AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 20, 1999.
REGISTRATION NO. 333-75447
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
POST-EFFECTIVE
AMENDMENT NO. 1
ON
FORM S-3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
JWGENESIS FINANCIAL CORP.
(Exact Name of Issuer as Specified in its Charter)
Florida 6211 65-0811010
- ------------------------------- ----------------- ----------------------
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Identification Number)
Classification Code
Number)
980 North Federal Highway, Suite 210
Boca Raton, Florida 33432
(561) 338-2600
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(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
JOEL E. MARKS
Vice Chairman and Chief Operating Officer
1117 Perimeter Center West, Suite 500E
Atlanta, GA 30338
(770) 399-8805
-------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
W. RANDY EADDY, Esquire
Kilpatrick Stockton LLP
1100 Peachtree Street, N.E.
Atlanta, Georgia 30309-4530
(404) 815-6500
Approximate date of commencement of proposed sale to the public:
FROM TIME TO TIME AFTER THIS POST-EFFECTIVE AMENDMENT TO REGISTRATION
STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. / /
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 (the "Securities Act"), other than
securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. / /____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /_______________
If delivery of the Prospectus is expected to be made pursuant to
Rule 434, please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL
THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY
STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF
1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL NOR
DOES IT SEEK AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
<PAGE>
PROSPECTUS
- ----------
JWGENESIS FINANCIAL CORP.
_______________________________
1,007,506 Shares of Common Stock
__________________________________
We are JWGenesis Financial Corp., a holding company incorporated
in Florida engaged in the investment banking and securities business.
The 1,007,506 shares (the "Shares") of our common stock, $.001 par
value (the "Common Stock"), that may be sold from time to time using
this Prospectus are comprised of (i) 570,006 shares of Common Stock
which may be offered for resale by certain of our shareholders who are
identified later in this Prospectus and (ii) 437,500 shares of Common
Stock issuable upon exercise of warrants to purchase Common Stock (the
"Warrants") that are held by certain persons who are also named later
in this Prospectus. The shares covered by the Warrants also may be
resold using this Prospectus by the persons who become shareholders
following their exercise of the Warrants. Both such categories of
shareholders are referred to as the "Selling Shareholders", and they
are identified (to the extent they are known presently) under the
caption "Selling Shareholders" that begins on page 18 of this
Prospectus. Because of possible transactions after the date of this
Prospectus, other persons who are not now known may become Selling
Shareholders and be entitled to use this Prospectus to sell some of the Shares.
We will not receive any of the proceeds from the sale of the Shares, but will
receive the exercise price payable upon any exercise of the Warrants.
We have agreed to bear all expenses (other than commissions or
discounts of underwriters, dealers, or agents and the fees or expenses
of counsel to any Selling Shareholder) in connection with the preparation and
use by the Selling Shareholders of this Prospectus. We have agreed to indemnify
the Selling Shareholders, and they have agreed to indemnify us, against
certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act"). See "Plan of Distribution".
The Selling Shareholders may sell the Shares from time to time in
a variety of ways, from underwritten offerings to ordinary brokerage
transactions at prices at or near the market price, to transactions on
terms that may be negotiated at the time of sale. The Selling
Shareholders may pay usual and customary or specifically negotiated
underwriting discounts, brokerage fees, or commissions in connection
with such sales. To the extent required, the specific Shares to be
sold, the terms of the offering, including price, the name of any
broker-dealer or underwriter, and any applicable commission, discount,
or other compensation with respect to a particular sale will be set
forth in a Supplement that we may prepare to accompany this Prospectus
in the future. See "Plan of Distribution".
Our Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "JWG". On July 14, 1999, the last sale price of the
Common Stock as reported by the AMEX was $16.81 per share.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS PROSPECTUS.
___________________________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES
OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July __, 1999
2
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page Page
---- ----
<S> <C> <S> <C>
Where You Can Find More Information.................3 Business.........................................33
Forward-Looking Statements..........................4 Management.......................................45
Prospectus Summary..................................5 Executive Compensation...........................46
Summary Historical Financial Information............9 Principal Stockholders...........................52
Summary Unaudited Pro Forma Financial Information..10 Certain Transactions.............................53
Risk Factors.......................................12 Description of Capital Stock.....................53
Selling Shareholders...............................18 Legal Matters....................................56
Plan of Distribution...............................19 Experts..........................................56
Price Range of Common Stock........................21 Index to Financial Statements...................F-1
Dividend Policy....................................21 Unaudited Pro Forma Financial Information.......P-1
Selected Financial Data............................22
Management's Discussion and Analysis of
Financial Condition and Results of Operations..23
</TABLE>
----------------------------
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE COMPANY WILL
PROVIDE WITHOUT CHARGE A COPY OF ANY SUCH DOCUMENTS (OTHER THAN
EXHIBITS THERETO) UPON WRITTEN OR ORAL REQUEST DIRECTED TO JOEL E. MARKS,
JWGENESIS FINANCIAL CORP., 1117 PERIMETER CENTER WEST, SUITE 500E,
ATLANTA, GA 30338, TELEPHONE (770) 399-8805.
WHERE YOU CAN FIND MORE INFORMATION
This Prospectus is part of a registration statement on Form S-3
we have filed with the Securities and Exchange Commission (the "SEC"
or the "Commission") to amend our registration statement previously filed
on Form S-1 covering the shares of our Common Stock that the Selling
Shareholders may offer for resale. The SEC's file number for
that registration statement, which we have amended, is 333-75447.
We file annual, quarterly, and current reports, proxy statements, and
other information with the SEC. You may read and copy any materials we file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. For information on the operation of the Public
Reference Room, call the SEC at 1-800-SEC-0330. You can also obtain reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC from the SEC's Internet site
(http://www.sec.gov).
The SEC allows us to "incorporate by reference" information filed with
them, which means that we can disclose important information to you by
referring you directly to those documents. The information incorporated by
reference is considered to be a part of this prospectus. In addition,
information we file with the SEC in the future will automatically update and
supersede information contained in this prospectus and any accompanying
prospectus supplement. Any information so updated or superseded shall not be
deemed, except as so updated or superseded, to be a part of this Prospectus. We
incorporate by reference the documents listed below and any future filings made
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934 until all of the shares of common stock described in this
prospectus are sold or the offering of the Shares covered by this Prospectus
is terminated:
(i) Annual Report on Form 10-K for the fiscal year ended December 31, 1998;
(ii) Current Report on Form 8-K filed with the Commission on March 18, 1999;
(iii) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999;
(iv) Current Report on Form 8-K filed with the Commission on April 30, 1999;
and
(v) Current Report on Form 8-K filed with the Commission on June 15, 1999;
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<PAGE>
We will provide you with free copies of any of these documents or
any other documents that have been incorporated by reference in this
Prospectus, without exhibits, unless an exhibit is incorporated into
the document by reference, if you write us or call us at: JWGenesis
Financial Corp., 1117 Perimeter Center West, Suite 500E, Atlanta, GA
30338, Attention: Joel E. Marks, telephone (770) 399-8805.
FORWARD-LOOKING STATEMENTS
From time to time, information we provide, or statements of our
directors, officers, or employees, may be "forward-looking statements"
under the Private Securities Litigation Reform Act of 1995. Those
statements involve numerous risks and uncertainties. Typically, such
information or statements contain the words "believes", anticipates",
"intends", "expects" or words of similar import, but not necessarily
so. In any event, any information or statements made or incorporated
by reference in this Prospectus that are not statements of historical
fact are forward-looking statements. Such forward-looking statements
in this Prospectus, and others that we or our representatives make,
are based on a number of assumptions and involve risks and
uncertainties. Consequently, actual results could differ materially.
The factors we describe under the heading "Risk Factors" are some, but
not all, of the reasons that results could be different.
4
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<PAGE>
PROSPECTUS SUMMARY
Because this is a summary, it may not contain all the information
you consider important. You should read it only in conjunction with
the detailed information appearing later in this Prospectus. As we
are a holding company, when we describe our business, we generally
mean businesses we conduct through our subsidiaries. We will refer to
ourselves at many locations as "JWGenesis" or "the Company".
The Company
We are a publicly held, diversified financial services holding
company, engaged primarily in securities brokerage and investment
banking. Our principal operating subsidiaries are Corporate
Securities Group, Inc. ("CSG"), JWGenesis Securities, Inc. ("JWG
Securities"), JWGenesis Capital Markets, Inc. ("JWG Capital"), and GSG
Securities, Inc. ("GSG") (formerly Discount Securities Groups, Inc.).
All of our operating subsidiaries are owned through our wholly-owned
subsidiary, JWGenesis Financial Services, Inc. ("JWGFS"). We operate
a full-service securities brokerage and investment banking business that
offers "one-stop-shopping" for our customers and clients. Our company
* offers a wide range of securities brokerage and
investment services to a diversified client base, and
* provides investment banking services to corporate and
institutional clients and high net worth individuals.
For several years, one of our operating subsidiaries JWGenesis
Clearing Corp. ("JWG Clearing") has been delivering a broad range of
securities transactions clearing and execution services to affiliated
and independent broker-dealers, including commercial bank affiliates.
However, we recently sold JWG Clearing to another firm and ceased providing
such services. That sale and related transactions (the "JWG Clearing Sale")
were completed on June 1, 1999. We have provided some important information
about the reasons and impact of the JWG Clearing Sale elsewhere in this
Prospectus, including under "Recent Developments" in this Summary.
JWG Securities is a New York Stock Exchange ("NYSE") member firm
with branch offices in South Florida, California, Georgia, and New
York. JWG Securities' branches are typically owned as well as managed
by the Company, and its brokers are "full-service" oriented and
receive compensation packages that are competitive with most regional
and national wire-house brokerage firms. JWG Capital is a New York
firm that specializes in investment banking services and institutional
research and sales. CSG, a National Association of Securities
Dealers, Inc. ("NASD") member firm, is a general securities broker
dealer that offers a full array of investment products and services to
a variety of clients through a national network of independently owned
offices. CSG offices vary in size from one investment professional to
many. GSG, also a NASD member firm, is a general securities broker
dealer that offers a full array of investment products and services
primarily through its branch offices located in Colorado, California,
Florida, Illinois, and New York. GSG brokers, many of whom enter the
business through GSG's in-house training program, are "full service"
oriented and receive compensation packages that are competitive with most
similarly situated firms. Another subsidiary of the Company, DMG Securities,
Inc. ("DMG"), is also engaged in the securities brokerage business.
The Company's activities generate revenue primarily in the form
of commission and fee income, market making and principal transactions
revenues, interest income, and, until the JWG Clearing Sale was
completed, securities transaction processing fees ("clearing fees").
We also derive revenues from corporate finance and other capital
markets transactions, insurance brokerage services and consulting
services.
5
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<PAGE>
JWGenesis was incorporated as a Florida corporation in January
1998; but, in a statutory share exchange on June 12, 1998 (which is
similar to a merger), it acquired and succeeded to the business and
operations of JWGFS, then known as JW Charles Financial Services,
Inc., which had been incorporated as a Florida corporation in December
1983. As a result of earlier acquisitions by JWGFS, a significant
segment of our business encompasses operations that date back to 1973.
Our principal executive offices are located at 980 North Federal
Highway, Suite 210, Boca Raton, Florida 33432, where our main
telephone number is 561-338-2600.
The Offering
This Prospectus relates to the proposed offer and sale by
persons, who are called the "Selling Shareholders", of shares of
Common Stock that those persons already own or will own when they
exercise certain outstanding Warrants that they own to purchase shares
of our Common Stock. An aggregate of 1,007,506 Shares were originally covered
by this Prospectus for such offers and sales by the Selling Shareholders,
from time to time, of which an aggregate of 287,889 Shares have previously
been sold by Selling Shareholders pursuant to either an earlier version of
this Prospectus or Rule 144. The Company did not and will not receive any
proceeds from the sale by the Selling Shareholders of any Shares. The
Selling Shareholders receive all such proceeds. The Company will receive,
however, the exercise price paid upon exercise of any of the Warrants.
The Selling Shareholders are identified (to the extent they are
known presently) under the caption "Selling Shareholders" that begins
on page 18. Because of possible transactions after the date of this
Prospectus, other persons who are not now known may become Selling
Shareholders and be entitled to use this Prospectus to sell some of
the Shares they then own.
As of July 15, 1999, there were issued and outstanding a total
of 5,795,855 shares of our Common Stock. The Warrants owned by
certain of the Selling Shareholders provide for the purchase of
437,500 additional shares of Common Stock. In addition, there were
also outstanding options or other rights to purchase or acquire Common
Stock from the Company under certain conditions.
Our Common Stock trades on the American Stock Exchange under the
symbol "JWG".
Risk Factors
Ownership of our Common Stock, including by a purchase of Shares
from a Selling Shareholder, involves significant risks. You should
therefore consider carefully the discussions under the heading "Risk
Factors" beginning on page 12, as well as the other information in
this Prospectus.
6
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<PAGE>
RECENT DEVELOPMENTS
THE JWG CLEARING SALE
On June 1, 1999, we consummated a Stock Purchase Agreement with
Fiserv, Inc. ("Fiserv") and its wholly owned subsidiary Fiserv
Clearing, Inc. ("Fiserv Clearing") for the sale of our operating
subsidiary JWG Clearing to Fiserv Clearing for approximately $59
million in cash. JWG Clearing functioned primarily as our securities
clearing, execution, and back office services unit, and only those
operations comprised JWG Clearing at the time the sale was consummated.
In connection with the sale, (i) we entered into a Transition
Services Agreement pursuant to which we will continue to provide
certain assistance and services to JWG Clearing and Fiserv Clearing,
and will permit JWG Clearing and Fiserv Clearing to use certain of our
facilities during a transition period for a monthly fee approximating
our costs; (ii) we agreed not to compete for ten years in the
securities clearing and execution business and not to solicit
personnel of JWG Clearing or Fiserv and its affiliates; and (iii) we
agreed, subject to certain limitations and exclusions (primarily
related to our independent contractor registered representatives,
possible future acquisitions, and a one-year phase-in period), to use
and cause our subsidiaries and affiliates to use the clearing services
of designated Fiserv affiliates for at least 90% of their securities
brokerage transactions, and, in the case of our independent contractor
registered representatives, to impose a surcharge on certain such
transactions that are not cleared through a Fiserv affiliate, during
the 10-year period following the sale. We have the right, however, to
be released from the above obligations to use Fiserv affiliates or to
impose a surcharge by repaying to Fiserv a portion of the sales price
based on a prescribed formula that takes into account the price paid
in the sale and the amount of clearing services business then being
generated by the Company or its affiliate seeking the release.
As a result of the sale and the above agreements, we ceased providing
clearing services, both to third party correspondents (such as broker dealers,
banks, and other financial institutions) and for our own securities brokerage
transactions.
THE GENESIS DIVESTITURE
On June 12, 1998, we acquired a company by the name of "Genesis
Merchant Group Securities, LLC" ("Genesis") in a series of
transactions that were structured as a business combination among us,
Genesis, and JWGFS (then known as JW Charles Financial Services, Inc.)
(the "Combination"). The principal substantive results of the
Combination were that (i) we succeeded to all of the respective
businesses of JWGFS and Genesis and replaced JWGFS as the public
company, (ii) we issued 1,500,000 shares of Common Stock to the former
owners of Genesis, and (iii) three of those former owners who were
also members of the management of Genesis (Phillip L. Stapleton, Will
K. Weinstein, and Jeffrey H. Lehman) became officers of the Company
and members of our Board of Directors.
Following an internal reorganization we implemented in the fall
of 1998 in order to address operational problems at Genesis that were
producing unexpected losses, the reorganized business activities of
Genesis fit into two general categories: (i) brokerage processing
services ("BPS") that were conducted through Genesis' San Francisco
office, and (ii) investment banking, corporate finance, and other
capital markets services and certain institutional research and sales
activity (all of which we may sometimes refer to here as "corporate
finance operations") conducted through Genesis' New York office. The
events surrounding the need for and implementation of that
reorganization led to internal disagreements and disputes concerning
the future operations of Genesis, and the respective roles of Messrs.
Stapleton and Weinstein, within the Company. We determined that the
continuation of that state of affairs was not conducive to the best
7
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interests of our shareholders and sought a resolution, which was
achieved on March 3, 1999, when we entered into and closed an Equity
Exchange and Conciliation Agreement (the "Conciliation Agreement")
with a group of former owners of Genesis led by Messrs. Stapleton and
Weinstein (the "Stapleton Group").
Pursuant to the Conciliation Agreement, on March 3, 1999, Genesis
transferred all of its corporate finance operations (and its New York
office) to our subsidiary JWG Capital, and we divested or sold the
rest of Genesis (which then consisted of its San Francisco office that
conducted its BPS and related operations) to the Stapleton Group in
exchange for the return to the Company by members of that group of
284,375 shares of Common Stock that had been issued in the Combination
(the "Divestiture"). As part of the Divestiture, Messrs. Stapleton
and Weinstein resigned from our Board of Directors and all other
positions they held with our Company, and the Conciliation Agreement
provided for other arrangements to effectuate their separation from
the Company. As indicated above, we retained the corporate finance
operations and the New York office, which had been and continues to be
led by Mr. Lehman. Additional information about the Divestiture and
Conciliation Agreement is contained elsewhere in this Prospectus,
including under "Business Recent Developments".
THE AMERICAS GROWTH FUND, INC.
In December 1998, we acquired the remaining 9% of the outstanding
shares of common stock of The Americas Growth Fund, Inc. ("AGRO"), a
publicly held investment company, that were not owned by the Company.
Previously, in September 1997, when we owned 26% of the outstanding
shares of common stock of AGRO, we conducted an exchange tender offer
in an attempt to acquire all of the other outstanding shares, and we
received shares in that offer that brought our ownership of AGRO
shares to 91%. Because of a series of complicated regulatory
authorizations that were required due to AGRO being an investment
company, and certain implications of the intervening Combination, we
were not able to complete the acquisition of the remaining 9% until
December 1998.
All AGRO shares acquired by the Company in either the September
1997 or December 1998 transaction were acquired based on an exchange
ratio of .431 share of the Company's Common Stock for each share of
AGRO, resulting in the issuance by the Company of an aggregate of
49,828 and 354,851 shares of Common Stock in the December 1998 and
September 1997 transactions, respectively. The AGRO acquisition was
accounted for under the purchase method of accounting.
THE GSG ACQUISITION
On January 1, 1999, we used our subsidiary GSG to acquire certain
assets of six retail securities branch offices (and three satellite
offices) from Chatfield Dean Holdings, Inc. ("CDH"). As a result of
this transaction, the Company added approximately 206 registered
representatives and approximately 50 salaried management and support
personnel. Prior to January 1, 1999, GSG, formerly known as Discount
Securities Group, Inc., was inactive. Additional information about
that transaction is contained under "Business Recent Developments".
8
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SUMMARY HISTORICAL FINANCIAL INFORMATION
(In thousands of dollars, except per share amounts)
Because the Company succeeded to the business and operations of
JWGFS as part of the Combination on June 12, 1998, see "Business The
Share Exchange and Combination", we derived the following summary
historical financial information for the Company relating to periods
before June 12, 1998 solely from financial statements of JWGFS for
such periods. On March 3, 1999, we divested Genesis in a transaction
in which we nonetheless retained its corporate finance operations.
See "Prospectus Summary - Recent Developments - The Genesis
Divestiture" and "Business - Recent Developments - The Genesis
Divestiture". While we do not believe the effects of the divestiture
will be material for the Company's operations, the results of all of
Genesis' operations during the period from the Combination on June 12,
1998 to March 3, 1999, are included in the following information and
has some impact on its analysis. Effective June 1, 1999, we closed
the sale of JWG Clearing, whose results of operations as our
securities transactions clearing and execution business unit are
reflected in all the following information. That sale will impact the
Company's near-term operating results, at least until the net proceeds
from the sale can be reinvested successfully, although we believe the
immediate improvement of our liquidity position, and the increased
availability of time and resources for our management that the sale
will provide, will enhance the Company's value over the longer-term.
See "Business - Recent Developments - The JWG Clearing Sale" and
"Unaudited Pro Forma Financial Information". This summary financial
information should be read in conjunction with the Company's
consolidated financial statements and related notes included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31
---------------------- -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------- ---------- --------- ----------- --------- --------- ----------
(In thousands of dollars, except per share amounts. Three month periods unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenues . . . . . . . . . $ 43,369 $ 24,273 $ 118,890 $ 97,182 $ 91,020 $ 80,041 $ 60,471
Income before income taxes 6,222 2,042 11,053 9,792 8,232 6,287 5,243
Net income . . . . . . . . 3,778 1,270 6,632 6,103 6,025 3,810 3,300
Net income per share
Basic . . . . . . . . . 0.64 0.34 1.38 1.77 1.42 .65 .56
Diluted . . . . . . . . 0.60 0.30 1.25 1.50 1.26 .64 .56
Weighted average common shares
Basic . . . . . . . . . 5,857,808 3,716,179 4,813,643 3,443,141 4,245,895 5,862,296 5,858,097
Diluted . . . . . . . . 6,314,814 4,300,695 5,317,368 4,069,594 4,783,582 5,999,767 5,906,646
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31
------------ -----------------------------------------------------
1999 1998 1997 1996 1995 1994
------------ -------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Statements of Financial Condition
Data:
Cash and cash equivalents 25,195 16,978 11,512 11,836 8,597 5,401
Total assets 252,673 180,394 140,732 127,331 115,214 82,218
Short-term borrowings from 16,988 29,423 17,375 28,138 7,303
banks 65,882
Notes payable to affiliates - - 5,113 8,625 3,500 5,161
Total liabilities 200,466 130,125 116,066 111,959 98,643 69,459
Mandatorily redeemable common - - - - 7,013 -
stock
Total stockholders' equity 252,673 50,269 24,666 15,372 9,558 12,759
</TABLE>
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SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
As discussed elsewhere herein, on March 3, 1999, the Company
consummated a series of transactions (the "Divestiture") pursuant to
which it divested Genesis' brokerage processing services and related
San Francisco-based operations (the "Divested Genesis Operations") and
retained only the corporate finance operations of Genesis (the
"Retained Genesis Operations"). Also, on June 1, 1999, the Company
consummated the sale of all the stock of its wholly owned subsidiary
JWG Clearing (the "JWG Clearing Sale"), prior to which the Company
transferred to one or more of its other subsidiaries all operations,
assets, and personnel of JWG Clearing that were not part of the
securities clearing and execution services business of JWG Clearing.
As part of the sale, the Company ceased and discontinued all such
services. See "Business Recent Developments".
The following unaudited pro forma statements of operations gives
effect to (i) the Divestiture as if it had occurred on June 12, 1998,
which is the date on which the Company initially acquired Genesis in
the Combination, such that the pro forma results reflect the
operations of the Company for the year ended December 31, 1998, and
the three months ended March 31, 1999, as if it had only acquired the
Retained Genesis Operations on June 12, 1998 and had not acquired the
Divested Genesis Operations on such date, and (ii) the JWG Clearing
Sale as if it had occurred on January 1, 1998. The following
unaudited pro forma balance sheet at March 31, 1999 gives effect to
the JWG Clearing Sale as if it had been consummated on such date.
This unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the
financial position or results of operations that would have occurred,
nor is it necessarily indicative of future financial conditions or
operating results. In each case, this summary unaudited pro forma
financial information should be read in conjunction with the
historical consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus, and with the
more detailed pro forma information appearing elsewhere at "Unaudited
Pro Forma Financial Information" on page P-1 of this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
(unaudited)
--------------------------------------------------------------------------
Genesis Divestiture
Adjustments and
Eliminations
-------------------------
Retained Divested JWG Clearing
The Company Genesis Genesis Sale Adjustments
As Reported Operations Operations and Eliminations Pro Forma
----------- ---------- ---------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (in thousands of dollars, except per share amounts)
Revenues .................................. $43,369 $451 $3,068 $6,134 $34,167
Expenses................................... 37,147 403 3,280(a) 4,328 29,539
------- ---- --------- ------ -------
Income (loss) before income taxes.......... 6,222 48 (212)(a) 1,806 4,628
Provision (benefit) for income taxes....... 2,444 19(b) (83)(b) 709(b) 1,818
------- ------- ---------- -------- -------
$3,778 $29 $ (129) $1,097 $ 2,810
======= ==== ======= ====== =======
Net income per common share
Basic ................................. $0.64 $0.50
Diluted ............................... $0.60 $0.45
Weighted average common shares
Basic ............................... 5,858,000 190,000 - 5,668,000
Diluted.............................. 6,315,000 190,000 - 6,251,000
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(continued)
At March 31, 1999
(unaudited)
JWG Clearing
The Company Sale Adjustments
As Reported and Eliminations Pro Forma
----------- ----------------- ---------
<S> <C> <C> <C>
Balance Sheet Data: (in thousands of dollars)
Cash and cash equivalents . . . . . . . $ 25,195 $(52,299)(a) $ 77,494
Total assets . . . . . . . . . . . . . 252,673 131,460 121,213
Short-term borrowings from banks . . . 65,882 65,882 -
Accounts payable, accrued expenses and
other liabilities . . . . . . . . 20,030 (192) 20,222
Payable to customers . . . . . . . . . 29,054 29,054 -
Payable to brokers and dealers . . . . 77,866 77,866 -
Total liabilities . . . . . . . . . . . 200,466 144,635 55,831
Stockholders' equity . . . . . . . . . 52,207 (13,175)(c) 65,382
__________________
(a) Amount represents approximately $59 million cash received, net of
the approximately $7 million cash which was sold as part of the
net assets of JWG Clearing.
(b) Income taxes are being recorded at the Company's effective tax
rate for 1998 of approximately 39%.
(c) Represents the recognized gain of approximately $25 million on the
sale of the JWG Clearing after bonuses of approximately $3.8 million
and the current provision for income taxes of approximately $8 million.
</TABLE>
<TABLE>
<CAPTION>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(continued)
Year Ended December 31, 1998
--------------------------------------------------------------------------
Genesis Divestiture
Adjustments and
Eliminations
------------------------
Retained Divested JWG Clearing
The Company Genesis Genesis Sale Adjustments
As Reported Operations Operations and Eliminations Pro Forma
----------- ---------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data: (in thousands of dollars, except per share amounts)
Revenues .................................... $ 118,890 $ 1,356 $11,892 $19,829 $87,169
Expenses..................................... 107,837 1,026 12,734 18,457 76,646
---------- ------- ------- ------- -------
Income (loss) before income taxes............ 11,053 330 (842) 1,372 10,523
Provision (benefit) for income taxes ........ 4,421 132 (337) 535 3,549
---------- ------- ------- ------- -------
Net income (loss)............................ $ 6,632 $ 198 $ (505) $ 837 $ 6,300
========== ======= ======= ======= =======
Net income per common share
Basic ................................... $1.38 - - - $1.21
Diluted ................................. $1.25 - - - $1.11
Weighted average common shares
Basic ................................... 4,814,000 383,000 - - 5,197,000
Diluted ................................. 5,317,000 383,000 - - 5,700,000
</TABLE>
11
<PAGE>
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A SIGNIFICANT
DEGREE OF RISK. IN DECIDING WHETHER TO PURCHASE THE SHARES OFFERED
HEREBY, PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER ALL OF THE
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE FOLLOWING
FACTORS THAT MAY AFFECT THE COMPANY'S CURRENT OPERATIONS AND FUTURE
PROSPECTS.
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to significant
risks particularly in volatile or illiquid markets. These risks
include the risks of:
<TABLE>
<CAPTION>
<C> <S> <C> <S>
* trading losses * losses resulting from the ownership
* counterparty failure to meet commitments or underwriting of securities
* employee fraud * customer fraud
* errors and misconduct * issuer fraud
* litigation * failures in connection with the processing of
securities transactions
Our principal business activities are retail securities
brokerage, investment banking, and, until the sale of JWG Clearing,
securities clearing and execution services. These businesses are
highly competitive and subject to various risks, volatile trading
markets, and fluctuations in the volume of market activity. The
securities business is directly affected by many broad factors,
including
* economic and political conditions * broad trends in business and finance
* legislation and regulation affecting the * currency values market conditions
business and financial communities
* inflation * the credit capacity or perceived
* the availability and cost of short-term or creditworthiness of the securities industry
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:
* 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
12
<PAGE>
<PAGE>
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.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the our business are dependent on highly skilled
individuals. We devote considerable resources to recruiting,
training, and compensating these individuals. In addition, one
component of our strategy is to increase market penetration by
recruiting experienced investment consultants. We cannot assure that
these recruiting efforts will be successful or, if successful, that
they will enhance our business, results of operations, or financial
condition.
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time, our
employees may leave to pursue other opportunities. We have
experienced losses of research, investment banking, and sales and
trading professionals. Competition for key personnel is intense. We
cannot assure that losses of key personnel due to such competition, or
for other reasons, will not occur in the future.
LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. We depend on many
key employees, and in particular on our senior executive officers:
Marshall T. Leeds, our Chairman, President, and Chief Executive
Officer; and Joel E. Marks, our Chief Financial Officer each of
whom has an employment agreement with us.
The loss of any key employee could materially and adversely
affect JWGenesis. While we generally do not have employment
agreements with our employees, we attempt to retain employees with
incentives such as long-term deferred compensation plans, stock
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,
13
<PAGE>
<PAGE>
particularly if our stock price were to decline, or fail to appreciate
sufficiently. If that happened, our long-term deferred compensation
plans might no longer be a competitive incentive for our key employees
to stay with us.
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
Like others companies in the securities industry, we rely on
external sources to finance a significant portion of our day-to-day
operations, principally customer margin account balances and certain
transactions. Our principal cash and liquidity sources are
commissions, trading profits and collateralized bank loans. Liquidity
management includes the monitoring of assets available to hypothecate
or pledge against short-term borrowings. We maintain working capital
credit lines with banks aggregating approximately $5.0 million. The
financing available to us varies depending on market conditions, the
volume of certain trading activities, credit ratings, credit capacity,
and the overall availability of credit to the financial services
industry. We cannot assure that adequate financing to support our
business will be available in the future on attractive terms, or at
all.
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The SEC, the NYSE, the NASD, and various other regulatory bodies
in the United States have rules with respect to net capital
requirements that affect us. These rules require that at least a
substantial portion of a broker-dealer's assets be kept in cash or
highly liquid investments. Our broker-dealer subsidiaries must comply
with the net capital requirements, which could limit operations that
require intensive use of capital, such as underwriting or trading
activities. These rules could also restrict our ability to withdraw
capital from our broker-dealer subsidiaries, even in circumstances
where these subsidiaries have more than the minimum amount of required
capital. This, in turn, could limit our ability to pay dividends,
implement our strategies and pay interest on and repay the principal
of our debt. In addition, a change in these rules, or the imposition
of new rules, affecting the scope, coverage, calculation, or amount of
the net capital requirements, could have similar adverse effects.
Significant operating losses or any unusually large charge against net
capital could also have a similar material adverse effect.
DEPENDENCE ON SYSTEMS
Our business is highly dependent on communications and
information systems. If these systems fail or are interrupted, our
securities trading activities could experience delays, and we might be
unable to execute client transactions. This could have a material
adverse effect on our operating results. We cannot assure that we
will not suffer any systems failures or interruptions. These failures
or interruptions could have many causes, including earthquakes, fires,
other natural disasters, power or telecommunications failures, acts of
God, or acts of war. Nor can we assure that our back-up procedures
and capabilities will be adequate if any failures or interruptions occur.
YEAR 2000
The "year 2000 issue" arises from the widespread use of computer
programs that rely on two-digit date codes to perform computations or
decision-making functions. Many of these programs may fail due to an
inability to properly interpret date codes beginning January 1, 2000.
For example, such programs may misinterpret "00" as the year 1900
rather than 2000. In addition, some equipment controlled by
microprocessor chips may not deal appropriately with the year "00".
We are evaluating our computer systems to determine which
modifications and expenditures will be necessary to make our systems
14
<PAGE>
<PAGE>
compatible with year 2000 requirements. We believe that our systems
will be year 2000-compliant upon implementation of such modifications.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of Year 2000".
We currently estimate that the total cost of such modifications
will not be significant. However, we can not assure that all
necessary modifications will be identified and corrected or that
unforeseen difficulties or costs will not arise. In addition, we
cannot assure that the systems of other companies on which our systems
rely will be modified on a timely basis, or that the failure by
another company to properly modify its systems will not negatively
impact our systems or operations.
RISK OF REDUCED REVENUES DUE TO DECLINE IN TRADING OF GROWTH COMPANY SECURITIES
Our brokerage transaction revenues are generally substantially
lower when public offering levels and trading activities of emerging
growth company securities declines. We derive a significant portion
of our revenues from brokerage transactions in growth company
securities. In the past, brokerage transaction revenues have declined
when underwriting activities in these industry sectors declined, the
volume of trading on Nasdaq declined or when industry sectors or
individual companies reported results below investors' expectations.
RISKS ASSOCIATED WITH REGULATION
The securities industry and our business is extensively regulated
by the SEC, state securities regulators, and other governmental
regulatory authorities. Industry self-regulatory organizations
("SROs"), including the NASD, the New York Stock Exchange, the
American Stock Exchange and other exchanges, also regulate our broker-
dealer subsidiaries. Compliance with many of the regulations
applicable to our company and our subsidiaries involves a number of
risks, particularly in areas where applicable regulations may be
subject to varying interpretation. If we do not comply with an
applicable regulation, governmental regulators and SROs may institute
administrative or judicial proceedings. In that event, we face many
penalties, including
* 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
15
<PAGE>
<PAGE>
activities are concentrated in a more limited number of industry
sectors and portfolio companies than many other investment banks,
which might result in higher trading losses than would occur if our
positions and activities were less concentrated. In addition, there
is a trend in all major capital markets for competitive and other
reasons toward larger commitments from lead underwriters. This means
that, from time to time, an underwriter (including a co-manager) may
retain significant position concentrations in individual securities.
Unfavorable financial or economic conditions would likely reduce
the number and size of transactions in which we provide underwriting,
mergers and acquisitions advisory services and other related services.
Our investment banking revenues, in the form of underwriting discounts
and financial advisory fees, are directly related to the number and
value of the transactions in which we participate and would therefore
be adversely affected by a market downturn.
RISK OF LOSSES ASSOCIATED WITH LITIGATION AND SECURITIES LAWS
Many aspects of our business involve substantial liability risks.
Underwriters are exposed to substantial liability under federal and
state securities laws and other federal and state laws. Court
decisions, including decisions on underwriters' liability and
limitations on indemnification of underwriters by issuers, also expose
us to liability. For example, an underwriter may be held liable for
material misstatements or omissions of fact in a prospectus used to
offer securities, or for statements made by its securities analysts or
other personnel.
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent years,
litigation involving the securities industry has increased, including
class actions in which substantial damages are at stake. Our
underwriting activities usually involve offerings of emerging and mid-
size growth company securities, which often involve higher risk and
are more volatile than the securities of more established companies.
In comparison with more established companies, emerging and mid-size
growth companies are also more likely to be defendants in securities
class actions, to carry directors and officers liability insurance
policies with lower limits (or no such insurance), and to become
insolvent. These factors increase the likelihood that a company
underwriting an emerging or mid-size growth company's securities will
be required to contribute to an adverse judgment or settlement of a
securities lawsuit.
FREQUENT CLAIMS AGAINST UNDERWRITERS. The plaintiffs' attorneys
in securities class action lawsuits frequently name the managing
underwriters of a public offering as defendants. We have not been a
named defendant in any class action lawsuit relating to public
offerings in which we were a managing underwriter. Plaintiffs'
attorneys also may name investment banks providing advisory services
in corporate finance transactions as defendants. We are not a
defendant in any such lawsuit. We anticipate, however, that
securities class action lawsuits naming us as a defendant may be filed
from time to time in the future, particularly if we increase our
activity as managing underwriters or corporate finance advisors. In
such lawsuits, all members of the underwriting syndicate typically are
included as defendant class members or are required by law, or
pursuant to the terms of the underwriting agreement, to bear a portion
of any expenses or losses (including amounts paid in settlement of the
litigation) incurred by the underwriters as a group in litigating the
claim, to the extent not covered by the securities issuer's
indemnification obligation. If we became a party to such a lawsuit,
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.
16
<PAGE>
<PAGE>
In addition, the laws relating to securities class actions are
currently in a state of flux. The eventual impact of the Private
Securities Litigation Reform Act of 1995 on securities class action
litigation is not known.
DIVERSION OF MANAGEMENT ATTENTION. In addition to these
financial costs and risks, defending litigation can, to a certain
extent, divert the efforts and attention of our management and staff.
Our management and other employees may have to devote substantial time
defending litigation, which might materially divert their attention
from other responsibilities. Securities class action litigation in
particular is highly complex and can extend for a protracted period of
time, consuming substantial management time and effort and
substantially increasing the cost of such litigation.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course of
business, we are defendants in various civil actions and arbitrations
arising out of our broker-dealer and underwriting activities, in our
role as an employer, and as a result of other business activities. We
have made significant payments to resolve disputed claims in the past,
and we cannot assure that we will not make significant payments to
resolve disputed claims in the future.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, we have experienced significant
growth in our business activities and size, and we expect we will
continue to grow in the future. Our growth requires and will continue
to require increased investments in management personnel, financial
and management systems and controls, and facilities. If our revenue
did not also continue to grow, our operating margins would decline due
to these increased expenses. In addition, as is common in the
securities industry, we depend on the effective and reliable operation
of our communications and information systems. We believe that our current
and anticipated future growth will require us to implement new and enhanced
communications and information systems, and to train our personnel to operate
the new systems. Any difficulty or significant delay in implementing or
operating our existing systems or any new ones, or in training our personnel,
could adversely affect our ability to manage growth.
17
<PAGE>
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling
Shareholders and the number of Shares beneficially owned by such
Selling Shareholders along with the percentage of the total
outstanding Common Stock of the Company owned by each Selling
Shareholder, as of April 12, 1999, the date on which this offering by
them commenced. All the Shares beneficially owned by such persons on
such date are covered by this Prospectus; some of those Shares have
already been sold (as discussed in note 3 to the table), and the
remaining such Shares may be offered for resale by the Selling
Shareholders from time to time hereafter using this Prospectus.
Except as may be indicated in footnotes to the table, all Shares were
initially acquired by the Selling Shareholders from the Company. All
the Warrants, which are exercisable in whole or in part from time to
time until and through December 31, 2002, were acquired from the
Company and relate to an aggregate of 437,500 Shares, subject to
potential adjustments in certain circumstances based on their
respective anti-dilution provisions. The Company will receive the
proceeds from each exercise of a Warrant, but not from any sale of the
Shares purchased upon such exercise. Except as set forth in the
footnotes to the table below, no Selling Shareholder has had any
position, office, or other material relationship with the Company or
any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
Beneficial Ownership Prior
to Any Offering Hereby
-----------------------------------------
Number of Shares Percentage <F1>
---------------- --------------
<S> <C> <C>
The Will K. Weinstein Revocable Trust <F2>. . . . 317,751 <F3> 5.5
Phillip C. Stapleton <F4> . . . . . . . . . . . . 99,617 1.7
SZRL Investments, an Illinois partnership . . . . 116,841 <F3> 2.0
JB Capital Management, Inc. . . . . . . . . . . . 35,797 <F3> 0.6
W T Investments, Inc. <F5>. . . . . . . . . . . . 400,000 6.9
SunTrust Bank, South Florida, N.A. <F6> . . . . . 37,500 0.6
<FN>
<F1> Based on 5,736,508 shares outstanding as of April 26, 1999, but
also treating as outstanding with respect to each particular
Selling Shareholder the number of additional shares that such
person is deemed to own beneficially as a result of any right to
acquire such shares within the next 60 days.
<F2> Will K. Weinstein, the grantor and beneficiary of The Will K.
Weinstein Revocable Trust, was a director and Vice Chairman of the
Company from June 12, 1998 to March 3, 1999.
<F3> Pursuant to an earlier version of this Prospectus and pursuant to
Rule 144 under the Securities Act, the following amount of Shares
reflected in the table were sold by Selling Shareholders (with the
number of Shares held by such Selling Shareholder as of Jul 14, 1999
in parenthesis): The Will K. Weinstein Revocable Trust 170,251 (147,500),
SZRL Investments, an Illinois Partnership 90,841 (26,000), and JB Capital
Management 26,797 (9,000).
<F4> Mr. Stapleton was a director and Chief Operating Officer of the
Company from June 12, 1998 to March 3, 1999.
<F5> Reflects Shares underlying Warrants presently exercisable to
purchase an aggregate of 400,000 shares of Common Stock at an
exercise price of $11.30 per share.
18
<PAGE>
<PAGE>
<F6> Reflects Shares underlying Warrants presently exercisable to purchase an
aggregate of 37,500 shares of Common Stock at an exercise price of $6.67\
per share.
</FN>
</TABLE>
This Prospectus also covers the possible resale of the Shares by
certain other presently unknown persons who may become the record or
beneficial owners of such Shares as a result of certain types of
private transactions, including but not limited to gifts and transfers
pursuant to a foreclosure or similar proceeding by a lender or other
creditor to whom Shares may be pledged as collateral to secure an obligation
of a Selling Shareholder. Each such transferee of a Selling Shareholder is
hereby deemed to be a Selling Shareholder for purposes of making resales of
Shares using this Prospectus. To the extent required by applicable law,
information (including the name and number of Shares owned and proposed to be
sold) about such transferees, if there shall be any, will be set forth in an
appropriate supplement to this Prospectus.
The Selling Shareholders may offer and sell all or a portion of the Shares
from time to time, but are under no obligation to offer or sell any of the
Shares. See "Plan of Distribution". Because the Selling Shareholders may sell
all, none, or any part of the Shares from time to time, no estimate can be
given as to the number of Shares that will be beneficially owned by the
Selling Shareholders upon termination of any offering by them or as to the
percentage of the total outstanding Common Stock of the Company that the
Selling Shareholders will beneficially own after termination of any offering.
PLAN OF DISTRIBUTION
The Shares may be offered and sold by or for the account of a Selling
Shareholder (or their pledgees, donees or transferees), from time to time as
market conditions permit, on the AMEX, any other exchange on which the shares
may be listed, over the counter or otherwise, at prices and on terms then
prevailing or in negotiated transactions. The Shares may be sold by one or
more of the following methods, without limitation:
* a block trade in which a broker or dealer so engaged will attempt to sell
the Shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
* purchases by a broker or dealer (including a specialist or
market maker) as principal and resale by such broker or
dealer for its account pursuant to this Prospectus;
* an underwritten offering, subject to compliance with applicable
disclosures concerning the identity and compensation arrangements
of each firm acting as underwriter;
* ordinary brokerage transactions and transactions in which
the broker solicits purchasers;
* face-to-face transactions between sellers and purchasers
without a broker-dealer;
* transactions in options, swaps or other derivatives (whether
exchange listed or otherwise);
* sales in other ways not involving market makers or
established trading markets, including direct sales to
institutions or individual purchasers; and
* any combination of the foregoing, or by any other legally
available means.
19
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<PAGE>
In addition, the Selling Shareholders or their successors in interest
may enter into hedging transactions with broker-dealers who may engage
in short sales of Common Stock in the course of hedging the positions
they assume with the Selling Shareholders. The Selling Shareholders
or their successors in interest may also enter into option or other
transactions with broker-dealers that require the delivery to such
broker-dealers of the shares of Common Stock, which shares of Common
Stock may be resold thereafter pursuant to this Prospectus.
In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate.
Such brokers or dealers may receive commissions or discounts from the
Selling Shareholders and/or the purchasers of the Shares for whom such
brokers or dealers act as agents or to whom they sell as principals,
or both, in amounts to be negotiated (which compensation as to a
particular broker-dealer might be in excess of customary commissions).
At the time a particular offer of Shares is made by one or more of the
Selling Shareholders, a Prospectus Supplement, if required, will be
distributed to set forth the aggregate number of Shares being offered
and the terms of the offering, including the name or names of any
underwriters, dealers or agents, any discounts, commissions, and other
items constituting compensation from the Selling Shareholders, and any
discounts, commissions, or concessions allowed or reallocated or paid
to dealers, including the proposed selling price to prospective
purchasers. The Selling Shareholders and such brokers and dealers and
any other participating brokers or dealers may be deemed to be
"underwriters", within the meaning of the Securities Act, in
connection with such sales. There can be no assurance, however, that
all or any of the Shares will be offered by the Selling Shareholders.
See "Selling Shareholders". The Company knows of no existing
arrangements between the Selling Shareholders and any broker, dealer,
finder, underwriter, or agent relating to the sale or distribution of
the Shares.
The Company will not receive any of the proceeds of any sales of
the Shares by the Selling Shareholders. The Company will, however,
receive any exercise price payable upon exercise of the Warrants. The
Company will bear substantially all expenses of the registration of
this offering under the Securities Act, including, without limitation,
all registration and filing fees, printing expenses, fees and
disbursements of counsel and independent public accountants for the
Company, fees of the NASD, transfer taxes, fees of transfer agents and
registrars, and costs of insurance, if any. All underwriting
discounts, selling commissions, and broker's fees applicable to the
sale of any Shares will be borne by the Selling Shareholders or by
such persons other than the Company as agreed by and among the Selling
Shareholders and such other persons.
The Company has also agreed to indemnify the Selling Shareholders
and any underwriter against certain liabilities in connection with the
registration of the Shares, including liabilities under the Securities
Act. The Selling Shareholders have agreed to indemnify the Company
against certain liabilities in connection with the registration of the
Shares, including liabilities under the Securities Act.
20
<PAGE>
<PAGE>
PRICE RANGE OF COMMON STOCK
The Common Stock trades on AMEX under the symbol "JWG". The
following table sets forth, for the periods indicated, the quarterly
high and low sales price information related to trading in the Common
Stock (and, for the period prior to the Company's replacement of JWGFS
as the public company on June 12, 1998, as a result of the statutory
share exchange, the shares of common stock of JWGFS) on the AMEX or on
The Nasdaq Small-Cap Market (where such shares were previously traded
prior to the listing on the AMEX on May 8, 1997). Such information
has been obtained from AMEX or Nasdaq, respectively. All per share
prices have been adjusted to reflect the Company's three-for-two stock
split effected in the form of a 50% stock dividend on February 7, 1997.
SALES PRICE
-------------------------
HIGH LOW
---------- ----------
1997
First Quarter $12.50 $ 7.17
Second Quarter 10.13 6.00
Third Quarter 8.88 7.25
Fourth Quarter 15.88 8.38
1998
First Quarter $13.75 $11.38
Second Quarter 12.75 9.88
Third Quarter 11.50 6.13
Fourth Quarter 7.75 5.25
1999
First Quarter $13.75 $ 5.94
Second Quarter $19.75 $10.63
Third Quarter (through July 14, 1999) $17.75 $12.75
The closing sales price for the Common Stock on July 14, 1999 was $16.81.
There are approximately 215 holders of record of the Common
Stock. Investors who beneficially own common stock that is held in
street name by brokerage firms are not included in this number.
Accordingly, based upon the quantities of periodic reports requested
by such brokerage firms, the Company believes that the actual number
of individual beneficial owners of its Common Stock exceeds 1,500.
DIVIDEND POLICY
No cash dividends have been declared or paid to date on the
Common Stock, and the Company does not anticipate payment of Common
Stock dividends in the foreseeable future. The Company has adopted a
policy of cash preservation for future use in the business, although
the declaration and payment of cash dividends on the Common Stock is
not subject to legal restrictions on the Board's authority.
21
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<PAGE>
SELECTED FINANCIAL DATA
(in thousands of dollars, except per share amounts)
The following tables present selected historical financial data
of the Company. On June 12, 1998, the Company and JWGFS effected a
statutory share exchange, and the Company acquired Genesis, as part of
the Combination. See "Business - The Share Exchange and Combination".
As a result of the Combination, the Company succeeded to the
respective businesses and operations of JWGFS and Genesis. The
following selected financial data of the Company relating to periods
prior to June 12, 1998, however, are derived solely from financial
statements of JWGFS for such periods and, except as otherwise
expressly indicated, relate to matters prior to the Combination. On
March 3, 1999, the Company divested Genesis in a transaction in which
the Company nonetheless retained the corporate finance operations that
it had been conducting through Genesis. See "Business - Recent
Developments - The Genesis Divestiture". While management does not
believe the effects of the divestiture will be material for the
Company's operations, the results of all of Genesis' operations during
the period from the Combination on June 12, 1998 to March 3, 1999, are
included in the Company's financial data and has some impact on the
analysis of such data. Effective June 1, 1999, the Company closed the
sale of JWG Clearing, whose results of operations as the Company's
securities transactions clearing and execution business unit are
reflected in all the following information. That sale will impact the
Company's near-term operating results, at least until the net proceeds
from the sale can be reinvested successfully, although the Company
believe the immediate improvement of its liquidity position, and the
increased availability of management time and resources that the
Company will have as a result of the sale, will enhance the Company's
value over the longer-term. See "Business - Recent Developments - The
JWG Clearing Sale" and "Unaudited Pro Forma Financial Information".
The following selected financial data should be read in conjunction
with the Company's consolidated financial statements and related notes
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
------------------- ----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------- ------- ---------
(In thousands, except per share amounts. Three month periods unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues ........................ $ 43,369 $ 24,273 $ 118,890 $ 97,182 $ 91,020 $ 80,041 $ 60,471
Income before income taxes....... 6,222 2,042 11,053 9,792 8,232 6,287 5,243
Net income....................... 3,788 1,270 6,632 6,103 6,025 3,810 3,300
Net income per share
Basic........................ 0.64 0.34 1.38 1.77 1.42 0.65 .56
Diluted........................ 0.60 0.30 1.25 1.50 1.26 0.64 .56
Weighted average common shares
Basic.......................... 5,857,808 3,716,179 4,813,643 3,443,141 4,245,895 5,862,296 5,858,097
Diluted........................ 6,314,814 4,300,695 5,317,368 4,069,594 4,783,582 5,999,767 5,906,646
<PAGE>
<CAPTION>
At December 31,
-----------------------------------------------------
At March 31, 1999 1998 1997 1996 1995 1994
----------------- -------- -------- -------- -------- --------
(In thousands. March 31, 1999 unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF FINANCIAL CONDITION DATA:
Cash and cash equivalents . . . . $ 25,195 $ 16,978 11,512 11,836 8,597 5,401
Total assets 252,673 180,394 140,732 127,331 115,214 82,218
Short-term borrowings from banks 65,882 16,988 29,423 17,375 28,138 7,303
Notes payable to affiliates -- -- 5,113 8,625 3,500 5,161
Total liabilities 200,466 130,125 116,066 111,959 98,643 69,459
Mandatorily redeemable common stock -- -- -- -- 7,013 --
Total stockholders' equity 252,673 50,269 24,666 15,372 9,558 12,759
22
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As a diversified financial services company, JWGenesis operates a
full-service securities brokerage and investment banking business that
offers "one-stop-shopping" for its customers and clients. The
Company's varied activities generate revenue primarily in the form of
commission and fee income, market making and principal transactions
revenues, interest income, and, until the sale of JWG Clearing on
June 1, 1999, securities transaction processing fees ("clearing
fees"). 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 three-month periods ended March 31,
1999 and 1998 and the years ended December 31, 1998, 1997 and 1996.
On June 12, 1998, the Company and JWGFS effected the Share
Exchange, and the Company acquired Genesis, as part of the
Combination. See "Business - The Share Exchange and Combination". As
a result of the Combination, the Company succeeded to the respective
businesses and operations of JWGFS and Genesis. The discussions
relating to periods prior to June 12, 1998, however, reflect the
operations of JWGFS as if it were the Company during such periods, and
do not reflect any operations of Genesis before the Combination. The
results of all of Genesis' operations during the period from the Combination
on June 12, 1998 to March 3, 1999, however, are included in the Company's
financial data and have some impact on the analysis of such data.
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 been omitted.
EXPECTED IMPACT OF CERTAIN RECENT DEVELOPMENTS
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.
Effective June 1, 1999, the Company consummated the sale of JWG
Clearing, whose results of operations as the Company's securities
clearing and execution services business unit are reflected in the
following discussions of the Company's historical financial results.
That sale will impact the Company's near-term operating results, at
least until the net proceeds from the sale can be reinvested
successfully. However, in deciding to proceed with the sale and to
cease providing clearing services, management concluded that for the
Company to remain competitive in the clearing services business would
require (i) large capital expenditures and resource concentration to
maintain the technology and infrastructure necessary to service the
securities clearing requirements of the more desirable clients, (ii)
higher levels of capital to satisfy increasing regulatory capital
requirements resulting from margin transactions in certain securities
that experience rapid increases in trading prices, and (iii) a significant
amount of management time and other Company resources to meet the challenge of
increasing competition in the securities clearing business, including from
firms with substantially greater financial resources. In addition, the
Company's future profit margins on its clearing business would likely decline
as competitive pricing pressures increase.
23
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<PAGE>
While the Company's clearing services operations have been
profitable historically, management believes the sale of JWG Clearing
in these circumstances is in the long-term best interests of the
Company. Not only is the impact on the Company's future profitability
from its remaining overall operations not expected to be material
beyond the near-term, but the net proceeds from the sale, which are
estimated to be approximately $40 million after tax, will provide a
substantial infusion of cash that can be used to fund expanded
levels of operations in the Company's other business units. The
interim reinvestment of such net proceeds, pending longer-term capital
applications, will also offset in part earnings that might have
continued to be realized from the Company's clearing service business
before the factors described above began to significantly erode such
earnings. Most importantly, however, the sale will permit the Company
to focus more management time and other resources on its retail
brokerage and investment banking businesses, as well as to use the
newly available capital to pursue possible new opportunities that management
believes have greater potential to enhance value for all shareholders.
For a discussion of other information about the divestiture of
Genesis and the sale of JWG Clearing, and about some pro forma implications
thereof, see "Business Recent Developments" and "Unaudited Pro Forma
Financial Information", respectively, elsewhere in this Prospectus.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 (the "1999 Period") vs. 1998 (the
"1998 Period")
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------------------------
1999 % Increase 1998 % Increase 1997
(000's) (Decrease) (000's) (Decrease) (000's)
------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions........................... $28,043 114 $13,129 14 $11,538
Market making and principal
transactions, net.................. 6,749 39 4,868 5 4,646
Interest.............................. 3,621 15 3,162 35 2,334
Clearing fees......................... 3,205 50 2,138 18 1,808
Other................................. 1,751 79 976 (46) 1,806
------------------------------------------------------------
Total Revenues........................ $43,369 79 $24,273 10 $22,132
============================================================
Three Months Ended March 31,
------------------------------------------------------------
1999 % Increase 1998 % Increase 1997
(000's) (Decrease) (000's) (Decrease) (000's)
------------------------------------------------------------
Expenses:
Commissions and clearing costs........ $20,332 60 $12,675 10 $11,558
Employee compensation and
benefits........................... 6,744 52 4,448 7 4,155
General and administrative............ 8,592 123 3,853 0 3,849
Interest.............................. 1,479 18 1,255 27 985
------------------------------------------------------------
Total Expenses........................ $37,147 67 $22,231 8 $20,547
============================================================
</TABLE>
Total revenues of $43,369,000 recorded in the 1999 Period
increased by 79% compared to last year's $24,273,000. Genesis added
$3,158,000 to the revenues and GSG added $6,010,000 to the revenues,
which otherwise would have been $34,201,000 or a 41% increase. In
particular, commissions increased by 114% to $28,043,000 from
$13,129,000, of which in the 1999 Period total GSG contributed
$5,644,000 and Genesis contributed $3,032,000. Without GSG and
Genesis, commission revenues would have been $19,367,000 resulting in
a 48% increase. This increase in commissions without GSG and Genesis
24
<PAGE>
<PAGE>
can be attributed to the industry wide increase in market activity in
the first quarter of 1999 as a result of strength in the general
securities market. Market making and principal transactions, net
increased 39%. The increase in market making and principal
transactions, net is primarily due to the inclusion of realized and
unrealized gains totaling $4,432,000 related to the Company's
investment in Knight/Trimark Group, Inc. (NASDAQ: NITE). Exclusive of
this gain, market making and principal transactions, net would have
decreased by $2,551,000 or 52%, which is due to the Company's
emphasis away from market making activities. Clearing fees increased
by $1,067,000 or 50% as a result of the industry wide increase in
market activity in the first quarter of 1999. Other revenues
increased $775,000 primarily due to GSG and Genesis in the amounts of
$298,000 and $361,000, respectively.
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
by $3,738,000 and $1,615,000 due to GSG and Genesis, respectively.
Without including GSG and Genesis, commissions and clearing costs
would have increased by 18% to $14,979,000, which relates directly to
the increase in combined commission and principal transaction revenue
that would have resulted without GSG and Genesis as discussed above.
Employee compensation and benefits increased by 52% or $2,296,000 as a
result of the inclusion of GSG and Genesis, which accounted for
$1,204,000 of the total. Excluding GSG and Genesis, employee
compensation and benefits increased by 25% or $1,092,000 due to the
industry wide increase in market activity discussed above, which
caused employees who receive incentive compensation related to sales
activity and profitability to receive greater amounts in the 1999
Period. Selling, general and administrative costs increased by
$4,739,000 or 123% primarily as a result of the inclusion of GSG and
Genesis, which contributed $3,049,000 of the total amount. The
remaining increase of $1,690,000 is primarily due to amortization of
cost in excess of the value of net assets acquired, amortization of
the nonsolicit and non compete agreements entered into with certain
officers, and increased advertising expenditures to gain name
recognition, in addition to a general increase related to the
Company's increase in activity.
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
==============================================================
</TABLE>
25
<PAGE>
<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>
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
================================================================
</TABLE>
Total revenues of $118,890,000 recorded in 1998, a record for any
fiscal year in the Company's history, increased 22% over last year's
previous record of $97,182,000. Genesis added $13,249,000 to 1998
revenues since the Combination Date, which otherwise would have been
$105,641,000 or a 9% increase over 1997. During 1998, the Company
experienced increases in all revenue categories. During 1997 and
1996, the Company experienced increases in almost all revenue
categories; the sole exceptions being market making and principal
transactions, net which decreased from 1996 to 1997 and is discussed
below. Growth in the other revenue categories was primarily due to
heightened client activity, both retail and clearing, associated with
vibrant and generally rising stock market conditions.
Market making and principal transactions, net, which represents
the net realized and unrealized gain or loss experienced from trading
or otherwise acting as principal in securities transactions,
represented approximately 21%, 21% and 27% of total revenues in 1998,
1997 and 1996, respectively. The increase in market making and
principal transactions, net in 1998 is primarily due to the inclusion
of unrealized gain of $6,400,000 related to the Company's investment
in 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
26
<PAGE>
<PAGE>
rental expenses increased by 15% from 1996 to 1997 primarily due to
the expansion of and relocation of the Company's New York City branch
office in April, 1997.
Communications increased by 35% or $1,178,000 in 1998 primarily
as a result of the inclusion of Genesis which accounted for $721,000
of the total increase. Excluding the impact of Genesis, the growth in
communications was consistent with the Company's overall business
growth. Communications expense declined from 1996 to 1997 and from
1995 to 1996 due primarily to the Company's ability to take advantage
of the fiercely competitive communications environment and integrate
new cost effective technologies into its operations.
Interest income consists primarily of interest earned on
receivables from customers, securities owned and customer money market
fund balances. Interest expense consists primarily of interest
incurred on short-term borrowings and deposits on securities loaned
used to finance JWG Clearing receivables from customers and securities
owned. Both have increased in each of the past three years, primarily
a result of: (i) a general increase in interest rates experienced from
1996 through 1997 and (ii) an increase in the average outstanding loan
balances used to fund increased customer balances from 1996 to 1998,
reflecting the Company's overall business growth. Genesis had no
material impact on interest income and interest expense for the 1998
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet with the
majority of the Company's assets consisting of cash and cash
equivalents, securities owned, which are marked to market, and
receivables from customers, brokers, dealers and clearing brokers
arising from customer related securities transactions. Receivables
from customers consist primarily of collateralized customer margin
loans, which are typically secured with marketable corporate debt and
equity securities. The nature of the Company's business as a market
maker and securities dealer requires it to carry significant levels of
securities inventories in order to meet its customer and internal
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 March 31, 1999, the Company had stockholders' equity of $52,207,000,
representing an increase of $1,938,000 from December 31, 1998, and the Company
had cash and cash equivalents of $25,195,000. The increase in stockholders'
equity is primarily related to net income of $3,778,000 recorded for the three
month period ended March 31, 1999, plus the proceeds from option exercises in
the amount of $1,359,000 less treasury stock acquired in connection with the
divestiture of Genesis in the amount of $3,199,000. At March 31, 1999, the
Company had borrowed an additional $5,000,000 under its committed bank lines
of credit as described below under "Bank Lines of Credit".
Net cash from operating activities during 1998 was $20,296,000 in payables
to customers. Net cash used by operating activities in the three-month 1999
period amounted to $41,963,000 and was used primarily for increased customer
margin balances.
Investing activities required $1,155,000 and $818,000 during 1998 and
three-month 1999 period, respectively. Additions to furniture, equipment and
leasehold improvements required substantially all of this amount.
27
<PAGE>
<PAGE>
Financing activities consumed $13,675,000 during the 1998 period,
primarily reflecting the result of a reduction in short-term
borrowings of $12,435,000 and repayment of $5,113,000 in notes payable
to affiliate. In the three-month 1999 period, financing activities provided
$50,998,000 primarily as a result of short-term borrowings from banks.
The Company presently owns approximately 75,000 NITE shares which
are subject to a lock up agreement until June 3, 1999 and are
unregistered. Approximately 15,000 of these shares are 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. These securities, which have a
historical cost of $5,000, are included in securities owned, at market
value in the Company's financial statements, which market value was
estimated to be $4,500,000 at March 31, 1999. At December 31, 1998,
the Company owned, of record, approximately 300,000 NITE shares, which
had a historical cost of $18,000, and were 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 Company believes that its current borrowing arrangements
(which are discussed below), combined with anticipated levels of
internally generated funds and the net proceeds (estimated to be
approximately $40,000,000 after tax) from the sale of JWG Clearing,
will be sufficient to fund its financial requirements for the
foreseeable future based on the Company's current level of operations
and certain assumptions relating to the Company's business and planned
growth. Should the Company significantly expand either its market
making activities or its underwriting of securities on a "firm-
commitment" basis, however, the Company may need to obtain additional
capital to support such activities and to comply with regulatory
requirements. The Company is not dependent upon raising additional
capital in order to maintain its current levels of operations. If the
Company should find that its ability to generate funds internally is
insufficient to satisfy its future capital needs, the Company will
require additional financing from outside sources.
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. Following the sale of JWG Clearing on June 1, 1999, they
repaid the entire $2.5 million that had been outstanding under the facility at
March 31, 1999, so that the entire amount of the Wilmington Facility is
currently available to the Company.
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
28
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<PAGE>
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, 2001, 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. Following the
sale of JWG Clearing on June 1, 1999, they repaid the entire $2.5
million that had been outstanding under the facility at March 31,
1999, so that the entire amount of the SunTrust Facility is currently
available to the Company.
In connection with the SunTrust Facility, the Company entered
into a Marketing Agreement with SunTrust (the "SunTrust Marketing
Agreement") and granted SunTrust Banks, Inc. a warrant to purchase
37,500 shares of the Company's Common Stock at any time prior to
December 31, 2002. The exercise price per share is $6.67. The
SunTrust Marketing Agreement provides that the Company will market
certain products and services, through the Company's participation as
an underwriter or selling group member of various municipal finance
offerings underwritten by SunTrust Capital Markets, Inc., to the
Company's brokers, clients and prospects.
BROKER-DEALER CAPITAL REQUIREMENTS
CSG, JWG Securities, GSG, DMG and JWG Clearing are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule (Rule
15c3-1 under the Securities Exchange Act of 1934), which requires the
maintenance of minimum net capital and requires that CSG's, JWG
Securities', GSG's and DMG's ratio of aggregate indebtedness to net
capital (excess net capital), as defined by the Rule, not exceed 15 to
1. JWG Clearing has elected to comply with the "alternative net
capital requirement" of Rule 15c3-1, which requires net capital equal
to or greater than 2% of aggregate debit items computed in applying
the formula for determination of reserve requirements. Additionally,
JWG Clearing is subject to the minimum net capital requirements of the
NYSE, which provide that equity capital may not be withdrawn or cash
dividends paid if the resulting net capital would be less than 5% of
aggregate debits.
As of March 31, 1999, CSG, JWG Securities, GSG and DMG had net
capital of $2,226,000, $1,546,000, $644,000 and $255,000,
respectively, and excess net capital of $1,885,000, $1,275,000,
$523,000 and $155,000, respectively, each of which complied with the
applicable requirements of Rule 15c3-1. At March 31, 1999, JWG
Clearing's net capital was 7.4% of aggregate debit balances as
compared with the minimum of 2%, and its Rule 15c3-1 net capital of
$14,212,000 which was $10,385,000 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
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or create erroneous results. Such erroneous results could affect the
Company's ability to conduct retail securities brokerage and brokerage
processing operations, or could cause the temporary inability to send
trade confirmations, customer statements or engage in similar normal
business activities. If it is not adequately addressed by the Company
or its suppliers and correspondents, the year 2000 issue could result
in a material adverse impact on the Company's financial condition and
results of operations.
JWGENESIS' STATE OF READINESS
The Company has been assessing its Year 2000 readiness since
1998. It has formed a committee charged with the task of identifying
and remediating date recognition problems in both information
technology ("IT") and non-IT systems that include microcontrollers and
other embedded computer technology. Guided by requirements of and
examination by securities regulators and related industry guidance,
the committee has developed a comprehensive plan to assess the
Company's year 2000 readiness with respect to both IT and non-IT
systems. Its inventory of both types of systems is complete, and the
Company has either repaired or replaced, or is in the process of
repairing or replacing, all noncompliant systems. The Company
believes that most mission-critical systems have been remediated or
are nearing completion of remediation. The Company expects that all
noncompliant systems will be repaired, replaced or otherwise
remediated by December 31, 1999, although there can be no assurance
that the Company's year 2000 remediation program will be complete by
then.
Testing commenced in 1998, and further testing has occurred and
will continue to occur during 1999 of systems that have been or will
be remediated. The Company believes that it has identified all major
internal business and operational functions that will be impacted by
the year 2000 date change.
COSTS TO ADDRESS YEAR 2000 ISSUES
The Company does not anticipate that the year 2000 related costs
will be material to its financial condition or results of operations.
The Company estimates that its total costs for the evaluation,
remediation and testing of its IT and non-IT systems in connection
with the year 2000 issue will range from $1,250,000 to $1,500,000,
$1,000,000 of which has been incurred to date. All of the expected
expenditures are present in the Company's 1998 and 1999 internal
capital expenditures budgets.
RISKS OF THIRD-PARTY YEAR 2000 ISSUES
The impact of year 2000 noncompliance by outside parties with
whom the Company transacts business cannot be accurately gauged. The
Company has surveyed its major business partners to ascertain their
year 2000 readiness. Although all are not year-2000 compliant at this
date, the Company has received certain assurances that such third
parties will be ready for the year 2000 date change by the end of
1999. Moreover, securities regulators have prescribed year 2000-
related programs for many of the Company's major business partners and
industry utilities, and monitored those companies' progress in
remediating their noncompliant systems.
If the systems of major business correspondents were not
compliant and suffered serious year 2000-related failures, the
Company's brokerage processing operations would be materially impeded.
Electronic ordering and clearing of securities transactions might fail
or be interrupted.
JWGENESIS' CONTINGENCY PLANS
The Company is in the process of developing a formal contingency
plan which is being designed to ensure the continuation of normal
business operations of mission-critical systems in the event of one or
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more year 2000 related failures. The contingency plan is being
designed to facilitate the Company in providing uninterrupted services
to its internal users and external customers until a normal level of
services can be restored. If the Company's transaction processing or
other mission-critical systems suffer year 2000-related failures,
retail brokerage and communication of orders might be processed
telephonically, via the Internet, or by other means. If major
business partners with whom the Company maintains clearing or other
arrangements suffer systems failures, the Company could clear
securities transactions or other necessary business functions through
other businesses with compliant systems. If vendors or suppliers
suffer failures, the Company will seek alternative vendors and
suppliers with compliant systems. Contingency plans in the event of
widespread failures in the securities industry are difficult to
formulate, but in such event the Company would seek to conduct its
operations via methods not dependent on noncompliant systems, and
cooperate with any industry-wide contingency plans.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1998, the FASB issued statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133"). This
standard requires that derivatives be recognized in the balance sheet
at fair value. Designation as hedges of specific assets or liabilities
is permitted only if certain conditions are met. Effective in the
third quarter of 1999, the Company will be required to record and mark
to market any derivative financial instruments and related underlying
assets, liabilities and firm commitments. Based on current
operations, the impact of adopting FAS 133 is not anticipated to have
a material effect on the Company's financial position or results of
operations.
MARKET RISK
In 1997, the SEC issued market risk disclosure requirements to
enhance disclosures of accounting policies for derivatives and other
financial instruments and to provide quantitative and qualitative
disclosures about market risk inherent in derivatives and other
financial instruments. The Company manages risk exposure involving
various levels of management. Position limits in trading and
inventory accounts are established and monitored on an ongoing basis.
Current and proposed underwriting, corporate finance, merchant banking
and other commitments are subject to due diligence reviews by senior
management, as well as professionals in the appropriate business and
support units involved. Credit risk related to various financing
activities is reduced by the industry practice of obtaining and
maintaining collateral. The Company monitors its exposure to
counterparty risk through the use of credit exposure information, the
monitoring of collateral values and the establishment of credit
limits.
The Company maintains inventories as detailed in Note 6 to the
Company's consolidated financial statements for the year ended
December 31, 1998. The fair value of these securities at March 31,
1999 and December 31, 1998, were $13,297,000 and $13,746,000,
respectively, in long positions and $1,523,000 and $305,000,
respectively, in short positions. The Company performed an entity-
wide analysis of its financial instruments and assessed the related
risk and materiality in accordance with the rules. Based on this
analysis, in the opinion of management, the market risk associated
with the Company's financial instruments at December 31, 1998 will not
have a material adverse effect on the consolidated financial position
or results of operations of the Company.
IMPACT OF INFLATION
Although the precise effect of inflation on the present
operations of the Company cannot accurately be determined, management
believes that continuation of the general levels of inflation
experienced in recent years will not have a significant impact on the
Company's current and contemplated operations.
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Other Matters
In connection with the Combination, the Company prepaid in full
its $2,061,000 of aggregate outstanding indebtedness owed to Gilman
CMG, Inc., using cash on hand and $2,000,000 of borrowing under the
line of credit with the SunTrust Facility and the Wilmington Facility.
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BUSINESS
BACKGROUND AND GENERAL
The Company is a diversified financial services holding company
whose principal operating subsidiaries Corporate Securities Group,
Inc. ("CSG"), JWGenesis Securities, Inc. ("JWG Securities"), JWGenesis
Capital Markets, Inc. ("JWG Capital") and GSG Securities, Inc. ("GSG")
(formerly Discount Securities Group, 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 and provides investment banking services to
corporate and institutional clients and high net worth individuals. Another
operating subsidiary of the Company, JWGenesis Clearing Corp. ("JWG Clearing"),
which delivers a broad range of clearing services to affiliated and independent
broker-dealers, including affiliates of commercial banks, was sold effective
June 1, 1999; and the Company has ceased providing clearing services. See
"--Recent Developments - The JWG Clearing Sale", below.
The Company was incorporated as a Florida corporation in January
1998; however, as a result of the Share Exchange on June 12, 1998
described elsewhere herein, the Company succeeded to the business and
operations of JW Charles Financial Services, Inc. (whose name was
subsequently changed to JWGenesis Financial Services, Inc., "JWGFS"),
which had been incorporated as a Florida corporation in December 1983.
Also on June 12, 1998, as a result of the Combination described
elsewhere herein (of which the Share Exchange was a part), the Company
acquired Genesis Merchant Group Securities, LLC ("Genesis") and
succeeded to its business, which had commenced in 1989. On March 3,
1999, the Company divested itself of Genesis in a transaction that
resulted in the Company's continued ownership and operation, through
JWG Capital, of Genesis's New York City-based operations, which
consist of investment banking, corporate finance, capital markets, and
certain institutional research and sales capabilities. As a result of
a merger in 1990, JWGFS acquired operations that date back to 1973.
JWG Securities is a New York Stock Exchange ("NYSE") member firm with
branch offices in South Florida, California, Georgia, and New York. JWG
Securities' branches are typically owned as well as managed by the Company,
and its brokers are "full-service" oriented and receive compensation packages
that are competitive with most regional and national wire-house brokerage
firms. JWG Capital is a New York firm that specializes in investment banking
services and institutional research and sales. CSG, a National Association of
Securities Dealers, Inc. ("NASD") member firm, is a general securities broker
dealer that offers a full array of investment products and services to a
variety of clients through a national network of independently owned offices.
CSG offices can vary in size from one investment professional to many. GSG, a
NASD member firm, is a general securities broker dealer that offers a full
array of investment products and services primarily through its branch offices
located in Colorado, California, Florida, Illinois and New York. GSG brokers,
many of whom enter the business through GSG's in-house training program, are
"full-service" oriented and receive compensation packages that are competitive
with most similarly situated firms. Another subsidiary of the Company, DMG
Securities, Inc. ("DMG"), is also engaged in the securities brokerage business.
JWG Clearing is a NYSE member firm that has been providing 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. All of the Company's 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
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principal transactions revenues, interest income, and, until the sale
of JWG Clearing, securities transaction processing fees ("clearing
fees"). The Company also derives revenues from corporate finance and
other capital markets transactions, insurance brokerage services and
consulting services. The following table indicates the percentage of
total revenues represented by each of these activities during the past
three years and the respective three-month periods ending March 31,
1999 and 1998:
<TABLE>
<CAPTION>
Percentage of Total Revenues <F1>
Three Months Ended Year Ended
March 31, December 31,
------------------ ------------------------------
1999 1998 1998 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commissions........................................ 65% 54% 53% 51% 47%
Market making and principal transactions, net...... 16% 20% 21% 21% 27%
Interest........................................... 8% 13% 12% 12% 10%
Clearing fees...................................... 7% 9% 11% 13% 13%
Other (including corporate finance and
consulting)..................................... 4% 4% 3% 3% 3%
- -------------------
<FN>
<F1> Excludes the results of Genesis for the periods prior to June 12, 1998.
</FN>
</TABLE>
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 and the
respective three-month periods ending March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Revenues <F1>
(Amounts in Millions of Dollars)
Three Months Ended March 31, Year Ended December 31,
------------------------------ -----------------------------------------------
1999 1998 1998 1997 1996
------------- ------------- ------------ ------------ ------------
Amount % Amount % Amount % Amount % Amount %
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate Securities Group..... $11.3 26 $9.8 40 $39.1 34 $34.2 35 $30.2 34
JWG Capital Markets............ 3.5 8 - - 13.2 12 - - - -
JWGenesis Securities........... 10.0 23 8.1 33 31.0 27 34.8 35 31.4 35
JWGenesis Clearing............. 7.3 17 6.1 25 28.1 25 26.4 27 24.3 27
DMG Securities................. 0.3 1 0.6 2 2.0 2 2.9 3 3.6 4
GSG Securities<F2> ............ 6.0 14 - - - - - - - -
<FN>
<F1> Excludes the results of Genesis for the periods prior to June 12, 1998.
<F2> Prior to January 1, 1999 GSG Securities was inactive.
</FN>
</TABLE>
THE SHARE EXCHANGE AND THE COMBINATION
Pursuant to a statutory share exchange with JWGFS on June 12,
1998, the Company acquired all of the outstanding shares of JWGFS
common stock in exchange for shares of Common Stock of the Company, on
a one-for-one basis, and thus replaced JWGFS as the publicly held
holding company (the "Share Exchange"). The Share Exchange was part
of a larger transaction (the "Combination"), consummated on the same
date among JWGFS, the Company, Genesis, and the owners of all of the
equity interests in Genesis, in which the owners of Genesis exchanged their
equity interests for 1,500,000 shares of Common Stock of the Company. As a
result of the Combination, the Company succeeded to the respective businesses
and operations of JWGFS and Genesis.
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Following the Combination, during the fall of 1998, the Company
made several significant changes in the operations and structure of
Genesis in the wake of those operations generating a pre-tax loss of
approximately $2.0 million for the third quarter. Among other things,
the Company focused Genesis' operations and resources in two principal
areas: (i) brokerage processing services ("BPS") to be conducted
through Genesis' San Francisco office, and (ii) investment banking,
corporate finance and other capital markets services and certain
institutional research and sales (which are referred to collectively
as "corporate finance operations") to be conducted through Genesis'
New York City office. In January 1999, the Company began to negotiate
a transaction which was closed on March 3, 1999, to divest Genesis
(but retain the New York City-based corporate finance operations) to a
group of former owners of Genesis in exchange for their return of
284,375 shares of the Common Stock of the Company that had been issued
in the Combination (the "Divestiture"). The group of former Genesis
owners were led by Phillip C. Stapleton, who became a director and Chief
Operating Officer of the Company at the time of the Combination, and Will
K. Weinstein, who became a director and Vice Chairman of the Company at that
time; Messrs. Stapleton and Weinstein resigned all positions with the Company
in connection with the Divestiture. See "Recent Developments - The Genesis
Divestiture", below, for additional information about this transaction.
3-FOR-2 STOCK SPLIT
Unless otherwise indicated, all information with respect to numbers of
shares of common stock, prices of common stock, and earnings per common share
appearing in this Prospectus have been adjusted to reflect JWGFS' three-for-two
stock split effected in the form of a 50% stock dividend on February 7, 1997.
RETAIL BROKERAGE
The Company conducts its retail brokerage business primarily
through CSG, JWG Securities and DMG. The following table sets forth
certain statistical information concerning registered representatives
and branch offices of each of these subsidiaries:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------
At March 31, 1999 1998 1997 1996
----------------- ---------------- ------------------ -------------------
Reg. Reg. Reg. Reg.
Reps. Offices Reps. Offices Reps. Offices Reps. Offices
----- ------- ----- ------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JWG Securities 220 14 209 15 213 13 210 10
CSG 283 105 273 107 279 91 242 86
GSG 235 6 206 6 - - - -
DMG 4 1 5 1 20 1 18 1
--- --- --- --- --- --- --- --
Total 742 126 693 129 512 105 470 97
=== === === === === === === ==
<FN>
<F1> As of January 1, 1999, in order to reflect the acquisition by GSG of six retail
securities branch offices (and three satellite offices) on such date. See
"--Recent Developments - The GSG Acquisition", below.
</FN>
</TABLE>
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
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unit trusts, and research and investment advisory services. JWG
Securities has clearing agreements with JWG Clearing, Bear Stearns
Securities Corp. ("Bear Stearns"), and Fiserv Correspondent Services,
Inc. ("FISERV"), each a NYSE member organization, under which
agreements they provide JWG Securities with back office support,
transaction processing services on all principal national and
international securities exchanges, and access to many other financial
services and products. These agreements allow JWG Securities to offer
a range of products and services that is generally offered only by
firms that are larger and have more capital than JWG Securities.
JWG Securities' registered representatives, have, prior to their
employment with JWG Securities, prior industry experience and licenses
and each is an in-house employee at JWG Securities. Through its
retail branch network, JWG Securities markets a wide variety of
investment products, including common and preferred equities, tax-free
and taxable bonds, unit trusts, mutual funds, insurance and annuity
products, and options.
CORPORATE SECURITIES GROUP, INC.
CSG, a general securities broker-dealer, provides products and
services similar to those offered by JWG Securities for the accounts
of its customers and for its own account. CSG is a member of the NASD
and has clearing agreements with Bear Stearns, JWG Clearing and
FISERV, under which agreements they provide CSG with back office
support, transaction processing services on all principal national and
international securities exchanges, and access to many other financial
services and products. These agreements allow CSG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than CSG.
All of CSG's branch offices operate as independently owned
affiliates. In affiliated branch office situations, the office is
owned and operated by an independent person who obtains appropriate
NASD licenses to supervise or manage the branch office by virtue of
affiliating with CSG and being subject to its supervisory
jurisdiction. Each such office is responsible for its own overhead
and other operational expenses, although all of its revenues from
securities brokerage transactions accrue to CSG. CSG, on the other
hand, pays commissions to the branch offices on the revenues generated
by them (at higher rates than those that would be paid to registered
representatives working at a branch office owned by CSG) and provides
other support for the operations, including required home office
supervisory functions and access to CSG's securities transaction
clearing agreements with Bear Stearns, JWG Clearing and FISERV. All
registered representatives who are associated with CSG are licensed
with the NASD and all such persons have prior industry experience
prior to opening their own office or working at one of CSG's
independently owned affiliated offices.
The affiliated branch office system permits the Company to expand
its base of revenue and its network for the retail distribution of
securities underwritten by the Company (and for trading in connection
with the Company's market making activities), without the capital
expenditures that would be required to open company-owned offices and
the additional administrative and other costs of hiring in-house
registered representatives who are employees.
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
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<PAGE>
services that is generally offered only by firms that are larger and
have more capital than GSG.
All of GSG's registered representatives are in-house employees.
Through its retail branch network, GSG markets a wide variety of
investment products, including common and preferred equities, tax-free
and taxable bonds, unit trusts, mutual funds, insurance and annuity
products, and options. Unlike JWG Securities and CSG, GSG operates an
in-house recruitment and training program whereby it offers a
comprehensive training and development program for qualified
individuals who lack sufficient industry experience or are otherwise
unlicensed and new to the industry.
GSG's principal business activities commenced in January, 1999.
See "--Recent Developments - GSG Acquisition", below.
DMG SECURITIES, INC.
DMG, also a NASD member firm, conducts its brokerage operations
from a single location in Virginia. DMG's office is owned and
operated by an independent person who obtains appropriate NASD
licenses to supervise or manage the branch office by virtue of
affiliating with DMG and being subject to its supervisory
jurisdiction. The office is responsible for its own overhead and
other operational expenses, and operates in a manner similar to that
described for affiliated branch offices of CSG. DMG also has a
clearing agreement with JWG Clearing that provides DMG with back
office support, execution services on all principal national
securities exchanges, and access to many of its in-house financial
services and products. This agreement allows DMG to offer a range of
products and services that is generally offered only by firms that are
larger and have more capital than DMG.
CAPITAL MARKETS
The acquisition of Genesis on June 12, 1998 substantially
enhanced the Company's capital markets capabilities from general
corporate finance and investment banking transactions to research and
related services over the level that had previously existed at
JWGFS. These corporate finance operations were retained by the
Company, and transferred to JWG Capital, when Genesis was subsequently
divested on March 3, 1999. See "--Recent Developments - The Genesis
Divestiture", below. While certain capital markets functions are also
performed by personnel of JWG Securities and JWG Clearing (and, to a
more limited extent, by CSG), the Company uses JWG Capital as its
principal arm for capital market services, and transferred to it any
such activities being performed by JWG Clearing immediately prior to
the sale of JWG Clearing.
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
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<PAGE>
optimal "packaging" of a client for a transaction, the preparation of client
meetings, the structuring of merger and sale transactions, and the negotiation
of sale and purchase terms. The Corporate Finance Department also renders
valuation and fairness opinions for both private and public companies. Its work
generally includes a comprehensive operational and financial review of a client
and the development of financial analyses that incorporate both quantitative
and qualitative factors.
Compensation for the Company's corporate finance and other capital markets
services includes cash fees in the form of underwriting commissions, retainers,
and success fees and, in certain situations, stock purchase warrants, direct
equity positions, or consulting fees.
RESEARCH
The Company maintains a Research Department (i) to provide coverage on
a select but broad range of companies, daily market commentary, and trading
ideas, (ii) to complement the Corporate Finance Department by offering their
services as an added benefit to attracting and retaining corporate finance
clients, and (iii) to increase the availability and use of in-house research
by the Company's retail oriented registered representatives by fostering
increased coordination among the Research, Syndicate, and Corporate Finance
Departments. The Research Department provides comprehensive coverage of a
select group of industries and companies that in many instances are not
otherwise widely followed by the investment community. The Research
Department publishes numerous materials for its clients, including quarterly
earnings reports, company updates, company reports, which initiate research
coverage, industry overviews, and emphasis lists, which encompass all covered
industries. The Research Department follows companies in the following
principal areas: business services and outsourcing, regional banking, retailing,
communications, technology, electronic commerce, health care, leisure and
entertainment, and special situations.
SYNDICATE
The Syndicate Department coordinates the Company's participation
in underwriting syndicates or selling groups of other underwriters and
assists the Company in obtaining participation from other firms in
underwritings managed by the Company. Over the past years, the
Company has participated in a diverse range of offerings, primarily as
an underwriter, or selling group member. These offerings included
both initial and secondary offerings of common and preferred equity
and fixed income and closed-end funds offerings.
FIXED INCOME
Through its Fixed Income Department, the Company distributes both
taxable and tax-exempt fixed income products (such as corporate, government
and mortgage-backed securities as well as municipal bonds and unit investment
trusts). The Company positions taxable fixed income securities and municipal
bonds in both the primary and secondary markets as a principal and participates
as an underwriter, dealer and selling group member for corporate, municipal
taxable and non-taxable unit trusts offerings.
MARKET MAKING AND PRINCIPAL TRANSACTIONS
Prior to the Divestiture on March 3, 1999, the Company conducted
its market making and principal transaction activities using both JWG
Clearing and Genesis. Activities related to research recommendations,
institutional order flow and Genesis's brokerage processing services
unit were conducted through Genesis, while activities related to the
Company's retail brokerage and fully disclosed clearing business were
conducted through JWG Clearing. All of the Company's market making
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<PAGE>
and principal transaction activities are currently conducted exclusively
through JWG Clearing, which 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. However, as a result
of the Company's sale of the securities clearing and execution business of
JWG Clearing, the Company has transferred the market making and principal
transaction activities (as well as all other non-clearing services business)
of JWG Clearing to [JWG Securities or another Company subsidiary].
Accordingly, the Company will continue its market making and principal
transactions business after the sale.
In its capacity as a market maker, the Company facilitates
trading in select securities by buying and selling securities as a
principal for its own account, rather than as an agent for the
accounts of its customers. The Company attempts to derive profits
through its market making activities by buying stock at its quoted bid
price and then either selling the stock at its quoted market price or
holding the stock in inventory for future sale at a higher price. If
the market for such securities declines, however, or if the Company
otherwise is unable to resell the securities at a favorable price, the
Company could suffer losses and such losses could be substantial.
Additionally, the Company engages in short sales, primarily to fill
customer orders. A short sale represents an obligation of the Company
to deliver specified securities at the contracted price, thereby
creating a liability to purchase the securities at a future time at
prevailing market prices. Accordingly, these transactions result in
off-balance-sheet risk as the Company's ultimate obligation to satisfy
the sale of these securities may exceed the amount recognized by the
Company at the time the short sale was executed.
The Company's general policy historically has been not to hold a
substantial volume of securities for any significant period of time,
so as to reduce the risk of losses from market declines or unfavorable
developments. The Company's market making activities historically
have accounted for a significant portion of its revenues, and from the
Company's inception through June 1998, losses incurred in connection
with these activities were not significant. During July, August and
September, 1998, however, the securities markets in general
experienced a significant correction which resulted in significant
market volatility. Also, the historical policy of Genesis with
respect to amounts and holding periods for securities acquired in
market making had been less conservative than the Company's general
policy, and the Company had not yet changed that policy for Genesis's
ongoing operations following the Combination. As a result of
Genesis's inventory and trading strategies during this period of
market correction and volatility, Genesis experienced trading losses
in excess of historical levels and the Company reevaluated its inventory
and trading strategies at Genesis. Such procedures included (i) reducing
the level of Genesis's securities inventory and (ii) curtailing other
intra-day trading strategies that required the Company's capital to be placed
at significant risk. As discussed elsewhere herein, the Company has
subsequently divested Genesis. See "--Recent Developments - The Genesis
Divestiture", below. The Company anticipates that market making and
principal transaction activities will continue to be a significant factor in
the Company's operations and its prospects for profitability.
BROKERAGE PROCESSING SERVICES: EXPECTED SALE AND DISCONTINUATION
The Company historically has provided 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 who lack the back office or other support capacities
to process and clear securities transactions for their clients. Correspondents
include broker-dealers, banks, and other financial institutions. In a fully
disclosed transaction, the identity of the Correspondent's client is known to
JWG Clearing, and JWG Clearing physically maintains the client's account and
performs a variety of services as agent for the Correspondent. The execution
and clearing process requires the performance of a series of complex steps,
many (and an increasing amount) of which can only be accomplished effectively
with the assistance of sophisticated data processing hardware and software. JWG
Clearing had approximately 90 Correspondents.
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<PAGE>
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. Now that the sale of JWG Clearing has been
consummated, the Company has discontinued completely providing brokerage
processing services. The sale was consummated effective June 1, 1999.
See "--Recent Developments - The JWG Clearing Sale", below.
RECENT DEVELOPMENTS
THE JWG CLEARING SALE
On June 1, 1999, the Company consummated a Stock Purchase
Agreement with Fiserv, Inc. ("Fiserv") and its wholly owned subsidiary
Fiserv Clearing, Inc. ("Fiserv Clearing") for the sale of JWG Clearing
to Fiserv Clearing for approximately $59 million in cash. JWG
Clearing functioned primarily as the Company's securities clearing,
execution, and back office services unit, and only those operations
comprised JWG Clearing at the time the sale was consummated. All
other activities being conducted by JWG Clearing were transferred to
other operating subsidiaries of the Company before the sale.
In connection with the sale, (i) the Company and JWGFS entered into
a Transition Services Agreement pursuant to which they will continue to
provide certain assistance and services to JWG Clearing and Fiserv Clearing,
and will permit JWG Clearing and Fiserv Clearing to use certain facilities
during a transition period for a monthly fee approximating the Company's
costs; (ii) the Company and JWGFS agreed not to compete for ten years in
the securities clearing and execution business and not to solicit personnel
of JWG Clearing or Fiserv and its affiliates; and (iii) the Company and JWGFS
agreed, subject to certain limitations and exclusions (primarily related to
the Company's independent contractor registered representatives, possible
future acquisitions, and a one-year phase-in period), to use and cause
their subsidiaries and affiliates to use the clearing services of
designated Fiserv affiliates for at least 90% of their
securities brokerage transactions, and, in the case of the Company's
independent contractor registered representatives, to impose a surcharge on
certain such transactions that are not cleared through a Fiserv affiliate,
during the 10-year period following the sale. The Company and its affiliates
have the right, however, to be released from the above obligations to
use Fiserv affiliates or to impose a surcharge by repaying to Fiserv a
portion of the sales price based on a prescribed formula that takes into
account the price paid in the sale and the amount of clearing services business
then being generated by the Company or its affiliate seeking the release.
As a result of the sale and the above agreements, the Company
ceased providing clearing services, both to third party correspondents
(such as broker dealers, banks, and other financial institutions) and
for its own securities brokerage transactions. In deciding to proceed
with the sale and to cease providing clearing services, management
concluded that for the Company to remain competitive in the clearing
services business would require (i) large capital expenditures and
resource concentration to maintain the technology and infrastructure
necessary to service the securities clearing requirements of the more
desirable clients, (ii) higher levels of capital to satisfy increasing
regulatory capital requirements resulting from margin transactions in certain
securities that experience rapid increases in trading prices, and (iii) a
significant amount of management time and other Company resources to meet the
challenge of increasing competition in the securities clearing business,
including from firms with substantially greater financial resources. In
addition, the Company's future profit margins on its clearing business would
likely decline as competitive pricing pressures increase.
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While the Company's clearing services operations have been
profitable historically, management believes the sale of JWG Clearing
in these circumstances is in the long-term best interests of the
Company. Not only is the impact on the Company's future profitability
from its remaining overall operations not expected to be material
beyond the near-term, but the net proceeds from the sale, which are
estimated to be approximately $40 million after tax, will provide a
substantial infusion of cash that can be used to fund expanded
levels of operations in the Company's other business units. The
interim reinvestment of such net proceeds, pending longer term capital
applications, will also offset in part earnings that might have
continued to be realized from the Company's clearing service business
before the factors described above began to significantly erode such
earnings. Most importantly, however, the sale will permit the Company
to focus more management time and other resources on its retail
brokerage and investment banking businesses, as well as to use the
newly available capital to pursue possible new opportunities that
management believes have greater potential to enhance value for all
shareholders.
The Genesis Divestiture
As a result of unexpected operational problems at Genesis
following the Combination, which were resulting in significant losses,
the Company implemented an internal reorganization of Genesis'
business activities, and management reassessed its earlier
expectations about the future of Genesis within the Company's overall
organization. Those actions led to internal disagreements and
disputes, including about the respective roles of the Company's Chief
Operating Officer, Phillip C. Stapleton, and Vice Chairman, Will K.
Weinstein, both of whom had been former owners and senior executives
of Genesis and had assumed their positions with the Company as part of
the Combination. The Company determined that the continuation of that
state of affairs was not conducive to the best interest of its
shareholders and sought a resolution that, among other things, would
facilitate the separation of Messrs. Stapleton and Weinstein from the
Company and would retain for the Company the corporate finance
operations of Genesis, which operations management believed held
potential consistent with its earlier expectations.
On March 3, 1999, the Company achieved such a resolution by divesting
Genesis (the "Divestiture") to an investor group of certain of the former
owners of Genesis led by Messrs. Stapleton and Weinstein (the "Stapleton
Group"). As part of the Divestiture, the Stapleton Group conveyed to the
Company an aggregate of 284,375 shares of Common Stock of the Company that
had been issued in the Combination, and Genesis transferred its corporate
finance operations (based in its New York office) to another Company
subsidiary, JWG Capital, so that those operations would be retained by the
Company; the Company also assumed responsibility for and retained occupancy of
that New York City office. As divested, Genesis' operations consisted of
brokerage processing services and related activities that were being conducted
through its San Francisco office.
The overall transaction for the Divestiture was closed pursuant to an
Equity Exchange and Conciliation Agreement among the parties dated as of
March 3, 1999 (the "Conciliation Agreement"), pursuant to which the Company's
employment agreements with Messrs. Weinstein and Stapleton were terminated;
Messrs. Weinstein and Stapleton both resigned from the Board of Directors
of the Company and all other positions they held with the Company or its
affiliates; Harvey Heller, who had been designated by Mr. Weinstein for
election to the Board of Directors of the Company, resigned as a director;
the Company agreed to register for resale all remaining shares of its Common
Stock held by members of the Stapleton Group and to pay potential penalties if
such registration is not effected within prescribed time periods; and the
Company agreed to pay Mr. Weinstein as past salary and severance a lump sum
payment of approximately $325,000, and (a) paid Stapleton $62,500 as severance
and (b) agreed to pay Mr. Stapleton as bonus 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
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<PAGE>
to Messrs. Weinstein and Stapleton constitute satisfaction in full of any and
all obligations of the Company to each of them as a result of his employment
by the Company or its affiliates.
In addition, as part of the Conciliation Agreement, a voting agreement
between Mr. Weinstein and Marshall T. Leeds, the Company's Chairman and Chief
Executive Officer, pursuant to which Mr. Weinstein was entitled to designate
persons for election to the Company's Board of Directors, was terminated; each
Stapleton Group member agreed not to seek a position on the Company's Board of
Directors for ten years, unless Mr. Leeds and Joel E. Marks are no longer
directors of the Company; and the Stapleton Group members agreed either to vote
their remaining shares of Common Stock (unless and until sold to other persons)
for the slate of nominees for directors approved by the Company's Board of
Directors or to abstain from such a vote. Also, the Company and the Stapleton
Group members executed mutual releases with respect to all matters related to
their association since the Combination, except for their respective rights to
enforce the terms of the Conciliation Agreement.
As discussed elsewhere herein, management does not expect the Divestiture
to have a material effect on the Company's operational results or financial
condition. Moreover, the overall terms for the Divestiture removed the
principal sources of internal discord, which potentially could have disrupted
the Company's management of its affairs for the foreseeable future. Management
believes, therefore, that the Company is better situated as a result of the
Divestiture to conduct its business and pursue possible opportunities in the
best interest of all its shareholders.
THE AMERICAS GROWTH FUND, INC.
In December 1998, the Company completed its acquisition of the
remaining 9% of the outstanding shares of common stock of The Americas
Growth Fund, Inc. ("AGRO"), a publicly held investment company, that
were not owned by the Company. Previously, in September 1997, when
the Company owned 26% of the outstanding shares of common stock of
AGRO, the Company conducted an exchange tender offer to acquire all of
the other outstanding shares, and it received shares in that offer
that brought the Company's ownership of AGRO shares to 91%. All AGRO
shares acquired by the Company in either transaction were acquired
based on an exchange ratio of .431 share of the Company's Common Stock
for each share of AGRO, resulting in the issuance by the Company of an
aggregate of 49,828 and 354,851 shares of common stock in the December
1998 and September 1997 transactions, respectively. The AGRO
acquisition was accounted for under the purchase method of accounting.
THE GSG ACQUISITION
On January 1, 1999, GSG acquired certain assets of six retail
securities branch offices (and three satellite offices) from Chatfield
Dean Holdings, Inc. ("CDH"). As a result of this transaction, the
Company added approximately 206 registered representatives and approximately
50 salaried management and support personnel. Prior to January 1, 1999,
GSG, formerly known as Discount Securities Group, Inc., was inactive.
In connection with this asset purchase, GSG paid CDH approximately $2.3
million in cash ($1.0 million of which was used to repay an earlier loan from
the Company to CDH); JWGFS issued to CDH shares of its Series C Redeemable
Preferred Stock that are redeemable, in the aggregate, for up to $2.5 million
based upon the financial performance of the acquired branch offices over the
three years in the period ending December 31, 2001; and the Company issued to
CDH a warrant for the purchase of up to 104,167 shares of its Common Stock at
an exercise price of $24 per share which may only be exercised using
redemptions of the Series C Preferred Stock, if any, and a three-year, fully
vested options to purchase 50,000 shares of its Common Stock at an exercise
price of $24 per share. The Company also agreed to issue to designated
members of CDH's former senior management options to purchase an aggregate of
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<PAGE>
250,000 shares of its Common Stock at an exercise price of $12 per share,
exercisable through December 31, 2003 (the "Senior Management Options"). The
Senior Management Options vest over a three-year period based upon a formula
tied to the performance of the acquired branch offices. An additional 100,000
options, with a three-year term and a $24 per share exercise price, were made
available by the Company to selected branch managers and registered
representatives employed in the acquired branch offices.
COMPETITION
The Company competes with numerous investment banking and brokerage
firms, consulting firms, and financial service companies that are larger,
better financed, have longer operating histories, and, in some instances,
offer a range of financial and other services to clients that exceed the
services offered by the Company. In addition, there is increasing
competition from other businesses that now offer financial services, such as
commercial banking and insurance companies and certain accounting firms.
The principal competitive factors in the securities industry are the quality
and ability of professional personnel, the experience and reputation of the
firm, the relative prices of services and products offered, the scope of such
services and products (increasingly the ability to offer "one-stop-shopping"
to customers and clients), and the efficiency of back office operations. The
Company has tried to position itself competitively by targeting its investment
banking services to middle-market companies, providing competitively priced
products and services, and developing one-stop-shopping services.
Additionally, the Company has targeted markets that it believes are not
adequately served by, and are not a primary focus of, most of these other
larger firms. The Company believes that its clearing services and back
office support agreements with FISERV and Bear Stearns provides it
additional ability to compete with larger firms.
EMPLOYEES AND REGISTERED REPRESENTATIVES
As of March 31, 1999, the Company and its subsidiaries had a
total of approximately 375 salaried employees and 742 registered
representatives. Of these totals, 287 registered representatives are
independent contractors affiliated with one of the 106 affiliated, but
independently owned and operated, CSG and DMG branch offices which
existed at such time.
REGULATION
The securities industry in the United States is subject to
extensive regulation under various federal and state laws and
regulations. The SEC is the federal agency charged with the
administration of most of the federal securities laws. Much of the
regulation of the securities industry, however, has been assigned to
various self regulatory organizations ("SROs"), principally the NASD,
and in the case of NYSE member firms, the NYSE. The SROs, among other
things, promulgate regulations and provide oversight in areas of (i)
sales practices, (ii) trade practices among broker-dealers, (iii)
capital requirements, (iv) record keeping and (v) conduct of employees
and affiliates of member organizations. In addition to promulgating
regulations and providing oversight, the Commission and the SROs have
the authority to conduct administrative proceedings which can result
in the censure, fine, suspension or expulsion of a broker-dealer, its
officers or employees. Furthermore, new legislation, changes in the
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.
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LEGAL PROCEEDINGS
There are no material legal proceedings pending or threatened in
which the Company is party or of which its property is the subject.
The Company or its subsidiaries have been named in various arbitration
and legal proceedings arising in the ordinary course of its securities
brokerage business. Although arbitration and litigation involves
contingencies that cannot be definitively predicted, including the
unpredictability of actions that might be taken by an arbitration
panel or jury on matters that are submitted to them, the Company
expects that the ultimate disposition of arbitration and litigation
arising from the ordinary course of business will not have a material
adverse impact upon its financial position and results of operations.
The Company or its subsidiaries may be involved from time to time in
other litigation arising in the normal course of business.
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MANAGEMENT
Directors and Executive Officers
Certain information regarding the directors and executive
officers of the Company is set forth in the following table and
paragraphs.
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
---- --- ----------------------------
<S> <C> <C>
Marshall T. Leeds . . . . . . . . . . . . . . . . 43 President, Chief Executive Officer,
and Chairman of the Board
Joel E. Marks . . . . . . . . . . . . . . . . . . 43 Vice Chairman, Chief Operating
Officer, Secretary, and Director
Gregg S. Glaser . . . . . . . . . . . . . . . . . 39 Executive Vice President, Chief
Financial Officer, Treasurer, and
Director
Jeffrey H. Lehman . . . . . . . . . . . . . . . . 39 Executive Vice President and
Director
Wm. Dennis Ferguson . . . . . . . . . . . . . . . 55 Director
Sanford B. Cohen . . . . . . . . . . . . . . . . 41 Director
</TABLE>
Marshall T. Leeds, a co-founder of JWGFS, the predecessor of the
Company, in 1983, also serves as President and Chief Executive Officer
of certain of the Company's wholly-owned subsidiaries. Mr. Leeds is a
past Chairman of Regional Investment Bankers Association, Inc.
("RIBA"), the country's largest association of independent broker-
dealers involved in the underwriting of debt and equity securities,
and he currently serves on the Independent Contractor Firm Committee
of the Securities Industries Association.
Joel E. Marks, the other co-founder of JWGFS, also serves as
Executive Vice President of certain of the Company's wholly-owned
subsidiaries. Mr. Marks is a Certified Public Accountant, and prior
to 1983, he was employed in various capacities in both the audit and
tax departments of the international accounting and consulting firm of
Deloitte & Touche LLP. From 1987 to 1994, he served as Senior Vice
President and Chief Financial Officer of Automobile Protection
Corporation-APCO, an unaffiliated public corporation. From 1996 to
1998, Mr. Marks served as the Chairman of RIBA.
Gregg S. Glaser, who joined JWGFS in 1990, also serves as
Executive Vice President and Treasurer of certain of the Company's
wholly-owned subsidiaries. Mr. Glaser graduated with a Bachelor of
Science degree in accounting from the University of Florida. From
1981 to 1986, when he joined a predecessor company that was
subsequently acquired by JWGFS in 1990, Mr. Glaser was a senior
auditor with the Fort Lauderdale office of the international
accounting and consulting firm of Price Waterhouse LLP.
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<PAGE>
Wm. Dennis Ferguson, has been a director of the Company or its
predecessor since 1990. Mr. Ferguson, who continued with JWG Clearing
as its President following the sale on June 1, 1999 and resigned as
an executive officer of the Company on that date, had held senior
management positions with Company or its predecessor since 1990. Mr.
Ferguson received a Bachelor of Science degree from Florida Southern
College and attended Florida Atlantic University Graduate School.
Jeffrey H. Lehman, who joined the Company as part of the
Combination on June 12, 1998, is also Executive Vice President and
Director of Corporate Finance of JWG Capital. From 1984 to 1996 he
was employed by Ladenburg, Thalmann & Co. Inc., most recently as
Managing Director of Corporate Finance and Director of Mergers and
Acquisitions. Mr. Lehman also served as a member of the Board of
Directors and Management Committee of Ladenburg, Thalmann. He
received his Masters in Business Administration with distinction from
the Wharton School of the University of Pennsylvania in 1983.
Sanford B. Cohen has been a director of the Company since
February, 1999. In 1985, Mr. Cohen founded Prescott Valley
Broadcasting Co., Inc., owner of KIHX-FM and KQNA-AM radio stations in
Prescott Valley, Arizona, and has been its President since its
inception. From 1982 to 1984, Mr. Cohen was Vice President of
National Phonecasting Co., a joint venture with Gannett Broadcasting
Corp., a private company engaged in telephone broadcasting of
financial information. Mr. Cohen received his B.A. degree in
Economics in 1979 from Michigan State University.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term
compensation for services rendered in all capacities to the Company
and its subsidiaries for the Company's Chief Executive Officer and
each of the four other most highly compensated executive officers
whose aggregate cash compensation exceeded $100,000 ("Named Executive
Officers") during any of the Company's last three fiscal years.
Information is also included about an additional person, Will K.
Weinstein, who for some purposes might be considered to have been an
executive officer during fiscal year 1998 and, if so, would be a Named
Executive Officer.
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards <F1>
----------------------------------------- --------------------------------------
Name and Restricted Options/ All Other
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 15,075 $13,200<F3>
President and Chief 1997 $279,446 $1,110,895 $430,868<F4> - 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> $19,447 6,482 $ 3,200<F6>
Chief Financial Officer 1997 $180,775 $388,813 - - 26,250 $ 3,200<F6>
and Executive Vice 1996 $175,000 $431,616 - - 26,250 $ 3,000<F6>
President
Wm. Dennis Ferguson 1998 $120,000 $147,322 - - - $ 3,200<F6>
Executive Vice 1997 $120,000 $194,977 - - - $ 3,200<F6>
President 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 <F7> 1998 $135,417 $100,268 - - - $ -
Chief Operating Office
and Executive Vice
President
Will K. Weinstein <F8> 1998 $247,808 $ - $888,992 - - $ -
Vice Chairman
<FN>
<F1> There were no payouts of long-term compensation during the fiscal year.
<F2> Does not reflect $533,750 of Special Payments to Mr. Leeds
pursuant to his Nonsolicitation Agreement that was entered into in
connection with the Combination. See "--Nonsolicitation
Agreements", below.
<F3> Includes $10,000 for tax return preparation and financial
services and a Company matching contribution of $3,200 with respect
to the Company's 401(k) plan.
<F4> Represents gross-up for the payment of taxes upon exercise of
stock options.
<F5> Does not reflect $215,000 of Special Payments to Mr. Marks
pursuant to his Nonsolicitation Agreement that was entered into in
connection with the Combination. See "-- Nonsolicitation
Agreements", below.
<F6> Represents Company matching contribution with respect to the
Company's 401(k) plan.
<F7> Reflects amounts paid or accrued by the Company following the
Combination on June 12, 1998. Mr. Stapleton resigned his positions
with the Company on March 3, 1999.
<F8> Reflects amounts paid or accrued by the Company following the
Combination on June 12, 1998. Mr. Weinstein resigned his positions
with the Company on March 3, 1999.
</FN>
</TABLE>
The following tables show, as to the Company's Chief Executive
Officer and Named Executive Officers, certain information with respect
to options granted to them; if any were granted. No stock
appreciation rights ("SARs") have been granted.
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Option/SAR Grants In Last Fiscal Year
(Individual Grants)
The following table sets forth further information on grants of
stock options during 1998 to each of the Named Executive Officers, if
any were granted.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term<F1>
-------------------------------------------------------- ------------------------
Number of % of Total
Securities Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($/Share) Date 5% 10%
---------------------- ----------- ------------- ------------ ----------- --------- ----------
<S> <C>
Marshall T. Leeds<F2> 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 6/16/2008 $396,204 $1,004,058
<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 annual rates 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 $17.10 and $27.23, respectively. Over the past
five years, the market price for the Company's Common Stock has
increased at a compound annual rate of approximately 17.5%.
</TABLE>
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Aggregated Option Exercises In Last Fiscal Year
And Fiscal Year-End Option Values
The following table sets forth further information with respect to option
exercises during 1998, and unexercised stock options held, by each of the
Named Executive Officers at December 31, 1998, if he exercised or held any.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options at Options at
December 31, December 31,
1998 (#) 1998 ($) (1)
------------------- ------------------
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>
<F1> On December 31, 1998, the closing price of the Company's Common
Stock on The American Stock Exchange was $5.9375.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with each of
Messrs. Leeds, Marks, and Glaser pursuant to which Mr. Leeds is
employed as Chairman of the Board, President, and Chief Executive
Officer of the Company, Mr. Marks is employed as Executive Vice
President and Chief Financial Officer of the Company, and Mr. Glaser
is employed as Executive Vice President of the Company. The term of
the agreement for each of Messrs. Leeds, Marks and Glaser extends to
December 31, 2001, and each agreement is automatically extended for
successive one-year terms thereafter unless either party gives six-
months' prior written notice to the other party of its election not to
extend the term. Messrs. Leeds', Marks', and Glaser's base annual
salaries as of December 31, 1998 were $500,000, $250,000, and $250,000,
respectively, with an annual cost of living increase, if applicable.
In addition, the agreements for Messrs. Leeds and Marks require
the Company to establish an executive bonus pool (the "Executive Bonus
Pool"), which has been established in the form of the Company's shareholder
approved Management Incentive Bonus Plan, pursuant to which an aggregate of
15% of the Company's annual pre-tax profits is to be designated for
potential payments to Messrs. Leeds and Marks and to a former officer who
has now left the Company. Messrs. Leeds and Marks will be eligible to receive
50% and 21.5%, respectively, of the Executive Bonus Pool as determined by the
Board of Directors or its committee responsible for the Executive Bonus
Pool, subject to downward adjustment to 35% and 5%, respectively, at the
discretion of the Board or such committee.
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<PAGE>
(The remaining amount of the Executive Bonus Pool was to be available for
payment to the now departed executive, but now will be undesignated.)
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 Common Stock at an exercise price of $10.50 per share. Options
for 20,000 shares vested on the date of grant, and options for an
additional 20,000 shares will vest on each of June 16, 1999 and 2000.
If the Company (i) terminates the employment of Messrs. Leeds,
Marks, or Glaser other than for cause or as a result of the death or
disability of any such person; (ii) reduces his authority, duties, or
standing within the Company without his consent; or (iii) experiences
a change of control (as defined) without his consent and he
subsequently terminates his employment, then the Company will pay to
such person an amount equal to his aggregate base annual salary for
the remainder of the term of his employment agreement (or a minimum of
12 months) and bonus payments to which he would have been entitled for
the remainder of the term had his employment not terminated, and all
outstanding stock options held by such person will become fully vested.
The Company had employment agreements with Messrs. Stapleton and
Weinstein, both of which were terminated in connection with their
separation from the Company on March 3, 1999 as part of the
Divestiture pursuant to the Conciliation Agreement. See "Business -
Recent Developments - The Genesis Divestiture".
NONSOLICITATION AGREEMENTS
Messrs. Leeds and Marks have entered into nonsolicitation
agreements with the Company for a period of seven years from June 12,
1998 (the "Nonsolicitation Agreements"). In connection with those
agreements and in consideration for Messrs. Leeds' and Marks'
agreements to terminate the financial terms of their employment
agreements with JWGFS in connection with the Combination, the Company
agreed to make certain payments to each of them (the "Special Payments").
Messrs. Leeds and Marks agreed to accept their respective Special Payments
in the form of one-half cash and one-half restricted shares of Common Stock.
The cash portion of the Special Payments consists of four equal
installments, the first paid in July 1998 and the remaining
installments to be paid on January 15, 1999, 2000 and 2001, in the
amounts of $533,750 and $215,000 each for Messrs. Leeds and Marks,
respectively. If the employment of either Messrs. Leeds or Marks is
terminated for any reason other than cause, any unpaid cash
installment to him must be paid within 30 days of termination. The
restricted shares portion of the Special Payments will be paid by the
issuance to Messrs. Leeds and Marks of 255,689 shares and 109,994
shares, respectively, of Common Stock, subject to forfeiture as
described below. (Such numbers of shares were derived from a formula
to yield a value (based on 80% of the average closing price of the
JWGFS Common Stock for the 10 consecutive trading days immediately
preceding consummation of the Combination, or $8.35 per share) equal
to $2,135,000 in the case of Mr. Leeds and $860,000 in the case of Mr.
Marks.) Twenty-five percent of the shares issued to Messrs. Leeds and
Marks will vest on January 15, 2002 and an additional 25% on each
January 15 in 2003 through 2005. All unvested shares of Messrs. Leeds
or Marks will be subject to forfeiture at any time there is a
violation of his respective Nonsolicitation Agreement. In the
event of a change in control of the Company, all such shares become
immediately vested, and the forfeiture provisions with respect to such
shares will no longer be in force.
50
<PAGE>
<PAGE>
DIRECTORS COMPENSATION
Directors who are not employees of the Company receive an annual
retainer of $5,000, and receive $750 and $500, respectively, for their
attendance at Board of Directors or Board committee meetings.
Directors who are employees of the Company are not compensated for
their service on the Board or Board committees. Each director is also
reimbursed for travel expenses incurred in connection with attending
meetings.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee's principal functions
include reviews of audit plans, scope of examinations and findings of
the Company's independent public accountants; significant legal
matters; internal controls; and the adequacy of insurance coverage.
Further, it is the responsibility of this committee to recommend to
the Board the annual appointment of the independent public
accountants; to review the findings of external regulatory agencies;
and to oversee the accounting policies used in preparing the Company's
financial statements. The Audit Committee also supervises independent
audits of the Company and its subsidiaries and oversees the
establishment of appropriate policies and internal accounting
controls. Messrs. Cohen, Ferguson, and Glaser are the members of the
Audit Committee.
COMPENSATION COMMITTEE. The Compensation Committee oversees the
Company's compensation policies and programs. Messrs. Cohen,
Ferguson, and Glaser are the members of the Compensation Committee.
ARRANGEMENTS FOR BOARD
In connection with the series of transactions between JWGFS and
Wilmington Trust Company ("Wilmington"), as more fully described under
"Certain Transactions" herein, JWGFS granted Wilmington the right to
appoint one person to serve on its Board of Directors. The Company
has agreed to honor that agreement. Wilmington has not yet exercised
such right.
51
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth the holdings of Common Stock,
which is the Company's only class of voting securities, by the only
stockholders who, as of April 26, 1999, were known by the Company to
own beneficially more than five percent of the Company's outstanding
Common Stock, by each director and Named Executive Officer, and by all
directors and executive officers of the Company as a group, as of the
same date. Unless otherwise indicated, the person or entity has sole
power to vote and dispose of the shares. The address for each of
Messrs. Leeds, Marks, Ferguson, Glaser, and Cohen is c/o the Company
at 980 North Federal Highway, Suite 310, Boca Raton, Florida 33432;
the address for Mr. Lehman is 599 Lexington Avenue, New York, New York
10022; the address for The Will K. Weinstein Revocable Trust is c/o
Jackson Square Partners, 909 Montgomery Street, Suite 600, San
Francisco, California 94133; and the address for WT Investments, Inc.
is 1100 N. Market Street, Wilmington, Delaware 19890.
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class <F1>
------------------------ ------------------ ---------------------
<S> <C> <C>
Marshall T. Leeds <F2> 703,956 11.8
WT Investments, Inc. <F3> 400,000 6.5
The Will K. Weinstein Revocable
Trust 213,600 3.7
Joel E. Marks <F4> 324,505 5.5
Jeffrey H. Lehman 163,259 2.8
Gregg S. Glaser <F5> 97,387 1.7
Wm. Dennis Ferguson <F6> 75,612 1.3
Sanford B. Cohen - -
All directors and executive
officers as a group (6 persons) <F7> 1,364,719 22.6
<FN>
<F1> Based on 5,795,855 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 "Management -
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 "Management
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.
52
<PAGE>
<PAGE>
<F7> Includes an aggregate of 241,250 shares issuable to members of
the group pursuant to currently exercisable stock options; see
Notes (2), (4), (5) and (6) above.
</FN>
</TABLE>
CERTAIN TRANSACTIONS
In January 1996, JWGFS obtained an unsecured $2,500,000 revolving
line of credit from Wilmington Trust Company ("Wilmington") for
general corporate purposes (the "Wilmington Facility"). The
Wilmington Facility matures on December 31, 2002, at which time all
outstanding borrowings plus all accrued and unpaid interest will
become due and immediately payable. Borrowings under the Wilmington
Facility bear interest at Wilmington's National Commercial Rate, with
interest payments due monthly in arrears. The Company is required to
maintain certain debt covenants, including (i) minimum stockholders'
equity equal to at least $7,000,000, plus 30% of net income for all
future fiscal quarters, plus 75% of the net proceeds from any common
stock issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive nine-quarter
period. In connection with the Share Exchange, the Company assumed the
obligations of JWGFS under the Wilmington Facility, including obligations
of JWGFS with respect to board membership, the Wilmington Warrant and the
Wilmington Marketing Agreement, all described in the next paragraph.
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".
DESCRIPTION OF CAPITAL STOCK
The Company's Articles of Incorporation provide that its
authorized capital stock consists of 30,000,000 shares of Common
Stock, and 5,000,000 shares of preferred stock, par value $.10 per
share. As of July 15, 1999, there were 5,795,855 shares of Common
Stock and no shares of preferred stock issued and outstanding. The
following summary does not purport to be complete and is qualified in
its entirety by reference to the Articles of Incorporation and Bylaws
of the Company that are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and the applicable
provisions of the Florida Business Corporation Act (the "FBCA").
53
<PAGE>
<PAGE>
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per
share for the election of directors and all other matters to be voted
on by the shareholders. Holders of Common Stock do not have
cumulative voting rights; therefore the holders of a majority of the
shares voting for the election of directors may elect all nominees
standing for election as directors. Subject to the rights of holders
of preferred stock, holders of Common Stock are entitled to receive
such dividends, if any, as may be declared from time to time by the
Board of Directors in its discretion from funds legally available for
that use. Subject to the rights of holders of preferred stock,
holders of Common Stock are entitled to share on a pro rata basis in
any distribution to shareholders upon liquidation, dissolution, or
winding up of the Company. No holder of Common Stock will have any
preemptive right to subscribe for any stock or other security of the
Company.
PREFERRED STOCK
The Board of Directors, without further action by shareholders,
may from time to time authorize the issuance of shares of preferred
stock in one or more series and with certain limitations, rights,
preferences, qualifications, or restrictions thereon and the number of
shares constituting such series and the designation of such series.
Satisfaction of any dividend preferences on outstanding preferred
stock would reduce the amount of funds available for the payment of
dividends on the Common Stock. Holders of preferred stock would
normally be entitled to receive a preference payment in the event of
any liquidation, dissolution, or winding up of the Company before any
payment is made to the holders of Common Stock. In addition, under
certain circumstances, the issuance of such preferred stock may render
more difficult or tend to discourage a change in control of the Company.
Although the Company currently has no plans to issue shares of preferred
stock, the Board of Directors of the Company, without shareholder approval,
may issue preferred stock with voting and conversion rights which could
adversely affect the rights of holders of Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for Common Stock is American
Stock Transfer & Trust Company, New York, New York.
INDEMNIFICATION AND LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The Company's Articles of Incorporation and Bylaws provide for
indemnification of officers and directors to the fullest extent permitted by
Florida law and, to the extent permitted by such law, eliminate, or limit
the personal liability of directors to the Company and its shareholders for
monetary damages for certain breaches of fiduciary duties. The liability of
a director is not eliminated or limited (i) for any breach of the director's
duty of loyalty to the Company or its shareholders; (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) for any improper distribution under the FBCA; or (iv) for any
transaction from which the director derived an improper personal benefit.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to directors, officers, or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that, in the opinion
of the Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
CERTAIN ANTI-TAKEOVER MATTERS
No provision of the Company's Articles of Incorporation or
Bylaws has been adopted in order to accomplish any anti-takeover
objective of the Board of Directors or management. However, certain
provisions of the Company's Bylaws and Articles of Incorporation could
have the effect of making a hostile, unsolicited offer to take control
of the Company's more difficult. See " Special Meetings of the
54
<PAGE>
<PAGE>
Shareholders" and " Shareholder Action Without Meeting", below.
Management does not believe that any other provisions of the Company's
Bylaws or Articles of Incorporation have such anti-takeover effects,
and management does not have any current plans to adopt or propose for
adoption any anti-takeover measure in a future proxy solicitation.
SPECIAL MEETINGS OF SHAREHOLDERS
The Company's Bylaws require a special meeting to be called by
the corporation only upon the written request of the holders of shares
representing 40% or more of the votes entitled to be cast on each
issue proposed to be considered at the special meeting. By requiring
a shareholder or a group of shareholders to gain the support of a
large percentage of the holders of shares before the shareholder or
group of shareholders can require the Company to call a special
meeting, the Bylaw provision could have the effect of making a hostile
or unsolicited offer to take control of the Company more difficult.
This is because, without the support of the Board of Directors, an
acquiror would not be able to call a meeting to address all of the
shareholders until the requisite support was obtained. On the other
hand, requiring a greater percentage of support also helps to ensure
that special meetings are not called to address matters that may not
be important to a significant number of the shareholders.
SHAREHOLDER ACTION WITHOUT MEETING
In its Articles of Incorporation, the Company has elected to opt-
out of the FBCA provision that permits any action required or
permitted to be taken at an annual or special meeting of shareholders
to be taken without a meeting if the action is taken by written
consent of not less than the minimum number of votes with respect to
each voting group necessary to authorize or take action at a meeting
at which all voting groups and shares entitled to vote are present and
voted. Shareholders may take action without a vote only if the action
is taken by unanimous written consent of the holders of the
outstanding stock of each voting group entitled to vote thereon.
Because the Company's has public shareholders, this provision
will make it impossible, as a practical matter, for actions to be
taken by written consent without a meeting of the shareholders. This
provision could have the effect of making a hostile or unsolicited
offer to take control of the Company more difficult and may discourage
the accumulation of substantial blocks of the Company's stock because,
at a meeting, opposing groups would have a chance to speak out and
voice their concerns. The provision does not limit the actions that
the shareholders can take, however; it merely limits the way in which
the actions may be taken. This provision was adopted because
management and the Board of Directors believe that the opportunity for
a meeting and a full discussion of matters upon which shareholders may
vote is preferable to allowing the holders of 51% of the shares the
ability to act unilaterally by written consent.
MATTERS CONSIDERED AT ANNUAL MEETINGS
The Bylaws specify that the only business that may be conducted
at an annual meeting of shareholders shall be business brought before
the meeting (i) by or at the direction of the Board of Directors prior
to the meeting; (ii) by or at the direction of the Chairman of the
Board, the Chief Executive Officer, or the President; or (iii) by a
shareholder of the corporation who is entitled to vote with respect to
the business and who complies with certain prior notice procedures.
The prior notice procedures provide that a shareholder must have given
timely notice of the proposed business in writing to the secretary of
the corporation. To be timely, a shareholder's notice must be
delivered or mailed to and received at the principal offices of the
corporation on or before the later to occur of (i) 14 days prior to
55
<PAGE>
<PAGE>
the annual meeting or (ii) five days after notice of the meeting is
provided to the shareholders. A shareholder's notice to the secretary
must set forth a brief description of each matter of business the
shareholder proposes to bring before the meeting and the reasons for
conducting that business at the meeting; the name, as it appears on
the corporation's books, and address of the shareholder proposing the
business; the series or class and number of shares of the
corporation's capital stock that are beneficially owned by the
shareholder; and any material interest of the shareholder in the
proposed business. The chairman of the meeting has discretion to
declare to the meeting that any business proposed by a shareholder to
be considered at the meeting is out of order and that such business
shall not be transacted at the meeting if the chairman concludes that
the matter has been proposed in a manner inconsistent with the
requirements, or the chairman concludes that the subject matter of the
proposed business is inappropriate for consideration by the
shareholders at the meeting.
LEGAL MATTERS
The validity of the securities offered hereby has been passed
upon for the Company by Kilpatrick Stockton LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of JWGenesis Financial
Corp. for the three years ended December 31, 1998, included in this
Prospectus have been audited by PricewaterhouseCoopers LLP,
independent accountants, as indicated in their report with respect
thereto, and have been included in this Prospectus and the
registration statement of which it forms a part in reliance on such
report given on the authority of said firm as experts in auditing and
accounting.
56
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<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-8
Consolidated Condensed Statements of Financial Condition at March 31, 1999
(unaudited) ........................................................................................ F-26
Consolidated Condensed Statements of Income for the Three Month Periods Ended
March 31, 1999 and 1998 (unaudited) ................................................................ F-27
Consolidated Condensed Statements of Cash Flows for the Three Month Periods Ended
March 31, 1999 and 1998 (unaudited) ................................................................ F-28
Notes to Consolidated Condensed Financial Statements (unaudited) ........................................ F-29
</TABLE>
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.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
March 26, 1999
F-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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
========== ======= =========== ============ ====== ======== ===========
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
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
============= ============ ============
(continued)
F-6
<PAGE>
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW - Continued
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.
F-7
<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
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
F-8
<PAGE>
<PAGE>
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 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
F-9
<PAGE>
<PAGE>
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, 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.
F-10
<PAGE>
<PAGE>
Pro Forma Pro Forma
1998 1997
----------- -----------
(Unaudited) (Unaudited)
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
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.
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
F-11
<PAGE>
<PAGE>
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>
<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>
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>
<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.
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.
F-13
<PAGE>
<PAGE>
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.
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.
F-14
<PAGE>
<PAGE>
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
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-15
<PAGE>
<PAGE>
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:
<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>
F-16
<PAGE>
<PAGE>
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>
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:
F-17
<PAGE>
<PAGE>
<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.
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.
F-18
<PAGE>
<PAGE>
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.
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.
F-19
<PAGE>
<PAGE>
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.
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-20
<PAGE>
<PAGE>
<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 $ 1.57 $ 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>
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
F-21
<PAGE>
<PAGE>
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.
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-22
<PAGE>
<PAGE>
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>
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
F-23
<PAGE>
<PAGE>
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, 2001, 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.
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.
F-24
<PAGE>
<PAGE>
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
Divestiture 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.
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-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
1999 1998
----------------------------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash and cash equivalents $ 25,195,000 $ 16,978,000
Receivable from customers, net 167,582,000 117,579,000
Receivable from brokers and dealers 18,018,000 6,915,000
Securities owned, at estimated fair value 13,297,000 13,746,000
Cost in excess of the fair value of net assets acquired 13,768,000 14,838,000
Furniture, equipment and leasehold improvements, net of accumulated
depreciation and amortization of $3,237,000 and $3,035,000 3,036,000 3,386,000
Deferred tax asset 619,000 -
Other, net 11,158,000 6,952,000
--------------------------------
$ 252,673,000 $ 180,394,000
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Short-term borrowings from banks $ 65,882,000 $ 16,988,000
Accounts payable, accrued expenses and other liabilities 20,030,000 17,319,000
Payable to customers 29,054,000 49,218,000
Payable to brokers and dealers 77,866,000 42,283,000
Securities sold, not yet purchased, at estimated fair value 1,523,000 305,000
Lines of credit 5,000,000 3,000,000
Deferred tax liabilities - 356,000
Income taxes payable 1,111,000 656,000
-------------------------------
Commitments and contingencies 200,466,000 130,125,000
-------------------------------
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 shares; issued
and outstanding 5,755,379 and 5,501,054 6,000 6,000
Additional paid-in capital 24,346,000 22,987,000
Retained earnings 31,061,000 27,283,000
Treasury stock, at cost, 285,275 and 900 shares (3,206,000) (7,000)
-------------------------------
Total stockholders' equity 52,207,000 50,269,000
-------------------------------
$ 252,673,000 $ 180,394,000
===============================
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
</TABLE>
F-26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Revenues:
Commissions $ 28,043,000 $ 13,129,000
Market making and principal transactions, net 6,749,000 4,868,000
Interest 3,621,000 3,162,000
Clearing fees 3,205,000 2,138,000
Other 1,751,000 976,000
------------------------------
43,369,000 24,273,000
------------------------------
Expenses:
Commissions and clearing costs 20,332,000 12,675,000
Employee compensation and benefits 6,744,000 4,448,000
Selling, general and administrative 8,592,000 3,853,000
Interest 1,479,000 1,255,000
-----------------------------
37,147,000 22,231,000
-----------------------------
Income before income taxes 6,222,000 2,042,000
Provision for income taxes 2,444,000 772,000
-----------------------------
Net income $ 3,778,000 $ 1,270,000
=============================
Earnings per common share:
Basic $ 0.64 $ 0.34
=============================
Diluted $ 0.60 $ 0.30
=============================
Weighted average common shares outstanding:
Basic 5,858,000 3,716,000
=============================
Diluted 6,315,000 4,301,000
=============================
(The accompanying Notes to Consolidated Condensed Financial Statements
are an integral part of these financial statements.)
</TABLE>
F-27
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
1999 1998
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,778,000 $ 1,270,000
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 202,000 108,000
Amortization of costs in excess of fair value of
net assets acquired and other 190,000 -
Change in assets and liabilities, net of effect of acquisition:
Receivable from customers (50,003,000) (11,315,000)
Receivable from brokers and dealers (13,551,000) (5,043,000)
Securities owned 449,000 (1,363,000)
Deferred tax asset (619,000) (6,000)
Other assets (5,265,000) 113,000)
Accounts payable, accrued expenses and other liabilities 5,391,000 (1,228,000)
Payable to customers (20,164,000) (12,482,000)
Payable to brokers and dealers 36,312,000 26,534,000
Securities sold, not yet purchased 1,218,000 21,000
Income taxes payable 455,000 877,000
Deferred tax liabilities (356,000) -
---------------------------------
Net cash used in operating activities (41,963,000) (2,514,000)
---------------------------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (818,000) (288,000)
---------------------------------
Financing activities
Change in short-term borrowings from banks 49,073,000 4,482,000
Change in notes payable to affiliate - (250,000)
Change in lines of credit 2,000,000 1,000,000
Acquisition of treasury stock (1,434,000) -
Issuance of common stock 1,359,000 178,000
---------------------------------
Net cash provided by financing activities 50,998,000 5,410,000
---------------------------------
Net increase in cash and cash equivalents 8,217,000 2,608,000
Cash and cash equivalents at beginning of period 16,978,000 11,512,000
---------------------------------
Cash and cash equivalents at end of period $ 25,195,000 $ 14,120,000
=================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for income taxes $ 954,000 $ -
=================================
Cash paid during the period for interest $ 4,363,000 $ 1,255,000
=================================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
On March 3, 1999, the Company acquired 284,375 shares of treasury
stock in connection with its divestiture of JWGenesis Capital
Markets, LLC. In exchange for these treasury shares, the Company
transferred $1,434,000 of cash and net assets of $1,765,000.
(The accompanying Notes to Consolidated Condensed Financial
Statements are an integral part of these financial statements.)
F-28
<PAGE>
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
As discussed elsewhere herein and in the Company's 1998 Annual Report
on Form 10-K, on June 12, 1998, JWGenesis Financial Corp. ("JWGenesis"
or the "Company") and its predecessor JW Charles Financial Services,
Inc. ("JWCFS") consummated a series of transactions (the
"Combination") in which the Company acquired Genesis Merchant Group
Securities LLC ("Genesis") and JWCFS, the latter pursuant to a
statutory share exchange of one share of JWGenesis common stock for
each outstanding share of JWCFS common stock. As a result of the
Combination, JWGenesis succeeded to the business and operations of
JWCFS and Genesis, with both becoming wholly-owned subsidiaries of the
Company. Additionally , in connection with the Combination, JW Charles
Securities, Inc., JW Charles Clearing Corp. and Genesis Merchant Group
Securities, LLC changed their names to JWGenesis Securities, Inc.,
JWGenesis Clearing Corp. and JWGenesis Capital Markets, LLC,
respectively. The information in the Financial Section of this Report
relating to periods prior to June 12, 1998 is derived solely from
information and financial statements of JW Charles Financial Services,
Inc. and, except as otherwise expressly indicated, relates to matters
prior to the Combination.
The interim financial information included herein is unaudited;
however, such information reflects all adjustments, which are, in the
opinion of management, necessary for a fair presentation of the
periods indicated.
The accompanying consolidated condensed financial statements include
the accounts of the Company and its subsidiaries. Certain information
and footnote disclosures normally included in financial statements
prepared in conformity with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These consolidated
condensed financial statements should be read in conjunction with the
consolidated condensed financial statements and related notes
contained in the Company's 1998 Annual Report on Form 10-K.
Because of seasonal and other factors, the results of operations for
the three month period ended March 31, 1999 are not necessarily
indicative of the results of operations to be expected for the fiscal
year ending December 31, 1999.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries which are: JWGenesis
Financial Services, Inc. formerly JW Charles Financial Services, Inc.
("JWGFS") Corporate Securities Group, Inc. ("CSG"), JWGenesis
Securities, Inc. ("JWG Securities"), JWGenesis Clearing Corp. ("JWG
Clearing"), JWGenesis Capital Markets, Inc. formerly JWGenesis Capital
Corp. ("JWG Markets"), JWGenesis Insurance Services, Inc. formerly
First Investors Life Agency, Inc. ("JWG Insurance"), DMG Securities,
Inc. ("DMG") and GSG Securities, Inc. formerly Discount Securities
Group, Inc. ("GSG"). In addition, the accompanying consolidated
financial statements include the accounts of JWGenesis Capital
Markets, LLC ("JWG Capital") (effective June 12, 1998) (See Note 5,
"Acquisitions and Divestitures"). All significant intercompany
transactions have been eliminated in consolidation.
RECLASSIFICATIONS
Certain amounts in the prior period's consolidated condensed financial
statements have been reclassified to conform to the current period's
presentation. These reclassifications are not material to the
consolidated condensed financial statements.
3. CONTINGENCIES
The Company is involved in various claims and possible actions arising
out of the normal course of its business. Although the ultimate
outcome of these claims cannot be ascertained at this time, it is the
opinion of the Company, based on knowledge of facts and advice of
counsel, that the resolution of such actions will not have a material
adverse effect on the Company's financial condition and results of
operations.
F-29
<PAGE>
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
4. NET CAPITAL
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 two percent 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 four percent of aggregate debit items
and may prohibit a member firm from expanding its business if its net
capital is less than five percent of aggregate debit items. At March 31,
1999, the net capital positions of the Company's broker- dealer
subsidiaries were as follows:
JWG Clearing (alternative method elected):
Net capital as a percent of aggregate debit items 7.43
Net capital $14,212,000
Required net capital $3,827,000
CSG:
Ratio of aggregate indebtedness to net capital 2.30
Net capital $2,226,000
Required net capital $341,000
JWG Securities:
Ratio of aggregate indebtedness to net capital 2.63
Net capital $1,546,000
Required net capital $271,000
GSG:
Ratio of aggregate indebtedness to net capital 2.81
Net capital $644,000
Required net capital $121,000
DMG:
Ratio of aggregate indebtedness to net capital .44
Net capital $255,000
Required net capital $100,000
F-30
<PAGE>
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. ACQUISITIONS AND DIVESTITURES
On June 12, 1998, the Company acquired JWG Capital, formerly known as
Genesis Merchant Group Securities, LLC, a San Francisco-based
investment banking firm. The acquisition (which was accounted for
under the purchase method) was accomplished by the Company through the
issuance of 1,500,000 shares of its authorized but unissued common stock in
exchange for a 100% ownership in JWG Capital. The purchase price of
$18,650,000 exceeded the fair value of net assets acquired by approximately
$15,250,000, which is being amortized on a straight-line basis over 20 years.
On March 3, 1999, the Company divested JWG Capital, along with certain
of its operations which 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 led
by its former Chief Operating Officer and its former Vice Chairman in
exchange for 284,375 shares of common stock of the Company and various
mutual releases. As part of the Divestiture, JWG Capital transferred
its investment banking, corporate finance and portions of its 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.
6. RECENT DEVELOPMENT
On April 16, 1999, the Company entered into a Stock Purchase Agreement
with Fiserv, Inc. ("Fiserv") and its wholly owned subsidiary Fiserv
Clearing, Inc. ("Fiserv Clearing") for the sale of JWG Clearing to
Fiserv Clearing for approximately $58 million in cash. JWG Clearing
currently functions primarily as the Company's securities clearing,
execution, and back office services unit, and only those operations
will comprise JWG Clearing at the time the sale is consummated. The
sale and related transactions described above have been approved by
the Board of Directors, and no further corporate approvals are
necessary. The closing is expected to occur on or about May 31, 1999.
In connection with the sale, (i) the Company will enter into a
Transition Services Agreement pursuant to which, following the sale,
it will continue to provide certain assistance and services to JWG
Clearing and Fiserv Clearing, and will permit JWG Clearing and Fiserv
Clearing to use certain facilities during a transition period for a
monthly fee approximating actual costs; (ii) the Company will agree
not to compete for ten years in the securities clearing and execution
business and not to solicit personnel of JWG Clearing or Fiserv and
its affiliates; and (iii) the Company will agree, subject to certain
limitations and exclusions (primarily related to independent
contractor registered representatives, possible future acquisitions,
and a one-year phase-in period), to use and cause its subsidiaries and
affiliates to use the clearing services of designated Fiserv
affiliates for at least 90% of their securities brokerage
transactions, and, in the case of independent contractor registered
representatives, to impose a surcharge on certain such transactions
that are not cleared through a Fiserv affiliate, during the 10-year
period following the sale. The Company will have the right, however,
to be released from the above obligations to use Fiserv affiliates or
to impose a surcharge by repaying to Fiserv a portion of the sales
price based on a prescribed formula that takes into account the price
paid in the sale and the amount of clearing services business then
being generated by the Company or its affiliate seeking the release.
F-31
<PAGE>
<PAGE>
As a result of the sale and the above agreements, the Company will
cease providing clearing services, both to third party correspondents
(such as broker dealers, banks, and other financial institutions) and
for its own securities brokerage transactions.
7. SEGMENT ANALYSIS
The Company's reportable segments are: captive retail distribution,
independently owned retail distribution, clearing and trading, capital
markets and other. The captive retail distribution segment includes
the 12 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 102 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. 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. 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:
F-32
<PAGE>
<PAGE>
JWGENESIS FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1999 1998
---------------------------------
<S> <C> <C>
Revenue:
Captive retail distribution $ 15,982,000 $8,092,000
Independently owned distribution 11,532,000 10,386,000
Clearing and trading 12,312,000 5,646,000
Capital markets 3,519,000 -
Other 24,000 149,000
------------- -----------
Total $43,369,000 $24,273,000
------------- -----------
Pre-tax income:
Captive retail distribution $446,000 $ 303,000
Independently owned distribution 856,000 1,002,000
Clearing and trading 5,451,000 686,000
Capital markets (164,000) -
Other (367,000) 51,000
------------ ------------
Total $ 6,222,000 $ 2,042,000
============ ============
</TABLE>
F-33
<PAGE>
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Company acquired Genesis on June 12, 1998, as part of the
Combination, which was accounted for under the purchase accounting
method, so that the Company's consolidated financial statements at and
for the year ended December 31, 1998, reflect the operating results of
Genesis for the 202-day period beginning June 12, 1998. The
operations and related assets and liabilities of Genesis at the end of
and during that period fit into two categories: (i) those involving
investment banking, corporate finance, and other capital markets
activities, and also related institutional research and sales
activities conducted through the Genesis New York office (referred to
collectively as "corporate finance operations") and (ii) those
involving brokerage processing services ("BPS") and related activities
conducted through the Genesis San Francisco office. As a result of
the Divestiture on March 3, 1999, the Company divested Genesis' BPS
and related San Francisco-based operations (the "Divested Genesis
Operations") and has retained only the corporate finance operations
(the "Retained Genesis Operations"). See "Business - Recent
Developments - The Genesis Divestiture".
On June 1, the Company sold all the stock of its wholly owned
subsidiary JWG Clearing (the "JWG Clearing Sale"). Prior to such
sale, the Company transferred to other subsidiaries all operations,
assets, and personnel of JWG Clearing that were not required for or
used in the securities clearing and execution services business of JWG
Clearing, and, as part of the sale, the Company agreed to cease and
discontinue all such services. See "Business - Recent Developments - The
JWG Clearing Sale".
The following unaudited pro forma statements of operations gives
effect to (i) the Divestiture as if it had occurred on June 12, 1998,
such that the pro forma results reflect the operations of the Company
for the year ended December 31, 1998 and the three months ended March
31, 1999, as if it had only acquired the Retained Genesis Operations
on June 12, 1998 and had not acquired the Divested Genesis Operations
on such date, and (ii) the JWG Clearing Sale as if it had occurred on
January 1, 1998. The following unaudited pro forma balance sheet at
March 31, 1999 gives effect to the JWG Clearing Sale as if it had been
consummated on such date. In each case, the unaudited pro forma
financial information should be read in conjunction with the
historical consolidated financial statements of the Company, including
the notes thereto, included elsewhere in this Prospectus.
This unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the
financial position or results of operations that would have occurred
if the Company had acquired only the corporate finance operations of
Genesis on June 12, 1998, or had effected the sale of JWG Clearing on
January 1, 1998, nor is it necessarily indicative of future financial
conditions or operating results.
P-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1998
-----------------------------------------------------------------------------------
Genesis Divestiture Adjustments
and Eliminations
--------------------------
JWG Clearing
Sale
Retained Divested Adjustments
The Company Genesis Genesis and
As Reported Operations Operations Eliminations Pro Forma
----------- ---------- ---------- ------------ ----------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $ 63,250 $ - $ 11,106 $ $ 52,144
Market making and principal
transactions, net 24,825 - - 24,825
Interest 14,218 - 371 6,707 7,140
Clearing fees 12,914 - - 12,914 -
Other 3,683 1,356 415 208 3,060
------- ----- ------ ------ ------
118,890 1,356 11,892 19,829 87,169
------- ----- ------ ------ ------
Expenses:
Commissions and clearing costs 58,460 - 6,594 4,956 46,910
Employee compensation and 22,074 774 2,444 2,467 17,163
benefits
Occupancy and equipment rental 6,286 121 317 131 5,838
Communications 4,539 50 671 1,842 2,026
General and administrative 11,060 81 2,708 4,035 4,317
Interest 5,418 - - 5,026 392
------- ----- ------ ------ ------
107,837 1,026 12,734 18,457 76,646
------- ----- ------ ------ ------
Income (loss) before income taxes 11,053 330 (842) 1,372 10,523
Provision (benefit) for income
taxes 4,421 132(d) 337(d) 535(d) 4,223
------- ----- ----- ------ ------
Net income (loss) $ 6,632 $ 198 $ (505) $ 837 $ 6,300
======= ===== ===== ====== ======
Net income per common share:
Basic $1.38 - - $1.21
Diluted $1.25 - - $1.11
Weighted average common
shares:
Basic 4,814,000 383,000 - 5,197,000
Diluted 5,317,000 383,000 - 5,700,000
See accompanying notes to Unaudited Pro Forma Financial Information.
</TABLE>
P-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Unaudited Pro Forma Statement of Operations
Three Months Ended March 31, 1999
----------------------------------------------------------------------
Genesis Divestiture
Adjustments
and
Eliminations
------------------------
JWG Clearing
Sale
Retained Divested Adjustments
The Company Genesis Genesis and
As Reported Operations Operations Eliminations Pro Forma
----------- ---------- ---------- ------------ ---------
(in thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $28,043 $ - $2,773 $ - $25,270
Market making and principal
transactions, net 6,749 - 112 6,637
Interest 3,621 - 120 1,833 1,668
Clearing fees 3,205 - - 3,205 -
Other 1,751 451 63 1,096 592
------- ---- ------ ------- -------
43,369 451 3,068 6,134 34,167
------- ---- ------ ------- -------
Expenses:
Commissions and clearing costs 20,332 1,639 1,220 17,473
Employee compensation and
benefits 6,744 314 661 807 5,276
General and administrative 8,592 89 980 926 6,686
Interest 1,479 - 1,375 104
------- ---- ------ ------- -------
37,147 403 3,280 4,328 29,539
------- ---- ------ ------- -------
Income (loss) before income taxes 6,222 48 (212) 1,806 4,628
Provision (benefit) for income
taxes 2,444 19 (d) (83)(d) 709(d) 1,818
------- ---- ------ ------- -------
Net income (loss) $3,778 $29 $(129) $1,097 $2,810
======= ==== ====== ======= =======
Net income per common share
Basic $0.64 - - $0.50
Diluted $0.60 - - $0.45
Weighted average common shares
Basic 5,858,000 190,000 0 5,668
Diluted 6,315,000 190,000 0 6,251
See accompanying notes to Unaudited Pro Forma Financial Information.
P-3
<PAGE>
<PAGE>
Unaudited Pro Forma Balance Sheet
At March 31, 1999
--------------------------------------------------------
JWG Clearing
The Company Sale Adjustments
As Reported and Eliminations Pro Forma
----------- ---------------- ---------
Assets
Cash and cash equivalents $ 25,195,000 (52,299,000)(a) $ 77,494,000
Commissions and other receivables from - -
clearing brokers
Receivables from customers, net 167,582,000 167,582,000 -
Receivable from broker and dealer 18,018,000 12,600,000 5,418,000
Securities owned, at estimated fair value 13,297,000 5,274,000 8,023,000
Cost in excess of the fair value of net assets 13,768,000 13,768,000
acquired
Furniture, equipment and leasehold 3,036,000 1,131,000 1,905,000
improvements, net
Deferred income taxes, net 619,000 (5,548,000)(b) 6,167,000
Other, net 11,158,000 2,720,000 8,438,000
--------------- -------------- -------------
$ 252,673,000 $ 131,460,000 $ 121,213,000
=============== ============== =============
Liabilities and Stockholders' Equity
Liabilities
Short-term borrowings from banks $ 65,882,000 65,882,000 $ -
Accounts payable, accrued expenses and other 20,030,000 (192,000) 20,222,000
liabilities
Payable to customers 29,054,000 29,054,000 -
Payable to brokers and dealers 77,866,000 77,866,000 -
Securities sold, not yet purchased, at
estimated fair value 1,523,000 372,000 1,151,000
Lines of credit 5,000,000 5,000,000
Deferred income - (15,000,000)(b) 15,000,000
--------------- -------------- -------------
Income taxes payable 1,111,000 (13,347,000)(d) 14,458,000
--------------- -------------- -------------
200,466,000 144,635,000 55,831,000
--------------- -------------- -------------
Commitments and contingencies
Stockholders' equity:
Redeemable preferred members capital - -
Common stock/members capital 6,000 6,000
Additional paid-in capital 24,346,,000 24,346,000
Retained earnings 31,061,000 (13,175,000)(c) 44,236,000
Treasury stock (3,206,000) ___________ (3,206,000)
--------------- -------------- -------------
52,207,000 (13,175,000) 65,382,000
--------------- -------------- -------------
$ 252,673,000 131,460,000 $ 121,213,000
=============== ============== =============
See accompanying notes to Unaudited Pro Forma Financial Information.
P-4
<PAGE>
<PAGE>
Notes to Unaudited Pro Forma Financial Information
(a) Amount represents approximately $59 million cash received, net of
the approximately $7 million cash which was sold as part of the
net assets of JWG Clearing.
(b) Deferred income represents $15 million of the gain on sale of the
JWG Clearing which is being deferred and accredited into income
over ten (10) years because it is incorporated into a ten year
clearing agreement. Deferred income tax assets net increased
approximately $5.5 million resulting from the taxes on the
deferred income.
(c) Represents the recognized gain of approximately $25 million on
the sale of the JWG Clearing after bonuses of approximately $3.8
million and the current provision for income taxes of approximately
$8 million.
(d) Income taxes are being recorded at the Company's effective tax
rate for 1998 of approximately 39%.
P-5
<PAGE>
<PAGE>
JWGenesis Financial Corp.
Common Stock
________________
PROSPECTUS
________________
July __, 1999
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "FBCA") authorizes
corporations to limit or eliminate the personal liability of directors
to corporations and their shareholders for monetary damages for
breaches of certain of the directors' fiduciary duties. In general,
the duty of care requires that a director exercise his judgment in
good faith on an informed basis, and in a manner he reasonably
believes to be in the best interests of the corporation. Absent the
limitations now authorized by the FBCA, directors are accountable to
corporations and their shareholders for monetary damages only for
conduct constituting gross negligence in the exercise of their duty of
care. Although the statute does not change the directors' duty of
care, it enables corporations to limit available relief to equitable
remedies such as injunction or rescission.
The Registrant's Articles of Incorporation (the "Registrant's
Articles") provide for indemnification of directors to the fullest
extent permitted by Florida law and, to the extent permitted by such
law, eliminate, or limit the personal liability of directors to the
Registrant and its shareholders for monetary damages for certain
breaches of fiduciary duty and the duty of care. Specifically, a
director of the Registrant will not be personally liable to the
Registrant or its shareholders for monetary damages for breach of such
fiduciary duty as a director, except for liability for (i) a violation
of the criminal law, (ii) a transaction from which the director
received an improper personal benefit, (iii) an unlawful distribution,
(iv) willful misconduct in a proceeding by or in the right of the
corporation or a shareholder, or (v) recklessness or bad faith in a
proceeding by or in the right of someone other than the corporation or
a shareholder.
The inclusion of this provision in the Registrant's Articles may
have the effect of reducing the likelihood of derivative litigation
against directors and may discourage or deter shareholders or
management from bringing a lawsuit against directors for breach of
their duty of care, even though such an action, if successful, might
otherwise have benefited the Registrant and its shareholders.
The Registrant's directors and officers are insured against
losses arising from any claim against them as such for wrongful acts
or omissions, subject to certain limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the acquisition of Genesis Merchant Group
Securities, LLC ("Genesis") on June 12, 1998, the Registrant issued an
aggregate of 1,500,000 shares of its common stock to the former owners
of Genesis (36 persons) in a private, negotiated transaction, in
reliance on exemptions from registration provided by Section 4(2) of
the Securities Act of 1933, as amended, and Regulation D thereunder.
II-1
<PAGE>
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
Exhibit Number Description of Exhibit
-------------- ----------------------
2.1 Stock Purchase Agreement dated April 16, 1999, by
and among JWGenesis Financial Corp., JWGenesis
Financial Services, Inc., JW Genesis Clearing
Corp., Fiserv, Inc., and Fiserv Clearing, Inc.
(incorporated by reference to Exhibit 2 to
the Company's Current Report on Form 8-K filed
with the Commission on April 30, 1999).
3(a) Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to
JWGenesis' Registration Statement on Form S-4
(File No. 333-47693) filed with the Commission on
April 22, 1998 (the "Combination S-4")).
3(b) By-Laws of the Company, as amended (incorporated
by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 (the "1998 Form 10-K")).
5 Opinion of Kilpatrick Stockton LLP.
10(a) Promissory Note and Loan Agreement between
JWCharles Financial Services, Inc., then known as
Corporate Management Group, Inc., Commission No.
0-14772, the predecessor in interest of the
Company (the "Predecessor"), and Wilmington
Trust Company dated January 19, 1996
(incorporated by reference to Exhibit 10(i) to
the Predecessor's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10(b) Amended and Restated Common Stock Purchase
Warrant issued to W T Investments, Inc. dated
February 27, 1998 (incorporated by reference to
Item 10(f) of the Predecessor's Annual Report on
Form 10-K for the year ended December 31, 1997).
10(c) Revolving Loan Agreement between the Predecessor
and SunTrust Bank, South Florida, N.A. dated
December 18, 1996 (incorporated by reference to
Item 10(i) of the Predecessor's Annual Report on
Form 10-K for the year ended December 31, 1996).
10(d) Common Stock Purchase Warrant issued to SunTrust
Banks, Inc. dated August 26, 1996 (incorporated
by reference to Item 10(m) of the Predecessor's
Annual Report on Form 10-K for the year ended
December 31, 1996).
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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).
10(f) Transition Services Agreement, dated April 16,
1999 by and among JWGenesis Financial Corp.,
JWGenesis Financial Services, Inc., JW Genesis
Clearing Corp., and Fiserv, Inc. (incorporated by
reference to Exhibit 10(a) to the Company's
Current Report on Form 8-K filed with the
Commission on June 15, 1999).
10(g) Form of Fully Disclosed Correspondent Agreement
dated June 1, 1999. (incorporated by reference to
Exhibit 10(b) to the Company's Current Report on
Form 8-K filed with the Commission on June 15,
1999)
21 Subsidiaries of the Registrant (incorporated by
reference to Exhibit 21 to the Company's 1998
Form 10-K).
23(a) Consent of PricewaterhouseCoopers LLP.
23(b) Consent of Kilpatrick Stockton LLP (included in
Exhibit 5).
24 Power of Attorney (included on Signature Page of
initial filing).
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").
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99(f) Amendment to Glaser Employment Agreement
(incorporated by reference to Exhibit 99(f) of
the Company's 1998 Form 10-K).
99(g) Employment Agreement between the Company and Will
K. Weinstein (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998).
99(h) Nonsolicitation Agreement between the Company and
Marshall T. Leeds (incorporated by reference to
Exhibit 99(h) of the Company's 1998 Form 10-K).
99(i) Nonsolicitation Agreement between the Company and
Joel E. Marks (incorporated by reference to
Exhibit 99(i) of the Company's 1998 Form 10-K).
(b) Financial Statement Schedules
Not Applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
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(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(4) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of
the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Exchange Act that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State
of Georgia, on July 20, 1999.
JWGENESIS FINANCIAL CORP., INC.
By: /s/ Joel E. Marks
Joel E. Marks, Vice Chairman
and Chief Operating Officer
Pursuant to the requirements of the Securities Act, this
Registration Statement has been signed by the following persons in the
capacities indicated on the 20th day of July, 1999.
Signature Title
--------- -----
/s/ Marshall T. Leeds* President, Chief Executive
Marshall T. Leeds Officer and Chairman of the
Board (Principal Executive
Officer)
/s/ Joel E. Marks Vice Chairman of the Board
Joel E. Marks and Chief Operating Officer
/s/ Gregg S. Glaser* Executive Vice President, Chief
Gregg S. Glaser Financial Officer and Director
(Principal Financial and
Accounting Officer)
/s/ Jeffrey H. Lehman* Director
Jeffrey H. Lehman
/s/ Wm. Dennis Ferguson* Director
Wm. Dennis Ferguson
/s/ Sanford D. Cohen* Director
Sanford D. Cohen
*By: /s/ Joel E. Marks
Joel E. Marks, as Attorney-In-Fact
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EXHIBIT INDEX
Exhibit Number Description of Exhibit
- -------------- ----------------------
5 Opinion of Kilpatrick Stockton LLP.
23(a) Consent of PricewaterhouseCoopers LLP.
23(b) Consent of Kilpatrick Stockton LLP (included in
Exhibit 5).
</TABLE>
EXHIBIT 5
OPINION OF KILPATRICK STOCKTON LLP
KILPATRICK STOCKTON LLP
ATTORNEYS AT LAW
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Telephone: 404.815.6500
Facsimile: 404.815.6555
July 20, 1999
JWGenesis Financial Corp.
980 North Federal Highway
Suite 210
Boca Raton, Florida 33432
Gentlemen:
At your request, we have examined the Post-Effective Amendment
No. 1 on Form S-3 to Registration Statement on Form S-1, File No.
333-75447, (the "Registration Statement"), filed by JWGenesis Financial
Corp. (the "Company"), a Florida corporation, with the Securities and
Exchange Commission with respect to the registration under the Securities
Act of 1933, as amended, of 1,007,506 shares of Common Stock, par value
$0.001 per share, of the Company (the "Common Stock"), proposed to be
sold by certain shareholders of the Company (the "Selling
Shareholders").
As your counsel, and in connection with the preparation of the
Registration Statement, we have examined the originals or copies of
such documents, corporate records, certificates of public officials
and officers of the Company, and other instruments related to the
authorization and issuance of the Common Stock as we deemed relevant
or necessary for the opinion expressed herein.
Based upon the foregoing, it is our opinion that the shares of
Common Stock proposed to be sold by the Selling Shareholders have been
(or will be, when issued and paid for pursuant to the exercise of
certain warrants as contemplated by and described generally in the
Registration Statement) validly issued and fully paid for and are
nonassessable, and that such shares may be sold and delivered by the
Selling Shareholders in the manner and under the terms and conditions
described in the Registration Statement without affecting adversely
their status as validly issued, fully paid, and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in
the "Legal Matters" section of the Prospectus constituting a part of
the Registration Statement, and any amendments thereto.
Very truly yours,
KILPATRICK STOCKTON LLP
By: /s/ W. Randy Eaddy
W. Randy Eaddy, A Partner
ACCOUNTANT'S CONSENT
EXHIBIT 23 (a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting a
part of this Post-Effective Amendment No. 1 on Form S-3 to this
Registration Statement on Form S-1 of our report dated March 26, 1999
relating to the financial statements of JWGenesis Financial Corp.,
which appears in such Prospectus. We also consent to the references
to us under the heading "Experts" in such Prospectus.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Tampa, Florida
July 19, 1999
