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As filed with the Securities and Exchange Commission on May 11, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FREEDOM SECURITIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 6211 04-3335712
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification Number)
organization) Code Number)
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ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(617) 725-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JOHN H. GOLDSMITH
CHIEF EXECUTIVE OFFICER
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(617) 725-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
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With copies to:
KEVIN J. MCKAY MEREDITH B. CROSS
FREEDOM SECURITIES CORPORATION WILMER, CUTLER & PICKERING
ONE BEACON STREET 2445 M STREET, N.W.
BOSTON, MASSACHUSETTS 02108 WASHINGTON, D.C. 20037
(617) 725-2000 (202) 663-6000
Approximate date the registrant proposes to begin selling securities to the
public: From time to time after the effective date of this registration
statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered in connection with dividend or interest
reinvestment plans, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===========================================================================================================================
<S> <C> <C> <C> <C>
Title of Amount Proposed maximum Proposed maximum Amount of
securities to be registered offering price per share aggregate offering price registration fee
to be registered (1) (1)
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par 228,665(3) $ 17.0625 $ 3,901,597 $1,085
value per share(2)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 on the basis of the average of
the high and low reported sales prices for the registrant's common stock, as
reported on the New York Stock Exchange on May 5, 1999.
(2) The shares of common stock are being registered for resale from time to time
by the selling stockholders.
(3) Consists of 203,665 shares of common stock issued pursuant to an acquisition
agreement and 25,000 shares that may be issued under the earn-out provisions of
that agreement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT FILES
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
IS TO BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OR
UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE ON THE DATE THE SEC, ACTING
UNDER SECTION 8(A), DETERMINES.
================================================================================
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SUBJECT TO COMPLETION, DATED MAY 11, 1999
PROSPECTUS
FREEDOM SECURITIES CORPORATION
228,665 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE RISK. YOU SHOULD CAREFULLY
CONSIDER THE "RISK FACTORS" COMMENCING ON PAGE 7 IN DETERMINING WHETHER TO
PURCHASE SHARES OF COMMON STOCK.
This prospectus covers 228,665 shares of our common stock. These shares may
be offered and sold from time to time by certain of our stockholders. These
stockholders acquired 203,665 of our shares when our wholly-owned subsidiary
Sutro & Co. Incorporated acquired substantially all of the assets of Charter
Investment Group, Inc. We may issue up to an additional 25,000 of our shares to
these stockholders under the earn-out provisions of the agreement for that
acquisition. We will not receive any of the proceeds from the sale of common
stock in this offering. We will pay all expenses of registering the shares for
resale by the selling stockholders, but the selling stockholders will pay any
brokerage commissions or discounts associated with the sale of the shares.
We expect that the selling stockholders may make sales under this
prospectus in the following ways:
* broker or dealer transactions;
* block trades on the New York Stock Exchange;
* over-the-counter market; or
* privately negotiated sales or otherwise.
The selling stockholders will decide if and when they will offer and sell
all or a portion of the shares of common stock and the terms of those offers and
sales. The amount they may sell, however, is limited to 25% of their shares
every three months commencing May 3, 1999. They will sell the shares at the
current market price or at negotiated prices at the time of sale.
Our common stock is listed on the New York Stock Exchange under the symbol
"FSI." On May 3, 1999, the last sale price of our common stock on the NYSE was
$18.06 per share.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission ("SEC") is
effective. This prospectus is not an offer to sell these securities and it is
not soliciting an offer to buy these securities in any state where the offer or
sale is not permitted.
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The date of this prospectus is , 1999
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TABLE OF CONTENTS
Page
Number
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THE COMPANY 6
RISK FACTORS 7
RECENT DEVELOPMENTS 22
USE OF PROCEEDS 22
PLAN OF DISTRIBUTION 23
SELLING STOCKHOLDERS 25
LEGAL MATTERS 26
EXPERTS 27
WHERE YOU CAN FIND MORE INFORMATION 27
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. No
one has been authorized to provide you with different information.
The shares of common stock are not being offered in any jurisdiction where
the offer is not permitted.
You should not assume that the information in this prospectus or any
prospectus supplement is accurate as of any date other than the date on the
front of the documents.
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THE COMPANY
Freedom is a retail brokerage and investment banking firm. We operate
through three brokerage subsidiaries:
* Tucker Anthony Incorporated (known as Tucker Anthony), headquartered in
Boston, is a Northeast regional brokerage firm.
* Sutro & Co. Incorporated, headquartered in San Francisco, is a West Coast
regional brokerage and investment banking firm.
* Tucker Anthony Cleary Gull (known as Tucker Cleary) is an investment
banking, institutional brokerage and investment management services firm.
In addition, our asset management subsidiary, Freedom Capital Management
Corporation, is headquartered in Boston. Each of our locally-managed
subsidiaries uses its name recognition, historical areas of expertise and
close community ties to serve clients in their respective regions. We seek to
avoid cost duplication by providing shared clearing and support services to our
local organizations.
Our primary lines of business are:
* our full-service, retail brokerage operations
* our capital markets activities
* our asset management operations
The retail operations of Tucker Anthony and Sutro have traditionally been
the core of our business. In our retail business our goal is to develop strong
relationships with our clients by combining a community focus with the range and
quality of services offered by national brokerage firms.
Our equity capital markets business provides equity research, investment
banking, institutional sales, trading and syndication services to a national
client base. The business primarily targets emerging and middle market companies
in specific industries. We also provide clients access to a range of fixed
income products including municipal securities, U.S. government and agency
securities, mortgage related securities, and corporate investment-grade and
high-yield bonds.
Our asset management operations manage the resources of public sector
entities, high net worth individuals and others, and also manage money market
funds for our other clients. Freedom Capital in particular has developed a
strong reputation managing funds for local Massachusetts municipalities and
agencies and servicing certain sectors of the union pension fund market. We are
also growing our corporate funds management business.
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Our business strategy seeks to:
* be competitive and improve the profitability of our retail operations
* focus/leverage our equity capital markets activities
* grow our asset management business
* seek opportunistic, strategic acquisitions
Freedom was incorporated in November 1996 under the laws of Delaware. Our
principal executive offices are located at One Beacon Street, Boston,
Massachusetts and our telephone number is (617) 725-2000. As used in this
prospectus, "we," "us," "our" and "Freedom" refer to Freedom Securities
Corporation, a Delaware corporation, and its wholly-owned subsidiaries.
RISK FACTORS
This prospectus contains or incorporates both historical and
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Words such as "anticipates", "believes", "expects", "intends",
"future", and similar expressions identify forward-looking statements. Any such
"forward-looking" statements in this report reflect our current views with
respect to future events and financial performance, and are subject to a variety
of factors that could cause the actual results or performance to differ
materially from historical results or from the anticipated results or
performance expressed or implied by such forward-looking statements. Because of
such factors, we cannot assure you that the actual results or developments that
we anticipate will be realized or, even if substantially realized, that they
will have the anticipated results. The risks and uncertainties that may affect
our business include, but are not limited to, those set forth below. Readers
should not place undue reliance on such forward-looking statements, which speak
only as of the date hereof, and should be aware that except as the law may
otherwise require, we undertake no obligation to publicly revise any such
forward-looking statements to reflect events or circumstances that may arise
after the date of this prospectus.
Investors should consider carefully the following risks before they decide
to buy our common stock. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us
may also adversely impact our business. If any of the following risks actually
occur, they could adversely affect our business, financial condition or
operating results, which could adversely affect the trading price of our common
stock.
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Stock market risk could adversely affect
our business in many ways
A volatile, illiquid and/or declining market could adversely affect our
business in many ways, including those described below. As a brokerage and
investment banking firm, our business depends on conditions in the financial
markets and on economic conditions generally, both domestically and abroad. Over
the past several years, the stock markets in the United States and elsewhere
have achieved record or near record levels, generating substantial revenues for
firms in the securities industry. The stock market has recently experienced
significant volatility, including some of the largest single day point declines
in history. After the stock market declines in October 1987 and October 1989,
many firms in the industry suffered financial losses and the level of individual
investor trading activity decreased.
Reduced commission and fee revenues
Our commission and fee revenues depend heavily on the volume, prices and
liquidity of the stock market. Decreased market liquidity may reduce the amount
of trades we execute for our customers, which would reduce our commission
revenues. A drop in stock prices also reduces the management fees received for
assets under management, since these fees are generally based on the asset value
of the portfolio. Unfavorable market conditions may also reduce the number and
size of transactions for which we provide underwriting and mergers and
acquisitions advisory services.
Losses from trading and investment activity
A volatile stock market also affects the return we realize from activities
we pursue as a principal. An overall decline in stock prices reduces the market
value of securities we hold in inventory. Conversely, to the extent we hold
short positions (i.e., have sold assets we do not own), an upturn in the market
could expose us to substantial damages as we attempt to cover our short position
by acquiring assets in the rising market. In addition, declines in stock value
and illiquid markets make it more difficult for us to sell securities when we
want to and to hedge our securities positions. In connection with our arbitrage
and underwriting activities, we may also take a large position in securities of
a single issuer, or issuers engaged in a specific industry. These large
positions have in the past resulted and might in the future result in higher
trading losses than would occur if our positions and activities were less
concentrated.
Losses from credit risk and counterparty failures
Declines in the market value of securities can result in the failure of
buyers and sellers of securities to fulfill their settlement obligations, and an
increase in claims and litigation. To the extent we permit our customers to
purchase securities on margin, we also face greater credit risks during
downturns. During steep declines in stock prices, the value of the securities
securing margin purchases may drop below the amount of the purchaser's
indebtedness.
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Risk of downturn in new equity offerings
The volume of our trading and brokerage activities, and therefore our
commission and fee revenues, can be adversely affected by downturns in new
equity offerings. These downturns also can negatively affect income from
underwriting activities. New offerings increase the potential for secondary
market trading activity by increasing the number of securities available for
trading. The number and size of new equity offerings are historically volatile,
as are the secondary market trading volume and prices of newly-issued
securities. Concerns over, among other things, inflation, rising interest rates
and slowdowns or reversals of investment funds into the U.S. equity markets may
cause market uncertainty and discourage new equity offerings. If the number
and/or size of new equity offerings or the secondary market trading volume of
such offerings decline, our commissions and fee revenues may decline and we may
realize lower revenues from our underwriting activities.
General economic and political conditions
directly affect our business
Many factors outside our control may directly affect the securities
business, in many cases in an adverse manner. These include 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. Any one or more of these factors may
reduce levels of trading activity, securities offerings and merger and
acquisition activities. Such slowdowns could in turn reduce revenues from our
brokerage, trading, institutional sales and investment banking activities,
reduce price levels for securities and cause illiquid markets.
We face intense competition in our industry
The securities business is highly competitive
Our business will suffer if we do not compete successfully. All aspects of
our business and of the securities industry in general are intensely
competitive. We expect competition to continue and intensify in the future.
We compete directly with national and regional full-service broker-dealers,
and to a lesser extent with discount brokers and dealers, investment banking
firms, investment advisors and certain commercial banks. We also compete
indirectly for investment assets with insurance companies and others.
We believe that the principal competitive factors influencing our business
are:
* the qualifications and experience of our professional staff
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* our reputation in the marketplace
* our existing client relationships
* our ability to raise and commit capital to client transactions
* the mix of market capabilities we offer
* the adequacy of our capital levels and our ability to raise additional
capital
Many competitors have greater resources and offer more services
A number of our competitors has significantly greater capital and financial
resources than we do. The financial services industry has recently undergone
significant concentration as numerous securities firms have either ceased
operations or been acquired by or merged into other firms. These mergers and
acquisitions have further concentrated equity capital and other financial
resources in the industry and increased competition. Many of our competitors use
their significantly greater financial capital and scope of operations to offer
their customers more product offerings, broader research capabilities, access to
international markets and other products and services not offered by us.
New domestic and international competition
Domestic commercial banks and investment banking boutiques have recently
ventured into the broker dealer-business, and large international banks have
begun serving our markets as well. We anticipate that recent and pending
legislative and regulatory initiatives intended to ease restrictions on the sale
of securities by commercial banks will increase competition from domestic and
international banks.
Competition from alternative channels including internet trading
Our business could be adversely affected by competition from a rapidly
developing industry offering electronic and/or discount brokerage services.
Competitors offering Internet-based or other electronic brokerage services may
have lower costs and offer their customers more attractive pricing than we do.
We also anticipate additional competition from underwriters who will attempt to
conduct offerings of securities for emerging and middle-market companies through
new distribution channels such as the Internet. Issuers may bypass financial
intermediaries altogether and offer their shares directly to purchasers through
the Internet and other electronic channels. The increased competition from
competitors and issuers using new technology may materially and adversely affect
our operating results and financial position.
We depend on our ability to
attract and retain key personnel
Competition for personnel is intense
If we are unable to attract and retain highly qualified personnel, our
business will suffer. Our business relies upon the highly skilled and often
highly specialized individuals we employ. Our prospects depend heavily upon
retention of senior management and retail investment
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executives, research, investment banking, public finance, institutional sales
and trading, money management and administrative professionals.
We generally do not enter into written employment agreements with our
investment professionals. Investment executives typically take their clients
with them when they leave. From time to time, we have lost equity research,
investment banking, public finance, and institutional sales and trading
professionals and retail investment executives. Significant losses of such
employees could materially and adversely affect our operating results. We cannot
assure investors that we will successfully retain our key personnel or attract,
assimilate and retain other highly qualified personnel in the future, and our
failure to do so could materially and adversely affect our business, financial
condition and operating results.
Costs of retaining personnel may be substantial
The cost of retaining skilled professionals in the financial services
industry has escalated considerably as competition for such professionals has
intensified. Employers in the industry are increasingly offering guaranteed
contracts, upfront payments and increased compensation in an attempt to attract
and retain qualified personnel. This can be an important factor in an employee
deciding to leave us. As the competition for skilled professionals in the
industry increases, we may incur significant expenses in attracting and
retaining qualified personnel. This could materially and adversely affect our
financial position, cash flows and results of operations.
Loss of research and other professionals may harm investment banking business
In our investment banking business, our strategy is to establish
relationships with prospective corporate clients prior to transactions, and to
maintain such relationships over the long term by providing advisory services in
public or private offerings of equity or debt securities and in merger and
acquisition transactions. With respect to state and local government clients, we
seek to establish long-term relationships by providing advisory and underwriting
services. Research professionals help us secure roles in managing public
offerings and in providing other investment banking services. If research or
other professionals that have been important to an investment banking
relationship leave us, as some have in the past, this could materially and
adversely affect our results.
Localized conditions in particular regions
of the United States may
adversely affect our business
A significant downturn in any of our principal operating regions could
materially and adversely affect the underwriting and brokerage businesses of our
subsidiaries. Our customers are and have historically been concentrated in the
northeastern, midwestern and western United States. Tucker Anthony, which is
concentrated in the northeastern United States, generated approximately 56% of
our 1998 operating revenue. Sutro, which is concentrated in the western United
States, generated approximately 31% of our operating revenue. Tucker Cleary,
which is
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located in the midwestern United States and was acquired by us in May 1998,
generated approximately 6% of our 1998 operating revenue.
In addition, an economic downturn in any of these regions could adversely
affect our retail clients and/or emerging and middle market companies in the
affected region. Any adverse effect on emerging and middle market companies or
growth industries concentrated in the northeastern, midwestern and western
United States could reduce the business that we derive from such companies.
Our business is subject to
quarterly fluctuations
We have experienced, and may experience in the future, significant
seasonality in our business. Historically, our revenues increase in the fourth
quarter of the year, due largely to higher trading volumes in the securities
markets at year end. If this trend continues, period-to-period comparisons of
our revenues and operating results will not necessarily be meaningful and
investors should avoid relying on such comparisons as indicators of future
performance. We also cannot assure investors that we will be able to sustain the
rates of revenue growth we have experienced in the recent past, that we will be
able to improve our operating results or that we will be able to sustain our
profitability on a quarterly basis. In addition, our operating results in future
periods may fall below the expectations of securities analysts and investors.
Such shortfalls may materially and adversely affect the market and price of our
common stock.
Our relationship with Wexford is
critical to our business
We have entered into an arrangement with Wexford Clearing Services
Corporation, a guaranteed wholly-owned subsidiary of Prudential Securities
Incorporated, pursuant to which Wexford acts as our clearing broker. We believe
this relationship is very important to our success; the loss of this
relationship could materially and adversely affect us.
We coordinate our communications and information systems with Wexford's
clearing information systems. Wexford provides us with information we need to
run our business, such as commission runs, transaction summaries, data feeds for
various reports (including compliance and risk management), execution reports,
trade confirmations, and monthly account statements, as well as cashiering
functions and the handling of margin accounts. Our agreement with Wexford
expires April 3, 2001, subject to annual renewals and to Wexford's right to
earlier terminate the agreement if we fail to meet certain financial tests.
Either Wexford or we may renegotiate the financial terms and services of the
agreement following the initial term. Failure to continue and renew our
agreement with Wexford on acceptable terms or to find an adequate substitute for
Wexford's services, or any failure or interruption of services by Wexford, could
have a material adverse effect on our financial condition and results of
operations. In addition, any deterioration in Wexford's or its parent's
financial condition could materially and adversely affect us.
Lack of sufficient liquidity could impair
our business and financial condition
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Liquidity is essential to our business. If we had insufficient liquid
assets, we would be forced to curtail operations and our business would suffer.
The principal sources of our cash and liquidity are financing activities,
commissions, fees, collateralized purchase agreements and collateralized loans.
Our liquidity requirements may change in the event we need to raise more
funds than anticipated to increase inventory positions, support more rapid
expansion, develop new or enhanced services and products, acquire complementary
businesses or technologies or respond to unanticipated requirements. In
addition, regulatory net capital requirements and other factors may prevent our
subsidiaries from distributing to us as much cash as we need. In the event
existing internal and external financial resources do not satisfy our needs, we
may have to seek additional outside financing. The availability of outside
financing will depend on a variety of factors such as market conditions, the
general availability of credit, the volume of trading activities, the overall
availability of credit to the financial services industry, credit ratings and
credit capacity, as well as our specific financial position. We cannot assure
investors that our internal sources of liquidity will prove sufficient, or if
they prove insufficient, that we will successfully obtain outside financing on
favorable terms, if at all.
We currently finance our customer accounts and firm trading positions
through an uncommitted financing arrangement with Wexford. We retain risk with
respect to this financing because we have agreed to indemnify Wexford for losses
sustained in connection with accounts of our customers.
Our bank debt
imposes certain restrictions
Our bank borrowings may impose restrictions on our ability to enter into
transactions that we believe are advantageous. In addition, if we do not meet
financial ratio requirements in the bank debt, we would be in default. A default
would have serious consequences for us.
We currently maintain a senior revolving credit facility with BankBoston,
N.A. as agent for several lenders. As of March 31, 1999, we had no outstanding
balance under the credit facility. We also maintain, through two of our
subsidiaries, a fixed asset credit facility with BancBoston Leasing Inc. with an
outstanding balance of approximately $15.7 million as of March 31, 1999.
The terms of the revolving credit facility require that we and certain of
our subsidiaries maintain specified financial ratios and satisfy certain tests,
including, among others, a minimum interest coverage ratio, a minimum debt
service coverage ratio and a maximum leverage ratio. Events beyond our control
may affect our ability to comply with these financial ratios and tests, and
there can be no assurance that our operating results will comply with such
provisions. A breach of any of these covenants would result in a default under
the credit facility. Upon such default, the lenders could declare all amounts
borrowed under the credit facility and accrued interest immediately due and
payable. Under the terms of the fixed asset facility, BancBoston
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Leasing, Inc. could also accelerate the amounts due under the fixed asset
facility if we were in default under the revolving credit facility. If we were
unable to repay such amounts, the lenders could proceed against the collateral
securing such loan to repay the indebtedness and other obligations due and
payable under the credit facility. If the lenders accelerate the fixed asset
credit facility, we may not have enough funds to repay in full such indebtedness
and our other indebtedness.
We face risks associated with
our communications and information systems
and with the year 2000 problem
Our business depends heavily on communications and information systems. Any
failure or interruption of our systems or those of any of our subsidiaries or
Wexford could delay our securities trading activities and cause financial loss,
disruption of business, liability to clients, regulatory intervention and/or
reputational damage. We expect that we will need to continue upgrading our
systems to address competitive pressures and technological innovation. However,
we cannot assure investors that we will do so without substantial expense or
that the capacity or performance of our systems will prove sufficient. In
addition, we cannot assure investors that we, our subsidiaries, data service
providers or Wexford will not suffer any systems failure or interruption,
whether caused by earthquake, fire, other natural disaster, power or
telecommunications failure, act of God, act of war or otherwise. We cannot
guarantee that our, our subsidiaries' or Wexford's back-up procedures and
capabilities in the event of any such failure or interruption will prove
adequate.
The Year 2000 computer problem poses significant risks for us, mainly
because our business is highly reliant on technology and because of the
interdependence of the participants in the securities industry. We are
cautiously optimistic about our current state of readiness and our ability to
make any necessary modifications to internal systems in time for the Year 2000.
We also believe that our major third party service provider, Prudential
Securities, has undertaken a systematic approach to the Year 2000 problem and
will complete its plan, which is designed to achieve a state of readiness.
However, there are factors outside our control which make certainty impossible
such as:
* The inability to assess the readiness of market counterparties and
customers;
* The inability to achieve assurance as to any material third parties'
representations of readiness;
* The global exposure of material third parties to Year 2000 problems
outside the United States which have a "knock-on" effect within the
domestic securities markets and operations and;
* The limitations in anticipating all aspects of a problem with which there
is no prior historical experience.
The presence of any or all of these and other factors may well have a
material adverse effect on the Company's businesses, operating results,
financial condition and cash flows. For more information on the potential
problems and measures we have taken to address the Year 2000 problem, please
refer to our public filings with the SEC.
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Our business exposes us to
potential civil litigation
and securities laws liability
Many aspects of our business expose us to liability risks. Substantial
legal liability or significant regulatory actions could have a material adverse
financial effect on us and significantly damage our reputation in the industry.
Enforcement and other regulatory actions
We face substantial potential enforcement liability under federal and state
securities laws, other federal and state laws and court decisions, as well as
rules and regulations promulgated by the SEC, other governmental agencies and
the self-regulatory organizations ("SROs"). We face the risk of significant
intervention by regulatory authorities, including extended investigation and
surveillance activity, adoption of costly or restrictive new regulations, and
judicial or administrative proceedings that may result in substantial penalties
for us and/or our employees, directors or officers. Among other things, we could
be fined, have our registration as a broker-dealer, investment advisor or other
regulated entity revoked or be enjoined from certain business activities.
Civil claims
From time to time, we face claims of misconduct, negligence, breach of
contract and other civil claims by our customers and business partners, arising
from our retail and institutional brokerage, underwriting and other business
activities. For example, plaintiffs may allege that investments sold to them
were inappropriate for their portfolios, that we failed to apprise them of the
relevant investment risks, or that our investment executives engaged in
excessive or unauthorized trading with respect to their accounts. The likelihood
of such litigation depends largely on the conduct of our investment executives
and the success of our investment vehicles. We have made payments to plaintiffs
in the past, and we may have to make substantial payments in the future.
Moreover, companies that underwrite securities offerings, such as Tucker
Anthony, Sutro and Tucker Cleary, risk considerable liability under federal and
state securities laws (including Rule 10b-5 under the Securities Exchange Act of
1934 and Section 11 of the Securities Act of 1933) for material misstatements
and omissions in prospectuses, other information they distribute in connection
with such offerings, and communications made to securities analysts and others.
Underwriting securities for emerging and middle market companies, as we do,
entails even greater risk due to the uncertainty of the performance of such
companies and their stock. A substantial number of lawsuits have been brought
against participants in the securities brokerage industry in recent years,
including many class action suits seeking substantial punitive and other
damages.
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In the normal course of business, we also face potential liability arising
out of our activities as an employer and as a result of other business
activities. In the past we and our subsidiaries have made substantial payments
in connection with the resolution of disputed claims related to these matters,
and there is no guarantee we will not make similar payments in the future.
Potentially high legal expenses and other costs and absence of insurance
We may incur significant legal and other expenses in defending these
lawsuits and enforcement proceedings, even if the claims are frivolous and
without merit. Consistent with industry practice, our insurance does not cover
us for liabilities incurred in certain types of lawsuits. In addition, our
charter documents and those of our subsidiaries require indemnification of our
respective officers, directors and agents to the maximum extent permitted by
law. Defending against law suits or enforcement actions costs money and also may
divert the attention and efforts of our management and employees from their
other responsibilities.
Mistakes or acts of fraud by customers
or employees are difficult to
detect and deter
Customer fraud, employee errors, misconduct and fraud (including
unauthorized transactions by traders), as well as failures in the processing of
securities transactions, expose us to the risk of significant loss. Acts of
fraud are difficult to detect and deter, and we cannot assure investors that our
risk management procedures and controls will prevent such losses.
We determined that a former employee improperly valued certain of our
securities positions over the first eleven months of 1997 to conceal his trading
losses. We determined in the fourth quarter of 1997 that this employee was
responsible for $2,631,000 in losses. We notified the SEC and the NYSE of this
situation. We have conducted an internal review of the specific trading loss and
our reports and procedures relating thereto and have enhanced procedures where
appropriate. The SEC is investigating this matter. We do not expect that the
results of this investigation will have a material adverse effect on our
business, financial condition or operating results.
We face certain risks
when we trade as a principal
Our principal trading activities subject our capital to significant risks
from markets that may be susceptible to illiquidity or rapid fluctuations in
liquidity. We often purchase, sell or short sell securities as a principal in
connection with our market making, principal trading,
16
<PAGE> 17
arbitrage and underwriting activities. Volatile market conditions could limit
our ability to resell securities purchased or to repurchase securities sold
short. Our principal trading activities subject our capital to significant
risks, including market, credit, counterparty and liquidity risks.
As a result of our underwriting and arbitrage activities, from time to time
we have large position concentrations in securities of, or commitments to, a
single issuer or issuers engaged in a specific industry. In addition,
competition in the major capital markets and other factors are inducing lead
underwriters to make larger commitments, such that an underwriter (including a
co-manager) may from time to time retain significant position concentrations in
individual securities. Such concentrations increase our exposure to specific
credit and market risks.
Use of derivative financial instruments
creates certain unique risks
When we buy and trade securities as a principal we may enter into
derivatives transactions, primarily to manage our own interest costs, and also
as an alternative to investment in the cash markets. Although we use derivatives
to manage certain risks, derivatives have risks of their own. For example, sharp
movements in price or reductions in liquidity in the cash markets may translate
into even greater volatility in the price and liquidity of derivatives.
Derivatives also suffer from certain risks unique to the derivatives market, in
part due to the additional complexity of and potential for leverage in the
derivatives market. Dealing in derivatives involves a credit risk that the
counterparty will not fulfill its contractual obligations, as well as other
legal, operational and reputational risks less common in the cash markets. We
manage the risks associated with derivatives trading as part of our overall plan
of risk management, but we cannot guarantee that our use of derivatives will not
materially and adversely affect our results of operations or financial condition
in any particular period.
Our risk management policies and procedures
may leave us exposed to
unidentified or unanticipated risk
Although we have developed risk management procedures and policies to
identify, monitor and manage risks, we cannot assure investors that our
procedures will be fully effective. Our risk management methods may not
effectively predict the risks we will face in the future, which may be different
in nature or magnitude than past experiences. In addition, certain of our risk
management methods are based on an evaluation of information regarding markets,
clients and other matters provided by third parties. Such information may not be
accurate, complete, up-to-date or properly evaluated, and our risk management
procedures may be correspondingly flawed. Management of operational, legal and
regulatory risk requires, among other things, policies and procedures to record
properly and verify a large number of transactions and events, and we cannot
assure investors that our policies and procedures will be fully effective.
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<PAGE> 18
Net capital rules may restrict
our ability to conduct
our business
The SEC, the NYSE and various other securities exchanges and regulatory
bodies in the United States require broker-dealers to maintain adequate
regulatory capital in relation to their liabilities and the size of their
customer business. These rules affect each of our broker-dealer subsidiaries.
These rules require broker-dealers to maintain a substantial portion of their
assets in cash or highly liquid investments. Failure to maintain the required
net capital may subject a firm to suspension or revocation of its registration
by the Commission and suspension or expulsion by the NASD and other regulatory
bodies, and ultimately may require its liquidation. Compliance by our
broker-dealer subsidiaries with the net capital rules could limit certain
operations that require intensive use of capital, such as underwriting or
trading activities. These rules could also restrict us from withdrawing capital
from our subsidiaries (even where our broker-dealer subsidiaries have more than
the minimum amount of required capital). This, in turn, could limit our ability
to pay dividends, implement our strategies, pay interest on and repay the
principal of our debt and/or repurchase shares. In addition, a change in the net
capital 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 large charge against net capital, could have similar
adverse effects.
The regulation of our industry
is extensive and complex
The securities industry in the United States is subject to extensive
regulation under both federal and state laws and the regulations of governmental
agencies, including the SEC and SROs.
General securities regulation
The goal of regulatory bodies that oversee our operations is to safeguard
the integrity of the securities and other financial markets and protect the
interests of customers participating in those markets. These regulatory bodies
do not attempt to protect the interests of our stockholders as such. We must
comply with the laws, rules and regulations of various SROs and other regulatory
bodies in the United States, such as the SEC, the NYSE, the NASD, the
Commodities Futures Trading Commission, the National Futures Association and the
Municipal Securities Rulemaking Board. Failure to comply with any of these laws,
rules or regulations, the application of which may be unclear under certain
circumstances, could materially and adversely affect us. We may face censure,
civil penalties (including treble damages in the case of insider trading
violations), fines, the issuance of cease-and-desist orders, the deregistration
or suspension of a broker-dealer, investment adviser or futures commission
merchant, the statutory disqualification of officers or employees or other
adverse consequences. Even absent such penalties, administrative or judicial
proceedings or arbitrations could materially and adversely affect our perceived
creditworthiness, reputation and competitiveness. Our customers or others who
allege a violation of applicable regulations may also seek compensation or other
relief from us, including the unwinding of the transaction at issue.
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<PAGE> 19
Broker-dealer regulation
Each of our registered broker-dealer subsidiaries face specific, extensive
regulation in the United States at both the federal and state levels.
Broker-dealers are subject to regulations covering all aspects of the securities
business, including sales methods, trade practices among broker-dealers, use and
safekeeping of customers' funds and securities, capital structure, record
keeping and the conduct of directors, officers and employees.
Investment advisor regulation
Regulations under the Investment Advisors Act of 1940 cover various aspects
of the operations of registered investment advisors such as Tucker Anthony,
Sutro, Tucker Cleary and Freedom Capital, including compensation arrangements.
Under the Investment Advisors Act, every investment advisory agreement with a
client must expressly prohibit the investment advisor's assignment of the
contract without the consent of the client. Under the Investment Company Act of
1940, every investment advisor's agreement with a registered investment company
must automatically terminate upon assignment. Both the Investment Advisors Act
and the Investment Company Act consider an investment advisory agreement
assigned upon a direct or indirect transfer of the agreement. A direct or
indirect transfer includes a direct assignment or a transfer of a "controlling
block" of the advisor's voting securities or, under certain circumstances, the
transfer of a "controlling block" of the voting securities of the parent
corporation. A transaction does not constitute an assignment under the
Investment Advisors Act or the Investment Company Act, however, if it does not
result in a change of actual control or management of the investment advisor.
Any assignment of our investment advisory agreements would require, as to any
registered investment company client, the approval of a majority of its
stockholders, and as to our other clients, the consent of such clients to such
assignments.
General regulation and regulatory changes
Regulations of general application, in addition to regulations specifically
applicable to financial market intermediaries, may also affect our businesses.
For example, existing and proposed tax legislation, antitrust policy and other
governmental regulations and policies (including the interest rate policies of
the Federal Reserve Board), among other rules and laws, could affect the volume
of our underwriting, merger and acquisition and principal investment business in
a given time period. Industry-specific legislation or regulations could also
affect the level of business and financing activity in each of the industries on
which we and our subsidiaries focus.
The regulatory environment in which we operate may change. New or revised
legislation or regulations imposed by domestic or foreign governmental
authorities or SROs, or changes in existing laws and rules or the interpretation
or enforcement of such laws and rules, could materially and adversely affect our
business, financial condition and operating results. For example, from time to
time certain interests have proposed various forms of anti-takeover legislation
and legislation that could affect the benefits associated with financing
leveraged transactions with high-yield securities. If enacted, such legislation
could adversely affect the volume of merger and acquisition business. Such a
reduction in volume could in turn adversely affect our underwriting, advisory
and trading revenues related thereto.
19
<PAGE> 20
Dependence on personnel to comply with regulations
Our ability to comply with laws and rules is highly dependent upon the
success of our compliance system. The compliance system can only be successful
if we can attract and retain qualified compliance personnel. Competition for
compliance personnel is escalating, which increases our costs for maintaining a
successful compliance program.
Our holding company structure and
net capital rules may restrict dividends or
otherwise restrict access to funds
Tucker Anthony, Sutro, Tucker Cleary, Freedom Capital and their respective
subsidiaries generate substantially all of our revenues. We rely exclusively on
financing activities and distributions from our subsidiaries for funds to pay
dividends, implement our strategies and repurchase shares. Net capital rules,
restrictions under our credit facility or borrowing arrangements of our
subsidiaries, and earnings, financial condition and cash requirements of our
subsidiaries may each limit distributions from our subsidiaries. Additionally,
there can be no assurance that we will successfully obtain sufficient funds
through financing activities. These factors may limit or prevent us from paying
dividends, implementing our strategies or repurchasing shares.
We may not be able to
successfully acquire new companies
or integrate companies we acquire
We may be unable to successfully acquire new companies
We expect to continue acquiring companies with complementary businesses
which might strengthen or expand our geographical or products offering base. We
cannot guarantee that we will successfully identify or acquire such companies.
Even if we do identify appropriate targets, we may not be able to negotiate
appropriate terms of acquisition or obtain necessary financing.
Integration of acquired companies may be difficult
The acquisition of companies poses additional risks. Generally accepted
accounting principles require us to amortize expenses related to goodwill and
other intangible assets we acquire, which will reduce our earnings. We may issue
additional shares of capital stock and/or incur additional debt to finance new
acquisitions, both of which will dilute the interests of existing stockholders.
Acquired companies may not increase our profitability. Moreover, we cannot
guarantee effective integration of the acquired companies' personnel,
operations, products and services into our own business. Any or all of these
effects may materially and adversely affect our financial condition, results of
operations and cash flows.
20
<PAGE> 21
We may have difficulty in
managing our growth
Continued growth may strain our resources
One of our strategies is to grow through acquisitions. The growth of our
business and expansion of our customer base has and will continue to strain our
management and administrative resources. It will also require increased
investment in management personnel and financial, administrative and
communication systems. Unless offset by a growth of revenues, the costs
associated with such investments will reduce our operating margins. We cannot
assure investors that we will be able to manage or continue to manage our recent
or future growth successfully. The inability to do so could have a material
adverse effect on our business, financial condition and operating results.
Growth creates more burdensome compliance procedures
As the size and complexity of our business have increased, the procedures
for complying with applicable rules and regulations have become more complex and
burdensome. We have implemented and continue to implement formal compliance
procedures to respond to these changes. Our future operating results will depend
on our ability to continue improving and refining our compliance procedures.
Our ownership is concentrated
As of the date of this Prospectus, affiliates of Thomas H. Lee Company own
approximately 25% of our outstanding common stock and our employees and officers
as a group own approximately 33%. This concentration of ownership and voting
power may accelerate, delay or prevent a change in our control. It may also
affect the ability of particular stockholders to influence our policies.
Provisions of Delaware law
and our charter may make a takeover difficult
We are organized under the laws of the State of Delaware. Certain
provisions of Delaware law and our certificate of incorporation, including the
following provisions, may effectively discourage a potential acquiror from
making an offer for our outstanding capital stock or impede other transactions
favorable to the interests of the stockholders:
* Certain provisions in our certificate of incorporation may make the
removal of incumbent directors and management more difficult.
21
<PAGE> 22
* Our certificate of incorporation permits our directors to authorize and
issue series of preferred stock with rights and powers determined by the
board of directors, without any vote or action by stockholders. Thus, our
directors can authorize and issue shares of preferred stock with voting,
conversion, redemption, dividend, liquidation and/or other rights and
preferences that could adversely affect the rights of holders of our
common stock. In particular, our board could issue preferred stock with
terms that might make it difficult for a third party to gain control of
us, discourage bids for our common stock, reduce the premium that
otherwise might be offered for such stock or otherwise adversely affect
the market value of our common stock.
* Our charter prohibits stockholders from calling special meetings of
stockholders, and requires unanimity for stockholders to act by written
consent.
* Our charter requires stockholders to provide certain advance notice in
order to nominate persons for election as directors, or to submit
proposals for consideration at a stockholders' meeting.
We face certain conflicts of interest
Some of our key employees and executive officers invest in, or invest
together with, certain of our clients through various investment vehicles. Such
employees and officers could face conflicts of interest if their investment
objectives do not match those of such clients. Although we do not believe that
any such conflict would have a material adverse effect on our business, we
cannot guarantee that such investment relationships will not result in conflicts
of interest which do materially and adversely affect our business.
RECENT DEVELOPMENTS
On April 5, 1999 the Company announced that it was joining its Cleary Gull
subsidiary with Tucker Anthony's equity capital markets group to form Tucker
Anthony Cleary Gull. The new institutional capital markets and investment
management firm is known as Tucker Cleary and began operating on May 3, 1999.
Tucker Anthony continues to operate as an independent broker-dealer focusing on
its retail brokerage business and other activities including fixed income,
arbitrage and asset management.
USE OF PROCEEDS
All net proceeds from the sale of the common stock covered by this
prospectus will go to the selling stockholders who offer and sell their shares.
We will not receive any proceeds from the sale of common shares by the selling
stockholders.
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<PAGE> 23
PLAN OF DISTRIBUTION
On February 1, 1999, our wholly-owned subsidiary Sutro & Co. Incorporated
acquired substantially all of the assets of Charter Investment Group, Inc., an
Oregon corporation, pursuant to an agreement and plan of reorganization. Under
the terms of the agreement, we issued an aggregate of 203,665 shares of our
common stock to Charter for Charter to distribute to its shareholders. The
agreement imposes certain restrictions on the transfer of these shares. Under
the agreement, each stockholder may transfer 25% of his portion of such shares
from and after May 3, 1999, an additional 25% of his portion from and after
August 3, 1999, an additional 25% of his portion from and after November 3,
1999, and the remainder of his portion from and after February 3, 2000. If
certain earn-out targets are met, we will issue up to an additional 25,000
shares of our common stock which also would be distributed to the former Charter
stockholders.
Under the agreement and plan of reorganization we agreed to register for
resale the shares issued to Charter and to use our best efforts to maintain the
effectiveness of this registration statement with respect to the shares offered
hereby until the earlier of the date all shares have been sold, or one year from
the date of this prospectus. No sales may be made pursuant to this prospectus
after such date unless we amend or supplement this prospectus to indicate that
we have agreed to extend such period of effectiveness. We will pay all expenses
of registering the shares for resale by the selling stockholders, but the
selling stockholders will pay any discounts, commissions or concessions
associated with the sale of the shares. As used in this prospectus, "selling
stockholders" includes the pledgees, donees, transferees or others who later
hold the selling stockholders' interests.
The selling stockholders may sell all, some or none of the shares of common
stock offered hereunder. The selling stockholders will act independently of us
in making decisions with respect to the timing, manner and size of each sale of
shares offered hereby. The selling stockholders may sell the shares offered
hereby on the New York Stock Exchange, in the over-the-counter market, in
private sales or otherwise, at market prices prevailing at the time of sale, at
prices related to the prevailing market prices, or at negotiated prices. In
addition, the selling stockholders may sell some or all of their shares of
common stock through:
* a block trade in which the broker or dealer attempts to sell the
securities as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
* purchases by a broker or dealer as principal, and resale by the same
broker or dealer for its account under this prospectus;
* an exchange distribution under the rules of the exchange, if the
securities are then listed on an exchange;
* ordinary brokerage transactions and transactions in which a broker
solicits purchasers; or
* transactions exempt from registration under the Securities Act of 1933
(the "Securities Act"), including pursuant to Rule 144.
23
<PAGE> 24
Underwriters, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or from the
purchasers of such shares, as their agents in connection with the sale of
securities. In effecting sales, brokers, dealers or other agents engaged by the
selling stockholders may arrange for other brokers, dealers or agents to
participate.
The selling stockholders and any underwriter, dealer or agent who
participates in the distribution of shares offered by this prospectus may
qualify as "underwriters" within the meaning of Section 2(a)(11) of the
Securities Act. In addition, any discount, commission or concession received by
such person may qualify as underwriters' compensation under the Securities Act.
If the selling stockholders qualify as "underwriters," they will be subject to
the prospectus delivery requirements of Section 5(b)(2) of the Securities Act.
The selling stockholders may indemnify any broker, dealer or other agent
that participates in transactions involving the sale of the shares against
certain liabilities, including liabilities arising under the Securities Act.
We have advised the selling stockholders that the anti-manipulation rules
under the Exchange Act may apply to sales of shares of our common stock in the
market and to the activities of the selling stockholders and their affiliates.
The selling stockholders have advised us that during such time as the selling
stockholders may be engaged in the attempt to sell shares registered hereunder,
they will:
* not engage in any stabilization activity in connection with any of our
securities;
* not bid for or purchase any of our securities or any rights to acquire
our securities, or attempt to induce any person to purchase any of our
securities or rights to acquire our securities other than as permitted
under the Securities Exchange Act of 1934;
* not effect any sale or distribution of the shares until after the
prospectus shall have been appropriately amended or supplemented, if
required, to set forth the terms thereof; and
* effect all sales of shares in broker's transactions through
broker-dealers acting as agents or in privately negotiated transactions
where no broker or other third party (other than the purchaser) is
involved.
In order to comply with the securities laws of certain states, if
applicable, our common stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states, the
common stock may not be sold unless such shares have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
24
<PAGE> 25
SELLING STOCKHOLDERS
All of the shares of common stock registered for sale under this prospectus
are or will be owned by the selling stockholders as the former stockholders of
Charter Investment Group, Inc. All of the shares offered by the selling
stockholders were acquired in connection with Sutro's acquisition of
substantially all of the assets of Charter, or will be acquired by the selling
stockholders pursuant to the earn-out provision in the acquisition agreement. No
selling stockholder holds in excess of one percent (1%) of our outstanding
capitalization as of the date of this prospectus. In the past three years, none
of the selling stockholders has had a material relationship with us or any of
our predecessors or affiliates, except that certain selling stockholders are or
will be non-officer employees of Sutro or Freedom.
The following table sets forth certain information known to us with respect
to beneficial ownership of our common stock as of May 3, 1999 by each selling
stockholder. The following table assumes that the selling stockholders sell all
of the shares registered for sale under this prospectus. We cannot determine the
exact number of shares that will be sold.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OFFERED
OWNED PRIOR TO BY THIS SHARES BENEFICIALLY OWNED
SELLING STOCKHOLDERS THE OFFERING(1)(2) PROSPECTUS(1) AFTER THE OFFERING(2)
- --------------------- -------------------- ------------- -------------------------
<S> <C> <C> <C>
Cynthia M. Aschbacher 2,373 2,373 0
Gary L. Bracelin 9,329 9,329 0
Gary Brink 1,603 1,603 0
Lyman Bruhn 1,866 1,866 0
Arthur Chandler 14,753 14,753 0
Daniel Deymonaz 4,329 4,329 0
Terry Donnelly 3,421 3,421 0
Kerry Downs 9,621 9,621 0
Randy Durig 2,950 2,950 0
Barnes C. Ellis 9,622 9,622 0
David A. Geaslen 9,622 9,622 0
Marty Griffey 1,603 1,603 0
Jeffrey A. Hegstrom 1,924 1,924 0
Shana Heyden 1,282 1,282 0
Gerald R. Hulsman 9,622 9,622 0
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OFFERED
OWNED PRIOR TO BY THIS SHARES BENEFICIALLY OWNED
SELLING STOCKHOLDERS THE OFFERING(1)(2) PROSPECTUS(1) AFTER THE OFFERING(2)
- --------------------- -------------------- ------------- -------------------------
<S> <C> <C> <C>
Timothy L. Jensen 9,429 9,429 0
Steve Lidberg 160 160 0
David Louthan 5,773 5,773 0
Mariana Mackenzie 3,207 3,207 0
Jeff Mengis 6,414 6,414 0
Vinell McWilliams 1,603 1,603 0
Kirk Michelotti 17,640 17,640 0
Rocky Joe Norris 6,862 6,862 0
A. Donald Parr 9,622 9,622 0
James Donald Parr 16,036 16,036 0
Gayle Patterson 1,924 1,924 0
Ken Scales 1,282 1,282 0
Michael J. Shea 8,338 8,338 0
Scott Sideras 6,121 6,121 0
Lance Steinberg 3,207 3,207 0
Mark Stephenson 10,583 10,583 0
Brad Sutherland 6,413 6,413 0
David Ulbricht 4,811 4,811 0
Veronica Wilmont 320 320 0
</TABLE>
- -----------------------------------------------
(1) Does not include up to an additional 25,000 shares that may be acquired
under an earn-out provision.
(2) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares that the
individual has the right to acquire within 60 days of May 3, 1999 through the
exercise of any stock option or other right. Unless otherwise indicated in the
footnotes, each person has sole voting and investment power (or shares such
powers with his or her spouse) with respect to the shares shown as beneficially
owned.
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Wilmer, Cutler & Pickering, Washington, D.C.
26
<PAGE> 27
EXPERTS
The consolidated financial statements incorporated in this prospectus and
in the registration statement by reference to the Annual Report on Form 10-K of
Freedom for the year ended December 31, 1998 have been so incorporated in
reliance on the reports of Ernst & Young, LLP, independent accountants, given on
the authority of that firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
* Government Filings. This prospectus is part of a registration statement
on Form S-3 that we filed with the SEC. Certain information in the
registration statement has been omitted from this prospectus in
accordance with the rules of the SEC. We file annual, quarterly and
special reports, proxy statements and other information with the SEC. You
can inspect and copy the registration statement as well as reports, proxy
statements and other information we have filed with the SEC at the public
reference room maintained by the SEC at 450 Fifth Street, NW, Washington,
D.C. 20549, and at the following Regional Offices of the SEC: Seven World
Trade Center, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. You can obtain copies from
the public reference room of the SEC at 450 Fifth Street, NW, Washington,
D.C. 20549 upon payment of certain fees. You can also call the SEC at
1-800-732-0330 for further information about the public reference room.
We are also required to file electronic versions of these documents with
the SEC, which you may access through the SEC's World Wide Web site at
http://www.sec.gov.
* Information Incorporated by Reference. The SEC allows us to "incorporate
by reference" certain of our publicly-filed documents into this
prospectus, which means that information included in these documents is
considered part of this prospectus. Information that we file with the SEC
subsequent to the date of this prospectus will automatically update and
supersede previously filed information, including information contained
in this document.
We incorporate by reference the documents listed below and any future
filings we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act, until this offering has been completed:
1. Our Annual Report on Form 10-K for the year ended December 31, 1998
(File No. 001-13993).
27
<PAGE> 28
2. Our definitive Proxy Statement dated April 29, 1999, filed in
connection with our June 10, 1999 Annual Meeting of Stockholders.
3. The description of our common stock in our registration statement
on Form S-1, filed with the SEC on September 29, 1998 (File No. 333-62857).
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference in this prospectus. You
should direct any requests for documents to:
Corporate Secretary
Freedom Securities Corporation
One Beacon Street
Boston, Massachusetts 02108
(617) 725-2000
28
<PAGE> 29
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Freedom will bear no expenses in connection with any sale or other
distribution by the selling stockholders of the shares being registered other
than the expenses of preparation and distribution of this registration statement
and the prospectus included in this registration statement. Such expenses are
set forth in the following table. All of the amounts shown are estimates except
the SEC registration fee and the NYSE listing fee.
SEC registration fee $ 1,085
Legal fees and expenses 7,500
Accounting fees and expenses 4,000
NYSE listing fee 1,500
Miscellaneous expenses 2,000
-------
Total $16,085
=======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware, as
amended, provides that under certain circumstances a corporation may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or is
or was serving at its request in such capacity in another corporation or
business association, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful.
In addition, pursuant to its Articles of Organization and Bylaws, Freedom
must indemnify its directors and officers against expenses (including judgments
or amounts paid in settlement) incurred in any action, civil or criminal, to
which any such person is a party by reason of any alleged act or failure to act
in his capacity as such, except as to a matter as to which such director or
officer shall have been finally adjudged not to have acted in good faith in the
reasonable belief that his action was in the best interest of the corporation.
Freedom maintains directors and officers liability insurance for the benefit of
its directors and certain of its officers and has entered into indemnification
agreements with its directors and certain of its officers.
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<PAGE> 30
In connection with this offering, the selling stockholders have agreed to
indemnify Freedom, its directors and officers and each such person who controls
Freedom, against any cause of action, loss, claim, damage, or liability to the
extent it arises out of or is based upon (1) the failure of any selling
stockholder (or his or her donees, legatees or pledgees) or any underwriter to
comply with the prospectus delivery requirements under the federal securities
laws or any applicable state securities laws or (2) any untrue statement or
alleged untrue statement or omission or alleged omission made in this
registration statement or in the prospectus contained herein, as the same shall
be amended or supplemented, made in reliance on or in conformity with written
information furnished to Freedom by such selling stockholder or such
underwriter.
ITEM 16. EXHIBITS.
EXHIBITS.
- ---------
5.1 Opinion of Wilmer, Cutler & Pickering.
23.1 Consent of Ernst & Young, LLP, Independent Accountants
23.2 Consent of Wilmer, Cutler & Pickering (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature pages of this Registration
Statement)
- ---------
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of this offering.
30
<PAGE> 31
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Freedom certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on May 10,
1999.
FREEDOM SECURITIES CORPORATION
By: /s/ John H. Goldsmith
---------------------------------
Name: John H. Goldsmith
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John H. Goldsmith or William C. Dennis,
his or her attorney-in-fact, for him or her in any and all capacities, to sign
any amendments to this registration statement, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute, may do or cause to be done by virtue
hereof
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- -------------------------- --------------------- --------------------
/s/ John H. Goldsmith Chairman, Director and
- -------------------------- Chief Executive Officer May 10, 1999
John H. Goldsmith
/s/ William C. Dennis, Jr. Chief Financial Officer May 10, 1999
- --------------------------
William C. Dennis, Jr.
/s/ David V. Harkins Director May 10, 1999
- --------------------------
David V. Harkins
/s/ C. Hunter Boll Director May 10, 1999
- --------------------------
C. Hunter Boll
32
<PAGE> 33
/s/ Thomas M. Hagerty Director May 10, 1999
- ------------------------
Thomas M. Hagerty
/s/ Seth W. Lawry Director May 10, 1999
- ------------------------
Seth W. Lawry
/s/ Winston J. Churchill Director May 10, 1999
- ------------------------
Winston J. Churchill
/s/ John F. Luikart Director May 10, 1999
- ------------------------
John F. Luikart
/s/ Robert H. Yevich Director May 10, 1999
- ------------------------
Robert H. Yevich
/s/ David P. Prokupek Director May 10, 1999
- ------------------------
David P. Prokupek
/s/ Hugh R. Harris Director May 10, 1999
- ------------------------
Hugh R. Harris
33
<PAGE> 34
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- --------------------------------------------------------------------
5.1 Opinion of Wilmer, Cutler & Pickering.
23.1 Consent of Ernst & Young, LLP, Independent Accountants
23.2 Consent of Wilmer, Cutler & Pickering (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature pages of this
Registration Statement)
34
<PAGE> 1
Exhibit 5.1
Wilmer, Cutler & Pickering
2445 M Street, N.W.
Washington, D.C. 20037-1420
Telephone (202) 663-6000
Facsimile (202) 663-6363
May 6, 1999
Freedom Securities Corporation
One Beacon Street
Boston, Massachusetts 02108
Re: FREEDOM SECURITIES CORPORATION REGISTRATION STATEMENT ON FORM S-3
Dear Ladies and Gentlemen:
We have acted as counsel to Freedom Securities Corporation, a Delaware
corporation (the "Company"), in connection with the Registration Statement on
Form S-3 described herein (the "Registration Statement") filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended. The Registration Statement relates to the registration of
the shares of common stock of the Company, par value $0.01 per share, issued in
connection with the purchase by the Company's wholly-owned subsidiary, Sutro &
Co. Incorporated, of substantially all of the assets of Charter Investment
Group, Inc. (the "Shares"), or issuable pursuant to earn-out provisions set
forth in the acquisition agreement related to such purchase (the "Earn-Out
Shares"). The purchase was effected pursuant to the Agreement and Plan of
Reorganization dated February 1, 1999 by and among Charter Investment Group,
Inc., the Company, Sutro & Co. Incorporated and the Shareholders of Charter
Investment Group, Inc. named therein (the "Acquisition Agreement"). For the
purposes of this opinion, we have examined and relied upon such documents,
records, certificates and other instruments as we have deemed necessary.
Based solely upon the foregoing, and upon our examination of such questions
of law and statutes as we have considered necessary or appropriate, and subject
to the assumptions, qualifications, limitations and exceptions set forth herein,
we are of the opinion that (i) the Shares and the Earn-Out Shares have been
lawfully and duly authorized; (ii) the Shares have been validly issued, and are
fully paid and nonassessable; and (iii) the Earn-Out Shares, if and when issued
in accordance with the earn-out provisions set forth in the Acquisition
Agreement, will be validly issued, fully paid and nonassessable.
This opinion is limited to the laws of the United States and the general
corporate law of Delaware. Although we do not hold ourselves out as being
experts in the laws of Delaware, we have made an investigation of such laws to
the extent necessary to render our opinion. Our opinion is rendered only with
respect to the laws and the rules, regulations and orders thereunder that are
currently in effect.
<PAGE> 2
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion. This opinion has been prepared
solely for your use in connection with the filing of the Registration Statement,
and should not be quoted in whole or in part or otherwise be referred to, nor
otherwise be filed with or furnished to any governmental agency or other person
or entity, without our express prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name therein under the caption
"Legal Matters."
Sincerely,
WILMER, CUTLER & PICKERING
By: /s/ Meredith B. Cross
Meredith B. Cross, a partner
Freedom Securities Corporation
May 6, 1999
Page PAGE 1
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated January 25, 1999 included in the
Annual Report on Form 10-K of Freedom Securities Corporation for the year ended
December 31, 1998. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
New York, New York
May 10, 1999
