U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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SIEBERT FINANCIAL CORP.
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(Name of small business issuer in its charter)
NEW YORK 11-1796714
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
885 THIRD AVENUE, NEW YORK, NEW YORK 10022
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(Address of principal executive offices) (Zip Code)
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NONE
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Securities registered under Section 12(g) of the Exchange Act:
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
As of March 27, 1998, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $6,204,000 based on the closing price of the Common Stock on the Nasdaq SmallCap Market on that date.
As of March 27, 1998, there were 5,248,410 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Siebert Financial Corp.'s definitive proxy statement for its 1998 annual meeting of shareholders to be filed by the registrant pursuant to Regulation 14A is incorporated by reference into items 9, 10, 11 and 12 of Part III of this Form 10-KSB by reference.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
Siebert Financial Corp. (the "Company") is a holding company which conducts all of its business activities in the retail discount brokerage and investment banking business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc., a Delaware corporation ("Siebert"). Muriel Siebert, the first woman member of the New York Stock Exchange, is the Chair and President and owns approximately 96% of the outstanding common stock, par value $.01 per share (the "Common Stock"), of the Company.
The Company is the successor by merger to J. Michaels, Inc. ("JMI"), a company not previously associated with Siebert Financial Corp. On November 8, 1996, JMI and Muriel Siebert Capital Markets Group, Inc., a Delaware corporation owned by Ms. Siebert ("MSCMG"), merged and concurrently transferred all of the assets previously owned by JMI to a liquidating trust. The Company has had no, nor does it expect to have any, involvement with the liquidating trust. Following the merger, the Company's fiscal year was changed to December 31.
Siebert was incorporated on June 13, 1969 under the laws of the State of Delaware. The principal executive offices of the Company and Siebert are located at 885 Third Avenue, 17th Floor, New York, New York 10022.
BUSINESS OVERVIEW
Siebert provides services to its customers through two main divisions. Through its Retail division, Siebert provides discount brokerage and related services to its retail investor accounts. Through its Capital Markets division, Siebert offers institutional clients equity execution services on an agency basis as well as equity, fixed income and municipal underwriting and investment banking services. In addition, this division participates in the secondary markets for Municipal and U.S. Treasury securities and also trades listed closed end bond funds and certain other securities for its own account. This proprietary trading business is segregated from that of the agency business executed on behalf of institutional clients.
The firm is unique among discount brokerage firms in that, through its Capital Markets division, it offers a wide array of underwriting and investment banking services. Such services include acting as senior manager, co-manager or otherwise participating in the underwriting or sales syndicates of municipal, corporate debt and equity, government agency and mortgage/asset backed securities issues.
The Company believes that it is the largest Woman-Owned Business Enterprise ("WBE") in the capital markets business in the country through Siebert and the largest Minority and Women's Business Enterprise ("MWBE") in the tax exempt underwriting business in the country through its Siebert Brandford Shank division.
THE RETAIL DIVISION
DISCOUNT BROKERAGE AND RELATED SERVICES. The Securities and Exchange Commission (the "SEC") eliminated fixed commission rates on securities transactions on May 1, 1975, a date that would later come to be known as "May Day", spawning the discount brokerage industry; that very day, on the opening bell, Siebert executed its first discounted commission trade. The firm has been in business and a member of The New York Stock Exchange, Inc. (the "NYSE") longer than any other discount broker.
Siebert's focus in its discount brokerage business is to serve retail clients who seek a wide selection of quality investment services at commissions that are substantially lower than those of full-commission firms and competitive with the national discounters.
Siebert clears all securities transactions on a fully-disclosed basis through National Financial Services Corp. ("NFSC"), a wholly owned subsidiary of Fidelity Investments. NFSC, with over $9 billion in assets, adds state-of-the-art technology as well as back-office experience to the operations of Siebert supplementing Siebert's in-house systems.
Siebert serves investors who make their own investment decisions. Siebert seeks to assist its customers in their investment decisions by offering a number of value added services, including research by fax and quick and easy access to account information. The firm provides its customers with information via toll-free 800 service direct to its representatives Monday through Friday between 7:30 a.m. and 7:30 p.m. Eastern Time. Through its SiebertNet, Siebert Online and Siebert MarketPhone services, 24 hour access is available to customers.
INDEPENDENT RETAIL EXECUTION SERVICES. Siebert is independent of the Over-the-Counter ("OTC") and Third Market market makers and consequently offers what it believes to be the best possible trade executions for customers. Siebert does not make markets in securities, nor does it position against customer orders. Most of the firm's listed orders are routed to the primary exchange for execution, however, all such customer orders are afforded the opportunity for price improvement. Through a service called NYSE Prime(1), Siebert also has the ability to document to customers all price improvements received on orders executed on the NYSE when orders are filled at better than the National Best Bid/Offer.
The firm's OTC orders are executed through a network of unaffiliated Nasdaq market makers with no single market maker executing all trades. This allows Siebert to fill its customer orders by choosing the market maker it deems best in each particular stock quickly and efficiently in all market conditions. Additionally, the firm offers customers execution services through the SelectNet(2) and Instinet(3) systems. These systems give customers access to extended trading hours. Siebert believes that its OTC executions afford its customers the best possible opportunity for consistent price improvement. Siebert does not have any affiliation with market makers and therefore does not execute OTC trades through affiliated market makers.
Siebert executes trades of fixed income securities through its Capital Markets division. Representatives of this division assist clients in buying, selling or shopping for competitive yields of fixed income securities, including municipal bonds, corporate bonds, U.S. Treasuries, mortgage-backed securities, Government Sponsored Enterprises, Unit Investment Trusts or Certificates of Deposit. See "Description of Business-Capital Markets Division."
RETAIL CUSTOMER SERVICE. Siebert provides retail customers, at no additional charge, with personal service via toll-free access to dedicated customer support personnel for all of its products and services. The customer service department is located in its home office in New York City. The department is staffed and supervised by securities professionals qualified to address all of the clients' needs. Each representative is equipped with powerful workstations running multiple software programs simultaneously for quick response to customer inquiries. The workstations display real-time quotes, market information, up-to-date equity and margin balances, positions and account history.
PRODUCTS AND SERVICES. Siebert offers retail customers a variety of products and services designed to assist them with their investment needs and allow them the convenience of maintaining a single brokerage account for simplicity and security. The firm backs up its order execution service with a guarantee that states, "If you are dissatisfied with a trade for any reason, that trade is commission free" which excludes losses due to fluctuations in the market value of securities and applies only to commissions.
Siebert's products and services include the Siebert Asset Management account featuring no-fee, no minimum check writing with payee detail; a dividend reinvestment program that allows for the automatic reinvestment of cash dividends as well as capital gains distribution; retirement accounts that are free of fees if the account maintains assets of at least $10,000; $100 million in protection per account, consisting of $500,000 in standard insurance and $99.5 million in additional protection at no charge; and free safekeeping services.
ELECTRONIC SERVICES. Siebert provides customers with electronic delivery of services through a variety of means, as discussed below. Siebert believes, however, that the electronic delivery services, while cost efficient, do not offer a customer the ultimate in flexibility. Siebert believes a combination of electronic services and personalized telephonic service maintains customer loyalty and best serves the needs of most customers. To that end, all of the services of the firm are supported by trained licensed securities professionals.
SIEBERTNET - Internet access with features including the efficiency and manageability of placing low commission stock and option orders, obtaining real time quotes, confirmation of pending and executed orders, access to late breaking news and valuable financial reports, as well as current account information including balances and positions.
SIEBERT ONLINE - the firm's popular PC software runs on Windows 3.1(4) and Windows95(5) through a secure private connection. It features easy installation and intuitive operations but its design lends itself to the active trader as well. With the click of a mouse, investors can check their account status, get real-time quotes and place orders 24 hours a day.
SIEBERT MARKETPHONE(R) - allows customers to trade at their convenience through touch-tone phones and to check balances and executions and receive free real-time quotes (including closed end mutual funds). The service also permits automatic transfer to a live broker or the use of the fax-on-demand feature to select an investment report to be delivered to a fax machine through the firm's Research by Fax(R) service.
SELECTNET AND INSTINET - gives customers access to extended trading hours.
PERFORMANCEFAX - allows customers to receive a comprehensive profit and loss analysis of their portfolios faxed each morning before the market opens. Alternatively, the customer can select from weekly and monthly schedules for receipt of PerformanceFax reports.
SIEBERT FUNDEXCHANGE(R) - the FundExchange(R) Mutual Fund service provides customers with access to approximately 6,000 mutual funds, including 1,800 no-load funds, about 800 of which have no transaction fees.
ON-LINE STATEMENT IMAGING SYSTEM - electronic imaging of customer statements are displayed directly on the screen of Siebert representatives for fast accurate detail of customer accounts.
VISA(R)(6) DEBIT CARD - allows customers the convenience of a Siebert VISA debit card.
SIEBERT RESEARCH BY FAX - customers are able to call toll free from any touch tone telephone and select from a list of research reports that will be faxed 24 hours a day. Upon request, such reports will be mailed to customers or made available for customer pickup at any branch.
VIP PREMIERE STATEMENT - these statements offer a more sophisticated view of the brokerage account information including an account valuation section, an asset allocation pie chart, an enhanced activity section and a detailed income summary section.
Siebert is currently developing and will offer during the next year new products and services including the following:
o Major upgrades and improvements to each of its major electronic services - SiebertNet, Siebert Online, and MartketPhone. These upgrades are intended to vastly improve the efficiency and content of these services.
o Brand new wireless trading and market data service - this new product will allow clients to place trades, receive quotes and access other market information by utilizing the latest in wireless technology.
o News and trade execution alert service - customers are able to keep abreast of the market whether at home or traveling using the firm's alert service via PC, beeper or fax.
NEW ACCOUNTS DEPARTMENT. Siebert maintains a separate New Accounts department to familiarize each customer with Siebert's variety of services, policies and procedures. The department assists in the development of new business received through the firm's print and broadcast advertising as well as its referral programs.
The New Accounts department assesses the credit worthiness of customers and monitors control procedures for each new customer. These procedures include the use of a combination of nationally recognized fraud prevention services, credit bureaus and internal controls developed and maintained by Siebert. Management feels that these procedures minimize Siebert's exposure to customers' fraudulent activities.
The New Accounts department staff also assists customers in document management and compliance with regulatory requirements.
RETIREMENT ACCOUNTS. Siebert offers customers a variety of self-directed retirement accounts for which it acts as agent on all transactions. Custodial services are provided through an affiliate of NFSC, the firm's clearing agent, which also serves as trustee for such accounts. IRA, SEPP IRA, ROTH IRA, 401(k) and KEOGH accounts can be invested in a wide array of mutual funds, stocks, bonds and other investments all through one consolidated account. Cash balances in these accounts are swept daily to the money market fund chosen by the customer. Retirement accounts in excess of $10,000 in assets are free of maintenance fees. Retirement accounts also enjoy free dividend reinvestment in more than 12,000 publicly traded securities and mutual funds allowing customers to automatically reinvest cash dividends and capital gains distributions for additional shares of the same security.
CUSTOMER FINANCING. Customers' securities transactions are effected on either a cash or margin basis. Generally, a customer buying securities in a cash-only brokerage account is required to make payment by the settlement date, generally three business days after the trade is executed. However, for purchases of certain types of securities, such as options, a customer must have a cash or a money market fund balance in his or her account sufficient to pay for the trade prior to its execution. When selling securities, a customer is required to deliver the securities, and is entitled to receive the proceeds, on the settlement date. In an account authorized for margin trading, Siebert arranges for the clearing agent to lend its customer a portion of the market value of certain securities up to the limit imposed by the Federal Reserve Board, which for most equity securities is initially 50%. Such loans are collateralized by the securities in the customer's account. Short sales of securities represent sales of borrowed securities and create an obligation to purchase the securities at a later date. Customers may sell securities short in a margin account subject to minimum equity and applicable margin requirements and the availability of such securities to be
borrowed.
In permitting a customer to engage in transactions, Siebert assumes the risk of its customer's failure to meet his or her obligations in the event of adverse changes in the market value of the securities positions in his or her account. Both Siebert and its clearing agent reserve the right to set margin requirements higher than those established by the Federal Reserve Board.
Pursuant to its clearing agreement, Siebert participates in its clearing agent's income from financing Siebert customers' transactions. See "Management's Discussion and Analysis or Plan of Operation."
OFFICES. Siebert currently maintains seven retail discount brokerage offices. See "Properties." Customers can visit the offices to obtain market information, place orders, open accounts, deliver and receive checks and securities, and obtain related customer services in person. Nevertheless, most of Siebert's activities are conducted by telephone and mail.
The New York office remains open Monday through Friday from 7:30 a.m.
to 7:30 p.m., Eastern Time, while branch offices remain open from 9 a.m. to 5
p.m., Eastern Time, to service customers in person and by telephone.
RISK MANAGEMENT. The principal credit risk to which the Company is exposed on a regular basis is to customers who fail to pay for their purchases or who fail to maintain the minimum required collateral for amounts borrowed against securities positions.
Siebert has established policies with respect to maximum purchase commitments for new customers or customers with inadequate collateral to support a requested purchase. Managers have some flexibility in allowing certain transactions. When transactions occur outside normal guidelines, such accounts are monitored closely until their payment obligation is completed; if the customer does not meet the commitment, steps are taken to close out the purchase and minimize any losses.
Siebert has a risk unit specifically responsible for monitoring all customer positions for the maintenance of required collateral. The unit also monitors accounts that may be concentrated unduly in one or more securities whereby a significant decline in the value of a particular concentrated security could reduce the value of the account's collateral below the account's loan obligation.
Siebert has not had significant credit losses in the last five years.
INFORMATION SYSTEMS. Siebert's operations rely heavily on its information processing and communications systems. Siebert's system for processing securities transactions is highly automated. Registered representatives equipped with online computer terminals can access customer account information, obtain securities prices and related information and enter and confirm orders online.
To support its customer service delivery systems, as well as other applications such as clearing functions, account administration, record keeping and direct customer access to investment
information, Siebert maintains a computer network in New York. Through its clearing agent, Siebert's computers are also linked to the major registered United States securities exchanges, the National Securities Clearing Corporation and The Depository Trust Company. Failure of Siebert's information processing or communication systems for a significant period of time could limit its ability to process its large volume of transactions accurately and rapidly. This could cause Siebert to be unable to satisfy its obligations to customers and other securities firms, and could result in regulatory violations. External events, such as an earthquake or power failure, loss of external information feeds, such as security price information, as well as internal malfunctions, such as those that could occur during the implementation of system modifications, could render part or all of such systems inoperative.
To enhance the reliability of the system and integrity of data, Siebert maintains carefully monitored backup and recovery functions. These include logging of all critical files intra-day, duplication and storage of all critical data outside of its central computer site each evening, and maintenance of facilities for backup and communications located offsite.
CAPITAL MARKETS DIVISION
In 1991, Siebert formalized its commitment to its institutional customer base by creating a separate capital markets division (the "Capital Markets Division"). This group has served as a co-manager, selling group member or underwriter on a full spectrum of new issue offerings by municipalities, corporations and Federal agencies. The Capital Markets Division has been involved in issues from New York to California. In addition, the Capital Markets Division's distribution system is extensive.
The two principal areas of the Capital Markets Division are investment banking and institutional equity execution services.
INVESTMENT BANKING. Siebert offers investment banking services to corporate and municipal clients through its Capital Markets Division which participates in public offerings of equity and debt securities with institutional and individual investors.
Siebert has participated as an underwriter for taxable and tax-exempt debt, raising capital for many types of issuers including states, counties, cities, transportation authorities, sewer and water authorities and housing and education agencies. Since it began underwriting in 1989, the firm has either senior managed or co-managed over $99 billion in municipal debt. Siebert has participated as an underwriter in several of the largest common stock offerings that have come to market, including Conrail, Allstate, PacTel Corporation, Estee Lauder and Lucent Technologies. To date, the firm has participated as an underwriter and/or selling group member in over 210 corporate offerings, including debt issuances, totaling over $137 billion.
During 1996, Siebert formed the Siebert, Brandford, Shank division of the investment banking group to add to the former activities of Siebert's tax exempt underwriting department. This division is primarily comprised of a group of investment banking professionals who were previously employed by the 13th largest tax exempt underwriting firm in the country. The operations of the Siebert, Brandford, Shank division will shortly be moved to a newly formed
entity, Siebert, Brandford, Shank & Co., L.L.C. Two individuals, Mr. Napoleon Brandford and Ms. Suzanne F. Shank, own 51% of the equity and are entitled to 51% of the net profits, after Siebert's recovery of start-up expenses, while Siebert is entitled to the balance. The group has made Siebert a more significant factor in the tax exempt underwriting area. The division is expected to enhance Siebert's government and institutional relationships as well as the breadth of products that can be made available to retail clients.
Pending transfer to Siebert, Brandford, Shank & Co., L.L.C., the municipal bond business has been operated as a division of Siebert, utilizing the financial arrangement previously described.
In addition to occupying a portion of Siebert's existing offices in New York, the Siebert, Brandford, Shank division operates out of offices in San Francisco, Seattle, Houston, Chicago, Detroit, Los Angeles and Dallas.
To date, the Siebert, Brandford, Shank division has co-managed offerings of approximately $20 billion and senior managed offerings of approximately $700 million. Clients include the States of California, Texas and Washington and the Cities of New York, Chicago, Detroit and St. Louis.
The principal sources of revenue of the Capital Markets Division are underwriting profits and management fees derived from underwriting.
Certain risks are involved in the underwriting of securities. Underwriting syndicates agree to purchase securities at a discount from the initial public offering price. If the securities must be sold below the syndicate cost, an underwriter is exposed to losses on the securities that it has committed to purchase. In the last several years, investment banking firms have increasingly underwritten corporate and municipal offerings with fewer syndicate participants or, in some cases, without an underwriting syndicate. In such cases, the underwriter assumes a larger part or all of the risk of an underwriting transaction. Under Federal securities laws, other laws and court decisions, an underwriter is exposed to substantial potential liability for material misstatements or omissions of fact in the prospectus used to describe the securities being offered. While municipal securities are exempt from the registration requirements of the Securities Act of 1933, as amended, underwriters of municipal securities nevertheless are exposed to substantial potential liability in connection with material misstatements or omissions of fact in the offering documents prepared in connection with offerings of such securities.
INSTITUTIONAL EQUITY EXECUTION SERVICES. The firm emphasizes personalized service, professional order handling and client satisfaction to approximately 600 institutional accounts. It utilizes up to 15 independent floor brokers that use an extensive network linked via direct "ring down" circuits. Each broker is strategically located on a major exchange which allows Siebert to execute orders in all market environments. Utilizing its clearing arrangement, Siebert has the ability to provide foreign execution and clearing services to institutional customers. Although the firm has a proprietary trading function, it does not execute customer orders against such proprietary positions because Siebert believes its client's interest in a transaction should always be placed above any other interest. The firm's institutional client list includes some of the largest pension funds, investment managers and banks across the country. The firm trades an average of 540,000 shares
daily for institutional investors and for its own account.
The Institutional Equity Execution Services department utilizes the Siebert Real-Time List Execution ("SRLX") system. The SRLX system is designed exclusively for institutional customers who employ the use of basket trading strategies in their portfolio management. This system enables the Capital Markets Division to simultaneously manage an array of baskets for multiple clients while providing real-time analysis. The SRLX system can be integrated into an existing local area network. It is built with the latest 32 bit technology to take advantage of today's Pentium(7)-based PCs running Microsoft Windows95(8) or Windows NT(9). Data integrity is assured through a private digital T1 line with built-in network redundancy.
The SRLX system is built for institutional customers with features designed to add significant value to their trading capabilities. This system's features include: design and development by in-house professionals for reliability and speed; sophisticated graphical interface allowing exceptional control and monitoring; real-time order entry, reporting and messaging from the inter-market trading network; real-time basket analysis including average pricing and liquidity; multiple basket management from a single window; account allocation and automated report uploading; customized client reports; active intervention for large blocks or inactive stocks; and built-in fail-safe and recovery system.
ADVERTISING, MARKETING AND PROMOTION
Siebert develops and maintains its retail customer base through printed advertising in financial publications, broadcast commercials over national and local cable TV channels as well as promotional efforts and public appearances by Ms. Siebert. Additionally, a significant portion of the firm's new business is developed directly from referrals by satisfied customers. Many of the firm's competitors expend substantial funds in advertising and direct solicitation of prospects and customers to increase their share of the market.
The Capital Markets Division maintains a practice of announcing in advance that it will contribute a portion of the net commission revenues it derives from sales of certain negotiated new issue equity, municipal and government bonds to charitable organizations. Siebert is certified as a WBE with numerous states, agencies and authorities. Siebert is the only WBE which offers both retail and institutional product distribution capabilities. It is also the largest WBE with significant minority participation. Although it has been a member of the New York Stock Exchange since 1967, new business opportunities have become available to it based upon its status as a WBE. See "Description of Business - Regulation."
COMPETITION
Siebert encounters significant competition from full-commission and discount brokerage firms, as well as from financial institutions, mutual fund sponsors and other organizations many of which are significantly larger and better capitalized than Siebert. The general financial success of
the securities industry over the past several years has strengthened existing competitors. Siebert believes that such success will continue to attract additional competitors such as banks, insurance companies, providers of online financial and information services and others as they expand their product lines. Many of these competitors are larger, more diversified, have greater capital resources, and offer a wider range of services and financial products than Siebert. Siebert competes with a wide variety of vendors of financial services for the same customers. Siebert believes that its main competitive advantages are quality of execution and service, responsiveness, price of services and products offered and the breadth of its product line.
Among Siebert's principal retail competitors are Charles Schwab, Quick and Reilly, Fidelity Investments, Waterhouse Securities, Jack White & Co. and Kennedy Cabot. Siebert charges commissions generally lower than some other discount brokers including Charles Schwab, Quick & Reilly and Fidelity Investments. In investment banking, Siebert's principal competitors for business include both national and regional firms, some of whom have resources substantially greater than Siebert's.
REGULATION
The securities industry in the United States is subject to extensive regulation under both Federal and state laws. The SEC is the Federal agency charged with administration of the Federal securities laws. Siebert is registered as a broker-dealer with the SEC, the NYSE and the National Association of Securities Dealers ("NASD"). Much of the regulation of broker-dealers has been delegated to self-regulatory organizations, principally the NASD and national securities exchanges such as the NYSE which is Siebert's primary regulator with respect to financial and operational compliance. These self-regulatory organizations adopt rules (subject to approval by the SEC) governing the industry and conduct periodic examinations of broker-dealers. Securities firms are also subject to regulation by state securities authorities in the states in which they do business. Siebert is registered as a broker-dealer in 48 states, the District of Columbia and Puerto Rico.
The principal purpose of regulations and discipline of broker-dealers is the protection of customers and the securities markets, rather than protection of creditors and stockholders of broker-dealers. The regulations to which broker-dealers are subject cover all aspects of the securities business, including training of personnel, sales methods, trading practices among broker-dealers, uses and safekeeping of customers' funds and securities, capital structure of securities firms, record keeping, fee arrangements, disclosure to clients, and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations or changes in the interpretation or enforcement of existing laws and rules may directly affect the method of operation and profitability of broker-dealers and investment advisers. The SEC, self-regulatory organizations and state securities authorities may conduct administrative proceedings which can result in censure, fine, cease and desist orders or suspension or expulsion of a broker-dealer or an investment adviser, its officers or its employees. Neither the Company nor Siebert has been the subject of any such administrative proceedings.
As a registered broker-dealer and NASD member organization, Siebert is required by Federal law to belong to the Securities Investor Protection Corporation ("SIPC") which provides, in the event of the liquidation of a broker-dealer, protection for securities held in customer accounts
held by the firm of up to $500,000 per customer, subject to a limitation of $100,000 on claims for cash balances. The SIPC is funded through assessments on registered broker-dealers. In addition, Siebert, through its clearing agent, has purchased from private insurers additional account protection of up to $99.5 million per customer, as defined, for customer securities positions only. Stocks, bonds, mutual funds and money market funds are considered securities and are protected on a share basis for the purposes of SIPC protection and the additional protection. Neither SIPC protection nor the additional protection applies to fluctuations in the market value of securities.
Siebert is also authorized by the Municipal Securities Rulemaking Board to effect transactions in municipal securities on behalf of its customers and has obtained certain additional registrations with the SEC and state regulatory agencies necessary to permit it to engage in certain other activities incidental to its brokerage business.
Margin lending arranged by Siebert is subject to the margin rules of the Board of Governors of the Federal Reserve System and the NYSE. Under such rules, broker-dealers are limited in the amount they may lend in connection with certain purchases and short sales of securities and are also required to impose certain maintenance requirements on the amount of securities and cash held in margin accounts. In addition, those rules and rules of the Chicago Board Options Exchange govern the amount of margin customers must provide and maintain in writing uncovered options.
In 1996, voters in the State of California approved Proposition 209, a proposed statewide constitutional amendment by initiative, and the Governor issued an executive order requiring state officials to immediately implement the initiative. Proposition 209 bans preferential treatment for women and minorities in state programs. Under Proposition 209, state agencies have been ordered to end all quotas or set asides. A number of lawsuits were filed challenging the constitutionality of the proposition under the Fourteenth Amendment and the equal protection clause and a court in San Francisco issued an injunction blocking the implementation of the proposition. The Court of Appeals for the Ninth Circuit considered the appeal of the injunction blocking Proposition 209's implementation. Such Court expressly upheld Proposition 209 and the Governor responded to the decision by signing an executive order abolishing minority preferences in the awarding of state contracts. Ms. Siebert believes that, irrespective of the legal requirements, as long as there is a "sensitivity to diversity and competitive equality," opportunities will be available for qualified WBEs and MWBEs. See "Description of Business Advertising, Marketing and Promotion."
NET CAPITAL REQUIREMENTS
As a registered broker-dealer, Siebert is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1) (the "Net Capital Rule"), which has also been adopted through incorporation by reference in NYSE Rule 325. Siebert is a member firm of the NYSE and the NASD. The Net Capital Rule specifies minimum net capital requirements for all registered broker-dealers and is designed to measure financial integrity and liquidity. Failure to maintain the required regulatory net capital may subject a firm to suspension or expulsion by the NYSE and the NASD, certain punitive actions by the SEC and other regulatory bodies and, ultimately, may require a firm's liquidation.
Regulatory net capital is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings, less certain deductions that result from excluding assets that are not readily convertible into cash and from conservatively valuing certain other assets. These deductions include charges that discount the value of firm security positions to reflect the possibility of adverse changes in market value prior to disposition.
The Net Capital Rule requires notice of equity capital withdrawals to be provided to the SEC prior to and subsequent to withdrawals exceeding certain sizes. The Net Capital Rule also allows the SEC, under limited circumstances, to restrict a broker-dealer from withdrawing equity capital for up to 20 business days.
The firm falls within the provisions of Rule 240.15c3-1(a)(1)(ii) promulgated by the SEC. Siebert has elected to use the alternative method, permitted by the rule, which requires that Siebert maintain minimum net capital, as defined, equal to the greater of $250,000 or 2 percent of aggregate debit balances arising from customer transactions, as defined. (The net capital rule of the NYSE also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debits.) At December 31, 1997 and 1996, Siebert had net capital of $9.1 million and $7.8 million, respectively, and net capital requirements of $250,000 under Regulation 240.15c3-1(a)(1)(ii). Siebert is not subject to SEC Rule 15c3-3 and claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii). The firm maintains net capital in excess of the SEC Rule 17a-11 requirement.
EMPLOYEES
As of March 27, 1998, the Company had approximately 120 employees, all of whom were full time and four of whom were corporate officers. None of the employees are represented by a union, and the Company believes that its relations with its employees are good.
ITEM 2. DESCRIPTION OF PROPERTY.
Siebert operates its business out of the following fourteen leased offices:
Expiration
Approximate Date Of
Office Area in Current Renewal
Location Square Feet Lease Terms
-------- ----------- ----- -----
CORPORATE HEADQUARTERS, RETAIL AND
INVESTMENT BANKING OFFICE
885 Third Ave. 7,828 SF 4/30/03 None
New York, NY 10022
RETAIL OFFICES 1,000 SF 12/31/00 None
9693 Wilshire Boulevard
Beverly Hills, CA 90212
4400 North Federal Highway 1,038 SF 2/28/02 None
Boca Raton, FL 33431
66 South Street 1,341 SF 8/31/98 None
Morristown, NJ 07960
400 Fifth Avenue - South 1,008 SF 4/22/99 None
Naples, FL 33940
240A South County Road 770 SF 10/14/00 2 year option
Palm Beach, FL 33480
9569 Harding Avenue 1,150 SF 9/30/98 None
Surfside, FL 33154
INVESTMENT BANKING OFFICES
30 N. Lasalle Street 1,613 SF 8/31/99 None
Chicago, IL 60602
1845 Woodall Rodgers Freeway 224 SF Month to None
Dallas, TX 75201 month
400 Renaissance Center 1,500 SF Month to None
Detroit, MI 48243 month
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Expiration
Approximate Date Of
Office Area in Current Renewal
Location Square Feet Lease Terms
-------- ----------- ----- -----
523 West 6th Street 1,138 SF 5/16/98 None
Los Angeles, CA 90014
220 Sansome Street 3,250 SF 2/28/00 None
San Francisco, CA 94104
601 Union Street 325 SF 4/30/98 1 year option
Seattle, WA 98101
|
The Company believes that its properties are in good condition and are suitable and adequate for the Company's business operations.
ITEM 3. LEGAL PROCEEDINGS.
Siebert is involved in various routine lawsuits of a nature which is deemed customary and incidental to its business. In the opinion of management, the ultimate disposition of such actions will not have a material adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Shareholders held on December 1,
1997, the shareholders voted on the following five proposals: (1) election of
five members of the Board of Directors to serve until the next Annual Meeting of
Shareholders; (2) ratification and approval of a Stock Option Plan approved by
the Board of Directors; (3) approval of the granting of stock options to the
non-employee members of the Company's Board of Directors; (4) approval of
certain proposed amendments to the Company's Certificate of Incorporation; and
(5) ratification and approval of the appointment by the Board of Directors of
Richard A. Eisner & Company, LLP as the Company's independent auditors for the
fiscal year ended December 31, 1997. All such proposals were approved, with the
following votes cast:
(1) Election of Board of Directors
The five members of the Board of Directors, Muriel F. Siebert, Nicholas P. Dermigny, Patricia L. Francy, Jane H. Macon and Monte E. Wetzler, were elected to serve until the 1998 Annual Meeting of Shareholders and in each case until their respective successors are elected and qualified. Each nominee for director received a minimum vote of 5,209,720 shares for, a maximum of 70 shares against and no shares abstaining.
For Against Abstain
--- ------- -------
(2) Ratification of Stock Option Plan 5,111,379 6,577 24,060
(3) Grant of Stock Options 5,111,413 30,600 3
(4) Amendments to the Certificate of
Incorporation 5,204,038 5,727 25
(5) Appointment of the Company's
independent auditors 5,208,566 1,221 3
|
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock commenced trading on the Nasdaq SmallCap Market under the symbol "SIEB" on November 12, 1996. The high and low sales prices of the Common Stock reported by the Nasdaq SmallCap Market during the following periods were:
High Low
------- ------
Period from November 12, 1996 to December 31, 1996 $12.000 $9.000
First Quarter - 1997 ............................ $12.375 $9.250
Second Quarter - 1997 ........................... $ 9.500 $9.250
Third Quarter - 1997 ............................ $ 9.250 $5.250
Fourth Quarter - 1997 ........................... $ 9.000 $7.500
Period from January 1, 1998 to March 27, 1998 ... $48.250 $9.688
|
The closing price of the Common Stock on March 27, 1998 on the Nasdaq SmallCap Market was $31.75 per share.
As of March 27, 1998, there were approximately 200 holders of record and approximately 800 beneficial holders of Common Stock.
DIVIDEND POLICY
On December 22, 1997 and March 16, 1998, dividends of $.09 per share were declared for all stockholders of record as of December 30, 1997 and March 20, 1998, respectively. Ms. Siebert, as the majority shareholder of the Company, waived her right to receive the two cash dividends declared by the Company and may from time to time waive her right to receive future cash dividends declared, if any.
Subject to statutory and regulatory constraints, prevailing financial conditions and future earnings, the Company may pay cash dividends in the future on its Common Stock. In considering whether to pay such dividends, the Company's Board of Directors will review the earnings of the Company, its capital requirements, its economic forecasts and such other factors as are deemed relevant. Some portion of the Company's earnings will be retained to provide capital for the operation and expansion of its business.
LIMITED OFFERING OF SHARES
In January 1997, the Company offered to "odd lot" shareholders the opportunity to round up to the closest 100 shares any holdings of an odd amount at a price of $9.375 per share. The offer expired March 21, 1997. 1,713 shares were issued pursuant to the offer.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This discussion should be read in conjunction with the Company's audited Consolidated Financial Statements and the Notes thereto contained elsewhere in this Annual Report.
Statements in this "Management's Discussion and Analysis or Plan of Operation" and elsewhere in this document as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company's behalf that are not statements of historical or current fact constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and known and unknown factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward looking statements, including, without limitation: changes in general economic and market conditions, fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, increases in competition within and without the discount brokerage business through broader services offerings or otherwise, competition from electronic discount brokerage firms offering greater discounts on commissions than the Company, prevalence of a flat fee environment, decline in participation in equity or municipal finance underwritings, decreased ticket volume in the discount brokerage division, limited trading opportunities, increases in expenses and changes in net capital or other regulatory requirements.
BUSINESS ENVIRONMENT
Market conditions during 1997 reflected a continuation of the 1996 bull market characterized by record volume and record high market levels. At the same time, competition has continued to intensify both among all classes of brokerage firms and within the discount brokerage business as well as from new firms not previously in the discount brokerage business. Electronic trading continues to grow as a retail discount market segment with some firms offering very low flat rate trading execution fees that are difficult for any conventional discount firm to meet. Many of the flat fee brokers, however, impose charges for services such as mailing, transfers and handling exchanges which the Company does not and also direct their executions to captive market makers. Continued competition from ultra low cost, flat fee brokers and broader service offerings from other discount brokers could also limit the Company's growth or even lead to a decline in the Company's customer base which would adversely affect its results of operations. Industry-wide changes in trading practices are expected to cause continuing pressure on fees earned by discount brokers for the sale of order flow.
The Company, like other securities firms, is directly affected by general economic and market conditions including fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, all of which can affect the Company's relative profitability. In periods of reduced market activity, profitability is likely to be adversely affected because certain expenses, including salaries and related costs, portions of communications costs and occupancy expenses, remain relatively fixed. Accordingly, earnings for any period should not be considered representative of any other period.
Siebert's clearing broker has represented that its computer systems will be year 2000 operable and fully tested by December 31, 1998. The Company's own systems are presently being modified or replaced. The Company believes its cost for meeting this problem will not be material.
CURRENT DEVELOPMENTS
During the fourth quarter of 1997, the Company, through its Siebert, Brandford, Shank division, acted as either senior manager or co-manager for a total of $3.8 billion of municipal bond offerings. In addition, the Company was appointed as senior manager for several large offerings including the Oakland State Building Authority ($158 million) and the City of North Forest Independent School District ($47 million).
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Total revenues for 1997 were $25.9 million, an increase of $1.7 million or 7.1% over 1996. Investment banking revenues, trading and interest and dividend revenues increased as compared to the prior year, however, commission and fee income decreased.
Commission and fee income decreased $1.2 million or 6.1% to $18.9 million due to lower commissions earned per trade resulting from the increase of lower priced electronic trading, price reductions on other related services caused by increased competition from ultra low cost flat fee brokers and a reduction of order flow fees.
Trading profits increased $926,000 or 107% to $1,795,000 primarily due to increased activity in secondary municipal bond trading by the Siebert, Brandford, Shank division and improved trading opportunities in the principal listed bond funds trading activity.
Interest and dividends increased $48,000 or 7.4% to $705,000 primarily due to trading strategies which generated greater dividend income.
Investment banking revenues increased $2.0 million or 77% to $4.5 million primarily due to a whole year of tax exempt underwriting activity by the Siebert, Brandford, Shank division in 1997. This division operated for only three months of the year in 1996.
Total expenses for 1997 were $21.2 million, a decrease of $806,000 or 3.7% over 1996. Both employee compensation and benefits and advertising and promotion decreased. All other categories of costs increased.
Employee compensation and benefit costs decreased $1.5 million or 16% to $8.2 million primarily due to Muriel Siebert's compensation reduction, offset by a full year's worth of compensation for the Siebert, Brandford, Shank division's principals, municipal investment banking staff and commission based municipal trading personnel.
Clearing and brokerage fees increased $90,000 or 2.0% to $4.7 million. Such costs increased due to a higher volume of tickets.
Advertising and promotion expense decreased $514,000 or 15.7% to $2.8 million due to decreased branch and service promotion; 1996 included several one time expenses related to branch expansion and on-line trading.
Communications expense increased $87,000 or 6.4% to $1.4 million as the client base and volume increased and more services were offered directly on-line and from activities of the investment banking staff. These increases were partially offset by telephone contract price reductions.
Occupancy costs increased $245,000 or 61% to $649,000 principally due to a full year's worth of rent in 1997 for new retail and investment banking branch offices opened during 1996.
Interest expense increased $128,000 or 44% to $418,000 primarily due to greater use of margin borrowings and short positions in proprietary trading activity.
Other general and administrative expenses increased $704,000 or 30% to $3.0 million primarily due to travel and entertainment expenses related to the new municipal investment banking staff and a range of miscellaneous costs associated with increased volume.
Current and pro forma provision for income taxes increased $1.1 million or 116% to $2.1 million while net income for 1997 was $2.6 million, an increase of $1.4 million or 116% over 1996, both proportional to a similar increase in pre-tax income.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Total revenues for 1996 were $24.2 million, an increase of $3.1 million or 15% over 1995. Commission and fee income and investment banking revenues increased and trading and interest and dividend revenues declined.
Commission and fee income increased $4.5 million or 29% to $20.1 million due to the continued bull market and increased spending for advertising and promotion to attract additional clients. In addition, under a new clearing agreement which was phased in during the second quarter of 1995, Siebert received additional commission income on client margin and free credit balances and investments in certain mutual and money market funds and the amounts of related customer balances and investments increased substantially.
Trading profits declined $1.7 million or 67% to $869,000 due to a continuing lack of liquidity and substantially reduced volatility in markets in which the firm trades, thus limiting trading and arbitrage opportunities compared to the prior year.
Interest and dividends decreased $733,000 or 53% to $656,000 due to decreases in long trading positions and in trading strategies which generated greater dividend income in 1995 over the corresponding period in 1996.
Investment banking revenues increased $1.1 million or 81% to $2.5 million due to increased participation in both equity and tax exempt underwritings over the prior year period. This resulted from providing additional resources to the development of both types of business
and, from October 1, 1996, the addition of over 20 municipal investment banking professionals to form the Siebert, Brandford, Shank division engaged in tax exempt underwriting.
Total costs and expenses for 1996 were $22.0 million, an increase of $2.2 million or 11% over 1995. All categories of costs increased except interest expense and other general and administrative expenses.
Employee compensation and benefit costs increased $1.2 million or 14% to $9.8 million due to provisions for bonus payments and to increases in staffing to cover the trading and service needs of the retail commission business, and, in the fourth quarter, the tax exempt underwriting business. Management, staff and incentive bonuses increased $350,000 reflecting volume, improved performance and firm profitability. The balance of the increase relates primarily to an increase in average head count of 73 for 1995 to 95 for 1996, an increase of 32%. The staff increase is primarily related to the increase in retail commission business and, in the fourth quarter, the addition of the municipal investment banking professionals.
Clearing and brokerage fees increased $336,000 or 7.9% to $4.6 million. Such costs increased substantially less than commission volume due to the effect of a new clearing cost structure that became effective in the second quarter of 1995.
Advertising and promotion expense increased $780,000 or 31% to $3.3 million due to increased branch and service promotion (for example, the opening of the Naples office in early 1996 and the Surfside and Palm Beach offices in late 1996 and the introduction of new products such as "Siebert OnLine") and increased advertising and promotion to differentiate Siebert from other firms in an increasingly competitive environment.
Communications expense increased $240,000 or 22% to $1.4 million as the client base and volume increased and more services were offered directly on-line.
Occupancy costs increased $77,000 or 24% to $403,000 principally due to opening a new branch in Naples, Florida in December 1995, pre-opening and rental costs of three new retail branches in late 1996, and the new location costs for the Siebert, Brandford, Shank division for the fourth quarter of 1996.
Interest expense declined $278,000 or 49% to $291,000 primarily due to the decreased use of equity trading strategies that involve large short positions. Dividend charges against short positions are included as part of interest expense.
Other general and administrative expenses decreased $122,000 or 5% to $2.3 million due principally to reduced legal and consulting fees in the current year. Included in general and administrative costs for 1996 are approximately $210,000 in legal, accounting and printing costs related to the JMI merger in November 1996.
Siebert's current and pro forma provision for income taxes increased $405,000 or 74% to $953,000 while pro forma net income for 1996 was $1.2 million, an increase of $516,000 or 74% over 1995, both proportional to a similar increase in pre-tax income.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total revenues for 1995 were $21.0 million, an increase of $3.7 million or 21% over 1994. Commission and fee income and interest and dividend revenues increased and trading and investment banking revenues declined.
Commission and fee income increased $3.5 million or 29% to $15.6 million due to the continued bull market and increased spending for advertising to attract additional clients.
Trading profits declined $607,000 or 19% to $2.6 million due to a lack of liquidity and substantially reduced volatility in the firm's markets during the second half of the year thus limiting the trading and arbitrage opportunities present in the first half of the year and in the prior period.
Interest and dividends increased $927,000 or 200% to $1.4 million due to increases in long trading positions and in trading strategies which generated greater dividend income.
Investment banking revenues decreased $139,000 or 9.1% to $1.4 million due to reduced underwriting volume generally in municipal markets and a shift from negotiated underwriting transactions to competitively bid transactions which are relatively less profitable for participants.
Total costs and expenses for 1995 were $19.8 million, an increase of $3.0 million or 18% over 1994. All categories of costs increased except interest expense.
Employee compensation and benefit costs increased $2.5 million or 40% to $8.6 million due to an increase in Subchapter-S compensation to Ms. Siebert of $1.76 million, an increase in contractual incentive bonus compensation of $355,000 and an increase in the bonus provision for other staff and executives of $365,000.
Clearing and brokerage fees increased $282,000 or 7.1% to $4.2 million. Such costs increased substantially less than commission volume due to the effect of a new clearing cost structure that became effective in the second quarter of 1995.
Advertising and promotion expense increased $186,000 or 8.1% to $2.5 million primarily in increased advertising to differentiate Siebert from other firms in an increasingly competitive environment.
Communications expense increased $117,000 or 12% to $1.1 million due to increased market volume, increased use of "800" number service resulting from national television advertising and increased use of Siebert's market phone service for orders as well as customer inquiries. Also as a result of increased volume, the cost of quote services increased $58,000 or 14%.
Occupancy costs increased $3,000 or 0.9% to $326,000 primarily from cost escalation provisions in existing leases.
Interest expense declined $34,000 or 5.7% to $568,000 primarily due to the decreased use of equity trading strategies that involve large short positions. Dividend charges against short positions are included as part of interest expense.
Pro forma provision for income taxes increased $303,000 or 124% to $548,000 and pro forma net income for 1995 was $697,000, an increase of $385,000 or 123% over 1994, both proportional to a similar increase in pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid, consisting generally of cash, money market funds and securities freely salable in the open market. Siebert's total assets at December 31, 1997 were $17.9 million, of which $2.0 million took the form of a secured demand note. $13.1 million or 73% of total assets were highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At December 31, 1997, Siebert's regulatory net capital was $9.1 million, $8.8 million in excess of its minimum capital requirement of $250,000.
ITEM 7. FINANCIAL STATEMENTS.
See index immediately following the signature page.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) Identification of Directors
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed by the Company pursuant to Regulation 14A.
(b) Identification of Executive Officers
The executive officers of the Company are:
NAME AGE POSITION
---- --- --------
Muriel F. Siebert 65 Chair and President
Nicholas P. Dermigny 40 Executive Vice President and
Chief Operating Officer
Richard M. Feldman 36 Executive Vice President,
Chief Financial Officer and
Assistant Secretary
Daniel Iesu 38 Secretary
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Certain information regarding each executive officer's business experience is set forth below.
MURIEL F. SIEBERT has been Chair, President and a director of Siebert since 1967 and the Company since November 8, 1996. The first woman member of the New York Stock Exchange on December 28, 1967, Ms. Siebert served as Superintendent of Banks of the State of New York from 1977 to 1982. She is a director of the New York State Business Council, the National Women's Business Council, the International Women's Forum and the Boy Scouts of Greater New York.
NICHOLAS P. DERMIGNY has been Executive Vice President and Chief Operating Officer of Siebert since joining the firm in 1989 and the Company since November 8, 1996. Prior to 1993, he was responsible for the Retail division. Mr. Dermigny became a director of the Company on November 8, 1996.
RICHARD M. FELDMAN has been Executive Vice President, Chief Financial Officer and Assistant Secretary of Siebert and the Company since October 20, 1997. From August 1992 to October 1997, Mr. Feldman served as Chief Financial Officer of various broker dealers, including Waterhouse Securities, Inc., a national discount brokerage firm headquartered in New
York City. Prior to these positions, Mr. Feldman worked ten years for Deloitte & Touche, a large international accounting firm. Mr. Feldman is a Certified Public Accountant.
DANIEL IESU has been Secretary of Siebert since October 1996 and the Company since November 8, 1996. He has been Controller of Siebert since 1989.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed by the Company pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed by the Company pursuant to Regulation 14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from the Company's definitive proxy statement to be filed by the Company pursuant to Regulation 14A.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits required by Item 601 of the Regulations S-K filed as part of, or incorporated by reference in, this report are listed in the accompanying Exhibit Index.
(b) Reports on Form 8-K
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIEBERT FINANCIAL CORP.
By: /s/ MURIEL F. SIEBERT
---------------------
Muriel F. Siebert
Chair and President
Date: March 30, 1998
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In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
/s/ MURIEL F. SIEBERT Chair, President and Director March 30, 1998
------------------------ (principal executive officer)
Muriel F. Siebert
/s/ NICHOLAS P. DERMIGNY Executive Vice President, March 30, 1998
------------------------ Chief Operating Officer and
Nicholas P. Dermigny Director
/s/ RICHARD M. FELDMAN Executive Vice President, March 30, 1998
------------------------ Chief Financial Officer
Richard M. Feldman and Assistant Secretary
(principal financial and
accounting officer)
/s/ PATRICIA L. FRANCY Director March 30, 1998
------------------------
Patricia L. Francy
/s/ JANE H. MACON Director March 30, 1998
------------------------
Jane H. Macon
/s/ MONTE E. WETZLER Director March 30, 1998
------------------------
Monte E. Wetzler
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SIEBERT FINANCIAL CORP. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors F-1 Consolidated Statements of Financial Condition at December 31, 1997 and 1996 F-2 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 1997 F-3 Consolidated Statements of Changes in Stockholders' Equity for each of the years in the three-year period ended December 31, 1997 F-4 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997 F-5 Notes to Consolidated Financial Statements F-6 |
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Siebert Financial Corp.
New York, New York
We have audited the accompanying consolidated statements of financial condition of Siebert Financial Corp. and its wholly owned subsidiary as of December 31, 1997 and December 31, 1996, and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Siebert Financial Corp. and its wholly owned subsidiary as of December 31, 1997 and December 31, 1996, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
February 13, 1998
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-------------------------
ASSETS 1997 1996
----------- -----------
Cash and cash equivalents $ 4,394,142 $ 231,029
Cash equivalents - restricted 1,300,000 --
Receivable from clearing broker 2,134,839 1,141,439
Securities owned, at market value 6,564,668 10,116,248
Secured demand note receivable from affiliate 2,000,000 2,000,000
Furniture, equipment and leasehold improvements, net 475,553 450,254
Investment in affiliate 392,000 --
Prepaid expenses and other assets 620,387 433,738
----------- -----------
$17,881,589 $14,372,708
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 2,037,547 $ 1,447,143
Accounts payable and accrued liabilities 3,171,485 2,824,000
----------- -----------
5,209,032 4,271,143
----------- -----------
Commitments and contingent liabilities
Subordinated borrowings payable to affiliate 3,000,000 3,000,000
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized,
5,237,610 shares outstanding at December 31, 1997 and 5,235,897
shares outstanding at December 31, 1996 52,376 52,359
Additional paid-in capital 6,742,091 6,771,049
Retained earnings 2,878,090 278,157
----------- -----------
9,672,557 7,101,565
----------- -----------
$17,881,589 $14,372,708
=========== ===========
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See notes to consolidated financial statements.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues:
Commissions and fees $18,879,674 $20,105,127 $15,645,334
Investment banking 4,487,594 2,532,795 1,396,967
Trading profits 1,795,104 868,823 2,608,078
Interest and dividends 704,911 656,434 1,389,612
----------- ----------- -----------
25,867,283 24,163,179 21,039,991
----------- ----------- -----------
Expenses:
Employee compensation and benefits 8,208,006 9,753,847 8,586,116
Clearing fees, including floor brokerage 4,675,368 4,585,398 4,249,050
Advertising and promotion 2,751,755 3,265,692 2,485,426
Communications 1,446,817 1,359,325 1,119,189
Occupancy 648,763 403,534 326,089
Interest 418,405 290,465 568,326
Other general and administrative 3,043,068 2,339,483 2,461,122
----------- ----------- -----------
21,192,182 21,997,744 19,795,318
----------- ----------- -----------
Income before income taxes 4,675,101 2,165,435 --
Provision for income taxes - current 2,057,000 201,000 --
----------- ----------- -----------
NET INCOME - HISTORICAL $ 2,618,101 1,964,435 1,244,673
===========
Pro forma provision for income taxes 752,000 548,000
----------- -----------
NET INCOME - PRO FORMA 1,212,435 $ 696,673
===========
SUPPLEMENTARY PRO FORMA ADJUSTMENT:
Effect of officer's salary reduction
as though 1997 salary had been in
effect in 1996 2,975,000
Related income taxes (1,309,000)
-----------
SUPPLEMENTARY PRO FORMA NET INCOME $ 2,878,435
===========
Net income per share of common stock -
basic and diluted:
Historical $ .50
Pro forma $ .23 $ .13
Supplementary pro forma $ .55
WEIGHTED AVERAGE SHARES DEEMED OUTSTANDING 5,237,371 5,235,897 5,235,897
|
See notes to consolidated financial statements.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK
-----------------------
NUMBER ADDITIONAL
OF $.01 PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS TOTAL
--------- ----------- ----------- ----------- -----------
BALANCE - JANUARY 1, 1995 5,105,000 $ 51,050 $ -- $ 3,841,407 $ 3,892,457
Net income -- -- -- 1,244,673 1,244,673
--------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1995 5,105,000 51,050 -- 5,086,080 5,137,130
Net income as subchapter - S corporation
January 1, 1996 - November 8, 1996 -- -- -- 1,686,278 1,686,278
Transfer upon change in tax status -- -- 6,772,358 (6,772,358) --
Issuance of shares in connection with
reorganization 130,897 1,309 (1,309) -- --
Net income as C corporation
November 9, 1996 - December 31, 1996
-- -- -- 278,157 278,157
--------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1996 5,235,897 52,359 6,771,049 278,157 7,101,565
Net income -- -- -- 2,618,101 2,618,101
Issuance of shares in connection with
offering, net of expenses 1,713 17 (28,958) -- (28,941)
Dividend on common stock -- -- -- (18,168) (18,168)
--------- ----------- ----------- ----------- -----------
BALANCE - DECEMBER 31, 1997 5,237,610 $ 52,376 $ 6,742,091 $ 2,878,090 $ 9,672,557
========= =========== =========== =========== ===========
See notes to consolidated financial statements.
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SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,618,101 $ 1,964,435 $ 1,244,673
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 157,010 108,460 67,360
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market value 3,551,580 3,630,683 (8,006,577)
Net change in receivable from clearing broker (993,400) (6,377,785) 8,151,165
(Increase) in prepaid expenses and other assets (186,649) (292,409) (2,097)
Net increase (decrease) in securities sold, not yet purchased,
at market value 590,404 868,653 (994,994)
Increase (decrease) in accounts payable and accrued
liabilities 347,485 (515,229) 1,432,940
----------- ----------- -----------
Net cash provided by (used in) operating activities 6,084,531 (613,192) 1,892,470
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cash equivalents-restricted (1,300,000) -- --
Purchase of furniture, equipment and leasehold improvements (182,309) (319,850) (95,771)
Investment in affiliate (392,000) -- --
----------- ----------- -----------
Net cash (used in) investing activities (1,874,309) (319,850) (95,771)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Subordinated borrowings from affiliate -- 1,000,000 --
Repayment of subordinated borrowings from affiliate -- -- (2,000,000)
Issuance of shares, net of expenses (28,941) -- --
Dividend on common stock (18,168) -- --
----------- ----------- -----------
Net cash (used in) provided by financing activities (47,109) 1,000,000 (2,000,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 4,163,113 66,958 (203,301)
Cash and cash equivalents - beginning of year 231,029 164,071 367,372
----------- ----------- -----------
Cash and cash equivalents - end of year $ 4,394,142 $ 231,029 $ 164,071
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 405,000 $ 290,465 $ 568,326
Income taxes 1,796,000 234,850 126,342
SUPPLEMENTAL INFORMATION ON NONCASH FINANCING ACTIVITIES:
During 1995, an affiliate issued a secured demand note to the Company and the
Company issued a subordinated note to a shareholder, both in the amount of
$2,000,000.
See notes to consolidated financial statements.
|
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] ORGANIZATION AND BASIS OF PRESENTATION:
Siebert Financial Corp. ("Financial"), through its wholly owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), engages in the business of providing discount brokerage services for customers, investment banking services for institutional clients and trading securities for its own account.
In accordance with a Plan and Agreement of Merger (the "Agreement") which closed on November 8, 1996 (the "Merger"), J. Michaels, Inc. ("JMI") issued 5,105,000 shares (post one-for-seven reverse split) to Muriel Siebert in exchange for all the issued and outstanding shares of Muriel Siebert Capital Markets Group, Inc., sole shareholder of Siebert. The Agreement provided that JMI liquidate all its assets other than shares of Siebert, and distribute the proceeds to the pre-merger stockholders of JMI who, by virtue of the Merger, collectively retained a 2 1/2% interest in the surviving company which has been renamed Siebert Financial Corp. The Merger has been accounted for as a reorganization of Siebert whereby Financial issued 130,897 shares of its common stock to the pre-merger stockholders of JMI. Accordingly, the financial statements for 1996 and 1995 are the historical basis financial statements of Siebert.
The financial statements reflect the results of operations, financial condition and cash flows of Siebert and, from the date of the Merger, Financial. All significant intercompany accounts have been eliminated. Financial and Siebert collectively are referred to herein as the "Company".
[2] SECURITY TRANSACTIONS:
Prior to 1996, security transactions, commissions, revenues and expenses were recorded on a settlement date basis, generally the third day following the transaction for securities and the next day for options. Revenues and related expenses on a trade date basis were not materially different. Effective January 1, 1996, security transactions, commissions, revenues and expenses are recorded on a trade date basis.
Siebert clears all its security transactions through an unaffiliated clearing firm on a fully disclosed basis. Accordingly, Siebert does not hold funds or securities for, or owe funds or securities to, its customers. Those functions are performed by the clearing firm which is highly capitalized.
[3] INCOME TAXES:
Prior to November 8, 1996, the Company was considered a subchapter-S corporation for tax purposes. Such status was terminated by virtue of the Merger. The historical financial statements do not include a provision for income taxes for the period prior to the termination of the S election. A pro forma provision for income taxes has been reflected which represents taxes which would have been provided had the Company operated as a C corporation for the entire year.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3] INCOME TAXES (CONTINUED):
The Company accounts for income taxes utilizing the asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the basis of assets and liabilities for financial reporting purposes and tax purposes. The Company files a consolidated Federal income tax return.
[4] FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property and equipment is stated at cost and depreciation is calculated using the straight-line method over the lives of the assets, generally five years. Leasehold improvements are amortized over the period of the lease.
[5] CASH EQUIVALENTS:
For purposes of reporting cash flows, cash equivalents include money market funds.
[6] ADVERTISING COSTS:
Advertising costs are charged to expense as incurred.
[7] 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.
[8] EARNINGS PER SHARE:
In 1997, the Company adopted SFAS #128, "Earnings Per Share". SFAS #128 requires the reporting of earnings per basic share and earnings per diluted share. Earnings per basic share are calculated by dividing net income by the weighted average outstanding shares during the period. Earnings per diluted share are calculated by dividing net income by the basic shares and all dilutive securities including options. Adoption of SFAS #128 had no effect on prior periods.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[9] PRO FORMA AND SUPPLEMENTARY PRO FORMA DATA:
Pro forma net income and pro forma earnings per share give effect to income taxes which would have been provided had the Company operated as a C corporation for all of 1996 and 1995.
Supplementary pro forma net income and supplementary pro forma earnings per share give effect to the adjustment of Ms. Siebert's salary to the amount set forth in her current salary arrangement and the related tax effect.
[10] INVESTMENT BANKING:
Investment banking revenues include gains and fees, net of syndicate expenses, arising primarily from municipal bond offerings in which the Siebert, Brandford, Shank ("SBS") division of Siebert acts as an underwriter or agent. Investment banking management fees are recorded on offering date, sales concessions on settlement date and underwriting fees at the time the underwriting is completed and the income is reasonably determinable.
[11] CASH EQUIVALENTS - RESTRICTED:
Cash equivalents - restricted represents cash invested in a money market account which is pledged as collateral for a secured demand note in the amount of $1,200,000 executed in favor of Siebert, Brandford, Shank & Co., L.L.C., an affiliated registered broker dealer.
NOTE B - INVESTMENT IN AFFILIATE
In March 1997, Siebert and two individuals (the "Principals") formed Siebert, Brandford, Shank & Co., L.L.C. to succeed to the tax exempt underwriting business of the SBS division of Siebert when regulatory requirements have been met. The agreements with the Principals provide that profits will be shared 51% to the Principals and 49% to Siebert. Losses incurred in the amount of approximately $601,000 through March 10, 1997 are to be recouped by Siebert prior to any profit allocation to the Principals. Siebert invested $392,000 as its share of the members' capital of Siebert, Brandford, Shank & Co., L.L.C. Siebert operated the SBS division business during 1997 in accordance with the terms of the agreements with the Principals.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
The subordinated borrowings at December 31, 1997 are payable to an affiliate and consist of the following:
DECEMBER 31,
-------------------------------
1997 1996
-------------- --------------
Secured demand note collateral agreement, 4%, due
December 31, 1999 $ 2,000,000 $ 2,000,000
Subordinated note, 8%, due January 31, 1999 500,000 500,000
Subordinated note, 8%, due October 31, 1999 500,000 500,000
-------------- --------------
$ 3,000,000 $ 3,000,000
============== ==============
|
The long-term borrowings are automatically renewed for a period of one year if notice of demand for payment is not given thirteen months prior to maturity.
The subordinated borrowings are available in computing net capital under the Securities and Exchange Commission's (the "SEC") Uniform Net Capital Rule. To the extent that such borrowings are required for Siebert's continued compliance with minimum net capital requirements, they may not be repaid.
Interest paid on subordinated borrowings was approximately $160,000, $123,000 and $160,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
The secured demand note receivable of $2,000,000 at December 31, 1997 and 1996 is collateralized by marketable securities with a market value of approximately $2,446,000 and $2,363,000, respectively.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
Equipment $ 638,534 $ 569,471
Leasehold improvements 128,655 70,576
Furniture and fixtures 84,468 61,539
------------ ------------
851,657 701,586
Less accumulated depreciation and amortization 376,104 251,332
------------ ------------
$ 475,553 $ 450,254
============ ============
|
Depreciation and amortization expense for the years ended December 31, 1997, 1996 and 1995 amounted to approximately $157,000, $108,000 and $67,000, respectively.
NOTE E - INCOME TAXES
Income tax expense (pro forma for periods prior to November 8, 1996) consists of the following:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- ------------- --------------
Federal income tax $ 1,360,000 $ 624,000 $ 359,000
State and local income tax 697,000 329,000 189,000
-------------- ------------- --------------
Income tax expense $ 2,057,000 $ 953,000 $ 548,000
============== ============= ==============
|
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE E - INCOME TAXES (CONTINUED)
A reconciliation between the income tax expense (pro forma for periods prior to November 8, 1996) and income taxes computed by applying the statutory Federal income tax rate to income before taxes is as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
-------------- ------------- --------------
Expected income tax provision at statutory Federal tax rate $ 1,590,000 $ 736,000 $ 423,000
State and local taxes, net of Federal tax effect 467,000 217,000 125,000
-------------- ------------- --------------
Income tax expense $ 2,057,000 $ 953,000 $ 548,000
============== ============= ==============
|
There are no significant temporary differences which give rise to deferred tax assets or liabilities at December 31, 1997 and 1996.
NOTE F - STOCKHOLDERS' EQUITY
Siebert is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. Siebert has elected to use the alternative method, permitted by the rule, which requires that Siebert maintain minimum net capital, as defined, equal to the greater of $250,000 or 2 percent of aggregate debit balances arising from customer transactions, as defined. (The net capital rule of the New York Stock Exchange also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debits.) At December 31, 1997 and 1996, Siebert had net capital of approximately $9,052,000 and $7,754,000, respectively, as compared with net capital requirements of $250,000. Siebert claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).
In an offering completed on March 21, 1997, the Company offered to its shareholders with "odd lots" the opportunity to "round up" their shares to the next nearest 100 shares. 1,713 shares were issued with proceeds to the Company of approximately $16,000. Costs related to the offering approximated $45,000.
On December 22, 1997 the Company declared a quarterly dividend of $.09 per share. The principal shareholder waived her right to receive her portion of the dividend.
On February 13, 1998 the Company announced that in order to comply with the rules of The Nasdaq Stock Market, Inc. relating to listings on the SmallCap Market, it will split its stock 4 for 1 in April 1998.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE G - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
In the normal course of business, Siebert enters into transactions in various financial instruments with off-balance sheet risk. This risk includes both market and credit risk, which may be in excess of the amounts recognized in the statement of financial condition.
Retail customer transactions are cleared through National Financial Services Corp. ("NFSC") on a fully disclosed basis. In the event that customers are unable to fulfill their contractual obligations, NFSC may charge Siebert for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy customers' obligations. Siebert regularly monitors the activity in its customer accounts for compliance with its margin requirements.
Siebert is exposed to the risk of loss on unsettled customer transactions in the event customers and other counterparties are unable to fulfill contractual obligations. Securities transactions entered into as of December 31, 1997 settled with no adverse effect on Siebert's financial condition.
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES
The Company rents office space under long-term operating leases expiring in various periods through 2003. These leases call for base rent plus escalations for taxes and operating expenses.
Future minimum rental payments for base rent plus operating expenses under these operating leases are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
------------ ------------
1998 $ 362,000
1999 356,000
2000 343,000
2001 325,000
2002 307,000
Thereafter 103,000
------------
$ 1,796,000
============
|
Rent expense, including escalations for operating costs, amounted to approximately $424,000, $360,000 and $289,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Payments are being charged to expense over the entire lease term on a straight-line basis.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Siebert is party to certain claims, suits and complaints arising in the ordinary course of business. In the opinion of management, all such claims, suits and complaints are without merit, or involve amounts which would not have a significant effect on the financial position of the Company.
Siebert sponsors a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code that covers substantially all employees. Participant contributions to the plan are voluntary and are subject to certain limitations. Siebert may also make discretionary contributions to the plan. No contributions were made by Siebert in 1997, 1996 and 1995.
Siebert executed a demand note payable in favor of SBS in the amount of $1,200,000 collaterized by approximately $1,300,000 of cash equivalents which are reported as cash equivalents - restricted. This obligation is not included in the Company's statement of financial condition.
NOTE I - OPTIONS
In 1997, the shareholders of the Company approved the 1997 Stock Option Plan (the "Plan"). The Plan authorizes the grant of options to purchase up to an aggregate of 525,000 shares, subject to adjustment in certain circumstances. Both non-qualified options and options intended to qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue Code, as amended, may be granted under the Plan. A Stock Option Committee of the Board of Directors administers the Plan which has the authority to determine when options are granted, the term during which an option may be exercised (provided no option has a term exceeding 10 years), the exercise price and the exercise period. The exercise price shall generally be not less than the fair market value on the date of grant. No option may be granted under the Plan after December 2007.
On March 11, 1997, the Company granted to non-employee directors options to purchase 30,000 shares of the Company's Common Stock at an exercise price of $9.25 per share. The directors' options are exercisable six months from the date of grant and expire five years from the date of grant. On May 16, 1997, pursuant to the Plan, the Company granted options to certain of its employees to purchase 199,750 shares of the Company's Common Stock at an exercise price of $9.25 per share. On November 6, 1997, pursuant to the Plan, the Company granted options to an employee to purchase 10,000 shares of the Company's Common Stock at an exercise price of $8.875 per share. All such employee options vest 20% per year for five years and expire ten years from the date of grant. No employee options are currently exercisable.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE I - OPTIONS (CONTINUED)
A summary of the Company's stock option transactions for the year ended December 31, 1997 is presented below:
1997
---------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
-------- ---------
Outstanding - beginning of year
Granted 239,750 $ 9.23
Forfeited (8,450) $ 9.25
-------
Outstanding - end of year 231,300 $ 9.23
=======
Exercisable at end of year 30,000 $ 9.25
Weighted average fair value of options granted $ 4.70
|
The following table summarizes information related to options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- -----------------------------
WEIGHTED-AVERAGE WEIGHTED- WEIGHTED-
RANGE NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
$ 9.25 221,300 8.68 Years $9.25 30,000 $9.25
$ 8.88 10,000 9.85 Years $8.88 - -
-------- ------
$8.88 - $9.25 231,300 8.73 Years $9.23 30,000 $9.25
======== ======
|
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: dividend yield of zero (0%) percent, expected volatility of twenty-five (25%) percent, risk-free interest rates ranging from 6.21% to 6.43%, and expected lives ranging from 5 to 10 years.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE I - OPTIONS (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for its options. Accordingly, no compensation cost has been recognized for its stock option grants. The effect of applying SFAS No. 123 on 1997 pro forma net income is not necessarily representative of the effects on reported net income for future years due to, among other things, (1) the vesting period of stock options and (2) the fair value of additional stock options in future years. Had compensation costs for the Company's stock option grants been determined based on the fair value at the grant dates for awards, the Company's net income and earnings per share would have reduced to the pro forma amounts indicated below.
1997
------------
Net Income As reported $ 2,618,101
Pro forma $ 2,439,101
Net Income Per Share As reported $ .50
Pro forma $ .47
|
NOTE J - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and No. 131, "Disclosure about Segments of an Enterprise and Related Information" effective for fiscal years beginning after December 15, 1997. The Company believes that the above pronouncements will not have a significant effect on its financial position or results of operations.
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
-------------- ---------------------------------------------------
3.1 Certificate of Incorporation of Siebert Financial
Corp., formerly known as J. Michaels, Inc.,
originally filed on April 9, 1934, as amended to
date
10.1 Siebert Financial Corp. 1998 Restricted Stock Award
Plan
21.1 Subsidiaries of the registrant
23.1 Consent of Independent Auditors
27.1 Financial Data Schedule (EDGAR filing only)
|
RESTATED CERTIFICATE OF INCORPORATION
OF
SIEBERT FINANCIAL CORP.
Under Section 807 of the New York Business Corporation Law ("BCL")
SIEBERT FINANCIAL CORP., a corporation organized and existing under the laws of the State of New York, hereby certifies as follows:
1. The name of the Corporation is SIEBERT FINANCIAL CORP. (the "Corporation"). The name under which the Corporation was originally incorporated was MICHAELS & CO., INC. The Corporation's original Certificate of Incorporation was filed in the Office of the Secretary of State of the State of New York on the 9th day of April, 1934.
2. This Restated Certificate of Incorporation restates and integrates and further amends, in accordance with the provisions of the BCL, the Certificate of Incorporation of the Corporation (the "Certificate") as follows:
(a) Paragraph SECOND of the Certificate, setting forth the purposes for the formation of the Corporation, is hereby deleted in its entirety and is replaced by the following language:
SECOND: The Corporation has been formed for the purpose of engaging in any lawful act or activity for which corporations may be organized under the New York Business Corporation Law; however, the Corporation will not engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.
(b) Paragraph FIFTH of the Certificate, setting forth the principal office of the Corporation and its address for service of process, is hereby deleted in its entirety and is replaced by the following language:
FIFTH: The principal office of the Corporation shall be located in the City and State of New York, in the County of New York.
(c) Paragraph SEVENTH of the Certificate, relating to number and qualifications of directors of the Corporation, is hereby deleted in its entirety and is replaced by the following language:
SEVENTH: The Secretary of State is designated as the agent of the
Corporation upon whom process in any action or proceeding against it may be served. The address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is 885 Third Avenue, Suite 1720, New York, New York 10022.
(d) Paragraph EIGHTH of the Certificate, setting forth the names and addresses of the initial directors of the Corporation, Paragraph NINTH of the Certificate, setting forth certain qualifications of directors of the Corporation, Paragraph TENTH of the Certificate, setting forth the initial shareholders of the Corporation, and Paragraph ELEVENTH of the Certificate, designating the Secretary of State as the agent for service of process, are hereby deleted in their entirety. Paragraph TWELFTH of the Certificate, relating to contracts entered into by the Corporation, is hereby redesignated as Paragraph EIGHTH of the Certificate.
(e) A new Paragraph NINTH, providing for the indemnification of directors of the Corporation, is hereby added to the Certificate to read as follows:
NINTH: The liability to the Corporation and its shareholders of each and every person who is at any time a director of the Corporation, in such person's capacity as such director, is, and shall be, limited and eliminated to the full extent permitted by law (as now or hereafter in effect). Any repeal or modification of this Paragraph shall not adversely affect any right or protection of any person existing at the time of such appeal or modification.
(f) New paragraphs TENTH through FIFTEENTH, providing for the "opting in" by the Corporation to certain provisions of the recently amended BCL, are hereby added to the Certificate to read as follows:
TENTH: Effective February 22, 1998, whenever the shareholders of the Corporation are required or permitted to take any action by vote, such action may be taken without a meeting upon written consent, setting forth the action so taken and signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
ELEVENTH: Effective February 22, 1998, any amendment hereto which changes or strikes out a provision permitted by BCL Section 709 shall be authorized by a majority of the votes of all outstanding shares entitled to vote thereon.
TWELFTH: Effective February 22, 1998, the Corporation may lend money to or guarantee the obligation of a director of the Corporation if the
Board of Directors determines that the loan or guarantee benefits the Corporation and either approves the loan or guarantee or a general plan authorizing loans or guarantees.
THIRTEENTH: Effective February 22, 1998, any plan of merger or consolidation adopted by the Board of Directors of the Corporation pursuant to Section 902 of the BCL shall be adopted by the holders of a majority of all outstanding shares entitled to vote thereon.
FOURTEENTH: Effective February 22, 1998, a sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation pursuant to Section 909 of the BCL shall be approved by the holders of a majority of all outstanding shares entitled to vote thereon.
FIFTEENTH: Effective February 22, 1998, any dissolution of the Corporation shall be authorized by a majority of the votes of all outstanding shares entitled to vote thereon.
3. The text of the Certificate of Incorporation, as amended or supplemented heretofore, is hereby restated, integrated and further amended to read in its entirety as follows:
CERTIFICATE OF INCORPORATION
OF
SIEBERT FINANCIAL CORP.
Under Section 402 of the New York Business Corporation Law ("BCL")
FIRST: The name of the Corporation is SIEBERT FINANCIAL CORP. (hereinafter referred to as the "Corporation").
SECOND: The Corporation has been formed for the purpose of engaging in any lawful act or activity for which corporations may be organized under the New York Business Corporation Law; however, the Corporation will not engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained.
THIRD: The aggregate number of shares of stock which the Corporation shall have the authority to issue is forty-nine million (49,000,000) shares, of one class only which shares shall be designated Common Stock, each such share having a par value of $.01.
Upon the effective date (the "Effective Date") of the amendment to this Certificate
of Incorporation effecting a one-for-seven reverse stock split (the "Reverse Stock Split"), each of the Corporation's shares of common stock, par value $.01 per share, outstanding prior to the Effective Date (the "Old Shares") shall be converted into and exchanged for one-seventh of one share of the Corporation's common stock, par value $.01 per share (the "New Shares"). No fractional shares of stock shall be issued in connection with the Reverse Stock Split, but in lieu thereof, each holder of Old Shares who would otherwise be entitled to receive a fraction of a share of New Shares shall have the number of shares rounded up to the nearest whole shares of New Shares. After the Effective Date, holders of the Old Shares shall not be entitled to receive dividends or to vote or exercise any rights as shareholders of the Corporation until certificates representing shares of J. Michaels, Inc. common stock, par value $1.00 per share, are surrendered and exchanged for certificates representing New Shares, but upon such surrender, any dividends not theretofore paid because of this provision shall then be paid without interest.
FOURTH: No holder of shares of stock of the Corporation
of any class shall have any preemptive right to subscribe for or purchase any
(a) shares of stock of any class now or hereafter authorized, or any notes,
debentures, bonds or other securities convertible into shares of stock; or (b)
options or warrants evidencing rights to subscribe for or purchase any such
shares, notes, debentures, bonds or securities; PROVIDED, HOWEVER, that the
foregoing provision shall not be deemed to impair any conversion rights
hereafter granted by the Corporation as permitted by law.
FIFTH: The principal office of the Corporation shall be located in the City and State of New York, in the County of New York.
SIXTH: Its duration is to be perpetual.
SEVENTH: The Secretary of State is designated as the agent of the Corporation upon whom process in any action or proceeding against it may be served. The address to which the Secretary of State shall mail a copy of process in any action or proceeding against the Corporation which may be served upon him is 885 Third Avenue, Suite 1720, New York, New York 10022.
EIGHTH: No contract or other transaction between the Corporation and any other corporation shall be affected or invalidated by the fact that any one or more of the directors and/or officers of the Corporation is or are interested in, or is a director or officer or are directors or officers of such other corporation, and any director or directors, officer or officers, individually or jointly, may be a party or parties to, or may be interested in, any contract or transaction of the Corporation or in which the Corporation is interested; and no contract, act or transaction of the Corporation with any person or persons, firm, association or corporation, shall be affected or invalidated by the fact that any director or directors, officer or officers of the Corporation is a party or are parties to, or interested in such contract, act or transaction, or in any way connected with such person or persons, firm, association or corporation, and each and every person who is or may become a director and/or officer of the Corporation is hereby relieved from any liability that might otherwise exist from contracting with the Corporation for the benefit of himself or any firm, association or corporation in which he may be in any wise interested.
NINTH: The liability to the Corporation and its shareholders of each and
every person who is at any time a director of the Corporation, in such person's capacity as such director, is, and shall be, limited and eliminated to the full extent permitted by law (as now or hereafter in effect). Any repeal or modification of this Paragraph shall not adversely affect any right or protection of any person existing at the time of such appeal or modification.
TENTH: Effective February 22, 1998, whenever the shareholders of the Corporation are required or permitted to take any action by vote, such action may be taken without a meeting upon written consent, setting forth the action so taken and signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
ELEVENTH: Effective February 22, 1998, any amendment hereto which changes or strikes out a provision permitted by BCL Section 709 shall be authorized by a majority of the votes of all outstanding shares entitled to vote thereon.
TWELFTH: Effective February 22, 1998, the Corporation may lend money to or guarantee the obligation of a director of the Corporation if the Board of Directors determines that the loan or guarantee benefits the Corporation and either approves the loan or guarantee or a general plan authorizing loans or guarantees.
THIRTEENTH: Effective February 22, 1998, any plan of merger or consolidation adopted by the Board of Directors of the Corporation pursuant to Section 902 of the BCL shall be adopted by the holders of a majority of all outstanding shares entitled to vote thereon.
FOURTEENTH: Effective February 22, 1998, a sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation pursuant to Section 909 of the BCL shall be approved by the holders of a majority of all outstanding shares entitled to vote thereon.
FIFTEENTH: Effective February 22, 1998, any dissolution of the Corporation shall be authorized by a majority of the votes of all outstanding shares entitled to vote thereon.
SIXTEENTH: This Amended and Restated Certificate of
Incorporation was authorized by (i) the unanimous vote of the Board of Directors
of the Corporation and (ii) a vote of the shareholders of the Corporation in
accordance with Section 803(a) of the BCL and the applicable provisions of
Section 807 of the BCL.
IN WITNESS WHEREOF, we have subscribed and acknowledged this Certificate this 29 day of December, 1997.
/s/ Muriel F. Siebert
---------------------
Muriel F. Siebert
/s/ Daniel Iesu
----------------------
Daniel Iesu
|
STATE OF NEW YORK
ss:
COUNTY OF NEW YORK
On this 29 day of December, 1997, before me personally came MURIEL F. SIEBERT and DANIEL IESU, to me known and known to me to be the individuals described in and who executed the foregoing instrument and acknowledged to me that they executed the same.
/s/ Frances S. Burns
---------------------------
NOTARY PUBLIC
|
STATE OF NEW YORK
ss:
COUNTY OF NEW YORK
MURIEL F. SIEBERT and DANIEL IESU, being duly sworn, depose and say, and each for herself or himself, respectively deposes and says:
That she, MURIEL F. SIEBERT, is the President of SIEBERT FINANCIAL CORP.; that he, DANIEL IESU, is the Secretary thereof; and that they have been authorized to execute and file the foregoing certificate by a resolution of the board of directors of said Corporation, adopted at directors' meetings duly called and held on October 7 and November 6, 1997.
/s/ Muriel F. Siebert
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Muriel F. Siebert
/s/ Daniel Iesu
---------------------
Daniel Iesu
|
Subscribed and sworn to
before me this 29 day
of December, 1997.
/s/ Frances S. Burns ---------------------------- |
1998 RESTRICTED STOCK AWARD PLAN
OF
SIEBERT FINANCIAL CORP.
SECTION 1
Purposes of the Plan
The purpose of the 1998 Restricted Stock Award Plan of Siebert Financial Corp. (the "Plan") is to benefit Siebert Financial Corp. and its subsidiaries (the "Company") by providing employees, upon whom the Company is dependent for success, with a means of acquiring a greater interest in the Company. For purposes of the Plan, the term "subsidiary" means a corporation a majority of whose outstanding stock entitled to elect a majority of its board of directors is at the time owned by Siebert Financial Corp. or by a subsidiary or subsidiaries of Siebert Financial Corp. The Board of Directors of the Company (the "Board of Directors") believes that such interest will encourage the efforts of such employees and strengthen their desire to remain with the Company and that the Plan will enable the Company to maintain a competitive position in attracting the personnel necessary for growth and profitability.
SECTION 2
Administration of the Plan
The Plan shall be administered by a committee (the "Committee") of at least two persons, all of whom shall be Directors of the Company and shall be appointed by, and serve at the pleasure of, the Board of Directors. No Director of the Company
shall serve as a member of the Committee if he or she had been eligible, at any
time within one year prior to his or her appointment as a member, for selection
(i) as a person to whom awards may be granted under the Plan or (ii) as a person
to whom stock may be allocated or to whom any qualified, restricted or any other
stock option may be granted pursuant to any Plan (either presently in existence
or hereafter adopted) of the Company entitling the participants therein to stock
allocations or to be granted qualified, restricted or other stock options of the
Company. A majority of the Committee shall constitute a quorum thereof. Actions
of the Committee may be taken by a vote of a majority of the Committee at a
meeting at which a quorum is present, or in a writing unanimously approved by
members of the Committee. Vacancies occurring on the Committee shall be filled
by the Board of Directors. Except as hereinafter provided, the Committee shall
have full and final authority, binding upon all who have an interest in the
Plan, to interpret the Plan and the awards granted thereunder, to prescribe,
amend and rescind the rules and regulations, if any, relating to the Plan and to
make all determinations necessary or advisable for the administration of the
Plan. No member of the Committee shall be liable for anything done or omitted to
be done by him or her or by any other member of the Committee in connection with
the Plan, except for his or her own willful misconduct or gross negligence.
SECTION 3
Awards Under the Plan
a) AWARDS. Awards under the Plan ("Awards") shall consist of shares of Common Stock, par value $.01 per share, awarded under and subject to the terms,
conditions and restrictions set forth in the Plan and in the Agreement entered into between the Company and each recipient of an Award (the "Agreement"). Any Award may provide for the immediate delivery of the shares so awarded subject to specified restrictions (a "current Award") or for their delivery at a specified future date or dates subject to the satisfaction of specified conditions (a "deferred Award"). All shares so awarded, together with any shares issued thereupon by reason of stock dividends, stock splits or other forms of recapitalization, are herein called "Award Stock."
b) MAXIMUM NUMBER OF SHARES THAT MAY BE AWARDED. An aggregate of not more than 15,000 shares of Award Stock, subject to adjustment as provided in Section 7 hereof, may be awarded under the Plan. Award Stock when delivered shall be authorized shares previously unissued by the Company. If, prior to the termination of the Plan, any Award Stock shall be returned to the Company pursuant to the termination provisions described in Section 5 hereof or in the Agreement, not including the exercise by the Company of any right of first refusal on the sale of Award Stock, or otherwise under the Plan or its administration, such Award Stock may again be awarded under the Plan.
c) RIGHTS WITH RESPECT TO SHARES. A recipient of a current Award shall have, after delivery to him or her of a certificate or certificates for shares of Award Stock, absolute ownership of such shares including the right to vote the same, subject, however, to the terms, conditions and restrictions described in Section 5 of the Plan, in the next succeeding sentence and in the Agreement. In the case of a current Award, cash dividends paid upon each share of Award Stock shall be held by the Company for the benefit of the recipient until the lapse of the restrictions on such share of Award Stock in
accordance with Section 5 hereof and shall be paid to the recipient, without any interest thereon and less any amounts due to the Company, at such time. In case of a deferred Award, the recipient, at the time of delivery of the shares of Award Stock, shall be entitled to cash in an amount equal to the dividends which would have been payable on the Award Stock had it been delivered to the recipient at the date of grant.
SECTION 4
Participation
a) EMPLOYEES. Awards under the Plan may be made only to persons who are determined by the Committee to be employees of the Company on the date the Award is made. The term "employees" shall include officers or directors, as well as other employees, of the Company. No member of the Board of Directors who is not a full-time employee of the Company and no member of the Committee shall be eligible to receive an Award. Any employee may elect not to be eligible, either for a period of time or during the entire term of the Plan, to receive Awards under the Plan by delivering to the Committee a written notice to such effect.
b) GRANT OF AWARDS. Subject to the terms, provisions and conditions of the Plan, the Committee shall at such time or times as it determines appropriate, select from among the employees of the Company those to whom Awards are to be granted and shall make Awards to such employees in such amounts as the Committee may deem appropriate. Unless specified to the contrary, the date of each award shall be the date of action by the Committee. Subject to the provisions of the Plan, the Committee shall also have full power in respect of Awards to determine restrictions or conditions to be
imposed upon the Awards at the time of delivery of the Award Stock and to specify and to prescribe the form and substance of each Agreement. Awards may be made to the same recipient on more than one occasion.
SECTION 5
Terms and Conditions of Awards
In addition to such terms, conditions and restrictions upon Awards as shall be imposed by the Committee:
a) no Award Stock shall be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of for a period of one year from the date of the Award; and
b) the recipient of the Award shall remain in the employ of the Company for such one year period or otherwise forfeit all of his or her right, title and interest in such Award Stock; provided, however, that (i) in the event of death or permanent disability of the recipient of the Award, such restrictions on the shares awarded to such recipient shall lapse and any Award Stock which has not been delivered to such recipient shall be delivered; (ii) in the event of the retirement of such recipient before the end of such one year period at the age of at least 65 years, or at such other age as the Committee may from time to time, in any particular case or, generally, determine for the purpose of this Section 5, (a) such restrictions on shares awarded to such recipient shall lapse and (b) Award Stock which has not been delivered to such recipient shall be delivered, as to such number of shares of Award Stock as shall be determined by multiplying the total number of shares of Award Stock by a fraction, the numerator of which is equal to the number of
days from the date of the Award to the date of retirement, and the denominator of which is 365; (iii) in the event the recipient's employment by the Company is terminated for cause or is voluntarily terminated by the recipient other than due to retirement at or after age 65, the recipient's right, title and interest in all Award Stock shall be forfeited; and (iv) in the event the recipient's employment by the Company is terminated for any other reason, (a) such restrictions on shares awarded to such recipient shall lapse and (b) Award Stock which has not been delivered to such recipient shall be delivered, as to such number of shares of Award Stock as shall be determined by multiplying the total number of shares of Award Stock by a fraction, the numerator of which is equal to the number of days from the date of the Award to the date of such termination of employment and the denominator of which is 365. For purposes hereof, any fraction of a share shall be disregarded and restrictions shall lapse on Award Stock in accordance with the foregoing to the nearest whole number of shares.
In the Agreement, the Committee shall have the authority to impose such terms, conditions and restrictions upon the Award as it, in its discretion, deems advisable or appropriate, including, without limitation:
a) The condition that the Company shall have the right of first refusal on the sale by the recipient of Award Stock;
b) The condition that the Company shall have the right to deduct from payments of any kind otherwise due to the recipient any Federal, state or local taxes of any kind required by law to be withheld with respect to Awards; and
c) The condition that the Company shall have the right to impose limitations, in the event of retirement, with respect to the post-retirement employment of the recipient.
As a condition to any Award under the Plan, the recipient thereof shall execute an Agreement in form and substance satisfactory to the Committee reflecting the conditions imposed upon such Award. In the case of a current Award, each certificate for shares of Award Stock shall bear an appropriate legend referring to the terms, conditions and restrictions described in the Plan and in such Agreement. Any attempt to dispose of such Award Stock in contravention of the terms, conditions and restrictions described in the Plan or in such Agreement shall be ineffective.
Nothing in the Plan or in the Agreement shall in any manner be construed to limit in any way the right of the Company to terminate an employee's employment at any time, or give any right to an employee to remain employed by the Company.
SECTION 6
Compliance with Law and Other Conditions
a) RESTRICTIONS UPON DELIVERY OF CERTIFICATES. The listing upon the Nasdaq SmallCap Market of any shares of Award Stock may be necessary or desirable as a condition of or in connection with such Awards, and, in such event, delivery of the certificates for such shares of Award Stock shall, if the Committee in its sole discretion shall determine, not be made until such listing shall have been completed.
b) RESTRICTIONS UPON RESALE OF UNREGISTERED STOCK. If the shares of Award Stock are not registered under the Securities Act of 1933, as amended, pursuant to
an effective registration statement, the recipient of such shares, if the Committee shall deem it advisable, may be required to represent and agree in writing (i) that any shares of Award Stock acquired by such recipient will not be sold except pursuant to an effective registration statement under the Securities Act of 1933, as amended, or pursuant to an exemption from registration under said Act and (ii) that such recipient is acquiring such shares of Award Stock for his or her own account for investment and not with a view of the distribution thereof.
SECTION 7
Adjustments
The number of shares of Award Stock reserved for Awards shall be subject to adjustment by the Committee to reflect any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event. The Committee shall have the power, in the event of any merger, consolidation of the Company with or into any other corporation, or the merger or consolidation of any other corporation into the Company, or the sale of substantially all of the assets of the Company, to amend all outstanding Awards to permit the lapse of the restrictions on the Award Stock prior to the effectiveness of any such merger, consolidation or sale of assets. All determinations made by the Committee with respect to adjustment under this Section 7 shall be conclusive and binding for all purposes of the Plan.
SECTION 8
Miscellaneous Provisions
a) Nothing in the Plan shall be construed to give any employee of the Company any right to receive an Award.
b) The expenses of the Plan shall be borne by the Company.
SECTION 9
Amendment
The Plan may be amended at any time and from time to time by the Board of Directors, provided that no amendment which increases the aggregate number of shares of Award Stock which may be granted pursuant to the Plan or which materially increases the benefits accruing to employees under the Plan or materially modifies the requirements as to eligibility for participation in the Plan shall be effective without the approval by affirmative vote (in person or by proxy) of the holders of a majority of the shares of Common Stock of the Company present and entitled to vote at a meeting held to take such actions at which a quorum is present.
SECTION 10
Termination or Suspension
The Board of Directors may at any time suspend or terminate the Plan. No Awards may be granted during any suspension of the Plan or after the Plan has been terminated but all recipients shall retain their rights (in accordance with the Plan and the relevant Agreements) in Awards made prior thereto.
The Plan shall terminate upon the earlier of the following dates:
a) upon the date of termination specified in a resolution of the Board of Directors; or
b) upon the issuance of the maximum number of shares of Award Stock specified under Section 3(b) hereof and the expiration of the restrictions and conditions set forth in Section 5 hereof as to all shares of Award Stock so issued.
After the Plan shall terminate the duties of the Committee will be limited to supervising the administration of Awards previously granted.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Muriel Siebert & Co., Inc., a Delaware corporation.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in (1) the Registration Statement on Form S-8, File No. 333-43837 and (2) the Registration Statement on Form S-8, File No. 333-43839 of our report dated February 13, 1998 on the consolidated financial statements of Siebert Financial Corp. and subsidiary included in its Annual Report on Form 10-KSB for the year ended December 31, 1997.
Richard A. Eisner & Company, LLP
New York, New York
March 30, 1998
| ARTICLE BD |
| (Replace this text with the legend) |
| CIK: 0000065596 |
| NAME: SIEBERT FINANCIAL CORP. |
| MULTIPLIER: 1 |
| CURRENCY: USD |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD START | JAN 01 1997 |
| PERIOD END | DEC 31 1997 |
| EXCHANGE RATE | 1 |
| CASH | 5,694,142 |
| RECEIVABLES | 2,134,839 |
| SECURITIES RESALE | 0 |
| SECURITIES BORROWED | 0 |
| INSTRUMENTS OWNED | 8,564,668 |
| PP&E | 475,553 |
| TOTAL ASSETS | 17,881,589 |
| SHORT TERM | 0 |
| PAYABLES | 3,171,485 |
| REPOS SOLD | 0 |
| SECURITIES LOANED | 0 |
| INSTRUMENTS SOLD | 2,037,547 |
| LONG TERM | 3,000,000 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 52,376 |
| OTHER SE | 9,620,181 |
| TOTAL LIABILITY AND EQUITY | 17,881,589 |
| TRADING REVENUE | 1,795,104 |
| INTEREST DIVIDENDS | 704,911 |
| COMMISSIONS | 18,879,674 |
| INVESTMENT BANKING REVENUES | 4,487,594 |
| FEE REVENUE | 0 |
| INTEREST EXPENSE | 418,405 |
| COMPENSATION | 8,208,006 |
| INCOME PRETAX | 4,675,101 |
| INCOME PRE EXTRAORDINARY | 4,675,101 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 2,618,101 |
| EPS PRIMARY | .50 |
| EPS DILUTED | .50 |