-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SnjKGaWyMUPyefFfx85Y6EaR5e7ysUa5SNj/xPn3vssKHNg4lwoPHiiTmAKkCUhC PrjrWI/F0aqFU4AlFLDdDQ== 0001019056-98-000452.txt : 19980803 0001019056-98-000452.hdr.sgml : 19980803 ACCESSION NUMBER: 0001019056-98-000452 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980729 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIEBERT FINANCIAL CORP CENTRAL INDEX KEY: 0000065596 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 111796714 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-49843 FILM NUMBER: 98673502 BUSINESS ADDRESS: STREET 1: 885 THIRD AVENUE STREET 2: SUITE 1720 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126442400 MAIL ADDRESS: STREET 1: 182 SMITH ST CITY: BROOKLYN STATE: NY ZIP: 11201 FORMER COMPANY: FORMER CONFORMED NAME: MICHAELS J INC DATE OF NAME CHANGE: 19950221 S-1/A 1 FORM S-1/A As filed with the Securities and Exchange Commission on July _____, 1998 Registration No. 333-49843 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Amendment No. 2 to FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SIEBERT FINANCIAL CORP. (Exact name of registrant as specified in its charter)
New York 6211 11-1796714 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
885 Third Avenue, Suite 1720 New York, New York 10022 (212) 644-2400 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Copy to: Richard M. Feldman Sarah Hewitt, Esq. Siebert Financial Corp. Brown Raysman Millstein Felder & Steiner, LLP 885 Third Avenue, Suite 1720 120 West 45th Street New York, New York 10022 New York, New York 10036 (212) 644-2400 (212) 944-1515 (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: As soon as practicable following the effective date of this Registration Statement and the effective date of the Rights Offering described herein. 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, 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, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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, check the following box. ______ ------------ 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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. Exhibit Index on Page II-1 PROSPECTUS 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 PRELIMINARY PROSPECTUS, DATED JULY 29, 1998 1,100,000 Shares of Common Stock [logo] SIEBERT FINANCIAL CORP. Rights Offering Siebert Financial Corp. (the "Company") is distributing to holders of record of its common stock, par value $.01 per share (the "Common Stock"), outstanding as of July _____, 1998 (the "Record Date") transferable subscription rights (the "Rights") to subscribe for and purchase additional shares of Common Stock for a price of $_____ per share (the "Subscription Price"). Each shareholder will receive one (1) transferable Right for each share of Common Stock held of record on the Record Date. Each Right will be exercisable for one (1) share of Common Stock. No fractional Rights or cash in lieu thereof will be issued or paid. Holders of Rights are entitled to purchase for the Subscription Price one share of Common Stock for each Right held. Record Date shareholders who fully exercise all Rights distributed to them will also be entitled to subscribe at the Subscription Price for shares of Common Stock that are not otherwise purchased pursuant to the exercise of Rights, subject to pro-ration by the Company under certain circumstances. Once a holder of Rights has exercised such Rights, such exercise may not be revoked. The Rights will be evidenced by transferable subscription certificates ("Subscription Certificates"). The Company's majority shareholder, Chair and President, Muriel F. Siebert, has indicated to the Company that to encourage increased public ownership of the Common Stock, and consistent with her waiving her receipt of past cash dividends, she intends to waive the receipt of the Rights to which she would otherwise be entitled. An aggregate of up to approximately 1,100,000 shares of Common Stock (the "Underlying Shares") will be sold upon exercise of the Rights. The distribution of the Rights and the sale of the shares of Common Stock upon the exercise of the Rights is referred to herein as the "Rights Offering." See "THE RIGHTS OFFERING." The Rights will expire at 5:00 p.m., New York City time, on __________, August _____, 1998 (the "Expiration Date"). Holders of Rights are encouraged to consider carefully the exercise or sale of the Rights by the Expiration Date. After the Expiration Date, unexercised Rights will be null and void. See "THE RIGHTS OFFERING." REFERENCE IS MADE TO "INVESTMENT CONSIDERATIONS" BEGINNING ON PAGE 8 WHICH CONTAINS MATERIAL INFORMATION THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE SECURITIES BEING OFFERED HEREBY. The Common Stock is traded in the Nasdaq SmallCap Market under the symbol "SIEB," and the Rights will trade in the same market under the symbol "SIEBR." The closing sale price of the Common Stock in the Nasdaq SmallCap Market on July _____, 1998 was $__________ per share. See "Price Range of Common Stock." 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. - -------------------------------------------------------------------------------- Price to Shareholder Proceeds to the Issuer(1) - -------------------------------------------------------------------------------- Per Share $_____ $_____ - -------------------------------------------------------------------------------- Total: 1,100,000 Shares $_____ $_____ - -------------------------------------------------------------------------------- (1) Before deducting estimated expenses of the offering by the Company of $235,000. The date of this Prospectus is July _____, 1998. 2 NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE. AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "SEC") a Registration Statement on Form S-1 (together with any amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Rights and the underlying shares of Common Stock. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the SEC and certain items of which may be contained in schedules and exhibits to the Registration Statement as permitted by the rules and regulations of the SEC to which reference is hereby made for further information with respect to the Company, the Rights and the underlying shares of Common Stock. Items of information omitted from this Prospectus but contained in the Registration Statement may be inspected and copied at the public reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional offices of the SEC: 7 World Trade Center, New York, New York 10048, and Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC maintains a Web site that contains reports, proxy statements and information statements and other information regarding registrants that file electronically with the SEC. The address of the Web site is http://www.sec.gov. 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 reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the SEC referred to above. In addition, copies of such reports, proxy statements and other information concerning the Company may also be inspected and copied at the offices of The Nasdaq Stock Market, Inc. at 1735 K Street, N.W., Washington, D.C. 20006-1506 where the Common Stock is traded. 3 ================================================================================ PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN THE FINANCIAL AND OTHER INFORMATION CONTAINED HEREIN WITH RESPECT TO THE COMPANY HAS BEEN ADJUSTED TO GIVE EFFECT TO THE 4 FOR 1 STOCK SPLIT EFFECTIVE APRIL 7, 1998. THIS MEMORANDUM CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS INCLUDE THE MATTERS SET FORTH UNDER "INVESTMENT CONSIDERATIONS" AND ELSEWHERE IN THIS MEMORANDUM. THE COMPANY The Company, through its wholly owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), is a retail discount brokerage and municipal and corporate investment banking firm operating through 14 offices throughout the country. 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 Company has acquired accounts from other discount brokerage firms and, from time to time, has considered acquisitions of other discount brokerage firms or their accounts. Although the Company intends to pursue these opportunities, there can be no assurance that the Company will be able to successfully consummate any such acquisitions in the future. The Company was ranked third among discount brokerage firms in the July 1998 issue of SMART MONEY MAGAZINE in part based upon "a huge advance in its responsiveness and solid gains in on-line trading, mutual funds and breadth of products." In addition, unlike many discount brokerage firms, the firm offers a wide variety of underwriting and investment banking services. Such services, offered through its Capital Markets division, 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. Muriel F. 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 of the Company. The Company believes that it is the largest Woman-Owned Business Enterprise ("WBE") that is a New York Exchange member in the capital markets business in the country and the largest Minority and Women's Business Enterprise ("MWBE") in the tax exempt underwriting business in the country through its affiliate, Siebert, Brandford, Shank & Co., L.L.C. The Company was incorporated on April 9, 1934 under the laws of the State of New York. Siebert was incorporated on June 13, 1969 under the laws of the State of Delaware. The principal executive offices of the ================================================================================ 4 ================================================================================ Company and Siebert are located at 885 Third Avenue, 17th Floor, New York, New York 10022 and their telephone number is (212) 644-2400. THE RIGHTS OFFERING Rights.......................................Each shareholder will receive one (1) transferable Right for each share of Common Stock held of record on __________, July _____, 1998, the Record Date. Each Right will be exercisable for one (1) share of Common Stock. The Company's majority shareholder, Chair and President, Muriel F. Siebert, has indicated to the Company that to encourage increased public ownership of the Common Stock, she intends to waive receipt of the Rights to which she would otherwise be entitled. An aggregate of up to approximately 1,100,000 shares of Common Stock (the "Underlying Shares") will be sold upon exercise of the Rights. The distribution of the Rights and the sale of the shares of Common Stock upon the exercise of the Rights is referred to herein as the "Rights Offering." See "THE RIGHTS OFFERING -- The Rights." Subscription Price...........................$_____ in cash per share of Common Stock subscribed for pursuant to the Basic Subscription Privilege or the Oversubscription Privilege (the "Subscription Price"). The Subscription Price of the Rights has been determined by the Board of Directors of the Company based upon an opinion of Advest, Inc., its financial adviser, and represents a discount to the market price of the Common Stock at the date of this Prospectus. See "THE RIGHTS OFFERING -- Subscription Price" and "--Opinion of Financial Adviser." Rights Ticker Symbol ........................SIEBR Record Date..................................__________, July _____, 1998 Expiration Date..............................__________, August _____, 1998, at 5:00 p.m., New York City time. Basic Subscription Privilege.................Each Right will be exercisable for one (1) share of Common Stock (the "Basic Subscription Privilege"). See "THE RIGHTS OFFERING -- Subscription Privileges -- Basic Subscription Privilege." Oversubscription Privilege...................Record Date shareholders who fully exercise all Rights distributed to them will also be entitled to subscribe at the Subscription Price for shares of Common Stock that are not otherwise purchased pursuant to the exercise of Rights, subject to proration by the Company under certain circumstances (the "Oversubscription Privilege"). If the ================================================================================ 5 ================================================================================ Underlying Shares not subscribed for through the Basic Subscription Privilege ("Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess Shares will be allocated pro rata (subject to the elimination of fractional shares) among those holders of Rights exercising the Oversubscription Privilege, in proportion to the number of shares requested by them pursuant to the Oversubscription Privilege. See "THE RIGHTS OFFERING -- Subscription Privileges -- Oversubscription Privilege." Transferability of Rights....................The Rights are transferable, and it is anticipated that they will trade on the Nasdaq SmallCap Market and in the over-the-counter market until the close of business on the last trading day prior to the Expiration Date. There can be no assurance, however, that a market for the Rights will develop or as to the prices at which the Rights will trade. See "THE RIGHTS OFFERING -- Listing and Trading." The Subscription Agent will endeavor to sell Rights for holders who have so requested and have delivered Subscription Certificates with the instruction for sale properly executed to the Subscription Agent by 11:00 a.m., New York City time, on __________, August _____, 1998. Any brokerage commission, taxes and other direct expenses of sale will be paid by the holder. There can be no assurance that the Subscription Agent will be able to sell any Rights or as to the prices the Subscription Agent may be able to obtain in such sales. See "THE RIGHTS OFFERING -- Method of Transferring Rights." The right to subscribe for additional shares of Common Stock pursuant to the Oversubscription Privilege is not transferable. Procedure for Exercising Rights..............Basic Subscription Privileges and Oversubscription Privileges may be exercised by properly completing the Subscription Certificate and forwarding such Subscription Certificate (or following the Guaranteed Delivery Procedures described herein), with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, to the Subscription Agent on or prior to the Expiration Date. If the mail is used to forward Subscription Certificates, it is recommended that insured, registered mail be used. See "THE RIGHTS OFFERING -- Exercise of Rights." ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND, IF APPLICABLE, THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED. See "THE RIGHTS OFFERING -- No Revocation." ================================================================================ 6 ================================================================================ Procedure for Exercising Rights by Foreign Shareholders........................Subscription Certificates will not be mailed to Holders whose addresses are outside the United States but will be held by the Subscription Agent for their account. To exercise such Rights, such Holders must notify the Subscription Agent on or prior to 11:00 a.m., New York City time, on __________, August _____, 1998, at which time (if no instructions have been received) the Rights represented thereby will be sold, if feasible, and the net proceeds, if any, remitted to such Holders. See "THE RIGHTS OFFERING -- Foreign and Certain Other Shareholders." Persons Holding Shares, or Wishing to Exercise Rights, Through Others............Persons holding shares of Common Stock and receiving the Rights distributable with respect thereto through a broker, dealer, commercial bank, trust company or other nominee, as well as persons holding certificates representing shares of Common Stock personally who would prefer to have such institutions effect transactions relating to the Rights on their behalf, should contact the appropriate institution or nominee and request it to effect the transaction for them. See "THE RIGHTS OFFERING -- Exercise of Rights." Issuance of Common Stock.....................Certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date. Certificates representing shares of Common Stock purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. See "THE RIGHTS OFFERING -- Subscription Privileges." Use of Proceeds..............................The net proceeds from the Rights Offering will be used to build up and promote the Company's internet trading service and for general corporate purposes. See "USE OF PROCEEDS." Subscription Agent...........................American Stock Transfer & Trust Company (the "Subscription Agent"). The Subscription Agent's telephone number is (800) 937-5449. Information Agent............................D.F. King & Co., Inc. (the "Information Agent"). The Information Agent's telephone number is 1-800-859-8508. Federal Income Tax Considerations............See "THE RIGHTS OFFERING -- Certain Federal Income Tax Consequences to Holders" and "THE RIGHTS OFFERING -- Certain United States Tax Consequences to Non-United States Holders." ================================================================================ 7 ================================================================================ Shares of Common Stock Outstanding prior to Rights Offering............................Approximately __________ shares outstanding on the Record Date. Shares of Common Stock Outstanding after Rights Offering..........Approximately __________ shares based on the number of shares outstanding on the Record Date if all Rights are exercised. Investment Considerations ...................In addition to the other information contained in this Prospectus and the documents incorporated by reference herein, prospective purchasers should consider the investment considerations and other risk factors set forth elsewhere herein prior to deciding whether to exercise or sell their Rights. Selected Financial Data .....................See "SELECTED FINANCIAL DATA." ================================================================================ 8 INVESTMENT CONSIDERATIONS THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO ALL THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, PROSPECTIVE PURCHASERS SHOULD CONSIDER THE INVESTMENT CONSIDERATIONS SET FORTH BELOW PRIOR TO DECIDING WHETHER TO EXERCISE OR SELL THE RIGHTS. MARKET CONDITIONS The securities business is, by its nature, subject to significant risks, particularly in volatile or illiquid markets, including the risk of trading losses, losses resulting from the ownership or underwriting of securities, counterparty failure to meet commitments, customer fraud, employee fraud, issuer fraud, errors and misconduct, failures in connection with the processing of securities transactions and litigation. The Company's principal business activity, retail broker-dealer operations, as well as its investment banking, institutional sales and other services, are highly competitive and subject to various risks, volatile trading markets and fluctuations in the volume of market activity. The securities business is directly affected by many factors, 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 and cost of short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of the securities industry in the marketplace and the level and volatility of interest rates. These and other factors can contribute to lower price levels for securities and illiquid markets. Lower price levels of securities may result in (i) reduced volumes of securities, options and futures transactions, with a consequent reduction in commission revenues, and (ii) losses from declines in the market value of securities held in trading, investment and underwriting positions. In periods of low volume, levels of profitability are further adversely affected because certain expenses remain relatively fixed. Sudden sharp declines in market values of securities and the failure of issuers and counterparties to perform their obligations can result in illiquid markets which, in turn, may result in the Company having difficulty selling securities. Such negative market conditions, if prolonged, may also lower the Company's revenues from investment banking and other activities. As a result of the varied risks associated with the securities business, which are beyond the Company's control, the Company's commission and other revenues could be adversely affected. A reduction in revenues or a loss resulting from the underwriting or ownership of securities could have a material adverse effect on the Company's results of operations and financial condition. In addition, as a result of such risks, the Company's revenues and operating results may be subject to significant fluctuations from quarter to quarter and from year to year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Environment." 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 Company's municipal bond underwriting 9 business also encounters significant competition from firms engaged in the municipal finance business. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Business Environment." During 1996 and 1997 and the first half of 1998, 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 business announcing plans to become significantly involved. Other firms, traditionally discount execution firms, have announced their intention to broaden their offerings to include advice and investment management. Since 1994, some firms have offered low flat rate execution fees that are difficult for any conventional discount firm to meet. 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 effect 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. Some such firms are offering their services over the facilities of the internet and have devoted more resources to and have more elaborate web sites than the Company. See "Use of Proceeds." Many of the flat fee brokers, however, impose charges for services such as mailing, transfers and handling exchanges which Siebert does not and also direct their execution to captive market makers. Increased competition, broader service offerings or the prevalence of a flat fee environment could also limit Siebert's growth or even lead to a decline in Siebert's customer base which would adversely affect its results of operations. See "Business--Competition." INTERNET DEVELOPMENT Although the Company has been offering internet trading for approximately one year, it has had only limited experience in this area relative to some other companies in its industry. The Company's ability to develop its internet business and enhance its business through the internet may depend on its ability to attract and retain management personnel with internet experience. There is no assurance that the Company will be able to attract, hire and retain qualified personnel. See "Use of Proceeds." To the extent that the net proceeds from the sale of the shares of the Company's Common Stock offered hereby is used to develop the Company's internet retail brokerage business, much of such expenditures will be expensed as made and the revenues, if any, generated therefrom are likely to be realized in subsequent accounting periods which may initially have a material adverse effect on the Company's results of operations. See "Use of Proceeds." 10 DEPENDENCE ON KEY MANAGEMENT The success of the Company is principally dependent on its founder, Muriel F. Siebert, Chair and President. The loss of the services of Ms. Siebert would adversely affect the Company. See "Management." The success of the Company's municipal bond underwriting business is dependent on the services of two of its principals, Napoleon Brandford III and Suzanne Shank, the loss of whose services would adversely affect the Company. CAPITALIZATION OF SIEBERT, BRANDFORD, SHANK & CO., L.L.C. The Company owns 49% of Siebert, Brandford, Shank & Co., L.L.C., a tax exempt underwriting business. Two individuals, Napoleon Brandford III and Suzanne Shank, own the remaining 51%. Siebert, Brandford, Shank & Co., L.L.C. is currently in the process of borrowing additional capital to enhance its ability to participate in municipal bond underwritings and its ability to sell its bonds to its customers. If such capital is not borrowed or otherwise raised, this would have a material negative impact on such participation and such ability to sell its bonds to customers. Management believes that it will be successful in raising such capital. See "Business--Capital Markets Division." RISKS ASSOCIATED WITH MINORITY AND WOMEN-OWNED BUSINESS PROGRAMS Minority and Women-owned business programs generally operate under the authority of state and local governments or their related agencies. Changes in laws or policies of such governments or their agencies with respect to such programs may adversely affect the Company's participation in municipal bond and equity underwritings as well as the Company's execution of institutional equity transactions. Management 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 minority and women-owned businesses, especially in those locales that have a significant minority population. PRINCIPAL SHAREHOLDER Upon completion of the Offering and if the 1,100,000 shares are sold to the public, Ms. Siebert will own or control approximately 92% of the Company's outstanding Common Stock. Ms. Siebert will have the power to elect the entire Board of Directors and, except as otherwise provided by law or the Company's Certificate of Incorporation, to approve any action requiring shareholder approval without a shareholders' meeting. See "Management" and "Principal Shareholders." PRINCIPAL TRANSACTIONS The Company's Capital Markets division underwriting and trading activities involve the purchase, sale or short sale of securities as principal. These activities involve the risks of changes in the market prices of such securities and of decreases in the liquidity of the securities markets, which could limit the Company's ability to resell securities purchased or to repurchase securities sold short. In addition, these activities subject the Company's capital to significant risks that counterparties will fail to perform their obligations. From time to time, the Company establishes short positions during the course of its trading activities. It is a characteristic of short positions that any loss sustained on closing out the position may exceed the liability related thereto as shown on the Company's financial statements. 11 RISKS ASSOCIATED WITH FEDERAL AND STATE REGULATION The Company's business is, and the securities industry is, subject to extensive regulation in the United States, at both the Federal and state level. As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the securities and other financial markets and with protecting the interests of customers participating in those markets and not with protecting the interests of the Company's shareholders. In addition, self-regulatory organizations and other regulatory bodies in the United States, such as the SEC, the New York Stock Exchange (the "NYSE"), the National Association of Securities Dealers, Inc. (the "NASD") and the Municipal Securities Rulemaking Board (the "MSRB"), require strict compliance with their rules and regulations. Failure to comply with any of these laws, rules or regulations, some of which are subject to the uncertainties of interpretation, could result in a variety of adverse consequences including civil penalties, fines, suspension or expulsion, which could have a material adverse effect upon the Company. The laws and regulations, as well as governmental policies and accounting principles, governing the financial services and banking industries have changed significantly over recent years and are expected to continue to do so. During the last several years Congress has considered numerous proposals that would significantly alter the structure and regulation of such industries. The Company cannot predict which changes in laws or regulations, or in governmental policies and accounting principles, will be adopted, but such changes, if adopted, could materially and adversely affect the business and operations of the Company. See "Business--Regulation." NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE The SEC, the NYSE and various other securities and commodities exchanges and other regulatory bodies in the United States have rules with respect to net capital requirements which affect the Company. These rules have the effect of requiring that at least a substantial portion of a broker-dealer's assets be kept in cash or highly liquid investments. Compliance with the net capital requirements by the Company could limit operations that require intensive use of capital, such as underwriting or trading activities. These rules could also restrict the ability of the Company to withdraw capital from Siebert, even in circumstances where Siebert has more than the minimum amount of required capital, which, in turn, could limit the ability of the Company to implement its strategies. In addition, a change in such rules, or the imposition of new rules, affecting the scope, coverage, calculation or amount of such net capital requirements, or a significant operating loss or any unusually large charge against net capital, could have similar adverse effects. See "Business--Net Capital Requirements." SIGNIFICANT INCREASE IN OVERHEAD During 1996 and 1997, Siebert opened retail discount brokerage offices in Morristown, New Jersey and Palm Beach and Surfside (Bal Harbour), Florida and relocated its office in Los Angeles. In October 1996, Siebert formed the Siebert Brandford Shank division of Siebert to add to the former activities of Siebert's tax exempt underwriting department. The Siebert Brandford Shank division has opened offices in San Francisco and Seattle and has opened or assumed the leases for additional offices in San Francisco, Seattle, Houston, Chicago, Detroit, Los Angeles and Dallas. As a result of the new office expenses and the additional compensation expenses, Siebert's overhead expense has increased significantly. There can be no assurance that Siebert will generate sufficient additional revenue to cover such expense which could have a 12 material adverse effect upon the Company. The Company intends to build up and promote its internet trading service and to expend approximately $__________ principally on advertising and promotion of the internet service, development of such service and salaries for additional personnel for such service. LIQUIDITY Until November 1996, there was no public market for the Common Stock or any other securities of the Company. In addition, approximately 800,000 shares, or approximately 3.8% of the shares outstanding, are currently held by the public. Although the Common Stock is traded in the Nasdaq SmallCap Market, there can be no assurance that an active public market will continue. SHARES ELIGIBLE FOR FUTURE SALE There will be approximately 22,107,000 shares of Common Stock outstanding immediately after completion of this Rights Offering, 20,434,000 of which, owned or controlled by Muriel F. Siebert, will be "restricted securities" under the Securities Act, and may only be sold pursuant to a registration statement under the Securities Act or an applicable exemption from the registration requirements of the Securities Act, including Rule 144 thereunder. However, Ms. Siebert has agreed not to sell any shares of Common Stock owned by her directly for a period of 60 days from the date of this Prospectus. In addition, directors and employees having options to purchase an aggregate of approximately 258,000 shares of Common Stock are currently vested and can be exercised and the underlying shares of Common Stock sold. A significant portion of the shares not owned by Ms. Siebert will be freely tradeable in the public markets. Sale of a substantial number of shares of Common Stock in the public market, whether by Ms. Siebert or other shareholders of the Company, could adversely affect the prevailing market price of the Common Stock. UNCERTAIN MARKET FOR RIGHTS; MARKET CONDITIONS; MARKET CONSIDERATIONS Because the Rights are new securities, the trading market for the Rights may be volatile. Moreover, there can be no assurance that a market for the Rights will develop or as to the price at which the Rights will trade. The Subscription Price of the Rights has been determined by the Board of Directors of the Company based upon an opinion of Advest, Inc., its financial adviser, and represents a discount to the market price of the Common Stock at the date of this Prospectus. However, there can be no assurance that a subscribing Rights holder will be able to sell shares of Common Stock purchased in the Rights Offering at a price equal to or greater than the Subscription Price. When made, the election of a Rights holder to exercise Rights in the Rights Offering is irrevocable. Moreover, until certificates are delivered, subscribing Rights holders may not be able to sell the Common Stock that they have purchased in the Rights Offering. Certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date. Certificates representing shares of Common Stock purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. No interest will be paid to Rights holders on funds delivered to the Subscription Agent pursuant to the exercise of Rights pending delivery of shares of Common Stock acquired upon exercise of Rights. 13 IMPACT OF RIGHTS OFFERING ON HOLDERS OF COMMON STOCK; DILUTION The Rights entitle the holders of shares of Common Stock to purchase shares of Common Stock at a price below the prevailing market price of the Common Stock immediately prior to the commencement of the Rights Offering. Due to the waiver by Ms. Siebert of the receipt of Rights to which she would otherwise be entitled, holders of shares of Common Stock who exercise their Rights through the Basic Subscription Privilege and the Oversubscription Privilege will increase their proportionate interest in their equity ownership and voting power of the Company on a fully-diluted basis. Holders who do not exercise their Rights will experience a decrease in their proportionate interest in the equity ownership of the Company. The sale of the Rights may not compensate a holder for all or any part of the reduction in the market value of such shareholder's shares of Common Stock, if any, resulting from the Rights Offering. Shareholders who do not exercise or sell their Rights will relinquish any value inherent in the Rights. Assuming all of the Rights are exercised and based on approximately 21,007,000 shares of Common Stock outstanding on the Record Date, the consummation of the Rights Offering would result (on a pro forma basis as of such date) in an increase of approximately 1,100,000 shares of Common Stock. IMPACT OF RIGHTS OFFERING ON HOLDERS OF OPTIONS & RESTRICTED STOCK The Company will not distribute Rights to holders of vested or non-vested options outstanding on the Record Date pursuant to the Company's Stock Option Plan. Rather, the Company will adjust the exercise price of such vested and non-vested options by a percentage calculated by dividing the number of shares of Common Stock issued pursuant to the Rights Offering by the number of outstanding shares of Common Stock on the Record Date plus the number of shares of Common Stock issued pursuant to the Rights Offering. Holders of restricted stock pursuant to the Company's Restricted Stock Award Plan will be entitled to receive Rights for each restricted share held as of the Record Date. CONSTRUCTIVE DISTRIBUTIONS UNDER THE FEDERAL TAX CODE The distribution of Rights pursuant to the Rights Offering should not result in a taxable distribution of property for Federal income tax purposes to the holders of shares of Common Stock. However, the provisions of the Internal Revenue Code and the Treasury Regulations issued thereunder relating to the treatment of distributions such as the Rights Offering are not clear as to certain aspects of the analysis required to avoid such a taxable distribution, and the tax consequences of the Rights Offering also may be affected by the occurrence of future events. Accordingly, counsel to the Company is unable to render an opinion as to the applicability of such provisions to the Rights Offering. See "THE RIGHTS OFFERING--Certain Federal Income Tax Consequences to Holders--Constructive Distributions under Section 305 of the Code." 14 IMMEDIATE DILUTION Subscribing Rights holders will experience dilution, upon the sale of such Common Stock, in net tangible book value of $_____ per share, based on a closing price, as of July _____, 1998, of $_______ per share. FORWARD-LOOKING STATEMENTS This Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Actual results could differ from those projected in any forward-looking statements for the reasons detailed in the other sections of this "Investment Considerations " portion of, and elsewhere in, this Prospectus. 15 USE OF PROCEEDS The net proceeds available to the Company from the Rights Offering are estimated to be $_____ if all the Rights are exercised and after deducting expenses payable by the Company estimated to be approximately $235,000. The Company intends to use approximately $__________ of the net proceeds from the Rights Offering to build up and promote its internet trading service. Such net proceeds will be expended principally on advertising and promotion of the internet service, development of such service and salaries for additional personnel for such service. Any proceeds not utilized to build and promote the internet trading service will be used for general corporate purposes. Pending any specific application of the net proceeds, the net proceeds will be added to working capital and invested in short-term interest-bearing obligations. DIVIDEND POLICY To date, the Company has established a practice of paying quarterly cash dividends to its shareholders. On December 22, 1997, March 16, 1998 and June 23, 1998, dividends of $.0225, $.0225 and $.03 per share were declared for all shareholders of record as of December 30, 1997, March 20, 1998 and July 9, 1998, respectively. Ms. Siebert, as the majority shareholder of the Company, waived her right to receive the three cash dividends declared by the Company and has indicated to the Company that she intends to waive her right to receive future cash dividends declared through 1998, if any. Shareholders who exercise Rights will not be entitled to receive the June 23 dividend with respect to the shares of Common Stock represented by such Rights. Subject to statutory and regulatory constraints, prevailing financial conditions and future earnings, the Company may pay cash dividends 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. 16 PRICE RANGE OF COMMON STOCK The Common Stock commenced trading in 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 ....... $3.00 $2.25 First Quarter - 1997 .................................... $3.09 $2.31 Second Quarter - 1997 ................................... $2.38 $2.31 Third Quarter - 1997 .................................... $2.31 $1.31 Fourth Quarter - 1997 ................................... $2.25 $1.88 First Quarter - 1998 .................................... $9.00 $2.42 Second Quarter - 1998 ................................... $19.00 $7.38 Third Quarter - 1998 (through July _____, 1998) ......... $_____ $_____ The closing price of the Common Stock on the Nasdaq SmallCap Market on July _____, 1998 was $__________ per share. As of July _____, 1998, there were approximately 230 holders of record and approximately 1,700 additional beneficial holders of the Common Stock. The Company currently meets the criteria for listing of its Common Stock on the American Stock Exchange ("AMEX") and may meet the criteria for listing of its Common Stock on the Nasdaq National Market System. Notwithstanding its meeting the applicable criteria, there can be no assurance that the Company will, in fact, either apply for listing or be listed on either the Nasdaq National Market System or AMEX. 17 CAPITALIZATION The following table sets forth the capitalization of the Company at June 30, 1998 as retroactively adjusted for the 4 for 1 stock split that occurred on April 7, 1998, and as adjusted to reflect the net proceeds from the sale of the 1,100,000 shares of Common Stock offered by the Company at a Subscription Price of $_____ assuming all of the Rights are exercised. See "Use of Proceeds." June 30, 1998 ------------------------- Actual As Adjusted ---------- ----------- (unaudited) (In thousands) Subordinated debt to shareholder $ 3,000 $ 3,000 ---------- ----------- Common Stock, par value $.01, 49,000,000 shares authorized, 20,996,440 shares issued and outstanding at June 30, 1998 and 22,096,440 shares issued and outstanding, as adjusted 210 221 Additional paid-in capital 6,643 -- Retained earnings 4,998 4,998 ---------- ----------- Total shareholders' equity 11,851 -- ---------- ----------- Total capitalization $ 14,851 $ -- ========== =========== 18
================================================================================================================================= SELECTED FINANCIAL DATA The selected consolidated financial data set forth below for the six months ended June 30, 1998 and 1997 and for each of the years in the five year period ended December 31, 1997 has been derived from the Company's unaudited interim and audited annual financial statements. Such information should be read in conjunction with, and is qualified in its entirety by, the financial statements and notes thereto appearing elsewhere in this Prospectus. Six Months Ended June 30, Year Ended December 31, ------------------------- ------------------------------------------------------------------- 1998 1997 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income statement data: Revenues: Commissions and fees .... $ 9,301,346 $ 9,095,253 $18,879,674 $20,105,127 $15,645,334 $12,128,797 $14,349,051 Investment banking ...... 2,965,726 1,348,860 4,487,594 2,532,795 1,396,967 1,536,030 2,462,309 Trading profits ......... 767,441 1,183,220 1,795,104 868,823 2,608,078 3,215,288 3,133,722 Interest and dividends .. 317,892 283,837 704,911 656,434 1,389,612 462,618 261,198 ----------- ----------- ----------- ----------- ----------- ----------- ----------- 13,352,405 11,911,170 25,867,283 24,163,179 21,039,991 17,342,733 20,206,280 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Expenses: Employee compensation and benefits (1) .......... 4,652,625 3,806,536 8,208,006 9,753,847 8,586,116 6,132,899 8,999,567 Clearing fees, including floor brokerage ....... 1,360,789 2,172,279 4,675,368 4,585,398 4,249,050 3,967,558 4,473,740 Advertising and promotion 759,144 1,539,180 2,751,755 3,265,692 2,485,426 2,299,030 2,171,858 Communications .......... 823,866 840,614 1,446,817 1,359,325 1,119,189 1,001,957 896,986 Occupancy ............... 354,333 326,098 648,763 403,534 326,089 323,123 323,235 Interest ................ 192,664 206,840 418,405 290,465 568,326 602,759 323,876 Other general and administrative ........ 1,563,300 1,502,575 3,043,068 2,339,483 2,461,122 2,458,237 1,932,143 ----------- ----------- ----------- ----------- ----------- ----------- ----------- 9,706,721 10,394,122 21,192,182 21,997,744 19,795,318 16,785,563 19,121,405 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Income before provision for income taxes................. 3,645,684 1,517,048 4,675,101 2,165,435 Provision for income taxes..... 1,477,000 673,000 2,057,000 201,000 ----------- ----------- ----------- ----------- Net income - historical........ $2,168,684 $ 844,048 $ 2,618,101 1,964,435 1,244,673 557,170 1,084,875 =========== =========== =========== Pro forma provision for income taxes (2).................... 752,000 548,000 245,000 477,000 ----------- ----------- ----------- ----------- Net income - pro forma......... 1,212,435 $ 696,673 $ 312,170 $ 607,875 =========== =========== =========== 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................. $.10 $.04 $.12 Pro forma.................. $.06 $.03 $.01 $.03 Supplemental pro forma..... $.14 Weighted average shares deemed outstanding (basic).......... 20,992,510 20,948,156 20,949,484 20,943,588 20,943,588 20,943,588 20,943,588 Weighted average shares deemed outstanding (diluted)........ 21,680,399 20,948,156 20,949,484 20,943,588 20,943,588 20,943,588 20,943,588 Statement of financial condition data (at period-end): Total assets................. $23,025,649 $16,017,485 $17,881,589 $14,372,708 $16,291,195 $ 9,372,230 $12,161,104 Total liabilities excluding Subordinated borrowings...... 8,174,892 5,100,813 5,209,032 4,271,143 9,154,065 3,479,773 6,825,817 Subordinated borrowings to majority shareholder........ 3,000,000 3,000,000 3,000,000 3,000,000 2,000,000 2,000,000 2,000,000 Shareholders' equity......... 11,850,757 7,916,672 9,672,557 7,101,565 5,137,130 3,892,457 3,335,287
- ------------------- (1) Employee compensation and benefits include $2,975,000, $2,975,000, $1,215,000 and $3,958,000 for 1996 through 1993, respectively, of S corporation compensation of Muriel Siebert in excess of the amounts that would have been paid had her 1997 compensation arrangement of $150,000 been in effect. (2) The pro forma provision for income taxes represents income taxes which would have been provided had Siebert operated as a C Corporation. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the Company's unaudited quarterly and audited Annual Consolidated Financial Statements and the Notes thereto contained elsewhere in this Prospectus. Statements in this "Management's Discussion and Analysis of Financial Conditions and Results of Operations" 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 the first six months of 1998 and the 1997 fiscal year 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 charging 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 utilizes both systems housed primarily on its own computer network and systems housed on the computers of third parties, such as its clearing broker and payroll vendor, to conduct its normal business activities. Some of the systems on its network are proprietary and many are off the shelf programs acquired from vendors. Siebert has inventories those systems critical 20 to its operations and has received assurances from the developers, vendors and third parties that those systems are, or will be prior to December 31, 1998, Year 2000 compliant. Although nothing has come to Siebert's attention which would cause it to believe that the assurances it has received are not accurate, the failure of one or more critical systems to be Year 2000 compliant could have a material adverse effect on the results of its operations. Siebert intends to test all of the critical systems during 1999. The costs incurred to date and in the future relating to this issue are not expected to be material in the aggregate. CURRENT DEVELOPMENTS In June 1998, Siebert signed a new one year agreement with its clearing broker which provides, among other things, for reduced ticket charges and execution fees. Such agreement provides for the retroactive effect of the new charges and execution fees in an amount not to exceed $1,000,000. If the new agreement had been effective for the entire calendar year 1997, Siebert would have realized monthly savings of a minimum of $150,000. A pro rata portion of the payment is refundable under certain circumstances and accordingly Siebert recognized pre-tax income of approximately $750,000 in its financial statements for the second quarter of 1998. The balance shall be recognized in a future period after such balance is no longer refundable. In addition, Siebert will have reduced clearing costs and execution fees for the remainder of the contract term based on the volume of trades and customer account balances. The new agreement also provides increasing volume discounts as the monthly number of trades increases. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total revenues for the six months ended June 30, 1998 were $13.4 million, an increase of $1.4 million or 12% over the same period in 1997. Commission and fee income, investment banking and interest and dividend revenues increased as compared to the same period in the prior year, however, trading profits decreased. Commission and fee income increased $206,000 or 2.3% to $9.3 million due to higher trading volume partially offset by 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. Investment banking revenues increased $1.6 million or 120% to $3.0 million primarily due to the increased tax exempt underwriting activity by the Siebert, Brandford, Shank division in 1998. This division had minimal operations for the first six months of 1997, since it only began operations in late 1996. Trading profits decreased $416,000 or 35% to $767,000 primarily due to reduced income opportunities in trading of listed bond funds, the firm's principal trading activity. Interest and dividends increased $34,000 or 12% to $318,000 primarily due to trading strategies which generated higher dividend income. Total expenses for the six months ended June 30, 1998 were $9.7 million, a decrease of $687,000 or 6.6% over the same period in 1997. Clearing fees, advertising and promotion, communications and interests all decreased and all other expenses increased. Employee compensation and benefit costs increased $846,000 or 22% to $4.7 million primarily due to commissions paid to the Siebert, Brandford, Shank division's sales personnel resulting from increased tax exempt underwriting activity. 21 Clearing and floor brokerage fees decreased $811,000 or 37.0% to $1.4 million. Such costs decreased primarily due to the retroactive effect of the new agreement with the clearing broker (see "Current Developments" above). Advertising and promotion expense decreased $780,000 or 51% to $759,000 due to a decreased level of promotional advertising. Communications expense decreased $17,000 or 2.0% to $824,000 primarily due to telephone contract price reductions. Occupancy costs increased $28,000 or 8.7% to $354,000 principally due to a lease extension option cancellation fee paid during 1998. Interest expense decreased $14,000 or 6.9% to $193,000 primarily due to lower use of short positions in proprietary trading activity. Other general and administrative expenses increased $61,000 or 4.0% to $1.6 million primarily due to increased business development expenses related to the municipal investment banking staff. Provision for income taxes increased $804,000 or 119% to $1.5 million primarily due to an increase in net income before tax in the first six months of 1998 of $2.2 million or 140% to $3.6 million over the same period in 1997, partially offset by a refund of local taxes. 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. 22 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. 23 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. 24 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 Upon the completion of the Rights Offering and assuming the exercise of all of the Rights, the Company will have approximately $____ million in additional cash and/or short-term securities. 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 June 30, 1998 were $23 million, of which $2 million took the form of a secured demand note. At such date, $14.2 million or 62% of total assets were highly liquid. Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At June 30, 1998, Siebert's regulatory net capital was $6.9 million, $6.6 million in excess of its minimum capital requirement of $250,000. 25 BUSINESS GENERAL The Company, through its wholly owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), is a retail discount brokerage and municipal and corporate investment banking firm operating through 14 offices throughout the country. Muriel F. 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 has acquired accounts from other discount brokerage firms and, from time to time, the Company has considered acquisitions of other discount brokerage firms or their accounts. Although the Company intends to pursue these opportunities, there can be no assurance that the Company will be able to successfully consummate any such acquisitions in the future. The Company was ranked third among discount brokerage firms in the July 1998 issue of SMART MONEY MAGAZINE in part based upon "a huge advance in its responsiveness and solid gains in on-line trading, mutual funds and breadth of products." In addition, unlike many discount brokerage firms, the firm offers a wide variety of underwriting and investment banking services. Such services, offered through its Capital Markets division, 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 became a reporting company through a merger with J. Michaels, Inc. ("JMI"), a company not previously associated with Siebert Financial Corp., effective on November 8, 1996. Following the merger, the Company's fiscal year was changed to December 31. The Company was incorporated on April 9, 1934 under the laws of the State of Delaware. 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 and their telephone number is (212) 644-2400. 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 Company believes that it is the largest Woman-Owned Business Enterprise ("WBE") that is a New York Stock Exchange member in the capital markets business in the country and the largest Minority and Women's Business Enterprise ("MWBE") in the tax exempt underwriting business in the country through its affiliate Siebert, Brandford, Shank & Co., L.L.C. 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 26 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. In fact, many of Siebert's new accounts come from such full-commission firms. 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 a 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 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. Additionally, the firm offers customers execution services through the SelectNet(2) and Instinet(3) systems for an additional fee. 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 - ------------------- (1) NYSE Prime is a service mark of the New York Stock Exchange, Inc. (2) SelectNet is a trademark of The Nasdaq Stock Market, Inc. (3) Instinet is a trademark of Reuters Group PLC. 27 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 protection through Securities Investor Protection Corporation ("SIPC") 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 research and 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, Windows95 and Windows984 - 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 7,000 mutual funds, including 2,000 no-load funds, about 1,000 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. - ------------------- (4) Windows 3.1, Windows95 and Windows98 are trademarks of the Microsoft Corporation. 28 VISA(R)5 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 pick-up 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. 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, SEP 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. - ------------------- (5) VISA is a registered trademark of VISA International, Inc. 29 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. CURRENT DEVELOPMENTS. In June 1998, Siebert signed a new one year agreement with NFSC which provides, among other things, for reduced ticket charges and execution fees. Such agreement provides for the retroactive effect of the new charges and execution fees in an amount not to exceed $1,000,000. If the new agreement had been effective for the entire calendar year 1997, Siebert would have realized monthly savings of a minimum of $150,000. A pro rata portion of the payment is refundable under certain circumstances and accordingly Siebert recognized pre-tax income of approximately $750,000 in its financial statements for the second quarter of 1998. The balance shall be recognized in a future period after such balance is no longer refundable. In addition, Siebert will have reduced clearing costs and execution fees for the remainder of the contract term based on the volume of trades and customer account balances. The new agreement also provides increasing volume discounts as the monthly number of trades increases. 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 30 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 division has served as a co-manager, selling group member or underwriter on a full spectrum of securities offerings by municipalities, corporations and Federal agencies. 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 for sale to 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 or co-managed over $100 billion in total transaction value of 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 or selling group member in over 210 corporate offerings, including debt issuances, totaling over $137 billion in total transaction value. 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 were moved on July 1, 1998 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 and 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. See "Risk Factors --Capitalization of Siebert, Brandford, Shank & Co., L.L.C." Pending transfer to Siebert, Brandford, Shank & Co., L.L.C., the municipal bond business was operated as a division of Siebert, pursuant to the financial arrangement previously described. In addition to occupying a portion of Siebert's existing offices in New York, Siebert, Brandford, Shank & Co., L.L.C. operates out of offices in San Francisco, Seattle, Houston, Chicago, Detroit, Los Angeles and Dallas. 31 To date, the Siebert, Brandford, Shank division has co-managed or senior co-managed offerings of over $27 billion in total transaction value and senior managed offerings of over $700 million in total transaction value. 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 Pentium6-based PCs running Microsoft Windows98, Windows95 or Windows NT.7 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 - ------------------- (6) Pentium is a trademark of the Intel Corporation. (7) Microsoft Windows98, Windows95 and WindowsNT are trademarks of the Microsoft Corporation. 32 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. Some such firms are offering their services over the facilities of the internet and have devoted more resources to and have more elaborate web sites than the Company. See "Use of Proceeds." 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. There are currently over sixty principal competitors with Siebert in the discount brokerage business. Siebert charges commissions generally lower than other discount brokers but more than some others. 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. Siebert believes that it is one of the largest independent discount brokerage firms, as most firms that were previously independent have been purchased by or merged into larger financial institutions. 33 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, Inc. ("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 shareholders 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 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 34 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 June 30, 1998, Siebert had net capital of $6.9 million 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 requirements. EMPLOYEES The Company currently has approximately 115 employees, all of whom are full time and four of whom are corporate officers. None of the employees are represented by a union, and the Company believes that its relations with its employees are good. 35 PROPERTIES Siebert operates its business out of the following fourteen leased offices:
Approximate Expiration Office Area in Date of Current Renewal Location Square Feet Lease Terms - -------- ----------- ----- ----- Corporate Headquarters, Retail and Investment Banking Office - ------------------------- 885 Third Ave. New York, NY 10022 7,828 SF 4/30/03 None 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 month None Dallas, TX 75201 400 Renaissance Center 1,500 SF Month to month None Detroit, MI 48243
36
Approximate Expiration Office Area in Date of Current Renewal Location Square Feet Lease Terms - -------- ----------- ----- ----- 400 Louisiana 1,513 SF 6/29/99 None Houston, TX 77002 523 West 6th Street 1,138 SF Month to month None Los Angeles, CA 90014 220 Sansome Street 3,250 SF 2/28/00 None San Francisco, CA 94104 601 Union Street 325 SF Month to month None Seattle, WA 98101
The Company believes that its properties are in good condition and are suitable and adequate for the Company's business operations. 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. 37 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are: Name Age Position - ---- --- -------- Muriel F. Siebert 65 Chair, President and Director Nicholas P. Dermigny 40 Executive Vice President, Chief Operating Officer and Director Richard M. Feldman 37 Executive Vice President, Chief Financial Officer and Assistant Secretary Daniel Iesu 38 Secretary Patricia L. Francy 52 Director Jane H. Macon 51 Director Monte E. Wetzler 62 Director Certain information furnished to the Company by each director and executive officer is set forth below. Muriel F. Siebert has been Chair, President and a director of Siebert since 1969 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 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 of the Company since November 8, 1996. He has been Controller of Siebert since 1989. Patricia L. Francy is Treasurer and Controller of Columbia University. She previously served as the University's Director of Finance and Director of Budget Operations and has been associated with the University since 1969. Ms. Francy became a director of the Company on March 11, 1997. 38 Jane H. Macon is a partner with the law firm of Fulbright & Jaworski L.L.P., San Antonio, Texas. Ms. Macon has been associated with the firm since 1983. Ms. Macon became a director of the Company on November 8, 1996. Monte E. Wetzler is a partner with the New York law firm of Brown Raysman Millstein Felder & Steiner, LLP and chairman of its corporate department. From 1988 until October 31, 1996, Mr. Wetzler was a partner with the New York law firm of Whitman Breed Abbott & Morgan, chairman of its corporate department and a member of its executive committee. Mr. Wetzler became a director of the Company on November 8, 1996. The Board of Directors has standing Audit and Compensation Committees consisting of Ms. Francy, Ms. Macon and Mr. Wetzler with Ms. Siebert serving as a non-voting member. Directors are elected by the shareholders at each annual meeting or, in the case of a vacancy, appointed by the directors then in office, to serve until the next annual meeting or until their successors are elected and qualified. Pursuant to the Company's bylaws, its officers are chosen annually by the Board of Directors and hold office until their respective successors are chosen and qualified. EXECUTIVE COMPENSATION OF THE COMPANY The following table sets forth certain information with respect to compensation awarded to, earned by or paid to (a) the Company's Chief Executive Officer and (b) each of the four most highly compensated executive officers of the Company as of the 1997 year end (other than the Chief Executive Officer) whose total annual salary and bonus exceeded $100,000, in each case for the preceding three fiscal years (collectively, the "Named Executives"). In 1997, 1996 and 1995, there were only two such persons. SUMMARY COMPENSATION TABLE Name and Principal Position Year Salary ($) Bonus($) - --------------------------- ---- ---------- -------- Muriel F. Siebert 1997 $ 150,000 $ -- Chair and President 1996 150,000 2,975,000 1995 108,000 3,017,000 Nicholas P. Dermigny 1997 125,000 187,500 Executive Vice President 1996 125,000 205,000 and Chief Operating Officer 1995 125,000 175,000 Daniel Iesu 1997 50,000 65,000 Secretary 1996 50,000 53,250 1995 47,692 42,500 39 COMPENSATION OF DIRECTORS Directors who are not employees of the Company or its subsidiaries are paid a fee at an annual rate of $10,000. On March 11, 1997, each of the non-employee directors of the Company received an option to purchase 40,000 shares of Common Stock at an exercise price of $2.313 per share expiring on the fifth anniversary of the date of grant. Officers and employees of the Company or its subsidiaries receive no remuneration for their services as directors. The Company indemnifies its directors to the extent permitted by applicable law. STOCK OPTION PLAN The Company's 1997 Stock Option Plan (the "Stock Option Plan") was adopted by the Board of Directors in March 1997 and approved by the shareholders on December 1, 1997. The Stock Option Plan permits the issuance of either options intended to qualify as incentive stock options ("Incentive Stock Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or options not intended to so qualify ("Nonstatutory Stock Options"). The aggregate fair market value of Common Stock for which a participant is granted Incentive Stock Options that first become exercisable during any given calendar year will be limited to $100,000. To the extent such limitation is exceeded, an option will be treated as a Nonstatutory Stock Option. The Stock Option Plan provides for the grant of options to purchase up to 2,100,000 shares of Common Stock to employees of the Company and its subsidiaries. The Stock Option Plan is administered by a committee of the Board of Directors consisting of Patricia L. Francy, Jane H. Macon and Monte E. Wetzler (the "Committee") that selects persons to receive awards under the Stock Option Plan, determines the amount of each award and the terms and conditions governing such award, interprets the Stock Option Plan and any awards granted thereunder, establishes rules and regulations for the administration of the Stock Option Plan and takes any other action necessary or desirable for the administration of the Stock Option Plan. The Stock Option Plan may be amended by the Board of Directors as it deems advisable; PROVIDED, HOWEVER, that no amendment will become effective unless approved by affirmative vote of the Company's shareholders if such approval is necessary for the continued validity of the Stock Option Plan or if the failure to obtain such approval would adversely affect the compliance of the Stock Option Plan under any applicable rule or regulation. No amendment may, without the consent of a participant, impair such participant's rights under any option previously granted under the Stock Option Plan. The price for which shares of Common Stock may be purchased upon the exercise of an option will be the fair market value of such shares on the date of the grant of such option; PROVIDED, HOWEVER, that an Incentive Stock Option granted to an employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company shall have a purchase price for the underlying shares equal to 110% of the fair market value of the Common Stock on the date of grant. An option may be granted for a term not to exceed ten years from the date such option is granted. An Incentive Stock Option awarded to an employee who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company may not, in any event, be exercisable after the expiration of five years from the date such Incentive Stock Option is granted. All options will be exercisable in accordance with the terms and conditions set forth in the option agreements evidencing the grant of such options. Except under limited circumstances involving termination of employment due to retirement or death or disability, a participant may not exercise any option granted under the Stock Option Plan within the first year after the date of the grant of such option. 40 Full payment of the purchase price for shares of Common Stock purchased upon the exercise, in whole or in part, of an option granted under the Stock Option Plan must be made at the time of such exercise. The Stock Option Plan provides that the purchase price may be paid in cash or in shares of Common Stock valued at their fair market value on the date of purchase. Alternatively, an option may be exercised in whole or in part by delivering a properly executed exercise notice, together with irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds necessary to pay the purchase price and applicable withholding taxes, and any other documents that the Committee deems necessary. During a participant's lifetime, options granted under the Stock Option Plan will be exercisable only by such participant. Furthermore, any options granted under the Stock Option Plan may not be transferred, other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, a participant may transfer a Nonstatutory Stock Option granted under the Stock Option Plan to his or her spouse, children and/or grandchildren, or to one or more trusts for the benefit of such family members, if the agreement evidencing such option so provides and the participant does not receive any consideration for the transfer. On May 16, 1997, the Company granted options to certain of its employees at an exercise price of $2.313 per share, including options to purchase 200,000 shares of Common Stock to its Executive Vice President and Chief Operating Officer and 60,000 shares to its Secretary. On November 6, 1997, the Company granted options to purchase 40,000 shares of Common Stock to its Executive Vice President and Chief Financial Officer at an exercise price of $2.219 per share. On February 9, 1998, the Company granted options to certain of its employees at an exercise price of $2.688 per share, including options to purchase 40,000 shares of Common Stock to its Executive Vice President and Chief Operating Officer, 8,000 shares of Common Stock to its Executive Vice President and Chief Financial Officer and 8,000 shares of Common Stock to its Secretary. All such options are exercisable at a rate of 20% on the first, second, third, fourth and fifth anniversaries of the date of grant and expire after the tenth anniversary of the date of grant; options to purchase an aggregate of 796,800 shares of Common Stock are currently outstanding and held by 34 employees. Details of such grants are summarized below: 41 - -------------------------------------------------------------------------------- 1997 STOCK OPTION PLAN - -------------------------------------------------------------------------------- NAME AND POSITION FAIR VALUE ($)(1) NUMBER OF UNITS - -------------------------------------------------------------------------------- Muriel F. Siebert, Chair and President 0 0 - -------------------------------------------------------------------------------- Nicholas P. Dermigny, Executive 287,200 240,000 Vice President and Chief Operating Officer - -------------------------------------------------------------------------------- Richard M. Feldman, Executive 55,440 48,000 Vice President, Chief Financial Officer and Assistant Secretary - -------------------------------------------------------------------------------- Daniel Iesu, Secretary 82,040 68,000 - -------------------------------------------------------------------------------- Executive Group (4 persons) 424,680 356,000 - -------------------------------------------------------------------------------- Patricia L. Francy 0 0 - -------------------------------------------------------------------------------- Jane H. Macon 0 0 - -------------------------------------------------------------------------------- Monte E. Wetzler 0 0 - -------------------------------------------------------------------------------- Non-Executive Director Group (3 persons) 0 0 - -------------------------------------------------------------------------------- Non-Executive Officer Employee 538,184 440,800 Group (approximately 31 persons) - -------------------------------------------------------------------------------- RESTRICTED STOCK AWARD PLAN The 1998 Restricted Stock Award Plan (the "Plan"), provides for awards of not more than 60,000 shares of Common Stock, subject to adjustments for stock splits, stock dividends and other changes in the Company's capitalization, to key employees, to be issued either immediately after the award or at a future date. As provided in the Plan and subject to restrictions, shares awarded may not be disposed of by the recipients for a period of one year from the date of the award. Cash dividends on shares awarded are held by the Company for the benefit of the recipients, subject to the same restrictions as the award. Such dividends (without interest) are paid to the recipients upon lapse of the restrictions. Pursuant to the Plan, 400 shares of the Company's Common Stock was awarded to each of 110 employees of the Company, effective January 5, 1998. Additional awards of 400 shares were granted to each of three individuals, effective February 20, 1998. For shares that have been issued, the market value at the date of the awards was $2.25 and $5.75, respectively. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As a registered broker-dealer, the Company is subject to the Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC. "Net capital" is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings, less certain deductions. Ms. Siebert has executed subordinated notes in favor of the Company in the principal amount of $3 million which bear interest at rates ranging from 4% to 8%. The foregoing relationship and transactions have been approved by the Board or a committee of the Board or by the shareholders and, to the extent that such arrangements are available from non-affiliated parties, are on terms no less favorable to the Company than those available from non-affiliated parties. - ----------------- (1) 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 yields ranging from 0% to 3.3%, expected volatility ranging from of 25% to 39%, risk-free interest rates ranging from 6.20% to 6.43%, and expected lives ranging from 5 to 10 years. 42 PRINCIPAL SHAREHOLDERS The following table sets forth, as of July _____, 1998, certain information with respect to beneficial ownership of the Common Stock by each person (or group of affiliated persons) who is known to the Company to own beneficially more than 5% of the Common Stock, by each of the Company's directors and executive officers and by all directors and executive officers as a group. The persons named in the table have sole voting and investment power with respect to all shares of Common stock shown as beneficially owned by them. Name Shares Percentage(1) ---- ------ ------------- Muriel F. Siebert 20,212,000 96.3%(2) 885 Third Avenue, Suite 1720 New York, New York 10022 Nicholas P. Dermigny 40,400(3) * Richard M. Feldman 400 * Daniel Iesu 12,400(4) * Patricia L. Francy 40,000(5) * Jane H. Macon 40,000(5) * Monte E. Wetzler 40,000(5) * Directors and executive officers 20,385,200(6) 96.3% as a group (6 persons) ---------------- * Less than 1% (1) Percentages computed in accordance with Rule 13d-3 promulgated under the Exchange Act. (2) Includes 222,000 shares of Common Stock owned by the Muriel F. Siebert Foundation, Inc. as to which shares Ms. Siebert has voting and investment power. (3) Includes 40,000 shares of Common Stock which Mr. Dermigny has the right to acquire pursuant to a stock option grant. (4) Includes 12,000 shares of Common Stock which Mr. Iesu has the right to acquire pursuant to a stock option grant. (5) Consists of 40,000 shares of Common Stock which the director has the right to acquire pursuant to a stock option grant. (6) Includes options to purchase an aggregate of 172,000 shares of Common Stock described in footnotes 3, 4 and 5 above. 43 THE RIGHTS OFFERING THE RIGHTS The Company is distributing transferable Rights, at no cost, to the record holders ("Holders") of the Common Stock outstanding as of the Record Date. The Company will distribute one (1) Right for each share of Common Stock held of record on the Record Date. The Rights will be evidenced by transferable Subscription Certificates. The Company's majority shareholder, Chair and President, Muriel F. Siebert, has indicated to the Company that to encourage increased public ownership of stock, and consistent with her waiving her receipt of past cash dividends, she intends to waive the receipt of the Rights to which she would otherwise be entitled. An aggregate of up to approximately 1,100,000 Underlying Shares will be sold upon exercise of the Rights. No Subscription Certificate may be divided in such a way as to permit the holder to receive a greater number of Rights than the number to which such Subscription Certificate entitles its holder, except that a depositary, bank, trust company, and securities broker or dealer holding shares of Common Stock on the Record Date for more than one beneficial owner may by delivering a written request by 5:00 p.m., New York City time, on __________, August _____, 1998 and, upon proper showing to the Subscription Agent, exchange its Subscription Certificate to obtain a Subscription Certificate for the number of Rights to which all such beneficial owners in the aggregate would have been entitled had each been a Holder on the Record Date. SUBSCRIPTION PRICE The Subscription Price is $_____ per Underlying Share subscribed for pursuant to the Basic Subscription Privilege or the Oversubscription Privilege. The Subscription Price of the Rights has been determined by the Board of Directors of the Company based upon an opinion of Advest, Inc., its financial advisor, and represents a discount to the market price of the Common Stock at the date of this Prospectus. EXPIRATION DATE The Rights will expire at 5:00 p.m., New York City time, on the Expiration Date. After the Expiration Date, unexercised Rights will be null and void. The Company will not be obligated to honor any purported exercise of Rights received by the Subscription Agent after the Expiration Date, regardless of when the documents relating to such exercise were sent, except pursuant to the Guaranteed Delivery Procedures described below. SUBSCRIPTION PRIVILEGES BASIC SUBSCRIPTION PRIVILEGE. Pursuant to the Basic Subscription Privilege, each Right will entitle the holder thereof to receive, upon payment of the Subscription Price, one (1) share of Common Stock. Certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date. OVERSUBSCRIPTION PRIVILEGE. Subject to the allocation described below, each Right also carries the right to subscribe pursuant to the Oversubscription Privilege at the Subscription Price for a number of additional shares of Common Stock available after satisfaction of all subscriptions pursuant to the Basic Subscription Privilege, subject to proration by the Company under certain circumstances. The right to subscribe for additional shares of Common Stock pursuant to the Oversubscription Privilege is not transferable. Underlying Shares will be available for purchase pursuant to the Oversubscription Privilege only 44 to the extent that any Underlying Shares are not subscribed for through the Basic Subscription Privilege. If the Underlying Shares not subscribed for through the Basic Subscription Privilege ("Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the Excess Shares will be allocated pro rata (subject to the elimination of fractional shares) among those holders of Rights exercising the Oversubscription Privilege, in proportion to the number of shares requested by them pursuant to the Oversubscription Privilege; PROVIDED, HOWEVER, that if such pro rata allocation results in any holder being allocated a greater number of Excess Shares than such holder subscribed for pursuant to the exercise of such holder's Oversubscription Privilege, then such holder will be allocated only such number of shares of Excess Shares as such holder subscribed for and the remaining Excess Shares will be allocated among all other holders exercising Oversubscription Privileges. Only Record Date shareholders who exercise the Basic Subscription Privilege in full will be entitled to exercise the Oversubscription Privilege. Transferees of Rights may not exercise the Oversubscription Privilege with respect to such Rights. Certificates representing shares of Common Stock purchased pursuant to the Oversubscription Privilege will be delivered to subscribers as soon as practicable after the Expiration Date and after all prorations have been effected. Banks, brokers and other nominee holders of Rights who exercise the Basic Subscription Privilege and the Oversubscription Privilege on behalf of beneficial owners of Rights will be required to certify to the Subscription Agent and the Company, in connection with the exercise of the Oversubscription Privilege, as to the aggregate number of Rights that have been exercised and the number of Underlying Shares that are being subscribed for pursuant to the Oversubscription Privilege by each beneficial owner of Rights on whose behalf such nominee holder is acting and that such person was a beneficial owner on the Record Date. EXERCISE OF RIGHTS Rights may be exercised by delivering to American Stock Transfer & Trust Company, as the Subscription Agent, on or prior to 5:00 p.m., New York City time, on the Expiration Date, the properly completed and executed Subscription Certificate evidencing such Rights with any required signature guarantees, together with payment in full of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. Such payment in full must be by (a) check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to American Stock Transfer & Trust Company, as Subscription Agent, or (b) wire transfer of funds to the account maintained by the Subscription Agent for such purpose at the Chase Manhattan Bank, Account No. 323294723; ABA No. 021000021. The Subscription Price will be deemed to have been received by the Subscription Agent only upon (i) clearance of any uncertified check, (ii) receipt by the Subscription Agent of any certified check or bank draft drawn upon a U.S. bank or any postal, telegraphic or express money order or (iii) receipt of good funds in the Subscription Agent's account designated above. If paying by uncertified personal check, please note that the funds paid thereby may take at least five business days to clear. Accordingly, holders of Rights who wish to pay the Subscription Price by means of uncertified personal check are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment is received and clears by such date and are urged to consider payment by means of certified or cashier's check, money order or wire transfer of funds. 45 The address to which the Subscription Certificates and payment of the Subscription Price should be delivered is:
AMERICAN STOCK TRANSFER & TRUST COMPANY BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND: American Stock Transfer & Trust Company (718) 234-5001 American Stock Transfer & Trust Company 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 TO CONFIRM RECEIPT AND FOR GENERAL INFORMATION: (800) 937-5449
If a Rights holder wishes to exercise Rights, but time will not permit such holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be exercised if all of the following conditions (the "Guaranteed Delivery Procedures") are met: (i) such holder has caused payment in full of the Subscription Price for each Underlying Share being subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege to be received (in the manner set forth above) by the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guarantee notice (a "Notice of Guaranteed Delivery"), substantially in the form provided with the Instruction as to Use of Siebert Financial Corp. Subscription Certificates (the "Instructions") distributed with the Subscription Certificates, from a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. (the "NASD"), or from a commercial bank or trust company having an office or correspondent in the United States (each, an "Eligible Institution"), stating the name of the exercising Rights holder, the number of Rights represented by the Subscription Certificate or Subscription Certificates held by such exercising Rights holder, the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege and the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the delivery to the Subscription Agent of any Subscription Certificate evidencing such Rights within three Nasdaq SmallCap Market trading days following the date of the Notice of Guaranteed Delivery; and (iii) the properly completed Subscription Certificate or Subscription Certificates evidencing the Rights being exercised, with any required signatures guaranteed, is received by the Subscription Agent within three Nasdaq SmallCap Market trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by facsimile transmission ((718) 234-5001). Additional copies of the form of Notice of Guaranteed Delivery are available upon request from the Information Agent, whose address and telephone numbers are set forth under "Information Agent." Funds received in payment of the Subscription Price for Excess Shares subscribed for pursuant to the Oversubscription Privilege will be held in a segregated account pending issuance of such Excess Shares. If a Rights holder exercising the Oversubscription Privilege is allocated less than all of the shares of Common Stock that such holder wished to subscribe for pursuant to the Oversubscription Privilege, the excess funds paid by such holder in respect of the Subscription Price for shares not issued shall be returned by mail without interest or deduction as soon as practicable after the Expiration Date. 46 Unless a Subscription Certificate (i) provides that the shares of Common Stock to be issued pursuant to the exercise of Rights represented thereby are to be delivered to the holder of such Rights or (ii) is submitted for the account of an Eligible Institution, signatures on such Subscription Certificate must be guaranteed by an Eligible Institution. Holders who hold shares of Common Stock for the account of others, such as brokers, trustees or depositories for securities, should notify the respective beneficial owners of such shares as soon as possible to ascertain such beneficial owners' intentions and to obtain instructions with respect to the Rights. If the beneficial owner so instructs, the record holder of such Right should complete Subscription Certificates and submit them to the Subscription Agent with the proper payment. In addition, beneficial owners of Common Stock or Rights held through such a holder should contact the holder and request the holder to effect transactions in accordance with the beneficial owner's instructions. The instructions accompanying the Subscription Certificates should be read carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO THE COMPANY. THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. All questions concerning the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company, whose determinations will be final and binding. The Company in its sole discretion may waive any defect or irregularity, or permit a defect or irregularity to be corrected within such time as it may determine, or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. Neither the Company nor the Subscription Agent will be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. Any questions or requests for assistance concerning the method of exercising Rights or requests for additional copies of this Prospectus, the Instructions or the Notice of Guaranteed Delivery should be directed to the Information Agent, D.F. King & Co., Inc., at its address and telephone number set forth under "Information Agent." NO REVOCATION ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION PRIVILEGE AND, IF APPLICABLE, THE OVERSUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY NOT BE REVOKED. METHOD OF TRANSFERRING RIGHTS Rights may be purchased or sold through usual investment channels, including banks and brokers. The Rights may be traded on the Nasdaq SmallCap 47 Market and in the over-the-counter market. It is anticipated that the Rights will trade on a "when issued" basis up to and including the Nasdaq SmallCap Market trading day immediately following the Record Date. The Rights evidenced by a single Subscription Certificate may be transferred in whole by endorsing the Subscription Certificate for transfer in accordance with the accompanying Instructions. A portion of the Rights evidenced by a single Subscription Certificate (but not fractional Rights) may be transferred by delivering to the Subscription Agent a Subscription Certificate properly endorsed for transfer, with instructions to register such portion of the Rights evidenced thereby in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, a new Subscription Certificate evidencing the balance of the Rights will be issued to the Rights holder or, if the Rights holder so instructs, to an additional transferee. The Rights evidenced by a Subscription Certificate also may be sold, in whole or in part, through the Subscription Agent by delivering to the Subscription Agent such Subscription Certificate properly executed for sale by the Subscription Agent. If only a portion of the Rights evidenced by a single Subscription Certificate are to be sold by the Subscription Agent, such Subscription Certificate must be accompanied by instructions setting forth the action to be taken with respect to the Rights that are not to be sold. Promptly following the Expiration Date, the Subscription Agent will send the Rights holder a check for the net proceeds from the sale of any Rights sold. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent for the sale of all Rights through the Subscription Agent, less any applicable brokerage commissions, taxes and other direct expenses of sale. The Company will pay the fees charged by the Subscription Agent for effecting such sales. Orders to sell Rights must be received by the Subscription Agent prior to 11:00 a.m., New York City time, on __________, August _____, 1998 and the Subscription Agent's obligation to execute orders is subject to its ability to find buyers. Holders wishing to transfer all or a portion of their Rights should allow a sufficient amount of time prior to the Expiration Date for (i) the transfer instructions to be received and processed by the Subscription Agent, (ii) a new Subscription Certificate to be issued and transmitted to the transferee or transferees with respect to transferred Rights, and to the transferor with respect to retained Rights, if any, and (iii) the Rights evidenced by such new Subscription Certificates to be exercised or sold by the recipients thereof. Neither the Company nor the Subscription Agent shall have any liability to a transferee or transferor of Rights if Subscription Certificates are not received in time for exercise or sale prior to the Expiration Date. Except for the fees charged by the Subscription Agent (which will be paid by the Company as described above), all commissions, fees and other expenses (including brokerage commissions and transfer taxes) incurred in connection with the purchase, sale or exercise of Rights will be for the account of the transferor of the Rights, and none of such commissions, fees or expenses will be paid by the Company or the Subscription Agent. The Company anticipates that the Rights will be eligible for transfer through, and that the exercise of the Basic Subscription Privilege (but not the Oversubscription Privilege) may be effected through the facilities of the Depository Trust Company ("DTC"; Rights exercised through DTC are referred to as "DTC Exercised Rights"). The holder of a DTC Exercised Right may exercise the Oversubscription Privilege in respect of such DTC exercised Right by properly executing and delivering to the Subscription Agent, at or prior to 5:00 p.m., New York City time, on the Expiration Date, a DTC Participant Oversubscription Exercise Form, together with payment of the appropriate Subscription Price for the number of Underlying Shares for which the Oversubscription Privilege is to be exercised. Copies of the DTC Participant Oversubscription Exercise Form may be obtained from the Information Agent. 48 LISTING AND TRADING The outstanding shares of Common Stock are listed on the Nasdaq SmallCap Market. It is anticipated that the Rights will trade on the Nasdaq SmallCap Market and in the over-the-counter market. There can be no assurance, however, that a market for the Rights will develop or as to the price at which the Rights will trade. The Company has applied for the listing of the Underlying Shares on the Nasdaq SmallCap Market. FOREIGN AND CERTAIN OTHER SHAREHOLDERS Subscription Certificates will not be mailed to Holders whose addresses are outside the United States but will be held by the Subscription Agent for their account. To exercise such Rights, such Holders must notify the Subscription Agent on or prior to 11:00 a.m., New York City time, on __________, August _____, 1998, at which time (if no instructions have been received) the Rights represented thereby will be sold, if feasible, and the net proceeds, if any, remitted to such Holders. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent for the sale of all Rights through the Subscription Agent, less any applicable brokerage commissions, taxes and other expenses. HOLDERS OF OPTIONS AND RESTRICTED STOCK The Company will not distribute Rights to holders of vested or non-vested options outstanding on the Record Date pursuant to the Company's Stock Option Plan. Rather, the Company will adjust the exercise price of such vested and non-vested options by a percentage calculated by dividing the number of shares of Common Stock issued pursuant to the Rights Offering by the number of outstanding shares of Common Stock on the Record Date plus the number of shares of Common Stock issued pursuant to the Rights Offering. See "Management - -- Stock Option Plan." Holders of restricted stock pursuant to the Company's Restricted Stock Award Plan will be entitled to receive Rights for each restricted share held as of the Record Date. See "Management -- Restricted Stock Award Plan." 49 OPINION OF FINANCIAL ADVISOR The Company has retained Advest, Inc. ("Advest") to act as its exclusive financial advisor in connection with the Rights Offering. On __________, 1998, Advest delivered to the Company its opinion that, from a financial point of view, the Rights Offering is fair to the Company and its shareholders (the "Fairness Opinion"). No limitations were imposed by the Company with respect to the investigations made or procedures followed by Advest in rendering the Fairness Opinion. A COPY OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX A TO THIS PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE FAIRNESS OPINION OF ADVEST SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION. SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS ENTIRETY. At the Company's Board of Directors meeting on __________, 1998, Advest delivered its oral and written opinion (dated __________, 1998) that the proposed Rights Offering is fair to the Company and its shareholders from a financial point of view. The full text of Advest's written opinion, dated ______, 1998, is attached hereto as Annex A. Shareholders are urged to read the opinion in its entirety for the assumptions made, matters considered and limits of the review undertaken by Advest. In arriving at its opinion Advest reviewed: (1) registration statement and other publicly available information concerning the Company, (2) financial and operating information with respect to the business, operations and prospects of the Company furnished by the Company, (3) trading history of the Company's common stock and a comparison of that trading history with those of other relevant companies, and (4) a comparison of the financial terms of the Rights Offering with the financial terms of certain other relevant recent transactions. In addition, Advest undertook the following analyses in determining the structure of the Rights Offering and assessing the fairness to the Company and its shareholders from a financial point of view: (1) VALUATION ANALYSIS. Advest assessed and compared the Company's trading valuation based upon its recent financial performance and earnings growth relative to its peers which consist of eleven companies; (2) RIGHTS OFFERING Analysis. Advest assessed the structure and terms of seventeen rights offerings that have been issued over the past eighteen months. In arriving at its opinion, Advest assumed and relied upon the accuracy and completeness of the financial and other information without assuming any responsibility for independent verification of such information and further relied upon the assurances of management of the Company that they are not aware of any facts that would make such information inaccurate or misleading. The opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of July _____, 1998. Advest, as part of its investment banking business is engaged in the valuation of securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements, and in valuations for corporate and other purposes. The Company selected Advest to render its opinion on the basis of such firm's expertise. Advest has also performed various investment banking services for the Company in the past and has received customary fees for such services. 50 VALUATION ANALYSIS PEER GROUP SELECTION Advest selected a peer group for the Company which consists of eleven publicly traded companies that are broker/dealers, discount brokerage firms, internet-based retail brokerage firms and small to mid-cap trading and investment banking firms all of which are located in the U.S. Advest believes that this group of companies represents the best peer group given the Company's broad product offering and recent expansion into other lines of business. The peer group consisted of the following companies: The Charles Schwab Corporation; National Discount Brokers Group, Inc.; E*Trade Group, Inc.; Ameritrade Holding Corporation; Scott & Stringfellow Financial, Inc.; Kinnard Investments Inc.; First Montauk Financial Corp.; Atalanta Sosnoff Capital Corp.; Kirlin Holding Corporation; First Albany Companies Inc.; and Freedom Securities Corporation. TRADING AND FINANCIAL PERFORMANCE COMPARISONS The peer group above was used to assess and compare the Company's current trading valuation based upon its recent financial performance (June _____, 1998) and earnings growth relative to such peer group. Based on the Company's closing share price of $_____ on July _____, 1998, the Company trades at a price/LTM EPS of _____X, which is [above/below] the peer median of _____X. However, the Company's financial performance as measured by return on average assets ("ROA") and return on average equity ("ROE") of _____% and _____% is significantly [above/below] its peers median ROA and ROE of _____% and _____%, respectively. In addition, the Company's earnings per share growth over the last three years has been _____%, which is significantly [above/below] its peers' median growth rate of _____%. In addition, we analyzed the trading valuation of high growth companies which are a sub-set of the Company's peer group. For the purposes of this analysis, we have defined high growth companies as companies with earnings and sales growth over the past three years greater than _____% and _____%, respectively. Based upon this analysis we came up with three companies which trade at a median price/LTM EPS of _____X and a median three year growth in EPS of _____%, median ROA of _____% and median ROE of _____%. The Company's three year EPS growth, ROA and ROE is significantly [above/below] the high growth peer group median levels. Therefore, based upon the Company's [above/below] average financial performance and earnings growth relative to both sets of peers, the Company's stock appears to be fairly valued at its current trading levels. RIGHTS OFFERING ANALYSIS Advest compiled a list of seventeen rights offerings that have been issued over the past eighteen months. This list was used to analyze: (1) the subscription price of the right relative to the issuer's common stock price in assessing the discount to market (2) the discount to market relative to the transferability of the rights (3) an issuer's common stock price behavior on the record date of the Rights Offering to the expiration date of the Rights Offering. The analysis yielded the following statistics: (1) the median discount to market for all rights offerings was _____% (2) the discount to market for rights which were transferable was _____% (3) the median price decline of an issuer's common stock price was _____% from the Record Date to the Expiration Date. Given the recent significant price movement in the Company's stock price, we used the 30 day average closing stock price to calculate the discount to market price of the subscription right. Based upon the Company's 30 day average stock price of $_____ on July _____, 1998, this represents a _____% discount to market at a $_____ subscription price, which is [above/below] the median discount to market for the seventeen rights offerings of _____% and [above/below] median discount of _____% for rights offerings with transferability of rights. Assuming the Company's common stock price declines at median levels, this represents a _____% discount to market, which is [above/below] rights offerings with transferable rights. 51 The Company selected Advest as its financial advisor because Advest is a nationally recognized investment banking firm engaged in the valuation of businesses and their securities in connection with mergers and acquisitions and for other purposes and has substantial experience in transactions similar to the Rights Offering. Pursuant to an engagement letter dated June _____, 1998 with Advest, the Company paid Advest an initial fee for its advisory services of $__________ and became obligated to pay Advest an additional fee of $_________ upon the closing of the Rights Offering. In addition, the engagement letter provides that the Company will reimburse Advest for its reasonable out-of-pocket expenses (including reasonable fees and disbursements of its legal counsel) and will indemnify Advest and certain related persons against certain liabilities arising out of its engagement. Advest has in the past provided financial advisory services to the Company and received customary fees for rendering such services. In the ordinary course of business, Advest may actively trade in securities of the Company for its own account and for the account of its customers and, accordingly, may at any time hold a long or short position in such securities. The Company does not currently have and has not had within the past two years and does not contemplate hereafter having any material relationship with Advest or any of its affiliates. CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS Brown Raysman Millstein Felder & Steiner LLP, counsel to the Company, has advised the Company that the following summary reflects their opinion as to the material United States federal income tax considerations applicable to Holders upon the distribution of the Rights, and to Holders of Rights upon their exercise and disposition. Holders should be aware that certain of the federal income tax consequences relevant to the Holders are unclear under existing law or are dependent on factual considerations that cannot currently be determined and counsel have not rendered an opinion with respect to such consequences. An opinion of counsel represents the legal judgment of such counsel and is not binding on the United States Internal Revenue Service (the "Service"). There can be no assurance that the Service will take a similar view as to any of the tax consequences described below. No ruling has been or will be requested from the Service on any tax matters relating to the Rights Offering or the ownership or disposition of the Common Stock. This summary is based upon the provisions of the Code, the United States Treasury regulations promulgated thereunder (the "Regulations"), administrative rulings and judicial decisions now in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. This summary does not purport to deal with all aspects of federal income taxation that may be relevant to a particular Holder or to certain types of Holders subject to special treatment under the federal income tax laws (for example, banks, dealers in securities, life insurance companies, tax exempt organizations and foreign taxpayers), nor does it discuss any aspect of state, local or foreign tax laws. Foreign persons should see "THE RIGHTS OFFERING -- Certain United States Tax Consequences to Non-United States Holders" below. Furthermore, this summary is limited to persons that have held the Common Stock as capital assets (generally, property held for investment) within the meaning of Section 1221 of the Code. This discussion is not intended as tax advice to the Holders. Holders are advised to consult their own tax advisors with respect to the consequences to them of the Rights Offering to their own particular tax situations. DISTRIBUTION OF THE RIGHTS. Subject to the discussions in "CONSTRUCTIVE DISTRIBUTIONS UNDER SECTION 305 OF THE CODE," below, Holders of Common Stock will not recognize taxable income, for federal income tax purposes, in connection with the distribution of the Rights. BASIS AND HOLDING PERIOD OF THE RIGHTS. Except as provided in the following sentence, the basis of the Rights received by a Holder as a distribution with respect to such Holder's Common Stock will be 52 zero. If either (i) the fair market value of the Rights on the date of issuance is 15% or more of the fair market value (on the date of issuance) of the Common Stock with respect to which they are received or (ii) the Holder elects, in such Holder's federal income tax return for the taxable year in which the Rights are received, to allocate part of the basis of such Common Stock to the Rights, then, upon exercise or transfer of the Rights, the Holder's basis in such Common Stock will be allocated between the Common Stock and the Rights in proportion to the fair market values of each on the date of distribution. The holding period of a Holder with respect to the Rights received as a distribution on such Holder's Common Stock will include the Holder's holding period for the Common Stock with respect to which the Rights were distributed. In the case of a purchaser of Rights, the tax basis of such Rights will be equal to the purchase price paid therefore and the holding period for such Rights will commence on the day following the date of the purchase. TRANSFER OF THE RIGHTS. A Holder who sells the Rights received in the distribution prior to exercise will recognize gain or loss equal to the difference between the sale proceeds and such Holder's basis (if any) in the Rights sold. Such gain or loss will be capital gain or loss if gain or loss from a sale of Common Stock held by such Holder would be characterized as capital gain or loss at the time of such sale, and will be long term capital gain or loss if the holding period for the Rights disposed of is more than one year (with a more favorable long term capital gain rate applicable if the holding period is more than eighteen months) and short term capital gain or loss if such holding period is one year or less. LAPSE OF THE RIGHTS. Holders who received the Rights in respect of Common Stock who allow the Rights distributed to them to lapse will not recognize any gain or loss, and no adjustment will be made to the basis of the Common Stock owned by such Holders. EXERCISE OF THE RIGHTS; BASIS AND HOLDING PERIOD OF COMMON STOCK. Holders of Rights will not recognize gain or loss upon the exercise of such Rights. The basis of the Common Stock acquired through exercise of the Rights will be equal to the sum of the Subscription Price therefor and the Holder's basis in such Rights (if any). The holding period for the Common Stock acquired through exercise of the Rights will begin on the date the Rights are exercised. CONSTRUCTIVE DISTRIBUTIONS UNDER SECTION 305 OF THE CODE. Section 305 of the Code provides, as a general rule, that a distribution of rights to acquire stock of a corporation made by such corporation to its shareholders with respect to its stock is not a taxable event. However, there are a number of exceptions to this general rule, and a distribution of rights that falls within any one of such exceptions is treated as "a distribution of property to which section 301 applies" (i.e., a distribution that may be taxable as a dividend). Under one of the relevant exceptions, a distribution of stock or stock rights will be treated as a distribution of property to which section 301 applies if it constitutes a "disproportionate distribution" with respect to any class or classes of stock or convertible debt of the corporation. A distribution of stock or stock rights constitutes a "disproportionate distribution" if it is a part of a distribution or a series of distributions (including deemed distributions) that has the effect of (i) the receipt of property (including cash) by some shareholders and (ii) an increase in the proportionate interests of other shareholders in the assets or earnings and profits of the distributing corporation. For this purpose, cash dividends paid with respect to stock and debt service payments made with respect to convertible securities (which are treated for this purpose as outstanding stock) may constitute the requisite "receipt of property" by some shareholders irrespective of whether such dividends or payments are related to the distribution of stock or stock rights. Further, a distribution of stock or stock rights that does not maintain the proportionate interests of the various classes of stock and securities (including any conversion rights relating thereto) 53 of the distributing company may constitute the requisite increase in the proportionate interests in the assets or earnings and profits of the shareholders receiving the distribution of stock or stock rights. Under a second relevant exception, a distribution of stock or stock rights by a corporation with respect to its preferred stock generally will be treated as a distribution of property to which section 301 applies unless the distribution is made with respect to convertible preferred stock to take into account a stock dividend, stock split or any similar event (including the sale of stock at less than fair market value pursuant to a rights offering) that would otherwise result in the dilution of the conversion right. If the Rights Offering were to result in a distribution of property to which section 301 applies under one of the above-described exceptions, such distribution (measured by the fair market value of the Rights distributed) would be treated, first, as a dividend to the extent of the Company's current or accumulated earnings and profits, then as a tax-free return of capital to the extent of the recipient's basis in the stock to which such distribution is attributable, and finally as an amount received in exchange for such stock. The Company has both current and accumulated earnings and profits as of the close of its taxable year ended December 31, 1997 and for the first quarter of 1998. The amount of earnings and profits, if any, that the Company will earn during 1998 will depend on its future actions and financial performance and cannot currently be determined. However, based upon the Company's current projections, it is anticipated that the Company will have current and accumulated earnings and profits for its 1998 tax year sufficient to cover the estimated fair market value of the Rights Offering. In such case, the Rights Offering may result in dividend income to the Holders of Common Stock if the Rights Offering ultimately is determined to have resulted in a distribution of property to which section 301 applies. If the Company were to either generate current earnings and profits for 1998 or maintain accumulated earnings and profits and the Rights Offering were treated as a distribution of property to which section 301 applies under one of the above-described exceptions, a Holder might ultimately be treated as having received a dividend pursuant to Section 305 of the Code as a result of the Rights Offering equal to the lesser of the value of the distribution and such Holder's share of the current and/or accumulated earnings and profits of the Company. Subject to certain holding period and taxable income requirements imposed by the Code, an actual or constructive distribution to a corporate Holder resulting from the Rights Offering that is treated as a dividend may qualify for the dividends received deduction available under section 243 of the Code. Corporate Holders claiming such a dividends received deduction are advised to consult with their tax advisors as to the potential limitations applicable to the dividend received deduction and the potential applicability of section 1059 to such deduction. Whether or not the Company has current or accumulated earnings and profits, in the event that the Rights Offering is treated as a distribution to which section 301 applies, Holders would receive a basis in the Rights received or other property deemed distributed equal to the amount of such distribution. EACH HOLDER IS URGED TO CONSULT WITH SUCH HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO SUCH HOLDER'S OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX LAWS. FEDERAL INCOME TAX CONSEQUENCES OF RIGHTS OFFERING TO COMPANY The Company will not recognize gain or loss on either the distribution or the exercise or lapse of the Rights. 54 CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following summary describes the material United States federal tax consequences of the distribution, exercise and disposition of the Rights, and the ownership and disposition of Common Stock acquired upon exercise thereof, by a person (a "non-U.S. Holder") who, for United States federal income tax purposes, is a nonresident alien individual, a foreign corporation, foreign partnership, or foreign estate or trust, as such terms are defined in the Code. This summary does not discuss all aspects of federal taxation that may be relevant to a particular non-U.S. Holder, nor does it consider specific facts and circumstances that may be relevant to a particular non-U.S. Holder's tax position. ISSUANCE OR EXERCISE OF THE RIGHTS. Subject to the possible application of Section 305 of the Code (see "THE RIGHTS OFFERING--Certain federal Tax Consequences to Holders -- CONSTRUCTIVE DISTRIBUTIONS UNDER SECTION 305 OF THE CODE," above), which could cause the Rights Offering to result in the constructive receipt of dividends (which would be taxable as described in "DIVIDENDS ON COMMON STOCK," below) or of an amount received in exchange for the Common Stock (which would be taxable as described in "DISPOSITION OF RIGHTS OR COMMON STOCK," below), non-U.S. Holders of Common Stock will not recognize taxable income, for United States federal income tax purposes, and will not be subject to withholding of United States federal income tax, in connection with the receipt or exercise of the Rights. DISPOSITION OF RIGHTS OR COMMON STOCK. A non-U.S. Holder generally will not be subject to United States federal income tax with respect to any gain recognized on the disposition of the Rights or Common Stock unless (i) the gain is effectively connected with a trade or business of the non-U.S. Holder in the United States, (ii) in the case of a non-U.S. Holder who is a nonresident alien individual and holds either the Rights or such Common Stock as a capital asset, such non-U.S. Holder meets the "substantial presence test" set forth in section 7701(b)(3) of the Code (generally, present in the United States for 183 or more days in the taxable year of sale), (iii) the non-U.S. Holder has owned, directly or by attribution, more than 5% of the Common Stock at any time during the shorter of (A) the period during which the Holder owned the Common Stock and (B) the five-year period ending on the date of disposition of such interest, at the time of disposition, and the Rights or such Common Stock, as the case may be, are/is a United States real property interest within the meaning of Section 897(c)(1) of the Code or (iv) a non-U.S. Holder is subject to tax pursuant to certain provisions of the Code applicable to expatriates. DIVIDENDS ON COMMON STOCK. Dividends paid to a non-U.S. Holder of Common Stock will be subject to withholding of United States federal income tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty, unless (i) the dividends are effectively connected with the conduct of a trade or business of the non-U.S. Holder within the United States or (ii) such non-U.S. Holder meets the "substantial presence test" set forth in section 7701(b)(3) of the Code. In order to claim the benefit of an applicable tax treaty rate, a non-U.S. Holder may have to file with the Company or its dividend paying agent an exemption or reduced treaty rate certificate or letter in accordance with the terms of such treaty and the Code. Dividends received by a non-U.S. Holder that are effectively connected with the conduct of a trade or business of a non-U.S. Holder within the United States are exempt from the withholding tax described above. A non-U.S. Holder may claim this exemption by filing Form 4224 (Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of Trade or Business in the United States) with the Company or its dividend paying agent. Dividends that are effectively connected with the conduct of a trade or business within the United States (after reduction by certain deductions) are generally taxed at the regular United States federal income tax rate and, in the case of foreign corporations, may also be subject 55 to an additional U.S. branch profits tax of 30% (or lower applicable treaty rate) pursuant to section 884 of the Code. FEDERAL ESTATE TAXES. Common Stock held by an individual non-U.S. Holder at the time of death will be included in such Holder's gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. EACH NON-U.S. HOLDER IS URGED TO CONSULT WITH SUCH NON-U.S. HOLDER'S OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE RIGHTS OFFERING TO SUCH NON-U.S. HOLDER'S OWN PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS. U.S. INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING. Under the Regulations, United States information reporting requirements and backup withholding tax may apply to dividends paid on Common Stock to U.S. Holders and non-U.S. Holders. U.S. Holders are required to file annual returns reporting any dividends received during the reporting year and such dividends may be subject to backup withholding when paid unless the U.S. Holder certifies its social security number and that backup withholding is not required. The Service has imposed new information reporting and certification requirements and possible backup withholding on payments of dividends to non-U.S. Holders. Non-U.S. Holders should consult with their tax advisers as to compliance with the new rules so as to avoid possible information reporting and backup withholding on dividend payments. U.S. Holders and non-U.S. Holders may be eligible to obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Service. DESCRIPTION OF COMMON STOCK For a description of the Common Stock, see "DESCRIPTION OF CAPITAL STOCK." SUBSCRIPTION AGENT The Company has appointed American Stock Transfer & Trust Company as Subscription Agent for the Rights Offering. The Subscription Agent's address, which is the address to which the Subscription Certificates and payment of the Subscription Price should be delivered, as well as the address to which the Notice of Guaranteed Delivery must be delivered, is: 56
AMERICAN STOCK TRANSFER & TRUST COMPANY BY MAIL: BY FACSIMILE TRANSMISSION: BY HAND: American Stock Transfer & Trust Company (718) 234-5001 American Stock Transfer & Trust Company 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 TO CONFIRM RECEIPT AND FOR GENERAL INFORMATION: (800) 937-5449
The Company will pay the fees and expenses of the Subscription Agent, and has also agreed to indemnify the Subscription Agent from any liability which it may incur in connection with the Rights Offering. The Company has been informed by the Subscription Agent that it is a bank within the meaning of Section 3(a)(6) of the Exchange Act. INFORMATION AGENT The Company has appointed D.F. King & Co., Inc. as Information Agent for the Rights Offering. Any questions or requests for additional copies of this Prospectus, the Instructions or the Rights Offering Notice of Guaranteed Delivery may be directed to the Information Agent at the telephone numbers and address below. D.F. KING & CO., INC. 77 Water Street 20th Floor New York, NY 10005 Banks and Brokers Call Collect: (212) 269-5550 Others Call Toll Free: 1-800-859-8508 The Company will pay the fees and expenses of the Information Agent and has also agreed to indemnify the Information Agent from certain liabilities which it may incur in connection with the Rights Offering. 57 DESCRIPTION OF CAPITAL STOCK The following general summary of the material terms of the capital stock of the Company does not purport to be complete and is subject to, and qualified in its entirety by reference to, the pertinent portions of the Company's Certificate of Incorporation. GENERAL The authorized capital stock of the Company consists of 49,000,000 shares of common stock, par value $.01 per share (the "Common Stock"). There are currently approximately 21,007,000 shares of the Common Stock outstanding. Of this number, 20,212,000 shares of Common Stock, or 96%, were owned or controlled by Muriel F. Siebert. COMMON STOCK GENERAL. There are no redemption or sinking fund provisions applicable to the shares of Common Stock and such shares are not entitled to any preemptive rights. VOTING. Each holder of Common Stock is entitled to one vote for each share registered in the holder's name on the books of the Company. Since none of the shares of Common Stock have cumulative voting rights, the holders of more than 50% of the shares can elect all the directors of the Company if they so chose and, in that event, the holders of the remaining shares will not be able to elect any directors. DIVIDENDS. The holders of Common Stock are entitled to receive such dividends as may be declared from time to time by the Board of Directors of the Company from the assets of the Company which are legally available therefor. LIQUIDATION. Upon the liquidation, dissolution or winding-up of the Company, holders of Common Stock are entitled to receive, pro rate, after the prior rights of creditors have been satisfied, all the remaining assets of the Company available for distribution. TRANSFER AGENT AND REGISTRAR. American Stock Transfer & Trust Company is the transfer agent and registrar for the Common Stock. 58 PLAN OF DISTRIBUTION The Company is distributing transferable Rights, at no cost, to the Holders of the Common Stock outstanding as of the Record Date. See "THE RIGHTS OFFERING -- The Rights." Each Right will entitle the holder thereof to receive, upon payment of the Subscription Price, one (1) share of Common Stock. Record Date shareholders who fully exercise all Rights distributed to them will also be entitled to subscribe at the Subscription Price for shares of Common Stock that are not otherwise purchased pursuant to the exercise of Rights, subject to proration by the Company under certain circumstances. The Company's majority shareholder, Muriel F. Siebert, has indicated to the Company that to encourage increased public ownership of stock, and consistent with her waiving her receipt of past dividends, she intends to waive the receipt of the Rights to which she would otherwise be entitled. See "THE RIGHTS OFFERING -- Subscription Privileges." The Company anticipates receiving approximately $_____ proceeds from the Rights Offering, after payment of approximately $235,000 of fees and expenses incurred in connection with the Rights Offering. See "USE OF PROCEEDS." TRADING The outstanding shares of Common Stock are traded in the Nasdaq SmallCap Market. The Company has applied for listing the shares offered hereby in the Nasdaq SmallCap Market. DESCRIPTION OF COMMON STOCK For a description of the Common Stock, see "Description of Capital Stock." 59 LEGAL MATTERS The legality of the securities offered hereby is being passed upon for the Company by Brown Raysman Millstein Felder & Steiner, LLP, New York, New York. EXPERTS The consolidated statements of financial condition of Siebert Financial Corp. and its subsidiary, Muriel Siebert & Co., Inc., as of December 31, 1997 and December 31, 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 included in this Prospectus have been audited by Richard A. Eisner & Company, LLP, independent auditors, as indicated in their report with respect thereto, and are included herein in reliance upon such report given upon authority of said firm as experts in accounting and auditing. 60
SIEBERT FINANCIAL CORP. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Auditors.........................................................F-2 Consolidated Statements of Financial Condition at June 30, 1998 (unaudited) and December 31, 1997 and 1996 ............................F-3 Consolidated Statements of Income for the six months ended June 30, 1998 and 1997 (unaudited).............................................F-4 Consolidated Statements of Income for each of the years in the three-year period ended December 31, 1997........................................F-5 Consolidated Statements of Changes in Shareholders' Equity for each of the years in the three-year period ended December 31, 1997 and the six months ended June 30, 1998 (unaudited)..............................F-6 Consolidated Statements of Cash Flows for the six months ended June 30, 1998 and 1997 (unaudited).............................................F-7 Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 1997.....................................F-8 Notes to Consolidated Financial Statements.............................................F-9
F-1 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 shareholders' 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 (April 7, 1998, with respect to the fourth and fifth paragraphs of Note F) F-2 SIEBERT FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
JUNE 30, DECEMBER 31, 1998 ------------------------- (UNAUDITED) 1997 1996 ----------- ----------- ----------- ASSETS Cash and cash equivalents $ 3,223,375 $ 4,394,142 $ 231,029 Cash equivalents - restricted 1,300,000 1,300,000 -- Receivable from broker-dealers 890,047 2,134,839 1,141,439 Securities owned, at market value 11,049,141 6,564,668 10,116,248 Secured demand note receivable from affiliate 2,000,000 2,000,000 2,000,000 Furniture, equipment and leasehold improvements, net 563,538 475,553 450,254 Investment in and receivable from affiliate 3,392,000 392,000 -- Prepaid expenses and other assets 607,548 620,387 433,738 ----------- ----------- ----------- $23,025,649 $17,881,589 $14,372,708 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Securities sold, not yet purchased, at market value $ 2,091,406 $ 2,037,547 $ 1,447,143 Payable to clearing broker 2,567,764 -- -- Accounts payable and accrued liabilities 3,515,722 3,171,485 2,824,000 ----------- ----------- ----------- 8,174,892 5,209,032 4,271,143 ----------- ----------- ----------- Commitments and contingent liabilities Subordinated borrowings payable to affiliate 3,000,000 3,000,000 3,000,000 ----------- ----------- ----------- Shareholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 20,996,440 shares outstanding at June 30, 1998, 20,950,440 shares outstanding at December 31, 1997, and 20,943,588 shares outstanding at December 31, 1996 209,964 209,504 209,436 Additional paid-in capital 6,643,264 6,584,963 6,613,972 Retained earnings 4,997,529 2,878,090 278,157 ----------- ----------- ----------- 11,850,757 9,672,557 7,101,565 ----------- ----------- ----------- $23,025,649 $17,881,589 $14,372,708 =========== =========== ===========
See notes to consolidated financial statements. F-3
SIEBERT FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) SIX MONTHS ENDED JUNE 30, ------------------------- 1998 1997 ----------- ----------- Revenues: Commissions and fees $ 9,301,346 $ 9,095,253 Investment banking 2,965,726 1,348,860 Trading profits 767,441 1,183,220 Interest and dividends 317,892 283,837 ----------- ----------- 13,352,405 11,911,170 ----------- ----------- Expenses: Employee compensation and benefits 4,652,625 3,806,536 Clearing fees, including floor brokerage 1,360,789 2,172,279 Advertising and promotion 759,144 1,539,180 Communications 823,866 840,614 Occupancy 354,333 326,098 Interest 192,664 206,840 Other general and administrative 1,563,300 1,502,575 ----------- ----------- 9,706,721 10,394,122 ----------- ----------- Income before provision for income taxes 3,645,684 1,517,048 Provision for income taxes 1,477,000 673,000 ----------- ----------- Net income $ 2,168,684 $ 844,048 =========== =========== Net income per share of common stock - basic and diluted $ 0.10 $ 0.04 Weighted average shares outstanding - basic 20,992,265 20,948,156 Weighted average shares outstanding - diluted 21,668,630 20,948,156
See notes to consolidated financial statements F-4
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 provision for income taxes 4,675,101 2,165,435 1,244,673 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 $.12 Pro forma $.06 $.03 Supplementary pro forma $.14 WEIGHTED AVERAGE SHARES DEEMED OUTSTANDING 20,949,484 20,943,588 20,943,588 See notes to consolidated financial statements.
F-5 SIEBERT FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK --------------------- NUMBER ADDITIONAL OF $.01 PAR PAID-IN RETAINED SHARES VALUE CAPITAL EARNINGS TOTAL ---------- -------- ----------- ----------- ------------ BALANCE - JANUARY 1, 1995 20,420,000 $204,200 $ -- $ 3,688,257 $ 3,892,457 Net income -- -- -- 1,244,673 1,244,673 ---------- -------- ----------- ----------- ------------ BALANCE - DECEMBER 31, 1995 20,420,000 204,200 -- 4,932,930 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 -- -- 6,619,208 (6,619,208) -- Issuance of shares in connection with reorganization 523,588 5,236 (5,236) -- -- Net income as C corporation November 9, 1996 - December 31, 1996 -- -- -- 278,157 278,157 ---------- -------- ----------- ----------- ------------ BALANCE - DECEMBER 31, 1996 20,943,588 209,436 6,613,972 278,157 7,101,565 Net income -- -- -- 2,618,101 2,618,101 Issuance of shares in connection with offering, net of expenses 6,852 68 (29,009) -- (28,941) Dividend on common stock -- -- -- (18,168) (18,168) ---------- -------- ----------- ----------- ------------ BALANCE - DECEMBER 31, 1997 20,950,440 209,504 6,584,963 2,878,090 9,672,557 Net income -- -- -- 2,168,684 2,168,684 Issuance of shares in connection with Restricted Stock Award Plan, net of 5,600 shares forfeited 39,600 396 (396) -- -- Noncash compensation in connection with Restricted Stock Award Plan -- -- 43,961 -- 43,961 Issuance of shares in connection with exercise of employee stock options 6,400 64 14,736 -- 14,800 Dividends on common stock -- -- -- (49,245) (49,245) ---------- -------- ----------- ----------- ------------ BALANCE - JUNE 30, 1998 (UNAUDITED) 20,996,440 $209,964 $ 6,643,264 $ 4,997,529 $ 11,850,757 ========== ======== =========== =========== ============ See notes to consolidated financial statements.
F-6
SIEBERT FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,168,684 $ 844,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 79,711 71,772 Noncash compensation 43,961 -- Changes in operating assets and liabilities: Net (increase) in securities owned, at market value (4,484,473) (276,920) Net change in receivable from broker-dealers 3,812,556 1,900,180 Decrease (increase) in prepaid expenses and other assets 12,839 (446,170) Net Increase (decrease) in securities sold, not yet purchased, at market value 53,859 (194,081) Increase in accounts payable and accrued liabilities 344,237 265,010 ----------- ----------- Net cash provided by operating activities 2,031,374 2,163,839 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Loan to or investment in affiliate (3,000,000) (392,000) Purchase of furniture, equipment and leasehold improvements (167,696) (37,430) ----------- ----------- Net cash (used in) investing activities (3,167,696) (429,430) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 14,800 -- Dividends on common stock (49,245) -- Issuance of shares, net of expenses -- (28,941) ----------- ----------- Net cash (used in) financing activities (34,445) (28,941) ----------- ----------- Net (decrease) increase in cash and cash equivalents (1,170,767) 1,705,468 Cash and cash equivalents - beginning of period 4,394,142 231,029 ----------- ----------- Cash and cash equivalents - end of period $ 3,223,375 $ 1,936,497 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for: Interest $ 192,664 $ 206,840 Income taxes 1,497,711 244,300 See notes to consolidated financial statements.
F-7
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. F-8 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) 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 20,420,000 shares 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 shareholders 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 523,588 shares of its common stock to the pre-merger shareholders 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." The consolidated financial statements for the six months ended June 30, 1998 and 1997 are unaudited; however, in the opinion of management, all adjustments considered necessary to reflect fairly the Company's financial position and results of operations, consisting of normal recurring adjustments, have been included. Because of the nature of the Company's business, the results of any interim period are not necessarily indicative of results for a full year. [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. F-9 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [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. 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. F-10 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [8] EARNINGS PER SHARE: In 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 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 No. 128 had no effect on prior periods. [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.("SBS LLC"), an affiliated registered broker dealer. NOTE B - INVESTMENT IN AND RECEIVABLE FROM AFFILIATE In March 1997, Siebert and two individuals (the "Principals") formed SBS LLC 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 December 31, 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 SBS LLC. Siebert operated the SBS division business in F-11 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE B - INVESTMENT IN AFFILIATE (CONTINUED) accordance with the terms of the agreements with the Principals. Effective July 1, 1998, SBS LLC met the regulatory requirements and commenced operations. In connection therewith, on June 30, 1998, Siebert, pursuant to a Temporary Subordination Agreement expiring on August 14, 1998, loaned $3,000,000 to SBS LLC. See Note F. Siebert's investment in SBS LLC will be accounted for on the equity method. NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE The subordinated borrowings are payable to an affiliate and consist of the following:
June 30, December 31, ---------- ----------------------- 1998 1997 1996 ---------- ---------- ---------- Secured demand note collateral agreement, 4%, due December 31, 1999 $2,000,000 $2,000,000 $2,000,000 Subordinated note, 8%, due January 31, 2000 500,000 500,000 500,000 Subordinated note, 8%, due October 31, 1999 500,000 500,000 500,000 ---------- ---------- ---------- $3,000,000 $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 $136,000 and $80,000 for the six months ended June 30, 1998 and 1997, respectively, and $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 June 30, 1998, December 31, 1997 and December 31, 1996 is collateralized by marketable securities with a market value of approximately $2,404,000, $2,446,000 and $2,363,000, respectively. F-12 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET Furniture, equipment and leasehold improvements consist of the following:
JUNE 30, DECEMBER 31, ------------------- 1998 1997 1996 -------- -------- -------- Equipment $691,658 $638,534 $569,471 Leasehold improvements 132,115 128,655 70,576 Furniture and fixtures 84,468 84,468 61,539 -------- -------- -------- 908,241 851,657 701,586 Less accumulated depreciation and amortization 344,703 376,104 251,332 -------- -------- -------- $563,538 $475,553 $450,254 ======== ======== ========
Depreciation and amortization expense for the six months ended June 30, 1998 and 1997 amounted to approximately $80,000 and $72,000, respectively. Such 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:
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, -------------------------- ----------------------------------------------- 1998 1997 1997 1996 1995 ---------- -------------- -------------- -------------- -------------- Federal income tax $1,117,000 $ 435,000 $ 1,360,000 $ 624,000 $ 359,000 State and local income tax 359,000 238,000 697,000 329,000 189,000 ---------- -------------- -------------- -------------- -------------- Income tax expense $1,477,000 $ 673,000 $ 2,057,000 $ 953,000 $ 548,000 ========== ============== ============== ============== ==============
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: F-13 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE E - INCOME TAXES (CONTINUED)
SIX MONTHS ENDED -------------------------------- JUNE 30, YEAR ENDED DECEMBER 31, ---------------------- -------------------------------- 1998 1997 1997 1996 1995 ---------- -------- ---------- -------- -------- Expected income tax provision at statutory Federal tax rate $1,239,000 $516,000 $1,590,000 $736,000 $423,000 State and local taxes, net of Federal tax effect 348,000 157,000 467,000 217,000 125,000 Effect of refund of prior year's local taxes net of Federal and state tax effect (110,000) -- -- -- -- ---------- -------- ---------- -------- -------- Income tax expense $1,477,000 $673,000 $2,057,000 $953,000 $548,000 ========== ======== ========== ======== ========
There are no significant temporary differences which give rise to deferred tax assets or liabilities at June 30, 1998, December 31, 1997 and December 31, 1996. NOTE F - SHAREHOLDERS' 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 June 30, 1998, December 31, 1997 and December 31, 1996, Siebert had net capital of approximately $6,854,000, $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). On June 30, 1998 Siebert loaned $3,000,000 to SBS LLC pursuant to a Temporary Subordination Agreement, with a maturity date of August 14, 1998. Such loan resulted in a temporary reduction in regulatory net capital of $3,000,000 as of June 30, 1998. The repayment of the loan will increase the then regulatory net capital. See Note B. 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. 6,852 shares were issued with proceeds to the Company of approximately $16,000. Costs related to the offering approximated $45,000. On December 22, 1997, March 16, 1998 and June 23, 1998, the Company declared quarterly dividends of $.0225, $.0225 and $.03 per share, respectively. The principal shareholder waived her right to receive her portion of the dividends. F-14 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE F - SHAREHOLDERS' EQUITY (CONTINUED) On April 7, 1998 the Company split its stock 4 for 1 in order to comply with the rules of The Nasdaq Stock Market, Inc. relating to listings on the SmallCap Market. All share and per share data contained herein have been retroactively adjusted to reflect this stock split. 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 June 30, 1998 and 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 ============== F-15 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE H - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Rent expense, including escalations for operating costs, amounted to approximately $277,000 and $256,000 for each of the six months ended June 30, 1998 and 1997, respectively, and $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 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 the years ended December 31, 1997, 1996 and 1995 and in the six month periods ended June 30, 1998 and 1997. 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 2,100,000 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 120,000 shares of the Company's Common Stock at an exercise price of $2.313 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 799,000 shares of the Company's Common Stock at an exercise price of $2.313 per share. On November 6, 1997, pursuant to the Plan, the Company granted options to an employee to purchase 40,000 shares of the Company's Common Stock at an exercise price of $2.219 per share. On February 9, 1998, the Company granted options to purchase 76,000 shares of the Company's Common Stock to certain of its employees at an exercise price of $2.688 per share. All such employee options vest 20% per year for five years and expire ten years from the date of grant. As of June 30, 1998, approximately 258,000 employee options were exercisable. F-16 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) NOTE I - OPTIONS (CONTINUED) A summary of the Company's stock option transactions for the six months ended June 30, 1998 and the year ended December 31, 1997 is presented below:
1998 1997 ---------------------- ----------------------- WEIGHTED WEIGHTED AVERAGE AVERAGE EXERCISE EXERCISE SHARES PRICE SHARES PRICE -------- -------- -------- -------- Outstanding - beginning of period 925,200 $2.31 - - Granted 76,000 $2.69 959,000 $2.31 Forfeited (67,880) $2.31 (33,800) $2.31 Exercised (6,400) $2.31 - - -------- -------- Outstanding - end of period 926,920 $2.34 925,200 $2.31 ======== ======== Exercisable at end of period 258,184 $2.34 120,000 $2.31 Weighted average fair value of options granted $1.16 $1.18
The following table summarizes information related to options outstanding at June 30, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------ ------------------------------- WEIGHTED-AVERAGE WEIGHTED- WEIGHTED- RANGE NUMBER REMAINING AVERAGE NUMBER AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE --------------- ----------- ---------------- -------------- ----------- -------------- $2.31 810,920 8.26 Years $2.31 138,184 $2.31 $2.22 40,000 9.35 Years $2.22 - - $2.69 76,000 9.60 Years $2.69 - - ---------- ---------- $2.22 - $2.69 926,920 8.40 Years $2.34 120,000 $2.31 ========== ==========
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 --------------- ----------- ---------------- -------------- ----------- -------------- $2.31 885,200 8.68 Years $2.31 120,000 $2.31 $2.22 40,000 9.85 Years $2.22 - - ---------- ---------- $2.22 - $2.31 925,200 8.73 Years $2.31 120,000 $2.31 ========== ==========
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 yields ranging from 0% to 3.3%, expected volatility ranging from of 25% to 39%, risk-free interest rates ranging from 6.20% to 6.43%, and expected lives ranging from 5 to 10 years. F-17 SIEBERT FINANCIAL CORP. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (INFORMATION WITH RESPECT TO JUNE 30, 1998 AND THE SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 IS UNAUDITED) 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 pro forma net income for the year ended December 31, 1997 and the six months ended June 30, 1998 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. SIX MONTHS ENDED YEAR ENDED JUNE 30, 1998 DECEMBER 31, 1997 ---------------- ----------------- Net Income As reported $2,168,684 $2,618,101 Pro forma $2,121,223 $2,397,101 Net Income Per Share As reported $.10 $.12 Pro forma $.10 $.11 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. NOTE K - CLEARING AGREEMENT In June 1998, Siebert signed a new one year agreement with its clearing broker which provides, among other things, for reduced ticket charges and execution fees. Such arrangement provides for retroactive effect of the new charges and execution fees, not to exceed $1,000,000. A pro rata portion of the payment is refundable under certain circumstances, and, accordingly, Siebert recognized pre-tax income of approximately $750,000 for the six-month period ended June 30, 1998. The balance shall be recognized in a future period after such balance is no longer refundable. F-18 ANNEX A ADVEST, INC. ONE ROCKEFELLER PLAZA NEW YORK, NEW YORK 10020 ------------------- July _____, 1998 Board of Directors Siebert Financial Corp. 885 Third Avenue New York, New York 10022 Members of the Board: We understand that Siebert Financial Corp. (the "Company") intends to distribute to holders of record of its common stock outstanding as of July _____, 1998, transferable subscription rights to subscribe for and purchase 1,016,560 shares of common stock for a price of $_____ per share (the "Proposed Transaction" or the "Rights Offering"). The terms and conditions of the Proposed Transaction are set forth in more detail in the Company's Registration Statement on Form S-1. Advest, Inc. ("Advest") has been requested by the Company to advise the Company generally with respect to the Rights Offering, as well as to render a written opinion to the Board that the Rights Offering is fair, from a financial point of view to the Company and its shareholders. In arriving at our opinion, we reviewed and analyzed: (1) the Registration Statement and such other publicly available information concerning the Company which we believe to be relevant to our inquiry, (2) financial and operating information with respect to the business, operations and prospects of the Company furnished to us by the Company, (3) a trading history of the Company's common stock and a comparison of that trading history with those of other companies which we deemed relevant, (4) a comparison of the historical financial results and present financial condition of the Company with those of other companies which we deemed relevant, and (5) a comparison of the financial terms of the Rights Offering with the financial terms of certain other recent transactions which we deemed relevant. In arriving at our opinion, we have assumed and relied upon the accuracy and completeness of the financial and other information used by us without assuming any responsibility for independent verification of such information and have further relied upon the assurances of management of the Company that they are not aware of any facts that would make such information inaccurate or misleading. Our opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. BOARD OF DIRECTORS PAGE 2 Based upon and subject to the foregoing, we are of the opinion as of the date hereof that, from a financial point of view, the Proposed Transaction is fair to the Company and its shareholders. We have acted as financial advisor to the Company in connection with the Proposed Transaction and will receive a fee ($__________ retainer fee paid by the Company upon signing an engagement letter with Advest and $__________, payable by the Company, upon closing the Proposed Transaction) for the Proposed Transaction. In addition, the Company has agreed to indemnify us for certain liabilities which may arise out of the rendering of this opinion. We also have performed various investment banking services for the Company in the past (including a valuation analysis) and have received customary fees for such services. This opinion is solely for the use and benefit of the Board of Directors of the Company and shall not be disclosed publicly except it may be included as an exhibit to the Prospectus forming a part of the Registration Statement, or made available to, or relied upon by, any third party without our prior approval. This opinion is not intended to be and does not constitute a recommendation to any shareholder of the Company. Very truly yours, ADVEST, INC. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES. (a) Exhibits: Exhibit Number Description of Exhibit - ------ ---------------------- 2(a) Plan and Agreement of Merger between J. Michaels, Inc. ("JMI") and Muriel Siebert Capital Markets Group, Inc. ("MSCMG"), dated as of April 24, 1996 ("Merger Agreement") (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(b) Amendment No. 1 to Merger Agreement, dated as of June 28, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(c) Amendment No. 2 to Merger Agreement, dated as of September 30, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(d) Amendment No. 3 to Merger Agreement, dated as of November 7, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 3(a) Certificate of Incorporation of Siebert Financial Corp., formally known as J. Michaels, Inc., originally filed on April 9, 1934, as amended and restated to date (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 3(b) By-laws of Siebert Financial Corp.* 4 Form of Subscription Certificate 5 Opinion of Brown Raysman Millstein Felder & Steiner LLP as to the legality of the securities being registered * 10(a) Siebert Financial Corp. 1997 Stock Option Plan (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(b) LLC Operating Agreement, among Siebert, Brandford, Shank & Co., LLC, Muriel Siebert & Co., Inc., Napoleon Brandford III and Suzanne F. Shank, dated as of March 10, 1997 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(c) Services Agreement, between Siebert, Brandford, Shank & Co., LLC and Muriel Siebert & Co., Inc., dated as of March 10, 1997 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(d) Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1997) II-1 21 List of Subsidiaries of Siebert Financial Corp.* 23(a) Consent of Richard A. Eisner & Company, LLP 23(b) Consent of Brown Raysman Millstein Felder & Steiner LLP (included in their opinion set forth as Exhibit 5 to this Registration Statement) 24 Powers of Attorney of certain directors and officers of Siebert (included on page II-10 of the Registration Statement filed with the SEC on April 10, 1998) 99.1 Form of Instructions to Shareholders as to use of Subscription Certificates 99.2 Form of Notice of Guaranteed Delivery for Subscription Certificates and Important Tax Information (See exhibit 99.1) 99.3 Form of Subscription Agency Agreement 99.4 Form of Information Agent Agreement 99.5 Form of Letter to Common Shareholders who are record holders 99.6 Form of Letter to Common Shareholders whose addresses are outside the United States 99.7 Form of Letter to Common Shareholders who are beneficial holders 99.8 Form of Letter to Clients of Common Shareholders who are beneficial holders 99.9 Form of Certification and Request for Additional Rights 99.10 Form of Letter to Participants in the 1998 Restricted Stock Award Plan - ------------------- * Previously filed. (b) Financial Statement Schedules: Schedules have been omitted because either they are not required or are not applicable or because the required information has been included elsewhere in the financial statements or notes thereto. II-2 ITEM 17. UNDERTAKINGS. * * * * The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus files as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONE FIDE offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Company has duly caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 29th day of July, 1998. SIEBERT FINANCIAL CORP. By: /s/ MURIEL F. SIEBERT ---------------------------- Muriel F. Siebert Chair and President Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 2 to Registration Statement on Form S-1 has been signed below by the following persons, in the capacities indicated, on July 29, 1998. NAME TITLE ---- ----- /s/ MURIEL F. SIEBERT Chair, President and Director - ---------------------------------- (principal executive officer) Muriel F. Siebert /s/ NICHOLAS P. DERMIGNY Executive Vice President, Chief Operating - ---------------------------------- Officer and Director Nicholas P. Dermigny /s/ RICHARD M. FELDMAN Executive Vice President and Chief Financial - ---------------------------------- Officer and Assistant Secretary Richard M. Feldman (principal financial and accounting officer) /s/ PATRICIA L. FRANCY Director - ---------------------------------- Patricia L. Francy /s/ JANE H. MACON Director - ---------------------------------- Jane H. Macon /s/ MONTE E. WETZLER Director - ---------------------------------- Monte E. Wetzler II-4 EXHIBIT INDEX Exhibit Number Description of Exhibits Page - ------ ----------------------- ---- 2(a) Plan and Agreement of Merger between J. Michaels, Inc. ("JMI") and Muriel Siebert Capital Markets Group, Inc. ("MSCMG"), dated as of April 24, 1996 ("Merger Agreement") (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(b) Amendment No. 1 to Merger Agreement, dated as of June 28, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(c) Amendment No. 2 to Merger Agreement, dated as of September 30, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 2(d) Amendment No. 3 to Merger Agreement, dated as of November 7, 1996 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 3(a) Certificate of Incorporation of Siebert Financial Corp., formally known as J. Michaels, Inc., originally filed on April 9, 1934, as amended and restated to date (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 3(b) By-laws of Siebert Financial Corp.* 4 Form of Subscription Certificate 5 Opinion of Brown Raysman Millstein Felder & Steiner LLP as to the legality of the securities being registered * 10(a) Siebert Financial Corp. 1997 Stock Option Plan (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(b) LLC Operating Agreement, among Siebert, Brandford, Shank & Co., LLC, Muriel Siebert & Co., Inc., Napoleon Brandford III and Suzanne F. Shank, dated as of March 10, 1997 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(c) Services Agreement, between Siebert, Brandford, Shank & Co., LLC and Muriel Siebert & Co., Inc., dated as of March 10, 1997 (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996) 10(d) Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1997) 21 List of Subsidiaries of Siebert Financial Corp.* 23(a) Consent of Richard A. Eisner & Company, LLP 23(b) Consent of Brown Raysman Millstein Felder & Steiner LLP (included in their opinion set forth as Exhibit 5 to this Registration Statement) 24 Powers of Attorney of certain directors and officers of Siebert (included on page II-10 of the Registration Statement filed with the SEC on April 10, 1998) 99.1 Form of Instructions to Shareholders as to use of Subscription Certificates 99.2 Form of Notice of Guaranteed Delivery for Subscription Certificates and Important Tax information (See exhibit 99.1) 99.3 Form of Subscription Agency Agreement 99.4 Form of Information Agent Agreement 99.5 Form of Letter to Common Shareholders who are record holders 99.6 Form of Letter to Common Shareholders whose addresses are outside the United States 99.7 Form of Letter to Common Shareholders who are beneficial holders 99.8 Form of Letter to Clients of Common Shareholders who are beneficial holders 99.9 Form of Certification and Request for Additional Rights 99.10 Form of Letter to Participants in the 1998 Restricted Stock Award Plan - ------------------- * Previously filed. EX-4 2 EXHIBIT 4
EXHIBIT 4 SUBSCRIPTION CERTIFICATE NO. SUBSCRIPTION CERTIFICATE FOR SHARES SIEBERT FINANCIAL CORP. THE TERMS AND CONDITIONS OF THE SUBSCRIPTION CERTIFICATE REPRESENTING RIGHTS TO PURCHASE SHARES OF SUBSCRIPTION PRICE RIGHTS OFFERING ARE SET FORTH IN THE COMMON STOCK OF SIEBERT FINANCIAL CORP. $_____ PER SHARE THE COMPANY'S PROSPECTUS DATED THIS CERTIFICATE OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED JULY _____, 1998 (THE BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CUSIP 826176 11 7 "PROSPECTUS") AND ARE CITY TIME, ON AUGUST _____, 1998 (THE "EXPIRATION DATE"). INCORPORATED HEREIN BY THIS SUBSCRIPTION CERTIFICATE IS TRANSFERABLE AND MAY BE COMBINED OR REFERENCE. COPIES OF THE DIVIDED (BUT ONLY INTO CERTIFICATES EVIDENCING A WHOLE NUMBER OF PROSPECTUS ARE AVAILABLE UPON RIGHTS) AT THE OFFICE OF THE SUBSCRIPTION AGENT. REQUEST FROM THE COMPANY AND THE SUBSCRIPTION AGENT.
NAME AND ADDRESS OF REGISTERED HOLDER: The registered owner whose name is inscribed hereon, or assigns, is entitled to subscribe for shares of Common Stock upon the terms and subject to the conditions set forth in the Prospectus and Instructions relating thereto. The Rights represented by this Subscription Certificate may be exercised by duly completing Form 1; may be transferred, assigned, exercised or sold through a bank or broker by duly completing Form 2; and may be sold through the Subscription Agent by duly completing Form 3. Rights holders are advised to review the Prospectus and Instructions, copies of which are available from the Subscription Agent, before exercising or selling their Rights. IMPORTANT: Complete appropriate Form and, if applicable, delivery instructions, and SIGN on reverse side. Date: [SEAL] --------------------------------- --------------------------------- MURIEL F. SIEBERT DANIEL IESU PRESIDENT AND CHAIR SECRETARY RIGHTS HOLDERS SHOULD BE AWARE THAT IF THEY CHOOSE TO EXERCISE OR TRANSFER LESS THAN ALL OF THE RIGHTS EVIDENCED HEREBY, THEY MAY NOT RECEIVE A NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO EXERCISE THE REMAINING RIGHTS EVIDENCED THEREBY. FORM 1 - EXERCISE AND SUBSCRIPTION: The undersigned hereby irrevocably exercises one or more Rights to subscribe for shares of Common Stock as indicated below, on the terms and subject to the conditions specified in the Prospectus, receipt of which is hereby acknowledged. (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege (one Right needed to subscribe for each full share): (b) Number of shares subscribed for pursuant to the Oversubscription Privilege (one Right needed to subscribe for each full share) ______ (c) Total Subscription Price (total number of shares subscribed for pursuant to both the Basic Subscription Privilege and the Oversubscription Privilege times the Subscription Price of $______): $__________* METHOD OF PAYMENT (CHECK ONE) |_| CHECK, BANK DRAFT OR MONEY ORDER PAYABLE TO AMERICAN STOCK TRANSFER & TRUST COMPANY. |_| WIRE TRANSFER DIRECTED TO THE CHASE MANHATTAN BANK; ACCOUNT NO. 323294723; ABA NO. 021000021. (c) If the number of Rights being exercised pursuant to the Basic Subscription Privilege is less than all of the Rights represented by this Subscription Certificate (check only one): |_| DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS TO WHICH I AM ENTITLED. |_| DELIVER TO ME A NEW SUBSCRIPTION CERTIFICATE EVIDENCING THE REMAINING RIGHTS IN ACCORDANCE WITH MY FORM 2 INSTRUCTIONS (which include any required signature guarantees). |_| SELL THE REMAINING UNEXERCISED RIGHTS IN ACCORDANCE WITH MY FORM 3 INSTRUCTIONS. |_| CHECK HERE IF RIGHTS ARE BEING EXERCISED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY DELIVERED TO THE SUBSCRIPTION AGENT PRIOR TO THE DATE HEREOF AND COMPLETE THE FOLLOWING: Name(s) of Registered Owner(s)_____________________________________ Window Ticket number (if any)______________________________________ Date of Execution of Notice of Guaranteed Delivery_________________ Name of Institution which Guaranteed Delivery______________________ FORM 2 - TO TRANSFER YOUR SUBSCRIPTION CERTIFICATE OR SOME OR ALL OF YOUR RIGHTS OR TO EXERCISE OR SELL RIGHTS THROUGH YOUR BANK OR BROKER. For value received, Rights represented by this Subscription Certificate are hereby assigned to (please print name and address and Tax Identification or Social Security No. of transferee in full): Name_______________________________________________ Address____________________________________________ ___________________________________________________ ___________________________________________________ Tax Identification or Social Security Number |_| FORM 3 - CHECK HERE TO SELL YOUR UNEXERCISED RIGHTS THROUGH THE SUBSCRIPTION AGENT: Check box if the undersigned hereby authorizes the Subscription Agent to sell any Rights represented by this Subscription Certificate but not exercised hereby and to deliver to the undersigned a check for the net proceeds. FORM 4 - DELIVERY INSTRUCTIONS: Name and/or address for mailing any stock, new Subscription Certificate or cash payment if other than shown on the reverse hereof: Name:_______________________________________ Address:____________________________________ ____________________________________________ ____________________________________________ (including Zip Code) ================================================================================ IMPORTANT RIGHTS HOLDER SIGN HERE AND, IF RIGHTS ARE BEING SOLD OR EXERCISED, COMPLETE SUBSTITUTE FORM W-8 OR W-9, AS APPLICABLE ________________________________________________________________________________ ________________________________________________________________________________ (Signature(s) of Holder(s)) Dated:_____________________, 1998 (Must be signed by the registered holder(s) exactly as name(s) appear(s) on this Subscription Certificate. If signature is by trustee(s), executor(s), administrator(s), guardian(s), attorney(s)-in-fact, agent(s), officer(s) of a corporation or another acting in a fiduciary or representative capacity, please provide the following information. (See Instructions.) Name(s) ______________________________________________________________ (Please Print) Capacity ______________________________________________________________ Address ______________________________________________________________ ______________________________________________________________ (including Zip Code) Area Code and Home:_________________________________________________________ Telephone Number Business:_____________________________________________________ Tax Identification or Social Security Number ______________________________________________________________ (Complete Substitute Form W-9) GUARANTEE OF SIGNATURE(S) NOTE: SEE PARAGRAPH 5(c) OF INSTRUCTIONS AUTHORIZED SIGNATURE ______________________________________________________________ NAME ______________________________________________________________ TITLE ______________________________________________________________ NAME OF FIRM ______________________________________________________________ ADDRESS ______________________________________________________________ AREA CODE AND TELEPHONE NUMBER ______________________________________________________________ DATED: ________________________________________________________, 1998 ================================================================================ * IF THE AMOUNT ENCLOSED OR TRANSMITTED IS NOT SUFFICIENT TO PAY THE SUBSCRIPTION PRICE FOR ALL SHARES THAT ARE STATED TO BE SUBSCRIBED FOR, OR IF THE NUMBER OF SHARES BEING SUBSCRIBED FOR IS NOT SPECIFIED, THE NUMBER OF SHARES SUBSCRIBED FOR WILL BE ASSUMED TO BE THE MAXIMUM NUMBER THAT COULD BE SUBSCRIBED FOR UPON PAYMENT OF SUCH AMOUNT. IF THE NUMBER OF SHARES TO BE SUBSCRIBED FOR PURSUANT TO THE OVERSUBSCRIPTION PRIVILEGE IS NOT SPECIFIED AND THE AMOUNT ENCLOSED OR TRANSMITTED EXCEEDS THE SUBSCRIPTION PRICE FOR ALL SHARES REPRESENTED BY THIS SUBSCRIPTION CERTIFICATE (THE "SUBSCRIPTION EXCESS"), THE PERSON SUBSCRIBING PURSUANT HERETO SHALL BE DEEMED TO HAVE EXERCISED THE OVERSUBSCRIPTION PRIVILEGE TO PURCHASE, TO THE EXTENT AVAILABLE, THE NUMBER OF WHOLE SHARES OF COMMON STOCK EQUAL TO THE QUOTIENT OBTAINED BY DIVIDING THE SUBSCRIPTION EXCESS BY $_____. ANY AMOUNT REMAINING AFTER SUCH DIVISION SHALL BE RETURNED TO THE SUBSCRIBER. EX-23.A 3 EXHIBIT 23(A) EXHIBIT 23(a) CONSENT OF INDEPENDENT AUDITORS We consent to the inclusion in this Amendment No. 2 to Registration Statement on Form S-1 (Reg. No. 333-49843) of our report dated February 13, 1998 (April 7, 1998 with respect to the fourth and fifth paragraphs of Note F) on our audits of Siebert Financial Corp. and Subsidiary as of December 31, 1997 and December 31, 1996 and for each of the years in the three-year period ended December 31, 1997. We also consent to the reference to our firm under the caption "Experts." Richard A. Eisner & Company, LLP New York, New York July 29, 1998 EX-99.1 4 EXHIBIT 99.11 EXHIBIT 99.1 INSTRUCTIONS AS TO USE OF SIEBERT FINANCIAL CORP. SUBSCRIPTION CERTIFICATES --------------- CONSULT THE INFORMATION AGENT, YOUR BANK OR BROKER AS TO ANY QUESTIONS The following instructions relate to a rights offering (the "Rights Offering") by Siebert Financial Corp., a New York corporation (the "Company"), to the holders of its Common Stock, par value $.01 per share (the "Common Stock"), as described in the Company's Prospectus dated July _____, 1998 (the "Prospectus"). Holders of record of Common Stock at the close of business on _________, July ____, 1998 (the "Record Date") are receiving one (1) transferable subscription right (the "Right") for each share of Common Stock held by them on the Record Date. An aggregate of up to approximately 1,100,000 Rights exercisable to purchase an aggregate of up to approximately 1,100,000 shares of Common Stock (the "Underlying Shares") is being distributed in connection with the Rights Offering. Each Right is exercisable, upon payment of $____ in cash (the "Subscription Price"), to purchase one share of Common Stock (the "Basic Subscription Privilege"). In addition, subject to the allocation described below, Record Date stockholders who fully exercise all Rights distributed to them will also be entitled to subscribe at the Subscription Price for an unlimited number of additional shares of Common Stock (the "Oversubscription Privilege"). Transferees of Rights may not exercise the Oversubscription Privilege with respect to such Rights. Underlying Shares will be available for purchase pursuant to the Oversubscription Privilege only to the extent that all the Underlying Shares are not subscribed for through the exercise of the Basic Subscription Privilege by the Expiration Date (as hereinafter defined). If the Underlying Shares so available (the "Excess Shares") are not sufficient to satisfy all subscriptions pursuant to the Oversubscription Privilege, the available Underlying Shares will be allocated pro rata (subject to elimination of fractional shares) among the holders of Rights who exercise the Oversubscription Privilege in proportion to the number of shares requested pursuant to the Oversubscription Privilege; provided, however, that if such pro rata allocation results in any holder being allocated a greater number of Excess Shares than such holder subscribed for pursuant to the exercise of such holder's Oversubscription Privilege, then such holder will be allocated only such number of shares of Excess Shares as such holder subscribed for and the remaining Excess Shares will be allocated among all other holders exercising Oversubscription Privileges. See "THE RIGHTS OFFERING - Subscription Privileges" in the Prospectus. No fractional Rights or cash in lieu thereof will be issued or paid. The number of Rights distributed by the Company has been rounded up to the nearest whole number in order to avoid issuing fractional Rights. The Rights will expire at 5:00 p.m., New York City time, on ___________, August _____, 1998 (the "Expiration Date"). It is anticipated that the Rights will be traded in the Nasdaq SmallCap Market and in the over-the-counter market. The number of Rights to which you are entitled is printed on the face of your subscription certificate. You should indicate your wishes with regard to the exercise or sale of your Rights by completing the appropriate form or forms on your subscription certificate and returning the subscription certificate to the Subscription Agent in the envelope provided. PAYMENT OF THE SUBSCRIPTION PRICE AND YOUR SUBSCRIPTION CERTIFICATE MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, OR GUARANTEED DELIVERY REQUIREMENTS WITH RESPECT TO YOUR SUBSCRIPTION CERTIFICATE MUST BE COMPLIED WITH, AND PAYMENT OF THE SUBSCRIPTION PRICE, INCLUDING FINAL CLEARANCE OF ANY CHECKS, MUST BE RECEIVED BY THE SUBSCRIPTION AGENT, ON OR BEFORE 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. YOU MAY NOT REVOKE ANY EXERCISE OF A RIGHT. 1. SUBSCRIPTION PRIVILEGES. To exercise Rights, complete Form 1 and send your properly completed and executed subscription certificate, together with payment in full of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, to the Subscription Agent. Payment of the Subscription Price must be made in U.S. dollars for the full number of Underlying Shares being subscribed for (a) by check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to American Stock Transfer & Trust Company, as Subscription Agent, or (b) by wire transfer of funds to the account maintained by the Subscription Agent for such purpose at the Chase Manhattan Bank; Account No. 323294723; ABA No. 02100021. The Subscription Price will be deemed to have been received by the Subscription Agent only upon (i) the clearance of any uncertified check, (ii) the receipt by the Subscription Agent of any certified check or bank draft drawn upon a U.S. bank or any postal, telegraphic or express money order or (iii) the receipt of good funds in the Subscription Agent's account designated above. IF PAYING BY UNCERTIFIED PERSONAL CHECK, PLEASE NOTE THAT THE FUNDS PAID THEREBY MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR. ACCORDINGLY, HOLDERS OF RIGHTS WHO WISH TO PAY THE SUBSCRIPTION PRICE BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE EXPIRATION DATE TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND CLEARS BY SUCH DATE AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS. You may also transfer your subscription certificate to your bank or broker in accordance with the procedures specified in paragraph 3(a) below, make arrangements for the delivery of funds on your behalf and request such bank or broker to exercise the Subscription Certificate on your behalf. Alternatively, you may cause a written guarantee substantially in the form of EXHIBIT A to these instructions (the "Notice of Guaranteed Delivery") from a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or from a commercial bank or trust company having an office or correspondent in the United States (each of the foregoing being an "Eligible Institution") to be received by the Subscription Agent at or prior to the Expiration Date together with payment in full of the applicable Subscription Price. Such Notice of Guaranteed Delivery must state your name, the number of Rights represented by your subscription certificate and the number of Rights being exercised pursuant to the Basic Subscription Privilege and the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege, and will guarantee the delivery to the Subscription Agent of your properly completed and executed subscription certificate(s) within three Nasdaq SmallCap Market trading days following the date of the Notice of Guaranteed Delivery. If this procedure is followed, your subscription certificates must be received by the Subscription Agent within three Nasdaq SmallCap Market trading days following the date of the Notice of Guaranteed Delivery. Additional copies of the Notice of Guaranteed Delivery may be obtained upon request from the Information Agent at the address, or by calling the telephone number, indicated below. Banks, brokers and other nominee holders of Rights who exercise Rights and the Oversubscription Privilege on behalf of beneficial owners of Rights will be required to certify to the Subscription Agent and the Company, in connection with the exercise of the Oversubscription Privilege, as to the aggregate number of Rights that have been exercised, and the number of shares that are being subscribed for pursuant to the Oversubscription Privilege, by each beneficial owner of Rights on whose behalf such nominee holder is acting. If more Underlying Shares are subscribed for pursuant to the Oversubscription Privilege than are available for sale, Underlying Shares will be allocated, as described above, among persons exercising the Oversubscription Privilege in proportion to the number of shares requested pursuant to the Oversubscription Privilege. 2 The address, telephone and telecopier numbers of the Subscription Agent are as follows:
BY MAIL: BY FACSIMILE BY HAND: American Stock Transfer TRANSMISSION: American Stock Transfer & Trust Company (718) 234-5001 & Trust Company 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 TO CONFIRM RECEIPT OF FACSIMILE AND FOR GENERAL INFORMATION: (800) 937-5449
Questions and requests for assistance or additional materials may be directed to the Information Agent at the telephone number and address listed below. D.F. King & Co., Inc. 77 Water Street 20th Floor New York, New York 10005 Banks and Brokers Call Collect (212) 269-5550 Others Call TOLL-FREE (800) 859-8508 If you exercise less than all of the Rights evidenced by your subscription certificate by so indicating in Form 1 of your subscription certificate, the Subscription Agent either (i) will issue to you a new subscription certificate evidencing the unexercised Rights, (ii) if you so indicate on Form 2 of your subscription certificate, will transfer the unexercised Rights in accordance with your instructions or (iii) if you so indicate in Form 3 of your subscription certificate, will endeavor to sell such unexercised Rights for you. HOWEVER, IF YOU CHOOSE TO HAVE A NEW SUBSCRIPTION CERTIFICATE SENT TO YOU OR TO A TRANSFEREE, YOU OR SUCH TRANSFEREE MAY NOT RECEIVE ANY SUCH NEW SUBSCRIPTION CERTIFICATE IN SUFFICIENT TIME TO PERMIT SALE OR EXERCISE OF THE RIGHTS EVIDENCED THEREBY. If you have not indicated the number of Rights being exercised, or if you have not forwarded full payment of the Subscription Price for the number of Rights that you have indicated are being exercised, you will be deemed to have exercised the Basic Subscription Privilege with respect to the maximum number of whole Rights that may be exercised for the Subscription Price payment delivered by you, and to the extent that the Subscription Price payment delivered by you exceeds the product of the Subscription Price multiplied by the number of whole shares that may be purchased by exercise of the Rights evidenced by the subscription certificates delivered by you (such excess being the "Subscription Excess"), you will be deemed to have exercised your Oversubscription Privilege to purchase, to the extent available, that number of whole shares of Common Stock equal to the quotient obtained by dividing the Subscription Excess by the Subscription Price. 2. DELIVERY OF STOCK CERTIFICATE, ETC. The following deliveries and payments will be made to the address shown on the face of your subscription certificate unless you provide instructions to the contrary on Form 4. (a) BASIC SUBSCRIPTION PRIVILEGE. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each exercising Rights holder certificates representing shares of Common Stock purchased pursuant to the Basic Subscription Privilege. (b) OVERSUBSCRIPTION PRIVILEGE. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each Rights holder who validly exercised the Oversubscription Privilege the number of shares of Common Stock allocated to such Rights holder pursuant to the Oversubscription Privilege. See "THE RIGHTS OFFERING -- Subscription Privileges -- Oversubscription Privilege" in the Prospectus. 3 (c) CASH PAYMENTS. As soon as practicable after the Expiration Date, the Subscription Agent will mail to each Rights holder who exercises the Oversubscription Privilege any excess funds received in payment of the Subscription Price for Underlying Shares that are subscribed for by such Rights holder but not allocated to such Rights holder pursuant to the Oversubscription Privilege. Promptly following the Expiration Date, the Subscription Agent will mail a check for any Rights sold through the Subscription Agent to the holder of such Rights, less applicable commissions, taxes and other charges. 3. TO SELL OR TRANSFER RIGHTS. (a) SALE OF RIGHTS THROUGH A BANK OR BROKER. To sell all Rights evidenced by a subscription certificate through your bank or broker, so indicate on Form 2 and deliver your properly completed and executed subscription certificates to your bank or broker in ample time for them to be exercised. If Form 2 is completed without designating a transferee, the Subscription Agent may thereafter treat the bearer of the subscription certificate as the absolute owner of all of the Rights evidenced by such subscription certificate for all purposes, and the Subscription Agent shall not be affected by any notice to the contrary. Because your bank or broker cannot issue subscription certificates, if you wish to sell less than all of the Rights evidenced by a subscription certificate, either you or your bank or broker must instruct the Subscription Agent as to the action to be taken with respect to the Rights not sold, or you or your bank or broker must first have your subscription certificate divided into subscription certificates of appropriate denominations by following the instructions in paragraph 4 of these instructions. The subscription certificates evidencing the number of Rights you intend to sell can then be transferred by your bank or broker in accordance with the instructions in this paragraph 3(a). (b) TRANSFER OF RIGHTS TO A DESIGNATED TRANSFEREE. To transfer all of your Rights to a transferee other than a bank or broker, you must complete Form 2 in its entirety, execute the subscription certificate and have your signature guaranteed by an Eligible Institution. A subscription certificate that has been properly transferred in its entirety may be exercised by a new holder without having a new subscription certificate issued. In order to exercise, or otherwise take action with respect to, such a transferred subscription certificate, the new holder should deliver the subscription certificate, together with payment of the applicable Subscription Price and complete separate instructions signed by the new holder, to the Subscription Agent in ample time to permit the Subscription Agent to take the desired action. Because only the Subscription Agent can issue subscription certificates, if you wish to transfer less than all of the Rights evidenced by your subscription certificate to a designated transferee, you must instruct the Subscription Agent as to the action to be taken with respect to the Rights not sold or transferred, or you must divide your subscription certificate into subscription certificates of appropriate smaller denominations by following the instructions in paragraph 4 of these instructions. The subscription certificate evidencing the number of Rights you intend to transfer can then be transferred by following the instructions in this paragraph 3(b). (c) SALE OF RIGHTS THROUGH SUBSCRIPTION AGENT. To sell some or all of your Rights through the Subscription Agent, you must check the box in Form 3 and deliver the subscription certificate to the Subscription Agent. Your subscription certificate should be delivered to the Subscription Agent in ample time for it to be sold and exercised, but in no event later than 11:00 a.m., New York City time, on _____________, August ____, 1998. The Subscription Agent's obligation to execute orders is subject to its ability to find buyers. If you wish to sell less than all of your Rights, you or your bank or broker must instruct the Subscription Agent as to the action to be taken with respect to the Rights not sold. Promptly following the Expiration Date, the Subscription Agent will send you a check for the net proceeds of such sale as described in the Prospectus. If you wish to sell Rights through the Subscription Agent, you should also complete the Substitute Form W-8 or W-9 referred to in paragraph 8 of these instructions. 4 4. TO HAVE A SUBSCRIPTION CERTIFICATE DIVIDED INTO SMALLER DENOMINATIONS. To have a subscription certificate divided into smaller denominations, send your subscription certificate, together with complete separate instructions (including specification of the denominations into which you wish your Rights to be divided) signed by you, to the Subscription Agent, allowing sufficient time for new subscription certificates to be issued and returned so that they can be used prior to the Expiration Date. Alternatively, you may ask a bank or broker to effect such actions on your behalf. Your signature must be guaranteed by an Eligible Institution if any of the new subscription certificates are to be issued in a name other than that in which the old subscription certificate was issued. Subscription certificates may not be divided into fractional Rights, and any instruction to do so will be rejected. AS A RESULT OF DELAYS IN THE MAIL, THE TIME OF THE TRANSMITTAL, THE NECESSARY PROCESSING TIME AND OTHER FACTORS, YOU OR YOUR TRANSFEREE MAY NOT RECEIVE SUCH NEW SUBSCRIPTION CERTIFICATES IN TIME TO ENABLE THE RIGHTS HOLDER TO COMPLETE A SALE OR EXERCISE BY THE EXPIRATION DATE. NEITHER THE COMPANY NOR THE SUBSCRIPTION AGENT WILL BE LIABLE TO EITHER A TRANSFEROR OR TRANSFEREE FOR ANY SUCH DELAYS. 5. EXECUTION. (a) EXECUTION BY REGISTERED HOLDER. The signature on the subscription certificate must correspond with the name of the registered holder exactly as it appears on the face of the subscription certificate without any alteration or change whatsoever. Persons who sign the subscription certificate in a representative or other fiduciary capacity must indicate their capacity when signing and, unless waived by the Subscription Agent in its sole and absolute discretion, must present to the Subscription Agent satisfactory evidence of their authority to so act. (b) EXECUTION BY PERSON OTHER THAN REGISTERED HOLDER. If the subscription certificate is executed by a person other than the holder named on the face of the subscription certificate, proper evidence of authority of the person executing the subscription certificate must accompany the same unless, for good cause, the Subscription Agent dispenses with proof of authority. (c) SIGNATURE GUARANTEES. Your signature must be guaranteed by an Eligible Institution if you wish to transfer your Rights, as specified in paragraph 3(b) of these instructions, to a transferee other than a bank or broker, if you wish a new subscription certificate or certificates to be issued in a name other than that in which the old subscription certificate was issued, as specified in paragraph 4 of these instructions, or if you specify special payment or delivery instructions pursuant to Form 4. 6. METHOD OF DELIVERY. The method of delivery of subscription certificates and payment of the Subscription Price to the Subscription Agent will be at the election and risk of the Rights holder, but, if sent by mail, it is recommended that they be sent by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the Subscription Agent and the clearance of any checks sent in payment of the Subscription Price prior to 5:00 p.m., New York City time, on the Expiration Date. 7. SPECIAL PROVISIONS RELATING TO THE DELIVERY OF RIGHTS THROUGH THE DEPOSITORY TRUST COMPANY. In the case of holders of Rights that are held of record through The Depository Trust Company ("DTC"), exercises of the Basic Subscription Privilege (but not the Oversubscription Privilege) may be effected by instructing DTC to transfer Rights (such Rights being "DTC Exercised Rights") from the DTC account of such holder to the DTC account of the Subscription Agent, together with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege. The Oversubscription Privilege in respect of DTC Exercised Rights may not be exercised through DTC. The holder of a DTC Exercised Right may exercise the Oversubscription Privilege in respect of such DTC Right by properly executing and delivering to the Subscription Agent at or prior to 5:00 p.m., New York City time, on the Expiration Date, a DTC Participant Oversubscription Exercise Form, in the form available from the Subscription Agent or Information Agent, together with payment of the appropriate Subscription Price for the number of Underlying Shares for which the Oversubscription Privilege is to be exercised. 5 If a Notice of Guaranteed Delivery relates to Rights with respect to which exercise of the Basic Subscription Privilege will be made through DTC and such Notice of Guaranteed Delivery also relates to the exercise of the Oversubscription Privilege, a DTC Participant Oversubscription Exercise Form must also be received by the Subscription Agent in respect of such exercise of the Oversubscription Privilege on or prior to the Expiration Date. 8. SUBSTITUTE FORMS W-8 AND W-9. Each Rights holder who elects either to exercise Rights or to have the Subscription Agent endeavor to sell such holder's Rights should provide the Subscription Agent with either a Certificate of Foreign Status on Substitute Form W-8 or a correct Taxpayer Identification Number ("TIN") on Substitute Form W-9, both of which forms are included below. Additional copies of Substitute Forms W-8 and W-9 may be obtained upon request from the Subscription Agent or Information Agent at the respective address, or by calling the respective telephone number, indicated above. Failure to provide the information on these forms may subject such holder to a $50 penalty and to 31% federal income tax withholding with respect to (i) dividends that may be paid by the Company on shares of Common Stock purchased upon the exercise of Rights (for those holders exercising Rights) or (ii) funds to be remitted to Rights holders in respect of Rights sold by the Subscription Agent (for those holders electing to have the Subscription Agent sell their Rights). 6 EXHIBIT A NOTICE OF GUARANTEED DELIVERY FOR SUBSCRIPTION CERTIFICATES ISSUED BY SIEBERT FINANCIAL CORP. This form, or one substantially equivalent hereto, must be used to exercise Rights pursuant to the Rights Offering described in the Prospectus dated July _______, 1998 (the "Prospectus") of Siebert Financial Corp., a New York corporation (the "Company"), if a holder of Rights cannot deliver the subscription certificates(s) evidencing the Rights (the "Subscription Certificate(s)") to the Subscription Agent listed below (the "Subscription Agent") at or prior to 5:00 p.m., New York City time, on ___________, August ____, 1998 (the "Expiration Date"). This form must be delivered by hand or sent by facsimile transmission or overnight courier or mail to the Subscription Agent, and must be received by the Subscription Agent on or prior to the Expiration Date. See "THE RIGHTS OFFERING - Exercise of Rights" in the Prospectus. Payment of the Subscription Price of $_____ per share for each share of the Company's Common Stock subscribed for upon exercise of such Rights must be received by the Subscription Agent in the manner specified in the Prospectus at or prior to 5:00 p.m., New York City time, on the Expiration Date even if the Subscription Certificate evidencing such Rights is being delivered pursuant to the procedures for guaranteed delivery thereof.
THE SUBSCRIPTION AGENT IS: AMERICAN STOCK TRANSFER & TRUST COMPANY BY MAIL: BY FACSIMILE BY HAND: American Stock Transfer TRANSMISSION: American Stock Transfer & Trust Company (718) 234-5001 & Trust Company 40 Wall Street, 46th Floor 40 Wall Street, 46th Floor New York, New York 10005 New York, New York 10005 TO CONFIRM RECEIPT OF FACSIMILE AND FOR GENERAL INFORMATION: (800) 937-5449
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. The member firm or bank or trust company that completes this form must communicate the guarantee and the number of shares subscribed for (under both the Basic Subscription Privilege and the Oversubscription Privilege) to the Subscription Agent, and must deliver this Notice of Guaranteed Delivery, guaranteeing delivery of a properly completed and signed copy of the subscription certificate, to the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date. Failure to do so will result in a forfeiture of the Rights. A-1 SIEBERT FINANCIAL CORP. GENTLEMEN: The undersigned hereby represents that he or she is the holder of Subscription Certificate(s) representing Rights and that such Subscription Certificate(s) cannot be delivered to the Subscription Agent at or before 5:00 p.m., New York City time, on the Expiration Date. Upon the terms and subject to the conditions set forth in the Prospectus, receipt of which is hereby acknowledged, the undersigned hereby elects to exercise (i) the Basic Subscription Privilege to subscribe for one share of Common Stock per Right with respect to each of __________ Rights represented by such Subscription Certificate and (ii) the Oversubscription Privilege relating to each such Right to subscribe, to the extent that Excess Shares (as defined in the Prospectus) are available therefor, for an aggregate of up to __________ Excess Shares. The undersigned understands that payment of the Subscription Price of $_____ per share for each share of Common Stock subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege must be received by the Subscription Agent at or before 5:00 p.m., New York City time, on the Expiration Date and represents that such payment, in the aggregate amount of $_______________, either (check appropriate box): -- is delivered herewith or ______ was delivered separately in the manner set forth below (check appropriate box and complete information relating thereto): -- wire transfer of funds -- name of transferor institution -- date of transfer______________ confirmation number (if available)_______________ -- uncertified check (Payment by uncertified check will not be deemed to have been received by the Subscription Agent until such check has cleared. Holders paying by such means are urged to make payment sufficiently in advance of the Expiration Date to ensure that such payment clears by such date.) -- certified check -- bank draft (cashier's check) -- money order -- name of maker_____________________________________________________ -- date and number of check, draft or money order____________________ (date) (number) -- bank on which check is drawn or issuer of money order_____________ Signature(s)______________________________ Address__________________________ __________________________________________ _________________________________ Name(s)___________________________________ _________________________________ __________________________________________ Tel. No(s)( )_______________ Please Type or Print Subscription Certificate No(s). (if available)__________________________________ A-2 - -------------------------------------------------------------------------------- GUARANTEE OF DELIVERY (NOT TO BE USED FOR SUBSCRIPTION CERTIFICATE SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office or correspondent in the United States, guarantees that the undersigned will deliver to the Subscription Agent the subscription certificate(s) representing the Rights being exercised hereby, with any required signature guarantees and any other required documents, all within three Nasdaq SmallCap Market trading days after the date hereof. __________________________________________ Dated:_______________________, 1998 __________________________________________ ___________________________________ __________________________________________ ___________________________________ (Name of Firm) __________________________________________ Address __________________________________________ ___________________________________ (Area Code and Telephone Number) (Authorized Signature) Number of Shares on Basic Subscription Privilege: ____________ Number of Shares on Oversubscription Privilege: ____________ __________________________________________ ___________________________________ Name of Firm Authorized Signature __________________________________________ ___________________________________ Address Title __________________________________________ ___________________________________ (Zip Code) Name __________________________________________ ___________________________________ Contact Name (Please Type or Print) ___________________________________ (Phone Number) - ------------------------------------------------------------------------------- The institution which completes this form must communicate the guarantee to the Subscription Agent prior to 5:00 p.m., New York City time, on the Expiration Date and must deliver the Subscription Certificate(s) to the Subscription Agent within the time period shown herein. Failure to do so could result in a financial loss to such institution. A-3 EXHIBIT B IMPORTANT TAX INFORMATION Under the federal income tax law, (i) dividend payments that may be made by the Company on shares of Common Stock issued upon the exercise of Rights and (ii) payments that may be remitted by the Subscription Agent to Rights holders in respect of Rights sold on such holders' behalf by the Subscription Agent, may be subject to backup withholding, and each Rights holder who either exercises Rights or requests the Subscription Agent to sell Rights should provide the Subscription Agent (as the Company's agent, in respect of exercised Rights, and as payer with respect to Rights sold by the Subscription Agent) with either a Certificate of Foreign Status on Substitute Form W-8 or such Rights holder's correct taxpayer identification number on Substitute Form W-9, both of which forms are included below. If such Rights holder is an individual, the taxpayer identification number is his social security number. If the Subscription Agent, which is also the transfer agent for the Company, is not provided with either a Certificate of Foreign Status or the correct taxpayer identification number in connection with such payments, the Rights holder may be subject to a $50 penalty imposed by the Internal Revenue Service. Exempt Rights holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In general, in order for a foreign individual to qualify as an exempt recipient, that Rights holder must submit a statement, signed under the penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Subscription Agent. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Company or the Subscription Agent, as the case may be, will be required to withhold 31% of any such payments made to the Rights holder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. PURPOSE OF SUBSTITUTE FORMS W-8 AND W-9 To prevent backup withholding, the Rights holder is required either to provide the Subscription Agent with a Certificate of Foreign Status by completing the Substitute Form W-8 which is included below or to notify the Subscription Agent of his correct taxpayer identification number by completing the Substitute Form W-9 which is included below certifying that the taxpayer identification number provided on Substitute Form W-9 is correct (or that such Rights holder is awaiting a taxpayer identification number) and that such Rights holder is not subject to backup withholding. WHAT NUMBER TO GIVE THE SUBSCRIPTION AGENT The Rights holder is required to give the Subscription Agent the social security number or employer identification number of the record owner of the Rights. If the Rights are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidelines on which number to report. B-1 [FORM W-9 GOES HERE] B-2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer. ======================================================= ====================================================== GIVE THE NAME AND FOR THIS TYPE OF ACCOUNT: GIVE THE NAME AND FOR THIS TYPE OF ACCOUNT: EMPLOYER SOCIAL SECURITY IDENTIFICATION NUMBER OF - NUMBER OF- ======================================================= ====================================================== 1. Individual The individual 6. A valid trust, estate or Legal entity (do pension trust not furnish the identification number of the personal representative or trustee unless the legal entity itself is not designated in the account title)(4) 2. Two or more individuals The actual owner of 7. Corporation The corporation (joint account) the account or, if combined funds, the first individual on the account(1) 3. Custodian account of a The minor(2) 8. Association, club, The organization minor (Uniform Gifts to Minors religious, charitable, educational Act) or other tax-exempt organization 4. a. The usual revocable The grantor-trustee(1) 9. Partnership The partnership savings trust (grantor is also trustee) b. The so-called trust The actual owner(1) 10. A broker or registered The broker or account that is not a legal or nominee nominee valid trust under state law 5. Sole proprietorship The owner(3) 11. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments ======================================================= =======================================================
(1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Show the name of the owner. You may also enter your business name. You may use your social security number or your employer identification number (4) List first and circle the name of the legal trust, estate or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. B-3 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: o A corporation. o A financial institution. o An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under section 403(b)(7). o The United States or any agency or instrumentality thereof. o A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. o A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. o An international organization of any agency or instrumentality thereof. o A dealer in securities or commodities registered in the United States or a possession of the United States. o A real estate investment trust. o A common trust fund operated by a bank under section 584(a). o An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). o An entity registered at all times under the Investment Company Act of 1940. o A foreign central bank of issue. o A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: o Payments to nonresident aliens subject to withholding under section 1441. o Payments to partnerships not engaged in a trade or business in the United States and which have at least one nonresident partner. o Payments of patronage dividends where the amount received is not paid in money. o Payments made by certain foreign organizations. Payments of interest not generally subject to backup withholding include the following: o Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. o Payments of tax-exempt interest (including exempt-interest dividends under section 852). o Payments described in section 6049(b)(5) to nonresident aliens. o Payments on tax-free covenant bonds under section 1451. o Payments made by certain foreign organizations. o Mortgage interest paid to you. Exempt payees described above should file Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A and 6050N. PRIVACY ACT NOTICE. Section 6109 requires most recipients of dividends, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividends, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. B-4 [FORM W-8 GOES HERE] B-5 GUIDELINES FOR CERTIFICATION OF FOREIGN STATUS ON SUBSTITUTE FORM W-8 Use Form W-8 to tell a payer, middleman, broker or barter exchange that you are a nonresident alien individual, foreign entity, or exempt foreign person not subject to certain U.S. information return reporting or backup withholding rules. CAUTION: FORM W-8 DOES NOT EXEMPT THE PAYEE FROM THE 30% (OR LOWER TREATY) NONRESIDENT WITHHOLDING RATES WHICH MAY APPLY. NONRESIDENT ALIEN INDIVIDUAL: For income tax purposes, "nonresident alien individual" means an individual who is neither a U.S. citizen nor resident. Generally, an alien is considered to be a U.S. resident if: o The individual was a lawful permanent resident of the United States at any time during the calendar year, that is, the alien held an immigrant visa (a "green card"), or o The individual was physically present in the United States on: (1) at least 31 days during the calendar year, and (2) 183 days or more during the current year and the 2 preceding calendar years (counting all the days of physical presence in the current year, one-third the number of days of presence in the first preceding year, and only one-sixth of the number of days in the second preceding year). EXEMPT FOREIGN PERSON: For purposes of Form W-8, you are an "exempt foreign person" for a calendar year in which: o You are a nonresident alien individual or a foreign corporation, partnership, estate or trust, o You are an individual who has not been, and plans not to be, present in the United States for a total of 183 days or more during the calendar year, and o You are neither engaged, nor plan to be engaged during the year, in a U.S. trade or business that has effectively connected gains from transactions with a broker or barter exchange. PERMANENT ADDRESS: Enter your complete address in the country where you reside permanently for income tax purposes: IF YOU ARE: SHOW THE ADDRESS OF: An individual Your permanent residence A partnership or corporation Principal office An estate or trust Permanent residence or principal office of any fiduciary Also show your current mailing address if it differs form your permanent address. NOTICE OF CHANGE IN STATUS: If you become a U.S. citizen or resident after you have filed Form W-8 or you cease to be an exempt foreign person, you must notify the payer in writing within 30 days of your change of status. FALSE CERTIFICATE: If you file a false certificate when you are not entitled to the exemption from withholding or reporting, you may be subject to fines and/or imprisonment under U.S. perjury laws. FOR ADDITIONAL INFORMATION, CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE B-6 EXHIBIT C SIEBERT FINANCIAL CORP. RIGHTS OFFERING DTC PARTICIPANT OVERSUBSCRIPTION EXERCISE FORM THIS FORM IS TO BE USED ONLY BY DEPOSITORY TRUST COMPANY PARTICIPANTS TO EXERCISE THE OVERSUBSCRIPTION PRIVILEGE IN RESPECT OF RIGHTS WITH RESPECT TO WHICH THE BASIC SUBSCRIPTION PRIVILEGE WAS EXERCISED AND DELIVERED THROUGH THE FACILITIES OF THE DEPOSITORY TRUST COMPANY. ALL OTHER EXERCISES OF OVERSUBSCRIPTION PRIVILEGES MUST BE EFFECTED BY THE DELIVERY OF THE SUBSCRIPTION FORMS. -------------------- THE TERMS AND CONDITIONS OF THE RIGHTS OFFERING ARE SET FORTH IN THE COMPANY'S PROSPECTUS DATED JULY _______, 1998 (THE "PROSPECTUS") AND ARE INCORPORATED HEREIN BY REFERENCE. COPIES OF THE PROSPECTUS ARE AVAILABLE UPON REQUEST FROM THE COMPANY, THE INFORMATION AGENT AND THE SUBSCRIPTION AGENT. -------------------- VOID UNLESS RECEIVED BY THE SUBSCRIPTION AGENT WITH PAYMENT IN FULL BY 5:00 P.M., NEW YORK CITY TIME, ON ___________, AUGUST ________, 1998 (THE "EXPIRATION DATE"). -------------------- 1. The undersigned hereby certifies to the Company and the Subscription Agent that it is a participant in The Depository Trust Company ("DTC") and that it has either (i) exercised the Basic Subscription Privilege in respect of Rights and delivered such exercised Rights to the Subscription Agent by means of transfer to the DTC account of the Subscription Agent or (ii) delivered to the Subscription Agent a Notice of Guaranteed Delivery in respect of the exercise of the Basic Subscription Privilege and will deliver the Subscription Certificate(s) called for in such Notice of Guaranteed Delivery to the Subscription Agent by means of transfer to such DTC account of the Subscription Agent. The undersigned hereby certifies to the Company and the Subscription Agent that the beneficial holders owned __________ shares of Common Stock on the Record Date. 2. The undersigned hereby exercises the Oversubscription Privilege to purchase, to the extent available, shares of Common Stock and certifies to the Company and the Subscription Agent that such Oversubscription Privilege is being exercised for the account or accounts of persons (which may include the undersigned) on whose behalf the Basic Subscription Privilege has been exercised in its entirety. 3. The undersigned understands that payment of the Subscription Price of $______ per share for each share of Common Stock subscribed for pursuant to the Oversubscription Privilege must be received by the Subscription Agent at or before 5:00 p.m. New York City time on the Expiration Date and represents that such payment, in the aggregate amount of $_______________, is or was delivered in the manner set forth below (check appropriate box and complete relating thereto): ____ uncertified check ____ certified check ____ bank draft C-1 4. The undersigned understands that in the event it is not allocated the full amount of shares oversubscribed for above, any excess payment to be refunded by the Company will be mailed to it by the Subscription Agent as provided in the Prospectus. ================================================================================ __________________________________________________________________________ Basic Subscription Confirmation Number __________________________________________________________________________ DTC Participant __________________________________________________________________________ Name of DTC Participant By:_____________________________________________________________________________ Name: Title: Contact Name:___________________________________________________________________ Phone Number:___________________________________________________________________ Dated:__________________________________________________________________________ ================================================================================ C-2 EX-99.3 5 EXHIBIT 99.3 EXHIBIT 99.3 SUBSCRIPTION AGENCY AGREEMENT SUBSCRIPTION AGENCY AGREEMENT (this "AGREEMENT"), dated as of July _____, 1998, by and between Siebert Financial Corp., a New York corporation (the "COMPANY"), and American Stock Transfer and Trust Company, as Subscription Agent (the "SUBSCRIPTION AGENT"). WHEREAS, the Company has caused a Registration Statement on Form S-1 (Registration No. 333-49843) under the Securities Act of 1933, as amended (the "ACT"), to be filed with the Securities and Exchange Commission (the "COMMISSION") relating to a proposed distribution by the Company of transferable subscription rights (the "RIGHTS") and sale of newly issued shares of the Company's Common Stock, par value $.01 per share (the "COMMON STOCK"), upon the exercise of such Rights (such Registration Statement, in the form in which it first becomes effective under the Act, and as it may thereafter be amended from time to time, is referred to herein as the "REGISTRATION STATEMENT"; the distribution of the Rights and the sale of shares of Common Stock upon the exercise thereof as contemplated by the Registration Statement is referred to herein as the "RIGHTS OFFERING"); WHEREAS, the Rights will be distributed to holders of record of shares of Common Stock as of the close of business on _____, July ___, 1998 (the "RECORD DATE") at a rate of one (1) Right for each share of Common Stock held on the Record Date; WHEREAS, the Company has authorized the issuance of an aggregate number of authorized and unissued or treasury shares of Common Stock (the "UNDERLYING SHARES") equal to the aggregate number of Rights to be distributed pursuant to the Rights Offering; WHEREAS, Rights holders will be entitled to subscribe to purchase at a per share price of $_____ (the "SUBSCRIPTION PRICE") one Underlying Share for each Right held (the "BASIC SUBSCRIPTION PRIVILEGE"); WHEREAS, Rights holders will also be entitled to subscribe to purchase any underlying shares that are not subscribed for through the Basic Subscription Privilege, subject to proration by the Company, if necessary (the "OVERSUBSCRIPTION PRIVILEGE"). The right to subscribe for such underlying shares pursuant to the Oversubscription Privilege is not transferrable; and WHEREAS, the Company desires the Subscription Agent to act on its behalf in connection with the Rights Offering as set forth herein, and the Subscription Agent is willing so to act. NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto hereby agree as follows: SECTION 1. APPOINTMENT OF SUBSCRIPTION AGENT. The Company hereby appoints the Subscription Agent to act as agent for the Company in accordance with the instructions set forth -1- in this Agreement, and the Subscription Agent hereby accepts such appointment. The Company may from time to time appoint such co-subscription agents as it may deem necessary or desirable. SECTION 2. ISSUE OF SECURITIES. (a) The Company has authorized the issuance of the Rights and, following the effectiveness of the Registration Statement and the Record Date, will issue such Rights to holders of record of shares of Common Stock as of the close of business on the Record Date as contemplated by the Registration Statement. The Company will promptly notify the Subscription Agent upon the effectiveness of the Registration Statement. As transfer agent and registrar for the shares of Common Stock, the Subscription Agent shall provide such assistance as the Company may require in order to effect the distribution of the Rights to holders of record of shares of Common Stock as of the close of business on the Record Date, including assistance in determining the number of Rights to be distributed to each such record holder and assistance in distributing the Subscription Certificates (as defined in SECTION 3(B) hereof) evidencing the Rights and all other ancillary documents. (b) The Company has authorized the issuance of and will hold in reserve the Underlying Shares, and upon the valid exercise of Rights, the Company will issue Underlying Shares to validly exercising Rights holders as set forth in the Registration Statement. SECTION 3. SUBSCRIPTION PRIVILEGES; FORM OF SUBSCRIPTION CERTIFICATES. (a) Pursuant to the Basic Subscription Privilege, each Right grants to the holder thereof, upon the valid exercise of the Right pursuant to SECTION 7 hereof, the right to purchase from the Company one Underlying Share for the Subscription Price. (b) Pursuant to the Oversubscription Privilege, each Right grants to the holder thereof, upon the valid exercise of the Right pursuant to SECTION 7 thereof, the right to purchase from the Company Underlying Shares to the extent that any Underlying Shares are not subscribed for through the Basic Subscription Privilege, subject to proration by the Company under certain circumstances. (c) The Rights shall be evidenced by subscription certificates (the "SUBSCRIPTION CERTIFICATES"). The Subscription Certificates (and the form of election to exercise or transfer rights to be printed on the reverse thereof) shall be substantially in the form attached as EXHIBIT A hereto. The Subscription Certificates shall be fully transferable. SECTION 4. SIGNATURE AND REGISTRATION. (a) The Subscription Certificates shall be executed on behalf of the Company by its President and by its Secretary by facsimile signature. Any Subscription Certificate may be signed on behalf of the Company by any person who, at the actual date of the execution of such Subscription Certificate, shall be a proper officer of the Company to sign such Subscription Certificate, even if at the date of the execution of this Agreement or the date of the actual issuance of such certificate any such person is not such an officer. -2- (b) The Subscription Agent will keep or cause to be kept, at its principal offices in the State of New York, books for registration and transfer of the Rights issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights and the number of Rights evidenced by each outstanding Subscription Certificate. SECTION 5. DIVISION, COMBINATION AND EXCHANGE OF SUBSCRIPTION CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN SUBSCRIPTION CERTIFICATES. (a) Subject to the provisions of SECTION 9 hereof, any Subscription Certificate, or any two or more Subscription Certificates, may be divided, combined or exchanged for any number of Subscription Certificates or for a single Subscription Certificate of different denomination; PROVIDED, HOWEVER, that the aggregate number of Rights evidenced by the Subscription Certificate or Subscription Certificates so issued shall not exceed the aggregate number of Rights evidenced by the Subscription Certificate or Subscription Certificates surrendered in exchange therefor. The foregoing notwithstanding, a bank, trust company, securities dealer or broker holding shares of Common Stock on the Record Date for more than one beneficial owner may, by submitting a written request by 5:00 p.m., New York City time on __________, August _____, 1998 and upon proper showing to the Subscription Agent, exchange its Subscription Certificate to obtain Subscription Certificates for the number of Rights which each such beneficial owner would have been entitled to receive pursuant to SECTION 9(A) hereof had each such beneficial owner been the holder of record of such beneficial owner's shares on the Record Date. Any instructions to divide, combine or exchange Subscription Certificates which would result in the issuance of Subscription Certificates evidencing fractional Rights shall be rejected. (b) Any holder desiring to divide, combine or exchange any Subscription Certificate or Subscription Certificates shall make such requests in writing to the Subscription Agent, and shall surrender the Subscription Certificate or Subscription Certificates to be divided, combined or exchanged to the Subscription Agent. Thereupon the Subscription Agent shall deliver to the person entitled thereto a Subscription Certificate or Subscription Certificates, as the case may be, as so requested. In all cases of transfer by an attorney-in-fact, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Subscription Agent. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority satisfactory to the Subscription Agent shall be produced and may be required to be deposited and to remain with the Subscription Agent in its discretion. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any division, combination or exchange of Subscription Certificates. (c) Upon receipt by the Company and the Subscription Agent of evidence -3- reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Subscription Certificate, and, in case of loss, theft or destruction, of indemnity and/or security satisfactory to them, which may be in the form of an open penalty bond, and reimbursement to the Company and the Subscription Agent of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Subscription Certificate if mutilated, the Company will make and deliver a new Subscription Certificate of like tenor to the Subscription Agent for delivery to the registered owner in lieu of the Subscription Certificate so lost, stolen, destroyed or mutilated. If required by the Company or the Subscription Agent, an indemnity bond must be sufficient in the judgment of both to protect the Company, the Subscription Agent or any agent thereof from any loss which any of them may suffer if a Subscription Certificate is replaced. SECTION 6. SUBSEQUENT ISSUE OF SUBSCRIPTION CERTIFICATES. Subsequent to their original issuance, no Subscription Certificates shall be issued except (a) Subscription Certificates issued upon any transfer, combination, division or exchange of Rights pursuant to SECTION 5(A), SECTION 5(B) or SECTION 10 hereof, (b) Subscription Certificates issued in replacement of mutilated, destroyed, lost or stolen Subscription Certificates pursuant to SECTION 5(C) hereof and (c) Subscription Certificates issued pursuant to SECTION 7(G) hereof upon the partial exercise of any Subscription Certificate to evidence the unexercised portion of such Subscription Certificate. SECTION 7. EXERCISE OF RIGHTS; EXERCISE PRICE; EXPIRATION DATE. (a) The holder of any Subscription Certificate may exercise some or all of the Rights evidenced thereby (but not in amounts of less than one Right or an integral multiple thereof) by delivering to the Subscription Agent, on or prior to 5:00 p.m., New York City time, on __________, August _____, 1998 (the "EXPIRATION DATE"), a properly completed and executed Subscription Certificate evidencing such Rights (with signatures guaranteed, if necessary, by a commercial bank or trust company having an office or correspondent in the United States or a member firm of a national securities exchange or a member of the National Association of Securities Dealers, Inc. (each, an "ELIGIBLE INSTITUTION")), together with payment of the Subscription Price (as hereinafter defined) for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege. In the case of holders of Rights that are held of record through The Depository Trust Company ("DTC"), exercises of the Basic Subscription Privilege may be effected by instructing DTC to transfer Rights from the DTC account of such holder to the DTC account of the Subscription Agent, together with payment of the Subscription Price for each Underlying Share subscribed for pursuant to the Basic Subscription Privilege. Exercises of the Oversubscription Privilege may be effected by properly executing and delivering to the Subscription Agent a DTC Participant Oversubscription Exercise Form, together with payment of the appropriate Subscription Price for the number of Underlying Shares for which the Oversubscription Privilege is to be exercised. Alternatively, the holder of any Subscription Certificate may exercise the Rights evidenced thereby by effecting compliance with the procedures for guaranteed delivery set forth in SECTION 7(B) below. (b) If a holder wishes to exercise Rights, but time will not permit such holder to cause the Subscription Certificate or Subscription Certificates evidencing such Rights to reach the Subscription Agent on or prior to the Expiration Date, such Rights may nevertheless be -4- exercised if all of the following conditions (the "GUARANTEED DELIVERY PROCEDURES") are met: (i) such holder has caused payment in full of the Subscription Price for each Underlying Share being subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege to be received (in the manner set forth in SECTION 7(D) hereof) by the Subscription Agent on or prior to the Expiration Date; (ii) the Subscription Agent receives, on or prior to the Expiration Date, a guarantee notice (a "NOTICE OF GUARANTEED DELIVERY"), substantially in the form provided with the Instructions as to Use of Subscription Certificates (the "INSTRUCTIONS") distributed with the Subscription Certificates, from an Eligible Institution, stating the name of the exercising Rights holder, the number of Rights represented by the Subscription Certificate or Subscription Certificates held by such exercising Rights holder, the number of Underlying Shares being subscribed for pursuant to the Basic Subscription Privilege and the number of Underlying Shares, if any, being subscribed for pursuant to the Oversubscription Privilege, and guaranteeing the delivery to the Subscription Agent of the Subscription Certificate evidencing such Rights at or prior to 5:00 p.m., New York City time, on the date three Nasdaq SmallCap Market ("NASDAQ") trading days following the date of the Notice of Guaranteed Delivery; and (iii) the properly completed Subscription Certificate(s) evidencing the Rights being exercised, with any required signatures guaranteed, are received by the Subscription Agent, or such Rights are transferred into the DTC account of the Subscription Agent, at or prior to 5:00 p.m., New York City time, on the date three Nasdaq trading days following the date of the Notice of Guaranteed Delivery relating thereto. The Notice of Guaranteed Delivery may be delivered to the Subscription Agent in the same manner as Subscription Certificates at the addresses set forth above, or may be transmitted to the Subscription Agent by facsimile transmission ((718) 234-5001). (c) The Rights shall expire at 5:00 p.m., New York City time, on the Expiration Date. (d) The "SUBSCRIPTION PRICE" shall be $_____ per share of Common Stock subscribed for pursuant to the Subscription Privilege payable (in United States dollars) (i) by check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to the Subscription Agent, as Subscription Agent, or (ii) by wire transfer of funds to the account maintained by the Subscription Agent for such purpose at the Chase Manhattan Bank, Account No. 323294723; ABA No. 021000021 (the "BANK ACCOUNT"). The Subscription Price shall be deemed to have been received by the Subscription Agent only upon (i) clearance of any uncertified check, (ii) receipt by the Subscription Agent of any certified check or bank draft or postal, telegraphic or express money order or (iii) receipt of good funds in the Subscription -5- Agent's account designated above, in payment of the Subscription Price. (e) If an exercising Rights holder has not indicated the number of Rights being exercised, or if the Subscription Price payment forwarded by such holder to the Subscription Agent is not sufficient to purchase the number of shares subscribed for, the Rights holder will be deemed to have exercised the Basic Subscription Privilege with respect to the maximum number of whole Rights which may be exercised for the Subscription Price delivered to the Subscription Agent and, to the extent that the Subscription Price payment delivered by such holder exceeds the Subscription Price multiplied by the maximum number of whole Rights which may be exercised (such excess being the "SUBSCRIPTION EXCESS"), the Subscription Agent, as soon as practicable after such exercise of Rights, shall mail to such Rights holder the Subscription Excess paid by such holder without interest or deduction. (f) The Subscription Agent shall pay to, credit to the account of or otherwise transfer to the Company all funds received by the Subscription Agent in payment of the Subscription Price for Underlying Shares subscribed for pursuant to the Basic Subscription Privilege, as soon as practicable following the Expiration date. (g) Funds received by the Subscription Agent in payment of the Subscription Price for Excess Shares subscribed for pursuant to the Oversubscription Privilege shall be held in a segregated account pending issuance of such excess shares. (h) Upon receipt by the Subscription Agent of a notice from the Company substantially in the form of ANNEX A hereto, the Subscription Agent shall and is hereby directed to withdraw from the Bank Account and pay to, credit to the account of or otherwise transfer to the Company all such funds on ____________, August _____, 1998. (i) In case the holder of any Subscription Certificate shall exercise less than all the Rights evidenced thereby, a new Subscription Certificate evidencing the number of Rights remaining unexercised shall be issued by the Subscription Agent to the registered holder of such Subscription Certificate or to his duly authorized assigns, subject to the provisions of SECTION 9 hereof. (j) The Subscription Agent is authorized to accept only Subscription Certificates (other than Subscription Certificates delivered in accordance with the procedure for guaranteed delivery set forth in SECTION 7(B)), or transfers of Rights to its account at DTC, received prior to 5:00 p.m., New York City time, on the Expiration Date. (k) Once a holder of Rights has exercised a Right, such exercise may not be revoked. (l) Unless a Subscription Certificate (i) provides that the Underlying Shares to be issued pursuant to the exercise of Rights represented thereby are to be delivered to the holders of such Rights or (ii) is submitted for the account of an Eligible Institution, signatures on such Subscription Certificate must be guaranteed by an Eligible Institution. -6- SECTION 8. DELIVERY OF STOCK CERTIFICATES. As soon as practicable after the Expiration Date, the Subscription Agent shall deliver to such exercising Rights holder certificates representing the shares of Common Stock purchased pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, if any. SECTION 9. FRACTIONAL RIGHTS AND SHARES. (a) The Company shall not issue fractions of Rights nor shall the Subscription Agent distribute Subscription Certificates which evidence fractional Rights. (b) The Company shall not issue fractional shares of Common Stock to exercising Rights holders upon exercise and acceptance of Rights. SECTION 10. TRANSFER OF RIGHTS. (a) Any holder may transfer (a) all of the Rights evidenced by a Subscription Certificate by properly endorsing the Subscription Certificate for transfer in accordance with the instructions accompanying the Subscription Certificate or (b) some of the Rights evidenced by a Subscription Certificate (but not fractional Rights) by delivering to the Subscription Agent such Subscription Certificate properly endorsed for transfer, with instructions to register the Rights to be transferred in the name of the transferee (and to issue a new Subscription Certificate to the transferee evidencing such transferred Rights). In such event, the Subscription Agent shall issue a new Subscription Certificate evidencing the balance of the Rights to the holder or, if so instructed, to an additional transferee. (b) Any holder may place an order with the Subscription Agent to sell all or some of the Rights evidenced by a Subscription Certificate by delivering to the Subscription Agent such Subscription Certificate properly executed for sale. If only a portion of the Rights evidenced by a single Subscription Certificate are to be sold, such Subscription Certificate must be accompanied by instructions setting forth the action to be taken with respect to the Rights that are not to be sold. Upon the timely receipt by the Subscription Agent of appropriate instructions to sell Rights, the Subscription Agent will use its best efforts to complete the sale and, promptly following the Expiration Date, the Subscription Agent will send the Rights holder a check for the net proceeds from the sale of any Rights sold. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received on the day such Rights are sold, less any applicable commissions, taxes and other direct expenses of sale. The Subscription Agent will also attempt to sell all Rights which remain unclaimed as a result of Subscription Certificates being returned by the postal authorities to the Subscription Agent as undeliverable as of the fourth business day prior to the Expiration Date. Such sales will be made net of commissions on behalf of the nonclaiming Rights holders. The Subscription Agent will hold the proceeds from those sales for the benefit of such nonclaiming Rights holders until such proceeds are either claimed or escheat. The Subscription Agent's obligation to execute orders is subject to its ability to find buyers. There can be no assurance that the Subscription Agent will -7- be able to sell any Rights or as to the prices the Subscription Agent may be able to obtain in such sales. In connection therewith, the Subscription Agent agrees that it (i) is acting solely on behalf and for the benefit of such holders who wish to sell their Rights and not as agent, or on behalf, of the Company, (ii) shall not accept any instructions from the Company with respect to the timing of such sales and (iii) shall effect all such sales in accordance with applicable law. SECTION 11. FOREIGN AND CERTAIN OTHER STOCKHOLDERS. The Subscription Agent shall not mail Subscription Certificates to holders of Common Stock whose addresses are outside the U.S. The Subscription Agent shall hold such Subscription Certificates for the account of such holders and upon notice from such holders shall exercise the Rights on their behalf. To so exercise such Rights, such stockholders must notify the Subscription Agent not later than 11:00 a.m., New York City time, on __________, August _____, 1998. If no instructions have been received, the Subscription Agent will use its best efforts to sell the Rights. The net proceeds, if any, from the sale of those Rights by the Subscription Agent will be remitted to such holders by the Subscription Agent. If the Rights can be sold, sales of such Rights will be deemed to have been effected at the weighted average price received by the Subscription Agent for the sale of all Rights through the Subscription Agent, less any applicable brokerage commissions, taxes and other expenses. In connection therewith, the Subscription Agent agrees that it (i) is acting solely on behalf and for the benefit of such holders who wish to sell their Rights and not as agent, or on behalf, of the Company, (ii) shall not accept any instructions from the Company with respect to the timing of such sales, (iii) shall effect all such sales in accordance with applicable law, and (iv) shall not effect any such sales in a manner that would cause a material adverse change in the market for the Rights. SECTION 12. REPORTS. The Subscription Agent shall notify both the Company and its designated representatives (including the Information Agent, D.F. King & Co., Inc.) by telephone as requested during the period commencing with the mailing of Subscription Certificates and ending on the Expiration Date (and in the case of guaranteed deliveries pursuant to SECTION 7(B), the period ending three Nasdaq trading days after the Expiration Date), which notice shall thereafter be confirmed in writing, of (i) the number of Rights exercised on the day of such request, (ii) the number of Underlying Shares subscribed for pursuant to the Basic Subscription Privilege and the Oversubscription Privilege, if any, and the number of such Rights for which payment has been received, (iii) the number of Rights subject to guaranteed delivery pursuant to SECTION 7(B) on such day, (iv) the number of Rights for which defective exercises have been received on such day and (v) cumulative totals derived from the information set forth in clauses (i) through (iv) above. At or before noon p.m., New York City time, on the first Nasdaq trading day following the Expiration Date, the Subscription Agent shall certify in writing to the Company the cumulative totals through the Expiration Date derived from the information set forth in clauses (i) through (iv) above. The Subscription Agent shall also maintain and update a listing of holders who have fully or partially exercised their Rights, holders who have transferred their Rights and their transferees and holders who have not exercised their Rights. The Subscription Agent shall provide the Company or its designated representatives (including the Information Agent, D.F. King & Co., Inc.) with the information compiled pursuant to this SECTION 12 as any of them shall request. The Subscription Agent hereby represents, warrants and agrees that the information contained in each notification referred to in this SECTION 12 shall be accurate in all material respects. -8- SECTION 13. FUTURE INSTRUCTIONS AND INTERPRETATION. (a) All questions as to the timeliness, validity, form and eligibility of any exercise of Rights will be determined by the Company whose determinations shall be final and binding. The Company in its sole discretion may waive any defect or irregularity, permit a defect or irregularity to be corrected within such time as it may determine or reject the purported exercise of any Right. Subscriptions will not be deemed to have been received or accepted until all irregularities have been waived or cured within such time as the Company determines in its sole discretion. Neither the Company nor the Subscription Agent shall be under any duty to give notification of any defect or irregularity in connection with the submission of Subscription Certificates or incur any liability for failure to give such notification. (b) The Subscription Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from an authorized officer of the Company, and to apply to such officer for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer. SECTION 14. PAYMENT OF TAXES. The Company covenants and agrees that it will pay when due and payable all documentary, stamp and other taxes, if any, which may be payable in respect of the issuance or delivery of any Subscription Certificate or of the Underlying Shares; PROVIDED, HOWEVER, that the Company shall not be liable for any tax liability arising out of any transaction which results in, or is deemed to be, an exchange of Rights or shares or a constructive dividend with respect to the Rights or shares and PROVIDED FURTHER that the Company shall not be required to pay any tax or other governmental charge which may be payable in respect of any transfer involved in the transfer or delivery of any Subscription Certificate or the issuance or delivery of certificates for shares of Common Stock in a name other than that of the registered holder of such Subscription Certificate evidencing the Rights exercised or transferred, and the Subscription Agent shall not register any such transfer or issue any such certificate until such tax or governmental charge, if required, shall have been paid. SECTION 15. CANCELLATION AND DESTRUCTION OF SUBSCRIPTION CERTIFICATES. All Subscription Certificates surrendered for the purpose of exercise, exchange, substitution or transfer shall be canceled by the Subscription Agent, and no Subscription Certificates shall be issued in lieu thereof except as expressly permitted by the provisions of this Agreement. The Company shall deliver to the Subscription Agent for cancellation and retirement, and the Subscription Agent shall so cancel and return, any other Subscription Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Subscription Agent shall deliver all canceled Subscription Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Subscription Certificates, and in such case shall deliver a certificate of destruction thereof to the Company. SECTION 16. RIGHT OF ACTION. All rights of action in respect of this Agreement are vested in the Company and the respective registered holders of the Subscription Certificates, and any registered holder of any Subscription Certificate, without the consent of the Subscription Agent or of the holder of any other Subscription Certificate, may, on his own behalf and for -9- his own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his right to exercise the Rights evidenced by such Subscription Certificate in the manner provided in such Subscription Certificate and in this Agreement. SECTION 17. CONCERNING THE SUBSCRIPTION AGENT; INDEMNIFICATION. (a) The Company agrees to pay to the Subscription Agent compensation in accordance with the fee letter attached hereto as EXHIBIT B for all services rendered by it hereunder and, from time to time, on demand of the Subscription Agent, its reasonable expenses and counsel fees and other disbursements incurred in the administration and execution of this Agreement and the exercise and performance of its duties hereunder. (b) The Company also agrees to indemnify and hold the Subscription Agent harmless against any losses, claims, damages, liabilities, costs or expenses (including reasonable fees and disbursements of legal counsel) which the Subscription Agent may incur or become subject to arising from or out of any claim or liability resulting from actions taken as Subscription Agent pursuant to this Agreement; PROVIDED, HOWEVER, that such covenant and agreement does not extend to, and the Subscription Agent shall not be indemnified or held harmless with respect to, such losses, claims, damages, liabilities, costs or expenses incurred or suffered by the Subscription Agent as a result, or arising out, of the Subscription Agent's negligence, misconduct, bad faith or breach of this Agreement. In connection therewith: (i) in no case shall the Company be liable with respect to any claim against the Subscription Agent unless the Subscription Agent shall have notified the Company in writing of the assertion of a claim against it or of any action commenced against it, promptly after the Subscription Agent shall have notice of a claim or shall have been served with the summons or other legal process giving information as to the nature and basis of the claim; PROVIDED, HOWEVER, that the failure of the Subscription Agent to notify the Company in the above manner will absolve the Company of liability only when such failure will result or has resulted in prejudice to the Company with respect to such claim or action; (ii) the Company shall be entitled to participate at its own expense in the defense of any suit brought to enforce any such claim and, if the Company so elects, it shall assume the defense of any such suit, in which event the Company shall not be liable for the fees and expenses of any additional counsel that the Subscription Agent may retain, so long as the Company shall retain counsel satisfactory to the Subscription Agent, in the exercise of the Subscription Agent's reasonable judgement, to defend such suit; and (iii) the Subscription Agent agrees not to settle any litigation in connection with any claim or liability with respect to which it may seek indemnification from the Company without the prior written consent of the Company. (c) The Subscription Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it without negligence and in good faith in connection with its administration of this Agreement in reliance upon any Subscription Certificate, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document reasonably believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper person or persons. -10- SECTION 18. MERGER OR CONSOLIDATION OF SUBSCRIPTION AGENT. Any corporation into which the Subscription Agent or any successor Subscription Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Subscription Agent or any successor Subscription Agent shall be a party, or any corporation succeeding to the corporate trust business of the Subscription Agent or any successor Subscription Agent shall be the successor to the Subscription Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 19. DUTIES OF SUBSCRIPTION AGENT. The Subscription Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Subscription Certificates by their acceptance thereof shall be bound: (a) The Subscription Agent may consult with legal counsel (who may be, but is not required to be, legal counsel for the Company), and the opinion of such counsel shall be full and complete authorization and protection to the Subscription Agent as to any action taken or omitted by it in good faith and in accordance with such opinion. (b) Whenever in the performance of its duties under this Agreement the Subscription Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President or a Vice President (including any Senior or Executive Vice President) and by the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company and delivered to the Subscription Agent; and such certificate shall be full authorization to the Subscription Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. (c) The Subscription Agent shall be liable hereunder only for its own negligence or willful misconduct. (d) The Subscription Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Subscription Certificates or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only. (e) The Subscription Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Subscription Agent) or in respect of the validity or execution of any Subscription Certificate; nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Subscription Certificate; nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization -11- or reservation of any shares of Common Stock to be issued pursuant to this Agreement or any Subscription Certificate or as to whether any shares of Common Stock will, when issued, be validly authorized and issued, fully paid and nonassessable. (f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Subscription Agent for the carrying out or performing by the Subscription Agent of the provisions of this Agreement. (g) Nothing herein shall preclude the Subscription Agent from acting in any other capacity for the Company. (h) The Subscription Agent shall comply with the information and backup withholding requirements of the Internal Revenue Code of 1986, as amended (the "CODE"), including without limitation, where appropriate, on a timely basis, filing with the Internal Revenue Service and furnishing to holders of Rights duly completed Forms 1099B and 1099DIV. The Subscription Agent shall also collect and duly preserve Forms W-8 and W-9 and other forms or information necessary to comply with the backup withholding requirements of the Code. (i) The Subscription Agent shall withhold from payments made to record owners amounts sufficient to comply with the backup withholding requirements of the Code. For purposes of backup withholding that may be applicable in respect of Rights distributed to record owners other than foreign holders, the Subscription Agent shall withhold and sell Rights on behalf of such record owners in amounts necessary to satisfy such backup withholding requirements. SECTION 20. NOTICES TO THE COMPANY, HOLDERS AND SUBSCRIPTION AGENT. All notices and other communications provided for or permitted hereunder shall be made by hand delivery, prepaid first-class mail, or facsimile: (a) if to the Company, to: Siebert Financial Corp. 885 Third Avenue, Suite 1720 New York, New York 10022 ATTENTION: Richard M. Feldman (212) 644-6866 (212) 838-0647 (facsimile) -12- (b) if to the Subscription Agent, to: American Stock Transfer & Trust Company 6201 Fifteenth Avenue Brooklyn, New York 11219 ATTENTION: Isaac Kagan and Herbert Lemmer (718) 921-8200 (718) 234-5001 (facsimile) (c) if to a registered holder, at the address shown on the registry books of the Company. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; two business days after being deposited in the mail, postage prepaid, if mailed as aforesaid; and when receipt is acknowledged, if telecopied. SECTION 21. SUPPLEMENTS AND AMENDMENTS. The Company and the Subscription Agent may from time to time supplement or amend this Agreement without the approval of any holders of Subscription Certificates in order to cure any ambiguity or to correct or supplement any provision maintained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Subscription Agent may deem necessary or desirable and which shall not adversely affect the interests of the holders of the Subscription Certificates. SECTION 22. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Subscription Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 23. TERMINATION. This Agreement shall terminate at 5:00 p.m., New York City time, on the thirtieth day following the Expiration Date. Upon termination of this Agreement, and provided that all shares of Common Stock issued upon execution of the Rights accepted for execution prior to such termination are issued and delivered by the Company, the Company shall be discharged from all obligations under this Agreement except for its obligation to the Subscription Agent under SECTION 17 hereof and except with respect to the obligation of the Company to provide instruction and direction to the Subscription Agent as may be provided in this Agreement. SECTION 24. GOVERNING LAW. This Agreement and each Subscription Certificate shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the internal laws of said State. SECTION 25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Subscription Agent and the holders of the Subscription Certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Subscription Agent and the holders of the Subscription Certificates. SECTION 26. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes -13- be deemed to be an original, but all such counterparts shall together constitute one and the same instrument. SECTION 27. DESCRIPTIVE HEADINGS. Descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. -14- IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed as of the date first above written. SIEBERT FINANCIAL CORP. By:___________________________ Title:________________________ AMERICAN STOCK TRANSFER & TRUST COMPANY, Subscription Agent By:___________________________ Title:________________________ -15- EXHIBIT A FORM OF SUBSCRIPTION CERTIFICATE ATTACHED HERETO -16- EXHIBIT B SUBSCRIPTION AGENT'S FEE LETTER [American Stock Transfer & Trust Company Letterhead] July _____, 1998 Muriel F. Siebert Siebert Financial Corp. 885 Third Avenue, Suite 1720 New York, New York 10022 Dear Ms. Siebert: This is to confirm that American Stock Transfer & Trust Company will act as Siebert Financial Corp.'s Subscription Agent and we will perform the following services: o Mailing material to shareholders; o Issuing certificates to subscribing shareholders; o Curing all deficient items; o Collecting checks; o Remitting payments to the Company; o Researching all problem items; o Communicating with shareholders; o Communicating with Depository Trust Company and all brokers regarding their respective record date positions; o Changing addresses; and o Reporting to the Company on daily totals. Our fee will be $___________ plus out-of-pocket expenses limited to postage, envelopes and 1099 forms. Payment will be due to us upon completion of the offering. Looking forward to working with you. Please rest assured that we will do everything in our power to merit your goodwill and confidence. Very truly yours, AMERICAN STOCK TRANSFER & TRUST COMPANY -17- ANNEX A SIEBERT FINANCIAL CORP. 885 THIRD AVENUE, SUITE 1720 NEW YORK, NEW YORK 10022 212 644-2400 ------ August _____, 1998 American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 ATTENTION: Isaac Kagan and Herbert Lemmer Re: DISBURSEMENT OF FUNDS Dear Sirs: Pursuant to SECTION 7(H) of the Subscription Agency Agreement, dated as of July _____, 1998 (the "AGREEMENT"), by and between Siebert Financial Corp., a New York public company (the "COMPANY"), and American Stock Transfer and Trust Company, as Subscription Agent (the "SUBSCRIPTION AGENT"), you are hereby notified and directed to withdraw from the Bank Account and pay to, credit to the account of or otherwise transfer to the Company all the funds in the Bank Account as promptly as practicable and in no event later than noon on August _____, 1998 as provided in SECTION 7(H) of the Agreement. IN WITNESS WHEREOF, the Company has duly caused this Notice to be delivered to you in accordance with the terms of the Agreement. SIEBERT FINANCIAL CORP. By:___________________________ Name: Title: -18- EX-99.4 6 EXHIBIT 99.4 EXHIBIT 99.4 D. F. KING & CO., INC. 77 WATER STREET, NEW YORK, N.Y. 10005 (212) 269-5550 July 6, 1998 Mr. Richard M. Feldman Chief Financial Officer Siebert Financial Corp. 885 Third Avenue, Suite 1720 New York, NY 10022 Dear Rich: This Letter Agreement sets forth the terms and conditions pursuant to which Siebert Financial Corp. (the "Company") has retained D.F. King & Co., Inc. ("King") in connection with a proposed rights offering. The Company proposes to distribute transferable subscription rights (the "Rights") to subscribe for and purchase additional shares of Common Stock of the Company (the "Street"). The offer to subscribe for and purchase Common Stock pursuant to the exercise of Rights is herein referred to as the "Rights Offering." 1. The Company hereby retains King as Information Agent for advisory and consulting services in connection with the Rights Offering and requests and authorizes King to contact, and to provide information with respect to the Rights Offering to, holders of the Common Stock including delivery of material to banks, brokers and nominees, receiving calls from shareholders and telephoning holders of record and non-objecting beneficial owners. For this purpose, King is authorized to use, and will be supplied by the Company with as many copies as King is authorized to use, and will be supplied by the Company with as many copies as King may reasonably request of, the following materials filed with the Securities and Exchange Commission (the "Commission") or publicly released (or to be filed or publicly released) by the Company in connection with the rights Offering ("collectively, the "Rights Offering Materials"): (i) Prospectus; (ii) Subscription Certificate; (iii) press releases and newspaper advertisements; (iv) letter to securities dealers, banks and trust companies, and letter from securities dealers, banks and trust companies to their customers; (v) Notice of Guaranteed Delivery, (vi) DTC Participation Oversubscription Exercise form and (vii) any and all amendments or supplements to any of the foregoing. 2. The Company agrees to pay king as compensation for its services a fee of $3,500, which is due upon the completion, expiration or termination, as the case may be, of the Rights Offering. In the event the Company extends the term of the Rights Mr. Richard M. Feldman Siebert Financial Corp. July 6, 1998 Page 2 Offering, the Company agrees to pay King an additional fee of $1,000 for each such extension. Further, the Company agrees to pay King $3.00 for each completed telephone contact (incoming or outgoing) in connection with the Rights Offering which shall include labor, directory assistance and all related telephone expenses provided that the Company shall approve in advance the number of shareholders who will receive outgoing calls after consultation with you. In the event the Company requests King to provide additional services, the Company agrees to pay King reasonable and customary compensation, in an amount, if any, to be mutually agreed upon. The Company further agrees to reimburse King for all reasonable out-of-pocket expenses (including reasonable counsel's fees and disbursements) incurred by King in connection with its retention hereunder. The Company agrees and acknowledges that its obligation under this paragraph 2 is not in any way conditional upon the successful consummation of the Rights Offering or dependent upon the amount of Common Stock sold by the Company pursuant to the Rights Offering. 3. The Company agrees that King shall have the right to pass upon and approve any and all references to King in the Rights Offering Materials. The Company shall not file with the Commission, any other governmental or regulatory authority or body or any court, or otherwise make public, any document containing any reference to King unless and until King shall have approved such reference. 4. The Company represents and warrants to King that: (i) this Letter Agreement is a valid and binding agreement on the Company's part; (ii) all necessary corporate action will be duly taken by the Company prior to the commencement of the Rights Offering to authorize the Rights Offering, and the purchase of Common Stock in connection with the Rights Offering; (iii) all Rights Offering Materials will comply, in all material respects, with the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, and none of the Rights Offering Materials, and no other report, filing, document, release or communication published or filed by the Company in connection with the Rights Offering, will contain any untrue or misleading statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading; Mr. Richard M. Feldman Siebert Financial Corp. July 6, 1998 Page 3 (iv) the Rights Offering, and the issuance and sale of Common Stock in connection with the Rights Offering, will comply, in all material respects, with all applicable requirements of law including the applicable rules or regulations of any governmental or regulatory authority or body, and no material consent or approval of, or filing with, any governmental or regulatory authority or body (other than any required filings under the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder) is required in connection with the making or consummation of the Rights Offering (or, if any such material consent, approval or filing is required it will be duly obtained or made prior to the commencement of the Rights Offering); and (v) the Rights Offering and the issuance and sale of Common Stock in connection with the Rights Offering, and/or execution, delivery and performance of this Letter Agreement, will not conflict with or result in a breach of or constitute a default under the Company's certificate of incorporation or by-laws, or any material agreement, indenture mortgage, note or other instrument by which the Company is bound. 5. The Company will advise King promptly of the occurrence of any event which would cause it not to proceed with, or to withdraw or abandon, the Rights Offering. The Company will also advise King promptly of any proposal or requirement to amend or supplement any of the Rights Offering Materials. 6. The Company hereby agrees to indemnify and hold harmless King, King's controlling persons, officers, directors, employees, agents and representatives (collectively, the "Indemnified Persons") from and against any and all losses, claims, damages, liabilities and expenses whatsoever (including but not limited to, all reasonable counsel fees, disbursements and other out-of-pocket expenses) incurred by such Indemnified Persons in investigating, preparing to defend or defending (or appearing or preparing for appearance as a witness in connection with) any claim, litigation, proceeding, investigation, or governmental or stock exchange inquiry, commenced or threatened or any claim whatsoever: (i) arising out of or based upon any facts or circumstances constituting a violation of, or in conflict with, any of the representations and warranties set forth in paragraph 4 above; or (ii) arising out of, relating to or in connection with the Rights Offering except for the Indemnified Person's willful misconduct, bad faith or gross negligence. The Company shall reimburse such Indemnified Persons for such reasonable counsel fees and disbursements and other out-of-pocket expenses at such time as they are paid or incurred by such Indemnified Mr. Richard M. Feldman Siebert Financial Corp. July 6, 1998 Page 4 Persons. The foregoing indemnity shall be in addition to any liability which the Company might otherwise have to the Indemnified Persons. 7. King agrees to notify the Company promptly of the assertion of any claim against any of the Indemnified Persons in connection with the Rights Offering; and the Company agrees to notify King promptly of the assertion of any claim against the Company or any of its officers, directors, employees or agents in connection with the Rights Offering. At the Company's election, unless counsel advises in writing there is a conflict of interest, the defense of the Indemnified Persons shall be conducted by the Company's counsel who shall be reasonably satisfactory to King and the Indemnified Persons who are defendants in the action or proceeding. Notwithstanding the Company's election to assume the defense of such action or proceeding, an Indemnified Person may employ separate counsel to represent it or defend it in such action or proceeding and the Company will pay the reasonable fees and expenses of such counsel as set forth above if such Indemnified Person reasonably determines and counsel advises in writing that there are defenses available to such Indemnified Person which are different from, or in addition to, those available to the Company, or if a conflict of interest exists which makes representation by counsel chosen by the Company not advisable; provided however, unless there are actual or potential conflicts of interest among the Indemnified Persons, the Company will not be required to pay the fees and expenses of more than one separate counsel for all Indemnified Persons in any jurisdiction in any single action or proceeding. In any action or proceeding the defense of which the Company assumes, the Indemnified Persons shall nevertheless be entitled to participate in such action or proceeding and retain their own counsel at such Indemnified Persons' own expense. The Company shall not settle or compromise any such action or proceeding without the Indemnified Persons' prior written consent, unless the terms of the settlement or compromise include an unconditional release of any such Indemnified Person from all liability or loss arising out of such action or proceeding. 8. The representations and warranties contained in paragraph 4 above and the indemnity agreement contained in paragraphs 6 and 7 above shall remain operative and in full force and effect regardless of: (i) the termination, expiration or consummation of the Rights Offering; and (ii) any investigation made by or on behalf of any party. 9. This Letter Agreement shall be construed and enforced in accordance with the laws of the State of New York. It is agreed that any action, suit or proceeding arising out of or based upon this Letter Agreement shall be brought in the United States District Court for the Southern District of New York or any court of the State of New York of competent jurisdiction location in such District, and the parties hereto hereby consent to the IN Mr. Richard M. Feldman Siebert Financial Corp. July 6, 1998 Page 5 PERSONAM jurisdiction and venue of any such court and to service of process by certified mail, return receipt requested. If any provision of this Letter Agreement shall be held illegal or invalid by any court, this Letter Agreement shall be construed and enforced as if such provision had been contained herein and shall be deemed an agreement between the parties hereto to the fullest extent by law. If the foregoing correctly sets forth the understanding between the Company and King, please indicate acceptance thereof in the space provided below for the purpose, whereupon this letter and the Company's acceptance shall constitute a binding agreement between the parties hereto. D.F. KING & CO., INC. By: ------------------------------------- Thomas A. Long Senior Vice President Acceptance as of the date first above written: SIEBERT FINANCIAL CORP. By: ----------------------------------------- Name: ----------------------------------------- Title: ----------------------------------------- EX-99.5 7 EXHIBIT 99.5 EXHIBIT 99.5 SIEBERT FINANCIAL CORP. 885 THIRD AVENUE, SUITE 1720 NEW YORK, NEW YORK 10022 212 644-2400 ------ July _____, 1998 To Our Shareholders: Siebert Financial Corp. is distributing to the holders of its outstanding Common Stock, at no cost, Rights to purchase additional shares of Common Stock in a Rights Offering. Shareholders will receive one (1) Right for each share of Common Stock held by them as of the close of business on _____________, July _____, 1998. Each whole right will entitle the holder thereof to a Subscription Privilege to purchase one share of Common Stock at $_____ per share. Enclosed herewith is a Subscription Certificate evidencing one (1) transferable Right for each share of Common Stock that you owned at the close of business on ____________, July _____, 1998. Your Rights may be exercised, transferred or sold as explained more fully in the accompanying Instructions. If you choose to exercise your Rights, you must submit payment in full of the Subscription Price and appropriate documentation to the Subscription Agent no later than 5:00 p.m., New York City time, on ___________, August _____, 1998. The enclosed Prospectus provides the details of the Rights Offering and important information concerning the Company and the Common Stock being offered. Please read it carefully. YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _____________, AUGUST _____, 1998. Very truly yours, MURIEL F. SIEBERT President and Chair EX-99.6 8 EXHIBIT 99.6 EXHIBIT 99.6 SIEBERT FINANCIAL CORP. 885 THIRD AVENUE, SUITE 1720 NEW YORK, NEW YORK 10022 212 644-2400 ------ July _____, 1998 To Our Shareholders: Siebert Financial Corp. is distributing to the holders of its outstanding Common Stock, at no cost, Rights to purchase additional shares of Common Stock in a Rights Offering. Shareholders will receive one (1) Right for each share of Common Stock held by them as of the close of business on _____________, July _____, 1998. Each whole right will entitle the holder thereof to a Subscription Privilege to purchase one share of Common Stock at $_____ per share. Subscription certificates will not be mailed to shareholders whose addresses are outside the United States. Instead, the Subscription Agent, American Stock Transfer & Trust Company, is holding on your behalf a Subscription Certificate evidencing one (1) transferable Right for each share of Common Stock that you owned at the close of business on ________________, July _____, 1998. Your Rights may be exercised, transferred or sold as explained more fully in the accompanying Instructions by instructing the Subscription Agent. If such instructions are not received by the Subscription Agent by 11:00 a.m., New York City time, on _______________, August _____, 1998, your Rights will, if feasible, be sold, and the net proceeds will be remitted to you, unless prohibited by applicable laws and regulations. Instructions to the Subscription Agent should be directed (1) if by mail, to American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005, or (2) if by telephone, to Herbert Lemmer at (212) 936-5100. Please act promptly if you choose to exercise, sell or otherwise dispose of your Rights. Please bear in mind that in order for the exercise of the Rights to be valid, the payment of the Subscription Price for the Rights being exercised must be received no later than 5:00 p.m., New York City time, on ___________, August _____, 1998, and such payments by uncertified check must have cleared by such time. The enclosed Prospectus provides the details of the Rights Offering and important information concerning the Company and the Common Stock being offered. Please read it carefully. YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____________, AUGUST _____, 1998. Very truly yours, MURIEL F. SIEBERT President and Chair EX-99.7 9 EXHIBIT 99.7 EXHIBIT 99.7 SIEBERT FINANCIAL CORP. 885 THIRD AVENUE, SUITE 1720 NEW YORK, NEW YORK 10022 212 644-2400 ------ July _____, 1998 To Our Shareholders: Siebert Financial Corp. is distributing to the holders of its outstanding Common Stock, at no cost, Rights to purchase additional shares of Common Stock in a Rights Offering. Shareholders will receive one (1) Right for each share of Common Stock held by them as of the close of business on _____________, July _____, 1998. Each whole right will entitle the holder thereof to a Subscription Privilege to purchase one share of Common Stock at $_____ per share. Your bank or broker has received on your behalf a Subscription Certificate evidencing one (1) transferable Right for each share of Common Stock that you owned at the close of business on ____________, July _____, 1998. Your Rights may be exercised, transferred or sold as explained more fully in the accompanying Instructions. If you choose to exercise your Rights, your bank or broker must submit payment in full of the Subscription Price and appropriate documentation to the Subscription Agent no later than 5:00 p.m., New York City time, on ___________, August _____, 1998. The enclosed Prospectus provides the details of the Rights Offering and important information concerning the Company and the Common Stock being offered. Please read it carefully. YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _____________, AUGUST _____, 1998. Very truly yours, MURIEL F. SIEBERT President and Chair EX-99.8 10 EXHIBIT 99.8 EXHIBIT 99.8 RIGHTS OFFERING 1,100,000 SHARES SIEBERT FINANCIAL CORP. COMMON STOCK ($.01 PAR VALUE) ================================================================================ THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ______________, JULY _____, 1998. ONCE A HOLDER HAS PROPERLY EXERCISED A RIGHT, SUCH EXERCISE MAY NOT BE REVOKED. ================================================================================ To our Clients: Enclosed for your consideration is a prospectus dated July ____, 1998 (the "Prospectus") relating to the offering (the "Rights Offering") of Siebert Financial Corp. (the "Company"), pursuant to which holders of the Company's Common Stock, par value $.01 per share (the "Common Stock"), as of the close of business on _____________, July _____, 1998, are being issued, at no cost to such holders, transferable subscription rights (the "Rights") to subscribe for and purchase, for a limited period of time, shares of the Company's Common Stock at a price of $_____ per share (the "Subscription Price"). Each Right also carries the right, exercisable only by the stockholder to whom such Right was initially distributed, to subscribe at the Subscription Price for shares of Common Stock that are not otherwise purchased pursuant to the exercise of Rights. The terms and conditions of the Rights Offering are set forth in the Prospectus, to which reference is made for a complete description of the Rights Offering. The Prospectus is being forwarded to you as the beneficial owner of the Subscription Certificate carried by us in your account but not registered in your name. An exercise or transfer of such Subscription Certificate may only be made by us as the holder of record and pursuant to your instructions. Accordingly, we request instruction as to whether you wish us to: (a) exercise any or all of the Rights held by us in your account, and any Rights not exercised by others, pursuant to the terms and conditions set forth in the enclosed Prospectus; (b) transfer all or any of such Rights to another party; or (c) attempt to sell such Rights for your account. WE URGE YOU TO READ THE PROSPECTUS CAREFULLY BEFORE INSTRUCTING US AS TO WHETHER OR NOT TO EXERCISE, TRANSFER OR SELL ANY RIGHTS. Your instructions to us should be forwarded as promptly as possible in order to permit us to exercise the Rights, and complete and deliver the Subscription Certificate on your behalf in accordance with the provisions of the Rights Offering. The Rights Offering will expire at 5:00 p.m., New York City time, on __________, August _____, 1998 (the "Expiration Time"). Further, if you direct us to sell or transfer your Rights, you must so instruct us sufficiently in advance to permit such sale to be made or such transfer to be effected and a new Subscription Certificate to be issued to the recipient prior to the Expiration Time. If you wish to have us exercise, transfer or sell any or all of your Rights, please so instruct us by completing, executing and returning to us the instruction form on the REVERSE SIDE hereof. If you exercise Rights, you must contact us in order to arrange for your payment of the Subscription Price. If we do not receive complete written instructions in accordance with the procedures outlined in the Prospectus, we will not exercise, transfer or sell your Rights. If you have arranged for payment of the Subscription Price but have not indicated the number of Rights being exercised, or if you have not arranged for full payment of the Subscription Price for the number of Rights that you have indicated are being exercised, you will be deemed to have exercised the Subscription Privilege with respect to the maximum number of Rights which may be exercised for the Subscription Price payment arranged for by you. To the extent that the Subscription Price payment arranged for by you exceeds the product of the Subscription Price multiplied by the number of Rights attendant to your Basic Subscription Privilege (such excess being the "Subscription Excess"), you will be deemed to have exercised the Oversubscription Privilege to purchase, to the extent available, the number of whole shares of Common Stock equal to the quotient obtained by dividing the Subscription Excess by $_____ [the Subscription Price]. Any amount remaining after such division will be returned to you or credited to your account from which payment was made. If you merely sign the instruction form without completing it and arranging for any Subscription Price payment, we will deem it to mean that you do not want us to exercise your Rights, but want us to attempt to sell all of your Rights. INSTRUCTIONS AS TO RIGHTS The undersigned acknowledge(s) receipt of your letter and the Prospectus relating to the Rights Offering of Siebert Financial Corp. and hereby instructs you as follows: 1. EXERCISE OF RIGHTS. Please exercise my rights to subscribe for shares of Common Stock as indicated below: (a) Number of shares subscribed for pursuant to the Basic Subscription Privilege*: $________________________ (b) Number of shares subscribed for pursuant to the Oversubscription Privilege*: $________________________ (c) Total Subscription Price (total number of shares subscribed for pursuant to both the Basic Subscription Privilege and the Oversubscription Privilege multiplied by the Subscription Price of $______): $________________________ YOU MUST CONTACT US TO ARRANGE YOUR METHOD OF PAYMENT OF THE SUBSCRIPTION PRICE. 2. TRANSFER OF RIGHTS. For value received, ________ of my unexercised Rights are hereby transferred to: Name:___________________________________________________________________________ Address:________________________________________________________________________ ________________________________________________________________________________ (Including Zip Code) Tax Identification or Social Security Number of recipient: ________________________________________________________________________________ 3. SALE OF RIGHTS. Please attempt to sell ______________________________ of my unexercised Rights. SIGN AND DATE HERE: Dated: , 1998 ___________________________________________ Signature ___________________________________________ Please print name(s) and address(es) below: ___________________________________________ ___________________________________________ ___________________________________________ - ------------- * Each whole Right entitles the holder thereof to subscribe for one share of Common Stock. EX-99.9 11 EXHIBIT 99.9 EXHIBIT 99.9 CERTIFICATION AND REQUEST FOR ADDITIONAL RIGHTS To the Subscription Agent: The undersigned hereby certifies that it is a broker-dealer registered with the Securities and Exchange Commission, a commercial bank or trust company, a securities depository or participant therein, or nominee therefor, holding of record ______________________ shares of Common Stock, par value $.01 per share (the "Common Stock"), of Siebert Financial Corp. (the "Company") on behalf of ______________________ beneficial owners as of the close of business on ____________, July _____, 1998, the record date (the "Record Date") for the offering of up to 1,100,000 shares of Common Stock, all as described in a Prospectus dated July _____, 1998, a copy of which the undersigned has received. Such holders shall receive one (1) Right for each share of Common Stock held of record as of the close of business on the Record Date and any fractional Right will be rounded up to the nearest whole number. The undersigned further certifies that ____________ shares of Common Stock registered in the name of the undersigned are entitled to an additional Right in accordance with the principle that any fractional Right to which a beneficial owner would otherwise be entitled should be rounded up to the nearest whole number. Accordingly, the undersigned requests that upon surrender of its Subscription Certificate evidencing Rights, a Subscription Certificate evidencing ____________ Rights (including ____________ additional Rights) be issued. The undersigned further certifies that each such beneficial owner is a bona fide beneficial owner of Common Stock as of the close of business on the Record Date, that such beneficial ownership is reflected on the undersigned's records and that all shares of Common Stock which, to the undersigned's knowledge, are beneficially owned by any such beneficial owner through the undersigned have been aggregated in calculating the foregoing. The undersigned agrees to provide the Company or its designee with such additional information as the Company deems necessary to verify the foregoing. __________________________________________ Name of Record Holder By: _____________________________________ Name: Title: Address: Telephone Number: Dated: _____________________________, 1998 NOTE: Deliver this form with your Subscription Certificate to: American Stock Transfer & Trust Company, 40 Wall Street, 46th Floor, New York, New York 10005 EX-99.10 12 EXHIBIT 99.10 EXHIBIT 99.10 SIEBERT FINANCIAL CORP. 885 THIRD AVENUE, SUITE 1720 NEW YORK, NEW YORK 10022 212 644-2400 ------ July _____, 1998 To Participants in the 1998 Restricted Stock Award Plan: Siebert Financial Corp. is distributing to the holders of its outstanding Common Stock, at no cost, Rights to purchase additional shares of Common Stock in a Rights Offering. Shareholders will receive one (1) Right for each share of Common Stock held by them as of the close of business on ____________, July _____, 1998. Each whole Right will entitle the holder thereof to a Subscription Privilege to purchase one share of Common Stock at $_____ per share. Capitalized terms used herein have the meanings ascribed to them in the enclosed Prospectus. Enclosed herewith is a Subscription Certificate evidencing one (1) transferable Right for each of the shares of Common Stock that were awarded to you under the 1998 Restricted Stock Award Plan and that have not yet vested ("Nonvested Shares"). Your Rights may be exercised, transferred or sold as explained more fully in the accompanying Instructions. If you choose to exercise your Rights, you must submit payment in full of the Subscription Price and appropriate documentation to the Subscription Agent no later than 5:00 p.m., New York City time, on __________, August _____, 1998. The enclosed Prospectus provides the details of the Rights Offering and important information concerning the Company and the Common Stock being offered. Please read it carefully. There are certain federal income tax consequences under current law of the distribution of Rights with respect to your Nonvested Shares. The following is a brief summary of such tax consequences. Please note that this summary is not intended to be exhaustive and does not describe state or local tax consequences. o You will be required to include in your gross income, as compensation, the fair market value of the Rights distributed to you with respect to your Nonvested Shares. The Company will include this amount in the taxable wages reported on your 1998 Form W-2. o The exercise of your Rights will not have any immediate tax consequences. Upon a subsequent sale or taxable exchange of the shares you acquire when you exercise your Rights, you will recognize long or short-term capital gain or loss equal to the Participants in the 1998 Restricted Stock Award Plan Page Two difference between (i) the amount realized on the sale and (ii) the sum of the Subscription Price you paid to exercise the Rights and the amount that was includible in your gross income as a result of the distribution of the Rights to you. o If you sell your Rights rather than exercise them, you will recognize short-term capital gain or loss equal to the difference between the amount realized on the sale and the amount includible in your gross income as a result of the distribution of the Rights to you. o The Company will be entitled to a deduction for the amount of the compensation income that you recognize in connection with the distribution to you of Rights. The foregoing discussion does not apply to you if, at the time you acquired your Nonvested Shares, you made an election under Section 83(b) of the Internal Revenue Code to accelerate the recognition of income. If you made such an election, you should consult your tax advisor with regard to the tax consequences associated with the distribution to you of Rights. YOU ARE URGED TO ACT PROMPTLY. THE RIGHTS OFFERING AND THE RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________, AUGUST _____1998. Very truly yours, Muriel F. Siebert President and Chair -----END PRIVACY-ENHANCED MESSAGE-----