UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 001-14205
JWGENESIS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Florida 58-1545984
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization)
980 North Federal Highway - Suite 210
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 338-2600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - Par Value $.001 per share
(Title of class)
Securities registered pursuant to Section 12(g) of the Act: None
Name of Exchange on Which Registered: The American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the last 90
days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. /X/
On March 22, 1999, the Registrant had 5,652,833 outstanding
shares of Common Stock, $.001 par value, and at such date, the
aggregate market value of the shares of Common Stock held by non-
affiliates, was approximately $51,500,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
PART I
ITEM 1. BUSINESS
Background and General
JWGenesis Financial Corp. (the "Company" or "JWGenesis") 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.
JWGenesis was incorporated as a Florida corporation in January
1998; however, as a result of the Share Exchange on June 12, 1998
described elsewhere herein, JWGenesis succeeded to the business and
operations of JW Charles Financial Services, Inc. ("JWCFS"), which was
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), JWGenesis acquired 100% of
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
corporate finance, capital markets, and certain institutional research
and sales capabilities. As a result of a merger in 1990, JWCFS
acquired operations, which are now conducted as parts of JWG
Securities and JWG Clearing, that date back to 1973. In July 1998,
JWCFS changed its name to JWGenesis Financial Services, Inc.
("JWGFS").
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 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 an outside clearing arrangement with Bear Stearns Securities
Corp. GSG, a NASD member firm, is a general securities broker dealer
<PAGE>
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.
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 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:
Percentage of Total Revenues<F>
--------------------------------
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
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%
[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
<FN>
<F1> Excludes the results of Genesis for the periods prior to June 12, 1998.
</FN>
/TABLE
<PAGE>
The Share Exchange and Combination
Pursuant to a statutory share exchange with JWCFS on June 12,
1998, JWGenesis acquired all of the outstanding shares of JWCFS common
stock in exchange for shares of JWGenesis 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 a
larger transaction (the "Combination"), consummated on the same date
among JWCFS, JWGenesis, Genesis, and the owners of all of the equity
2
<PAGE>
<PAGE>
interests in Genesis, in which the owners of Genesis exchanged their
equity interests for 1,500,000 shares of JWGenesis common stock. As a
result of the Combination, JWGenesis succeeded to the respective
business and operations of JWCFS and Genesis and replaced JWCFS as the
publicly held holding company.
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's operations and resources in two
principal areas: brokerage processing services ("BPS") to be conducted
through Genesis's San Francisco office, and investment banking,
corporate finance and other capital markets ("corporate finance") to
be conducted through Genesis's 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 its former owners in
exchange for their return of 284,375 shares of the JWGenesis common
stock issued to them 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"
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 Form 10-K have been
adjusted to reflect JWCFS' 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:
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------------
1998 1997 1996
------------------------- -------------------------- -------------------------
Registered Registered Registered
Representatives Offices Representatives Offices Representative 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
__________
<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".
</FN>
______________
</TABLE>
3
<PAGE>
<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 and Bear Stearns
Securities Corp. ("Bear Stearns"), both NYSE member organizations,
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
Correspondent Services, Inc. ("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.
<PAGE>
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.
4<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 The GSG Acquisition".
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
JWCFS. At the time of the Combination, Genesis functioned principally
as an investment banking boutique, offering corporate finance,
institutional sales and trading, and institutionally focused research
and investment advisory services. Its corporate finance services
included equity underwriting and merger and acquisition advisory
services, and its customer base was comprised principally of
institutional, corporate, and high-net worth individual clients.
These operations were retained by the Company, and transferred to JWG
Capital, when Genesis was subsequently divested in March 1999. See "
Recent Developments - The Genesis Divestiture". While certain capital
markets functions are performed by personnel of JWG Securities and JWG
Clearing (and to a more limited extent, CSG), the Company uses JWG
Capital as its principal arm for capital market services.
5<PAGE>
<PAGE>
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
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 services and
capital markets 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 in the following principal areas: business
services and outsourcing, regional banking, retailing, communications,
technology, electronic commerce, health care, leisure and
entertainment, and special situations.
<PAGE>
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.
6<PAGE>
<PAGE>
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
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
these 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 pre-tax 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<PAGE>
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". 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.
7<PAGE>
<PAGE>
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
securities brokerage business but which 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
organization 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
On March 3, 1999, the Company divested Genesis - 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 of certain of the
former owners of Genesis (the "Stapleton Group") led by its Chief
Operating Officer, Phillip C. Stapleton ("Stapleton") and its Vice
Chairman, Will K. Weinstein ("Weinstein") contingent only upon the
receipt of certain regulatory approvals for the transfer of Genesis to
the Stapleton Group (the "Divestiture"). 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
8<PAGE>
<PAGE>
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
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 Securities, Inc. 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, GSG 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.<PAGE>
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
using redemptions of the Series C Preferred Stock, if any, and a
three-year, fully vested option 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
9
<PAGE>
<PAGE>
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, GSG, a subsidiary of the Company, 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
10<PAGE>
<PAGE>
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
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.
Certain Matters Regarding Forward Looking Statements
Certain statements included in this Form 10-K, including without
limitation statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: the impact of
general economic conditions on the capital markets; changes in or
amendments to regulatory authorities' capital requirements or other
regulations applicable to the Company or its subsidiaries;
fluctuations in interest rates; increased levels of competition; and
other factors referred to in this Form 10-K. Given these
uncertainties, undue reliance should not be placed on such forward-
looking statements. The Company disclaims any obligation to update
any such factors or to publicly announce the results of any revisions
to any of the forward-looking statements included herein to reflect
future events or developments.
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
</TABLE>
<PAGE>
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
<TABLE>
<CAPTION>
<C> <S> <C> <S>
* economic and political conditions * broad trends in business and finance
* legislation and regulation affecting * currency values
the business and financial communities * market conditions
* inflation * the credit capacity or perceived
* the availability and cost of short-term creditworthiness of the securities industry
or long-term funding and capital in 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:
11<PAGE>
* 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
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.
<PAGE>
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
12<PAGE>
<PAGE>
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. The loss of an
investment banking, research, or sales and trading professional,
particularly a senior professional with a broad range of contacts in
an industry, could materially and adversely affect our operating
results.
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
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<PAGE>
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.
13<PAGE>
<PAGE>
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
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 Item 7, "JWGenesis 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.
<PAGE>
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
14<PAGE>
<PAGE>
* censure * cease-and-desist orders
* civil penalties (including * the deregistration or
treble damages in the case suspension of the non-
of insider trading compliant broker-dealer's
violations) officers or employees
* fines
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
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.
<PAGE>
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
15<PAGE>
<PAGE>
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,
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.
<PAGE>
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
16<PAGE>
<PAGE>
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.
ITEM 2. PROPERTIES.
The Company owns no real property. The Company currently leases
its corporate offices and operations facilities, located at 980 North
Federal Highway, Boca Raton, Florida 33432, where it occupies
approximately 19,500 square feet of space. JWG Securities branch
offices are also leased premises, comprising an aggregate of
approximately 46,000 square feet of office space in several cities.
JWG Capital leases 5,400 square feet of space in New York. GSG branch
offices are also leased premises, comprising an aggregate of
approximately 86,000 square feet of office space in several cities.
The Company believes that its office facilities are adequate for its
current and reasonably foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending or threatened in
which JWGenesis 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, JWGenesis 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's special shareholders meeting on October 13, 1998,
the shareholders voted to elect nine directors to hold office until
the 1999 annual meeting of stockholders and to approve and adopt the
Company's 1998 Stock Option and Award Plan and its Management
Incentive Bonus Plan.
<PAGE>
Item 1. Election of Directors:
<TABLE>
<CAPTION>
Number of Number of Number of
Votes Votes Votes
For Election Withheld Not Voted
--------------- ---------------- -----------
Election of Directors:
----------------------
<S> <C> <C> <C>
Marshall T. Leeds 4,536,259 30,275 749,187
Will K. Weinstein 4,536,184 30,350 749,187
Philip C. Stapleton 4,536,259 30,275 749,187
Joel E. Marks 4,536,259 30,275 749,187
Jeffrey H. Lehman 4,536,259 30,275 749,187
Wm. Dennis Ferguson 4,536,193 30,311 749,217
Gregg S. Glaser 4,536,193 30,311 749,217
Harvey R. Heller 4,535,729 30,775 749,217
Curtis Sykora 4,535,729 30,775 749,217
</TABLE>
17<PAGE>
<PAGE>
Item 2. Approval and Adoption of the 1998 Stock Option and Award Plan:
<TABLE>
<CAPTION>
Number of Number of Number of Number of
Votes In Votes Votes Votes
Favor Against Abstained Not Voting
--------- --------- --------- ----------
<S> <C> <C> <C>
2,634,816 266,046 272,371 2,142,488
</TABLE>
Item 3. Approval and Adoption of the Management Incentive Bonus Plan:
<TABLE>
<CAPTION>
Number of Number of Number of Number of
Votes In Votes Votes Votes
Favor Against Abstained Not Voting
--------- --------- --------- ----------
<S> <C> <C> <C>
2,783,438 127,831 271,851 2,132,601
</TABLE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The American Stock Exchange
(the "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 Company's 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.
<TABLE>
<CAPTION>
Sales Price
-----------------
High Low
------- ------
<S> <C> <C>
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 22, 1999).. $13.75 $ 5.94
The closing sales price for the Company's common stock on March 29,
1999 was $11.13.
18<PAGE>
There were approximately 215 holders of record of the Company's
common stock as of March 29, 1999. 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.
No cash dividends have been declared or paid to date on the
Company's 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.
ITEM 6. SELECTED FINANCIAL DATA.
The following tables present selected historical financial data
of the Company. On June 12, 1998, the Company and JWGFS effected the
Share Exchange, and the Company acquired Genesis, as part of the
Combination. See Item 1. "Business The Exchange and Combination".
As a result of the Combination, the Company succeeded to the business
and operations of JWGFS and Genesis. The following selected
historical financial data of the Company relating to periods prior to
June 12, 1998 are derived solely from financial statements of JWGFS
for such periods and, except as otherwise expressly indicated, relate
to matters prior to the Combination. Such financial statements for
the years ended December 31, 1998, 1997, and 1996 appear elsewhere in
this Form 10-K. The following selected historical financial data
should be read in conjunction with such financial statements and
related notes.
On March 3, 1999, the Company divested Genesis in a transaction
in which the Company nonetheless retained the investment banking,
corporate finance and other capital markets operations that it had
been conducting through Genesis, while divesting Genesis's brokerage
processing business unit. See Item 1. "Business 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's 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.
19<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
(In thousands of dollars, except for per share amounts)
--------------------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- -------
<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............. 16,988 29,423 17,375 28,138 7,303
from banks........................
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>
__________
ITEM 7. 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 Item 1, "Business The Share Exchange and
Combination". As a result of the Combination, the Company succeeded
20<PAGE>
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.
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 benefits 22,074 36 16,278 9 14,911
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 exception being market making and principal
21<PAGE>
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. 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 and 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
22<PAGE>
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
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".
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<PAGE>
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.
23<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.
<PAGE>
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
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
24<PAGE>
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,
Genesis, GSG and DMG had net capital of $2,000,000, $1,399,000,
$2,846,000, $2,111,000 and $232,000, respectively and excess net
capital of $1,624,000, $1,149,000, $2,735,000, $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.
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.
<PAGE>
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,
$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.
25<PAGE>
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 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.
<PAGE>
Market Risk
In 1997 the Securities and Exchange Commission 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 inventory accounts are established and monitored on an
ongoing basis. Current and proposed underwriting, corporate
development, merchant banking and other commitments are subject to due
26<PAGE>
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 5 to the
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
the Company's 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 borrowings under the
line of credit with the SunTrust Facility and the Wilmington Facility.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information contained in Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations Market
Risk" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and the report of independent public
accountants identified in Item 14(a) are included in this report beginning
at page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Certain information regarding the directors and executive
officers of the Company is set forth in the following table and
paragraphs.
29<PAGE>
</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
Sanford B. Cohen . . . . . . . . . . . . . . . . 41 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
</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 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.
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.
30
<PAGE>
Wm. Dennis Ferguson 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 Company, Mr.
Ferguson served as acting President and Chief Executive Officer of the
predecessor company ("Old JWC Financial") which was acquired by the
Company 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 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 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 is also Executive Vice President of the Company
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.
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.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who
beneficially own more than ten percent of the Company's Common Stock
31<PAGE>
("ten-percent stockholders") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "SEC")
and with the National Association of Securities Dealers, Inc.
("NASD"). Officers, directors and ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it and information furnished to the Company by such persons, the
Company believes that during the Company's fiscal year ended December
31, 1998, all its officers, directors and ten-percent stockholders
complied with the Section 16(a) reporting requirements.
Arrangements For Board
In connection with the series of transactions between JWGFS and
Wilmington Trust Company ("Wilmington"), as more fully described under
"Certain Relationships and Related 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.
ITEM 11. EXECUTIVE COMPENSATION.
<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
_______________________________________________________________________________________________________________________________
32
<PAGE>
_________________
<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>
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.
____________
Directors who are not employees of the Company receive an annual
retainer of $5,000, and receive $750 and $500, respectively, for their
attendance at Board of Directors or Board committee meetings.
Directors who are employees of the Company are not compensated for
their service on the Board or Board committees. Each director is also
reimbursed for travel expenses incurred in connection with attending
meetings.
The following tables show, as to the Company's Chief Executive
Officer and Named Executive Officers, certain information with respect
to options granted to them. No stock appreciation rights ("SARs")
have been granted.
33
<PAGE>
Option/SAR Grants In Last Fiscal Year
(Individual Grants)
The following table sets forth further information on grants of
stock options during 1998 to each of the Named Executive Officers, if
any were granted, pursuant to the Company's 1990 Stock Option Plan.
No stock appreciation rights were granted during 1998.
<TABLE>
<CAPTION>
______________________________________________________________________________________________________________
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term <F1>
______________________________________________________________________________________________________________
% of total
Number of Options
Securities granted to
Underlying employees Exercise
Options in fiscal or base Expiration
Name Granted year price date 5% 10%
(#) ($/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 $16.91, respectively. Over the past five
years, the market price for the Company's Common Stock has increased
at a compound annual rate of approximately 17.5%.
</FN>
</TABLE>
34<PAGE>
Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table sets forth further information with respect to
option exercises during 1998 and unexercised stock options held by
each of the Named Executive Officers at December 31, 1998, if he
exercised or held any.
<TABLE>
<CAPTION>
________________________________________________________________________________________________________________________
Number of Value of
Securities Unexercised In-
Underlying The-Money
Unexercised Options at
Options at December 31, 1998
December 31, 1998 (#) ($) <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>
35
<PAGE>
Stock on The American Stock Exchange was $5.9375.
Employment Agreement
Messrs. Leeds, Marks, and Glaser. 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 are $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
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.
36<PAGE>
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 JWCFS in connection with the Share Exchange, 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 JWGenesis 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 JWGenesis 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 JWCFS 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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
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 all directors, by each of the Named Executive
Officers, 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 Mr. Weinstein 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.
37<PAGE>
<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."
<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>
38
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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".
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) The following consolidated financial statements of JWGENESIS
FINANCIAL CORP. and subsidiaries are included in Part II - Item 8
of this Form 10-K:
Consolidated Statements of Financial Condition as of December 31,
1998 and 1997.
Consolidated Statements of Income For the Years Ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity For the Years
Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
have been omitted because the required information is not
required under the related instructions, is inapplicable, or is
not present in amounts sufficient to require submission of the
schedules or because the information required is included in the
consolidated financial statements or notes thereto.
(3) Exhibits included herein:
Exhibit Number Description of Exhibit
3(a) Articles of Incorporation of JWGenesis (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, as amended, of JWGenesis.
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).
40
<PAGE>
Exhibit Number Description of Exhibit
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.
23 Consent of PricewaterhouseCoopers LLP.
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) Amendments to Glaser Employment Agreement.
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.
99(i) Nonsolicitation Agreement between the Company and Joel
E. Marks.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the
Registrant's fiscal year.
41
<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>
<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>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 31, 1999 JWGENESIS FINANCIAL CORP.
-------------------------
(Registrant)
By: /s/ Marshall T. Leeds
-------------------------------------
Marshall T. Leeds
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Marshall T. Leeds Date: March 31, 1999
Marshall T. Leeds, Chairman, President
and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Joel E. Marks Date: March 31, 1999
Joel E. Marks, Secretary
(Principal Financial
and Accounting Officer) and Director
/s/ Wm. Dennis Ferguson Date: March 31, 1999
Wm. Dennis Ferguson, Director
/s/ Gregg S. Glaser Date: March 31, 1999
Gregg S. Glaser, Director
/s/ Jeffrey H. Lehman Date: March 31, 1999
Jeffrey Lehman, Director
/s/ Sanford Cohen Date: March 31, 1999
Sanford Cohen, Director
Exhibit 3(b)
BYLAWS
(as amended, February 4, 1999)
OF
JWGENESIS FINANCIAL CORP.
(A Florida Corporation)
<PAGE>
BYLAWS
(as amended, February 4, 1999)
OF
JWGENESIS FINANCIAL CORP.
(A Florida Corporation)
TABLE OF CONTENTS
Page
ARTICLE ONE OFFICE . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Registered Office and Agent . . . . . . . . . . . . . . . . . . . 1
1.2 Principal Office . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO SHAREHOLDERS' MEETING . . . . . . . . . . . . . . . . . 1
2.1 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 Voting Group; Quorum; Vote Required to Act . . . . . . . . . . . 3
2.7 Voting of Shares . . . . . . . . . . . . . . . . . . . . . . . . 3
2.8 Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.9 Presiding Officer . . . . . . . . . . . . . . . . . . . . . . . . 3
2.10 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 Conduct of the Meeting . . . . . . . . . . . . . . . . . . . . . 4
2.12 Action of Shareholders Without a Meeting . . . . . . . . . . . . 4
2.13 Matters Considered at Annual Meetings . . . . . . . . . . . . . 4
ARTICLE THREE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . 5
3.1 General Powers . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Number, Election and Term of Office . . . . . . . . . . . . . . . 5
3.3 Removal of Directors . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Committees of the Board of Directors . . . . . . . . . . . . . . 6
3.7 Qualification of Directors . . . . . . . . . . . . . . . . . . . 6
ARTICLE FOUR MEETING OF THE BOARD OF DIRECTORS . . . . . . . . . . . 7
4.1 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . 7
4.5 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . 7
4.6 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.7 Vote Required for Action . . . . . . . . . . . . . . . . . . . . 7
4.8 Participation by Conference Telephone . . . . . . . . . . . . . . 8
4.9 Action by Directors Without a Meeting . . . . . . . . . . . . . . 8
4.10 Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.11 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE FIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.2 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
i
<PAGE>
5.3 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.5 Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . 9
5.6 Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . 10
5.7 President . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.8 Vice President . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.9 Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.10 Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE SIX DISTRIBUTIONS AND DIVIDENDS . . . . . . . . . . . . . . 11
ARTICLE SEVEN SHARES . . . . . . . . . . . . . . . . . . . . . . . . 11
7.1 Share Certificates . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Rights of Corporation with Respect to Registered Owners . . . . . 11
7.3 Transfers of Shares . . . . . . . . . . . . . . . . . . . . . . . 12
7.4 Duty of Corporation to Register Transfer . . . . . . . . . . . . 12
7.5 Lost, Stolen, or Destroyed Certificates . . . . . . . . . . . . . 12
7.6 Fixing of Record Date . . . . . . . . . . . . . . . . . . . . . . 12
7.7 Record Date if None Fixed . . . . . . . . . . . . . . . . . . . . 13
ARTICLE EIGHT INDEMNIFICATION . . . . . . . . . . . . . . . . . . . 13
8.1 Action by Persons other than the Corporation . . . . . . . . . . 13
8.2 Actions By or in the Name of the Corporation . . . . . . . . . . 14
8.3 Successful Defense . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Authorization of Indemnification . . . . . . . . . . . . . . . . 14
8.5 Prepayment of Expenses . . . . . . . . . . . . . . . . . . . . . 14
8.6 Non-Exclusive Right . . . . . . . . . . . . . . . . . . . . . . . 15
8.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.8 Constituent Corporations to Merger . . . . . . . . . . . . . . . 15
8.9 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.10 Continuation of Indemnification . . . . . . . . . . . . . . . . 15
8.11 Changes in Law . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.12 Other Permitted Indemnification . . . . . . . . . . . . . . . . 16
8.13 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE NINE MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 16
9.1 Waiver of Control - Share Acquisitions Regulation . . . . . . . . 17
9.2 Inspection of Books and Records . . . . . . . . . . . . . . . . . 17
9.3 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.4 Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . 17
9.5 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE TEN AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . 18
ii
<PAGE>
BYLAWS
OF
JWGENESIS FINANCIAL CORP.
References in these Bylaws to the "Articles of Incorporation" are
to the Articles of Incorporation of JWGenesis Financial Corp., a Florida
corporation (the "Corporation"), as amended and restated from time to
time.
All of these Bylaws are subject to contrary provisions, if any, of
the Articles of Incorporation (including provisions designating the
preferences, limitations, and relative rights of any class or series of
shares), the Florida Business Corporation Acts (the "FBCA"), and other
applicable law, as in effect on and after the effective date of these
Bylaws. References in these Bylaws to "Sections" shall refer to
sections of the Bylaws, unless otherwise indicated.
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
registered office in the State of Florida and shall have a registered
agent whose business office is the same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation
shall be located 980 North Federal Highway, Boca Raton, Florida.
1.3 OTHER OFFICES. The Corporation may also have other offices at
such other place or places, both within or without the State of Florida,
as the Board of Directors may from time to time designate or the
business of the Corporation requires.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders
may be held at any location inside or outside the State of Florida
designated by the Board of Directors or any other person or persons who
properly call the meeting, or if the Board of Directors or such other
person or persons do not specify a location, at the Corporation's
principal office.
2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting
of shareholders, at a time determined by the Board of Directors, to
elect directors and to transact any business that properly may come
before the meeting. The annual meeting may be combined with any other
meeting of shareholders, whether annual or special.
2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or
more classes or series of the Corporation's shares may be called at any
time by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer, or the President, and shall be called by the
<PAGE>
Corporation upon the written request (in compliance with applicable
requirements of the FBCA) of the holders of shares representing forty
percent (40%) or more of the votes entitled to be cast on each issue
proposed to be considered at the special meeting. The business that may
be transacted at any special meeting of shareholders shall be limited to
that proposed in the notice of the special meeting given in accordance
with Section 2.4 (including related or incidental matters that may be
necessary or appropriate to effectuate the proposed business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.4 and
subject to waiver by a shareholder pursuant to Section 2.5, the
Corporation shall give written notice of the date, time, and place of
each annual and special shareholders' meeting no fewer than 10 days nor
more than 60 days before the meeting date to each shareholder of record
entitled to vote at the meeting. The notice of an annual meeting need
not state the purpose of the meeting unless these Bylaws require
otherwise. The notice of a special meeting shall state the purpose for
which the meeting is called. If an annual or special shareholders'
meeting is adjourned to a different date, time, or location, the
Corporation shall give shareholders notice of the new date, time, or
location of the adjourned meeting, unless a quorum of shareholders was
present at the meeting and information regarding the adjournment was
announced before the meeting was adjourned; PROVIDED, HOWEVER, that if
(i) the adjournment is for more than 30 days, or (ii) a new record date
is or must be fixed in accordance with Section 7.6, the Corporation must
give notice of the adjourned meeting to all shareholders of record as of
the new record date who are entitled to vote at the adjourned meeting.
2.5 WAIVER OF NOTICE. A shareholder may waive any notice required
by the FBCA, the Articles of Incorporation, or these Bylaws, before or
after the date and time of the matter to which the notice relates, by
delivering to the Corporation a written waiver of notice signed by the
shareholder entitled to the notice. In addition, a shareholder's
attendance at a meeting shall be (a) a waiver of objection to lack of
notice or defective notice of the meeting unless the shareholder attends
the meeting for the express purpose of objecting at the beginning of the
meeting, and (b) a waiver of objection to consideration of a particular
matter at the meeting that is not within the purpose stated in the
meeting notice, unless the shareholder objects to considering the matter
when it is presented. Except as otherwise required by the FBCA, neither
the purpose of nor the business transacted at the meeting need be
specified in any waiver.
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless
otherwise required by the FBCA or the Articles of Incorporation, all
classes or series of the Corporation's shares entitled to vote generally
on a matter shall for that purpose be considered a single voting group
(a "Voting Group"). If either the Articles of Incorporation or the FBCA
requires separate voting by two or more Voting Groups on a matter,
action on that matter is taken only when voted upon by each such Voting
Group separately. At all meetings of shareholders, any Voting Group
entitled to vote on a matter may take action on the matter only if a
quorum of that Voting Group exists at the meeting, and if a quorum
exists, the Voting Group may take action on the matter notwithstanding
the absence of a quorum of any other Voting Group that may be entitled
to vote separately on the matter. Unless the Articles of Incorporation,
these Bylaws, or the FBCA provides otherwise, the presence (in person or
by proxy) of shares representing a majority of votes entitled to be cast
on a matter by a Voting Group shall constitute a quorum of that Voting
Group with regard to that matter. Once a share is present at any
meeting other than for the express purpose of objecting at the beginning
of the meeting, the share shall be deemed present for quorum purposes
<PAGE>
for the remainder of the meeting and for any adjournments of that
meeting, unless a new record date for the adjourned meeting is or must
be set pursuant to Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.2, if a quorum exists, action
on a matter by a Voting Group is approved by that Voting Group if the
votes cast within the Voting Group favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation or the
FBCA requires a greater number of affirmative votes.
2.7 VOTING OF SHARES. Unless otherwise required by the FBCA or
the Articles of Incorporation, each outstanding share of any class or
series having voting rights shall be entitled to one vote on each matter
that is submitted to a vote of shareholders.
2.8 PROXIES. A shareholder entitled to vote on a matter may vote
in person or by proxy pursuant to an appointment executed in writing by
the shareholder or by his or her attorney-in-fact. An appointment of a
proxy shall be valid for three years from the date of its execution,
unless a longer or shorter period is expressly stated in the proxy.
2.9 PRESIDING OFFICER. Except as otherwise provided in this
Section 2.9, the Chairman of the Board, if there be one, and in his or
her absence or disability, the Chief Executive Officer, if there be one,
and in his or her absence or disability, the President, shall preside at
every shareholders' meeting (and any adjournment thereof) as its
chairman, if any of them is present and willing to serve. If neither
the Chairman of the Board, the Chief Executive Officer, nor the
President is present and willing to serve as chairman of the meeting,
and if the Chairman of the Board has not designated another person who
is present and willing to serve, then a majority of the Corporation's
directors present at the meeting shall be entitled to designate a person
to serve as chairman. If no director of the Corporation is present at
the meeting or if a majority of the directors who are present cannot be
established, then a chairman of the meeting shall be selected by a
majority vote of (a) the shares present at the meeting that would be
entitled to vote in an election of directors or (b) if no such shares
are present at the meeting, then the shares present at the meeting
comprising the Voting Group with the largest number of shares present at
the meeting and entitled to vote on a matter properly proposed to be
considered at the meeting. The chairman of the meeting may designate
other persons to assist with the meeting.
2.10 ADJOURNMENTS. At any meeting of shareholders (including an
adjourned meeting), a majority of shares of any Voting Group present and
entitled to vote at the meeting (whether or not those shares constitute
a quorum) may adjourn the meeting, but only with respect to that Voting
Group, to reconvene at a specific time and place. If more than one
Voting Group is present and entitled to vote on a matter at the meeting,
then the meeting may be continued with respect to any such Voting Group
that does not vote to adjourn as provided above, and such Voting Group
may proceed to vote on any matter to which it is otherwise entitled to
do so; PROVIDED, HOWEVER, that if (a) more than one Voting Group is
required to take action on a matter at the meeting and (b) any one of
those Voting Groups votes to adjourn the meeting (in accordance with the
preceding sentence), then the action shall not be deemed to have been
taken until the requisite vote of any adjourned Voting Group is obtained
at its reconvened meeting. The only business that may be transacted at
any reconvened meeting is business that could have been transacted at
the meeting that was adjourned, unless further notice of the adjourned
meeting has been given in compliance with the requirements for a special
meeting that specifies the additional purpose or purposes for which the
<PAGE>
meeting is called. Nothing contained in this Section 2.10 shall be
deemed or otherwise construed to limit any lawful authority of the
chairman of a meeting to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the
chairman of the meeting shall be entitled to establish the rules of
order governing the conduct of business at the meeting.
2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Any action required
or permitted to be taken at any meeting of the shareholders may be taken
without a meeting, without prior notice and without a vote if the action
is taken by unanimous written consent of the holders of the outstanding
stock of each voting group entitled to vote thereon. Every written
consent shall bear the signature and the date of signature of each
shareholder.
2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding
anything to the contrary in these Bylaws, the only business that may be
conducted at an annual meeting of shareholders shall be business brought
before the meeting (a) by or at the direction of the Board of Directors
prior to the meeting, (b) by or at the direction of the Chairman of the
Board, the Chief Executive Officer, or the President, or (c) by a
shareholder of the Corporation who is entitled to vote with respect to
the business and who complies with the notice procedures set forth in
this Section 2.13. For business to be brought properly before an annual
meeting by a shareholder, the shareholder must have given timely notice
of the 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 office of the Corporation on or before the
later to occur of (i) 14 days prior to the annual meeting or (ii) 5 days
after notice of the meeting is provided to the shareholders pursuant to
Section 2.4 hereof. A shareholder's notice to the Secretary shall 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
shall have the 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
(i) the chairman concludes that the matter has been proposed in a manner
inconsistent with this Section 2.13 or (ii) the chairman concludes that
the subject matter of the proposed business is inappropriate for
consideration by the shareholders at the meeting.
ARTICLE THREE
BOARD OF DIRCTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or
under the authority of, and the business and affairs of the Corporation
shall be managed by, the Board of Directors, subject to any limitation
set forth in the Certificate of Incorporation, in bylaws approved by the
shareholders, or in agreements among all the shareholders that are
otherwise lawful.
3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors
of the Corporation shall be fixed by resolution of the Board of
Directors or of the shareholders from time to time and, until otherwise
<PAGE>
determined, shall be two (2); PROVIDED, HOWEVER, that the number of
directors shall not at any time be less than two (2) or more than
fifteen (15); and FURTHER PROVIDED, that no decrease in the number of
directors shall have the effect of shortening the term of an incumbent
director. Except as provided elsewhere in this Section 3.2 and in
Section 3.4, the directors shall be elected at each annual meeting of
shareholders, or at a special meeting of shareholders called for
purposes that include the election of directors, by a plurality of the
votes cast by the shares entitled to vote and present at the meeting.
Except in case of death, resignation, disqualification, or removal, the
term of each director shall expire at the next succeeding annual meeting
of shareholders. Despite the expiration of a director's term, he or she
shall continue to serve until his or her successor, if there is to be
any, has been elected and has qualified.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
individual director may be removed, with or without cause, by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote for the election of directors, provided
that directors elected by a particular Voting Group may be removed only
by the shareholders in that Voting Group. Removal action may be taken
only at a shareholders' meeting for which notice of the removal action
has been given. A removed director's successor, if any, may be elected
at the same meeting to serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may
be filled for the unexpired term, unless the shareholders have elected a
successor, by the affirmative vote of a majority of the remaining
directors, whether or not the remaining directors constitute a quorum;
PROVIDED, HOWEVER, that if the vacant office was held by a director
elected by a particular Voting Group, only the holders of shares of that
Voting Group or the remaining directors elected by that Voting Group
shall be entitled to fill the vacancy; PROVIDED FURTHER, HOWEVER, that
if the vacant office was held by a director elected by a particular
Voting Group AND there is no remaining director elected by that Voting
Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy during an interim period
before the shareholders of the vacated director's Voting Group act to
fill the vacancy. A vacancy or vacancies in the Board of Directors may
result from the death, resignation, disqualification, or removal of any
director, or from an increase in the number of directors.
3.5 COMPENSATION. Directors may receive such compensation for
their services as directors as may be fixed by the Board of Directors
from time to time. A director may also serve the Corporation in one or
more capacities other than that of director and receive compensation for
services rendered in those other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors
may designate from among its members an executive committee or one or
more other standing or ad hoc committees, each consisting of one or more
directors, who serve at the pleasure of the Board of Directors. Subject
to the limitations imposed by the FBCA, each committee shall have the
authority set forth in the resolution establishing the committee or in
any other resolution of the Board of Directors specifying, enlarging, or
limiting the authority of the committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a
director of the Corporation shall assume office and begin serving unless
and until duly qualified to serve, as determined by reference to the
FBCA, the Articles of Incorporation, and any further eligibility
requirements established in these Bylaws.
<PAGE>
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held in conjunction with each annual meeting of shareholders.
In addition, the Board of Directors may, by prior resolution, hold
regular meetings at other times.
4.2 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be
one) shall preside at and serve as chairman of meetings of the Board of
Directors. The Chairman of the Board shall perform other duties and
have other authority as may from time to time be delegated by the Board
of Directors.
4.3 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the
Chief Executive Officer, the President, or any three or fewer directors
in office at that time.
4.4 PLACE OF MEETINGS. Directors may hold their meetings at any
place in or outside the State of Florida that the Board of Directors may
establish from time to time.
4.5 NOTICE OF MEETINGS. Directors need not be provided with
notice of any regular meeting of the Board of Directors. Unless waived
in accordance with Section 4.11, the Corporation shall otherwise give at
least two days' notice to each director of the date, time, and place of
each special meeting. Notice of a meeting shall be deemed to have been
given to any director in attendance at any prior meeting at which the
date, time, and place of the subsequent meeting was announced.
4.6 QUORUM At meetings of the Board of Directors, the greater of
(a) a majority of the directors then in office, and (b) one-third of the
number of directors fixed in accordance with these Bylaws, shall
constitute a quorum for the transaction of business.
4.7 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote
is taken, the vote of a majority of the directors present at the time of
the vote will be the act of the Board of Directors, unless the vote of a
greater number is required by the FBCA, the Articles of Incorporation,
or these Bylaws. A director who is present at a meeting of the Board of
Directors when corporate action is taken is deemed to have assented to
the action taken unless (a) he or she objects at the beginning of the
meeting (or promptly upon his or her arrival) to holding the meeting or
transacting business at it; (b) his or her dissent or abstention from
the action taken is entered in the minutes of the meeting; or (c) he or
she delivers written notice of dissent or abstention to the presiding
officer of the meeting before its adjournment or to the Corporation
immediately after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the
action taken.
4.8 PARTICIPATION BY CONFERENCE TELEPHONE. To the extent
permitted by the Chairman of the Board, or as may be directed by a
majority of the directors otherwise present at a particular meeting,
members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications
equipment through which all persons participating may hear and speak to
each other. Participation in a meeting pursuant to this Section 4.8
shall constitute presence in person at the meeting.
<PAGE>
4.9 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors may be
taken without a meeting if a written consent, describing the action
taken, is signed by each director and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records. The
consent may be executed in counterparts, and shall have the same force
and effect as a unanimous vote of the Board of Directors at a duly
convened meeting.
4.10 ADJOURNMENTS. A meeting of the Board of Directors, whether or
not a quorum is present, may be adjourned by a majority of the directors
present to reconvene at a specific time and place. It shall not be
necessary to give notice to the directors of the reconvened meeting or
of the business to be transacted, other than by announcement at the
meeting that was adjourned, unless a quorum was not present at the
meeting that was adjourned, in which case notice shall be given to
directors in the same manner as for a special meeting. At any such
reconvened meeting at which a quorum is present, any business may be
transacted that could have been transacted at the meeting that was
adjourned.
4.11 WAIVER OF NOTICE. A director may waive any notice required by
the FBCA, the Articles of Incorporation, or these Bylaws before or after
the date and time of the matter to which the notice relates, by a
written waiver signed by the director and delivered to the Corporation
for inclusion in the minutes or filing with the corporate records.
Attendance by a director at a meeting shall constitute waiver of notice
of the meeting, except where a director at the beginning of the meeting
(or promptly upon his or her arrival) objects to holding the meeting or
to transacting business at the meeting and does not thereafter vote for
or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall consist of a
President, and a Secretary, and may include a Chief Executive Officer
separate from the President, each of whom shall be elected or appointed
by the Board of Directors. The Board of Directors may also elect a
Chairman of the Board and a Vice Chairman of the Board from among its
members. The Board of Directors from time to time may create and
establish the duties of other officers and may elect or appoint, or
authorize specific senior officers to appoint, the person who shall hold
other offices, including one or more Vice Presidents (including
Executive Vice Presidents, Senior Vice Presidents, Assistant Vice
Presidents, and the like), a Chief Operating Officer, a Chief Financial
Officer, a Chief Administrative Officer, one or more Assistant
Secretaries, a Treasurer, and one or more Assistant Treasurers. Whether
or not so provided by the Board of Directors, the Chairman of the Board
or the Chief Executive Officer may appoint one or more Assistant
Secretaries and one or more Assistant Treasurers. Any two or more
offices may be held by the same person.
5.2 TERM. Each officer shall serve at the pleasure of the Board
of Directors (or, if appointed by the Chief Executive Officer or a
senior officer pursuant to this Article Five, at the pleasure of the
Board of Directors, the Chief Executive Officer, or the senior officer
authorized to have appointed the officer) until his death, resignation,
or removal, or until his replacement is elected or appointed in
accordance with this Article Five.
<PAGE>
5.3 COMPENSATION. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors or by a committee
or officer appointed by the Board of Directors. Officers may serve
without compensation.
5.4 REMOVAL. All officers (regardless of how elected or
appointed) may be removed, with or without cause, by the Board of
Directors, and any officer appointed by the Chief Executive Office or
another senior officer may also be removed, with or without cause, by
the Chief Executive Officer or by any senior officer authorized to have
appointed the officer to be removed. Removal will be without prejudice
to the contract rights, if any, of the person removed, but shall be
effective notwithstanding any damage claim that may result from
infringement of such contract rights.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be
one) shall preside at and serve as chairman of meetings of the
shareholders and of the Board of Directors (unless another person is
selected under Section 2.9 to act as Chairman). The Chairman of the
Board shall perform other duties and have other authority as may from
time to time be delegated by the Board of Directors.
5.6 VICE CHAIRMAN OF THE BOARD The Vice Chairman of the Board (if
there be one), in the absence of the Chairman of the Board, shall
preside at and serve as chairman of meetings of the Board of Directors.
The Vice Chairman of the Board shall perform other duties and have other
authority as may from time to time be delegated by the Board of
Directors.
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
charged with the general and active management of the Corporation, shall
see that all orders and resolutions of the Board of Directors are
carried into effect, shall have the authority to select and appoint
employees and agents of the Corporation, and shall, in the absence or
disability of the Chairman of the Board (other than any specific duty
assigned to the Vice Chairman of the Board), perform the duties and
exercise the powers of the Chairman of the Board. The Chief Executive
Officer shall also be responsible for the development, establishment,
and implementation of the policy and strategic initiatives for the
Corporation. The Chief Executive Officer shall perform any other duties
and have any other authority as may be delegated from time to time by
the Board of Directors, and shall be subject to the limitations fixed
from time to time by the Board of Directors.
5.8 PRESIDENT. If there shall be no separate Chief Executive
Officer of the Corporation, then the President shall be the chief
executive officer of the Corporation, with the duties and authority
provided in Section 5.7. The President shall otherwise be the chief
operating officer of the Corporation (unless there has been established
by the Board of Directors the separate position of Chief Operating
Officer) and shall, consistent with the authority otherwise conferred
upon the Chief Executive Officer in Section 5.7, (and upon any separate
Chief Operating Officer) have responsibility for the conduct and general
supervision of the business operations of the Corporation, including
without limitation responsibility for the direction, supervision, and
coordination of the activities of all operating subsidiaries and other
business units of the Corporation. The President shall perform such
other duties and have such other authority as may from time to time be
delegated by the Board of Directors. In the absence or disability of
the Chief Executive Officer, the President shall perform the duties and
exercise the powers of the Chief Executive Officer.
<PAGE>
5.9 VICE PRESIDENT. The Vice President (if there be one) shall,
in the absence or disability of the President, perform the duties and
exercise the powers of the President, whether the duties and powers are
specified in these Bylaws or otherwise. If the Corporation has more
than one Vice President, the one designated by the Board of Directors
shall act in the event of the absence or disability of the President.
Vice Presidents shall perform any other duties and have any other
authority as from time to time may be delegated by the Board of
Directors, the Chief Executive Officer, or the President.
5.10 SECRETARY. The Secretary shall be responsible for preparing
minutes of the meetings of shareholders, directors, and committees of
directors and for authenticating records of the Corporation. The
Secretary or any Assistant Secretary shall have authority to give all
notices required by law or these Bylaws. The Secretary shall be
responsible for the custody of the corporate books, records, contracts,
and other documents. The Secretary or any Assistant Secretary may affix
the corporate seal to any lawfully executed documents requiring it, may
attest to the signature of any officer of the Corporation, and shall
sign any instrument that requires the Secretary's signature. The
Secretary or any Assistant Secretary shall perform any other duties and
have any other authority as from time to time may be delegated by the
Board of Directors, the Chief Executive Officer, or the President.
5.11 TREASURER. Unless otherwise provided by the Board of
Directors, the Treasurer shall be responsible for the custody of all
funds and securities belonging to the Corporation and for the receipt,
deposit, or disbursement of these funds and securities under the
direction of the Board of Directors. The Treasurer shall cause full and
true accounts of all receipts and disbursements to be maintained and
shall make reports of these receipts and disbursements to the Board of
Directors, the Chief Executive Officer, and the President upon request.
The Treasurer or Assistant Treasurer shall perform any other duties and
have any other authority as from time to time may be delegated by the
Board of Directors, the Chief Executive Officer, or the President.
ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provides otherwise, the Board
of Directors, from time to time in its discretion, may authorize or
declare distributions or share dividends in accordance with the FBCA.
<PAGE>
ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The interest of each shareholder in the
Corporation shall be evidenced by a certificate or certificates
representing shares of the Corporation, which shall be in such form as
the Board of Directors from time to time may adopt in accordance with
the FBCA. Share certificates shall be in registered form and shall
indicate the date of issue, the name of the Corporation, the name of the
shareholder, and the number and class of shares and designation of the
series, if any, represented by the certificate. Each certificate shall
be signed by the President or a Vice President (or in lieu thereof, by
the Chairman of the Board or Chief Executive Officer, if there be one)
and may be signed by the Secretary or an Assistant Secretary; PROVIDED,
HOWEVER, that where the certificate is signed (either manually or by
facsimile) by a transfer agent, or registered by a registrar, the
signatures of those officers may be facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS.
Prior to due presentation for transfer of registration of its shares,
the Corporation may treat the registered owner of the shares (or the
beneficial owner of the shares to the extent of any rights granted by a
nominee certificate on file with the Corporation pursuant to any
procedure that may be established by the Corporation in accordance with
the FBCA) as the person exclusively entitled to vote the shares, to
receive any dividend or other distribution with respect to the shares,
and for all other purposes; and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on
the part of any other person, whether or not it has express or other
notice of such a claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon
the books of the Corporation kept by the Corporation or by the transfer
agent designated to transfer the shares, only upon direction of the
person named in the certificate or by an attorney lawfully constituted
in writing. Before a new certificate is issued, the old certificate
shall be surrendered for cancellation or, in the case of a certificate
alleged to have been lost, stolen, or destroyed, the provisions of
Section 7.5 of these Bylaws shall have been complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any
of the provisions of Section 7.3 of these Bylaws, the Corporation is
under a duty to register the transfer of its shares only if: (a) the
share certificate is endorsed by the appropriate person or persons; (b)
reasonable assurance is given that each required endorsement is genuine
and effective; (c) the Corporation has no duty to inquire into adverse
claims or has discharged any such duty; (d) any applicable law relating
to the collection of taxes has been complied with; (e) the transfer is
in fact rightful or is to a bona fide purchaser; and (f) the transfer is
in compliance with applicable provisions of any transfer restrictions of
which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming
a share certificate to be lost, stolen, or destroyed shall make an
affidavit or affirmation of this claim in such a manner as the
Corporation may require and shall, if the Corporation requires, give the
Corporation a bond of indemnity in form and amount, and with one or more
sureties satisfactory to the Corporation, as the Corporation may
require, whereupon an appropriate new certificate may be issued in lieu
of the one alleged to have been lost, stolen, or destroyed.
<PAGE>
7.6 FIXING OF RECORD DATE. For the purpose of determining
shareholders (a) entitled to notice of or to vote at any meeting of
shareholders or, if necessary, any adjournment thereof, (b) entitled to
receive payment of any distribution or dividend, or (c) for any other
proper purpose, the Board of Directors may fix (or may authorize a
senior officer to fix within parameters set by the Board of Directors,
if permitted by the FBCA) in advance a date as the record date. The
record date may not be more than 70 days (and, in the case of a notice
to shareholders of a shareholders' meeting, not less than 10 days) prior
to the date on which the particular action, requiring the determination
of shareholders, is to be taken. A separate record date may be
established for each Voting Group entitled to vote separately on a
matter at a meeting. A determination of shareholders of record entitled
to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting, unless the Board of Directors shall fix a
new record date for the reconvened meeting, which it must do if the
meeting is adjourned to a date more than 30 days after the date fixed
for the original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as
provided in Section 7.6, then the record date for any determination of
shareholders that may be proper or required by law shall be, as
appropriate, the date on which notice of a shareholders' meeting is
mailed, the date on which the Board of Directors adopts a resolution
declaring a dividend or authorizing a distribution, or the date on which
any other action is taken that requires a determination of shareholders.
ARTICLE EIGHT
INDEMNIFICATION
8.1 ACTION BY PERSONS OTHER THAN THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the Corporation) by reason
of the fact that he is or was a director, officer, employee, or agent of
the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another Corporation,
partnership, joint venture, trust, or other enterprise, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit, or proceeding if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
8.2 ACTIONS BY OR IN THE NAME OF THE CORPORATION. The Corporation
shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending, or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
<PAGE>
corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such
action or suit, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect
of any claim, issue, or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent
that the court in which such action or suit was brought, or any other
court of competent jurisdiction shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which such court shall deem proper.
8.3 SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to
in Sections 8.1 and 8.2, or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
8.4 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 8.1 and 8.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee, or agent is
proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 8.1 and 8.2. Such determination shall
be made: (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit, or
proceeding; (2) if a quorum cannot be obtained under (1) above, by
majority vote of a committee duly designated by the board of directors
(in which directors who are parties may participate), consisting solely
of two or more directors who are not at the time parties to the
proceeding; (3) in a written opinion by special legal counsel selected
as required by Section 607.0850.(4)(c) of the FBCA or any successor
provision, or (4) by the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceedings or,
of no such quorum is obtainable, by a majority vote of shareholders who
were not parties to such proceeding.
8.5 PREPAYMENT OF EXPENSES. Expenses incurred in defending a
civil or criminal action, suit, or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit, or
proceeding upon receipt of an undertaking by or on behalf of the
director, officer, employee, or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article Eight.
8.6 NON-EXCLUSIVE RIGHT. The indemnification and advancement of
expenses provided by, or granted pursuant to, the other Sections of this
Article shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under
any bylaw, agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
8.7 INSURANCE. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other
enterprise, against any liability asserted against him and incurred by
<PAGE>
him in any such capacity, or arising out of his status as such, whether
or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
8.8 CONSTITUENT CORPORATIONS TO MERGER. For purposes of this
Article, references to "the Corporation" shall include, in addition to
the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, or agents, so
that any person who is or was a director, officer, employee, or agent of
such constituent corporation or a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise, shall stand in the same position under the provisions of
this Article with respect to the resulting or surviving corporation as
he would have with respect to such constituent corporation if its
separate existence had continued.
8.9 DEFINITIONS. For purposes of this Article, references to
"other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect
to an employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer,
employee, or agent of the Corporation which imposes duties on, or
involves services by, such its director, officer, employee, or agent
with respect to an employee benefit plan, its participants, or its
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article.
8.10 CONTINUATION OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by, or granted pursuant to, this
Article shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
8.11 CHANGES IN LAW. In the event the FBCA is amended following
the date of the latest modification, amendment, or revision of this
Article so as to permit indemnification by the Corporation of any person
to a greater extent (either as to matters or persons which may be the
subject of indemnity) than permitted in this Article, then the Board of
Directors shall have the power to authorize such greater indemnification
in accordance with the amended provisions of the FBCA.
8.12 OTHER PERMITTED INDEMNIFICATION. Whether or not required or
permitted by the foregoing provisions of this Article, the Corporation
shall indemnify any person against any other losses, damages, expenses
(including attorneys' fees and other costs of defense), judgments,
fines, and amounts paid in settlement which result from the fact that
such person is or was a director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another Corporation,
partnership, joint venture, trust, or other enterprise, if the Board of
Directors finds, in its sole discretion, that such indemnity is
appropriate in view of all of the facts and circumstances involved,
unless such indemnity, in the opinion of counsel, is prohibited by law.
8.13 AMENDMENT. Any amendment to this Article Eight that limits or
otherwise adversely affects the right of indemnification, advancement of
<PAGE>
expenses, or other rights of any person indemnified hereunder (an
"Indemnified Person") shall, as to such Indemnified Person, apply only
to proceedings based on actions, events, or omissions (collectively,
"Post Amendment Events") occurring after such amendment and after
delivery of notice of such amendment to the Indemnified Person so
affected. Any Indemnified Person shall, as to any proceeding based on
actions, events, or omissions occurring prior to the date of receipt of
such notice, be entitled to the right of indemnification, advancement of
expenses, and other rights under this Article Eight to the same extent
as if such provisions had continued as part of the Bylaws of the
Corporation without such amendment. This Section 8.13 cannot be
altered, amended, or repealed in a manner effective as to any
Indemnified Person (except as to Post Amendment Events) without the
prior written consent of such Indemnified Person.
8.14 SEVERABILITY. Each of the Sections of this Article Eight, and
each of the clauses set forth herein, shall be deemed separate and
independent, and should any part of any such Section or clause be
declared invalid or unenforceable by any court of competent
jurisdiction, such invalidity or unenforceability shall in no way render
invalid or unenforceable any other part thereof or any separate Section
or clause of this Article Eight that is not declared invalid or
unenforceable.
ARTICLE NINE
MISCELLANEOUS
9.1 WAIVER OF CONTROL - SHARE ACQUISITIONS REGULATION. Section
607.0902 of the FBCA, as existing or hereafter amended, which regulates
control-share acquisitions, shall not be applicable to transactions
involving the Corporation's stock.
9.2 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall
have the power to determine which accounts, books, and records of the
Corporation shall be available for shareholders to inspect or copy,
except for those books and records required by the FBCA to be made
available upon compliance by a shareholder with applicable requirements,
and shall have the power to fix reasonable rules and regulations
(including confidentiality restrictions and procedures) not in conflict
with applicable law for the inspection and copying of accounts, books,
and records that by law or by determination of the Board of Directors
are made available.
9.3 FISCAL YEAR. The Board of Directors is authorized to fix the
fiscal year of the Corporation and to change the fiscal year from time
to time as it deems appropriate.
9.4 CORPORATE SEAL. The corporate seal will be in such form as
the Board of Directors may from time to time determine. The Board of
Directors may authorize the use of one or more facsimile forms of the
corporate seal. The corporate seal need not be used unless its use is
required by law, by these Bylaws, or by the Articles of Incorporation.
9.5 NOTICE. (a) Whenever these Bylaws require notice to be given
to any shareholder or to any director, the notice may be given by mail,
in person, by courier delivery, by telephone, or by telecopier,
telegraph, or similar electronic means. Whenever notice is given to a
shareholder or director by mail, the notice shall be sent by depositing
the notice in a post office or letter box in a postage-prepaid, sealed
envelope addressed to the shareholder or director at his or her address
<PAGE>
as it appears on the books of the Corporation. Any such written notice
given by mail shall be effective: (i) if given to shareholders, as such,
at the time the same is deposited in the United States mail; and (ii) in
all other cases, at the earliest of (x) when delivered, properly
addressed, to the addressee's last known principal place of business or
residence, (y) three days after its deposit in the mail, as evidenced by
the postmark, if mailed with first-class postage prepaid and correctly
addressed, or (z) on the date shown on the return receipt, if sent by
registered or certified mail, return receipt requested, and the receipt
is signed by or on behalf of the addressee. Whenever notice is given to
a shareholder or director by any means other than mail, the notice shall
be deemed given when received.
(b) In calculating time periods for notice, when a period of time
measured in days, weeks, months, years, or other measurement of time is
prescribed for the exercise of any privilege or the discharge of any
duty, the first day shall not be counted but the last day shall be
counted.
ARTICLE TEN
AMENDMENTS
Except as otherwise provided under the FBCA or the Articles of
Incorporation, the Board of Directors shall have the power to alter,
amend, or repeal these Bylaws or adopt new Bylaws.
<PAGE>
Any Bylaws adopted by the Board of Directors may be altered, amended, or
repealed, and new Bylaws adopted, by the shareholders. The shareholders may
prescribe in adopting any Bylaw or Bylaws that the Bylaw or Bylaws so
adopted shall not be altered, amended, or repealed by the Board of
Directors.
Dated: February 4, 1999
(as amended)
Exhibit 21
State of
Subsidiary Incorpora
tion
DMG Securities, Inc. Florida
Corporate Securities Group, Inc. Florida
JWGenesis Securities, Inc. Florida
JWGenesis Insurance Services, Inc. Florida
JWGenesis Capital Markets, Inc. Florida
JWGenesis Clearing Corp. Iowa
JWGenesis Financial Services, Inc. Florida
GSG Securities, Inc. Florida
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 333-57385 and 333-57387) of JWGensis Financial
Corp. of our report dated March 26, 1999, appearing on page F-2 of this
Form 10-K.
/s/ PricewaterhouseCoopers LLP
PRICEWATERHOUSECOOPERS LLP
Tampa, Florida
April 1, 1999
Exhibit 99(f)
AMENDMENT TO EMPLOYMENT AGREEMENT
____________________
WHEREAS, JWGenesis Financial Corporation (the "COMPANY") and Gregg S.
Glaser (the "EXECUTIVE"), entered into an Employment Agreement (the
"AGREEMENT") dated June 12, 1998, providing, among other things, for the
issuance of certain stock options (the "OPTIONS"); and
WHEREAS, the Company and Executive wish to execute an amendment (the
"AMENDMENT") to the Agreement with respect to the Options;
NOW, THEREFORE, BE IT RESOLVED, that Section 3.2 of the Agreement
(titled "STOCK OPTIONS") is deleted in its entirety and the following is
inserted in lieu thereof:
3.2 Stock Options. Concurrent with approval by the Board
(or a Committee thereof), Executive shall be issued stock options
(the "OPTIONS") to purchase 60,000 shares of the Company's common
stock at $10.50 per share under the JW Charles Amended and
Restated Stock Option Plan, adopted by the Company. The Options
shall vest and become exercisable through June 16, 2008, as
follows: 20,000 on the date of grant; 20,000 on June 16, 1999; and
20,000 on June 16, 2000, provided that Executive remains employed
by the Company on these dates (except as provided pursuant to
sections 7.4 and 7.5 of this Agreement). Additionally, the
Company shall pay to Executive the tax benefit realized by the
Company from Executive's exercise of such Options.
IN WITNESS WHEREOF, the parties have executed this Amendment, as an
instrument under seal, as of this, the _____ of September, 1998.
[SEAL] "Company"
Attest: JWGENESIS FINANCIAL CORP.
__________________________ By:
Secretary or Assistant __________________________
Secretary Joel E. Marks
Executive Vice President
and
Chief Financial Officer
Address: 980 North Federal
Highway
Suite 210
Boca Raton, Florida
33432
"Executive"
__________________________
[SEAL]
Gregg S. Glaser
Address:
____________________
____________________
____________________
Exhibit 99(h)
NONSOLICITATION AGREEMENT
THIS AGREEMENT is made and entered into this 12th day of June, 1998, by
and among JWGENESIS FINANCIAL CORP., a Florida corporation ("Company"), JW
CHARLES FINANCIAL SERVICES, Inc., a Florida corporation ("JWCFS"), and
MARSHALL T. LEEDS ("Employee"):
W I T N E S S E T H:
WHEREAS, Company, JWCFS, and others have entered into that certain
Amended and Restated Agreement and Plan of Combination dated as of March 9,
1998 (the "Combination Agreement"), pursuant to which, among other things,
JWCFS became a wholly-owned subsidiary of Company;
WHEREAS, during the course of Employee's prior relationship with JWCFS
and current and contemplated relationship with Company, Employee has learned
or will learn important Confidential Information (as defined below) related
to Company's Business (as defined below). Employee acknowledges that the
Confidential Information (i) has been or will be developed through JWCFS' or
Company's expenditure of substantial effort, time and money; and (ii)
together with relationships developed with clients and personnel, could be
used to compete unfairly with Company during the post-employment period.
Because Company's ability to engage in the Business (as defined below) on a
competitive basis depends, in part, on its Confidential Information and
client relationships, Company would not share such information and promote
Employee's relationship with clients if Company believed that such
information or relationships would be disclosed or used in competition with
Company, or if Company believed that Employee's relationship with Company's
personnel or clients would be used to the detriment of Company, and
Employee's performance and opportunities would suffer; and
WHEREAS, pursuant to Article 8 of the Combination Agreement, Employee
and JWCFS agreed to terminate Employee's existing employment agreement with
JWCFS, and Employee and Company agreed to enter into an employment agreement
and a nonsolicitation agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth and contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. TERMINATION OF EXISTING EMPLOYMENT ARRANGEMENTS. Employee and
JWCFS hereby agree to the termination of the existing Employment Agreement,
dated _____________ between Employee and JWCFS, and hereby terminate such
arrangements (the "Prior Arrangements").
2. CONSIDERATION. As consideration for terminating the Prior
Arrangements and for entering into this Agreement, Company shall pay to
Employee an aggregate amount of $4,270,000, payable as follows, (i) within
30 days of the date hereof, cash of $533,750; (ii) within 30 days of the
date hereof, a number of shares of Company common stock, par value $.001 per
share, subject to resale restrictions and forfeiture provisions as described
below, with a value (based on 80% of the average closing price on the
American Stock Exchange of the JWCFS common stock for the 10 consecutive
trading days immediately preceding the date hereof) of $2,135,000 (the
"Restricted Stock"), provided, however, that if Employee has sold Company
common stock or JWCFS Common Stock within the six-month period prior to the
date otherwise scheduled for such payment and delivery, then the Restricted
Stock will not be issued until the date that is six months after such prior
sale; and (iii) on each of January 15, 1999, 2000, and 2001, an additional
<PAGE>
cash payment of $533,750. Twenty-five percent of the Restricted Stock will
vest on January 15, 2002 and an additional twenty-five percent on each
January 15 in 2003 through 2005. Notwithstanding the foregoing, if the
employment of Employee with Company is terminated or deemed to be terminated
by Company for any reason other than cause (as defined in the employment
agreement then in effect between Employee and Company, a "Discharge"), any
unpaid cash installment hereunder shall become immediately due and payable
to him within 30 days of such termination, all of the Restricted Stock shall
become immediately vested, and the forfeiture provisions with respect to
such shares will no longer be in force. All unvested shares of the
Restricted Stock will be subject to forfeiture at any time there is a
violation of this Agreement by Employee. If a change in control of Company
(as defined below) occurs that is not approved by Employee, then all of the
Restricted Stock shall become immediately vested, and the forfeiture
provisions with respect to such shares will no longer be in force. For
purposes hereof, "change of control" shall mean (a) the acquisition by a
person or entity other than Employee or a now existing shareholder of
Company (or any affiliate of Employee or such a shareholder of Company),
whether in one or several transactions, by exchange, merger, consolidation,
assignment, stock spin-off, stock split-up, or other transaction, of more
than thirty-five percent (35%) of the voting stock of Company, or of the
right to vote or to direct the voting of such percentage of voting stock; or
(b) a change in the membership of the Board of Directors of Company such
that a majority of the members are persons who are not Continuing Directors.
For purposes of this Agreement, a "Continuing Director" is a person who is a
member of the Board of Directors of Company on the date hereof or a person
who is elected as a director of Company upon the nomination by or approval
of a majority of the Continuing Directors in office.
3. CERTAIN OTHER DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meaning specified below:
(a) "BUSINESS" means securities brokerage, corporate finance, asset
management, capital formation, investment banking, financial advisory and
other financial services as being provided by Company on the date hereof
and, with the knowledge of Employee thereof, from time to time in the future
during the term of this Agreement.
(b) "CLIENT" means any Person (except broker-dealers and nationally
recognized institutional accounts) receiving (or who has arranged to
receive) Business services from Company that Employee, during the year prior
to the Termination Date, (i) provided Business services or solicited for
Business services on behalf of Company; (ii) supervised others providing or
soliciting Business services on behalf of Company; or (iii) about whom
Employee had Confidential Information.
(c) "CONFIDENTIAL INFORMATION" means information relating to Company,
Clients or the Business that derives value from not being generally known to
other Persons, including, but not limited to, technical or nontechnical
data, formulas (including criteria for weighing stock selection factors),
patterns (including investment patterns), compilations (including stock
selection and buy lists), programs, devices, methods (including stock
selection and portfolio design and monitoring methods), techniques,
drawings, processes, financial data, or lists of actual or potential
clients, whether or not reduced to writing. Confidential Information
includes information disclosed to Company by third parties that Company is
obligated to maintain as confidential. Confidential Information subject to
this Agreement may include information that is not a trade secret under
applicable law, but information that is not also a trade secret shall
constitute Confidential Information only for two years after the Termination
Date; provided, however, Confidential Information shall not include
information of which Employee had knowledge of prior to his employment by
<PAGE>
JWCFS, Company, or its predecessors.
(d) "PERSON" includes any individual, corporation, limited liability
company, partnership, association, unincorporated organization or other
entity.
(e) "TERMINATION DATE" means the last day Employee is employed by
Company, whether the termination is voluntary or involuntary, with or
without cause.
4. TREATMENT OF CONFIDENTIAL INFORMATION. Employee shall protect
Confidential Information. Employee will not use, except in connection with
work for Company, and will not disclose to third parties during or after
Employee's employment, Confidential Information.
5. SOLICITATION OF CLIENTS. For a period of seven (7) years from the
date hereof, whether or not Employee is employed by Company, Employee will
not solicit for the benefit of any Person other than Company, Clients for
the purpose of providing services identical to or competitive with the
Business.
6. SOLICITATION OF COMPANY PERSONNEL. For a period of seven (7) years
from the date hereof, whether or not Employee is employed by Company,
Employee will not solicit for employment with another Person anyone who is
or was, at any time during the year prior to the Termination Date, a Company
employee or a registered representative licensed with or through Company.
7. RETURN OF MATERIALS. On the Termination Date or at any time
thereafter at Company's request, Employee will deliver promptly to Company
all materials, documents, plans, records, notes, or other papers and any
copies in Employee's possession or control relating in any way to the
Business, which at all times shall be the property of Company.
8. EARLIER TERMINATION OF AGREEMENT. If Company effects a Discharge
of Employee, Employee may terminate this Agreement and the nonsolicitation
provisions contained herein shall have no further effect.
9. INTERPRETATION; SEVERABILITY. Rights and restrictions in this
Agreement may be exercised and shall be applicable only to the extent they
do not violate any applicable laws, and are intended to be limited to the
extent necessary so they will not render this Agreement illegal, invalid or
unenforceable. If any term shall be held illegal, invalid or unenforceable
by a court of competent jurisdiction, the remaining terms shall remain in
full force and effect. This Agreement does not in any way limit Company's
rights under the laws of unfair competition, trade secret, copyright,
patent, trademark or any other applicable law(s), which are in addition to
and cumulative of rights under this Agreement.
10. RELIEF. The parties acknowledge that a breach or threatened
breach of any term of this Agreement by Employee would result in material
and irreparable damage and injury to Company, and that it would be difficult
or impossible to establish the full monetary value of such damage.
Therefore, Company shall be entitled to injunctive relief by a court of
appropriate jurisdiction in the event of Employee's breach or threatened
breach of this Agreement.
11. GENERAL AND MISCELLANEOUS. (a) Notices given under this
Agreement shall be deemed made if hand-delivered or mailed by registered or
certified mail to the addresses appearing at the end of this Agreement.
(b) This Agreement shall inure to the benefit of Company and its
successors and assignees, and shall be binding upon Employee and Employee's
<PAGE>
heirs, administrators, executors, and personal representatives.
(c) Company's failure to insist upon strict performance of any term or
to exercise any right shall not be construed as a waiver or a relinquishment
for the future of such term or right, which shall continue in full force and
effect.
(d) This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Florida.
Signatures begin on next page.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first written above.
"Company" "Employee"
JWGENESIS FINANCIAL CORP.
By:_________________________________ _____________________________
Joel E. Marks MARSHALL T. LEEDS
Vice President
Employee Address:
4040 Sanctuary Ln.
Boca Raton, Florida 33431
"JWCFS"
JW CHARLES FINANCIAL SERVICES, INC.
By:________________________________
Joel E. Marks
Executive Vice President
Company and JWCFS Address:
980 North Federal Highway Suite 210
Boca Raton, Florida 33432
Attention: Joel E. Marks
Exhibit 99(i)
AMENDED AND RESTATED
NONSOLICITATION AGREEMENT
THIS AGREEMENT is made and entered into this ___ day of August, 1998,
by and among JWGenesis Financial Corp., a Florida corporation ("Company"),
JW Charles Financial Services, Inc., a Florida corporation ("JWCFS"), and
Joel E. Marks ("Employee"):
W I T N E S S E T H:
WHEREAS, Company, JWCFS, and others have entered into that certain
Amended and Restated Agreement and Plan of Combination dated as of March 9,
1998 (the "Combination Agreement"), pursuant to which, among other things,
JWCFS became a wholly-owned subsidiary of Company;
WHEREAS, the parties entered into a certain Nonsolicitation Agreement
dated as of June 12, 1998 (the "Existing Nonsolicitation Agreement"), and
now desire to amend and restate such Existing Nonsolicitation Agreement in
its entirety, as specified herein;
WHEREAS, during the course of Employee's prior relationship with JWCFS
and current and contemplated relationship with Company, Employee has learned
or will learn important Confidential Information (as defined below) related
to Company's Business (as defined below). Employee acknowledges that the
Confidential Information (i) has been or will be developed through JWCFS' or
Company's expenditure of substantial effort, time and money; and (ii)
together with relationships developed with clients and personnel, could be
used to compete unfairly with Company during the post-employment period.
Because Company's ability to engage in the Business (as defined below) on a
competitive basis depends, in part, on its Confidential Information and
client relationships, Company would not share such information and promote
Employee's relationship with clients if Company believed that such
information or relationships would be disclosed or used in competition with
Company, or if Company believed that Employee's relationship with Company's
personnel or clients would be used to the detriment of Company, and
Employee's performance and opportunities would suffer; and
WHEREAS, pursuant to Article 8 of the Combination Agreement, Employee
and JWCFS agreed to terminate Employee's existing employment agreement with
JWCFS, and Employee and Company agreed to enter into an employment agreement
and a nonsolicitation agreement.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth and contained herein, and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. TERMINATION OF EXISTING EMPLOYMENT ARRANGEMENTS. Employee and
JWCFS hereby agree to the termination of the existing employment
arrangements between Employee and JWCFS, and hereby terminate such
arrangements (the "Prior Arrangements").
2. CONSIDERATION. As consideration for terminating the Prior
Arrangements and for entering into this Agreement, Company shall (i) pay to
Employee an aggregate amount of $1,720,000, payable as follows: (a) within
30 days of the date hereof, cash of $215,000; and (b) on each of January 15,
1999, 2000, 2001, 2002, 2003, 2004, and 2005, an additional cash payment of
$215,000 and (ii) grant to Employee, within 30 days of the date hereof,
subject to the general terms and conditions of the JWGenesis 1998 Stock
Option and Award Plan, options to acquire 100,000 shares of Company common
<PAGE>
stock, par value $.001 per share, ("Company Common Stock") subject to
vesting provisions, resale restrictions and forfeiture provisions as
described below, at an exercise price of $10.50 per share (which was the
closing price on the American Stock Exchange of the JWCFS common stock on
June 12, 1998) (the "Stock Options"); provided, however, that if Employee
has sold Company Common Stock or JWCFS common stock within the six-month
period prior to the date otherwise scheduled for such grant, then the Stock
Options will not be issued until the date that is six months after such
prior sale; Twenty-five percent of the Stock Options will vest on January
15, 2002 and an additional twenty-five percent on each January 15 in 2003
through 2005. Notwithstanding the foregoing, if the employment of Employee
with Company is terminated or deemed to be terminated by Company for any
reason other than cause (as defined in the employment agreement then in
effect between Employee and Company, a "Discharge"), any unpaid cash
installment hereunder shall become immediately due and payable to him within
30 days of such termination, all of the Stock Options shall become
immediately vested, and the forfeiture provisions with respect to such
shares will no longer be in force. All unvested Stock Options will be
subject to forfeiture at any time there is a violation of this Agreement by
Employee. If a change in control of Company (as defined below) occurs that
is not approved by Employee, then all of the Stock Options shall become
immediately vested, and the forfeiture provisions with respect to such
shares will no longer be in force. For purposes hereof, "change of control"
shall mean (a) the acquisition by a person or entity other than Employee or
a now existing shareholder of Company (or any affiliate of Employee or such
a shareholder of Company), whether in one or several transactions, by
exchange, merger, consolidation, assignment, stock spin-off, stock split-up,
or other transaction, of more than thirty-five percent (35%) of the voting
stock of Company, or of the right to vote or to direct the voting of such
percentage of voting stock; or (b) a change in the membership of the Board
of Directors of Company such that a majority of the members are persons who
are not Continuing Directors. For purposes of this Agreement, a "Continuing
Director" is a person who is a member of the Board of Directors of Company
on the date hereof or a person who is elected as a director of Company upon
the nomination by or approval of a majority of the Continuing Directors in
office.
3. CERTAIN OTHER DEFINITIONS. For purposes of this Agreement, the
following terms shall have the meaning specified below:
(e) "BUSINESS" means securities brokerage, corporate finance, asset
management, capital formation, investment banking, financial advisory and
other financial services as being provided by Company on the date hereof
and, with the knowledge of Employee thereof, from time to time in the future
during the term of this Agreement.
(f) "CLIENT" means any Person (except broker-dealers and nationally
recognized institutional accounts) receiving (or who has arranged to
receive) Business services from Company that Employee, during the year prior
to the Termination Date, (i) provided Business services or solicited for
Business services on behalf of Company; (ii) supervised others providing or
soliciting Business services on behalf of Company; or (iii) about whom
Employee had Confidential Information.
(g) "CONFIDENTIAL INFORMATION" means information relating to Company,
Clients or the Business that derives value from not being generally known to
other Persons, including, but not limited to, technical or nontechnical
data, formulas (including criteria for weighing stock selection factors),
patterns (including investment patterns), compilations (including stock
selection and buy lists), programs, devices, methods (including stock
selection and portfolio design and monitoring methods), techniques,
drawings, processes, financial data, or lists of actual or potential
<PAGE>
clients, whether or not reduced to writing. Confidential Information
includes information disclosed to Company by third parties that Company is
obligated to maintain as confidential. Confidential Information subject to
this Agreement may include information that is not a trade secret under
applicable law, but information that is not also a trade secret shall
constitute Confidential Information only for two years after the Termination
Date; provided, however, Confidential Information shall not include
information of which Employee had knowledge of prior to his employment by
JWCFS, Company, or its predecessors.
(h) "Person" includes any individual, corporation, limited liability
company, partnership, association, unincorporated organization or other
entity.
(i) "TERMINATION DATE" means the last day Employee is employed by
Company, whether the termination is voluntary or involuntary, with or
without cause.
4. TREATMENT OF CONFIDENTIAL INFORMATION. Employee shall protect
Confidential Information. Employee will not use, except in connection with
work for Company, and will not disclose to third parties during or after
Employee's employment, Confidential Information.
5. SOLICITATION OF CLIENTS. For a period of seven (7) years from the
date hereof, whether or not Employee is employed by Company, Employee will
not solicit for the benefit of any Person other than Company, Clients for
the purpose of providing services identical to or competitive with the
Business.
6. SOLICITATION OF COMPANY PERSONNEL. For a period of seven (7) years
from the date hereof, whether or not Employee is employed by Company,
Employee will not solicit for employment with another Person anyone who is
or was, at any time during the year prior to the Termination Date, a Company
employee or a registered representative licensed with or through Company.
7. RETURN OF MATERIALS. On the Termination Date or at any time
thereafter at Company's request, Employee will deliver promptly to Company
all materials, documents, plans, records, notes, or other papers and any
copies in Employee's possession or control relating in any way to the
Business, which at all times shall be the property of Company.
8. EARLIER TERMINATION OF AGREEMENT. If Company effects a Discharge
of Employee, Employee may terminate this Agreement and the nonsolicitation
provisions contained herein shall have no further effect.
9. INTERPRETATION; SEVERABILITY. Rights and restrictions in this
Agreement may be exercised and shall be applicable only to the extent they
do not violate any applicable laws, and are intended to be limited to the
extent necessary so they will not render this Agreement illegal, invalid or
unenforceable. If any term shall be held illegal, invalid or unenforceable
by a court of competent jurisdiction, the remaining terms shall remain in
full force and effect. This Agreement does not in any way limit Company's
rights under the laws of unfair competition, trade secret, copyright,
patent, trademark or any other applicable law(s), which are in addition to
and cumulative of rights under this Agreement.
10. RELIEF. The parties acknowledge that a breach or threatened
breach of any term of this Agreement by Employee would result in material
and irreparable damage and injury to Company, and that it would be difficult
or impossible to establish the full monetary value of such damage.
Therefore, Company shall be entitled to injunctive relief by a court of
appropriate jurisdiction in the event of Employee's breach or threatened
<PAGE>
breach of this Agreement.
11. AMENDMENT AND RESTATEMENT. This Agreement constitutes an
amendment and restatement of the Existing Nonsolicitation Agreement
effective from and after the date first mentioned above. The execution and
delivery of this Agreement by the parties shall constitute a termination of
the Existing Nonsolicitation Agreement and shall replace the Existing
Nonsolicitaion Agreement in its entirety.
12. GENERAL AND MISCELLANEOUS. (a) Notices given under this
Agreement shall be deemed made if hand-delivered or mailed by registered or
certified mail to the addresses appearing at the end of this Agreement.
(b) This Agreement shall inure to the benefit of Company and its
successors and assignees, and shall be binding upon Employee and Employee's
heirs, administrators, executors, and personal representatives.
(c) Company's failure to insist upon strict performance of any term or
to exercise any right shall not be construed as a waiver or a relinquishment
for the future of such term or right, which shall continue in full force and
effect.
(d) This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of Florida.
Signatures begin on next page.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first written above.
"Company" "Employee"
JWGENESIS FINANCIAL CORP.
By:__________________________________ _____________________________
Marshall T. Leeds JOEL E. MARKS
President
Employee Address:
195 Sheridan Pointe Ln.
Atlanta, Georgia 30342
"JWCFS"
JW CHARLES FINANCIAL SERVICES, INC.
By:__________________________________
Marshall T. Leeds
President
Company and JWCFS Address:
980 North Federal Highway Suite 210
Boca Raton, Florida 33432
Attention: Marshall T. Leeds
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057412
<NAME> JWGENESIS FINANCIAL CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 16,978
<SECURITIES> 13,746
<RECEIVABLES> 124
<ALLOWANCES> 426
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,415
<DEPRECIATION> 3,029
<TOTAL-ASSETS> 180,394
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 6,000
<OTHER-SE> 50,263
<TOTAL-LIABILITY-AND-EQUITY> 180,397
<SALES> 0
<TOTAL-REVENUES> 118,890
<CGS> 0
<TOTAL-COSTS> 56,909
<OTHER-EXPENSES> 45,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,418
<INCOME-PRETAX> 11,053
<INCOME-TAX> 4,421
<INCOME-CONTINUING> 6,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,632
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.25
</TABLE>
