments").
FBR Offshore extends asset management services to non-U.S. investors. FBR Offshore is a registered investment adviser. FBR Offshore acts as the investment adviser to the FBR Opportunity Fund, Ltd. (the "Offshore Fund"), a Bermuda company formed to provide a pooled investment vehicle for non-U.S. investors. The Offshore Fund invests primarily in securities of U.S. issuers. The Offshore Fund is managed by FBR Bermuda.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
FBR Fund Advisers is a registered investment adviser formed to provide investment advisory services to The FBR Family of Funds, an open end, investment company, currently consisting of three series of mutual funds. The funds' registration became effective on December 30, 1996, and they began investment activities on January 2, 1997.
Reincorporation Merger
Immediately prior to the effectiveness of the proposed offering contemplated by this prospectus, the Old Holding Company and its subsidiaries will terminate their status as subchapter S corporations and convert to subchapter C corporations as defined under the Internal Revenue Code (the "Conversion"). Prior to the Conversion, and as discussed in Note 2, the Old Holding Company intends to distribute to its shareholders amounts at least equal to the total amount of federal and state taxes payable on the Company's earnings for the period from January 1, 1997, through the date of the Conversion. In December 1997, the Old Holding Company was merged with and into a newly formed Virginia holding company (the "Company") with the Company as the surviving corporation. As a result of the merger, shareholders of the Company received 330 shares of Class B Common Stock of the Company for each share in the Old Holding Company.
The effects of the reincorporation merger have been given retroactive application in the consolidated financial statements for all periods presented.
The Company has authorized the issuance of up to 100 million shares of Class
B Common Stock, par value $0.01 per share; 150 million shares of Class A
Common Stock, par value $0.01 per share; and 15 million shares of undesignated
preferred stock. Holders of the Class A and Class B Common Stock are entitled
to one vote and three votes per share, respectively, on all matters voted upon
by the shareholders. Shares of Class B Common Stock convert into shares of
Class A Common Stock at the option of the Company in certain circumstances
including (i) upon sale or other transfer, (ii) at the time the holder of such
shares of Class B Common Stock ceases to be affiliated with the Company and
(iii) upon the sale of such shares in a registered public offering. The
Company's Board of Directors has the authority, without further action by the
shareholders, to issue preferred stock in one or more series and to fix the
terms and rights of the preferred stock. Such actions by the Board of
Directors could adversely affect the voting power and other rights of the
holders of common stock. Preferred stock could thus be issued quickly with
terms that could delay or prevent a change in control of the Company or make
removal of management more difficult. At present, the Company has no plans to
issue any of the preferred stock.
Nature of Operations
The Company is primarily engaged in a single line of business as a securities firm, which comprises several types of services, such as underwriting and investment banking, principal and agency securities trading transactions, money management and long-term equity investing, primarily in the United States. The operations related to the Company's foreign entities are not material to these consolidated financial statements.
The securities industry generally and in specifically volatile or illiquid markets, is subject to numerous risks, including the risk of losses associated with the underwriting, ownership, and trading of securities and the risks of reduced revenues in periods of reduced demand for security offerings and activity in secondary trading markets. Changing or negative economic trends, such as inflation or interest rate volatility, political trends, such as regulatory and legislative changes, and overall or specific market trends can influence the liquidity and value of the Company's investments, and impact the level of security offerings underwritten by the Company, all of which could adversely affect the Company's revenues and profitability.
Many aspects of the Company's business involve substantial risks of liability. An underwriter is exposed to substantial liability under Federal and state securities laws, other Federal and state laws and court decisions, including decisions with respect to underwriters' liability and limitations on indemnification of underwriters by issuers. Underwriters may be held liable for material misstatements or omissions of fact in a prospectus used in connection with the securities being offered or for statements made by its securities analysts or other personnel.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
While the Company has never been subject to such litigation, in recent years there has been an increasing incidence of litigation involving the securities industry, including class actions that seek substantial damages. The Company is also subject to the risk of litigation, including litigation that may be without merit. As the Company intends actively to defend such litigation, significant legal expenses could be incurred. An adverse resolution of any future lawsuits against the Company could materially affect the Company's operating results and financial condition.
The Company's historical revenues have been derived primarily from investment banking transactions in the financial services, technology, and real estate industries. As a result of the Company's dependence on specific sectors, any downturn in the market for securities in these sectors could adversely impact the Company's results of operations and financial condition.
A substantial portion of the Company's revenues in a year may be derived from a small number of investment banking transactions or may be concentrated in a particular industry. During 1996, there were no transactions which exceeded 10 percent of the Company's revenues. Revenues derived from one underwriting during 1995 represented approximately 15 percent of the Company's 1995 revenues. Revenues derived from two investment banking transactions for one group of client entities during 1994 represented approximately 40 percent of the Company's 1994 revenues. Revenues derived from two unrelated investment banking transactions accounted for 13 percent and 11 percent of the Company's revenues for the nine months ending September 30, 1997.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
All significant intercompany accounts and transactions have been eliminated in consolidation.
Revenues
Investment banking fees are recorded as revenue at the time the underwriting is completed and the income is reasonably determinable. Corporate finance and advisory fees are recorded as revenue when the related services have been rendered and the client is contractually obligated to pay.
Commission income and expenses are recorded on a trade date basis. Securities transactions of the Company are recorded on a trade date basis.
Trading and investment account securities are valued at fair market value. The resulting difference between cost and fair market value is included in income. Net unrealized gains (losses) included in principal transaction revenues were $1,155,000 in 1994, $405,000 in 1995, $141,000 in 1996, and $108,583 and $(474,468) for the nine month periods ended September 30, 1996 and 1997, respectively.
Interim Financial Statements
The accompanying consolidated statements of operations and cash flows for the nine months ended September 30, 1996 have been prepared by the Company, are unaudited, and include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the interim period results. Operating results for any interim period are not necessarily indicative of the results for any other period or for an entire year.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
Pro Forma Net Income (Loss) Per Share (Unaudited)
Pro forma net income (loss) is based on the assumption that the Company's subchapter S corporation status was terminated at the beginning of each year. Accordingly, the Company has provided income taxes on a pro forma basis as if it were a subchapter C corporation for the periods presented. In addition prior to the reorganization and change in tax status, from a subchapter S to C corporation, in 1996 the Old Holding Company made payments of $6.5 million to its shareholders based on the shareholders' relative ownership percentages. Such payments were a component of salary expense.
Subsequent to and as a result the reincorporation of the Old Holding Company and the Company's conversion from a subchapter S corporation to a subchapter C corporation, no such future payments will be made. No payments were made in 1997. The Company has eliminated, in pro forma presentation, the $6.5 million expense, as the Company believes that this information is necessary to assess the impact of the change in the Company's reporting status.
Pro forma net income per share also gives effect to $1.4 million of compensation expense that the Company will record upon the effectiveness of the offering related to book value shares issued within one year of the initial public offering. The $1.4 million represents the difference between the fair value and book value of the stock issued on January 1, 1997. The fair value was determined based upon an assessment of results of operations, financial condition and other factors for the Company and a comparable group of eight publicly traded investment banks.
The calculation of weighted average shares outstanding is based on the weighted average shares outstanding during the period. In addition and in accordance with SEC Staff Accounting Bulletin No. 83, weighted average shares outstanding for all periods presented also includes those shares issued within one year of the initial public offering date. Weighted average shares outstanding has also been adjusted to reflect the sale of a sufficient number of additional shares of the Company's common stock necessary to fund the amount by which S corporation distributions through September 30, 1997 exceeded reported earnings.
Primary income or loss per share data is not presented as it would not materially differ from the amounts presented.
Pro Forma Balance Sheet (Unaudited)
The pro forma financial information gives effect to a $54.0 million distribution for estimated federal and state taxes payable by existing shareholders on the Company's earnings through September 30, 1997 and additional distributions from previously taxed and undistributed S corporation accumulated earnings. On a pro forma basis, this amount is recorded as accrued dividends payable. The pro forma balance sheet also gives effect for the recognition of $1.4 million of compensation expense in conjunction with book value stock issued within one year of the initial public offering, and a reclassification of any remaining undistributed S corporation accumulated earnings to paid in capital. The deferred tax liability that would have been recorded if the Company had terminated its subchapter S corporation status as of September 30, 1997 would not have been material.
Fair Value of Financial Instruments
The Financial Accounting Standards Board Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Market Value of Financial Instruments," requires the Company to report the fair market value of financial instruments, as defined. Substantially all of the Company's financial assets and liabilities are
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
carried at fair market value or contracted amounts which approximate fair market value except for securities sold but not yet purchased from underwriting activities. Securities sold but not yet purchased from underwriting activities relate to unexercised underwriter's over-allotment options and are valued at the net proceeds actually due and paid the issuers upon the subsequent exercise of these options.
Cash Equivalents and Supplemental Cash Flow Information
The Company considers as cash equivalents all highly liquid investments, with an original maturity of three months or less, not held for sale in the ordinary course of business and not part of the Company's trading activities. Cash payments for interest approximated interest expense for the years ended December 31, 1994, 1995, and 1996, and for the nine months ended September 30, 1996 and 1997.
Short-Term Investments
Short-term investments consist primarily of U.S. Treasury obligations with original maturities of up to six months.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are depreciated using the straight-line method over their estimated useful lives of five years and leasehold improvements are amortized using the straight-line method over the shorter of their useful life or applicable lease term. Amortization of purchased software is recorded over its estimated useful life of three years.
RENT
The Company's office leases provide that for certain periods during the lease terms, no base rental payments are due. During these periods, the Company accrues rent expense based on the average effective monthly base rent over the entire lease terms.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECENT AUTHORITATIVE PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 is effective for fiscal years beginning after December 15, 1997. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. Comprehensive income is the total of net income and all other nonowner changes in equity.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 is effective for financial statements for periods beginning after December 15, 1997. SFAS No. 131 requires an enterprise to report certain additional financial and descriptive information about its reportable operating segments.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
Management does not expect that the implementation of either SFAS No. 130 or No. 131 will have a material impact on the Company's consolidated financial position or results of future operations.
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." SFAS No. 128 is effective for financial statements issued after December 15, 1997. SFAS No. 128 requires dual presentation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted-average number of common shares outstanding for the period. As of September 30, 1997, there were no potentially dilutive securities issued or outstanding. As a result, the adoption of SFAS No. 128 will have no effect on the calculation and presentation of net income (loss) per share prior to the future issuance of potentially dilutive securities.
3. INCOME TAXES:
For Federal income tax purposes, the Company and all of its subsidiaries including the Operating Entities, with the exception of FBR Investments, which is a limited liability corporation ("LLC"), FBR Bermuda (a Bermuda Company) and FBR International, (an English company), have elected by unanimous consent of their shareholders to be taxed as subchapter S corporations under the Internal Revenue Code. Subchapter S corporations and LLCs are not taxed on their income; rather their income or loss pass directly through to their shareholders (or members in the case of LLCs). As a result, there is no provision for income taxes in these financial statements.
In connection with the proposed initial public offering and as discussed in Notes 1 and 2, the Company will terminate its subchapter S corporation status and will become subject to corporate income taxes. Accordingly, the accompanying consolidated statements of operations include unaudited pro forma adjustments for income tax expense, which would have been recorded had the Company been subject to federal and state corporate income taxes.
4. SECURITIES OWNED AND SOLD BUT NOT YET PURCHASED:
Marketable trading and investment account securities owned and trading
account securities sold but not yet purchased as of December 31, 1995 and
1996, and September 30, 1997, consist of securities at quoted market values,
as stated below:
DECEMBER 31,
-----------------------------------------------
1995 1996 SEPTEMBER 30,1997
----------------------- ----------------------- -----------------------
SOLD SOLD SOLD
BUT NOT YET BUT NOT YET BUT NOT YET
OWNED PURCHASED OWNED PURCHASED OWNED PURCHASED
----------- ----------- ----------- ----------- ----------- -----------
Corporate stocks........ $19,309,337 $4,962,148 $25,077,583 $ 7,042,195 $13,294,796 $ 5,950,252
Corporate bonds......... 13,212,084 1,410,262 29,935,265 32,771,616 12,424,017 5,293,064
----------- ---------- ----------- ----------- ----------- -----------
$32,521,421 $6,372,410 $55,012,848 $39,813,811 $25,718,813 $11,243,316
=========== ========== =========== =========== =========== ===========
|
Trading account securities sold but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, and thereby, creates a liability to purchase the security in the market at prevailing prices. Accordingly, these transactions result in off-balance-sheet risk as the Company's ultimate obligation to satisfy the sale of securities sold but not yet purchased may exceed the amount recognized in the consolidated balance sheets.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
5. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Furniture, equipment and leasehold improvements, net of accumulated depreciation and amortization, summarized by major classification are as follows:
DECEMBER 31, SEPTEMBER 30,
----------------------- -------------
1995 1996 1997
---------- ----------- -----------
Furniture and equipment.......... $2,213,920 $ 3,096,838 $ 4,062,511
Leasehold improvement............ 585,772 1,320,283 1,398,579
---------- ----------- -----------
2,799,692 4,417,121 5,461,090
Less--Accumulated depreciation
and amortization................ (816,426) (1,314,118) (1,997,703)
---------- ----------- -----------
$1,983,266 $ 3,103,003 $ 3,463,387
========== =========== ===========
|
6. INSURANCE DEPOSIT:
In 1995 and 1996, the Operating Entities purchased a directors and officers liability and errors and omissions insurance policy. In accordance with the terms of the policy agreement, which provides for the commutation of a portion of the total premium back to the policy holders under certain circumstances, the net amount of the premiums paid, less expense charges and policy claims made, is recorded as an insurance deposit in the financial statements at December 31, 1995 and 1996, and September 30, 1997.
7. PROFIT SHARING PLAN:
The Company maintains a qualified 401(k) profit sharing plan. Eligible employees may defer a portion of their salary. At the discretion of the Board of Directors, the Company may make matching contributions and discretionary contributions from profits. Contributions totaling approximately $492,000 were made for 1994. There were no Company contributions made in 1995 or 1996 or for the nine-month period ended September 30, 1997.
8. INVESTMENTS IN LIMITED PARTNERSHIPS:
FBRIM is the managing partner of FBR Ashton, Limited Partnership ("Ashton"), FBR Weston, Limited Partnership ("Weston"), FBR Braddock, L.P. ("Braddock"), FBR Harness, L.P. ("Harness"), and FBR Private Equity Fund, L.P. ("Private Equity," formed in 1996). All of these partnerships were formed for the purpose of investing in securities. The assets of partnerships are principally comprised of investments in publicly traded securities marked to market value. The Company carries its investment in the partnerships at their fair value. The Company's ownership interest as of September 30, 1997 in Ashton, Weston, Braddock, Harness and Private Equity approximated 4%, 9%, 8%, 3%, and 1%, respectively.
Certain of the Company's subsidiaries as investment advisers, receive management fees for the management of the business and affairs of limited partnerships or investment companies, based upon the amount of assets under management, as well as incentive performance fees or special allocations of net income based upon the operating results. As investment adviser to the Offshore Fund, the Company may elect on an annual basis, to defer receipt of its performance fee, for a ten-year period in which the deferred fee is reinvested in the Offshore Fund and indexed to fund performance.
Asset management fees receivable represent that portion of management and performance fees, and special allocations actually due and payable to the Company as of December 31, 1995, 1996, and September 30, 1997. Incentive performance fees and special allocations are calculated on at least an annual period, which generally
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
coincides with the calendar year. As of September 30, 1997 unrecorded performance fees and special allocations approximated $12,900,000. As the ultimate amount of such fees may vary with future performance, these fees and allocations are not recorded as revenue until such time as they become due and payable.
The Company earned brokerage commissions of approximately $481,000 in 1994, $1,435,000 in 1995, and $1,847,000 in 1996 from these investment partnerships. Commissions for the nine-month periods ended September 30, 1996 and 1997, approximated $1,120,000 and $935,000, respectively.
9. BORROWINGS:
The Company has three long-term subordinated loans, each requiring fixed monthly principal and interest payments plus additional periodic principal payments, if necessary, in order to compensate for increases in the loans' adjustable interest rates. Each loan bears interest at an annual rate of 2.48 percent plus the one month commercial paper rate for the preceding month (7.98 percent at September 30, 1997). The loans are secured by certain furniture, equipment and leasehold improvements of the Company and are individually guaranteed by the Company's three largest shareholders. The loans amortize through June 2001, October 2001, and February 2002 according to the following scheduled principal maturities:
YEAR AMOUNT
---- ----------
1997........................................................... $ 341,131
1998........................................................... 360,000
1999........................................................... 387,000
2000........................................................... 418,000
2001........................................................... 390,000
Thereafter..................................................... 18,000
----------
$1,914,131
==========
|
During 1995 and 1996, the Company met its short-term capital needs by drawing on two unsecured subordinated revolving loan agreements from its clearing broker and an affiliate of its clearing broker, aggregating $20,000,000 and $25,000,000, respectively. In addition, in December 1996, a third unsecured subordinated revolving loan agreement in the amount of $15,000,000 was obtained by the Company from its clearing broker, making total available, committed subordinated revolving loans to the Company at December 31, 1996, of $40,000,000. The subordinated revolving loan agreements expire as follows: $15,000,000 in December 1997; $15,000,000 in July 1998; and $10,000,000 in October 1998. These loans are guaranteed by certain shareholders of the Company.
At December 31, 1995, 1996, and September 30, 1997, $10,000,000, $15,000,000, and $0, respectively, was outstanding under the Company's subordinated revolving loan agreements. The interest rate on borrowings under these agreements is equal to the Broker's Call Rate plus 2.0 percent (8.5 percent at September 30, 1997).
The subordinated borrowings are available in computing net capital under the Securities and Exchange Commission's Uniform Net Capital Rule (the "Net Capital Rule").
In December 1996, the Company obtained an unsecured $10,000,000 line of credit facility from a bank, of which $7,000,000 and $8,500,000 was drawn and outstanding at December 31, 1996 and September 30, 1997, respectively. The line, which expires in January 1998, has a variable interest rate equal to the London InterBank Offered Rate ("LIBOR") plus 2.25 percent (7.9 percent at September 30, 1997). Borrowings under this line are not available in computing net capital under the Net Capital Rule. The loan is individually guaranteed by certain shareholders of the Company.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
As of September 30, 1997, the Company had outstanding a $6,000,000 unsecured note payable with an insurance company. The note payable matures on November 30, 1997 and bears interest at a rate equal to 8.25 percent per annum.
10. NET CAPITAL COMPUTATION:
FBRC is subject to the Net Capital Rule, which requires the maintenance of minimum net capital and requires that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 1995, the Company had net capital of $15,286,024, which was $14,684,024 in excess of its required net capital of $602,000. The Company's net capital ratio was .93 to 1 at December 31, 1995. At December 31, 1996, the Company had net capital of $14,369,605, which was $13,127,173 in excess of its required net capital of $1,242,432. The Company's net capital ratio was 1.30 to 1 at December 31, 1996. As of September 30, 1997, FBRC had net capital of $31,523,605, which was $29,299,200 in excess of its required net capital of $1,482,936. The Company's net capital ratio was .71 to 1 at September 30, 1997.
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS OF CREDIT RISK:
The securities which the Company trades are primarily traded in United States markets. As of December 31, 1996, the Company had not entered into any transactions involving financial instruments, such as financial futures, forward contracts, options, or swaps or derivatives, which would expose the Company to significant related off-balance-sheet risk.
Market risk to the Company is primarily caused by movements in interest rates or market prices of the Company's trading and investment account securities. Market risk is also caused by volatility and possible illiquidity in markets in which the Company trades its financial instruments. The Company seeks to control market risk primarily through monitoring procedures and/or entering into offsetting positions. The Company's principal transactions are primarily short and long debt and equity transactions in publicly traded securities.
The Company functions as an introducing broker whereby the Company places and executes customer orders. The orders are then settled by an unrelated clearing organization which also maintains custody of the customer's securities and provides financing to the customer.
Through indemnification provisions in the Company's agreements with its clearing organizations and brokers, the Company's customer activities may expose it to off-balance-sheet credit risk. The Company may have to purchase or sell financial instruments at prevailing market prices in the event of the failure of a customer to settle a trade on its original terms or in the event cash and securities in customer margin accounts are not sufficient to fully cover customer losses. The Company seeks to control the risks associated with customer activities through customer screening and selection procedures as well as through the Company's clearing organization's requirements on customers to maintain margin collateral in compliance with various regulations and clearing organization policies.
Positions taken and commitments made by the Company, including positions taken and underwriting and financing commitments made in connection with its investment banking activities, may involve substantial amounts and significant exposure to individual issuers and businesses, including non-investment grade issuers and issues which have low trading volumes, and expose the Company to a higher degree of risk than is associated with investment grade instruments.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
12. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases premises under long-term lease agreements requiring minimum annual rental payments with annual adjustments based upon increases in the consumer price index, plus the pass-through of certain operating and other costs above a base amount.
Future minimum aggregate annual rentals payable under these noncancelable leases and rentals for certain equipment leases for the years ending December 31, 1997 through 2001 and the aggregate amount thereafter, are as follows:
YEAR ENDING DECEMBER 31,
------------------------
1997......................................................... $1,106,000
1998......................................................... 1,081,000
1999......................................................... 1,067,000
2000......................................................... 1,071,000
2001......................................................... 979,000
Thereafter................................................... 2,365,000
----------
$7,669,000
==========
|
Equipment and office rent expense, including operating cost pass-throughs for 1994, 1995, and 1996 was $656,000, $773,000, and $941,000, respectively, and $560,000 and $886,000 for the nine month periods ended September 30, 1996 and 1997, respectively.
Underwriting Activities
In the normal course of business, the Company enters into underwriting commitments. Any transactions relating to such commitments as of September 30, 1997, were satisfied subsequent to that date in 1997.
Stock Repurchase Agreements
All of the Company's shareholders are subject to the terms of the Shareholders Agreement dated January 1, 1997. The Shareholder Agreement, under certain circumstances requires the Company to repurchase the shareholder's stock or requires that a shareholder offer his or her stock to the Company prior to sale to a third party, at book value, which is the same as the issuance price. These repurchase provisions will be terminated in connection with an initial public offering.
Litigation
The Company was the defendant in litigation involving a former client. The suit was settled in 1996. No damages or other payments except for the Company's legal fees, were paid in connection with the settlement.
13. DISTRIBUTIONS:
At December 31, 1996, the Company declared and made distributions of $900,000 to its shareholders, which, in turn, were contributed as equity to affiliated entities as follows: FBRIM, $375,000; FBR Fund Advisers, $325,000; and FBR Offshore, $200,000.
In 1997, the Company declared and made distributions totaling $9,570,572 and $9,000,010 to its shareholders of record on December 31, 1996, and January 1, 1997, respectively.
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
14. SUBSEQUENT EVENTS:
In conjunction with and upon effectiveness of the offering, the Company intends to adopt the following stock and option plans.
1997 Stock Incentive Plan
Under the 1997 Stock Incentive Plan the Company may grant options, stock appreciation rights, "performance" awards and restricted and unrestricted stock (collectively, the "Awards") to purchase up to an undetermined number of shares of Class A Common Stock to participants in the 1997 Plan. The 1997 Plan will have a term of 10 years. Options granted under the 1997 Plan can have an exercise period of up to 10 years. The 1997 Plan provides for the grant of stock options to directors, employees (including officers) and consultants of the Company and its subsidiaries. Pursuant to the 1997 Plan, options may be incentive stock options within the meaning of Section 422 of the Code or nonstatutory stock options, although incentive stock options may be granted only to employees. All incentive stock options are nontransferable other than by will or the laws of descent and distribution.
Director Stock Compensation Plan
Under the Director Stock Compensation Plan ("the Director Plan"). The Company may grant options or stock (in lieu of annual "Director Fees") up to an undetermined number of shares of Class A Common Stock. Options granted under the Director Plan will vest upon the first anniversary of the grant and are exercisable up to 10 years from the date of grant. All options and stock awarded under the Director Plan are nontransferable other than by will or the laws of descent and distribution.
Employee Stock Purchase Plan
Under the 1997 Employee Stock Purchase Plan (the "Purchase Plan") an undetermined number of shares of Class A Common Stock will be reserved for future issuance of stock. The Purchase Plan will permit eligible employees to purchase common stock through payroll deductions at a price equal to 85 percent of the lower of fair market value of the common stock on the first day of the period or the last day of the offering period. The plan will not result in compensation expense in future periods.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Certain Transactions Occurring Prior to the Offering...................... 18
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations .............................................................. 25
Business.................................................................. 32
Management................................................................ 49
Principal and Selling Shareholders........................................ 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 63
Underwriting.............................................................. 64
Direct Offering........................................................... 66
Legal Matters............................................................. 67
Experts................................................................... 67
Additional Information.................................................... 67
Index to Consolidated Financial Statements................................ F-1
|
UNTIL JANUARY , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
11,000,000 SHARES
[LOGO OF FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. APPEARS HERE]
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
CLASS A COMMON STOCK
PROSPECTUS
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
LAZARD FRERES & CO. LLC
SALOMON SMITH BARNEY
December , 1997
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses, other than underwriting discounts and commissions, payable in connection with the sale of Class A Common Stock being registered.
AMOUNT TO BE
PAID BY
THE COMPANY
AND THE
SELLING STOCKHOLDER
-------------------
SEC registration fee.................................. $ 88,000
NASD filing fee....................................... 30,000
New York Stock Exchange listing fee................... 200,000
Printing and engraving................................ 600,000
Legal fees and expenses............................... 800,000
Accounting fees and expenses.......................... 210,000
Blue sky fees and expenses............................ 10,000
Transfer agent and registrar fees and expenses........ 15,000
Miscellaneous......................................... 100,000
----------
Total................................................. $2,053,000
==========
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ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 10 of Chapter 9 of Title 13.1 of the Code of Virginia permits a Virginia corporation to indemnify any director or officer for reasonable expenses incurred in any legal proceeding in advance of final disposition of the proceeding, if the director or officer furnishes the corporation a written statement of his good faith belief that he has met the standard of conduct prescribed by the Code, and a determination is made by the board of directors that such standard has been met. In a proceeding by or in the right of the corporation, no indemnification shall be made in respect of any matter as to which an officer or director is adjudged to be liable to the corporation, unless the court in which the proceeding took place determines that, despite such liability, such person is reasonably entitled to indemnification in view of all the relevant circumstances. In any other proceeding, no indemnification shall be made if the director or officer is adjudged liable to the corporation on the basis that personal benefit was improperly received by him. Corporations are given the power to make any other or further indemnity, including advance of expenses, to any director or officer that may be authorized by the articles of incorporation or any bylaw made by the shareholder, or any resolution adopted, before or after the event, by the shareholders, except an indemnity against willful misconduct or a knowing violation of the criminal law. Unless limited by its articles of incorporation, indemnification of a director or officer is mandatory when he or she entirely prevails in the defense of any proceeding to which he or she is a party because he or she is or was a director or officer.
The Articles of Incorporation of the undersigned Registrant contain provisions indemnifying the directors and officers of the Registrant to the full extent permitted by Virginia law. In addition, the Articles of Incorporation of the Registrant eliminate the personal liability of the Registrant's directors and officers to the Registrant or its shareholders for monetary damages to the full extent permitted by Virginia law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Immediately prior to the offering contemplated hereby, the Registrant issued
an aggregate of 40,029,000 shares of its Class B Common Stock, par $.01 per
share, to the Selling Shareholders in exchange for all of their shares of
common stock of Friedman, Billings, Ramsey Group, Inc., a Delaware
corporation, which was merged with and into the Registrant immediately prior
to the offering. There were no underwriters, brokers or finders employed in
connection with these transactions. The sales of the above securities were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act, or Regulation D
II-1
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to the compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were attached to the certificates issued in such transactions. All recipients had adequate access to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
1.01 --Form of Underwriting Agreement.
2.01 --Agreement and Plan of Merger.
3.01 --Registrant's Articles of Incorporation.
3.02 --Articles of Merger.
3.03 --Registrant's Bylaws.
4.01 --Form of Specimen Certificate for Registrant's Class A Common Stock.
5.01 --Form of Opinion of McGuire, Woods, Battle & Boothe, LLP.
9.01 --Voting Trust Agreement.
10.01 --Amendment to the Shareholders Agreement.
10.02 --Revolving Subordinated Loan Agreement, between The Bear Stearns
Companies Inc. and Friedman, Billings, Ramsey & Co., Inc., dated
August 15, 1997.
10.03 --Revolving Subordinated Loan Agreement, between Bear, Stearns
Securities Corp. and Friedman, Billings, Ramsey & Co., dated November
21, 1996.
10.04 --Revolving Subordinated Loan Agreement, between Custodial Trust
Company and Friedman, Billings, Ramsey & Co., Inc., dated June 20,
1997.
10.05 --The 1997 Employee Stock Purchase Plan.
10.06 --The 1997 Stock and Annual Incentive Plan.
10.07 --The Non-Employee Director Stock Compensation Plan.
10.08 --The Key Employee Incentive Plan.
11.01 --Computation of Per Share Earnings.
21.01 --List of Subsidiaries of the Registrant.
23.01 --Consent of Independent Public Accountants.
23.02 --Consent of Counsel (included in Exhibit 5.01).
24.01 --Power of Attorney (see page II-4 of this Registration Statement).
27.01 --Financial Data Schedule.
99.01 --Memorandum of Understanding between the Company and PNC Bank Corp.,
dated as of
October 28, 1997.
99.02 --Form of Consent of a Person about to become a Director for Wallace
L. Timmeny.
99.03 --Form of Consent of a Person about to become a Director for Mark D.
Warner.
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(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
II-2
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(4) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Arlington, Commonwealth of Virginia, on the 19th day of December 1997.
Friedman, Billings, Ramsey Group, Inc.
By: /s/ W. Russell Ramsey
--------------------------------
PRESIDENT AND SECRETARY
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POWER OF ATTORNEY
Know all men by these presents, that each of the undersigned does hereby constitute and appoint Emanuel J. Friedman, Eric F. Billings and W. Russell Ramsey, or any of them (with full power to each of them to act alone), his true and lawful attorney-in-fact and agent, with full power of substitution, for him and on his behalf to sign, execute and file this Registration Statement and any or all amendments (including, without limitation, post-effective amendments and any amendment or amendments or abbreviated registration statement increasing the amount of securities for which registration is being sought) to this Registration Statement, with all exhibits and any and all documents required to be filed with respect thereto, with the Securities and Exchange Commission or any regulatory authority, granting unto such attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises in order to effectuate the same as fully to all intents and purposes as he might or could do if personally present, hereby ratifying and confirming all that such attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities on the 30th day of October, 1997.
SIGNATURE TITLE
/s/ Emanuel J. Friedman Chairman of the
------------------------------------ Board of Directors,
(EMANUEL J. FRIEDMAN) Chief Executive
Officer (Principal
Executive Officer)
/s/ Eric F. Billings Vice Chairman of
------------------------------------ the Board of
(ERIC F. BILLINGS) Directors and Chief
Operating Officer
/s/ W. Russell Ramsey President and Secretary
------------------------------------
(W. RUSSELL RAMSEY)
/s/ Eric Y. Generous CFO (Principal
------------------------------------ Financial Officer)
(ERIC Y. GENEROUS)
/s/ Kurt R. Harrington Treasurer (Principal
------------------------------------ Accounting Officer)
(KURT R. HARRINGTON)
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II-4
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
1.01 --Form of Underwriting Agreement.
2.01 --Agreement and Plan of Merger.
3.01 --Registrant's Articles of Incorporation.
3.02 --Articles of Merger.
3.03 --Registrant's Bylaws.
4.01 --Form of Specimen Certificate for Registrant's Class A Common Stock.
5.01 --Form of Opinion of McGuire, Woods, Battle & Boothe, LLP.
9.01 --Voting Trust Agreement.
10.01 --Amendment to the Shareholders Agreement.
10.02 --Revolving Subordinated Loan Agreement, between The Bear Stearns
Companies, Inc. and Friedman, Billings, Ramsey & Co., dated August
15, 1997.
10.03 --Revolving Subordinated Loan Agreement, between Bear, Stearns
Securities Corp. and Friedman, Billings, Ramsey & Co., dated November
21, 1997.
10.04 --Revolving Subordinated Loan Agreement, between Custodial Trust
Company and Friedman, Billings, Ramsey & Co., dated June 20, 1997.
10.05 --The 1997 Employee Stock Purchase Plan.
10.06 --The 1997 Stock and Annual Incentive Plan.
10.07 --The Non-Employee Director Stock Compensation Plan.
10.08 --The Key Employee Incentive Plan.
11.01 --Computation of Per Share Earnings.
21.01 --List of Subsidiaries of the Registrant.
23.01 --Consent of Independent Public Accountants.
23.02 --Consent of Counsel (included in Exhibit 5.01).
24.01 --Power of Attorney (see page II-4 of this Registration Statement).
27.01 --Financial Data Schedule.
99.01 --Memorandum of Understanding between the Company and PNC Bank Corp.,
dated as of October 28, 1997.
99.02 --Form of Consent of a Person about to become a Director for Wallace C.
Timmeny.
99.03 --Form of Consent of a Person about to become a Director for Mark D.
Warner.
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II-5
Exhibit 1.01 Friedman, Billings, Ramsey Group, Inc. 11,000,000 Shares of Common Stock
UNDERWRITING AGREEMENT
December __, 1997
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
LAZARD FRERES & CO. LLC
SMITH BARNEY INC.
and the other Underwriters listed on Schedule I hereto,
through their Representatives,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC. and
LAZARD FRERES & CO. LLC
c/o Friedman, Billings, Ramsey & Co., Inc.
1001 19th Street North
Arlington, Virginia 22209
Ladies and Gentlemen:
Friedman, Billings, Ramsey Group, Inc., a Virginia corporation (the
"Company"), and the persons listed on Schedule II hereto (the "Selling
Shareholders"), confirm their agreement with Friedman, Billings, Ramsey & Co.,
Inc. ("FBRC"), Bear Stearns & Co. Inc., Credit Suisse First Boston, Lazard
Freres & Co. LLC, Smith Barney Inc. and each of the other Underwriters listed on
Schedule I hereto (collectively, the "Underwriters"), for whom FBRC and Lazard
Freres & Co. LLC are acting as Representatives (in such capacity, the
"Representatives"), with respect to (i) the sale by the Company and the purchase
by the Underwriters, acting severally and not jointly, of the respective numbers
of shares of Class A Common Stock, par value $0.01 per share, of the Company
("Common Stock") set forth on Schedule II hereto, (ii) the sale by the Selling
Shareholders, acting severally and not jointly, and the purchase by the
Underwriters, acting severally and not jointly, of the shares of Common Stock
set forth on Schedule I and Schedule II hereto, and (iii) the grant by the
Company and the Selling Shareholders, acting severally and not jointly, to the
Underwriters, acting severally and not jointly, of the option described in
Section 1(b) hereof to purchase all or any part of 1,650,000 additional shares
of Common Stock to cover over-allotments, if any. The 11,000,000 shares of
Common Stock (the "Initial Shares") to be purchased by the Underwriters and all
or any part of the 1,650,000 shares of Common Stock subject to the option
described in Section 1(b) hereof (the "Option Shares") are hereinafter called,
collectively, the "Shares."
The Company and the Selling Shareholders understand that the Underwriters propose to make a public offering of the Shares (the "Offering") as soon as the Underwriters deem advisable after this Agreement has been executed and delivered and initially to offer the Shares upon the terms set forth in the Prospectus.
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a registration statement on Form S-1 (No. 333-39107) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations thereunder (the "Securities Act Regulations"). The Company has
prepared and filed such amendments thereto, if any, and such amended preliminary
prospectuses, if any, as may have been required to the date hereof, and will
file such additional amendments thereto and such amended prospectuses as may
hereafter be required. The registration statement has been declared effective
under the Securities Act by the Commission. The registration statement, as
amended, at the time it became effective (including all information deemed to be
a part of the registration statement at the time it became effective pursuant to
Rule 430A(b) of the Securities Act Regulations) is hereinafter called the
"Registration Statement," except that, if the Company files a post-effective
amendment to such registration statement which becomes effective prior to the
Closing Time (as defined below), "Registration Statement" shall refer to such
registration statement as so amended. Any registration statement filed pursuant
to Rule 462(b) of the Securities Act Regulations is hereinafter called the "Rule
462(b) Registration Statement," and after such filing the term "Registration
Statement" shall include the 462(b) Registration Statement. Each prospectus
included in the registration statement, or amendments thereof or supplements
thereto, before it became effective under the Securities Act and any prospectus
filed with the Commission by the Company with the consent of the Underwriters
pursuant to Rule 424(a) of the Securities Act Regulations is hereinafter called
the "Preliminary Prospectus." The term "Prospectus" means the final prospectus,
as first filed with the Commission pursuant to Rule 424(b) of the Securities Act
Regulations, and any amendments thereof or supplements thereto. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus.
The Company, the Selling Shareholders and the Underwriters agree as follows:
(a) Initial Shares. Upon the basis of the warranties and representations and other terms and conditions herein set forth, the Company agrees and each Selling Shareholder agrees, severally and not jointly, to sell to each Underwriter, severally and not jointly, and each Underwriter agrees, severally and not jointly, to purchase from the Company and from each Selling Shareholder, pro rata, at the purchase price per share of $_____, the number of Initial Shares set forth in Schedule II opposite such Underwriter's name, plus any additional number of Initial Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, subject in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares. The Underwriters may from time to time increase or decrease the public offering price after the initial public offering to such extent as the Underwriters may determine.
(b) Option Shares. In addition, upon the basis of the warranties and representations and other terms and conditions herein set forth, the Company and the Selling Shareholders, severally and not jointly, hereby grant an option to the Underwriters, severally and not jointly, to purchase from (i) the Company up to an aggregate of 1,500,000 Option Shares and (ii) from the Selling Shareholders up to an aggregate of 150,000 Option Shares at the purchase price per share set forth in paragraph (a) above plus any additional number of Option Shares which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Shares upon notice by the Representatives to the Company and the Selling Shareholders setting forth the number of Option Shares as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Shares. Any such time and date of delivery (a "Date of Delivery") shall be determined by the Representatives, but shall not be later than three full business days (or earlier, without the consent of the Company and the Selling Shareholders, than two full business days) after the exercise of said option, nor in any event prior to the Closing Time (as hereinafter defined). If the option is exercised as to all or any portion of the Option Shares, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Shares then being purchased which the number of Initial Shares set forth in Schedule II opposite the name of such Underwriter bears to the total number of Initial Shares, subject in each case to such adjustments as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares. The Underwriters may from time to time increase or decrease the public offering price of the Option Shares after the initial public offering to such extent as the Underwriters may determine.
(a) Initial Shares. Payment of the purchase price for the Initial Shares shall be made to the Company and the Selling Shareholders, respectively, by wire transfer of immediately available funds or certified or official bank check payable in federal (same-day) funds at the offices of Gibson, Dunn & Crutcher LLP located at 1050 Connecticut Avenue, N.W., Washington, D.C. 20036 (unless another place shall be agreed upon by the Representatives, the Company and the Selling Shareholders) against delivery of the certificates for the Initial Shares to the Representatives for the respective accounts of the Underwriters. Such payment and delivery shall be made at 9:30 a.m., New York City time, on the third (fourth, if pricing occurs after 4:30 p.m., New York City time) business day after the date hereof (unless another time, not later than ten business days after such date, shall be agreed to by the Representatives, the Company and the Selling Shareholders). The time at which such payment and delivery are actually made is hereinafter sometimes called the "Closing Time." Certificates for the Initial Shares shall be delivered to the Representatives in definitive form registered in such names and in such denominations as the Representatives shall specify in writing to the Company and the Selling Shareholders at least two full business days before the Closing Time. For the purpose of expediting the checking of the certificates for the Initial Shares by the Representatives, the Company and the Selling Shareholders agree to make such certificates available to the Representatives for such purpose at least one full business day preceding the Closing Time.
(b) Option Shares. In addition, payment of the purchase price for the
Option Shares shall be made to the Company and the Selling Shareholders,
respectively, by wire transfer of immediately available funds or certified or
official bank check payable in federal (same-day) funds at the offices of
Gibson, Dunn & Crutcher LLP located at 1050 Connecticut Avenue, N.W.,
Washington, D.C. 20036 (unless another place shall be agreed upon by the
Representatives, the Company and the Selling Shareholders), against delivery of
the certificates for the Option Shares to the Representatives for the respective
accounts of the Underwriters. Such payment and delivery shall be made at 9:30
a.m., New York City time, on each Date of Delivery. Certificates for the Option
Shares shall be delivered to the Representatives in definitive form registered
in such names and in such denominations as the Representatives shall specify at
least two full business days before the Closing Time. For the purpose of
expediting the checking of the certificates for the Option Shares by the
Representatives, the Company and the Selling Shareholders agree to make such
certificates available to the Representatives for such purpose at least one full
business day preceding the relevant Date of Delivery.
(a) the Company has an authorized capitalization as set forth in the Prospectus under the caption "Capitalization;" the outstanding shares of capital stock of the Company and its direct and indirect subsidiaries ("Subsidiaries") have been duly and validly authorized and issued and are fully paid and non- assessable; except as disclosed in the Prospectus, there are no outstanding (i) securities or obligations of the Company or any of its Subsidiaries convertible into or exchangeable for any capital stock of the Company or any such Subsidiary, (ii) warrants, rights or options to subscribe for or purchase from the Company or any such Subsidiary any such capital stock or any such convertible or exchangeable securities or obligations, or (iii) obligations of the Company or any such Subsidiary to issue any shares of capital stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options;
(b) the Company and its Subsidiaries each has been duly incorporated and is validly existing as a corporation in good standing under the laws of its respective jurisdiction of incorporation with full corporate power and authority to own its respective properties and to conduct its respective business, where applicable, as described in the Registration Statement and the Prospectus and, in the case of the Company, to execute and deliver this Agreement and the Purchase Agreement between the Company and PNC Bank Corp., dated October 29, 1997 (the "Other Agreement"), and to consummate the transactions described in this Agreement and in the Other Agreement;
(c) the Company and all of its Subsidiaries are duly qualified or licensed by each jurisdiction in which they conduct their respective businesses and in which the failure, individually or in the aggregate, to be so qualified or licensed could reasonably be expected to have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, and the Company and its Subsidiaries are duly qualified, and are in good standing, in each jurisdiction in which they own or lease real property or maintain an office and in which such qualification is necessary, except where, individually or in the aggregate, the failure to be so qualified and in good standing would not have
a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; except as disclosed in the Prospectus, no Subsidiary is prohibited or restricted, directly or indirectly, from paying dividends to the Company, or from making any other distribution with respect to such Subsidiary's capital stock or from paying the Company or any other Subsidiary, any loans or advances to such Subsidiary from the Company or such other Subsidiary, or from transferring any such Subsidiary's property or assets to the Company or to any other Subsidiary;
(d) the Company and its Subsidiaries are in compliance with all applicable federal, state, local and foreign laws, rules and regulations, including, without limitation, the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Investment Company Act of 1940, as amended (the "Investment Company Act"), the Investment Advisers Act of 1940, as amended, and the regulations promulgated thereunder (collectively, the "Securities Laws"), orders, decrees and judgments, including those relating to transactions with affiliates, except where, individually or in the aggregate, the failure to be in compliance in a material respect therewith would not have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole;
(e) neither the Company nor any of its Subsidiaries is in breach of, or in default under, nor has any event occurred which with giving of notice, lapse of time, or both would constitute a breach of, or default under, its respective articles of incorporation or charter or by-laws or in the performance or observance of any obligation, agreement, covenant or condition contained in any license, indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties is bound, except for such breaches or defaults which, individually or in the aggregate, would not have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole, and the execution, delivery and performance of this Agreement and the Other Agreement, and consummation of the transactions contemplated hereby and thereby will not result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or asset of the Company or its Subsidiaries, or conflict with, or result in any breach of, or constitute a default under, or constitute an event which with giving of notice, lapse of time, or both would constitute a breach of, or default under, (i) any provision of the articles of incorporation or charter or by-laws of the Company or any of its Subsidiaries, or (ii) any provision of any license, indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which any of them or their respective properties may be bound or affected, or (iii) any federal, state, local or foreign law, regulation or rule, including, without limitation, the Securities Laws, or any decree, judgment or order applicable to the Company or any of its Subsidiaries, except in the case of this clause (iii) for such breaches or defaults which, individually or in the aggregate, would not have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole;
(f) the Company and each of its Subsidiaries has complied with all provisions of Florida Statutes, Section 517.075, relating to issuers doing business in Cuba.
(g) this Agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by general principles of equity, and except to the extent that the indemnification and contribution provisions of Section 11 hereof may be limited by federal or state securities laws and public policy considerations in respect thereof;
(h) the Other Agreement has been duly authorized and is legal, valid and binding agreements of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by general principles of equity;
(i) no approval, authorization, consent or order of or filing with any federal, state or local governmental or regulatory commission, board, body, authority or agency is required in connection with the execution, delivery and performance of this Agreement and the Other Agreement, the consummation of the transactions contemplated hereby and thereby, or the sale and delivery of the Shares by the Company as contemplated hereby other than (i) such as have been obtained, or will have been obtained at the Closing Time or the relevant Date of Delivery, as the case may be, under the Securities Act, (ii) such approvals as have been obtained in connection with the approval of the quotation of the Shares on the New York Stock Exchange ("NYSE") and (iii) any necessary qualification under the securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters;
(j) each of the Company and its Subsidiaries has all necessary licenses, authorizations, consents and approvals and has made all necessary filings required under any federal, state, local and foreign law, regulation and rule, including, without limitation, the Securities Laws, and has obtained all necessary authorizations, consents and approvals from other persons, required in order to conduct their respective businesses as described in the Prospectus, except to the extent that any failure to have any such licenses, authorizations, consents or approvals, to make any such filings or to obtain any such authorizations, consents or approvals would not, individually or in the aggregate, have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; neither the Company nor any of its Subsidiaries is in violation of, in default under, or has received any notice regarding a possible violation, default or revocation of any such license, authorization, consent or approval applicable to the Company or any of its Subsidiaries, the effect of which, individually or in the aggregate, could be material and adverse to the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; and no such license, authorization, consent or approval contains a materially burdensome restriction that is not adequately disclosed in the Registration Statement and the Prospectus;
(k) each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the Securities Act and no proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are threatened by the Commission, and any request on the part of the Commission for additional information has been complied with;
(l) the Preliminary Prospectus and the Registration Statement comply and the Prospectus and any further amendments or supplements thereto will, when they have become effective or are filed with the Commission, as the case may be, comply in all material respects with the requirements of the Securities Act and the Securities Act Regulations; the Registration Statement did not, and any amendment thereto will not, in each case as of the applicable effective date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Preliminary Prospectus does not, and the Prospectus or any amendment or supplement thereto will not, as of the applicable filing date and at the Closing Time and on each Date of Delivery (if any), contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no warranty or representation with respect to any statement contained in the Registration Statement or the Prospectus in reliance upon and in conformity with the information concerning the Underwriters and furnished in writing by or on behalf of the Underwriters through the Representatives to the Company expressly for use in the Registration Statement or the Prospectus (that information being limited to that described in the last sentence of the first paragraph of Section 11(c) hereof);
(m) the Preliminary Prospectus was and the Prospectus delivered to the Underwriters for use in connection with this offering will be identical in all material respects to the versions of the Preliminary Prospectus and the Prospectus created to be transmitted to the Commission for filing via the Electronic Data Gathering Analysis and Retrieval System ("EDGAR"), except to the extent permitted by Regulation S-T;
(n) all legal or governmental proceedings, contracts or documents of a character required to be filed as exhibits to the Registration Statement or to be summarized or described in the Prospectus have been so filed, summarized or described as required and any such summaries or descriptions present fairly the information required to be shown;
(o) there are no actions, suits, proceedings, inquiries or investigations pending or, to the Company's knowledge, threatened against the Company or any of its Subsidiaries or any of their respective officers or directors or to which the properties, assets or rights of any such entity are subject, at law or in equity, before or by any federal, state, local or foreign court, governmental or regulatory commission, board, body, authority, arbitration panel or agency which, individually or in the aggregate, could result in a judgment, decree, award or order having a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole;
(p) the financial statements, including the notes thereto, included in the Registration Statement and the Prospectus present fairly the consolidated financial position of the Company and its Subsidiaries as of the dates indicated and the consolidated results of operations and changes in stockholders' equity and cash flows of the Company and its Subsidiaries for the
periods specified; such financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis during the periods involved (except as indicated in the notes thereto); the financial statement schedules included in the Registration Statement and the amounts in the Prospectus under the captions "Prospectus Summary -- Summary Consolidated Financial Information," "Prospectus Summary -- Recent Developments," "Capitalization," "Dilution" and "Selected Consolidated Financial Data" fairly present the information shown therein and have been compiled on a basis consistent with the financial statements included in the Registration Statement and the Prospectus;
(q) Arthur Andersen LLP, whose reports on the consolidated financial statements of the Company and its Subsidiaries are filed with the Commission as part of the Registration Statement and Prospectus, are and were during the periods covered by their reports independent public accountants as required by the Securities Act and the Securities Act Regulations;
(r) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as may be otherwise stated in the Registration Statement or the Prospectus, there has not been (i) any material adverse change, in the assets, liabilities, capital, operations, business or condition (financial or otherwise), present or prospective, of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any transaction, which is material to the Company and its Subsidiaries taken as a whole, contemplated or entered into by the Company or any of its Subsidiaries, (iii) any obligation, contingent or otherwise, directly or indirectly incurred by the Company or any of its Subsidiaries, which is material to the Company and its Subsidiaries taken as a whole or (iv) any dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock;
(s) the Company is not, and upon the sale of the Shares as herein contemplated will not be, an investment company which is required to register under the Investment Company Act;
(t) the Shares will conform in all material respects to the description thereof contained in the Registration Statement and the Prospectus;
(u) except as disclosed in the Prospectus, there are no persons with registration or other similar rights to have any equity securities registered pursuant to the Registration Statement or otherwise registered by the Company under the Securities Act;
(v) the Shares have been duly authorized and, when the Shares have been issued and duly delivered to the Underwriters against payment therefor as contemplated by this Agreement, the Shares will be validly issued, fully paid and nonassessable, free and clear of any pledge, lien, encumbrance, security interest, mortgage or other claim whatsoever, and the issuance and sale of the Shares by the Company is not subject to preemptive or other similar rights arising by operation of law, under the articles of incorporation or by-laws of the Company, under any agreement to which the Company or any of its Subsidiaries is a party or otherwise;
(w) the Company has not taken, and will not take, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares;
(x) any certificate signed by any officer of the Company or any Subsidiary delivered to the Representatives or to counsel for the Underwriters pursuant to or in connection with this Agreement shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby;
(y) the form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the articles of incorporation and by-laws of the Company and the requirements of NYSE;
(z) in connection with this offering, the Company has not offered and will not offer its Common Stock or any other securities convertible into or exchangeable or exercisable for Common Stock in a manner in violation of the Securities Act;
(aa) except as disclosed in the Prospectus, the Company has not incurred any liability for any finder's fees or similar payments in connection with the transactions herein contemplated; and
(bb) Except for (i) the 1995 short taxable year of FBR Offshore Management, Inc., a Delaware corporation, and (ii) all taxable years of FBR Investment Management (Bermuda) Ltd., a Bermuda corporation, FBR Offshore Investments, Ltd., a Bermuda corporation, and Friedman, Billings, Ramsey International, Ltd., a United Kingdom corporation, the Company, its Subsidiaries and their predecessors have qualified as "S corporations" or "qualified subchapter S subsidiaries" within the meaning of Section 1361 of the Internal Revenue Code of 1986, as amended, for federal and, to the extent applicable, state income tax purposes, for all taxable periods since their formation. The Company, its Subsidiaries, and their shareholders have filed all elections and taken all steps necessary to effectuate such qualification, and the Company has no knowledge of any fact which could cause any such election with respect to such entities to be invalid. The Company, its Subsidiaries and their predecessors have filed all necessary federal, state and foreign income and franchise tax returns that they were required to file and have paid all taxes shown as due thereon (including, but not limited to, all penalties, interest and other additions thereto), except for failures to file or pay which would not, individually or in the aggregate, have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. All such tax returns were correct and complete in all material respects. All tax liabilities are adequately provided for on the books of the Company and its Subsidiaries, except to such extent as would not, individually or in the aggregate, have a material adverse affect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. The Company, its Subsidiaries and their predecessors have made all necessary payroll and employment tax payments and are current and up-to-date with respect to such tax payments as of the date of this Agreement, except where failure to make any such payment would not, individually or in the aggregate, have a material adverse affect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole. The Company and its Subsidiaries have no knowledge of any tax proceedings
or other action pending or threatened against the Company or any of its Subsidiaries which, individually or in the aggregate, could have a material adverse affect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole.
Each Selling Shareholder severally represents and warrants to the Underwriters and the Company that:
(a) all authorizations and consents necessary for the execution and delivery by such Selling Shareholder of this Agreement and the sale and delivery of the Shares to be sold by such Selling Shareholder hereunder have been given and are in full force and effect on the date hereof and will be in full force and effect at the Closing Time;
(b) such Selling Shareholder has, and at the Closing Time will have good and valid title to the Shares to be sold by such Selling Shareholder, free and clear of any pledge, lien, encumbrance, security interest, mortgage, preemptive or other similar right, or other claim whatsoever, and will have, full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder hereunder;
(c) this Agreement has been duly authorized, executed and delivered by each Selling Shareholder and is a legal, valid and binding agreement of such Selling Shareholder enforceable against such Selling Shareholder in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by general principles of equity, and except to the extent that the indemnification and contribution provisions of Section 11 hereof may be limited by federal or state securities laws and public policy considerations in respect thereof;
(d) upon delivery of and payment for the Shares to be sold by such Selling Shareholder hereunder, the several Underwriters will acquire valid and unencumbered title to such Shares, free and clear of any pledge, lien, encumbrance, security interest, mortgage, preemptive or other similar right, or other claim whatsoever;
(e) the execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby by such Selling Shareholder will not conflict with, or result in any breach of, or constitute a default under, or constitute an event which with giving of notice, lapse of time, or both would constitute a breach of, or default under, (i) any provision of any license, indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which such Selling Shareholder is a party or by which such Shareholder or such Shareholder's properties may be bound or affected, the consummation by such Selling Shareholder of the transactions contemplated herein and the fulfillment by such Selling Shareholder of the terms hereof will not result in a violation or breach of any terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, note, loan agreement, sale and leaseback arrangement or other agreement or instrument to which such Selling Shareholder is a party, or (ii) any federal, state, local or foreign law, regulation or rule, including,
without limitation, the Securities Laws, or any decree, judgment or order applicable to such Selling Shareholder;
(f) such Selling Shareholder has not taken, directly or indirectly, any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares, and such Selling Shareholder is not aware of any such action taken or to be taken by affiliates of such Selling Shareholder; and
(g) such information in the Registration Statement and any amendments thereto as specifically refers to such Selling Shareholder do not and will not, as the case may be, in each case as of the applicable effective date, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and such information in the Preliminary Prospectus and the Prospectus or any amendment or supplement thereto does not and will not, as the case may be, in each case as of the applicable filing date and at the Closing Time, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(a) The Company will furnish such information as may be required and otherwise to cooperate in qualifying the Shares for offering and sale under the securities or blue sky laws of such states as the Representatives may designate and to maintain such qualifications in effect as long as required for the distribution of the Shares, provided that the Company shall not be required to qualify as a foreign corporation or to consent to the service of process under the laws of any such state (except for service of process with respect to the offering and sale of the Shares).
(b) The Company will prepare immediately an amended Prospectus in a form approved by the Underwriters and file or transmit for filing such Prospectus with the Commission in accordance with Rule 430A and to furnish promptly to the Underwriters as many copies of the Prospectus (or of the Prospectus as amended or supplemented if the Company shall have made any amendments or supplements thereto after the effective date of the Registration Statement) as the Underwriters may reasonably request for the purposes contemplated by the Securities Act Regulations, which Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the version created to be transmitted to the Commission for filing via EDGAR, except to the extent permitted by Regulation S-T.
(c) The Company will advise the Representatives promptly, confirming such advice in writing, of (i) the receipt of any comments from, or any request by, the Commission for amendments or supplements to the Registration Statement or the Prospectus or for additional information with respect thereto, or (ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or of the suspension of the qualification of the Shares for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Representatives will have two days from receipt of such written advice to comment upon any such action by the Commission or other regulatory or governmental body and the response thereto, and the Company will use reasonable efforts to consider and incorporate the Representatives' comments. The Company will make every reasonable effort to obtain the lifting or removal of such order as soon as possible. The Company will advise the Representatives promptly of any proposal to amend or supplement the Registration Statement or the Prospectus and will file no such amendment or supplement to which the Representatives have reasonably objected in writing.
(d) The Company will furnish to the Underwriters for a period of five years
from the date of this Agreement (i) as soon as available, copies of all annual,
quarterly and current reports or other communications supplied to holders of
shares of Common Stock, (ii) as soon as practicable after the filing thereof,
copies of all reports filed by the Company with the Commission, the National
Association of Securities Dealers, Inc. ("NASD") or any securities exchange and
(iii) such other public information as the Representatives may reasonably
request regarding the Company and its Subsidiaries.
(e) The Company will advise the Underwriters promptly of the happening of any event known to the Company within the time during which a Prospectus relating to the Shares is required to be delivered under the Securities Act Regulations which, in the judgment of the Company, would require the making of any change in the Prospectus then being used so that the Prospectus would not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, during such time, the Company will prepare and furnish, at the Company's expense, to the Underwriters promptly such amendments or supplements to such Prospectus as may be necessary to reflect any such change and to furnish to the Underwriters a copy of such proposed amendment or supplement before filing any such amendment or supplement with the Commission.
(f) The Company will furnish promptly to the Representatives a signed copy of the Registration Statement, as initially filed with the Commission, and of all amendments or supplements thereto (including all exhibits filed therewith or incorporated by reference therein) and such number of conformed copies of the foregoing as the Underwriters may reasonably request.
(g) The Company will furnish to the Underwriters, not less than one
business day before filing with the Commission subsequent to the effective date
of the Prospectus and during the period referred to in paragraph (d) above, a
copy of any document proposed to be filed with the Commission pursuant to
Section 13, 14, or 15(d) of the Exchange Act.
(h) The Company will apply the net proceeds of the sale of the Shares in accordance with its statements under the caption "Use of Proceeds" in the Prospectus.
(i) The Company will make generally available to its security holders as
soon as practicable, but in any event not later than the end of the fiscal
quarter first occurring after the first anniversary of the effective date of the
Registration Statement, an earnings statement complying with the provisions of
Section 11(a) of the Securities Act (in form, at the option of the Company,
complying with the provisions of Rule 158 of the Securities Act Regulations)
covering a period of 12 months beginning after the effective date of the
Registration Statement.
(j) The Company will use its best efforts to effect and maintain the quotation of the Shares on NYSE and to file with NYSE all documents and notices required by NYSE of companies that have securities that are traded in, and quotations for which are reported by, NYSE.
(k) The Company will refrain during a period of 180 days from the date of
the Prospectus, without the prior written consent of the Representatives, from
(i) offering, pledging, selling, contracting to sell, selling any option or
contract to purchase, purchasing any option or contract to sell, granting any
option for the sale of, or otherwise disposing of or transferring, directly or
indirectly, any share of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or filing any registration
statement under the Securities Act with respect to any of the foregoing or (ii)
entering into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of any share of Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise. The foregoing sentence
shall not apply to (A) the Shares to be sold hereunder, (B) any shares of Common
Stock issued pursuant to the PNC Transaction referred to in the Prospectus, (C)
any shares of Common Stock issued by the Company upon the exercise of an option
outstanding on the date hereof and referred to in the Prospectus, (D) any shares
of Common Stock issued pursuant to the Direct Offering referred to in the
Prospectus, (E) up to 100,000 shares of Common Stock reserved pursuant to the
Non-Employee Director Stock Compensation Plan referred to in the Prospectus, (F)
shares of Common Stock that each Eligible Director may elect to receive in lieu
of all or a portion of Director Fees as referred to in the Prospectus, (G)
Director Options for up to ___ shares of Common Stock granted to each Eligible
Director on the day the Offering becomes effective, as referred to in the
Prospectus, (H) Director Options for ____ shares of Common Stock granted to each
Eligible Director after each annual meeting of shareholders during such
director's term, and (I) grants of stock options not to exceed 5,900,000 shares
of Common Stock pursuant to the Company's 1997 Stock and Annual Incentive Plan,
as referred to in the Prospectus, and the Company's 1997 Employee Stock Purchase
Plan, as referred to in the Prospectus.
(l) The Company and the Selling Shareholders will not, and the Company will use its best efforts to cause its officers, directors and affiliates (other than pursuant to the underwriting activities of FBRC) not to, (i) take, directly or indirectly, prior to termination of the underwriting syndicate contemplated by this Agreement, any action designed to stabilize or manipulate the price of any security of the Company, or which may cause or result in, or which might in the future reasonably be expected to cause or result in, the stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Shares, (ii) sell, bid for, purchase or pay anyone any compensation for soliciting purchases of the Shares or (iii) pay or
agree to pay to any person any compensation for soliciting any order to purchase any other securities of the Company.
(m) Prior to the Closing Time (and, if applicable, the Delivery Date), neither the Company nor any Selling Shareholder will issue any press releases or other communications directly or indirectly and will hold no press conferences with respect to the Company or its Subsidiaries, on the financial condition, results of operations, business, properties, assets or liabilities of the Company or its Subsidiaries, or the offering of the Shares, without the prior written consent of the Representatives.
(n) The Selling Shareholders, for a period of 18 months commencing on the date of the final prospectus with respect to the offering (the "Effective Date"), will not sell (as defined below) any shares of Common Stock, or any securities convertible into or exchangeable for any shares of Common Stock, or any option, warrant or other right to acquire any shares of Common Stock, or publicly announce any intention to do any of the foregoing, without the prior written consent of the Representatives, which consent may be withheld in their sole discretion; provided, however, that from nine months after the Effective Date each Selling Shareholder may sell the greater of 10,000 shares of Common Stock or 5% of such Selling Shareholder's shares of Common Stock outstanding on the Effective Date. The word "sell" as used in this paragraph (n) means to, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell (including, without limitation, any short sale), pledge, establish an open "put equivalent" position within the meaning of Rule 16a-1(h) of the Exchange Act, as amended, transfer, assign or otherwise dispose of securities.
(o) The obligations of none of the Selling Shareholders hereunder shall be terminated by operation of law, whether by the death or incapacity of any individual Selling Shareholder or by the occurrence of any other event, and if any Selling Shareholder should die or become incapacitated, or if any other such event should occur before the delivery of the Shares hereunder, certificates representing the Shares shall be delivered by or on behalf of each such Selling Shareholder in accordance with the terms and conditions of the Agreement.
(p) Each Selling Shareholder will do or perform all things required to be done or performed by the Selling Shareholders prior to the Closing Time to satisfy all conditions precedent to the delivery of the Shares under this Agreement.
The Company agrees to pay all costs and expenses incident to the performance of its obligations under this Agreement, whether or not the transactions contemplated hereunder are consummated or this Agreement is terminated, including expenses, fees and taxes in connection with (i) the preparation and filing of the Registration Statement, each Preliminary Prospectus, the Prospectus, and any amendments or supplements thereto, and the printing and furnishing of copies of each thereof to the Underwriters and to dealers (including costs of mailing and shipment), (ii) the preparation, issuance and delivery of the certificates for the Shares to the Underwriters, including any stock or other transfer taxes or duties payable upon the sale of the Shares to the Underwriters, (iii) the printing of this Agreement and any dealer agreements and furnishing of
copies of each to the Underwriters and to dealers (including costs of mailing and shipment), (iv) the qualification of the Shares for offering and sale under state laws that the Company and the Representatives have mutually agreed are appropriate and the determination of their eligibility for investment under state law as aforesaid (including the legal fees and filing fees and other disbursements of counsel for the Underwriters in an amount equal to $5,000 assuming that the Common Stock is approved for quotation on NYSE) and the printing and furnishing of copies of any blue sky surveys or legal investment surveys to the Underwriters and to dealers, (v) filing for review of the public offering of the Shares by NASD, (vi) the fees and expenses of any transfer agent or registrar for the Shares and miscellaneous expenses referred to in the Registration Statement, (vii) the fees and expenses incurred in connection with listing the shares of Common Stock on NYSE, (viii) its making road show presentations with respect to the offering of the Shares, (ix) preparing and distributing bound volumes of the transaction documents for the Representatives and their legal counsel and (x) the performance of the Company's other obligations hereunder (including, without limitation, costs incurred in closing the purchase of the Options Shares, if any). Upon the Representative's request, the Company will provide funds in advance for filing fees.
(a) The Company shall furnish to the Underwriters at the Closing Time and on each Date of Delivery an opinion of Wachtell, Lipton, Rosen & Katz, counsel for the Company, addressed to the Underwriters and dated the Closing Time and each Date of Delivery, as the case may be, and in a form reasonably satisfactory to Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, stating that:
(i) the Company has an authorized capitalization as set forth in the Prospectus under the caption "Capitalization;" the outstanding shares of capital stock of the Company and its Subsidiaries have been duly and validly authorized and issued and are fully paid and non-assessable; except as disclosed in the Prospectus, there are no outstanding (A) securities or obligations of the Company or any of its Subsidiaries convertible into or exchangeable for any capital stock of the Company or any such Subsidiary, (B) warrants, rights or options to subscribe for or purchase from the Company or any such Subsidiary any such capital stock or any such convertible or exchangeable securities or obligations, or (C) obligations of the Company or any such Subsidiary to issue any shares of capital
stock, any such convertible or exchangeable securities or obligation, or any such warrants, rights or options;
(ii) the Company and its Subsidiaries each has been duly incorporated and is validly existing as a corporation in good standing under the laws of its respective jurisdiction of incorporation with full corporate power and authority to own its respective properties and to conduct its respective business as described in the Registration Statement and the Prospectus and, in the case of the Company, to execute and deliver this Agreement and the Other Agreement;
(iii) the execution, delivery and performance of this Agreement and the Other Agreement by the Company and the consummation by the Company of the transactions contemplated under this Agreement or the Other Agreement, as the case may be, do not and will not (A) conflict with, or result in any breach of, or constitute a default under, or constitute an event which with giving of notice, lapse of time, or both would constitute a breach of or default under, (I) any provisions of the articles of incorporation, charter or by-laws of the Company or any Subsidiary, (II) to such counsel's knowledge, any provision of any material license, indenture, mortgage, deed of trust, loan or credit agreement or other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them or their respective properties may be bound or affected, or (III) to such counsel's knowledge, any law or regulation, including, without limitation, the Securities Laws, or any decree, judgment or order applicable to the Company or any Subsidiary, except in the case of clause (II) for such conflicts, breaches or defaults which, individually or in the aggregate, would not have a material adverse effect on the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole; or (B) result in the creation or imposition of any lien, charge, claim or encumbrance upon any property or assets of the Company or its Subsidiaries;
(iv) this Agreement has been duly authorized, executed and delivered by the Company and is enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by general principles of equity, and except that enforceability of the indemnification and contribution provisions set forth in Section 11 of this Agreement may be limited by the federal or state securities laws of the United States or public policy underlying such laws;
(v) the Other Agreement has been duly authorized, executed, and delivered by the Company and is a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally, and by general principles of equity;
(vi) no approval, authorization, consent or order of or filing with any federal or state governmental or regulatory commission, board, body, authority or agency is required in connection with the execution, delivery and performance of this Agreement and the
Other Agreement, the consummation of the transactions contemplated hereby and thereby, the sale and delivery of the Shares by the Company as contemplated hereby other than such as have been obtained or made under the Securities Act, and except that such counsel need express no opinion as to any necessary qualification under the state securities or blue sky laws of the various jurisdictions in which the Shares are being offered by the Underwriters or any approval of the underwriting terms and arrangements by NASD;
(vii) the Company is not, and upon the sale of the Shares as herein contemplated will not be, an investment company required to be registered under the Investment Company Act;
(viii) the Shares have been duly authorized and, when the Shares have been issued and duly delivered against payment therefor as contemplated by this Agreement, the Shares will be validly issued, fully paid and nonassessable, free and clear of any pledge, lien, encumbrance, security interest, mortgage or other claim whatsoever;
(ix) the issuance and sale of the Shares by the Company is not subject to preemptive or other similar rights arising by operation of law, under the articles of incorporation or by-laws of the Company, under any agreement known to such counsel to which the Company or any of its Subsidiaries is a party or, to such counsel's knowledge, otherwise;
(x) the form of certificate used to evidence the Common Stock complies in all material respects with all applicable statutory requirements, with any applicable requirements of the articles of incorporation and by-laws of the Company and the requirements of NYSE;
(xi) the Registration Statement has become effective under the Securities Act and no stop order suspending the effectiveness of the Registration Statement has been issued and, to such counsel's knowledge, no proceedings with respect thereto have been commenced or threatened;
(xii) as of the effective date of the Registration Statement, the Registration Statement and the Prospectus (except as to the financial statements and other financial and statistical data contained in such Registration Statement or Prospectus, as to which such counsel need express no opinion) complied as to form in all material respects with the requirements of the Securities Act and the Securities Act Regulations;
(xiii) the statements under the captions "Capitalization," "Risk Factors -- Regulations," "Certain Transactions Occurring Prior to the Offering," "Business -- Regulation," "Business -- Net Capital Requirements," "Management -- The Non-Employee Director Stock Compensation Plan," "Management -- Employee Incentive Compensation Plans," "Description of Capital Stock," and "Shares Eligible for Future Sale," in the Registration Statement and the Prospectus, insofar as such statements constitute a summary of the legal matters referred to therein, constitute accurate summaries thereof in all material respects; and
(xiv) to such counsel's knowledge, there are no contracts or documents of a character which are required to be filed as exhibits to the Registration Statement or to be described or summarized in the Prospectus which have not been so filed, summarized or described.
In addition, such counsel shall state that they have participated in the preparation of the Prospectus and the Registration Statement and in conferences with officers and other representatives of the Company and representatives of the independent public accountants for the Company and with the Representatives at which the contents of the Prospectus and the Registration Statement and related matters were discussed and, although such counsel is not passing upon and does not assume responsibility for the accuracy, completeness or fairness of the statements contained in the Prospectus and the Registration Statement and have not made any independent investigation or verification thereof, nothing has come to their attention during the course of such participation (relying as to materiality and for an explanation of technical terms to a large extent upon the statements of officers and other representatives of the Company) that leads them to believe that at the time the Registration Statement became effective, the Prospectus and the Registration Statement (other than the financial statements and schedules and other financial and statistical data and information included therein or omitted therefrom, as to which with they need express no opinion) contained or contains an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
To an extent reasonably satisfactory to Gibson, Dunn & Crutcher LLP, Wachtell, Lipton, Rosen & Katz may rely in its opinion upon certifications of certain officers of the Company and, as to matters of Virginia law, upon the opinion of McGuire, Woods, Battle & Boothe LLP.
(b) The Selling Shareholders shall furnish to the Underwriters at the Closing Time an opinion of Wachtell, Lipton, Rosen & Katz, counsel for the Selling Shareholders, addressed to the Underwriters and dated the Closing Time and in a form reasonably satisfactory to Gibson, Dunn & Crutcher LLP, counsel for the Underwriters, stating that:
(i) this Agreement has been duly authorized, executed and delivered on behalf of the Selling Shareholders;
(ii) to such counsel's knowledge, each Selling Shareholder has full legal right and has obtained any approval required by law (other than as required by the Securities Act, NASD and state securities and blue sky laws) to sell, assign, transfer and deliver the Shares to be sold by such Selling Shareholder;
(iii) to such counsel's knowledge, no consent, approval, authorization or order of any court, or governmental agency or body is required for the consummation of the transactions contemplated by this Agreement in connection with the Shares to be sold by the Selling Shareholders hereunder, except such as may be required under the Securities Act or the Securities Act Regulations or as may be required by NASD or under state securities and blue sky laws;
(iv) to such counsel's knowledge, each Selling Shareholder owns the Shares being sold by such Selling Shareholder hereunder, free and clear of any pledge, lien, encumbrance, security interest, mortgage, preemptive or other similar right, or other claim whatsoever; and
(v) to such counsel's knowledge, upon delivery of the Shares to be sold by each Selling Shareholder pursuant to this Agreement and payment therefor as contemplated herein, and assuming that the Underwriters purchase such Shares in good faith and without notice of an adverse claim, each Selling Shareholder will have transferred to the Underwriters ownership of the Shares being sold by such Selling Shareholder at the Closing Time, free and clear of any pledge, lien, encumbrance, security interest, mortgage, preemptive or other similar right, or other claim whatsoever.
To an extent reasonably satisfactory to Gibson, Dunn & Crutcher LLP, Wachtell, Lipton, Rosen & Katz may rely in its opinion upon certifications of the Selling Shareholders and of certain officers of the Company and, as to matters of Virginia law, upon the opinion of McGuire, Woods, Battle & Boothe LLP.
(c) The Representatives shall have received from Arthur Andersen LLP, letters dated, respectively, as of the date of this Agreement, the Closing Time and each Date of Delivery, as the case may be, addressed to the Representatives as Representatives of the Underwriters and in form and substance satisfactory to the Representatives, as attached hereto as Exhibit A.
(d) The Underwriters shall have received at the Closing Time and on each Date of Delivery the favorable opinion of Gibson, Dunn & Crutcher LLP, dated the Closing Time or such Date of Delivery, as the case may be, addressed to the Representatives and in form and substance satisfactory to the Representatives.
(e) No amendment or supplement to the Registration Statement or the Prospectus shall have been filed to which the Underwriters have objected in writing.
(f) Prior to the Closing Time and each Date of Delivery (i) no stop order suspending the effectiveness of the Registration Statement or any order preventing or suspending the use of any Preliminary Prospectus or the Prospectus shall have been issued by the Commission, (ii) no suspension of the qualification of the Shares for offering or sale in any jurisdiction shall have occurred, and no proceeding for such suspension shall have been initiated or threatened; and (ii) the Registration Statement and the Prospectus shall not contain an untrue statement of material fact or omit to state a material fact, individually or in the aggregate, required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(g) Between the time of execution of this Agreement and the Closing Time or the relevant Date of Delivery, as the case may be, (i) no material and unfavorable change in the assets, operations, business, prospects or condition (financial or otherwise) of the Company and its Subsidiaries taken as a whole shall have occurred or become known (whether or not arising in the
ordinary course of business), and (ii) no transaction which is material and unfavorable to the Company shall have been entered into by the Company or any of its Subsidiaries.
(h) At the Closing Time, the Other Agreement shall have been entered into and delivered by all required parties.
(i) At the Closing Time, the Shares shall have been approved for listing on NYSE.
(j) The NASD shall not have raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.
(k) The Representatives shall have received letters from each of the Existing Shareholders (as described in the Prospectus), in form and substance satisfactory to the Representatives, confirming such person's agreement that for a period of 18 months commencing on the Effective Date such person will not sell (as defined below) any shares of Common Stock, or any securities convertible into or exchangeable for any shares of Common Stock, or any option, warrant or other right to acquire any shares of Common Stock, or publicly announce any intention to do any of the foregoing, without the prior written consent of the Representatives, which consent may be withheld in their sole discretion; provided, however, that from nine months after the Effective Date each Existing Shareholder may sell the greater of 10,000 shares of Common Stock or 5% of such Existing Shareholder's shares of Common Stock outstanding on the Effective Date. The word "sell" as used in this paragraph (k) means to, directly or indirectly, offer to sell, sell, contract to sell, grant any option to sell (including, without limitation, any short sale), pledge, establish an open "put equivalent" position within the meaning of Rule 16a-1(h) of the Exchange Act, as amended, transfer, assign or otherwise dispose of securities.
(l) The Company shall, at the Closing Time and on each Date of Delivery, deliver to the Underwriters a certificate of its three principal executive officers, Emanuel J. Friedman, Eric F. Billings and W. Russell Ramsey, to the effect that, to each of such officer's knowledge, the representations and warranties of the Company set forth in this Agreement and the conditions set forth in paragraphs (f), (g), (h) and (i) have been met and are true and correct as of such date.
(m) Each Selling Shareholder shall at the Closing Time deliver to the Underwriters a certificate of such Selling Shareholder to the effect that the representations and warranties of such Selling Shareholder set forth in this Agreement are true and correct as of such date.
(n) The Company and its Selling Shareholders shall have furnished to the Underwriters such other documents and certificates as to the accuracy and completeness of any statement in the Registration Statement and the Prospectus, the representations, warranties and statement of the Company and the Selling Shareholders contained herein, and the performance by the Company and the Selling Shareholders of their covenants contained herein, and the fulfillment of any conditions contained herein or therein, as of the Closing Time or any Date of Delivery as the Representatives may reasonably request.
(o) The Company and the Selling Shareholders shall have performed such of their obligations under this Agreement as are to be performed by the terms hereof at or before the Closing Time or the relevant Date of Delivery, as the case may be.
(a) The obligations of the several Underwriters hereunder shall be subject to termination in the absolute discretion of the Representatives, at any time prior to the Closing Time or any Date of Delivery, (i) if any of the conditions specified in Section 8 shall not have been fulfilled when and as required by this Agreement to be fulfilled, or (ii) if there has occurred outbreak or escalation of hostilities or other national or international calamity or crisis or change in economic, political or other conditions, the effect of which on the financial markets of the United States is such as to make it, in the judgment of the Representatives, impracticable to market the Shares or enforce contracts for the sale of the Shares, or (iii) if trading generally on NYSE has been suspended (including automatic halt in trading pursuant to market-decline triggers other than those in which solely program trading is temporarily halted), or limitations on prices for trading (other than limitations on hours or numbers of days of trading) have been fixed, or maximum ranges for prices for securities have been required, by such exchange or NASD or by order of the Commission or any other governmental authority, or (iv) any federal or state statute, regulation, rule or order of any court or other governmental authority has been enacted, published, decreed or otherwise promulgated which in the reasonable opinion of the Representatives materially adversely affects or will materially adversely affect the business or operations of the Company, or (v) any action has been taken by any federal, state or local government or agency in respect of its monetary or fiscal affairs which in the reasonable opinion of the Representatives has a material adverse effect on the securities markets in the United States.
(b) If the Representatives elect to terminate this Agreement as provided in this Section 8, the Company and the Underwriters shall be notified promptly by telephone, promptly confirmed by facsimile.
(c) At the Company's request, the Representatives will refrain from exercising their right to terminate this Agreement pursuant to Section 9(a)(i) of this Agreement for a period of up to three business days, in order for the Company to fulfill one or more of the conditions set forth in Section 8 of this Agreement. This provision shall not apply, however, if the Representatives determine that any such condition cannot reasonably be expected to be fulfilled within three business days.
(d) If the sale to the Underwriters of the Shares, as contemplated by this Agreement, is not carried out by the Underwriters for any reason permitted under this Agreement or if such sale is not carried out because the Company shall be unable to comply in all material respects with any of the terms of this Agreement, the Company shall not be under any obligation or liability under this Agreement (except to the extent provided in Sections 6 and 11 hereof) and the Underwriters shall be under no obligation or liability to the Company under this Agreement (except to the extent provided in Section 11 hereof) or to one another hereunder, provided, however that in such case the Company will reimburse reasonable out-of-pocket accountable expenses actually incurred by the Underwriters in preparation for the sale of the Shares contemplated by this Agreement.
Without relieving any defaulting Underwriter from its obligations hereunder, the Company agrees with the non-defaulting Underwriters that it will not sell any Shares hereunder on such date unless all of the Shares to be purchased on such date are purchased on such date by the Underwriters (or by substituted Underwriters selected by the Representatives with the approval of the Company or selected by the Company with the approval of the Representatives).
If a new Underwriter or Underwriters are substituted for a defaulting Underwriter in accordance with the foregoing provision, the Company or the non- defaulting Underwriters shall have the right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding five business days in order that any necessary changes in the Registration Statement and the Prospectus and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to and include any Underwriter substituted under this Section 10 with the like effect as if such substituted Underwriter had originally been named in this Agreement.
(a) The Company agrees to indemnify, defend and hold harmless each Underwriter and any person who controls any such Underwriter, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which, jointly or severally, any such Underwriter or controlling person may incur under the Securities Laws or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus (the term Prospectus for the purpose of this Section 11 being deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus as amended or supplemented by the Company), or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or
Prospectus or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except insofar as any such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission of a material fact contained in and in conformity with information furnished in writing by the Underwriters through the Representatives to the Company expressly for use in such Registration Statement or such Prospectus, provided, however, that the indemnity agreement contained in this subsection (a) with respect to the Preliminary Prospectus or the Prospectus shall not inure to the benefit of an Underwriter (or to the benefit of any person controlling such Underwriter) with respect to any person asserting any such loss, expense, liability, damage or claim which is the subject thereof if the Prospectus or any supplement thereto prepared with the consent of the Representatives and furnished to the Underwriters prior to the Closing Time corrected any such alleged untrue statement or omission and if such Underwriter failed to send or give a copy of the Prospectus or supplement thereto to such person at or prior to the written confirmation of the sale of Shares to such person, unless such failure resulted from noncompliance by the Company with Section 5(b).
If any action is brought against an Underwriter or controlling person in respect of which indemnity may be sought against the Company pursuant to the preceding paragraph, such Underwriter shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment of counsel and payment of expenses, provided, however, that any failure or delay to so notify the Company will not relieve the Company of any obligation hereunder, except to the extent that its ability to defend is actually impaired by such failure or delay. Such Underwriter or controlling person shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person, unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have employed counsel to have charge of the defense of such action within a reasonable time or such indemnified party or parties shall have reasonably concluded (based on the advice of counsel) that there may be defenses available to it or them which are different from or additional to those available to the Company and which counsel to the Underwriter believes may present a conflict for counsel representing the Company and the Underwriter (in which case the Company shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by the Company and paid as incurred (it being understood, however, that the Company shall not be liable for the expenses of more than one separate firm of attorneys for the Underwriters or controlling persons in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent.
(b) Each Selling Shareholder agrees, severally and not jointly, to
indemnify and hold harmless each Underwriter and any person who controls any
such Underwriter within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act to the extent of the proceeds to the Selling
Shareholders as stated on the cover of the Prospectus. In case any action or
claim is brought or asserted against any Underwriter or any such controlling
person in respect of which indemnity may be sought against a Selling Shareholder
pursuant to this paragraph (b),
such Selling Shareholder shall have the rights and duties given to the Company, and each Underwriter and any such controlling person shall have the rights and duties given to the Underwriters, under paragraph (a) above. The foregoing indemnity agreement shall be in addition to any liability which any Selling Shareholder may otherwise have.
(c) Each Underwriter agrees, severally and not jointly, to indemnify, defend and hold harmless the Company, its directors, the officers that signed the Registration Statement, any person who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act and the Selling Shareholders from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which, jointly or severally, the Company or any such person may incur under the Securities Laws or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained in and in conformity with information furnished in writing by such Underwriter through the Representatives to the Company expressly for use in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus, or (ii) any omission or alleged omission to state a material fact in connection with such information that is required to be stated either in such Registration Statement or Prospectus or that is necessary to make the statements made therein in connection with such information, in the light of the circumstances under which they were made by the Representatives, not misleading. The statements set forth in the last paragraph on the cover page and under the caption "Underwriting" in the Preliminary Prospectus and the Prospectus (to the extent such statements relate to the Underwriters) constitute the only information furnished by or on behalf of any Underwriter through the Representatives to the Company for purposes of Section 3(k) and this Section 11.
If any action is brought against the Company or any such person in respect of which indemnity may be sought against any Underwriter pursuant to the foregoing paragraph, the Company or such person shall promptly notify the Representatives in writing of the institution of such action and the Representatives, on behalf of the Underwriters, shall assume the defense of such action, including the employment of counsel and payment of expenses, provided, however, that any failure or delay to so notify the Representatives will not relieve any such Underwriter of any obligation hereunder, except to the extent that its ability to defend is actually impaired by such failure or delay. The Company or such person shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the Company or such person, unless the employment of such counsel shall have been authorized in writing by the Representatives in connection with the defense of such action or the Representatives shall not have employed counsel to have charge of the defense of such action within a reasonable time or such indemnified party or parties shall have reasonably concluded (based on the advice of counsel) that there may be defenses available to it or them which are different from or additional to those available to the Underwriters (in which case the Representatives shall not have the right to direct the defense of such action on behalf of the indemnified party or parties), in any of which events such fees and expenses shall be borne by such Underwriter and paid as incurred (it being understood, however, that the Underwriters shall not be liable for the expenses of more than one separate firm of attorneys in any one action or series of related actions in the same jurisdiction representing the indemnified parties who are parties to such action). Anything in this paragraph
to the contrary notwithstanding, no Underwriter shall be liable for any settlement of any such claim or action effected without the written consent of the Representatives.
(d) If the indemnification provided for in this Section 11 is unavailable to an indemnified party under subsections (a), (b) and (c) of this Section 11 in respect of any losses, expenses, liabilities, damages or claims referred to therein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, expenses, liabilities, damages or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Shares or (ii) if (but only if) the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and/or the Selling Shareholders on the one hand and of the Underwriters on the other in connection with the statements or omissions which resulted in such losses, expenses, liabilities, damages or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting expenses) received by the Company and the Selling Shareholders bear to the underwriting discounts and commissions received by the Underwriters. The relative fault of the Company and the Selling Shareholders on the one hand and of the Underwriters on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company and the Selling Shareholders on the one hand and by the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action.
(e) The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in paragraph (d) above. Notwithstanding the provisions of this Section 11, no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 11 are several in proportion to their respective underwriting commitments and not joint.
(f) The Company agrees to indemnify, defend and hold harmless the QIU and any person who controls the QIU, within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, from and against any loss, expense, liability, damage or claim (including the reasonable cost of investigation) which the QIU may incur under the Securities
Laws or otherwise, insofar as such loss, expense, liability, damage or claim arises out of or is based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or in the Registration Statement as amended by any post-effective amendment thereof by the Company) or in a Prospectus, or arises out of or is based upon any omission or alleged omission to state a material fact required to be stated in either such Registration Statement or Prospectus or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The indemnity agreement provided in this paragraph (f) shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls the QIU within the meaning of the Securities Act.
If any action is brought against the QIU in respect of which indemnity may be sought against the Company pursuant to the preceding paragraph, the QIU shall promptly notify the Company in writing of the institution of such action and the Company shall assume the defense of such action, including the employment of counsel and payment of expenses, provided, however, that any failure or delay to so notify the Company will not relieve the Company of any obligation hereunder, except to the extent that its ability to defend is actually impaired by such failure or delay. The QIU shall have the right to employ its own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of the QIU, unless the employment of such counsel shall have been authorized in writing by the Company in connection with the defense of such action or the Company shall not have employed counsel to have charge of the defense of such action within a reasonable time or the QIU shall have reasonably concluded (based on the advice of counsel) that there may be defenses available to it which are different from or additional to those available to the Company and which counsel to the QIU believes may present a conflict for counsel representing the Company and the QIU (in which case the Company shall not have the right to direct the defense of such action on behalf of the QIU), in any of which events such fees and expenses shall be borne by the Company and paid as incurred (it being understood, however, that the Company shall not be liable for the expenses of more than one separate firm of attorneys for the QIU in any one action or series of related actions in the same jurisdiction representing the QIU). Anything in this paragraph to the contrary notwithstanding, the Company shall not be liable for any settlement of any such claim or action effected without its written consent.
(g) If the indemnification provided for in paragraph (f) above is unavailable to Lazard Freres & Co. LLC, in its capacity as the QIU, in respect of any losses, expenses, liabilities, damages or claims referred to therein, then the Company, in lieu of indemnifying the QIU, shall contribute to the amount paid or payable by the QIU as a result of such losses, expenses, liabilities, damages or claims (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the QIU on the other from the offering of the Shares or (ii) if (but only if) the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the QIU on the other in connection with the statements or omissions which resulted in such losses, expenses, liabilities, damages or claims, as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the QIU on the other shall be deemed to be in the same proportion as the total proceeds from the offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and the Selling Shareholders bear to the fee payable to the QIU pursuant to Section 7 hereof. The relative fault of the Company on the one hand and of the QIU on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or omission or alleged omission relates to information supplied by the Company on the one hand and by the QIU on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any claim or action.
(h) The Company and the QIU agree that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in paragraph (g) above. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF. The section headings in this Agreement have been inserted as a matter of convenience of reference and are not a part of this Agreement.
If the foregoing correctly sets forth the understanding among the Company, the Selling Shareholders, the Underwriters and the QIU, please so indicate in the space provided below for the purpose, whereupon this Agreement shall constitute a binding agreement among the Company and the Underwriters.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY
GROUP, INC.
Title:
[include signature blocks for Selling
Shareholders]
Accepted and agreed to as
of the date first above written:
FRIEDMAN, BILLINGS, RAMSEY &
CO., INC.
LAZARD FRERES & CO. LLC
For themselves and as Representatives
of the other Underwriters named on
Schedule I hereto.
LAZARD FRERES & CO. LLC, in its capacity as the qualified independent underwriter
Schedule I
Number of Initial
Shares to be
Number of Initial ------------
Shares to be Purchased Purchased
---------------------- ---------
Underwriter from Selling Shareholders from the Company
----------- -------------------------- --------------------
Friedman, Billings, Ramsey
& Co., Inc.
Lazard Freres & Co. LLC
Total.............
|
Schedule II
Number of Initial
Selling Shareholders Shares to be Sold
---------------------- -----------------
|
Exhibit 2.01
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
A DELAWARE CORPORATION,
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
A VIRGINIA CORPORATION
AND
FBR GROUP, INC.
A VIRGINIA CORPORATION
Dated as of December 15, 1997
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of December 15, 1997, by and among Friedman, Billings, Ramsey Group, Inc., a Delaware corporation ("Old Delaware Group"), Friedman, Billings, Ramsey Group, Inc., a Virginia Corporation ("Old Virginia Group") and FBR Group, Inc., a Virginia corporation ("Surviving Corporation").
WHEREAS, Old Delaware Group is the sole shareholder of Old Virginia Group and the Surviving Corporation.
WHEREAS, Old Delaware Group has only one class of capital stock authorized, issued and outstanding, namely voting common stock, par value $0.01 per share.
WHEREAS, the Board of Directors of each of Old Delaware Group, Old Virginia Group and Surviving Corporation has determined that it is in the best interests of Old Delaware Group, Old Virginia Group and Surviving Corporation, respectively, to consummate the business combination transaction provided for herein in which Old Delaware Group and Old Virginia Group will, subject to the terms and conditions set forth herein, merge with and into Surviving Corporation (the "Merger"), so that Surviving Corporation is the surviving corporation in the Merger; and
WHEREAS, the parties desire to make agreements in connection with the Merger and also to prescribe certain conditions to the Merger;
NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and intending to be legally bound hereby, the parties agree as follows:
1.1 The Merger. Subject to the terms and conditions of this Agreement, in accordance with the Delaware General Corporation Law (the "DGCL") and the Virginia Stock Corporation Act (the "VSCA"), at the Effective Time (as defined in Section 1.2 hereof), Old Delaware Group and Old Virginia Group shall merge with and into Surviving Corporation. Surviving Corporation shall be the surviving corporation in the Merger, and shall continue its corporation existence under the laws of the Commonwealth of Virginia. Upon consummation of the Merger, the separate existence of Old Delaware Group and Old Virginia Group shall terminate.
1.2 Effective Time. Subject to the provisions of this Agreement, as soon as practicable following the date hereof, (i) the Surviving Corporation shall file a certificate of merger with the Delaware Secretary of State executed in accordance with the relevant provisions of the DGCL and (ii) the Surviving Corporation shall file articles of merger with the Virginia State Corporation Commission executed in accordance with the relevant provisions of the VSCA. The parties shall make any other filings or recordings required under the DGCL or the VSCA. The Merger shall become effective at such time (i) as the certificate of merger is duly filed with the Delaware Secretary of State, the articles of merger are duly filed with the Virginia State Corporation Commission, and the Virginia State Corporation Commission shall issue a certificate of merger with respect to the Merger in accordance with the VSCA or (ii) such other time as the parties shall agree and the Surviving Corporation shall specify in the certificate of merger duly filed with the Delaware Secretary of State and the articles of merger duly filed with the Virginia State Corporation Commission (the time the Merger becomes effective being hereinafter referred to as the "Effective Time").
1.3 Effects of the Merger. At and after the Effective Time, the Merger shall have the effects set forth in the DGCL and in the VSCA. The directors and officers of Surviving Corporation immediately before the Effective Time shall be the directors and officers of the Surviving Corporation following the Merger, each to hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation.
1.4 Manner and Basis of Converting Shares. At the Effective Time, by virtue of the Merger and without any action on the part of Surviving Corporation, Old Delaware Group, Old Virginia Group or the holder of any of the following securities:
(a) Each share of voting common stock, par value $0.01 per share, of Old Delaware Group ("Old Shares") outstanding immediately prior to the Effective Time shall be converted into three hundred thirty (330) shares of Class B common stock, par value $0.01 per share, of the Surviving Corporation.
(b) Each share of common stock, par value $0.01 per share, of Old Virginia Group issued and outstanding immediately prior to the Effective Time shall be cancelled.
(c) Each share of Class B common stock, par value $0.01 per share, of Surviving Corporation issued and outstanding immediately prior to the Effective Time shall be cancelled.
(d) All dividends declared by Old Delaware Group before the Effective Time, payable to shareholders of Old Delaware Group of record as of a record date before the Effective Time, and unpaid as of the Effective Time, shall constitute debts of the Surviving Corporation payable to such shareholders of Old Delaware Group as of such record date in accordance with the terms of the relevant dividend declarations of Old Delaware Group.
1.5 Amendment of Articles of Incorporation of the Surviving Corporation. At the Effective Time, Section 1.1 of Article 1 of the Articles of Incorporation of the Surviving Corporation shall be amended in its entirety to read as follows:
1.1 Name. The name of the corporation is Friedman, Billings, Ramsey Group, Inc. (the "Corporation").
1.6 Articles of Incorporation of Surviving Corporation. At the Effective Time, the Articles of Incorporation of the Surviving Corporation in effect as of the Effective Time, as amended as set forth in Section 1.5 above, shall be the Articles of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or under applicable law.
1.7 Conditions to the Merger. Consummation of the Merger is conditioned upon the following: (i) approval of this Agreement by the shareholders of each of the Surviving Corporation. Old Delaware Group and Old Virginia Group and (ii) satisfaction of any and all other requirements of applicable law.
1.8 Abandonment or Termination. This Agreement may be abandoned or terminated at any time before the Effective Time (including, without limitation, before or after approval of this Agreement by the shareholders of any of the parties to this Agreement) by the mutual consent of the parties hereto in a written instrument, if the Board of Directors of each so determines by a vote of a majority of all of its members.
1.9 Effect of Abandonment or Termination. In the event of abandonment or termination of this Agreement as provided in Section 1.8, this Agreement shall forthwith become void and have no effect, and no party hereto nor any of their respective officers or directors shall have any liability of any nature whatsoever hereunder, or in connection with the transactions contemplated hereby.
1.10 Severability: No Third Party Beneficiaries. Any term or provision of this Agreement that is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable. This Agreement is not intended to confer upon any person other than the parties hereto any rights or remedies hereunder.
1.11 Consent to Service of Process. The Surviving Corporation may be served with process in the State of Delaware in any proceeding for enforcement of any obligation of Old Delaware Group, as well as for enforcement of any obligation of the Surviving Corporation arising from the Merger, including any suit or other proceeding to enforce the right of any stockholder as determined in appraisal proceedings pursuant to the provisions of Section 262 of the DGCL and it does hereby irrevocably appoint the Secretary of State of Delaware as its agent to accept service of
process in any such suit or proceeding. The address to which a copy of such process shall be mailed by the Secretary of State is Potomac Tower, 1001 Nineteenth Street North, Arlington, VA 22209.
(The remainder of this page is intentionally left blank)
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC., a Delaware corporation
By: /s/ Eric F. Billings
----------------------------------
Name: Eric F. Billings
Title: Vice Chairman & COO
|
FRIEDMAN, BILLINGS, RAMSEY GROUP,
INC., a Virginia corporation
By: /s/ Emanuel J. Friedman
----------------------------------
Name: Emanuel J. Friedman
Title: Chairman & CEO
|
FBR GROUP, INC., a Virginia corporation
By: /s/ W. Russell Ramsey
----------------------------------
Name: W. Russell Ramsey
Title: President
|
Exhibit 3.01
Article I
NAME
1.1 Name. The name of the Corporation is FBR Group, Inc. (the "Corporation").
1.2 Initial Directors. The following persons are to serve as the initial directors of the Corporation:
Name Address
---- -------
Emanuel J. Friedman 1001 Nineteenth Street North
Arlington, Virginia 22209
Eric F. Billings 1001 Nineteenth Street North
Arlington, Virginia 22209
W. Russell Ramsey 1001 Nineteenth Street North
Arlington, Virginia 22209
|
1.2 Registered Agent and Registered Office. The address of the initial registered office of the Corporation, which is located in the County of Arlington, Virginia, is 1001 Nineteenth Street North, Arlington, Virginia 22209. The initial registered agent of the Corporation is W. Russell Ramsey, whose business office is identical with the registered office and who is a resident of Virginia and a director of the Corporation.
Article II
PURPOSE
2.1 Purpose. The purpose for which the Corporation is organized is to transact any lawful business not required to be specifically stated in the Articles of Incorporation.
Article III
AUTHORIZED STOCK
3.1 Number and Designation. The Corporation shall have authority to issue 265 million shares of capital stock, of which 150 million shall be shares of Class A common stock, par value $0.01 per share ("Class A Common Stock"), 100 million shall be shares of Class B common stock, par value $0.01 per share ("Class B Common Stock" and, together with the Class A Common Stock, "Common Stock"), and 15 million shall be shares of preferred stock, par value $0.01 per share ("Preferred Stock").
3.2 Preemptive Rights. No holder of outstanding shares shall have any preemptive right with respect to, or to subscribe for or purchase: (i) any shares of any class of the Corporation, whether now or hereafter authorized, including without limitation shares issued for cash, property or services or as a dividend or otherwise; (ii) any warrants, rights or options to purchase any such shares; or (iii) any obligations convertible into any such shares or into warrants, rights or options to purchase any such shares.
Article IV
PREFERRED STOCK
4.1 Issuance in Series. The Board of Directors is authorized to issue Preferred Stock from time to time in one or more series and to provide for the designation, preferences, limitations and relative rights of the shares of each series by the adoption of Articles of Amendment to the Articles of Incorporation of the Corporation setting forth:
(a) The maximum number of shares in the series and the designation of the series, which designation shall distinguish the shares thereof from the shares of any other series or class;
(b) Whether shares of the series shall have special, conditional or limited voting rights, or no right to vote except to the extent required by law;
(c) Whether shares of the series are redeemable or convertible (x) at the option of the Corporation, a shareholder or another person or upon the occurrence of a designated event, (y) for cash, indebtedness, securities or other property, and (z) in a designated amount or in an amount determined in accordance with a designated formula or by reference to extrinsic data or events;
(d) Any right of holders of shares of the series to distributions, calculated in any manner, including the rate or rates of dividends, and whether dividends shall be cumulative, noncumulative or partially cumulative;
(e) The amount payable upon the shares of the series in the event of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation;
(f) Any preference of the shares of the series over the shares of any other series or class with respect to distributions, including dividends, and with respect to distributions upon the liquidation, dissolution or winding up of the affairs of the Corporation; and
(g) Any other preferences, limitations or specified rights (including
a right that no transaction of a specified nature shall be consummated while any
shares of such series remain outstanding except upon the assent of all or a
specified portion of such shares) now or hereafter permitted by the laws of the
Commonwealth of Virginia and not inconsistent with the provisions of this
Section 4.1.
4.2 Articles of Amendment For Issuance. Before the issuance of any shares of a series, Articles of Amendment establishing such series shall be filed with and made effective by the State Corporation Commission of Virginia, as required by law.
Article V
COMMON STOCK
5.1 Respective Rights and Privileges. Except as otherwise provided in this Article V or as otherwise required by applicable law, all shares of Class A Common Stock and Class B Common Stock will be identical and will entitle the holders thereof to the same rights and privileges and shall rank equally, share ratably, and be identical in all respects as to all matters. The holders of Class A Common Stock and the holders of Class B Common Stock shall have the respective rights and preferences set forth in this Article V.
5.2 Voting Rights.
(a) Except as otherwise required by law: (i) the holders of Class A Common Stock will be entitled to one vote per share on all matters to be voted on by the Corporation's shareholders; (ii) the holders of Class B Common Stock will be entitled to three votes per share on all matters to be voted on by the Corporation's shareholders; and (iii) the holders of Class A Common Stock and Class B Common Stock shall vote together as a single voting group.
(b) The holders of the outstanding Common Stock shall, to the exclusion of the holders of any other class of shares of the Corporation, have the sole power to vote for the election of directors and for all other purposes without limitation except (i) as otherwise provided in the Articles of Amendment establishing any series of Preferred Stock or (ii) as required by law.
5.3 Dividends. Subject to the provisions of law and the rights of holders of shares of Preferred Stock at the time outstanding, when and as dividends are declared thereon, whether payable in cash, property or securities of the Corporation, the holders of Class A Common Stock and the holders of Class B Common Stock will be entitled to share equally, share for share, in such dividends; provided that if dividends are declared which are payable in shares of Class A Common Stock or Class B Common Stock, dividends will be declared which are payable at the same rate per share on each such class of shares and the dividends payable in shares of Class A Common Stock will be payable to holders of Class A Common Stock and the dividends payable in shares of Class B Common will be payable to holders of Class B Common Stock.
5.4 Liquidation. Subject to the rights of holders of shares of Preferred Stock at the time outstanding, the holders of the Class A Common Stock and Class B Common Stock shall be entitled to participate ratably on a per share basis in all distributions to the holders of the Common Stock in any liquidation, dissolution or winding up of the Corporation, as though all shares of Common Stock were of a single class.
5.5 Limitation on Stock Splits, Combinations or Reclassifications.
(a) The Corporation shall not: (i) subdivide its outstanding Class A Common Stock by stock dividend or otherwise; or (ii) combine its outstanding Class A Common Stock into a smaller number of shares; or (iii) reclassify its outstanding Class A Common Stock (including any reclassification in connection with a merger, consolidation or other business combination in which the Corporation is the surviving corporation); unless at the same time the Corporation subdivides, combines or reclassifies, as applicable, the shares of outstanding Class B Common Stock on the same basis as the Corporation so subdivides, combines or reclassifies the outstanding Class A Common Stock.
(b) The Corporation shall not: (i) subdivide its outstanding Class B Common Stock by stock dividend or otherwise; or (ii) combine its outstanding Class B Common Stock into a smaller number shares; or (iii) reclassify its outstanding Class B Common Stock (including any reclassification in connection with a merger, consolidation or other business combination in which the Corporation is the surviving corporation); unless at the same time the Corporation subdivides, combines or reclassifies, as applicable, the shares of outstanding Class A Common Stock on the same basis as the Corporation so subdivides, combines or reclassifies the outstanding Class B Common Stock.
5.6 Conversion of Shares of Class B Common Stock Into Shares of Class A Common Stock.
(a) For the purposes of this Section 5.6 of this Article V, the following definitions shall apply:
(i) "Employee" means a person employed by the Corporation or by a legal entity (as defined in Section 7.1(d) of Article VII of these Articles of Incorporation) that is controlled, directly or indirectly, by the Corporation;
(ii) "Transfer" means any sale, transfer, gift, assignment, devise or other disposition, whether directly or indirectly, voluntarily or involuntarily or by operation of law or otherwise; and
(iii) "Uncertificated Shares" means shares without certificates within the meaning of Section 13.1-648 of the Virginia Stock Corporation Act, as it may be amended from time to time, or any subsequent statute replacing this statute.
(b) At the option of the Corporation: (1) outstanding shares of Class B Common Stock which are the subject of a Transfer shall be convertible into a number of shares of Class A Common Stock equal to the number of shares of outstanding Class B Common Stock subject to the Transfer; and (2) in the event that an Employee ceases to be an Employee for any reason whatsoever, the outstanding shares of Class B Common Stock held by such Employee shall be convertible into
a number of shares of Class A Common Stock equal to the number of shares of outstanding Class B Common Stock held by such Employee. For purposes of this Article V, the conversion of shares of Class B Common Stock as a result of a Transfer and the conversion of shares of Class B Common Stock as a result of cessation of an Employee's status as an Employee shall both be referred to as a "Conversion Event."
(i) Each Conversion Event shall be effective immediately upon transmission or delivery of a written notice of conversion by the Corporation to the record holder of such shares (the "Effective Time") at such holder's address as it appears in the records of the Corporation.
(ii) Each conversion of shares of Class B Common Stock into shares of Class A Common Stock pursuant to this Section 5.6(b) of this Article V shall be deemed to be effective upon the Effective Time and at the Effective Time the rights of the holder of the converted Class B Common Stock as such holder shall cease and the holder of the converted Class B Common Stock shall be deemed to have become the holder of record of the shares of Class A Common Stock into which such shares of Class B Common Stock have been converted as a result of the applicable Conversion Event.
(iii) The Board of Directors of the Corporation shall have the power to determine whether a Conversion Event has taken place with respect to any situation based upon the facts known to it. Each shareholder shall provide such information that the Corporation may reasonably request in order to ascertain facts or circumstances relating to a Transfer or proposed Transfer or a Conversion Event or proposed Conversion Event.
(c) Notwithstanding any other provision of this Article V, shares of Class B Common Stock sold in the initial public offering of the Corporation's securities registered with the United States Securities and Exchange Commission (the "Initial Public Offering"), regardless of the identity of the purchaser, transferee or other recipient of the disposition in the Initial Public Offering, shall be automatically converted into a number of shares of Class A Common Stock equal to the number of shares of Class B Common Stock sold in the Initial Public Offering. Such conversion of shares of Class B Common Stock into shares of Class A Common Stock shall be deemed to be effective at such time as the holder of the Class B Common Stock who is selling such shares in the Initial Public Offering transfers such shares for disposition in the Initial Public Offering, at which time the rights of the holder of the converted Class B Common Stock as such holder shall cease and the holder of the converted Class B Common Stock shall be deemed to have become the holder of record of the shares of Class A Common Stock into which such shares of Class B Common Stock have been converted as a result of the Initial Public Offering.
(d) The holder of shares of Class B Common Stock converted pursuant to this Article V shall promptly surrender the certificate or certificates representing the shares so converted at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of Class B Common Stock) at any time
during its usual business hours, and if such shares of Class B Common Stock are Uncertificated Shares, shall promptly notify the Corporation in writing of such transfer at the principal office of the Corporation (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holders of the Class B Common Stock).
(e) In no event shall the Corporation be liable to any such holder or any third party arising from any such conversion.
(f) The shares of Class A Common Stock resulting from a conversion of duly authorized, validly issued, fully paid and nonassessable shares of Class B Common Stock into shares of Class A Common Stock pursuant to this Section 5.6 of this Article V shall be duly authorized, validly issued, fully paid and nonassessable. Any share of Class B Common Stock which is converted into a share of Class A Common Stock pursuant to this Section 5.6 of this Article V shall become an authorized but unissued share of Class B Common Stock.
(g) The Corporation will at all times reserve and keep available out of its authorized but unissued shares of Class A Common Stock solely for the purpose of issue upon conversion of Class B Common Stock, such number of shares of Class A Common Stock as shall then be issuable upon the conversion of all outstanding shares of Class B Common Stock.
Article VI.
BOARD OF DIRECTORS
6.1 Number. The number of directors shall be fixed by the Bylaws or, in the absence of a Bylaw fixing the number, the number shall be five.
6.2 Removal. The outstanding shares of the Corporation entitled to vote generally in the election of directors are referred to as the "Voting Stock". Except for directors elected by the holders of outstanding shares of Preferred Stock as a separate voting group, any director may be removed from office only for cause by the affirmative vote of the holders of at least a majority of the voting power of all Voting Stock then outstanding, voting together as a single voting group.
Article VII
LIMIT ON LIABILITY AND INDEMNIFICATION
7.1 Definitions. For purposes of this Article VII the following definitions shall apply:
(a) "Corporation" for purposes of this Article VII, means this Corporation only and no predecessor entity or other legal entity;
(b) "expenses" include counsel fees, expert witness fees, and costs of investigation, litigation and appeal, as well as any amounts expended in asserting a claim for indemnification;
(c) "liability" means the obligation to pay a judgment, settlement, penalty, fine, or other such obligation, including, without limitation, any excise tax assessed with respect to an employee benefit plan;
(d) "legal entity" means a corporation, partnership, joint venture, trust, employee benefit plan or other enterprise;
(e) "predecessor entity" means a legal entity the existence of which ceased upon its acquisition by the Corporation in a merger or otherwise; and
(f) "proceeding" means any threatened, pending, or completed action, suit, proceeding or appeal whether civil, criminal, administrative or investigative and whether formal or informal.
7.2 Limit on Liability. In every instance in which the Virginia Stock Corporation Act, as it exists on the date hereof or may hereafter be amended, permits the limitation or elimination of liability of directors or officers of a corporation to the corporation or its shareholders, the directors and officers of this Corporation shall not be liable to the Corporation or its shareholders.
7.3 Indemnification of Directors and Officers. The Corporation shall
indemnify any individual who is, was or is threatened to be made a party to a
proceeding (including a proceeding by or in the right of the Corporation)
because such individual is or was a director or officer of the Corporation, or
because such individual is or was serving the Corporation or any other legal
entity in any capacity at the request of the Corporation while a director or
officer of the Corporation, against all liabilities and reasonable expenses
incurred in the proceeding except such liabilities and expenses as are incurred
because of such individual's willful misconduct or knowing violation of the
criminal law. Service as a director or officer of a legal entity controlled,
directly or indirectly, by the Corporation shall be deemed service at the
request of the Corporation. The determination that indemnification under this
Section 7.3 is permissible and the evaluation as to the reasonableness of
expenses in a specific case shall be made, in the case of a director, as
provided by law, and in the case of an officer, as provided in Section 7.4 of
this Article VII provided, however, that if a majority
of the directors of the Corporation has changed after the date of the alleged conduct giving rise to a claim for indemnification, such determination and evaluation shall, at the option of the person claiming indemnification, be made by special legal counsel agreed upon by the Board of Directors and such person. Unless a determination has been made that indemnification is not permissible, the Corporation shall make advances and reimbursements for expenses incurred by a director or officer in a proceeding upon receipt of an undertaking from such director or officer to repay the same if it is ultimately determined that such director or officer is not entitled to indemnification. Such undertaking shall be an unlimited, unsecured general obligation of the director or officer and shall be accepted without reference to such director's or officer's ability to make repayment. The termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent shall not of itself create a presumption that a director or officer acted in such a manner as to make such director or officer ineligible for indemnification. The Corporation is authorized to contract in advance to indemnify and make advances and reimbursements for expenses to any of its directors or officers to the same extent provided in this Section 7.3.
7.4 Indemnification of Others. The Corporation may, to a lesser extent or to the same extent that it is required to provide indemnification and make advances and reimbursements for expenses to its directors and officers pursuant to Section 7.3 of this Article VII, provide indemnification and make advances and reimbursements for expenses to its employees and agents, the directors, officers, employees and agents of its subsidiaries and predecessor entities, and any person serving any other legal entity in any capacity at the request of the Corporation, and may contract in advance to do so. The determination that indemnification under this Section 7.4 is permissible, the authorization of such indemnification and the evaluation as to the reasonableness of expenses in a specific case shall be made as authorized from time to time by general or specific action of the Board of Directors, which action may be taken before or after a claim for indemnification is made, or as otherwise provided by law. No person's rights under Section 7.3 of this Article VII shall be limited by the provisions of this Section 7.4.
7.5 Miscellaneous. The rights of each person entitled to indemnification under this Article VII shall inure to the benefit of such person's heirs, executors and administrators. Special legal counsel selected to make determinations under this Article VII may be counsel for the Corporation. Indemnification pursuant to this Article VII shall not be exclusive of any other right of indemnification to which any person may be entitled, including indemnification pursuant to a valid contract, indemnification by legal entities other than the Corporation and indemnification under policies of insurance purchased and maintained by the Corporation or others. However, no person shall be entitled to indemnification by the Corporation to the extent such person is indemnified by another, including an insurer. The Corporation is authorized to purchase and maintain insurance against any liability it may have under this Article VII or to protect any of the persons named above against any liability arising from their service to the Corporation or any other legal entity at the request of the Corporation regardless of the Corporation's power to indemnify against such liability. The provisions of this Article VII shall not be deemed to preclude the Corporation from entering into contracts otherwise permitted by law with any individuals or legal entities, including those named above. If any provision of this Article VII or its application to any person or circumstance is held
invalid by a court of competent jurisdiction, the invalidity shall not affect other provisions or applications of this Article VII, and to this end the provisions of this Article VII are severable.
7.6 Application; Amendments. The provisions of this Article VII shall be applicable from and after its adoption even though some or all of the underlying conduct or events relating to a proceeding may have occurred before its adoption. No amendment, modification or repeal of this Article VII shall diminish the rights provided hereunder to any person arising from conduct or events occurring before the adoption of such amendment, modification or repeal.
Article VIII
CERTAIN VOTING MATTERS
8.1 Certain Voting Matters.
(a) As to each voting group entitled to vote on an amendment or restatement of these Articles of Incorporation the vote required for approval shall be: (i) the vote required by the terms of these Articles of Incorporation, as amended or as restated from time to time, if such terms specifically require the approval of more than a majority of the votes entitled to be cast thereon by such voting group; or (ii) if clause (i) of this Section 8.1(a) of this Article VIII is not applicable, a majority of the votes entitled to be cast thereon.
(b) As to any plan of merger or share exchange to which the Corporation is a party, or any sale, lease, exchange or other disposition of all or substantially all of the assets or property of the Corporation other than in the usual and regular course of business, for which the Virginia Stock Corporation Act requires an affirmative vote of more than two-thirds of the votes cast by each voting group of shareholders entitled to vote thereon, but which requirement may be reduced to a lesser percentage under the Virginia Stock Corporation Act if the lesser percentage is specified in the Articles of Incorporation of the Corporation, the affirmative vote of the holders of a majority of the outstanding shares of each voting group entitled to vote on the plan or transaction at a meeting at which a quorum of the voting group exists shall be required, in lieu of such two thirds requirement, but in addition to any other vote otherwise required by this Article VIII or under the Virginia Stock Corporation Act.
(c) Except for amendments contained in Articles of Amendment adopted by the Board of Directors pursuant to Article IV of these Articles of Incorporation establishing any series of Preferred Stock, the affirmative vote of the holders of at least 80% of the voting power of all Voting Stock then outstanding, voting together as a single voting group, shall be required to amend these Articles of Incorporation to include provisions that: (i) would require the Corporation to hold, or set forth procedures applicable to the holding of, a special meeting of shareholders at the call, demand or request of any Person, including, without limitation, any shareholder or shareholders of the Corporation; or (ii) would govern the nomination of persons for election to the Board of
Directors or the proposal of business to be considered by the shareholders at an annual or special meeting of shareholders.
(d) The affirmative vote of the holders of at least 80% of the voting power of Voting Stock then outstanding, voting as a single voting group, shall be required for the shareholders of the Corporation to adopt, alter or repeal any Bylaw of the Corporation: (i) that requires or would require the Corporation to hold, or sets forth procedures applicable to the holding of, a special meeting of shareholders at the call, demand or request of any Person, including, without limitation, any shareholder or shareholders of the Corporation; or (ii) that governs or would govern the nomination of persons for election to the Board of Directors or the proposal of business to be considered by the shareholders at an annual or special meeting of shareholders. The provisions of Section 8.1(c) of this Article VIII and the foregoing provisions of this Section 8.1(d) of this Article VIII: (i) are not intended to and shall not be deemed to constitute a reservation to the shareholders of the Corporation of the power to adopt, amend or repeal any Bylaw of the Corporation including, without limitation, any Bylaw dealing with the subject matter contained in clauses (i) and (ii) of Section 8.1(c) of this Article VIII or the foregoing provisions of this Section 8.1(d) of this Article VIII; and (ii) shall not limit the power or ability of the Board of Directors of the Corporation to adopt, alter or repeal any Bylaw of the Corporation including, without limitation, any Bylaw of the Corporation dealing with the subject matter contained in clauses (i) and (ii) of Section 8.1(c) of this Article VIII or the foregoing provisions of this Section 8.1(d) of this Article VIII.
(e) The affirmative vote of the holders of at least 80% of the voting power of all Voting Stock then outstanding, voting together as a single voting group shall be required to alter, amend, adopt any provision inconsistent with, or repeal this Article VIII.
(f) For purposes of this Article VIII, "Person" means an individual, firm, partnership, estate, domestic corporation, foreign corporation, trust, charity, private foundation, association, joint venture, unincorporated association, government or any department, agency or subdivision thereof, or other entity.
Article IX
AFFILIATED TRANSACTIONS
9.1 Non-Applicability. It is expressly provided that the Corporation shall not be governed by Article 14 of the Virginia Stock Corporation Act, Affiliated Transactions, as it may be amended from time to time.
Dated: December 11, 1997
By:/s/ Jan C. McGee
------------------------------------
Jan C. McGee, Incorporator
|
Exhibit 3.02
ARTICLES OF MERGER
Merging
Friedman, Billings, Ramsey Group, Inc.,
a Delaware Corporation
and
Friedman, Billings, Ramsey Group, Inc.,
a Virginia Corporation
with and into
FBR Group, Inc.,
a Virginia Corporation
Article 1
Article 2
IN WITNESS WHEREOF, these Articles of Merger have been executed by the Surviving Corporation, New FBR, as of the 16th day of December, 1997.
FBR GROUP, INC.
By: /s/ W. Russell Ramsey ------------------------------ Name: W. Russel Ramsey Title: President |
Exhibit 3.03
BYLAWS
OF
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
ARTICLE I
MEETINGS OF SHAREHOLDERS
1.1 PLACE AND TIME OF MEETINGS. Meetings of shareholders shall be held at such place, either within or without the Commonwealth of Virginia, and at such time as may be provided in the notice of the meeting or in the waiver thereof.
1.2 PROCEDURE. The Chairman or, in his absence, the Vice-Chairman shall serve as chairman at all meetings of the shareholders. In the absence of both of the foregoing officers or if both of them decline to serve, a majority of the shares entitled to vote at a meeting may appoint any person entitled to vote at the meeting to act as chairman. The Secretary or, in his absence, an Assistant Secretary shall act as secretary at all meetings of the shareholders. In the event that neither the Secretary nor an Assistant Secretary is present, the chairman of the meeting may appoint any person to act as secretary of the meeting. Any meeting may be adjourned from day to day, or from time to time, and such adjournment may be directed without a quorum, but no business except adjournment shall be transacted in the absence of a quorum. The chairman of the meeting or a majority of the shares so represented may adjourn the meeting from time to time, whether or not there is such a quorum. No notice of the time and place of adjourned meetings need be given except as required by law. The chairman of the meeting shall have the authority to make such rules and regulations, to establish such procedures and to take such steps as he may deem necessary or desirable for the proper conduct of each meeting of the shareholders, including, without limitation, the authority to make the agenda and to establish procedures for (i)
dismissing of business not properly presented, (ii) maintaining of order and safety, (iii) placing limitations on the time allotted to questions or comments on the affairs of the Corporation, (iv) placing restrictions on attendance at a meeting by persons or classes of persons who are not shareholders or their proxies, (v) restricting entry to a meeting after the time prescribed for the commencement thereof and (vi) commencing, conducting and closing voting on any matter.
1.3 ANNUAL MEETING. The annual meeting of shareholders shall be held on such date and at such time as may be fixed by resolution of the Board of Directors.
1.4 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS - ANNUAL MEETINGS.
Nominations of persons for election to the Board of Directors and the proposal
of business to be considered by the shareholders may be made at the annual
meeting of shareholders (i) pursuant to the Corporation's notice of the meeting,
(ii) by or at the direction of the Board of Directors or (iii) by a shareholder
of the Corporation who is a shareholder of record of a class of shares entitled
to vote on the business such shareholder is proposing, both at the time of the
giving of the shareholder's notice provided for in this Bylaw and on the record
date for such annual meeting, and who complies with the notice procedures set
forth in this Bylaw.
For nominations or other business to be properly brought before an annual
meeting by a shareholder pursuant to clause (iii) of the first sentence of this
Section 1.4, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation and such other business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's notice
shall be delivered to the Secretary of the Corporation at the principal
executive offices of the Corporation not later than the close of business on the
ninetieth (90th) day nor earlier than the close of business on the one hundred
twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is more than thirty (30) days before or more than
sixty (60) days after such anniversary date, notice by the shareholder to be
timely must be so delivered not earlier than the close of business on the one
hundred twentieth (120th) day prior to such annual meeting and not later than
the close of business on the later of the ninetieth (90th) day prior to such
annual meeting or the tenth (10th) day following the date on which public
announcement of the date of such meeting is first made by the Corporation. In
no event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11
thereunder (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); (b) as to any
other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareholder, as they appear on the books of the
Corporation, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner.
Notwithstanding anything in the second sentence of the immediately preceding paragraph of this Section 1.4 to the contrary, in the event that the number of directors to be elected to the Board of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a shareholder's notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the tenth (10th) day following the date on which such public announcement is first made by the Corporation.
1.5 SPECIAL MEETINGS. Special meetings of the shareholders may be called only by the Board of Directors pursuant to a resolution stating the purpose or purposes thereof approved by a majority of the directors of the Corporation, by the Chairman, Vice-Chairman, Chief Executive Officer or by the President. Only business within the purpose or purposes described in the notice of the special meeting delivered by the Corporation shall be conducted at a special meeting of shareholders.
1.6 NOTICE OF SHAREHOLDER BUSINESS AND NOMINATIONS - SPECIAL MEETINGS. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) provided that the Board of
Directors has determined that directors shall be elected at such meeting, by any
shareholder of the Corporation who is a shareholder of record at the time of
giving of notice provided for in this Bylaw, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this Bylaw.
In the event the Corporation calls a special meeting of shareholders for the
purpose of electing one or more directors to the Board of Directors, any such
shareholder may nominate a person or persons (as the case may be), for election
to such position(s) as specified in the Corporation's notice of meeting, if the
shareholder's notice required by Section 1.4 shall be delivered to the Secretary
of the Corporation at the principal executive offices of the Corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such special meeting or the tenth
(10th) day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareholder's notice as described above.
1.7 GENERAL. Except for the election of directors by the unanimous
written consent of shareholders or the filling by the Board of Directors of
vacancies on the Board of Directors as provided in Section 2.4, only such
persons who are nominated in accordance with the procedures set forth in either
Section 1.4 or 1.6 above shall be eligible to serve as directors. Only such
business shall be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures set forth in either
Section 1.4 or 1.6 above. Neither the immediately preceeding sentence nor any
other provisions of these Bylaws, including without
limitation Sections 1.4, 1.5, 1.6, this 1.7 or 1.8), shall limit the power of the shareholders to act by unanimous written consent. Except as otherwise provided by law, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in Section 1.4 or 1.6 and, if any proposed nomination or business is not in compliance therewith, to declare that such defective proposal or nomination shall be disregarded.
For purposes of Section 1.4 or 1.6, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Notwithstanding the foregoing provisions of either Section 1.4 or 1.6, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in Sections 1.4 and 1.6. Nothing in Sections 1.4 and 1.6 shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock to elect directors under specified circumstances.
1.8 NOTICE OF MEETINGS. Written or printed notice stating the place, day and hour of the meeting of shareholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given (except in the case of meeting to act on the matters set forth in the following paragraph) not less than ten (10) nor more than sixty (60) days before the date of the meeting either personally or by mail, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in first class United
States mail with postage thereon prepaid and addressed to the shareholder at his address as it appears on the share transfer books of the Corporation.
Notice of a shareholders' meeting to act on (i) an amendment of the Articles of Incorporation, (ii) a plan of merger or share exchange, (iii) the sale, lease, exchange or other disposition of all or substantially all the property of the Corporation otherwise than in the usual and regular course of business or (iv) the dissolution of the Corporation, shall be given, in the manner provided above, not less than twenty-five (25) nor more than sixty (60) days before the date of the meeting. Any notice given pursuant to this paragraph shall state that the purpose, or one of the purposes, of the meeting is to consider such action and shall be accompanied by (x) a copy of the proposed amendment, (y) a copy of the proposed plan of merger or share exchange or (z) a copy or a summary of the agreement pursuant to which the proposed transaction will be effected. If only a summary of the agreement is sent to the shareholders, the Corporation shall also send a copy of the agreement to any shareholder who requests it.
If a meeting is adjourned to a different date, time or place, notice need not be given if the new date, time or place is announced at the meeting before adjournment. However, if a new record date for an adjourned meeting is fixed, notice of the adjourned meeting shall be given to shareholders as of the new record date unless a court provides otherwise.
1.9 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A shareholder may waive any notice required by law, the Articles of Incorporation or these Bylaws before or after the date and time of the meeting that is the subject of such notice. The waiver shall be in writing, be signed by the shareholder entitled to the notice and be delivered to the Secretary for inclusion in the minutes or filing with the corporate records.
A shareholder's attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting unless the shareholder, at the beginning of the meeting, objects to holding the meeting or transacting business at the meeting and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice unless the shareholder objects to considering the matter when it is presented.
1.10 QUORUM AND VOTING REQUIREMENTS. Unless otherwise required by law, a majority of the votes entitled to be cast on a matter, represented in person or by proxy, constitutes a quorum for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or shall be set for that adjourned meeting. If a quorum exists, action on a matter, other than the election of directors, is approved if the votes cast favoring the action exceed the votes cast opposing the action unless a greater number of affirmative votes is required by law or the provisions of the Corporation's Articles or Bylaws. Directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election of directors at a meeting at which a quorum is present. Less than a quorum may adjourn a meeting.
1.11 PROXIES. A shareholder may vote his shares in person or by proxy. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An appointment of a proxy is effective when received by the Secretary or other officer or agent authorized to tabulate votes and is valid for eleven (11) months unless a longer period is expressly provided in the appointment form. An appointment of
a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest.
The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. An irrevocable appointment is revoked when the interest with which it is coupled is extinguished. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares. Subject to any legal limitations on the right of the Corporation to accept the vote or other action of a proxy and to any express limitation on the proxy's authority appearing on the face of the appointment form, the Corporation is entitled to accept the proxy's vote or other action as that of the shareholder making the appointment. Any fiduciary who is entitled to vote any shares may vote such shares by proxy.
1.12 VOTING LIST. The officer or agent having charge of the share transfer books of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. For a period of ten (10) days prior to the meeting, such list shall be kept on file at the registered office of the Corporation or at its principal office or at the office of its transfer agent or registrar and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting for the purpose thereof. The original share transfer books shall be prima facie evidence as to which shareholders are entitled to examine such list or transfer books or to vote at any meeting of the shareholders. The right of a shareholder to inspect such list prior to the meeting shall be subject to the conditions and limitations set forth by law. If the requirements of this Section 1.12 have not been substantially complied with, the meeting shall, on the demand of any shareholder in person or by proxy, be adjourned until such requirements are met. Refusal or failure to prepare or make available the shareholders' list does not affect the validity of action taken at the meeting prior to the making of any such demand, but any action taken by the shareholders after the making of any such demand shall be invalid and of no effect.
1.13 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of Directors by resolution shall appoint one or more inspectors, which inspector or inspectors may include individuals who serve the Corporation in other capacities, including, without limitation, as officers, employees, agents or representatives, to act at the meetings of shareholders and make a written report thereof. One or more persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate has been appointed to act or is able to act at a meeting of shareholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before discharging his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall have the duties prescribed by law. The chairman of the meeting shall fix and announce at the meeting the date and time of the opening and the closing of the polls for each matter upon which the shareholders will vote at the meeting.
ARTICLE II
DIRECTORS
2.1 GENERAL POWERS. The Corporation shall have a Board of Directors. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, the Board of Directors.
2.2 NUMBER AND TERM. The number of directors of the Corporation shall be three (3). This number may be changed from time to time by amendment to these Bylaws to increase or decrease by thirty percent (30%) or less the number of directors last elected by the shareholders, but only the shareholders may increase or decrease the number by more than thirty percent (30%). A decrease in number shall not shorten the term of any incumbent director. Each director shall hold office until his death, resignation or removal or until his successor is elected.
2.3 ELECTION. Except as provided in Section 2.4 or in the case of elections of directors by the unanimous written consent of shareholders, the directors shall be elected by the holders of the shares of Common Stock at each annual meeting of shareholders and those persons who receive the greatest number of votes shall be deemed elected even though they do not receive a majority of the votes cast. No individual shall be named or elected as a director without his prior consent.
2.4 VACANCIES. A vacancy on the Board of Directors, including a vacancy resulting from death, resignation, disqualification or removal or an increase in the number of directors, shall be filled by (i) the Board of Directors, (ii) the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors, or (iii) the shareholders and may,
in the case of a resignation that will become effective at a specified later date, be filled before the vacancy occurs but the new director may not take office until the vacancy occurs.
2.5 ANNUAL AND REGULAR MEETINGS. An annual meeting of the Board of Directors, which shall be considered a regular meeting, shall be held immediately following each annual meeting of shareholders for the purpose of electing officers and carrying on such other business as may properly come before the meeting. The Board of Directors may also adopt a schedule of additional meetings which shall be considered regular meetings. Regular meetings shall be held at such times and at such places, within or without the Commonwealth of Virginia, as the Board of Directors shall designate from time to time. If no place is designated, regular meetings shall be held at the principal office of the Corporation.
2.6 SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the Chairman, Vice Chairman, Chief Executive Officer, President or a majority of the Directors of the Corporation and shall be held at such times and at such places, within or without the Commonwealth of Virginia, as the person or persons calling the meetings shall designate. If no such place is designated in the notice of a meeting, it shall be held at the principal office of the Corporation.
2.7 NOTICE OF MEETINGS. No notice need be given of regular meetings of the Board of Directors. Notices of special meetings of the Board of Directors shall be given to each director in person or delivered to his residence or business address (or such other place as he may have directed in writing) not less than five (5) calendar days before the meeting by mail, messenger, telecopy, telegraph or other means of written communication or by telephoning such notice to
him. Neither the business to be transacted nor the purpose of any special meeting need be specified in the notice of the meeting.
2.8 WAIVER OF NOTICE; ATTENDANCE AT MEETING. A director may waive any notice required by law, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice and such waiver shall be equivalent to the giving of such notice. Except as provided in the next paragraph of this section, the waiver shall be in writing, signed by the director entitled to the notice and filed with the minutes or corporate records.
A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director, at the beginning of the meeting or promptly upon his arrival, objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting.
2.9 QUORUM; VOTING. A majority of the number of directors fixed in these Bylaws shall constitute a quorum for the transaction of business at a meeting of the Board of Directors. If a quorum is present when a vote is taken, the affirmative vote of a majority of the directors present is the act of the Board of Directors. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (i) he objects, at the beginning of the meeting or promptly upon his arrival, to holding it or transacting specified business at the meeting or (ii) he votes against or abstains from the action taken.
2.10 TELEPHONIC MEETINGS. The Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other
during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.
2.11 ACTION WITHOUT MEETING. Action required or permitted to be taken at a meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action shall be evidenced by one or more written consents stating the action taken, signed by each director either before or after the action is taken and included in the minutes or filed with the corporate records. Action taken under this section shall be effective when the last director signs the consent unless the consent specifies a different effective date in which event the action taken is effective as of the date specified therein provided the consent states the date of execution by each director.
2.12 COMPENSATION. The Board of Directors may fix the compensation of directors and may provide for the payment of all expenses incurred by them in attending meetings of the Board of Directors.
ARTICLE III
COMMITTEES OF DIRECTORS
3.1 COMMITTEES. The Board of Directors may create one or more committees and appoint members of the Board of Directors to serve on them. Each committee shall have two or more members who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it shall be approved by a majority of all of the directors in office when the action is taken.
3.2 AUTHORITY OF COMMITTEES. To the extent specified by the Board of Directors, each committee may exercise the authority of the Board of Directors, except that a committee may not
(i) approve or recommend to shareholders action that is required by law to be approved by shareholders, (ii) fill vacancies on the Board of Directors or on any of its committees, (iii) amend the Articles of Incorporation, (iv) adopt, amend, or repeal these Bylaws, (v) approve a plan of merger not requiring shareholder approval, (vi) authorize or approve a distribution, except according to a general formula or method prescribed by the Board of Directors or (vii) authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences, and limitations of a class or series of shares; provided, however, that the Board of Directors may authorize a committee, or a senior executive officer of the Corporation, to do so within limits specifically prescribed by the Board of Directors.
3.3 EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee consisting of not less than three directors which committee shall have all of the authority of the Board of Directors except to the extent such authority is limited by the provisions of Section 3.2.
3.4 AUDIT COMMITTEE. The Board of Directors shall appoint an Audit Committee consisting of not less than two directors, none of whom shall be officers of the Corporation, which committee shall regularly review the adequacy of the Corporation's internal financial controls, review with the Corporation's independent public accountants the annual audit and other financial statements and recommend the selection of the Corporation's independent public accountants.
3.5 COMMITTEE MEETINGS; MISCELLANEOUS. The provisions of these Bylaws which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting
requirements of the Board of Directors shall apply to committees of directors and their members as well.
ARTICLE IV
OFFICERS
4.1 OFFICERS. The officers of the Corporation shall be a Chairman of the Board of Directors, a Chief Executive Officer, a Vice Chairman, a President, a Secretary, a Treasurer, and, in the discretion of the Board of Directors, one or more Vice-Presidents, one or more Assistant Secretaries and such other officers as may be deemed necessary or advisable to carry on the business of the Corporation. The Chairman shall be chosen from among the directors. Any two or more offices may be held by the same person.
4.2 ELECTION; TERM. Officers shall be elected by the Board of Directors. Officers shall hold office, unless sooner removed, until the next annual meeting of the Board of Directors or until their successors are elected. Any officer may resign at any time upon written notice to the Board of Directors and such resignation shall be effective when notice is delivered unless the notice specifies a later effective date.
4.3 REMOVAL OF OFFICERS. The Board of Directors may remove any officer at any time, with or without cause.
4.4 DUTIES OF THE CHAIRMAN. The Chairman shall have such powers and perform such duties as generally pertain to that position or as may, from time to time, be assigned to him by the Board of Directors.
4.5 DUTIES OF THE VICE CHAIRMAN. The Vice Chairman shall have such powers and perform such duties as generally pertain to that position or as may, from time to time, be assigned to him by the Board of Directors.
4.6 DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief Executive Officer of the Corporation shall have general charge of and be charged with the duty of supervision of the business of the Corporation and shall perform such duties as may, from time to time, be assigned to him by the Board of Directors.
4.7 DUTIES OF THE PRESIDENT. The President shall have such powers and perform such duties as generally pertain to that position or as may, from time to time, be assigned to him by the Board of Directors.
4.8 DUTIES OF THE SECRETARY. The Secretary shall have the duty to see that a record of the proceedings of each meeting of the shareholders, the Board of Directors and any committee of the Board of Directors is properly recorded and that notices of all such meetings are duly given in accordance with the provisions of these Bylaws or as required by law; may affix or authorize to be affixed the corporate seal to any document the execution of which is duly authorized, and when so affixed may attest the same; and, in general, shall perform all duties incident to the office of secretary of a corporation, and such other duties as, from time to time, may be assigned to him/her by the Chairman, the President or the Board of Directors or as may be required by law.
4.9 DUTIES OF THE TREASURER. The Treasurer shall have charge of and be responsible for all securities, funds, receipts and disbursements of the Corporation and shall deposit or cause to be deposited, in the name of the Corporation, all monies or valuable effects in such banks, trust
companies or other depositories as shall, from time to time, be selected by or under authority granted by the Board of Directors; shall be custodian of the financial records of the Corporation; shall keep or cause to be kept full and accurate records of all receipts and disbursements of the Corporation and shall render to the Chairman, the President or the Board of Directors, whenever requested, an account of the financial condition of the Corporation; and, shall perform such duties as may be assigned to him/her by the Chairman, the President or the Board of Directors.
4.10 DUTIES OF OTHER OFFICERS. The other officers of the Corporation shall have such authority and perform such duties as shall be prescribed by the Board of Directors or by officers authorized by the Board of Directors to appoint them to their respective offices. To the extent that such duties are not so stated, such officers shall have such authority and perform the duties which generally pertain to their respective offices, subject to the control of the Chairman, the President or the Board of Directors.
4.11 VOTING SECURITIES OF OTHER CORPORATIONS. Any one of the Chairman, the Vice Chairman, the Chief Executive Officer, the President or the Treasurer shall have the power to act for and vote on behalf of the Corporation at all meetings of the shareholders of any corporation in which this Corporation holds stock or in connection with any consent of shareholders in lieu of any such meeting.
4.12 BONDS. The Board of Directors may require that any or all officers, employees and agents of the Corporation give bond to the Corporation, with sufficient sureties, conditioned upon the faithful performance of the duties of their respective offices or positions.
ARTICLE V
SHARE CERTIFICATES
5.1 FORM. Except to the extent that the Board of Directors authorizes the issuance of shares of the Corporation without certificates pursuant to Section 13.1-648 of the Virginia Stock Corporation Act ("Uncertificated Shares"), shares of the Corporation shall, when fully paid, be evidenced by certificates. Such certificates shall contain such information as is required by law and approved by the Board of Directors. Certificates shall be signed by the Chairman and the President, or by any two other officers of the Corporation as the Board of Directors may designate. Such certificates may (but need not) be sealed with the seal of the Corporation. The seal of the Corporation and any or all of the signatures on a share certificate may be facsimile. If any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar on the date of issue.
5.2 TRANSFER. The Board of Directors may make rules and regulations concerning the issue, registration and transfer of certificates representing the shares of the Corporation. Transfers of shares and of the certificates representing such shares shall be made upon the books of the Corporation by surrender of the certificates representing such shares accompanied by written assignments given by the owners or their attorneys-in-fact.
5.3 RESTRICTIONS ON TRANSFER. A lawful restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction complies with the requirements of law and its existence is noted conspicuously on the front or back of the certificate representing the shares or, in the case of Uncertificated Shares, is contained in the information statement required by Section 13.1-648B of the Virginia Stock
Corporation Act. Unless so noted, a restriction is not enforceable against a person without knowledge of the restriction.
5.4 LOST OR DESTROYED SHARE CERTIFICATES. The Corporation may issue a new share certificate in the place of any certificate theretofore issued which is alleged to have been lost or destroyed and may require the owner of such certificate, or his legal representative, to give the Corporation a bond, with or without surety, or such other agreement, undertaking or security as the Board of Directors shall determine is appropriate, to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction or the issuance of any such new certificate.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.1 CORPORATE SEAL. The corporate seal of the Corporation shall be circular and shall have inscribed thereon, within and around the circumference "Friedman, Billings, Ramsey Group, Inc." In the center shall be the word "SEAL".
6.2 FISCAL YEAR. The fiscal year of the Corporation shall be determined in the discretion of the Board of Directors, but in the absence of any such determination it shall be the calendar year.
6.3 AMENDMENTS. These Bylaws may be amended or repealed, and new Bylaws may be made, at any regular or special meeting of the Board of Directors. Bylaws made by the Board of Directors may be repealed or changed and new Bylaws may be made by the shareholders, and the shareholders may prescribe that any Bylaw made by them shall not be altered, amended or repealed by the Board of Directors.
ARTICLE VII
CONTROL SHARE ACQUISITIONS
7.1 CONTROL SHARE ACQUISITIONS. The provisions of Article 14.1 of the Virginia Stock Corporation Act relating to "control share acquisitions" shall not apply to acquisitions of shares of the Corporation.
Exhibit 4.01
[LOGO]
Number SHARES
TA
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF VIRGINIA
CLASS A CUSIP 358433 10 0
COMMON STOCK SEE REVERSE FOR CERTAIN
DEFINITIONS
|
THIS CERTIFIES that
is the owner of
FULLY PAID AND NON-ASSESSABLE CLASS A COMMON SHARES, Par Value $0.01 per share
of FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
The above-named Corporation, transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This Certificate is not valid until countersigned
and registered by the transfer Agent and Registrar WITNESS the facsimile seal of
the corporation and the facsimile signatures of its duly authorized officers.
Dated:
[SEAL]
/s/ W. Russell Ramsey /s/ Emanuel J. Friedman President & Secretary Chairman and Chief Executive Officer |
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO SO REQUESTS THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS APPLICABLE TO EACH CLASS OF STOCK AND THE VARIATIONS IN RIGHTS, PREFERENCES AND LIMITATIONS DETERMINED FOR EACH SERIES WITHIN A CLASS (AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES). ANY SUCH REQUESTS SHOULD BE ADDRESSED IN WRITING TO THE SECRETARY OF THE CORPORATION.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SHARES OF CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE ("CLASS A COMMON STOCK"). THE ARTICLES OF INCORPORATION OF THE CORPORATION PROVIDE THAT EXCEPT AS OTHERWISE REQUIRED BY LAW (i) THE HOLDERS OF CLASS A COMMON STOCK WILL BE ENTITLED TO ONE (1) VOTE PER SHARE ON ALL MATTERS TO BE VOTED ON BY THE CORPORATION'S SHAREHOLDERS, (ii) THE HOLDERS OF CLASS B COMMON STOCK PAR VALUE $0.01 PER SHARE ("CLASS B COMMON STOCK") WILL BE ENTITLED TO THREE (3) VOTES PER SHARE ON ALL MATTERS TO BE VOTED ON BY THE CORPORATION'S SHAREHOLDERS AND (iii) THE HOLDERS OF THE CLASS A COMMON STOCK AND CLASS B COMMON STOCK SHALL VOTE TOGETHER AS A SINGLE VOTING GROUP. IN CERTAIN CIRCUMSTANCES SHARES OF THE CLASS B COMMON STOCK ARE CONVERTIBLE AT THE OPTION OF THE CORPORATION INTO AN EQUAL NUMBER OF SHARES OF CLASS A COMMON STOCK. THE FOREGOING IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ARTICLES OF INCORPORATION, AS AMENDED FROM TIME-TO-TIME, WHICH ARE MADE A PART HEREOF BY REFERENCE.
The following abbreviations, when used in the inscription on the face of this instrument, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
--------- ----------------------
(Cust) (Minor)
|
under Uniform Gifts to Minors Act
Additional abbreviations may also be used though not in the above list.
For Value Received,______________________________ hereby sell, assign and transfer unto
Dated 19
--------------- --
--------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE
WHATSOEVER.
|
Signature(s) Guaranteed:
Exhibit 5.01
[FORM OF MWBB LETTERHEAD]
DRAFT
December __, 1997
Friedman, Billings, Ramsey Group, Inc.
1001 - 19th Street, North
18th Floor
Arlington, Virginia 22209
Friedman, Billings, Ramsey Group, Inc. Initial Public Offering
Gentlemen:
Reference is made to the Registration Statement on Form S-1 (Registration No. 333-39107) filed by you with the Securities and Exchange Commission (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended, of 12,650,000 shares of your Class A Common Stock, par value $0.01 per share (the "Class A Common Stock") for sale in your initial public offering (the "Offering"). The shares consist of up to 11,500,000 shares of Class A Common Stock proposed to be sold by you in the Offering (the "Company Shares") and up to 1,150,000 shares of Class B Common Stock, par value $0.01 per share, (the "Secondary Shares") which are proposed to be sold by certain selling shareholders and which under the terms of your Articles of Incorporation convert to shares of Class A Common Stock upon their sale in the Offering. We have acted as your special counsel for the purpose of this opinion in connection with this matter.
It is our opinion that (i) the Company Shares, when issued, paid for and sold to the public in the manner referred to in the Registration Statement, will be legally and validly issued, fully paid and non-assessable and (ii) the Secondary Shares when transferred for disposition in the Offering and sold to the public in the manner referred to in the Registration Statement, will be legally and validly issued, fully paid and nonassessable shares of Class A Common Stock.
In arriving at the foregoing opinion, we have relied, among other things, upon our examination of such of your corporate records and certificates of your officers and of public officials, and upon such portions of the Registration Statement, as we have deemed appropriate.
Friedman, Billings, Ramsey Group, Inc.
Draft of December 18, 1997
Page Two
We hereby consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement and to the statement made in reference to our firm under the caption "Legal Matters" in the Prospectus which is made a part of the Registration Statement.
Very truly yours,
Exhibit 9.01
AGREEMENT, dated as of December 16, 1997, among Emanuel J. Friedman, Eric F. Billings, and W. Russell Ramsey (the "Trustees") and the holders of shares of Class B common stock, par value $0.01 per share ("Class B Stock"), of Friedman, Billings, Ramsey Group, Inc., a Virginia Corporation ("FBR") that are listed on Exhibit A hereto (the "Depositors").
WHEREAS, after the initial public offering (the "IPO") by FBR and certain of its shareholders of shares of Class A common stock, par value $0.01 per share ("Class A Stock"), of FBR, the Trustees and Depositors desire to maintain continuity of corporate decision making; and
WHEREAS, the Trustees and Depositors who were parties to the Voting Trust Agreement, dated January 1, 1997 (the "Old Voting Trust"), relating to shares of common stock in Friedman, Billings, Ramsey Group, Inc., a Delaware corporation and a predecessor of FBR ("Old FBR"), have terminated the Old Voting Trust effective upon the merger of Old FBR with and into FBR (the "Merger"), the Depositors have become the only shareholders of FBR by virture of the Merger and have executed a unanimous written consent of shareholders of FBR and desire to create a new voting trust appropriate for FBR following the IPO, to become effective after such execution by all shareholders of the first unanimous written consent of shareholders of FBR following the Merger;
NOW THEREFORE, in consideration of the premises and mutual undertakings of the parties hereinafter set forth, a voting trust in respect of the Class B Stock held by the Depositors is hereby created and established, subject to the following terms and conditions, to all and every one of which the parties hereto expressly assent and agree:
certificates, if not registered in the name of the Trustees, as trustees, shall be duly endorsed in blank or accompanied by proper instruments of assignment and transfer thereof duly executed in blank and in either case properly stamped for registration of transfer.
Stock, such convertible securities and such other rights subject to this Agreement and shall immediately issue Voting Trust Certificates in respect of such Class B Stock, convertible securities and other rights to the registered holder of each Voting Trust Certificate relating to such securities. Any Class B Stock or convertible securities or other rights so received by the Trustees, as trustees, shall be Trust Securities hereunder.
(b) Upon any increase, reduction or reclassification of the securities of FBR, or upon any merger, consolidation, reorganization or dissolution of FBR, the Trustees, as trustees, are authorized to make such surrender of the Trust Securities as may be proper or expedient and either to hold any security or other property issued in exchange for such surrendered Trust Securities or to distribute such securities or property if such securities or property would have been distributed if the receipt of such securities or property were governed by paragraph (a) of this Section 4. Unless the then outstanding Voting Trust Certificates are exchanged for new Voting Trust Certificates, the then outstanding Voting Trust Certificates shall, without any further action, be deemed to be adjusted as may be appropriate to reflect such increase, reduction, reclassification, merger, consolidation, reorganization or dissolution referred to in the first sentence of this paragraph (b).
(c) If any Trust Securities are or become convertible into or exercisable for Class B Stock, the beneficial owner of such Trust Securities shall have the right to direct the Trustees, as trustees, by written notice, upon surrender of the related Voting Trust Certificate and payment of any consideration required to be paid to FBR upon exercise or conversion, to convert or exercise such Trust Securities. Any securities received upon such exercise or conversion shall be Trust Securities hereunder, and Voting Trust Certificates evidencing such Trust Securities shall immediately be issued by the Trustees, as trustees, to the registered holder of the related Voting Trust Certificate that represented such convertible or exercisable Trust Securities.
of this Agreement, which right shall be exercised by the beneficial owner thereof as provided therein).
(b) Trust Securities which are represented by an individual Depositor's Voting Trust Certificates shall be released, in whole or in part, in accordance with paragraph (c) of this Section 6 upon the delivery to the Trustees, as trustees, by such holder of such Voting Trust Certificates, of a notice in writing (with a copy sent to FBR no later than the time it is sent to the Trustees) requesting such release of a specified amount of Trust Securities and certifying that such Trust Securities are either (i) being sold to the public pursuant to an effective registration under the Securities Act of 1933, as amended (the "1933 Act") or pursuant to Rule 144 under 1933 Act (or a successor provision) or (ii) being transferred by one of the Trustees to either a Qualifying Trust (as defined in the Shareholders Agreement Amendment) or an Immediate Family Member (as defined in the Shareholders Agreement Amendment) in accordance with the Amendment to Shareholders Agreement, dated as of December 15, 1997, by and among Emanuel J. Friedman, Eric F. Billings, W. Russell Ramsey, the other persons named on Exhibit A thereto and who may thereafter become parties to this Amendment, and Friedman, Billings, Ramsey Group, Inc., a Delaware Corporation (the "Shareholders Agreement Amendment").
(c) Upon satisfaction by FBR or the Trustees, of the conditions set forth in paragraph (b) of this Section 6, the Trustees, as trustees, shall release to such registered holder of the Voting Trust Certificates, upon the surrender to the Trustees, as trustees, of Voting Trust Certificates duly endorsed, Trust Securities in the amount requested by such holder of Voting Trust Certificates, and the Trustee shall issue a new Voting Trust Certificate representing such lesser amount of shares which the Voting Trust continues to hold for such Depositor's benefit. Upon the termination of this Agreement or upon the surrender of Voting Trust Certificates in exchange for Trust Securities represented thereby, or upon any taxable transfer of Trust Securities, the recipient of the Trust Securities shall furnish to the Trustees, as trustees, prior to delivery of the Trust Securities, funds sufficient to pay any taxes that may be payable upon the transfer of the Trust Securities represented by such Voting Trust Certificates.
(d) Upon delivery by the Trustees, as trustees, of all Trust Securities or other property then held hereunder in exchange for outstanding Voting Trust Certificates, as provided in paragraph (c) of this Section 6, this Agreement shall terminate and all further obligations or duties of the Trustees, as trustees, under this Agreement or any provision thereof shall cease.
assignments thereof are genuine and legal.
(b) A Trustee shall be removed as a trustee upon (i) such Trustee's death, incapacity, or resignation, or (ii) such Trustee ceasing to be a shareholder of FBR or one of its affiliates.
(b) The Voting Trust Certificates shall be trans-
ferable only on the books of the Trustees, as trustees, upon surrender of such Voting Trust Certificates (duly endorsed in blank or accompanied by a proper instrument of assignment and transfer duly executed in blank) in person or by the duly authorized attorney of a registered holder. Upon the surrender of any Voting Trust Certificates for transfer, the Trustees, as trustees, shall cancel such Voting Trust Certificates and issue to the transferee (which may be the same person as the transferor) new Voting Trust Certificates in the same form and representing the same total amount of Trust Securities as the Voting Trust Certificates presented for cancellation.
(c) The Trustees, as trustees, will not register the Voting Trust Certificates under the 1933 Act, in reliance upon the representations and agreements of the holder or holders, acknowledged hereby, that the Voting Trust Certificates are held subject to all applicable provisions of the 1933 Act. Without limiting the foregoing, each holder of a Voting Trust Certificate governed by this Agreement agrees that he will not offer, sell, assign, pledge or otherwise transfer or dispose of said Voting Trust Certificates or any part thereof in a manner which would violate the 1933 Act. The Trustees, as trustees, will not issue additional Voting Trust Certificates to any person which has not expressly agreed to comply with these provisions to the extent such compliance is required in the opinion of counsel to the Trustees, as trustees.
curities.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
TRUSTEES
WITNESS:
By: /s/ Emanuel J. Friedman ------------------------------- Name: Emanuel J. Friedman By: /s/ Eric F. Billings ------------------------------- Name: Eric F. Billings By: /s/ W. Russell Ramsey ------------------------------- Name: W. Russell Ramsey |
DEPOSITORS
By: /s/ Emanuel J. Friedman ------------------------------- Name: Emanuel J. Friedman By: /s/ Eric F. Billings ------------------------------- Name: Eric F. Billings By: /s/ W. Russell Ramsey ------------------------------- Name: W. Russell Ramsey By: /s/ Jonathan L. Billings ------------------------------- Name: Jonathan L. Billings |
By: /s/ Celia Vlasin Martin ------------------------------- Name: Celia Vlasin Martin By: /s/ Eric Y. Generous ------------------------------- Name: Eric Y. Generous By: /s/ Robert Feinstein ------------------------------- Name: Robert Feinstein By: /s/ Nicholas J. Nichols ------------------------------- Name: Nicholas J. Nichols By: /s/ Scott E. Dreyer ------------------------------- Name: Scott E. Dreyer By: /s/ John F. Mangan ------------------------------- Name: John F. Mangan By: /s/ Kim Germ-Cramer ------------------------------- Name: Kim Germ-Cramer By: /s/ Jeffrey M. Deane ------------------------------- Name: Jeffrey M. Deane By: /s/ Karen K. Edwards ------------------------------- Name: Karen K. Edwards By: /s/ James C. Neuhauser ------------------------------- Name: James C. Neuhauser By: /s/ Suzanne N. Richardson ------------------------------- Name: Suzanne N. Richardson |
By: /s/ William R. Swanson ------------------------------- Name: William R. Swanson By: /s/ J. Rock Tonkel, Jr. ------------------------------- Name: J. Rock Tonkel, Jr. By: /s/ Edward M. Wheeler ------------------------------- Name: Edward M. Wheeler By: /s/ Paul T. Dell'Isola ------------------------------- Name: Paul T. Dell'Isola By: /s/ Michael J. Cerretani ------------------------------- Name: Michael J. Cerretani By: /s/ James R. Kleeblatt ------------------------------- Name: James R. Kleeblatt By: /s/ James D. Locke ------------------------------- Name: James D. Locke By: /s/ Robert M. Schwartzberg ------------------------------- Name: Robert M. Schwartzberg By: /s/ David H. Ellison ------------------------------- Name: David H. Ellison |
FRIEDMAN, BILLINGS, RAMSEY
GROUP, INC., A VIRGINIA
ATTEST: CORPORATION
By: /s/ W. Russell Ramsey By: /s/ Emanuel J. Friedman
----------------------------- -------------------------------
Name: W. Russell Ramsey Name: Emanuel J. Friedman
Title: President and Title: Chairman and Chief
Secretary Executive Officer
|
Exhibit 10.01
AMENDMENT TO SHAREHOLDERS AGREEMENT, dated as of December 15, 1997 (this "Amendment"), by and among Emanuel J. Friedman, Eric F. Billings, W. Russell Ramsey, the other persons named on Exhibit A hereto and who may hereafter become parties to this Amendment (the "Additional Shareholders"), and Friedman, Billings, Ramsey Group, Inc., a Delaware Corporation ("Old FBR").
WITNESSETH:
WHEREAS, Old FBR intends to merge with and into FBR Group, Inc., a Virginia corporation ("New FBR"), and Friedman, Billings, Ramsey Group, Inc., a Virginia corporation, with New FBR as the survivor (the "Merger"), in which New FBR's name will be changed to Friedman, Billings, Ramsey Group, Inc.; and
WHEREAS, after the Merger, certain shareholders of New FBR intend to make certain transfers of shares, and New FBR intends to make an initial public offering of Class A Common Stock, par value $0.01 per share, of New FBR (the "IPO"); and
WHEREAS, the parties desire to make certain modifications to the Shareholders Agreement, dated January 1, 1997, by and among Emanuel J. Friedman, Eric F. Billings, W. Russell Ramsey, the Additional Shareholders and Old FBR (the "Shareholders Agreement") and to confirm the termination of the voting trust contemplated thereby (the "Old Voting Trust") upon effectiveness of the Merger.
NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements contained in this Amendment, the parties, intending to be legally bound, agree as follows:
ARTICLE I
SECTION 1.1. The Shareholders Agreement shall apply following the Merger to New FBR and to the stock thereof, and references to the "corporation" in the Shareholders Agreement shall refer to New FBR.
SECTION 1.2. All references in the Shareholders Agreement to the "Voting Common Stock," "Stock," or "Shares" shall be replaced with "Class B Stock."
SECTION 1.3. The Old Voting Trust will be terminated upon effectiveness of the Merger.
ARTICLE II
SECTION 2.1. The following is hereby added in the appropriate place in
Section 1 of the Shareholders Agreement:
""Class B Stock" shall mean Class B Common Stock, par value $0.01 per share, of the Corporation."
""Corporation" shall mean Friedman, Billings, Ramsey Group, Inc., a Virginia corporation (formerly known as FBR Group, Inc.)."
""Immediate Family Member" shall mean with respect to an individual who was a Shareholder on or before December 15, 1997 only, spouse (including common law spouse), child (including by adoption and child as to whom the Shareholder (or the Shareholder's spouse) has legal custody), parent, grandparent, grandchild (including by adoption), parent-in-law, cousin, aunt, uncle, nephew, niece, sibling, and sibling-in-law."
""IPO" shall mean an initial public offering of Class A Common Stock, par value $0.01 per share, of the Corporation."
""Qualifying Trust" shall mean a trust for the benefit of one or more of the grantor's Immediate Family Members, and/or a Charity, in either event provided that such trust may be a shareholder of a Subchapter "S" Corporation"
""S Corp Power of Attorney" shall mean a power of attorney substantially in the form attached hereto as Exhibit B to the Amendment relating to the termination of New FBR's election under Subchapter S of the Code"
SECTION 2.2. The following is hereby added to the end of Section 2(a) of the Shareholders Agreement:
"Notwithstanding anything to the contrary in this Agreement, a Shareholder shall be authorized to make transfers to a Qualifying Trust or an Immediate Family Member (a "Transferee") so long as (i) such transfer is completed prior to January 31, 1998, (ii) such Transferee executes a valid and binding S Corp Power of Attorney, (iii) such Transferee agrees to be bound by all of the terms of this Shareholders Agreement, and (iv) such Transferee deposits the transferred Shares to the Voting Trust referred to in Section 3.1 of the Amendment, except that in the case of a transfer of not more than 1,000,000 Shares in the aggregate by any of the voting trustees of the Voting Trust, the Transferee shall not be required to become a party to the Voting Trust Agreement, or to deposit such transferred Shares in the Voting Trust."
SECTION 2.3. The legend required by Section 15 of the
Shareholders Agreement is deleted in its entirety, and the following legend inserted in lieu thereof:
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THAT CERTAIN SHAREHOLDERS AGREEMENT DATED AS OF JANUARY 1, 1997, AS AMENDED, PURSUANT TO WHICH CERTAIN RESTRICTIONS ON THE TRANSFER OF THE SECURITIES REPRESENTED HEREBY ARE IMPOSED."
SECTION 2.4. The following is hereby added to the end of Section 16 of the Shareholders Agreement:
"(4) closing of the IPO."
SECTION 2.5. The following is hereby added to the end of Section 17 of the Shareholders Agreement:
"(d) The Shareholders hereby agree to execute promptly an S Corp Power of Attorney, or consent to the Voting Trustees under the Voting Trust doing so at the request of the Board of Directors of New FBR."
SECTION 2.6. Section 19(b) is hereby deleted and replaced in its entirety by:
ARTICLE III
SECTION 3.1. (a) The Shareholders hereby agree that they shall become a party to the Voting Trust Agreement attached hereto as Exhibit C and deposit their Shares in the Voting Trust created thereby (the "Voting Trust") immediately after the first Shareholders Meeting, or the execution by all Shareholders of the first unanimous written consent of shareholders of New FBR following the Merger.
(b) Each Shareholder by execution of this Amendment hereby constitutes and appoints Eric Y. Generous and Nicholas J. Nichols such individual's true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for such person and in such person's name, place and stead, in any and all capacities for the purpose of (i) executing the Voting Trust Agreement substantially in the form attached hereto as Exhibit C and (ii) performing each and every act and thing requisite and necessary to be done to effectuate the performance under the Voting Trust Agreement.
[This page intentionally left blank]
EXECUTION COPY
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.
By: /s/ Emanuel J. Friedman -------------------------------------- Name: Emanuel J. Friedman By: /s/ Eric F. Billings -------------------------------------- Name: Eric F. Billings By: /s/ W. Russell Ramsey -------------------------------------- Name: W. Russell Ramsey By: /s/ Jonathan L. Billings -------------------------------------- Name: Jonathan L. Billings By: /s/ Celia Vlasin Martin -------------------------------------- Name: Celia Vlasin Martin By: /s/ Eric Y. Generous -------------------------------------- Name: Eric Y. Generous By: /s/ Robert Feinstein -------------------------------------- Name: Robert Feinstein By: /s/ Nicholas J. Nichols -------------------------------------- Name: Nicholas J. Nichols |
By: /s/ Scott E. Dreyer -------------------------------------- Name: Scott E. Dreyer By: /s/ John F. Mangan -------------------------------------- Name: John F. Mangan By: /s/ Kim Germ-Cramer -------------------------------------- Name: Kim Germ-Cramer By: /s/ Jeffrey M. Deane -------------------------------------- Name: Jeffrey M. Deane By: /s/ Karen K. Edwards -------------------------------------- Name: Karen K. Edwards By: /s/ James C. Neuhauser -------------------------------------- Name: James C. Neuhauser By: /s/ Suzanne N. Richardson -------------------------------------- Name: Suzanne N. Richardson By: /s/ William R. Swanson -------------------------------------- Name: William R. Swanson By: /s/ J. Rock Tonkel, Jr. -------------------------------------- Name: J. Rock Tonkel, Jr. By: /s/ Edward M. Wheeler -------------------------------------- Name: Edward M. Wheeler By: /s/ Paul T. Dell'Isola -------------------------------------- Name: Paul T. Dell'Isola |
By /s/ Michael J. Cerretani
--------------------------------------
Name: Michael J. Cerretani
By: /s/ James R. Kleeblatt
--------------------------------------
Name: James R. Kleeblatt
By: /s/ James D. Locke
--------------------------------------
Name: James D. Locke
By: /s/ Robert M. Schwartzberg
--------------------------------------
Name: Robert M. Schwartzberg
By: /s/ David H. Ellison
--------------------------------------
Name: David H. Ellison
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.,
ATTEST: A DELAWARE CORPORATION
By: /s/ W. Russell Ramsey By: /s/ Emanuel J. Friedman
----------------------- ---------------------------------------
Name: W. Russell Ramsey Name: Emanuel J. Friedman
Title: President and Title: Chairman and Chief
Secretary Executive Officer
|
Exhibit 10.02
NASD
REVOLVING
SUBORDINATED LOAN AGREEMENT
SL-7
AGREEMENT BETWEEN:
THE BEAR STEARNS COMPANIES INC.
245 PARK AVENUE
NEW YORK, NY 10167
AND
NASD ID NO:____________________________________________________________________
DATE FILED:____________________________________________________________________
NASD
REVOLVING SUBORDINATED LOAN AGREEMENT
The Credit Line shall be loaned to the Broker-Dealer on a revolving basis and the Broker-Dealer may, subject to the provisions of this Agreement, borrow, repay and reborrow such amounts ("Advances") as it may see fit. Each such Advance made hereunder shall have a stated maturity date of at least twelve months from the date of each such Advance, unless prepaid pursuant to the permissive prepayment provisions of this agreement.
Any Advances obtained under this Agreement shall be used and dealt with by the Broker-Dealer as part of its capital and shall be subject to the risks of the business. The Broker-Dealer shall have the right to deposit any Advance obtained under this Agreement in any account or accounts in its own name in any bank or trust company.
The obligation of the Broker-Dealer to repay the principal amount of each Advance shall be evidenced by promissory notes executed by the Broker-Dealer (the "Note") in substantially the form attached hereto as Exhibit "A," payable to the Lender in a face amount equal to each Advance, bearing interest at rates to be agreed upon by the Lender and the Broker-Dealer at time of the Advance.
The Broker-Dealer shall notify the NASD in writing at the time an Advance is made, such notice to specify both the amount and the maturity date of each such Advance.
The Lender irrevocably agrees that the obligations of the Broker-Dealer under this Agreement with respect to the payment of the principal and interest shall be and are subordinate in right of payment and subject to the prior payment or provision for payment in full of all other present and future creditors of the Broker-Dealer arising out of any matter occurring prior to the date on which the related Advance(s) matures consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except for claims which are the subject of subordination agreements which rank on the same priority as or are junior to the claim of the Lender under such subordination agreements.
* upon NASD approval ** one year from the date of NASD approval
At the option of the Broker-Dealer, but not at the option of the Lender,
payment of all or any part of an Advance amount prior to the maturity date of
the Advance may be made by the Broker-Dealer only upon receipt of the prior
written approval of the NASD. No prepayment shall be made if, after giving
effect thereto and all payments of any other Payment Obligations (as defined
herein) under any other subordination agreements then outstanding, the maturity
or accelerated maturity of which are scheduled to fall due either within six
months after the date such prepayment is to occur or on or prior to the date on
which the Advance hereof is scheduled to mature, whichever date is earlier),
without reference to any projected profit or loss of the Broker-Dealer, either
aggregate indebtedness of the Broker-Dealer would exceed 900% of its net capital
or such lesser percent as may be made applicable to the Broker-Dealer from time
to time by the NASD, or a governmental agency or self-regulatory body having
appropriate authority, or if the Broker-Dealer is operating pursuant to
paragraph (a(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 6%
of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 10% of the funds required to be
segregated pursuant to the Commodity Exchange Act and the regulations thereunder
(less the market value of commodity options purchased by option customers on or
subject to the rules of a contract market, provided however, the deduction for
each option customer shall be limited to the amount of customer funds in such
option customer's account), if greater, or its net capital would be less than
200% of the minimum dollar required by 17 CFR 240.15c3-1 including paragraph
(a)(1)(ii), if applicable, or
pretax losses during the latest three-month period equalled more than 15% of current excess net capital, or
any other requirement as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of an Advance amount prior to the maturity date of the Advance (but at least 12 months after the Advance was received) may be made by the Broker-Dealer only upon receipt of the prior written approval of the NASD. No prepayment shall be made if, after giving effect thereto (and all payments of Payment obligations under any other subordination agreements then outstanding, the maturity or accelerated maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Payment Obligation hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 1000 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker- Dealer is operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 7 percent of the funds
required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value for commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customers account), if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240. 15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
If a prepayment is made of all or any part of the principal hereof prior to the due date of an Advance and if the Broker-Dealer's net capital is less than the amount required to permit such prepayment pursuant to the foregoing provisions of this section, the Lender agrees irrevocably (whether or not the Lender had any knowledge or notice of such fact at the time of such prepayment) to return such prepayment to the Broker-Dealer, its successors, or assigns, the sum so paid to be held by the Broker-Dealer pursuant to the provisions hereof as if such prepayment had never been made.
(a) The Payment Obligation shall be suspended and shall not mature if,
after giving effect to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination agreement
scheduled to mature on or before such Payment Obligation) the aggregate
indebtedness of the Broker-Dealer would exceed 1200% of its net capital or such
lesser percent as may be made applicable to the Broker-Dealer from time to time
by the NASD, or a governmental agency or self-regulatory body having appropriate
authority, or if the Broker-Dealer is operating pursuant to paragraph
(a)(1)(ii) of 17 CFR 240. 15c3-1, its net capital would be less than 5% of
aggregate debit items computed in accordance with 17 CFR 240. 15c3-3a, or, if
registered as a futures commission merchant, 6% of the funds required to be
segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market, provided however, the
deduction for each option customer shall be limited to the amount of customer
funds in such option customer's account), if greater, or its net capital would
be less than 120% of the minimum dollar amount required by 17 CFR 240. 15c3-1
including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as
may be made applicable to the Broker-Dealer by the NASD, or a governmental
agency or self-regulatory body having appropriate authority.
(b) (optional) the Broker-Dealer agrees that if its obligation to pay the principal amount hereof is suspended for a period of six months, the Broker-Dealer will thereupon commence a rapid and orderly complete liquidation of its business. The date on which the liquidation commences shall be the maturity date for each subordination agreement of the Broker-Dealer then outstanding.
By written notice to the Broker-Dealer at its principal office and to the NASD, no sooner than six months after the effective date of this Agreement, the Lender may accelerate the Scheduled Maturity Date and any such Payment Obligation together with accrued interest or compensation, to a date not earlier than six months after giving of such notice. However, the right of the Lender to receive payment together with accrued interest or compensation shall remain subordinate as required by the provisions of 17 CFR 240. 15c3-1 and 240. 15c3-1d.
The Broker-Dealer shall immediately notify the NASD if, after giving
effect to all payments of Payment Obligations under subordination agreements
then outstanding which are then due or mature within six months without
reference to any projected profit or loss of the Broker-Dealer, either the
aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net
capital, or in the case of a Broker-Dealer operating pursuant to paragraph
(a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 6 percent of the funds required to
be segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market, provided however, the
deduction for each option customer shall be limited to the amount of customer
funds in such option customer's account), if greater, and in either case, if its
net capital would be less than 120 percent of the minimum dollar amount required
by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such
greater dollar amount as may be made applicable, to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having appropriate
authority.
A Broker-Dealer who guarantees, endorses, carries or clears specialist or market-maker transactions in options listed on a national securities exchange or facility of a national securities association shall not permit a reduction, prepayment or repayment of the unpaid principal amount if the effect would cause the equity required in such specialist or market-maker accounts to exceed 1000 percent of the Broker-Dealer's net capital or such percent as may be made applicable to the Broker-Dealer from time to time by the NASD or a governmental agency or self-regulatory body having appropriate authority.
If the Broker-Dealer is a futures commission merchant or introductory broker as that term is defined in the Commodity Exchange Act, the organization agrees, consistent with the requirements of 1.17(h) of the regulations of the CFTC (17 CFR 1.17 (h)), that:
(a) Whenever prior written notice by the Broker-Dealer to the NASD is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Broker-Dealer to (i) the CFTC at its principal office in Washington, D.C., attention Chief Accountant of Division of Trading and Markets, and/or (ii) the commodity exchange of which the Organization is a member and which is then designated by the CFTC as the organization's designated self- regulatory organization the "DSRO";
(b) Whenever prior written consent, permission or approval of the NASD is required pursuant to the provisions of this Agreement, the Broker-Dealer shall also obtain the prior written consent, permission or approval of the CFTC (and/or of the DSRO).
(c) Whenever the Broker-Dealer receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall promptly give written notice thereof to the CFTC at the address stated above and/or to the DSRO.
This Agreement shall not be subject to cancellation by either the Lender or the Broker-Dealer, and no repayment of any Advance shall be made, nor the Agreement terminated, rescinded, or modified by mutual consent or otherwise if the effect thereof would be inconsistent with the requirements of 17 CFR 240.15c3-1d.
The Agreement may not be transferred, sold, assigned, pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created thereon without the prior written consent of the NASD.
In the event of the appointment of a receiver or trustee of the Broker-Dealer or in the event of its insolvency, liquidation pursuant to the Securities Investor Protection Act of 1970 or otherwise, bankruptcy assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the Broker-Dealer shall mature, and the holder hereof shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Broker-Dealer until all claims of all other present and future creditors of the Broker-Dealer, whose claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the execution of this agreement is not being made in reliance upon the standing of the Broker-Dealer as a member organization of the NASD or upon the NASD surveillance of the Broker-Dealer's financial position or its compliance with the By-Laws, rules and practices of the NASD.
The Lender has made such investigation of the Broker-Dealer and its partners, officers, directors and stockholders as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the NASD to provide any information concerning or relating to the Broker-Dealer and agrees that the NASD has no responsibility to disclose to the Lender any information concerning or relating to the Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer" as used in this Agreement shall include the broker-dealer, its heirs, executors, administrators, successors, and assigns.
The term "Payment Obligation" shall mean the obligation of the Broker- Dealer to repay cash loaned to it pursuant to this Revolving Subordinated Loan Agreement.
The provisions of this Agreement shall be binding upon the Broker-Dealer and the Lender and their respective heirs, executors, administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement may be submitted to and settled by arbitration pursuant to the By-laws and rules of the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such arbitration.
This instrument embodies the entire agreement between the Broker-Dealer and Lender and no other evidence of such agreement has been or will be executed without the prior written consent of the NASD.
This Agreement shall be deemed to have been made under, and shall be governed by, the laws of the State of NEW YORK in all respects.
IN WITNESS WHEREOF, the parties have set their hands and seal this 5th day of August 1997.
Friedman, Billings, Ramsey & Co., Inc.
--------------------------------------
(Name of Broker-Dealer)
By [SIGNATURE] (L.S)
--------------------------------
THE BEAR STEARNS COMPANIES INC. (L.S)
----------------------------------
(LENDER)
NASD USE ONLY
ACCEPTED BY [SIGNATURE]
-----------------------
[SIGNATURE]
-----------------------
(NAME)
NASD USE ONLY
ACCEPTED BY [SIGNATURE]
-----------------------
Associate Director
-----------------------
(TITLE)
|
Exhibit 10.03
NASD
REVOLVING
SUBORDINATED LOAN AGREEMENT
SL-7
AGREEMENT BETWEEN:
LENDER Bear, Stearns Securities Corp
------------------------------------------------------
(NAME)
245 Park Avenue, 7th Floor
------------------------------------------------------------
(STREET ADDRESS)
New York NY
-------------------------------------------- ------------
(CITY) (STATE)
|
(ZIP)
AND
BROKER-DEALER Friedman, Billings, Ramsey & Co.,
-----------------------------------------------
(NAME)
1001 Nineteenth Street North, Pot
------------------------------------------------------------
(STREET ADDRESS)
Rosslyn VA
-------------------------------------------- ------------
(CITY) (STATE)
|
NASD ID NUMBER:_____________________________________________
DATE FILED:_________________________________________________
NASD
REVOLVING SUBORDINATED LOAN AGREEMENT
AGREEMENT entered into on November 21, 1996 to be effective * between Bear, Stearns Securities Corp. (the "Lender") and Friedman, Billings, Ramsey & Co. Inc. (the "Broker-Dealer").
Subject to the terms and conditions hereinafter set forth, the Lender is willing to make revolving credit loans agrees to loan to the Broker-Dealer from time to time between the effective date and ** (the "Scheduled Maturity Date") sums of money not to exceed $15,000,000 in the aggregate (the "Credit Line," or "Aggregate Principal Amount").
The Credit Line shall be loaned to the Broker-Dealer on a revolving basis and the Broker-Dealer may, subject to the provisions of this Agreement, borrow, repay and reborrow such amounts ("Advances") as it may see fit. Each such Advance made hereunder shall have a stated maturity date of at least twelve months from the date of each such Advance, unless prepaid pursuant to the permissive prepayment provisions of this agreement.
Any Advances obtained under this Agreement shall be used and dealt with by the Broker-Dealer as part of its capital and shall be subject to the risks of the business. The Broker-Dealer shall have the right to deposit any Advance obtained under this Agreement in any account or accounts in its own name in any bank or trust company.
The obligation of the Broker-Dealer to repay the principal amount of each Advance shall be evidenced by promissory notes executed by the Broker-Dealer (the "Note") in substantially the form attached hereto as Exhibit "A," payable to the order of the Lender in a face amount equal to each Advance, bearing interest at rates to be agreed upon by the Lender and the Broker-Dealer at the time of the Advance.
The Broker-Dealer shall notify the NASD in writing at the time an Advance is made, such notice to specify both the amount and the maturity date of each such Advance.
The Lender irrevocably agrees that the obligations of the Broker-Dealer under this Agreement with respect to the payment of principal and interest shall be and are subordinate in right of payment and subject to the prior payment or provision for payment in full of all other present and future creditors of the Broker-Dealer arising out of any matter occurring prior to the date on which the related Advance(s) matures consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except for claims which are the subject of subordination agreements which rank on the same priority as or are junior to the claim of the Lender such subordination agreements.
* Upon NASD APPROVAL ** One year from the date of NASD APPROVAL
At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of an Advance amount prior to the maturity date of the Advance may be made by the Broker-Dealer only upon receipt of the prior written approval of the NASD. No prepayment shall be made if, after giving effect thereto and all payments of any other Payment Obligations (as defined herein) under any other subordination agreements then outstanding, the maturity or accelerated maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Advance hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 900% of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a govermental agency or self-regulatory body having appropriate authority, or if the Broker-Dealer is operating pursuant to paragraph (a(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 6% of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 10% of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account), if greater, or its net capital would be less than 200% of the minimum dollar required by 17 CFR 240. 15c3-1 including paragraph (a)(1)(ii), if applicable, or
pretax losses during the latest three-month period equalled more than 15% of current excess net capital, or
any other requirement as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of an Advance amount prior to the maturity date of the Advance (but at least 12 months after the Advance was received) may be made by the Broker-Dealer only upon receipt of the prior written approval of the NASD. No prepayment shall be made if, after giving effect thereto (and all payments of Payment obligations under any other subordination agreements then outstanding, the maturity or accelerated maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Payment Obligation hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 1000 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, of if the Broker- Dealer is operating pursuant to paragraph (a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 7 percent of the funds
required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value for commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customers account), if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
If a prepayment is made of all or any part of the principal hereof prior to the due date of an Advance and if the Broker-Dealer's net capital is less than the amount required to permit such prepayment pursuant to the foregoing provisions of this section, the Lender agrees irrevocably (whether or not the Lender had any knowledge or notice of such fact at the time of such prepayment) to return such prepayment to the Broker-Dealer, its successors, or assigns, the sum so paid to be held by the Broker-Dealer pursuant to the provisions hereof as if such prepayment had never been made.
(a) The Payment Obligation shall be suspended and shall not mature if,
after giving effect to such payment (together with the payment of any Payment
Obligation of the Broker-Dealer under any other subordination agreement
scheduled to mature on or before such Payment Obligation) the aggregate
indebtedness of the Broker-Dealer would exceed 1200% of its net capital or such
lesser percent as may be made applicable to the Broker-Dealer from time to time
by the NASD, or a governmental agency or self-regulatory body having appropriate
authority, or if the Broker-Dealer is operating pursuant to paragraph (a)(1)(ii)
of 17 CFR 240.15c3-1, its net capital would be less than 5% of aggregate debit
items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a
futures commission merchant, 6% of the funds required to be segregated pursuant
to the Commodity Exchange Act and the regulations thereunder, (less the market
value of commodity options purchased by option customers on or subject to the
rules of a contract market, provided however, the deduction for each option
customer shall be limited to the amount of customer funds in such option
customer's account), if greater, or its net capital would be less than 120% of
the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph
(a)(1)(ii), if applicable, or such greater dollar amount as may be made
applicable to the Broker-Dealer by the NASD, or a governmental agency or
self-regulatory body having appropriate authority.
(b) (optional) the Broker-Dealer agrees that if its obligation to pay the principal amount hereof is suspended for a period of six months, the Broker-Dealer will thereupon commence a rapid and orderly complete liquidation of its business. The date on which the liquidation commences shall be the maturity date for such subordination agreement of the Broker-Dealer then outstanding.
By written notice to the Broker-Dealer at its principal office and to the NASD, no sooner than six months after the effective date of this Agreement, the Lender may accelerate the Scheduled Maturity Date and any such Payment Obligation together with accrued interest or compensation, to a date not earlier than six months after giving of such notice. However, the right of the Lender to receive payment together with accrued interest or compensation shall remain subordinate as required by the provisions of 17 CFR 240. 15c3-1 and 240. 15c3-1d.
The Broker-Dealer shall immediately notify the NASD if, after giving
effect to all payments of Payment Obligations under subordination agreements
then outstanding which are then due or mature within six months without
reference to any projected profit or loss of the Broker-Dealer, either the
aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net
capital, or in the case of a Broker-Dealer operating pursuant to paragraph
(a)(1)(ii) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of
aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 6 percent of the funds required to
be segregated pursuant to the Commodity Exchange Act and the regulations
thereunder, (less the market value of commodity options purchased by option
customers on or subject to the rules of a contract market, provided however, the
deduction for each option customer shall be limited to the amount of customer
funds in such option customer's account), if greater, and in either case, if its
net capital would be less than 120 percent of the minimum dollar amount required
by 17 CFR 240.15c3-1 including paragraph (a)(1)(ii), if applicable, or such
greater dollar amount as may be made applicable, to the Broker-Dealer by the
NASD, or a governmental agency or self-regulatory body having appropriate
authority.
A Broker-Dealer who guarantees, endorses, carries or clears specialist or market-marker transactions in options listed on a national securities exchange or facility of a national securities association shall not permit a reduction, prepayment or repayment of the unpaid principal amount if the effect would cause the equity required in such specialist or market-maker accounts to exceed 1000 percent of the Broker-Dealer's net capital or such percent as may be made applicable to the Broker-Dealer from time to time by the NASD or a governmental agency or self-regulatory body having appropriate authority.
If the Broker-Dealer is a futures commission merchant or introductory broker as that term is defined in the Commodity Exchange Act, the organization agrees, consistent with the requirements of 1.17(h) of the regulations of the CFTC (17 CFR 1.17 (h)), that:
(a) Whenever prior written notice by the Broker-Dealer to the NASD is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Broker-Dealer to (i) the CFTC at its principal office in Washington, D.C., attention Chief Accountant of Division of Trading and Markets, and/or (ii) the commodity exchange of which the Organization is a member and which is then designated by the CFTC as the organization's designated self-regulatory organization the "DSRO";
(b) Whenever prior written consent, permission or approval of the NASD is required pursuant to the provisions of this Agreement, the Broker-Dealer shall also obtain the prior written consent, permission or approval of the CFTC (and/or of the DSRO).
(c) Whenever the Broker-Dealer receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall promptly give written notice thereof to the CFTC at the address stated above and/or to the DSRO.
This Agreement shall not be subject to cancellation by either the Lender or the Broker-Dealer, and no repayment of any Advance shall be made, nor the Agreement terminated, rescinded, or modified by mutual consent or otherwise if the effect thereof would be inconsistent with the requirements of 17 CFR 240. 15c3-1d.
The Agreement may not be transferred, sold, assigned, pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be thereon without the prior written consent of the NASD.
In the event of the appointment of a receiver or trustee of the Broker-Dealer or in the event of its insolvency, liquidation pursuant to the Securities Investor Protection Act of 1970 or otherwise, bankruptcy assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the Broker-Dealer shall mature, and the holder hereof shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Broker-Dealer until all claims of all other present and future creditors of the Broker-Dealer, whose claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the execution of this Agreement is not being made in reliance upon the standing of the Broker-Dealer as a member organization of the NASD or upon the NASD surveillance of the Broker-Dealer's financial position or its compliance with the By-Laws, rules and practices of the NASD.
The Lender has made such investigation of the Broker-Dealer and its partners, officers, directors and stockholders as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the NASD to provide any information concerning or relating to the Broker-Dealer and agrees that the NASD has no responsibility to disclose to the Lender any information concerning or relating to the Broker-Dealer which it may now, or at any future, time, have.
The term "Broker-Dealer" as used in this Agreement shall include the broker-dealer, its heirs, executors, administrators, successors, and assigns.
The terms "Payment Obligation" shall mean the obligation of the Broker-Dealer to repay cash loaned to it pursuant to this Revolving Subordinated Loan Agreement.
The Provisions of this Agreement shall be binding upon the Broker-Dealer and the Lender and their respective heirs, executors, administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement may be submitted to and settled by arbitration pursuant to the By-Laws and rules of the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such arbitration.
This instrument embodies the entire agreement between the Broker-Dealer and Lender and no other evidence of such agreement has been or will be executed without the prior written consent of the NASD.
This Agreement shall be deemed to have been made under, and shall be governed by, the laws of the State of New York in all respects.
IN WITNESS WHEREOF, the parties have set their hands and seal this 19th day of DECEMBER 1996.
EFFECTIVE DATE: 12/30/96
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LOAN NUMBER: 9B-R-SLA-10060
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|
FOR NASD USE ONLY
(1) Notwithstanding any contrary provision in the Revolving Subordinated
Loan Agreement dated November 21, 1996 (the "Agreement") between Bear Stearns
Securities Corp. (the "Lender") and Friedman, Billings, Ramsey & Co., Inc. (the
"Broker-Dealer"), the obligation of Lender to make any Advance under the
Agreement shall be subject to the fulfilment of the condition precedent that on
or before the date for the making of such Advance there not have occured or
exist a material adverse change (or an event of condition that has a reasonable
likelihood of resulting in or causing a material of properties of Broker-Dealer,
(ii) the prospects of Broker-Dealer or of the securities industry in general,
(iii) the legality, validity or enforceability of the Agreement or the Note,
(iv) the ability of Borrower to repay any Advance or to perform any of its other
obligations under the Agreement or the Note, or (v) the rights and remedies of
Lender under the Agreement or the Note. If an Advance is made, then such
condition precedent shall be deemed to have been fulfilled with respect to such
Advance. Any Advance made by Lender shall be subject to all the provisions of
the Agreement.
(2) On each Commitment Fee payment Date (as herein defined), Borrower shall pay to Lender a commitment fee computed at the rate of fifty basis points (0.50% per annum on the average daily unused portion of the Agreement during the period, commencing with the immediately preceding Commitment Fee Payment Date and ending with such Commitment Fee Payment Date (or, in the case of the first such period, commencing with the effective date). "Commitment Fee Payment Date" means (I) the first business day of the third, sixth, and ninth calendar month commencing after the effective date, and (ii) the Scheduled Maturity Date.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
BEAR, STEARNS SECURITIES CORP.
By: [SIGNATURE]
Exhibit 10.04
NASD
REVOLVING
SUBORDINATED LOAN AGREEMENT
SL-7
AGREEMENT BETWEEN:
LENDER Custodial Trust Company
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(Name)
101 Carnegie Center
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(Street Address)
Princeton NJ 08540-0231
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(City) (State) (Zip Code)
|
AND
BROKER-DEALER Friedman, Billings, Ramsey & Co., Inc.
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(Name)
1001 19th Street North, 18th Floor
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(Street Address)
Arlington VA 22209
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(City) (State) (Zip Code)
NASD ID NUMBER: 25027
|
DATE FILED:
NASD
REVOLVING SUBORDINATED LOAN AGREEMENT
Agreement entered into on June 20, 1997 to be effective * between Custodial Trust Company (the "Lender") and Friedman, Billings, Ramsey & Co., Inc. (the "Broker-Dealer").
Subject to the terms and conditions hereinafter set forth, the Lender is willing to make revolving credit loans agrees to loan to the Broker-Dealer from time to time between the effective date and ** (the "Scheduled Maturity Date") sums of money not to exceed $15,000,000 in the aggregate (the "Credit Line," or "Aggregate Principal Amount").
The Credit Line shall be loaned to the Broker-Dealer on a revolving basis and the Broker-Dealer may, subject to the provisions of this Agreement, borrow, repay and reborrow such amounts ("Advances") as it may see fit. Each such Advance made hereunder shall have a stated maturity date of at least twelve months from the date of each such Advance, unless prepaid pursuant to the permissive prepayment provisions of this agreement.
Any Advances obtained under this Agreement shall be used and dealt with by the Broker-Dealer as part of its capital and shall be subject to the risks of the business. The Broker-Dealer shall have the right to deposit any Advance obtained under this Agreement in any account or accounts in its own name in any bank or trust company.
The obligation of the Broker-Dealer to repay the principal amount of each Advance shall be evidenced by promissory notes executed by the Broker-Dealer (the "Note") in substantially the form attached hereto as Exhibit "A," payable to the order of the Lender in a face amount equal to each Advance, bearing interest at rates to be agreed upon by the Lender and the Broker-Dealer at the time of the Advance.
The Broker-Dealer shall notify the NASD in writing at the time an Advance is made, such notice to specify both the amount and the maturity date of each such Advance.
The Lender irrevocably agrees that the obligations of the Broker-Dealer under this Agreement with respect to the payment of principal and interest shall be and are subordinate in right of payment and subject to the prior payment or provision for payment in full of all other present and future creditors of the Broker-Dealer arising out of any matter occurring prior to the date on which the related Advance(s) matures consistent with the provisions of 17 CFR 240.15c3-1 and 240.15c3-1d, except for claims which are the subject of subordination agreements which rank on the same priority as or are junior to the claim of the Lender under such subordination agreements.
* Upon NASD approval
** First anniversary of NASD approval date
At the option of the Broker-Dealer, but not at the option of the Lender,
payment of all or any part of an Advance amount prior to the maturity date of
the Advance may be made by the Broker-Dealer only upon receipt of the prior
written approval of the NASD. No prepayment shall be made if, after giving
effect thereto and all payments of any other Payment Obligations (as defined
herein) under any other subordination agreements then outstanding, the maturity
or accelerated maturity of which are schedule to fall due either within six
months after the date such prepayment is to occur or on prior to the date on
which the Advance hereof is schedule to mature, whichever date is earlier),
without reference to any projected profit or loss of the Broker-Dealer, either
aggregate indebtedness of the Broker-Dealer would exceed 900% of its net capital
or such lesser percent as may be made applicable to the Broker-Dealer from time
to time by the NASD, or a governmental agency or self-regulatory body having
appropriate authority, or if the Broker-Dealer is operating pursuant to
paragraph (f) of 17 CFR 240.15c3-1, its net capital would be less than 6% of
aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if
registered as a futures commission merchant, 10% of the funds required to be
segregated pursuant to the Commodity Exchange Act and the regulations thereunder
(less the market value of commodity options purchased by option customers on or
subject to the rules of a contract market, provided however, the deduction for
each option customer shall be limited to the amount of customer funds in such
option customer's account), if greater, or its net capital would be less than
200% of the minimum dollar required by 17 CFR 240.15c3-1 including paragraph
(f), if applicable, or
pretax loss during the latest three-month period equalled more than 15% of current excess net capital, or
any other requirement as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory having appropriate authority.
At the option of the Broker-Dealer, but not at the option of the Lender, payment of all or any part of an Advance amount prior to the maturity date of the Advance (but at least 12 months after the Advance was received) may be made by the Broker-Dealer only upon receipt of the prior written approval of NASD. No prepayment shall be made if, after giving effect thereto (and all payments of Payment obligations under any other subordination agreements then outstanding, the maturity or accelerated maturity of which are scheduled to fall due either within six months after the date such prepayment is to occur or on or prior to the date on which the Payment Obligation hereof is scheduled to mature, whichever date is earlier), without reference to any projected profit or loss of the Broker-Dealer, either aggregate indebtedness of the Broker-Dealer would exceed 1000 percent of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker- Dealer is operating pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net capital would
be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 7 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder (less the market value for commodity options purchased by option customers on or subject to the rules of a contract market, provided, however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer shall be limited to the amount of customer funds in such option customer's account), if greater, or its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (f), if applicable, or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
If a prepayment is made of all or any part of the principal hereof prior to the due date of an Advance and if the Broker-Dealer's net capital is less than the amount required to permit such prepayment pursuant to the foregoing provisions of this section, the Lender agrees irrevocable (whether or not the Lender had any knowledge or notice of such fact at the time of such prepayment) to return such prepayment to the Broker-Dealer, its successors, or assigns, the sum so paid to be held by the Broker-Dealer pursuant to the provisions hereof as if such prepayment had never been made.
(a) The Payment Obligation shall be suspended and shall not mature if, after giving effect to such payment (together with the payment of any Payment Obligation of the Broker-Dealer under any other subordination agreement scheduled to mature on or before such Payment Obligation) the aggregate indebtedness of the Broker-Dealer would exceed 1200% of its net capital or such lesser percent as may be made applicable to the Broker-Dealer from time to time by the NASD, or a governmental agency or self-regulatory body having appropriate authority, or if the Broker-Dealer is operating pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net capital would be less than 5% of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 6% of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account), if greater, or its net capital would be less than 120% of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (f), if applicable or such greater dollar amount as may be made applicable to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
(b) (optional) the Broker-Dealer agrees that if its obligation to pay the principal amount hereof is suspended for a period of six months, the Broker-Dealer will thereupon commence a rapid and orderly complete liquidation of its business. The date on which the liquidation commences shall be the maturity date for each subordination agreement of the Broker-Dealer then outstanding.
By written notice to the Broker-Dealer at its principal office and to the NASD, no sooner than six months after the effective date of this Agreement, the Lender may accelerate the Scheduled Maturity Date and any such Payment Obligation together with accrued interest or compensation, to a date not earlier than six months after giving of such notice. However, the right of the Lender to receive payment together with accrued interest or compensation shall remain subordinate as required by the provisions of 17 CFR 240. 15c3-1 and 240.15c3-1d.
The Broker-Dealer shall immediately notify the NASD if, after giving effect to all payments of Payment Obligations under subordination agreements then outstanding which are then due or mature within six months without reference to any projected profit or loss of the Broker-Dealer, either the aggregate indebtedness of the Broker-Dealer would exceed 1200 percent of its net capital, or in the case of a Broker-Dealer operating pursuant to paragraph (f) of 17 CFR 240.15c3-1, its net capital would be less than 5 percent of aggregate debit items computed in accordance with 17 CFR 240.15c3-3a, or, if registered as a futures commission merchant, 6 percent of the funds required to be segregated pursuant to the Commodity Exchange Act and the regulations thereunder, (less the market value of commodity options purchased by option customers on or subject to the rules of a contract market, provided however, the deduction for each option customer shall be limited to the amount of customer funds in such option customer's account), if greater, and in either case, if its net capital would be less than 120 percent of the minimum dollar amount required by 17 CFR 240.15c3-1 including paragraph (f), if applicable, or such greater dollar amount as may be made applicable, to the Broker-Dealer by the NASD, or a governmental agency or self-regulatory body having appropriate authority.
A Broker-Dealer who guarantees, endorses, carries or clears specialist or market-market transactions in options listed on a national securities exchange or facility of a national securities associated shall not permit a reduction, prepayment or repayment of the unpaid principal amount if the effect would cause the equity required in such specialist or market-maker accounts to exceed 1000 percent of the Broker-Dealer's net capital or such percent as may be made applicable to the Broker-Dealer from time to time by the NASD or a governmental agency or self-regulatory body having appropriate authority.
If the Broker-Dealer is a futures commission merchant or introductory broker as that term is defined in the Commodity Exchange Act, the organization agrees, consistent with the requirements of 1.17(h) of the regulations of the CFTC (17 CFR 1.17 (h)), that:
(a) Whenever prior written notice by the Broker-Dealer to the NASD is required pursuant to the provisions of this Agreement, the same prior written notice shall be given by the Broker-Dealer to (i) the CFTC at its principal office in Washington, D.C., attention Chief Accountant of Division of Trading and Markets, and/or (ii) the commodity exchange of which the Organization is a member and which is then designated by the CFTC as the Organization's designated self-regulatory organization the "DSRO":
(b) Whenever prior written consent, permission or approval of the NASD is required pursuant to the provisions of this Agreement, the Broker-Dealer shall also obtain the prior written consent, permission or approval of the CFTC (and/or of the DSRO).
(c) Whenever the Broker-Dealer receives written notice of acceleration of maturity pursuant to the provisions of this Agreement, the Broker-Dealer shall promptly give written notice thereof to the CFTC at the address stated above and/or to the DSRO.
This Agreement shall not be subject to cancellation by either the Lender or the Broker-Dealer, and no repayment of any Advance shall be made, nor the Agreement terminated, rescinded, or modified by mutual consent or otherwise if the effect thereof would be inconsistent with the requirements of 17 CFR 240.15c3-1d.
The Agreement may not be transferred, sold, assigned, pledged, or otherwise encumbered or otherwise disposed of, and no lien, charge or other encumbrance may be created or permitted to be created thereon without the prior written consent of the NASD.
In the event of the appointment of a receiver or trustee of the Broker- Dealer or in the event of its insolvency, liquidation pursuant to the Securities Investor Protection Act of 1970 or otherwise, bankruptcy assignment for the benefit of creditors, reorganization whether or not pursuant to bankruptcy laws, or any other marshalling of the assets and liabilities of the Broker-dealer shall mature, and the holder hereof shall not be entitled to participate or share, ratably or otherwise, in the distribution of the assets of the Broker- Dealer until all claims of all other present and future creditors of the Broker- Dealer, whose claims are senior hereto, have been fully satisfied.
The Lender irrevocably agrees that the execution of this Agreement is not being made in reliance upon the standing of the Broker-Dealer as a member organization of the NASD or upon the NASD surveillance of the Broker-Dealer's financial position or its compliance with the By-Laws, rules and practices of the NASD.
The Lender has made such investigation of the Broker-Dealer and its partners, officers, directors and stockholders as the Lender deems necessary and appropriate under the circumstances. The Lender is not relying upon the NASD to
provide any information concerning or relating to the Broker-Dealer and agrees that the NASD has no responsibility to disclose to the Lender any information concerning or relating to the Broker-Dealer which it may now, or at any future time, have.
The term "Broker-Dealer" as used in this Agreement shall include the broker-dealer, its heirs, executors, administrators, successors, and assigns.
The term "Payment Obligation" shall mean the obligation of the Broker-Dealer to repay cash loaned to it pursuant to this Revolving Subordinated Loan Agreement.
The provisions of this Agreement shall be binding upon the Broker-Dealer and the Lender and their respective heirs, executors, administrators, successors and assigns.
Any controversy arising out of or relating to this Agreement may be submitted to and settled by arbitration pursuant to the By-Laws and rules of the NASD. The Broker-Dealer and the Lender shall be conclusively bound by such arbitration.
This instrument embodies the entire agreement between the Broker-Dealer and Lender and no other evidence of such agreement has been or will be executed without the prior written consent of the NASD.
This Agreement shall be deemed to have been made under, and shall be governed by, the laws of the State of New York in all respects.
IN WITNESS WHEREOF, the parties have set their hands and seal this 20th day of June 1997.
By [SIGNATURE] (L.S.)
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Custodial Trust Company (L.S.)
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(Lender) By: [SIGNATURE]
FOR NASD USE ONLY
ACCEPTED BY [SIGNATURE]
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(Name)
|
EFFECTIVE DATE:
LOAN NUMBER:
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
(Broker-Dealer)
Title:
CUSTODIAL TRUST COMPANY
(Lender)
By: /s/ Ronald D. Watson -------------------------------------- Name: Ronald D. Watson Title: President |
Exhibit 10.05
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT OF PLAN.
Friedman, Billings, Ramsey Group, Inc., a Virginia corporation (the "Company"), proposes to grant options ("Options") for purchase of the Company's Class A common stock, $.01 par value ("Common Stock"), to eligible employees of the Company and its Designated Subsidiaries (as hereinafter defined) pursuant to this 1997 Employee Stock Purchase Plan (this "Plan"). For purposes of this Plan, "parent corporation" and "subsidiary" (collectively, "Subsidiaries") shall have the same meanings as "parent corporation" and "subsidiary corporation" set forth in Sections 424(e) and 424(f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). The Company intends this Plan to qualify as an "employee stock purchase plan" under Section 423 of the Code (including any amendments or successor provisions to such Section), and this Plan shall be so construed. Any term not expressly defined in this Plan but defined for purposes of Section 423 of the Code shall have the same definition therein.
2. STOCK SUBJECT TO PLAN.
A total of 1,000,000 shares of the Common Stock will be available for issuance under this Plan. Such number shall be subject to adjustments effected in accordance with Section 16 of this Plan. Any shares of Common Stock that have been made subject to an Option that cease to be subject to the Option (other than by means of exercise of the Option), including, without limitation, in connection with the cancellation or termination of an Option, shall again be available for issuance in connection with future grants of Options under this Plan.
3. PURPOSE.
The purpose of this Plan is to provide employees of the Company and its designated subsidiaries, as that term is defined in Section 5 of this Plan ("Designated Subsidiaries"), with a convenient means of acquiring an equity interest in the Company through payroll deductions, to enhance such employees' sense of participation in the affairs of the Company and Subsidiaries, and to provide an incentive for continued employment.
4. ADMINISTRATION.
This Plan shall be administered by a committee (the "Committee") appointed by the Company's Board of Directors (the "Board") consisting of at least two members, who need not be members of the Board and who may be eligible to participate in the Plan. Subject to the provisions of this Plan and the limitations of Section 423 of the Code or any successor provision in the Code, the Committee shall have exclusive authority, in its discretion, to determine all matters relating to Options granted under this Plan, including all terms, conditions, restrictions, and limitations of Options; provided, however, that all participants granted Options under an offering pursuant to this Plan shall have the same rights and privileges within the meaning of
Code Section 423(b)(5) except as required by applicable law. The Committee shall also have exclusive authority to interpret this Plan and may from time to time adopt rules and regulations of general application for this Plan's administration. The Committee's exercise of discretion and interpretation of this Plan, its rules and regulations, and all actions taken and determinations made by the Committee pursuant to this Plan shall be conclusive and binding on all parties involved or affected. The Committee may delegate administrative duties to employees of the Company or to independent contractors, as it deems advisable. All expenses incurred in connection with the administration of this Plan shall be paid by the Company and the Designated Subsidiaries; provided, however, that the Committee may require a participant to pay any costs or fees in connection with the sale by the participant of shares of Common Stock acquired under this Plan or in connection with the participant's request for the issuance of a certificate for shares of Common Stock held in the participant's account under the Plan.
5. ELIGIBILITY.
Any employee of the Company or the Designated Subsidiaries is eligible to participate in the Plan for any Offering Period (as hereinafter defined) under this Plan except the following:
(a) employees who are customarily employed for less than 20 hours per week;
(b) employees who are customarily employed for not more than five months in a calendar year;
(c) employees who, together with any other person whose stock would be attributed to such employee pursuant to Section 424(d) of the Code, own stock or hold options to purchase stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any of its Subsidiaries or who, as a result of being granted Options under this Plan would own stock or hold options to purchase stock possessing five percent or more of the total combined voting power or value of all classes of stock of the Company or any of its Subsidiaries;
(d) employees whose employment terms are covered by a collective bargaining agreement in situations where the applicable union or other collective bargaining unit has either refused to bargain with respect to this Plan as an employee benefit or has considered this Plan as a potential employee benefit and has rejected this Plan or has otherwise determined that employees which such union or other bargaining unit represents may not participate in this Plan; and
(e) employees who are citizens of a foreign country which prohibits foreign corporations from granting stock options to any of its citizens.
For all purposes of this Plan, the term Designated Subsidiaries shall mean those Subsidiaries listed on Annex A to this Plan or Subsidiaries which may hereafter be determined by the Committee or the Board to be Designated Subsidiaries. A Designated Subsidiary will cease to be a Designated Subsidiary on the earlier of (i) the date the Committee or the Board determines that
such Subsidiary is no longer a Designated Subsidiary or (ii) such Designated Subsidiary ceases for any reason to be a "parent corporation" or "subsidiary corporation" as defined in Sections 424(e) and 424(f), respectively, of the Code.
6. OFFERING PERIODS.
The offering periods of this Plan (individually, an "Offering Period") shall be of periods not to exceed the maximum period permitted by Section 423 of the Code. Until determined otherwise by the Committee or the Board, (a) Offering Periods shall commence on January 1 and July 1 of each calendar year, provided, however, that the first Offering Period may begin subsequent to January 1, 1998 and prior to July 1, 1998, and (b) each Offering Period, with the exception of the first Offering Period (if commenced subsequent to January 1, 1998 and prior to July 1, 1998), shall consist of one six-month purchase period during which payroll deductions of the participants are accumulated under this Plan. The first day of each Offering Period is referred to as the "Offering Date." The last day of each Offering Period is referred to as the "Purchase Date." Subject to the requirements of Section 423 of the Code, the Committee or the Board shall have the power to change the duration of Offering Periods with respect to future offerings if such change is announced at least 30 days prior to the Offering Date of the first Offering Period to be affected by such change.
7. PARTICIPATION IN THIS PLAN.
Eligible employees may become participants in an Offering Period under this Plan on the first Offering Date after satisfying the eligibility requirements by delivering an enrollment form provided by the Company to the administrator for this Plan ("Plan Administrator") not later than the 15th day of the month (or if such day is not a business day for the Company or the applicable Subsidiary, on the immediately preceding business day) before such Offering Date unless a later time for filing the enrollment form authorizing payroll deductions is set by the Committee for all eligible employees with respect to a given Offering Period. Once an employee becomes a participant in the Plan with respect to an Offering Period, such employee will automatically participate in the Offering Period commencing immediately following the last day of the prior Offering Period unless the employee withdraws from this Plan or terminates further participation in the Offering Period as set forth in Sections 13 and 14 below. Such participant is not required to file any additional enrollment form in order to continue participation in this Plan, except that the Committee may require the filing of new enrollment forms by participants who transfer to another division of the Company or a Designated Subsidiary.
8. GRANT OF OPTION ON ENROLLMENT.
Enrollment by an eligible employee in this Plan with respect to an Offering Period will constitute the grant by the Company to such employee of an Option to purchase on the Purchase Date up to that number of shares of Common Stock of the Company, and any fraction of a share, determined by dividing (a) the amount accumulated in such employee's payroll deduction account during the Offering Period ending on such Purchase Date, by (b) the Purchase Price as
that term is defined in Section 9; provided, however, that the number of shares which may be purchased pursuant to an Option may in no event exceed the number of shares determined in the manner set forth in Section 11(b) of the Plan or such other maximum number of shares as may be specified in the future by the Committee in lieu of the limitation set forth in Section 11(b).
9. PURCHASE PRICE.
The purchase price per share (the "Purchase Price") at which a share of
Common Stock will be sold in any Offering Period shall initially be the lower of
(a) 85 percent of the fair market value of such share on the Offering Date or
(b) 85 percent of the fair market value of such share on the Purchase Date;
provided, however, that in no event may the purchase price per share of Common
Stock be below the par value per share of Common Stock.
For purposes of this Plan, the term "fair market value" shall mean, as of any given date, the average of the highest and lowest sales prices of the Common Stock reported on the New York Stock Exchange Composite Tape for such date, or if the Common Stock was not traded on the New York Stock Exchange on such date, then on the last preceding date on which the Common Stock was traded (or, if not listed on such exchange, the average of the highest and lowest sales prices on any other national securities exchange on which the Common Stock is listed or on NASDAQ). If there is no regular public trading market for the Common Stock, fair market value shall be determined by such other source as the Committee may select. The Committee may change the manner in which the Purchase Price is determined with respect to future offerings (provided such determination does not have the effect of lowering the Purchase Price to an amount less than that which would be computed utilizing the method for determining the Purchase Price set forth in the first paragraph of this Section 9) if such changed manner of computation is announced at least 30 days prior to the Offering Date of the first Offering Period to be affected by such change.
10. PURCHASE OF SHARES; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES.
(a) Funds contributed by each participant for the purchase of shares under this Plan shall be accumulated by regular payroll deductions made during each Offering Period. The deductions shall be made as a percentage of the participant's Compensation in 1 percent increments comprising not less than 1 percent and not more than 15 percent of the participant's Compensation. As used herein, "Compensation" shall mean all base salary, wages, commissions, and overtime; provided, however, that, for purposes of determining a participant's Compensation, any election by such participant to reduce his or her regular cash remuneration under Sections 125 or 401(k) of the Code shall be treated as if the participant did not make such election. "Compensation" does not include cash bonuses, severance pay, hiring and relocation allowances, pay in lieu of vacation, automobile allowances, imputed income arising under any Company group insurance or benefit program, income received in connection with stock options, or any other special items of remuneration. Payroll deductions shall commence on the first payday following the Offering Date and shall continue through the last payday of the Offering Period unless sooner altered or terminated as provided in this Plan.
(b) A participant may lower (but not increase) the rate of payroll
deductions during an Offering Period by filing with the Plan Administrator a new
authorization for payroll deductions, in which case the new rate shall become
effective for the next payroll period commencing more than 15 days after the
Plan Administrator's receipt of the authorization and shall continue for the
remainder of the Offering Period unless changed as described below. Such change
in the rate of payroll deductions may be made at any time during an Offering
Period, but not more than one change may be made effective during any Offering
Period. Notwithstanding the foregoing, a participant may lower the rate of
payroll deductions to zero for the remainder of the Offering Period. A
participant may increase or decrease the rate of payroll deductions for any
subsequent Offering Period by filing with the Plan Administrator a new
authorization for payroll deductions not later than the 15th day of the month
(or if such date is not a business day, the immediately preceding business day)
before the beginning of such Offering Period. A participant who has decreased
the rate of withholding to zero will be deemed to continue as a participant in
the Plan until the participant withdraws from the Plan in accordance with the
provisions of Section 13 or his or her participation is terminated in accordance
with the provisions of Section 14. A participant shall have the right to
withdraw from this Plan in the manner set forth in Section 13 regardless of
whether the participant has exercised his or her right to lower the rate at
which payroll deductions are made during the applicable Offering Period.
(c) All payroll deductions made for a participant will be credited to his or her account under this Plan and deposited with the general funds of the Company. No interest will accrue on payroll deductions. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions.
(d) On each Purchase Date, provided that the participant has not terminated employment in accordance with Section 14 or has not submitted to the Plan Administrator a signed and completed withdrawal form, in either case on or before the 15th day (or if such date is not a business day, on the immediately preceding business day) of the last month of the Offering Period in accordance with Section 10(b) or Section 13 of this Plan, or the Plan has not been terminated prior to the date referred to in the foregoing clause, the Company shall apply the funds then in the participant's account to the purchase at the Purchase Price of whole and any fractional shares of Common Stock issuable under the Option granted to such participant with respect to the Offering Period to the extent that such Option is exercisable on the Purchase Date.
(e) During a participant's lifetime, such participant's Option to purchase shares hereunder is exercisable only by him or her or, in the event of the participant's disability, the participant's legal representatives. The participant will have no interest or voting right in shares covered by his or her Option until such Option has been exercised.
(f) Unless the Committee shall in the future determine otherwise, the maximum amount which may be deducted from any participant's Compensation for the purpose of purchasing Common Stock under this Plan shall not exceed $21,250 in any single calendar year.
11. LIMITATIONS ON RIGHTS TO PURCHASE.
(a) No employee shall be granted an Option to purchase Common Stock under this Plan at a rate which, when aggregated with his or her rights to purchase stock under all other employee stock purchase plans of the Company or any Subsidiary which is intended to meet the requirements of Code Section 423, exceeds $25,000 in fair market value, determined as of the applicable date of the grant of the Option, for each calendar year in which the employee participates in this Plan (or any other employee stock purchase plan described in this Section 11(a)).
(b) The number of shares which may be purchased by any employee on the
first Purchase Date to occur in any calendar year may not exceed the number of
shares determined by dividing $25,000 by the fair market value (as defined in
Section 9) of a share of Common Stock on the Offering Date of the Offering
Period in which such Purchase Date occurs. The number of shares which may be
purchased by any employee on any subsequent Purchase Date which occurs in the
same calendar year (as that referred to in the preceding sentence) shall not
exceed the number of shares determined by performing the calculation described
below, with all computations to be made to the nearest ten thousandth of a whole
share of Common Stock or one hundredth of one cent, as the case may be.
Step One: The number of shares purchased by the employee during any previous Offering Period which occurred in the same calendar year shall be multiplied by the fair market value (as defined in Section 9) of a share of Common Stock on the first day of such previous Offering Period in which such shares were purchased.
Step Two: The amount determined in Step One shall be subtracted from $25,000.
Step Three: The amount determined in Step Two shall be divided by the fair market value (as defined in Section 9) of a share of Common Stock on the Offering Date of the Offering Period in which the subsequent Purchase Date (for which the maximum number of shares which may be purchased is being determined by this calculation) occurs. The quotient so obtained shall be the maximum number of shares which may be purchased by any employee on such subsequent Purchase Date.
Subject to the limitations of Section 423 of the Code, the Committee may from time to time determine that a different maximum number of shares may be purchased on any given Purchase Date in lieu of the maximum amounts described above in this Section 11(b), in which case the number of shares which may be purchased by any employee on such Purchase Date may not exceed such different limitation.
(c) If the number of shares to be purchased on a Purchase Date by all employees participating in this Plan exceeds the number of shares then available for issuance under this Plan, then the Company will make a pro rata allocation of the remaining shares in as uniform a manner as shall be reasonably practicable and as the Committee shall determine to be equitable. In such event, the Company shall give written notice of such reduction of the number of shares to be purchased under a participant's Option to each participant affected thereby.
(d) Any payroll deductions accumulated in a participant's account which are not used to purchase stock due to the limitations in this Section 11 shall be returned to the participant as soon as practicable after the end of the applicable Offering Period without interest.
12. EVIDENCE OF STOCK OWNERSHIP.
(a) Promptly following each Purchase Date, a stock certificate for the number of full shares of Common Stock purchased by each participant shall be deposited into an account established in the participant's name at a stock brokerage or other financial services firm designated or approved by the Committee (the "Plan Financial Agent"). A participant may request, no more than twice during any 12-month period, that a stock certificate for full (but not fractional) shares be issued and delivered to him or her. Such request shall be made by filing notice with the Plan Financial Agent, and the Plan Financial Agent shall cause such shares to be delivered promptly following receipt of such notice. Cash shall be paid in lieu of fractional shares. In the event a participant or former participant shall have an account balance of less than one full share with the Plan Financial Agent as of the Offering Date of any Offering Period for which such participant has elected not to participate in the Plan, the Plan Financial Agent shall cause such fractional share to be sold as promptly as possible and the cash proceeds from such sale to be paid to the account holder.
(b) Following termination of a participant's employment for any reason, the participant shall have a period of 30 days to notify the Plan Financial Agent whether such participant desires (i) to receive a certificate representing all full shares then in the participant's account with the Plan Financial Agent and cash in lieu of any fractional share interest or (ii) to sell the shares, including any fractional share, in the participant's account through the Plan Financial Agent. If the terminated participant fails to file such notice with the Plan Financial Agent within 30 days after termination, he or she shall be deemed to have elected the alternative set forth in clause (i) above.
13. WITHDRAWAL.
(a) Each participant may withdraw from an Offering Period under this Plan by signing and delivering to the Plan Administrator a written notice to that effect on a form provided for such purpose. Such withdrawal may be elected at any time on or prior to the 15th day of the last month (or if such date is not a business day, the immediately preceding business day) of an Offering Period.
(b) Upon withdrawal from this Plan, the accumulated payroll deductions of the participant not theretofore utilized for the purchase of shares of Common Stock on a Purchase Date shall be returned to the withdrawn participant, without interest, and his or her participation in this Plan shall terminate. In the event a participant voluntarily elects to withdraw from this Plan, he or she may not resume his or her participation in this Plan during the same Offering Period, but he or she may participate in any subsequent Offering Period by filing a new authorization for payroll deductions in the same manner as set forth above for initial participation in this Plan.
14. TERMINATION OF EMPLOYMENT; LEAVE OF ABSENCE.
Termination of a participant's employment for any reason, including retirement, death, or the failure of a participant to remain an eligible employee, immediately terminates his or her participation in this Plan. In such event, except as provided in Section 15, the payroll deductions credited to the participant's account will be returned to him or her or, in the case of his or her death, to his or her beneficiary or heirs, without interest. For purposes of this Section 14, an employee will not be deemed to have terminated employment or failed to remain in the continuous employ of the Company in the case of any leave of absence approved by the Committee.
15. RETURN OF PAYROLL DEDUCTIONS.
In the event a participant's interest in this Plan is terminated by withdrawal, termination of employment, or otherwise, or in the event this Plan is terminated by the Board, the Company shall promptly deliver to the participant all contributions of the participant to the Plan which have not yet been applied to the purchase of stock unless such termination of participation occurs later than the 15th day of the final month of the Offering Period (or if such date is not a business day, on the preceding business day), in which event such contributions will be utilized to puchase Common Stock for the participant; provided, however, that upon termination of the Plan the Board may accelerate the Purchase Date. No interest shall accrue on the payroll deductions of a participant in this Plan.
16. CAPITAL CHANGES.
In the event of any change in corporate capitalization, such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company or sale of all or substantially all of the Company's assets or stock then the Committee, in its sole discretion, shall make such equitable adjustments as it shall deem appropriate in the circumstances in the maximum number and kind of shares of stock subject to this Plan as set forth in Sections 1 and 2, the number and kind of shares subject to outstanding Options, and/or the Purchase Price. The determination by the Committee as to the terms of any of the foregoing adjustments shall be conclusive and binding.
17. NONASSIGNABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive shares under this
Plan may be assigned, transferred, pledged, or otherwise disposed of in any way
(other than by will, the laws of descent and distribution, or as provided in
Section 24 hereof) by the participant. Any such attempt at assignment, transfer,
pledge, or other disposition shall be void and without effect.
18. REPORTS AND STATUS OF ACCOUNTS.
Individual accounts will be maintained by the Plan Financial Agent for each participant in this Plan. The participant shall have all ownership rights with respect to shares of Common Stock held in his or her account by the Plan Financial Agent, including the right to vote such shares and to receive any dividends or distributions which may be declared thereon by the Board. The Plan Financial Agent shall send to each participant promptly after the end of each Offering Period a report of his or her account setting forth with respect to such Offering Period the total payroll deductions accumulated, the number of whole and any fractional share purchased, and the per share price thereof, and also setting forth the total number of shares (including any fractional share) then held in his or her account. Neither the Company nor any Designated Subsidiary shall have any liability for any error or discrepancy in any such report.
19. NO RIGHTS TO CONTINUED EMPLOYMENT; NO IMPLIED RIGHTS.
Neither this Plan nor the grant of any Option hereunder shall confer any right on any employee to remain in the employ of the Company or any Subsidiary or restrict the right of the Company or any Subsidiary to terminate such employee's employment. The grant of any Option hereunder during any Offering Period shall not give a participant any right to similar grants thereafter.
20. EQUAL RIGHTS AND PRIVILEGES.
All eligible employees shall have equal rights and privileges with respect
to this Plan except as required by applicable law so that this Plan qualifies as
an "employee stock purchase plan" within the meaning of Section 423 or any
successor provision of the Code and the related regulations. Any provision of
this Plan which is inconsistent with Section 423 or any successor provision of
the Code shall, without further act or amendment by the Company, the Board, or
the Committee, be reformed to comply with the requirements of Section 423. This
Section 20 shall take precedence over all other provisions in this Plan.
21. NOTICES.
All notices or other communications by a participant to the Company under or in connection with this Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
22. AMENDMENT OF PLAN.
The Board may amend this Plan in such respects as it shall deem advisable; provided, however, that stockholder approval will be required for any amendment that will increase the total number of shares as to which Options may be granted under this Plan or, but for such
shareholder approval, cause this Plan to fail to continue to qualify as an "employee stock purchase plan" under Section 423 of the Code.
23. TERMINATION OF THE PLAN.
The Board may suspend or terminate this Plan at any time. Unless this Plan shall have been terminated by the Board, this Plan shall terminate on, and no Options shall be granted after, December 31, 2007. No Options shall be granted during any period of suspension of this Plan.
24. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under this Plan in the event of such participant's death prior to delivery to him or her (or to the Plan Financial Agent on his or her behalf) of such shares and cash.
(b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under this Plan who is living at the time of such participant's death, the Company shall deliver such shares or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares or cash to the spouse or to any one or more dependents or relatives of the participant or, if no spouse, dependent, or relative is known to the Company, to such other person as the Company may in good faith determine to be the appropriate designee.
25. CONDITIONS UPON ISSUANCE OF SHARES; LIMITATION ON SALE OF SHARES.
Shares shall not be issued with respect to an Option unless the exercise of such Option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange or automated quotation system upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.
26. EFFECTIVE DATE.
The effective date of this Plan shall be the date upon which the registration statement filed by the Company under the Securities Act of 1933, as amended, for the initial public offering of the Common Stock is declared effective.
Exhibit 10.06
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
1997 STOCK AND ANNUAL INCENTIVE PLAN
SECTION 1. Purpose; Definitions
The purpose of the Plan is to give the Company a competitive advantage in attracting, retaining and motivating officers and employees and to provide the Company and its Subsidiaries and Affiliated Companies with an incentive compensation plan providing incentives directly linked to the profitability of the Company's businesses and/or increases in shareholder value.
For purposes of the Plan, the following terms are defined as set forth below:
a. "Affiliated Company" means any corporation (or partnership, joint venture, or other enterprise), of which the Company owns or controls, directly or indirectly, 10% or more, but less than 50%, of the outstanding shares of stock normally entitled to vote for the election of directors (or comparable equity participation and voting power).
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted Stock, unrestricted share of Common Stock, dividend equivalent, interest equivalent, Bonus Award or other award granted under this Plan.
c. "Board" means the Board of Directors of the Company.
d. "Bonus Award" means an annual cash bonus award under Section 10 of this Plan.
e. "Cause" means (except as otherwise provided by the Committee in the agreement relating to any Award) (1) conviction of a participant for committing a felony under federal law or the law of the state in which such action occurred, (2) dishonesty in the course of fulfilling a participant's employment duties or (3) willful and deliberate failure on the part of a participant to perform his employment duties in any material respect. Notwithstanding the foregoing, if a participant is a party to an employment agreement with the Corporation or any Subsidiary or Affiliated Company that contains a definition of "Cause," such definition shall apply to such participant for purposes of the Plan except to the extent otherwise provided by the Committee in the agreement relating to any Award.
f. "Change in Control" and "Change in Control Price" have the meanings set forth in Sections 11(b) and (c), respectively.
g. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and any successor thereto.
h. "Committee" means a committee of two or more non-employee directors selected by the Board provided, however, that with respect to any grants or other determinations to be made in connection with Bonus Awards (including without limitation the allocation of the Bonus Pool under Section 10(b)), "Committee" shall mean the Board or the Executive Committee of the Board (unless the Board specifically designates another committee of directors to grant and administer Bonus Awards).
i. "Common Stock" means the Class A common stock, par value $0.01 per share, of the Company.
j. "Company" means Friedman, Billings, Ramsey Group, Inc., a Virginia corporation.
k. "Disability" means permanent and total disability as determined by the Committee for purposes of the Plan.
l. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto.
m. "Fair Market Value" means, as of any given date, the average of the highest and lowest sales prices of the Common Stock reported on the New York Stock Exchange Composite Tape for such date, or if the Common Stock was not traded on the New York Stock Exchange on such date, then on the last preceding date on which the Common Stock was traded (or, if not listed on such exchange, the average of the highest and lowest sales prices on any other national securities exchange on which the Common Stock is listed or on NASDAQ). If there is no regular public trading market for the Common Stock, Fair Market Value shall be determined by such other source as the Committee may select.
n. "Incentive Stock Option" means any Stock Option designated as, and qualified as, an "incentive stock option" within the meaning of Section 422 of the Code.
o. "NonQualified Stock Option" means any Stock Option that is not an Incentive Stock Option.
p. "Performance Goals" means the performance goals established by the Committee in connection with the grant of Restricted Stock or Performance Units.
q. "Performance Units" means an Award granted under Section 8.
r. "Plan" means the Friedman, Billings, Ramsey Group, Inc. 1997 Stock and Annual Incentive Plan, as set forth herein and as hereinafter amended from time to time.
s. "Restricted Stock" means an Award granted under Section 7.
t. "Retirement" means retirement from employment with the Company, a Subsidiary or an Affiliated Company as determined by the Committee for purposes of an Award under the Plan.
u. "Stock Appreciation Right" means an Award granted under Section 6.
v. "Stock Option" means an Award granted under Section 5.
w. "Subsidiary" means: (i) for the purpose of an Incentive Stock Option, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the Incentive Stock Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain; and (ii) for the purposes of any other Award, any corporation (or partnership, joint venture, or other enterprise) of which the Company owns or controls, directly or indirectly, 50% or more of the outstanding shares of stock normally entitled to vote for the election of directors (or comparable equity participation and voting power).
x. "Termination of Employment" means the termination of the participant's employment with the Company and any Subsidiary or Affiliated Company. A participant employed by a Subsidiary or an Affiliated Company shall also be deemed to incur a Termination of Employment if the Subsidiary or Affiliated Company ceases to be such a Subsidiary or Affiliated Company, as the case may be, and the participant does not immediately thereafter become an employee of the Company or another Subsidiary or Affiliated Company. Temporary absences from employment because of illness, vacation or leave of absence and transfers among the Company and its Subsidiaries, or, if the Committee so determines, among the group consisting of the Company, its Subsidiaries and Affiliated Companies, shall not be considered Terminations of Employment.
In addition, certain other terms used in the Plan have definitions provided to them in the first place in which they are used herein.
SECTION 2. Administration
The Plan shall be administered by the Committee; provided, that any authority granted to the Committee under the Plan may also be exercised by the full Board.
The Committee shall have plenary authority to grant Awards pursuant to the terms of the Plan or, in the Committee's discretion, in connection with awards under other bonus plans or programs of the Company, to officers and employees of the Company and its Subsidiaries and Affiliated Companies.
Among other things, the Committee shall have the authority, subject to the terms of the Plan:
(a) To select the officers and employees to whom Awards may from time to time be granted;
(b) To determine whether and to what extent Awards are to be granted hereunder;
(c) To determine the number of shares of Common Stock to be covered by each Stock Option granted hereunder;
(d) To determine the terms and conditions of any Award granted hereunder (including, but not limited to, the option price (subject to Section 5(a)), any vesting condition, restriction or limitation (which may be related to the performance of the participant, the Company or any Subsidiary or Affiliated Company) and any vesting acceleration or forfeiture or waiver regarding any Award and the shares of Common Stock relating thereto, based on such factors as the Committee shall determine; and
(e) To determine under what circumstances an Award may be settled in cash or Common Stock under Section 5(g) or Section 6(d)(ii).
The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable, to interpret the terms and provisions of the Plan and any Award issued under the Plan (and any award certificate relating thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office, except that the members thereof may delegate all or a portion of the administration of the Plan to one or more senior managers of the Company.
Any determination made by the Committee or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriate delegate pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and Plan participants.
SECTION 3. Common Stock Subject to Plan
Subject to adjustment as described below, the total number of shares of Common Stock reserved and available for grant pursuant to Awards under the Plan shall not exceed 4,900,000 shares. Shares subject to Awards under the Plan may be authorized and unissued shares or may be treasury shares, or both.
If any shares of Restricted Stock are forfeited, or if any Stock Option or Stock Appreciation Right terminates without being exercised, or if any Stock Appreciation Right (whether granted alone or in conjunction with a Stock Option) is exercised for cash, shares subject to such Awards shall again be available for distribution in connection with Awards under the Plan.
In the event of any change in corporate capitalization, such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property (without regard to the payment of any cash dividends by the Company in the ordinary course) of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the aggregate number and kind of shares reserved for issuance under the Plan, in the number, kind and option price, as applicable, of shares subject to outstanding Stock Options, and in the number and kind of shares subject to other outstanding Awards granted under the Plan, and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility
Officers and employees of the Company, a Subsidiary or an Affiliated Company who are responsible for or contribute to the growth and profitability of the business of the Company, a Subsidiary or an Affiliated Company are eligible to be granted Awards under the Plan.
SECTION 5. Stock Options
Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and NonQualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive Stock Options, NonQualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights). Incentive Stock Options may be granted only to employees of the Company and its Subsidiaries. To the extent that any Stock Option is not designated as an Incentive Stock Option or, even if so designated, does not qualify as an Incentive Stock Option, it shall constitute a NonQualified Stock Option.
Stock Options shall be evidenced by option award certificates, the terms and provisions of which may differ. An option award certificate shall indicate on its face whether it is intended to be an award certificate for an Incentive Stock Option or a NonQualified Stock Option. The grant of a Stock Option shall occur on the date the Committee by resolution selects an individual to be a participant in any grant of a Stock Option, determines the number of shares of Common Stock to be subject to such Stock Option to be granted to such individual and specifies the terms and provisions of the Stock Option, or on such later date as is specified by the Committee
Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:
(a) Option Price. The option price per share of Common Stock purchasable under a Stock Option shall be determined by the Committee and, unless otherwise determined by the Committee, shall not be less than the Fair Market Value of the Common Stock subject to the Stock Option on the date of grant. The option price per share shall not be decreased thereafter except pursuant to Section 3 of this Plan.
(b) Option Term. The term of each Stock Option shall be fixed by the Committee, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee. Unless otherwise determined by the Committee, Stock Options shall become exercisable ratably on each of the first five anniversaries of the date of grant. In addition, the Committee may at any time accelerate the exercisability of any Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5, Stock Options may be exercised, in whole or in part, at any time during the option term by giving written notice of exercise, or notice in accordance with such other procedures as may be established from time to time, to the Company or its designated agent specifying the number of shares of Common Stock subject to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price in cash or by certified or cashier's check or such other instrument as the Company may accept. If approved by the Committee, payment, in full or in part, may also be made in the form of unrestricted Common Stock already owned by the optionee of the same class as the Common Stock subject to the Stock Option (based on the Fair Market Value of the Common Stock on the date the Stock Option is exercised); provided, however, that such already owned shares have been held by the optionee for at least six months at the time of exercise unless otherwise determined by the Committee; provided, further, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Common Stock of the same class as the
Common Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted.
In the discretion of the Committee, payment for any shares subject to a Stock Option may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price, and, if requested, by the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms.
In addition, in the discretion of the Committee, payment for any shares subject to a Stock Option may also be made by instructing the Company or its designated agent to withhold a number of such shares having a Fair Market Value on the date of exercise equal to the aggregate exercise price of such Stock Option.
No shares of Common Stock shall be issued until full payment therefor has been made. An optionee shall have all of the rights of a shareholder of the Company holding the class or series of Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares and, if requested, has given the representation described in Section 3(a).
(e) Transferability of Stock Options. No Stock Option shall be transferable by the optionee other than (i) by will or by the laws of descent and distribution, or, in the Committee's discretion, pursuant to a written beneficiary designation, (ii) pursuant to a qualified domestic relations order, as defined in the Code or (iii) in the Committee's discretion, pursuant to a gift to such optionee's "immediate family" members directly, or indirectly or by means of a trust, partnership or limited liability company. All Stock Options shall be exercisable, subject to the terms of this Plan, only by the optionee, guardian, legal representative or beneficiary of the optionee or permitted transferee, it being understood that the terms "holder" and "optionee" include any such guardian, legal representative or beneficiary or transferee. For purposes of this Section 5(e), "immediate family" shall mean, except as otherwise defined by the Committee, the optionee's spouse, children, siblings, stepchildren, grandchildren, parents, stepparents, grandparents, in-laws and persons related by legal adoption. Such transferees may transfer a Stock Option only by will or by the laws of descent and distribution.
(f) Termination by Death or Disability. Unless otherwise determined by the Committee, if an optionee's Termination Employment is by reason of death or Disability, any Stock Option held by such optionee may thereafter be exercised, to the extent exercisable at the time of such termination, for a period of twelve (12) months (or such other period as the Committee may specify in the option agreement) from the date of such termination or until the expiration of the stated term of such Stock Option, whichever period is the shorter.
(g) Termination by Reason of Retirement. Unless otherwise determined by the Committee, if an optionee's Termination of Employment is by reason of Retirement, any Stock Option held by such optionee may thereafter be exercised by the optionee, to the extent it was exercisable at the time of such Retirement, or on such accelerated basis as the Committee may determine, for a period of five (5) years (or such other period as the Committee may specify in the option agreement) from the date of such Termination of Employment or until the expiration of the stated term of such Stock Option, whichever period is the shorter; provided, however, that if the optionee dies within such period any unexercised Stock Option held by such optionee shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of such death or until the expiration of the stated term of such Stock Option, whichever period is the shorter.
(h) Other Termination. Unless otherwise determined by the Committee, if
an optionee's Termination of Employment is for any reason other than death,
Disability or Retirement, any Stock Option held by such optionee, to the extent
then exercisable, or on such accelerated basis as the Committee may determine,
may be exercised for the lesser of three (3) months from the date of such
Termination of Employment or the balance of such Stock Option's term; provided,
however, that if the optionee dies within such three (3) month period, any
unexercised Stock Option held by such optionee shall, notwithstanding the
expiration of such three (3) month period, continue to be exercisable to the
extent to which it was exercisable at the time of death for a period of twelve
(12) months from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter.
(i) Cashing Out of Stock Option. On receipt of written notice of exercise, the Committee may elect to cash out all or part of the portion of the shares of Common Stock for which a Stock Option is being exercised by paying the optionee an amount, in cash or Common Stock, equal to the excess of the Fair Market Value of the Common Stock over the option price times the number of shares of Common Stock for which the Option is being exercised on the effective date of such cash-out.
(j) Change in Control Cash-out. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), unless the Committee shall determine otherwise at the time
of grant, an optionee shall have the right, whether or not the Stock Option is
fully exercisable and in lieu of the payment of the exercise price for the
shares of Common Stock being purchased under the Stock Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Stock Option to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the Change in Control
Price per share of Common Stock on the date of such election shall exceed the
exercise price per share of Common Stock under the Stock Option (the "Spread")
multiplied by the number of shares of Common Stock granted under the Stock
Option as to which the right granted under this Section 5(j) shall have been
exercised. Notwithstanding the foregoing, if any right granted pursuant to this
Section 5(j) would make a Change in Control transaction ineligible for pooling-
of-interests accounting under APB No. 16 that but for the nature
of such grant would otherwise be eligible for such accounting treatment, the Committee shall have the ability to substitute for the cash payable pursuant to such right Common Stock with a Fair Market Value equal to the cash that would otherwise be payable hereunder.
(k) Deferral of Option Shares. The Committee may from time to time establish procedures pursuant to which an optionee may elect to defer, until a time or times later than the exercise of an Option, receipt of all or a portion of the shares subject to such Option and/or to receive cash at such later time or times in lieu of such deferred shares, all on such terms and conditions as the Committee shall determine. If any such deferrals are permitted, then notwithstanding Section 5(d) above, an optionee who elects such deferral shall not have any rights as a stockholder with respect to such deferred shares unless and until certificates representing such shares are actually delivered to the optionee with respect thereto, except to the extent otherwise determined by the Committee.
SECTION 6. Stock Appreciation Rights
(a) Grant and Exercise. Stock Appreciation Rights may be granted in conjunction with all or part of any Stock Option granted under the Plan. In the case of a NonQualified Stock Option, such rights may be granted either at or after the time of grant of such Stock Option. In the case of an Incentive Stock Option, such rights may be granted only at the time of grant of such Stock Option. In addition, Stock Appreciation Rights may be granted without relationship to a Stock Option to employees residing in foreign jurisdictions, where the grant of a Stock Option is impossible or impracticable because of securities or tax laws or other governmental regulations.
(b) Freestanding Stock Appreciation Rights. A Stock Appreciation Right granted without relationship to a Stock Option, pursuant to Section 6(a), shall be exercisable as determined by the Committee, but in no event after ten years from the date of grant. The base price of a Stock Appreciation Right granted without relationship to a Stock Option shall be the Fair Market Value of a share of Common Stock on the date of grant. A Stock Appreciation Right granted without relationship to a Stock Option shall entitle the holder, upon receipt of such right, to a cash payment determined by multiplying (i) the difference between the base price of the Stock Appreciation Right and the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right, by (ii) the number of shares of Common Stock as to which such Stock Appreciation Right shall have been exercised. A freestanding Stock Appreciation Right may be exercised by giving written notice of exercise to the Company or its designated agent specifying the number of shares of Common Stock as to which such Stock Appreciation Right is being exercised.
(c) Tandem Stock Appreciation Rights. A Stock Appreciation Right granted in conjunction with a Stock Option may be exercised by an optionee in accordance with Section 6(d) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(d). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised. A Stock Appreciation Right shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option.
(d) Tandem Stock Appreciation Right Terms and Conditions. Stock Appreciation Rights granted in conjunction with a Stock Option shall be subject to such terms and conditions as shall be determined by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time or times and to the extent that the Stock Options to which they relate are exercisable in accordance with the provisions of Section 5 and this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee shall be entitled to receive an amount in cash, equal to the excess of the Fair Market Value of one share of Common Stock over the option price per share specified in the related Stock Option multiplied by the number of shares in respect of which the Stock Appreciation Right shall have been exercised.
(iii) Stock Appreciation Rights shall be transferable only to
permitted transferees of the underlying Stock Option in accordance with
Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option or part thereof to which such Stock Appreciation Right is related shall be deemed to have been exercised for the purpose of the limitation set forth in Section 3 on the number of shares of Common Stock to be issued under the Plan, but only to the extent of the number of shares covered by the Stock Appreciation Right at the time of exercise based on the value of the Stock Appreciation Right at such time.
SECTION 7. Bonus Shares and Restricted Stock
(a) Administration. Awards of shares of Common Stock or Restricted Stock may be made either alone or in addition to other Awards granted under the Plan. In addition, a participant may receive unrestricted shares of Common Stock or Restricted Stock in lieu of certain cash payments awarded under other plans or programs of the Company. The Committee shall determine the officers and employees to whom and the time or times at which grants of unrestricted shares of Common Stock and Restricted Stock will be awarded, the number of shares to be awarded to any participant, the conditions for vesting, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in Section 7(c).
(b) Awards and Certificates. Awards of unrestricted shares of Common Stock and Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate,
including book-entry registration or delivery of one or more stock certificates to the participant, or, in the case of Restricted Stock, a custodian or escrow agent. Any stock certificate issued in respect of unrestricted shares or shares of Restricted Stock shall be registered in the name of such participant. The Committee may require that the stock certificates evidencing shares of Restricted Stock be held in custody or escrow by the Company or its designated agent until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and conditions:
(i) The Committee may, prior to or at the time of grant, condition the grant or vesting, as applicable, of an award of Restricted Stock upon the attainment of Performance Goals. The Committee may also condition the grant or vesting of Restricted Stock upon the continued service of the participant. The conditions for grant or vesting and the other provisions of Restricted Stock Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. The Committee may at any time, in its sole discretion, accelerate or waive, in whole or in part, any of the foregoing restrictions.
(ii) Subject to the provisions of the Plan and the terms of the Restricted Stock Award, during the period, if any, set by the Committee, commencing with the date of such Award for which such participant's continued service is required (the "Restriction Period"), and until the later of (A) the expiration of the Restriction Period and (B) the date the applicable Performance Goals (if any) are satisfied, the participant shall not be permitted to sell, assign, transfer, pledge or otherwise encumber shares of Restricted Stock; provided that the foregoing shall not prevent a participant from pledging Restricted Stock as security for a loan, the sole purpose of which is to provide funds to pay the option price for Stock Options.
(iii) Except as provided in this paragraph (iii) and Sections 7(c)(i) and 7(c)(ii) or the terms of the Restricted Stock Award, the participant shall have, with respect to the shares of Restricted Stock, all of the rights of a shareholder of the Company holding the class or series of Common Stock that is the subject of the Restricted Stock, including, if applicable, the right to vote the shares and the right to receive any cash dividends. If so determined by the Committee under the applicable terms of the Restricted Stock Award and subject to Section 15(e) of the Plan, (A) cash dividends on the class or series of Common Stock that is the subject of the Restricted Stock Award shall be automatically deferred and reinvested in additional Restricted Stock, held subject to the vesting of the underlying Restricted Stock, or held subject to meeting Performance Goals applicable only to dividends, (B) dividends payable in Common Stock shall be paid in the form of Restricted Stock of the same class as the Common Stock with which such dividend was
paid, held subject to the vesting of the underlying Restricted Stock, or
held subject to meeting Performance Goals applicable only to dividends and
(C) dividends paid in other property shall be held subject to the vesting
of the underlying Restricted Stock.
(iv) Except to the extent otherwise provided under the applicable terms of the Restricted Stock Award and Sections 7(c)(i), 7(c)(ii), 7(c)(v) and 11(a)(ii), upon a participant's Termination of Employment for any reason during the Restriction Period or before the applicable Performance Goals are satisfied, all shares still subject to restriction shall be forfeited by the participant.
(v) Except to the extent otherwise provided in Section 11(a)(ii), in the event of a participant's Termination of Employment by reason of Retirement, the Committee shall have the discretion to waive, in whole or in part, any or all remaining restrictions (other than, in the case of Restricted Stock with respect to which a participant is a Covered Employee, satisfaction of the applicable Performance Goals unless the participant's employment is terminated by reason of death or Disability) with respect to any or all of such participant's shares of Restricted Stock.
(vi) If and when any applicable Performance Goals are satisfied and the Restriction Period expires without a prior forfeiture of the Restricted Stock, unlegended certificates for such shares shall be delivered to the participant upon surrender of the legended certificates, or the restrictions on such shares shall be removed from the book-entry registration.
SECTION 8. Performance Units
(a) Administration. Performance Units may be awarded either alone or in addition to other Awards granted under the Plan. The Committee shall determine the officers and employees to whom, and the time or times at which, Performance Units shall be awarded, the number of Performance Units to be awarded to any participant, the duration of the Award cycle and any other terms and conditions of the Award, in addition to those contained in Section 8(b).
(b) Terms and Conditions. Performance Units Awards shall be subject to the following terms and conditions.
(i) The Committee may, prior to or at the time of the grant, designate Performance Units, in which event it shall condition the settlement thereof upon the attainment of Performance Goals. The Committee may also condition the settlement thereof upon the continued service of the participant. The provisions of such Awards (including without limitation any applicable Performance Goals) need not be the same with respect to each recipient. Subject to the provisions of the Plan and the Performance Units Agreement referred to in Section 8(b)(vi), Performance Units may not be sold, assigned, transferred, pledged or otherwise encumbered during the Award cycle.
(ii) Except to the extent otherwise provided in the applicable Performance Unit Agreement and Sections 8(b)(ii) and 11(a)(iii), upon a participant's Termination of Employment for any reason during the Award cycle or before any applicable Performance Goals are satisfied, all rights to receive cash or stock in settlement of the Performance Units shall be forfeited by the participant.
(iii) Except to the extent otherwise provided in Section 11(a)(iii), in the event that a participant's employment is terminated (other than for Cause), or in the event of a participant's Retirement, the Committee shall have the discretion to waive, in whole or in part, any or all remaining payment limitations with respect to any or all of such participant's Performance Units.
(iv) A participant may elect to further defer receipt of cash or shares in settlement of Performance Units for a specified period or until a specified event, subject in each case to the Committee's approval and to such terms as are determined by the Committee (the "Elective Deferral Period"). Subject to any exceptions adopted by the Committee, such election must generally be made prior to commencement of the Award cycle for the Performance Units in question.
(v) At the expiration of the Award cycle, the Committee shall evaluate the Company's performance in light of any Performance Goals for such Award, and shall determine the number of Performance Units granted to the participant which have been earned, and the Committee shall then cause to be delivered (A) a number of shares of Common Stock equal to the number of Performance Units determined by the Committee to have been earned, or (B) cash equal to the Fair Market Value of such number of shares of Common Stock to the participant as determined by the Committee in its discretion (subject to any deferral pursuant to Section 8(b)(iv)).
(vi) Each Award shall be confirmed by, and be subject to, the terms of a Performance Unit Agreement.
SECTION 9. Dividend Equivalents and Interest Equivalents
(a) The Committee may provide that a participant to whom a Stock Option has been awarded, which is exercisable in whole or in part at a future time for shares of Common Stock (such shares, the "Option Shares") shall be entitled to receive an amount per Option Share, equal in value to the cash dividends, if any, paid per share of Common Stock on issued and outstanding shares, as of the dividend record dates occurring during the period between the date of the Award and the time each such Option Share is delivered pursuant to the exercise of such Stock Option. Such amounts (herein called "dividend equivalents") may, in the discretion of the Committee, be:
(i) paid in cash or shares of Common Stock from time to time prior to or at the time of the delivery of such shares of Common Stock or upon expiration of the Stock
Option if it shall not have been fully exercised (except that payment of the dividend equivalents on an Incentive Stock Option may not be made prior to exercise); or
(ii) converted into contingently credited shares of Common Stock (with respect to which dividend equivalents shall accrue) in such manner, at such value, and deliverable at such time or times, as may be determined by the Committee.
Such shares of Common Stock (whether delivered or contingently credited) shall be charged against the limitations set forth in Section 3.
(b) The Committee, in its discretion, may authorize payment of interest equivalents on any portion of any Award payable at a future time in cash, and interest equivalents on dividend equivalents which are payable in cash at a future time.
SECTION 10. Annual Cash Bonus Awards
(a) Bonus Pool. For each fiscal year of the Company, a bonus pool (the
"Bonus Pool") equal to up to 30% of the Company's adjusted pre-tax net income
for such fiscal year (prior to taking into account any payments under this
Section 10 for such fiscal year) will be established by the Committee.
Notwithstanding the foregoing, if the Company's aggregate compensation and
benefits expenses with respect to the fiscal year (including payments under this
Section 10) would otherwise exceed 55% of the Company's revenues for such fiscal
year (the "Maximum Expense"), the Committee shall reduce the Bonus Pool to the
greatest amount which would cause compensation and benefits expense for such
fiscal year not to exceed the Maximum Expense; provided, that, if such reduction
would cause the Bonus Pool to be reduced below an amount equal to 90% of the
Bonus Pool for the immediately preceding fiscal year of the Company (the
"Minimum Pool"), the reduction shall be limited to such amount which would
result in the Bonus Pool being equal to the Minimum Pool.
(b) Allocation of Bonus Pool. The Committee shall determine the allocation of the Bonus Pool for each fiscal year. Such allocation may be made at any time prior to payment of Bonus Awards. In the event the Bonus Pool is reduced pursuant to paragraph (a) above, the Committee shall determine the required reductions in Bonus Awards. Such reduction need not be on a pro rata basis among the participants.
(c) Payment of Awards. Bonus Awards under the Plan shall be paid in cash as soon as practicable following the end of the applicable fiscal year, but in any event within 90 days following the end of such fiscal year.
(d) Termination of Employment. A participant shall not be entitled to receive payment of a Bonus Award, unless the Committee determines otherwise, if at any time prior to the end of the fiscal year the participant's Termination of Employment occurs or, if at any time, following the end of the fiscal year the participant's employment is terminated for Cause. In the event that a
participant's Termination of Employment (other than for Cause) occurs following the end of the applicable fiscal year, such participant shall be entitled to receive payment of his or her Bonus Award for such fiscal year.
SECTION 11. Change in Control Provisions
(a) Impact of Event. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control:
(i) Any Stock Options outstanding as of the date such Change in Control is determined to have occurred, and which are not then exercisable and vested, shall become fully exercisable and vested to the full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested and transferable to the full extent of the original grant.
(iii) All Performance Units shall be considered to be earned and payable in full, and any other deferred or other restrictions shall lapse and such Performance Units shall be settled in cash or Common Stock (as determined by the Committee) as promptly as is practicable.
(iv) Unless the Board determines to continue the Bonus Pool for the remainder of the fiscal year, Bonus Awards for the fiscal year in which the Change of Control occurs shall be paid out based upon calculations of adjusted pre-tax net income and Maximum Expense under Section 10 through the Change in Control as if the fiscal year had ended on the Change in Control date.
(b) For purposes of the Plan, a "Change in Control" shall mean the happening of any of the following events:
(i) acquisition by any individual, entity or group (with the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that, for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (4) any acquisition by any corporation pursuant to a
transaction which complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 11(b) or (5) any acquisition of beneficial ownership
by Emanual Friedman, Eric Billings, or W. Russell Ramsey (the "Founders"),
or any entity that is controlled by one or more of the Founders (the
"Founder Affiliates"); or
(ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(iii) Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or sub- stantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination or the Founders or Founder Affiliates) beneficially owns, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
(c) Change in Control Price. For purposes of the Plan, "Change in Control Price" means the higher of (i) the highest reported sales price, regular way, of a share of Common Stock in any transaction reported on the New York Stock Exchange Composite Tape or other national exchange on which such shares are listed or on NASDAQ during the 60-day period prior to and including the date of a Change in Control or (ii) if the Change in Control is the result of a tender or exchange offer or a Corporate Transaction, the highest price per share of Common Stock paid in such tender or exchange offer or Corporate Transaction; provided, however, that in the case of Incentive Stock Options and Stock Appreciation Rights relating to Incentive Stock Options, the Change in Control Price shall be in all cases the Fair Market Value of the Common Stock on the date such right under Section 5(j) is exercised. To the extent that the consideration paid in any such transaction described above consists all or in part of securities or other non-cash consideration, the value of such securities or other non-cash consideration shall be determined in the sole discretion of the Board.
SECTION 12. Tax Offset Bonuses
At the time an Award is made hereunder or at any time thereafter, the Committee may grant to the participant receiving such Award the right to receive a cash payment in an amount specified by the Committee, to be paid at such time or times (if ever) as the Award results in compensation income to the participant, for the purpose of assisting the participant to pay the resulting taxes, all as determined by the Committee and on such other terms and conditions as the Committee shall determine.
SECTION 13. Amendment and Termination
The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of participants under any Award theretofore granted without the participants' consent. In addition, no such amendment shall be made without the approval of the Company's shareholders to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without the holder's consent.
Subject to the above provisions, the Board shall have authority to amend the Plan to take into account changes in law and tax and accounting rules as well as other developments, and to grant Awards which qualify for beneficial treatment under such rules without stockholder approval.
SECTION 14. Unfunded Status of Plan
It is presently intended that the Plan constitute an "unfunded" plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the "unfunded" status of the Plan.
SECTION 15. General Provisions
(a) The Committee may require each person purchasing or receiving shares pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to the distribution thereof. The certificates for such shares may include any legend, or, in the case of book-entry registration any notation, which the Committee deems appropriate to reflect any restrictions on transfer.
Notwithstanding any other provision of the Plan or certificates made pursuant thereto, the Company shall not be required to issue or deliver any stock certificate or certificates for shares of Common Stock, or account for such shares by book-entry registration, under the Plan prior to fulfillment of all of the following conditions:
(1) Listing or approval for listing upon notice of issuance, of such shares on the New York Stock Exchange, Inc., or such other securities exchange as may at the time be the principal market for the Common Stock;
(2) Any registration or other qualification of such shares of the Company under any state, federal or foreign law or regulation, or the maintaining in effect of any such registration or other qualification which the Committee shall, in its absolute discretion upon the advice of counsel, deem necessary or advisable; and
(3) Obtaining any other consent, approval, or permit from any state or federal governmental agency or foreign governmental body which the Committee shall, in its absolute discretion after receiving the advice of counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any Subsidiary or Affiliated Company from adopting other or additional compensation arrangements for its employees.
(c) Adoption of the Plan shall not confer upon any employee any right to continued employment, nor shall it interfere in any way with the right of the Company or a Subsidiary or an Affiliated Company to terminate the employment of any employee at any time.
(d) No later than the date as of which an amount first becomes includible in the gross income of the participant for federal income tax purposes with respect to any Award under the Plan, the participant shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of, any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Company, withholding obligations may be settled with Common Stock, including Common Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditional on such payment or arrangements, and the Company and its Subsidiaries or Affiliated Companies shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the participant. The Committee may establish such procedures as it deems appropriate, including making irrevocable elections, for the settlement of withholding obligations with Common Stock.
(e) Reinvestment of dividends in additional Restricted Stock at the time of any dividend payment shall only be permissible if sufficient shares of Common Stock are available under Section 3 for such reinvestment (taking into account then outstanding Stock Options and other Awards).
(f) The Committee, in its sole discretion, may establish such procedures as it deems appropriate for a participant to designate a beneficiary to whom any amounts payable in the event of the participant's death are to be paid or by whom any rights of the participant, after the participant's death, may be exercised.
(g) In the case of a grant of an Award to any employee of a Subsidiary or Affiliated Company, the Company may, if the Committee so directs, issue or transfer the shares of Common Stock, if any, covered by the Award to the Subsidiary or Affiliated Company, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary or Affiliated Company will transfer the shares of Common Stock to the employee in accordance with the terms of the Award specified by the Committee pursuant to the provisions of the Plan.
(h) The Plan and all Awards made and actions taken thereunder shall be governed by and construed in accordance with the laws of the State of Virginia, without reference to principles of conflict of laws.
SECTION 16. Effective Date of Plan
The Plan (other than Section 10, which shall be effective from and after January 1, 1998 so long as the initial public offering of the Common Stock has become effective by such date) shall be effective immediately prior to the date on which the registration statement filed by the Company under the Securities Act of 1933, as amended, registering the initial public offering of the Common Stock is declared effective.
Exhihbit 10.07
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
THE NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
Section 1. Purpose
The purposes of the Plan are to assist the Company in (1) promoting a greater identity of interests between the Company's non-employee directors and its shareholders, and (2) attracting and retaining directors by affording them an opportunity to share in the future successes of the Company.
Section 2. Definitions
"Act" shall mean the Securities Exchange Act of 1934, as amended.
"Award" shall mean an award of Common Stock as contemplated by Section 7 of this Plan.
"Board" shall mean the Board of Directors of the Company.
"Change in Control" shall mean the happening of any of the following events:
(a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (a "Person"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this definition, or (v) any acquisition by Emanuel Friedman, Eric Billings or W. Russell Ramsey (the "Founders") or any entity that is controlled by one or more of the Founders (the "Founder Affiliates");
(b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(c) Approval by the shareholders of the Company of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets or stock of another corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination will beneficially own, directly or indirectly, more than 60% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination or the Founders or Founder Affiliates) will beneficially own, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination will have been members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations thereunder.
"Common Stock" shall mean the Class A common stock, $.01 par value, of the Company.
"Company" shall mean Friedman, Billings, Ramsey Group, Inc., a Virginia corporation.
"Fair Market Value" shall mean, as of any given date, the average of the highest and lowest sales prices of the Common Stock reported on the New York Stock Exchange Composite Tape for such date, or if the Common Stock was not traded on the New York Stock Exchange on such date, then on the last preceding date on which the Common Stock was traded (or, if not listed on such exchange, the average of the highest and lowest sales prices on any other national securities exchange on which the Common Stock is listed or on NASDAQ). If there is
no regular public trading market for the Common Stock, Fair Market Value shall be determined by such other source as the Committee may select.
"Fees" shall mean the annual retainer fee for a Non-Employee Director in connection with his or her service on the Board for any fiscal year of the Company, additional annual fees for serving as chairman of a Board committee and fees scheduled to be paid for attending at Board or committee meetings.
"IPO" shall mean the Company's initial public offering of Common Stock pursuant to a registration statement under the Securities Act of 1933, as amended.
"Non-Employee Director" shall mean each member of the Board who is not an employee of the Company.
"Plan" shall mean the Friedman, Billings, Ramsey Group, Inc. 1997 Director Stock Plan.
"Retirement" shall mean the retirement by a Non-Employee Director from the Board in accordance with any Company stated policy on retirement.
"Stock Option" shall mean a non-qualified stock option.
Section 3. Eligibility
Each Non-Employee Director shall be eligible to participate in the Plan. Any Non-Employee Director who becomes an employee of the Company shall not be entitled to additional Stock Options or Awards under the Plan, but shall retain all Options and existing Awards pursuant to the terms of the Plan.
Section 4. Shares Subject to the Plan
The maximum number of shares of Common Stock which shall be reserved and available for use under the Plan shall be 100,000, subject to adjustment pursuant to Section 13 hereunder. The shares issued under the Plan may be authorized and unissued shares or may be treasury shares or both.
Section 5. Duration of Plan
Unless earlier terminated pursuant to Section 10 hereof, this Plan shall automatically terminate on, and no grants, awards or elections may be made after December 31, 2007, other than the exercise of outstanding Stock Options and the receipt of Common Stock under Section 7 for Fees earned prior to such date.
Section 6. Administration
The Plan shall be administered by the Board or any committee thereof so designated by the Board (the "Committee"), which shall have full authority to construe and
interpret the Plan, to establish, amend and rescind rules and regulations relating to the Plan, and to take all such actions and make all such determinations in connection with the Plan as it may deem necessary or desirable.
Section 7. Stock in Lieu of Retainer
Each Non-Employee Director who delivers to the Company written notice of an irrevocable election concerning the Fees to be earned in the next fiscal year of the Company during the term of the Plan may receive in lieu of cash an amount of shares of Common Stock equal in value to all or any portion of the Fees (but only in increments of 25% or a multiple thereof, and in no event to exceed 100% of the Fees) as so designated by the Non-Employee Director in such written notice, which amount shall be determined by dividing the Fees payable in each fiscal quarter of the Company by the Fair Market Value of a share of Common Stock on the last business day of such fiscal quarter, except that only whole numbers of shares shall be obtainable pursuant to this Section 7, and any remaining Fees which otherwise would have purchased a fractional share shall be paid in cash. Any such written notice pursuant to this Section 7 shall remain in effect for subsequent Plan years unless such Non-Employee Director delivers a written notice setting forth a different election with respect to Fees which shall be applied to future Plan years.
Section 8. Stock Options
(a) Initial Grant. Effective as of the Effective Date, each Non- Employee Director shall be granted a Stock Option to purchase 20,000 shares of Common Stock (the "Initial Grant"). The option price per share for the Initial Grant shall be the initial public offering price pursuant to the IPO.
(b) Subsequent Grants. Each person who first becomes a Non-Employee Director after the IPO shall be granted a Stock Option to purchase 10,000 shares of Common Stock as of the date such person is elected or appointed to the Board; provided, that no such grant shall be made to a Non-Employee Director who received an option grant under the Company's 1997 Stock and Annual Incentive Plan during the two-year period immediately preceding such election or appointment to the Board.
(c) Annual Grants. Commencing in 1998, a Stock Option to purchase 3,000 shares of Common Stock shall be granted to each Non-Employee Director automatically on the first business day following the Company's Annual Meeting of Shareholders for such year. Grants under this Section 8(c) shall be in addition to any grants of Stock Options under Sections 8(a) or 8(b) above.
(d) Option Price. Options granted under Sections 8(b) or 8(c) above shall be exercisable at a price per share equal to Fair Market Value on the grant date.
(e) Exercisability. A Stock Option shall vest and become exercisable on the first anniversary of the grant date. In the event a Non-Employee Director's membership on the Board terminates before a Stock Option has vested (whether by reason of death, disability,
Retirement, removal from office or otherwise), then any such unvested Stock Option granted to such Non-Employee Director shall be canceled and the Non- Employee Director shall have no further right or interest in such forfeited Stock Option.
(f) Termination. Each vested Stock Option shall remain outstanding until the tenth anniversary of the date of grant; provided, that in the event a Non-Employee Director's membership on the Board terminates (other than for "cause" as described in Section 12), any vested Stock Option then held by the Non-Employee Director shall be canceled one year after such termination of Board membership.
(g) Pro Rata Grants. In the event that the number of shares of Common Stock available for future grant under the Plan is insufficient to make all automatic grants required to be made on such date, then all Non-Employee Directors entitled to a grant on such date shall share ratably in the number of Stock Options on shares available for grant under the Plan.
Section 9. Transferability
No Stock Option shall be transferable by the optionee other than (i) by will or by the laws of descent and distribution, or, in the Committee's discretion, pursuant to a written beneficiary designation, (ii) pursuant to a qualified domestic relations order, as defined in the Code or (iii) in the Committee's discretion, pursuant to a gift to such optionee's immediate family members directly or indirectly, or by means of a trust, partnership or limited liability company. All Stock Options shall be exercisable, subject to the terms of this Plan, only by the optionee, guardian, legal representative or beneficiary of the optionee, or permitted transferee, it being understood that the terms "holder" and "optionee" include any such guardian, legal representative, beneficiary, or transferee.
Section 10. Amendment and Termination
The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of a Non-Employee Director under any Award theretofore granted without such person's consent. In addition, no such amendment shall be made without the approval of the Company's shareholders to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any holder without the holder's consent.
Subject to the above provisions, the Board shall have authority to amend the Plan to take into account changes in law and tax and accounting rules as well as other developments, and to grant Awards which qualify for beneficial treatment under such rules without stockholder approval.
Section 11. Effect of Change in Control
Notwithstanding any other provision of the Plan to the contrary, in the event of a Change in Control, any Stock Options outstanding and not then exercisable or vested as of the date such Change in Control is determined to have occurred, shall become fully exercisable and vested to the full extent of the original grant.
Section 12. Effect of Termination for Cause
If a Non-Employee Director incurs a termination of membership on the Board for cause, such Non-Employee Director's Stock Options shall be automatically canceled immediately. Unless otherwise determined by the Board, for purposes of the Plan "cause" shall mean (i) the conviction of the Non- Employee Director for commission of a felony under Federal law or the law in the state in which such action occurred, of (ii) dishonesty in the course of fulfilling the Non-Employee Director's duties as a director.
Section 13. Adjustments Upon Changes in Capitalization
In the event of any change in corporate capitalization, such as a stock split or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the aggregate number and class of shares reserved for issuance under the Plan, the number and kind of shares subject to Stock Options under Section 8 in the number, kind and option price of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number.
Section 14. Effectiveness of Plan
The Plan shall become effective upon the date the registration statement filed by the Company and under the Securities Act of 1933, as amended, for the IPO is declared effective.
Exhibit 10.08
KEY EMPLOYEE INCENTIVE PLAN OF
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC.
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the Compensation Committee of the Board.
(c) "Participant", means each key employee of the Company and its subsidiaries who is selected by the Committee to participate in the Plan.
(d) "Plan Year" means the fiscal year of the Company.
(i) select the Participants who will receive awards under the Plan;
(ii) determine the size of the awards to be made under the Plan subject to Section 6 hereof; and
(iii) establish from time to time regulations for the administration of the Plan, interpret the Plan, and make all determinations deemed necessary or advisable for the administration of the Plan.
executive officer). The performance goals for a Plan Year shall be selected by the Committee from the following criteria: revenue growth; earnings per share; return on equity; stock price performance; increases in net income; and personal contributions by the Participant (or any additional performance goals established by the Board). Such performance goals may relate to the Company or to its lines of business or subsidiaries.
(a) Except as provided in (b) below, awards earned under the Plan shall be paid as promptly as practicable after the close of the applicable Plan Year. Any such distribution shall be in cash.
(b) The Committee shall have the right to require that payment of all or any portion of an earned award be deferred until such time or times as the Committee, in its discretion, shall determine.
(a) Except as expressly provided by the Committee and subsection
(b) of this Section 14, no benefit payable under or interest in the Plan shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any such attempted action shall
be void.
(b) The provisions of subsection (a) of this Section 14 shall not apply to an assignment of a payment due after the death of the Participant by the deceased Participant's legal representative or beneficiary if such assignment is made for the purposes of settling the affairs of such deceased Participant.
Exhibit 11.01
Computation of Net Income Per Share
Pro Forma for the
Pro Forma for Nine Month
the Year Ended Period Ended
December 31, 1996 September 30, 1997
----------------- ------------------
Weighted Average Shares Outstanding 37,079,130 37,455,000
Cheap Stock 2,395,487 2,395,487
Additional shares issued for
planned distributions in excess
of current year earnings 2,061,594 2,061,594
----------- -----------
Weighted Average - Common and
Equivalent Shares outstanding 41,536,211 41,912,081
=========== ===========
|
Exhibit 21.01
Friedman, Billings, Ramsey Group, Inc. Direct and Indirect Wholly-owned subsidiaries
Friedman, Billings, Ramsey Capital Markets, Inc. - Delaware
Friedman, Billings, Ramsey Asset Management, Inc. - Delaware
FBR Holdings, Inc. - Delaware
Friedman, Billings, Ramsey & Co., Inc. - Delaware
Friedman, Billings, Ramsey International, Ltd. - England
FBR Direct, Inc. - Delaware
Friedman, Billings, Ramsey Investment Management, Inc. - Delaware
FBR Offshore Management, Inc. - Delaware
FBR Investment Management (Bermuda) Ltd. - Bermuda
FBR Fund Advisers, Inc. - Delaware
FBR Venture Capital Managers, Inc. - Delaware
FBR Offshore Investments, Ltd. - Bermuda
FBR Investments, LLC - Virginia
FBR Arbitrage Fund, LLC - Virginia
D & R Investments, LLC - Delaware
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this Registration Statement.
Arthur Andersen LLP
Washington D.C.
December 18, 1997
| ARTICLE 5 |
| PERIOD TYPE | YEAR | 9 MOS |
| FISCAL YEAR END | DEC 31 1996 | DEC 31 1996 |
| PERIOD START | JAN 01 1997 | JAN 01 1997 |
| PERIOD END | SEP 30 1997 | SEP 30 1997 |
| CASH | 20,680,757 | 27,568,469 |
| SECURITIES | 55,012,848 | 25,718,813 |
| RECEIVABLES | 9,240,877 | 7,924,836 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 0 | 0 |
| CURRENT ASSETS | 112,918,215 | 105,839,107 |
| PP&E | 4,417,121 | 5,461,090 |
| DEPRECIATION | 1,314,118 | 1,997,703 |
| TOTAL ASSETS | 125,438,147 | 119,214,677 |
| CURRENT LIABILITIES | 76,379,098 | 61,096,526 |
| BONDS | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 374,550 | 400,290 |
| OTHER SE | 48,684,499 | 57,717,861 |
| TOTAL LIABILITY AND EQUITY | 125,438,147 | 119,214,677 |
| SALES | 0 | 0 |
| TOTAL REVENUES | 109,903,062 | 134,917,927 |
| CGS | 0 | 0 |
| TOTAL COSTS | 79,260,799 | 105,140,802 |
| OTHER EXPENSES | 3,139,007 | 3,646,373 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | 2,665,171 | 2,301,035 |
| INCOME PRETAX | 24,838,085 | 23,829,717 |
| INCOME TAX | 12,628,000 | 9,782,381 |
| INCOME CONTINUING | 0 | 0 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 17,294,085 | 12,631,336 |
| EPS PRIMARY | 0 | 0 |
| EPS DILUTED | 0.42 | 0.30 |
Exhibit 99.01
MEMORANDUM OF UNDERSTANDING
Dated October 29, 1997
FRIEDMAN, BILLINGS, RAMSEY GROUP, INC. (together with its subsidiaries "FBR") and PNC BANK CORP. (together with its subsidiaries, "PNC") hereby set forth their current intentions to establish an ongoing strategic relationship in this non-binding Memorandum of Understanding. Substantially simultaneously with the execution of this Memorandum of Understanding, FBR and PNC are entering into a binding securities purchase agreement relating to the purchase of shares of Class A Common Stock, par value $0.01 per share (the "Class A Common Stock"), of FBR by PNC substantially simultaneously with the closing of the proposed initial public offering of shares of Class A Common Stock by FBR.
1. The parties hereto intend to establish an ongoing strategic business relationship with respect to selected capital markets and other activities. The relationship between the parties shall remain on an arm's-length business basis, subject to termination at will by either party at any time, and shall in no manner be construed to constitute a joint venture, partnership or other fiduciary relationship. Neither party shall exercise a controlling influence over any aspect of the other party's business or corporate affairs. Each party shall exercise full independent discretion in the operation of its own business affairs and shall have full legal responsibility for its own affairs and any consequences resulting therefrom. Neither party shall have any financial obligation to the other party pursuant to the terms of this Memorandum of Understanding, except to the extent such obligations arise pursuant to independent arm's-length business transactions that the parties may engage in as contemplated hereunder.
2. FBR and PNC will have a strategic alliance in the interest of helping PNC to build the equity and high yield capabilities of PNC's section 20 subsidiary, PNC Capital Markets Inc. ("PNC Capital Markets") upon the receipt by PNC of full tier 2 equity powers. FBR will invite PNC Capital Markets to participate in selected equity and high yield offerings on which FBR is acting as lead underwriter or placement agent on a case-by-case basis as FBR deems appropriate, subject in all instances to the suitability to the issuer's needs and such issuer's consent.
3. FBR shall be the exclusive independent broker dealer to which PNC and its affiliates shall refer all underwriting and high yield business that is not conducted by PNC, PNC Capital Markets, and its affiliates, with an emphasis on developing a
strong referral business from PNC's middle market and industry specialty customer base. FBR shall endeavor to the fullest extent compatible with the needs of such referral clients, and subject to the consent of such clients, to include PNC Capital Markets as a co-lead underwriter or co-placement agent on such referred business (with FBR having the left-hand placement and PNC Capital Markets having the right-hand placement on such offerings).
4. FBR and PNC will explore potential strategic relationships in other business lines, including, without limitation, mergers and acquisitions advisory services, merchant banking and venture capital activities, assets management and real estate advisory services.
5. PNC shall work with FBR to provide enhanced derivatives, asset securitization, bridge lending and other bank debt financing products to the FBR client base. PNC shall be the commercial bank to which FBR first refers business in the areas of derivatives, asset securitization, bridge lending and bank debt financing. The parties will explore the possibility of forming bridge and/or equity and venture capital funds to serve the common needs of their respective client bases.
6. Referral and/or co-underwriter arrangements shall be determined on a case-by-case basis, and shall in all instances be established on an independent arm's-length basis.
7. It is the intention of FBR and PNC that the relationship contemplated by this Memorandum of Understanding be exclusive to PNC in business lines where PNC's business is national and, for business lines that are not national in scope, that this relationship be exclusive to PNC in the regions where PNC does business. Each of FBR and PNC will provide the other with prior notice of any proposed strategic alliances into which it intends to enter in any of the business lines discussed herein.
* * *
The aforesaid accurately reflects our understanding. Signed this 29th day of October, 1997 by:
FRIEDMAN, BILLINGS, RAMSEY PNC BANK CORP.
GROUP, INC. (a Virginia corporation)
/s/ Emanuel Friedman /s/ Walter Gregg
---------------------------------- ----------------------------------
Name: Emanuel Friedman Name: Walter Gregg
Title : Chairman and Chief Title: Senior Executive Vice
Executive Officer President and Chief
Financial Officer
|
Exhibit 99.02
FORM OF CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I, Wallace L. Timmeny, hereby consent to the use, in the Registration Statement on Form S-1 of Friedman, Billings, Ramsey Group, Inc., a Virginia corporation (the "Company"), to which this consent is filed as an exhibit included therein, of my name as a person about to become a Director of the Company.
Date: December __, 1997
Exhibit 99.03
FORM OF CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I. Mark D. Warner, hereby consent to the use, in the Registration Statement on Form S-1 of Friedman, Billings, Ramsey Group, Inc., a Virginia corporation (the "Company"), to which this consent is filed as an exhibit included therein, of my name as a person about to become a Director of the Company.
Date: December __, 1997