REGISTRATION NO. 333-________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
JWGENESIS FINANCIAL CORP.
(Exact Name of Issuer as Specified in its Charter)
Florida 6211 65-0811010
- ------------------------------- ----------------- ----------------------
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification Number)
Classification Code
Number)
980 North Federal Highway, Suite 210
Boca Raton, Florida 33432
(561) 338-2600
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(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
JOEL E. MARKS
Executive Vice President and Chief Financial Officer
1117 Perimeter Center West, Suite 500E
Atlanta, GA 30338
(770) 399-8805
-------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
W. RANDY EADDY, Esquire
Kilpatrick Stockton LLP
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309-4530
(404) 815-6500
Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 (the "Securities Act"), other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. / /____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _______________
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<TABLE>
<CAPTION>
Calculation of Registration Fee
===========================================================================================================================
Title of Securities Amount to be Proposed Maximum Offering Proposed Maximum Aggregate Amount of
to be Registered Registered <F1> Price Per Share <F2> Offering Price <F2) Registration Fee
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 1,007,506 shares $11.09 $11,177,019.69 $3,107.21
par value per share
===========================================================================================================================
<FN>
<F1> Pursuant to Rule 416 under the Securities Act, also includes an
indeterminate number of additional shares that may become issuable
upon exercise of warrants to purchase 437,500 shares as a result of
anti-dilution provisions contained in the warrants.
<F2> Determined in accordance with Rule 457(c) under the Securities Act
of 1933, based on $11.09, the average of the high and low prices on
the American Stock Exchange on March 29, 1999.
<FN>
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.<PAGE>
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH ___, 1999
JWGENESIS FINANCIAL CORP.
_______________________________
1,007,506 Shares of Common Stock
__________________________________
We are JWGenesis Financial Corp., a holding company incorporated
in Florida engaged in the investment banking and securities business.
The 1,007,506 shares (the "Shares") of our common stock, $.001 par
value (the "Common Stock"), that may be sold from time to time using
this Prospectus are comprised of (i) 570,006 shares of Common Stock
which may be offered for resale by certain of our shareholders who are
identified later and (ii) 437,500 shares of Common Stock issuable upon
exercise of warrants to purchase Common Stock (the "Warrants") that
are held by certain persons who are also named later in this
Prospectus. The shares covered by the Warrants also may be resold
using this Prospectus by the persons who become shareholders following
their exercise of the Warrants. Both such categories of shareholders
are referred to as the "Selling Shareholders", and they are identified
(to the extent they are known presently) under the caption "Selling
Shareholders" that begins on page ___ of this Prospectus. Because of
possible transactions after the date of this Prospectus, other persons
who are not now known may become Selling Shareholders and be entitled
to use this Prospectus to sell some of the Shares. We will not
receive any of the proceeds from the sale of the Shares, but will
receive the exercise price payable upon any exercise of the Warrants.
We have agreed to bear all expenses (other than commissions or
discounts of underwriters, dealers, or agents and the fees or expenses
of counsel to any Selling Shareholder) in connection with the
preparation and use by the Selling Shareholders of this Prospectus.
We have agreed to indemnify the Selling Shareholders, and they have
agreed to indemnify us, against certain liabilities under the
<PAGE>
Securities Act of 1933, as amended (the "Securities Act"). See "Plan
of Distribution".
The Selling Shareholders may sell the Shares from time to time in
a variety of ways, from underwritten offerings to ordinary brokerage
transactions at prices at or near the market price, to transactions on
terms that may be negotiated at the time of sale. The Selling
Shareholders may pay usual and customary or specifically negotiated
underwriting discounts, brokerage fees, or commissions in connection
with such sales. To the extent required, the specific Shares to be
sold, the terms of the offering, including price, the name of any
broker-dealer or underwriter, and any applicable commission, discount,
or other compensation with respect to a particular sale will be set
forth in a Supplement that we may prepare to accompany this Prospectus
in the future. See "Plan of Distribution".
Our Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "JWG". On March __, 1999, the last sale
price of the Common Stock as reported by the AMEX was $ per
share.
Consider carefully the risk factors beginning on page ___ of this
Prospectus.
___________________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or determined if this Prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this Prospectus is
2<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C> <S> <C>
Where You Can Find More Information................ 2 Business................................. 27
Forward-Looking Statements......................... 2 Management............................... 38
Prospectus Summary................................. 3 Executive Compensation................... 39
Summary Historical Financial Information........... 7 Principal Stockholders................... 45
Risk Factors....................................... 8 Certain Transactions..................... 46
Selling Shareholders............................... 14 Description of Capital Stock............. 47
Plan of Distribution............................... 15 Legal Matters............................ 49
Price Range of Common Stock........................ 16 Experts.................................. 49
Dividend Policy.................................... 17 Index to Financial Statements............ F-1
Selected Financial Data............................ 18 Unaudited Pro Forma Consolidated
Management's Discussion and Analysis of Financial Condensed Financial Information........ P-1
Condition and Results of Operations.............. 19
</TABLE>
_______________________________________
WHERE YOU CAN FIND MORE INFORMATION
This Prospectus is part of a registration statement on Form S-1
we have filed with the Securities and Exchange Commission (the "SEC"
or the "Commission") covering the shares of our Common Stock that the
Selling Shareholders may offer for resale. The SEC's file number for
that registration statement is 333-_________________.
We file annual, quarterly, and current reports, proxy statements,
and other information with the SEC. You may read and copy any
materials we file with the SEC at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. For information on
the operation of the Public Reference Room, call the SEC at 1-800-SEC-
0330. You can also obtain reports, proxy and information statements,
and other information regarding issuers that file electronically with
the SEC from the SEC's Internet site (http://www.sec.gov). The
address of that site is http://www.sec.gov. We also maintain an
Internet site (http://jwgenesis.com).
FORWARD-LOOKING STATEMENTS
From time to time, information we provide, or statements of our
directors, officers, or employees, may be "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. Those
statements involve numerous risks and uncertainties. Typically, such
information or statements contain the words "believes", anticipates",
"intends", "expects" or words of similar import, but not necessarily
so. In any event, any information or statements made or incorporated
by reference in this Prospectus that are not statements of historical
fact are forward-looking statements. Such forward-looking statements
in this Prospectus, and others that we or our representatives make,
are based on a number of assumptions and involve risks and
uncertainties. Consequently, actual results could differ materially.
The factors we describe under the heading "Risk Factors" are some, but
not all, of the reasons that results could be different.
<PAGE>
PROSPECTUS SUMMARY
BECAUSE THIS IS A SUMMARY, IT MAY NOT CONTAIN ALL THE INFORMATION
YOU CONSIDER IMPORTANT. YOU SHOULD READ IT ONLY IN CONJUNCTION WITH
THE DETAILED INFORMATION APPEARING LATER IN THIS PROSPECTUS. AS WE
ARE A HOLDING COMPANY, WHEN WE DESCRIBE OUR BUSINESS, WE GENERALLY
MEAN BUSINESSES WE CONDUCT THROUGH OUR SUBSIDIARIES. WE WILL REFER TO
OURSELVES AT MANY LOCATIONS AS "JWGENESIS" OR "THE COMPANY."
The Company
We are a publicly held, diversified financial services holding
company, engaged primarily in securities brokerage, investment
banking, and securities transactions clearing and execution. Our
principal operating subsidiaries are Corporate Securities Group, Inc.
("CSG"), JWGenesis Clearing Corp. ("JWG Clearing"), JWGenesis
Securities, Inc. ("JWG Securities"), JWGenesis Capital Markets, Inc.
("JWG Capital"), and GSG Securities, Inc. ("GSG") (formerly Discount
Securities Groups, Inc.). All of our operating subsidiaries are owned
through our wholly-owned subsidiary, JWGenesis Financial Services,
Inc. ("JWGFS"). We operate a full-service securities brokerage and
investment banking business that offers "one-stop-shopping" for our
customers and clients. Our company
* offers a wide range of securities brokerage and
investment services to a diversified client base,
* delivers a broad range of clearing services to
affiliated and independent broker-dealers, including
commercial bank affiliates, and
* provides investment banking services to corporate and
institutional clients and high net worth individuals.
JWG Securities is a New York Stock Exchange ("NYSE") member firm
with branch offices in South Florida, California, Georgia, and New
York. JWG Securities' branches are typically owned as well as managed
by the Company, and its brokers are "full-service" oriented and
receive compensation packages that are competitive with most regional
and national wire-house brokerage firms. JWG Capital is a New York
firm that specializes in investment banking services and institutional
research and sales. CSG, a National Association of Securities
Dealers, Inc. ("NASD") member firm, is a general securities broker
dealer that offers a full array of investment products and services to
a variety of clients through a national network of independently owned
offices. CSG offices can vary in size from one investment
professional to many. JWG Clearing is a NYSE member firm that
provides clearing services, including on a fully disclosed basis for a
variety of correspondents (such as broker dealers, banks, and other
financial institutions) who are engaged in the securities brokerage
business but who lack the back office or other support capabilities to
process and clear securities transactions for their clients. JWG
Securities and CSG clear trades through JWG Clearing as well as
through outside clearing arrangements with Bear Stearns Securities
Corp. and Fiserv Correspondent Services, Inc. GSG, a NASD member
firm, is a general securities broker dealer that offers a full array
of investment products and services primarily through its branch
offices located in Colorado, California, Florida, Illinois, and New
York. GSG brokers, many of whom enter the business through GSG's in-
house training program, are "full service" oriented and receive
compensation packages that are competitive with most similarly
situated firms. A sixth subsidiary of the Company, DMG Securities,
Inc. ("DMG"), is also engaged in the securities brokerage business.
3<PAGE>
The Company's activities generate revenue primarily in the form
of commission and fee income, market making and principal transactions
revenues, securities transaction processing fees ("clearing fees") and
interest income. We also derive revenues from corporate finance and
other capital markets transactions, insurance brokerage services and
consulting services.
JWGenesis was incorporated as a Florida corporation in January
1998; but, in a statutory share exchange on June 12, 1998 (which is
similar to a merger), it acquired and succeeded to the business and
operations of JWGFS, then known as JW Charles Financial Services,
Inc., which had been incorporated as a Florida corporation in December
1983. As a result of earlier acquisitions by JWGFS, a significant
segment of our business encompasses operations that date back to 1973.
Our principal executive offices are located at 980 North Federal
Highway, Suite 210, Boca Raton, Florida 33432, where our main
telephone number is 561-338-2600.
The Offering
This Prospectus relates to the proposed offer and sale by
persons, who are called the "Selling Shareholders", of shares of
Common Stock that those persons already own or will own when they
exercise certain outstanding Warrants that they own to purchase shares
of our Common Stock. An aggregate of 1,007,506 Shares are covered by
this Prospectus for such offers and sales by the Selling Shareholders,
from time to time. The Company will not receive any proceeds from the
sale by the Selling Shareholders of any Shares. The Selling
Shareholders will receive all such proceeds. The Company will
receive, however, the exercise price paid upon exercise of any of the
Warrants.
The Selling Shareholders are identified (to the extent they are
known presently) under the caption "Selling Shareholders" that begins
on page ___. Because of possible transactions after the date of this
Prospectus, other persons who are not now known may become Selling
Shareholders and be entitled to use this Prospectus to sell some of
the Shares they then own.
As of the date of this Prospectus, there were issued and
outstanding a total of 5,652,833 shares of our Common Stock The
Warrants owned by certain of the Selling Shareholders provide for the
purchase of 437,500 additional shares of Common Stock. In addition,
there were also outstanding options or other rights to purchase or
acquire Common Stock from the Company under certain conditions.
6
Our Common Stock trades on the American Stock Exchange under the
symbol "JWG".
Risk Factors
Ownership of our Common Stock, including by a purchase of Shares
from a Selling Shareholder, involves significant risks. You should
therefore consider carefully the discussions under the heading "Risk
Factors" beginning on page ___, as well as the other information in
this Prospectus.
4
<PAGE>
RECENT DEVELOPMENTS
THE GENESIS DIVESTITURE
On June 12, 1998, we acquired a company by the name of "Genesis
Merchant Group Securities, LLC" ("Genesis") in a series of
transactions that were structured as a business combination among us,
Genesis, and JWGFS (then known as JW Charles Financial Services, Inc.)
(the "Combination"). The principal substantive results of the Combination
were that (i) we succeeded to all of the respective businesses of JWGFS
and Genesis and replaced JWGFS as the public company, (ii) we issued
1,500,000 shares of Common Stock to the former owners of Genesis, and
(iii) three of those former owners who were also members of the management
of Genesis (Phillip L. Stapleton, Will K. Weinstein, and Jeffrey H. Lehman)
became officers of the Company and members of our Board of Directors.
Following an internal reorganization we implemented in the fall
of 1998 in order to address operational problems at Genesis that were
producing unexpected losses, the reorganized business activities of
Genesis fit into two general categories: (i) brokerage processing
services ("BPS") that were conducted through Genesis' San Francisco
office, and (ii) investment banking, corporate finance, and other
capital markets services and certain institutional research and sales
activity (all of which we may sometimes refer to here as "corporate
finance operations") conducted through Genesis' New York office. The
events surrounding the need for and implementation of that
reorganization led to internal disagreements and disputes concerning
the future operations of Genesis, and the respective roles of Messrs.
Stapleton and Weinstein, within the Company. We determined that the
continuation of that state of affairs was not conducive to the best
interests of our shareholders and sought a resolution, which was
achieved on March 3, 1999, when we entered into and closed on an
Equity Exchange and Conciliation Agreement (the "Conciliation
Agreement") with a group of former owners of Genesis led by Messrs.
Stapleton and Weinstein (the "Stapleton Group").
Pursuant to the Conciliation Agreement, on March 3, 1999, Genesis
transferred all of its corporate finance operations (and its New York
office) to our subsidiary JWG Capital, and we divested or sold the
rest of Genesis (which then consisted of its San Francisco office that
conducted its BPS and related operations) to the Stapleton Group in
exchange for the return to the Company by members of that group of
284,375 shares of Common Stock that had been issued in the Combination
(the "Divestiture"). As part of the Divestiture, Messrs. Stapleton
and Weinstein resigned from our Board of Directors and all other
positions they held with our Company, and the Conciliation Agreement
provided for other arrangements to effectuate their separation from
the Company. As indicated above, we retained the corporate finance
operations and the New York office, which had been and continues to be
led by Mr. Lehman. Additional information about the Divestiture and
Conciliation Agreement is contained elsewhere in this Prospectus,
including under "Business Recent Developments".
THE AMERICAS GROWTH FUND, INC.
In December 1998, we acquired the remaining 9% of the outstanding
shares of common stock of The Americas Growth Fund, Inc. ("AGRO"), a
publicly held investment company, that were not owned by the Company.
Previously, in September 1997, when the Company owned 26% of the
outstanding shares of common stock of AGRO, we conducted an exchange
tender offer in an attempt to acquire all of the other outstanding
shares, and we received shares in that offer that brought the
Company's ownership of AGRO shares to 91%. Because of a series of
complicated regulatory authorizations that were required due to AGRO
being an investment company, and certain implications of the
intervening Combination, we were not able to complete the acquisition
5
<PAGE>
of the remaining 9% until December 1998.
All AGRO shares acquired by the Company in either the September
1997 or December 1998 transaction were acquired based on an exchange
ratio of .431 share of the Company's Common Stock for each share of
AGRO, resulting in the issuance by the Company of an aggregate of
49,828 and 354,851 shares of Common Stock in the December 1998 and
September 1997 transactions, respectively. The AGRO acquisition was
accounted for under the purchase method of accounting.
THE GSG ACQUISITION
On January 1, 1999, we used our subsidiary GSG to acquire certain
assets of six retail securities branch offices (and three satellite
offices) from Chatfield Dean Holdings, Inc. ("CDH"). As a result of
this transaction, the Company added approximately 206 registered
representatives and approximately 50 salaried management and support
personnel. Prior to January 1, 1999, GSG, formerly known as Discount
Securities Group, Inc., was inactive. Additional information about
that transaction is contained under "Business Recent Developments".
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Because the Company succeeded to the business and operations of
JWGFS as part of the Combination on June 12, 1998, see "Business The
Share Exchange and Combination", we derived the following summary
historical financial information for the Company relating to periods
before June 12, 1998 solely from financial statements of JWGFS for
such periods. On March 3, 1999, we divested Genesis in a transaction
in which we nonetheless retained its corporate finance operations.
See "Prospectus Summary - Recent Developments - The Genesis
Divestiture" and "Business - Recent Developments - The Genesis
Divestiture". While we do not believe the effects of the divestiture
will be material for the Company's operations, the results of all of
Genesis' operations during the period from the Combination on June 12,
1998 to December 31, 1998, are included in the following information
and has some impact on its analysis. See "Summary Unaudited Pro Forma
Consolidated Condensed Financial Information". This summary financial
information should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- ------------
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.............................................. $ 118,890 $ 97,182 $ 91,020 $ 80,041 $ 60,471
Income before income taxes............................ 11,053 9,792 8,232 6,287 5,243
Net income............................................ 6,632 6,103 6,025 3,810 3,300
Net income per share
Basic............................................ 1.38 1.77 1.42 .65 .56
Diluted.......................................... 1.25 1.50 1.26 .64 .56
Weighted average common shares
Basic ........................................... 4,813,643 3,443,141 4,245,895 5,862,296 5,858,097
Diluted.......................................... 5,317,368 4,069,594 4,783,582 5,999,767 5,906,646
AT DECEMBER 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- ------------
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents........................ 16,978 11,512 11,836 8,597 5,401
Total assets..................................... 180,394 140,732 127,331 115,214 82,218
Short-term borrowings from banks................. 16,988 29,423 17,375 28,138 7,303
Notes payable to affiliates...................... - 5,113 8,625 3,500 5,161
Total liabilities................................ 130,125 116,066 111,959 98,643 69,459
Mandatorily redeemable common stock.............. - - - 7,013 -
Total stockholders' equity....................... 50,269 24,666 15,372 9,558 12,759
</TABLE>
7<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A SIGNIFICANT
DEGREE OF RISK. IN DECIDING WHETHER TO PURCHASE THE SHARES OFFERED
HEREBY, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FOLLOWING
FACTORS THAT MAY AFFECT THE COMPANY'S CURRENT OPERATIONS AND FUTURE
PROSPECTS.
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to significant
risks particularly in volatile or illiquid markets. These risks
include the risks of:
<TABLE>
<CAPTION>
<C> <S> <C> <S>
* trading losses * losses resulting from the ownership
* counterparty failure to meet commitments or underwriting of securities
* employee fraud * customer fraud
* errors and misconduct * issuer fraud
* litigation * failures in connection with the processing of
securities transactions
Our principal business activities are retail securities
brokerage, investment banking, and clearing and execution services.
These businesses are highly competitive and subject to various risks,
volatile trading markets, and fluctuations in the volume of market
activity. The securities business is directly affected by many broad
factors, including
* economic and political conditions * broad trends in business and finance
* legislation and regulation affecting the * currency values
business and financial communities * market conditions
* inflation * the credit capacity or perceived
* the availability and cost of short-term or creditworthiness of the securities industry in
long-term funding and capital the marketplace
* interest rate levels and volatility
</TABLE>
These and other factors can contribute to lower price levels for
securities and illiquid markets. Lower price levels of securities may
result in:
* reduced securities transactions volumes, with a correlative
reduction in commission revenues;
* losses from declines in the market value of securities held in
trading, investment, and underwriting positions; and
* reduced management fees calculated as a percentage of assets
managed.
In low volume periods, profitability levels are further adversely
affected because certain expenses remain relatively fixed. Sudden
sharp declines in securities' market values and the failure of issuers
and counterparties to perform their obligations can result in illiquid
markets. This in turn can make it difficult for us to sell
securities, hedge our securities positions, and invest funds under our
management. These negative market conditions, if prolonged, may also
lower our revenues from investment banking and other activities. As a
result of the varied risks associated with the securities business,
which are beyond our control, our commissions and other revenues could
be adversely affected. Revenue reductions and losses resulting from
securities underwriting or ownership could have a material adverse
effect on our results of operations and financial condition. In
8
<PAGE>
addition, our revenues and operating results may fluctuate from
quarter to quarter and from year to year because of these risks.
SIGNIFICANT COMPETITION
All aspects of our business are highly competitive. We compete
directly with national and regional full service broker-dealers and,
to a lesser extent, with discount brokers, dealers, investment banking
firms, investment advisors, and certain commercial banks. The
financial services industry has become considerably more concentrated
as numerous securities firms have either ceased operations or have
been acquired by or merged into other firms. These mergers and
acquisitions have increased competition from these firms, many of
which have significantly greater equity capital and financial and
other resources than we do. With respect to retail brokerage
activities, certain regional firms with which we compete have operated
in certain markets longer than we have and have established long-
standing client relationships. In addition, we expect competition
from commercial banks to increase because of recent and anticipated
legislative and regulatory initiatives in the United States to remove
or relieve certain restrictions on commercial banks' securities
activities. We also compete with others in the financial services
industry in recruiting new employees and retaining current employees.
We expect to face increasing competition from companies offering
electronic brokerage services, which is a rapidly developing industry.
These competitors may have lower costs or provide fewer services, and
may offer certain customers more attractive pricing or other terms,
than we offer. We also anticipate competition from underwriters which
attempt to conduct public offerings for emerging growth companies
through new means of distribution, including transactions using
electronic media such as the Internet. In addition, disintermediation
may occur as issuers attempt to sell their securities directly to
purchasers, including sales using electronic media such as the
Internet. To the extent that issuers and purchasers of securities
transact business without the assistance of financial intermediaries
like us, our operating results could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the our business are dependent on highly skilled
individuals. We devote considerable resources to recruiting,
training, and compensating these individuals. In addition, one
component of our strategy is to increase market penetration by
recruiting experienced investment consultants. We cannot assure that
these recruiting efforts will be successful or, if successful, that
they will enhance our business, results of operations, or financial
condition.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time, our
employees may leave to pursue other opportunities. We have
experienced losses of research, investment banking, and sales and
trading professionals. Competition for key personnel is intense. We
cannot assure that losses of key personnel due to such competition, or
for other reasons, will not occur in the future.
LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. We depend on many
key employees, and in particular on our senior executive officers:
Marshall T. Leeds, our Chairman, President, and Chief Executive
Officer; and Joel E. Marks, our Chief Financial Officer each of
whom has an employment agreement with us.
The loss of any key employee could materially and adversely
affect JWGenesis. While we generally do not have employment
agreements with our employees, we attempt to retain employees with
incentives such as long-term deferred compensation plans, stock
9
<PAGE>
issuances conditioned on continued employment, and options to buy
stock that vest over a number of years of employment. These
incentives, however, may be insufficient in light of the increasing
competition for experienced professionals in the securities industry,
particularly if our stock price were to decline, or fail to appreciate
sufficiently. If that happened, our long-term deferred compensation
plans might no longer be a competitive incentive for our key employees
to stay with us.
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
Like others companies in the securities industry, we rely on
external sources to finance a significant portion of our day-to-day
operations, principally customer margin account balances and certain
transactions. Our principal cash and liquidity sources are
commissions, trading profits and collateralized bank loans. Liquidity
management includes the monitoring of assets available to hypothecate
or pledge against short-term borrowings. We maintain working capital
credit lines with banks aggregating approximately $5.0 million. The
financing available to us varies depending on market conditions, the
volume of certain trading activities, credit ratings, credit capacity,
and the overall availability of credit to the financial services
industry. We cannot assure that adequate financing to support our
business will be available in the future on attractive terms, or at
all.
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the NYSE, the NASD, and various other regulatory bodies
in the United States have rules with respect to net capital
requirements that affect us. These rules require that at least a
substantial portion of a broker-dealer's assets be kept in cash or
highly liquid investments. Our broker-dealer subsidiaries must comply
with the net capital requirements, which could limit operations that
require intensive use of capital, such as underwriting or trading
activities. These rules could also restrict our ability to withdraw
capital from our broker-dealer subsidiaries, even in circumstances
where these subsidiaries have more than the minimum amount of required
capital. This, in turn, could limit our ability to pay dividends,
implement our strategies and pay interest on and repay the principal
of our debt. In addition, a change in these rules, or the imposition
of new rules, affecting the scope, coverage, calculation, or amount of
the net capital requirements, could have similar adverse effects.
Significant operating losses or any unusually large charge against net
capital could also have a similar material adverse effect.
DEPENDENCE ON SYSTEMS
Our business is highly dependent on communications and
information systems. If these systems fail or are interrupted, our
securities trading activities could experience delays, and we might be
unable to execute client transactions. This could have a material
adverse effect on our operating results. We cannot assure that we
will not suffer any systems failures or interruptions. These failures
or interruptions could have many causes, including earthquakes, fires,
other natural disasters, power or telecommunications failures, acts of
God, or acts of war. Nor can we assure that our back-up procedures
and capabilities will be adequate if any failures or interruptions
occur.
YEAR 2000
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900
rather than 2000. In addition, some equipment controlled by
microprocessor chips may not deal appropriately with the year "00".
We are evaluating our computer systems to determine which
10
<PAGE>
modifications and expenditures will be necessary to make our systems
compatible with year 2000 requirements. We believe that our systems
will be year 2000-compliant upon implementation of such modifications.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Impact of Year 2000".
We currently estimate that the total cost of such modifications
will not be significant. However, we can not assure that all
necessary modifications will be identified and corrected or that
unforeseen difficulties or costs will not arise. In addition, we
cannot assure that the systems of other companies on which our systems
rely will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively
impact our systems or operations.
RISK OF REDUCED REVENUES DUE TO DECLINE IN TRADING OF GROWTH COMPANY
SECURITIES
Our brokerage transaction revenues are generally substantially
lower when public offering levels and trading activities of emerging
growth company securities declines. We derive a significant portion
of our revenues from brokerage transactions in growth company
securities. In the past, brokerage transaction revenues have declined
when underwriting activities in these industry sectors declined, the
volume of trading on Nasdaq declined or when industry sectors or
individual companies reported results below investors' expectations.
RISKS ASSOCIATED WITH REGULATION
The securities industry and our business is extensively regulated
by the SEC, state securities regulators, and other governmental
regulatory authorities. Industry self-regulatory organizations
("SROs"), including the NASD, the New York Stock Exchange, the
American Stock Exchange and other exchanges, also regulate our broker-
dealer subsidiaries. Compliance with many of the regulations
applicable to our company and our subsidiaries involves a number of
risks, particularly in areas where applicable regulations may be
subject to varying interpretation. If we do not comply with an
applicable regulation, governmental regulators and SROs may institute
administrative or judicial proceedings. In that event, we face many
penalties, including
<TABLE>
<CAPTION>
<C> <S> <C> <S>
* censure * cease-and-desist orders
* civil penalties (including treble damages in * the deregistration or suspension of the non-
the case of insider trading violations) compliant broker-dealer's officers or
* fines employees
</TABLE>
Our operating results and financial condition may suffer material
adverse consequences if these penalties or orders are imposed on us.
The regulatory environment could also change. We may be
adversely affected by new or revised legislation or regulations
imposed by the SEC, other federal or state governmental regulatory
authorities, or SROs. We also may be adversely affected by changes in
the interpretation or enforcement of existing laws and rules by these
governmental authorities and SROs.
RISK OF LOSSES FROM UNDERWRITING AND TRADING
We conduct our underwriting, securities trading, and market-
making activities as a principal. These activities subject our
11<PAGE>
capital to significant risks, including market, credit, counterparty,
and liquidity risks. These activities often involve purchasing,
selling, or short-selling securities as a principal in relatively
illiquid markets or markets that suffer from rapidly fluctuating
liquidity. From time to time, we have large position concentrations
in a single issuer's securities, or commitments to a single issuer, or
issuers in a specific industry, particularly as a result of
underwriting activities. Our trading positions and underwriting
activities are concentrated in a more limited number of industry
sectors and portfolio companies than many other investment banks,
which might result in higher trading losses than would occur if our
positions and activities were less concentrated. In addition, there
is a trend in all major capital markets for competitive and other
reasons toward larger commitments from lead underwriters. This means
that, from time to time, an underwriter (including a co-manager) may
retain significant position concentrations in individual securities.
Unfavorable financial or economic conditions would likely reduce
the number and size of transactions in which we provide underwriting,
mergers and acquisitions advisory services and other related services.
Our investment banking revenues, in the form of underwriting discounts
and financial advisory fees, are directly related to the number and
value of the transactions in which we participate and would therefore
be adversely affected by a market downturn.
RISK OF LOSSES ASSOCIATED WITH LITIGATION AND SECURITIES LAWS
Many aspects of our business involve substantial liability risks.
Underwriters are exposed to substantial liability under federal and
state securities laws and other federal and state laws. Court
decisions, including decisions on underwriters' liability and
limitations on indemnification of underwriters by issuers, also expose
us to liability. For example, an underwriter may be held liable for
material misstatements or omissions of fact in a prospectus used to
offer securities, or for statements made by its securities analysts or
other personnel.
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent years,
litigation involving the securities industry has increased, including
class actions in which substantial damages are at stake. Our
underwriting activities usually involve offerings of emerging and mid-
size growth company securities, which often involve higher risk and
are more volatile than the securities of more established companies.
In comparison with more established companies, emerging and mid-size
growth companies are also more likely to be defendants in securities
class actions, to carry directors and officers liability insurance
policies with lower limits (or no such insurance), and to become
insolvent. These factors increase the likelihood that a company
underwriting an emerging or mid-size growth company's securities will
be required to contribute to an adverse judgment or settlement of a
securities lawsuit.
FREQUENT CLAIMS AGAINST UNDERWRITERS. The plaintiffs' attorneys
in securities class action lawsuits frequently name the managing
underwriters of a public offering as defendants. We have not been a
named defendant in any class action lawsuit relating to public
offerings in which we were a managing underwriter. Plaintiffs'
attorneys also may name investment banks providing advisory services
in corporate finance transactions as defendants. We are not a
defendant in any such lawsuit. We anticipate, however, that
securities class action lawsuits naming us as a defendant may be filed
from time to time in the future, particularly if we increase our
activity as managing underwriters or corporate finance advisors. In
such lawsuits, all members of the underwriting syndicate typically are
included as defendant class members or are required by law, or
pursuant to the terms of the underwriting agreement, to bear a portion
of any expenses or losses (including amounts paid in settlement of the
litigation) incurred by the underwriters as a group in litigating the
claim, to the extent not covered by the securities issuer's
indemnification obligation. If we became a party to such a lawsuit,
12<PAGE>
our assets would be subject to risks. If the plaintiffs in any suits
against us were successful, or if we settled such suits by making
significant payments to the plaintiffs, our operating results and
financial condition could be materially and adversely affected. As is
common in the securities industry, we do not carry insurance that
would cover any such payments. In addition, our charter documents
allow indemnification of our officers, directors, and agents to the
maximum extent permitted under Florida law. If our officers,
directors, or agents are named as defendants in securities litigation,
they may demand indemnification from us under these charter document
provisions.
In addition, the laws relating to securities class actions are
currently in a state of flux. The eventual impact of the Private
Securities Litigation Reform Act of 1995 on securities class action
litigation is not known.
DIVERSION OF MANAGEMENT ATTENTION. In addition to these
financial costs and risks, defending litigation can, to a certain
extent, divert the efforts and attention of our management and staff.
Our management and other employees may have to devote substantial time
defending litigation, which might materially divert their attention
from other responsibilities. Securities class action litigation in
particular is highly complex and can extend for a protracted period of
time, consuming substantial management time and effort and
substantially increasing the cost of such litigation.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course of
business, we are defendants in various civil actions and arbitrations
arising out of our broker-dealer and underwriting activities, in our
role as an employer, and as a result of other business activities. We
have made significant payments to resolve disputed claims in the past,
and we cannot assure that we will not make significant payments to
resolve disputed claims in the future.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, we have experienced significant
growth in our business activities and size, and we expect we will
continue to grow in the future. Our growth requires and will continue
to require increased investments in management personnel, financial
and management systems and controls, and facilities. If our revenue
did not also continue to grow, our operating margins would decline due
to these increased expenses. In addition, as is common in the
securities industry, we depend on the effective and reliable operation
of our communications and information systems. We believe that our
current and anticipated future growth will require us to implement new
and enhanced communications and information systems, and to train our
personnel to operate the new systems. Any difficulty or significant
delay in implementing or operating our existing systems or any new
ones, or in training our personnel, could adversely affect our ability
to manage growth.
13
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling
Shareholders, the number of Shares beneficially owned by such Selling
Shareholders, and the percentage of the total outstanding Common Stock
of the Company owned by each Selling Shareholder as of the date of
this Prospectus. All the Shares beneficially owned by such persons on
such date are covered by this Prospectus, and may be offered for
resale by the Selling Shareholders from time to time. Except as may
be indicated in footnotes to the table, all Shares were initially
acquired by the Selling Shareholders from the Company. All the
Warrants, which are exercisable in whole or in part from time to time
until and through December 31, 2002, were acquired from the Company
and relate to an aggregate of 437,500 Shares, subject to potential
adjustments in certain circumstances based on their respective anti-
dilution provisions. The Company will receive the proceeds from each
exercise of a Warrant, but not from any sale of the Shares purchased
upon such exercise. Except as set forth in the footnotes to the table
below, no Selling Shareholder has had any position, office, or other
material relationship with the Company or any of its predecessors or
affiliates within the past three years.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PRIOR
TO ANY OFFERING HEREBY
---------------------------------------------
NUMBER OF SHARES PERCENTAGE <F1>
<S> <C> <C>
The Will K. Weinstein Revocable Trust <F2>. . . . 317,751 5.6
Phillip C. Stapleton <F3> . . . . . . . . . . . . 99,617 1.8
SZRL Investments, an Illinois partnership . . . . 116,841 2.1
JB Capital Management, Inc. . . . . . . . . . . . 35,797 0.6
W T Investments, Inc. <F4>. . . . . . . . . . . . 400,000 7.1
SunTrust Bank, South Florida, N.A. <F5> . . . . . 37,500 0.7
</TABLE>
________________________
[FN]
<F1> Based on 5,652,833 shares outstanding, but also treating as
outstanding with respect to each particular Selling Shareholder the
number of additional shares that such person is deemed to own
beneficially as a result of any right to acquire such shares within
the next 60 days.
<F2> Will K. Weinstein, the grantor and beneficiary of The Will K.
Weinstein Revocable Trust, was a director and Vice Chairman of the
Company from June 12, 1998 to March 3, 1999.
<F3> Mr. Stapleton was a director and Chief Operating Officer of the
Company from June 12, 1998 to March 3, 1999.
<F4> Reflects Shares underlying Warrants presently exercisable to
purchase an aggregate of 400,000 shares of Common Stock at an
exercise price of $11.30 per share.
<F5> Reflects Shares underlying Warrants presently exercisable to
purchase an aggregate of 37,500 shares of Common Stock at an
exercise price of $6.67 per share.
[FN]
14
<PAGE>
This Prospectus also covers the possible resale of the Shares by
certain other presently unknown persons who may become the record or
beneficial owners of such Shares as a result of certain types of
private transactions, including but not limited to gifts and transfers
pursuant to a foreclosure or similar proceeding by a lender or other
creditor to whom Shares may be pledged as collateral to secure an
obligation of a Selling Shareholder. Each such transferee of a
Selling Shareholder is hereby deemed to be a Selling Shareholder for
purposes of making resales of Shares using this Prospectus. To the
extent required by applicable law, information (including the name and
number of Shares owned and proposed to be sold) about such
transferees, if there shall be any, will be set forth in an
appropriate supplement to this Prospectus.
The Selling Shareholders may offer and sell all or a portion of
the Shares from time to time, but are under no obligation to offer or
sell any of the Shares. See "Plan of Distribution". Because the
Selling Shareholders may sell all, none, or any part of the Shares
from time to time, no estimate can be given as to the number of Shares
that will be beneficially owned by the Selling Shareholders upon
termination of any offering by them or as to the percentage of the
total outstanding Common Stock of the Company that the Selling
Shareholders will beneficially own after termination of any offering.
PLAN OF DISTRIBUTION
The Shares may be offered and sold by or for the account of a
Selling Shareholder (or their pledgees, donees or transferees), from
time to time as market conditions permit, on the AMEX, any other
exchange on which the shares may be listed, over the counter or
otherwise, at prices and on terms then prevailing or in negotiated
transactions. The Shares may be sold by one or more of the following
methods, without limitation:
* a block trade in which a broker or dealer so engaged will
attempt to sell the Shares as agent, but may position and
resell a portion of the block as principal to facilitate the
transaction;
* purchases by a broker or dealer (including a specialist or
market maker) as principal and resale by such broker or
dealer for its account pursuant to this Prospectus;
* an underwritten offering, subject to compliance with
applicable disclosures concerning the identity and
compensation arrangements of each firm acting as
underwriter;
* ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
* face-to-face transactions between sellers and purchasers
without a broker-dealer;
* transactions in options, swaps or other derivatives (whether
exchange listed or otherwise);
* sales in other ways not involving market makers or
established trading markets, including direct sales to
institutions or individual purchasers; and
* any combination of the foregoing, or by any other legally
available means.
In addition, the Selling Shareholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage
in short sales of Common Stock in the course of hedging the positions
they assume with the Selling Shareholders. The Selling Shareholders
or their successors in interest may also enter into option or other
15
<PAGE>
transactions with broker-dealers that require the delivery to such
broker-dealers of the shares of Common Stock, which shares of Common
Stock may be resold thereafter pursuant to this Prospectus.
In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from the
Selling Shareholders and/or the purchasers of the Shares for whom such
brokers or dealers act as agents or to whom they sell as principals,
or both, in amounts to be negotiated (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
At the time a particular offer of Shares is made by one or more of the
Selling Shareholders, a Prospectus Supplement, if required, will be
distributed to set forth the aggregate number of Shares being offered
and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, and other
items constituting compensation from the Selling Shareholders, and any
discounts, commissions, or concessions allowed or reallocated or paid
to dealers, including the proposed selling price to prospective
purchasers. The Selling Shareholders and such brokers and dealers and
any other participating brokers or dealers may be deemed to be
"underwriters", within the meaning of the Securities Act, in
connection with such sales. There can be no assurance, however, that
all or any of the Shares will be offered by the Selling Shareholders.
See "Selling Shareholders". The Company knows of no existing
arrangements between the Selling Shareholders and any broker, dealer,
finder, underwriter, or agent relating to the sale or distribution of
the Shares.
The Company will not receive any of the proceeds of any sales of
the Shares by the Selling Shareholders. The Company will, however,
receive any exercise price payable upon exercise of the Warrants. The
Company will bear substantially all expenses of the registration of
this offering under the Securities Act, including, without limitation,
all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the
Company, fees of the NASD, transfer taxes, fees of transfer agents and
registrars, and costs of insurance, if any. All underwriting
discounts, selling commissions, and broker's fees applicable to the
sale of any Shares will be borne by the Selling Shareholders or by
such persons other than the Company as agreed by and among the Selling
Shareholders and such other persons.
The Company has also agreed to indemnify the Selling Shareholders
and any underwriter against certain liabilities in connection with the
registration of the Shares, including liabilities under the Securities
Act. The Selling Shareholders have agreed to indemnify the Company
against certain liabilities in connection with the registration of the
Shares, including liabilities under the Securities Act.
PRICE RANGE OF COMMON STOCK
The Common Stock trades on AMEX under the symbol "JWG". The
following table sets forth, for the periods indicated, the quarterly
high and low sales price information related to trading in the Common
Stock (and, for the period prior to the Company's replacement of JWGFS
as the public company on June 12, 1998, as a result of the statutory
share exchange, the shares of common stock of JWGFS) on the AMEX or on
The Nasdaq Small-Cap Market (where such shares were previously traded
prior to the listing on the AMEX on May 8, 1997). Such information
has been obtained from AMEX or Nasdaq, respectively. All per share
prices have been adjusted to reflect the Company's three-for-two stock
split effected in the form of a 50% stock dividend on February 7,
1997.
16<PAGE>
SALES PRICE
-------------------------
HIGH LOW
---------- ----------
1997
First Quarter $12.50 $ 7.17
Second Quarter 10.13 6.00
Third Quarter 8.88 7.25
Fourth Quarter 15.88 8.38
1998
First Quarter $13.75 $11.38
Second Quarter 12.75 9.88
Third Quarter 11.50 6.13
Fourth Quarter 7.75 5.25
1999
First Quarter (through March 29, 1999 $13.75 $ 5.94
The closing sales price for the Common Stock on March 29, 1999
was $11.13.
There are approximately 215 holders of record of the Common
Stock. Investors who beneficially own common stock that is held in
street name by brokerage firms are not included in this number.
Accordingly, based upon the quantities of periodic reports requested
by such brokerage firms, the Company believes that the actual number
of individual beneficial owners of its Common Stock exceeds 1,500.
DIVIDEND POLICY
No cash dividends have been declared or paid to date on the
Common Stock, and the Company does not anticipate payment of Common
Stock dividends in the foreseeable future. The Company has adopted a
policy of cash preservation for future use in the business, although
the declaration and payment of cash dividends on the Common Stock is
not subject to legal restrictions on the Board's authority.
17
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
The following tables present selected historical financial data
of the Company. On June 12, 1998, the Company and JWGFS effected a
statutory share exchange, and the Company acquired Genesis, as part of
the Combination. See "Business The Share Exchange and Combination".
As a result of the Combination, the Company succeeded to the
respective businesses and operations of JWGFS and Genesis. The
following selected financial data of the Company relating to periods
prior to June 12, 1998, however, are derived solely from financial
statements of JWGFS for such periods and, except as otherwise
expressly indicated, relate to matters prior to the Combination. On
March 3, 1999, the Company divested Genesis in a transaction in which
the Company nonetheless retained the corporate finance operations that
it had been conducting through Genesis. See "Business - Recent
Developments - The Genesis Divestiture". While management does not
believe the effects of the divestiture will be material for the
Company's operations, the results of all of Genesis' operations during
the period from the Combination on June 12, 1998 to December 31, 1998,
are included in the Company's financial data and has some impact on
the analysis of such data. The following selected financial data
should be read in conjunction with the Company's consolidated
financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ----------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues....................................... $118,890 $97,182 $91,020 $80,041 $60,471
Income before income taxes..................... 11,053 9,792 8,232 6,287 5,243
Net income..................................... 6,632 6,103 6,025 3,810 3,300
Net income per share
Basic........................................ 1.38 -- -- -- --
Diluted...................................... 1.25 6,103 6,025 3,810 3,300
Weighted average common shares
Basic........................................ 4,813,643 3,443,141 4,245,895 5,862,296 5,858,097
Diluted...................................... 5,317,368 4,069,594 4,783,582 5,999,767 5,906,646
AT DECEMBER 31,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- -----------
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents...................... $ 16,978 11,512 11,836 8,597 5,401
Total assets................................. 180,394 140,732 127,331 115,214 82,218
Short-term borrowings from banks............. 16,988 29,423 17,375 28,138 7,303
Notes payable to affiliates.................. -- 5,113 8,625 3,500 5,161
Total liabilities............................ 130,125 116,066 111,959 98,643 69,459
Mandatorily redeemable common stock.......... -- -- -- 7,013 --
Total stockholders' equity................... 50,269 24,666 15,372 9,558 12,759
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As a diversified financial services company, JWGenesis operates a
full-service securities brokerage and investment banking business that
offers "one-stop-shopping" for its customers and clients. The
Company's varied activities generate revenue primarily in the form of
commission and fee income, market making and principal transactions
revenues, securities transaction processing fees ("clearing fees"),
and interest income. The Company also derives revenues from corporate
finance and other capital markets transactions, insurance brokerage
services, and consulting services. The following discussions present
the more significant factors affecting the Company's results of
operations and financial condition during the years ended December
31, 1998, 1997 and 1996.
On June 12, 1998, the Company and JWGFS effected the Share
Exchange, and the Company acquired Genesis, as part of the
Combination. See "Business - The Share Exchange and Combination". As
a result of the Combination, the Company succeeded to the respective
businesses and operations of JWGFS and Genesis. The discussions
relating to periods prior to June 12, 1998, however, reflect the
operations of JWGFS as if it were the Company during such periods, and
do not reflect any operations of Genesis before the Combination. The
results of all of Genesis' operations during the period from the
Combination on June 12, 1998 to December 31, 1998, however, are
included in the Company's financial data and have some impact on the
analysis of such data.
On March 3, 1999, the Company divested Genesis in a transaction
in which the Company nonetheless retained the corporate finance
services operations that it had been conducting through Genesis, while
divesting Genesis' brokerage processing services business unit.
Management does not believe the effects of the divestiture will be
material for the Company's operations.
In these discussions, most percentages and dollar amounts have
been rounded to aid presentation; as a result, all such figures are
approximations. References to such approximations have generally been
omitted.
19
<PAGE>
RESULTS OF OPERATIONS THREE YEARS ENDED DECEMBER 31, 1998
1998 represented the Company's fourteenth consecutive year of
record revenues, notwithstanding the significant correction
experienced by the securities markets in general during the third
quarter of 1998, which had followed a vibrant and rising stock market
during 1997 and 1996, that had buoyed the Company's results of
operations for those earlier years.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 % INCREASE 1997 % INCREASE 1996
(000'S) (DECREASE) (000'S) (DECREASE) (000'S)
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Commissions...................... $63,250 27 $49,907 16 $42,945
Market making and principal
transactions, net............. 24,825 19 20,836 (14) 24,315
Interest......................... 14,218 25 11,363 18 9,625
Clearing fees.................... 12,914 5 12,338 8 11,463
Other............................ 3,683 35 2,738 2 2,672
-------------------------------------------------------------------
Total Revenues................... $118,890 22 $97,182 7 $91,020
===================================================================
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1998 % INCREASE 1997 % INCREASE 1996
(000'S) (DECREASE) (000'S) (DECREASE) (000'S)
-------------------------------------------------------------------
Expenses:
Commissions and clearing costs $58,460 14 $51,238 8 $47,229
Employee compensation and 22,074 36 16,278 9 14,911
benefits
Occupancy and equipment rental 6,286 21 5,180 15 4,520
Communications 4,539 35 3,361 (12) 3,809
General and administrative 11,060 59 6,946 (18) 8,431
Interest 5,418 24 4,387 13 3,888
-------------------------------------------------------------------
Total Expenses $107,837 23 $87,390 6 $82,788
===================================================================
Total revenues of $118,890,000 recorded in 1998, a record for any
fiscal year in the Company's history, increased 22% over last year's
previous record of $97,182,000. Genesis added $13,249,000 to 1998
revenues since the Combination Date, which otherwise would have been
$105,641,000 or a 9% increase over 1997. During 1998, the Company
experienced increases in all revenue categories. During 1997 and
1996, the Company experienced increases in almost all revenue
categories; the sole exceptions being market making and principal
transactions, net which decreased from 1996 to 1997 and is discussed
below. Growth in the other revenue categories was primarily due to
heightened client activity, both retail and clearing, associated with
vibrant and generally rising stock market conditions.
Market making and principal transactions, net, which represents
the net realized and unrealized gain or loss experienced from trading
or otherwise acting as principal in securities transactions,
represented approximately 21%, 21% and 27% of total revenues in 1998,
1997 and 1996, respectively. The increase in market making and
principal transactions, net in 1998 is primarily due to the inclusion
of an unrealized gain of $6,400,000 related to the Company's
investment in Knight/Trimark Group, Inc. (NASDAQ: NITE). Exclusive of
this unrealized gain and the Genesis activity, market making and
principal transactions, net would have decreased by $2,642,000 or
13%, which is due to a consistent emphasis away from such activities.
20
<PAGE>
The reduction from 1996 to 1997 in market making and principal
activities, in both absolute and percentage terms, is primarily the
result of a decrease in realized gains of approximately $2,600,000 in
the 1997 period related to the exercise and/or sale of warrant
securities received by the Company in connection with its past
underwriting activities as compared to the 1996 period.
Other income, which consists primarily of fee income, increased
by $945,000 or 35% from 1997 to 1998 primarily as a result of
investment banking success fees received by Genesis.
Commissions and clearing costs, which represent the portion of
fee income payable by the Company to registered representatives or
other broker-dealers as a result of securities transactions (and the
related costs associated with the execution of such trades) increased,
reflecting the Company's overall business growth.
Employee compensation and benefits increased by 36% or $5,796,000
in 1998 primarily as a result of the inclusion of Genesis which
accounted for $3,217,000 of the total increase. Excluding the impact
of Genesis, the growth in employee compensation and benefits was
consistent with and reflects the costs associated with the Company's
overall business growth.
Occupancy and equipment rental increased by $1,106,000 or 21% in
1998 primarily as a result of the inclusion of Genesis which accounted
for $438,000 of the total increase. Excluding the impact of Genesis,
the growth in occupancy and equipment rental was consistent with the
growth of the Company's overall business. Occupancy and equipment
rental expenses increased by 15% from 1996 to 1997 primarily due to
the expansion of and relocation of the Company's New York City branch
office in April, 1997.
Communications increased by 35% or $1,178,000 in 1998 primarily
as a result of the inclusion of Genesis which accounted for $721,000
of the total increase. Excluding the impact of Genesis, the growth in
communications was consistent with the Company's overall business
growth. Communications expense declined from 1996 to 1997 and from
1995 to 1996 due primarily to the Company's ability to take advantage
of the fiercely competitive communications environment and integrate
new cost effective technologies into its operations.
Interest income consists primarily of interest earned on
receivables from customers, securities owned and customer money market
fund balances. Interest expense consists primarily of interest
incurred on short-term borrowings and deposits on securities loaned
used to finance JWG Clearing receivables from customers and securities
owned. Both have increased in each of the past three years, primarily
a result of: (i) a general increase in interest rates experienced from
1996 through 1997 and (ii) an increase in the average outstanding loan
balances used to fund increased customer balances from 1996 to 1998,
reflecting the Company's overall business growth. Genesis had no
material impact on interest income and interest expense for the 1998
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet with the
majority of the Company's assets consisting of cash and cash
equivalents, securities owned, which are marked to market, and
receivables from customers, brokers, dealers and clearing brokers
arising from customer related securities transactions. Receivables
from customers consist primarily of collateralized customer margin
loans, which are typically secured with marketable corporate debt and
equity securities. The nature of the Company's business as a market
maker and securities dealer requires it to carry significant levels of
securities inventories in order to meet its customer and internal
21
<PAGE>
trading needs. Additionally, the Company's role as a financial
intermediary for customer activities, which it conducts on a principal
basis, results in significant levels of customer related balances.
Accordingly, the Company's total assets and financial leverage can
fluctuate significantly depending largely upon general economic and
market conditions, volume of activity, customer demand and
underwriting commitments. The Company's ability to support increases
in its total assets is a function of its ability to generate funds
internally and obtain short-term borrowings from banks.
At December 31, 1998, the Company had stockholders' equity of
$50,269,000, representing an increase of $25,603,000 from December 31,
1997, and the Company had cash and cash equivalents of $16,978,000.
At December 31, 1998, the Company had an aggregate of $2,000,000 of
additional borrowing capacity available under its committed bank lines
of credit as described below under "Bank Lines of Credit".
Net cash from operating activities during 1998 was $20,296,000.
Cash was generated primarily by increased customer balances, net of
the increased customer margin balances, increases in securities
inventories and fluctuations in various assets and liability accounts.
Investing activities required $1,155,000 during 1998. Additions
to furniture, equipment and leasehold improvements required
substantially all of this amount.
Financing activities consumed $13,675,000 during 1998, primarily
the result of a reduction in short-term borrowings of $12,435,000 and
repayment of $5,113,000 in notes payable to affiliate.
At December 31, 1998, the Company owned, of record, approximately
300,000 NITE shares, which were subject to a lock-up agreement until
January 11, 1999 and were unregistered at that time. Approximately
60,000 of such shares were allocated to Company management to cover
bonus payments due and payable in accordance with the employment
agreements in effect as of June 12, 1998, the date of the Combination.
The approximate 300,000 NITE shares owned by the Company, which have
a historical cost of $18,000, are included in securities owned in the
Company's statement of financial condition at December 31, 1998 at
their estimated fair value of $6,400,000. On March 3, 1999, the Company
sold 225,000 NITE shares, which included 45,000 of the shares allocated
to Company management. The Company received net proceeds, before
applicable income taxes, of approximately $6,100,000 from the sale of
180,000 shares of NITE allocated to the Company. The remaining NITE
shares held by the Company (and the Company's management) are subject
to a new lock-up agreement which prohibits their transfer or sale at
any time prior to June 3, 1999.
The Company believes that its current borrowing arrangements
(which are discussed below), combined with anticipated levels of
internally generated funds, will be sufficient to fund its financial
requirements for the foreseeable future based on the Company's current
level of operations and certain assumptions relating to the Company's
business and planned growth. Should the Company significantly expand
either its market making activities or its underwriting of securities
on a "firm-commitment" basis, however, the Company may need to obtain
additional capital to support such activities and to comply with
regulatory requirements. The Company is not dependent upon raising
additional capital in order to maintain its current levels of
operations. If the Company should find that its ability to generate
funds internally is insufficient to satisfy its future capital needs,
the Company will require additional financing from outside sources.
22<PAGE>
BANK LINES OF CREDIT
On January 19, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from Wilmington Trust Company for general
corporate purposes (the "Wilmington Facility"). The Wilmington
Facility matures on December 31, 2002, at which time all outstanding
borrowings plus all accrued and unpaid interest will become due and
immediately payable. Borrowings under the Wilmington Facility bear
interest at Wilmington's National Commercial Rate, with interest
payments due monthly in arrears. The Company is required to maintain
certain debt covenants, including (i) minimum stockholders' equity
equal to at least $7,000,000, plus 30% of net income for all future
fiscal quarters, plus 75% of the net proceeds from any common stock
issuances and (ii) net income, as defined, in excess of $1,500,000 for
any four quarters within any consecutive six-quarter period. At
December 31, 1998, the balance outstanding under the Wilmington
Facility was $1.5 million.
In connection with the Wilmington Facility, the Company entered
into a Marketing Agreement with Wilmington Trust FSB (the "Wilmington
Marketing Agreement") and granted W T Investments, Inc. ("WTI") a
common stock purchase warrant, which was amended and restated on
February 27, 1998. Pursuant to the warrant, WTI may purchase 400,000
shares of the Company's Common Stock at any time prior to December 31,
2002 (the "Wilmington Warrant") at an exercise price per share of
$11.30. The Wilmington Marketing Agreement provides that the Company
will market certain products and services, initially personal trust
and asset management services, provided by Wilmington Trust FSB to the
Company's brokers, clients and prospects.
On December 18, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from SunTrust Bank, South Florida,
N.A. for general corporate purposes (the "SunTrust Facility"). The
SunTrust Facility matures on April 30, 2000, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the SunTrust
Facility bear interest at the prime rate as announced from time to
time by SunTrust Banks of Florida, Inc., with interest payments due
quarterly in arrears. The Company is required to maintain certain
debt covenants, including (i) minimum stockholders' equity equal to at
least $9,000,000, plus 75% of net income for all future fiscal
quarters, plus 75% of the net proceeds from any common stock issuances
and (ii) net income, as defined, in excess of $1,500,000 for any four
quarters within any consecutive six-quarter period. At December 31,
1998, the balance outstanding under the SunTrust Facility was $1.5
million.
In connection with the SunTrust Facility, the Company entered
into a Marketing Agreement with SunTrust (the "SunTrust Marketing
Agreement") and granted SunTrust Banks, Inc. a warrant to purchase
37,500 shares of the Company's Common Stock at any time prior to
December 31, 2002. The exercise price per share is $6.67. The
SunTrust Marketing Agreement provides that the Company will market
certain products and services, through the Company's participation as
an underwriter or selling group member of various municipal finance
offerings underwritten by SunTrust Capital Markets, Inc., to the
Company's brokers, clients and prospects.
BROKER-DEALER CAPITAL REQUIREMENTS
CSG, JWG Securities, GSG, DMG and JWG Clearing are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule (Rule
15c3-1 under the Securities Exchange Act of 1934), which requires the
maintenance of minimum net capital and requires that CSG's, JWG
Securities', GSG's and DMG's ratio of aggregate indebtedness to net
capital (excess net capital), as defined by the Rule, not exceed 15 to
1. JWG Clearing has elected to comply with the "alternative net
capital requirement" of Rule 15c3-1, which requires net capital equal
23
<PAGE>
to or greater than 2% of aggregate debit items computed in applying
the formula for determination of reserve requirements. Additionally,
JWG Clearing is subject to the minimum net capital requirements of the
NYSE, which provide that equity capital may not be withdrawn or cash
dividends paid if the resulting net capital would be less than 5% of
aggregate debits.
As of December 31, 1998, CSG, JWG Securities, GSG and DMG had net
capital of $2,000,000, $1,399,000, $2,111,000 and $232,000,
respectively, and excess net capital of $1,624,000, $1,149,000,
$2,061,000 and $132,000, respectively, each of which complied with the
applicable requirements of Rule 15c3-1. At December 31, 1998, JWG
Clearing's net capital was 9.9% of aggregate debit balances as
compared with the minimum of 2%, and its Rule 15c3-1 net capital of
$13,198,000 was $10,525,000 in excess of required net capital.
Genesis, which as discussed elsewhere herein was divested after
December 31, 1998, complied with its capital requirements as of that
date.
IMPACT OF YEAR 2000 ISSUE
Generally, the year 2000 risk involves computer programs and
computer hardware that are not able to perform without interruption
into the year 2000. The arrival of the year 2000 poses a unique
worldwide challenge to the ability of all systems to correctly
recognize the date change from December 31, 1999 to January 1, 2000.
If the Company's systems did not correctly recognize such a date
change, computer applications that rely on the date field could fail
or create erroneous results. Such erroneous results could affect the
Company's ability to conduct retail securities brokerage and brokerage
processing operations, or could cause the temporary inability to send
trade confirmations, customer statements or engage in similar normal
business activities. If it is not adequately addressed by the Company
or its suppliers and correspondents, the year 2000 issue could result
in a material adverse impact on the Company's financial condition and
results of operations.
JWGENESIS' STATE OF READINESS
The Company has been assessing its Year 2000 readiness since
1998. It has formed a committee charged with the task of identifying
and remediating date recognition problems in both information
technology ("IT") and non-IT systems that include microcontrollers and
other embedded computer technology. Guided by requirements of and
examination by securities regulators and related industry guidance,
the committee has developed a comprehensive plan to assess the
Company's year 2000 readiness with respect to both IT and non-IT
systems. Its inventory of both types of systems is complete, and the
Company has either repaired or replaced, or is in the process of
repairing or replacing, all noncompliant systems. The Company
believes that most mission-critical systems have been remediated or
are nearing completion of remediation. The Company expects that all
noncompliant systems will be repaired, replaced or otherwise
remediated by December 31, 1999, although there can be no assurance
that the Company's year 2000 remediation program will be complete by
then.
Testing commenced in 1998, and further testing has occurred and
will continue to occur during 1999 of systems that have been or will
be remediated. The Company believes that it has identified all major
internal business and operational functions that will be impacted by
the year 2000 date change.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company does not anticipate that the year 2000 related costs
will be material to its financial condition or results of operations.
The Company estimates that its total costs for the evaluation,
remediation and testing of its IT and non-IT systems in connection
with the year 2000 issue will range from $1,250,000 to $1,500,000,
24
<PAGE>
$1,000,000 of which has been incurred to date. All of the expected
expenditures are present in the Company's 1998 and 1999 internal
capital expenditures budgets.
RISKS OF THIRD-PARTY YEAR 2000 ISSUES
The impact of year 2000 noncompliance by outside parties with
whom the Company transacts business cannot be accurately gauged. The
Company has surveyed its major business partners to ascertain their
year 2000 readiness. Although all are not year-2000 compliant at this
date, the Company has received certain assurances that such third
parties will be ready for the year 2000 date change by the end of
1999. Moreover, securities regulators have prescribed year 2000-
related programs for many of the Company's major business partners and
industry utilities, and monitored those companies' progress in
remediating their noncompliant systems.
If the systems of major business correspondents were not
compliant and suffered serious year 2000-related failures, the
Company's brokerage processing operations would be materially impeded.
Electronic ordering and clearing of securities transactions might fail
or be interrupted.
JWGENESIS' CONTINGENCY PLANS
The Company is in the process of developing a formal contingency
plan which is being designed to ensure the continuation of normal
business operations of mission-critical systems in the event of one or
more year 2000 related failures. The contingency plan is being
designed to facilitate the Company in providing uninterrupted services
to its internal users and external customers until a normal level of
services can be restored. If the Company's transaction processing or
other mission-critical systems suffer year 2000-related failures,
retail brokerage and communication of orders might be processed
telephonically, via the Internet, or by other means. If major
business partners with whom the Company maintains clearing or other
arrangements suffer systems failures, the Company could clear
securities transactions or other necessary business functions through
other businesses with compliant systems. If vendors or suppliers
suffer failures, the Company will seek alternative vendors and
suppliers with compliant systems. Contingency plans in the event of
widespread failures in the securities industry are difficult to
formulate, but in such event the Company would seek to conduct its
operations via methods not dependent on noncompliant systems, and
cooperate with any industry-wide contingency plans.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the FASB issued statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities ("FAS 133"). This
standard requires that derivatives be recognized in the balance sheet
at fair value. Designation as hedges of specific assets or liabilities
is permitted only if certain conditions are met. Effective in the
third quarter of 1999, the Company will be required to record and mark
to market any derivative financial instruments and related underlying
assets, liabilities and firm commitments. Based on current
operations, the impact of adopting FAS 133 is not anticipated to have
a material effect on the Company's financial position or results of
operations.
MARKET RISK
In 1997, the SEC issued market risk disclosure requirements to
enhance disclosures of accounting policies for derivatives and other
financial instruments and to provide quantitative and qualitative
disclosures about market risk inherent in derivatives and other
financial instruments. The Company manages risk exposure involving
various levels of management. Position limits in trading and
25
<PAGE>
inventory accounts are established and monitored on an ongoing basis.
Current and proposed underwriting, corporate finance, merchant banking
and other commitments are subject to due diligence reviews by senior
management, as well as professionals in the appropriate business and
support units involved. Credit risk related to various financing
activities is reduced by the industry practice of obtaining and
maintaining collateral. The Company monitors its exposure to
counterparty risk through the use of credit exposure information, the
monitoring of collateral values and the establishment of credit
limits.
The Company maintains inventories as detailed in Note 6 to the
Company's consolidated financial statements. The fair value of these
securities at December 31, 1998, was $13,746,000 in long positions and
$305,000 in short positions. The Company performed an entity-wide
analysis of its financial instruments and assessed the related risk
and materiality in accordance with the rules. Based on this analysis,
in the opinion of management, the market risk associated with the
Company's financial instruments at December 31, 1998 will not have a
material adverse effect on the consolidated financial position or
results of operations of the Company.
IMPACT OF INFLATION
Although the precise effect of inflation on the present
operations of the Company cannot accurately be determined, management
believes that continuation of the general levels of inflation
experienced in recent years will not have a significant impact on the
Company's current and contemplated operations.
OTHER MATTERS
In connection with the Combination, the Company prepaid in full
its $2,061,000 of aggregate outstanding indebtedness owed to Gilman
CMG, Inc., using cash on hand and $2,000,000 of borrowing under the
line of credit with the SunTrust Facility and the Wilmington Facility.
26
<PAGE>
BUSINESS
BACKGROUND AND GENERAL
The Company is a diversified financial services holding company
whose principal operating subsidiaries Corporate Securities Group,
Inc. ("CSG"), JWGenesis Clearing Corp. ("JWG Clearing"), JWGenesis
Securities, Inc. ("JWG Securities"), JWGenesis Capital Markets, Inc.
("JWG Capital") and GSG Securities, Inc. ("GSG")(formerly Discount
Securities Groups, Inc.) on a combined basis operate a full-service
securities brokerage and investment banking business that offers "one-
stop-shopping" to the Company's customers and clients. The Company
provides a wide range of securities brokerage and investment services
to a diversified client base, delivers a broad range of clearing
services to affiliated and independent broker-dealers, including
affiliates of commercial banks, and provides investment banking
services to corporate and institutional clients and high net worth
individuals.
The Company was incorporated as a Florida corporation in January
1998; however, as a result of the Share Exchange on June 12, 1998
described elsewhere herein, the Company succeeded to the business and
operations of JW Charles Financial Services, Inc. (whose name was
subsequently changed to JWGenesis Financial Services, Inc., "JWGFS"),
which had been incorporated as a Florida corporation in December 1983.
Also on June 12, 1998, as a result of the Combination described
elsewhere herein (of which the Share Exchange was a part), the Company
acquired Genesis Merchant Group Securities, LLC ("Genesis") and
succeeded to its business, which had commenced in 1989. On March 3,
1999, the Company divested itself of Genesis in a transaction that
resulted in the Company's continued ownership and operation, through
JWG Capital, of Genesis's New York City-based operations, which
consist of investment banking, corporate finance, capital markets, and
certain institutional research and sales capabilities. As a result of
a merger in 1990, JWGFS acquired operations, which are now conducted
as parts of JWG Securities and JWG Clearing, that date back to 1973.
JWG Securities is a New York Stock Exchange ("NYSE") member firm
with branch offices in South Florida, California, Georgia, and New
York. JWG Securities' branches are typically owned as well as managed
by the Company, and its brokers are "full-service" oriented and
receive compensation packages that are competitive with most regional
and national wire-house brokerage firms. JWG Capital is a New York
firm that specializes in investment banking services and institutional
research and sales. CSG, a National Association of Securities
Dealers, Inc. ("NASD") member firm, is a general securities broker
dealer that offers a full array of investment products and services to
a variety of clients through a national network of independently owned
offices. CSG offices can vary in size from one investment
professional to many. JWG Clearing is a NYSE member firm that
provides clearing services, including on a fully disclosed basis for a
variety of correspondents (such as broker dealers, banks, and other
financial institutions) who are engaged in the securities brokerage
business but who lack the back office or other support capabilities to
process and clear securities transactions for their clients. JWG
Securities and CSG clear trades through JWG Clearing as well as
through outside clearing arrangements with Bear Stearns Securities
Corp. ("Bear Stearns") and Fiserv Correspondent Services, Inc.
("FISERV"). GSG, a NASD member firm, is a general securities broker
dealer that offers a full array of investment products and services
primarily through its branch offices located in Colorado, California,
Florida, Illinois and New York. GSG brokers, many of whom enter the
business through GSG's in-house training program, are "full-service"
oriented and receive compensation packages that are competitive with
most similarly situated firms. A sixth subsidiary of the Company, DMG
Securities, Inc. ("DMG"), is also engaged in the securities brokerage
business. All of JWGenesis' operating subsidiaries are owned through
its wholly-owned subsidiary, JWGFS.
27
<PAGE>
The Company's activities generate revenue for the Company
primarily in the form of commission and fee income, market making and
principal transactions revenues, securities transaction processing
fees ("clearing fees") and interest income. The Company also derives
revenues from corporate finance and other capital markets
transactions, insurance brokerage services and consulting services.
The following table indicates the percentage of total revenues
represented by each of these activities during the past three years:
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES <F1>
------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
Commissions..................................... 53% 51% 47%
Market making and principal transactions,
net........................................... 21% 21% 27%
Interest........................................ 12% 12% 10%
Clearing fees................................... 11% 13% 13%
Other (including corporate finance and
consulting)................................... 3% 3% 3%
</TABLE>
________________
[FN]
<F1> Excludes the results of Genesis for the periods prior to June 12, 1998.
</FN>
The following table indicates the amounts and percentages of
total revenues generated by each of the Company's principal investment
banking and securities brokerage subsidiaries in each of the past
three years:
<TABLE>
<CAPTION>
REVENUES <F1>
(AMOUNTS IN MILLIONS OF DOLLARS)
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------
AMOUNT % AMOUNT % AMOUNT %
-------- ----- ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Corporate Securities Group $39.1 34 $34.2 35% $30.2 34
JWG Capital Markets 13.2 12 - - - -
JWGenesis Securities 31.0 27 34.8 35 31.4 35
JWGenesis Clearing 28.1 25 26.4 27 24.3 27
DMG Securities 2.0 2 2.9 34 3.6 44
</TABLE>
_______________
[FN]
<F1> Excludes the results of Genesis for the periods prior to June 12, 1998.
</FN>
THE SHARE EXCHANGE AND THE COMBINATION
Pursuant to a statutory share exchange with JWGFS on June 12, 1998,
the Company acquired all of the outstanding shares of JWGFS common stock
in exchange for shares of Common Stock of the Company, on a one-for-one
basis, and thus replaced JWGFS as the publicly held holding company (the
"Share Exchange"). The Share Exchange was part of a larger transaction
(the "Combination"), consummated on the same date among JWGFS, the Company,
Genesis, and the owners of all of the equity interests in Genesis, in
which the owners of Genesis exchanged their equity interests for 1,500,000
28
<PAGE>
shares of Common Stock of the Company. As a result of the Combination,
the Company succeeded to the respective businesses and operations of JWGFS
and Genesis.
Following the Combination, during the fall of 1998, the Company
made several significant changes in the operations and structure of
Genesis in the wake of those operations generating a pre-tax loss of
approximately $2.0 million for the third quarter. Among other things,
the Company focused Genesis' operations and resources in two principal
areas: (i) brokerage processing services ("BPS") to be conducted
through Genesis' San Francisco office, and (ii) investment banking,
corporate finance and other capital markets services and certain
institutional research and sales (which are referred to collectively
as "corporate finance operations") to be conducted through Genesis'
New York City office. In January 1999, the Company began to
negotiate a transaction which was closed on March 3, 1999, to divest
Genesis (but retain the New York City-based corporate finance
operations) to a group of former owners of Genesis in exchange for
their return of 284,375 shares of the Common Stock of the Company that
had been issued in the Combination (the "Divestiture"). The group of
former Genesis owners were led by Phillip C. Stapleton, who became a
director and Chief Operating Officer of the Company at the time of the
Combination, and Will K. Weinstein, who became a director and Vice
Chairman of the Company at that time; Messrs. Stapleton and Weinstein
resigned all positions with the Company in connection with the
Divestiture. See "- Recent Developments - The Genesis Divestiture",
below, for additional information about this transaction.
3-FOR-2 STOCK SPLIT
Unless otherwise indicated, all information with respect to
numbers of shares of common stock, prices of common stock, and
earnings per common share appearing in this Prospectus have been
adjusted to reflect JWGFS' three-for-two stock split effected in the
form of a 50% stock dividend on February 7, 1997.
RETAIL BROKERAGE
The Company conducts its retail brokerage business primarily
through CSG, JWG Securities and DMG. The following table sets forth
certain statistical information concerning registered representatives
and branch offices of each of these subsidiaries:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ------------------------- -----------------------------
REGISTERED REGISTERED REGISTERED
REPRESENTATIVES OFFICES REPRESENTATIVES OFFICES REPRESENTATIVES OFFICES
------------------ --------- ----------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
JWG Securities 209 15 213 13 210 10
CSG 273 107 279 91 242 86
GSG <F1> 206 6 - - - -
---- ---- ---- ---- ---- ---
DMG 5 1 20 1 18 1
---- ---- ---- ---- ---- ---
Total <F1> 693 139 512 105 470 97
==== ==== ==== ==== ==== ===
</TABLE
___________________
<FN>
<F1> As of January 1, 1999; reflects the acquisition by GSG of six
retail securities branch offices (and three satellite offices) on
such date. See "- Recent Developments - The GSG Acquisition",
below.
</FN>
29
<PAGE>
JWGENESIS SECURITIES, INC.
JWG Securities is a NYSE member organization and a member of the
NASD. JWG Securities' activities primarily consist of retail
securities brokerage, management and participation in underwritings of
equity and fixed income securities, distribution of mutual funds and
unit trusts, and research and investment advisory services. JWG
Securities has clearing agreements with JWG Clearing, Bear Stearns,
and FISERV, each a NYSE member organization, under which agreements
they provide JWG Securities with back office support, transaction
processing services on all principal national and international
securities exchanges, and access to many other financial services and
products. These agreements allow JWG Securities to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than JWG Securities.
JWG Securities' registered representatives, have, prior to their
employment with JWG Securities, prior industry experience and licenses
and each is an in-house employee at JWG Securities. Through its
retail branch network, JWG Securities markets a wide variety of
investment products, including common and preferred equities, tax-free
and taxable bonds, unit trusts, mutual funds, insurance and annuity
products, and options.
CORPORATE SECURITIES GROUP, INC.
CSG, a general securities broker-dealer, provides products and
services similar to those offered by JWG Securities for the accounts
of its customers and for its own account. CSG is a member of the NASD
and has clearing agreements with Bear Stearns, JWG Clearing and
FISERV, under which agreements they provide CSG with back office
support, transaction processing services on all principal national and
international securities exchanges, and access to many other financial
services and products. These agreements allow CSG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than CSG.
All of CSG's branch offices operate as independently owned
affiliates. In affiliated branch office situations, the office is
owned and operated by an independent person who obtains appropriate
NASD licenses to supervise or manage the branch office by virtue of
affiliating with CSG and being subject to its supervisory
jurisdiction. Each such office is responsible for its own overhead
and other operational expenses, although all of its revenues from
securities brokerage transactions accrue to CSG. CSG, on the other
hand, pays commissions to the branch offices on the revenues generated
by them (at higher rates than those that would be paid to registered
representatives working at a branch office owned by CSG) and provides
other support for the operations, including required home office
supervisory functions and access to CSG's securities transaction
clearing agreements with Bear Stearns, JWG Clearing and FISERV. All
registered representatives who are associated with CSG are licensed
with the NASD and all such persons have prior industry experience
prior to opening their own office or working at one of CSG's
independently owned affiliated offices.
The affiliated branch office system permits the Company to expand
its base of revenue and its network for the retail distribution of
securities underwritten by the Company (and for trading in connection
with the Company's market making activities), without the capital
expenditures that would be required to open company-owned offices and
the additional administrative and other costs of hiring in-house
registered representatives who are employees.
30
<PAGE>
GSG SECURITIES, INC.
GSG, a general securities broker-dealer, provides products and
services similar to those offered by JWG Securities for the accounts
of its customers and for its own account. GSG is a member of the NASD
and has clearing agreements with FISERV and JWG Clearing, under which
agreements they provide GSG with back office support, transaction
processing services on all principal national and international
securities exchanges, and access to many other financial services and
products. These agreements allow GSG to offer a range of products and
services that is generally offered only by firms that are larger and
have more capital than GSG.
All of GSG's registered representatives are in-house employees.
Through its retail branch network, GSG markets a wide variety of
investment products, including common and preferred equities, tax-free
and taxable bonds, unit trusts, mutual funds, insurance and annuity
products, and options. Unlike JWG Securities and CSG, GSG operates an
in-house recruitment and training program whereby it offers a
comprehensive training and development program for qualified
individuals who lack sufficient industry experience or are otherwise
unlicensed and new to the industry.
GSG's principal business activities commenced in January, 1999.
See "- Recent Developments - GSG Acquisition", below.
DMG SECURITIES, INC.
DMG, also a NASD member firm, conducts its brokerage operations
from a single location in Virginia. DMG's office is owned and
operated by an independent person who obtains appropriate NASD
licenses to supervise or manage the branch office by virtue of
affiliating with DMG and being subject to its supervisory
jurisdiction. The office is responsible for its own overhead and
other operational expenses, and operates in a manner similar to that
described for affiliated branch offices of CSG. DMG also has a
clearing agreement with JWG Clearing that provides DMG with back
office support, execution services on all principal national
securities exchanges, and access to many of its in-house financial
services and products. This agreement allows DMG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than DMG.
CAPITAL MARKETS
The acquisition of Genesis on June 12, 1998 substantially
enhanced the Company's capital markets capabilities from general
corporate finance and investment banking transactions to research and
related services over the level that had previously existed at
JWGFS. These corporate finance operations were retained by the
Company, and transferred to JWG Capital, when Genesis was subsequently
divested on March 3, 1999. See " Recent Developments The Genesis
Divestiture", below. While certain capital markets functions are also
performed by personnel of JWG Securities and JWG Clearing (and, to a
more limited extent, by CSG), the Company uses JWG Capital as its
principal arm for capital market services.
CORPORATE FINANCE
The Company's Corporate Finance Department is involved in a
variety of activities, including public and private debt and equity
financing for corporate clients, merger and acquisition advisory
services, fairness opinions, business analyses and evaluations, and
general financial consulting services. Such activities include
securing the Company's participation in the distribution of securities
31<PAGE>
both initial public offerings ("IPOs") and secondary offerings. The
Company has traditionally concentrated its underwriting efforts in the
IPO marketplace, seeking out emerging enterprises in industries that
it believes offer reasonable opportunities for future growth.
Following an offering, the Company (through a subsidiary) maintains
after-market support by providing research analysis, after-market
trading, and sponsorship in the investment community.
The Corporate Finance Department has experience in each stage of
a merger, acquisition, divestiture, buyout, and recapitalization
transaction, including the identification of potential acquisitions
and/or acquirors, the optimal "packaging" of a client for a
transaction, the preparation of client meetings, the structuring of
merger and sale transactions, and the negotiation of sale and purchase
terms. The Corporate Finance Department also renders valuation and
fairness opinions for both private and public companies. Its work
generally includes a comprehensive operational and financial review of
a client and the development of financial analyses that incorporate
both quantitative and qualitative factors.
Compensation for the Company's corporate finance and other
capital markets services includes cash fees in the form of
underwriting commissions, retainers, and success fees and, in certain
situations, stock purchase warrants, direct equity positions, or
consulting fees.
RESEARCH
The Company maintains a Research Department (i) to provide
coverage on a select but broad range of companies, daily market
commentary, and trading ideas, (ii) to complement the Corporate
Finance Department by offering their services as an added benefit to
attracting and retaining corporate finance clients, and (iii) to
increase the availability and use of in-house research by the
Company's retail oriented registered representatives by fostering
increased coordination among the Research, Syndicate, and Corporate
Finance Departments. The Research Department provides comprehensive
coverage of a select group of industries and companies that in many
instances are not otherwise widely followed by the investment
community. The Research Department publishes numerous materials for
its clients, including quarterly earnings reports, company updates,
company reports, which initiate research coverage, industry overviews,
and emphasis lists, which encompass all covered industries. The
Research Department follows companies in the following principal
areas: business services and outsourcing, regional banking, retailing,
communications, technology, electronic commerce, health care, leisure
and entertainment, and special situations.
SYNDICATE
The Syndicate Department coordinates the Company's participation
in underwriting syndicates or selling groups of other underwriters and
assists the Company in obtaining participation from other firms in
underwritings managed by the Company. Over the past years, the
Company has participated in a diverse range of offerings, primarily as
an underwriter, or selling group member. These offerings included
both initial and secondary offerings of common and preferred equity
and fixed income and closed-end funds offerings.
FIXED INCOME
Through its Fixed Income Department, the Company distributes both
taxable and tax-exempt fixed income products (such as corporate,
government and mortgage-backed securities as well as municipal bonds
and unit investment trusts). The Company positions taxable fixed
32
<PAGE>
income securities and municipal bonds in both the primary and
secondary markets as a principal and participates as an underwriter,
dealer and selling group member for corporate, municipal taxable and
non-taxable unit trusts offerings.
MARKET MAKING AND PRINCIPAL TRANSACTIONS
Prior to the Divestiture on March 3, 1999, the Company conducted
its market making and principal transaction activities using both JWG
Clearing and Genesis. Activities related to research recommendations,
institutional order flow and Genesis's brokerage processing services
unit were conducted through Genesis, while activities related to the
Company's retail brokerage and fully disclosed clearing business were
conducted through JWG Clearing. All of the Company's market making
and principal transaction activities are currently conducted
exclusively through JWG Clearing. JWG Clearing currently acts as a
market maker for approximately 70 securities that are traded in the
over-the-counter securities market, including those followed by the
Research Department.
In its capacity as a market maker, the Company facilitates
trading in select securities by buying and selling securities as a
principal for its own account, rather than as an agent for the
accounts of its customers. The Company attempts to derive profits
through its market making activities by buying stock at its quoted bid
price and then either selling the stock at its quoted market price or
holding the stock in inventory for future sale at a higher price. If
the market for such securities declines, however, or if the Company
otherwise is unable to resell the securities at a favorable price, the
Company could suffer losses and such losses could be substantial.
Additionally, the Company engages in short sales, primarily to fill
customer orders. A short sale represents an obligation of the Company
to deliver specified securities at the contracted price, thereby
creating a liability to purchase the securities at a future time at
prevailing market prices. Accordingly, these transactions result in
off-balance-sheet risk as the Company's ultimate obligation to satisfy
the sale of these securities may exceed the amount recognized by the
Company at the time the short sale was executed.
The Company's general policy historically has been not to hold a
substantial volume of securities for any significant period of time,
so as to reduce the risk of losses from market declines or unfavorable
developments. The Company's market making activities historically
have accounted for a significant portion of its revenues, and from the
Company's inception through June 1998, losses incurred in connection
with these activities were not significant. During July, August and
September, 1998, however, the securities markets in general
experienced a significant correction which resulted in significant
market volatility. Also, the historical policy of Genesis with
respect to amounts and holding periods for securities acquired in
market making had been less conservative than the Company's general
policy, and the Company had not yet changed that policy for Genesis's
ongoing operations following the Combination. As a result of
Genesis's inventory and trading strategies during this period of
market correction and volatility, Genesis experienced trading losses
in excess of historical levels and the Company reevaluated its
inventory and trading strategies at Genesis. Such procedures included
(i) reducing the level of Genesis's securities inventory and (ii)
curtailing other intra-day trading strategies that required the
Company's capital to be placed at significant risk. As discussed
elsewhere herein, the Company has subsequently divested Genesis. See
"- Recent Developments - The Genesis Divestiture", below. The Company
anticipates that market making and principal transaction activities
will continue to be a significant factor in the Company's operations
and its prospects for profitability.
BROKERAGE PROCESSING OPERATIONS
The Company provides a variety of brokerage processing services,
through JWG Clearing, including on a fully disclosed basis for a
variety of customers ("Correspondents") which are engaged in the
33
<PAGE>
securities brokerage business but who lack the back office or other
support capacities to process and clear securities transactions for
their clients. Correspondents include broker-dealers, banks, and
other financial institutions. In a fully disclosed transaction, the
identity of the Correspondent's client is known to JWG Clearing, and
JWG Clearing physically maintains the client's account and performs a
variety of services as agent for the Correspondent. The execution and
clearing process requires the performance of a series of complex
steps, many of which are accomplished with the assistance of
sophisticated data processing hardware and software. JWG Clearing has
approximately 90 Correspondents.
Between the time of the Combination on June 12, 1998 and the
Divestiture on March 3, 1999, the Company also provided brokerage
processing services through Genesis, which served two primary types of
organizations - investment partnerships and fee-based investment
advisors. As a result of the Divestiture, the Company no longer
provides any significant amount of services to those types of
organizations.
RECENT DEVELOPMENTS
THE GENESIS DIVESTITURE
As a result of unexpected operational problems at Genesis
following the Combination, which were resulting in significant losses,
the Company implemented an internal reorganization of Genesis'
business activities, and management reassessed its earlier expectations
about the future of Genesis within the Company's overall organization.
Those actions led to internal disagreements and disputes, including
about the respective roles of the Company's Chief Operating Officer,
Phillip C. Stapleton, and Vice Chairman, Will K. Weinstein, both of
whom had been former owners and senior executives of Genesis and had
assumed their positions with the Company as part of the Combination.
The Company determined that the continuation of that state of affairs
was not conducive to the best interest of its shareholders and sought
a resolution that, among other things, would facilitate the separation
of Messrs. Stapleton and Weinstein from the Company and would retain
for the Company the corporate finance operations of Genesis, which
operations management believed held potential consistent with its
earlier expectations.
On March 3, 1999, the Company achieved such a resolution by
divesting Genesis (the "Divestiture") to an investor group of certain
of the former owners of Genesis led by Messrs. Stapleton and Weinstein
(the "Stapleton Group"). As part of the Divestiture, the Stapleton
Group conveyed to the Company an aggregate of 284,375 shares of Common
Stock of the Company that had been issued in the Combination, and
Genesis transferred its corporate finance operations (based in its New
York office) to another Company subsidiary, JWG Capital, so that those
operations would be retained by the Company; the Company also assumed
responsibility for and retained occupancy of that New York City
office. As divested, Genesis' operatings consisted of brokerage
processing services and related activities that were being conducted
through its San Francisco office.
The overall transaction for the Divestiture was closed pursuant
to an Equity Exchange and Conciliation Agreement among the parties
dated as of March 3, 1999 (the "Conciliation Agreement"), pursuant to
which the Company's employment agreements with Messrs. Weinstein and
Stapleton were terminated; Messrs. Weinstein and Stapleton both
resigned from the Board of Directors of the Company and all other
positions they held with the Company or its affiliates; Harvey Heller,
who had been designated by Mr. Weinstein for election to the Board of
Directors of the Company, resigned as a director; the Company agreed
to register for resale all remaining shares of its Common Stock held
by members of the Stapleton Group and to pay potential penalties if
such registration is not effected within prescribed time periods; and
the Company agreed to pay Mr. Weinstein as past salary and severance a
lump sum payment of approximately $325,000, and (a) paid Stapleton
$62,500 as severance and (b) agreed to pay Mr. Stapleton as bonus
34
<PAGE>
compensation for the period of his employment an amount equal to 3% of
the Company's net income, pre-tax, during the period from June 12,
1998 through and including February 28, 1999 (which bonus is estimated
to be approximately $175,000). The respective payments to Messrs.
Weinstein and Stapleton constitute satisfaction in full of any and all
obligations of the Company to each of them as a result of his
employment by the Company or its affiliates.
In addition, as part of the Conciliation Agreement, a voting
agreement between Mr. Weinstein and Marshall T. Leeds, the Company's
Chairman and Chief Executive Officer, pursuant to which Mr. Weinstein
was entitled to designate persons for election to the Company's Board
of Directors, was terminated; each Stapleton Group member agreed not
to seek a position on the Company's Board of Directors for ten years,
unless Mr. Leeds and Joel E. Marks are no longer directors of the
Company; and the Stapleton Group members agreed either to vote their
remaining shares of Common Stock (unless and until sold to other
persons) for the slate of nominees for directors approved by the
Company's Board of Directors or to abstain from such a vote. Also, the
Company and the Stapleton Group members executed mutual releases with
respect to all matters related to their association since the
Combination, except for their respective rights to enforce the terms
of the Conciliation Agreement.
As discussed elsewhere herein, management does not expect the
Divestiture to have a material effect on the Company's operational
results or financial condition. Moreover, the overall terms for the
Divestiture removed the principal sources of internal discord, which
potentially could have disrupted the Company's management of its
affairs for the foreseeable future. Management believes, therefore,
that the Company is better situated as a result of the Divestiture to
conduct its business and pursue possible opportunities in the best
interest of all its shareholders.
THE AMERICAS GROWTH FUND, INC.
In December 1998, the Company completed its acquisition of the
remaining 9% of the outstanding shares of common stock of The Americas
Growth Fund, Inc. ("AGRO"), a publicly held investment company, that
were not owned by the Company. Previously, in September 1997, when
the Company owned 26% of the outstanding shares of common stock of
AGRO, the Company conducted an exchange tender offer to acquire all of
the other outstanding shares, and it received shares in that offer
that brought the Company's ownership of AGRO shares to 91%. All AGRO
shares acquired by the Company in either transaction were acquired
based on an exchange ratio of .431 share of the Company's Common Stock
for each share of AGRO, resulting in the issuance by the Company of an
aggregate of 49,828 and 354,851 shares of common stock in the December
1998 and September 1997 transactions, respectively. The AGRO
acquisition was accounted for under the purchase method of accounting.
THE GSG ACQUISITION
On January 1, 1999, GSG acquired certain assets of six retail
securities branch offices (and three satellite offices) from Chatfield
Dean Holdings, Inc. ("CDH"). As a result of this transaction, the
Company added approximately 206 registered representatives and
approximately 50 salaried management and support personnel. Prior to
January 1, 1999, GSG, formerly known as Discount Securities Group,
Inc., was inactive.
In connection with this asset purchase, GSG paid CDH approximately
$2.3 million in cash ($1.0 million of which was used to repay an earlier
loan from the Company to CDH); JWGFS issued to CDH shares of its Series C
Redeemable Preferred Stock that are redeemable, in the aggregate, for up to
$2.5 million based upon the financial performance of the acquired branch
offices over the three years in the period ending December 31, 2001; and
35
<PAGE>
the Company issued to CDH a warrant for the purchase of up to 104,167 shares
of its Common Stock at an exercise price of $24 per share which may only
be exercised using redemptions of the Series C Preferred Stock, if any, and
a three-year, fully vested options to purchase 50,000 shares of its
Common Stock at an exercise price of $24 per share. The Company also
agreed to issue to designated members of CDH's former senior management
options to purchase an aggregate of 250,000 shares of its Common Stock at
an exercise price of $12 per share, exercisable through December 31, 2003
(the "Senior Management Options"). The Senior Management Options vest over
a three-year period based upon a formula tied to the performance of the
acquired branch offices. An additional 100,000 options, with a three-year
term and a $24 per share exercise price, were made available by the Company
to selected branch managers and registered representatives employed in the
acquired branch offices.
COMPETITION
The Company competes with numerous investment banking and
brokerage firms, consulting firms, and financial service companies
that are larger, better financed, have longer operating histories,
and, in some instances, offer a range of financial and other services
to clients that exceed the services offered by the Company. In
addition, there is increasing competition from other businesses that
now offer financial services, such as commercial banking and insurance
companies and certain accounting firms. The principal competitive
factors in the securities industry are the quality and ability of
professional personnel, the experience and reputation of the firm, the
relative prices of services and products offered, the scope of such
services and products (increasingly the ability to offer "one-stop-
shopping" to customers and clients), and the efficiency of back office
operations. The Company has tried to position itself competitively by
targeting its investment banking services to middle-market companies,
providing competitively priced products and services, and developing
one-stop-shopping services. Additionally, the Company has targeted
markets that it believes are not adequately served by, and are not a
primary focus of, most of these other larger firms. The Company
believes that its clearing services and back office support agreements
with Bear Stearns provides it additional ability to compete with
larger firms.
EMPLOYEES AND REGISTERED REPRESENTATIVES
As of December 31, 1998, the Company and its subsidiaries had a
total of approximately 350 salaried employees and 500 registered
representatives. Of these totals, 278 registered representatives are
independent contractors affiliated with one of the 108 affiliated, but
independently owned and operated, CSG and DMG branch offices which
existed at such time. In the asset purchase transaction with CDH on
January 1, 1999, the Company, through GSG, acquired six branch offices
and three satellite offices, which offices employed a total of
approximately 50 salaried employees and 206 registered
representatives.
REGULATION
The securities industry in the United States is subject to
extensive regulation under various federal and state laws and
regulations. The SEC is the federal agency charged with the
administration of most of the federal securities laws. Much of the
regulation of the securities industry, however, has been assigned to
various self regulatory organizations ("SROs"), principally the NASD,
and in the case of NYSE member firms, the NYSE. The SROs, among other
things, promulgate regulations and provide oversight in areas of (i)
sales practices, (ii) trade practices among broker-dealers, (iii)
capital requirements, (iv) record keeping and (v) conduct of employees
and affiliates of member organizations. In addition to promulgating
regulations and providing oversight, the Commission and the SROs have
the authority to conduct administrative proceedings which can result
in the censure, fine, suspension or expulsion of a broker-dealer, its
officers or employees. Furthermore, new legislation, changes in the
36
<PAGE>
rules and regulations promulgated by the Commission and SROs, or
changes in the interpretation or enforcement of existing laws and
rules often directly affect the operation and profitability of broker-
dealers. The stated purpose of much of the regulation of broker-
dealers is the protection of customers and the securities markets
rather than the protection of creditors and shareholders of broker-
dealers.
LEGAL PROCEEDINGS
There are no material legal proceedings pending or threatened in
which the Company is party or of which its property is the subject.
The Company or its subsidiaries have been named in various arbitration
and legal proceedings arising in the ordinary course of its securities
brokerage business. Although arbitration and litigation involves
contingencies that cannot be definitively predicted, including the
unpredictability of actions that might be taken by an arbitration
panel or jury on matters that are submitted to them, the Company
expects that the ultimate disposition of arbitration and litigation
arising from the ordinary course of business will not have a material
adverse impact upon its financial position and results of operations.
The Company or its subsidiaries may be involved from time to time in
other litigation arising in the normal course of business.
37
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and executive
officers of the Company is set forth in the following table and
paragraphs.
</TABLE>
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <S>
Marshall T. Leeds . . . . . . . . . . . . . . . . 43 President, Chief Executive Officer,
and Chairman of the Board
Joel E. Marks . . . . . . . . . . . . . . . . . . 42 Executive Vice President, Chief
Financial Officer, Secretary, and
Director
Wm. Dennis Ferguson . . . . . . . . . . . . . . . 55 Executive Vice President and
Director
Gregg S. Glaser . . . . . . . . . . . . . . . . . 39 Executive Vice President,
Treasurer, and Director
Jeffrey H. Lehman . . . . . . . . . . . . . . . . 38 Executive Vice President and
Director
Sanford B. Cohen . . . . . . . . . . . . . . . . 41 Director
</TABLE>
MARSHALL T. LEEDS, a co-founder of JWGFS, the predecessor of the
Company, in 1983, also serves as President and Chief Executive Officer
of certain of the Company's wholly-owned subsidiaries. Mr. Leeds is a
past Chairman of Regional Investment Bankers Association, Inc.
("RIBA"), the country's largest association of independent broker-
dealers involved in the underwriting of debt and equity securities,
and he currently serves on the Independent Contractor Firm Committee
of the Securities Industries Association.
JOEL E. MARKS, the other co-founder of JWGFS, also serves as
Executive Vice President of certain of the Company's wholly-owned
subsidiaries. Mr. Marks is a Certified Public Accountant, and prior
to 1983, he was employed in various capacities in both the audit and
tax departments of the international accounting and consulting firm of
Deloitte & Touche LLP. From 1987 to 1994, he served as Senior Vice
President and Chief Financial Officer of Automobile Protection
Corporation-APCO, an unaffiliated public corporation. From 1996 to
1998, Mr. Marks served as the Chairman of RIBA.
WM. DENNIS FERGUSON, who joined JWGFS in 1990, also serves as
Executive Vice President of certain of the Company's wholly-owned
subsidiaries. From July 21, 1990 to October 31, 1990, prior to its
acquisition by JWGFS, Mr. Ferguson served as acting President and
Chief Executive Officer of the predecessor company ("Old JWC
Financial") which was acquired by JWGFS on November 1, 1990. From
1981 to 1990, he held various executive positions at Old JWC
Financial. Mr. Ferguson received a Bachelor of Science degree from
38
<PAGE>
Florida Southern College and attended Florida Atlantic University
Graduate School. From 1978 to 1980, Mr. Ferguson was Area Vice
President and Office Manager for the investment banking firm of Dean
Witter Reynolds.
GREGG S. GLASER, who joined JWGFS in 1990, also serves as
Executive Vice President and Treasurer of certain of the Company's
wholly-owned subsidiaries. Mr. Glaser graduated with a Bachelor of
Science degree in accounting from the University of Florida. From
1981 to 1986, when he joined Old JWC Financial, Mr. Glaser was a
senior auditor with the Fort Lauderdale office of the international
accounting and consulting firm of Price Waterhouse LLP.
JEFFREY H. LEHMAN, who joined the Company as part of the
Combination on June 12, 1998, is also Executive Vice President and
Director of Corporate Finance of JWG Capital. From 1984 to 1996 he
was employed by Ladenburg, Thalmann & Co. Inc., most recently as
Managing Director of Corporate Finance and Director of Mergers and
Acquisitions. Mr. Lehman also served as a member of the Board of
Directors and Management Committee of Ladenburg, Thalmann. He
received his Masters in Business Administration with distinction from
the Wharton School of the University of Pennsylvania in 1983.
SANFORD B. COHEN has been a director of the Company since
February, 1999. In 1985, Mr. Cohen founded Prescott Valley
Broadcasting Co., Inc., owner of KIHX-FM and KQNA-AM radio stations in
Prescott Valley, Arizona, and has been its President since its
inception. From 1982 to 1984, Mr. Cohen was Vice President of
National Phonecasting Co., a joint venture with Gannett Broadcasting
Corp., a private company engaged in telephone broadcasting of
financial information. Mr. Cohen received his B.A. degree in
Economics in 1979 from Michigan State University.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term
compensation for services rendered in all capacities to the Company
and its subsidiaries for the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers
whose aggregate cash compensation exceeded $100,000 ("Named Executive
Officers") during any of the Company's last three fiscal years:
46
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards <F1>
______________________________________________________________________________________________________________________________
Name Restricted Options/ All Other
and Principal Position Year Salary Bonus Other Stock SARs Compensation
______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds 1998 $ 401,090 $ 1,104.224 <F2> $ 45,224 - $ 13,200 <F3>
President and Chief 1997 $ 279,446 $ 1,110,895 $ 430,868 <F3> - 75,000 $ 13,200 <F3>
Executive Officer 1996 $ 270,519 $ 1,246,612 - - 75,000 $ 13,000 <F3>
Joel E. Marks 1998 $ 219,680 $ 392,258 <F5> - $ 3,200 <F6>
Chief Financial Officer and 1997 $ 180,775 $ 388,813 - 19,447 26,250 $ 3,200 <F6>
Executive Vice President 1996 $ 175,000 $ 431,616 - - 26,250 $ 3,000 <F6>
Wm. Dennis Ferguson 1998 $ 120,000 $ 147,322 - - - $ 3,200 <F6>
Executive Vice President 1997 $ 120,000 $ 194,977 - - - $ 3,200 <F6>
1996 $ 120,000 $ 262,563 - - 7,500 $ 3,000 <F6>
Gregg S. Glaser 1998 $ 195,123 $ 98,036 - - 60,000 $ 3,200 <F6>
Treasurer and Executive 1997 $ 128,594 $ 85,450 - - 11,250 $ 3,200 <F6>
Vice President 1996 $ 125,253 $ 72,696 - - 11,250 $ 3,000 <F6>
Philip C. Stapleton(7) 1998 $ 135,417 $ 100,268 - - - $ -
Chief Operating Office and
Executive Vice President
Will K. Weinstein(8) 1998 $ 247,808 $ - $ 888,922 - - $ -
Vice Chairman
_______________________________________________________________________________________________________________________________
_________________
<FN>
<F1> There were no payouts of long-term compensation during the fiscal
year.
<F2> Does not reflect $533,750 of Special Payments to Mr. Leeds
pursuant to his Nonsolicitation Agreement that was entered into in
connection with the Combination. See "- Nonsolicitation
Agreements", below.
<F3> Includes $10,000 for tax return preparation and financial
services and a Company matching contribution of $3,200 with respect
to the Company's 401(k) plan.
<F4> Represents gross-up for the payment of taxes upon exercise of
stock options.
<F5> Does not reflect $215,000 of Special Payments to Mr. Marks
pursuant to his Nonsolicitation Agreement that was entered into in
connection with the Combination. See "- Nonsolicitation
Agreements", below.
<F6> Represents Company matching contribution with respect to the
Company's 401(k) plan.
<F7> Reflects amounts paid or accrued by the Company following the
Combination on June 12, 1998. Mr. Stapleton resigned his positions
with the Company on March 3, 1999.
<F8> Reflects amounts paid or accrued by the Company following the
Combination on June 12, 1998. Mr. Weinstein resigned his positions
with the Company on March 3, 1999.
</FN>
</TABLE>
40
<PAGE>
The following tables show, as to the Company's Chief Executive
Officer and Named Executive Officers, certain information with respect
to options granted to them. No stock appreciation rights ("SARs")
have been granted.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
The following table sets forth further information on grants of
stock options during 1998 to each of the Named Executive Officers, if
any were granted.
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term <F1>
______________________________________________________________________________________________________________
% of total
Number of Options
Securities granted to
Underlying employees Exercise
Options in fiscal or base Expiration
Name Granted year price date 5% 10%
(#) ($/Share)
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds <F1> 15,075 3.1 $ 5.63 12/31/2008 $ 53,376 $135,265
Joel E. Marks <F2> 6,482 1.3 $ 5.63 12/31/2008 $ 22,951 $ 58,161
Gregg S. Glaser <F3> 60,000 12.3 $10.50 10/13/2003 $174,057 $384,621
______________________________________________________________________________________________________________
________________
<FN>
<F1> Illustrates the value that may be realized upon the exercise of
options immediately prior to the expiration of their term,
assuming specified compound rates of appreciation on the
Company's Common Stock over the term of the options. Assumed
rates of appreciation are not necessarily indicative of future
stock performance.
<F2> The assumed notes of appreciation of five and ten percent would
result in the per share price of the Company's Common Stock
increasing to $9.17 and $14.60, respectively. Over the past ten
years, the market price for the Company's Common Stock has increased
at a compound annual rate of approximately 54%.
<F3> The assumed annual rates of appreciation of five and ten percent
would result in the per share price of the Company's Common Stock
increasing to $13.40 and $16.91, respectively. Over the past five
years, the market price for the Company's Common Stock has increased
at a compound annual rate of approximately 17.5%.
</FN>
</TABLE>
41
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth further information with respect
to option exercises during 1998, and unexercised stock options held,
by each of the Named Executive Officers at December 31, 1998, if he
exercised or held any.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Number of Value of
Securities Unexercised In-
Underlying The-Money
Unexercised Options at
Options at December 31, 1998
December 31, 1998 (#) ($) <F1>
Shares Acquired on Exercisable (E)/ Exercisable (E)/
Name Exercise (#) Value Realized ($) Unexercisable (U) Unexercisable (U)
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Marshall T. Leeds - - 150,000 (E) $108,338 (E)
15,075 (U) 4,711 (U)
Joel E. Marks - - 52,500 (E) $37,920 (E)
6,482 (U) 2,026 (U)
Wm. Dennis Ferguson 45,000 $497,115 7,500 (E) $13,878 (E)
- (U) - (U)
Gregg S. Glaser 11,250 $69,334 31,250 (E) - (E)
40,000 (U) - (U)
________________________________________________________________________________________________________________________
_______________________
<FN>
<F(1> On December 31, 1998, the closing price of the Company's Common
Stock on The American Stock Exchange was $5.9375.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of
Messrs. Leeds, Marks, and Glaser pursuant to which Mr. Leeds is
employed as Chairman of the Board, President, and Chief Executive
Officer of the Company, Mr. Marks is employed as Executive Vice
President and Chief Financial Officer of the Company, and Mr. Glaser
is employed as Executive Vice President of the Company. The term of
the agreement for each of Messrs. Leeds, Marks and Glaser extends to
December 31, 2001, and each agreement is automatically extended for
successive one-year terms thereafter unless either party gives six-
months' prior written notice to the other party of its election not to
extend the term. Messrs. Leeds', Marks', and Glaser's base annual
salaries as of December 31, 1998 were $500,000, $250,000, and
$250,000, respectively, with an annual cost of living increase, if
applicable.
In addition, the agreements for Messrs. Leeds and Marks require
the Company to establish an executive bonus pool (the "Executive Bonus
Pool"), which has been established in the form of the Company's
shareholder approved Management Incentive Bonus Plan, pursuant to
which an aggregate of 15% of the Company's annual pre-tax profits will
be paid to Messrs. Leeds and Marks. Messrs. Leeds and Marks will be
eligible to receive 50% and 21.5%, respectively, of the Executive
Bonus Pool as determined by the committee of the Board of Directors
42
<PAGE>
responsible for the Executive Bonus Pool of the Company, subject to
downward adjustment to 35% and 5%, respectively, at the discretion of
such committee. Pursuant to Mr. Glaser's agreement, the Company will
pay an annual bonus to him equal to 0.616% of the Company's
consolidated pre-tax income. In addition, the Company has issued to
Mr. Glaser options to purchase 60,000 shares of Company Common Stock
at an exercise price of $10.50 per share. Options for 20,000 shares
vested on the date of grant, and options for an additional 20,000
shares will vest on each of June 16, 1999 and 2000.
If the Company (i) terminates the employment of Messrs. Leeds,
Marks, or Glaser other than for cause or as a result of the death or
disability of any such person; (ii) reduces his authority, duties, or
standing within the Company without his consent; or (iii) experiences
a change of control (as defined) without his consent and he
subsequently terminates his employment, then the Company will pay to
such person an amount equal to his aggregate base annual salary for
the remainder of the term of his employment agreement (or a minimum of
12 months) and bonus payments to which he would have been entitled for
the remainder of the term had his employment not terminated, and all
outstanding stock options held by such person will become fully
vested.
The Company had employment agreements with Messrs. Stapleton and
Weinstein, both of which were terminated in connection with their
separation from the Company on March 3, 1999 as part of the
Divestiture pursuant to the Conciliation Agreement. See "Business -
Recent Developments - The Genesis Divestiture".
NONSOLICITATION AGREEMENTS
Messrs. Leeds and Marks have entered into nonsolicitation
agreements with the Company for a period of seven years from June 12,
1998 (the "Nonsolicitation Agreements"). In connection with those
agreements and in consideration for Messrs. Leeds' and Marks'
agreements to terminate the financial terms of their employment
agreements with JWGFS in connection with the Combination, the Company
agreed to make certain payments to each of them (the "Special
Payments"). Messrs. Leeds and Marks agreed to accept their respective
Special Payments in the form of one-half cash and one-half restricted
shares of Common Stock.
The cash portion of the Special Payments consists of four equal
installments, the first paid in July 1998 and the remaining
installments to be paid on January 15, 1999, 2000 and 2001, in the
amounts of $533,750 and $215,000 each for Messrs. Leeds and Marks,
respectively. If the employment of either Messrs. Leeds or Marks is
terminated for any reason other than cause, any unpaid cash
installment to him must be paid within 30 days of termination. The
restricted shares portion of the Special Payments will be paid by the
issuance to Messrs. Leeds and Marks of 255,689 shares and 109,994
shares, respectively, of Common Stock, subject to forfeiture as
described below. (Such numbers of shares were derived from a formula
to yield a value (based on 80% of the average closing price of the
JWGFS Common Stock for the 10 consecutive trading days immediately
preceding consummation of the Combination, or $8.35 per share) equal
to $2,135,000 in the case of Mr. Leeds and $860,000 in the case of Mr.
Marks.) Twenty-five percent of the shares issued to Messrs. Leeds and
Marks will vest on January 15, 2002 and an additional 25% on each
January 15 in 2003 through 2005. All unvested shares of Messrs. Leeds
or Marks will be subject to forfeiture at any time there is a
violation of his respective Nonsolicitation Agreement. In the event
of a change in control of the Company, all such shares become
immediately vested, and the forfeiture provisions with respect to such
shares will no longer be in force.
43
<PAGE>
DIRECTORS COMPENSATION
Directors who are not employees of the Company receive an annual
retainer of $5,000, and receive $750 and $500, respectively, for their
attendance at Board of Directors or Board committee meetings.
Directors who are employees of the Company are not compensated for
their service on the Board or Board committees. Each director is also
reimbursed for travel expenses incurred in connection with attending
meetings.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee's principal functions
include reviews of audit plans, scope of examinations and findings of
the Company's independent public accountants; significant legal
matters; internal controls; and the adequacy of insurance coverage.
Further, it is the responsibility of this committee to recommend to
the Board the annual appointment of the independent public
accountants; to review the findings of external regulatory agencies;
and to oversee the accounting policies used in preparing the Company's
financial statements. The Audit Committee also supervises independent
audits of the Company and its subsidiaries and oversees the
establishment of appropriate policies and internal accounting
controls. Messrs. Cohen and Glaser are presently the only members of
the Audit Committee; the Company expects to add to its Board of
Directors another independent director, who will become a member of
this committee as well.
COMPENSATION COMMITTEE. The Compensation Committee oversees the
Company's compensation policies and programs. Messrs. Cohen and Marks
are presently the only members of the Compensation Committee; the
Company expects to add to its Board of Directors another independent
director, who will become a member of this committee as well.
ARRANGEMENTS FOR BOARD
In connection with the series of transactions between JWGFS and
Wilmington Trust Company ("Wilmington"), as more fully described under
"Certain Transactions" herein, JWGFS granted Wilmington the right to
appoint one person to serve on its Board of Directors. The Company
has agreed to honor that agreement. Wilmington has not yet exercised
such right.
44
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the holdings of Common Stock,
which is the Company's only class of voting securities, by the only
stockholders who, as of March 10, 1999, were known by the Company to
own beneficially more than five percent of the Company's outstanding
Common Stock, by each director and Named Executive Officer, and by all
directors and executive officers of the Company as a group, as of the
same date. Unless otherwise indicated, the person or entity has sole
power to vote and dispose of the shares. The address for each of
Messrs. Leeds, Marks, Ferguson, Glaser, and Cohen is c/o the Company
at 980 North Federal Highway, Suite 310, Boca Raton, Florida 33432;
the address for Mr. Lehman is 599 Lexington Avenue, New York, New York
10022; the address for The Will K. Weinstein Revocable Trust is c/o
Jackson Square Partners, 909 Montgomery Street, Suite 600, San
Francisco, California 94133; and the address for WT Investments, Inc.
is 1100 N. Market Street, Wilmington, Delaware 19890.
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class <F1>
----------------------- ------------------ ----------------
<S> <C> <C>
Marshall T. Leeds <F2> 703,956 12.1
WT Investments, Inc. <F3> 400,000 7.1
The Will K. Weinstein Revocable
Trust 317,751 5.6
Joel E. Marks <F4> 324,505 5.7
Jeffrey H. Lehman 162,502 2.9
Gregg S. Glaser <F5> 96,407 1.7
Wm. Dennis Ferguson <F6> 75,315 1.3
Sanford B. Cohen - -
All directors and executive
officers as a group (6 persons) <F7> 1,362,685 23.1
______________
<FN>
<F1> Based on 5,652,833 shares issued and outstanding, and, as to
each owner separately for such owner's percentage, an additional
number of shares not yet outstanding as to which such person has
the right to acquire ownership within 60 days.
<F2> Includes 150,000 shares of Common Stock issuable upon exercise
of currently exercisable stock options. Does not include 255,689
shares of Common Stock to be issued pursuant to his
Nonsolicitation Agreement with the Company. See "Executive
Compensation - Nonsolicitation Agreements".
<F3> Includes 400,000 shares of Common Stock issuable upon exercise
of currently exercisable warrants.
<F4> Includes 52,500 shares of Common Stock issuable upon exercise
of currently exercisable stock options, 73,750 shares of Common
Stock owned by Mr. Marks' wife and 120,000 shares of Common Stock
owned by Mr. Marks as custodian for his minor children. Does not
include 102,994 shares of Common Stock to be issued pursuant to
his Nonsolicitation Agreement with the Company. See "Executive
Compensation - Nonsolicitation Agreements."
45
<PAGE>
<F5> Includes 31,250 shares of Common Stock issuable upon exercise
of currently exercisable stock options.
<F6> Includes 7,500 shares of Common Stock issuable upon exercise
of currently exercisable stock options.
<F7> Includes an aggregate of 241,250 shares issuable to members of
the group pursuant to currently exercisable stock options; see
Notes (2), (4), (5) and (6) above.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
In January 1996, JWGFS obtained an unsecured $2,500,000 revolving
line of credit from Wilmington Trust Company ("Wilmington") for
general corporate purposes (the "Wilmington Facility"). The
Wilmington Facility matures on December 31, 2002, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the Wilmington
Facility bear interest at Wilmington's National Commercial Rate, with
interest payments due monthly in arrears. The Company is required to
maintain certain debt covenants, including (i) minimum stockholders'
equity equal to at least $7,000,000, plus 30% of net income for all
future fiscal quarters, plus 75% of the net proceeds from any common
stock issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive nine-quarter
period. In connection with the Share Exchange, the Company assumed the
obligations of JWGFS under the Wilmington Facility, including
obligations of JWGFS with respect to board membership, the Wilmington
Warrant and the Wilmington Marketing Agreement, all described in the
next paragraph. At December 31, 1998, the balance outstanding under
the Wilmington Facility was $1,500,000.
In connection with the Wilmington Facility, Wilmington has the
right to designate one person to serve on the Company's Board of
Directors, which right Wilmington has not yet exercised. In addition,
JWGFS entered into a Marketing Agreement with Wilmington Trust FSB
(the "Wilmington Marketing Agreement") and granted W T Investments,
Inc. a warrant, which has been assumed by the Company and now relates
to the purchase of up to 400,000 shares of the Company's Common Stock
at any time prior to December 31, 2002 (the "Wilmington Warrant") at
an exercise price of $11.30. The Wilmington Marketing Agreement
provides that the Company will market certain products and services,
initially personal trust and asset management services, provided by
Wilmington Trust FSB to the Company's brokers, clients, and prospects.
In connection with the Combination, the Company entered into the
Nonsolicitation Agreements with Messrs. Leeds and Marks, which are
described above under "Executive Compensation Nonsolicitation
Agreements". These agreements were approved by the shareholders of
JWGFS in connection with their approval of the Share Exchange and the
Combination.
On March 3, 1999, pursuant to the Conciliation Agreement, the
Company consummated the Divestiture and its related series of
arrangements with Messrs. Stapleton and Weinstein, each of whom was an
executive officer and director of the Company until such consummation.
See "Business - Recent Developments - The Genesis Divestiture".
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation provide that its
authorized capital stock consists of 30,000,000 shares of Common
Stock, and 5,000,000 shares of preferred stock, par value $.10 per
share. As of March ___, 1999, there were 5,652,833 shares of Common
Stock and no shares of preferred stock issued and outstanding. The
following summary does not purport to be complete and is qualified in
its entirety by reference to the Articles of Incorporation and Bylaws
of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and the applicable
provisions of the Florida Business Corporation Act (the "FBCA").
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per
share for the election of directors and all other matters to be voted
on by the shareholders. Holders of Common Stock do not have
cumulative voting rights; therefore the holders of a majority of the
shares voting for the election of directors may elect all nominees
standing for election as directors. Subject to the rights of holders
of preferred stock, holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available for
that use. Subject to the rights of holders of preferred stock,
holders of Common Stock are entitled to share on a pro rata basis in
any distribution to shareholders upon liquidation, dissolution, or
winding up of the Company. No holder of Common Stock will have any
preemptive right to subscribe for any stock or other security of the
Company.
PREFERRED STOCK
The Board of Directors, without further action by shareholders,
may from time to time authorize the issuance of shares of preferred
stock in one or more series and with certain limitations, rights,
preferences, qualifications, or restrictions thereon and the number of
shares constituting such series and the designation of such series.
Satisfaction of any dividend preferences on outstanding preferred
stock would reduce the amount of funds available for the payment of
dividends on the Common Stock. Holders of preferred stock would
normally be entitled to receive a preference payment in the event of
any liquidation, dissolution, or winding up of the Company before any
payment is made to the holders of Common Stock. In addition, under
certain circumstances, the issuance of such preferred stock may render
more difficult or tend to discourage a change in control of the
Company. Although the Company currently has no plans to issue shares
of preferred stock, the Board of Directors of the Company, without
shareholder approval, may issue preferred stock with voting and
conversion rights which could adversely affect the rights of holders
of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Common Stock is American
Stock Transfer & Trust Company, New York, New York.
INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for
indemnification of officers and directors to the fullest extent
permitted by Florida law and, to the extent permitted by such law,
eliminate, or limit the personal liability of directors to the Company
and its shareholders for monetary damages for certain breaches of
fiduciary duties. The liability of a director is not eliminated or
limited (i) for any breach of the director's duty of loyalty to the
Company or its shareholders; (ii) for acts or omissions not in good
47
<PAGE>
faith or that involve intentional misconduct or a knowing violation of
law; (iii) for any improper distribution under the FBCA; or (iv) for
any transaction from which the director derived an improper personal
benefit. Insofar as indemnification for liabilities under the
Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
CERTAIN ANTI-TAKEOVER MATTERS
No provision of the Company's Articles of Incorporation or
Bylaws has been adopted in order to accomplish any anti-takeover
objective of the Board of Directors or management. However, certain
provisions of the Company's Bylaws and Articles of Incorporation could
have the effect of making a hostile, unsolicited offer to take control
of the Company's more difficult. See " Special Meetings of the
Shareholders" and " Shareholder Action Without Meeting", below.
Management does not believe that any other provisions of the Company's
Bylaws or Articles of Incorporation have such anti-takeover effects,
and management does not have any current plans to adopt or propose for
adoption any anti- takeover measure in a future proxy solicitation.
SPECIAL MEETINGS OF SHAREHOLDERS
The Company's Bylaws require a special meeting to be called by
the corporation only upon the written request of the holders of shares
representing 40% or more of the votes entitled to be cast on each
issue proposed to be considered at the special meeting. By requiring
a shareholder or a group of shareholders to gain the support of a
large percentage of the holders of shares before the shareholder or
group of shareholders can require the Company to call a special
meeting, the Bylaw provision could have the effect of making a hostile
or unsolicited offer to take control of the Company more difficult.
This is because, without the support of the Board of Directors, an
acquiror would not be able to call a meeting to address all of the
shareholders until the requisite support was obtained. On the other
hand, requiring a greater percentage of support also helps to ensure
that special meetings are not called to address matters that may not
be important to a significant number of the shareholders.
SHAREHOLDER ACTION WITHOUT MEETING
In its Articles of Incorporation, the Company has elected to opt-
out of the FBCA provision that permits any action required or
permitted to be taken at an annual or special meeting of shareholders
to be taken without a meeting if the action is taken by written
consent of not less than the minimum number of votes with respect to
each voting group necessary to authorize or take action at a meeting
at which all voting groups and shares entitled to vote are present and
voted. Shareholders may take action without a vote only if the action
is taken by unanimous written consent of the holders of the
outstanding stock of each voting group entitled to vote thereon.
Because the Company's has public shareholders, this provision
will make it impossible, as a practical matter, for actions to be
taken by written consent without a meeting of the shareholders. This
provision could have the effect of making a hostile or unsolicited
offer to take control of the Company more difficult and may discourage
the accumulation of substantial blocks of the Company's stock because,
at a meeting, opposing groups would have a chance to speak out and
voice their concerns. The provision does not limit the actions that
48<PAGE>
the shareholders can take, however; it merely limits the way in which
the actions may be taken. This provision was adopted because
management and the Board of Directors believe that the opportunity for
a meeting and a full discussion of matters upon which shareholders may
vote is preferable to allowing the holders of 51% of the shares the
ability to act unilaterally by written consent.
MATTERS CONSIDERED AT ANNUAL MEETINGS
The Bylaws specify that the only business that may be conducted
at an annual meeting of shareholders shall be business brought before
the meeting (i) by or at the direction of the Board of Directors prior
to the meeting; (ii) by or at the direction of the Chairman of the
Board, the Chief Executive Officer, or the President; or (iii) by a
shareholder of the corporation who is entitled to vote with respect to
the business and who complies with certain prior notice procedures.
The prior notice procedures provide that a shareholder must have given
timely notice of the proposed business in writing to the secretary of
the corporation. To be timely, a shareholder's notice must be
delivered or mailed to and received at the principal offices of the
corporation on or before the later to occur of (i) 14 days prior to
the annual meeting or (ii) five days after notice of the meeting is
provided to the shareholders. A shareholder's notice to the secretary
must set forth a brief description of each matter of business the
shareholder proposes to bring before the meeting and the reasons for
conducting that business at the meeting; the name, as it appears on
the corporation's books, and address of the shareholder proposing the
business; the series or class and number of shares of the
corporation's capital stock that are beneficially owned by the
shareholder; and any material interest of the shareholder in the
proposed business. The chairman of the meeting has discretion to
declare to the meeting that any business proposed by a shareholder to
be considered at the meeting is out of order and that such business
shall not be transacted at the meeting if the chairman concludes that
the matter has been proposed in a manner inconsistent with the
requirements, or the chairman concludes that the subject matter of the
proposed business is inappropriate for consideration by the
shareholders at the meeting.
LEGAL MATTERS
The validity of the securities offered hereby has been passed
upon for the Company by Kilpatrick Stockton LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of JWGenesis Financial
Corp. for the three years ended December 31, 1998, included in this
Prospectus have been audited by PricewaterhouseCoopers LLP,
independent accountants, as indicated in their report with respect
thereto, and have been included in this Prospectus and the
registration statement of which it forms a part in reliance on such
report given on the authority of said firm as experts in auditing and
accounting.
49
<PAGE>
INDEX TO FINANCIAL STATEMENTS
JWGenesis Financial Corp. and Subsidiaries
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements
- ---------------------------------------------------------------------------------------------------------
Page
Consolidated Financial Statements
- ---------------------------------
<S> <C>
Report of Independent Certified Public Accountants
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Financial Condition
December 31, 1998 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
Financial Statement Schedules
- -----------------------------
All schedules are omitted because they are either not applicable or
the required information is included in the Consolidated Financial
Statements or Notes thereto.
F-1<PAGE>
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
JWGenesis Financial Corp.
In our opinion, the accompanying consolidated financial statements
listed in the index appearing on page F-1, present fairly, in all
material respects, the financial position of JWGenesis Financial Corp.
and its subsidiaries (the "Company"), at December 31, 1998 and 1997,
and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Tampa, Florida
March 26, 1999
F-2
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Financial Condition
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 16,978,000 $ 11,512,000
Commissions and other receivables from clearing brokers 3,655,000 716,000
Receivable from customers, net of allowance for
doubtful accounts of $426,000 and $546,000 117,579,000 107,507,000
Receivable from brokers and dealers 3,260 000 4,532,000
Securities owned, at estimated fair value 13,746,000 9,010,000
Cost in excess of the fair value of net assets acquired (Note 2) 14,838,000 -
Furniture, equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$3,035,000 and $2,433,000 3,386,000 1,742,000
Income taxes receivable - 294,000
Deferred tax asset - 1,621,000
Other, net of allowance for doubtful accounts 6,952,000 3,798,000
of $1,047,000 and $900,000 ------------- --------------
$ 180,394,000 $ 140,732,000
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks $ 16,988,000 $ 29,423,000
Accounts payable, accrued expenses and other liabilities 17,319 000 12,043,000
Payable to customers 49,218,000 35,055,000
Payable to brokers and dealers 42,283,000 32,975,000
Securities sold, not yet purchased, at estimated fair value 305,000 567,000
Lines of Credit 3,000,000 890,000
Deferred tax liabilities 356,000 -
Notes payable to affiliate (Note 8) - 5,113,000
Income taxes payable 656,000 -
------------- --------------
130,125,000 $ 116,066,000
------------- --------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Preferred stock $.001 par value--authorized 5,000,000
shares; no shares issued or outstanding - -
Common stock $.001 par value--authorized 9,056,000
issued and outstanding 5,501,054 and 3,690,743 shares 6,000 4,000
Additional paid-in capital 22,987,000 4,018,000
Retained earnings 27,283,000 20,651,000
Treasury stock, at cost, 900 shares (7,000) (7,000)
Total stockholders' equity ------------- --------------
50,269,000 24,666,000
------------- --------------
$ 180,394,000 $ 140,732,000
============= ==============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
</TABLE>
F-3<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Income
- ------------------------------------------------------------------------------------------------------------
Year ended December 31,
---------------------------------------------------
1998 1997 1996
-------------- ------------- --------------
<S> <C> <C> <C>
Revenues:
Commissions $ 63,250,000 $ 49,907,000 $ 42,945,000
Market making and principal
transactions, net 24,825,000 20,836,000 24,315,000
Interest 14,218,000 11,363,000 9,625,000
Clearing fees 12,914,000 12,338,000 11,463,000
Other 3,683,000 2,738,000 2,672,000
------------- ------------- -------------
118,890,000 97,182,000 91,020,000
------------- ------------- -------------
Expenses:
Commissions and clearing costs 58,460,000 51,238,000 47,229,000
Employee compensation and benefits 22,074,000 16,278,000 14,911,000
Occupancy and equipment rental 6,286,000 5,180,000 4,520,000
Communications 4,539,000 3,361,000 3,809,000
General and administrative 11,060,000 6,946,000 8,431,000
Interest 5,418,000 4,387,000 3,888,000
------------- ------------- -------------
107,837,000 87,390,000 82,788,000
------------- ------------- -------------
Income before income taxes 11,053,000 9,792,000 8,232,000
Provision for income taxes 4,421,000 3,689,000 2,207,000
------------- ------------- -------------
Net income $ 6,632,000 $ 6,103,000 $ 6,025,000
============= ============= =============
Net income per common share:
Basic $ 1.38 $ 1.77 $ 1.42
------------- ------------- -------------
Diluted $ 1.25 $ 1.50 $ 1.26
------------- ------------- -------------
Weighted average common shares:
Basic 4,813,643 3,443,141 4,245,895
------------- ------------- -------------
Diluted 5,317,368 4,069,594 4,783,582
------------- ------------- -------------
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
</TABLE>
F-4<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Total
Common Stock Paid-In Retained Treasury Stock Stockholders'
Shares Amount Capital Earnings Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 5,872,122 $ 6,000 $ 762,000 $ 8,790,000 - $ - $ 9,558,000
Issuance of common stock upon
exercise of stock options 232,087 - 56,000 - - - 56,000
Net income - - - 6,025,000 - - 6,025,000
Purchase of mandatorily
redeemable common stock (2,873,773) (3,000) 3,000 - - - -
Accretion of mandatorily
redeemable common stock - - - (267,000) - - (267,000)
---------- ------- ---------- ------------ ------ -------- -----------
Balance at December 31, 1996 3,230,436 3,000 821,000 14,548,000 - - 15,372,000
Issuance of common stock upon
exercise of stock options 105,456 - 37,000 - - - 37,000
Issuance of common stock for
AGRO acquisition 354,851 1,000 2,927,000 - - - 2,928,000
Net income - - - 6,103,000 - - 6,103,000
Purchase of treasury shares - - - - (900) (7,000) (7,000)
Tax benefit related to non-
option exercise - - 233,000 - - - 233,000
---------- ------- ---------- ------------ ------ -------- -----------
Balance at December 31, 1997 3,690,743 4,000 4,018,000 20,651,000 (900) (7,000) 24,666,000
Issuance of common stock upon
exercise of stock options 181,518 - 208,000 - - - 208,000
Net income - - - 6,632,000 - - 6,632,000
Issuance of common stock for
Genesis Merchant Group Securities 1,500,000 2,000 17,848,000 - - - 17,850,000
Issuance of common stock through
employee stock purchase plan 78,965 - 613,000 - - - 613,000
Issuance of common stock for AGRO 49,828 - 300,000 - - - 300,000
---------- ------- ----------- ------------ ------ -------- -----------
Balance at December 31, 1998 5,501,054 $ 6,000 $22,987,000 $ 27,283,000 (900) $(7,000) $50,269,000
========== ======= =========== ============ ====== ======== ===========
F-5<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
- -----------------------------------------------------------------------------------------------------------------------------
Year ended December 31,
--------------------------------------------------
1998 1997 1996
-------------- ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,632,000 $ 6,103,000 $ 6,025,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 325,000 335,000 264,000
Amortization of cost in excess of the fair value of
net assets acquired and other 631,000 95,000 535,000
Loss (gain) on disposal of furniture, equipment
leasehold improvements 12,000 (3,000) 7,000
Deferred taxes 1,977,000 98,000 (708,000)
Change in assets and liabilities, net of effect from acquisition:
Commissions and other receivables from clearing 183,000 1,487,000 547,000
Receivable from customers (10,072,000) (8,897,000) (17,172,000)
Receivable from brokers and dealers 1,272,000 (843,000) 2,063,000
Securities owned (4,736,000) (335,000) 6,178,000
Income taxes receivable 294,000 (294,000) -
Other assets (2,098,000) (1,121,000) (380,000)
Accounts payable, accrued expenses and other 2,446,000 1,163,000 1,530,000
Payable to customers 14,163,000 (15,843,000) 19,547,000
Payable to brokers and dealers 8,916,000 8,839,000 1,926,000
Securities sold, net yet purchased (305,000) 117,000 (3,624,000)
Income taxes payable 656,000 (34,000) (425,000)
-------------- ------------- ------------
Net cash provided by (used in) operating activities 20,296,000 (9,133,000) 16,313,000
-------------- ------------- ------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold (1,157,000) (886,000) (312,000)
Proceeds from disposal of furniture, equipment and
leasehold improvements 2,000 6,000 100,000
-------------- ------------- ------------
Net cash used by investing activities (1,155,000) (880,000) (212,000)
-------------- ------------- ------------
FINANCING ACTIVITIES
Change in short-term borrowings from banks (12,435,000) 12,048,000 (10,763,000)
Change in lines of credit 2,110,000 890,000 -
Change in notes payable to affiliate (5,113,000) (3,512,000) (1,000,000)
Repurchase of mandatorily redeemable common stock - - (1,155,000)
Issuance of common stock 1,763,000 270,000 56,000
Purchase of treasury stock, at cost - (7,000) -
-------------- ------------- ------------
Net cash (used in) provided by financing activities (13,675,000) 9,689,000 (12,862,000)
-------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 5,466,000 (324,000) 3,239,000
Cash and cash equivalents at beginning of year 11,512,000 11,836,000 8,597,000
-------------- ------------ ------------
Cash and cash equivalents at end of year $ 16,978,000 $ 11,512,000 $ 11,836,000
============== ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 5,645,000 $ 3,619,000 $ 3,814,000
============= ============ ============
Income taxes $ 1,785,000 $ 3,611,000 $ 3,866,000
============= ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1996, the Company redeemed mandatorily redeemable common stock in the amount of $6,125,000 by
using an unsecured promissory note payable to an affiliate for an equal amount.
During fiscal 1998, 1997 and 1996, respectively, the Company issued 116,250, 112,500 and 277,500 shares of common stock
relating to options exercised for which the consideration received was 30,732, 38,156 and 86,288 shares of common stock,
respectively.
In September 1997 and December 1998, respectively, the Company issued 354,851 and 49,828 shares of common stock in
connection with the acquisition of The Americas Growth Fund, Inc. (Note 2).
On June 12, 1998, the Company issued 1,500,000 shares of common stock in connection with the acquisition of Genesis
Merchant Group Securities, LLC.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
</TABLE>
F-6<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Procedures:
Operations
JWGenesis Financial Corp. ("JWGFC" and the "Company") was
incorporated as a Florida corporation on January 16, 1998. In a
share exchange on June 12, 1998 (see Note 2), JWGFC succeeded the
business and operations of JW Charles Financial Services, Inc. and
its subsidiaries ("JWCFS") in a transaction which was accounted for
in a manner similar to a pooling of interest. The period through
June 12, 1998 as well as the years ended December 31, 1997 and 1996
represent the results of operations of JWCFS. JWCFS was
incorporated as a Florida corporation in December 1983. Through
its subsidiaries, JWGFC is primarily engaged in the securities
brokerage and investment banking business.
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of JWGenesis Financial Corp. and its subsidiaries:
JWGenesis Financial Services, Inc. ("JWGFS"), formerly, JW Charles
Financial Services, Inc.; Corporate Securities Group, Inc. ("CSG");
JWGenesis Securities, Inc. ("JWG Securities"), formerly JW Charles
Securities, Inc.; JWGenesis Clearing Corp. ("JWG Clearing"),
formerly JW Charles Clearing Corp.; JWGenesis Capital Corp.,
formerly CMG Capital Corp.; JWGenesis Insurance Services, Inc.; DMG
Securities, Inc. ("DMG"); GSG Securities, Inc., formerly Discount
Securities Group, Inc.; and JWGenesis Capital Markets LLC ("JWG
Capital Markets"). All consolidated subsidiaries are 100% owned by
the Company except for JWG Capital Markets, which is majority owned.
JWGFC does not have any significant assets or liabilities other than
investments in subsidiaries and goodwill related to the acquisition
of JWG Capital Markets (see Note 2). JWGFC functions principally as
a holding company and, therefore, it does not have any operations
that are material to the consolidated financial statements. All
significant intercompany transactions and accounts have been
eliminated in consolidation.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Segment Reporting
In the fourth quarter of fiscal 1998, the Company adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about
Segments of Enterprise and Related Information" ("SFAS 131"). SFAS
131 supersedes SFAS 14, "Financial Reporting for Segments of a
F-7
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
Business Enterprise," replacing the "industry segment" approach
with the "management" approach. The management approach designates
the internal organization that is used by management for making
operating decisions and addressing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures
about products and services, geographic areas, and major customers.
The adoption of SFAS 131 did not affect the Company's financial
position or results of operations but did affect the disclosure of
segment information (see Note 17).
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, including cash in banks
and money market funds.
Securities Owned and Securities Sold, Not Yet Purchased
Securities owned, which are readily marketable and securities sold,
not yet purchased are recorded at estimated fair value. Securities
sold, not yet purchased represent obligations to the Company to
deliver specified securities at the contracted prices, thereby
creating a liability to purchase the securities at prevailing
market prices. Securities owned, which are not readily marketable,
are valued at estimated fair value as determined by management.
The resulting difference between cost and estimated fair value is
included in income.
Cost in Excess of the Fair Value of Net Assets Acquired
Cost in excess of the fair value of net assets acquired relates to
the acquisition of Genesis Merchant Group Securities, LLC (see Note
2). The amount is being amortized on the straight-line method over
20 years. The carrying value of the cost in excess of the fair
value of net assets acquired is reviewed for impairment whenever
events or changes in circumstances indicate that it may not be
recoverable.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are recorded at
cost. Depreciation and amortization on furniture, equipment and
leasehold improvements is provided utilizing the straight-line
method over the estimated useful lives of the related assets, which
range primarily from five to seven years.
Transaction Reporting
Securities transactions and the related revenues and expenses are
recorded in the accounts on trade date. Clearing fees include
service charges, execution fees and commissions on order flow.
Income Taxes
The Company utilizes the asset and liability approach defined in
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition
F-8<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
statement amounts and the tax bases of assets and liabilities.
Earnings Per Common Share
Earnings per common share are calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), effective for 1997. SFAS 128
requires the Company to report both basic earnings per common
share, which is based on the weighted average number of common
shares outstanding, and diluted earnings per common share, which is
based on the weighted average number of common shares outstanding
and all dilutive potential common shares outstanding. Earnings
available for common stockholders has not been reduced by the
amount of accretion of mandatorily redeemable common stock. Stock
repurchasable pursuant to the mandatorily redeemable common stock
agreement is included in the weighted average number of common
shares outstanding until redeemed. All prior years' earnings per
share data in this report have been recalculated to reflect the
provisions of SFAS 128 (see Note 16).
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123") during
1996. Upon adoption of SFAS 123, the Company has retained the
intrinsic value method of accounting for stock-based compensation
and has disclosed pro forma net income and earnings per common
share amounts (See Note 15).
Reclassifications
Certain amounts from prior years have been reclassified to conform
to the current year presentation. These reclassifications are not
material to the consolidated financial statements.
2. Acquisitions:
Genesis Merchant Group Securities, LLC
On January 21, 1998, the Company executed an Agreement and Plan of
Combination (the "Combination") with Genesis Merchant Group
Securities, LLC ("Genesis") and the owners (the "Genesis Members")
of all of the outstanding equity interests in Genesis (the "Genesis
Membership Interests"). Genesis is a San Francisco-based
investment banking firm with special expertise in institutional
research, sales and trading, corporate finance and brokerage
processing services. Pursuant to a share exchange with JW Charles
Financial Services, Inc. on June 12, 1998, JWGenesis Financial
Corp. acquired all of the outstanding shares of JWCFS common stock
in exchange for shares of JWGenesis Financial Corp. common stock on
a one-for-one basis, and thus replaced JWCFS as the publicly held
holding company (the "Share Exchange"). The Share Exchange was
part of the Combination, consummated on the same date among JWCFS,
F-9
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
JWGenesis Financial Corp., Genesis, and the owners of a majority of
the equity interests in Genesis, in which the owners of Genesis
exchanged their equity interests for 1,500,000 shares of JWGenesis
Financial Corp. common stock.
The Company accounted for the acquisition of Genesis using the
purchase method of accounting. The results of operations of the
acquired entity are included with those of the Company from the
June 12, 1998 acquisition date. The cost included the issuance of
1,500,000 shares of common stock valued at approximately $17,850,000
and approximately $800,000 in acquisition costs. Assets acquired
of approximately $6,800,000 and liabilities assumed of
approximately $3,400,000 have been recorded at their estimated fair
values. Cost exceeded the fair value of net assets acquired by
approximately $15,250,000.
The following unaudited pro forma consolidated results of
operations for the years ended December 31, 1998 and 1997 assume
that the acquisition had taken place on January 1 of each year.
The unaudited pro forma results are not necessarily indicative of
the results that would have occurred if the assumed transaction had
occurred on the dates indicated and are not necessarily indicative
of the expected financial position or results of operations in the
future.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenue $ 131,254,000 $ 127,752,000
Net income 6,912,000 7,086,000
Net income per common share:
Basic 1.26 1.43
Diluted 1.15 1.27
</TABLE>
F-10
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
The Americas Growth Fund, Inc.
On September 22, 1997, the Company completed its exchange tender
offer (the "Exchange Offer") to acquire all of the outstanding
shares of common stock of The Americas Growth Fund, Inc. ("AGRO")
not already owned by the Company. AGRO is a non-diversified,
closed-end, management investment company. Prior to the
commencement of the Exchange Offer, the Company owned 26% of the
outstanding shares of common stock of AGRO. A total of
approximately 823,000 shares of AGRO common stock, representing
approximately 65% of AGRO common stock tendered, were accepted for
exchange by the Company according to the terms of the Exchange
Offer on the basis of .431 shares of the Company's common stock for
each share of AGRO resulting in the issuance by the Company of
354,851 shares of common stock at a price of $8.25 per share. The
tendered shares together with the shares already owned by the Company
represent approximately 91% of the outstanding shares of AGRO common
stock, with the remaining 9% of AGRO shares held by minority shareholders.
The AGRO acquisition was accounted for under the purchase method of
accounting. The Company has consolidated the accounts of AGRO in
the accompanying financial statements effective as of September 22,
1997. In accordance with the Exchange Offer, the purchase of the
65% of AGRO common stock tendered was allocated to the fair value
of the net assets acquired as follows:
Tangible assets acquired $ 2,948,000
Liabilities assumed (20,000)
------------
$ 2,928,000
============
At December 31, 1997, the AGRO Minority Shareholders' interests in
these accounts was reflected as accrued expenses in the
accompanying financial statements. In December 1998, the Company
issued 49,828 shares of common stock at a price of $6.02 per share
to acquire the remaining 9% of AGRO shares held by minority
shareholders and merged into JWGFS. Pro forma information for AGRO
is not presented as management has determined that this information
does not materially impact the historical financial data.
F-11<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
3. Clearing Agreements:
CSG, JWG Clearing, JWG Securities and JWG Capital Markets have
clearing agreements with unaffiliated clearing brokers. Under such
agreements, the clearing brokers provide CSG, JWG Clearing, JWG
Securities and JWG Capital Markets with certain back-office support
and clearing services on all principal exchanges. In order to
facilitate transactions with these unaffiliated clearing brokers,
CSG, JWG Clearing, JWG Securities and JWG Capital Markets maintain
cash balances of approximately $360,000 which earn interest at a
rate equal to 1% above the rate customarily paid on credit balances
to the clients of the clearing broker. The $360,000 is included in
commissions and other receivables from clearing brokers on the
accompanying consolidated statements of financial condition.
Credit losses could arise should the clearing brokers fail to
perform. The Company does not require collateral.
4. Receivable from and Payable to Brokers and Dealers:
Amounts receivable from and payable to brokers and dealers consist
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Receivable:
Securities failed to deliver $ 850,000 $ 680,000
Deposits on securities borrowed 2,056,000 3,642,000
Other amounts due from brokers and dealers 354,000 210,000
-------------- --------------
$ 3,260,000 $ 4,532,000
============== ===============
Payable:
Securities failed to receive $ 786,000 $ 805,000
Deposits on securities loaned 34,151,000 27,622,000
Other amounts due to brokers and dealers 7,346,000 4,548,000
-------------- --------------
$ 42,283,000 $ 32,975,000
================================
/TABLE
<PAGE>
Deposits on securities borrowed and securities loaned represent
cash on deposit with or received from other brokers and dealers
relating to securities borrowed and securities loaned transactions,
respectively. The Company monitors the market value of securities
borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary.
5. Receivable from and Payable to Customers:
Receivable from and payable to customers arise from cash and margin
transactions executed by the Company on the customer's behalf.
Receivables are collateralized by securities owned by customers.
Such collateral is not reflected in the accompanying consolidated
statements of financial condition.
6. Securities Owned and Securities Sold, Not Yet Purchased:
Securities owned and securities sold, not yet purchased consist of
securities, at estimated fair value, as follows:
F-12
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------- --------------
<S> <C> <C>
Securities owned:
U.S. Government obligations $ 840,000 $ 4,224,000
Certificates of deposit 25,000 86,000
State and municipal government obligations 3,257,000 2,054,000
Corporate obligations 1,921,000 1,064,000
Corporate stocks 1,150,000 751,000
Non-marketable 6,546,000 546,000
Other 7,000 285,000
------------- ------------
$ 13,746,000 $ 9,010,000
------------- ------------
Securities sold, not yet purchased:
U.S. Government obligations $ 21,000 $ 83,000
Certificates of deposit - 101,000
State and municipal government obligations 66,000 62,000
Corporate stocks 110,000 146,000
Other 108,000 175,000
------------- --------------
$ 305,000 $ 567,000
============= ==============
</TABLE>
At December 31, 1998, the Company owned, of record, approximately
300,000 shares of Knight/Trimark Group, Inc. ("NITE"), which were
subject to a lock-up agreement until January 11, 1999 and were
unregistered at that time. Approximately 60,000 of such shares
were allocated to Company management to cover bonus payments due
and payable in accordance with the employment agreements in effect
as of June 12, 1998, the date of the Combination. The approximate
300,000 NITE shares have a historical cost of $18,000 and are
included in non-marketable securities at their estimated fair value
of $6,400,000. The resulting difference in cost and estimated fair
value of approximately $6,400,000 is included in market making and
principal transactions in 1998. On March 3, 1999, the Company sold
225,000 NITE shares, which included 45,000 of the shares allocated to
Company management. The Company received net proceeds, before applicable
income taxes, of approximately $6,100,000 from the sale of the 180,000
shares allocated to the Company. The remaining NITE shares held by the
Company (and the Company's management) are subject to a new lock-up
agreement which prohibits their transfer or sale at any time prior
to June 3, 1999.
F-13<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
7. Short-Term Borrowings from Banks:
Borrowings under the Company's financing agreement with a bank bear
interest based upon the federal funds rate, are restricted to a
percentage of the market value of the related collateral securities,
and are due on demand. At December 31, 1998, 1997 and 1996 approximately
$16,988,000, $29,423,000 and $17,375,000, respectively, were outstanding
under this arrangement. The market value of the collateral relating to
was approximately $23,000,000, $40,000,000 and $20,000,000 at December 31,
1998, 1997 and 1996, respectively, including customer margin
account securities of approximately $19,000,000, $37,000,000, and
$9,000,000, respectively. The maximum and average amounts
outstanding during the year ended December 31, 1998 were
approximately $68,000,000, $37,000,000, respectively ($39,000,000
and $28,000,000, respectively, for the year ended December 31,
1997, and $38,000,000 and $22,000,000, respectively, for the year
ended December 31, 1996). The average interest rates during the
same periods were 6.3%, 6.8%, and 6.3%, respectively.
8. Notes Payable to Affiliate and Mandatorily
Redeemable Common Stock:
On May 15, 1995, the Company and Gilman Securities Corporation
("Gilman") renegotiated the terms of the Company's existing
indebtedness to Gilman and entered into a $5,000,000 unsecured
promissory note (the "Note"). The Note provided for a principal
payment of $1,000,000 in May 1995 and thereafter quarterly
principal payments of $250,000 each commencing on July 15, 1995.
On June 12, 1998, the Company prepaid, without penalty, the entire
remaining principal balance due to Gilman. The Company recorded
interest expense of $208,000, $628,000 and $637,000 for the three
years ended December 31, 1998, 1997 and 1996, respectively, related
to this Note.
On May 15, 1995, the Company entered into a Stock Repurchase
Agreement (the "Old Agreement") with Gilman for the repurchase of
all of the approximately 49% of the Company's outstanding shares of
common stock owned by Gilman. On June 11, 1996, the Company
entered into an Amended and Restated Stock Purchase Agreement (the
"New Agreement") with Gilman whereby the Company accelerated the
repurchase of all of the shares of its common stock owned by
Gilman. The total consideration paid by the Company to Gilman
consisted of a promissory note in the amount of $6,125,000 (the
"Stock Loan"), along with the $1,155,000 in cash that was paid to
Gilman under the Old Agreement. The difference between the
purchase price under the Old Agreement and the New Agreement was
accreted to retained earnings in the year ended December 31, 1996.
The Company was required to make an annual principal payment each
year on the Stock Loan in an amount equal to 50% of its annual net
income, as defined, until the Stock Loan was paid in full. On
April 15, 1998 and 1997, the Company made principal payments on the
Stock Loan in the amount of $2,552,000 and $2,512,000,
respectively. On June 12, 1998, the Company prepaid the entire
outstanding principal balance of the Stock Loan without penalty.
F-14<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
9. Estimated Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosure
about Fair Value of Financial Instruments," requires the disclosure
of the fair value of financial instruments, including assets and
liabilities recognized and not recognized in the consolidated
statements of financial condition.
The Company's securities owned, which are readily marketable, and
securities sold, not yet purchased are carried at estimated fair
value.
Management estimates that the aggregate net fair value of other
financial instruments recognized on the consolidated statements of
financial condition (including cash and cash equivalents,
receivables and payables, and short-term borrowings) approximates
their carrying value, as such financial instruments are short-term
in nature, bear interest at current market rates or are subject to
repricing.
10. Commitments and Contingencies:
In the normal course of business, the Company enters into
underwriting commitments. There were no outstanding underwriting
commitments at December 31, 1998, 1997 and 1996.
The Company leases its operations headquarters, branch offices and
certain equipment under operating leases that generally allow for
renewal and are in effect for various terms through 2003. Lease
expense with respect to operating leases for the years ended
December 31, 1998, 1997 and 1996 approximated $2,166,000,
$1,650,000, and $1,448,000, respectively.
Based upon long-term noncancelable leases and other contractual
commitments, the future minimum commitments as of December 31, 1998
are as follows:
1999 $ 2,925,000
2000 2,898,000
2001 1,996,000
2002 1,215,000
2003 95,000
Thereafter 7,000
------------
$ 9,136,000
============
Included in other assets in the accompanying consolidated
statements of financial condition at December 31, 1998 and 1997 are
investments in real estate partnerships of $34,000. Under
applicable partnership law, the Company, as co-general partner, is
contingently liable for any obligations of these real estate
limited partnerships that remain unpaid after any dissolution of
the partnerships. The Company has not made any provision in the
consolidated financial statements for the possible effect of the
Company's contingent liability as a co-general partner of its
F-15<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
affiliated partnerships. The Company does not expect to incur any
losses or obligations that will have a material adverse effect on
its financial position or results of operations.
The Company is a defendant or co-defendant in various lawsuits
incidental to its securities business. The Company is contesting
the allegations of the complaints in these cases and believes that
there are meritorious defenses in each of these lawsuits. In view
of the number and diversity of claims against the Company, the
number of jurisdictions in which litigation is pending and the
inherent difficulty of predicting the outcome of litigation and
other claims, the Company cannot state with certainty what the
eventual outcome of pending litigation or other claims will be. In
the opinion of management, based on discussions with counsel, the
outcome of the matters will not result in a material adverse effect
on the financial position or results of operations of the Company.
Two executive members of management (the "Executives") have entered
into nonsolicitation agreements with the Company for a period of seven
years from June 12, 1998 (the "Nonsolicitation Agreements"). In connection
with those agreements and in consideration for the Executives' agreements
to terminate the financial terms of their employment agreements with
JWCFS in connection with the Share Exchange (see Note 2), the Company
agreed to make certain payments in the form of cash and restricted
shares. The Company agreed to make total cash payments to the
Executives in four equal installments, the first paid in July 1998 and
the remaining installments to be paid on January 15, 1999, 2000 and 2001,
in an aggregate amount of approximately $750,000 for each installment.
If the employment of either Executive is terminated for any reason other
than cause, any unpaid cash amount must be paid within 30 days of
termination. The Company also agreed to issue to the Executives an
aggregate amount of approximately 360,000 shares of restricted common
stock of the Company. Twenty-five percent of the shares issued to the
Executives will vest on January 15, 2002 and an additional 25% on each
January 15 thereafter through 2005. All unvested shares will be subject
to forfeiture at any time there is a violation of the Nonsolicitation
Agreements. In the event of a change in control of the Company, all such
shares become immediately vested and the forfeiture provisions with
respect to such shares will no longer be in force.
F-16<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
11. Income Taxes:
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------ --------------
<S> <C> <C> <C>
Current provision:
Federal $ 1,950,000 $ 3,115,000 $ 2,823,000
State 197,000 477,000 535,000
------------ ------------ ------------
2,147,000 3,592,000 3,358,000
============ ============ =============
Deferred provision (benefit):
Federal 1,972,000 84,000 (998,000)
State 302,000 13,000 (153,000)
------------ ------------ ------------
2,274,000 97,000 (1,151,000)
------------ ------------ ------------
$ 4,421,000 $ 3,689,000 $ 2,207,000
============ ============ ============
</TABLE>
At December 31, 1998, the Company has a net operating loss ("NOL")
carryforward of approximately $750,000 for income tax purposes that
expires in 2005. The NOL carryforward, which was acquired by
merger in 1990, is limited under the separate return limitation
year rules. It is anticipated that the Company will generate
sufficient future taxable income to realize the deferred income tax
asset.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's net deferred
tax (liability) asset as of December 31 are as follows:
F-17<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Deferred compensation $ 198,000 $ 128,000
Reserve for bad debts 490,000 544,000
Contingency accruals 555,000 665,000
Net operating loss carryforward 282,000 282,000
Other - 2,000
------------- -------------
Gross deferred tax asset 1,525,000 1,621,000
------------- -------------
Mark to market 1,856,000 -
Other 25,000 -
------------- -------------
Gross deferred tax liability 1,881,000 -
------------- -------------
Net deferred tax (liability) asset $ (356,000) $ 1,621,000
============= =============
</TABLE>
The Company's effective tax rate on pre-tax income differs from the
statutory federal income tax rate due to the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of state income tax 3.6% 3.6% 2.4%
Effect of reversal of valuation
allowance - - (10.0%)
Effect of nondeductible travel
and entertainment 0.6% 2.0% 1.0%
Effect on nondeductible amortization of goodwill 1.0% - -
Other 0.8% (2.0%) (0.6%)
------ ---- - ----
40.0% 37.6% 26.8%
====== ===== ====
</TABLE>
F-18
<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------
12. Net Capital and Reserve Requirements:
The broker-dealer subsidiaries of the Company are subject to the
requirements of Rule 15c3-1 under the Securities Exchange Act of
1934. This rule requires that aggregate indebtedness, as defined,
not exceed fifteen times net capital, as defined. Rule 15c3-1 also
provides for an "alternative net capital requirement" which, if
elected, requires that net capital be equal to the greater of
$250,000 or 2% of aggregate debit items computed in applying the
formula for determination of reserve requirements. The New York
Stock Exchange, Inc. ("NYSE") may require a member organization to
reduce its business if its net capital is less than 4% of aggregate
debit items and may prohibit a member firm from expanding its
business if its net capital is less than 5% of aggregate debit
items. Net capital positions of the Company's broker-dealer
subsidiaries were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
-------------- ----------------
<S> <C> <C>
JWG Clearing (alternative method elected):
Net capital as a percentage of aggregate debit items 9.87% 10.4%
Net capital $ 13,198,000 $ 12,222,000
Required net capital $ 2,673,000 $ 2,341,000
CSG:
Ratio of aggregate indebtedness to net capital 2.82% 1.50%
Net capital $ 2,000,000 $ 2,024,000
Required net capital $ 376,000 $ 250,000
JWG Securities:
Ratio of aggregate indebtedness to net capital 2.59% 2.21%
Net capital $ 1,399,000 $ 1,685,000
Required net capital $ 250,000 $ 250,000
DMG:
Ratio of aggregate indebtedness to net capital 0.67% 0.51%
Net capital $ 232,000 $ 451,000
Required net capital $ 100,000 $ 100,000
JWG Capital Markets:
Ratio of aggregate indebtedness to net capital 0.91% -
Net capital $ 2,640,000 -
Required net capital $ 160,000 -
</TABLE>
JWG Clearing is also subject to Rule 15c3-3 under the Securities
Exchange Act of 1934 which specifies certain conditions under which
brokers and dealers carrying customer accounts are required to
maintain cash or qualified securities in a special reserve bank
account for the exclusive benefit of customers. Amounts to be
maintained, if required, are computed in accordance with a formula
defined in the rule and as required by the NYSE. At December 31,
1998 and 1997, JWG Clearing had no requirement to segregate funds
under the rule.
F-19<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------
JWG Securities, CSG, DMG and JWG Capital Markets are exempt from
the provisions of Rule 15c3-3, since they clear all transactions
with and for customers on a fully-disclosed basis with affiliated
and unaffiliated clearing brokers.
Additionally, pursuant to Rule 15c3-1, JWG Clearing, JWG
Securities, CSG, DMG and JWG Capital Markets must notify and obtain
approval from the Securities and Exchange Commission and either the
National Association of Securities Dealers, Inc. (CSG, DMG and JWG
Capital Markets) or the NYSE (JWG Clearing and JWG Securities) for
any advances or loans to JWGFC or any other affiliate, if such
advances or loans would exceed in the aggregate, in any 30 calendar
day period, 30% of that company's excess net capital and $500,000.
Rule 15c3-1 also provides that equity capital may not be withdrawn
or cash dividends paid if resulting net capital would be less than
5% of aggregate debits or 120% of the minimum net capital required
by the rule.
13. Off-Balance-Sheet Risk:
In the normal course of business, the Company's customer and
correspondent clearance activities involve the execution,
settlement and financing of various customer securities
transactions. These activities may expose the Company to off-
balance-sheet risk in the event the customer or other broker is
unable to fulfill its contracted obligations and the Company has to
purchase or sell the financial instrument underlying the contract
at a loss.
In addition, the Company has sold securities that it does not
currently own and will therefore be obligated to purchase such
securities at a future date. The Company has recorded these
obligations in the financial statements at the December 31, 1998
market values of the related securities and will incur a loss if
the market value of the securities increases subsequent to December
31, 1998.
The Company's customer securities activities are transacted on
either a cash or margin basis. In margin transactions, the Company
extends credit to its customers, subject to various regulatory and
internal margin requirements, collateralized by cash and securities
in the customers' accounts. In connection with these activities,
the Company executes and clears customer transactions involving the
sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange
regulations. Such transactions may expose the Company to
significant off-balance-sheet risk in the event margin requirements
are not sufficient to fully cover losses that customers may incur.
In the event the customer fails to satisfy its obligations, the
Company may be required to purchase or sell financial instruments
at prevailing market prices to fulfill the customer's obligations.
F-20<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The
Company monitors required margin levels daily and, pursuant to such
guidelines, requires the customer to deposit additional collateral,
or to reduce positions, when necessary.
The Company's customer financing and securities settlement
activities require the Company to pledge customer securities as
collateral in support of various secured financing sources such as
bank loans and securities loaned. In the event the counterparty is
unable to meet its contractual obligation to return customer
securities pledged as collateral, the Company may be exposed to the
risk of acquiring the securities at prevailing market prices in
order to satisfy its customer obligations. The Company controls
this risk by monitoring the market value of securities pledged on a
daily basis and by requiring adjustments of collateral levels in
the event of excess market exposure. In addition, the Company
establishes credit limits for such activities and monitors
compliance on a daily basis.
14. Common Stock Split:
On December 23, 1996, the Company's Board of Directors declared a
3-for-2 stock split in the form of a dividend payable on February 7,
1997 to shareholders of record on January 24, 1997. The
Company's capital accounts at December 31, 1996 were adjusted to
retroactively give effect to the dividend in the same manner as
would be done if the dividend were issued before December 31, 1996.
All references in the consolidated financial statements and
accompanying notes to amounts per share and to the number of common
shares have been retroactively adjusted for the stock split.
15. Employee Benefit Plans:
The Company has two stock option plans, "The 1990 Stock Option
Plan" and "The 1998 Stock Option and Award Plan" (collectively, the
"Option Plans"). A total of 2,800,000 shares of common stock have
been reserved for issuance upon exercise of options designated as
"incentive stock options" or "nonqualified options" and issued
pursuant to the Option Plans. Options issued under the Option
Plans are to be issued to certain officers and employees of the
Company, and certain other key persons instrumental to the success
of the Company. The Option Plans are administered by the Board of
Directors of the Company, or a committee appointed by the Board of
Directors, which determines, among other things, the persons to be
granted options under the Option Plans, the number of shares
subject to each option and the option exercise price. The option
exercise price for each option is no less than the fair market
value of the common stock subject to option. Options awarded under
the Option Plans are generally subject to vesting over a period of
one to three years and expire no later than five years from the
date of grant.
F-21<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- -------------------------------------------------------------------
Information for the Option Plans for the years ended December 31,
1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
Exercise Weighted
Number Price Average
of Shares Range Exercise Price
--------- ------------ --------------
<S> <C> <C> <C>
Balance, December 31, 1995 593,625 $1.33 - 2.55 $ 2.05
Granted 272,089 2.85 - 4.49 3.74
Exercised (208,125) 1.33 - 1.95 1.70
Forfeited (18,238) 2.55 - 2.85 2.70
--------- ------------- -------------
Balance, December 31, 1996 639,351 1.95 - 4.49 2.87
Granted 449,190 6.50 - 10.00 7.36
Exercised (17,000) 1.95 - 4.09 2.20
Forfeited (5,385) 6.73 - 10.00 7.64
--------- ------------- -------------
Balance, December 31, 1997 1,066,156 1.95 - 9.08 4.75
Granted 467,380 7.25 - 12.50 10.45
Exercised (212,250) 1.95 - 4.09 2.17
Forfeited (288,372) 2.25 - 12.50 8.19
--------- ------------- -------------
Balance, December 31, 1998 1,032,914 $2.55 - 12.50 $ 6.89
========= ============= ==============
</TABLE>
The Company has a restricted stock plan providing for the issuance
of up to 750,000 shares of its authorized but unissued common stock
to nonexecutive employees and registered representatives. As of
December 31, 1998, 1997 and 1996, 10,500 shares had been issued
under the restricted stock plan and 739,500 shares of common stock
have been reserved for future issuance.
In accordance with the provisions of SFAS 123, the Company applies
APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not
recognize compensation expense for its stock-based compensation
plans other than for restricted stock. If the Company had elected
to recognize compensation expense based upon the fair value at the
grant date for awards under these plans consistent with the
methodology prescribed by SFAS 123, the Company's net income and
earnings per common share would be reduced to the pro forma amounts
indicated below:
F-22<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
December 31,
-------------------------------------------------
1998 1997 1996
------------ ------------ --------------
<S> <C> <C> <C>
Net income:
As reported $ 6,632,000 $ 6,103,000 $ 6,025,000
Pro forma $ 5,480,000 $ 5,404,000 $ 5,822,000
Basic earnings per common share:
As reported $ 1.38 $ 1.77 $ 1.42
Pro forma $ 1.14 $ 1.77 $ 1.37
Diluted earnings per common share:
As reported $ 1.25 $ 1.50 $ 1.26
Pro forma $ 1.03 $ 1.33 $ 1.22
</TABLE>
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period and additional options
may be granted in future years. For disclosure purposes the fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted
average assumptions used for stock purchase rights granted in 1998
and 1997, respectively: dividend yields of 0.0% for both years;
expected volatility of 100% and 53.2%; risk-free interest rates of
5.5% and 6.0%; and expected life of 5 years for all grants. The
weighted average fair value of stock options granted in 1998 and
1997 was $6.82 and $3.88, respectively. The weighted average
remaining contractual life of options outstanding at December 31,
1998 and 1997 is 3.2 and 3.3 years, respectively. At December 31,
1998, 1997 and 1996, the Company had options available for future
grants of 877,461, 306,469 and 92,788, respectively. The following
table summarizes information about the options exercisable at
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Numbers of shares 536,000 395,499 262,500
Exercise price ranges $ 2.55 - 10.50 $ 1.95 - 6.50 $ 1.95 - 2.50
Weighted average exercise price $ 5.94 $ 3.56 $ 2.20
</TABLE>
F-23<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
The Company adopted a Pension and Profit Sharing Plan (the "Plan")
in 1986 which offers all full-time employees over the age of 21 of
the Company tax advantages pursuant to Section 401(k) of the
Internal Revenue Code. Under the terms of the Plan, participants
may elect to defer up to 10% of their compensation. The Company
will make a matching contribution to the Plan of 50% of the first
4% of compensation contributed by each participant who is employed
by the Company or its subsidiary on December 31 of such year.
Participant's contributions to the Plan are fully vested at all
times and are not subject to forfeiture. The Company's matching
contribution vests to each participant over a five-year vesting
schedule based upon the participant's years of service with the
Company. Contributions are made by participants by means of a
payroll deduction program. Within specified limits, participants
have the right to direct their savings into certain kinds of
investments as specified in the Plan. Employee compensation and
benefits include approximately $310,000, $225,000 and $264,000 of
Company matching contributions made during 1998, 1997 and 1996,
respectively.
On October 1, 1997, the Company adopted an Employee Stock Purchase
Plan ("ESPP"), which is authorized to issue up to 400,000 shares of
common stock to its full-time employees to purchase shares of
common stock through voluntary contributions, including periodic
payroll deductions. Under the terms of the ESPP, employees are
limited to a monthly contribution varying between $50 and $1,650 of
after-tax dollars to purchase the Company's common stock. The
purchase price of the stock is the lesser of 85% of the market
price on the first day of the quarter, or on the stock purchase
date designated after the end of each quarter. During 1998, the
ESPP purchased 78,965 shares of common stock from the Company at
average cost per share of $7.75. At December 31, 1998, the Company
is committed to issue the ESPP, or purchase in the open market for
issuance to the ESPP, an additional 26,425 shares of common stock.
F-24<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
16. Earnings Per Common Share:
Presented below is basic and diluted EPS under SFAS 128 for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
------------ --------- ----------
<S> <C> <C> <C>
1998
Earnings per share of common stock $ 6,632,000 4,813,643 $ 1.38
Effect of dilutive securities:
Stock options 503,725
------------ --------- ----------
Earnings per share of common stock --
assuming dilution $ 6,632,000 5,317,368 $ 1.25
============ ========= ==========
1997
Earnings per share of common stock $ 6,103,000 3,443,141 $ 1.77
Effect of dilutive securities:
Stock options 626,453
------------ --------- ----------
Earnings per share of common stock --
assuming dilution $ 6,103,000 4,069,594 $ 1.50
============= ========= ==========
1996
Earnings per share of common stock $ 6,025,000 4,245,895 $ 1.42
Effect of dilutive securities:
Stock options 537,687
------------ --------- ----------
Earnings per share of common stock --
assuming dilution $ 6,025,000 4,783,582 $ 1.26
============ ========= ==========
</TABLE>
17. Segment Analysis:
The Company's reportable segments are: captive retail
distribution, independently owned distribution, clearing and
trading, capital markets and other. The captive retail
distribution segment includes the 15 retail branches of JWG
Securities located in Florida, California, Georgia and New York.
These branches provide securities brokerage services including
the sale of equities, mutual funds, fixed income products and
insurance to their retail clients. The independently owned
retail distribution segment includes the 107 CSG offices and one
DMG office, all of which are located in the U.S., providing
securities brokerage services including the sale of equities,
mutual funds, fixed income products and insurance to their retail
clients. The clearing and trading segment comprises primarily
JWG Clearing's operations which are providing clearing services
primarily on a fully disclosed basis to small broker dealers, the
trading of equities and fixed income products as principal, and
investments in trading firms including Knight/Trimark Group, Inc.
F-25<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
and Strike Technologies LLC. The capital markets segment
includes management and participation in underwritings (exclusive
of sales credits, which are included in the distribution
segments), mergers and acquisitions, public finance,
institutional trading, institutional research and market making
for institutional research. Other in 1996 consists primarily of
revenues and principal transaction income related to the
Company's ownership of warrants received from underwritings which
appreciated in market value.
The financial results of the Company's segments are the same as
those described in the "Nature of Business and Summary of
Significant Accounting Procedures." Segment data includes
charges allocating corporate overhead to each segment.
Intersegment revenues and charges are eliminated between
segments. The Company evaluates the performance of its segments
and allocates resources to them based on return on investment.
The Company has not disclosed asset information by segment as the
information is not produced internally. All long-lived assets
are located in the U.S.
The Company's business is predominantly in the U.S.
Information concerning operations in these segments of business
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996
------------- -------------- ------------
<S> <C> <C> <C>
Revenue:
Captive retail distribution $ 31,002,000 $ 34,787,000 $31,382,000
Independently owned distribution 41,120,000 37,084,000 33,801,000
Clearing and trading 32,760,000 24,649,000 24,298,000
Capital markets 13,249,000 - -
Other 759,000 662,000 1,539,000
------------- ------------- -----------
Total $ 118,890,000 $ 97,182,000 $91,020,000
============= ============= ===========
Pre-tax income:
Captive retail distribution $ 1,059,000 $ 2,023,000 $ 917,000
Independently owned distribution 3,227,000 3,769,000 3,002,000
Clearing and trading 8,161,000 4,026,000 2,953,000
Capital markets (809,000) - -
Other (585,000) (26,000) 1,360,000
------------- ------------- -----------
Total $ 11,053,000 $ 9,792,000 $ 8,232,000
============= ============= ===========
</TABLE>
F-24<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
18. Lines of Credit:
On January 19, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from Wilmington Trust Company for general
corporate purposes (the "Wilmington Facility"). The Wilmington
Facility matures on December 31, 2002, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the
Wilmington Facility bear interest at Wilmington's National
Commercial Rate, with interest payments due monthly in arrears.
The Company is required to maintain certain debt covenants,
including (i) minimum stockholders' equity equal to at least
$7,000,000, plus 30% of net income for all future fiscal quarters,
plus 75% of the net proceeds from any common stock issuances and
(ii) net income, as defined, in excess of $1,500,000 for any four
quarters within any consecutive six quarter periods. At December 31,
1998 the balance outstanding under the Wilmington Facility was
$1,500,000.
In connection with the Wilmington Facility, the Company entered
into a marketing agreement with Wilmington Trust FSB (the
"Wilmington Marketing Agreement") and granted W T Investments, Inc.
a warrant to purchase 400,000 shares of the Company's common stock.
At December 31, 1998, the Wilmington Warrant exercise price per
share was $11.30. The Wilmington Marketing Agreement provides that
the Company will market certain products and services, initially
personal trust and asset management services, provided by
Wilmington Trust FSB to the Company's brokers, clients and
prospects.
On December 18, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from SunTrust Bank, South Florida, N.A.
for general corporate purposes (the "SunTrust Facility"). The
SunTrust Facility matures on April 30, 2000, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the SunTrust
Facility bear interest at the prime rate of interest as announced
from time to time by SunTrust Banks of Florida, Inc., with interest
payments due quarterly in arrears. The Company is required to
maintain certain debt covenants, including (i) minimum
stockholders' equity equal to at least $9,000,000, plus 75% of net
income for all future fiscal quarters, plus 75% of the net proceeds
from any common stock issuances and (ii) net income, as defined, in
excess of $1,500,000 for any four quarters within any consecutive
six quarter periods. At December 31, 1998 the balance outstanding
under the SunTrust Facility was $1,500,000.
In connection with the SunTrust Facility, the Company entered into
a marketing agreement with SunTrust (the "SunTrust Marketing
Agreement") and granted SunTrust Banks, Inc. a warrant to purchase
37,500 shares of the Company's common stock at any time prior to
December 31, 2002. The exercise price per share is $6.67. The
SunTrust Marketing Agreement provides that the Company will market
certain products and services, through the Company's participation
as an underwriter or selling group member of various municipal
finance offerings underwritten by SunTrust Capital Markets, Inc.,
to the Company's brokers, clients and prospects.
F-25<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
19. Subsequent Events:
JWG Capital Markets Divestiture
On March 3, 1999, the Company divested JWG Capital Markets which at
the time consisted primarily of the Company's San Francisco-based
brokerage processing services unit that had been acquired in the
Combination on June 12, 1998 to an investor group (the "Stapleton
Group") led by its Chief Operating Officer, Philip C. Stapleton
("Stapleton"), and its Vice Chairman, Will K. Weinstein ("Weinstein"),
contingent only upon the receipt of certain regulatory approvals
for the transfer of JWG Capital Markets to the Stapleton Group
(the "Divestiture"). In exchange and as part of the Divestiture,
the Stapleton Group conveyed to the Company an aggregate of 284,375
shares of common stock of the Company that had been issued to them
in the Combination. As part of the Divestiture, JWG Capital
Markets transferred its investment banking, corporate finance and
capital markets business to JWGenesis Capital Markets, Inc.,
formerly JWGenesis Capital Corp., so that those operations would
be retained by the Company. The Company assumed responsibility for
and retained occupancy of the New York City office of JWG Capital
Markets. If the regulatory approvals are not received by
April 15, 1999, the exchange will be voided.
As part of the overall transaction for the Divestiture, the parties
entered into an Equity Exchange and Conciliation Agreement dated as
of March 3, 1999 (the "Conciliation Agreement") pursuant to which,
and without any contingency, the Company's employment agreements
with Stapleton and Weinstein were terminated; Stapleton and
Weinstein both resigned from the Board of Directors of the Company
and all other positions they held with the Company and its
affiliates; the Company agreed to register for resale all remaining
shares of its common stock held by members of the Stapleton Group
and to pay potential penalties if such registration is not effected
within prescribed time periods; and the Company agreed to pay the
contractual amounts due to Stapleton and Weinstein through February
28, 1999. The respective payments to Stapleton and Weinstein
constituted satisfaction in full of any and all obligations of the
Company to him as a result of his employment by the Company or JWG
Capital Markets. In addition, as part of the Conciliation Agreement,
the Company and the Stapleton Group Members executed mutual releases,
subject to the Divestiture remaining effective, with respect to all
matters related to their association since the Combination.
The following unaudited pro forma consolidated results of operations
for the year ended December 31, 1998 assume that the Divesture had taken
place on June 12, 1998 such that the pro forma results of operations reflect
the operations of the Company, as if it had only acquired the investment
banking, corporate finance and capital markets business from Genesis.
The unaudited pro forma revenue and net income would have been
$107,938,000 and $7,132,000, respectively. Basic and diluted earnings
per share amounts would have been $1.37 and $1.25, respectively.
F-26<PAGE>
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
The GSG Acquisition
On January 1, 1999, GSG Securities, Inc. ("GSG"), formerly Discount
Securities Group, Inc., acquired certain assets of six retail
securities branch offices (and three satellite offices ) from
Chatfield Dean Holdings, Inc. ("CDH"). In connection with this
asset purchase, GSG paid CDH approximately $2.3 million in cash
($1.0 million of which was used to repay an earlier loan from the
Company to CDH); JWGFS issued to CDH shares of its Series C
Redeemable Preferred Stock that are redeemable, in the aggregate,
for up to $2.5 million based upon the financial performance of the
acquired branch offices over the three years in the period ending
December 31, 2001; and the Company issued to CDH a warrant for the
purchase of up to 104,167 shares of its common stock at an exercise
price of $24 per share, which may only be exercised with proceeds
from redeemed Series C Redeemable Preferred Stock, and three-year,
fully vested options to purchase 50,000 shares of its common stock
at an exercise price of $24 per share. The Company also agreed to
issue to designated members of CDH's former senior management
options to purchase an aggregate of 250,000 shares of its common
stock at an exercise price of $12 per share, exercisable through
December 31, 2003 (the "Senior Management Options"). The Senior
Management Options vest over a three-year period based upon a
formula tied to the performance of the acquired branch offices. An
additional 100,000 options, with a three-year term and a $24 per
share exercise price, were made available by the Company to
selected branch managers and registered representatives employed in
the acquired branch offices.
F-27<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Company acquired Genesis on June 12, 1998, as part of the
Combination, which was accounted for under the purchase accounting
method, so that the Company's consolidated financial statements at and
for the year ended December 31, 1998, reflect the operating results of
Genesis for the 202-day period beginning June 12, 1998. The operations
and related assets and liabilities of Genesis at the end of and during
that period fit into two categories: (i) those involving investment
banking, corporate finance, and other capital markets activities, and
also related institutional research and sales activities conducted
through the Genesis New York office (referred to collectively as
"corporate finance operations") and (ii) those involving brokerage
processing services ("BPS") and related activities conducted through
the Genesis San Francisco office. As a result of the Divestiture on
March 3, 1999, the Company divested Genesis' BPS and related San
Francisco-based operations (the "Divested Genesis Operations") and has
retained only the corporate finance operations (the "Retained Genesis
Operations"). See "Business - Recent Developments - The Genesis
Divestiture".
The following unaudited pro forma statement of operations gives
effect to the Divestiture as if it had occurred on June 12, 1998, such
that the pro forma results reflect the operations of the Company for the
year ended December 31, 1998, as if it had only acquired the Retained
Genesis Operations on June 12, 1998 and had not acquired the Divested
Genesis Operations on such date. The following unaudited pro forma
balance sheet at December 31, 1998 gives effect to the Divestiture
as if it had been consummated on such date. In each case, the unaudited
pro forma financial information should be read in conjunction with the
historical consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
This unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the
financial position or results of operations that would have occurred if
the Company had acquired only the corporate finance operations of Genesis
on June 12, 1998, nor is it necessarily indicative of future financial
conditions or operating results.
P-1
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------------------------------
GENESIS DIVESTITURE ADJUSTMENTS
AND ELIMINATIONS
---------------------------------
RETAINED DIVESTED
THE COMPANY GENESIS GENESIS
AS REPORTED OPERATIONS OPERATIONS PRO FORMA
----------- ---------- ---------- ---------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Commissions $63,250 $ - $11,106 $52,144
Market making and principal transactions, 24,825 - - 24,825
net
Interest 14,218 - 371 13,847
Clearing fees 12,914 - - 12,914
Other 3,683 1,356 415 3,268
--------- ------- ------ ---------
118,890 1,356 11,892 106,998
--------- ------- ------ ---------
EXPENSES:
Commissions and clearing costs 58,460 - 6,594 51,866
Employee compensation and benefits 22,074 774 2,444 19,630
Occupancy and equipment rental 6,286 121 317 5,969
Communications 4,539 50 671 3,868
General and administrative 11,060 81 2,708 (a) 8,352
Interest 5,418 - - 5,418
--------- ------- ------ ---------
107,837 1,026 12,734 95,103
--------- ------- ------ ---------
Income (loss) before income taxes 11,053 330 (842) (a) 11,895
Provision (benefit) for income taxes 4,421 - (337) (b) 4,758
--------- ------- ------ ---------
Net income (loss) $6,632 $330 $(505) $7,137
========= ======= ====== =========
NET INCOME PER COMMON SHARE
Basic $1.38 - - $1.37
Diluted $1.25 - - $1.25
WEIGHTED AVERAGE COMMON SHARES
Basic 4,813,643 383,207 - 5,196,850
--------- ------- ------ ---------
Diluted 5,317,368 383,207 - 5,700,575
--------- ------- ------ ---------
</TABLE>
See accompanying notes to Pro Forma Financial Information.
P-2
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
<TABLE>
<CAPTION>
AT DECEMBER 31, 1998
----------------------------------------------------------
GENESIS
DIVESTITURE
THE COMPANY ADJUSTMENTS AND
AS REPORTED ELIMINATIONS (c) PRO FORMA
----------- ---------------- ---------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 16,978,000 (2,472,000) 14,506,000
Commissions and other receivables from clearing brokers 3,655,000 (1,733,000) 1,922,000
Receivables from customers, net 117,579,000 117,579,000
Receivable from broker and dealer 3,260,000 3,260,000
Securities owned, at estimated fair value 13,746,000 (1,000) 13,745,000
Cost in excess of the fair value of net assets acquired 14,838,000 (1,000,000) 13,838,000
Furniture, equipment and leasehold improvements, net 3,386,000 (950,000) 2,436,000
Other, net 6,952,000 (582,000) 6,370,000
----------- ---------- -----------
180,394,000 (6,738,000) 173,656,000
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Short-term borrowings from banks 16,988,000 0 16,988,000
Accounts payable, accrued expenses and other liabilities 17,319,000 (2,709,000) 14,610,000
Payable to customers 49,218,000 0 49,218,000
Payable to brokers and dealers 42,283,000 (813,000) 41,470,000
Securities sold, not yet purchased, at estimated fair value 305,000 (16,000) 289,000
Lines of credit 3,000,000 0 3,000,000
Deferred tax liabilities 356,000 0 356,000
Income taxes payable 656,000 0 656,000
----------- ---------- -----------
130,125,000 (3,538,000) 126,587,000
----------- ---------- -----------
Commitments and contingencies
Stockholders' equity:
Redeemable preferred members capital 0 0 0
Common stock/members capital 6,000 0 6,000
Additional paid-in capital 22,987,000 (2,200,000) 20,787,000
Retained earnings 27,283,000 (1,000,000) 26,283,000
Treasury stock (7,000) 0 (7,000)
----------- ---------- -----------
50,269,000 (3,200,000) 47,069,000
----------- ---------- -----------
$180,394,000 $(6,738,000) $173,656,000
=========== ========== ===========
</TABLE>
See accompanying notes to Pro Forma Financial Information.
P-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Amount represents a $28,000 reduction in the amortization of cost in
excess of the fair value of net assets acquired that occurred in the
Divestiture as a result of a $1,000,000 reduction in the cost in excess
of the fair value of net assets acquired. Such amount was computed for
the 202-day period ended December 31, 1998 using the straight-line
method of amortization and an estimated useful life of twenty (20) years.
(b) Amount includes $337,000 in order to record the net effect on
income taxes attributable to the incremental pretax income earned
as a result of the Divestiture.
The income taxes are being recorded at the Company's effective tax
rate for 1998 of approximately 40%
(c) Eliminates the net assets of Genesis associated with the Divested
Genesis Operations that were disposed of in the Divestiture, and
records receipt of 284,375 shares of Common Stock as consideration
for the Divested Genesis Operations in the Divestiture.
Reflects $3,200,000 as the value of the consideration received
for the Divested Genesis Operations, based on 284,375 shares of
Common Stock at a value of $11.25 per share; $2,200,000 as the
recorded value of the net assets disposed of in connection with the
Divestiture; and $1,000,000 as the resulting excess of such
consideration over such net assets.
P-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "FBCA") authorizes
corporations to limit or eliminate the personal liability of directors
to corporations and their shareholders for monetary damages for
breaches of certain of the directors' fiduciary duties. In general,
the duty of care requires that a director exercise his judgment in
good faith on an informed basis, and in a manner he reasonably
believes to be in the best interests of the corporation. Absent the
limitations now authorized by the FBCA, directors are accountable to
corporations and their shareholders for monetary damages only for
conduct constituting gross negligence in the exercise of their duty of
care. Although the statute does not change the directors' duty of
care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission.
The Registrant's Articles of Incorporation (the "Registrant's
Articles") provide for indemnification of directors to the fullest
extent permitted by Florida law and, to the extent permitted by such
law, eliminate, or limit the personal liability of directors to the
Registrant and its shareholders for monetary damages for certain
breaches of fiduciary duty and the duty of care. Specifically, a
director of the Registrant will not be personally liable to the
Registrant or its shareholders for monetary damages for breach of such
fiduciary duty as a director, except for liability for (i) a violation
of the criminal law, (ii) a transaction from which the director
received an improper personal benefit, (iii) an unlawful distribution,
(iv) willful misconduct in a proceeding by or in the right of the
corporation or a shareholder, or (v) recklessness or bad faith in a
proceeding by or in the right of someone other than the corporation or
a shareholder.
The inclusion of this provision in the Registrant's Articles may
have the effect of reducing the likelihood of derivative litigation
against directors and may discourage or deter shareholders 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 benefited the Registrant and its shareholders.
The Registrant's directors and officers are insured against
losses arising from any claim against them as such for wrongful acts
or omissions, subject to certain limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the acquisition of Genesis Merchant Group
Securities, LLC ("Genesis") on June 12, 1998, the Registrant issued an
aggregate of 1,500,000 shares of its common stock to the former owners
of Genesis (36 persons) in a private, negotiated transaction, in
reliance on exemptions from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, and Regulation D thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this
Registration Statement:
II-1
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
3(a) Articles of Incorporation of the Company (incorporated
by reference to Exhibit 3.1 to JWGenesis' Registration
Statement on Form S-4 (File No. 333-47693) filed with the
Commission on April 22, 1998 (the "Combination S-4")).
3(b) By-Laws of the Company, as amended (incorporated by
reference to Exhibit 3(b) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1998
(the "1998 Form 10-K").
5 Opinion of Kilpatrick Stockton LLP.
10(a) Promissory Note and Loan Agreement between JWCharles
Financial Services, Inc., then known as Corporate
Management Group, Inc., Commission No. 0-14772, the
predecessor in interest of the Company (the "Predecessor"),
and Wilmington Trust Company dated January 19, 1996
(incorporated by reference to Exhibit 10(i) to the
Predecessor's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10(b) Amended and Restated Common Stock Purchase Warrant issued
to W T Investments, Inc. dated February 27, 1998
(incorporated by reference to Item 10(f) of the
Predecessor's Annual Report on Form 10-K for the year
ended December 31, 1997).
10(c) Revolving Loan Agreement between the Predecessor and
SunTrust Bank, South Florida, N.A. dated December 18, 1996
(incorporated by reference to Item 10(i) of the
Predecessor's Annual Report on Form 10-K for the year
ended December 31, 1996).
10(d) Common Stock Purchase Warrant issued to SunTrust Banks,
Inc. dated August 26, 1996 (incorporated by reference to
Item 10(m) of the Predecessor's Annual Report on Form 10-K
for the year ended December 31, 1996).
10(e) Equity Exchange and Conciliation Agreement by and Among
the Company, Marshall T. Leeds, Joel E. Marks, JWGenesis
Capital Markets, LLC, The Will K. Weinstein Revocable trust,
Philip C. Stapleton, Will K. Weinstein, and other Members
of the Stapleton Group dated March 3, 1999 (incorporated by
reference to Exhibit 2 to the Company's Current Report on
Form 8-K filed with the Commission on March 18, 1999).
21 Subsidiaries of the Registrant (incorporated by reference
to Exhibit 21 to the Company's 1998 Form 10-K).
23(a) Consent of PricewaterhouseCoopers LLP.
II-2
<PAGE>
23(b) Consent of Kilpatrick Stockton LLP (included in Exhibit 5).
24 Power of Attorney (included on Signature Page).
99(a) Amended and Restated Agreement and Plan of Combination,
dated as March 9, 1998, among JWGFS, the Company, Genesis
and the owners of all of the equity interests in Genesis
(incorporated by reference to Exhibit 2.1 to the Combination
S-4).
99(b) Employment Agreement between the Company and Marshall T.
Leeds (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
99(c) Employment Agreement between the Company and Joel E. Marks
(incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998).
99(d) Employment Agreement between the Company and Philip C.
Stapleton (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
99(e) Employment Agreement between the Company and Gregg S. Glaser
(incorporated by reference to Exhibit 99(e) to the Company's
Registration Statement on Form S-4, Commission File No.
333-66751) (the "Glaser Employment Agreement").
99(f) Amendment to Glaser Employment Agreement (incorporated by
reference to Exhibit 99(f) of the Company's 1998 Form 10-K).
99(g) Employment Agreement between the Company and Will K.
Weinstein (incorporated by reference to Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998).
99(h) Nonsolicitation Agreement between the Company and Marshall
T. Leeds (incorporated by reference to Exhibit 99(h) of the
Company's 1998 Form 10-K).
99(i) Nonsolicitation Agreement between the Company and Joel E.
Marks (incorporated by reference to Exhibit 99(i) of the
Company's 1998 Form 10-K).
(b) Financial Statement Schedules
Not Applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
II-3<PAGE>
set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered
(if the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d)
of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City
of Atlanta, State of Georgia, on March 31, 1999.
JWGENESIS FINANCIAL CORP., INC.
By: /s/ Joel E. Marks
--------------------------------
Joel E. Marks, Executive Vice
President and Chief Financial
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Marshall T. Leeds and Joel E.
Marks, attorneys-in-fact, jointly and severally, each having the power
of substitution, for them in any and all capacities, to sign any
amendments to this Registration Statement and to file the same, with
exhibits thereto, and other documents in connection therewith, with
the Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 31st day of March, 1999.
Signature Title
--------- -----
/s/ Marshall T. Leeds
________________________________ President, Chief Executive
Marshall T. Leeds Officer and Chairman of the
Board (Principal Executive
Officer)
/s/ Joel E. Marks
________________________________ Executive Vice President, Chief
Joel E. Marks Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/ Jeffrey H. Lehman
________________________________ Director
Jeffrey H. Lehman
/s/Wm. Dennis Ferguson
________________________________ Director
Wm. Dennis Ferguson
/s/ Gregg S. Glaser
________________________________ Director
Gregg S. Glaser
/s/ Sanford D. Cohen
________________________________ Director
Sanford D. Cohen
II-5<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
5 Opinion of Kilpatrick Stockton LLP.
23(a) Consent of PricewaterhouseCoopers LLP.
23(b) Consent of Kilpatrick Stockton LLP (included in Exhibit 5).
24 Power of Attorney (included on Signature Page).
II-6
ACCOUNTANT'S CONSENT
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part
of this Registration Statement on Form S-1 of our report dated March 26,
1999 relating to the financial statements of JWGenesis Financial Corp.,
which appears in such Prospectus. We also consent to the references to
us under the headings "Experts" in such Prospectus.
/s/ Pricewaterhousecoopers LLP
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
March 31, 1999
EXHIBIT 5
OPINION OF KILPATRICK STOCKTON LLP
KILPATRICK STOCKTON LLP
ATTORNEYS AT LAW
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telephone: 404.815.6500
Facsimile: 404.815.6555
March 31, 1999
JWGenesis Financial Corp.
980 North Federal Highway
Suite 210
Boca Raton, Florida 33432
Gentlemen:
At your request, we have examined the Registration Statement on
Form S-1, File No. 333-___________, (the "Registration Statement"),
filed by JWGenesis Financial Corp. (the "Company"), a Florida
corporation, with the Securities and Exchange Commission with respect
to the registration under the Securities Act of 1933, as amended, of
1,007,506 shares of Common Stock, par value $0.001 per share, of the
Company (the "Common Stock"), proposed to be sold by certain
shareholders of the Company (the "Selling Shareholders").
As your counsel, and in connection with the preparation of the
Registration Statement, we have examined the originals or copies of
such documents, corporate records, certificates of public officials
and officers of the Company, and other instruments related to the
authorization and issuance of the Common Stock as we deemed relevant
or necessary for the opinion expressed herein.
Based upon the foregoing, it is our opinion that the shares of
Common Stock proposed to be sold by the Selling Shareholders have been
(or will be, when issued and paid for pursuant to the exercise of
certain warrants as contemplated by and described generally in the
Registration Statement) validly issued and fully paid for and are
nonassessable, and that such shares may be sold and delivered by the
Selling Shareholders in the manner and under the terms and conditions
described in the Registration Statement without affecting adversely
their status as validly issued, fully paid, and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in
the "Legal Matters" section of the Prospectus constituting a part of
the Registration Statement, and any amendments thereto.
Very truly yours,
KILPATRICK STOCKTON LLP
By: /s/ W. Randy Eaddy
_______________________________
W. Randy Eaddy, A Partner
