<PAGE>
As filed with the Securities and Exchange Commission on August 21,1998.
File No. 333-37485
- ------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------------------
SAXON ACQUISITION CORP.
(Name of small business issuer in its charter)
------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 6200 11-3391961
- --------------------------------- ---------------------------- -------------------
(State or other jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------------------
Nicholas J. Seccafico Jr.
Saxon Acquisition Corp.
33 Eleventh Avenue
Huntington Station, N.Y. 11746
(516) 423-8280
(Address and telephone number of principal executive offices)
------------------------------------
Nicholas J. Seccafico Jr.
Saxon Acquisition Corp.
33 Eleventh Avenue
Huntington Station, N.Y. 11746
(516) 423-8280
(Address and (Name, address and telephone number of agent for service)
------------------------------------
Copies of all communications should be sent to:
Steven Morse, Esq.
Lester Morse P.C.
111 Great Neck Road
Great Neck, NY 11021
(516) 487-1446
(516) 487-1452 (fax)
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective. [X]
If any of the securities being registered on this form are to be offered on a
delayed basis pursuant to Rule 415 under the Securities Act of 1933, check the
following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, 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 number of the earlier effective registration statement for the same
offering.
If the delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Proposed Maximum
Amount to Offering Aggregate Offering
Title of Each Class of Securities to be be Price Per Price (1) Amount of
Registered Registered Share (1) Registration Fee
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, par value 2,466,735 $.4054 $1,000,015 $ 295.00
$.001 per share ("Common Stock")
(2)(3)
- ---------------------------------------------------------------------------------------------------------
Totals $1,000,015 $ 295.00 (4)
- ---------------------------------------------------------------------------------------------------------
</TABLE>
______________
(1) Total estimated solely for the purpose of determining the registration
fee pursuant to Rule 457(f)(2) based upon the book value of the
Registrant.
(2) Includes 2,465,735 shares owned by NJS Acquisition Corp. to be
distributed to its stockholders of record as described in the Prospectus.
(3) Includes the resale of 649,985 shares by certain Selling Security
Holders.
(4) Previously paid $302.91.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.
ii
<PAGE>
SAXON ACQUISITION CORP.
CROSS-REFERENCE SHEET TO PROSPECTUS ON FORM S-1
<TABLE>
<CAPTION>
Item Form S-1 Caption Location in Prospectus
- ----- ----------------- ----------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Back Cover Available Information;
Pages of Prospectus Inside Front Cover Pages
3. Summary Information, Risk Factors and Prospectus Summary;
Ratio of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Cover Page; Plan of Distribution/
Market Information
6. Dilution Not Applicable
7. Selling Security Holders Selling Security Holders
8. Plan of Distribution Plan of Distribution/Market Information;
Outside Front Cover Page
9. Description of Securities to be Registered Description of Common Stock
10. Interest of Named Experts and Counsel Legal Matters; Experts
11. Information with Respect to the Registrant:
(a) Description of Business Business
(b) Description of Property Business
(c) Legal Proceedings Business
(d) Market Price of and Dividends Description of Common Stock;
on the Registrant's Common Equity Dividend Policy; Plan of Distribution/
and Related Stockholder Matters Market Information
(e) Financial Statements Financial Statements
(f) Selected Financial Data Selected Financial Data
(g) Supplementary Financial Information Not Applicable
(h) Management's Discussion and Analysis Management's Discussion and Analysis of
of Financial Condition and Results of Financial Condition and Results
of Operations of Operations
(i) Disagreements with Accountants on
Accounting and Financial Disclosure Not applicable
(j) Directors and Executive Officers Management
(k) Executive Compensation Executive Compensation
(l) Security Ownership of Certain Security Ownership of
Beneficial Owners and Management Management and Others
(m) Certain Relationships and
Related Transactions Certain Transactions
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities Executive Compensation
</TABLE>
iii
<PAGE>
SUBJECT TO COMPLETION AUGUST 21, 1998 PROSPECTUS
SAXON ACQUISITION CORP.
2,465,735 SHARES OF COMMON STOCK
As of the date of this Prospectus, Saxon Acquisition Corp. ("Saxon")
is a wholly-owned subsidiary of Kiwi Holdings, Inc. formerly NJS Acquisition
Corporation ("KHI") and has 2,465,735 shares of Common Stock issued and
outstanding (the "Saxon Common Stock"). As of the date of this Prospectus, KHI
has 9,862,940 shares of KHI Common Stock issued and outstanding held by
approximately 155 stockholders of record as of August 20, 1998. This Prospectus
relates to (i) the distribution by KHI of all of its outstanding 2,465,735
shares of Saxon Common Stock to the stockholders of KHI and (ii) the resale of
649,985 shares of Saxon's Common Stock (the "Securities") to be received by two
officers/directors of KHI and their immediate family (the "Selling Security
Holders"). The distribution of Saxon Common Stock by KHI was approved by KHI'
Board of Directors and a majority of its stockholders in November, 1997. Each
KHI stockholder of record as of the close of business on September __, 1998 (the
"Record Date"), will receive on September __, 1998 (the "Payment Date"), 0.25
shares of Saxon Common Stock for each outstanding share of KHI Common Stock (the
"Conversion Ratio"). In lieu of fractional shares, all amounts will be rounded-
up to the nearest whole number of shares. Saxon registered an additional 1,000
shares to be used solely for rounding-up purposes. These shares would be issued
from Saxon's treasury with officers and directors contributing up to 1,000
shares from their personal holdings to treasury as may be needed. This
distribution is expected to be taxable to the recipients of such distribution.
See "Federal Income Tax Consequences."
The Securities offered hereby may be sold from time to time directly by the
Selling Security Holders. Alternatively, the Selling Security Holders may from
time to time offer the Securities through underwriters, dealers or agents. The
distribution of the Securities by the Selling Security Holders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of the Securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by the
Selling Security Holders in connection with such sales of securities. The
Selling Security Holders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. Usual and customary or specially negotiated brokerage fees may
be paid by the Selling Security Holders in connection with sales of the
Securities.
No offering price is indicated herein since the recipients of the KHI
distribution will not pay anything in order to receive such distribution. Prior
to KHI's distribution of its Saxon Common Stock, there has been no public market
for the Saxon Common Stock and there can be no assurance that such a market for
the Saxon Common Stock will develop after the Payment Date or that, if
developed, it will be sustained. Saxon's securities do not trade on any stock
exchange or in the over-the-counter market. See "Risk Factors."
<PAGE>
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AS DESCRIBED HEREIN. FOR A
DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE RECEIPT OF SAXON COMMON STOCK FROM KHI. SEE "RISK FACTORS" BEGINNING
ON PAGE 8.
Saxon is a holding company that owns Dupont Securities Group, Inc., a
corporation formed in November 1996 and licensed as a member of the National
Association of Securities Dealers, Inc. ("NASD") in June 1997. Saxon's
activities from June 10, 1997 through August 20, 1998 have been limited to
executing retail orders for its approximate 200 non-affiliated customers and for
its own account trading as an investor in principal transactions with other
brokerage firms. As of August 20, 1998, Dupont has ten registered
representatives, none of whom have engaged in "cold calling" (as defined herein)
to open new accounts.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The expenses of this Offering, estimated at $75,000, are being paid by KHI
through capital contributions to the Company. See "Certain Transactions."
THE DATE OF THE PROSPECTUS IS SEPTEMBER ___, 1998
The following legend should appear in red on the left side of this page:
------------------------------------------------------------------------
"Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there by any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State."
2
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN, AND IF GIVEN OR
MADE, NO SUCH INFORMATION OR REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY SAXON. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF SAXON SINCE THE DATE AS OF WHICH SUCH INFORMATION IS GIVEN. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, OR AN OFFER TO SELL
OR SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL.
UNTIL _______, 1998, (90 DAYS FROM THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WITH
RESPECT TO THEIR SOLICITATIONS TO PURCHASE THE SECURITIES OFFERED HEREBY.
AVAILABLE INFORMATION
Prior to this Offering, Saxon is not a reporting company under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result
of the distribution of securities by KHI to its stockholders of its shares of
Saxon Common Stock, Saxon will become subject to the informational requirements
of Section 15(d) of the Exchange Act and in accordance therewith will file
periodic reports and other information with the Securities and Exchange
Commission (the "SEC"). The Registration Statement (file no. 333-37485) of
which this Prospectus forms a part, as well as reports and other information
filed by Saxon may be inspected and copied at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, DC 20549 and at the
SEC's regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and 7 World Trade Center, New York, NY 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the SEC at 450 Fifth Street, N.W., Washington, DC 20549. Material filed
electronically through Edgar (Electronic Data Gathering Analysis and Retrieval
System) may also be accessed through the SEC's home page on the World Wide WEB
at http://www.sec.gov.
Saxon intends to furnish its stockholders with annual reports containing
audited financial statements examined and reported upon by an independent
certified public accounting firm and to make available copies of quarterly
reports containing unaudited financial statements. Saxon's fiscal year end is
May 31.
KHI is currently a reporting company that had its obligation to file
reports automatically suspended in 1991 since its number of record holders of
Common Stock was, and continued to be, less than 300. KHI was formed under the
name TD Capital
3
<PAGE>
Corp. in 1987, which completed a public offering as a blind pool (blank check)
offering in 198_. In October, 1989, KHI completed a reverse acquisition with
usAsia Publishing, Inc. and KHI changed its name to usAsia International
Publications, Inc., its last reported name filed under the Exchange Act. KHI
was a dormant company without business operations from the summer of 1991
through spring 1995. Thereafter, KHI completed certain private placements and
invested funds in Kiwi International Holdings Inc. to purchase an interest in
that company (which owns Kiwi Airlines) with the intent to merge with them.
Such merger has been abandoned, although KHI maintains an ownership interest in
Kiwi International Holdings, Inc. usAsia International Publications Inc.
changed its name to NJS Acquisition Corporation in December 1995 and
subsequently changed its name to Kiwi Holdings, Inc. in December 1997. Due to
the abandonment of the above referenced merger, a further name change will occur
shortly to a presently undetermined name.
TABLE OF CONTENTS
Page
----
Prospectus Summary
Risk Factors
Use of Proceeds
Selected Financial Data
Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Business
Management
Executive Compensation
Certain Transactions
Security Ownership of Management and Others
Description of Common Stock
Shares Eligible for Future Sale
Selling Security Holders
Plan of Distribution/Market Information
Federal Income Tax Consequences
Legal Matters
Experts
Additional Information
Index to Financial Statements
4
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND MUST BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN THE
PROSPECTUS. ALL REFERENCES TO SHARES AND PER SHARE AMOUNTS GIVE RETROACTIVE
EFFECT TO A ONE-FOR-TWO REVERSE STOCK SPLIT EFFECTIVE SEPTEMBER 10, 1997.
THE COMPANY
Saxon Acquisition Corp. ("Saxon") was formed under the laws of the State of
Delaware on July 9, 1997 as a wholly-owned subsidiary of Kiwi Holdings, Inc.
("KHI"). On November 7, 1996, KHI formed Dupont Securities Group, Inc.
("Dupont") as a wholly-owned subsidiary under the laws of the State of New York
to engage in the securities business. On July 28, 1997, KHI transferred its
entire stock ownership in Dupont to Saxon. Currently, Saxon's only business is
through the operations of Dupont, a broker-dealer registered with the United
States Securities and Exchange Commission ("SEC") and the National Association
of Securities Dealers, Inc. ("NASD"). As of August 20, 1998, Dupont is
licensed to do business in 23 states, namely, CA, CO, CT, FL, GA, IA, IL, IN,
MA, MD, MN, MO, NJ, NV, NY, OH, OK, PA, RI, TX, VA, VT and WA. All references
to "the Company" include Saxon and its wholly-owned subsidiary, Dupont, unless
the context indicates otherwise.
Dupont commenced operations as a new broker-dealer on June 10, 1997.
Dupont's activities are subject to all the risks of a new enterprise and have
been limited to executing retail orders for its approximate 200 non-affiliated
customer accounts (as of August 20, 1998) and for its own account trading as an
investor in principal transactions with other brokerage firms. As of August 20,
1998, Dupont has ten registered representatives with NASD licenses including two
executive officers, namely Michael F. Franzese and Louis Galeotafiore, which
when combined with one other administrative person brings the total number of
full-time employees to eleven. Messrs. Franzese and Galeotafiore each have been
in the securities business for over 30 years. Dupont's revenues are dependent
upon the sales efforts of its registered representatives. The loss of any of
its registered representatives could have a material adverse effect on Dupont's
operations. While the Company is currently seeking to hire additional registered
representatives, no assurances can be given that it will be successful in these
efforts. See "Risk Factors."
Dupont's registered representatives do not engage in "cold calling," which
is an effort by a registered representative to obtain new customers by
initiating telephone calls to persons on lists either supplied to or purchased
by the registered representative. The term "cold calling" is not applicable to
persons recommended to a broker by a present account or an acquaintance of such
broker.
Dupont has a clearing agreement dated as of October 17, 1997 with Schroder
& Co. Inc. ("Schroder") to act as its clearing agent on a "fully disclosed"
basis. The term "fully disclosed" means that the clearing firm maintains the
customer accounts, i.e. it holds the
5
<PAGE>
customer funds and securities', issues account statements, executes customer
trades on the exchanges in which it is a member, issues confirmations of
purchases and sales and settles all transactions, receives and safeguards funds
and securities and handles the regulation of credit extension and preparation of
monthly account statements. All Schroder correspondent clearing clients whose
accounts are carried on its books and records received $50 million insurance
protection without any cost to the client. This protection is provided by the
Securities Investor Protection Corporation ("SIPC"), amounting to a total of
$500,000 including up to $100,000 on cash. In addition to SIPC coverage,
Schroder has a separate Excess SIPC policy issued by Aetna Casualty & Surety Co.
("Aetna") increasing its clients' securities protection by additional $49.5
million without any additional cost to Schroder clients. Thus, the maximum
coverage provided by Schroder is $50 million of which $100,000 continues to be
on cash. Schroder has over 20 years of experience in serving as clearing agent
for many firms. Schroder is an international merchant and investment banking
group with presence in financial centers worldwide.
Dupont intends to effect transactions as principal with its own retail
customers and to make markets in various over-the-counter stocks. Such intended
activities will be limited by the amount of Dupont's then available net capital.
Currently, Dupont's restriction letter with the NASD, requires that Dupont will
seek NASD District Office No. 10 review and permission before it makes markets
in more than 10 securities of different companies. Dupont has also agreed with
the NASD that all trading activities will be handled solely by qualified
personnel under the direct supervision of the registered principal responsible
for the firm's trading department, to clear all transactions on a fully
disclosed basis through one or more clearing broker-dealers, to maintain minimum
net capital of at least $100,000 and to file trial balances, capital
computations and supporting schedules with the NASD. Although Dupont has no
current intention to engage in private placements, its NASD restriction letter
also requires Dupont to seek the NASD's review and permission before it engages
in its first private placement activity. See "Business."
Saxon's principal office is located at 33 Eleventh Avenue, Huntington
Station, New York 11746 and its telephone no. is 1-516-423-8280. Dupont's
offices are located at 19 Townsend Square, Oyster Bay, New York 11771 and 270
Greenwich Avenue, Greenwich, Connecticut. Dupont's telephone no. 1-888-652-
6502.
6
<PAGE>
THE OFFERING
Securities Offered As of the date of this Prospectus, Saxon is a wholly-owned
subsidiary of KHI and has 2,465,735 shares of Saxon Common
Stock issued and outstanding. As of the date of this
Prospectus, KHI has 9,862,940 shares of KHI Common Stock
issued and outstanding held by approximately 155
stockholders of record as of August 20, 1998. This
Prospectus relates to (i) the distribution by KHI of all
of its outstanding 2,465,735 shares of Saxon Common Stock
to the stockholders of KHI and (ii) the resale of 649,985
shares of Saxon's Common Stock (the "Securities") to be
received by two officers/directors of KHI and their
immediate family (the "Selling Security Holders"). The
distribution of Saxon Common Stock by KHI was approved by
KHI's Board of Directors and a majority of its
stockholders in November, 1997. Each KHI stockholder of
record as of the close of business on September __, 1998
(the "Record Date"), will receive on September __, 1998
(the "Payment Date"), 0.25 shares of Saxon Common Stock
for each outstanding share of KHI Common Stock (the
"Conversion Ratio"). In lieu of fractional shares, all
amounts will be rounded-up to the nearest whole number of
shares. Saxon registered an additional 1,000 shares to be
used solely for rounding-up purposes. These shares would
be issued from Saxon's treasury with officers and
directors contributing up to 1,000 shares from their
personal holdings to treasury as may be needed. This
distribution is expected to be taxable to the recipients
of such distribution. See "Federal Income Tax
Consequences."
Common Stock
outstanding 2,465,735 shares
Risk Factors The Saxon Common Stock offered hereby involves a high
degree of risk to investors. Persons receiving the Saxon
Common Stock should review carefully and consider the
information contained in the Prospectus and particularly
the items set forth under "Risk Factors." The Company's
risks include, without limitation, Limited Client Base;
Limited Operating History/Need to Hire Additional
Registered Representatives with NASD Licenses; Dependence
upon Dupont/1997 Losses; Dependence upon Key Management
and Personnel; Dependence upon Licenses; Net Capital Rule;
and Possible Need for Additional Funds.
7
<PAGE>
RISK FACTORS
AN INVESTMENT IN SAXON'S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
PERSONS RECEIVING FROM KHI A DISTRIBUTION OF THE SAXON COMMON STOCK SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS, IN EVALUATING AN INVESTMENT IN
THE SAXON COMMON STOCK.
LIMITED CLIENT BASE
As of August 20, 1998, Dupont has an approximate 200 non-affiliated
customer accounts. It is Dupont's policy not to engage in "cold calling."
Dupont intends to attempt to increase its client base by hiring additional
experienced registered representatives and through recommendations of other
clients. No assurances can be given that Dupont will be successful in these
efforts. The lack of a large and diverse customer base and Dupont's possible
inability to maintain and expand such customer base may adversely effect
Dupont's future operations. See "Business."
LIMITED OPERATING HISTORY/NEED TO HIRE ADDITIONAL REGISTERED
REPRESENTATIVES WITH NASD LICENSES
Dupont commenced operations as a new broker-dealer on June 10, 1997.
Dupont's activities are subject to all the risks of a new enterprise and have
been limited to executing retail orders for its approximate 200 non-affiliated
customer accounts (as of August 20, 1998) and for its own account trading as an
investor in principal transactions with other brokerage firms. The likelihood of
the success of the Company must be considered in light of the problems,
expenses, complications and delays frequently encountered in connection with a
firm commencing its business operations. As of August 20, 1998, Dupont has ten
registered representatives with NASD licenses including two executive officers,
namely Michael F. Franzese and Louis Galeotafiore. Dupont's revenues are
dependent upon the sales efforts of its limited number registered
representatives. The loss of any of its registered representatives could have a
material adverse effect on Dupont's operations. While the Company is currently
seeking to hire approximately three additional experienced registered
representatives, no assurances can be given that it will be successful in these
efforts. See "Business" and "Management."
DEPENDENCE UPON DUPONT
Saxon was formed by KHI on July 9, 1997 to own Dupont. Dupont was
formed on November 7, 1996 and commenced operations as a licensed broker-dealer
on June 10, 1997. The Company is wholly dependent upon the success of Dupont's
brokerage operations. As a consequence, the Company's operations are subject to
many of the risks inherent in the establishment of a new business enterprise.
Since the inception of Dupont through the date of this Prospectus, Dupont has
incurred continuing operating losses. There can be no assurance that Dupont
will achieve profitable operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
8
<PAGE>
CONTINUING OPERATING LOSSES/ACCUMULATED DEFICIT
From the Company's inception in 1997, it has incurred losses from
operations of $390,558 and losses from trading activities of $181,764 resulting
in an accumulated deficit of $592,385 as of May 31, 1998. The Company's losses
are primarily due to the losses suffered by Dupont's operations which losses
continue to incur subsequent to May 31, 1998. There can be no assurances given
that the Company's operations will be profitable. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
DEPENDENCE UPON KEY MANAGEMENT AND PERSONNEL
Saxon is highly dependent upon Nicholas J. Seccafico, Jr., its
President. Dupont is highly dependent upon its two executive officers and
principals, namely Michael Franzese and Louis Galeotafiore. The Company's loss
of Messrs. Seccafico's, Franzese's and/or Galeotafiore's services could have a
material adverse effect on the Company. The Company does not carry key-man life
insurance on such key individual lives and does not have an employment contract
with them. The Company's operations are also dependent upon Dupont retaining
and recruiting qualified personnel with NASD licenses to act as principals,
supervisory personnel and registered representatives, as discussed herein under
"Limited Operating History/Need to Hire Additional Registered Representatives"
and "Dependence upon Licenses." No assurances can be given that the Company
will be successful in this regard. See "Management."
DEPENDENCE UPON LICENSES
Dupont is a general securities broker-dealer and registered with the
SEC, the NASD and SIPC. In addition, Dupont is licensed in 23 states, namely,
CA, CO, CT, FL, GA, IA, IL, IN, MA, MD, MN, MO, NV, NJ, NY, OH, OK, PA, RI, TX,
VA, VT and WA. Dupont intends to obtain licenses as a broker-dealer in other
states in which it expects to conduct business. There can be no assurance that
Dupont will be able to obtain such additional licenses, or that once obtained,
it will maintain licensing in all required states, in which case Dupont's
operations may be significantly impaired. Currently, there are eleven employees
of Dupont that have NASD licenses, four of whom have licenses to act as
principal. Of the four persons with principal NASD licenses, only two of these
persons (Michael F. Franzese and Louis Galeotafiore) are registered principals
of Dupont. Although, Messrs. Franzese and Galeotafiore intend to maintain their
respective NASD licenses with Dupont, there can be no assurance that such
principals will remain so registered and, therefore, there can be no assurance
that Dupont would not be adversely affected if the principals left. See
"Management" and "Business."
NET CAPITAL RULE
Dupont is subject to an SEC Regulation known as the "Net Capital
Rule" which is designed to measure the financial integrity and liquidity of a
broker-dealer. The Net Capital Rule requires that a minimum amount of its
assets be relatively liquid and imposes
9
<PAGE>
a duty on a broker-dealer of prompt notification to the SEC and NASD if the
broker-dealer is not in compliance. Net capital is essentially defined as net
worth (assets minus liabilities) plus certain qualifying subordinated loans,
less various mandatory deductions. Such deductions result from excluding assets
not readily convertible into cash and from conservative valuation of certain
other assets. Among such mandatory deductions are adjustments (called
"haircuts") in the market value of securities to reflect the possibility of a
market decline prior to disposition. The Net Capital Rule as applied to Dupont
requires that the ratio of aggregate indebtedness, as defined by the rule, to
net capital not exceed fifteen to one. Moreover, Dupont is required to maintain
a minimum net capital of 12.5% of aggregate indebtedness or $100,000, whichever
is greater under the SEC Net Capital Rule. Compliance with the Net Capital
Rule, as well as other financial requirements, will limit those operations of
the Company which require the intensive use of capital, such as trading and
other market making activities. As of the date of this Prospectus, Dupont is in
compliance with the Net Capital Rule and has been in compliance at all times in
the past since it commenced operations in June, 1997. As of May 31, 1998,
Dupont has net capital of $145,369 and excess net capital of $45,369.
Subsequent to May 31, 1998, KHI provided a capital contribution of $100,000 to
Dupont's net capital. No assurances can be given that Dupont's operations will
enable it to maintain compliance with the SEC Net Capital Rule in the future.
The failure to maintain compliance with the SEC Net Capital Rule could lead to
the termination of Dupont's operations and may adversely affect the Company.
See "Business-Net Capital Rule. and "Certain Transactions."
NEED FOR ADDITIONAL FUNDS
The Company's capital and operational requirements cannot be predicted
with certainty and are subject to modification from time to time in the future,
in part based upon events which may be beyond its control. While Management
believes that the Company's existing working capital of approximately $266,000
at May 31, 1998 together with the $100,000 capital contribution provided to the
Company by KHI subsequent to May 31, 1998, provides sufficient liquidity and
capital resources for the Company's operations over the next 12 to 15 months,
the Company may require additional debt or equity funds in the future for
Dupont's brokerage and trading activities due to operating losses, and/or to
make markets in more than a limited number of securities. No assurances can be
given that such additional funds will be available on terms acceptable to the
Company, if at all. The failure to obtain such additional funds may cause the
Company to cease or curtail operations and may result in the complete loss of
any value of the Saxon Common Stock. See "Business" and "Management's
Discussion and Analysis of Financial Contribution and Results of Operations."
NATURE OF BROKERAGE BUSINESS
The Company's current and intended stock brokerage and trading
business, by its nature, is subject to various risks, particularly those
arising from volatile markets, including the risk of losses from customers'
inability to meet commitments (such as margin obligations), market-making
activities, customer fraud, employee misconduct and errors, mistakes in the
processing of securities transactions and litigation. Dupont is directly
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affected by national and international economic and political conditions, broad
trends in business and finance, legislation and regulation affecting the
national and international financial and business communities and securities
markets, changes in securities laws, the level of volatility of interest rates
and substantial fluctuations in volume and price levels in the securities
markets. Reduced volume of securities transactions and reduced market liquidity
generally result in lower revenues from principal transactions and commissions.
Lower price levels of securities may result in losses from declining market
value of securities held in trading positions. In periods of reduced sales and
trading activity, profitability may be adversely affected because certain
expenses remain relatively fixed. In addition, the securities industry is
exposed to risk of loss from clearance and processing problems which may be
especially acute during periods of heavy trading volume. See "Business."
LEGAL PROCEEDINGS AND LITIGATION POTENTIAL
Many aspects of Dupont's business involve substantial risks of
liability. Underwriters are subject to substantial potential liability for
material misstatements and omissions in prospectuses and other communications
with respect to public and private underwritten offerings. There has been an
increased incidence of litigation in the securities industry in recent years,
including class action law suits which generally seek substantial damages. Any
litigation, whether or not meritorious, could consume significant resources of
Dupont and could substantially affect its ability to carry on normal business
operations.
RELIANCE ON SCHRODER
Dupont incurs obligations to its customers which are supported by
obligations to it from Schroder, its clearing agent, through which all of
Dupont's accounts will be settled. Maintenance of a clearing relationship
entails a risk of unreconciled differences, especially in periods of high
trading volume. The inability of Schroder to meet its obligations could result
in substantial losses to Dupont and the loss of the investors' entire
investment. Any disruption in Dupont's relationship with Schroder may have an
adverse effect on Dupont's ability to conduct its business. See "Business."
LIMITATIONS ON AND SPECIAL FACTORS RELATING TO MARKET-MAKING ACTIVITIES
Dupont trades securities for its own account. In the future,
depending upon capital requirements, Dupont intends to make a market in one or
more over-the-counter securities. Dupont is subject to a restriction letter with
the NASD whereby it may not make a market in more than ten securities of
different companies. In market making, trading profits depend upon the skills
of employees in market-making activities, the capital allocated to positions in
securities, the volatility of the securities markets, and the general trend of
prices in the securities markets. Trading as a principal requires the commitment
of substantial capital and creates opportunities for profit as well as the risk
of loss due to market fluctuations. While Dupont currently has excess net
capital to undertake the limited market making activities, no assurances can be
given that it will have sufficient net capital
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<PAGE>
in the future or that Dupont will generate profits in its proposed market making
and trading activities for Dupont. See "Business."
LIMITED SOURCES OF REVENUES
The Company's activities of Dupont currently are limited to executing
retail trades for its customers and for its own account trading as an investor
in principal transactions with other brokerage firms. Accordingly, the
Company's revenues are generated from a limited number of activities. Although
Dupont expects to conduct market making and potentially investment banking
activities in the future, there can be no assurance that it will be able to do
so. Reliance upon a limited set of revenue sources significantly increases
Dupont's vulnerability to poor performance in any one of its business
activities. See "Business."
FLUCTUATING VOLUME AND PRICES OF SECURITIES
Dupont and the securities industry in general are directly affected by
national and international economic and political conditions, broad trends in
business and finance, legislation and regulation effecting the national and
international financial and business communities and securities markets,
currency values, changes in securities laws, the level of volatility of interest
rates and substantial fluctuations in volume and price levels in the securities
markets. Dupont and the securities industry in general are subject to other
risks, including, but not limited to, risks of loss from counterparty (a party
to which Dupont has credit or performance exposure) failures to meet
commitments, customer fraud, employee errors or misconduct and litigation. In
addition, price fluctuations may cause losses on securities positions. The
anticipated concentration of capital in the securities of those issuers held in
inventory would increase the risk of loss from reductions in the market price of
such securities. Since certain of Dupont's profits would be derived from the
difference between the purchase price of a security and the sale price,
declining prices generally result in reduced revenues. In addition, Dupont
charges a commission on each transaction in which it acts as an agent, and
therefore low trading volume results in reduced revenues. Under these
conditions, profitability is adversely affected since many costs, other than
commission compensation and bonuses, are fixed.
The securities industry is subject to substantial fluctuations in
volume and price levels of securities transactions. These fluctuations can occur
on a daily basis, as well as over longer periods, as a result of local, national
and international economic and political events and as a result of trends in
business and finance. Reduced volume and prices generally result in lower
commissions and may affect Dupont particularly acutely in light of the non-
diversified nature of its activities and the degree to which many of its
expenses are fixed. Dupont will be subject to each of such influences, and there
can be no assurance that it will successfully overcome those risks associated
with the securities business. See "Business."
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COMPETITION
All aspects of Dupont's business are highly competitive. In its
brokerage activities, Dupont competes directly with national broker-dealers,
which are large, well-known firms with substantially greater financial and
personnel resources than Dupont. Dupont competes with many other financial
institutions for key personnel, including salespeople, managers and other key
persons. Many of Dupont's competitors conduct extensive advertising and actively
solicit potential clients in order to increase their business. Dupont also
competes with a number of smaller regional brokerage firms as well as discount
brokerage firms which offer lower commission rates to their customers. In recent
years, institutions such as large commercial banks, insurance companies and
financial service companies have begun offering to their customers some of the
same services Dupont offers, and as a result the competitive environment for
brokerage firms such as Dupont may be adversely affected. See "Business."
REGULATION
The business of Dupont is subject to regulation by various state and
federal regulatory authorities which are charged with protecting the integrity
of the securities and financial markets and protecting the interests of
consumers. The SEC and the NASD, among others, may conduct administrative
proceedings which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. Both the SEC and the NASD have
stringent rules governing the operations of securities firms including the rules
with respect to the net capital requirements of securities firms. The principal
purpose of regulation and discipline of broker/dealers is the protection of
customers and securities markets rather than the protection of creditors and
stockholders of broker-dealers. In addition, Dupont is required to comply with
all state licensing and other rules and regulations applicable to the brokerage
business. Failure to comply with any of these laws, rules and regulations would
have a material adverse effect upon Dupont. Further, the continued compliance
with such regulations will create a continuing and significant financial
expense. No assurances can be given that Dupont will be able to comply with all
SEC, NASD and state rules and regulations and, in the event it is unsuccessful,
the investors in this offering may lose their entire investment. See
"Business."
LACK OF PUBLIC MARKET
As of the date hereof, there is no public market for Saxon's Common
Stock. After KHI completes its distribution of Saxon's Common Stock on the
Payment Date to its shareholders of record on the Record Date, Saxon will
attempt to obtain a presently unidentified broker/dealer registered with the
NASD to file a 15(c)2-11 application with the NASD in order for the Saxon Common
Stock to trade on the over-the-counter NASD Electronic Bulletin Board. The
Company will also seek to obtain other market makers for the Saxon Common Stock.
No assurances can be given that Saxon's efforts to develop a public market for
its Common Stock will be successful or, if successful, that there will be an
established market for Saxon's Common Stock in the future. See "Plan of
Distribution/Market Information."
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CONTROL BY PRINCIPAL SHAREHOLDERS
Following the completion of KHI's distribution of Saxon Common Stock
on the Payment Date to its stockholders of record on the Record Date, Nicholas
Seccafico, Jr., and Lindo Garuffi including members of their immediate families
(the "Control Group"), will beneficially own and control approximately 45% of
the outstanding Saxon Common Stock. Such Control Group may be in a position to
influence the election of the Board of Directors of the Company and other
stockholder matters. See "Security Ownership of Management and Others."
NO DIVIDENDS AND NONE ANTICIPATED
The payment by the Company of cash dividends on its Common Stock, if
any, in the future rests within the discretion of its Board of Directors and
will depend, among other things, upon the Company's earnings, its capital
requirements and its financial condition as well as other relevant factors. The
Company has not paid or declared any cash dividends upon its Common Stock since
its inception and, by reason of its present financial status and its
contemplated future financial requirements, does not contemplate or anticipate
making any cash distributions upon its Common Stock in the foreseeable future.
See "Description of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALE
After the Payment Date, Saxon's officers and directors will
beneficially own and control 649,985 shares (not including options to purchase
800,000 shares) of Saxon's outstanding 2,465,735 shares of Common Stock all of
which have been registered for distribution to the KHI stockholders of record on
the Record Date. It is the intention of the Company to register the 800,000
shares of Common Stock underlying the options beneficially owned by Saxon's
officers and directors, pursuant to a Form S-8 Registration Statement to be
filed after the date of this Prospectus. Of the 2,465,735 shares, 649,985 have
been registered for resale in this Prospectus on behalf of Saxons two officers
and directors and their family members. In the event this Prospectus becomes
outdated or options get exercised without the Company registering such shares on
a Form S-8 Registration Statement, such persons may sell their shares of Common
Stock of Saxon in compliance with Rule 144 of the Securities Act. Ordinarily,
under Rule 144, a person holding restricted securities for a period of one year
may, every three months thereafter, sell in ordinary brokerage transactions or
in transactions directly with a market maker, an amount of shares equal to the
greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume in the same securities during the four calendar
weeks prior to such sale. See "Shares Eligible for Future Sale."
"PENNY STOCK" REGULATIONS
The SEC has adopted regulations under the Exchange Act which generally
define a "penny stock" to be any equity security that has a market price (as
defined in the Exchange Act) of less than $5.00 per share or an exercise price
of less than $5.00 per
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share, subject to certain exceptions. If the Saxon Common Stock is not traded
on a National Market Exchange or NASDAQ, the Saxon Common Stock may be deemed to
be a "penny stock" and become subject to rules that impose additional sales
practice requirements on broker-dealers who sell such securities. For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to the transaction, of a disclosure schedule prepared by the SEC relating
to the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the Saxon Common Stock information on the limited market in penny
stocks and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. In addition, the broker-dealer must obtain a written acknowledgment
from the customer that such disclosure information was provided and must retain
such acknowledgment for at least three years. Further, monthly statements must
be sent disclosing current price information for the penny stock held in the
account. Such rules may adversely effect a market from developing in the Saxon
Common Stock and, if developed, the ability of broker-dealers to sell the Saxon
Common Stock.
LIMITATION ON DIRECTOR LIABILITY
As permitted by Delaware corporation law, the Company's Certificate of
Incorporation limits the liability of Directors to the Company or its
stockholders to monetary damages for breach of a Director's fiduciary duty
except for liability in certain instances. As a result of the Company's charter
provision and Delaware law, stockholders may have a more limited right to
recover against Directors for breach of their fiduciary duty other than as
existed prior to the enactment of the law. See "Management-Limitation of
Directors' Liability; Indemnification."
ABSENCE OF INDEPENDENT DIRECTORS
The Company has two directors each of whom are an officer and/or
principal stockholder of the Company and KHI. The absence of outside or
disinterested directors may result in less objectivity and an increased risk for
conflicts of interest with respect to (i) decisions made by the Board of
Directors, (ii) competition for corporate opportunities and transactions between
the Company and KHI. The Company has not adopted any procedure for dealing with
such conflicts of interest. See "Management."
COMPANY WILL NOT RECEIVE PROCEEDS FROM SALES BY KHI STOCKHOLDERS
This Prospectus relates to Saxon Common Stock to be distributed by KHI
to its stockholders. The Company will not receive any proceeds from the
distribution or subsequent sale of the Saxon Common Stock by KHI stockholders or
Selling Security Holders. See "Use of Proceeds."
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FEDERAL INCOME TAX CONSEQUENCES
The distribution of Saxon Common Stock to KHI stockholders will result
in taxable income to the recipient of such distribution. See "Federal Income
Tax Consequences."
USE OF PROCEEDS
The Company will not realize any proceeds from the completion of KHI's
distribution of its Saxon Common Stock on the Payment Date to KHI stockholders
of record on the Record Date or from sales made by Selling Security Holders. The
expenses of this Offering, estimated at $75,000, will be paid by KHI through
capital contributions to the Company.
SELECTED FINANCIAL DATA
The following selected information has been derived from the historical
financial statements of Dupont, the Company's wholly-owned subsidiary, included
elsewhere in this Prospectus and should be read in conjunction therewith,
including the notes thereto.
INCOME STATEMENT DATA:
Period From
November 7, 1996
(Inception) to
May 31, 1997
----------------------
Revenues (Dividend Income) $18,408
Operating Expenses 38,471
Net Loss (20,063)
BALANCE SHEET DATA:
May 31, 1997
----------------------
Working Capital $764,639
Total Assets 861,651
Total Liabilities 14,504
Stockholders' Equity 847,147
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The following selected information has been derived from the historical
consolidated financial statements of the Company included elsewhere in this
Prospectus and should be read in conjunction therewith, including the
consolidated notes thereto.
INCOME STATEMENT DATA:
Period From
July 9, 1997
(Inception) to
May 31, 1998
-------------------
Total Revenues $ 540,163
Operating Expenses 930, 721
Loss from operations (390,558)
Loss from trading activities (181,764)
Net Loss (572,322)
BALANCE SHEET DATA:
May 31, 1998
-------------------
Working Capital $ 265,938
Total Assets 515,878
Total Liabilities 110,053
Stockholders' Equity 405,825
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Saxon was formed under the laws of the State of Delaware on July 9, 1997
and Dupont was formed under the laws of the State of New York on November 7,
1996. Saxon is a holding company whose entire operations are conducted through
Dupont. On June 10, 1997, Dupont commenced initial operations as a
broker/dealer. Prior to that date, planned principal operations of Dupont had
not commenced, and it had no revenues, earnings or history of operations.
Dupont's activities from inception through June 10, 1997 consisted of: filing
necessary incorporation and organization documents, filings made with the SEC,
NASD and state securities commissions of various documents to become a
registered broker/dealer authorized to conduct business in various states and
entering into a clearing agreement with a clearing firm. KHI contributed
$750,000 to Dupont as an initial capital contribution. This financing provided
the monies Dupont needed to become licensed as a broker-dealer and to commence
operations. In June 1975, the Financial Accounting Standards Board, in its
Statement No. 7, set forth guidelines for identifying an enterprise in the
development stage and the standards of financial accounting and reporting
applicable to such an enterprise. In the opinion of the Company, its activities
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from the inception of Dupont in November 1996 through July 28, 1997, fall
within the referenced guidelines. Accordingly, the Company has reported its
activities in accordance with the aforesaid Statement of Financial Accounting
Standards No. 7.
On July 28, 1997, the Company acquired Dupont from KHI as a capital
contribution. During the period July 9, 1997 through May 31, 1998, the Company
had consolidated total revenues of $540,163 ($514,376 of which resulted from
commissions received from retail transactions with Dupont's own customers) and
incurred a consolidated net loss of $572,322 primarily as a result of operating
expenses of $930,721 and trading losses from investments for Dupont's own
account, totaling $181,764. Dupont's trading profits (losses) from June 1997 to
June 1998 are as follows: $0-June 1997, $(6,842)-July 1997, $(52,624)-August
1997, $12,851- September 1997, $(79,698) -October 1997, $(28,377)-November 1997,
$9,026 -December 1997, $(22,338)-January 1998, $(2,084)-February 1998, $17,272-
March 1998, $128-April 1998, $(29,078)-May 1998 and $(2,634)-June 1998.
Management believes that Dupont's trading profits and losses will continue to
fluctuate from month to month based upon market conditions and the skills of its
traders.
Historically, the average size of a retail transaction with Dupont's
customers has been 700 shares and the average size of a transaction for Dupont's
own account is 1,000 shares. These averages have remained fairly constant
during the six months ended June 30, 1998 as Dupont's business matures.
Management believes that the break even point for customer transactions is
approximately 3,000 trades per month assuming no other income is received by
Dupont and that it experiences no trading profits or losses.
Dupont is seeking to expand its client base and the potential revenues to
be derived there from by attempting to hire additional Registered
Representatives and through client referrals.
LIQUIDITY AND CAPITAL RESOURCES
KHI contributed to the Company a total of $750,000 as capital contribution
in order to fund the start-up operations of Dupont which commenced on June 10,
1997. Subsequently, KHI contributed to the Company a total of an additional
$293,000 as a capital contribution prior to May 31, 1998 and an additional
$100,000 after year-end. The Company's capital and operational requirements
cannot be predicted with certainty and are subject to modification from time to
time in the future, in part based upon events which may be beyond its control.
While Management believes that the Company's existing working capital of
$265,938 at May 31, 1998 together with the above referenced $100,000 capital
contribution from KHI provides sufficient liquidity and capital resources for
the Company's operations over the next 12 to 15 months, the Company may require
additional debt or equity funds in the future for Dupont's brokerage and trading
activities due to operating losses and/or to make markets in more than a limited
number of securities. No assurances can be given that such additional funds
will be available on terms acceptable to the Company, if at all. The failure to
obtain such additional funds may cause the
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Company to cease or curtail operations and result in the complete loss of any
value of the Saxon Common Stock. See "Business."
During the period from July 9, 1997 through May 31, 1998, net cash was used
in operating activities and investment activities. Cash used in investment
activities were used to make capital expenditures and purchase marketable equity
securities. Net cash was provided by financing activities as a result of
capital contributions from KHI, margin loans and loans from an officer of the
Company.
PLAN OF OPERATIONS
The Company through its wholly-owned subsidiary, Dupont, has operated as a
NASD licensed broker-dealer since June 10, 1997. As of August 20, 1998, Dupont
has ten registered representatives with NASD licenses. Dupont is currently
executing retail orders for its approximate 200 non-affiliated customers and for
its own account trading as an investor in principal transactions with other
brokerage firms. Dupont is seeking to expand its customer base by hiring
additional experienced registered representatives with NASD licenses and through
recommendations of existing clients. Dupont anticipates that its current
facilities are sufficient for its immediate future and that it has the available
space at its New York facility (which is only approximately 60% being utilized)
to meet its anticipated needs, should Dupont be successful in hiring up to five
additional registered representatives. Dupont intends to spend approximately
$20,000 to purchase an order entry system for its brokerage business and
approximately $2,000 per newly hired broker in computer equipment. Management
believes that Dupont's existing working capital provides sufficient cash to
carry out its plan of operations. See "Liquidity and Capital Resources."
BUSINESS
INTRODUCTION
Saxon was formed under the laws of the State of Delaware on July 9,
1997 as a wholly-owned subsidiary of KHI. On November 7, 1996, KHI formed
Dupont as a wholly-owned subsidiary under the laws of the State of New York to
engage in the securities business. On July 28, 1997, KHI transferred its entire
stock ownership in Dupont to Saxon. Currently, Saxon's only business is through
the operations of Dupont, a broker-dealer registered with the SEC and the NASD.
As of August 20, 1998, Dupont is licensed to do business in 23 states, namely,
CA, CO, CT, FL, GA, IA, IL, IN, MA, MD, MN, MO, NJ, NV, NY, OH, OK, PA, RI, TX,
VA, VT and WA. All references to "the Company" include Saxon and its wholly-
owned subsidiary, Dupont, unless the context indicates otherwise.
Dupont commenced operations as a new broker-dealer on June 10, 1997.
Dupont's activities are subject to all the risks of a new enterprise and have
been limited to executing retail orders for its approximate 200 non-affiliated
customer accounts (as of August 20, 1998) and for its own account trading as an
investor in principal transactions with other brokerage firms. From June 1997
through June 30, 1998, Dupont has executed approximately 10,500 transactions for
its customers and approximately 6,500 transactions
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for its own account. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" with regard to Dupont's history of trading
losses and certain other related information regarding Dupont. As of August 20,
1998 Dupont has ten registered representatives with NASD licenses including two
executive officers, namely Michael F. Franzese and Louis Galeotafiore, which
when combined with one other administrative person brings the total number of
full-time employees to eleven. Messrs. Franzese and Galeotafiore each have
been in the securities business for over 30 years. Dupont's revenues are
dependent upon the sales efforts of its registered representatives. The loss of
any of its registered representatives could have a material adverse effect on
Dupont's operations. While the Company is currently seeking to hire additional
registered representatives, no assurances can be given that it will be
successful in these efforts.
Dupont's registered representatives do not engage in "cold calling,"
which is an effort by a registered representative to obtain new customers by
initiating telephone calls to persons on lists either supplied to or purchased
by the registered representative. The term "cold calling" is not applicable to
persons recommended to a broker by a present account or an acquaintance of such
broker.
NASD RESTRICTION LETTER
Dupont intends to effect transactions as principal with its own retail
customers and to make markets in various over-the-counter stocks. Such intended
activities will be limited by the amount of Dupont's then available net capital.
Currently, Dupont's restriction letter with the NASD requires that Dupont will
seek NASD District Office No. 10 review and permission before it (i) engages in
its first private placement activity (it being noted that Dupont does not
presently intend to engage in such activity) and (ii) makes markets in more than
10 securities of different companies. Dupont has also agreed with the NASD that
all trading activities will be handled solely by qualified personnel under the
direct supervision of the registered principal responsible for the firm's
trading department, to clear all transactions on a fully disclosed basis through
one or more clearing broker-dealers, to maintain minimum net capital of at least
$100,000 and to file trial balances, capital computations and supporting
schedules with the NASD.
OPERATIONS OF DUPONT
Securities Brokerage
- --------------------
Dupont's clientele consists of approximately 98% individuals and 2%
trusts, partnerships and corporate accounts. These clients have accounted for
100% of Dupont's historical revenues (exclusive of Dupont's trading for its own
account) derived from Dupont executing transactions in equity and debt
securities as agent for such customers. In the future, Dupont proposes to also
effect transactions as principal with its own retail customers and make a market
in one or more over-the-counter securities. As of August 20, 1998, Dupont has
not derived any revenues from these proposed activities.
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Agency Business
- ---------------
Dupont acts on an agency basis in securities transactions for its
customers. Such transactions generate securities commission revenues.
Commissions are charged on both exchange and over-the-counter agency
transactions for individual customers in accordance with a schedule which Dupont
has formulated, which may change from time to time. In certain cases, discounts
from the schedule may be granted to customers. Dupont's securities commissions
result from executing transactions in listed and over-the-counter stocks and
bonds with an estimated 50% in NASDAQ securities, 38% New York Stock Exchange
securities and 2% American Stock Exchange securities. The remaining
transactions (approximately 10%) are in options on various exchanges .
Principal Transactions
- ----------------------
Dupont intends to act as a principal in executing trades in over-the-
counter equity securities with its own retail customers. When transactions are
executed by Dupont on a principal basis, Dupont will receive, in lieu of
commissions, mark-ups or mark-downs which constitute revenues from principal
transactions. Inventories of over-the-counter securities will at times be
carried to facilitate sales to customers and other dealers.
The level of positions carried in Dupont's trading accounts may
fluctuate significantly. The size of the securities positions on any one date
may not be representative of Dupont's exposure on any other date because the
securities positions vary substantially depending upon economic and market
conditions, the allocation of capital among types of inventories, customer
demands and trading volume. The aggregate value of inventories that Dupont may
carry is limited by certain requirements of the SEC's Net Capital Rule as
described herein under "Net Capital."
Dupont intends to make a market, in effect maintaining firm bid and
offer prices, in common stocks which are traded on the NASD's Automated
Quotation System and common stocks which are traded on the NASD's Electronic
Bulletin Board. The amount of stocks that Dupont intends to make a market at
any one time will fluctuate and Dupont may make a market in securities of up to
ten different companies without NASD consent. In the event that Dupont desires
to make a market in securities of more than 10 companies, it is required to seek
permission of its local NASD district office and obtain consent prior to making
a market in additional equity securities.
In the event Dupont executes principal transactions with its own
retail customers, such transactions expose it to risk because securities
positions are subject to fluctuations in market value and liquidity. Each trader
registered with Dupont is expected to maintain internal position limits and
Dupont will review regularly the age and composition of its securities
positions.
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Clearing Arrangements and Customer Credit
- -----------------------------------------
Dupont does not maintain its own customer accounts or provide customer
credit. Dupont utilized, on a fully disclosed basis, the services of Oscar Gruss
& Son Incorporated ("Oscar Gruss"), pursuant to a clearing agreement dated April
4, 1997, to process all securities transactions and maintain the accounts of its
customers. On October 17, 1997, Dupont entered into a new Clearing Agreement
with Schroder to act as its clearing agent on a "fully disclosed" basis and
subsequently terminated its relationship with Oscar Gruss. All transactions are
currently being executed for Dupont by Schroder, a non-affiliated corporation.
Pursuant to its clearing agreement, Schroder maintains its customer accounts
which includes holding the customer funds and securities, issuing monthly
statements, executing customer trades or exchanges in which it is a member,
issuing confirmations of purchases and sales and settling all transactions,
receiving and safeguarding funds and securities and handling the regulation of
credit extension and preparation of monthly account statements. Management
believes that Schroder provides these services to Dupont and its customers at a
total cost which is less than it would cost Dupont to process such transactions
on its own. All Schroder correspondent clearing clients whose accounts are
carried on Schroder's books and records received $50 million insurance
protection without any cost to the client. This protection is provided by SIPC
amounting to a total of $500,000 including up to $100,000 on cash. In addition
to SIPC coverage, Schroder has a separate Excess SIPC policy issued by Aetna
increasing its clients' securities protection by additional $49.5 million
without any additional cost to Schroder clients. Thus, the maximum coverage
provided by Schroder is $50 million of which $100,000 continues to be on cash.
Schroder has over 20 years of experience in serving as clearing agent for many
firms. Schroder is an international merchant and investment banking group with
presence in financial centers worldwide.
Schroder lends funds to Dupont's customers through the use of margin
credit. These loans are made to customers on a secured basis, with Schroder
maintaining collateral in the form of saleable securities, cash or cash
equivalents. Under the terms of the clearing agreement with Schroder, Dupont
indemnifies Schroder on any loss of these credit arrangements.
Dupont's clearing agreement with Schroder can be canceled by either
party upon 60 days prior written notice. Dupont's clearing agreement provides
for certain events of default and various terms and conditions. One of such
requirements is that the broker-dealer clearing through it must maintain minimum
net capital in accordance with the SEC rules and regulations under the
Securities Act.
Net Capital Rule
- ----------------
Dupont is subject to an SEC Regulation known as the "Net Capital
Rule" which is designed to measure the financial integrity and liquidity of a
broker-dealer. The Net Capital Rule requires that a minimum amount of its
assets be relatively liquid and imposes a duty on a broker-dealer of prompt
notification to the SEC and NASD if the broker-dealer is not in compliance. Net
capital is essentially defined as net worth (assets minus
22
<PAGE>
liabilities) plus certain qualifying subordinated loans, less various mandatory
deductions. Such deductions result from excluding assets not readily convertible
into cash and from conservative valuation of certain other assets. Among such
mandatory deductions are adjustments (called "haircuts") in the market value of
securities to reflect the possibility of a market decline prior to disposition.
The Net Capital Rule as applied to Dupont requires that the ratio of aggregate
indebtedness, as defined by the rule, to net capital not exceed fifteen to one.
Moreover, Dupont is required to maintain a minimum net capital of 12.5% of
aggregate indebtedness or $100,000, whichever is greater under the SEC Net
Capital Rule. Compliance with the Net Capital Rule, as well as other financial
requirements, will limit those operations of the Company which require the
intensive use of capital, such as trading and other market making activities.
As of the date of this Prospectus, Dupont is in compliance with the Net Capital
Rule and has been in compliance at all times in the past since it commenced
operations in June, 1997. As of May 31, 1998, Dupont has net capital of
$145,369 and excess net capital of $45,369. Subsequent to May 31, 1998, KHI
contributed $100,000 to Dupont's net capital. No assurances can be given that
Dupont's operations will enable it to maintain compliance with the SEC Net
Capital Rule in the future. The failure to maintain compliance with the SEC Net
Capital Rule could lead to the termination of Dupont's operations and may
adversely affect the Company.
Regulatory Matters
- ------------------
The securities business is subject to extensive regulation under
federal and state laws. The principal purpose of regulation of broker-dealers
is the protection of customers and the securities markets rather than protection
of creditors, shareholders and partners of broker-dealers. The SEC is the
federal agency charged with administration of federal securities laws. Much of
the regulation of broker-dealers, however, has been delegated to self-regulatory
organizations ("SRO), principally the National Association of Securities Dealers
("NASD") and the national securities exchanges, such as the NEW YORK STOCK
EXCHANGE ("NYSE") and AMERICAN STOCK EXCHANGE ("AMEX"). The self-regulatory
organizations adopt rules (subject to approval by the SEC) which governs the
industry. These SRO's also conduct periodic examinations of member broker-
dealers. Securities firms are also subject to regulation by state securities
administrators in states in which they are registered. Other regulations to
which broker-dealers are subject cover all aspects of the securities business,
including sales methods, trading practices among broker-dealers, capital
structure of securities firms, record keeping and the conduct of directors,
officers and employees. Additional legislation, changes in rules promulgated by
the SEC and by SRO's, or changes in the interpretation or enforcement of
existing laws and rules often directly affect the method of operation and
profitability of brokers and dealers. The SEC, the SRO's and state securities
commissions may conduct administrative proceedings which, after appropriate
hearings and an appeal process, can result in censure, fine, issuance of cease-
and-desist orders or suspension or expulsion of a broker-dealer, its officers or
employees, any of which could have a material adverse effect on the business of
such broker-dealer.
Dupont is registered as a Broker-Dealer with the SEC, is a member of
the NASD, is licensed as a broker-dealer in many states and intends to register
as a broker-dealer in
23
<PAGE>
additional states as needed. If for any reason Dupont's ability to register in
additional states is foreclosed or otherwise limited, its business operations
can be adversely affected.
COMPETITION
Competition in the securities brokerage and investment banking
business is highly intense. Dupont competes directly with discount and full-
service brokerage firms and commercial banks, almost all of which are
established, have substantially greater financial and other resources, and have
achieved greater public acceptance than Dupont. Commercial banks presently
provide many of the services offered by brokerage firms and may provide more in
the future. Dupont will be a minor factor in the United States securities
brokerage industry.
EMPLOYEES
Saxon has no employees. Dupont has eleven full-time employees
including ten that have NASD licenses and one clerical person.
FACILITIES
Dupont has a one year lease of approximately 1,000 square feet of
space in Greenwich, CT pursuant to which it is paying a monthly base rental of
approximately $500. Dupont also has a three year lease of approximately 3,000
square feet of space in Oyster Bay, NY at a monthly base rental of approximately
$3,000. Since July 1997, Saxon utilizes the office of Nicholas J. Seccafico,
Jr. rent free at 33 Eleventh Avenue, Huntington Station, NY 11746. The use of
his office is limited to an immaterial amount of usage of his telephone.
LEGAL PROCEEDINGS
There are currently no legal proceedings pending or, to the best of
Management's knowledge, threatened against the Company.
24
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names of the directors and executive officers of Saxon are as follows:
Name Age Position
- ---- --- --------
Nicholas J. Seccafico, Jr. 58 President, Chief Financial Officer,
Director
Lindo Garuffi 65 Secretary, Treasurer, Director
Set forth below is a biographical description of each director and
executive officer of Saxon based upon information supplied by them:
Nicholas J. Seccafico, Jr. has been an officer and director of Saxon since
July 1997. Since May 1995, Mr. Seccafico has been an officer and director of KHI
and was previously an officer and director of KHI from March 1988 through
November 1989. Since 1977, Mr. Seccafico has been president and chief executive
officer of CPC Corp., currently a manufacturing based technology coating
company. Since 1992, Mr. Seccafico has been founder and chief executive officer
of Pathfinder International Group, Inc., a company which services include
investment banking, business evaluation and merger and acquisition development.
He has worked in areas of development, production, marketing and selling cutting
technologies. He has owned and assisted in the development of environmental
remediation companies (emphasis on lead paint testing and bioremediation) and
mariculture. Mr. Seccafico has served as an investment banker and business
consultant to a U.S. lead testing company and an investment banker and business
partner to West Indies Mariculture. Mr. Seccafico also developed the IBIS
Program (International Business Incubation Systems) and introduced this Program
to the Long Island Association Program. He developed proprietary cost effective
research and business development services that allow small and medium sized
companies to analyze finance and implement global ventures. Mr. Seccafico is a
Trustee at Dowling College, Oakdale, NY.
Lindo Garuffi has been an officer and director of the Company since July
1997. Since May 1995, Mr. Garuffi has been an officer and director of KHI. For
the past 20 years, Mr. Garuffi is co-founder, president and chief executive
officer of Associated Marble Industry, Inc., a company that developed an
international network of quarry suppliers. Mr. Garuffi has extensive
international business experience throughout Europe, Africa and the Middle East.
25
<PAGE>
The names of the directors and executive officers of Dupont are as follows:
Name Age Position
- ---- --- --------
Michael F. Franzese 54 President, Chief Executive Officer,
Director
Louis Galeotafiore 55 Treasurer, Secretary, Director
Set forth below is a biographical description of each director and
executive officer of Dupont based upon information supplied by them:
Michael F. Franzese has been President, Chief Executive Officer and a
Director of Dupont since its inception in November 1996. Mr. Franzese has 30
years of experience in the brokerage business having held positions at various
firms. From 1991 to November, 1996, Mr. Franzese served as a consultant to
government dealers, banks and brokerage firms. From May 1996 to November 1996,
he was a registered representative of American Classic Financial Co. and Senior
Vice President at NFS Services Inc. from August 1995 to November 1996. From
February 1992 to June 1993, he was a consultant to Berkeley Securities Corp.
From May 1991 to August 1995, he was President and Chief Executive Officer of
Michael Franzese & Associates. At Dupont, he is a Registered Representative
(Series 7 and 63), General Securities Principal (Series 24) and Municipal
Principal (Series 53). Mr. Franzese serves as the Compliance Officer at Dupont.
Louis Galeotafiore has been Treasurer, Secretary and Director of Dupont
since its inception in November 1996. Mr. Galeotafiore has over 30 years of
experience in the securities brokerage business, having held positions at
various firms. From October 1993 to October 1996, he was a branch manager at
Midwood Securities and prior thereto from September 1990 to October 1993, he was
a registered representative at R.J. Forbes. At Dupont, he is the Registered
Options Principal (Series 4), Registered Representative (Series 7 and 63),
General Securities Principal (Series 24) and Financial Principal (Series 27).
Mr. Galeotafiore serves as the Branch Manager at Dupont.
All directors of the Company hold office until the next annual meeting of
shareholders of the Company or until their successors are elected and qualified.
Executive officers hold offices at the pleasure of the Board and until their
successors are elected and qualified, subject to earlier removal by the Board of
Directors.
FOUNDER/CONTROL PERSON
KHI may be deemed to be a founder or control person of Saxon. Prior to the
Payment Date, KHI owns 100% of the outstanding Common Stock. KHI has not been
involved in any legal proceedings since its inception in 1987.
26
<PAGE>
EXECUTIVE COMPENSATION
From the inception of the Saxon to the date of this Prospectus, no
compensation has been paid to its Chief Executive Officer or any other officer.
From the inception of Dupont in November 1996 through December 31, 1997, no
executive officer of Dupont was paid salary and bonus of $100,000 or more and no
compensation was paid to Dupont's Chief Executive Officer. The following is the
summary compensation table for the Company's and Dupont's Chief Executive
Officers for the period November through December 1996 and calendar year l997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name Annual Restricted Other
and Compen- Stock LTIP Compen-
Principal sation Award(s) Number of Payouts sation
Position Year Salary ($) Bonus ($) ($) ($) (1) Options ($) ($) (2)
- --------------------------------------------------------------------------------------------------------------------
1997 -0- -0- -0- -0- -0- (1) -0- -0-
Nicholas J.
Seccafico, Jr.
CEO of Saxon
- --------------------------------------------------------------------------------------------------------------------
1996 -0- -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
1997 15,000 -0- -0- -0- -0- -0- -0-
Michael F.
Franzese,
CEO of Dupont
- --------------------------------------------------------------------------------------------------------------------
1996 -0- -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing does not reflect compensation paid ( i.e. $6,000 per month) by KHI
as a consulting fee to a company controlled by Mr. Seccafico but does include
compensation paid by KHI to Mr. Franzese in his capacity as an executive officer
of Dupont.
(1) Does not include options to 400,000 shares which have been cancelled, but
will be regranted upon the completion of this offering based upon the then
fair market value of the Company's Common Stock.
27
<PAGE>
Stock Option Plan
- -----------------
The Company granted on September 11, 1997 non-qualified stock options to
purchase an aggregate of 800,000 shares of its Common Stock at an exercise price
of $.10 per share over a term of five years. Nicholas J. Seccafico, Jr. and
Lindo Garuffi each received options to purchase 400,000 shares. These options
which were granted pursuant to a stock option plan (the "Plan") adopted in 1997
were subsequently cancelled, but will be regranted to such persons upon the
completion of this offering based upon an exercise price equal to 100% of the
then fair market value of the Company's Common Stock. The Plan covers 1,000,000
shares of Common Stock (subject to adjustment to cover stock splits, stock
dividends, recapitalizations and other capital adjustments). Employees,
including officers and directors and consultants of the Company are eligible to
participate in the Plan. The Plan provides that options to be granted under the
Plan will be designated as incentive stock options or non-incentive stock
options by the Board of Directors or a committee thereof, which also will have
discretion as to the persons to be granted options, the number of shares subject
to the options and the terms of the options. Options designated as incentive
stock options are intended to receive incentive stock option tax treatment
pursuant to Section 422 of the Internal Revenue Code of 1986, as amended.
The Plan provides that all options granted thereunder shall be exercisable
during a period of no more than 10 years from the date of grant (five years for
incentive stock options granted to holders of 10% or more of the outstanding
shares of Common Stock), depending upon the specific stock option agreement and
that the option exercise price for incentive stock options shall be at least
equal to 100% of the fair market value of Common Stock on the date of grant
(110% for options granted to holders of 10% or more of the outstanding shares of
Common Stock), but in no event less than the initial public offering price of
the Company's proposed public offering. Pursuant to the provisions of the Plan,
the aggregate fair market value (determined on the date of grant) of the shares
of the Common Stock for which incentive stock options are first exercisable
under the terms of the Plan by an option holder during any one calendar year
cannot exceed $100,000.
Currently, the Plan provides that if the employment of an optionee is
terminated other than by reason of death, disability or retirement at age 65,
any incentive stock options granted to the optionee will immediately terminate.
If employment is terminated by reason of disability or retirement at age 65, the
optionee may, within one year from the date of termination, in the event of
termination by reason of disability, or three months from the date of
termination, in the event of termination by reason of retirement at age 65,
exercise the incentive stock option (but not after the normal termination date
of the option). If employment is terminated by death, the person or persons to
whom the optionee's rights under the incentive stock option are transferred by
will or the laws of descent and distribution have similar rights of exercise
within three months after such death (but not after the normal termination date
of the option). Any termination provisions of non-statutory stock options will
be fixed by the board of directors or a committee thereof.
Options are not transferable otherwise than by will or the laws of descent
and distribution and during the optionee's lifetime are exercisable only by the
optionee. Shares subject to options which expire or terminate may be the
subject of future options. The Plan will terminate in 2007. As of the date of
this Prospectus, the Company has no outstanding
28
<PAGE>
options, but will issue options to purchase an aggregate of 800,000 shares upon
the completion of this offering as described above.
EMPLOYMENT AGREEMENTS
None of the Company's officers and directors have any employment contracts
with the Company.
DIRECTOR COMPENSATION
None of the Company's directors have received any compensation from the
Company except as described under "Stock Option Plan." Payment of compensation
in the future will be at the sole discretion of the Board of Directors of the
Company.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
Pursuant to Saxon's By-Laws, Saxon must, to the fullest extent permitted by
the General Corporation Law of the State of Delaware (the "GCL"), as amended
from time to time, indemnify all persons (e.g., directors and officers) whom it
may indemnify pursuant thereto and to advance expenses incurred in defending any
proceeding for which such right to indemnification is applicable, provided that,
if the GCL so requires, the indemnitee must provide Saxon with an undertaking to
repay all amounts advanced if so determined by a final judicial decision.
Saxon's Certificate of Incorporation contains a provision eliminating, to the
full extent permitted by Delaware law, the personal liability of Saxon's
directors for monetary damages for breach of a fiduciary duty. By virtue of
this provision, under current Delaware law, a director of Saxon will not be
personally liable for monetary damages for breach of his fiduciary duty as a
director, except for liability for (i) any breach of his duty of loyalty to
Saxon or to its stockholders, (ii) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) dividends or
stock purchases or redemptions that are unlawful under Delaware law and (iv) any
transaction from which he derives an improper personal benefit. This provision
of Saxon's Certificate of Incorporation pertains only to breaches of duty by
directors as directors and not in any other corporate capacity such as officers,
and limits liability only for breaches of fiduciary duties under Delaware
corporate law and not for violations of other laws such as the federal
securities laws. As a result of the inclusion of such provision, stockholders
may be unable to recover monetary damages against directors for actions taken by
them that constitute negligence or gross negligence or that are in violation of
their fiduciary duties, although it may be possible to obtain injunctive or
other equitable relief with respect to such actions. The inclusion of this
provision in Saxon's Certificate of Incorporation may have the effect of
reducing the likelihood of derivative litigation against directors, and may
discourage or deter stockholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action if
successful, might otherwise have benefitted Saxon and its stockholders.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or controlling persons of the Company
pursuant to the
29
<PAGE>
foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
On July 10, 1997 and August 15, 1997, Saxon sold 100 shares and 2,465,635
shares, respectively, of Saxon's Common Stock to KHI for a total purchase price
of $10,000. This Prospectus relates to the distribution by KHI of all of its
outstanding 2,465,735 shares of Saxon Common Stock to the stockholders of KHI.
See "Plan of Distribution/Market Information."
On July 28, 1997, KHI transferred its entire ownership of Dupont's
outstanding common stock to Saxon as a capital contribution. Prior thereto, KHI
made a $750,000 contribution to the capital of the Company. Thereafter, KHI
made additional capital contributions to the Company totaling approximately
$393,000 before offering costs of approximately $75,000 to register the
Company's Common Stock with the SEC.
SECURITY OWNERSHIP OF MANAGEMENT AND OTHERS
As of the date of this Prospectus, KHI owns 2,465,735 shares of Saxon's
Common Stock, representing 100% of Saxon's outstanding Common Stock. Nicholas
J. Seccafico Jr. and Lindo Garuffi will upon the completion of this offering,
each own options to purchase 400,000 shares of Saxon's Common Stock equivalent
to 14% of the then outstanding shares of Saxon. After the Payment Date, all of
Saxon's Common Stock will be distributed by KHI to its stockholders of record on
the Record Date. The following table sets forth certain information as of the
Payment Date regarding the beneficial ownership of Saxon's Common Stock by: (i)
all persons known by Saxon to own beneficially more than 5% of Saxon's Common
Stock; (ii) each director and officer of Saxon individually; and (iii) all
directors and officers of Saxon as a group.
30
<PAGE>
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
AMOUNT AND OUTSTANDING
NATURE OF AFTER
NAME AND ADDRESS OF BENEFICIAL PAYMENT DATE
BENEFICIAL OWNER (1) OWNERSHIP (2)
- -----------------------------------------------------------------
<S> <C> <C>
Nicholas J. Seccafico, Jr.
33 Eleventh Ave.
Huntington Station, NY 11746 (4) 600,000 20.9
- -----------------------------------------------------------------
Lindo Garuffi
92 Parsons Blvd.
Malba, NY 11357 (3) (4) 849,985 29.7
- -----------------------------------------------------------------
All officers and
directors
as a group
(2 persons) 1 ,449,985 44.4
- -----------------------------------------------------------------
</TABLE>
_________________
(1) Unless otherwise indicated below, all shares are owned beneficially and of
record.
(2) Based upon 2,465,735 shares of Saxon Common Stock outstanding.
(3) Includes shares of Saxon Common Stock owned by members of Lindo Garuffi's
family.
(4) The table includes options to purchase 400,000 shares of Saxon's Common
Stock to be granted to each of Messrs. Seccafico and Garuffi. See
"Executive Compensation - Stock."
DESCRIPTION OF COMMON STOCK
Saxon's Certificate of Incorporation (the "Certificate of Incorporation")
authorizes the issuance of 20,000,000 shares of Common Stock, $.001 par value.
The following is a brief description of Saxon's Common Stock. The rights of the
stockholders of Saxon are established by its Certificate of Incorporation, the
Bylaws, and laws of the State of Delaware. The descriptions set forth below are
intended as summaries only and are qualified in their entirety by reference to
the Certificate of Incorporation, the Bylaws, and the relevant Delaware law.
COMMON STOCK
The authorized Common Stock of Saxon consists of 20,000,000 shares of
Common Stock, par value $.001 per share. As of the date of this Prospectus,
2,465,735 shares of Saxon Common Stock were outstanding. Holders of shares of
the Saxon Common Stock
31
<PAGE>
are entitled to one vote per share on all matters to be voted upon by the
stockholders and are not entitled to cumulative voting for the election of
directors. Holders of shares of Saxon Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. However, it is the
present intention of Saxon not to pay any cash dividends, but to reinvest
earnings, if any, into the Company. In the event of liquidation, dissolution or
winding up of Saxon, the holders of shares of Saxon Common Stock are entitled to
share ratably in all assets after payment of any preference to the holders of
Preferred Stock, if any. Shares of Saxon Common Stock have no preemptive,
conversion or other subscription rights. There are no redemption or sinking
fund provisions applicable to the Saxon Common Stock.
ANTI-TAKEOVER STATUTE
Section 203 of the Delaware General Corporation Law provides that if a
person acquires 15% or more of the stock of a Delaware corporation, he becomes
an "interested stockholder" and may not engage in a "business combination" with
that corporation for a period of three years. The term "business combination"
includes a merger, a sale of assets, or a transfer of stock. The three year
moratorium may be terminated if any of the following conditions are met: (1)
the Board of Directors approved the acquisition of stock or the business
combination before the person became an interested stockholder, (2) the
interested stockholder acquired 85% of the outstanding voting stock in such
transaction, excluding in the determination of outstanding stock is any stock
owned by individuals who are officers and directors of the corporation and any
stock owned by certain employee stock plans, or (3) the business combination is
approved after the person became an interested stockholder by two-thirds of the
voting stock which is not owned by the interested stockholder. The foregoing
provisions do not currently apply to the Company and its principal stockholders,
Nicholas Seccafico, Jr., and Lindo Garuffi, because the Company does not have
voting stock held of record by more than 2,000 stockholders and securities
authorized for quotation on The NASDAQ Stock Market.
32
<PAGE>
SELLING SECURITY HOLDERS
This Prospectus includes the resale of 703,735 shares of Saxon's Common Stock to
be received by two officers and directors of KHI and their immediate family
members.
<TABLE>
<CAPTION>
Percent of Common Stock
Name of Beneficial Owner Common Stock Owned Owned%
- ------------------------------------------------------------------------------------------
Prior to After Prior to After
Offering Offering Offering Offering
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Nicholas J. Seccafico, Jr. (1) 600,000 400,000 20.9 14.0
- ------------------------------------------------------------------------------------------
Lindo Garuffi (1) 649,985 400,000 22.7 14.0
- ------------------------------------------------------------------------------------------
Susan Borriello (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Susan Borriello f/b/o
Salvatore Alexis Borriello,
an infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Susan Borriello f/b/o Erica
Alexia Borriello, an infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Susan Borriello f/b/o Giulia
Alexandra Borriello, an
infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Linda G. Imperiale (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Linda G. Imperiale f/b/o
Marco A. Imperiale,
an infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Linda G. Imperiale f/b/o
Mario L. Imperiale, an
infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
Linda G. Imperiale f/b/o
Michael E. Imperiale,
an infant (2) 25,000 -0- 1.0 -0-
- ------------------------------------------------------------------------------------------
</TABLE>
(1) An executive officer and director of Saxon.
(2) These shares are owned of record and beneficially by the persons named in
the table. However, such persons are relatives of Mr. Garuffi and he may
be deemed to be the beneficial owner of these shares since he believes he
has considerable influence as to voting and/or disposition of shares of the
Company's Common Stock owned by the persons named in the table above. If
an additional 200,000 shares are beneficially owned by Mr. Garuffi, he
would beneficially own 849,985 shares before the offering representing
29.7% and 400,000 shares after the offering representing 14.0%.
33
<PAGE>
The Securities offered hereby may be sold from time to time directly by the
Selling Security Holders. Alternatively, the Selling Security Holders may from
time to time offer the Securities through underwriters, dealers or agents. The
distribution of the Securities by the Selling Security Holders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of the Securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by the
Selling Security Holders in connection with such sales of securities. The
Selling Security Holders and intermediaries through whom such securities are
sold may be deemed "underwriters" within the meaning of the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Securities offered,
and any profits realized or commissions received may be deemed underwriting
compensation. Usual and customary or specially negotiated brokerage fees may
be paid by the Selling Security Holders in connection with sales of the
Securities.
At the time a particular offer of the Securities is made by or on behalf of
the Selling Security Holders, to the extent required, a prospectus will be
distributed which will set forth the number of the Securities being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for the
Securities purchased from the Selling Security Holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
Under the Exchange Act, and the regulations thereto, any person engaged in
a distribution of the shares of Saxon Common Stock of the Company offered by the
Selling Security Holders may not simultaneously engage in market-making
activities with respect to securities of the Company during the applicable
"cooling off" period (up to 5 days) prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Selling
Security Holders will be subject to applicable provisions of the Exchange Act
and the rules and regulations thereunder, including without limitation,
Regulation M, in connection with transactions in the Securities, which
provisions may limit the timing of purchase and sales of the Securities by the
Selling Security Holders.
PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time directly by the
Selling Security Holders. Alternatively, the Selling Security Holders may from
time to time offer the Securities through underwriters, dealers or agents. The
distribution of the Securities by the Selling Security Holders may be effected
in one or more transactions that may take place on the over-the-counter market,
including ordinary broker's transactions, privately-negotiated transactions or
through sales to one or more broker-dealers for resale of the Securities as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by the
Selling
34
<PAGE>
Security Holders in connection with such sales of securities. The Selling
Security Holders and intermediaries through whom such securities are sold may be
deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities offered, and any
profits realized or commissions received may be deemed underwriting
compensation. Usual and customary or specially negotiated brokerage fees may
be paid by the Selling Security Holders in connection with sales of the
Securities.
At the time a particular offer of the Securities is made by or on behalf of
the Selling Security Holders, to the extent required, a prospectus will be
distributed which will set forth the number of the Securities being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, if any, the purchase price paid by any underwriter for the
Securities purchased from the Selling Security Holders and any discounts,
commissions or concessions allowed or reallowed or paid to dealers, and the
proposed selling price to the public.
SHARES ELIGIBLE FOR FUTURE SALE
After the Payment Date, Saxon's officers and directors will beneficially
own and control 649,985 shares (not including options to purchase 800,000
shares) of Saxon's outstanding 2,465,735 shares of Common Stock all of which
have been registered for distribution to the KHI stockholders of record on the
Record Date. It is the intention of the Company to register the 800,000 shares
of Common Stock underlying the options beneficially owned by Saxon's officers
and directors, pursuant to a Form S-8 Registration Statement to be filed after
the date of this Prospectus. Of the 2,465,735 shares, 649,985 shares have been
registered for resale in this Prospectus on behalf of Saxon's two officers and
directors and their family members. In the event this Prospectus becomes
outdated or options get exercised without the Company registering such shares on
a Form S-8 Registration Statement, such persons may sell their shares of Common
Stock of Saxon in compliance with Rule 144 of the Securities Act. Ordinarily,
under Rule 144, a person holding restricted securities for a period of one year
may, every three months thereafter, sell in ordinary brokerage transactions or
in transactions directly with a market maker, an amount of shares equal to the
greater of one percent of the Company's then-outstanding Common Stock or the
average weekly trading volume in the same securities during the four calendar
weeks prior to such sale.
FEDERAL INCOME TAX CONSEQUENCES
The firm of Lester Morse P.C. has analyzed whether the spinoff of Saxon
Common Stock to the shareholders of KHI will be accorded tax free status or will
be taxable to KHI or its shareholders under the Internal Revenue Code of 1986,
as amended, (the "Code") and it has rendered its opinion with respect to this
matter, a copy of which has been filed as an exhibit to this Registration
Statement of which this Prospectus is a part. The following is a summary of
such opinion, it being understood that Dupont, KHI and Saxon have not
accumulated any earnings and profits to date prior to the spinoff, that KHI and
35
<PAGE>
Saxon are each a holding company and that Dupont is operating as a brokerage
firm since June 1997.
Section 355 of the Code permits certain distributions of one corporation
(the distributing corporation) to its shareholders of stock or securities in
another corporation (the controlled corporation) to be tax-free to the
shareholders and also to be tax-free to the distributing corporation. To
qualify for tax-free treatment to the distributees, the distribution must be to
shareholders with respect to their stock. In addition, the following conditions
must also be satisfied.
Immediately before the distribution, the distributing corporation must
control the corporation whose shares it is distributing. The term control is
defined by Section 368(c) of the Code which requires the distributing
corporation to own the subsidiary's stock possessing at least eighty percent of
the total combined voting power and at least eighty percent of the total number
of shares of all other classes of stock.
Immediately after the distribution both the distributing corporation and
the controlled corporation (or corporations) must be engaged in the active
conduct of a trade or business. However, if immediately before the
distribution, the distributing corporation had no assets other than stock in the
controlled corporations, then each controlled corporation must be engaged,
immediately after the distribution, in the active conduct of a trade or
business. A corporation is treated as engaged in the active conduct of a trade
or business if it is so engaged on its own account or if substantially all of
its assets consists of the stock of a controlled corporation that is so engaged.
The foregoing requirement, relating to the active conduct of a trade or
business, is satisfied only if the trade or business (1) was actively conducted
throughout the five-year period ending on the date of distribution, (2) was not
acquired within the five-year period in a taxable transaction and (3) was not
conducted by another corporation the control of which was acquired during the
five-year period in a taxable transaction.
The distributing corporation must distribute all of its stock in the
controlled corporation or enough stock to constitute control as defined by
Section 368(c) of the Code and establish to the satisfaction of the Internal
Revenue Service that the retention of stock in the controlled corporation is not
part of a tax avoidance ploy.
Finally, the transaction must not be used principally as a device for the
distribution of earnings and profits.
Pursuant to the conditions enumerated above, KHI will fail both the post
distribution active conduct of two or more businesses and five-year pre-
distribution business. Thus, the spin-off will fail the tax-free distribution
rules.
If a spin-off fails the conditions of Section 355 of the Code, there are
tax consequences to both the distributing corporation and its shareholders. If
stock is distributed in a spin-off that fails to qualify under Section 355 of
the Code, the distributing
36
<PAGE>
corporation must recognize gain on the distribution to the extent the fair
market value of the distribution exceeds its adjusted tax basis by virtue of
Section 311(b)(I) but Section 311(a)(2) forbids the recognition of any loss if
the adjusted basis exceeds the fair market value of the distribution.
In addition to the possible tax on the distributing corporation, its
shareholders also face possible income tax recognition. It seems clear that the
distribution of stock to a shareholder of the original corporation will be
treated as an ordinary distribution in kind under Section 301 of the Code. This
means the distribution will be taxed as a dividend to the extent of the
corporation's current and post 1913 accumulated earnings and profits and will be
a tax-free return of capital if the distribution exceeds both current and
accumulated earnings and profits. Finally, if the distribution exceeds both
earnings and profits and return of capital, the distribution will be taxed as a
capital gain. It is important to understand that the failed Section 355 of the
Code distribution to the shareholders of the original corporation can create
current earnings and profits in the distributing corporation to the extent that
the fair market value of the distribution exceeds the adjusted basis.
Accordingly, it may be necessary to undertake a valuation of the controlled
corporation to ascertain its fair market value and to perform an earnings and
profits study of the distributing corporation to determine whether any tax must
be paid by either the distributing corporation or its shareholders.
LEGAL MATTERS
The validity of the issuance of the Securities offered hereby and the tax
opinion referred to under "Federal Income Tax Consequences has been passed upon
for the Company by the law firm of Lester Morse P.C.
EXPERTS
Saxon's balance sheet and notes thereto as of May 31, 1998 statement of
operations, statement of stockholders' equity and statement of cash flow for the
period July 9, 1997 (inception) through May 31, 1998, and Dupont's financial
statements and notes thereto as of May 31, 1997 included in this Prospectus,
have been audited by Baron & Baron, independent certified public accountants, to
the extent and for the periods set forth in their report appearing elsewhere
herein, which are included in reliance upon the authority of said firm as
experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-1, File No. 333-37485 (of which this Prospectus
is a part) under the Securities Act with respect to the Securities offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits
37
<PAGE>
thereto. For further information about the Company and the distribution of
securities contemplated herein, reference is made to the Registration Statement
and to the exhibits filed as a part thereof. The statements contained in this
Prospectus are not necessarily complete and, in each instance, reference is made
to a copy of the relevant contract or document filed as an exhibit to the
Registration Statement, each statement being qualified in any and all respects
by such reference. The Registration Statement, including exhibits, may be
inspected without charge at the Public Reference facilities of the Commission
located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
10549, and at the offices of the Commission located at the Northeast Regional
Office, 7 World Trade Center, 13th Floor, New York, NY 10048 and the Midwest
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Room 1400,
Chicago, IL 60661, and copies of such material can be obtained upon request and
payment of the appropriate fee from the Public Reference Section of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Material filed electronically through Edgar (Electronic
Data Gathering Analysis and Retrieval System) may also be accessed through the
SEC's home page on the World Wide WEB at http://www.sec.gov.
Year 2000 Issues
- ----------------
Many existing computer programs use only two digits to identify a year in
the date field. There programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the year
2000. The Company's vendors and clearing firm are currently working to correct
the problem and they have assured the Company that the problem will be resolved
before the year 2000 and, therefore, its operations will not be materially
impacted by the year 2000 issues.
38
<PAGE>
SAXON ACQUISITION CORP.
TABLE OF CONTENTS
JULY 9, 1997 (INCEPTION) TO MAY 31, 1998
Page
----
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6-8
<PAGE>
Page 1
BARON & BARON
Certified Public Accountant
250 West 57th Street, Suite 724
New York, NY 10019
-----
(212) 586-8070
INDEPENDENT AUDITORS' REPORT
Board of Directors
Saxon Acquisition Corp.
Huntington Station, New York
We have audited the accompanying balance sheet of Saxon Acquisition Corp., as of
May 31, 1998 and the related statements of operations, stockholders' equity and
cash flows for the period from July 9, 1997 (inception) to May 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Saxon Acquisition Corp., as of
May 31, 1998 and the results of their operations and their cash flows for the
period from July 9, 1997 (inception) to May 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Baron & Baron
New York, NY
June 29, 1998
<PAGE>
Page 2
SAXON ACQUISITION CORP.
BALANCE SHEET
MAY 31, 1998
A S S E T S
<TABLE>
Current assets:
<S> <C>
Cash and cash equivalents $212,256
Receivable from clearing agent (note 3) 18,552
Marketable equity securities 130,823
Prepaid expenses and other receivables 14,360
---------
Total current assets 375,991
Property and equipment (note 4) 126,077
Other assets 13,810
----------
$515,878
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 42,510
Margin loans payable 57,372
Loans payable, stockholder 10,171
---------
Total current liabilities 110,053
Commitments
Stockholders' equity: (notes 6 and 7)
Common stock 2,466
Additional paid-in capital 995,744
Accumulated deficit (592,385)
---------
405,825
---------
$515,878
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page 3
SAXON ACQUISITION CORP.
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 9, 1997
(INCEPTION) TO MAY 31, 1998
Revenues:
Commissions $514,376
Dividend income 25,787
--------
540,163
--------
Expenses:
Employee compensation and benefits 383,276
Clearance fees 160,263
Communications and data processing 198,842
Rent 37,505
Professional fees 22,879
Regulatory and licensing fees 11,805
Interest 16,406
Travel and entertainment 20,392
Depreciation and amortization 20,993
Other operating expenses 58,360
---------
930,721
---------
Loss from operations (390,558)
Loss from trading activities (181,764)
---------
Net loss $(572,322)
=========
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page 4
SAXON ACQUISITION CORP.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 9, 1997
(INCEPTION) TO MAY 31, 1998
<TABLE>
<CAPTION>
Additional
Common Paid-in
Total stock capital (Deficit)
<S> <C> <C> <C> <C>
Inception, July 9, 1997 $ - $ - $ - $ -
Initial capital contribution 9,991 4,931 5,060 -
Adjustment for pooling of interests (20,063) - - (20,063)
One for two stock split - (2,465) 2,465 -
Contribution to capital 988,219 - 988,219 -
Net loss (572,322) - - (572,322)
--------- --------- --------- ---------
May 31, 1998 $ 405,825 $ 2,466 $ 995,744 $(592,385)
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page 5
SAXON ACQUISITION CORP.
STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 9, 1997
(INCEPTION) TO MAY 31, 1998
Cash flows from operating activities:
Net loss $ (572,322)
Adjustment to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 20,993
Changes in assets and liabilities:
Receivable from clearing agent (18,552)
Prepaid expenses and other assets (18,179)
Accounts payable and accrued expenses 42,510
-----------
Net cash used by operating activities (545,550)
-----------
Cash flows used by investing activities:
Capital expenditures (147,070)
Marketable equity securities (130,823)
Net cash used by investing activities (277,893)
-----------
Cash flows from financing activities:
Contribution to capital, net from issuance of common stock 968,156
Margin loans payable 57,372
Loans from officer 10,171
-----------
Net cash provided by financing activities 1,035,699
-----------
Net increase in cash and cash equivalents 212,256
Cash and cash equivalents, beginning of period -
-----------
Cash and cash equivalents, end of period $ 212,256
===========
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest $ 16,406
Income taxes 791
The accompanying notes are an integral part of the financial statements.
<PAGE>
Page 6
SAXON ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
JULY 9, 1997 (INCEPTION) TO MAY 31, 1998
1. Organization:
Saxon Acquisition Corp. (the "Company") was incorporated in the state of
Delaware on July 9, 1997. The Company is a wholly owned subsidiary of NJS
Acquisition Corporation. On November 7, 1996, NJS formed Dupont Securities
Group, Inc. ("Dupont") as a wholly owned subsidiary under the laws of the
state of New York to engage in the securities business. On July 28, 1997,
NJS transferred its entire stock ownership in Dupont Securities Group,
Inc. to the Company.
Currently, Saxon's only business is through the operations of Dupont, a
broker dealer, registered with the United States Securities and Exchange
Commission ("SEC") and National Association of Securities Dealers, Inc.
("NASD").
Dupont commenced operations on June 10, 1997.
2. Summary of significant accounting policies:
a. Cash and cash equivalents:
Cash and cash equivalents include time deposits, certificates of
deposit and all highly liquid debt instruments with original
maturities of three months or less.
b. Marketable securities:
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Company's investment securities are
classified as "trading securities". Accordingly, securities are
carried at market value with any unrealized gains and losses being
included in income. Realized gains or losses are computed based on
the average cost of the securities sold.
c. Property and equipment:
Property and equipment are stated at cost. Depreciation is computed
over the useful lives of the assets using the straight-line method.
Leasehold improvements are amortized over the remaining lease term.
Expenditures for repairs and maintenance are charged to operations in
the period incurred.
d. Income taxes:
The provision for income taxes is computed on the pre-tax income of
the Company. Deferred taxes result from the future tax consequences
associated with temporary differences between the amount of assets
and liabilities recorded for tax and financial accounting purposes.
<PAGE>
Page 7
SAXON ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
2. Summary of significant accounting policies: (Continued)
e. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
and equity investments. The Company places its investments with high
quality financial institutions in an effort to minimize the credit
risk. (see note 3)
f. Earnings per share:
The Computation of earnings per share is based on the average number of
outstanding common shares.
g. Revenue recognition:
Consulting and advisory fee revenue was recognized when services
provided were substantially completed.
Transactions in securities and related commissions expense are recorded
on a trade date basis.
3. Receivable from clearing agent:
The Company's subsidiary, Dupont, has a clearing agreement dated October
17, 1997 with Schroder & Co., Inc. to act as its clearing agent on a fully
disclosed basis. Schroder maintains the customer accounts. All Schroder
correspondent clearing clients whose accounts are maintained on its books
and records receive $50 million insurance protection without any cost to
the client.
Maintenance of a clearing relationship entails a risk of unreconcilable
differences. The inability of Schroder to meet its obligations could
result in substantial losses to the Company and the loss of the investors
entire investment.
At May 31, 1998, commissions receivable from the clearing agent amounted
to $18,552.
4. Property and equipment:
<TABLE>
<S> <C>
Computer equipment $ 98,573
Furniture, office equipment and leasehold improvements 48,497
---------
147,070
Less accumulated depreciation and amortization 20,993
---------
$ 126,077
=========
</TABLE>
<PAGE>
Page 8
SAXON ACQUISITION CORP.
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998
4. Property and equipment: (Continued)
The property and equipment was placed in service on June 10, 1997 which
is the date the Company began operations.
5. Net capital requirements:
As a registered broker/dealer, the Company's subsidiary, Dupont, is
subject to the Securities and Exchange Commission's net capital rule
which requires that the Company maintain a minimum net capital as
defined, of 12.5% of aggregate indebtedness or $100,000, whichever is
greater.
Net capital and aggregate indebtedness change from day-to-day, but, as of
May 31, 1998, the Company had net capital of $145,369, which exceeded
requirements by $45,369.
6. Stockholders' equity:
At May 31, 1998, the Company was authorized to issue 20,000,000 shares of
common stock with $.001 par value. At that date, 2,465,735 shares were
issued and outstanding.
On July 28, 1997, the Company's parent transferred its entire interest in
Dupont Securities Group, Inc. to the Company. During July and August
1998, the stockholders contributed $968,156 after deducting expenses of
$75,000 to register the shares in the public market. As of May 31, 1998,
these shares have not been registered.
7. Stock options:
On September 2, 1997, the Company granted stock options to purchase
800,000 shares of common stock to two individuals who are executive
officers and directors of the Company.
The Plan is a non-qualified stock option plan. The options are
exercisable at $.10 per share over a term of five years. At this date,
there is no public market for the Company's common stock. On May 31,
1998, the Company terminated the stock options which had been granted on
September 2, 1997.
8. Lease commitment:
The Company leases office facilities pursuant to the terms and conditions
of a one year and three year three month lease.
At May 31, 1998, the minimum future rental commitments under
noncancellable leases payable over the remaining lives of the leases are:
Twelve months ending May 31, 1999 $37,850
2000 33,600
2001 33,600
9. Earnings per share:
Basic earnings per share $(0.23)
=======
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Dupont Securities Group, Inc.
Greenwich, CT
We have audited the accompanying balance sheet of Dupont Securities Group, Inc.
as of May 31, 1997, and the related statements of operations, stockholders'
equity and cash flows for the period from November 7, 1996 (inception) to May
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dupont Securities Group, Inc.
as of May 31, 1997, and the results of their operations and their cash flows for
the period from November 7, 1996 (inception) to May 31, 1997, in conformity with
generally accepted accounting principles.
Our audit was conducted for the purpose of expressing an opinion on the basic
financial statements taken as a whole. The information contained on pages 9
through 11, inclusive, is presented for purposes of additional analysis and is
not a required part of the basic financial statements, but is supplementary
information required by Rules 15c3-1, 15c3-3 and 17a-5 of the Securities and
Exchange Commission. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ Baron & Baron
New York, NY
June 27, 1997
-1-
<PAGE>
DUPONT SECURITIES GROUP, INC.
BALANCE SHEET
May 31, 1997
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash and cash equivalents $ 769,143
Prepaid expenses 10,000
----------
Total current assets 779,143
----------
Property and equipment (Note 3) 79,708
Security deposits 2,800
----------
$ 861,651
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 14,504
----------
Stockholders' equity:
Common stock (Note 4) 750,000
Additional paid-in-capital 117,210
Accumulated deficit (20,063)
----------
847,147
----------
$ 861,651
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
-2-
<PAGE>
DUPONT SECURITIES GROUP, INC.
STATEMENT OF OPERATIONS
Period from November 7, 1996 (inception) to May 31, 1997
<TABLE>
<S> <C>
Revenues:
Dividend income $ 18,408
----------
Expenses:
Regulatory and licensing fees 12,618
Professional fees 16,718
Other operating expenses 7,935
----------
37,271
----------
Loss before provision for income taxes (18,863)
Provision for income taxes 1,200
----------
Net loss $ (20,063)
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
-3-
<PAGE>
DUPONT SECURITIES GROUP, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
period from November 7, 1996 (inception) to May 31, 1997
<TABLE>
<CAPTION>
Additional
Paid-
Total Common Stock in-Capital (Deficit)
-------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
November 7, 1996 (inception) $ - $ - $ - $ -
Issuance of common stock 750,000 750,000 - -
Contribution of capital 117,210 - 117,210 -
Net loss (20,063) - - (20,063)
-------- ----------- ----------- ---------
May 31, 1997 $847,147 $ 750,000 $ 117,210 $ (20,063)
======== =========== =========== =========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
-4-
<PAGE>
DUPONT SECURITIES GROUP, INC.
STATEMENT OF CASH FLOWS
period from November 7, 1996 (inception) to May 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (20,063)
Adjustments to reconcile net loss to net cash
used by operating activities:
Changes in assets and liabilities:
Prepaid expenses and other assets (12,800)
Accounts payable and accrued expenses 14,504
----------
Net cash used by operating activities (18,359)
----------
CASH FLOWS USED BY INVESTING ACTIVITIES
Capital expenditures (79,708)
----------
CASH FLOWS USED BY FINANCING ACTIVITIES
Issuance of common stock and capital contributions 867,210
----------
Net increase in cash and cash equivalents 769,143
CASH AND CASH EQUIVALENTS, beginning of period -
----------
CASH AND CASH EQUIVALENTS, end of period $ 769,143
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
-5-
<PAGE>
DUPONT SECURITIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
NOTE 1. ORGANIZATION
The Company was incorporated in the State of New York on November 7, 1996
to engage in the brokerage and investment advisory business. The Company
is a wholly owned subsidiary of NJS Acquisition Corporation. The Company
began operations on June 10, 1997.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Cash and cash equivalents:
Cash and cash equivalents include time deposits, certificates of
deposit and all highly liquid debt instruments with original
maturities of three months or less.
b. Marketable securities:
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". The Company's investment securities are classified
as "trading securities". Accordingly, securities are carried at market
value with any unrealized gains and losses being included in income.
Realized gains or losses are computed based on the average cost of the
securities sold.
c. Property and equipment:
Property and equipment are stated at cost. Depreciation is computed
over the useful lives of the assets using the straight-line method.
Leasehold improvements are amortized over the remaining lease term.
Expenditures for repairs and maintenance are charged to operations in
the period incurred.
d. Income taxes:
The provision for income taxes is computed on the pre-tax income of
the Company. Deferred taxes result from the future tax consequences
associated with temporary differences between the amount of assets and
liabilities recorded for tax and financial accounting purposes.
e. Concentrations of credit risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
investments. The Company places its cash investments with high quality
financial institutions in an effort to minimize the credit risk.
-6-
<PAGE>
DUPONT SECURITIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
f. Revenue recognition:
Consulting and advisory fee revenue was recognized when services
provided were substantially completed.
Transactions in securities and related commission expense are recorded
on a trade date basis.
g. Start-up costs:
The Company expensed all start-up costs associated with the
development of its brokerage and investment advisory business. The
Company began operations on June 10, 1997.
NOTE 3. PROPERTY AND EQUIPMENT
<TABLE>
<S> <C>
Computer equipment $ 43,629
Furniture and office equipment 23,555
Leasehold improvements 12,524
---------
79,708
Less accumulated depreciation and amortization -
---------
$ 79,708
=========
</TABLE>
The property and equipment was placed in service on June 10, 1997 which is
the date the Company began operations.
NOTE 4. STOCKHOLDERS' EQUITY
At May 31, 1997, the Company was authorized to issue 200 shares of common
stock with no par value. At that date 100 shares were issued and
outstanding.
NOTE 5. NET CAPITAL REQUIREMENTS
As a registered broker/dealer, the Company is subject to the Securities
and Exchange Commission's net capital rule which requires that the Company
maintain a minimum net capital as defined, of 12.5% of aggregate
indebtedness or $100,000, whichever is greater.
Net capital and aggregate indebtedness change from day-to-day, but, as of
May 31, 1997, the Company had net capital of $754,639 which exceeded
requirements by $654,639.
-7-
<PAGE>
DUPONT SECURITIES GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
May 31, 1997
NOTE 6. LEASE COMMITMENT
The Company leases office facilities pursuant to the terms and conditions
of a one year and three year three month lease.
At May 31, 1997, the minimum future rental commitments under
noncancellable leases payable over the remaining lives of the leases are:
<TABLE>
<S> <C>
Year ending May 31, 1998 $37,850
1999 33,600
2000 33,600
</TABLE>
-8-
<PAGE>
DUPONT SECURITIES GROUP, INC.
COMPUTATION OF NET CAPITAL REQUIREMENTS
PURSUANT TO RULE 15C3-1
May 31, 1997
<TABLE>
<S> <C>
Credits:
Stockholders' equity $ 847,147
Debits:
Non-allowable assets:
Prepaid expenses and other assets 12,800
Property and equipment 79,708
----------
Net capital 754,639
Minimum net capital requirements - greater of 12.5% of aggregate
indebtedness or $100,000 100,000
----------
Net capital in excess of requirements $ 654,630
==========
Ratio of aggregate indebtedness to net capital 1.9%
==========
Aggregate indebtedness:
Accounts payable and accrued expenses $ 14,504
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
-9-
<PAGE>
DUPONT SECURITIES GROUP, INC.
COMPUTATION FOR DETERMINATION OF
THE RESERVE REQUIREMENTS AND INFORMATION RELATING TO
POSSESSION OR CONTROL REQUIREMENTS FOR BROKERS
AND DEALERS PURSUANT TO RULE 15C3-3
May 31, 1997
As of May 31, 1997, the Company has not effected any transactions for anyone
defined as a customer under Rule 15c3-3. Accordingly, there are no items to
report under the requirements of this rule.
-10-
<PAGE>
DUPONT SECURITIES GROUP, INC.
RECONCILIATION OF THE AUDITED COMPUTATION OF
NET CAPITAL AND FOCUS REPORT - PART IIA
PURSUANT TO RULE 17a-5
May 31, 1997
<TABLE>
<S> <C>
Net capital per focus report Part IIA $ 769,143
Accounts payable and accrued expenses (14,504)
----------
Net capital 754,639
==========
</TABLE>
-11-
<PAGE>
DUPONT SECURITIES GROUP, INC.
INDEPENDENT AUDITORS' SUPPLEMENTARY REPORT ON
INTERNAL ACCOUNTING CONTROL
May 31, 1997
<PAGE>
INDEPENDENT AUDITORS' SUPPLEMENTARY REPORT
ON INTERNAL ACCOUNTING CONTROL
Board of Directors
Dupont Securities Group, Inc.
Greenwich, CT
In planning and performing our audit of the financial statements of Dupont
Securities Group, Inc. for the period from November 7, 1996 (inception) to May
31, 1997, we considered its internal control structure, including procedures for
safeguarding securities, in order to determine our auditing procedures for the
purpose of expressing our opinion on the financial statements and not to provide
assurance on the internal control structure.
We also made a study of the practices and procedures followed by the Company in
making the periodic computations of aggregate indebtedness and net capital under
rule 17a-3(a)(11) and the procedures for determining compliance with the
exemptive provisions of rule 15c3-3. We did not review the practices and
procedures followed by the Company in making the quarterly securities
examinations, counts, verifications and comparisons, and the recordation of
differences required by rule 17a-13 or in complying with the requirements for
prompt payment for securities under section 8 of Regulation T of the Board of
Governors of the Federal Reserve System, because the Company does not carry
security accounts for customers or perform custodial functions relating to
customer securities.
The management of the Company is responsible for establishing and maintaining an
internal control structure and the practices and procedures referred to in the
preceding paragraph. In fulfilling this responsibility, estimates and judgments
by management are required to assess the expected benefits and related costs of
internal control structure policies and procedures and of the practices and
procedures referred to in the preceding paragraph and to assess whether those
practices and procedures can be expected to achieve the Commission's above
mentioned objectives. Two of the objectives of an internal control structure and
the practices and procedures are to provide management with reasonable, but not
absolute, assurance that assets for which the Company has responsibility are
safeguarded against loss from unauthorized use or disposition and that
transactions are executed in accordance with management's authorization and
recorded properly to permit preparation of financial statements in conformity
with generally accepted accounting principles. Rule 17a-5(g) lists additional
objectives of the practices and procedures listed in the preceding paragraph.
Because of inherent limitations in any internal control structure or the
practices and procedures referred to above, errors or irregularities may occur
and not be detected. Also, projection of any evaluation of them to future
periods is subject to the risk that they may become inadequate because of
changes in conditions or that the effectiveness of their design and operation
may deteriorate.
Our consideration of the internal control structure would not necessarily
disclose all matters in the internal control structure that might be material
weaknesses under standards established by the American Institute of Certified
Public Accountants. A material weakness is a condition in which the design or
operation of the specific internal control structure elements does not reduce to
a relatively low level the risk that errors or irregularities in amounts that
would be material in relation to the financial statements being audited may
occur and not be detected within a timely period by employees in the normal
course of performing their assigned functions. However, we noted no matters
involving the internal control structure, including procedures for safeguarding
securities, that we consider to be material weaknesses as defined above.
-12-
<PAGE>
We understand that practices and procedures that accomplish the objectives
referred to in the second paragraph of this report are considered by the
Commission to be adequate for its purposes in accordance with the Securities
Exchange Act of 1934 and related regulations, and that practices and procedures
that do not accomplish such objectives in all material respects indicate a
material inadequacy for such purposes. Based on this understanding and on our
study, we believe that the Company's practices and procedures were adequate at
May 31, 1997, to meet the Commission's objectives.
This report recognizes that it is not practicable in an organization the size of
the Company's to achieve all the divisions of duties and cross-checks generally
included in a system of internal accounting control and that alternatively
greater reliance must be placed on surveillance by management.
This report is intended solely for the use of management, the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. and
other regulatory agencies which rely on Rule 17a-5(g) under the Securities
Exchange Act of 1934, and should not be used for any other purpose.
New York, NY
June 27, 1997
-13-
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
-------------------------------------------
The following table is the estimated expenses of this offering.
Securities and Exchange Commission
Registration fee $ 303.03
Printing of Prospectus and Certificates 10,000.00
Legal fees (including blue sky) 40,000.00
Accountants' fees 10,000.00
Fees and expenses of Transfer Agent 5,000.00
Miscellaneous 9,697.97
----------
Total $75,000.00
==========
Item 14. Indemnification of Directors and Officers
-----------------------------------------
The Registrant's Certificate of Incorporation contains a provision which,
in substance, eliminates the personal liability of the directors of the
Registrant and its stockholders for monetary damages for breaches of their
fiduciary duties as directors to the fullest extent permitted by Delaware law.
By virtue of this provision, under current Delaware law a director of the
Registrant will not be personally liable for monetary damages for breach of his
fiduciary duty, except for liability for (a) breach of his duty of loyalty to
the Registrant or to its stockholders, (b) acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law, (c)
dividends or stock repurchases or redemptions that are unlawful under Delaware
laws and (d) any transaction from which he receives an improper personal
benefit. This provision pertains only to breaches of duty by directors as
directors and not in any other corporate capacity, such as officers, and limits
liability only for breaches of fiduciary duties under Delaware corporate law and
not for violations of other laws such as the federal securities laws. As a
result of the inclusion of such provision, stockholders may be unable to recover
monetary damages against directors for actions taken by them that constitute
negligence or gross negligence or that are in violation of their fiduciary
duties, although it may be possible to obtain injunctive or other equitable
relief with respect to such actions. The inclusion of this provision in the
Registrant's Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or Management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Registrant and its stockholders.
The General Corporation Law of Delaware provides generally that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to
II-1
<PAGE>
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative in nature to procure a judgment in
its favor, by reason of the fact that he is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, in a proceeding not by or in the right of the
corporation, judgments, fines and amounts paid in settlement, actually and
reasonably incurred by him in connection with such suit or proceeding, if he
acted in good faith and in a manner 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 reason to believe his conduct was unlawful. Delaware law
further provides that a corporation will not indemnify any person against
expenses incurred in connection with an action by or in the right of the
corporation if such person shall have been adjudged to be liable for negligence
or misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for the expenses which such court shall deem proper.
The indemnification and advancement of expenses provided by, or granted
pursuant to Delaware Corporation Law is not be deemed exclusive of any other
rights to which those seeking indemnification or advance of expenses may be
entitled under any bylaw, agreement, vote of stockholders of disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Article IX of the Registrant's By-Laws provides that the officers and
directors of the Registrant shall be entitled to indemnification to the maximum
extent permitted by Delaware law.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of 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 Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE>
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
On July 10, 1997 and August 15, 1997, Saxon sold 50 shares and
4,931,420 shares respectively, of Saxon's Common Stock to Kiwi Holdings, Inc.,
formerly NJS Acquisition Corporation ("KHI") for a total purchase price of
$10,000.
Exemption is claimed on the sale of an aggregate of 4,931,470 shares
of the Registrant's Common Stock to KHI pursuant to Section 4(2) of the
Securities Act of 1933, as amended, inasmuch as the sale was made to the founder
of the Registrant. On September 10, 1997, the Registrant declared a one-for-two
reverse stock split. Exemption is claimed pursuant to Rule 145(a)(1) of the
Securities Act. On September 11, 1997, the Registrant granted options to
purchase 400,000 shares of the Registrant's Common Stock to each of Nicholas J.
Seccafico, Jr., and Lindo Garuffi, executive officers and directors of the
Registrant, which options have been subsequently cancelled. These options will
be regranted to such persons upon the completion of this offering based upon an
exercise price equal to 100% of the then fair market value of the Company's
Common Stock. Exemption is claimed for the grant of the aforementioned options
under Section 4(2) of the Securities Act inasmuch as they have agreed to take
for investment purposes and no underwriter was involved in the grant of such
securities.
Item 16. Exhibits and Financial Statement Schedules
------------------------------------------
(a) Exhibits. The following exhibits have been previously filed unless
otherwise noted.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Registrant
3.2 By-Laws of Registrant
5 Opinion re: legality *
8 Tax Opinion*
10.1 Clearing Agreement dated October 17, 1997 between
Dupont Securities Group, Inc. and Schroder & Co., Inc.
10.2 Dupont lease for facilities in New York
10.3 Stock Option Plan
11 Earnings per share - See notes to financial statements
21 Subsidiaries of Registrant - (See "Prospectus Summary"
included in the Prospectus which forms a part of this
Registration Statement.)
23 Consent of Baron & Baron *
II-3
<PAGE>
27 Selected Financial Data *
_______________
* Filed herewith.
(b) Financial Statement Schedules - Not applicable.
Item 17. Undertakings
------------
The undersigned Registrant hereby further undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment of 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.
II-4
<PAGE>
For determining any liability under the Securities Act, the Registrant
will treat the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this Registration Statement as of the
time the Commission declared it effective.
For determining any liability under the Securities Act, the Registrant
will treat each post-effective amendment that contains a form of prospectus as a
new registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Huntington
Station, State of New York on August 20, 1998.
By: /s/ Nicholas J. Seccafico
---------------------------------------
Nicholas J. Seccafico, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signatures Titles Date
- ---------- ------ ----
President, Chief Financial
/s/ Nicholas J. Seccafico and Accounting Officer
- ------------------------- and a Director of the
Nicholas J. Seccafico Company August 20, 1998
/s/ Lindo Garuffi Secretary and a Director
- ------------------------- of the Company
Lindo Garuffi August 20, 1998
II-6
<PAGE>
EXHIBIT 5.0
LESTER MORSE P.C.
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TELEPHONE (516) 487-1446
TELECOPIER (516) 487-1452
August 20, 1998
Board of Directors
Saxon Acquisition Corp.
33 Eleventh Avenue
Huntinton Station, NY 11746
Re: Saxon Acquisition Corp.
Registration Statement on Form S-1
File No. 333-37485
---------------------------------------------
Gentlemen:
We have reviewed the Certificate of Incorporation and amendments thereto,
By-Laws (as amended), corporate proceedings and other documents of Saxon
Acquisition Corp. (the "Company") and based upon the foregoing, it is our
opinion that the securities being registered with the Securities and Exchange
Commission pursuant to the Registration Statement (File No. 333-37485), as
amended, will when sold, be legally issued, fully paid and non-assessable.
No consents, approvals, authorizations or orders of agencies, officers or
other regulatory authorities are necessary for the valid authorization, issuance
or sale of the shares hereunder, except as such may be required under the
Securities Act of 1933, as amended, or state securities, or Blue Sky laws.
We consent to the filing of this opinion as an exhibit to the aforesaid
Registration Statement and further consent to the reference made to us under the
caption "Legal Matters" in the Prospectus constituting a part of such
Registration Statement. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
LESTER MORSE P.C.
/s/ Steven Morse
SM:ag
<PAGE>
EXHIBIT 8.0
LESTER MORSE P.C.
111 GREAT NECK ROAD
GREAT NECK, NEW YORK 11021
TELEPHONE (516) 487-1446
TELECOPIER (516) 487-1452
August 20, 1998
Saxon Acquisition Corp.
33 Eleventh Avenue
Huntington Station, New York 11746
Re: Form SB-2 Registration Statement
File No. 333-37485
Tax Opinion
--------------------------------
Gentlemen:
Pursuant to your request, we have analyzed whether the following
transaction will be accorded tax free status or will be taxable to Kiwi Holding
Inc. ("KHI), or its shareholders under the Internal Revenue Code of 1986, as
amended, and we have rendered our opinion with respect to this matter.
As we understand the facts, on November 7, 1996, KHI formed Dupont
Securities Corp. Inc. ("Dupont") as a wholly owned subsidiary and subsequently
funded this corporation with approximately one million dollars. On June 10,
1997, Dupont became a licensed registered broker-dealer with NASD and SEC.
Dupont continues to act as a brokerage firm and has accumulated operating losses
primarily from trading.
On July 28, 1997, KHI transferred its Dupont stock to Saxon
Acquisition Corp. in a Section 351 tax-free incorporation under the Internal
Revenue Code of 1986, as amended (the "Code"). Upon the completion of such
transfer, KHI owned one hundred percent of Saxon and Saxon, in turn, owned one
hundred percent of Dupont. KHI is a holding company without any business
operations except for a minority interest in an unrelated corporation and its
ownership of Saxon. KHI intends to spinoff its Saxon common stock to its
stockholders of record on a date to be determined shortly after the effective
date of the Registration Statement. Like KHI, Saxon is a holding company and
Dupont is an operating brokerage firm which has continued to lose money. To the
best of our knowledge, there are no earnings and profits accumulated in any of
the three companies.
Section 355 of the Code permits certain distributions of one
corporation (the distributing corporation) to its shareholders of stock or
securities in another corporation (the controlled corporation) to be tax-free to
the shareholders and also to be tax-free to the distributing corporation. To
qualify for tax-free treatment to the distributees, the distribution must be to
shareholders with respect to their stock. In addition, the following conditions
must also be satisfied.
1
<PAGE>
Immediately before the distribution, the distributing corporation must
control the corporation whose shares it is distributing. The term control is
defined by Section 368(c) of the Code which requires the distributing
corporation to own the subsidiary's stock possessing at least eighty percent of
the total combined voting power and at least eighty percent of the total number
of shares of all other classes of stock.
Immediately after the distribution both the distributing corporation
and the controlled corporation (or corporations) must be engaged in the active
conduct of a trade or business. However, if immediately before the
distribution, the distributing corporation had no assets other than stock in the
controlled corporations, then each controlled corporation must be engaged,
immediately after the distribution, in the active conduct of a trade or
business. A corporation is treated as engaged in the active conduct of a trade
or business if it is so engaged on its own account or if substantially all of
its assets consists of the stock of a controlled corporation that is so engaged.
The foregoing requirement, relating to the active conduct of a trade
or business, is satisfied only if the trade or business (1) was actively
conducted throughout the five-year period ending on the date of distribution,
(2) was not acquired within the five-year period in a taxable transaction and
(3) was not conducted by another corporation the control of which was acquired
during the five-year period in a taxable transaction.
The distributing corporation must distribute all of its stock in the
controlled corporation or enough stock to constitute control as defined by
Section 368(c) of the Code and establish to the satisfaction of the Internal
Revenue Service that the retention of stock in the controlled corporation is not
part of a tax avoidance ploy.
Finally, the transaction must not be used principally as a device for
the distribution of earnings and profits.
Pursuant to the conditions enumerated above, KHI will fail both the
post distribution active conduct of two or more businesses and five-year pre-
distribution business. Thus, the spin-off will fail the tax-free distribution
rules.
If a spin-off fails the conditions of Section 355 of the Code, there
are tax consequences to both the distributing corporation and its shareholders.
If stock is distributed in a spin-off that fails to qualify under Section 355 of
the Code, the distributing corporation must recognize gain on the distribution
to the extent the fair market value of the distribution exceeds its adjusted tax
basis by virtue of Section 311(b)(I) but Section 311(a)(2) forbids the
recognition of any loss if the adjusted basis exceeds the fair market value of
the distribution.
In addition to the possible tax on the distributing corporation, its
shareholders also face possible income tax recognition. It seems clear that the
distribution of stock to a shareholder of the original corporation will be
treated as an ordinary distribution in kind under Section 301 of the Code. This
means the distribution will be taxed as a dividend to the extent of the
corporation's current and post 1913 accumulated earnings and profits and will be
a tax-free return of capital if the distribution exceeds both current and
accumulated earnings and profits. Finally, if the distribution exceeds both
earnings and profits and return of capital, the distribution will be taxed as a
capital gain. It is important to
2
<PAGE>
understand that the failed Section 355 of the Code distribution to the
shareholders of the original corporation can create current earnings and profits
in the distributing corporation to the extent that the fair market value of the
distribution exceeds the adjusted basis. Accordingly, it may be necessary to
undertake a valuation of the controlled corporation to ascertain its fair market
value and to perform an earnings and profits study of the distributing
corporation to determine whether any tax must be paid by either the distributing
corporation or its shareholders.
We hereby consent to the use of this Opinion in connection with the
Registration Statement (File No. 333-37485) and to our firm being named in such
Registration Statement.
Very truly yours,
LESTER MORSE P.C.
/s/Steven Morse
3
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITOR
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated June 27, 1997 of the financial statement of Dupont Securities
Group, Inc. and of our report dated June 29, 1998 of the financial statements of
Saxon Acquisition Corp. We also consent to the references to our firm under the
caption "Experts."
/s/ Baron & Baron
New York, New York
August 20, 1998
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUL-09-1997
<PERIOD-END> MAY-31-1997
<CASH> 212,256
<SECURITIES> 130,823
<RECEIVABLES> 18,552
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 375,991
<PP&E> 126,077
<DEPRECIATION> 0
<TOTAL-ASSETS> 515,878
<CURRENT-LIABILITIES> 110,053
<BONDS> 0
0
0
<COMMON> 2,466
<OTHER-SE> 403,359
<TOTAL-LIABILITY-AND-EQUITY> 515,875
<SALES> 514,376
<TOTAL-REVENUES> 540,163
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 930,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,406
<INCOME-PRETAX> (572,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (572,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572,322)
<EPS-PRIMARY> (.0)
<EPS-DILUTED> (.0)
</TABLE>
