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File Pursuant to Rule 424(b)(3)
Registration No. 333-96289
PROSPECTUS
FREEDOM SECURITIES CORPORATION
1,389,358 SHARES OF COMMON STOCK
THE SHARES OFFERED IN THIS PROSPECTUS INVOLVE RISK. YOU SHOULD CAREFULLY
CONSIDER THE "RISK FACTORS" COMMENCING ON PAGE 4 IN DETERMINING WHETHER TO
PURCHASE SHARES OF COMMON STOCK.
This prospectus covers 1,389,358 shares of our common stock. These shares
may be offered and sold from time to time by some of our stockholders. These
stockholders acquired our shares when Gibraltar Securities Co. merged with and
into our wholly-owned subsidiary, Freedom Securities Holding Corporation, and
have also acquired our shares in connection with option exercises. 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. They will sell the shares at the current market price or at negotiated
prices at the time of sale. When we refer to the "selling stockholders," we mean
those persons referred to in this prospectus under "Plan of Distribution."
Our common stock is listed on the New York Stock Exchange under the symbol
"FSI." On February 3, 2000, the last sale price of our common stock on the NYSE
was $12.00 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.
The date of this prospectus is February 18, 2000.
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TABLE OF CONTENTS
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NUMBER
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THE COMPANY........................................................................................................3
RISK FACTORS.......................................................................................................4
USE OF PROCEEDS...................................................................................................12
PLAN OF DISTRIBUTION..............................................................................................12
SELLING STOCKHOLDERS..............................................................................................14
LEGAL MATTERS.....................................................................................................15
EXPERTS...........................................................................................................15
WHERE YOU CAN FIND MORE INFORMATION...............................................................................15
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THE COMPANY
Freedom is a retail brokerage and investment banking firm. We operate
through five principal subsidiaries:
- Tucker Anthony Incorporated (known as Tucker Anthony), headquartered
in Boston, is a Northeast and Mid-Atlantic regional brokerage and
investment banking firm. Tucker Anthony's divisions include Tucker
Anthony Cleary Gull, an investment banking and institutional brokerage
firm, Gibraltar Securities, a brokerage and investment advisory firm,
and Hopper Soliday, a municipal finance and underwriting brokerage
firm.
- Sutro & Co. Incorporated, headquartered in San Francisco, is a West
Coast regional brokerage and investment banking firm.
- Cleary Gull Investment Management Services, Inc., is an asset
management firm based in Milwaukee.
- Hill Thompson Magid & Co., based in New Jersey, is an over-the-counter
trading firm.
- Freedom Capital Management Corporation is a Boston-based asset
management firm.
Each of our locally-managed subsidiaries uses its name recognition, historical
areas of expertise and close community ties to serve clients in its respective
region. 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 sectors of the union pension fund market. We are also
growing our corporate funds management business.
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
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During 1999, we grew our operations through several acquisitions. We
acquired four firms: Hopper Soliday & Co., Inc., a municipal finance and
underwriting brokerage firm; Charter Investment Group, Inc., a brokerage firm
based in Portland, Oregon; Gibraltar Securities Co., a New Jersey-based regional
brokerage and investment advisory service firm; and Hill Thompson Magid & Co., a
New Jersey based over-the-counter trading firm.
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
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, or these
additional 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.
STOCK MARKET RISK COULD ADVERSELY AFFECT OUR BUSINESS IN MANY WAYS.
As a brokerage and investment banking firm, our business depends heavily 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, however, 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. Extreme volatility and instability in the market could significantly
harm our business for many reasons, including those described below.
BECAUSE A SIGNIFICANT PORTION OF OUR REVENUE IS DERIVED FROM TRADING COMMISSIONS
AND MANAGEMENT AND ADVISORY FEES, REPEATED OR PROLONGED SLOWDOWNS IN MARKET
TRADING COULD SIGNIFICANTLY HARM OUR PROFITABILITY.
Our commission and fee revenues depend heavily on the volume, prices and
liquidity of the stock market. As a result, unstable market conditions could
adversely affect our business in the following ways.
- 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 would reduce the management fees received
for assets under our 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, which would decrease the fees we
derive from these services.
If stock market volatility negatively affects these sources of revenue, our
profitability would suffer.
A VOLATILE STOCK MARKET COULD ALSO ADVERSELY AFFECT THE RETURNS WE REALIZE FROM
OUR ACTIVITIES AS A PRINCIPAL.
We often purchase, sell or short sell securities as a principal in
connection with our market making, principal trading, arbitrage and underwriting
activities. A volatile stock market may affect our asset value and the return we
realize from activities we pursue as a principal in the following ways.
- An overall decline in stock prices reduces the market value of
securities we hold in inventory as assets.
- To the extent we hold "short" positions (i.e., have sold assets
we do not own), an unanticipated increase in stock prices could
expose us to substantial damages or losses if we are forced to
acquire assets in the rising market to complete these "short"
sales.
- Declines in the value of any stock we hold and general
illiquidity in the market make it more difficult for us to manage
our portfolio because we cannot always sell our securities when
we want to or otherwise hedge our securities positions.
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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. These concentrations increase our exposure to specific
credit and market risks. These types of large positions have in the past
resulted and might in the future result in higher trading losses for us than
would occur if our positions and activities were less concentrated.
TO THE EXTENT OUR CUSTOMERS, OR COUNTERPARTIES IN TRANSACTIONS WITH US, ARE MORE
LIKELY TO SUFFER FINANCIAL SETBACKS IN A VOLATILE STOCK MARKET ENVIRONMENT, OUR
RISK OF LOSS DURING THESE PERIODS WOULD INCREASE.
Declines in the market value of securities can result in the failure of
buyers and sellers of securities to fulfill their settlement obligations, and in
the failure of our customers to fulfill their credit obligations. During market
downturns, counterparties to us in securities transactions may be less likely to
complete transactions. Also, we often permit our customers to purchase
securities on margin, i.e., to borrow a portion of the purchase price from us
and collateralize the loan with a set percentage of the securities. During steep
declines in stock prices, the value of the collateral securing margin purchases
may drop below the amount of the purchaser's indebtedness. If the customer is
unable to provide additional collateral for these loans, we may lose money on
these margin transactions. In addition, particularly during market downturns, we
may face additional expense defending or pursuing claims or litigation related
to counterparty or customer default.
UNEXPECTED DOWNTURNS IN NEW EQUITY OFFERINGS COULD ADVERSELY AFFECT OUR
PROFITABILITY.
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. The number and
size of new equity offerings are historically volatile, as are the secondary
market trading volume and prices of newly-issued securities. Because new
offerings increase the potential for secondary market trading activity by
increasing the number of securities available for trading, if the number and/or
size of new equity offerings or the secondary market trading volume of these
offerings decline, our commissions and fee revenues may decline and we may
realize lower revenues from our underwriting activities.
USE OF DERIVATIVE FINANCIAL INSTRUMENTS CREATES 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 risks, derivatives have risks of their own that may be greater than
transactions in the underlying securities. 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 risks unique to the derivatives market, in part due to the additional
complexity of and potential for leverage in the derivatives market. Because
initial margin deposits required to establish derivatives positions are often
low in derivatives transactions, a small movement in price can cause substantial
losses. 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.
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. In particular, a sizable portion of our
inventory is sensitive to interest rates. As interest rates rise or fall, there
is a corresponding increase or drop in our assets. Fluctuations in interest
rates, as well as the effects of any one or more of the other factors listed
above, may at times reduce levels of trading activity, securities offerings and
merger and acquisition activities, which could in turn reduce revenues from our
brokerage, trading, institutional sales and investment banking activities.
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WE FACE INTENSE COMPETITION IN OUR INDUSTRY.
Our business will suffer if we do not compete successfully. All aspects of
our business and of the securities industry are intensely competitive. We expect
competition to continue and intensify in the future.
BECAUSE MANY OF OUR COMPETITORS HAVE GREATER RESOURCES AND OFFER MORE SERVICES
THAN WE DO, INCREASED COMPETITION COULD HAVE A MATERIAL AND ADVERSE EFFECT ON
OUR PROFITABILITY.
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 commercial banks. We also compete indirectly for
investment assets with insurance companies and others.
Although we believe we have competitive advantages, such as the
qualifications and experience of our professional staff, our reputation in the
marketplace and our existing client relationships, a number of our competitors
have 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. General competitive pressures
facing full-service firms, such as ours, may impair our future ability to charge
our customers commissions at currently prevailing rates.
WE FACE COMPETITION FROM NEW ENTRANTS INTO THE MARKET AND INCREASED USE OF
ALTERNATIVE SALES CHANNELS BY OTHER FIRMS.
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. Recent and pending legislative and regulatory
initiatives intended to ease restrictions on the sale of securities by
commercial banks are already beginning to increase competition. This increased
competition could cause our business to suffer.
The industry of electronic and/or discount brokerage services is also
rapidly developing. The increased competition from competitors and issuers using
new technology may materially and adversely affect our operating results and
financial position. Competitors offering Internet-based or other electronic
brokerage services may have lower costs and offer their customers more
attractive pricing and more convenient services than we do. Although we offer
on-line account access and other services, we do not currently offer electronic
brokerage services. In addition, we anticipate that these channels may be used
in the future for new securities offerings and expect 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 even bypass financial intermediaries altogether and
offer their shares directly to purchasers through the Internet and other
electronic channels.
WE DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL.
OUR BUSINESS IS A SERVICE BUSINESS THAT DEPENDS HEAVILY ON HIGHLY SKILLED
PERSONNEL AND THE RELATIONSHIPS THEY FORM WITH CUSTOMERS.
Our business, as a service business, relies heavily upon our highly skilled
and often highly specialized employees. Our business will suffer if we are
unable to retain these employees and attract new highly qualified personnel.
Specifically, our prospects depend heavily upon retention of senior management
and retail investment executives, research, investment banking, public finance,
institutional sales and trading, money management, arbitrage traders and
administrative professionals.
In our investment banking business, our strategy is to establish
relationships with prospective corporate clients prior to transactions, and to
maintain these 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, we could lose customers, which
could materially and adversely affect our results.
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We generally do not enter into written employment agreements with our
investment professionals and, as a result, these employees can stop working with
us at any time. 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 and some have taken customers away from us. 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.
COMPETITION FOR PERSONNEL WITHIN THE FINANCIAL SERVICES INDUSTRY HAS INCREASED
AND IS INTENSE.
The cost of retaining skilled professionals in the financial services
industry has escalated considerably as competition for these professionals has
intensified. Employers in the industry are increasingly offering guaranteed
contracts, upfront payments and increased compensation. 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 have to devote more significant
resources to attracting and retaining qualified personnel. This could materially
and adversely affect our financial position, cash flows and results of
operations.
LOCALIZED CONDITIONS IN PARTICULAR REGIONS OF THE UNITED STATES
MAY ADVERSELY AFFECT OUR BUSINESS.
Our customers are and have historically been concentrated in the
northeastern, mid-Atlantic and western regions of the United States. Our revenue
is derived largely from our operating subsidiaries in those regions.
- Tucker Anthony, which is concentrated in the northeastern and
mid-Atlantic United States, generated approximately 62% of our
1999 operating revenue.
- Sutro, which is concentrated in the western United States,
generated approximately 30% of our 1999 operating revenue.
Because of this concentration, we are dependent on market conditions in
these regions. A significant downturn in any of our principal operating regions
could materially and adversely affect the underwriting and brokerage businesses
of our subsidiaries. Also, an economic downturn in any of these regions could
adversely effect our retail clients and/or emerging and middle market companies
or growth industries in the affected regions, which could reduce the business
that we derive from these customers.
OUR BUSINESS IS SUBJECT TO QUARTERLY FLUCTUATIONS SO PERIOD-TO-PERIOD
COMPARISONS MAY BE DIFFICULT FOR OUR INVESTORS.
We have experienced, and may experience in the future, significant
seasonality in our business. For example, 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 these comparisons as indicators
of future performance.
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, under 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 and 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 the financial tests required by the agreement. 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 the
event that our relationship with Wexford were terminated, we would face
difficulties in finding a replacement on comparable terms. In addition, any
deterioration in Wexford's or its parent's financial condition could materially
and adversely affect us.
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LACK OF SUFFICIENT LIQUIDITY COULD IMPAIR OUR BUSINESS AND FINANCIAL CONDITION.
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 repurchase agreements and financing provided
by Wexford.
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. Tucker
Anthony, Sutro, 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.
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 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. As of December 31, 1999, we were in
compliance with all financial covenants.
We currently maintain a $100 million senior revolving credit facility with
BankBoston, N.A. as agent for several lenders. As of December 31, 1999, we had
$50 million drawn down 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 $10.3 million as of December 31,
1999.
The terms of the revolving credit facility require that we and our
principal subsidiaries maintain specified financial ratios and satisfy financial
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 these
provisions. A breach of any of these covenants would result in a default under
the credit facility. Upon a 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 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 these
amounts, the lenders could proceed against the collateral securing the loan to
repay the indebtedness and other obligations due and payable under the credit
facility. If our lenders accelerate the fixed asset credit facility, we may not
have enough funds to repay in full that indebtedness and our other indebtedness.
WE ARE HIGHLY DEPENDENT ON OUR COMMUNICATIONS AND INFORMATION SYSTEMS.
Because our industry is highly computerized, 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
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or otherwise. We cannot guarantee that our subsidiaries' or Wexford's back-up
procedures and capabilities in the event of any failure or interruption will
prove adequate.
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.
In addition to damages and other monetary penalties we might incur, we may
incur significant legal and other expenses in defending these lawsuits and
regulatory enforcement proceedings, even if the claims are frivolous and without
merit. Consistent with industry practice, our insurance does not cover us for
all liabilities that we may incur. 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
lawsuits or regulatory enforcement actions also may divert the attention and
efforts of our management and employees from their other responsibilities.
WE OPERATE UNDER EXTENSIVE GOVERNMENT REGULATION.
Because we operate in a highly regulated industry, we face substantial
potential regulatory 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") such as the New York Stock Exchange. 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 engaging in specified business activities.
CIVIL CLAIMS ARE A SIGNIFICANT THREAT TO OUR BUSINESS.
Because of the nature of our business, 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 this 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 and Sutro, risk considerable liability under federal and state
securities laws for material misstatements and omissions in prospectuses, other
information they distribute in connection with 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 these 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.
MISTAKES OR ACTS OF FRAUD BY EMPLOYEES ARE DIFFICULT TO DETECT AND DETER
AND MAY RESULT IN SIGNIFICANT LOSSES TO US THAT WE CANNOT RECOVER.
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 losses from fraudulent activity.
We determined that a former employee improperly valued some 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.
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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, some of our risk
management methods are based on an evaluation of information regarding markets,
clients and other matters provided by third parties. This 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.
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.
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 regulatory bodies in the United
States, such as the SEC, the New York Stock Exchange, the National Association
of Securities Dealers, 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 some 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 these 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.
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.
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 these laws and rules, could materially and adversely affect
our business, financial condition and operating results. For example, from time
to time some 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, this legislation could
adversely affect the volume of merger and acquisition business. This reduction
in volume could in turn adversely affect our underwriting, advisory and trading
revenues related thereto.
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.
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WE ARE SUBJECT TO NET CAPITAL REQUIREMENTS;
FAILURE TO COMPLY WITH THESE RULES WOULD SIGNIFICANTLY HARM OUR BUSINESS.
The SEC, the New York Stock Exchange 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 SEC 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 have material and
adverse consequences such as:
- limiting our operations that require intensive use of capital,
such as underwriting or trading activities; or
- restricting 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 net capital
requirements, or a significant operating loss or any large charge against net
capital, could have similar adverse effects.
WE MAY NOT BE ABLE TO SUCCESSFULLY ACQUIRE NEW COMPANIES OR INTEGRATE
EFFECTIVELY ANY COMPANIES WE ACQUIRE.
We expect to continue acquiring companies with complementary businesses
that might strengthen or expand our geographical or products offering base. We
cannot guarantee that we will successfully identify or acquire these companies.
Even if we do identify appropriate targets, we may not be able to negotiate
appropriate terms of acquisition or obtain necessary financing.
The acquisition of companies itself poses 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.
CONTINUED GROWTH MAY STRAIN OUR RESOURCES AND OUR ABILITY
TO EFFECTIVELY COMPLY WITH INDUSTRY REGULATIONS.
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 these 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.
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, WHICH MAKES TAKEOVERS MORE DIFFICULT
AND REDUCES THE ABILITY OF STOCKHOLDERS TO INFLUENCE OUR POLICIES.
As of the date of this Prospectus, affiliates of Thomas H. Lee Company own
approximately 23% of our outstanding common stock and our employees and officers
as a group own approximately 40%. 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.
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PROVISIONS OF DELAWARE LAW
AND OUR CHARTER MAY MAKE A TAKEOVER DIFFICULT.
We are organized under the laws of the State of Delaware. Provisions of
Delaware law applicable to us and provisions of 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 that stockholders believe are favorable:
- Some provisions in our certificate of incorporation may make the
removal of incumbent directors and management more difficult.
- 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 advance notice in order
to nominate persons for election as directors, or to submit proposals
for consideration at a stockholders' meeting.
- 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 our common
stock or otherwise adversely affect the market value of our common
stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT MAY NOT PROVE TO BE
ACCURATE OR COMPLETE.
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
"forward-looking" statements in this prospectus 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 the forward-looking statements. Because of
these 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 in this Risk
Factors section. Readers should not place undue reliance on the 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 forward-looking statements to reflect events or circumstances that
may arise after the date of this prospectus.
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.
PLAN OF DISTRIBUTION
On September 1, 1999, our wholly-owned subsidiary, Freedom Securities
Holding Corporation, acquired Gibraltar Securities Co., a New Jersey
corporation. Under the terms of the merger agreement, we issued an aggregate of
1,380,626 shares of our common stock to shareholders of Gibraltar as part of the
consideration for the merger. In addition, we converted stock options to
purchase shares of Gibraltar common stock into options to purchase common stock
of Freedom Securities Corporation.
At the same time, we entered into an agreement with each shareholder of
Gibraltar. As part of these shareholder agreements, we agreed to register for
resale, upon demand, the shares of our common stock that were issued in
connection with the merger. This registration statement has been filed as a
result of a shareholder demand. We are also including in this registration
statement shares that have been issued since the merger in private placement
transactions upon the exercise of former Gibraltar options. As set forth under
these shareholder agreements, we have agreed to use our best efforts to maintain
the effectiveness of this registration statement
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until the earlier of the date all shares registered have been sold, or September
1, 2000. Accordingly, no sales may be made pursuant to this prospectus after the
period of effectiveness has lapsed unless we amend or supplement this prospectus
to extend the period of effectiveness.
The selling stockholders may sell all, some or none of the shares of common
stock offered by this prospectus. As used in this prospectus, the term "selling
stockholders" includes pledgees, donees or transferees who may later hold the
interests of the original selling stockholders in our common stock. The selling
stockholders will act independently of us in making decisions with respect to
the timing, manner and size of each sale of shares. The selling stockholders may
sell the shares 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").
Underwriters, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or from the
purchasers of the 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
these persons may qualify as underwriters' compensation under 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
liabilities, including liabilities arising under the Securities Act. We have
agreed to indemnify the selling stockholders for liabilities, including
liabilities arising under the Securities Act.
We have also advised the selling stockholders that the anti-manipulation
rules under Regulation M of the Exchange Act may apply to their sales of shares
of our common stock in the market and to the activities of the selling
stockholders and their affiliates.
In order to comply with the securities laws of certain states, if
applicable, our common stock will be sold in these states only through
registered or licensed brokers or dealers. In addition, in some states, the
common stock may not be sold unless the 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.
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SELLING STOCKHOLDERS
All of the shares of common stock registered for sale under this prospectus
are owned by the selling stockholders as the former stockholders or
optionholders of Gibraltar Securities Co. All of the shares offered by the
selling stockholders were acquired in connection with Freedom Securities Holding
Corporation's acquisition of Gibraltar, or upon exercise of former Gibraltar
options. Except as otherwise set forth in the footnotes below, none of the
selling stockholders has had a material relationship with us or any of our
predecessors or affiliates in the past three years other than their positions at
Gibraltar Securities Co.
The following table sets forth information known to us with respect to
beneficial ownership of our common stock as of January 31, 2000 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. Other than Mr. Sullivan, who owns
1.13% of our outstanding shares as of January 31, 2000, no other selling
stockholder holds in excess of one percent (1%) of our outstanding
capitalization as of the date of this prospectus. Assuming the sale of all
shares registered hereby, none of the selling stockholders will own 1% or more
of our outstanding capitalization after these sales.
<TABLE>
<CAPTION>
SHARES SHARES SHARES
BENEFICIALLY OFFERED BENEFICIALLY
OWNED PRIOR TO BY THIS OWNED AFTER
SELLING STOCKHOLDERS THE OFFERING(1) PROSPECTUS THE OFFERING(1)
- -------------------- --------------- ---------- ---------------
<S> <C> <C> <C>
Bruce D. Baumgarten.................. 129,160 129,160 0
Paul E. Butler....................... 98,310 31,752 66,558
David D'Arcangelo.................... 97,973 95,973 2,000
Daniel Feigen........................ 4,366 4,366 0
Irving Friedman...................... 28,829 28,829 0
Allen Jacobson....................... 138,466 138,466 0
James R. Lynch....................... 16,654 16,654 0
Michael J. Manheim................... 131,098 131,098 0
Jeffrey B. McAleney.................. 106,277 106,277 0
John J. McGrath...................... 16,654 16,654 0
Robert C. Mehlin Jr.................. 11,141 11,141 0
Martin Mersky........................ 4,366 4,366 0
Charles Kerry Morris................. 18,714 14,714 4,000
Alexander Orfanelli.................. 13,145 13,145 0
Joel D. Orris........................ 14,991 14,714 277
Victor E. Quagliero.................. 12,968 12,968 0
Robert Reimers....................... 27,380 27,380 0
Steve Rosenblum...................... 128,730 123,730 5,000
Warren M. Schaffter.................. 8,327 8,327 0
Timothy P. Sullivan (2).............. 247,464 247,464 0
Robert M. Sweeney.................... 7,757 7,757 0
Benjamin Sylvin...................... 30,299 30,299 0
Mark T. Whaley (3)................... 174,124 174,124 0
</TABLE>
- ----------
(1) 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
that 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
January 31, 2000 through the exercise of any stock option or other right.
(2) Mr. Sullivan has served as a director of Tucker Anthony since the
acquisition of Gibraltar.
(3) Mr. Whaley has served as a director of Freedom Securities Corporation since
the acquisition of Gibraltar.
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LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon by Wilmer, Cutler & Pickering, Washington, D.C.
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).
2. Our Quarterly Reports on Form 10-Q for the quarters ended March
31, 1999, June 30, 1999 and September 30, 1999 (File No.
001-13993).
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).
4. Our Current Reports on Form 8-K, filed with the SEC on July 9,
1999, September 22, 1999 and January 25, 2000.
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
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.
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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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