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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 001-14205
JWGENESIS FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Florida 58-1545984
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Federal Highway - Suite 210
Boca Raton, Florida 33432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 338-2600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - Par Value $.001 per share
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(Title of class)
Securities registered pursuant to Section 12(g) of the Act: None
Name of Exchange on Which Registered: The American Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
On March 27, 2000, the Registrant had 8,459,000 outstanding shares of
Common Stock, $.001 par value, and at such date, the aggregate market value of
the shares of Common Stock held by non-affiliates, was approximately
$139,573,000.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrant's definitive Proxy Statement for the 2000 Annual
Meeting of Stockholders, to be filed with the Commission, are incorporated by
reference into Part III.
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PART I
ITEM 1. BUSINESS
Background and General
JWGenesis Financial Corp. (the "Company" or "JWGenesis") is a diversified
financial services holding company whose principal operating subsidiaries --
JWGenesis Financial Services, Inc. ("JWGFS") (formerly known as Corporate
Securities Group, Inc.), JWGenesis Securities, Inc. ("JWG Securities"),
JWGenesis Capital Markets, Inc. ("JWG Capital") and JWGenesis Financial Group,
Inc. ("JWGFG") (formerly GSG Securities, 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.
JWGenesis was incorporated as a Florida corporation in January 1998;
however, as a result of the Share Exchange on June 12, 1998 described elsewhere
herein, JWGenesis succeeded to the business and operations of JWCharles
Financial Services, Inc. ("JWCFS"), which was incorporated as a Florida
corporation in December 1983. Also on June 12, 1998, as a result of the
Combination described elsewhere herein (of which the Share Exchange was a part),
JWGenesis acquired 100% of Genesis Merchant Group Securities, LLC ("Genesis")
and succeeded to its business, which had commenced in 1989. On March 3, 1999,
the Company divested itself of Genesis in a transaction that resulted in the
Company's continued ownership and operation, through JWG Capital, of Genesis's
New York City-based operations, which consist of corporate finance, capital
markets, and certain institutional research and sales capabilities. As a result
of a merger in 1990, JWCFS acquired certain 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 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. JWGFS, 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. JWGFS offices can vary in size from one investment professional
to many. JWG Securities and JWGFS clear trades through Fiserv Correspondent
Services, Inc. ("Fiserv") and Bear Stearns Securities Corp. JWGFG, 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, and Illinois. JWGFG brokers are "full-service"
oriented and receive compensation packages that are competitive with most
similarly situated firms. JWG Capital is a New York-based firm that specializes
in investment banking services. A sixth subsidiary of the Company, DMG
Securities, Inc. ("DMG"), is also engaged in the securities brokerage business.
All of JWGenesis' operating subsidiaries are owned through its wholly-owned
subsidiary, JWGenesis Financial, Inc. ("JWGFI").
The Company's activities generate revenue for the Company primarily in the
form of commission and fee income, and market making and principal transactions
revenues. The Company also derives revenues from corporate finance transactions,
insurance brokerage services, consulting services, and interest income. Until
June 1, 1999, when the Company sold its JWGenesis Clearing Corp.
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subsidiary ("JWG Clearing") and ceased its clearing services business, the
Company also generated securities transactions processing fees ("clearing
fees"). The following table indicates the percentage of total revenues
represented by each of these activities during the past three years:
Percentage of Total Revenues(1)(2)
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Year Ended December 31,
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1999 1998 1997
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Commissions............................... 56% 53% 51%
Market making and principal
transactions, net ...................... 18% 21% 21%
Gain on sale of subsidiary(3)............. 13% - -
Interest.................................. 5% 12% 12%
Clearing fees............................. 3% 11% 13%
Other (including corporate finance and
consulting).............................. 5% 3% 3%
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(1) Excludes the results of Genesis for the periods prior to June 12, 1998.
(2) Includes the results of JWG Clearing through May 31, 1999.
(3) Reflects the sale of JWG Clearing on June 1, 1999.
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:
Revenues(1)(2)
(Amounts in Millions of Dollars)
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Year Ended December 31,
1999 1998 1997
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Amount % Amount % Amount %
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JWGFS $53.3 37 $39.1 34 $34.2 35
JWG Capital (1) 2.5 2 13.2 12 - -
JWG Securities 45.5 31 31.0 27 34.8 35
JWG Clearing (2) 15.4 11 28.1 25 26.4 27
JWGFG (3) 25.6 18 0.0 0 0.0 0
DMG Securities 1.2 1 2.0 2 2.9 3
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(1) Excludes the results of Genesis for the periods prior to June 12, 1998.
(2) Includes the results of JWG Clearing through May 31, 1999.
(3) Reflects the acquisition of certain assets on January 1, 1999.
Significant Developments
Sale of JWGenesis Clearing Corp.
On June 1, 1999, the Company completed the sale of JWG Clearing to Fiserv,
Inc. through Fiserv, Inc.'s wholly owned subsidiary Fiserv Clearing, Inc.
("Fiserv"). JWG Clearing had 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. For the sale to
Fiserv, the Company received cash consideration of approximately $59 million,
and may receive additional consideration based on the outcome of various
matters. Of this amount, approximately $19 million
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represented the net book value of JWG Clearing. Of the $40 million of purchase
price in excess of the net book value of JWG Clearing, $25 million was recorded
as income (reduced by certain expenses related to the sale) in 1999 and the
remaining $15 million was recorded as deferred income and will be accreted into
income ratably over 10 years.
In connection with the JWG Clearing sale, among other things, the Company
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 the Company agreed, 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 has 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.
Divestiture of Genesis
On March 3, 1999, the Company divested Genesis -- which at the time
consisted primarily of the Company's San Francisco-based brokerage processing
services unit that had been acquired in the Combination on June 12, 1998 -- to
an investor group of certain of the former owners of Genesis (the
"Divestiture"). The Company had acquired Genesis on June 12, 1998 as part of a
larger transaction (the "Combination") that included a statutory share exchange
with JWGFI (then known as JW Charles Financial Services, Inc., or JWCFS) by
which the Company acquired all of the outstanding shares of JWGFI common stock
in exchange for shares of common stock of the Company on a one-for-one basis,
and thus replaced JWGFI as the publicly held holding company (the "Share
Exchange"). As part of the Divestiture, the investor group conveyed to the
Company an aggregate of 426,563 shares of common stock of the Company that had
been issued to them in the Combination, and Genesis transferred its corporate
finance operations (based in its New York office) to JWG Capital, so that those
operations would be retained by the Company.
The JWGFG Acquisition
On January 1, 1999, JWGFG Securities, Inc. ("JWGFG") acquired certain
assets of six retail securities branch offices (and three satellite offices)
from an unaffiliated broker-dealer. Prior to January 1, 1999, JWGFG was
inactive.
In connection with this asset purchase, JWGFG paid approximately $2.3
million in cash; JWGFI issued 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 (i) a warrant for the
purchase of up to 156,250 shares of its common stock, at an exercise price of
$16 per share, which may only be exercised using redemptions of the Series C
Redeemable Preferred Stock, and (ii) a three-year, fully vested option to
purchase 75,000 shares of its common stock at an exercise price of $16 per
share. The Company also issued options to purchase an aggregate of 375,000
shares of its common stock at an exercise price of $8
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per share, exercisable through December 31, 2003, to senior management of the
acquired branch offices (the "Senior Management Options"). The Senior Management
Options vest over a three-year period based upon a formula tied to the revenues
of the acquired branch offices. An additional 150,000 options, with a three-year
term and a $16 per share exercise price, were made available by the Company to
selected branch managers and registered representatives employed in the acquired
branch offices.
MVP.com, Inc. Investment
In August 1999, the Company and John Elway formed MVP.com, Inc., initially
as a 50/50 joint venture between them, to establish an Internet business (the
"Old Joint Venture"). In November 1999, the Company and Mr. Elway entered into a
series of transactions, led by Benchmark Capital Partners III, L.P.
("Benchmark") and certain of its affiliates, which resulted in the formation of
a new MVP.com, Inc. ("MVP") and the addition of several new participants in the
venture, including Benchmark, Freeman Spogli & Co., Michael Jordan, Wayne
Gretzky, Galyan's Trading Company, Sportsline.com, CBS, and John Costello, the
Chief Executive Officer of MVP. In connection with that series of transactions,
the Company entered into a Series A Preferred Stock Purchase Agreement (the
"Stock Purchase Agreement"), pursuant to which it purchased, for approximately
$1.0 million, shares of preferred stock in MVP ("Preferred Shares") that were
convertible into approximately 5% of MVP's common stock. The Company also
entered into an Investor Rights Agreement (the "Investor Rights Agreement")
which entitles it to acquire additional Preferred Shares in connection with
certain future sales of stock by MVP. In 2000, the Company exercised rights
under the Investor Rights Agreement to purchase additional Preferred Shares in
order to reduce its percentage dilution as a result of subsequent financings by
MVP. As a result, the Company has invested an aggregate of approximately $3.0
million for MVP Preferred Shares, which are convertible into approximately 4% of
MVP's common stock.
Holders of Preferred Shares are entitled to receive annual cash dividends
at the rate of $0.027 per share, subject to adjustment for stock dividends,
stock splits, and similar transactions. Upon any liquidation of MVP, holders of
Preferred Shares have a priority right to receive $0.335 per share (as adjusted
for any stock dividends, stock splits, and similar transactions), plus all
declared and unpaid dividends on the Preferred Shares. With limited exceptions,
the Preferred Shares vote equally with the shares of MVP common stock. Pursuant
to the Investor Rights Agreement, the Company and other holders of MVP stock
have certain demand and piggyback registration rights with respect to their
shares of MVP stock.
In connection with the November 1999 series of transactions, the Old Joint
Venture sold substantially all of its assets, including its "mvp.com" name, URL,
and all intellectual property rights, to MVP, and ceased operations. The Company
is a passive investor only and has no role in the management of MVP.
Tender Offer
On February 11, 2000, the Company completed a partial tender offer for
shares of its outstanding common stock, pursuant to which it purchased 1,750,000
shares for a price of $35 million. The Company conducted the tender offer in
order to utilize excess cash derived from the sale of JWG Clearing in June 1999.
3-for-2 Stock Split
Unless otherwise indicated, all information with respect to numbers of
shares of common stock, prices of common stock, and earnings per common share
appearing in this Form 10-K have been adjusted to reflect two separate
three-for-two stock splits effected in the form of a 50% stock dividend, the
first by its predecessor JWCFS on February 7, 1997, and the most recent on March
24, 2000.
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Retail Brokerage
The Company conducts its retail brokerage business primarily through JWG
Securities, JWGFS, JWGFG 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,
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1999 1998 1997
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Registered Registered Registered
Representatives Offices Representatives Offices Representatives Offices
--------------- ------- ------------------ ------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
JWG Securities 160 14 209 15 213 13
JWGFS 292 130 273 107 279 91
JWGFG 122 6 126(1) 6(1) - -
DMG 9 1 5 1 20 1
--- --- --- --- --- ---
Total 583 151 613 129 512 105
=== === === === === ===
</TABLE>
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(1) Information is as of January 1, 1999, reflecting personnel hired as part
of an assets acquisition that closed as of that date, exclusive of
approximately 80 trainee personnel.
JWGenesis Securities, Inc.
JWG Securities is a NYSE member organization and a member of the NASD. JWG
Securities' activities primarily consist of retail securities brokerage,
management and participation in underwritings of equity and fixed income
securities, distribution of mutual funds and unit trusts, and research and
investment advisory services. JWG Securities has clearing agreements with
Fiserv and Bear Stearns Securities Corp. ("Bear Stearns"), both NYSE member
organizations, under which agreements they provide JWG Securities with back
office support, transaction processing services on all principal national and
international securities exchanges, and access to many other financial services
and products. These agreements allow JWG Securities to offer a range of
products and services that is generally offered only by firms that are larger
and have more capital than JWG Securities.
All of JWG Securities' registered representatives are in-house employees
who, prior to their employment with JWG Securities, had industry experience.
JWGenesis Financial Services, Inc.
JWGFS, 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. JWGFS is a member of the NASD and has clearing agreements
with Bear Stearns and Fiserv, under which agreements they provide JWGFS 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 JWGFS to offer a range of
products and services that is generally offered only by firms that are larger
and have more capital than JWGFS.
All of JWGFS'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 JWGFS 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 JWGFS. JWGFS, 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 JWGFS) and provides other support for the operations,
including required home office
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supervisory functions and access to JWGFS's securities transaction clearing
agreements with Bear Stearns and Fiserv. All registered representatives who are
associated with JWGFS are licensed with the NASD, and all such persons have
prior industry experience prior to opening their own office or working at one of
JWGFS'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 registered representatives as in-house employees.
JWGenesis Financial Group, Inc.
JWGFG, 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. JWGFG is a member of the NASD and has a clearing agreement
with Fiserv, under which it provides JWGFG with back office support, transaction
processing services on all principal national and international securities
exchanges, and access to many other financial services and products. The Fiserv
clearing agreement allows JWGFG to offer a range of products and services that
is generally offered only by firms that are larger and have more capital than
JWGFG.
All of JWGFG's registered representatives are in-house employees. Through
its retail branch network, JWGFG 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.
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 holds 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 JWGFS. DMG also has a clearing agreement with
Fiserv 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.
Corporate Finance
The Company's corporate finance activities are conducted primarily through
JWG Capital and involve a variety of activities, including public and private
debt and equity financings 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
registered broker-dealer subsidiary) maintains after-market support by providing
research analysis, after-market trading, and sponsorship in the investment
community.
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JWG Capital personnel have experience in each stage of merger, acquisition,
divestiture, buyout, and recapitalization transactions, including identifying
prospective transactions and parties, optimal "packaging" of a client for a
transaction, preparing for organizational meetings, structuring the
transactions, negotiating terms, and facilitating the closing process. JWG
Capital 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 capital markets
services includes cash fees in the form of underwriting commissions, retainers,
consulting fees, and success fees and, in certain situations, stock purchase
warrants or other equity participation positions.
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
the following principal areas: business services and outsourcing, retailing,
communications, technology, electronic commerce, health care, biotechnology,
leisure and entertainment, broadband, consumer products, pharmaceuticals, and
special situations.
Syndicate and Fixed Income
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. The Company historically has participated in a diverse range of
offerings, including 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. The Company has been less active in
underwriting activities over the past few years, but intends to renew its focus
on this area in the future.
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 and the sale of JWG Clearing on
June 1, 1999, the Company conducted market making and principal transactions
activities using both JWG Clearing and Genesis. Activities related to research
recommendations, institutional order flow and Genesis's brokerage processing
services unit were conducted through Genesis, while activities related to the
Company's retail brokerage and fully disclosed clearing business were conducted
through JWG Clearing. All of the Company's market making and principal
transaction activities are currently conducted
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exclusively through JWG Securities. JWG Securities currently acts as a market
maker for approximately 50 securities that are traded in the over-the-counter
securities market, including those followed by the Research Department.
In its capacity as a market maker, the Company facilitates trading in
select securities by buying and selling securities as a principal for its own
account, rather than as an agent for the accounts of its customers. The Company
attempts to derive profits through its market making activities by buying stock
at its quoted bid price and then either selling the stock at its quoted market
price or holding the stock in inventory for future sale at a higher price. If
the market for such securities declines, however, or if the Company otherwise is
unable to resell the securities at a favorable price, the Company could suffer
losses and such losses could be substantial. The Company also engages in short
sales, although 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 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, except for a period during 1998 following its acquisition of the
now-divested Genesis (whose securities holding policy was less conservative than
the Company's general policy), losses incurred from time to time in connection
with these activities were not significant. 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.
Competition
The Company competes with numerous investment banking and brokerage firms,
consulting firms, and financial service companies that are larger, better
financed, have longer operating histories, and, in some instances, offer a range
of financial and other services to clients that exceed the services offered by
the Company. In addition, there is increasing competition from other businesses
that now offer financial services, such as commercial banking and insurance
companies and certain accounting firms. The principal competitive factors in
the securities industry are the quality and ability of professional personnel,
the experience and reputation of the firm, the relative prices of services and
products offered, the scope of such services and products (increasingly the
ability to offer "one-stop-shopping" to customers and clients), and the
efficiency of back office operations. The Company has tried to position itself
competitively by targeting its investment banking services to middle-market
companies, providing competitively priced products and services, and developing
one-stop-shopping services. Additionally, the Company has targeted markets that
it believes are not adequately served by, and are not a primary focus of, most
of these other larger firms. The Company believes that its clearing services
and back office support agreements with Bear Stearns and Fiserv provide it
additional ability to compete with larger firms.
Employees and Registered Representatives
As of December 31, 1999, the Company and its subsidiaries had a total of
approximately 236 salaried employees and 583 registered representatives. Of
these totals, 301 registered representatives are independent contractors
affiliated with one of the 131 affiliated, but independently owned and operated,
JWGFS and DMG branch offices which existed at such time.
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Regulation
The securities industry in the United States is subject to extensive
regulation under various federal and state laws and regulations. The Securities
and Exchange Commission (the "Commission" or 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.
Certain Matters Regarding Forward Looking Statements
Certain statements included in this Form 10-K, including without limitation
statements containing the words "believes," "anticipates," "intends," "expects"
and words of similar import, constitute "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the impact of general economic
conditions on the capital markets; changes in or amendments to regulatory
authorities' capital requirements or other regulations applicable to the Company
or its subsidiaries; fluctuations in interest rates; increased levels of
competition; and other factors referred to in this Form 10-K. Given these
uncertainties, undue reliance should not be placed on such forward-looking
statements. The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-looking
statements included herein to reflect future events or developments.
Volatile Nature of the Securities Business
The securities business is, by its nature, subject to significant risks--
particularly in volatile or illiquid markets. These risks include the risks of:
. trading losses . losses resulting from the ownership
. counterparty failure to meet or underwriting of securities
commitments . customer fraud
. employee fraud . issuer fraud
. errors and misconduct . failures in connection with the processing
. litigation of securities transactions
Our principal business activities are retail securities brokerage,
investment banking, and clearing and execution services. These businesses are
highly competitive and subject to various risks, volatile trading markets, and
fluctuations in the volume of market activity. The securities business is
directly affected by many broad factors, including
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<PAGE>
. economic and political conditions . broad trends in business
. legislation and regulation affecting and finance
the business and financial communities . currency values
. inflation . market conditions
. the availability and cost of short-term . the credit capacity or
or long-term funding and capital perceived creditworthiness
of the securities industry
in the marketplace
. interest rate levels and
volatility
These and other factors can contribute to lower price levels for securities
and illiquid markets. Lower price levels of securities may result in:
. reduced securities transactions volumes, with a correlative reduction in
commission revenues;
. losses from declines in the market value of securities held in trading,
investment, and underwriting positions; and
. reduced management fees calculated as a percentage of assets managed.
In low volume periods, profitability levels are further adversely affected
because certain expenses remain relatively fixed. Sudden sharp declines in
securities' market values and the failure of issuers and counterparties to
perform their obligations can result in illiquid markets. This in turn can make
it difficult for us to sell securities, hedge our securities positions, and
invest funds under our management. These negative market conditions, if
prolonged, may also lower our revenues from investment banking and other
activities. As a result of the varied risks associated with the securities
business, which are beyond our control, our commissions and other revenues could
be adversely affected. Revenue reductions and losses resulting from securities
underwriting or ownership could have a material adverse effect on our results of
operations and financial condition. In 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
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<PAGE>
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 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, operations, and sales and trading professionals. Competition
for key personnel is intense. We cannot assure that losses of key personnel due
to such competition, or for other reasons, will not occur in the future. The
loss of an investment banking, operations, research, or sales and trading
professional, particularly a senior professional with a broad range of contacts
in an industry, could materially and adversely affect our operating results.
Limitations of Employee Retention Mechanisms. We depend on many key
employees, and in particular on our senior executive officers: Marshall T.
Leeds, our Chairman, President, and Chief Executive Officer; and Joel E. Marks,
our Vice Chairman and Chief Operating 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 or other investment opportunities
conditioned on continued employment, and options to buy stock that vest over a
number of years of employment. These incentives, however, may be insufficient in
light of the increasing competition for experienced professionals in the
securities industry, particularly if our stock price were to decline, or fail to
appreciate sufficiently. If that happened, our long-term deferred compensation
plans might no longer be a competitive incentive for our key employees to stay
with us.
Dependence on Outside Sources of Financing
Like others companies in the securities industry, we rely on external
sources to finance a significant portion of our day-to-day operations. Our
principal cash and liquidity sources are commissions and trading profits. We
maintain working capital committed credit lines aggregating approximately $12.0
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
12
<PAGE>
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.
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 treble . the deregistration or suspension of
damages in the case of insider the non-compliant broker-dealer's
trading 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.
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<PAGE>
Risk of Losses From Underwriting and Trading
We conduct our underwriting, securities trading, and market-making
activities as a principal. These activities subject our capital to significant
risks, including market, credit, counterparty, and liquidity risks. These
activities often involve purchasing, selling, or short-selling securities as a
principal in relatively illiquid markets or markets that suffer from rapidly
fluctuating liquidity. From time to time, we have large position concentrations
in a single issuer's securities, or commitments to a single issuer, or issuers
in a specific industry, particularly as a result of underwriting activities.
Our trading positions and underwriting activities are concentrated in a more
limited number of industry sectors and portfolio companies than many other
investment banks, which might result in higher trading losses than would occur
if our positions and activities were less concentrated. In addition, there is a
trend in all major capital markets--for competitive and other reasons-- toward
larger commitments from lead underwriters. This means that, from time to time,
an underwriter (including a co-manager) may retain significant position
concentrations in individual securities.
Unfavorable financial or economic conditions would likely reduce the number
and size of transactions in which we provide underwriting, mergers and
acquisitions advisory services, and other related services. Our investment
banking revenues, in the form of underwriting discounts and financial advisory
fees, are directly related to the number and value of the transactions in which
we participate and would therefore be adversely affected by a market downturn.
Risk of Losses Associated with Litigation and Securities Laws
Many aspects of our business involve substantial liability risks.
Underwriters are exposed to substantial liability under federal and state
securities laws and other federal and state laws. Court decisions, including
decisions on underwriters' liability and limitations on indemnification of
underwriters by issuers, also expose us to liability. For example, an
underwriter may be held liable for material misstatements or omissions of fact
in a prospectus used to offer securities, or for statements made by its
securities analysts or other personnel.
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
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<PAGE>
significant payments to the plaintiffs, our operating results and financial
condition could be materially and adversely affected. As is common in the
securities industry, we do not carry insurance that would cover any such
payments. In addition, our charter documents allow indemnification of our
officers, directors, and agents to the maximum extent permitted under Florida
law. If our officers, directors, or agents are named as defendants in securities
litigation, they may demand indemnification from us under these charter document
provisions.
In addition, the laws relating to securities class actions are currently in
a state of flux. The eventual impact of the Private Securities Litigation
Reform Act of 1995 on securities class action litigation is not known.
Diversion of Management Attention. In addition to these financial costs
and risks, defending litigation can, to a certain extent, divert the efforts and
attention of our management and staff. Our management and other employees may
have to devote substantial time defending litigation, which might materially
divert their attention from other responsibilities. Securities class action
litigation in particular is highly complex and can extend for a protracted
period of time, consuming substantial management time and effort and
substantially increasing the cost of such litigation.
Risks Associated with Other Disputes. In the normal course of business, we
are defendants in various civil actions and arbitrations arising out of our
broker-dealer and underwriting activities, in our role as an employer, and as a
result of other business activities. We have made significant payments to
resolve disputed claims in the past, and we cannot assure that we will not make
significant payments to resolve disputed claims in the future.
Risks Associated with Management of Growth
Over the past several years, we have experienced significant growth in our
business activities and size, and we expect we will continue to grow in the
future. Our growth requires and will continue to require increased investments
in management personnel, financial and management systems and controls, and
facilities. If our revenue did not also continue to grow, our operating margins
would decline due to these increased expenses. In addition, as is common in the
securities industry, we depend on the effective and reliable operation of our
communications and information systems. We believe that our current and
anticipated future growth will require us to implement new and enhanced
communications and information systems, and to train our personnel to operate
the new systems. Any difficulty or significant delay in implementing or
operating our existing systems or any new ones, or in training our personnel,
could adversely affect our ability to manage growth.
ITEM 2. PROPERTIES.
The Company owns no real property. The Company currently leases its
principal corporate offices and operations facilities, located at 980 North
Federal Highway, Boca Raton, Florida 33432, where it occupies approximately
17,500 square feet of space. JWG Securities' branch offices are also leased
premises, comprising an aggregate of approximately 46,000 square feet of office
space in several cities. JWG Capital leases 5,400 square feet of space in New
York. JWGFG branch offices are also leased premises, comprising an aggregate of
approximately 60,000 square feet of office space in several cities. The Company
believes that its office facilities are adequate for its current and reasonably
foreseeable operations.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending or threatened in which
JWGenesis is a 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
15
<PAGE>
arbitration and litigation involves contingencies that cannot be definitively
predicted, including the unpredictability of actions that might be taken by an
arbitration panel or jury on matters that are submitted to them, JWGenesis
expects that the ultimate disposition of arbitration and litigation arising from
the ordinary course of business will not have a material adverse impact upon its
financial position and results of operations. The Company or its subsidiaries
may be involved from time to time in other litigation arising in the normal
course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted, during the fourth quarter of the fiscal year
covered by this report, to a vote of security holders of the Company through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock trades on The American Stock Exchange (the
"AMEX") under the symbol "JWG". The following table sets forth, for the periods
indicated, the quarterly high and low sales price information related to trading
in the Company's common stock (and for the period prior to the Company's
replacement of JWGFS as the public company on June 12, 1998, as a result of the
statutory share exchange, the shares of common stock of JWGFS) on the AMEX.
Such information has been obtained from AMEX. 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 March 24, 2000.
Sales Price
--------------------------------
High Low
-------------- --------------
1998
First Quarter.............................. $ 9.21 $ 7.62
Second Quarter............................. 8.54 6.62
Third Quarter.............................. 7.67 4.09
Fourth Quarter............................. 5.17 3.50
1999
First Quarter.............................. $ 9.17 $ 3.99
Second Quarter............................. 14.42 6.67
Third Quarter.............................. 11.92 9.21
Fourth Quarter............................. 19.83 9.17
2000
First Quarter (through March 27, 2000) $19.83 $14.00
The closing sales price for the Company's common stock on March 27, 2000 was
$16.50.
There were approximately 200 holders of record of the Company's common stock
as of March 27, 2000. 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 2,000.
No cash dividends have been declared or paid to date on the Company's common
stock, and the Company does not anticipate payment of common stock dividends in
the foreseeable future. The Company has adopted a policy of cash preservation
for future use in the business, although the
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<PAGE>
declaration and payment of cash dividends on the common stock is not subject to
legal restrictions on the Board's authority.
ITEM 6. SELECTED FINANCIAL DATA.
The following tables present selected historical financial data of the
Company. On June 12, 1998, the Company and JWGFS (then known as JW Charles
Financial Services, Inc.) effected the Share Exchange, and the Company acquired
Genesis, as part of the Combination. See Item 1. "Business - Background and
General". As a result of the Combination, the Company succeeded to the business
and operations of JWGFS and Genesis. The following selected historical
financial data of the Company relating to periods prior to June 12, 1998 are
derived solely from financial statements of JWGFS for such periods and, except
as otherwise expressly indicated, relate to matters prior to the Combination.
Such financial statements for the years ended December 31, 1999, 1998, and 1997
appear elsewhere in this Form 10-K. The following selected historical financial
data should be read in conjunction with such financial statements and related
notes.
On March 3, 1999, the Company divested Genesis in a transaction in which the
Company nonetheless retained the investment banking, corporate finance and other
capital markets operations that it had been conducting through Genesis, while
divesting Genesis's brokerage processing business unit. See Item 1. "Business
- - Significant Developments Divestiture of Genesis". The results of all of
Genesis's 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.
On June 1, 1999, the Company sold JWG Clearing in a cash transaction for
approximately $59.0 million. See Item 1. "Business - Significant Developments
Sale of JWGenesis Clearing Corp." The results of JWG Clearing's operations
during the period from January 1, 1997 to May 31, 1999 are included in the
Company's historical financial data and has some impact on the analysis of such
data.
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<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
(In thousands of dollars, except for per share amounts)
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statements of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues............................... $ 184,945 $ 118,890 $ 97,182 $ 91,020 $ 80,041
Income before income taxes 40,712 11,053 9,792 8,232 6,287
Net income............................. 24,662 6,632 6,103 6,025 3,810
Earnings per share
Basic................................ 2.79 0.92 1.18 0.95 0.43
Diluted.............................. 2.54 0.83 1.00 0.84 0.42
Weighted average common shares
Basic................................ 8,824,569 7,220,465 5,164,712 6,368,842 8,793,444
Diluted.............................. 9,703,336 7,976,052 6,104,391 7,175,373 8,999,650
At December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Statements of Financial Condition Data:
Cash and cash equivalents............ $ 53,117 $ 16,978 $ 11,512 $ 11,836 $ 8,597
Total assets......................... 121,965 180,394 140,732 127,331 115,214
Short-term borrowings - 16,988 29,423 17,375 28,138
from banks...........................
Notes payable to affiliates.......... - - 5,113 8,625 3,500
Total liabilities.................... 38,653 130,125 116,066 111,959 98,643
Mandatorily redeemable
common stock....................... - - - - 7,013
Total stockholders' equity........... 83,312 50,269 24,666 15,372 9,558
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
General
As a diversified financial services company, JWGenesis operates a full-
service securities brokerage and investment banking business that offers "one-
stop-shopping" for its customers and clients. The Company's varied activities
generate revenue primarily in the form of commission and fee income, market
making and principal transactions revenues, and interest income. Until June 1,
1999 when the Company sold JWG Clearing and ceased its clearing services
business, the Company also generated 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 years ended December 31, 1999, 1998 and 1997.
As a result of the Combination effected on June 12, 1998, the Company
succeeded to the respective businesses and operations of JWGFS and Genesis, and
it replaced JWGFS as a public company. The discussions relating to periods
prior to June 12, 1998, reflect the operations of JWGFS as if it were the
Company during such periods, but they 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, until its Divestiture on March 3,
1999, are included in the Company's financial data and have some impact on the
analysis of such data.
On June 1, 1999, the Company sold JWG Clearing in a cash transaction for
approximately $59 million, and ceased all securities clearing operations. The
results of JWG Clearing's operations through
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<PAGE>
May 31, 1999, 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 generally been omitted.
Results of Operations - Three Years Ended December 31, 1999
1999 represented the Company's fifteenth consecutive year of record
revenues. The following tables set forth the principal components of the
Company's revenues and expenses, respectively, for the last three years and the
percentage changes from year to year.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1999 % Increase 1998 % Increase 1997
(000's) (Decrease) (000's) (Decrease) (000's)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions................................. $103,729 64 63,250 27 $49,907
Market making and principal transactions,
net........................................ 33,676 36 24,825 19 20,836
Gain on sale of subsidiary.................. 23,877 NM - - -
Interest.................................... 9,982 (30) 14,218 25 11,363
Clearing fees............................... 6,046 (53) 12,914 5 12,338
Other....................................... 7,635 107 3,683 35 2,738
-------- --- -------- -- -------
Total Revenues............................. $184,945 56 $118,890 22 $97,182
==================================================================================
Year Ended December 31,
---------------------------------------------------------------------------------
1999 % Increase 1998 % Increase 1997
(000's) (Decrease) (000's) (Decrease) (000's)
---------------------------------------------------------------------------------
Expenses:
Commissions and clearing costs................ $ 82,178 41 $ 58,460 14 $51,238
Employee compensation and benefits............ 29,247 32 22,074 36 16,278
Occupancy and equipment rental................ 9,908 58 6,286 21 5,180
Communications................................ 8,391 85 4,539 35 3,361
General and administrative.................... 11,462 4 11,060 59 6,946
Interest...................................... 3,047 (44) 5,418 24 4,387
-------- --- -------- -- -------
Total Expenses.............................. $144,233 34 $107,837 23 $87,390
=================================================================================
</TABLE>
Total revenues of $184,945,000 recorded in 1999 increased 56% over last
year's previous record of $118,890,000. The acquisition by JWGFG, the sale of
JWG Clearing, and the unrealized gain on the MVP investment added $25,576,000,
$23,877,000, and $5,645,000, respectively, to 1999 revenues, which otherwise
would have been $129,847,000 or a 20% increase over 1998. During 1999, the
Company experienced increases in all revenue categories, except clearing fees
and interest; revenue in these latter two categories had been generated
primarily by JWG Clearing, which was sold on June 1, 1999. During 1998, the
Company experienced increases in all revenue categories 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 18%,
21%, and 21% of total revenues in 1999, 1998 and 1997, respectively. The decline
as a percentage of total revenue in 1999 reflects the impact of the gain on the
sale of JWG Clearing. The volume increase during 1999 in revenue from market
making and principal transactions, net over the
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<PAGE>
1998 level, however, is primarily due to the inclusion of an unrealized gain of
$5,645,000 related to the Company's investment in MVP and gains on the Company's
investment in Knight/Trimark Group, Inc. in 1999 in excess of those recorded in
1998 in the amount of $2,550,000. Exclusive of these gains, market making and
principal transactions, net would have increased by $656,000 or 3% in 1999 over
1998. The increase in market making and principal transactions, net in 1998 over
1997 was primarily due to the inclusion of an unrealized gain of $6,400,000
related to the Company's investment in Knight/Trimark Group, Inc.
The gain on sale of subsidiary in 1999 of $23,877,000 resulted from the
sale of JWG Clearing on June 1, 1999. In addition to this recognized gain, the
Company recorded deferred income of $15 million related to the sale which is
being accreted into income ratably over the next 10 years.
Other income, which consists primarily of fee income, increased by
$3,952,000 or 107% from 1998 to 1999, and $945,000 or 35% from 1997 to 1998.
The increase in 1999 is primarily a result of investment banking success fees
received by JWG Capital; miscellaneous fees received in connection with
securities transactions in 1999 which were retained by JWG Clearing prior to
June 1, 1999 and were reflected as "Clearing fees" prior to that date; and
miscellaneous fees received in connection with securities transactions by JWGFG
in 1999. The increase in 1998 was primarily 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 in both 1999 and 1998, reflecting the
Company's overall business growth.
Employee compensation and benefits increased by 32% or $7,173,000 in 1999,
primarily as a result of the acquisition by JWGFG, which accounted for
$3,645,000 of the increase, and bonuses on the sale of JWG Clearing in the
amount of $3,729,000. Excluding the impact of those two increases, the growth
in employee compensation and benefits was less than 1%. 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 $3,622,000 or 58% in 1999,
primarily as a result of the operations of JWGFG, which accounted for $2,915,000
of the total increase, following the acquisition it made on January 1, 1999.
Excluding the impact of JWGFG, the growth in occupancy and equipment rental was
consistent with the growth of the Company's overall business. Occupancy and
equipment rental expenses increased by $1,106,000 or 21% from 1997 to 1998,
primarily as a result of the inclusion of Genesis in 1998, which accounted for
$438,000 of the increase, and overall business growth.
Communications increased by 85% or $3,852,000 in 1999 primarily as a result
of the acquisition by JWGFG, which accounted for $2,598,000 of the total
increase. Excluding the impact of JWGFG, communications expense would have
increased by $1,254,000 or 28% due to the Company's overall business growth.
Communications expense increased by 35% or $1,178,000 in 1998, primarily as a
result of and the inclusion of Genesis, which accounted for $721,000 of the
total increase, and the Company's overall business growth.
Until June 1, 1999, interest income consisted primarily of interest earned
on receivables from customers, securities owned, and customer money market fund
balances relating to JWG Clearing. Interest expense consisted 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
20
<PAGE>
decreased in 1999 due to the sale of JWG Clearing on June 1, 1999. Interest
income and interest expense had increased in 1998, primarily a result of a
general increase in customer margin balances from 1997 to 1998 and an increase
in the average outstanding loan balances used to fund increased customer
balances from 1997 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 brokers, dealers and clearing
brokers arising from customer related securities transactions. 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. Accordingly, the liquidity 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 its clearing firms and
committed lines of credit.
At December 31, 1999, the Company had stockholders' equity of $83,312,000,
representing an increase of $33,043,000 from December 31, 1999, and the Company
and cash and cash equivalents of $53,117,000. At December 31, 1999, the Company
had an aggregate of $12,000,000 of additional borrowing capacity available under
its committed lines of credit as described below under "Lines of Credit".
The Company used $35,000,000 of its cash to consummate its partial self-
tender offer in February 2000. As a result, at March 1, 2000, the Company had
cash and cash equivalents of $25,782,000.
The Company believes that its current borrowing arrangements (which are
discussed below), combined with anticipated levels of internally generated
funds, will be sufficient to fund its financial requirements for the foreseeable
future based on the Company's current and anticipated level of operations 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.
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 any outstanding borrowings plus all accrued and unpaid interest
will become due and immediately payable. Borrowings under the Wilmington
Facility bear interest at Wilmington's National Commercial Rate, with interest
payments due monthly in arrears. The Company is required to maintain certain
debt covenants, including (i) minimum stockholders' equity equal to at least
$7,000,000, plus 30% of net income for all future fiscal quarters, plus 75% of
the net proceeds from any common stock issuances and (ii) net income, as
defined, in excess of $1,500,000 for any four quarters within any consecutive
six-quarter period. At December 31, 1999, there was no balance outstanding
under the Wilmington Facility.
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,
21
<PAGE>
Inc. ("WTI") a common stock purchase warrant, which was amended and restated on
February 27, 1998. Pursuant to the warrant, WTI was entitled to purchase 600,000
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 $7.53. As of March 27,
2000, options to purchase 150,000 shares remain unexercised. 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, 2002, at which time any 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 tangible net worth, excluding redeemable common and preferred stock,
equal to at least $18 million, plus 75% of annual net income, plus 75% of net
proceeds from issuances of common stock and (ii) net income, as defined, in
excess of $1,500,000 for any four quarters within any consecutive six-quarter
period. At December 31, 1999, there was no balance outstanding under the
SunTrust Facility.
In connection with the SunTrust Facility, the Company entered into a
Marketing Agreement with SunTrust (the "SunTrust Marketing Agreement") and
granted SunTrust a warrant, which has been exercised, to purchase 56,250 shares
of the Company's common stock at any time prior to December 31, 2002, at an
exercise price of $4.44 per share. 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.
On September 17, 1999, the Company obtained a $7,000,000 senior secured
credit line from GE Financial Assurance ("GEFA") for general corporate purposes
(the "GEFA Facility"). The GEFA Facility matures on September 30, 2004, at
which time any outstanding borrowings and unpaid interest will become due and
immediately payable. Borrowings under the GEFA Facility bear interest at LIBOR
with interest payments due quarterly in arrears. The Company is required to
maintain certain debt covenants, including (i) tangible net worth equal to at
least $30 million, plus 75% of net income earned after September 30, 1999, (ii)
a fixed charge coverage ratio at the end of any period of four consecutive
quarters greater than 1.2 to 1.0, and (iii) an interest coverage ratio at the
end of any period of four consecutive quarters greater than or equal to 3.0 to
1.0. As additional consideration for the GEFA Facility, the Company issued GEFA
a warrant to purchase up to 262,500 shares of its common stock at $9.25 per
share at any time, subject to vesting, prior to May 14, 2004 (the "GEFA Credit
Warrant"). The GEFA Credit Warrant vests with respect to one-fourteenth of the
total GEFA Credit Warrant in connection with each $500,000 of borrowings or re-
borrowings under the GEFA Facility.
In connection with the GEFA Facility, the Company entered into a five-year
Strategic Marketing Alliance (the "SMA") with GEFA pursuant to which GEFA will
provide the Company's retail brokerage units with training, educational,
marketing and promotional assistance. Under the terms of the SMA, the Company
agreed to provide GEFA with preferred access to its retail sales force and
issued GEFA an additional warrant to purchase up to 262,500 shares of its
common stock at $9.25 per share at any time prior to May 14, 2004 (the "GEFA SMA
Warrant"). The SMA warrant is fully vested.
22
<PAGE>
Broker-Dealer Capital Requirements
JWGFS, JWG Securities, JWGFG, and DMG 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 JWGFS's, JWG Securities', JWGFG's and DMG's ratio of aggregate
indebtedness to net capital (excess net capital), as defined by the Rule, not
exceed 15 to 1. As of December 31, 1999, JWGFS, JWG Securities, JWGFG and DMG
had net capital of $2,950,000; $2,998,000; $1,350,000; and $310,000,
respectively, and excess net capital of $2,333,000; $2,579,000; $1,133,000; and
$210,000, respectively, each of which complied with the applicable requirements
of Rule 15c3-1.
Effects of Recently Issued Accounting Standards
During the current year, the FASB issued statement No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of Effective Date of
FAS No. 133, Amendment of FAS No. 133". This Statement delayed the effective
date of FAS 133 until all fiscal quarters of all fiscal years beginning after
June 15, 2000. This Statement 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. 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 137 is not anticipated to have a
material effect on the Company's financial position or results of operations.
Market Risk
In 1997 the Securities and Exchange Commission issued market risk
disclosure requirements to enhance disclosures of accounting policies for
derivatives and other financial instruments and to provide quantitative and
qualitative disclosures about market risk inherent in derivatives and other
financial instruments. The Company manages risk exposure involving various
levels of management. Position limits in trading and inventory accounts are
established and monitored on an ongoing basis. Current and proposed
underwriting, corporate development, merchant banking and other commitments are
subject to due 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 its Consolidated
Financial Statements. The fair value of these securities at December 31, 1999,
was $20,001,000 in long positions and $1,606,000 in short positions. The
Company performed an entity-wide analysis of its financial instruments and
assessed the related risk and materiality in accordance with applicable rules.
Based on this analysis, in the opinion of management, the market risk associated
with the Company's financial instruments at December 31, 1999 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.
23
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The information contained in Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Market Risk" is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included in a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Election of Directors" in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders, to be
filed with the Commission, is incorporated herein by reference to such portion
of the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive Compensation" in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders, to be
filed with the Commission, is incorporated herein by reference to such portion
of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the heading "Voting Securities Principal
Stockholders" in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders, to be filed with the Commission, is incorporated herein by
reference to such portion of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading ("Certain Transactions") in the
Company's Proxy Statement for its 2000 Annual Meeting of Shareholders, to be
filed with the Commission, is incorporated herein by reference to such portion
of the Proxy Statement.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements of JWGenesis Financial Corp. and
subsidiaries:
Consolidated Statements of Financial Condition as of December 31,
1999 and 1998.
Consolidated Statements of Income For the Years Ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Changes in Stockholders' Equity For the
Years Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows For the Years Ended December
31, 1999, 1998 and 1997.
Notes to Consolidated Financial Statements.
(2) All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because the required information is not required under the related
instructions, is inapplicable, or is not present in amounts sufficient
to require submission of the schedules, or because the information
required is included in the Consolidated Financial Statements or notes
thereto.
(3) Exhibits included herein:
Exhibit Number Description of Exhibit
- ---------------------------- --------------------------------------------------
2.1 Stock Purchase Agreement dated April 16, 1999, by
and among JWGenesis, Fiserv, Inc., Fiserv
Clearing, Inc., JWGenesis Financial Services,
Inc., and JWGenesis Clearing Corp. (incorporated
by reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K filed with the
Commission on April 30, 1999).
3(a) Articles of Incorporation of JWGenesis
(incorporated by reference to Exhibit 3.1 to
JWGenesis' Registration Statement on Form S-4
(File No. 333-47693) filed with the Commission on
April 22, 1998 (the "Combination S-4")).
3(b) By-Laws, as amended, of JWGenesis (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")).
10(a) Agreement for Securities Clearance Services
between Corporate Securities Group, Inc. and Bear
Stearns & Co., Inc. (incorporated by reference to
Exhibit 10(d) to the Amendment to Application or
Report on Form 8-K dated October 3, 1990) of
JWCharles Financial Services, Inc. then known as
Corporate Management Group, Inc., Commission No.
0-14772, the predecessor in interest of the
Company (the "Predecessor").
25
<PAGE>
Exhibit Number Description of Exhibit
- ---------------------------- --------------------------------------------------
10(b) Promissory Note and Loan Agreement between 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(c) 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(d) 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(e) Common Stock Purchase Warrant issued to SunTrust
Banks, Inc. dated August 26, 1996 (incorporated by
reference to Item 10(m) of the Predecessor's
Annual Report on Form 10-K for the year ended
December 31, 1996).
10(f) 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(g) Transition Services Agreement, dated April 16,
1999 by and among the JWGenesis, Fiserv, Inc.,
Fiserv Clearing, Inc., JWGenesis Financial
Services, Inc., and JWGenesis Clearing Corp.
(incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with
the Commission on June 15, 1999).
10(h) Form of Fully Disclosed Correspondent Agreement
dated June 1, 1999 (incorporated by reference to
Exhibit 2.1 to the Company's Current Report on
Form 8-K filed with the Commission on June 15,
1999).
10(i) Stockholders Agreement among JWGenesis, Woody
Springs LLC and MVP.com, Inc., dated as of July
15, 1999 (incorporated by reference to Exhibit
10(c) to the Company's Current Report on Form 8-K
filed with the Commission on August 13,
1999).
26
<PAGE>
Exhibit Number Description of Exhibit
- ---------------------------- --------------------------------------------------
21 Subsidiaries of the Registrant.
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 Gregg
S. Glaser (incorporated by reference to Exhibit
99(e) to the Company's Registration Statement on
Form S-4, Commission File No. 33-66751)
99(e) Employment Agreement between JWGenesis and John
Elway, dated as of July 15, 1999 (incorporated by
reference to Exhibit 10(b) to the Company's
Current Report on Form 8-K filed with the
Commission on August 13, 1999).
99(f) Stock Option Agreement between JWGenesis and John
Elway, dated as of July 15, 1999 (incorporated by
reference to Exhibit 10(c) to the Company's
Current Report on Form 8-K filed with the
Commission on August 13, 1999).
99(g) Nonsolicitation Agreement between the Company and
Marshall T. Leeds (the "Leeds Nonsolicitation
Agreement") (incorporated by reference to
Exhibit 99(h) to the Company's 1998 Form 10-K).
99(h) Agreement to amend the Leeds Nonsolicitation
Agreement.
99(i) Nonsolicitation Agreement between the Company and
Joel E. Marks (the "Marks Nonsolicitation
Agreement") (incorporated by reference to Exhibit
99.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1999).
99(j) Amendment to amend the Marks Nonsolicitation
Agreement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of the
Registrant's fiscal year.
27
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
Consolidated Financial Statements
- ---------------------------------
Report of Independent Certified Public Accountants
Years Ended December 31, 1999, 1998 and 1997.......................... F-2
Consolidated Statements of Financial Condition
December 31, 1999 and 1998............................................ F-3
Consolidated Statements of Income
Years Ended December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Financial Statement Schedules
- -----------------------------
All schedules are omitted because they are either not applicable or the required
information is included in the Consolidated Financial Statements or Notes
thereto.
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
JWGenesis Financial Corp.
In our opinion, the accompanying consolidated statements of financial condition
and the related consolidated statements of income, changes in stockholders'
equity and of cash flows present fairly, in all material respects, the financial
position of JWGenesis Financial Corp. and its subsidiaries (the "Company"), at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States, 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.
Tampa, Florida
March 24, 2000
F-2
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Financial Condition
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1999 1998
Assets
<S> <C> <C>
Cash and cash equivalents $ 53,117,000 $ 16,978,000
Commissions and other receivables from clearing brokers 4,435,000 3,655,000
Receivable from customers, net of allowance for
doubtful accounts of $-0- and $426,000 - 117,579,000
Receivable from brokers and dealers 8,965,000 3,260,000
Securities owned, at estimated fair value 20,001,000 13,746,000
Cost in excess of the fair value of net assets acquired 15,101,000 14,838,000
Furniture, equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$3,658,000 and $3,035,000 2,502,000 3,386,000
Deferred tax asset 4,216,000 -
Deferred expense 6,858,000 -
Other, net of allowance for doubtful accounts
of $498,000 and $1,047,000 6,770,000 6,952,000
---------------- ----------------
$121,965,000 $180,394,000
---------------- ----------------
Liabilities and Stockholders' Equity
Liabilities:
Short-term borrowings from banks $ - $ 16,988,000
Accounts payable, accrued expenses and other liabilities 17,025,000 17,319,000
Payable to customers - 49,218,000
Payable to brokers and dealers 5,004,000 42,283,000
Securities sold, not yet purchased, at estimated fair value 1,606,000 305,000
Line of credit - 3,000,000
Deferred tax liability - 356,000
Deferred income 14,125,000 -
Income taxes payable 893,000 656,000
---------------- ----------------
38,653,000 130,125,000
---------------- ----------------
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 30,000,000 shares;
issued and outstanding 9,268,450 and 8,251,581 shares 9,000 8,000
Additional paid-in capital 31,358,000 22,985,000
Retained earnings 51,945,000 27,283,000
Treasury stock, at cost, -0- and 1,350 shares - (7,000)
---------------- ----------------
Total stockholders' equity 83,312,000 50,269,000
---------------- ----------------
$121,965,000 $180,394,000
---------------- ----------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-3
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Commissions $103,729,000 $63,250,000 $49,907,000
Market making and principal
transactions, net 33,676,000 24,825,000 20,836,000
Interest 9,982,000 14,218,000 11,363,000
Clearing fees 6,046,000 12,914,000 12,338,000
Gain on sale of subsidiary 23,877,000 - -
Other 7,635,000 3,683,000 2,738,000
----------------- --------------- ----------------
184,945,000 118,890,000 97,182,000
----------------- --------------- ----------------
Expenses:
Commissions and clearing costs 82,178,000 58,460,000 51,238,000
Employee compensation and benefits 29,247,000 22,074,000 16,278,000
Occupancy and equipment rental 9,908,000 6,286,000 5,180,000
Communications 8,391,000 4,539,000 3,361,000
General and administrative 11,462,000 11,060,000 6,946,000
Interest 3,047,000 5,418,000 4,387,000
----------------- --------------- ----------------
144,233,000 107,837,000 87,390,000
----------------- --------------- ----------------
Income before income taxes 40,712,000 11,053,000 9,792,000
Provision for income taxes 16,050,000 4,421,000 3,689,000
----------------- --------------- ----------------
Net income $24,662,000 $6,632,000 $6,103,000
----------------- --------------- ----------------
Net income per common share:
Basic $ 2.79 $ .92 $ 1.18
----------------------------------------------------
Diluted $ 2.54 $ .83 $ 1.00
----------------------------------------------------
Weighted average common shares:
Basic 8,824,569 7,220,465 5,164,712
----------------- --------------- ----------------
Diluted 9,703,336 7,976,052 6,104,391
----------------- --------------- ----------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-4
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 4,845,654 $ 5,000 $ 819,000 $ 14,548,000
Issuance of common stock upon
exercise of stock options 158,184 -- 37,000 --
Issuance of common stock
for AGRO acquisition 532,276 1,000 2,927,000 --
Net income -- -- -- 6,103,000
Purchase of treasury shares -- -- -- --
Tax benefit related to
non-qualified option exercise -- -- 233,000 --
------------ ------------ ------------ ------------
Balance at December 31, 1997 5,536,114 6,000 4,016,000 20,651,000
Issuance of common stock upon
exercise of stock options 272,277 -- 208,000 --
Net income -- -- -- 6,632,000
Issuance of common stock for
Genesis Merchant Group Securities
acquisition 2,250,000 2,000 17,848,000 --
Issuance of common stock through
employee stock purchase plan 118,448 -- 613,000 --
Issuance of common stock for AGRO
acquisition 74,742 -- 300,000 --
------------ ------------ ------------ ------------
Balance at December 31, 1998 8,251,581 8,000 22,985,000 27,283,000
Issuance of common stock upon
exercise of stock options 772,876 1,000 2,088,000 --
Net income -- -- -- 24,662,000
Cancellation of shares from
settlement (32,094) -- (332,000) --
Issuance of warrants for
advertising and marketing
agreements -- -- 4,170,000 --
Issuance of common stock through
employee stock purchase plan 144,419 -- 695,000 --
Issuance of common stock for
employee bonus' 21,556 -- 81,000 --
Tax benefit related to
non-qualified option exercise -- -- 1,882,000 --
Cancellation of shares from
divestiture (426,563) -- (3,199,000) --
Cancellation of treasury shares (1,350) -- (7,000) --
Issuance of common stock for
non-compete agreements 538,025 -- 2,995,000 --
------------ ------------ ------------ ------------
Balance at December 31, 1999 9,268,450 $ 9,000 $ 31,358,000 $ 51,945,000
------------ ------------ ------------ ------------
<CAPTION>
Total
Treasury Stock Stockholders'
Shares Amount Equity
------ ------ ------
<S> <C> <C> <C>
Balance at December 31, 1996 -- $ -- $ 15,372,000
Issuance of common stock upon
exercise of stock options -- -- 37,000
Issuance of common stock
for AGRO acquisition -- -- 2,928,000
Net income -- -- 6,103,000
Purchase of treasury shares 1,350 (7,000) (7,000)
Tax benefit related to
non-qualified option exercise -- -- 233,000
------------ ------------ ------------
Balance at December 31, 1997 1,350 (7,000) 24,666,000
Issuance of common stock upon
exercise of stock options -- -- 208,000
Net income -- -- 6,632,000
Issuance of common stock for
Genesis Merchant Group Securities
acquisition -- -- 17,850,000
Issuance of common stock through
employee stock purchase plan -- -- 613,000
Issuance of common stock for AGRO
acquisition -- -- 300,000
------------ ------------ ------------
Balance at December 31, 1998 1,350 (7,000) 50,269,000
Issuance of common stock upon
exercise of stock options -- -- 2,089,000
Net income -- -- 24,662,000
Cancellation of shares from
settlement -- -- (332,000)
Issuance of warrants for
advertising and marketing
agreements -- -- 4,170,000
Issuance of common stock through
employee stock purchase plan -- -- 695,000
Issuance of common stock for
employee bonus' -- -- 81,000
Tax benefit related to
non-qualified option exercise -- -- 1,882,000
Cancellation of shares from
divestiture -- -- (3,199,000)
Cancellation of treasury shares (1,350) 7,000 --
Issuance of common stock for
non-compete agreements -- -- 2,995,000
------------ ------------ ------------
Balance at December 31, 1999 -- $ -- $ 83,312,000
------------ ------------ ------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-5
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Operating activities
<S> <C> <C> <C>
Net income $24,662,000 $ 6,632,000 $ 6,103,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 689,000 325,000 335,000
Amortization of cost in excess of the fair value of
net assets acquired and other 1,676,000 631,000 95,000
Accretion of deferred income (875,000) - -
Loss (gain) on disposal of furniture, equipment and
leasehold improvements - 12,000 (3,000)
Deferred taxes, net (4,572,000) 1,977,000 98,000
Gain on sale of subsidiary (23,877,000) - -
Change in assets and liabilities, net of effect from acquisitions
and divestitures:
Commissions and other receivables from clearing brokers (1,793,000) 183,000 1,487,000
Receivable from customers (85,123,000) (10,072,000) (8,897,000)
Receivable from brokers and dealers (7,796,000) 1,272,000 (843,000)
Securities owned (12,132,000) (4,736,000) (335,000)
Income taxes receivable - 294,000 (294,000)
Other assets 558,000 (2,098,000) (1,121,000)
Accounts payable, accrued expenses and other liabilities 1,094,000 2,446,000 1,163,000
Payable to customers (25,291,000) 14,163,000 (15,843,000)
Payable to brokers and dealers 55,895,000 8,916,000 8,839,000
Securities sold, net yet purchased 1,835,000 (305,000) 117,000
Income taxes payable 237,000 656,000 (34,000)
-------------- -------------- --------------
Net cash (used in) provided by operating activities (74,813,000) 20,296,000 (9,133,000)
-------------- -------------- --------------
Investing activities
Purchases of furniture, equipment and leasehold improvements (771,000) (1,157,000) (886,000)
Proceeds from disposal of furniture, equipment and
leasehold improvements 75,000 2,000 6,000
Cash paid for GSG acquisition (2,285,000) - -
Proceeds from sale of subsidiary, net of cash sold 57,576,000 - -
Cash paid upon divestiture of JWG Capital Markets (2,213,000) - -
-------------- -------------- --------------
Net cash provided by (used in) investing activities 52,382,000 (1,155,000) (880,000)
-------------- -------------- --------------
Financing activities
Short term borrowings from banks 58,787,000 (12,435,000) 12,048,000
Change in lines of credit (3,000,000) 2,110,000 890,000
Change in notes payable to affiliate - (5,113,000) (3,512,000)
Issuance of common stock 2,783,000 1,763,000 270,000
Purchase of treasury stock, at cost - - (7,000)
-------------- -------------- --------------
Net cash provided by (used in) financing activities 58,570,000 (13,675,000) 9,689,000
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents 36,139,000 5,466,000 (324,000)
Cash and cash equivalents at beginning of year 16,978,000 11,512,000 11,836,000
-------------- -------------- --------------
Cash and cash equivalents at end of year $53,117,000 $16,978,000 $11,512,000
-------------- -------------- --------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 2,846,000 $ 5,645,000 $ 3,619,000
-------------- -------------- --------------
Income taxes $19,633,000 $ 1,785,000 $ 3,611,000
-------------- -------------- --------------
</TABLE>
Supplemental schedule of noncash investing and financing activities
During fiscal 1999, 1998 and 1997, respectively, the Company issued 403,125,
174,375 and 168,750 shares of common stock relating to options exercised for
which the consideration received was 118,324, 46,098 and 57,234 shares of common
stock, respectively.
In September 1997 and December 1998, respectively, the Company issued 532,277
and 74,742 shares of common stock in connection with the acquisition of The
Americas Growth Fund, Inc. (Note 2).
On June 12, 1998, the Company issued 2,250,000 shares of common stock in
connection with the acquisition of Genesis Merchant Group Securities, LLC.
In July 1998, the Company issued 538,025 shares of restricted common stock in
connection with two executive members of management entering into a
non-solicitation agreement with the Company.
On March 3, 1999, the Company divested JWG Capital Markets for an aggregate of
426,563 shares of common stock of the Company.
On April 12, 1999, the Company issued 450,000 options as part of a corporate
spokesperson agreement.
In May 1999, the Company issued 175,000 warrants in connection with a marketing
agreement.
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-6
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Nature of Business and Summary of Significant Accounting Policies:
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 year ended December 31, 1997 represents
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 Inc.
("JWGFI"), formerly, JWGenesis Financial Services, Inc., formerly JWCFS;
JWGenesis Financial Services, Inc. ("JWGFS"), formerly, Corporate Securities
Group, Inc.; JWGenesis Securities, Inc. ("JWG Securities"); JWGenesis Capital
Markets, Inc. ("JWG Capital"), formerly JWGenesis Capital Corp.; JWGenesis
Insurance Services, Inc.; DMG Securities, Inc. ("DMG"); and JWGenesis
Financial Group, Inc, ("JWGFG") formerly, GSG Securities, Inc. All
consolidated subsidiaries are 100% owned by the Company. Prior to June 1,
1999 the consolidated financial statements included JWGenesis Clearing Corp.
("JWG Clearing"), which was a wholly owned subsidiary. From June 12, 1998 to
March 3, 1999, the consolidated financial statements included JWGenesis
Capital Markets, LLC ("JWG Capital Markets"), formerly Genesis Merchant Group
Securities, LLC ("Genesis"), which was a majority owned subsidiary. 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 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).
F-7
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, including cash in banks and money
market funds and United States Treasury bills with a maturity less than 90
days.
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.
Investment Valuation
In the absence of readily ascertainable market values, the investment in
MVP.Com, Inc. ("MVP") (see Note 6) is valued using methods determined in good
faith by the Company after consideration of all relevant information,
including private market values, original cost, operating results and
financial position. Because of the inherent uncertainty of valuation, these
estimated values may differ materially from the amounts which might be
ultimately realized upon the sale or other disposition of the investments.
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 and the acquisition by
JWGFG (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
F-8
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Index to Consolidated Financial Statements
------------------------------------------------------------------------------
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"). SFAS 128 requires the Company to report both basic earnings per
common share, which is based on the weighted average number of common shares
outstanding, and diluted earnings per common share, which is based on the
weighted average number of common shares outstanding and all dilutive
potential common shares outstanding.
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 and Divestitures:
Genesis Merchant Group Securities, LLC
On January 21, 1998, the Company executed an Agreement and Plan of Combination
(the "Combination") with Genesis and the owners (the "Genesis Members") of all
of the outstanding equity interests in Genesis (the "Genesis Membership
Interests"). Genesis was a San Francisco-based investment banking firm
specializing 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 2,250,000 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 2,250,000 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.
F-9
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Index to Consolidated Financial Statements
------------------------------------------------------------------------------
JWG Capital Markets Divestiture
On March 3, 1999, the Company divested JWG Capital Markets (the "Divestiture")
which at the time consisted primarily of the Company's San Francisco-based
brokerage processing services unit that had been acquired in the Combination
on June 12, 1998 to an investor group of certain of the former owners of JWG
Capital Markets (the "Investor Group"). In exchange and as part of the
Divestiture, the Investor Group conveyed to the Company an aggregate of
426,563 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 JWG
Capital so that those operations would be retained by the Company.
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 .647 shares of the Company's common stock
for each share of AGRO resulting in the issuance by the Company of 532,276
shares of common stock at a price of $5.50 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
---------------
In December 1998, the Company issued 74,742 shares of common stock at a price
of $4.01 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.
The JWGFG Acquisition
On January 1, 1999, JWGFG acquired certain assets of six retail securities
branch offices (and three satellite offices ) from an unaffiliated company
("the Seller"). In connection with this asset purchase, JWGFG paid the Seller
approximately $2,300,000 in cash ($1,000,000 of which was used to repay an
earlier loan from the Company to the Seller); JWGFS issued to the Seller
shares of its Series C Redeemable Preferred Stock that are redeemable, in the
aggregate, for up to $2,500,000 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 the Seller a warrant for the purchase of up to
156,250 shares of its common stock at an exercise price of $16 per share,
which may only be
F-10
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Index to Consolidated Financial Statements
------------------------------------------------------------------------------
exercised with proceeds from redeemed Series C Redeemable Preferred Stock, and
three-year, fully vested options to purchase 75,000 shares of its common stock
at an exercise price of $16 per share. The Company also agreed to issue to
designated members of the Seller's former senior management options to
purchase an aggregate of 375,000 shares of its common stock at an exercise
price of $8 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 150,000 options, with a three-year term and an $16 per
share exercise price, were made available by the Company to selected branch
managers and registered representatives employed in the acquired branch
offices.
JWG Clearing Divestiture
On June 1, 1999, the Company completed the sale of JWG Clearing to Fiserv,
Inc. ("Fiserv") through Fiserv's wholly owned subsidiary Fiserv Clearing, Inc.
("Fiserv Clearing"). JWG Clearing had 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. For
the sale to Fiserv, the Company received cash consideration of approximately
$59 million, and may receive additional consideration based on the outcome of
various matters. Of this amount, approximately $19 million represented the
net book value of JWG Clearing and $40 million represented the purchase price
in excess of the net book value of JWG Clearing. Of the $40 million, $25
million was recorded as income (reduced by certain expenses related to the
sale) in 1999 under the caption "gain on sale of subsidiary". The remaining
$15 million was recorded as deferred income and is being accreted into income
ratably over 10 years.
In connection with the sale, the Company: (i) entered 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)
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) agreed, 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 has 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.
3. Clearing Agreements:
JWGFS, JWGFG, JWG Securities and DMG have clearing agreements with
unaffiliated clearing brokers. Under such agreements, the clearing brokers
provide these subsidiaries with certain back-office support and clearing
services on all principal exchanges. In order to facilitate transactions with
these unaffiliated clearing brokers, the subsidiaries maintain cash balances
of approximately $400,000 that earn interest at a rate equal to 1% above the
rate customarily paid on credit balances to the clients of the clearing
broker. The $400,000 is included in commissions and other receivables from
clearing brokers on the accompanying consolidated statements of financial
condition.
F-11
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
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:
December 31,
------------
1999 1998
---- ----
Receivable:
Securities failed to deliver $ - $ 850,000
Deposits on securities borrowed - 2,056,000
Other amounts due from brokers and dealers 8,965,000 354,000
--------------- --------------
$8,965,000 $3,260,000
--------------- --------------
Payable:
Securities failed to receive $ - $ 786,000
Deposits on securities loaned - 34,151,000
Other amounts due to brokers and dealers 5,004,000 7,346,000
--------------- --------------
$5,004,000 $42,283,000
--------------- --------------
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
monitored the market value of securities borrowed and loaned on a daily basis,
with additional collateral obtained or refunded as necessary. There are no
amounts for securities failed to deliver/receive and deposits on securities
borrowed/loaned at December 31, 1999, as the Company sold the clearing
operations (see Note 2).
5. Receivable from and Payable to Customers:
Receivable from and payable to customers arose from cash and margin
transactions executed by the Company on the customer's behalf. Receivables
were collateralized by securities owned by customers. Such collateral is not
reflected in the accompanying consolidated statements of financial condition.
There are no amounts for December 31, 1999 as the Company sold the clearing
operations (see Note 2).
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>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
December 31,
------------
1999 1998
---- ----
Securities owned:
U.S. Government obligations $5,180,000 $ 840,000
State and municipal government obligations 3,240,000 3,257,000
Corporate obligations 3,152,000 1,921,000
Corporate stocks 1,461,000 1,150,000
Non-marketable 6,908,000 6,546,000
Other 60,000 32,000
--------------- --------------
$20,001,000 $13,746,000
--------------- --------------
December 31,
------------
1999 1998
---- ----
Securities sold, not yet purchased:
U.S. Government obligations $ 19,000 $ 21,000
State and municipal government obligations 288,000 66,000
Corporate obligations 87,000 -
Corporate stocks 1,010,000 110,000
Other 202,000 108,000
--------------- -------------
$1,606,000 $ 305,000
--------------- -------------
At December 31, 1999, the Company owned, of record, approximately 1,403,000
preferred shares of MVP, which are unregistered and for which there is
presently no public market. Approximately 158,000 of such shares were
allocated to Company management to cover bonus payments due and payable in
accordance with the employment agreements in effect. The approximately
1,403,000 MVP shares have a historical cost of approximately $1,035,000 and
are included in non-marketable securities at their estimated fair value of
$6,500,000. The resulting difference in cost and estimated fair value of
approximately $5,465,000 is included in market making and principal
transactions in 1999.
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 had a historical cost of $18,000 and were
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 was included in market making and principal
transactions in 1998. At December 31, 1999 the Company owned 8,442 shares
which are carried at fair market value of approximately $388,000.
7. Short-Term Borrowings from Banks:
Borrowings under JWG Clearing's financing agreement with a bank yielded
interest based upon the federal funds rate, were restricted to a percentage of
the market value of the related collateral securities, and were due on demand.
At December 31, 1998 approximately $16,988,000 was outstanding under this
arrangement. The market value of the collateral relating to this arrangement
was approximately $23,000,000 at December 31, 1998 including customer margin
account securities of approximately $19,000,000. The maximum and average
amounts outstanding during the year ended December 31, 1998 were approximately
$68,000,000, $37,000,000, respectively. The average interest rate during the
same period was 6.3%. As a result of the sale of JWG Clearing on June 1,
F-13
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
1999, the Company no longer has this agreement.
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.
F-14
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
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 and $628,000 for the years ended December 31, 1998 and 1997,
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, 1999, 1998 and 1997.
The Company leases its operations headquarters, branch offices and certain
equipment under operating leases that generally allow for renewal and are in
effect for various terms through 2003. Lease expense with respect to
operating leases for the years ended December 31, 1999, 1998 and 1997
approximated $4,197,000, $2,166,000 and $1,650,000, respectively.
F-15
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
Based upon long-term noncancelable leases and other contractual commitments,
the future minimum commitments as of December 31, 1999 are as follows:
2000 $2,533,680
2001 1,803,001
2002 1,163,481
2003 715,842
2004 and thereafter 996,449
--------------
$7,212,453
--------------
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.
In the normal course of business, securities transactions of brokerage
customers of the Company are introduced and cleared through a clearing broker
on a fully disclosed basis. Pursuant to an agreement between the Company and
the clearing broker, the clearing broker has the right to charge the Company
for unsecured losses that result from a customer's failure to complete such
transactions.
Two executive members of management (the "Executives") have entered into
nonsolicitation agreements with the Company for a period of seven years from
July 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 538,025 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. Additionally, on June 15,
1999, the Company entered into an agreement with the Executives, whereby the
Executives agreed to pay $1.35 million to the Company as liquidated damages in
addition to the forfeiture of the unvested shares at any time there is a
violation of the Nonsolicitation Agreements. In the event of a change in
control of the Company, all such shares become immediately vested and the
forfeiture provisions with respect to such shares will no longer be in force.
F-16
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
11. Income Taxes:
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year ended
December 31,
-----------------------------------------------
1999 1998 1997
---- ---- ----
Current provision:
<S> <C> <C> <C>
Federal $17,297,000 $1,950,000 $3,115,000
State 2,573,000 197,000 477,000
--------------- -------------- --------------
19,870,000 2,147,000 3,592,000
--------------- -------------- --------------
Deferred (benefit) provision:
Federal (3,325,000) 1,972,000 84,000
State (495,000) 302,000 13,000
--------------- -------------- --------------
(3,820,000) 2,274,000 97,000
--------------- -------------- --------------
$16,050,000 $4,421,000 $3,689,000
--------------- -------------- --------------
</TABLE>
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 asset (liability) as of December 31 are as
follows:
1999 1998
Deferred income $5,452,000 $ -
Compenstory stock options 120,000 -
Deferred compensation 229,000 198,000
Reserve for bad debts 25,000 490,000
Contingency accruals 558,000 555,000
Net operating loss carryforward 53,000 282,000
-------------- --------------
Gross deferred tax asset 6,437,000 1,525,000
-------------- --------------
Mark to market 2,062,000 1,856,000
Other 159,000 25,000
-------------- --------------
Gross deferred tax liability 2,221,000 1,881,000
-------------- --------------
Net deferred tax asset (liability) $4,216,000 $(356,000)
-------------- --------------
F-17
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company's effective tax rate on pre-tax income differs from the statutory
federal income tax rate due to the following:
<TABLE>
<CAPTION>
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Tax at statutory rate 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of state income tax 3.6% 3.6% 3.6%
Effect of nondeductible travel
and entertainment 0.1% 0.6% 2.1%
Effect on nondeductible amortization of goodwill 0.7% 1.0% -
Other - 0.8% (2.0%)
---------- ----------- --------
39.4% 40.0% 37.7%
---------- ----------- --------
</TABLE>
12. Net Capital 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. Net capital positions of the Company's broker-dealer subsidiaries
were as follows:
December 31,
------------
1999 1998
---- ----
JWGenesis Financial Services, Inc.
Ratio of aggregate indebtedness to net capital 3.13 to 1 2.82 to 1
Net capital $ 2,950,000 $2,000,000
Required net capital $ 617,000 $ 376,000
JWGenesis Securities, Inc.
Ratio of aggregate indebtednesss to net capital 2.09 to 1 2.59 to 1
Net capital $ 2,998,000 $1,399,000
Required net capital $ 419,000 $ 250,000
DMG Securities, Inc.
Ratio of aggregate indebtedness to net capital 0.69 to 1 0.67 to 1
Net capital $ 310,000 $ 232,000
Required net capital $ 100,000 $ 100,000
JWGenesis Financial Group, Inc.
Ratio of aggregate indebtedness to net capital 2.41 to 1 0.62 to 1
Net capital $ 1,350,000 $2,111,000
Required net capital $ 217,000 $ 50,000
Additionally, pursuant to Rule 15c3-1, JWGFS, JWG Securities, DMG and JWGFG
must notify and obtain approval from the Securities and Exchange Commission
and either the National Association of Securities Dealers, Inc. (JWGFS, DMG
and JWGFG) or the NYSE (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 120% of the
minimum net capital required by the rule.
F-18
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
13. Off-Balance-Sheet Risk:
In the normal course of business, the Company's customer activities involve
the execution, settlement and financing of various customer securities
transactions that settle in accordance with industry practice, which for most
securities, is currently three business days after trade date. These
activities may expose the Company to off-balance sheet credit and market risk
in the event the customer or other broker is unable to fulfill its contracted
obligations and the Company is required to purchase or sell the financial
instrument underlying the contract at a loss. The risk of default depends on
the credit worthiness of the customer or issuer of the instrument held as
collateral.
The Company may execute customer transactions involving the sale of securities
not yet purchased, which may be transacted on a margin basis subject to
individual exchange regulations. Such transactions may expose the Company to
off-balance sheet credit and market 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 obligation, the Company may be required to
purchase or sell financial instruments at prevailing market prices to fulfill
the customers' obligations.
14. Common Stock Split:
On February 16, 2000, the Company's Board of Directors declared a 3-for-2
stock split in the form of a stock dividend payable on March 24, 2000 to
shareholders of record on March 3, 2000. The Company's capital accounts at
December 31, 1999 and 1998 were adjusted to retroactively give effect to the
dividend in the same manner as would be done if the dividend had been issued
before December 31, 1999. All references in the consolidated financial
statements and accompanying notes to amounts per share and to the number of
common shares have been retroactively adjusted for the stock split.
15. Employee Benefit Plans:
The Company has two stock option plans, "The 1990 Stock Option Plan" and "The
1998 Stock Option and Award Plan" (collectively, the "Option Plans"). A total
of 4,200,000 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, 1999, 1998
and 1997 is summarized as follows:
F-19
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
Exercise Weighted
Number Price Average
of Shares Range Exercise Price
--------- ----- --------------
Balance, December 31, 1996 959,027 $ 1.30-2.99 $ 1.91
Granted 673,785 4.33-6.67 4.91
Exercised (25,500) 1.30-2.73 1.47
Forfeited (8,078) 4.49-6.67 5.09
----------- -------------- ----------
Balance, December 31, 1997 1,599,234 1.30-6.05 3.17
Granted 701,070 4.83-8.33 6.97
Exercised (318,375) 1.30-2.73 1.45
Forfeited (432,558) 1.50-8.33 5.46
----------- -------------- ----------
Balance, December 31, 1998 1,549,371 1.70-8.33 4.59
Granted 479,800 3.75-12.67 5.53
Exercised (684,922) 1.70-7.67 3.88
Forfeited (138,011) 4.15-8.33 6.45
----------- -------------- ----------
Balance, December 31, 1999 1,206,238 $ 1.70-12.67 $ 5.16
----------- -------------- ----------
The Company has a restricted stock plan providing for the issuance of up to
1,125,000 shares of its authorized but unissued common stock to nonexecutive
employees and registered representatives. As of December 31, 1999, 1998 and
1997, 15,750 shares had been issued under the restricted stock plan and
1,109,250 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:
Year Ended
December 31,
------------
1999 1998 1997
---- ---- ----
Net income:
As reported $ 24,662,000 $6,632,000 $6,103,000
Pro forma $ 22,880,000 $5,480,000 $5,404,000
Basic earnings per common share:
As reported $ 2.79 $ .92 $ 1.18
Pro forma $ 2.59 $ .76 $ 1.05
Diluted earnings per common share:
As reported $ 2.54 $ .83 $ 1.00
Pro forma $ 2.36 $ .69 $ .89
F-20
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
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 1999,
1998 and 1997, respectively: dividend yields of 0.0% for all years; expected
volatility of 60%, 100% and 53.2%; risk-free interest rates of 5.5%, 5.5% and
6.0%; and expected life of 3.4 years, 5 years, and 5 years. The weighted
average fair value of stock options granted in 1999, 1998 and 1997 was $5.16,
$4.55 and $2.59, respectively. The weighted average remaining contractual life
of options outstanding at December 31, 1999, 1998 and 1997 is 3.6, 3.2 and 3.3
years, respectively. At December 31, 1999, 1998 and 1997, the Company had
options available for future grants of 974,401, 1,316,191 and 459,703,
respectively. The following table summarizes information about the options
exercisable at December 31:
1999 1998 1997
---- ---- ----
Number of shares 2,283,000 804,000 593,000
Exercise price range $1.70-16.00 $1.70-7.00 $1.30-4.33
Weighted average exercise price $ 8.39 $ 3.96 $ 2.37
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 $367,000, $310,000 and $225,000 of Company matching
contributions made during 1999, 1998 and 1997, respectively.
On October 1, 1997, the Company adopted an Employee Stock Purchase Plan
("ESPP"), which is authorized to issue up to 600,000 shares of common stock to
its full-time employees to purchase shares of common stock through voluntary
contributions, including periodic payroll deductions. Under the terms of the
ESPP, employees are limited to a monthly contribution varying between $50 and
$1,650 of after-tax dollars to purchase the Company's common stock. The
purchase price of the stock is the lesser of 85% of the market price on the
first day of the quarter, or on the stock purchase date designated after the
end of each quarter. During 1999 and 1998, the ESPP purchased 144,419 and
118,448 shares, respectively, of common stock from the Company at average cost
per share of $4.81 and $5.17. At December 31, 1999, the Company is committed
to issue the ESPP, or purchase in the open market for issuance to the ESPP, an
additional 23,809 shares of common stock.
F-21
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
16. Earnings Per Common Share:
Presented below is basic and diluted earnings per share under SFAS 128 for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
------ ------ ------
1999
<S> <C> <C> <C>
Earnings per share of common stock $24,662,000 8,824,569 $ 2.79
Effect of dilutive securities:
Stock options 878,767
---------------- ------------- --------------
Earnings per share of common stock --
assuming dilution $24,662,000 9,703,336 $ 2.54
---------------- ------------- --------------
1998
Earnings per share of common stock $6,632,000 7,220,465 $ .92
Effect of dilutive securities:
Stock options 755,587
---------------- ------------- --------------
Earnings per share of common stock --
assuming dilution $6,632,000 7,976,052 $ .83
---------------- ------------- --------------
1997
Earnings per share of common stock $6,103,000 5,164,712 $ 1.18
Effect of dilutive securities:
Stock options 939,679
---------------- ------------- --------------
Earnings per share of common stock --
assuming dilution $6,103,000 6,104,391 $ 1.00
---------------- ------------- --------------
</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 14 retail branches
of JWG Securities located in Florida, California, Georgia and New York and six
retail branch offices of JWGFG located in New York, Florida, Colorado,
Illinois, and California. 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 130 JWGFS 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 through June 1, 1999 which were 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 MVP, NITE 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 1999 consists
primarily of the gain on sale of JWG Clearing (see Note 2).
F-22
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
The financial results of the Company's segments are the same as those
described in the "Nature of Business and Summary of Significant Accounting
Policies." 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,
-----------------------
1999 1998 1997
---- ---- ----
Revenue:
<S> <C> <C> <C>
Captive retail distribution $69,009,000 $31,002,000 $34,787,000
Independently owned distribution 53,426,000 41,120,000 37,084,000
Clearing and trading 32,709,000 32,760,000 24,649,000
Capital markets 5,673,000 13,249,000 -
Other 24,128,000 759,000 662,000
----------------- ----------------- ---------------
Total $184,945,000 $118,890,000 $97,182,000
----------------- ----------------- ---------------
Pre-tax income:
Captive retail distribution $ 2,383,000 $ 1,059,000 $2,023,000
Independently owned distribution 3,730,000 3,227,000 3,769,000
Clearing and trading 14,205,000 8,161,000 4,026,000
Capital markets 247,000 (809,000) -
Other 20,147,000 (585,000) (26,000)
----------------- ----------------- ---------------
Total $40,712,000 $11,053,000 $9,792,000
----------------- ----------------- ---------------
</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-quarter period. At December 31, 1999 there was no
balance outstanding under the Wilmington Facility.
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 600,000
shares of the Company's common stock. At December 31, 1999, the Wilmington
Warrant exercise price per share was $7.53. 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.
F-23
<PAGE>
JWGenesis Financial Corp. and Subsidiaries
Notes to Consolidated Financial Statements
------------------------------------------------------------------------------
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, 2002, 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 tangible net worth equal to at least
$18,000,000, plus 75% of net income for all future fiscal quarters, plus 75%
of the net proceeds from any common stock issuances and (ii) net income, as
defined, in excess of $1,500,000 for any four quarters within any consecutive
six-quarter period. At December 31, 1999 there was no balance outstanding
under the SunTrust Facility.
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 56,250 shares of the Company's
common stock at any time prior to December 31, 2002. The exercise price per
share is $4.44. 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.
On September 15, 1999, the Company obtained a $7,000,000 senior secured credit
line from GE Financial Assurance ("GEFA") for general corporate purposes (the
"GEFA Facility"). The GEFA Facility matures on September 30, 2004, at which
time any outstanding borrowings and unpaid interest will become due and
immediately payable. Borrowings under the GEFA Facility bear interest at the
LIBOR rate with interest payments due quarterly in arrears. The Company is
required to maintain certain debt covenants, including (i) tangible net worth
equal to at least $30 million, plus 75% of net income earned after September
30, 1999, (ii) a fixed charge coverage ratio at the end of any period of four
consecutive quarters greater than 1.2 to 1.0 and (iii) an interest coverage
ratio at the end of any period of four consecutive quarters greater than or
equal to 3.0 to 1.0. As additional consideration for the GEFA Facility, the
Company issued GEFA a five-year warrant to purchase up to 262,500 shares of
its common stock at $9.25 per share at any time prior to May 14, 2004 (the
"GEFA Credit Warrant"). The GEFA Credit Warrant vests with respect to one-
fourteenth of the total GEFA Credit Warrant in connection with each $500,000
of borrowed or re-borrowed under the GEFA Facility. There were no borrowings
under this agreement.
In connection with the GEFA Facility, the Company entered into a five year
Strategic Marketing Alliance (the "SMA") with GEFA pursuant to which GEFA will
provide the Company's retail brokerage units with training, educational,
marketing and promotional assistance. Under the terms of the SMA, the Company
agreed to provide GEFA with preferred access to its retail sales force and
issued GEFA a additional five-year warrant to purchase up to 262,500 shares of
its common stock at $9.25 per share at any time prior to May 14, 2004 (the
"GEFA SMA Warrant"). The SMA warrant is fully vested.
19. Subsequent Events:
On February 11, 2000, the Company completed a partial tender offer for shares
of its outstanding common stock, pursuant to which it purchased 1,750,000
shares for a price of $35 million. The Company conducted the tender offer in
order to utilize excess cash derived from the sale of JWG Clearing in June
1999.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 27, 2000 JWGENESIS FINANCIAL CORP.
-------------------------
(Registrant)
By: /s/ Marshall T. Leeds
---------------------
Marshall T. Leeds
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Marshall T. Leeds Date: March 27, 2000
- ---------------------------------------------
Marshall T. Leeds, Chairman, President
and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Joel E. Marks Date: March 27, 2000
- ---------------------------------------------
Joel E. Marks, Vice Chairman, Chief
Operating Officer, Secretary, and Director
/s/ Gregg S. Glaser Date: March 27, 2000
- ---------------------------------------------
Gregg S. Glaser, Executive Vice President and
Chief Financial Officer (Principal Financial
and Accounting Officer) and Director
/s/ Jeffrey H. Lehman Date: March 27, 2000
- --------------------------------------------
Jeffrey Lehman, Executive Vice President
and Director
/s/ Wm. Dennis Ferguson Date: March 27, 2000
- --------------------------------------------
Wm. Dennis Ferguson, Director
/s/ Sanford Cohen Date: March 27, 2000
- --------------------------------------------
Sanford Cohen, Director
<PAGE>
EXHIBIT 21
State of
Subsidiary Incorporation
------------------ -------------------
JWGenesis Financial Services, Inc. Florida
JWGenesis Securities, Inc. Florida
JWGenesis Insurance Services, Inc. Florida
JWGenesis Capital Markets, Inc. Florida
JWGenesis Financial, Inc. Florida
JWGenesis Financial Group, Inc. Florida
DMG Securities, Inc. Florida
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 53,117,000
<SECURITIES> 13,093,000
<RECEIVABLES> 13,400,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,160,000
<DEPRECIATION> 3,658,000
<TOTAL-ASSETS> 121,965,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 83,302,000
<TOTAL-LIABILITY-AND-EQUITY> 121,965,000
<SALES> 0
<TOTAL-REVENUES> 184,945,200
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 141,186,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,047,000
<INCOME-PRETAX> 40,712,000
<INCOME-TAX> 16,050,000
<INCOME-CONTINUING> 24,662,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,662,000
<EPS-BASIC> 2.79
<EPS-DILUTED> 2.54
</TABLE>
<PAGE>
EXHIBIT 99(h)
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is entered into as of the 15th day of
June, 1999, by and between JWGenesis Financial Corp., a Florida corporation (the
"Company"), and Marshall T. Leeds (the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Company recently sold JWGenesis Clearing Corp. to Fiserv
Clearing, Inc. ("Fiserv") for an estimated total gain of $40 million; and
WHEREAS, because the Company agreed to pay Fiserv a penalty of up to $15
million if one or more of its subsidiaries ceased clearing through Fiserv at any
time during the ten years following the sale, the Company is only able to
recognize $25 million in income for 1999 and the remaining $15 million (the
"Deferred Amount") will be recognized over 10 years; and
WHEREAS, in June, 1998, the Executive and the Company entered into a
nonsolicitation agreement (the "Nonsolicitation Agreement") under which the
Executive agreed to avoid soliciting the Company's customers for a period of 7
years; and
WHEREAS, the Company has requested the Executive agree to amend the
Nonsolicitation Agreement to provide that the Executive will pay the Company
liquidated damages of $1 million if the Executive violates the Nonsolicitation
Agreement; and
WHEREAS, the Company has the cash benefit of the entire $40 million gain
and in consideration of the Executive agreeing to the amendment of the
Nonsolication Agreement, the Company has agreed to advance to the Executive an
amount estimated to equal the bonus amount the Executive would receive over the
next 10 years under the current bonus plan as the Deferred Amount is recognized
in income, discounted by 3% per year; and
WHEREAS, the Company will forgive this advance payment over the next 10
years subject to certain acceleration provisions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment of Nonsolicitation Agreement. The Executive and the Company
--------------------------------------
hereby agree to the amendment of the Nonsolicitation Agreement to provide for
the payment by Executive of liquidated damages of $1 million if the Executive
violates the Nonsolicitation Agreement.
<PAGE>
2. Advance Payment. The Company agrees to advance to the Executive a total
---------------
amount equal to $970,891 (the "Advance Amount") which equals the estimated
discounted amount that may become payable to Executive under the JWGenesis
Financial Corp. Management Incentive Plan as a result of the Company's
recognition of $15 million in income over the next 10 years from the sale of
Fiserv.
3. Forgiveness of Advance Payment - The Advance Payment shall be forgiven at
------------------------------
the rate of $97,089.10 per year on each May 31, 2000 through 2009, subject to
paragraphs 4. And 5. below.
4. Termination of Employment.
-------------------------
(a) By the Company For Cause - If the Executive's employment is terminated
------------------------
by the Company for Cause (as such term is defined in the Executive's Employment
Agreement with the Company) his and the Company's obligations pursuant to this
Agreement shall continue as if he were still employed by the Company.
(b) By the Company Without Cause - If the Company terminates Executive's
----------------------------
employment without Cause prior to the full forgiveness of the Advance Amount,
the Company shall forgive the Advance Amount, including interest thereon.
(c) By the Executive - If the Executive voluntarily terminates his
----------------
employment with the Company, his and the Company's obligations pursuant to this
Agreement shall continue as if he were still employed by the Company.
5. Acceleration of Advance Amount. If, at any time prior to the full
------------------------------
forgiveness of the Advance Amount, the Company terminates its agreement with
Fiserv, or ceases to use Fiserv for its clearing services, and owes Fiserv a
penalty, as a direct result thereof, which reduces the Deferred Amount
recognized as income by the Company, a portion of the Advance Amount shall
become immediately due and payable by the Executive. The amount accelerated and
immediately due and payable by the Executive shall equal the Advance Amount
(including accrued interest thereon at 3% per annum) multiplied by a fraction,
the numerator of which equals the amount of the penalty paid to Fiserv and the
denominator of which equals fifteen million ($15,000,000.00).
Notwithstanding the above, if, in connection with the termination of the
agreement with Fiserv, the Company enters into an agreement with another
clearing firm and receives a monetary benefit from such other clearing firm
which is includible in income, such amount shall be credited against the penalty
paid to Fiserv for purposes of the computation of the amount accelerated above.
3. Sale of the Company. Upon the sale of substantially all the assets or stock
-------------------
of the Company, the Company shall immediately forgive the Advance Amount.
<PAGE>
4. Modification of Agreement. This Agreement may be modified, amended,
-------------------------
suspended or terminated only by a written instrument executed by the parties
hereto.
5. General and Miscellaneous.
-------------------------
(a) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Georgia without giving
effect to the conflicts of laws principles thereof.
(b) This Agreement shall inure to the benefit of the Company and its
successors and assignees and shall be binding upon Executive, Executive's heirs,
administrators, executors and personal representatives.
(c) The Company's failure to insist upon strict performance of any term or
to exercise any right shall not be construed as a waiver or relinquishment for
the future of such term or right, which shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first above written.
COMPANY EXECUTIVE
JWGENESIS FINANCIAL CORP.
By: /s/ Gregg S. Glaser /s/ Marshall T. Leeds
----------------------------- ----------------------------
Name: Gregg S. Glaser MARSHALL T. LEEDS
Title: Chief Financial Officer
Address: __________________
__________________
__________________
<PAGE>
EXHIBIT 99(j)
AGREEMENT
---------
THIS AGREEMENT (the "Agreement") is entered into as of the 15th day of
June, 1999, by and between JWGenesis Financial Corp., a Florida corporation (the
"Company"), and Joel E. Marks (the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Company recently sold JWGenesis Clearing Corp. to Fiserv
Clearing, Inc. ("Fiserv") for an estimated total gain of $40 million; and
WHEREAS, because the Company agreed to pay Fiserv a penalty of up to $15
million if one or more of its subsidiaries ceased clearing through Fiserv at any
time during the ten years following the sale, the Company is only able to
recognize $25 million in income for 1999 and the remaining $15 million (the
"Deferred Amount") will be recognized over 10 years; and
WHEREAS, in June, 1998, the Executive and the Company entered into a
nonsolicitation agreement (the "Nonsolicitation Agreement") under which the
Executive agreed to avoid soliciting the Company's customers for a period of 7
years; and
WHEREAS, the Company has requested the Executive agree to amend the
Nonsolicitation Agreement to provide that the Executive will pay the Company
liquidated damages of $1 million if the Executive violates the Nonsolicitation
Agreement; and
WHEREAS, the Company has the cash benefit of the entire $40 million gain
and in consideration of the Executive agreeing to the amendment of the
Nonsolication Agreement, the Company has agreed to advance to the Executive an
amount estimated to equal the bonus amount the Executive would receive over the
next 10 years under the current bonus plan as the Deferred Amount is recognized
in income, discounted by 3% per year; and
WHEREAS, the Company will forgive this advance payment over the next 10
years subject to certain acceleration provisions.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Amendment of Nonsolicitation Agreement. The Executive and the Company
--------------------------------------
hereby agree to the amendment of the Nonsolicitation Agreement to provide for
the payment by Executive of liquidated damages of $350,000 if the Executive
violates the Nonsolicitation Agreement.
<PAGE>
2. Advance Payment. The Company agrees to advance to the Executive a total
---------------
amount equal to $417,483 (the "Advance Amount") which equals the estimated
discounted amount that may become payable to Executive under the JWGenesis
Financial Corp. Management Incentive Plan as a result of the Company's
recognition of $15 million in income over the next 10 years from the sale of
Fiserv.
3. Forgiveness of Advance Payment - The Advance Payment shall be forgiven at
------------------------------
the rate of $41,748.30 per year on each May 31, 2000 through 2009, subject to
paragraphs 4. And 5. below.
4. Termination of Employment.
-------------------------
(a) By the Company For Cause - If the Executive's employment is terminated
------------------------
by the Company for Cause (as such term is defined in the Executive's Employment
Agreement with the Company) his and the Company's obligations pursuant to this
Agreement shall continue as if he were still employed by the Company.
(b) By the Company Without Cause - If the Company terminates Executive's
----------------------------
employment without Cause prior to the full forgiveness of the Advance Amount,
the Company shall forgive the Advance Amount, including interest thereon.
(c) By the Executive - If the Executive voluntarily terminates his
----------------
employment with the Company, his and the Company's obligations pursuant to this
Agreement shall continue as if he were still employed by the Company.
5. Acceleration of Advance Amount. If, at any time prior to the full
------------------------------
forgiveness of the Advance Amount, the Company terminates its agreement with
Fiserv, or ceases to use Fiserv for its clearing services, and owes Fiserv a
penalty, as a direct result thereof, which reduces the Deferred Amount
recognized as income by the Company, a portion of the Advance Amount shall
become immediately due and payable by the Executive. The amount accelerated and
immediately due and payable by the Executive shall equal the Advance Amount
(including accrued interest thereon at 3% per annum) multiplied by a fraction,
the numerator of which equals the amount of the penalty paid to Fiserv and the
denominator of which equals fifteen million ($15,000,000.00).
Notwithstanding the above, if, in connection with the termination of the
agreement with Fiserv, the Company enters into an agreement with another
clearing firm and receives a monetary benefit from such other clearing firm
which is includible in income, such amount shall be credited against the penalty
paid to Fiserv for purposes of the computation of the amount accelerated above.
3. Sale of the Company. Upon the sale of substantially all the assets or stock
-------------------
of the Company, the Company shall immediately forgive the Advance Amount.
<PAGE>
4. Modification of Agreement. This Agreement may be modified, amended,
-------------------------
suspended or terminated only by a written instrument executed by the parties
hereto.
5. General and Miscellaneous.
-------------------------
(a) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Georgia without giving
effect to the conflicts of laws principles thereof.
(b) This Agreement shall inure to the benefit of the Company and its
successors and assignees and shall be binding upon Executive, Executive's heirs,
administrators, executors and personal representatives.
(c) The Company's failure to insist upon strict performance of any term or
to exercise any right shall not be construed as a waiver or relinquishment for
the future of such term or right, which shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement, as of the
date first above written.
COMPANY EXECUTIVE
JWGENESIS FINANCIAL CORP.
By: /s/ Gregg S. Glaser /s/ Joel E. Marks
- ------------------------------- ---------------------------
Name: Gregg S. Glaser JOEL E. MARKS
Title: Chief Financial Officer
Address: __________________
__________________
__________________
