As filed with the Securities and Exchange Commission on August 12, 1997.
REGISTRATION NO. 333-26825
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 2 to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
EASTBROKERS INTERNATIONAL INCORPORATED
(Exact name of registrant as specified in charter)
DELAWARE 52-1807562
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MD 20850
(301) 527-1110
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
MARTIN A. SUMICHRAST
Vice Chairman of the Board and Secretary
15245 SHADY GROVE ROAD, SUITE 340, ROCKVILLE, MD 20850
(301) 527-1110
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Title of each class of
securities to be Amount to be Proposed maximum Proposed maximum Amount of
registered registered offering price per unit aggregate offering price registration fee(1)
---------- ---------- ----------------------- ------------------------ -------------------
Common Stock, $.05 par 135,002 $6.875 $928,138.75 $281.25
value
================================================================================================================================
(1) Estimated solely for purposes of calculation of the registration fee.
Pursuant to Rule 457(c), estimated on the basis of the average of the closing
bid and asked prices of the Common Stock on August 8, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION
AUGUST 12, 1997
EASTBROKERS INTERNATIONAL INCORPORATED
135,002 SHARES OF COMMON STOCK
($.05 PAR VALUE)
This Prospectus relates to the possible resale on a continuous basis of up
to 135,002 shares of Common Stock, $.05 par value, of Eastbrokers International
Incorporated, a Delaware corporation formerly known as Czech Industries, Inc.
("Eastbrokers" or the "Company"). Of the 135,002 shares, 125,002 were previously
issued in an April 1997 private placement and 10,000 shares were issued in
August 1996 to Randall F. Greene, a former director of the Company, in payment
of business and financial advisory and consulting services rendered to the
Company in connection with the Company's acquisition of Eastbrokers Beteiligungs
AG. The shares included in the Registration Statement of which this Prospectus
is a part are sometimes referred to as the "Securities". The Securities may be
offered from time to time by the selling securityholders (the "Selling
Securityholders"). See "SELLING SECURITYHOLDERS." THE COMPANY WILL NOT RECEIVE
ANY OF THE PROCEEDS FROM THE SALE OF THE SECURITIES BY THE SELLING
SECURITYHOLDERS. SEE "USE OF PROCEEDS."
The Securities may be offered for sale from time to time on terms to be
determined at the time of sale by the Selling Securityholders. The Common Stock
of the Company is listed on the NASDAQ SmallCap Market under the symbol "EAST".
On August 8, 1997 the closing bid price for the Common Stock was $6.75. The
Company will pay certain expenses of this offering. See "USE OF PROCEEDS" and
"PLAN OF DISTRIBUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY
BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK
FACTORS" (PP. 7-17) FOR IMPORTANT INFORMATION WHICH SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
Underwriting
Price to Discounts Proceeds to
Public(1) and Commissions Selling Securityholders(3)
--------- --------------- -----------------------
Per Share $ 6.875 (2) $ 6.875
Total $928,138.75 (2) $928,138.75
- ------------------
(1) Based upon the average of the closing bid and asked prices on August 8,
1997.
(2) Not known at this time.
(3) The expenses of the offering, estimated at $39,000 will be borne by the
Company.
(cover page continues)
The Selling Securityholders, directly or through agents designated from
time to time, or through dealers or underwriters also to be designated, may sell
the Securities from time to time on terms to be determined at the time of sale.
To the extent required, the specific Securities to be sold, the purchase price,
the public offering price, the name of any such agent, dealer or underwriter,
and any applicable commission or discount with respect to a particular offer
will be set forth in a Prospectus Supplement. The aggregate proceeds to the
Selling Securityholders from the Securities will be the purchase price of such
Securities sold less the aggregate agents' commissions and underwriters'
discounts, if any, and other expenses of issuance and distribution not borne by
the Company. Any such Prospectus Supplement will also set forth any additional
information regarding indemnification by the Company of the Selling
Securityholders or any underwriter, dealer or agent against certain
liabilities,including liabilities under the Securities Act of 1933, as amended
(the "Securities Act"). The Selling Securityholders and any broker-dealers,
agents or underwriters that participate with the Selling Securityholders in the
distribution of any of the Securities may be deemed to be "underwriters" within
the meaning of the Securities Act, and any commission received by them and any
profit on the resale of the Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Selling
Securityholders may also from time to time dispose of Securities pursuant to
available exemptions under the Securities Act, including sales under Rule 144 to
the extent permitted under such rule. See "PLAN OF DISTRIBUTION".
The date of this Prospectus is August __, 1997.
NOTE ON FORWARD LOOKING STATEMENTS
Certain information set forth or incorporated by reference herein includes
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and is subject to certain risks and uncertainties
including those identified under the caption "Risk Factors" and included in the
Company's reports filed pursuant to the Securities Exchange Act of 1934 under
the caption "Risk Factors." Readers are cautioned not to place undue reliance on
these statements, which are made as of the date hereof. The Company undertakes
no obligation to release any revisions to these forward looking statements to
reflect events or circumstances after the date hereof or to reflect
unanticipated events or developments.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). This Prospectus,
which constitutes part of the Registration Statement, does not contain all the
information set forth in the Registration Statement and the exhibits and
schedule thereto, to which reference is hereby made, as permitted by the rules
and regulations of the Commission. Statements made in this Prospectus or in any
document incorporated or deemed to be incorporated by reference herein as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and with respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. Any
interested parties may inspect the Registration Statement, the exhibits and
schedules forming a part thereof and the reports, proxy statements and other
information referred to above, without charge, at the public reference
facilities of the Securities and Exchange Commission, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and may obtain copies of all or any part
of such documents from the Commission upon payment of the fees prescribed by the
Commission. Such documents also are available for inspection and copying at
prescribed rates at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048; and the Northwestern
Atrium Center, 500 W. Madison, Suite 1400, Chicago, Illinois 60661-2511.
Registration statements and other documents and reports that are filed
electronically through the Electronic Data Gathering, Analysis and Retrieval
System (including the Registration Statement) are publicly available through the
Commission's web site on the Internet (http://www.sec.gov.)
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents which have been filed by the Company with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934 ("Exchange Act") (File No. 0-26202) are incorporated by reference into the
Registration Statement.
(a) the Annual Report on Form 10-KSB dated June 30, 1997 for the
fiscal year ended March 31, 1997 (the "1997 10-KSB"), as amended by Form
10-KSB/A No. 1 filed on August 12, 1997.
(b) Quarterly Reports on Form 10-QSB dated August 14, 1996, November
14, 1996 and February 13, 1997 and any and all amendments thereto which
include unaudited financial statements for the three month period ended
June 30, 1996, the six month period ended September 30, 1996 and the nine
month period ended December 31, 1996, respectively. Amendment No. 1 to Form
10-QSB for the three month period ended June 30, 1996 was filed via EDGAR
on August 11, 1997. Amendment No. 1 to Form 10-QSB for the six month period
ended September 30, 1996 was filed via EDGAR on August 11, 1997. Amendment
No. 1 to Form 10-QSB for the nine month period ended December 31, 1996 was
filed on August 11, 1997.
(c) Current Report on Form 8-K dated August 1, 1996, as amended by
Form 8-K/A No. 1 filed on August 5, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference and a part of this Registration Statement
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus. The Company hereby undertakes to provide without charge to each
person to whom a copy of this Prospectus has been delivered, upon the request of
such person, a copy of any or all documents referred to above which have been
incorporated in this Prospectus by reference, other than exhibits to such
documents. Requests for such copies should be directed to Office of the
Secretary, Eastbrokers International Incorporated, 15245 Shady Grove Road, Suite
340, Rockville, Maryland 20850.
- 3 -
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information contained under the caption "Risk Factors,"
appearing elsewhere in this Prospectus or incorporated herein by reference.
THE COMPANY
BACKGROUND
Eastbrokers International Incorporated (the "Company") was incorporated in
the State of Delaware on January 20, 1993, as the Czech Fund in order to take
advantage of the rapid growth in business opportunities arising from the
privatization of the newly-democratized Czech Republic by merging with or
acquiring Czech businesses.
In July 1993, the Company had a small initial public offering, following
which it purchased a controlling interest in Fortuna Hotel, a.s., a Czech
corporation owning a hotel located in Prague, and was renamed Czech Industries,
Inc. The Company also entered into an agreement to acquire a controlling
interest in Moravacentrum, a collection of eight department stores in Brno. This
acquisition was consummated using a portion of the $15 million gross proceeds
from a secondary public offering in June 1995.
Later in 1995, however, the Company shifted its focus in response to
changes in the marketplace. As major institutional investors began to appreciate
the investment opportunities available in the Czech Republic, most of such
opportunities were seized by a limited number of major institutions which now
control much of the Czech economy. This development made it very difficult for
smaller players such as the Company to effectively take advantage of available
opportunities.
In 1996, the Company received what it considered an attractive offer for
its interest in Moravacentrum. The Company accepted this offer to sell
Moravacentrum, determining that the sale proceeds could be better applied
towards other acquisitions which would provide better prospects for return on
investment.
Having considered a variety of investments, the Company decided on the
acquisition of Eastbrokers Beteiligungs AG, an Austrian brokerage company with
offices throughout Central and Eastern Europe. This transaction enhanced the
Company's prospects by both providing the Company with a vehicle for its
existing acquisition strategy while extending its opportunities beyond the Czech
Republic to the entirety of Central and Eastern Europe. The acquisition was
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completed on August 1, 1996. Following the acquisition, the Company's name was
changed to Eastbrokers International Incorporated.
CURRENT OPERATIONS
The Company, through its Vienna-based subsidiary, Eastbrokers Beteiligungs
AG ("Eastbrokers Vienna"), provides financial services in Eastern and Central
Europe. The principal strategic objective of the Company has been to establish
controlling ownership of independent broker-dealers and to create a network that
provides access to emerging market investment opportunities in Eastern and
Central Europe. The Company intends to market these investment opportunities to
Western European institutional and commercial investors.
Eastbrokers Vienna's primary business is to provide its customers with
stock brokering and investment banking services. Eastbrokers Vienna conducts
business through its head office in Vienna, Austria and in regional offices
located in (a) Prague, Czech Republic (b) Budapest, Hungary, (c) Bratislava,
Slovakia, (d) Almaty, Kazakhstan, (e) Istanbul, Turkey, (f) Moscow, Russia, (g)
Bucharest, Romania, (h) Sofia, Bulgaria, (i) Ljubljana, Slovenia, (j) Zagreb,
Croatia, and (k) Warsaw, Poland. Eastbrokers Vienna is a member of the Vienna
Stock Exchange, the Budapest Stock Exchange, the Bratislava Stock Exchange, the
Zagreb Stock Exchange, the Ljubljana Stock Exchange, the Bucharest Stock
Exchange, the Central Asian Stock Exchange, the Warsaw Stock Exchange and a
shareholder and member of the Prague Stock Exchange. Eastbrokers Vienna also
owns 49 percent of WMP Borsenmakler AG ("WMP"), a publicly-held Austrian
investment banking and brokerage firm.
Eastbrokers Vienna's brokerage, trading and market making business accounts
for approximately 20% of all revenues. Eastbrokers Vienna conducts its sales
activities as principal and agent on behalf of its clients. Eastbrokers Vienna
primarily distributes and trades Eastern and Central European equity securities
and to a lesser degree, debt securities. Eastbrokers Vienna, through WMP,
actively makes a market for the securities of more than 400 companies on the
Vienna Stock Exchange.
Eastbrokers Vienna is also a leading Eastern and Central European
investment banking firm which provides advice to, and raises capital for Eastern
and Central European companies. Eastbrokers Vienna provides advisory services on
key strategic matters such as mergers, acquisitions, privatization, joint
ventures as well as long range financial planning. Eastbrokers Vienna seeks to
raise much of its capital in Western Europe through institutional and commercial
investors.
- 5 -
RECENT DEVELOPMENTS
Additionally, on March 6, 1997, the Company purchased a 90% interest of
Financial Planning Services International, Inc., a Delaware corporation and
member of the National Association of Securities Dealers, Inc. ("FPS"). The
Company subsequently renamed FPS to Eastbrokers North America, Inc.
("Eastbrokers NA"). Through Eastbrokers NA, the Company intends to provide added
value, performance-driven research, trading, asset management and corporate
finance services in the emerging markets of Central and Eastern Europe to North
American institutional investors (buyside and sellside) and high net worth
individuals. The U.S. based broker dealer is expected to complement the existing
European based units. Eastbrokers NA intends to focus on seeking out North
American companies whose primary focus is Central and Eastern Europe.
Differentiation of the services provided will be emphasized in an effort to
enable Eastbrokers NA to fulfill its objective of assisting existing foreign
units by accessing and transacting with North American capital markets, which
represent a source of emerging market capital, through quality research and by
establishing relationships that would evolve naturally into other financial
related products and services. The Company has not previously operated a broker
dealer in the United States and there can be no assurance that Eastbrokers NA
can be successfully established or operated.
The principal executive offices of the Company are located 15245 Shady
Grove Road, Suite 340, Rockville, Maryland 20850 and its telephone number is
(301) 527-1110.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE
CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS.
THE OFFERING
Securities Offered............... 135,002 Shares. See "Selling
Securityholders"
Use of Net Proceeds.............. The Company will not receive any of the
proceeds from the sale of the Securities by
the Selling Securityholders. Any proceeds
received by the Company from the exercise
of the Warrants will be used for working
capital purposes. See "Use of Proceeds"
Nasdaq Symbol - Common Stock..... EAST
- 6 -
RISK FACTORS
Investment in the Securities involves a substantial degree of risk and should be
regarded as speculative. As a result, the purchase of the Securities should be
considered only by persons who can reasonably afford a loss of their entire
investment. Prospective investors should carefully consider, in addition to
matters set forth elsewhere in this Prospectus, the following factors relating
to the business of the Company and this Offering. Prospective investors should
carefully review all risk factors. Such information is presented as of the date
hereof and is subject to change, completion or amendment without notice.
FORWARD-LOOKING STATEMENTS
Certain information set forth in this Prospectus includes "Forward-Looking
Statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and is subject to certain risks and uncertainties, including other risk
factors set forth under this caption and under the same caption in the Company's
reports filed pursuant to the Securities Exchange Act of 1934. Readers are
cautioned not to place undue reliance on these statements, which speak only as
of the date hereof. The Company undertakes no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date hereof or to reflect unanticipated events or developments.
OPERATING LOSSES AND FINANCIAL CONDITION
Since its formation, the Company has suffered substantial cash flow
deficits and operating losses. Net loss for the year ended March 31, 1997 was
$866,411. As of such date, the Company had cash and cash equivalents of
$4,755,723 and net working capital of approximately $6,500,000. There can be no
assurance that the Company's future operations will be profitable or that it
will have available funds adequate to fund its operations. Should the operations
of the Company be profitable, it is likely that the Company would retain much or
all of its earnings to finance future growth and expansion.
REQUIREMENTS FOR ADDITIONAL CAPITAL
The Company may need to raise additional funds to provide working capital
or in order for the Company to respond to unforeseen needs or to take advantage
of unanticipated opportunities. Over the longer term, it is likely that the
Company will require substantial additional monies to continue to fund the
Company's working capital needs. There can be no assurance that any such funds
will be available at the time or times needed, or available on terms acceptable
to the Company. If adequate funds are not available, or are not available on
acceptable terms, the Company may not be able to take advantage of market
opportunities, to develop new services or products or otherwise respond to
competitive pressures. Such inability could have a material adverse effect on
the Company's business, financial condition and results of operations.
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NEW SUBSIDIARY WITH LIMITED OPERATING HISTORY AND NO ASSURANCE OF FUTURE
PROFITABILITY
The Company has invested approximately $1 million of its available cash in
connection with the acquisition and development of Eastbrokers NA, the Company's
newly acquired broker dealer subsidiary. This broker dealer has had a limited
operating history and has not conducted significant operations since its
acquisition by the Company. There can be no assurance that the Company will be
able to successfully operate this subsidiary.
ABSENCE OF DIVIDENDS
The Company has not paid any cash dividends on the Common Stock and does
not expect to do so in the foreseeable future.
VOLATILE NATURE OF SECURITIES BUSINESS
The securities business is, by its nature, subject to various risks,
particularly in volatile or illiquid markets, including the risk of losses
resulting from the underwriting or ownership of securities, trading, arbitrage
and merchant banking activities, counterparty failure to meet commitments,
customer fraud, employee fraud, misconduct and errors, failures in connection
with the processing of securities transactions and litigation.
The Company's principal business activities, investment banking, securities
sales and trading and correspondent brokerage services are, by their nature,
highly competitive and subject to various risks, volatile trading markets and
fluctuations in the volume of market activity. Consequently, the Company's net
income and revenues have been, and may continue to be, subject to wide
fluctuations, reflecting the impact of many factors beyond the Company's
control, including securities market conditions, the level and volatility of
interest rates, competitive conditions and the size and timing of transactions.
The securities business and its profitability are affected by many factors
of a national and international nature, including economic and political
conditions, broad trends in business and finance, legislation and regulation
affecting the national and international business and financial communities,
currency values, inflation, market conditions, the availability of short-term or
long-term funding and capital, the credit capacity or perceived creditworthiness
of the security industry in the marketplace and the level and volatility of
interest rates.
A securities firm's business and its profitability are also affected by the
firm's credit capacity or perceived creditworthiness and competitive factors,
including its ability to attract and retain highly skilled employees. These and
other factors may contribute to reduced levels of new issue or merger,
acquisition, restructuring, and leveraged capital activities, including
leveraged buyouts and high-yield financing, or the level of participation in
financing and investment related to such activities, generally resulting in
lower revenues from investment and merchant banking fees and underwriting and
corporate development investments. Reduced volume of securities
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transactions and reduced market liquidity generally result in lower revenues
from dealer and trading activities and commissions.
Lower price levels of securities may result in a reduced volume of
transactions and in losses from declines in the market value of securities held
in trading, investment and underwriting positions. Sudden sharp declines in
market values of securities and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets. In such markets, the
Company may not be able to sell securities and may have difficulty in covering
its securities positions. Such markets, if prolonged, may also lower the
Company's revenues from investment banking, merchant banking and other
investments, and could have a material adverse effect on the Company's results
of operations and financial condition.
SIGNIFICANT COMPETITION WITHIN THE SECURITIES INDUSTRY
The Company encounters significant competition in all aspects of the
securities business and competes worldwide directly with other domestic and
foreign securities firms, a number of which have greater capital, financial and
other resources than the Company. In addition to competition from firms
currently in the securities business, there has been increasing competition from
other sources, such as commercial banks and investment boutiques.
As a result of anticipated legislative and regulatory initiatives in the
U.S. to remove or relieve certain restrictions on commercial banks, it is
possible that competition in some markets currently dominated by investment
banks may increase in the near future.
Such competition could also affect the Company's ability to attract and
retain highly skilled individuals to conduct its various businesses. The
principal competitive factors influencing the Company's business are its
professional staff, the Company's reputation in the marketplace, its existing
client relationships, the ability to commit capital to client transactions and
its mix of market capabilities. The Company's ability to compete effectively in
securities brokerage and investment banking activities will also be influenced
by the adequacy of its capital levels. In addition, the Company's ability to
expand its business may depend on its ability to raise additional capital.
BUSINESS SUBJECT TO EXTENSIVE FEDERAL, STATE AND FOREIGN REGULATIONS
The Company's business is, and the securities industry generally is,
subject to extensive regulation in Austria and all other Central and Eastern
European states where its subsidiaries operate at the state level, as well as by
industry self-regulatory organizations ("SROs"). The company is also subject to
regulation by various foreign financial regulatory authorities in the
jurisdictions outside of Austria or Central and Eastern Europe where it does
business, including by The Securities and Futures Authority of the United
Kingdom and the Securities and Exchange Commission of the United States of
America.
- 9 -
Compliance with many of the regulations applicable to the Company involves
a number of risks, particularly in areas where applicable regulations may be
unclear. The Austrian Ministry of Finance (the "Ministry"), other governmental
regulatory authorities, including state securities regulators, and SROs,
including the Vienna Stock Exchange Chamber, may institute administrative or
judicial proceedings or arbitrations which may result in censure, fine, civil
penalties (including treble damages in the case of insider trading violations),
the issuance of cease-and-desist orders, the de-registration or suspension of a
broker-dealer, investment adviser or futures commission merchant, the statutory
disqualification of its officers or employees or other adverse consequences,
and, even if none of such actions is taken, could have a material adverse effect
on the Company's perceived creditworthiness, reputation and competitiveness.
Customers of the Company or others who allege that they have been damaged by the
Company's violation of applicable regulations also may seek to obtain
compensation from the Company, including the unwinding of any transactions with
the Company.
Additional legislation and regulations, including those relating to the
activities of affiliates of broker-dealers, changes in rules promulgated by the
Ministry or other Austrian or foreign governmental regulatory authorities and
SROs or changes in the interpretation or enforcement of existing laws and rules
may adversely affect the manner of operation and profitability of the Company.
The Company's businesses may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume of the Company's underwriting,
merger and acquisition and merchant banking business in any year could be
affected by, among other things, existing and proposed tax legislation,
antitrust policy and other governmental regulations and policies (including the
interest rate policies of the Austrian Central Bank) and changes in
interpretation or enforcement of existing laws and rules that affect the
business and financial communities. From time to time, various forms of
anti-takeover legislation and legislation that could affect the benefits
associated with financing leveraged transactions with high-yield securities have
been proposed that, if enacted, could adversely affect the volume of merger and
acquisition and investment banking business, which in turn could adversely
affect the Company's underwriting, advisory and trading revenues related
thereto.
MARKET, CREDIT AND LIQUIDITY RISKS ASSOCIATED WITH UNDERWRITING AND TRADING
ACTIVITIES
The Company's underwriting, securities trading, market-making and arbitrage
activities are conducted by the Company as principal and subject the Company's
capital to significant risks, including market, credit (including counterparty)
and liquidity risks.
The Company's underwriting, securities trading, market-making and arbitrage
activities often involve the purchase, sale or short-sale of securities as
principal in markets that may be characterised by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity. The Company
from time to time has large position concentrations in certain types
- 10 -
of securities or commitments and in the securities of or commitments to a single
issuer, including sovereign governments and other entities, issuers located in a
particular country or geographic area, or issuers engaged in a particular
industry. Through its subsidiaries and affiliate offices, the Company engages in
proprietary trading of Eastern European securities with an emphasis on
government and corporate bonds, local debt instruments and Central and Eastern
European equity securities, which involve risks associated with the political
instability and relative currency values of the nations in which the issuer
principally engages in business as well as the risk of nationalisation. In
addition, the Company has, from time to time, substantial position
concentrations in or commitments to high-yield issuers.
These securities generally involve greater risk than investment-grade debt
securities due to credit considerations, liquidity of secondary trading markets
and vulnerability to general economic conditions. The level of the Company's
high-yield securities inventories and the impact of such activities upon the
Company's results of operations can fluctuate from period to period as a result
of customer demands and economic and market considerations.
In addition, the trend in all major capital markets, for competitive and
other reasons, toward larger commitments on the part of lead underwriters means
that, from time to time, an underwriter may retain significant position
concentrations in individual securities. Such concentrations increase the
Company's exposure to specific credit, market and political risks. In addition,
material fluctuations in foreign currencies vis-a-vis the U.S. dollar, in the
absence of countervailing covering or other procedures, may result in losses or
gains in the carrying value of certain of the Company's assets located or
denominated in non-U.S. jurisdictions or currencies.
CAPITAL INTENSIVE NATURE OF AND POTENTIAL LOSSES RESULTING FROM MERCHANT BANKING
ACTIVITIES
Securities firms, including the Company, increasingly facilitate major
client transactions and transactions sponsored by their proprietary pools of
capital by using their own capital in a variety of investment activities that
have been broadly described as merchant banking.
Such activities include, among other things, purchasing equity or debt
securities or making commitments to purchase such securities in merger,
acquisition, restructuring and leveraged capital transactions, including
leveraged buyouts and high-yield financing. Such positions and commitments may
involve substantial amounts of capital and significant exposure to any one
issuer or business, as well as market, credit and liquidity risks. Equity
securities purchased in these transactions generally are held for appreciation,
are not readily marketable and typically do not provide dividend income. Debt
securities purchased in such transactions typically rank subordinate to bank
debt of the issuer and may rank subordinate to other debt of the issuer. In
addition, the Company also provides and arranges bridge financing, which assures
funding for major transactions, with the expectation that refinancing will be
obtained through the placement of high-yield debt or other securities. Such
activities may also involve substantial amounts of
- 11 -
capital and significant exposure to any one issuer as well as various risks
associated with credit conditions and vulnerability to general economic
conditions.
There can be no assurance that the Company will not experience significant
losses as a result of such activities.
DERIVATIVE FINANCIAL INSTRUMENTS
At the present time, the Company does not engage in the use of derivatives
financial instruments. In many of the countries where the Company has
operations, the local currencies are referred to as "soft" or "exotic". As such,
there are very few, if any, cost effective hedging strategies available to the
Company or potential investors. The Company's inability to engage in currency
hedging activities may result in its earnings being subject to greater
volatility due to exchange rate fluctuations.
DEPENDENCE UPON AVAILABILITY OF CAPITAL AND FUNDING
A substantial portion of the Company's total assets consists of highly
liquid marketable securities and short-term receivables arising from securities
transactions. The highly liquid nature of these assets provides the Company with
flexibility in financing and managing its business. However, certain of the
Company's activities such as merchant banking frequently involve substantial
capital commitments in securities which are often illiquid. The funding needs of
the Company are satisfied from internally generated funds and capital, including
equity, long-term debt and short-term borrowings which consist of securities
sold under agreements to repurchase ("repurchase agreements"), master notes and
committed and uncommitted lines of credit.
All repurchase transactions and a portion of the Company's bank borrowings
are made on a collateralized basis. Liquidity management includes the monitoring
of assets available to hypothecate or pledge against short-term borrowing. The
Company maintains borrowing relationships with a broad range of banks, financial
institutions, counterparties and others. The volume of the Company's borrowings
generally fluctuates in response to changes in the amount of resale transactions
outstanding, the level of the Company's securities inventories and overall
market conditions. Availability of financing to the Company can vary depending
upon market conditions, the volume of certain trading activities, credit
ratings, credit capacity and the overall availability of credit to the
securities industry and there can be no assurance that adequate financing to
support the Company's businesses will continue to be available in the future.
POTENTIAL RESTRICTIONS ON BUSINESS OF, AND WITHDRAWAL OF CAPITAL FROM, REGULATED
SUBSIDIARIES RESULTING FROM NET CAPITAL REQUIREMENTS
As a registered broker-dealers and member of numerous stock exchanges
throughout Central and Eastern Europe, the Company is required to comply with
each of the countries' regulatory authorities and net capital rules of the stock
exchanges. These rules, which specify
- 12 -
minimum net capital requirements for registered broker-dealers and stock
exchange members, are designed to assure that broker-dealers maintain adequate
regulatory capital in relation to their liabilities and the size of their
customer business and have the effect of requiring that at least a substantial
portion of their assets be kept in cash or highly liquid investments. Compliance
with such net capital requirements could limit operations that require the
intensive use of capital, such as underwriting and trading activities. These
rules also could restrict the Company's ability to withdraw capital from the
regulatory authorities, even in circumstances where these authorities hold more
than the minimum amount of the Company's required capital, which in turn, could
limit the Company's ability to pay dividends, repay debt and redeem or
repurchase shares of its outstanding capital stock.
POTENTIAL SECURITIES LAWS LIABILITY
Many aspects of the Company's business involve substantial risks of
liability. In recent years, there has been increasing incidence of litigation
involving the securities industry, including class actions that generally seek
substantial damages. Companies engaged in the underwriting and distribution of
securities are exposed to substantial liability under applicable securities
laws.
SOCIAL, POLITICAL AND ECONOMIC RISKS AFFECTING FOREIGN OPERATIONS AND EFFECTS OF
FOREIGN CURRENCY FLUCTUATIONS
The Company has operations based in 12 foreign countries. The Company is
exposed to the risk of changes in social, political and economic conditions
inherent in foreign operations, including changes in the laws and policies that
govern foreign investment in countries where it has operations as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
trade and investment. In addition, the Company's results of operations and the
value of its foreign assets are affected by fluctuations in foreign currency
exchange rates, which may favorably or adversely affect reported earnings and,
accordingly, the comparability of period-to-period results of operations. For
1996 and 1995, all of the Company's net revenues were outside the United States.
In many cases, the Company is not able to enter into forward foreign exchange
contracts to hedge certain cash flows denominated in foreign currency and
generally does not use derivative instruments to manage currency fluctuations.
There can be no assurance as to the future effect of changes in social,
political and economic conditions on the Company's business or financial
condition.
ENFORCEABILITY OF CIVIL LIABILITIES
A substantial portion of the Company's assets are located outside the
United States. It may be difficult for investors to enforce outside of the
United States judgments against the Company obtained in the United States in any
actions, including actions predicated upon the civil liability provisions of the
securities laws of the United States. In addition, certain of the officers
- 13 -
and directors of the Company are not citizens or residents of the United States
and all or a substantial portion of the assets of such persons are or may be
located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States against such
persons or to enforce judgments obtained in the United States, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States.
DEPENDENCE ON MANAGEMENT AND LIMITATIONS ON CERTAIN EXPERIENCE
The Company's business is principally dependent on certain key management
personnel for the operation of its business. In particular, Peter Schmid and
Martin A. Sumichrast have played significant roles in the promotion, development
and management of the Company. If the employment by the Company of either of
these persons terminates, or they are unable to perform their duties, the
Company may be substantially affected. The Company maintains key man life
insurance relating to Mr. Sumichrast but not relating to Mr. Schmid. In
addition, the management of the Company has limited experience in the
broker-dealer business, in both domestic and foreign markets.
SUBSTANTIAL COMPETITION
The Company encounters substantial competition from both foreign and
domestic businesses in Central and Eastern Europe. A large number of established
and well-financed entities, including multinational businesses and investment
banking firms such as Creditanstaldt, Credit Suisse-First Boston, ING Bearings
and ABN Amro, have recently and substantially increased their business
activities in Central and Eastern Europe. Nearly all of such entities have
substantially greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company may be at a
substantial competitive disadvantage in the conduct of its business in Central
and Eastern Europe.
MARKET MAKER'S INFLUENCE ON THE MARKET MAY HAVE ADVERSE CONSEQUENCES
A significant number of securities may be sold, in the ordinary course of
business, to customers of the J.B. Sutton Group, LLC ("Sutton") which is acting
as a market maker for the common stock. Such customers subsequently may engage
in transactions for the sale or purchase of such securities through or with
Sutton. Although it has no legal obligation to do so, Sutton from time to time
in the future, may make a market in and otherwise effect transactions in the
Company's securities. To the extent Sutton acts as market maker in the
securities, it may be a dominating influence in that market. The price and
liquidity of such securities may be affected by the degree, if any, of Sutton's
participation in the market, inasmuch as a significant amount of such securities
may be sold to customers of Sutton. Such customers subsequently may engage in
transactions for the sale or purchase of such securities through or with Sutton.
Such market making activities, if commenced, may be discontinued at any time or
from time to time by Sutton without obligation or prior notice. If a dominating
influence at such time, Sutton's discontinuance may adversely affect the price
and liquidity of the securities.
- 14 -
"PENNY STOCK" REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF
SECURITIES
The Securities and Exchange Commission ("Commission") has adopted
regulations which generally define "penny stock" to be any equity security that
has a market price (as defined) less than $5.00 per share or an exercise price
of less than $5.00 per share, subject to certain exceptions. The Company's
Common Stock is currently listed on the Nasdaq SmallCap Market and, as a result,
such securities are currently exempt from the definition of "penny stock." If
the Common Stock is removed from listing on Nasdaq at any time, the Company's
securities may become subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally, those persons with
assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
together with their spouse). For transactions covered by these rules, the
broker-dealer must make a special suitability determination for the purchase of
such securities and have received the purchaser's written consent to the
transaction prior to the purchase. Additionally, for any transaction involving a
penny stock, unless exempt, the rules require the delivery, prior to the
transaction, of a risk disclosure document mandated by the Commission relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict the ability of broker-dealers to sell the Company's
securities and may affect the ability of purchasers to sell the Company's
securities in the secondary market.
PROPOSED CHANGES TO NASDAQ LISTING REQUIREMENTS
On November 6, 1996, the Board of Directors of Nasdaq approved proposed
changes to the entry standards and maintenance standards necessary to qualify
for listing on both the Nasdaq National Market (the "National Market") and the
Nasdaq SmallCap Market. Following a 30-day comment period, the Nasdaq Board of
Directors has considered comments, made modifications of the proposed changes
and filed the rule changes with the Securities and Exchange Commission for final
approval. Among the proposed changes to the Nasdaq SmallCap Market listing and
maintenance criteria are the following: eliminating the alternative test to the
$1 minimum bid price; extending the corporate governance standards currently
required by the National Market to the SmallCap issuers; increasing the
quantitative standards; and implementing a requirement that auditors of
Nasdaq-listed companies be subject to peer review. The Company currently does
not meet the proposed new maintenance standards with respect to Corporate
Governance Standards, and, if the proposed or other changes to the listing and
maintenance criteria are approved by the Securities and Exchange Commission,
there can be no assurance that the Company will be able to fulfill any such
criteria.
- 15 -
DELISTING OF SECURITIES TO ADVERSELY AFFECT MARKET
In the event that the Common Stock were to no longer meet applicable Nasdaq
requirements and were delisted from Nasdaq, the Company would attempt to have
its securities traded in the over-the-counter market via the Electronic Bulletin
Board or the "pink sheets." In such event, holders of the Company's securities
would likely encounter greater difficulty in disposing of these securities
and/or in obtaining accurate quotations as to the prices of the Company's
securities.
CONCENTRATION OF STOCK OWNERSHIP
The present directors, executive officers, principal stockholders and their
respective affiliates beneficially own approximately 47.10% of the outstanding
capital stock. As a result, these shareholders will be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
Such concentration of ownership may also have the effect of delaying or
preventing a change in control of the Company.
SHARES ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET
Approximately 1,685,000 of the Company's currently outstanding shares of
Common Stock are "restricted securities" and may be sold upon compliance with
Rule 144, adopted under the Securities Act of 1933, as amended. Rule 144, as
amended, provides, in essence, that a person holding "restricted securities" for
a period of one year may sell only an amount every three months equal to the
greater of (a) one percent of the Company's issued and outstanding shares, or
(b) the average weekly volume of sales during the four calendar weeks preceding
the sale. The amount of "restricted securities" which a person who is not an
affiliate of the Company may sell is not so limited, since non-affiliates may
sell without volume limitation their shares held for two years if there is
adequate current public information available concerning the Company. Assuming
that there is no exercise of any issued and outstanding warrants or options, the
Company had, as of June 27, 1997, 3,003,000 shares of its Common Stock issued
and outstanding, of which 1,685,000 are "restricted securities" and 1,318,000
are publicly traded shares. Therefore, during each three month period, a holder
of restricted securities who has held them for at least the one year period may
sell under Rule 144 the greater of up to 30,030 shares or the average weekly
volume of sales during the four calendar weeks preceding the sale. Nonaffiliated
persons who hold for the two year period described above may sell unlimited
shares once their holding period is met.
Prospective investors should be aware that the possibility of sales may, in
the future, have a depressive effect on the price of the Company's Common Stock
in any market which may develop and, therefore, the ability of any investor to
market his shares may be dependent directly upon the number of shares that are
offered and sold. Affiliates of the Company may sell their
- 16 -
shares during a favorable movement in the market price of the Company's Common
Stock which may have a depressive effect on its price per share.
BUSINESS
BACKGROUND
Eastbrokers International Incorporated (the "Company") was incorporated in
the State of Delaware on January 20, 1993, as the Czech Fund in order to take
advantage of the rapid growth in business opportunities arising from the
privatization of the newly-democratized Czech Republic by merging with or
acquiring Czech businesses.
In July 1993, the Company had a small initial public offering, following
which it purchased a controlling interest in Fortuna Hotel, a.s., a Czech
corporation owning a hotel located in Prague, and was renamed Czech Industries,
Inc. The Company also entered into an agreement to acquire a controlling
interest in Moravacentrum, a collection of eight department stores in Brno. This
acquisition was consummated using a portion of the $15 million gross proceeds
from a secondary public offering in June 1995.
Later in 1995, however, the Company shifted its focus in response to
changes in the marketplace. As major institutional investors began to appreciate
the investment opportunities available in the Czech Republic, most of such
opportunities were seized by a limited number of major institutions which now
control much of the Czech economy. This development made it very difficult for
smaller players such as the Company to effectively take advantage of available
opportunities.
In 1996, the Company received what it considered an attractive offer for
its interest in Moravacentrum. The Company accepted this offer to sell
Moravacentrum, determining that the sale proceeds could be better applied
towards other acquisitions which would provide better prospects for return on
investment.
Having considered a variety of investments, the Company decided on the
acquisition of Eastbrokers Beteiligungs AG, an Austrian brokerage company with
offices throughout Central and Eastern Europe. This transaction enhanced the
Company's prospects by both providing the Company with a vehicle for its
existing acquisition strategy while extending its opportunities beyond the Czech
Republic to the entirety of Central and Eastern Europe. The acquisition was
completed on August 1, 1996. Following the acquisition, the Company's name was
changed to Eastbrokers International Incorporated.
CURRENT OPERATIONS
The Company, through its Vienna-based subsidiary, Eastbrokers Beteiligungs
AG ("Eastbrokers Vienna"), provides financial services in Eastern and Central
Europe. The principal
- 17 -
strategic objective of the Company has been to establish controlling ownership
of independent broker-dealers and to create a network that provides access to
emerging market investment opportunities in Eastern and Central Europe. The
Company intends to market these investment opportunities to Western European
institutional and commercial investors.
Eastbrokers Vienna's primary business is to provide its customers with
stock brokering and investment banking services. Eastbrokers Vienna conducts
business through its head office in Vienna, Austria and in regional offices
located in (a) Prague, Czech Republic (b) Budapest, Hungary, (c) Bratislava,
Slovakia, (d) Almaty, Kazakhstan, (e) Istanbul, Turkey, (f) Moscow, Russia, (g)
Bucharest, Romania, (h) Sofia, Bulgaria, (i) Ljubljana, Slovenia, (j) Zagreb,
Croatia, and (k) Warsaw, Poland. Eastbrokers Vienna is a member of the Vienna
Stock Exchange, the Budapest Stock Exchange, the Bratislava Stock Exchange, the
Zagreb Stock Exchange, the Ljubljana Stock Exchange, the Bucharest Stock
Exchange, the Central Asian Stock Exchange, the Warsaw Stock Exchange and a
shareholder and member of the Prague Stock Exchange. Eastbrokers Vienna also
owns 53 percent of WMP Borsenmakler AG ("WMP"), a publicly-held Austrian
investment banking and brokerage firm.
Eastbrokers Vienna's brokerage, trading and market making business accounts
for approximately 20% of all revenues. Eastbrokers Vienna conducts its sales
activities as principal and agent on behalf of its clients. Eastbrokers Vienna
primarily distributes and trades Eastern and Central European equity securities
and to a lesser degree, debt securities. Eastbrokers Vienna, through WMP,
actively makes a market for the securities of more than 400 companies on the
Vienna Stock Exchange.
Eastbrokers Vienna is also a leading Eastern and Central European
investment banking firm which provides advice to, and raises capital for Eastern
and Central European companies. Eastbrokers Vienna provides advisory services on
key strategic matters such as mergers, acquisitions, privatization, joint
ventures as well as long range financial planning. Eastbrokers Vienna seeks to
raise much of its capital in Western Europe through institutional and commercial
investors.
Additionally, on March 6, 1997, the Company purchased a 90% interest of
Financial Planning Services International, Inc., a Delaware corporation and
member of the National Association of Securities Dealers, Inc. ("FPS"). The
Company subsequently renamed FPS to Eastbrokers North America, Inc.
("Eastbrokers NA"). Through Eastbrokers NA, the Company intends to provide added
value, performance-driven research, trading, asset management and corporate
finance services in the emerging markets of Central and Eastern Europe to North
American institutional investors (buyside and sellside) and high net worth
individuals. The U.S. based broker dealer is expected to complement the existing
European based units. Eastbrokers NA intends to focus on seeking out North
American companies whose primary focus is Central and Eastern Europe.
Differentiation of the services provided will be emphasized in an effort to
enable Eastbrokers NA to fulfill its objective of assisting existing foreign
units by accessing and transacting with North American capital markets, which
represent a source of emerging market
- 18 -
capital, through quality research and by establishing relationships that would
evolve naturally into other financial related products and services. The Company
has not previously operated a broker dealer in the United States and there can
be no assurance that Eastbrokers NA can be successfully established or operated.
The Company's Certificate of Incorporation and By-Laws contain provisions
which reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The provisions
regarding indemnification provide, in essence, that the Company will indemnify
its directors against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
any action, suit or proceeding arising out of the director's status as a
director of the Company, including actions brought by or on behalf of the
Company (shareholder derivative actions).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
PROPOSED PUBLIC OFFERING
The Company has signed a letter of intent relating to a proposed public
offering of its securities (the "Offering"). The proposed Offering is
anticipated to consist of units comprised of: (i) newly authorized and issued
shares of the Company's preferred stock, par value 0.01 per share, which will be
offered at a discount, not to exceed 20% of the closing bid price of the Common
Stock the day before the Offering becomes effective; and (ii) warrants to
purchase shares of Common Stock. Each share of the Preferred Stock will be
convertible into one share of Common Stock on the second anniversary of the
effective date of the Offering and will pay an annual dividend of six percent
(6%) in respect of the two years before it is converted. The proposed Offering,
which will be made only by means of a prospectus, is anticipated to occur in
late 1997 and to generate gross proceeds of approximately $7 million. These
proceeds will be primarily used for working capital purposes.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of any Securities
by the Selling Securityholders.
- 19 -
SELLING SECURITYHOLDERS
The following table sets forth certain information with respect to the
Selling Securityholders as of August 12, 1997. The Securities to which this
Prospectus relates may be sold from time to time in whole or in part by the
Selling Securityholders as described in and subject to the restrictions set
forth in the "PLAN OF DISTRIBUTION".
Shares of
Shares of Shares that Common
Common stock may be offered Stock % of Class
owned prior to pursuant to owned after owned after
Selling Securityholders this offering this Prospectus offering(1) offering(2)
----------------------- ------------- --------------- ----------- -----------
Calvin S. Caldwell 33,334 33,334 -0- N/A
20 Rolling Hills Drive
Huntington, NY 11746
Frank Huang 8,334 8,334 -0- N/A
69 South Moger Avenue
Mt. Kisco, NY 10549
Jay Raubvogel 83,334 83,334 -0- N/A
5 Brook Lane
Brookville, NY 11545
Randall F. Greene(3) 22,500 10,000 12,500 N/A
P.O. Box 18938
Tampa, FL 33679
- --------------
(1) Assuming all shares being offered pursuant to this Prospectus are sold.
(2) If 1% or more. Percentages are based upon there being 3,003,000 shares of
Common Stock issued and outstanding as of August 12, 1997.
(3) Randall F. Greene was a director of the Company from January 1994 until
June 12, 1997. The Company has entered into a consulting agreement with Mr.
Greene dated March 27, 1997 and a letter from Randall F. Greene dated April
29, 1997, amending the agreement (collectively the "Consulting Agreement").
The Consulting Agreement is for a term of six (6) months, beginning on
April 1, 1997 and terminating on September 30, 1997, and provides for
compensation of $4,000 per month. In addition, under the Agreement Mr.
Greene has been granted under the Company's 1996 Stock Option Plan: (1)
options to
- 20 -
purchase 7,750 shares of the Company's common stock at $6.50 per share,
which options become exercisable on October 1, 1997. Under the related
letter agreement, Mr. Greene was paid $13,750 and granted 12,500 shares in
full satisfaction for consulting services rendered during the period August
1, 1996 through March 31, 1997.
During the last three years, none of the Selling Securityholders has held
any position or office with the Company, nor have any of the Selling
Securityholders had any material relationship with the Company other than their
status as holders of the Company's stock, except as noted above.
PLAN OF DISTRIBUTION
Any and all of the Securities listed under "Selling Securityholders" may be
sold from time to time to purchasers directly by the Selling Securityholders.
Alternatively, the Selling Securityholders may from time to time sell the
Securities through brokers, underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Securityholders and/or the purchasers of Securities for whom
they may act as agent. The Selling Securityholders and any such underwriters,
dealers or agents that participate in the distribution of the Securities may be
deemed to be underwriters, and any profit on the sale of Securities by them and
any discounts, commissions or concessions received by any such underwriters,
dealers or agents might be deemed to be underwriting discounts and commissions
under the Securities Act of 1933, as amended (the "Securities Act"). The Selling
Securityholders may also from time to time dispose of Securities pursuant to
available exemptions under the Securities Act, including sales under Rule 144 to
the extent permitted under such rule. The Securities may be sold at varying
prices determined at the time of sale or negotiated prices. Such prices will be
determined by the Selling Securityholders, or by agreement between the Selling
Securityholders and underwriters or dealers. The Securities issued in the April
1997 private placement are being issued pursuant to registration rights granted
in connection with such placement. The 10,000 shares issued in August 1996 in
payment of a consulting fee are being registered at the request of the Selling
Securityholder.
At the time a particular sale of Securities is made, to the extent
required, a Prospectus Supplement will be prepared and distributed by the
Company based on information provided by the Selling Securityholders of the
Securities, which will set forth the number of dealers or agents, any discounts,
commissions or concessions allowed or paid to dealers, including the proposed
selling price to the public.
- 21 -
In order to comply with certain states' securities laws, if applicable, the
Securities will be sold in certain jurisdictions only through registered or
licensed brokers or dealers. In addition, in certain states the Securities may
not be sold unless the Securities have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
such sale is made in compliance with the exemption.
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock, $0.05
par value per share, of which 3,003,000 shares were issued and outstanding as of
August 12, 1997. Upon the exercise of warrants contemplated under this
Prospectus, there will be 3,153,000 shares issued and outstanding.
Holders of Common Stock are entitled to receive, as, when and if declared
by the Board of Directors, from time to time, such dividends and other
distributions in cash, stock or property of the Company out of assets or funds
of the Company legally available therefor, subject to the rights of holders of
preferred stock having a dividend preference over the Common Stock. The Company
has not paid any dividends on its Common Stock to date. The Company anticipates
that for the foreseeable future it will follow a policy of retaining earnings,
if any, in order to finance the expansion and development of its business.
Payment of dividends will depend upon the earnings, capital requirements and the
operating and financial condition of the Company, among other factors.
In the event of the liquidation, dissolution or winding up of the Company,
stockholders will be entitled to share ratably in the assets remaining after
creditors and holders of preferred stock having a liquidation preference over
the Common Stock have been paid in full.
Each share of Common Stock entitles the holder thereof to one (1) vote on
all matters submitted to stockholders. There are no preemptive, conversion,
redemption or cumulative voting rights applicable to the Common Stock. The
outstanding shares of the Common Stock are fully paid and non-assessable.
The transfer agent and registrar for the Company's Common Stock is American
Stock Transfer & Trust Company, 40 Wall Street, New York, New York, 10005,
telephone number (212) 936-5100.
LEGAL MATTERS
The legality of the Securities will be passed upon for the Company by Gould
& Wilkie, One Chase Manhattan Plaza, New York, New York 10005.
EXPERTS
The Company's Consolidated Financial Statements as of and for the year
ended March 31, 1997, incorporated by reference in this Prospectus and the
Registration Statement have been
- 22 -
incorporated herein in reliance on the report of Pannell Kerr Forster, P.C.,
independent certified public accountants, given on the authority of such firm as
experts in accounting and auditing.
- 23 -
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the registration of the Common Stock concerned
herein which are payable by the Registrant are as follows:
SEC Registration Fee $ 300.00
Nasdaq Listing and Filing Fee -0-
Legal Fees and Expenses 25,000.00
Accounting Fees and Expenses 10,000.00
Blue Sky Fees and Expenses 2,000.00
Miscellaneous 1,700.00
------------
Total $39,000.00
============
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and By-Laws contain provisions
which reduce the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its shareholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interests of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit liability resulting from grossly negligent decisions
including grossly negligent business decisions relating to attempts to change
control of the Company.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933 is contrary to public policy and, therefore, is
unenforceable.
The Company also maintains directors and officers liability insurance for
the benefit of its officers and directors.
- II-1 -
ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Incorporation, as amended, incorporated by
reference to Registrant's Form 10-QSB for the nine month
period ended December 31, 1996.
3.2 By-Laws of the Registrant, incorporated by reference to
Registrant's Form 10-QSB for the three month period ended
March 31, 1995.
3.3 Amendment to the By-Laws of the Registrant, incorporated by
reference to Registrant's Form 10-QSB for the three month
period ended June 30, 1996.
5.0 Form of Opinion of Gould & Wilkie(a).
23.1 Consent of Pannell Kerr Forster, P.C.
23.2 Consent of Gould & Wilkie (see Exhibit 5.0)
24.1 Powers of Attorney, granted by Peter Schmid, Chairman,
President and Chief Executive Officer of the Company, on
behalf of the Company, and by Peter Schmid, Michael Sumichrast
Ph.D. and Wolfgang Kossner, individually, appointing Martin A.
Sumichrast and Kevin D. McNeil as attorneys-in-fact,
incorporated by reference to Registrant's Form 10-KSB for the
fiscal year ended March 31, 1997.
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(a) Previously filed.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include
material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material
change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference into the registration
statement shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Rockville, State of Maryland on August 12, 1997.
EASTBROKERS INTERNATIONAL INCORPORATED
(Registrant)
By /s/ Peter Schmid * August 12, 1997
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Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Act of 1933, this amendment
to this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
/s/ Peter Schmid * August 12, 1997
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Peter Schmid Date
Chairman, President, Chief Executive Officer, and Director
/s/ Martin A. Sumichrast August 12, 1997
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Martin A. Sumichrast Date
Vice Chairman of the Board, Secretary, and Director
/s/ Kevin D. McNeil August 12, 1997
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Kevin D. McNeil Date
Vice President, Treasurer, and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Michael Sumichrast * August 12, 1997
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Michael Sumichrast, PhD Date
Director
/s/ Wolfgang Kossner * August 12, 1997
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Wolfgang Kossner Date
Director
* By Martin A. Sumichrast and Kevin D. McNeil as attorneys-in fact.
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Incorporation, as amended, incorporated by
reference to Registrant's Form 10-QSB for the nine month
period ended December 31, 1996.
3.2 By-Laws of the Registrant, incorporated by reference to
Registrant's Form 10-QSB for the three month period ended
March 31, 1995.
3.3 Amendment to the By-Laws of the Registrant, incorporated by
reference to Registrant's Form 10-QSB for the three month
period ended June 30, 1996.
5.0 Form of Opinion of Gould & Wilkie(a).
23.1 Consent of Pannell Kerr Forster, P.C.
23.2 Consent of Gould & Wilkie (see Exhibit 5.0)
24.1 Powers of Attorney, granted by Peter Schmid, Chairman,
President and Chief Executive Officer of the Company, on
behalf of the Company, and by Peter Schmid, Michael Sumichrast
Ph.D. and Wolfgang Kossner, individually, appointing Martin A.
Sumichrast and Kevin D. McNeil as attorneys-in-fact,
incorporated by reference to Registrant's Form 10-KSB for the
fiscal year ended March 31, 1997.
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(a) Previously filed.
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EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion of our report dated June 23, 1997 in the
Registration Statement on Form S-3 dated May 9, 1997 (No. 333-26825) of
Eastbrokers International Incorporated (the "Company") and any amendments
thereto (No. 333-26825). We further consent to the incorporation by reference of
our report into the Company's Registration Statement on Form S-3 dated May 9,
1997 and any amendments thereto (No. 333-26825). We also consent to the
inclusion of our report in the Company's Report on Form 8-K dated Ausut 1, 1996
as amended by Form 8-K/A No. 1 filed August 5, 1997 and any additional
amendments thereto.
/s/ PANNELL KERR FORSTER PC
Alexandria, Virginia
August 11, 1997