As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333-61141
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
_______________
FAS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 8111 74-2883579
(State or other jurisdiction of (Primary Standard Industrial
(I.R.S. Employer
incorporation or organization) Classification Code Number)
Identification Number)
JACK A. ALEXANDER, CHAIRMAN & CEO
FAS GROUP, INC.
16935 WEST BERNARDO DRIVE, SUITE 107 16935 WEST BERNARDO DRIVE, SUITE
107
SAN DIEGO, CALIFORNIA 92127 SAN DIEGO, CALIFORNIA 92127
(619) 487-1350 (619) 487-1350
(Address, including zip code, and telephone number (Name, address,
including zip code, and
including area code, of registrant's principal Executive offices)
telephone number including area code, of agent for service)
Copies to:
ROBERT L. SONFIELD, JR., ESQ. JAMES F. CULLEN, ESQ.
SONFIELD & SONFIELD FAS WEALTH MANAGEMENT SERVICES, INC.
770 S. POST OAK LANE 2323 STICKNEY POINT ROAD
HOUSTON, TEXAS 77056 SARASOTA, FLORIDA 34231
(713) 877-8333 (941) 365-4200
FACSIMILE: (713) 877-1547 FACSIMILE: (941) 366-4840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO
SAID SECTION 8(A), MAY
DETERMINE
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Unit(1) Price(1) Registration Fee
- ----------------------------------------- ------------ -------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock 1,961,000 $ 0.84 $ 1,641,943 $ 497.56
Common Stock Underlying Redeemable
Class A Common Stock Purchase Warrants 750,000 $ 5.00 3,750,000 $ 1,136.36
Common Stock Underlying Warrants 22,800 $ 3.29 75,012 $ 22.73
Common Stock Underlying Incentive
Stock Options 134,064 $ 1.40 187,689 $ 56.88
Common Stock Underlying Stock Options 655,000 $ 0.60 393,000 $ 119.09
-------------------- -----------------
TOTAL $ 6,047,644 $ 1,832.62
========================================= ==================== =================
</TABLE>
(1) The Registration Fee is based upon the book value of the Common Stock
of FAS at September 30, 1998 pursuant to Rule 457(f)(2).
FAS WEALTH MANAGEMENT SERVICES, INC.
------------------------------------
SouthTrust Bank Plaza 1800 Second Street, Suite 780 Sarasota, Florida
34236
January 21, 1999
DEAR SHAREHOLDER:
Enclosed are materials relating to a Merger of FAS Wealth Management
Services, Inc., a Florida corporation ("FAS Wealth"), with FAS Wealth Management
Services, Inc., a newly formed wholly-owned Delaware subsidiary ("FAS Wealth
Delaware") of FAS Group, Inc., a Delaware corporation, ("FAS") with FAS Wealth
surviving the merger. The Merger was effected as of the 31st day of August,
1998 and is intended to be finalized on the twentieth day after the date of this
Information Statement and will result in (i) FAS Wealth's name being unchanged
as FAS Wealth Management Services, Inc. (ii) shares of common stock of FAS
Wealth being converted into the right to receive .5872 shares of common stock of
FAS for each share of common stock of FAS Wealth owned by you as of the date of
Merger (iii) FAS Wealth to be incorporated under the laws of Delaware after the
Merger; and (iv) FAS Wealth Delaware being a wholly owned subsidiary of FAS
whose Certificate of Incorporation authorizes FAS to issue (A) 25,000,000 shares
of Class A Common Stock, par vale $.001 per share, (B) 1,000,000 shares of Class
B Common Stock; and (c) 1,000,000 shares of Preferred Stock, with a par value of
$.001 per share.
The Board of Directors of FAS and shareholders owning approximately 51% of
the outstanding common stock of FAS Wealth as of July 31, 1998 carefully
considered means to facilitate the growth of FAS Wealth and maximize the
potential of its Affinity Marketing Program and concluded the Merger to be an
integral part of the process and in the best interests of FAS Wealth and its
shareholders.
FAS urges you to follow the instructions set forth in the enclosed
Information Statement under the section entitled "Merger with FAS -- How to
Exchange FAS Wealth Common Stock for FAS Common Stock" if you elect to surrender
the FAS Wealth Certificate(s) representing your shares for certificates
representing shares of common stock of FAS. If you wish to dissent from the
Merger and seek a judicial determination of the value of your shares, you may do
so by following the instructions in the Information Statement section entitled
"Merger with FAS -- Rights of Dissenting Shareholders."
Sincerely,
/s/Guy S. Della Penna
------------------------
Guy S. Della Penna, President
2
SUBJECT TO COMPLETION, DATED JANUARY 22, 1999
THE INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
INFORMATION STATEMENT OF
FAS WEALTH MANAGEMENT SERVICES, INC.
(A FLORIDA CORPORATION)
AND
PROSPECTUS OF FAS GROUP, INC.
(A DELAWARE CORPORATION)
This Information Statement is being furnished to holders of the common
stock, par value $.002 per share (the "FAS Wealth Common Stock"), of FAS Wealth
to inform the holders that the board of directors of FAS Wealth (the "Board of
Directors") and holders of shares representing approximately 51% (the "Majority
Holders") of the outstanding shares of FAS Wealth Common Stock have authorized,
by written consent dated July 31, 1998, the Merger of FAS Wealth with FAS Wealth
Delaware, a wholly owned subsidiary of FAS with FAS Wealth surviving the merger
(the "Merger") as a Delaware corporation and the continuation of FAS Wealth's
name as FAS Wealth Management Services, Inc. The Merger was effected on the
31st day of August, 1998 and is intended to be finalized on the twentieth day
after the date of this Information Statement or as soon as practicable
thereafter (the "Effective Date"). The close of business on July 31, 1998 has
been fixed by the Board of Directors as the record date for determining the
stockholders of FAS Wealth entitled to notice of the Merger.
MANAGEMENT IS NOT ASKING FOR YOUR PROXY AND YOU ARE
REQUESTED NOT TO SEND US YOUR PROXY
On the 31st day of August, 1998, FAS Wealth Delaware, a newly formed wholly
owned Delaware subsidiary of FAS will merge with and into FAS Wealth, pursuant
to an Agreement and Plan of Merger (the "Plan of Merger") among FAS Wealth,
certain stockholders of FAS Wealth, FAS and FAS Wealth Delaware dated May 7,
1998.
On the Effective Date, holders of FAS Wealth Common Stock will receive
.5872 shares of common stock of FAS, par value $.001, ("FAS Common Stock") for
each share of FAS Wealth Common Stock owned by each such holder as of the day
preceding the Effective Date of the Merger with any resulting fractional FAS
Common Stock interests being canceled in exchange for cash in an amount (without
interest) equal to the product of $0.065 and the number of shares of FAS Wealth
Common Stock represented by any such fraction (the "Cancellation Price"). No
certificates for fractional shares of FAS Common Stock will be issued and all
such fractional shares of FAS Common Stock interests will be canceled. Holders
of such fractional interests will have only the right to receive the
Cancellation Price in cash for such interests.
Enclosed herewith is a form letter of transmittal with instructions for
effecting the surrender of the certificate or certificates which immediately
prior to the Effective Date represented issued and outstanding shares of FAS
Wealth Common Stock ("FAS Wealth Certificates"), in exchange for certificates
representing FAS Common Stock ("FAS Certificates"). Upon surrender of an FAS
Wealth Certificate for cancellation to FAS together with a duly executed letter
of transmittal, the holder of such FAS Wealth Certificate will, subject to the
restrictions applicable to fractional shares, be entitled to receive, as soon as
practicable after the Effective Date, in exchange therefor, an FAS Certificate
representing that number of shares of FAS Common Stock into which the shares of
FAS Wealth Common Stock theretofore represented by the FAS Wealth Certificate so
surrendered will have been converted pursuant to the provisions of the Plan of
Merger, and the FAS Wealth Certificate so surrendered will forthwith be
canceled.
The Merger also results in (i) FAS Wealth Delaware which may grant officers
and directors greater protection from personal liability than Florida law and
provides anti-takeover protections that may not be available under Florida law
and (ii) some of the officers and directors of FAS Wealth as constituted
immediately prior to the Merger becoming officers and directors of FAS along
with the persons who are currently officers and directors of FAS (the "New Board
of Directors"). See "Certain Considerations Related to the Merger -Directors
and Officers of FAS following the Merger."
FAS has adopted the FAS Group, Inc. Stock Incentive Plan (the "Stock
Incentive Plan"). Therefore, as a part of the Merger, the Stock Incentive Plan
will permit the New Board of Directors or a special committee of the New Board
of Directors to award three types of stock incentives to directors, officers and
certain key employees of FAS and FAS Wealth Delaware. Such discretionary stock
incentives could include stock options, stock appreciation rights, and
"restricted" stock. See "Information Concerning FAS - Management of FAS - Stock
Incentive Plan."
The purpose of this Information Statement/Prospectus is to inform holders
of FAS Wealth Common Stock who have not given FAS Wealth their written Consent
to the foregoing corporate actions of such actions and their effects and, as
required by Florida law, to give any holder of FAS Wealth Common Stock who so
desires the right to dissent from the Merger and to receive the "fair value" of
his FAS Wealth Common Stock in lieu of FAS Common Stock and any cash for
canceled FAS fractional share interests to which such holder would otherwise be
entitled in the Merger. See "Certain Considerations Related to the Merger -
Rights of Dissenting Shareholders."
As of November 30, 1998, 2,664,560 shares of FAS Wealth Common Stock were
issued and outstanding.
iv
iv
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
AVAILABLE INFORMATION 1
INCORPORATION OF DOCUMENTS BY REFERENCE 1
CAUTIONARY STATEMENTS 1
SUMMARY 3
Overview 3
Parties to the Merger 3
FAS Group, Inc. 3
FAS Wealth Management Services, Inc., a Florida corporation 3
FAS Wealth Management Services Inc., a Delaware corporation 3
The Merger 4
Delivery of Shares 4
Certain Tax Considerations 4
Effect of the Merger on Employees and Employee Benefits 4
Accounting Treatment and Appraisal Rights 4
Summary Historical Consolidated Financial Data of FAS
Wealth Florida 4
Summary Unaudited Consolidated Financial Data 5
Risk Factors 5
Summary Consolidated Financial Data 6
RISK FACTORS 10
General Securities Business Risks 10
Market Acceptance of Affinity Group Products 10
Reduced Revenues Due to Economic, Political and Market Conditions 10
Reduced Revenues Due to Declining Market Volume, Price or Liquidity 10
Possibility of Losses Associated with Underwriting Activities 11
Net Capital Requirements 11
Potential Reduction in Revenues 11
Significant Fluctuations in Quarterly Operating Results 11
Competition for Retaining and Recruiting Personnel 12
Significant Competition from Larger Securities Firms 12
Regulation 13
Potential Conflicts of Interest 14
Possibility of Losses Associated with Principal and Trading Activities 14
Litigation and Potential Securities Laws Liability 14
Dependence on Affinity Group Marketing Strategy 15
Dependence on Cash Inflows to Mutual Funds 15
Management of Growth 15
Dependence on Systems and Third Parties 15
Dependence Upon Availability of Capital and Funding 16
Uncertainty of Name Availability 16
Absence of Dividends 16
Corporate Governance Controlled by Insiders 16
No Assurance of Public Market for Common Stock 17
Anti-Takeover Provisions 17
Lack of Independent Fairness Opinion 17
Effect of Exercise of Stock Options Granted Under Stock
Incentive Plan 17
Possible Issuance of Additional Shares 18
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 18
CERTAIN CONSIDERATIONS RELATED TO THE MERGER 23
Background 23
The Merger 23
FAS Wealth Florida's Reasons for the Merger; Recommendation
of FAS Wealth
Florida's Board of Directors 23
Opinion of FAS Wealth Florida's Board of Directors 23
Directors and Officers of FAS Following the Merger 23
Rights of Dissenting Shareholders 27
THE MERGER 28
General 28
Closing; Effective Date 30
Representations and Warranties 30
Post-Closing Matters 30
Incentive Stock Option 30
Dividend Policy 30
Market for Common Equity and Related Stockholder Matters 30
CERTAIN TAX CONSIDERATIONS 31
Taxpayer Relief Act 32
Back-Up Withholding Requirements 32
INFORMATION CONCERNING FAS 32
FAS Management's Discussion and Analysis of Financial
Condition and Results of Operations 33
Overview 33
Liquidity and Capital Resources. 33
Business of FAS 33
Overview 33
The Industry Background 34
Employment 34
Growth Strategy 34
Accounting, Administration and Operations 35
Competition 35
Legal Proceedings 36
Risk Management 36
Regulation 37
Net Capital Requirments 38
Management of FAS 39
Directors and Executive Officers 39
Compensation of Executive Officers 39
Compensation of Directors 40
Stock Incentive Plan 40
General Provisions of the Stock Incentive Plan 40
Stock Options and Stock Appreciation Rights 40
Restricted Stock 41
Tax Information 42
Limitations of Liability and Indemnification of Directors 43
Principal Stockholders of FAS 43
Description of FAS Capital Stock 44
Common Stock 45
Preferred Stock 46
Warrants 46
Shares Eligible for Future Sale 46
INFORMATION CONCERNING FAS WEALTH 47
General 47
Acquisition of Registered Representatives 47
Operations Office 48
Licensing 48
Objective of Management 48
Affinity Group Marketing Strategy 49
Market Making Activities 51
Growth Strategy 51
Competition 51
Regulation 52
FAS Wealth Florida Selected Historical Financial Data 53
FAS Wealth Florida Management's Discussion and Analysis
of Financial Condition and Results of Operations 53
Regulatory Net Capital 54
Management of FAS Wealth Florida 55
Directors and FAS Wealth Florida Officers 55
Employment Agreements 55
Principal Stockholders of FAS Wealth Florida 55
COMPARATIVE RIGHTS OF STOCKHOLDERS 56
Significant Changes in FAS Wealth Florida's Charter and By-laws
to be Implemented by the Merger 56
Change of Corporate Name 56
Limitation of Liability 56
Indemnification 58
Defenses Against Hostile Takeovers 59
Introduction ERROR! BOOKMARK NOT DEFINED.
Authorized Shares of Capital Stock 60
Stockholder Meetings 60
Classified Board of Directors and Removal of Directors. 60
Restriction of Maximum Number of Directors and Filling Vacancies
on the Board of Directors 61
Stockholder Vote Required to Approve Business Combinations
with Related Persons 61
Advance Notice Requirements for Nomination of Directors and Proposal
of New Business at Annual Stockholder Meetings 62
Supermajority Voting Requirement for Amendment of Certain
Provisions of the Certificate of Incorporation 62
Certain Significant Differences Between the Corporation Laws
of Florida and Delaware 62
Dividends 63
Right to Inspect Books and Records 63
Interested Director Transactions 63
Special Meetings of Shareholders 63
Sequestration of Shares 64
Certain Actions 64
Tender Offer and Business Combination Statutes 64
Dissenters' Rights 65
LEGAL MATTERS 65
EXPERTS 65
INDEX TO FINANCIAL STATEMENTS F - 1
</TABLE>
Annex A Agreement and Plan of Merger**
Annex B Certificate of Incorporation of FAS Group, Inc. **
Annex C FAS Stock Incentive Plan**
Annex D Florida Statute Describing Dissenters' Rights**
Annex E Letter of Transmittal**
________________________
** Previously Filed.
AVAILABLE INFORMATION AVAILABLE INFORMATION
FAS Wealth files reports and other information with the Securities and
Exchange Commission (the "Commission") relating to its business, financial
position, results of operations and other matters. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section maintained by the Commission at Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549. Copies of such material also can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements and other information can be reviewed through the Commission's
Electronic Data Gathering Analysis and Retrieval System, which is publicly
available through the Commission's Web site (http://www.sec.gov).
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT/PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY FAS, FAS WEALTH OR ANY OTHER PERSON. THIS INFORMATION
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS INFORMATION STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
THE SECURITIES MADE UNDER THIS INFORMATION STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FAS WEALTH OR FAS SINCE THE DATE OF THIS INFORMATION STATEMENT/
PROSPECTUS.
INCORPORATION OF DOCUMENTS BY REFERENCE INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed with the Commission by FAS Wealth are
incorporated by reference in this Information Statement/Prospectus:
1. FAS Wealth's Annual Report on Form 10-K for the year ended December 31,
1997;
2. FAS Wealth's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998;
All documents and reports filed by FAS Wealth pursuant to the Exchange Act
after the date of this Information Statement/Prospectus and prior to the
offering date of FAS Common Stock in exchange for FAS Wealth Common Stock is
completed, shall be deemed to be incorporated by reference in this Information
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Information Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not constitute a part of this Information Statement/Prospectus, except as so
modified or superseded.
7
All documents and reports filed by FAS Wealth pursuant to the Exchange Act
after the date of this Information Statement/Prospectus and prior to the
offering date of FAS Common Stock in exchange for FAS Wealth Common Stock is
completed, shall be deemed to be incorporated by reference in this Information
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Information Statement/Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not constitute a part of this Information Statement/Prospectus, except as so
modified or superseded.
CAUTIONARY STATEMENTS CAUTIONARY STATEMENTS
This Information Statement/Prospectus contains statements relating to
future results of each of FAS, FAS Wealth and the Surviving Corporation
(including certain projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties, including, but not limited to, changes in political and
economic conditions; regulatory conditions; integration of acquisitions; and
competitive product and pricing pressures, as well as other risks and
uncertainties, including but not limited to those detailed from time to time in
the filings of FAS, FAS Wealth and the Surviving Corporation made with the
Commission.
When used in this Information Statement/Prospectus with respect to each of
FAS, FAS Wealth and the Surviving Corporation the words "estimate," "project,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
contemplated in such forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
the date hereof. Such risks and uncertainties include those risks,
uncertainties and risk factors identified in this Information
Statement/Prospectus under the headings "Risk Factors," "FAS Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"FAS Wealth Management's Discussion and Analysis of Financial Condition and
Results of Operations." Neither FAS nor FAS Wealth undertakes any obligation to
publicly release any revisions to these forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
SUMMARY SUMMARY
The following is a summary of certain information contained elsewhere in
this Information Statement/Prospectus. This summary is not intended to be
complete and is qualified in all respects by reference to the more detailed
information and financial statements contained elsewhere or incorporated by
reference in this Information Statement/Prospectus and the Annexes hereto.
Stockholders are urged to read this Information Statement/Prospectus and the
Annexes hereto in their entirety.
OVERVIEW Overview
PARTIES TO THE MERGER Parties to the Merger
Three companies and their shareholders are affected by the Merger described in
this Prospectus.
FAS Group, Inc. FAS Group, Inc.("FAS"). FAS was incorporated under the
business corporation laws of the State of Delaware on June 23, 1998. The
founder of FAS, Jack Alexander, pioneered the registered
representative-independent contractor form of doing business to build a
nationwide, full service brokerage firm. He founded First Affiliated Securities
and attracted over 1,000 associated brokers in approximately 400 offices. Firms
in which Mr. Alexander has presided over have been responsible for underwriting
more than 100 new securities issues and raised over $1 billion for companies in
both private and public offerings.
FAS through its subsidiary, FAS Wealth Delaware is a full service
investment banking firm focused on investment banking, institutional brokerage
and asset management.
The business of FAS is, and after completion of the Merger will continue to
be, located at 16935 West Bernardo Drive, Suite 107, San Diego, California
92127. Its telephone number is (619) 487-1350.
FAS Wealth Management Services, Inc., a Florida corporationFAS Wealth
Management Services, Inc., a Florida corporation. FAS Wealth is engaged in the
development, marketing and distribution of non-securities and securities related
products and services to affinity groups and the public at large. FAS Wealth is
capable of engaging in substantially all aspects of the life and health
insurance business and the securities business. FAS Wealth is registered as a
securities broker/dealer pursuant to the provisions of the Securities Exchange
Act of 1934, as amended, as a Registered Investment Advisor under the Investment
Advisor Act of 1940, as amended, and also is registered as such under various
state securities laws. FAS Wealth is a member of the National Association of
Securities Dealers, Inc., Securities Investor Protection Corporation and the
Municipal Securities Rule Making Board. As a result of the Merger, FAS Wealth
intends to expand its business activities with respect to marketing its
non-securities and securities related products and services.
The business office of FAS Wealth is, and after completion of the Merger
will continue to be, located at 2323 Stickney Point Road, Sarasota, Florida
34231. Its telephone number is 941-921-9700.
FAS Wealth Management Services Inc., a Delaware corporation FAS Wealth
Management Services Inc., a Delaware corporation FAS Wealth Delaware was
incorporated on June 23, 1998, for the sole purpose of the Merger described in
this Prospectus. FAS Wealth Delaware had no business operations or significant
capital and did not engage in any active business prior to the merger with and
into FAS Wealth.
THE MERGER The Merger
FAS Wealth Delaware merged with and into FAS Wealth, with FAS Wealth
continuing as the "Surviving Corporation." The Merger became effective on the
31st day of August, 1998 upon filing with the Secretary of State of the State of
Delaware and the Department of State of the State of Florida, a duly executed
Certificate of Merger, in the form required by and in accordance with the
Delaware General Corporation Law ("DGCL") and the Florida Business Corporation
Act ("BCA"), as provided in the Certificate of Merger.
Delivery of SharesDelivery of Shares. Pursuant to the Merger Agreement,
each share of FAS Wealth Common Stock, issued and outstanding at the close of
business, July 31, 1998 will be converted into the right to receive the .5872
duly authorized, validly issued, fully paid and nonassessable shares of FAS
Common Stock. Each holder of an outstanding certificate of FAS Wealth Common
Stock, upon surrendering thereof to the Transfer Agent, shall be entitled to
receive in exchange therefor a certificate or certificates of FAS at any time
after the Effective Date. The certificate or certificates representing shares
of FAS Common Stock will represent the number of whole shares of FAS Common
Stock into and for which the shares of FAS Wealth Common Stock represented by
the surrendered certificate have been converted.
Certain Tax ConsiderationsCertain Tax Considerations. FAS Wealth and FAS
will receive, prior to the Effective Date of the Merger, the opinion of Sonfield
& Sonfield to the effect that (i) the Merger will qualify as a reorganization
within the meaning of Section 368(a) of the Code; (ii) no gain or loss will be
recognized by FAS or FAS Wealth as a result of the Merger; and (iii) no gain or
loss will be recognized by FAS Wealth's stockholders upon the receipt of FAS
Common Stock solely in exchange for FAS Wealth Common Stock in connection with
the Merger (except with respect to cash received in lieu of a fractional
interest in FAS Common Stock). See "Certain Tax Considerations."
Effect of the Merger on Employees and Employee BenefitsEffect of the Merger
on Employees and Employee Benefits. FAS assumed in the Merger all employment,
compensation, and benefit agreements and plans relating to employees of FAS
Wealth, including without limitation, all employment contracts, change of
control agreements, severance, and indemnity agreements with such employees and
former employees, all FAS Wealth employee benefit plans, all grants and awards
under FAS Wealth 1995 Stock Option Plan relating to current FAS Wealth
employees; and any other agreements or obligations set forth in the Agreement
and Plan of Merger.
Appraisal RightsAccounting Treatment and Appraisal Rights. No shares of
FAS Common Stock shall be issued in respect of any shares of FAS Wealth Common
Stock, the holders of which shall object to the Merger in writing and demand
payment of the value of their shares pursuant to the Florida Business
Corporation Act (the "Act") and as a result payment therefore is made, such
holders to have only the rights provided by such Act.
<TABLE>
<CAPTION>
SUMMARY HISTORICAL FINANCIAL DATA OF
FAS WEALTH Summary Historical Consolidated Financial Data of FAS Wealth Florida
YEAR ENDED DECEMBER 31 9 MONTHS
1993 1994 1995 1996 1997 1998
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $825,433 $1,866,299 $2,797,172 $3,000,044 $4,172,716 $2,576,416
Operating Loss $455,835 $ 96,772 $ 140,477 $ 236,014 $ 132,792 218,154
Net Loss $ 446101 $ 67,080 $ 115,879 $ 212,045 $ 105,239 218,154
Net Loss Per Share $ (1.055) $ (.158) $ (.254) $ (.088) $ (.04) $ (.08)
Weighted Average Shares
Outstanding 423,000 440,833 462,833 2,491,490 2,675,485 2,664,560
</TABLE>
<TABLE>
<CAPTION>
SUMMARY UNAUDITED CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial data for FAS Wealth, as adjusted for the
effect of the Merger as if the Merger were consummated on January 1, 1998:
YEAR ENDED DECEMBER 31 9 MONTHS
1993 1994 1995 1996 1997(1) 1998
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 825,433 $1,866,299 $2,797,172 $3,000,044 $4,172,716 $3,777,161
Operating Loss (455,835) (96,772) (140,477) (236,014) (132,792) 329,419
Net Loss 446101 67,080 115,879 212,045 105,239 329,419
Net Loss Per Share (1.055) (.158) (.254) (.088) (.04) (.08)
Weighted Average Shares
Outstanding 423,000 440,833 462,833 2,491,490 2,675,485 5,284,000
<FN>
___________________________
(1) Because FAS Group, Inc. had no operations prior to and in 1997, FAS Wealth's operations are the
same as the consolidated statement of operations.
</TABLE>
RISK FACTORS Risk Factors
The securities offered hereby are speculative and involve a high degree of
risk and immediate and substantial dilution. Potential risks include, among
others: risks associated with the securities business, lack of assurance of a
public market, dependence on key personnel, possibility of losses from principal
and trading activities, possible price volatility of the shares and no payments
of dividends. See "Risk Factors."
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA Summary Consolidated Financial Data
The following summary historical consolidated financial data of FAS Wealth
has been derived from the historical financial statements and should be read in
conjunction with such financial statements and notes thereto, which are included
elsewhere herein. The unaudited consolidated balance sheet at December 31, 1997
has been derived from the audited financial statements of FAS Wealth for the
year ended December 31, 1997 and the unaudited financial statements of FAS as of
and for the nine months ended September 30, 1998, Consolidated Statement of
Operations has been derived from the unaudited financials and the parent and
subsidiary.
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS Dec. 31 Dec. 31 Sept. 30
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash $ - $ 127,791 $ 51,565
Organization Costs - - 57,544
Receivables
Broker dealers 40,306 45,406 -
Correspondent brokers 122,201 68,766 253,699
Customers 13,000 13,105 -
Affiliates and employees 3,650 18,363 74,923
Other 14,847 2,448
Furniture, fixtures and
Equipment at cost, net of
Accumulated depreciation 37,192 27,343 24,837
Deposits with clearing organizations 43,742 45,157 140,510
Other deposits 1,934 1,934 1,934
Syndication costs - 15,000 -
Equity Securities - - 587,600
Trading Account - - 851,348
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 36,483 $ 107,465 38,477
Commissions payable 143,566 101,291 179,474
Federal Income Tax Payable - - 186,515
---------- ----------- -----------
180,049 208,756 404,466
---------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock -0- -0- -0-
Common Stock 4,983 7,775 5,284
Stock warrants 4,410 4,410 884
Additional paid-in-capital 913,688 1,105,639 2,439,216
Accumulated deficit (841,105) (946,344) (803,442)
---------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 81,976 171,480 1,641,943
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
<FN>
</TABLE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED NINE MTHS ENDED
------------------------------- -------------
DECEMBER DECEMBER SEPTEMBER 30
1996 1997 1998
------------ ----------------- -------------
<S> <C> <C> <C>
REVENUE
Commissions $ 2,909,749 $ 3,723,815 $ 2,006,123
Underwriting Fees 32,500 304,002 209,920
Other 57,795 144,899 361,118
Consulting Fee - - 1,200,000
------------ ----------------- -------------
3,000,044 4,172,716 3,777,161
------------ ----------------- -------------
EXPENSES
Employer compensation and benefits 345,561 406,052 316,550
Commissions 2,275,456 3,131,258 1,964,680
Clearing charges and regulatory fees 262,542 346,223 116,754
Occupancy and equipment rental 125,968 130,494 84,024
Depreciation 11,844 10,811 7,769
Other Operating Expenses 214,687 280,670 957,962
------------ ----------------- -------------
3,236,058 4,305,508 3,447,744
------------ ----------------- -------------
OPERATING INCOME (LOSS) (236,014) (132,792) 329,419
OTHER INCOME
Rent 23,969 27,553 -
FEDERAL INCOME TAX - - -
------------ ----------------- -------------
NET INCOME (LOSS) $ (212,045) $ (105,239) $ 329,419
============ ================= =============
</TABLE>
Net income of $329,419 takes into consideration the net loss carryforward
of FAS Wealth resulting in a zero tax liability at September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MTHS ENDED
-------------------------------- ---------------
DECEMBER 31 DECEMBER 31 SEPTEMBER 30
1996 1997 1998
------------- ----------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (212,045) $ (105,239) $ 329,419
------------- ----------------- --------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 11,844 10,811 6,817
(Increase) decrease in operating assets:
Receivables:
Broker dealers (963) (5,100)
Correspondent brokers 20,772 53,435 (139,527)
Customers (13,000) (105)
Affiliates and employees (3,650) (14,847) (31,056)
Deposits (1,318) (1,415) (95,353)
Other Assets (42,544)
Marketable Securities (587,600)
Syndication costs (15,000)
(Decrease) increase in operating liabilities:
Accounts payable (21,570) 70,982 118,117
Commissions payable (977) (42,275) 78,183
------------- ----------------- --------------
(8,862) 41,773 (692,963)
------------- ----------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (220,907) (63,466) (550,059)
------------- ----------------- --------------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (6,685) (962) (4,311)
Trading Account (851,348)
Investment - subsidiary - - (1,148,500)
------------- ----------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (6,685) (962) (2,004,159)
------------- ----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Preferred Stock -0- -0- -0-
Proceeds from sale of common stock 222,992 214,020 2,749,211
Syndication costs (15,803) (21,801) (270,607)
------------- ----------------- --------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 207,189 192,219 2,478,604
------------- ----------------- --------------
NET INCREASE (DECREASAE) IN CASH (20,403) 127,791 (75,614)
CASH, at beginning of period 20,403 -0- 127,179
------------- ----------------- --------------
CASH, at end of period $ -0- $ 127,791 $ 51,565
============= ================= ==============
</TABLE>
RISK FACTORS RISK FACTORS
The shareholders of FAS Wealth, by accepting shares in the Merger, are
making an investment decision that involves a high degree of risk and should
carefully consider the following factors in evaluating FAS and its business in
addition to the other information contained in this Information
Statement/Prospectus.
GENERAL SECURITIES BUSINESS RISKSGeneral Securities Business Risks
The securities business is, by its nature, subject to numerous and
substantial risks, particularly in volatile or illiquid markets, and in markets
influenced by sustained periods of low or negative economic growth, including
the risk of losses resulting from the underwriting or ownership of securities,
trading, principal activities, counterparty failure to meet commitments,
customer fraud, employee errors, misconduct and fraud (including unauthorized
transactions by traders), failures in connection with the processing of
securities transactions, litigation, the risks of reduced revenues in periods of
reduced demand for public offerings or reduced activity in the secondary markets
and the risk of reduced spreads on the trading of securities.
MARKET ACCEPTANCE OF AFFINITY GROUP PRODUCTSMarket Acceptance of Affinity Group
Products
The success of FAS is, in part, dependent upon its ability to expand
business operations through the marketing, on an exclusive, non-exclusive and
endorsed basis, various insurance, financial, non-securities and
securities-related products, and other services to members of large Affinity
Groups and associations. Although FAS Wealth has committed significant
financial and personnel resources to analysis of the viability of such business
operations, there can be no assurance that an adequate demand for such products
or services will develop in the future. Further, there can be no assurance with
respect to the length of time experienced prior to receipt of an Affinity Group
endorsement or the type or nature of any criteria that may be established by
Affinity Groups prior to granting any endorsements.
REDUCED REVENUES DUE TO ECONOMIC, POLITICAL AND MARKET CONDITIONS Reduced
Revenues Due to Economic, Political and Market Conditions
Reductions in public offering, merger and acquisition and securities
trading activities, due to any one or more changes in economic, political or
market conditions could cause FAS's revenues from investment banking, trading
and sales activities to decline materially. The amount and profitability of
these activities are affected by many national and international factors,
including economic, political and market conditions; level and volatility of
interest rates; legislative and regulatory changes; currency values; inflation;
flows of funds into and out of mutual and pension funds; and availability of
short-term and long-term funding and capital.
REDUCED REVENUES DUE TO DECLINING MARKET VOLUME, PRICE OR LIQUIDITY Reduced
Revenues Due to Declining Market Volume, Price or Liquidity
FAS's revenues may decrease in the event of a decline in market volume,
prices or liquidity. Declines in the volume of securities transactions and in
market liquidity generally result in lower revenues from trading activities and
commissions. Lower price levels of securities may also result in a reduced
volume of underwriting transactions, and could cause a reduction in revenue from
corporate finance fees, as well as losses from declines in the market value of
securities held in trading, investment and underwriting positions, reduced asset
management fees and withdrawals of funds under management. Sudden sharp
declines in market values of securities can result in illiquid markets and the
failure of issuers and counterparties to perform their obligations, as well as
increases in claims and litigation. In such markets, FAS may incur reduced
revenues or losses in its principal trading and market-making activities.
POSSIBILITY OF LOSSES ASSOCIATED WITH UNDERWRITING ACTIVITIES Possibility of
Losses Associated with Underwriting Activities
Participation in underwritings involves both economic and regulatory risks.
An underwriter may incur losses if it is unable to resell the securities it is
committed to purchase or if it is forced to liquidate its commitment at less
than the agreed purchase price. In addition, the trend, for competitive and
other reasons, toward larger commitments on the part of lead underwriters means
that, from time to time, an underwriter (including a co-manager) may retain
significant position concentrations in individual securities. Increased
competition has eroded and is expected to continue to erode underwriting
spreads. Another result of increased competition is that revenues from
individual underwriting transactions have been increasingly allocated among a
greater number of co-managers, which has resulted in reduced revenues for
certain transactions.
NET CAPITAL REQUIREMENTS Net Capital Requirements
Underwriting commitments require a charge against net capital and,
accordingly, FAS's ability to make underwriting commitments may be limited by
the requirement that it must at all times be in compliance with the applicable
net capital regulations. See "Information Concerning FAS - Net Capital
Requirements."
POTENTIAL REDUCTION IN REVENUES Potential Reduction in Revenues
Securities offerings can vary significantly from industry to industry due
to economic, legislative, regulatory and political factors. Underwriting
activities in a particular industry can decline for a number of reasons.
Underwriting and brokerage activity can also be materially adversely affected
for a company or industry segment by disappointments in quarterly performance
relative to analysts' expectations, or by changes in long-term prospects for
particular companies, industries or industry segments.
SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTSSignificant Fluctuations
in Quarterly Operating Results
FAS's revenues and operating results will fluctuate from quarter to quarter
and from year to year due to a combination of factors, including the number of
underwriting and merger and acquisition transactions completed by FAS's clients,
access to public markets for companies in which FAS has invested as a principal,
the valuations of FAS's principal investments and the investment of funds
managed by FAS, the level of institutional and retail brokerage transactions,
the timing of recording of asset management fees and special allocations of
income, variations in expenditures for personnel, litigation expenses, and
expenses of establishing new business units. FAS's revenues from an
underwriting transaction are recorded only when the underwritten security
commences trading, and revenues from merger and acquisition transactions are
recorded only when retainer fees are received or the transaction closes.
Accordingly, the timing of FAS's recognition of revenue from a significant
transaction can materially affect FAS's quarterly operating results. Due to the
foregoing and other factors, there can be no assurance that FAS will be able to
sustain profitability on a quarterly or annual basis. See "Information
Concerning FAS - FAS Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION FOR RETAINING AND RECRUITING PERSONNEL Competition for Retaining and
Recruiting Personnel
FAS's business will be dependent on the highly skilled, and often highly
specialized, individuals it employs. Retention of investment banking, sales and
trading, venture capital, and management and administrative professionals is
particularly important to FAS's prospects. FAS's strategy is to establish
relationships with FAS's prospective corporate clients in advance of any
transaction, and to maintain such relationships over the long term by providing
advisory services to corporate clients in equity, debt and merger and
acquisition transactions. Such relationships depend in part upon the individual
employees who represent FAS in its dealings with such clients. In addition,
corporate finance professionals contribute significantly to FAS's ability to
secure a role in managing public offerings and in executing trades in the
secondary market. From time to time, other companies in the securities industry
have experienced losses of investment banking and sales and trading
professionals, including recent losses of analysts. The level of competition
for key personnel has increased recently, particularly due to the market entry
efforts of certain non-brokerage financial services companies, commercial banks
and other investment banks targeting or increasing their efforts in some of the
same industries that FAS intends to serve. The loss of an investment banking or
sales and trading professional, particularly a senior professional with a broad
range of contacts in an industry, could materially and adversely affect FAS's
operating results.
FAS expects growth in the number of its personnel, particularly if current
markets remain favorable to investment banking transactions. Competition for
employees with the qualifications desired by FAS is intense, especially with
respect to investment banking professionals with expertise in industries in
which underwriting or advisory activity is robust. There can be no assurance
that FAS will be able to recruit a sufficient number of new employees with the
desired qualifications in a timely manner. The failure to recruit new employees
could materially and adversely affect FAS's future operating results.
While FAS generally does not have employment agreements with its employees
except FAS Wealth officers, it will attempt to retain its employees with
incentives, such as bonus plans and the ability to buy FAS 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 the value of FAS's stock declines or fails
to appreciate sufficiently to be a competitive source of a portion of
professional compensation. See "Information Concerning FAS - Management of
FAS."
SIGNIFICANT COMPETITION FROM LARGER SECURITIES FIRMS Significant Competition
from Larger Securities Firms
FAS engages in the highly competitive securities brokerage and financial
services businesses. It competes directly with large Wall Street securities
firms, securities subsidiaries of major commercial bank holding companies, major
regional firms and smaller "niche" players.
Competition from commercial banks has increased because of recent
acquisitions of securities firms by commercial banks, as well as internal
expansion by commercial banks into the securities business. In addition, FAS
expects competition from domestic and international banks to increase as a
result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve certain restrictions on commercial banks.
Such competition could adversely affect FAS's operating results, as well as its
ability to attract and retain highly skilled individuals.
Many other companies have greater personnel and financial resources than
FAS. Larger competitors are able to advertise their products and services on a
national or regional basis and may have a greater number and variety of
distribution outlets for their products, including retail distribution.
Discount brokerage firms market their services through aggressive pricing and
promotional efforts. In addition, most competitors have a much longer history
of investment banking activities than FAS and, therefore, may possess a relative
advantage with regard to access to deal flow and capital.
Recent rapid advancements in computing and communications technology are
substantially changing the means by which financial services are delivered.
These changes are providing consumers with more direct access to a wide variety
of financial and investment services including market information and on-line
trading and account information. Advancements in technology also create demand
for more sophisticated levels of client services. Provision of these services
may entail considerable cost without an offsetting source of revenue. See
"Information Concerning FAS - Competition."
REGULATION Regulation
The securities business is subject to extensive regulation under federal
and state laws in the United States. One of the most important regulations with
which FAS's broker-dealer subsidiaries must continually comply is the Securities
and Exchange Commission (the "SEC") Rule 15c3-1 (the "Net Capital Rule") which
requires the broker-dealer subsidiary of FAS to maintain a minimum amount of net
capital, as defined under such regulations.
Compliance with many of the regulations applicable to FAS involves a number
of risks, particularly in areas where applicable regulations may be subject to
interpretation. In the event of non-compliance with an applicable regulation,
governmental regulators and the NASD may institute administrative or judicial
proceedings that may result in censure, fine, civil penalties (including treble
damages in the case of insider trading violations), issuance of cease-and-desist
orders, deregistration or suspension of the non-compliant broker-dealer or
investment adviser, suspension or disqualification of the broker-dealer's
officers or employees or other adverse consequences. The imposition of any such
penalties or orders on FAS could have a material adverse effect on FAS's
operating results and financial condition.
The regulatory environment in which FAS operates is subject to change. FAS
may be adversely affected as a result of new or revised legislation or
regulations imposed by the SEC, other United States or foreign governmental
regulatory authorities or the NASD. FAS also may be adversely affected by
changes in the interpretation or enforcement of existing laws and rules by these
governmental authorities and the NASD.
Additional regulation, changes in existing laws and rules, or changes in
interpretations or enforcement of existing laws and rules often affect directly
the method of operation and profitability of securities firms. FAS cannot
predict what effect any such changes might have. Furthermore, FAS's businesses
may be materially affected not only by regulations applicable to it as a
financial market intermediary, but also by regulations of general application.
For example, the volume of FAS's underwriting, merger and acquisition and
principal investment businesses in a given time period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board")) and changes in interpretation or enforcement of existing laws
and rules that affect the business and financial communities. The level of
business and financing activity in each of the industries on which FAS focuses
can be affected not only by such legislation or regulations of general
applicability, but also by industry- specific legislation or regulations. See
"Information Concerning FAS - Regulation."
POTENTIAL CONFLICTS OF INTEREST Potential Conflicts of Interest
FAS Wealth officers, directors and employees of FAS will from time to time
invest, or receive a profit interest, in investments in private or public
companies or investment funds in which FAS, or an affiliate of FAS, is an
investor or for which FAS carries out investment banking assignments, publishes
research reports or acts as a market maker. FAS will have in place compliance
procedures and practices designed to ensure that such inside information is not
used for making investment decisions on behalf of officers, directors and
employees and to monitor officers, directors and employees investment in FAS's
investment banking clients. No assurance can be provided that these procedures
and practices will be effective. In addition, this conflict and these
procedures and practices may limit the freedom of such officials to make
potentially profitable investments.
POSSIBILITY OF LOSSES ASSOCIATED WITH PRINCIPAL AND TRADING ACTIVITIES
Possibility of Losses Associated with Principal and Trading Activities
FAS's securities trading and market-making activities will be primarily
conducted by FAS as principal and subject FAS's capital to significant risks,
including market, credit, leverage, counterparty and liquidity risks. These
activities often involve the purchase, sale or short sale of securities as
principal in markets that may be characterized by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity and price.
FAS from time to time may have large position concentrations in securities of,
or commitments to, a single issuer, or issuers engaged in a specific industry,
particularly as a result of FAS's underwriting activities. FAS intends to
concentrate its trading positions in a more limited number of industry sectors
and companies than some other broker-dealers, which might result in higher
trading losses than would occur if FAS's positions and activities were less
concentrated. See "Information Concerning FAS - Risk Management."
Much of FAS's market-making business will involve securities traded on
Nasdaq. Nasdaq has recently begun trading securities in sixteenths of a dollar
(rather than in eighths). This change and further changes in this regard may
adversely affect FAS's revenues from brokerage activities.
LITIGATION AND POTENTIAL SECURITIES LAWS LIABILITY Litigation and Potential
Securities Laws Liability
Many aspects of FAS's business involve substantial risks of liability. An
underwriter is exposed to substantial liability under federal and state
securities laws, other federal and state laws and court decisions, including
decisions with respect to underwriters' liability and limitations on
indemnification of underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or omissions of fact
in a Memorandum used in connection with the securities being offered or for
statements made by its securities analysts or other personnel. While FAS has
never been subject to litigation based upon a material misstatement or omission
of fact in a Memorandum, in recent years there has been an increasing incidence
of litigation involving the securities industry, including class actions that
seek substantial damages. FAS is also subject to the risk of litigation from
its other intended business activities, including litigation that may be without
merit. As FAS intends to actively defend any such litigation, significant legal
expenses could be incurred. An adverse resolution of any future lawsuits
against FAS could materially adversely affect FAS's operating results and
financial condition. See "Information Concerning FAS - Legal Proceedings."
DEPENDENCE ON AFFINITY GROUP MARKETING STRATEGYDependence on Affinity Group
Marketing Strategy
The business of FAS Wealth and, therefore, the business of FAS, will be
highly dependent on its strategy for marketing securities and non-securities
products to Affinity Group. There can be no assurance that such strategy will
be successful. See "Information Concerning FAS Wealth - Affinity Group
Marketing Strategy."
DEPENDENCE ON CASH INFLOWS TO MUTUAL FUNDS Dependence on Cash Inflows to Mutual
Funds
A slowdown or reversal of cash inflows to mutual funds and other pooled
investment vehicles could lead to lower underwriting and brokerage revenues for
FAS since mutual funds purchase a significant portion of the securities offered
in public offerings and traded in the secondary markets. The recent demand for
new equity offerings has been driven in part by institutional investors,
particularly large mutual funds, seeking to invest cash received from the
public. The public may withdraw additional cash from mutual funds as a result
of a decline in the market generally or as a result of a decline in mutual fund
net asset values. To the extent that a decline in cash inflows into mutual
funds or a decline in net asset values of these funds reduces demand by fund
managers for initial public or secondary offerings, FAS's business and results
of operations could be materially adversely affected. Moreover, a slowdown in
investment activity by mutual funds may have an adverse effect on the securities
markets generally.
MANAGEMENT OF GROWTH Management of Growth
Because of the Merger, FAS expects to experience significant growth in its
business activities and the number of its employees. This growth will require
increased investment in management personnel, financial and management systems
and controls and facilities, which, in the absence of continued revenue growth,
would cause FAS's operating margins to decline. In addition, as is common in
the securities industry, FAS will be highly dependent on the effective and
reliable operation of its communications and information systems. FAS believes
that its anticipated future growth will require implementation of new and
enhanced communications and information systems and training of its personnel to
operate such systems. In addition, the scope of procedures for assuring
compliance with applicable regulations and NASD rules will change as the size
and complexity of FAS's business changes. As FAS grows, FAS will implement
additional formal compliance procedures to reflect such growth. Any difficulty
or significant delay in the implementation or operation of existing or new
systems, compliance procedures or the training of personnel could adversely
affect FAS's ability to manage growth. See "Information Concerning FAS -
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and " - Accounting, Administration and Operations."
DEPENDENCE ON SYSTEMS AND THIRD PARTIES Dependence on Systems and Third Parties
FAS's business is highly dependent on communications and information
systems, including certain systems provided by its clearing broker. Any failure
or interruption of FAS's systems, systems of FAS's clearing broker or third
party trading systems, could cause delays or other problems in FAS's securities
trading activities, which could have a material adverse effect on FAS's
operating results. Such failures and interruptions may result from the
inability of certain computing systems (including those of FAS, its clearing
broker, and other third party vendors) to recognize the year 2000. There can be
no assurance that the year 2000 issue can be resolved prior to the upcoming
change in the century. Although FAS may incur substantial costs, particularly
costs resulting from charges by its third party service providers, in correcting
year 2000 issues, such costs are not sufficiently certain to estimate at this
time. In addition, FAS's principal disaster recovery system is provided by its
clearing broker. There can be no assurance that FAS or its clearing broker will
not suffer any systems failure or interruption, including one caused by an
earthquake, fire, other natural disaster, power or telecommunications failure,
act of God, act of war or otherwise, or that FAS's or its clearing broker's
back-up procedures and capabilities in the event of any such failure or
interruption will be adequate. See "Information Concerning FAS - Accounting,
Administration and Operations."
DEPENDENCE UPON AVAILABILITY OF CAPITAL AND FUNDING Dependence Upon Availability
of Capital and Funding
FAS's business is dependent upon the availability of adequate funding and
regulatory capital under applicable regulatory requirements. FAS intends to
satisfy these needs from internally generated funds and loans from third
parties. There can be no assurance that any, or sufficient, funding or
regulatory capital will continue to be available to FAS in the future on terms
that are acceptable to it. See "Information Concerning FAS - Regulation," " -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Overview," and " - Liquidity and Capital Resources."
UNCERTAINTY OF NAME AVAILABILITY Uncertainty of Name Availability
There are several companies throughout the United States whose corporate
names are similar to FAS's. Therefore, other companies may contest the use by
FAS of its name. The existence and use of such names may detract from FAS's
marketing efforts. Although FAS has filed an application to register its name
as a trade and/or service mark with the U.S. Patent and Trademark Office, there
is no assurance that it will be successful in doing so.
ABSENCE OF DIVIDENDSAbsence of Dividends
FAS anticipates that earnings will be retained for the development of FAS's
business, and that no dividends will be declared on the Common Stock in the
foreseeable future. It is anticipated that FAS will seek to obtain a working
capital credit facility from one or more lenders, although, as of the date of
this Information Statement/Prospectus, no firm arrangements have been made. It
is likely that any agreement with respect to any financing will contain
covenants that may, under certain circumstances, restrict payment of dividends
by FAS, including dividends on the Common Stock. See and "Information
Concerning FAS - FAS Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
CORPORATE GOVERNANCE CONTROLLED BY INSIDERSCorporate Governance Controlled by
Insiders
Following the Effective Date, FAS will have outstanding two classes of
Common Stock: Class A Common Stock, which has one vote per share, and Class B
Common Stock, which has fifty votes per share. Except for Guy S. Della Penna,
the shares issued to the shareholders in the Merger are shares of Class A Common
Stock. All of the outstanding shares of Class B Common Stock will be held by
Jack A. Alexander and Guy S. Della Penna. As a result, Messrs. Alexander and
Della Penna will be able to control 92% of the voting power of FAS following the
Effective Date. The ownership of the Class B Common Stock, and the related
voting power, will be held 63% by Mr. Alexander and 37% by Mr. Della Penna.
Therefore, Mr. Alexander will be able to control the outcome of all corporate
actions requiring shareholder approval (other than corporate actions required to
be approved by a vote of holders of shares of Common Stock voting as a separate
class). Accordingly, prospective investors should realize that their ownership
of Common Stock will not provide them with any ability to determine the outcome
of matters requiring a shareholder vote, including the election of directors.
In addition, Mr. Alexander will have control over the operations of FAS,
including significant control over compensation decisions under FAS's benefit
and compensation plans, including plans under which he will be a direct
beneficiary. See "Information Concerning FAS - Management of FAS." Guy S.
Della Penna and Jack A. Alexander (collectively referred to as the "Insider
Shareholders") have executed an agreement to impose certain limitations and
restrictions upon the sale, transfer, gift, pledge, assignment or other
disposition of the Class B Common Stock of FAS currently owned by the Insider
Shareholders (all such Class B Common Stock owned by the Insider Shareholders
being hereinafter collectively referred to as the "Shares"). Terms of the
agreement include: (i) in the event an Insider Shareholder intends or attempts
to sell, give, assign, pledge, encumber or otherwise dispose of any interest or
right in the Shares owned by him, except to a Permitted Transferee, then such
Insider Shareholder shall immediately offer to sell such Shares as he intends or
attempts to sell, give, assign, transfer, pledge, encumber or otherwise dispose
of to the other Insider Shareholder; (ii) the death of an Insider Shareholder
shall constitute an offer by the legal representative of the Insider
Shareholder's estate to sell such Shares to the surviving Insider Shareholder;
and (iii) Shares not purchased by the Insider Shareholder shall become void and
exchangeable at a ratio of one for one (1:1) for Class A Common Stock of FAS.
NO ASSURANCE OF PUBLIC MARKET FOR COMMON STOCKNo Assurance of Public Market for
Common Stock
There is presently no public market for the Common Stock of FAS and there
is no assurance that a public market for such securities will develop after the
Effective Date, or, if one develops, that it will be sustained.
ANTI-TAKEOVER PROVISIONSAnti-Takeover Provisions
Certain provisions of Delaware law and FAS's Certificate of Incorporation
and By-Laws may have the effect of delaying or preventing a change in control or
acquisition of FAS. FAS's Certificate of Incorporation and By-Laws include
provisions for a classified Board of Directors, "Blank Check" preferred stock
(the terms of which may be fixed by the Board of Directors without stockholder
approval), a prohibition on stockholder action by written consent in lieu of a
meeting, and certain procedural requirements governing stockholder meetings.
See "Comparative Rights of Stockholders - Defenses Against Hostile Takeovers".
LACK OF INDEPENDENT FAIRNESS OPINIONLack of Independent Fairness Opinion
The number of shares of FAS Common Stock to be issued in exchange for
shares of FAS Wealth Common Stock was determined through negotiations between
FAS Wealth and FAS and approved by the FAS Wealth Board of Directors and FAS
Board of Directors. No independent third party has expressed its opinion that
the Merger was fair to the holders of FAS Wealth Common Stock from a financial
point of view.
EFFECT OF EXERCISE OF STOCK OPTIONS GRANTED UNDER STOCK INCENTIVE PLANEffect of
Exercise of Stock Options Granted Under Stock Incentive Plan
FAS's Stock Incentive Plan provides that up to 2,500,000 shares of Class A
Common Stock may be issued to employees and directors pursuant to stock options
that are exercisable at a price determined by the Board of Directors at the time
the option is granted and shall not be less than the par value of the shares.
At the time of exercise of the options granted under the Stock Incentive Plan,
the fair market value of the shares issued pursuant thereto may be greater than
the exercise price for such shares. If the fair market value is greater than
the exercise price at the time of exercise, the exercise of the stock options
will have a dilutive effect on the other stockholders of FAS. Furthermore, if
the fair market value is greater, FAS would likely be able to sell the shares
issued pursuant to the exercise of the stock options at a price greater than the
exercise price. As of the date of this Information Statement/Prospectus,
655,000 stock options have been granted under the Stock Incentive Plan under the
terms of the Merger. See "Information Concerning FAS -- Stock Incentive Plan."
POSSIBLE ISSUANCE OF ADDITIONAL SHARESPossible Issuance of Additional Shares
FAS's Certificate of Incorporation authorizes the issuance of 25,000,000
shares of Class A Common Stock, 1,000,000 shares of Class B Common Stock and
1,000,000 shares of Preferred Stock. FAS's Board of Directors has the power to
issue any or all of such additional shares of Common Stock and Preferred Stock
without shareholder approval. FAS's Board of Directors may choose to issue some
or all of such shares to acquire one or more operating businesses or other types
of property in the future, although FAS currently has no commitments, contracts
or intentions to issue any such additional shares.
The issuance of any such shares may result in a reduction of the book value
or market price, if any, of the outstanding shares of FAS's Common Stock. If
FAS issues any additional shares, such issuances will also cause a reduction in
the proportionate ownership and voting power of all other shareholders.
Further, any new issuance of shares may result in a change of control of FAS.
See "Information Concerning FAS - Description of FAS Capital Stock."
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTSUNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
The following unaudited consolidated condensed financial statements of FAS
for the years ended December 31, 1995, 1996 and 1997 have been derived from the
audited financial statements of FAS Wealth included elsewhere in this
Information Statement/Prospectus. The unaudited consolidated condensed
Financial Statements give effect to the Merger as if it occurred at the earliest
date reported. The Merger will be accounted for under the pooling method of
accounting for accounting and financial reporting purposes. As a result of this
treatment, the historical pre-Merger financial statements (prior to December 31,
1999) of the Surviving Corporation will be those of FAS Wealth because FAS had
no significant operations prior to the Merger. This information should be read
in conjunction with the historical financial statements and notes thereto of FAS
Wealth which appear elsewhere herein. The consolidated financial data are
provided for comparative purposes only and are not necessarily indicative of the
results which would have occurred had the Merger been consummated on at the
earliest date reported, nor are they necessarily indicative of future results.
<PAGE>
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS Dec. 31 Dec. 31 Sept. 30
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash $ - $ 127,791 $ 51,565
Organization Costs - - 57,544
Receivables
Broker dealers 40,306 45,406 -
Correspondent brokers 122,201 68,766 253,699
Customers 13,000 13,105 -
Affiliates and employees 3,650 18,363 74,923
Other 14,847 2,448
Furniture, fixtures and
Equipment at cost, net of
Accumulated depreciation 37,192 27,343 24,837
Deposits with clearing organizations 43,742 45,157 140,510
Other deposits 1,934 1,934 1,934
Syndication costs - 15,000 -
Equity Securities - - 587,600
Trading Account - - 851,348
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 36,483 $ 107,465 38,477
Commissions payable 143,566 101,291 179,474
Federal Income Tax Payable - - 186,515
---------- ----------- -----------
180,049 208,756 404,466
---------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock -0- -0- -0-
Common Stock 4,983 7,775 5,284
Stock warrants 4,410 4,410 884
Additional paid-in-capital 913,688 1,105,639 2,439,216
Accumulated deficit (841,105) (946,344) (803,442)
---------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 81,976 171,480 1,641,943
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED NINE MTHS ENDED
------------------------------- --------------
DECEMBER DECEMBER SEPTEMBER 30
1996 1997 1998
------------ ----------------- -------------
<S> <C> <C> <C>
REVENUE
Commissions $ 2,909,749 $ 3,723,815 $ 2,006,123
Underwriting Fees 32,500 304,002 209,920
Other 57,795 144,899 361,118
Consulting Fee - - 1,200,000
------------ ----------------- -------------
3,000,044 4,172,716 3,777,161
------------ ----------------- -------------
EXPENSES
Employer compensation and benefits 345,561 406,052 316,550
Commissions 2,275,456 3,131,258 1,964,680
Clearing charges and regulatory fees 262,542 346,223 116,754
Occupancy and equipment rental 125,968 130,494 84,024
Depreciation 11,844 10,811 7,769
Other Operating Expenses 214,687 280,670 957,962
------------ ----------------- -------------
3,236,058 4,305,508 3,447,744
------------ ----------------- -------------
OPERATING INCOME (LOSS) (236,014) (132,792) 329,419
OTHER INCOME
Rent 23,969 27,553 -
FEDERAL INCOME TAX - - -
------------ ----------------- -------------
NET INCOME (LOSS) $ (212,045) $ (105,239) $ 329,419
============ ================= =============
</TABLE>
Net income of $329,419 takes into consideration the net loss carryforward
of FAS Wealth resulting in a zero tax liability at September 30, 1998.
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED NINE MTHS ENDED
-------------------------------- --------------
DECEMBER 31 DECEMBER 31 SEPTEMBER 30
1996 1997 1998
------------- ----------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (212,045) $ (105,239) $ 329,419
------------- ----------------- --------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 11,844 10,811 6,817
(Increase) decrease in operating assets:
Receivables:
Broker dealers (963) (5,100)
Correspondent brokers 20,772 53,435 (139,527)
Customers (13,000) (105)
Affiliates and employees (3,650) (14,847) (31,056)
Deposits (1,318) (1,415) (95,353)
Other Assets (42,544)
Marketable Securities (587,600)
Syndication costs (15,000)
(Decrease) increase in operating liabilities:
Accounts payable (21,570) 70,982 118,117
Commissions payable (977) (42,275) 78,183
------------- ----------------- --------------
(8,862) 41,773 (692,963)
------------- ----------------- --------------
NET CASH USED IN OPERATING ACTIVITIES (220,907) (63,466) (550,059)
------------- ----------------- --------------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (6,685) (962) (4,311)
Trading Account (851,348)
Investment - subsidiary - - (1,148,500)
------------- ----------------- --------------
NET CASH USED BY INVESTING ACTIVITIES (6,685) (962) (2,004,159)
------------- ----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Preferred Stock -0- -0- -0-
Proceeds from sale of common stock 222,992 214,020 2,749,211
Syndication costs (15,803) (21,801) (270,607)
------------- ----------------- --------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 207,189 192,219 2,478,604
------------- ----------------- --------------
NET INCREASE (DECREASAE) IN CASH (20,403) 127,791 (75,614)
CASH, at beginning of period 20,403 -0- 127,179
------------- ----------------- --------------
CASH, at end of period $ -0- $ 127,791 $ 51,565
============= ================= ==============
</TABLE>
<PAGE>
CERTAIN CONSIDERATIONS RELATED TO THE MERGERCERTAIN CONSIDERATIONS RELATED TO
THE MERGER
BACKGROUNDBACKGROUND
FAS Group, Inc. ("FAS") was incorporated on June 23, 1998 under the general
corporation laws of the State of Delaware with the intent to combine by merger
or acquisition with a registered broker-dealer that is a member of the National
Association of Securities Dealers, Inc. for the purpose of becoming a full
service investment banking firm including brokerage and asset management.
CERTAIN CONSIDERATIONS RELATED TO THE MERGER
BACKGROUND
FAS Group, Inc. ("FAS") was incorporated on June 23, 1998 under the general
corporation laws of the State of Delaware with the intent to combine by merger
or acquisition with a registered broker-dealer that is a member of the National
Association of Securities Dealers, Inc. for the purpose of becoming a full
service investment banking firm including brokerage and asset management.
THE MERGER
Jack Alexander, as founder and on behalf of FAS, entered into an Agreement
and Plan of Merger dated May 7, 1998 (the "Merger Agreement") among FAS Wealth
Delaware and certain shareholders of FAS Wealth whereby a wholly owned
subsidiary of FAS, newly created under the General Corporation Laws of Delaware,
merged with and into FAS Wealth with FAS Wealth surviving the merger (the
"Merger"). The Merger was effected as of August 31, 1998 and resulted in (i) FAS
Wealth Delaware being governed by Delaware law, (ii) certain officers and
directors of FAS Wealth becoming officers and directors of FAS, (iii) FAS Wealth
name being unchanged as FAS Wealth Management Services, Inc.; and (iv) FAS
Wealth Delaware becoming a wholly owned subsidiary of FAS.
FAS WEALTH'S REASONS FOR THE MERGER; RECOMMENDATION OF FAS WEALTH'S BOARD OF
DIRECTORS
The Board of Directors of FAS and shareholders owning approximately 51% of
the outstanding common stock of FAS Wealth as of July 31, 1998 carefully
considered means to facilitate the growth of FAS Wealth and maximize the
potential of its Affinity Marketing Program and concluded the Merger to be an
integral part of the process and in the best interests of FAS Wealth and its
shareholders.
OPINION OF FAS WEALTH'S BOARD OF DIRECTORS
FAS Wealth has not retained any third party to provide an opinion that the
number of shares of FAS Common Stock to be issued in exchange for shares of FAS
Wealth Common Stock ("Exchange Ratio") was fair to the holders of FAS Wealth
Common Stock from a financial point of view.
The Exchange Ratio was determined through negotiations between FAS Wealth
and FAS and was approved by the FAS Wealth Board of Directors.
DIRECTORS AND OFFICERS OF FAS FOLLOWING THE MERGER
In accordance with the terms of the Merger Agreement, the Board of
Directors of FAS will initially consist of seven members named in the Merger
Agreement. FAS Wealth has the right to select three individuals and FAS has the
right to select four individuals, respectively, to serve on the initial Board of
Directors. Consummation of the Merger resulted in the designated individuals
serving as directors following the Merger until their successors are duly
elected and qualified. The Board of Directors of FAS will be divided into three
classes, with Class 1 directors standing for election in 1999 (and every three
years thereafter), Class 2 directors standing for election in 2000 (and every
three years thereafter), and Class 3 directors standing for election in 2001
(and every three years thereafter). The table below sets forth certain
information concerning each person who serves as director or FAS Wealth officer
of FAS.
<TABLE>
<CAPTION>
NAME POSITION
- ----------------------------- --------------------------------------------------------------------------------------
<S> <C>
Jack A. Alexander(3) Chairman, Chief Executive Officer and Director
Guy S. Della Penna(3) President, Chief Operating Officer, CEO of Affinity Marketing Division and Director
Robert H. DeVore Senior Vice President and Treasurer
Bonnie S. Gilmore Senior Vice President, Chief Financial Officer, Chief Compliance Officer and Secretary
Barbara J. Knox Vice President
Georgeanne E. Detweiler Vice President and Director of Branch Operations
Dennis B. Schroeder(2) Director
Robert E. Windom, M.D,(1). Director
Vacant(2)(4) Director
Vacant(1)(4) Director
Vacant(1)(4) Director
<FN>
____________________________________
1 Class 1 Director
2 Class 2 Director
3 Class 3 Director
4 To be named by Jack A. Alexander
</TABLE>
JACK A. ALEXANDER, age 66, Chairman and Chief Executive Officer of FAS, has
been an acknowledged leader associated with the securities and investment
industry for 38 years. He founded First Affiliated Securities of San Diego in
1974, and served as its president and Chief Executive officer for the first
fourteen years of its growth. When First Affiliated Securities was acquired by
American First Corporation ("AFCO") in 1982, Mr. Alexander became Senior Vice
President of the financial services group and a member of the AFCO Board. Prior
to that, Mr. Alexander was Chairman and President of Robert Scott & Co., members
of the New York Stock Exchange, AMEX, PCSE, CBOT, CBOE and London Exchanges.
Mr. Alexander held seats on CBOT and CBOE. During his career, Mr. Alexander
served as President/CEO of two securities firms and served as a member of the
board of directors of four publicly traded firms. Mr. Alexander's securities
companies have raised over $1 billion in new capital for over 100 companies by
public offerings of equity or debt securities and through private placements.
This success along with his extensive experience in top level management
positions gives him insights and capabilities well beyond the conventional in
financial circles. Mr. Alexander holds NASD Series 7, 24 and 63 licenses. Mr.
Alexander is a Registered Options Principal and former Allied Member of the New
York Stock Exchange. He attended business school at the University of Texas,
Austin and is a graduate of the New York Institute of Finance. Mr. Alexander is
an active member of Regional Investment Bankers Association (RIBA), and former
member of Securities Industry Association (SIA) and Young Presidents
Organization (YPO).
GUY S. DELLA PENNA, age 46, has served as Director, Chairman of the Board,
President and Chief Executive Officer of FAS Wealth since March 1990 and
Director and Chief Operating Officer of FAS since August 31, 1998. Mr. Della
Penna has been a resident of Sarasota, Florida since 1980. Mr. Della Penna has
been active in the financial industry for over 20 years. Mr. Della Penna is a
licensed General Securities Principal and Financial and Operations Principal
pursuant to NASD Rules. From 1986 to l990, Mr. Della Penna was a registered
representative with Executive Securities, Inc. During the period April 1980 to
January 1986, Mr. Della Penna served as the Assistant to the Chairman of the
Board of Snelling & Snelling, Inc., as well as Assistant Treasurer. Snelling &
Snelling, Inc. is an employee recruitment business franchiser. While with such
firm, Mr. Della Penna also served as a member of the Executive, Acquisition and
Pension and Profit Sharing Committees. Mr. Della Penna also served as the
personal business manager and financial advisor to the Snelling family and
affiliated entities and in such capacity, was responsible for cash management,
tax and investment analysis and commitments. Snelling family members are the
principal shareholders of Snelling & Snelling, Inc. From 1977, through April
1978, Mr. Della Penna trained in the underwriting and secondary market trading
of municipal bonds at Wertheim and Co., Inc. in New York, New York. During the
period April 1978 through February 1980, Mr. Della Penna was an investment
banker with Lehman Brothers, New York, New York, where he was involved in the
structuring, documentation and marketing of tax exempt bonds issued by state and
local governments. Mr. Della Penna holds a Bachelor of Science degree in
Business Administration from Ithaca College, Ithaca, New York, and received a
Master of Business Administration degree in Finance from the State University of
New York, Albany, New York. Mr. Della Penna holds the necessary requisite state
agent licenses for life, health and variable annuities representing various
companies under specific contracts. He is an NASD industry arbitrator and holds
the NASD Series 7, 22, 24, 27, 39 and 63 securities licenses.
ROBERT H. DEVORE, age 38, serves FAS Weatlh in the capacity of Senior Vice
President, General Counsel and Treasurer. Mr. DeVore graduated from the
University of Toledo, College of Law, in 1986, with a Juris Doctor degree. Mr.
DeVore was a member of the University of Toledo Law Review and received American
Jurisprudence awards for excellent achievement in the studies of Civil Procedure
and Secured Transactions. Mr. DeVore interned for U. S. Magistrate James G.
Carr. Following graduation from the University of Toledo College of Law, Mr.
DeVore engaged in private practice in Sarasota, Florida and was an associate of
a Sarasota, Florida law firm. Mr. DeVore's practice emphasis related to civil,
commercial and construction litigation. During the period 1993 through March
1996, Mr. DeVore acted as counsel for a Sarasota, Florida based insurance agency
and insurance marketing entity. Mr. DeVore is a member of the Florida Bar and
presently holds life and health insurance and variable annuity licenses issued
by the State of Florida. Mr. DeVore holds the NASD Series 7 securities
licenses.
BONNIE S. GILMORE, age 37, joined FAS Wealth in December 1992. Ms. Gilmore
serves as Senior Vice President, Chief Financial Officer and Corporate
Secretary. Prior to joining FAS Wealth, Ms. Gilmore was Vice President and
Assistant Operations Director of Integrity Securities Group, Sarasota, Florida,
a securities broker-dealer. Ms. Gilmore held such position during the period
December 1992 to November 1993. During the period December 1989 to September
1991, Ms. Gilmore was District Manager of Crossland Savings, F.S.B., Sarasota,
Florida, a federal savings bank. During the period July, 1989 through November
1989, Ms. Gilmore was an associate of Meridian Associates, Inc., a securities
broker/dealer. During the period April 1988 through April 1989, Ms. Gilmore
served as Financial and Operations Principal, General Securities Principal and
Municipal Securities Rule Making Board Principal of Financial Information
Centers Brokerage of Sarasota, Florida. Ms. Gilmore also serves in such
capacities with FAS Wealth.
BARBARA J. KNOX, age 57, serves FAS Wealth as Vice President and Chief
Compliance Officer. Prior to joining FAS Wealth, Ms. Knox was Vice President
and Managing Partner of Century Securities, a Sarasota based securities firm.
In the preceding period, Ms. Knox was Vice President and Manager of the Equity
Research Department of Marion Bass Securities Corporation, a Charlotte, North
Carolina firm. During this time, Ms. Knox also served as Due Diligence Officer
and Equity Sales Trainer. Ms. Knox also served as Vice President, Compliance
Officer and Chief Operations Manager for Meridian Associates, Inc., a Sarasota
based securities broker-dealer. Ms. Knox holds NASD Series 3,7,24 and 63
licenses and is Florida Life and Variable Annuity licensed.
GEORGEANNE E. DETWEILER, age 32, serves FAS Wealth as Vice President and
Director of Branch Operations. Prior to her association with FAS Wealth, Ms.
Detweiler was employed by Smith, Barney, Harris, Upham & Co., Inc. in the
capacity of Assistant to the branch manager, syndicate manager and sales
manager. Ms. Detweiler has been involved in the securities investment industry
for 12 years and possesses extensive knowledge and experience in the retail,
operational and compliance aspects of the securities business. Ms. Detweiler
holds NASD Series 4, 7, 11, 24, and 63 securities licenses.
DENNIS B. SCHROEDER, age 61, serves as a director of FAS, and resides in Naples,
Florida. He has over thirty years of experience in the investment banking
industry. In 1955 Mr. Schroeder founded Miller & Schroeder Financial, Inc. in
Minneapolis, Minnesota. Miller & Schroeder Financial, Inc. is one of the
largest regional investment banking firms in the U.S. specializing in tax exempt
securities and corporate finance with underwriting totaling billions of dollars
annually. Mr. Schroeder retired from Miller & Schroeder Financial, Inc. in 1988
as Chairman and Chief Executive Officer. From 1988 through 1991, Mr. Schroeder
was Chairman of the Board of Directors and Chief Executive Officer of F & G
Consultants, Inc. and signed a three year contract with USF&G Financial
Services, Inc. a division of USF&G Insurance Company of Baltimore, Maryland.
Mr. Schroeder was responsible for establishing distribution for twelve USF&G
mutual funds totaling approximately $1 billion; acting as President/Chief
Executive Officer for coordinating the marketing and distribution efforts for
USF&G Investment Services Inc.; developing a pilot program for independent
property and casualty insurance agencies to sell securities; and coordinating
the sale and divestiture of unprofitable USF&G companies and divisions. From
1993 to 1997 Mr. Schroeder served as Chairman and Chief Executive Officer of
Lotto World, Inc., a national publishing company. Mr. Schroeder was
instrumental in raising over $14,000,000 in capital for Lotto World, Inc.
through private placements and an Initial Public Offering. Mr. Schroeder serves
on several Board of Directors including Lotto World, Inc., Financial Marketing
Holding Company, Inc. and FMC Capital Markets, Inc. and is a former director of
Gulf Coast National Bank of Naples, Florida.
ROBERT E. WINDOM, M.D., age 69, is a director of FAS, and resides in
Sarasota, Florida. His Bachelor of Arts Degree and Medical Degree are from Duke
University in 1952 and 1956. His post graduate training was at Parkland
Memorial Hospital, Dallas, Texas. From 1960-1986, he practiced internal
medicine and cardiology in Sarasota. He served as President of the Florida
Medical Association in 1982-3. In 1986, President Ronald Reagan appointed him
to be the Assistant Secretary for Health in the Department of Health and Human
Services. In that capacity he directed the US Public Health Service and
represented the nation internationally in signing bilateral research agreements
for the NIH, CDC and other scientific entities. Since 1989, Dr. Windom has
served as a healthcare consultant, dealing with domestically and internationally
public and environmental health issues. He currently is Chair of the Florida
Correctional Medical Authority, serving under consecutive appointments from two
Governors. He is a member of the Council for Excellence in Government in
Washington, D.C., is historian for the Florida Medical Association, is a
delegate from the Florida Medical Association to the American Medical
Association, and is a member of the National Legislative Committee of the
Florida Medical Association. He is a Fellow of the American College of
Physicians, and also the American College of Cardiology. He is a past president
of the Florida Heart Association, and also the Sarasota County Chamber of
Commerce. He has been a board member of the following organizations: Power
Brands, BESTech, Inc., Boys and Girls Club of Sarasota County Foundation, and
Sarasota Heart Center Foundation. He has been a Clinical Professor of Internal
Medicine at both the University of Miami School of Medicine, and the University
of South Florida School of Medicine. Dr. Windom has served in numerous
community capacities as Chairman of the United Way Campaign, Chairman of the
Goodwill Industries Annual Campaign, Director of Coast Bank, Advisory Board of
SunTrust Bank, Director of Ellis Bank, and Director of First Presidential
Savings and Loan Association. Dr. Windom has authored over 35 medical
publications/papers, and is the author of "The Fruit and Vegetable Lovers' Guide
to the Surgeon Generals' Diet." He has been awarded The Distinguished Alumnus
Award of the Duke Medical Center, Distinguished Internist of the Year by the
American Society of Internal Medicine, Patriot of Sarasota, and Health
Communicator of the Year by the Florida Hospital Association. Dr. Windom is a
director and consultant of FAS Weatlh.
FAS expects that the Board of Directors will establish an Audit Committee
and a Compensation Committee. The members of each committee are expected to be
determined at the first meeting of the Board of Directors following the
Effective Date.
RIGHTS OF DISSENTING SHAREHOLDERSRIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who have not consented to the Merger and who comply with the
dissenters' rights provisions of the Florida Business Corporation Act will have
the right to be paid in cash the fair value of their Company Common Stock. Such
fair value in the amount of $.065 per share was determined as of the close of
business on the day before the Majority Holders approved the Merger by written
consent excluding any appreciation or depreciation directly or indirectly
induced by the Merger or the authorization of it.
In order to receive cash payment for his FAS Wealth Common Stock, a
dissenting shareholder must comply with the procedures specified by Sections
607.1302 to 607.1320 of the Florida BCA, which are attached as Annex D to this
Information Statement/Prospectus. Any shareholder considering exercising his
dissenters' rights is urged to review Sections 607.1302 and 607.1320 carefully.
The following summary of the principal provisions of Sections 607.1302 to
607.1320 is qualified in its entirety by reference to the text thereof.
Further, the following discussion is subject to the possibility that FAS Wealth
may abandon the Merger if the Board of directors determines that in light of the
potential liability of FAS Wealth that might result from the exercise of
dissenters' rights, the Merger would be impracticable, undesirable or not in the
best interests of FAS Wealth shareholders. If FAS Wealth abandons the Merger,
the rights of dissenting shareholders would terminate and such dissenters would
be reinstated to all of their rights as shareholders.
Any shareholder who wishes to dissent from the Merger and receive a cash
payment for his Common Stock, (a) must file with FAS Wealth, prior to the
Effective Date, a written objection to the Merger demanding payment for his
Company Common Stock if the Merger is consummated and setting forth his name,
address and the number of shares of Company Common Stock held by him and (b)
must not be one of the Majority Holders who consented to the Merger.
FAILURE TO FILE THE REQUIRED NOTICE OR DEMAND PRIOR TO THE EFFECTIVE DATE
WILL NOT SATISFY THE NOTICE REQUIREMENTS OF SECTION 607.1320 AND WILL RESULT IN
THE FORFEITURE OF DISSENTERS RIGHTS.
COMMUNICATIONS WITH RESPECT TO DISSENTERS' RIGHTS SHOULD BE ADDRESSED TO
FAS WEALTH MANAGEMENT SERVICES, INC. AT SOUTHTRUST BANK PLAZA, 1800 SECOND
STREET, SUITE 780, SARASOTA, FLORIDA 34236, TELEPHONE NUMBER (941) 365-4200.
Upon filing a notice of election to dissent a dissenting shareholder will
cease to have any of the rights of a shareholder except the right to be paid the
fair value of his Company Common Stock pursuant to Section 607.1320. If a
shareholder loses his dissenters' rights, either by withdrawal of his demand,
abandonment of the Merger by FAS Wealth or otherwise, he will not have the right
to receive a cash payment for his Company Common Stock and will be reinstated to
all of his rights as a shareholder as they existed at the time of the filing of
his demand.
AT THE TIME OF DEMANDING PAYMENT FOR HIS SHARES OF COMPANY COMMON STOCK,
EACH SHAREHOLDER DEMANDING PAYMENT SHALL SUBMIT THE CERTIFICATE OR CERTIFICATES
REPRESENTING HIS SHARES OF COMPANY COMMON STOCKS FOR NOTATION THEREON THAT SUCH
DEMAND HAS BEEN MADE. FAILURE TO DO SO SHALL, AT THE OPTION OF FAS WEALTH
FLORIDA, TERMINATE HIS DISSENTER'S RIGHTS UNLESS A COURT, FOR GOOD CAUSE,
DETERMINES OTHERWISE.
Within 60 days after the Effective Date of the Merger, FAS, as successor to
FAS Wealth, will give written notice thereof to each dissenting shareholder who
timely filed a demand and will make a written offer to each such shareholder to
pay for his FAS Wealth Common Stock at a specified price determined by FAS
Wealth to be the fair value thereof. If, within 30 days after the Merger, FAS
and a dissenting shareholder agree upon the price to be paid for his FAS Wealth
Common Stock; FAS shall make such payment within 90 days following the effective
date of the Merger, upon surrender by such shareholder to FAS of the
certificates representing his FAS Wealth Common Stock. Upon payment, the
dissenting shareholder shall cease to have any interest in FAS Wealth Common
Stock.
If FAS and any dissenting shareholder fail to agree upon the price to be
paid for his FAS Wealth Common Stock within the aforementioned 30-day period,
then within 30 days after receipt of written demand from any dissenting
shareholder given within 60 days after the date the Merger is effected, FAS
shall, or at any time within such 60 day period FAS may, file an action in any
court of general civil jurisdiction in the county in Florida where the
registered office, of FAS Wealth is located, requesting that the fair value of
such FAS Wealth Common Stock be found and determined. If FAS fails to institute
the proceeding within such 60-day period, any dissenting shareholder may
institute such proceeding. All dissenting shareholders, except those who have
agreed on the price to be paid for their FAS Wealth Common Stock, are required
to be made parties to such a proceeding.
In any such proceeding, the court, at FAS's request, will determine whether
or not any particular dissenting shareholder is entitled to receive payment for
his FAS Wealth Common Stock. If FAS does not request such a determination or if
the court finds that a dissenting shareholder is so entitled, the court,
directly or through an appraiser, will fix the value of FAS Wealth Common Stock
as of the day prior to the date the Majority Holders consented to the Merger,
excluding any appreciation or depreciation directly or indirectly induced by the
Merger or the proposal to authorize it. The expenses of any such proceeding, as
determined by the court, shall be assessed against FAS, except that the court
may apportion costs to any dissenting shareholder whom it finds to have been
acting arbitrarily, vexatiously or otherwise not in good faith in refusing an
offer by FAS.
THE PROVISIONS OF SECTIONS 607.1302 TO 607.1320 ARE TECHNICAL AND COMPLEX.
IT IS SUGGESTED THAT ANY SHAREHOLDER WHO DESIRES TO EXERCISE HIS/HER RIGHT TO
DISSENT CONSULT HIS LEGAL COUNSEL, AS FAILURE TO COMPLY STRICTLY WITH SUCH
PROVISIONS MAY LEAD TO A LOSS OF DISSENTERS RIGHTS.
THE MERGER
GENERAL
FAS Wealth merged with FAS Wealth Delaware, a wholly owned subsidiary of
FAS. The Merger was effected as of August 31, 1998 and resulted in (i) FAS
Wealth's name being unchanged as FAS Wealth Management Services, Inc. (ii)
shares of common stock of FAS Wealth being converted into the right to receive
.5872 shares of common stock of FAS for each share of common stock of FAS Wealth
owned as of the date of Merger (iii) FAS Wealth Delaware to be incorporated
under the laws of Delaware after the Merger; and (iv) FAS Wealth Delaware being
a wholly owned subsidiary of FAS whose Certificate of Incorporation authorizes
FAS to issue (A) 25,000,000 shares of Class A Common Stock, par vale $.001 per
share, (B) 1,000,000 shares of Class B Common Stock; and (c) 1,000,000 preferred
shares with a par value of $.001 per share.
The Certificate of Incorporation and Bylaws of FAS Wealth Delaware as in
effect on August 31, 1998 will be the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
This section of the Information Statement/Prospectus describes certain
aspects of the Merger. To the extent that it relates to the Merger Agreement,
the following description does not purport to be complete and is qualified by
reference to the Merger Agreement, which is attached as Annex A to this
Information Statement/Prospectus and is incorporated herein by reference.
Pursuant to the Merger Agreement, on the Effective Date each share of FAS
Wealth Common Stock issued and outstanding immediately prior to the Effective
Date (other than fractional shares to be canceled as described below) will be
converted at the Effective Date into the right to receive that number of duly
authorized, validly issued, fully paid and nonassessable shares of FAS Common
Stock equal to the quotient, calculated to four decimal places, of (a) 1,591,000
divided by (b) the number of shares of FAS Wealth Common Stock outstanding
immediately prior to the Effective Date. In the event of any change in FAS
Wealth Common Stock or FAS Common Stock by reason of any stock split,
readjustment, stock dividend, exchange of shares, reclassification,
reorganization or otherwise the Conversion Number will be correspondingly
adjusted.
Promptly after the Effective Date, FAS will mail to each record holder of
an outstanding certificate or certificates which immediately prior to the
Effective Date represented shares of FAS Wealth Common Stock (the
"Certificates"), a form letter of transmittal and instructions for use in
effecting the surrender of the Certificates for exchange.
FAS WEALTH STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM.
Upon surrender by FAS Wealth stockholders to FAS of their Certificates,
(together with such letter of transmittal duly executed together with any other
required documents) the FAS Wealth stockholders will be entitled to receive from
FAS the number of shares of FAS Common Stock which such holder has the right to
receive under the Merger Agreement, and such FAS Wealth Certificate will then be
canceled. Under the DGCL, the failure of a FAS Wealth stockholder to surrender
his or her Certificates will not result in the forfeiture of the right to
receive dividends or to vote the FAS Common Stock issuable to such stockholder.
No fractional shares of FAS Common Stock will be issued in the Merger.
Instead, the Merger Agreement provides that each holder of FAS Wealth Common
Stock who would otherwise have been qualified to receive a fraction of a share
of FAS Common Stock will be entitled to receive, in lieu thereof, cash (without
interest) in an amount equal to the fraction of a share to which such holder
would otherwise have been entitled, multiplied by the Market Value of FAS Common
Stock less the amount of any withholding taxes which may be required thereon.
The Merger Agreement provides that for purposes of paying such cash in lieu of
fractional shares, all Certificates surrendered for exchange by a FAS Wealth
stockholder will be aggregated, and no such holder will receive cash in lieu of
fractional shares in an amount equal to or greater than the value of one full
share of FAS Common Stock with respect to all such Certificates surrendered.
CLOSING; EFFECTIVE DATE
After the adoption and approval of the Agreement and Plan of Merger, the
Merger and the other transactions contemplated thereby, appropriate certificates
of merger in the form required by the Florida Business Corporation Act were
executed and filed in the office of the Secretary of State of the State of
Florida and filed and recorded with the Secretary of State of the State of
Delaware as provided in the General Corporation Laws of Delaware specifying the
Merger to be effective as of the 31st day of August, 1998. The Closing occurred
on the date the Merger became effective. However, the Effective Date is the
twentieth day after the date of this Information Statement.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains certain customary representations and
warranties by each of FAS and FAS Wealth (as to such party) concerning: the
organization and qualification of FAS and FAS Wealth and their respective
subsidiaries; the capitalization of each of FAS and FAS Wealth; the authority of
each of FAS and FAS Wealth relative to the execution and delivery of and
performance of its respective obligations under the Merger Agreement; approval
by the Board of Directors of each of FAS and FAS Wealth regarding certain
related matters; obtaining necessary approvals to consummate the transactions
contemplated by the Merger Agreement; the absence of any conflict with, or
violations of the corporate documents and certain binding instruments of each of
FAS and FAS Wealth or their respective subsidiaries or with or of any statute,
rule, regulation, order or decree of courts or governmental entities, subject to
certain exceptions; the accuracy of reports and documents filed by FAS Wealth
with the Commission since a specified date, and certain financial statements of
each company; the absence of undisclosed liabilities or obligations of FAS, FAS
Wealth and each of their respective subsidiaries; the absence of litigation
involving FAS or FAS Wealth or their respective subsidiaries that would have a
material adverse effect on the business of either party; and compliance by each
of FAS and FAS Wealth and their respective subsidiaries with applicable laws and
agreements.
POST-CLOSING MATTERS
Incentive Stock Option. Immediately after the Effective Date, the Board of
Directors shall authorize the issuance of 250,000 Incentive Stock Options each
to Guy S. Della Penna and Jack A. Alexander respectively and 155,000 Incentive
Stock Options to Robert H. DeVore. The options shall vest and be exercisable
immediately subject to the Lock-up Agreement at $0.60 per share. In addition,
common stock warrants to purchase 22,800 shares of Class A Common Stock are
issuable to FMC Capital Markets, Inc. at $3.29 per share subject to the Lock-Up
Agreement.
Dividend Policy. FAS has never paid dividends on the Common Stock and it
does not anticipate that it will pay dividends or alter its dividend policy in
the foreseeable future. The payment of dividends by FAS on the Common Stock
will depend on its earnings and financial condition, and such other factors as
the Board may consider relevant.
Market for Common Equity and Related Stockholder Matters. FAS Wealth's
Common Stock is not quoted on the NASD Over-The-Counter Bulletin Board ("OTCBB")
and has not had any trading activity. A public trading market having the
characteristics of depth, liquidity and orderliness depends upon the existence
of market makers as well as the presence of willing buyers and sellers, which
are circumstances over which FAS does not have control.
FAS has reserved the trading symbol FAS.
CERTAIN TAX CONSIDERATIONS
The following is a summary description of the material federal income tax
consequences of the Merger. This summary is for general informational purposes
only and is not intended as a complete description of all of the tax
consequences of the Merger and does not discuss tax consequences under the laws
of state or local governments or of any other jurisdiction. Moreover, the tax
treatment of a stockholder may vary depending upon his, her or its particular
situation. In this regard, certain stockholders (including (i) insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
and persons who are not citizens or residents of the United States or who are
foreign corporations, foreign partnerships or foreign trusts or estates as
defined for United States federal income tax purposes, and (ii) stockholders
that hold shares as part of a position in a "straddle" or as part of a "hedging"
or "conversion" transaction for United States federal income tax purposes and
stockholders with a "functional currency" other than the United States dollar)
may be subject to special rules not discussed below. In addition, this summary
applies only to shares which are held as capital assets. The following
discussion may not be applicable to a stockholder who acquired his or her shares
pursuant to the exercise of stock options or otherwise as compensation.
THE FOLLOWING DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, TREASURY REGULATIONS THEREUNDER, AND CURRENT ADMINISTRATIVE RULINGS AND
COURT DECISIONS. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE WHICH MAY OR MAY
NOT BE RETROACTIVE, AND ANY SUCH CHANGES COULD AFFECT THE TAX CONSEQUENCES
DESCRIBED HEREIN. EACH STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE MERGER DESCRIBED HEREIN,
INCLUDING, THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND THE POSSIBLE EFFECTS OF CHANGES OF APPLICABLE TAX LAWS.
FAS Wealth and FAS will receive, prior to the Effective Date of the Merger,
the opinion of Sonfield & Sonfield to the effect that:
(1) the Merger will qualify as a reorganization within the meaning of
Section 368(a) of the Code;
(2) no gain or loss will be recognized by FAS or FAS Wealth as a result
of the Merger; and
(3) no gain or loss will be recognized by FAS Wealth's stockholders
upon the receipt of FAS Common Stock solely in exchange for FAS Wealth Common
Stock in connection with the Merger (except with respect to cash received in
lieu of a fractional interest in FAS Common Stock).
Tax opinions are not binding on the IRS or any court. Moreover, the tax
opinions are based upon, among other things, certain representations as to
factual matters made by FAS Wealth and FAS, which representations, if incorrect
or incomplete in certain material respects, would jeopardize the conclusions
reached in the opinions.
It is expected that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. If the Merger so qualifies, (i) the
holders of FAS Wealth Common Stock will not recognize gain or loss upon the
receipt of FAS Common Stock in exchange for their shares of FAS Wealth Common
Stock, (ii) each holder of FAS Wealth Common Stock will carry over his, her or
its tax basis in the FAS Wealth Common Stock to the FAS Common Stock, (iii) the
holding period for each holder of FAS Wealth Common Stock will carry over to the
FAS Common Stock, provided that the FAS Wealth Common Stock is held as a capital
asset immediately prior to the Effective Date of the Merger, and (iv) any holder
of FAS Wealth Common Stock receiving cash in lieu of fractional shares will
recognize capital gain or loss (provided the shares of FAS Wealth Common Stock
surrendered are held as capital assets immediately prior to the Effective Date
of the Merger) equal to the difference between the amount of cash received and
the portion of such holder's basis in the shares of FAS Wealth Common Stock
allocable to such fractional share interests, and such capital gain or loss will
be long-term capital gain or loss if the holding period for such shares is more
than one year.
If the Merger does not qualify as a reorganization within the meaning of
Section 368(a) of the Code, then each holder of FAS Wealth Common Stock will
recognize gain or loss upon the receipt of the FAS Common Stock in exchange for
such FAS Wealth Common Stock equal to the difference between the fair market
value of the FAS Common Stock received and such holder's basis in FAS Wealth
Common Stock.
If the Merger were not to qualify as a tax-free reorganization under
Section 368 of the Code, then, in general, a corporate level federal income tax
would be payable by the consolidated group of which FAS Wealth is the common
parent, which tax would be based upon the gain (computed as the difference
between the fair market value of FAS stock exchanged in the Merger and the
Shareholders of FAS Wealth's adjusted basis in such stock) realized by FAS
Wealth upon the consummation of the Merger.
TAXPAYER RELIEF ACT
The Taxpayer Relief Act of 1997 ("TRA 1997") was signed into law on August
5, 1997. TRA 1997 contains certain restrictions involving a distribution or
"spin-off" to stockholders of portions of a business enterprise, accompanied by
a merger or acquisition of a specific unit of the business enterprise involving
a third party acquiror. The Merger is not affected by the restrictions imposed
by TRA 1997.
BACK-UP WITHHOLDING REQUIREMENTS
United States information reporting requirements and backup withholding at
the rate of 31% may apply with respect to dividends paid on, and proceeds from
the taxable sale, exchange or other disposition of FAS Wealth Common Stock,
unless the stockholder (i) is a corporation or comes within certain other exempt
categories, and, when required, demonstrates these facts, or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A stockholder who does not supply FAS with his,
her or its correct taxpayer identification number may be subject to penalties
imposed by the IRS. Any amount withheld under these rules will be refunded or
credited against the stockholder's federal income tax liability. Stockholders
should consult their tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining such an exemption. If
information reporting requirements apply to a stockholder, the amount of
dividends paid with respect to such shares will be reported annually to the IRS
and to such stockholder.
INFORMATION CONCERNING FAS
FAS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview. FAS was organized June 23, 1998 under the general corporation
laws of the state of Delaware and has agreed to combine, by merger, with FAS
Wealth, a registered broker-dealer that is a member of the National Association
of Securities Dealers, Inc. for the purpose of becoming a full service
investment banking firm including brokerage and asset management
Jack Alexander, as a founder and on behalf of FAS, entered into an
Agreement and Plan of Merger dated May 7, 1998 (the "Merger Agreement") among
FAS Wealth Delaware and certain shareholders of FAS Wealth whereby a wholly
owned subsidiary of FAS, newly created under the General Corporation Laws of
Delaware, will merge with and into FAS Wealth with FAS Wealth surviving the
merger (the "Merger"). The Merger will result in (i) FAS Wealth Delaware being
governed by Delaware law, (ii) certain officers and directors of FAS Wealth
becoming officers and directors of FAS, (iii) FAS Wealth name being unchanged as
FAS Wealth Management Services, Inc.; and (iv) FAS Wealth Delaware becoming a
wholly owned subsidiary of FAS.
FAS is a development stage enterprise and has devoted substantially all of
its efforts to financial planning, raising capital and identifying business
opportunities. FAS is subject to the risks associated with development stage
companies. Substantial financing or capital investment will be required to
continue to fund FAS's activities until a significant sales volume can be
obtained. Because FAS has not yet puts its business plan into operation, there
is no assurance that such financing and additional capital investment will be
available when needed, or that FAS's business plan will be commercially
successful when implemented in the future. If FAS is unable to raise adequate
amounts of financing or capital, its operations and continuation as a going
concern may not occur.
Liquidity and Capital Resources. On June 25, 1998, FAS was paid a
consulting fee negotiated by FAS's president, Mr. Jack Alexander, acting as
agent and founder for FAS Group, Inc. Payment of the fee was received in the
form of 200,000 shares of stock in the Tollycraft Yacht Corporation. These
shares of stock have been classified as available for sale and are reflected on
the accompanying balance sheet at market value
BUSINESS OF FAS
Overview. The founder of FAS Group, Inc. ("FAS"), Jack Alexander,
pioneered the independent contractor registered representative to build a
nationwide, full service retail brokerage firm. He founded First Affiliated
Securities and attracted over 1,000 associated brokers in approximately 400
offices. Firms over which Mr. Alexander presided have been responsible for
underwriting more than 100 new securities issues and raised over $1 billion for
companies in both private and public offerings as the managing underwriter. He
has maintained relationships with many of the brokers who were associated with
FAS as well as brokers, traders, investment bankers, corporate finance and
compliance professionals, as well as qualified back and front office support
personnel.
FAS, through its wholly owned broker-dealer subsidiary, FAS Wealth, is a
full service, national retail, independent contractor, investment banking firm
focused on retail brokerage. investment banking, trading, institutional
brokerage, affinity group marketing and asset management. FAS Wealth was
founded in 1981 and is an independent, publicly held, reporting broker/dealer
that has been in continuous, uninterrupted compliance with all net capital
requirements imposed by the Securities Exchange Act of 1934 and the United
States Securities and Exchange Commission. FAS Wealth has never experienced any
regulatory difficulties or problems since its incorporation in 1981 and has, as
a firm, never been the subject of any adverse arbitration rulings. FAS
approaches the marketplace with an innovative concept in the broker/dealer
structure. The business strategy of FAS Wealth is to offer products and
services to professional business persons and high net worth individuals who are
primarily members of affinity groups. FAS Wealth additionally focuses its
growth activities in the areas of the establishment of additional independent
branch offices staffed by brokers who market mutual funds, stocks, bonds,
variable annuities and insurance products as well as wealth management services
to the general public. FAS Wealth is a Member of the NASD, SIPC, MSRB and RIBA.
The Industry Background. Over the past 15 years, capital markets have
evolved in depth and complexity, thereby radically altering the needs of both
investors and the companies accessing those markets. According to Securities
Data Company, in 1982, 122 IPOs were underwritten in the U.S. for a total of
$1.3 billion and total public equity issued equaled $20.6 billion. In 1992, the
value of new issues in the U.S. more than doubled the level achieved in any
previous year reaching $39.9 billion, while the total public equity and
high-yield debt raised equaled $95.0 billion and $51.6 billion respectively. In
1996, 874 initial public offerings were completed in the U.S., totaling $50.0
billion, total public equity issued equaled $191.1 billion, and high-yield debt
issued totaled $87.5 billion. A significant portion of this growth has come
from emerging industries that previously had limited access to the capital
markets.
To succeed in the current environment, investment banks must be able to
conceive and to communicate creative solutions which meet the capital needs of
companies and the investment goals of investors.
FAS believes that the increases in recent years, in the depth and
complexity of the capital markets and in the number of non-traditional issuers
coupled with significant inflows of cash into mutual funds and other managed
funds, will lead to greater demand by both issuers and investors for focused
advisory, capital markets, and capital management products and services.
Employment. Industry sources report that securities and financial services
sales representatives held about 250,000 jobs in 1997. In addition, a
substantial number of people in other occupations sold securities. These
include partners and branch office managers in securities firms as well as
insurance agents and brokers offering securities to their customers.
Securities sales representatives are employed by brokerage and investment
firms in all parts of the country. Many of these firms are very small. Most
sales representatives, however, work for a small number of large firms with main
offices in big cities (especially New York) and approximately 25,000 branch
offices in other areas.
Financial services sales representatives are employed by banks, savings and
loans associations, and other credit institutions.
Growth Strategy. FAS believes its strategy and culture will enable it to
succeed in this changing marketplace. FAS will apply its regional focus and
team-based approach to the following business segments:
Strategic Relationship with Banking Institution
Investment Banking and Corporate Finance
Capital Raising Activities
Mergers and Acquisitions Advisory Services
Sales and Trading
Corporate Services
Executive Services
Syndicate
Asset Management
Hedge and Offshore Funds
Private Equity and Venture Capital
Mutual Funds
Fund Distribution
Accounting, Administration and Operations . FAS's accounting,
administration and operations personnel will be responsible for financial
controls, internal and external financial reporting, office and personnel
services, FAS's management information and telecommunications systems, and the
processing of FAS securities transactions. With the exception of payroll
processing, which will be performed by an outside service bureau, and customer
account processing, which will be performed by FAS's clearing broker, most data
processing functions will be performed by FAS's management information systems
department. FAS believes that future growth will require implementation of new
and enhanced communications and information systems and training of its
personnel to operate such systems as well as the hiring of additional personnel.
COMPETITION
As of a result of the Merger, FAS engages in the highly competitive
securities brokerage and financial services businesses. FAS competes directly
with large Wall Street securities firms, securities subsidiaries of major
commercial bank holding companies, major regional firms and smaller niche
players. To an increasing degree, FAS also competes for various segments of the
financial services business with other institutions, such as commercial banks,
savings institutions, mutual fund companies, life insurance companies and
financial planning firms. FAS believes that following a strategy of offering
superior service and investment advice in particular areas of expertise and to a
particular client base differentiates it from competitors.
In addition to competing for investment clients, companies in the
securities industry compete to attract and retain experienced and productive
investment professionals. See "Risk Factors--Competition for Retaining and
Recruiting Personnel."
Most competitors have greater personnel and financial resources than FAS.
Larger competitors are able to advertise their products and services on a
national or regional basis and may have a greater number and variety of
distribution outlets for their products, including retail distribution.
Discount brokerage firms market their services through aggressive pricing and
promotional efforts. In addition, some competitors have much more extensive
investment banking activities than FAS and therefore may possess a relative
advantage with regard to access to deal flow and capital.
Recent rapid advancements in computing and communications technology are
substantially changing the means by which financial services are delivered.
These changes are providing consumers with more direct access to a wide variety
of financial and investment services, including market information and on-line
trading and account information. Advancements in technology also create demand
for more sophisticated levels of client services. FAS is committed to utilizing
technological advancements to provide a high level of client service. Provision
of these services may entail considerable cost without an offsetting source of
revenue.
LEGAL PROCEEDINGS
While FAS is not currently a defendant or plaintiff in any lawsuits or
arbitrations, many aspects of FAS's business involve substantial risks of
liability, litigation and arbitration. An underwriter is exposed to potential
liability under federal and state securities laws, other federal and state laws
and court decisions, including decisions with respect to underwriters' liability
and limitations on indemnification of underwriters by issuers. For example, a
firm that acts as an underwriter may be held liable for material misstatements
or omissions of fact in a prospectus used in connection with the securities
being offered or for statements made by its securities analysts or other
personnel.
If plaintiffs in any future suits against FAS were to prosecute their
claims successfully, or if FAS were to settle such suits by making significant
payments to the plaintiffs, FAS's operating results and financial condition
could be materially and adversely affected. FAS will carry very limited
insurance which may cover only a portion of any such payments.
In recent years, there has been an increasing incidence of litigation
involving the securities industry, including class actions that seek substantial
damages and frequently name as defendants underwriters of a public offering and
investment banks that provide advisory services in merger and acquisition
transactions. The eventual impact of the recently passed Federal Private
Securities Litigation Reform Act of 1995 on securities class action litigation
is not yet known. FAS is not currently a defendant in any such lawsuits, and
has never been named a defendant in a class action lawsuit or other suit
alleging underwriter liability.
In addition to these financial costs and risks, the defense of litigation
or arbitration may divert the efforts and attention of FAS's management and
staff, and FAS may incur significant legal expenses in defending such litigation
or arbitration. This may be the case even with respect to claims and litigation
which management believes to be frivolous, and FAS intends to defend vigorously
any frivolous claims against it. The amount of time that management and other
employees may be required to devote in connection with the defense of litigation
could be substantial and might materially divert their attention from other
responsibilities within FAS.
FAS also may become a defendant in civil actions and arbitrations arising
out of its other activities as a broker-dealer, as an investment adviser, as an
employer and as a result of other business activities. There can be no
assurance that substantial payments in connection with the resolution of
disputed claims will not occur in the future.
In addition, FAS's charter documents allow indemnification of FAS's
officers, directors and agents to the maximum extent permitted under Delaware
law. FAS intends to enter into indemnification agreements with these persons.
FAS has been and in the future may be the subject of indemnification assertions
under these charter documents or agreements by officers, directors or agents of
FAS who are or may become defendants in litigation.
RISK MANAGEMENT
FAS will establish various policies and procedures for the management of
its exposure to operating, principal and credit risk. There can be no assurance
that FAS's risk management procedures and internal controls will prevent or
reduce any such risks. Operating risk arises out of the daily conduct of FAS's
business and relates to the possibility that one or more of FAS's personnel
could cause FAS to engage in imprudent business activities. Principal risk
relates to the fact that FAS will hold securities that are subject to changes in
value, and such changes could result in FAS incurring material losses. Credit
risk occurs because FAS will extend credit through its clearing broker to
various of its customers in the form of margin and other types of loan
activities that are normal industry practices.
Operating risk will be monitored by managers of FAS's business groups, and
by the directors of each of FAS's operating subsidiaries. These directors
review the overall business activities of each of FAS's subsidiaries, and issue
directions to address issues which, in the judgment of the directors, could
result in a material loss to FAS.
Principal risk is managed primarily by conducting real-time monitoring of
the amount and types of securities held from time to time by FAS and by limiting
the exposure to any one investment or type of investment. The two most common
categories of securities to be owned are those related to the daily trading
activities of FAS's brokerage operations and those which arise out of FAS's
underwriting activities. FAS will attempt to limit its exposure to market risk
on securities held as a result of its daily trading activities by limiting its
inventory of trading securities to the amount needed to provide the appropriate
level of liquidity in the securities for which it is a market maker. FAS does
not intend to take positions in securities as principal investments, and will
seek to balance trading security inventory positions daily.
Credit risk will be monitored both by FAS's own operations personnel and by
FAS's clearing broker. Margin calls are issued if the value of collateral
declines below established margin requirements, and margin maintenance
requirements are increased in the event that the concentration in a client's
account exceeds certain levels.
REGULATION
In the United States, a number of federal regulatory agencies are charged
with safeguarding the integrity of the securities and other financial markets
and with protecting the interests of customers participating in those markets.
The SEC is the federal agency that is primarily responsible for the regulation
of broker-dealers and investment advisers doing business in the United States,
and the Federal Reserve Board promulgates regulations applicable to securities
credit transactions involving broker-dealers and certain other institutions in
the United States. Much of the regulation of broker-dealers, however, has been
delegated to self-regulatory organizations ("SROs"), principally the NASD (and
its subsidiaries NASD Regulation, Inc. and Nasdaq), and the national securities
exchanges. These SROs and exchanges adopt rules (which are subject to approval
by the SEC) that govern the industry, monitor daily activity and conduct
periodic examinations of member broker-dealers. While FAS's broker-dealer
subsidiary, FAS Wealth, is not a member of the NYSE, FAS's business is affected
by the NYSE rules.
Securities firms are also subject to regulation by state securities
commissions in the states in which they are required to be registered. FAS
Wealth is registered as a broker-dealer with the SEC and in 41 states, and is a
member of, and subject to regulation by, a number of SROs, including the NASD
and the Municipal Securities Rulemaking Board.
As a result of federal and state registration and SRO memberships, FAS will
be subject to overlapping schemes of regulation which cover all aspects of their
securities business. Such regulations cover matters including capital
requirements, uses and safe-keeping of clients' funds, conduct of directors,
officers and employees, record-keeping and reporting requirements, supervisory
and organizational procedures intended to assure compliance with securities laws
and to prevent improper trading on material nonpublic information,
employee-related matters, including qualification and licensing of supervisory
and sales personnel, limitations on extensions of credit in securities
transactions, clearance and settlement procedures, requirements for the
registration, underwriting, sale and distribution of securities, and rules of
the SROs designed to promote high standards of commercial honor and just and
equitable principles of trade. A particular focus of the applicable regulations
concerns the relationship between broker-dealers and their customers. As a
result, the many aspects of the broker-dealer customer relationship are subject
to regulation including, in some instances, "suitability" determinations as to
certain customer transactions, limitations on the amounts that may be charged to
customers, timing of proprietary trading in relation to customers' trades and
disclosures to customers.
FAS will also be subject to "Risk Assessment Rules" imposed by the SEC
which require, among other things, that certain broker-dealers maintain and
preserve certain information, describe risk management policies and procedures
and report on the financial condition of certain affiliates whose financial and
securities activities are reasonably likely to have a material impact on the
financial and operational condition of the broker-dealers. Certain "Material
Associated Persons" (as defined in the Risk Assessment Rules) of the broker-
dealers and the activities conducted by such Material Associated Persons may
also be subject to regulation by the SEC. In addition, the possibility exists
that, on the basis of the information it obtains under the Risk Assessment
Rules, the SEC could seek authority over FAS's unregulated subsidiaries either
directly or through its existing authority over FAS's regulated subsidiaries.
In the event of non-compliance with an applicable regulation, governmental
regulators and the NASD may institute administrative or judicial proceedings
that may result in censure, fine, civil penalties (including treble damages in
the case of insider trading violations), the issuance of cease-and-desist
orders, the deregistration or suspension of the non-compliant broker-dealer or
investment adviser, the suspension or disqualification of the broker-dealer's
officers or employees or other adverse consequences. The imposition of any such
penalties or orders on FAS could have a material adverse effect on FAS's
operating results and financial condition.
Additional legislation and regulations, including those relating to the
activities of broker-dealers and investment advisers, changes in rules
promulgated by the SEC or other United States or foreign governmental regulatory
authorities and SROs or changes in the interpretation or enforcement of existing
laws and rules may adversely affect the manner of operation and profitability of
FAS. FAS's businesses may be materially affected not only by regulations
applicable to it as a financial market intermediary, but also by regulations of
general application. For example, the volume of FAS's underwriting, merger and
acquisition, securities trading and asset management activities in any year
could be affected by, among other things, existing and proposed tax legislation,
antitrust policy and other governmental regulations and policies (including the
interest rate policies of the Federal Reserve Board) and changes in
interpretation or enforcement of existing laws and rules that affect the
business and financial communities.
NET CAPITAL REQUIREMENTS
As a broker-dealer registered with the SEC and as a member firm of the
NASD, FAS Wealth will be subject to the capital requirements of the SEC and the
NASD. These capital requirements specify minimum levels of capital, computed in
accordance with regulatory requirements, that the firm is required to maintain
and also limits the amount of leverage that the firm is able to obtain.
FAS Wealth will compute its net capital requirement under the aggregate
indebtedness method permitted by the SEC. Under this method, FAS Wealth is
required by the SEC to maintain regulatory net capital, computed in accordance
with the SEC's regulations, equal to the greater of $250,000 or such amount that
its aggregate indebtedness does not exceed 1,500% of its net capital.
"Net capital" is essentially defined as net worth (assets minus
liabilities, as determined under generally accepted accounting principles), plus
qualifying subordinated borrowings, less the value of all of a broker-dealer's
assets that are not readily convertible into cash (such as goodwill, furniture,
prepaid expenses and unsecured receivables), and further reduced by certain
percentages (commonly called "haircuts") of the market value of a broker-
dealer's positions in securities and other financial instruments.
The SEC's capital rules also (i) require that broker-dealers notify it, in
writing, two business days prior to making withdrawals or other distributions of
equity capital or lending money to certain related persons if those withdrawals
would exceed, in any 30-day period, 30% of the broker-dealer's excess net
capital, and that they provide such notice within two business days after any
such withdrawal or loan that would exceed, in any 30-day period, 20% of the
broker-dealer's excess net capital, (ii) prohibit a broker-dealer from
withdrawing or otherwise distributing equity capital or making related party
loans if after such distribution or loan, the broker-dealer has net capital of
less than $300,000 or if the aggregate indebtedness of the broker-dealer's
consolidated entities would exceed 1,000% of the broker-dealer's net capital and
in certain other circumstances, and (iii) provide that the SEC may, by order,
prohibit withdrawals of capital from a broker-dealer for a period of up to 20
business days, if the withdrawals would exceed, in any 30-day period, 30% of the
broker-dealer's excess net capital and if the SEC believes such withdrawals
would be detrimental to the financial integrity of the firm or would unduly
jeopardize the broker-dealer's ability to pay its customer claims or other
liabilities.
Compliance with regulatory net capital requirements could limit those
operations that require the intensive use of capital, such as underwriting and
trading activities, and also could restrict FAS's ability to withdraw capital
from its affiliated broker-dealers, which in turn could limit its ability to pay
dividends, repay debt and redeem or repurchase shares of its outstanding capital
stock.
A failure of a broker-dealer to maintain its minimum required net capital
would require it to cease executing customer transactions until it came back
into compliance, and could cause it to lose its NASD membership, its
registration with the SEC or require its liquidation. Further, the decline in a
broker-dealer's net capital below certain "early warning levels," even though
above minimum net capital requirements, could cause material adverse
consequences to the broker-dealer.
MANAGEMENT OF FAS
Directors and Executive Officers. Directors and Executive OfficersFAS has
initially fixed the number of directors at seven, including at least one
non-employee director and two employee directors whom FAS anticipates will be
named prior to the Effective Date. The Board of Directors will be divided into
three classes with two or three directors in each class, with each class serving
staggered terms. At each annual meeting of stockholders, directors will be
elected by the holders of the Common Stock to succeed those directors whose
terms are expiring.
Information describing the background of Directors and Executive Officers
appears under the caption "Certain Considerations Related to the Merger -
Directors and Officers of FAS Following the Merger."
Compensation of Executive Officers. Prior to consummation of the Merger,
no compensation was paid and a minimal amount was accrued to any of the
executive officers of FAS.
Effective upon consummation of the Merger, FAS entered into employment
agreements with Guy S. Della Penna, Jack A. Alexander, Robert H. DeVore,
Georgeanne Detweiler, Bonnie S. Gilmore and Andrea Smeltzer.
Compensation of Directors. FAS intends to pay each director who is not an
officer or employee of FAS an annual director's fee plus an attendance fee for
each meeting of the Board of Directors or committee thereof that such director
actually attends. In addition, FAS will reimburse directors for their
reasonable expenses incurred in attending meetings of the Board and its
committees. Directors' compensation may be changed at any time by the Board.
Stock Incentive Plan. The board of directors and stockholders of FAS have
approved and adopted by written consent, the FAS Group, Inc. Stock Incentive
Plan (the "Stock Incentive Plan"). The purpose of the Stock Incentive Plan is
to provide deferred stock incentives to certain key employees and directors of
FAS and its subsidiaries who contribute significantly to the long-term
performance and growth of FAS. The following description of the Stock Incentive
Plan is qualified by the Stock Incentive Plan itself.
General Provisions of the Stock Incentive Plan. The Stock Incentive Plan
------------------------------------------------
will be administered by the Board of Directors or a committee of the Board of
Directors duly authorized and given authority by the Board of Directors to
administer the Stock Incentive Plan (the Board of Directors or such designated
Committee as administrator of the Stock Incentive Plan shall be hereinafter
referred to as the "Board"). The Board will have exclusive authority to
administer the Stock Incentive Plan including without limitation, to select the
employees to be granted awards under the Stock Incentive Plan, to determine the
type, size and terms of the awards to be made, to determine the time when awards
will be granted, and to prescribe the form of instruments evidencing awards made
under the Stock Incentive Plan. The Board will be authorized to establish,
amend and rescind any rules and regulations relating to the Stock Incentive Plan
as may be necessary for efficient administration of the Stock Incentive Plan.
Any Board action will require a majority vote of the members of the Board.
Three types of awards are available under the Stock Incentive Plan: (i)
nonqualified stock options or incentive stock, (ii) stock appreciation rights,
and (iii) restricted stock. An aggregate of six hundred fifty five thousand
shares of Common Stock may be issued pursuant to the Stock Incentive Plan,
subject to adjustment to prevent dilution due to merger, consolidation, stock
split or other recapitalization of FAS.
The Stock Incentive Plan will not affect the right or power of FAS or its
stockholders to make or authorize any major corporate transaction such as a
merger, dissolution or sale of assets. If FAS is dissolved, liquidated or
merged out of existence, each participant will be entitled to a benefit as
though he became fully vested in all previous awards to him immediately prior to
or concurrently with such dissolution, liquidation or merger. The Board may
provide that an option or stock appreciation right will be fully exercisable, or
that a share of restricted stock will be free of such restriction upon a change
in control of FAS.
The Stock Incentive Plan may be amended at any time and from time to time by the
Board of Directors but no amendment which increases the aggregate number of
shares of Common Stock that may be issued pursuant to the Stock Incentive Plan
will be effective unless it is approved by the stockholders of FAS. The Stock
Incentive Plan will terminate upon the earlier of the adoption of a resolution
by the Board of Directors terminating the Stock Incentive Plan, or ten years
from the date of the Stock Incentive Plan's approval by the Board of Directors
and stockholders, June 23, 1998.
Stock Options and Stock Appreciation Rights. Stock options are rights to
- ------------------------------------------------
purchase shares of Common Stock. Stock appreciation rights are rights to
receive, without payment to FAS, cash and/or shares of Common Stock in lieu of
the purchase of shares of Common Stock under the stock option to which the stock
appreciation right is attached. The Board may grant stock options in its
discretion under the Stock Incentive Plan. The option price shall be determined
by the Board at the time the option is granted and shall not be less than the
par value of such shares.
The Board will determine the number of shares of Common Stock to be subject to
any option awarded. The option will not be transferable by the recipient except
by the laws of descent and distribution. The option period and date of exercise
will be determined by the Board and may not exceed ten years. The option of any
person who dies may be exercised by his executors, administrators, heirs or
distributors if done so within one year after the date of that person's death
with respect to any Common Stock as to which the decedent could have exercised
the option at the time of this death. Upon exercise of an option, the
participant may pay for Common Stock so acquired in cash, with Common Stock (the
value of which will be the fair market value at the date of exercise), in a
combination of both cash and Common Stock, or, in the discretion of the Board,
by promissory note. For purposes of determining the amount, if any, of the
purchase price satisfied by payment with Common Stock, fair market value is the
mean between the highest and lowest sales price per share of Common Stock on a
given day on the principal exchange upon which the stock trades or some other
quotation source designated by the Board.
The Board may, in its discretion, attach a stock appreciation right to an option
awarded under the Stock Incentive Plan. A stock appreciation right is
exercisable only to the extent that the option to which it is attached is
exercisable. A stock appreciation right entitles the optionee to receive a
payment equal to the appreciated value of each share of Common Stock under
option in lieu of exercising the option to which the right is attached. The
appreciated value is the amount by which the fair market value of a share of
Common Stock exceeds the option exercise price for that share of Common Stock.
A holder of a stock appreciation right may receive cash, Common Stock or a
combination of both upon surrendering to FAS the unexercised option to which the
stock appreciation right is attached. FAS must elect its method of payment
within fifteen business days after the receipt of written notice of an intention
to exercise the stock appreciation right.
Any person granted an incentive stock option under the Stock Incentive Plan who
makes a disposition, within the meaning of 425(c) of the Internal Revenue Code
of 1986, as amended ("Code"), and the regulations promulgated thereunder, of any
shares of Common Stock issued to him pursuant to his exercise of an option
within two years from the date of the granting of such option or within one year
after the date any shares are transferred to him pursuant to the exercise of the
incentive stock option must within ten days of the disposition notify FAS and
immediately deliver to FAS any amount of federal income tax withholding required
by law.
A person to whom a stock option or stock appreciation right is awarded will have
no rights as a stockholder with respect to any shares of Common Stock issuable
pursuant to the stock option or stock appreciation rights until actual issuance
of a stock certificate for Common Stock.
Restricted Stock. The Board may in its discretion award Common Stock that is
- -----------------
subject to certain restrictions on transferability. This restricted stock
issued pursuant to the Stock Incentive Plan may not be sold, assigned,
transferred, pledged, hypothecated or otherwise disposed of, except by the laws
of descent and distribution, for a period of time as determined by the Board,
from the date on which the award is granted. FAS will have the option to
repurchase the shares of restricted Common Stock at such price as the Board
shall have fixed, in its sole discretion, when the award was made, which option
will be exercisable at such times and upon the occurrence of such events as the
Board shall establish when the restricted stock award is granted. FAS may also
exercise its option to repurchase the restricted Common Stock if prior to the
expiration of the restricted period, the participant has not paid to FAS amounts
required to be withheld pursuant to federal, state or local income tax laws.
Certificates for restricted stock will bear an appropriate legend referring to
the restrictions. A holder of restricted stock may exercise all rights of
ownership incident to such stock including the right to vote and receive
dividends, subject to any limitations the Board may impose.
Tax Information. A recipient of an incentive stock option or a non-qualified
- ----------------
stock option will not recognize income at the time of the grant of the option.
- --
On the exercise of a non-qualified stock option, the amount by which the fair
market value of Common Stock on the date of exercise exceeds the option price
will generally be taxable to the holder as ordinary income, and will be
deductible for tax purposes by FAS. The disposition of Common Stock acquired
upon exercise of a non-qualified option will ordinarily result in capital gain
or loss. In the case of officers who are subject to the restrictions of Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the date for measuring the amount of ordinary income to be recognized upon the
exercise of a non-qualified stock option will generally be six months after
exercise rather than the date of exercise.
On the exercise of an option that qualifies as an "incentive stock option"
within the meaning of the Code, the holder will not recognize any income and FAS
will not be entitled to a deduction for tax purposes. However, the difference
between the exercise price and the fair market value of Common Stock received on
the date of the exercise will be treated as an "item of tax preference" to the
holder that may be subject to the alternative minimum tax. The disposition of
Common Stock acquired upon exercise of an incentive stock option will ordinarily
result in capital gain or loss, however if the holder disposes of Common Stock
acquired upon the exercise of an incentive stock option within two years after
the date of grant or one year after the date of exercise (a "disqualifying
disposition"), the holder will recognize ordinary income, and FAS will be
entitled to a deduction for tax purposes in the amount of the excess of the fair
market value of the shares of Common Stock on the date the option was exercised
over the option price (or, in certain circumstances, the gain on sale, if less).
Otherwise, FAS will not be entitled to any deduction for tax purposes upon
disposition of such Common Stock. Any excess of the amount realized by the
holder on the disqualifying disposition over the fair market of Common Stock on
the date of exercise of the option will be capital gain.
If an incentive option is exercised through the use of Common Stock previously
owned by the holder, such exercise generally will not be considered a taxable
disposition of the previously owned Common Stock and thus no gain or loss will
be recognized with respect to such Common Stock upon exercise. However, if the
previously owned Common Stock was acquired by the exercise of an incentive stock
option or other tax qualified stock option and the holding period requirements
for Common Stock were not satisfied at the time the previously owned Common
Stock was used to exercise the incentive option, such use would constitute a
disqualifying disposition of such previously owned Common Stock resulting in the
recognition of ordinary income (but, under proposed Treasury regulations, not
any additional gain in capital gain) in the amount described above.
The amount of any cash or the fair market value of any Common Stock received
upon the exercise of stock appreciation rights under the Stock Incentive Plan
will be subject to ordinary income tax in the year of receipt and FAS will be
entitled to a deduction for such amount. However, if the holder receives Common
Stock upon the exercise of stock appreciation rights and is then subject to the
restrictions of Section 16(b) of the Exchange Act; unless the holder elects
otherwise, the amount of Ordinary income and deduction will be measured at the
time such restrictions lapse.
Generally, a grant of restricted stock under the Stock Incentive Plan will not
result in taxable income to the employee or deduction to FAS in the year of the
grant. The value of Common Stock will be taxable to the employee and
compensation income in the years in which the restrictions on Common Stock
lapse. Such value will be the fair market value of Common Stock on the dates
the restrictions terminate, less any amount the recipient may have paid for
Common Stock at the time of the issuance. An employee, however, may elect to
treat the fair market value of Common Stock on the date of such grant (less
restricted stock, provided the employee makes the election within thirty days
after the date of the grant. If such an election is made and the employee later
forfeits Common Stock to FAS, the employee will not be allowed to deduct at a
later date the amount he had earlier included as compensation income. In any
case, FAS will receive a deduction corresponding in amount and time to the
amount of compensation included in the employee's income in the year in which
that amount is so included.
As of the date of this Information Statement/Prospectus, 655,000 stock options
have been granted under the Stock Incentive Plan under the terms of the Merger.
Limitations of Liability and Indemnification of Directors . FAS's Certificate
of Incorporation provides that directors will not be personally liable to FAS or
its stockholders for monetary damages for breach of their fiduciary duties as
directors, except for liability (i) for breaches of the duty of loyalty to FAS
or its stockholders, (ii) for any acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL relating to unlawful dividends, or (iv) transactions
involving an improper personal benefit. Moreover, if Delaware law were to
change in the future to permit the further elimination or limitation of the
personal liability of directors, the liability of a director of FAS would be
eliminated or limited to the fullest extent permitted by Delaware law, as so
amended. The Certificate of Incorporation and the Bylaws of FAS also contain
provisions to indemnify the directors, officers, employees or other agents to
the fullest extent permitted by the DGCL. These provisions may have the
practical effect in certain cases of eliminating the ability of stockholders to
collect monetary damages from directors.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of FAS
pursuant to the foregoing provisions, or otherwise, FAS has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
PRINCIPAL STOCKHOLDERS OF FAS
The following table sets forth certain information, as of September 30,
1998, with respect to beneficial ownership of the shares of the Common Stock by
(i) each person known by FAS to own beneficially more than 5% of the presently
outstanding Common Stock; (ii) each Director of FAS; and (iii) all Directors and
Officers of FAS as a group, both before and after giving effect to the Merger.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
NAME OF NUMBER OF PERCENT OF TOTAL(2)(3)
BENEFICIAL OWNER SHARES OWNED(1) BEFORE MERGER AFTER MERGER
- ------------------------------------- --------------------- -----------------------------
<S> <C> <C>
Jack A. Alexander 695,000 21.10% 13.29%
16935 West Bernardo Drive, Suite 107 Class A Common Stock
San Diego, California 92127
Jack A. Alexander
16935 West Bernardo Drive, Suite 107 630,000 19.13% 12.05%
San Diego, California 92127 Class B Common Stock
John J. Garrett, Trustee
u/a/d October 28, 1986 1,060,000 32.18% 20.27%
P.O. Box 130444 Class A Common Stock
Houston, Texas 77219-0444
ALL OFFICERS AND DIRECTORS 1,325,000 40.23% 25.34%
AS A GROUP (3 PERSONS)
BEFORE THE MERGER
Guy S. Della Penna 797,182
2323 Stickney Point Road Class A Common Stock 0% 15.25%
Sarasota, FL 34231
Guy S. Della Penna 370,000
2323 Stickney Point Road Class B Common Stock 0% 7.08%
Sarasota, FL 34231
ALL OFFICERS AND DIRECTORS 2,492,182 0% 47.67%
AS A GROUP (4 PERSONS)
AFTER THE MERGER
<FN>
(1) Represents the number of shares of Common Stock beneficially owned as of September 30,
1998, except Guy S. Della Penna and other directors of FAS Wealth who will acquire shares in the
Merger, by each named person or group, expressed as a percentage of all of the shares of such class
outstanding as of such date.
(2) Based upon the total number of shares of Common Stock outstanding before the Merger
(3,294,000) and after the Merger (5,228,571). Under the rules of the Securities and Exchange
Commission, a person is deemed to be the beneficial owner of a security if such person has or
shares the power to vote or direct the voting of such security or the power to dispose or direct
the disposition of such security. A person is also deemed to be a beneficial owner of any
securities if that person has the right to acquire beneficial ownership within 60 days.
Accordingly, more than one person may be deemed to be a beneficial owner of the same securities.
Unless otherwise indicated by footnote, the name entities or individuals have sole voting and
investment power with respect to the shares of Common Stock beneficially owned.
(3) Does not include (i) 884,064 shares issuable upon exercise of Warrants, (ii) 655,000 shares
issuable upon exercise of Incentive Stock Options as a part of the Merger, (iii) 304,000 shares
issuable upon exercise of the Incentive Stock Options to key employees, or (iv) 22,800 shares
issuable upon exercise of common stock warrants issuable to FMC Capital Markets, Inc. as a part of
the Merger.
</TABLE>
DESCRIPTION OF FAS CAPITAL STOCK
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of FAS's Certificate of
Incorporation and By Laws, copies of which will be furnished to an investor upon
written request therefor. The authorized capital stock of FAS consists of
25,000,000 shares of Class A Common Stock, 1,000,000 shares of Class B Common
Stock, and 1,000,000 shares of Preferred Stock, $.001 par value per share. See
"Additional Information."
Common Stock. As of the date of this Information Statement/Prospectus,
there are 3,294,000 shares of Common Stock outstanding, 630,000 of which are
Class B shares and 2,664,000 are Class A shares. After the Merger, there will
be 5,228,571 shares of Common Stock outstanding, 1,000,000 of which will be
Class B shares and 4,228,571 will be Class A shares. Holders of Class A Common
Stock are entitled to one vote per share on all matters to be voted upon by the
shareholders and holders of Class B Common Stock are entitled to 50 votes per
share. Except as otherwise provided by law, the holders of shares of Common
Stock vote as one class. Shares of Common Stock do not have preemptive rights
or cumulative voting rights. FAS's Certificate of Incorporation, provides that
the board of directors shall be divided into three classes, as nearly equal in
number as possible, and that at each annual meeting of stockholders all of the
directors of one class shall be elected for a three-year term. The affirmative
vote of not less than 75% of the outstanding Shares of Common Stock is required
to approve a merger or consolidation, a transfer of substantially all the
assets, certain issuances and transfers of FAS's securities to other entities or
a dissolution of FAS, unless the Board of Directors of FAS has approved the
transaction. Additionally, certain business combinations involving FAS and any
holder of 15% or more of FAS's outstanding voting stock must be approved by at
least 66.67% of such voting stock, exclusive of the stock owned by the 15%
stockholders, unless approved by a majority of the directors not affiliated with
such holder or certain price and procedural requirements are met. These
provisions, together with the authorization to issue preferred stock on terms
designated by the Board of Directors, described above, could be used as
anti-takeover devices.
Subject to preferences that may be applicable to any outstanding series of
Preferred Stock the holders of Common Stock are entitled to receive dividends
ratably when, as and if declared by the Board of Directors, and upon liquidation
are entitled to share ratably in FAS's net assets. Payment of dividends on the
Common Stock may be subject to prior payment of dividends on any Preferred Stock
issued in the future. See "Description of Capital Stock - Preferred Stock."
The decision to pay dividends is subject to such other financial considerations
as the Board of Directors of FAS may deem relevant. No assurance can be given
as to the timing or amount of any dividend that FAS may declare on the Common
Stock.
FAS's By-Laws provide that, subject to certain limitations discussed below,
any stockholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting. FAS's
By-Laws also provide that a stockholder must give written notice of such
stockholder's intent to make such nomination or nominations, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of FAS not
later than (i) with respect to an election to be held at an Annual Meeting of
Stockholders, 90 days prior to the anniversary date of the date of the
immediately preceding Annual Meeting, and (ii) with respect to an election to be
held at a Special Meeting of Stockholders for the election of directors, the
close of business on the tenth day following the date on which a written
statement setting forth the date of such meeting is first mailed to stockholders
provided that such statement is mailed no earlier than 120 days prior to the
date of such meeting. Notwithstanding the foregoing, if an existing director is
not standing for re-election to a directorship which is the subject of an
election at such meeting or if a vacancy exists as to a directorship which is
the subject of an election, whether as a result of resignation, death, an
increase in the number of directors, or otherwise, then a stockholder may make a
nomination with respect to such directorship at any time not later than the
close of business on the tenth day following the date on which a written
statement setting forth the fact that such directorship is to be elected and the
name of the nominee proposed by the Board of Directors is first mailed to
stockholders. Each notice of a nomination from a stockholder shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of FAS entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to nominate
the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder, (d) such other
information regarding each nominee proposed by such stockholder as would be
required to be included in a proxy statement filed pursuant to the Exchange Act
and the rules and regulations thereunder (or any subsequent provisions replacing
such Act, rules or regulations); and (e) the consent of each nominee to serve as
a director of FAS if so elected. The presiding officer of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure.
Preferred Stock. The Certificate of Incorporation of FAS authorizes the
issuance of up to 1,000,000 shares of preferred stock, $.001 par value (the
"Preferred Stock"), of which none are outstanding as of the date of this
Information Statement. The summary of terms of FAS's preferred stock contained
in this Information Statement/Prospectus does not purport to be complete and is
subject to, and is qualified in its entirety by, the provisions of FAS's
Certificate of Incorporation and the Certificate of Designations of the
Cumulative Convertible Preferred Stock (liquidation preference to be determined
by the Board of Directors of FAS) (the "Certificate of Designations"), which is
available from FAS upon request.
The Board of Directors of FAS is authorized by its Certificate of
Incorporation, without any action on the part of stockholders, to issue
preferred stock in one or more series, with such voting powers, full or limited
but not to exceed one vote per share, or without voting powers, and with such
designations, preferences, limitations, descriptions and terms thereof,
including the extent, if any, to which the holders of the Shares of any such
series will be entitled to vote as a class or otherwise with respect to the
election of directors or otherwise, all as shall, to the extent permitted under
the laws of the State of Delaware, be determined by the Board of Directors of
FAS. Thus, subject to the limitations in the Certificate of Designations, the
Board of Directors, without stockholder approval, may authorize the issuance of
preferred stock (in addition to the Preferred Stock) but not with voting,
conversion, dividend, liquidation or other rights senior to those of the
Preferred Stock, which could make it more difficult for another company to
effect certain business combinations with FAS.
Warrants. As of the date of this Information Statement/Prospectus, 250,000
Warrants were issued under the terms of the Merger Agreement consummated August
31, 1998 to Jack Alexander and Guy Della Penna and 155,000 Warrants issued to
Rob DeVore all at a strike price of $0.60. 750,000 Warrants were issued under
the terms of the PPM dated August 19,1998 at a strike price of $5.00 and 22,800
Warrants were issued under the terms of the Merger Agreement consummated August
31, 1998 to FMC Capital Markets, Inc. at a strike price of $2.00.
SHARES ELIGIBLE FOR FUTURE SALE
After the Effective Date, FAS will have 5,228,571 shares of Common Stock
outstanding. Of these shares, 1,934,571 will be freely tradable, subject to the
limitations imposed upon affiliates, without restriction or registration under
the Securities Act of 1933 as amended (the "Securities Act"). The remaining
3,294,000 shares (the "Restricted Shares") were issued and sold by FAS in
reliance upon exemptions from registration under the Securities Act. In
addition, 1,865,864 shares issuable upon the exercise of outstanding warrants
and options will be freely tradeable upon completion of the Merger, subject to
the limitations imposed upon affiliates.
Beginning in July 1999, and at various dates thereafter, all of the
Restricted Shares will become eligible for sale pursuant to Rule 144 promulgated
under the Securities Act, if the conditions of the rule have been met. In
general, under Rule 144 as currently in effect, beginning 90 days after the date
of the Merger, a shareholder, including an affiliate of FAS, may sell shares of
Common Stock acquired prior to the Merger after at least one year has elapsed
since such shares were acquired from FAS or an affiliate of FAS. The number of
shares of Common Stock which may be sold within any three-month period is
limited to the greater of one percent of the then outstanding Common Stock or
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the date on which notice of such sale was filed under Rule 144.
Certain other requirements of Rule 144 concerning availability of public
information, manner of sale and notice of sale must also be satisfied. In
addition, a shareholder who is not an affiliate of FAS (and who has not been an
affiliate for 90 days prior to the sale) and who has beneficially held shares
acquired from FAS or an affiliate of FAS for at least two years, may resell the
shares without compliance with the foregoing requirements under Rule 144.
Prior to the Effective Date, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that sales of
shares or the availability of shares for sale will have on the prevailing market
price of the Common Stock. Nevertheless, sales of substantial amounts of Common
Stock in the public market could have an adverse effect on the prevailing market
prices.
By means of a private placement memorandum dated August 19, 1998, FAS
Group, Inc. privately offered and sold 750,000 Units at $2.00 per Unit each
consisting of 750,000 shares of Class A Common Stock and 750,000 Redeemable
Class A Common Stock Purchase Warrants. At September 30, 1998, the full 750,000
Unit offering was placed, raising $1,500,000 in gross proceeds. The net
proceeds were utilized for payment of the Placement Agent's expense allowance
and expenses, to finance the Merger with FAS Wealth and the growth associated
with the transfer of registered representatives from an unrelated broker-dealer
including the purchase of an inventory of marketable securities.
INFORMATION CONCERNING FAS WEALTH
GENERAL
FAS Wealth was founded in 1981 and is an independent, publicly held
broker/dealer focused on Affinity Group marketing programs. FAS Wealth's
principal FAS Wealth office is located at 2323 Stickney Point Road, Sarasota,
Florida 34231, and its telephone number is 941-921-9700. Effective August 31,
1998 Executive Wealth Management Services, Inc. changed its name to FAS Wealth
Management Services, Inc. FAS Wealth approaches the marketplace with an
innovative concept in the broker/dealer structure with a marketing focus towards
Affinity Groups. The business strategy of FAS Wealth is to offer products and
services to professional business persons and high net worth individuals who are
primarily members of affinity groups. FAS Wealth additionally focuses its
growth activities in the areas of the establishment of additional independent
branch offices staffed by brokers who market mutual funds, stocks, bonds,
variable annuities and insurance products as well as wealth management services
to the general public.
ACQUISITION OF REGISTERED REPRESENTATIVES
Effective August 31, 1998, FAS Wealth after Executive Wealth Management
Services, Inc. after effecting the Merger that included changing its name
acquired certain registered representatives and assets from an unrelated
broker-dealer.
OPERATIONS OFFICE
FAS Wealth is located at 2323 Stickney Point Road, Sarasota, Florida 34231,
and its telephone number is 941-921-9700. There are fifteen (15) branch offices
located in Tampa, Spring Hill, Delray Beach, Longwood, Altamonte Springs and
Naples; and two offices in Sarasota, and one in Safety Harbor and Altamonte
Springs as well as one office in San Diego, California. Management anticipates
that FAS Wealth will, either by acquisition, origination or association, add at
least twenty additional branches within the next twenty four (24) months
LICENSING
FAS Wealth is licensed as a securities broker-dealer in all States except:
Alaska, Arkansas, Delaware, Hawaii, Idaho, Montana, New Hampshire, South Dakota,
Utah and the District of Columbia. As of the date of this Information
Statement/Information Statement/Prospectus, FAS Wealth is capable of engaging in
substantially all aspects of the life and health insurance business and
securities business. FAS Wealth is registered as a securities broker-dealer
pursuant to the provisions of the Securities Exchange Act of 1934, as amended,
and is registered with the Securities and Exchange Commission as a Registered
Investment Advisor under the Investment Advisor Act of 1940, as amended, and is
also registered as such under various state securities laws. FAS Wealth is a
member of the National Association of Securities Dealers ("NASD"), Securities
Investor Protection Corporation ("SIPC") and the Municipal Securities Rule
Making Board ("MSRB").
FAS Wealth operates as a fully-disclosed securities broker-dealer and has,
as of the date of this Information Statement/Information Statement/Prospectus,
correspondent clearing relationships with two New York Stock Exchange member
firms, specifically: Raymond James & Associates, Inc. of St. Petersburg,
Florida and J. B. Oxford & Co., J.W. Genesis Clearing Corporation in Boca Raton,
Florida. It is anticipated that FAS will enter into a clearing arrangement with
Clearing Services Corporation, Inc, New York, New York. In July 1997, the NASD
amended the firm's Restrictive Agreement to eliminate any restriction on the
number of registered representatives who can be licensed by FAS Wealth. FAS
Wealth is also unrestricted as to the number of branch offices it may operate.
It is FAS Wealth's intent to establish Offices of Supervisory Jurisdiction as
may be appropriate to facilitate servicing Affinity Groups and the public
at-large. All administrative functions with respect to FAS Wealth's insurance
and securities activities, including compliance, are carried out and/or are
supervised from FAS Wealth's administrative offices located in Sarasota,
Florida.
FAS Wealth is registered with the United States Securities and Exchange
Commission as a Registered Investment Advisor under the Investment Advisors Act
of 1940 and is registered as such with the states of Florida, Missouri, Kansas
and are pending in the states of New Mexico and Texas.
FAS Wealth has been in continuous, uninterrupted compliance with all net
capital requirements imposed by the Securities Exchange Act of 1934 and the
United States Securities and Exchange Commission acting pursuant to the
authority vested in such Commission by such statute. FAS Wealth has never
experienced any regulatory difficulties or problems since its incorporation in
1981 and, as of the date of this Summary, has, as a firm, never been the subject
of any adverse arbitration rulings or litigation.
OBJECTIVE OF MANAGEMENT
Management's objective is to create value within FAS Wealth that can be
measured, extracted and converted to cash or perhaps to be a potential future
acquisition candidate for a publicly traded financial corporate suitor such as a
commercial bank, insurance company, mutual fund family or national
broker/dealer. Management's goal is to effect strong fundamental financial
performance in the areas of revenue growth, cost containment, earnings increases
and enhancement of book value. The enhancement in value is to be accomplished
by calibrated, sure-footed steps in the implementation of a specifically defined
plan of action over time.
FAS Wealth also operates as a specialized investment banking firm, offering
on a best efforts, agency or brokerage basis, investment media and services to
its customers which include common and preferred stocks, corporate and municipal
bonds, United States Treasury obligations, interests in direct participation
programs, shares of mutual funds, investment and comprehensive financial,
retirement, tax, and estate planning, as well as investment analysis and
recommendations. FAS Wealth acts as a "fully disclosed" securities
broker/dealer, exercises no custodial or discretionary powers over its customer
accounts and such services are rendered solely in connection with the purchase
or sale of securities or the anticipated purchase or sale of securities, as well
as a variety of insurance products. Such services are provided on an incidental
basis solely in connection with the conduct of its business as a securities
broker/dealer.
For the past three years, FAS Wealth has aggressively engaged in, and
committed significant financial and personnel resources towards the development
of business and contractual relationships with medical and non-medical Affinity
Groups. Paramount to this effort has been the selection and due diligence
analysis conducted by FAS Wealth of unique, needs driven and/or value added
securities and non-securities related products and services for endorsement by
these Affinity Groups to their members. In this regard, FAS Wealth has hired or
associated with personnel (see Affinity Marketing Team) who have unique and
experienced backgrounds in the medical, legal, accounting and affinity group
marketing industries. In addition, Affinity Marketing Team members of FAS
Wealth have conducted numerous conferences and meetings with a wide variety of
Affinity Groups and product and service vendors which have resulted in formal
contractual relationships with some of these Affinity Groups and vendors to
facilitate FAS Wealth's unique business strategy
AFFINITY GROUP MARKETING STRATEGY
Physicians, lawyers, dentists, engineers, and accountants, among others,
often times belong to some professional groups or associations, commonly known
as "Affinity Groups." FAS Wealth strategy is to have its products and services
endorsed by the organization's governing body, thereby providing FAS Wealth with
potential access to large numbers of qualified and accredited customers. In
this regard, FAS Wealth has established contacts and relationships with various
Affinity Groups and has presented comprehensive marketing plans to all of these
organizations wherein various securities and non-securities products and
services are endorsed by the Affinity Groups to offer said products and services
to their membership.
It is management's belief that by focusing on Affinity Group marketing, it
will place FAS Wealth in a superior competitive position relative to traditional
broker-dealers because Affinity Group marketing provides and or facilitates:
attracting full service brokers by offering the opportunity to market
quality products to the Affinity Groups;
an affirmative and possibly exclusive endorsement from the
organizations leadership, (i.e. medical, dental and other associations);
access to and development of the size and quality of client accounts
of high net worth individuals, and referrals from these individuals, that FAS
Wealth may approach to cross-sell additional products and services;
significant marketing economies of scale;
ability to receive financial marketing support from insurance
companies, mutual funds and other interested product vendors;
an opportunity to establish a brand name from which additional
customized, value added products and services may be offered;
a platform to introduce and develop proprietary financial and
non-financial products;
development and sale of private label specific products and/or
services for endorsing organizations;
insurance products and securities syndication and distribution
activities;
the ability to expand the number of broker/dealer branches and Offices
of Supervisory Jurisdiction;
expansion of its investment banking and related underwriting
activities;
customer loyalty as a result of being endorsed by an association for
one or more items and the resulting tacit approval of all products and services
offered by FAS Wealth; and
a revenue stream from a diversified product and service menu directed
at higher net worth individuals which may tend to dampen historic adverse
business cycles experienced by traditional securities broker-dealers.
FAS Wealth has researched, analyzed and developed a specific marketing
approach in establishing and developing its relationships with large Affinity
Groups. FAS Wealth has recognized that any product and/or service must be one
that is needs driven, unique and of economic benefit to a potential endorsing
organization and its member participants. By introducing FAS Wealth to these
potential client groups utilizing, initially, non-securities related products
and services that fulfill the three aforementioned criteria, FAS Wealth has been
able to further penetrate some of these groups. FAS Wealth has performed due
diligence and analysis on the following related products and services:
Prepaid tax audit defense service offered by TaxResources, Inc.;
AIG Life Insurance Company Survivorship Insurance Plans;
AIG Long Term Care Insurance;
A Disability Income Insurance Policy for physicians and others which
is being developed by a third party;
Disability Income Trust offered by Massachusetts Mutual Insurance Company;
and
Pre-paid Legal Services.
It is the intent of FAS Wealth to also offer securities related products
and services once the credibility of FAS Wealth and the success of the
non-securities related marketing program has been established. FAS Wealth will
be able to utilize its current and prospective contingent of registered
representatives to solicit and offer for sale various securities and insurance
products to members of the Affinity Groups on an endorsed basis and through the
generation of a proposed leads program which will help attract high quality
brokers who recognize the benefit of access to high net worth customers.
FAS Wealth's marketing approach to Affinity Groups is expected to also
entail a direct mailing system to survey member participants to determine and
focus on their specific areas of concern, needs, interests and requirements as
well as to determine statistically an approximate level of fulfillment
penetration. Once the foregoing has been established, the relationship with
Affinity Group members is intended to be further developed utilizing
telemarketing, web sites, seminars, informational and educational audio and
video tapes, press releases and Company authorized articles in various print
media. Such publicity will also be sought in the respective endorsing
organizations' periodicals and industry publications and by attendance at
Affinity Group meetings and conferences by FAS Wealth personnel.
MARKET MAKING ACTIVITIES
FAS will, as a matter of policy avoid market making in those securities
falling under the "penny securities" category, except when an investment banking
relationship has been established to accomplish, among other things, the goal of
at least a small cap qualification for listing.
FAS will establish no intra day minimum dollar commitments to either
individual securities or the inventory as a whole as that will depend on too
many outside forces and factors such as demand, market conditions and company
developments.
FAS will attempt to balance securities according to volume levels in order
to safely follow the rules and procedures in the Supervisor's Manual.
Securities will be selected according to either retail interest, or based
upon FAS's research and consistency with FAS's net capital position at any time.
A trading system will be utilized: by direct wire through J.B. Oxford & Co.
Any securities de-listed from NASDAQ to the NNOTC will be dropped as soon
as any inventory is eliminated (liquidated). Thus NNOTC and third market will
not be traded. These latter orders will be given as agency.
Small order FAS Wealth systems will be limited to those orders less than
the small order FAS Wealth systems size and will always be entered through NW
III. The head trader will have the only small order FAS Wealth systems access
terminal, with the Chief Compliance Officer maintaining a monitoring terminal.
GROWTH STRATEGY
FAS believes its strategy and culture will enable it to succeed in this
changing marketplace. FAS will apply its regional focus and team-based approach
to the following business segments:
Strategic Relationship with Banking Institution
Investment Banking and Corporate Finance
Capital Raising Activities
Mergers and Acquisitions Advisory Services
Sales and Trading
Corporate Services
FAS Wealth Services
Syndicate
Asset Management
Hedge and Offshore Funds
Private Equity and Venture Capital
Mutual Funds
Fund Distribution
COMPETITION
As a result of the Merger, FAS will engage in the highly competitive
securities brokerage and financial services businesses. It will compete
directly with large Wall Street securities firms, securities subsidiaries of
major commercial bank holding companies, major regional firms and smaller
"niche" players.
Competition from commercial banks has increased because of recent
acquisitions of securities firms by commercial banks, as well as internal
expansion by commercial banks into the securities business. In addition, FAS
expects competition from domestic and international banks to increase as a
result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve certain restrictions on commercial banks.
Such competition could adversely affect FAS's operating results, as well as its
ability to attract and retain highly skilled individuals.
Many other companies have greater personnel and financial resources than
FAS. Larger competitors are able to advertise their products and services on a
national or regional basis and may have a greater number and variety of
distribution outlets for their products, including retail distribution.
Discount brokerage firms market their services through aggressive pricing and
promotional efforts. In addition, some competitors have a much longer history
of investment banking activities than FAS and, therefore, may possess a relative
advantage with regard to access to deal flow and capital.
Recent rapid advancements in computing and communications technology are
substantially changing the means by which financial services are delivered.
These changes are providing consumers with more direct access to a wide variety
of financial and investment services including market information and on-line
trading and account information. Advancements in technology also create demand
for more sophisticated levels of client services. Provision of these services
may entail considerable cost without an offsetting source of revenue.
REGULATION
The securities business is subject to extensive regulation under federal
and state laws in the United States. One of the most important regulations with
which FAS's broker-dealer subsidiaries must continually comply is the Securities
and Exchange Commission (the "SEC") Rule 15c3-1 (the "Net Capital Rule") which
requires the broker-dealer subsidiaries of FAS to maintain a minimum amount of
net capital, as defined under such regulations.
Compliance with many of the regulations applicable to FAS involves a number
of risks, particularly in areas where applicable regulations may be subject to
interpretation. In the event of non-compliance with an applicable regulation,
governmental regulators and the NASD may institute administrative or judicial
proceedings that may result in censure, fine, civil penalties (including treble
damages in the case of insider trading violations), issuance of cease-and-desist
orders, deregistration or suspension of the non-compliant broker-dealer or
investment adviser, suspension or disqualification of the broker-dealer's
officers or employees or other adverse consequences. The imposition of any such
penalties or orders on FAS could have a material adverse effect on FAS's
operating results and financial condition.
The regulatory environment in which FAS operates is subject to change. FAS
may be adversely affected as a result of new or revised legislation or
regulations imposed by the SEC, other United States or foreign governmental
regulatory authorities or the NASD. FAS also may be adversely affected by
changes in the interpretation or enforcement of existing laws and rules by these
governmental authorities and the NASD.
Additional regulation, changes in existing laws and rules, or changes in
interpretations or enforcement of existing laws and rules often affect directly
the method of operation and profitability of securities firms. FAS cannot
predict what effect any such changes might have. Furthermore, FAS's businesses
may be materially affected not only by regulations applicable to it as a
financial market intermediary, but also by regulations of general application.
For example, the volume of FAS's underwriting, merger and acquisition and
principal investment businesses in a given time period could be affected by,
among other things, existing and proposed tax legislation, antitrust policy and
other governmental regulations and policies (including the interest rate
policies of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board")) and changes in interpretation or enforcement of existing laws
and rules that affect the business and financial communities. The level of
business and financing activity in each of the industries on which FAS focuses
can be affected not only by such legislation or regulations of general
applicability, but also by industry- specific legislation or regulations.
<TABLE>
<CAPTION>
FAS WEALTH SELECTED HISTORICAL FINANCIAL DATA
YEAR ENDED DECEMBER 31 9 MONTHS
- -------------------------------------------------------------------------------------------- ----------
1993 1994 1995 1996 1997 1998
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Revenue $825,433 $1,866,299 $2,797,172 $3,000,044 $4,172,716 $2,576,416
Operating Loss $455,835 $ 96,772 $ 140,477 $ 236,014 $ 132,792 218,154
Net Loss $ 446101 $ 67,080 $ 115,879 $ 212,045 $ 105,239 218,154
Net Loss Per Share $ (1.055) $ (.158) $ (.254) $ (.088) $ (.04) $ (.08)
Weighted Average Shares
Outstanding 423,000 440,833 462,833 2,491,490 2,675,485 2,664,560
</TABLE>
FAS WEALTH MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FAS Wealth and its management anticipate continued growth and expansion
throughout 1999. FAS Wealth's revenues increased by approximately 50% and 7%
during 1995 and 1996, respectively, and 28% in 1997. During 1999, management
anticipates increases in transactional revenues, commissions and service fees.
Anticipated growth is expected to be achieved through servicing of the Affinity
Groups, the addition of up to ten (10) branch and/or satellite offices, greater
home office production and increased investment banking activity.
As of November 30, 1998, FAS Wealth has approximately 136 registered
representatives and is in the process of recruiting additional registered
representatives and establishing new branch office locations.
FAS Wealth has entered into contracts with TaxResources, Inc., a pre-paid
tax audit defense firm, to market their services, on an exclusive basis, to
members of medical, healthcare and other Affinity Groups and associations.
The Affinity Group marketing efforts of FAS Wealth are well underway. In
June 1998, FAS Wealth was notified by AMA Solutions, Inc. that the AMA has
approved TaxResources, Inc.'s service for solicitation and sale to its physician
members.
In October 1997, the American Healthcare Alliance, Inc. ("AHA"), a 220,000
member group, executed a Non-Disclosure and Non-Circumvention Agreement with FAS
Wealth which will prohibit AHA from contracting directly with the providers of
services and products introduced to AHA by FAS Wealth, thereby effectively
reinforcing FAS Wealth's ability to market products and services to AHA members
on an exclusive basis.
As a result of the AHA Agreement, TaxResources' conducted an initial test
mailing to 10,000 AHA physician members offering participation in TaxResources
prepaid tax audit /defense program. The actual results of the test mailing were
less than historic paid response rates experienced by TaxResources' for similar
type mailings. TaxResources, FAS Wealth and the AHA are revising the mailing
strategy for AHA member physicians to include further endorsement by individual
preferred provider organizations along with the AHA endorsement. TaxResources
will conduct additional test mailings prior to solicitation of the entire
220,000 AHA physician membership.
In 1998, management has and will be implementing several growth and
expansion related initiatives. These initiatives include, but are not limited
to the following: (i) expanded services and marketing to Affinity Groups; (ii)
continued branch development and expansion for Affinity Group servicing and the
public at large; and (iii) possible affiliation, joint venture or merger with
another entity in the securities industry to accelerate the expansion and scope
of FAS Wealth's operations.
With the increase of in-house securities/insurance brokers and outside
independent licensed representatives, coupled with increased investment banking
activities and the sale of non-securities related products and services, it is
management's belief that it has and will have the resources to not only sustain
operations, but to become profitable in fiscal 1999 and beyond.
Regulatory Net Capital. Regulatory Net CapitalAs a securities
broker-dealer, FAS Wealth is subject to the net capital rules of the Securities
and Exchange Commission (SEC) and similar rules in force in the states where FAS
Wealth is registered as a securities broker-dealer. The aggregate indebtedness
of a securities broker-dealer in relation to its net capital is also subject to
SEC rules. Such rules are complex in the manner that regulatory net capital is
calculated. In summary, the calculation of regulatory net capital relates to
the stockholder's equity of FAS Wealth, taking into account deductions from
stockholder's equity which relate to non-allowable, non-liquid assets and
reductions in the market value of investment securities owned by FAS Wealth in
accordance with rule-prescribed amounts. Under the rules, the aggregate
indebtedness of FAS Wealth in relation to its net capital may not exceed a ratio
of 15 to 1.
The table on the next page sets forth FAS Wealth's regulatory net capital
and the amount of aggregate indebtedness and the ratio thereof to such
regulatory net capital as of December 31, 1997, 1996, 1995, 1994 and September
30, 1998.
<TABLE>
<CAPTION>
Regulatory Net Capital and Aggregate Indebtedness
Sept.
1994 1995 1996 1997 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Capital $ 29,510 $ 37,837 $ 22,618 $ 101,615 $1,002,882
Aggregate Indebtedness $ 132,481 $ 202,596 $ 177,616 $ 208,756 $ 478,818
Ratio of aggregate indebtedness
to net capital 4.49 to 1 5.35 to 1 7.85 to 1 2.05 to 1 .48 to 1
</TABLE>
The NASD requires certain members, such as FAS Wealth, to maintain net
capital equal to the greater of 130% of the SEC's net capital requirement or 6
2/3% of aggregate indebtedness. FAS Wealth is in compliance with NASD net
capital requirements.
MANAGEMENT OF FAS WEALTH
Directors and FAS Wealth Officers. Directors and FAS Wealth Florida
Officers The business and assets of FAS Wealth are governed and administered
under the general supervision of the Board of Directors of FAS Wealth.
Presently the Board of Directors consists of four members, Jack A. Alexander,
Guy S. Della Penna, Robert E. Windom, MD and Dennis B. Schroeder. Dr. Windom is
considered a "public director" as required by the Bylaws and Schedules thereto
of the NASD. The day-to-day affairs and business of FAS are carried out by its
FAS Wealth officers under the direction of Guy S. Della Penna who serves as
President and Chief Executive Officer of FAS Wealth. Robert H. DeVore, Esquire
serves as Senior Vice President and Treasurer. Bonnie S. Gilmore serves as
Senior Vice President and Chief Financial Officer as well as Secretary of FAS
Wealth. Barbara J. Knox serves as Vice President and Chief Compliance Officer
of FAS Wealth. Georganne E. Detweiler serves as Director of Branch Operations
and Vice President.
Information describing the background of Directors and FAS Wealth Officers
appears under the caption "Certain Considerations Related to the
Merger-Directors and Officers of FAS Following the Merger."
EMPLOYMENT AGREEMENTS
In connection with consummation of the Merger, FAS assumed employment
agreements with Mr. Della Penna, Mr. DeVore, Ms. Gilmore and Ms. Detweiler. See
"Long-Term Incentive Plans and Awards in Last Fiscal Year."
The agreements also restrict the employee from engaging in business in
competition with FAS Wealth during the term of the agreement and for a period of
two years after termination of employment for any reason. The agreements were
entered into 1998.
PRINCIPAL STOCKHOLDERS OF FAS WEALTH
The following table sets forth certain information regarding the
ownership of the Common Stock as of the date of this Information
Statement/Prospectus, and as adjusted to reflect the issuance of shares by the
Merger.
<TABLE>
<CAPTION>
Number of Number of
Shares Beneficially Shares Beneficially
Name and Address of Owned Prior to Owned After
Beneficial Owner the Merger Percent the Merger Percent
- ------------------------- ------------------- -------------------- ---------- --------
<S> <C> <C> <C> <C>
Guy S. Della Penna (1)(2) 1,357,650 51% 1,167,182 22.32%
2323 Stickney Road
Sarasota, FL 34231
All Directors and
FAS Wealth Officers
as a Group
(4 in number): (2) 1,407,650 52.8% 1,197,582 22.90%
<FN>
_______________________________
(1) Mr. Della Penna is President and Chief Operating Officer of FAS Wealth and FAS.
He is also one of FAS Wealth's and FAS's directors.
</TABLE>
COMPARATIVE RIGHTS OF STOCKHOLDERS
SIGNIFICANT CHANGES IN FAS WEALTH'S CHARTER AND BY-LAWS TO BE IMPLEMENTED BY THE
MERGER
Change of Corporate Name. The Merger changed the name of Executive Wealth
Management Services, Inc. to "FAS Wealth Management Services, Inc." The Board
of Directors concluded that this corporate name is in the best interests of FAS
Wealth and its shareholders and that the name continues to reflect the nature of
FAS Wealth's present intention to merge with an operating business.
Limitation of Liability. The Delaware Certificate contains a provision
limiting or eliminating, with certain exceptions, the liability of directors to
FAS and its shareholders for monetary damages for breach of their fiduciary
duties. The Florida Articles contains no similar provision. The Board of
Directors believes that such provision will better enable FAS to attract and
retain as directors responsible individuals with the experience and background
required to direct FAS's business and affairs. It has become increasingly
difficult for corporations to obtain adequate liability insurance to protect
directors from personal losses resulting from suits or other proceedings
involving them by reason of their service as directors. Such insurance is
considered a standard condition of directors' engagement. However, coverage
under such insurance is no longer routinely offered by insurers and many
traditional insurance carriers have withdrawn from the market. To the extent
such insurance is available, the scope of coverage is often restricted, the
dollar limits of coverage are substantially reduced and the premiums have risen
dramatically.
At the same time directors have been subject to substantial monetary damage
awards in recent years. Traditionally, courts have not held directors to be
insurers against losses a corporation may suffer as a consequence of directors'
good faith exercise of business judgment, even if, in retrospect the directors'
decision was an unfortunate one. In the past, directors have had broad
discretion to make decisions on behalf of the corporation under the "business
judgment rule." The business judgment rule offers protection to directors who,
after reasonable investigation, adopt a course of action that they reasonably
and in good faith believe will benefit the corporation, but which ultimately
proves to be disadvantageous. Under those circumstances, courts have typically
been reluctant to subject directors' business judgments to further scrutiny.
Some recent court cases have, however, imposed significant personal liability on
directors for failure to exercise an informed business judgment with the result
that the potential exposure of directors to monetary damages has increased.
Consequently legal proceedings against directors relating to decisions made by
directors on behalf of corporations have significantly increased in number, cost
of defense and level of damages claimed. Whether or not such an action is
meritorious, the cost of defense can be well beyond the personal resources of a
director.
The Delaware General Assembly considered such developments a threat to the
quality and stability of the governance of Delaware corporations because of the
unwillingness of directors, in many instances, to serve without the protection
which insurance traditionally has provided and because of the deterrent effect
on entrepreneurial decision making by directors who do serve without the
protection of traditional insurance coverage. In response, in 1986 the Delaware
General Assembly adopted amendments to the Delaware GCL which permit a
corporation to include in its charter a provision to limit or eliminate, with
certain exceptions, the Personal liability Of Directors to a corporation and its
shareholders for monetary damages for breach of their fiduciary duties. Similar
charter provisions limiting a director's liability are not permitted under
Florida law.
The Board of Directors believes that the limitation on directors' liability
permitted under Delaware law will assist FAS in attracting and retaining
qualified directors by limiting directors' exposure to liability. The Merger
proposal will implement this limitation on liability of the directors of FAS,
inasmuch as Article XVI of the Delaware Certificate provides that to the fullest
extent that the Delaware GCL now or hereafter permits the limitation or
elimination of the liability of directors, no director will be liable to FAS or
its stockholders for monetary damages for breach of fiduciary duty. Under such
provision, FAS's directors will not be liable for monetary damages for acts or
omissions occurring on or after the Effective Date of the Merger, even if they
should fail through negligence or gross negligence, to satisfy their duty of
care (which requires directors to exercise informed business judgment in
discharging their duties). Article XVI would not limit or eliminate any
liability of directors for acts or omissions occurring prior to the Effective
Date. As provided under Delaware law, Article XVI cannot eliminate or limit the
liability of directors for breaches of their duty of loyalty to FAS; acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, paying a dividend or effecting a stock repurchase or
redemption which is illegal under the Delaware GCL, or transactions from which a
director derived an improper personal benefit. Further, Article XVI would not
====
affect the availability of equitable remedies, such as an action to enjoin or
rescind a transaction involving a breach of a director's duty of care. Article
XVI pertains to breaches of duty by directors acting as directors and not to
breaches of duty by directors acting as officers (even if the individual in
question is also a director). In addition, Article XVI would not affect a
director's liability to third parties or under the federal securities laws.
Article XVI is worded to incorporate any future statutory revisions
limiting directors' liability. It provides, however, that no amendment or
repeal of its provision will apply to the liability of a director for any acts
or omissions occurring prior to such amendment or repeal, unless such amendment
has the affect of further limiting or eliminating such liability.
FAS Wealth has not received notice of any lawsuit or other proceeding to
which Article XVI might apply. In addition, Article XVI is not being included
in the Delaware Certificate in response to any director's resignation or any
notice of an intention to resign. Accordingly, FAS Wealth is not aware of any
existing circumstances to which Article XVI might apply. The Board of Directors
recognizes that Article XVI may have the effect of reducing the likelihood of
derivative litigation against directors, and may discourage or deter
stockholders from instituting litigation against directors for breach of their
duty of care, even though such an action, if successful, might benefit FAS and
its shareholders. However, given the difficult environment and potential for
incurring liabilities currently facing directors of publicly held corporations,
the Board of Directors believes that Article XVI is in the best interests of FAS
and its stockholders, since it should enhance FAS's ability to retain highly
qualified directors and reduce a possible deterrent to entrepreneurial decision
making. In addition, the Board of Directors believes that Article XVI may have
a favorable impact over the long term on the availability, cost, amount and
scope of coverage of directors' liability insurance, although there can be no
assurance of such an effect.
Article XVI may be viewed as limiting the rights of stockholders, and the
broad scope of the indemnification provisions of FAS's could result in increased
expense to FAS. FAS Wealth believes, however, that these provisions will
provide a better balancing of the legal obligations of, and protections for,
directors and will contribute to the quality and stability of FAS's governance.
The Board of Directors has concluded that the benefit to stockholders of
improved corporate governance outweighs any possible adverse effects on
stockholders of reducing the exposure of directors to liability and broad-ening
indemnification rights. Because Article XVI deals with the potential liability
of directors, the members of the Board of Directors may be deemed to have a
personal interest in effecting the Merger.
Indemnification. As part of the 1986 legislation permitting a corporation
to limit or eliminate the liability of directors, the Delaware General Assembly,
for the reasons noted under "Limitation of Liability" above also amended the
provisions of the Delaware GCL governing indemnification to clarify and broaden
the indemnification rights which corporations may provide to their directors,
officers and other corporate agents. The Florida BCA also contains broad
indemnification provisions. The Delaware Certificate reflects the provisions of
Delaware law, as recently amended, and, as discussed below, provides broad
rights to indemnification.
In recent years, investigations, actions, suits and proceedings, including
actions, suits and proceedings by or in the right of a corporation to procure a
judgment in its favor (referred to together as "proceedings"), seeking to impose
liability on, or involving as witnesses, directors and officers of publicly-held
corporations have become increasingly common. Such proceedings are typically
very expensive, whatever their eventual outcome. In view of the costs and
uncertainties of litigation in general it is often prudent to settle proceedings
in which claims against a director or officer are made. Settlement amounts,
even if material to the corporation involved and minor compared to the enormous
amounts frequently claimed, often exceed the financial resources of most
individual defendants. Even in proceedings in which a director or officer is
not named as a defendant he may incur substantial expenses and attorneys' fees
if he is called as a witness or otherwise becomes involved in the proceeding.
Although FAS Wealth's directors and officers have not incurred any liability or
significant expense as a result of any proceeding to date the potential for
substantial loss does exist. As a result, an individual may conclude that the
potential exposure to the costs and risks of proceedings in which he may become
involved may exceed any benefit to him from serving as a director or officer of
a public corporation. This is particularly true for directors who are not also
officers of the corporation. The increasing difficulty and expense of obtaining
directors' and officers' liability insurance discussed above has compounded the
problem.
The broad scope of indemnification now available under Delaware law will
permit FAS to continue to offer its directors and officers greater protection
against these risks. The Board of Directors believes that such protection is
reasonable and desirable in order to enhance FAS's ability to attract and retain
qualified directors as well as to encourage directors to continue to make good
faith decisions on behalf of FAS with regard to the best interests of FAS and
its stockholders.
The Delaware Certificate is quite different from the Florida Articles and
require indemnification of FAS's directors and officers to the fullest extent
permitted under applicable law as from time to time in affect, with respect to
expenses, liability or loss (including, without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) actually and reasonably incurred by any person in connection with
any actual or threatened proceeding by reason of the fact that such person is or
was a director or officer of FAS or is or was serving at the request of FAS as a
director or officer of another corporation or of a partnership, joint venture;
trust, employee benefit plan or other enterprise at the request of FAS. The
right to indemnification includes the right to receive payment of expenses in
advance of the final disposition of such proceeding; consistent with applicable
law from time to time in effect; provided, however, that if the Delaware GCL
requires the payment of such expenses in advance of the final disposition of a
proceeding, payment shall be made only if such person undertakes to repay FAS if
it is ultimately determined that he or she was not entitled to indemnification.
Directors and officers would not be indemnified for loss, liability or expenses
incurred in connection with proceedings brought against such persons otherwise
than in the capacities in which they serve FAS. Under the General Corporation
Law of Delaware FAS may, although it has no present intention to do so, by
action of the New Board of Directors, provide the same indemnification to its
employees, agents, attorneys and representatives as it provides to its directors
and officers. The Delaware Certificate provides that such practices are not
exclusive of any other rights to which persons seeking indemnification may
otherwise be entitled under any agreement or otherwise.
The Delaware Certificate specifies that the right to indemnification is a
contract right. The Delaware Certificate also provides that a person seeking
indemnification from FAS may bring suit against FAS to recover any and all
amounts entitled to such person provided that such person has filed a written
claim with FAS and FAS has failed to pay such claim within thirty days of
receipt thereof. In addition, FAS authorize FAS to purchase and maintain
indemnity insurance, if it so chooses to guard against future expense.
The Delaware Certificate provides for payment of all expenses incurred,
including those incurred to defend against a threatened proceeding.
Additionally, the Delaware Certificate provides that indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person. The General Corporation Law of Delaware also provides that to the
extent any director or officer who is, by reason of such a position, a witness
in any proceeding, he or she shall be indemnified for all reasonable expenses
incurred in connection therewith.
Under Delaware law, as with Florida law, rights to indemnification and
expenses need not be limited to those provided by statute. As a result, under
Delaware law and the Delaware Certificate, FAS will be permitted to indemnity
its directors and officers, within the limits established by law and public
policy, pursuant to an express contract, a by-law provision, a stockholder vote
or otherwise, any or all of which could provide indemnification rights broader
than those currently available under the Florida Articles or expressly provided
for under Florida or Delaware law.
Insofar as the Delaware Certificate provides indemnification to directors
or officers for liabilities arising under the Securities Act of 1933, it is the
position of the Securities and Exchange Commission that such indemnification
would be against public policy as expressed in such statute and, therefore,
unenforceable.
The Board of Directors recognizes that FAS may in the future be obligated
to incur substantial expense as a result of the indemnification rights conferred
under the Delaware Certificate, which are intended to be as broad as possible
under applicable law. Because directors of FAS may personally benefit from the
indemnification provisions of FAS , the members of the Board of Directors may be
deemed to have a personal interest in the effectuation of the Merger.
DEFENSES AGAINST HOSTILE TAKEOVERS
Introduction. While the following discussion summarizes the reasons for,
and the operation and effects of, certain provisions of FAS's Certificate of
Incorporation which management has identified as potentially having an
anti-takeover effect, it is not intended to be a complete description of all
potential anti-takeover effects, and it is qualified in its entirety by
reference to FAS's Certificate of Incorporation and By Laws. A copy of the
Certificate of Incorporation is included as an exhibit to this Information
Statement/Prospectus which should be reviewed for more detailed information and
the By Laws are available upon request.
In general, the anti-takeover provisions in Delaware law and FAS's
Certificate of Incorporation are designed to minimize FAS's susceptibility to
sudden acquisitions of control which have not been negotiated with and approved
by FAS's Board of Directors. As a result, these provisions may tend to make it
more difficult to remove the incumbent members of the Board of Directors. The
provisions would not prohibit an acquisition of control of FAS or a tender offer
for all of FAS's capital stock. The provisions are designed to discourage any
tender offer or other attempt to gain control of FAS in a transaction that is
not approved by the Board of Directors, by making it more difficult for a person
or group to obtain control of FAS in a short time and then impose its will on
the remaining stockholders. However, to the extent these provisions
successfully discourage the acquisition of control of FAS or tender offers for
all or part of FAS's capital stock without approval of the Board of Directors,
they may have the effect of preventing an acquisition or tender offer which
might be viewed by stockholders to be in their best interests.
Tender offers or other non-open market acquisitions of stock are usually
made at prices above the prevailing market price of a company's stock. In
addition, acquisitions of stock by persons attempting to acquire control through
market purchases may cause the market price of the stock to reach levels which
are higher than would otherwise be the case. Anti-takeover provisions may
discourage such purchases, particularly those of less than all of FAS's stock,
and may thereby deprive stockholders of an opportunity to sell their stock at a
temporarily higher price. These provisions may therefore decrease the
likelihood that a tender offer will be made, and, if made, will be successful.
As a result, the provisions may adversely affect those stockholders who would
desire to participate in a tender offer. These provisions may also serve to
insulate incumbent management from change and to discourage not only sudden or
hostile takeover attempts, but any attempts to acquire control which are not
approved by the Board of Directors, whether or not stockholders deem such
transactions to be in their best interests.
Authorized Shares of Capital Stock. FAS's Certificate of Incorporation
authorizes the issuance of up to 1,000,000 shares of preferred stock. Shares of
FAS's serial preferred stock with voting rights could be issued and would then
represent an additional class of stock required to approve any proposed
acquisition. This preferred stock, together with authorized but unissued shares
of Common Stock (the Certificate of Incorporation authorizes the issuance of up
to 25,000,000 shares of Class A Common Stock and 1,000,000 shares of Class B
Common Stock), could represent additional capital stock required to be purchased
by an acquiror. Issuance of such additional shares may dilute the voting
interest of FAS's stockholders. If the Board of Directors of FAS determined to
issue an additional class of voting preferred stock to a person opposed to a
proposed acquisition, such person might be able to prevent the acquisition
single-handedly.
Stockholder Meetings. Delaware law provides that the annual stockholder
meeting may be called by a corporation's board of directors or by such person or
persons as may be authorized by a corporation's certificate of incorporation or
By Laws. FAS's Certificate of Incorporation provides that annual stockholder
meetings may be called only by FAS's Board of Directors or a duly designated
committee of the Board. Although FAS believes that this provision will
discourage stockholder attempts to disrupt the business of FAS between annual
meetings, its effect may be to deter hostile takeovers by making it more
difficult for a person or entity to obtain immediate control of FAS between one
annual meeting as a forum to address certain other matters and discourage
takeovers which are desired by the stockholders. FAS's Certificate of
Incorporation also provides that stockholder action may be taken only at a
special or annual stockholder meeting and not by written consent.
Classified Board of Directors and Removal of Directors. FAS's Certificate
of Incorporation provides that FAS's Board of Directors is to be divided into
three classes which shall be as nearly equal in number as possible. The
directors in each class serve for terms of three years, with the terms of one
class expiring each year. Each class currently consists of approximately
one-third of the number of directors. Each director will serve until his
successor is elected and qualified.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of FAS's outstanding stock, to
force an immediate change in the composition of a majority of the Board of
Directors. Since the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the stockholders to
change a majority, whereas a majority of a non-classified Board may be changed
in one year. In the absence of the provisions of FAS's Certificate of
Incorporation classifying the Board, all of the directors would be elected each
year. The provision for a staggered Board of Directors affects every election
of directors and is not triggered by the occurrence of a particular event such
as a hostile takeover. Thus a staggered Board of Directors makes it more
difficult for stockholders to change the majority of directors even when the
reason for the change would be unrelated to a takeover.
FAS's Certificate of Incorporation provides that a director may not be
removed except for cause by the affirmative vote of the holders of 75% of the
outstanding shares of capital stock entitled to vote at an election of
directors. This provision may, under certain circumstances, impede the removal
of a director and thus preclude the acquisition of control of FAS through the
removal of existing directors and the election of nominees to fill in the newly
created vacancies. The supermajority vote requirement would make it difficult
for the stockholders of FAS to remove directors, even if the stockholders
believe such removal would be beneficial.
Restriction of Maximum Number of Directors and Filling Vacancies on the
Board of Directors. Delaware law requires that the board of directors of a
corporation consist of one or more members and that the number of directors
shall be set by the corporation's By Laws, unless it is set by the corporation's
certificate of incorporation. FAS's Certificate of Incorporation provides that
the number of directors (exclusive of directors, if any, to be elected by the
holders of preferred stock) shall not be less than one or more than 15, as shall
be provided from time to time in accordance with FAS By Laws. The power to
determine the number of directors within these numerical limitations and the
power to fill vacancies, whether occurring by reason of an increase in the
number of directors or by resignation, is vested in FAS's Board of Directors.
The overall effect of such provisions may be to prevent a person or entity from
quickly acquiring control of FAS through an increase in the number of FAS's
directors and election of nominees to fill the newly created vacancies and thus
allow existing management to continue in office.
Stockholder Vote Required to Approve Business Combinations with Related
Persons. FAS's Certificate of Incorporation generally requires the approval of
the holders of 75% of FAS's outstanding voting stock (and any class or series
entitled to vote separately), and a majority of the outstanding stock not
beneficially owned by a related person (as defined) (up to a maximum requirement
of 85% of the outstanding voting stock), to approve business combinations (as
defined) involving the related person, except in cases where the business
combination has been approved in advance by two-thirds of those members of FAS's
Board of Directors who were directors prior to the time when the related person
became a related person. Under Delaware law, absent these provisions, business
combinations generally, including mergers, consolidations and sales of
substantially all of the assets of FAS must, subject to certain exceptions, be
approved by the vote of the holders of a majority of FAS's outstanding voting
stock. One exception under Delaware law to the majority approval requirement
applies to business combinations (as defined) involving stockholders owning 15%
of the outstanding voting stock of a corporation for less than three years. In
order to obtain stockholder approval of a business combination with such a
related person, the holders of two-thirds of the outstanding voting stock,
excluding the stock owned by the 15% stockholder, must approve the transaction.
Alternatively, the 15% stockholder must satisfy other requirements under
Delaware law relating to (i) the percentage of stock acquired by such person in
the transaction which resulted in such person's ownership becoming subject to
the law, or (ii) approval of the board of directors of such person's acquisition
of the stock of the Delaware corporation. Delaware law does not contain price
criteria. The supermajority stockholder vote requirements under the Certificate
of Incorporation and Delaware law may have the effect of foreclosing mergers and
other business combinations which the holders of a majority of FAS's stock deem
desirable and place the power to prevent such a transaction in the hands of a
minority of FAS's stockholders
Under Delaware law, there is no cumulative voting by stockholders for the
election of FAS's directors. The absence of cumulative voting rights
effectively means that the holders of a majority of the stock voted at a
stockholder meeting may, if they so choose, elect all directors of FAS, thus
precluding a small group of stockholders from controlling the election of one or
more representatives to FAS's Board of Directors.
Advance Notice Requirements for Nomination of Directors and Proposal of New
Business at Annual Stockholder Meetings. FAS's Certificate of Incorporation
generally provides that any stockholder desiring to make a nomination for the
election of directors or a proposal for new business at a stockholder meeting
must submit written notice not less than 30 or more than 60 days in advance of
the meeting. This advance notice requirement may give management time to
solicit its own proxies in an attempt to defeat any dissident slate of
nominations, should management determine that doing so is in the best interests
of stockholders generally. Similarly, adequate advance notice of stockholder
proposals will give management time to study such proposals and to determine
whether to recommend to the stockholders that such proposals be adopted. In
certain instances, such provisions could make it more difficult to oppose
management's nominees or proposals, even if the stockholders believe such
nominees or proposals are in their interests. Making the period for nomination
of directors and introducing new business a period not less than 30 days prior
to notice of a stockholder meeting may tend to discourage persons from bringing
up matters disclosed in the proxy materials furnished by FAS and could inhibit
the ability of stockholders to bring up new business in response to recent
developments.
Supermajority Voting Requirement for Amendment of Certain Provisions of the
Certificate of Incorporation. FAS's Certificate of Incorporation provides that
specified provisions contained in the Certificate of Incorporation may not be
repealed or amended except upon the affirmative vote of the holders of not less
than seventy-five percent of the outstanding stock entitled to vote. This
requirement exceeds the majority vote that would otherwise be required by
Delaware law for the repeal or amendment of the Certificate of Incorporation.
Specific provisions subject to the supermajority vote requirement are (i)
Article X, governing the calling of stockholder meetings and the requirement
that stockholder action be taken only at annual or special meetings, (ii)
Article IX, requiring written notice to FAS of nominations for the election of
directors and new business proposals, (iii) Article X, governing the number and
terms of FAS's directors, (iv) Article XI, governing the removal of directors,
(v) Article XIII, governing approval of business combinations involving related
persons, (vi) Article XIII, relating to the consideration of various factors in
the evaluation of business combinations, (vii) Article XIV, providing for
indemnification of directors, officers, employees and agents, (ix) Article
XVIII, limiting directors' liability, and (x) Articles XVI and XVII, governing
the required stockholder vote for amending the By Laws and Certificate of
Incorporation, respectively. Article XVII is intended to prevent the holders of
less than 75% of FAS's outstanding voting stock from circumventing any of the
foregoing provisions by amending the Certificate of Incorporation to delete or
modify one of such provisions. This provision would enable the holders of more
than 25% of FAS's voting stock to prevent amendments to the Certificate of
Incorporation or By Laws even if they were favored by the holders of a majority
of the voting stock.
CERTAIN SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF FLORIDA AND
DELAWARE
Although it is impractical to compare all of the differences between the
corporation laws of Florida and Delaware the following is a summary of certain
significant differences between the provisions of Florida law applicable to FAS
Wealth and those of Delaware law which will be applicable to FAS.
Dividends. A Florida corporation may not make distributions to
shareholders if, after giving it effect, in the judgment of the board of
directors: (a) The corporation would not be able to pay its debts as they become
due in the usual course of business; and (b) The corporation's total assets
would be less than the sum of its total liabilities plus (unless the articles of
incorporation permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. In contrast, a Delaware
corporation may pay dividends either out of surplus or, if there is no surplus,
and except in very limited circumstances, out of net profits for the fiscal year
in which the dividend is declared or out of net profits for the preceding fiscal
year. In any event, FAS does not anticipate paying dividends in the foreseeable
future.
Right to Inspect Books and Records. Under Florida law, any shareholder
upon written demand at least five business days before the date on which the
shareholder wishes to inspect and copy, made "in good faith and for a proper
purpose," may examine the corporation's books and records, including minutes of
meetings, accounting records and the record of shareholders that are directly
connected with the shareholder's purpose. Under Delaware law, any stockholder
of a corporation, regardless of his percentage of ownership, has the right to
inspect the corporation's stock ledger, list of stockholders and its other books
and records, upon a written demand under oath in which the stockholder states a
"proper purpose" for such inspection.
Interested Director Transactions. Under both Florida and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors have an interest are not void or voidable because of such interest if
the contract or transaction is fair to the corporation when authorized or if it
is approved in good faith by the shareholders or by the directors who are not
interested therein after the material facts as to the contract or transaction
and the interest of any interested directors are disclosed. With certain
exceptions, Florida and Delaware law are the same in this area. Under Florida
law, if approval of the Board of Directors is to be relied upon for this
purpose, the contract or transaction may be approved by a majority vote of a
quorum of the directors without counting the vote of the interested director or
directors (except for purposes of establishing quorum). Under Delaware law, the
approval of the board of directors can be obtained for the contract or
transaction by the vote of a majority of the disinterested directors, even
though less than a majority of a quorum. Accordingly, it is possible that
certain transactions that the Board of Directors of FAS Wealth currently might
not be able to approve itself because of the number of interested directors
could be approved by a majority of the disinterested directors of FAS, although
less than a majority of a quorum. FAS Wealth is not aware of any plans to
propose any transaction involving directors of FAS Wealth which could not be
approved by the Board of Directors under Florida law but could be approved by
the New Board of Directors under Delaware law.
Special Meetings of Shareholders. Under Florida law, a special meeting of
shareholders may be called by the Board of Directors or by the holders of at
least 10% of the shares entitled to vote at the meeting or by such other persons
or groups as may be authorized in the articles of incorporation or the by-laws.
Under Delaware law, a special meeting may be called by the board of directors
and only such other persons as are authorized by the certificate of
incorporation or the by-laws. The Certificate of Incorporation of FAS, unlike
FAS Wealth's By-Laws, provides that a special meeting of stockholders may be
called only by the board of directors or by a committee of the board of
directors which has been duly delegated such authority by the board of directors
and by no other person.
Sequestration of Shares. Delaware law provides that the shares of any
person in a Delaware corporation may be attached or "sequestered" for debts or
other demands. Such provision could be used to assert jurisdiction against a
non-resident holder of the Delaware corporation's shares, thereby compelling the
non-resident holder to appear in an action brought in a Delaware court. Florida
law has no comparable provision.
Certain Actions. Delaware law provides that stockholders have six years
in which to bring an action against directors responsible for the payment of an
unlawful dividend. Under Florida law, all directors voting for or assenting to
an unlawful distribution are jointly and severally liable to the corporation for
the excess of the amount of dividend over what could have been distributed
lawfully. Florida law requires that any action be commenced within two (2)
years after the date of the distribution. Florida law and Delaware law require
that the plaintiff held stock at the time when the transaction complained of
occurred. Under Florida law a successful shareholder has a statutory right to
expenses, including attorney's fee, if the court so directs. Under Delaware law
recovery of fees and expenses by a successful shareholder is governed by case
law.
Tender Offer and Business Combination Statutes. Florida law regulates
tender offers and business combinations involving Florida corporations as well
as certain corporations incorporated outside Florida that conduct business in
Florida. The Florida law provides that any acquisition by a person, either
directly or indirectly, of ownership of, or the power to direct the voting of,
20% or more ("Control Shares") of the outstanding voting securities of a
corporation is a "Control Share Acquisition." A Control Share Acquisition must
be approved by a majority of each class of outstanding voting securities of such
corporation excluding the shares held or controlled by the person seeking
approval before the Control Shares may be voted. A special meeting of
shareholders must be held by the corporation to approve a Control Share
Acquisition within 50 days after a request for such meeting is submitted by the
person seeking to acquire control. If the Control Shares are accorded full
voting rights and the acquiring person has acquired Control Shares with a
majority or more of the voting power of the Corporation, all shareholders shall
have dissenter's rights as provided by applicable Florida law.
Florida law regulates mergers and other business combinations between a
corporation and a shareholder who owns more than 10% of the outstanding voting
shares of such corporation ("Interested Shareholder"). Specifically, any such
merger between a corporation and an Interested Shareholder must be approved by
the vote of the holders of two-thirds of the voting shares of such corporation
excluding the shares beneficially owned by such shareholder. The approval by
shareholders is not required, however, if (i) such merger or business
combination is approved by a majority of disinterested directors, (ii) such
Interested Shareholder is the beneficial owner of at least 90% of the
outstanding voting shares excluding the shares acquired directly from the
subject corporation in a transaction not approved by a majority of disinterested
directors, or (iii) the price paid to shareholders in connection with a merger
or a similar business combination meets the statutory test of "fairness."
Delaware law regulates hostile takeovers by providing that an "interested
stockholder," defined as a stockholder owning 15% or more of the corporation's
voting stock or an affiliate or associate thereof, may not engage in a "business
combination" transaction, defined to include a merger, consolidation or a
variety of self-dealing transactions with the corporation for a period of three
years from the date on which such stockholder became an "interested stockholder"
unless (a) prior to such date the corporation's board of directors approved
either the "business combination" transaction or the transaction in which the
stockholder became an "interested stockholder', (b) the stockholder, in a single
transaction in which he became an "interested stockholder," acquires at least
85% of the voting stock outstanding at the time the transaction commenced
(excluding shares owned by certain employee stock plans and persons who are
directors and also officers of the corporation) or (c) on or subsequent to such
date, the "business combination" transaction is approved by the corporation's
board of directors and authorized at an annual or special meeting of the
corporation's stockholders, by the affirmative vote of at least two-thirds of
the outstanding voting stock not owned by the "interested stockholder."
Thus, the effect of such provision of Delaware law is to prevent any
attempted hostile takeover of a Delaware corporation from being completed for
three years unless (a) at least 85% of the voting shares of the target are
acquired in a single transaction; (b) at least two-thirds of the voting shares
of the target, excluding the shares held by the bidder, vote in favor of the
acquisition; or (c) the corporation opts out of the statutory protection.
Dissenters' Rights. Under Florida laws shareholders may dissent from, and
demand cash payment of the fair value of their shares in respect of, (i) a
merger or consolidation of the corporation, and (ii) a sale or exchange of all
or substantially all of a corporation's assets, including a sale in dissolution.
Under Delaware law, dissenters' rights are not available with respect to a
sale, lease, exchange or other disposition of all or substantially all of a
corporation's assets or any amendment of its charter, unless such corporation's
charter expressly provides for dissenters' rights in such instances. The
Delaware Certificate contains no such provision. Stockholders of a Florida
corporation have no dissenters' rights in the case of a merger or consolidation
if their shares are either listed on a national securities exchange or quoted on
the NASDAQ National Market System. Stockholders of a Delaware corporation have
no dissenters' rights in the case of a merger or consolidation if their shares
are either listed on a national securities exchange or held of record by more
than 2,000 stockholders or the corporation is the survivor of a merger that did
not require the stockholders to vote for its approval; provided, however, that
dissenters' rights will be available in such instances, if stockholders are
required under the merger or consolidation to accept for their shares anything
other than shares of stock of the surviving corporation, shares of stock of a
corporation either listed on a national securities exchange or held of record by
more than 2,000 stockholders, cash, in lieu of fractional shares, or any
combination of the foregoing.
LEGAL MATTERS
The validity of the FAS Common Stock will be passed on for FAS by Sonfield
& Sonfield, Houston, Texas. Certain legal matters related to the Merger were
passed on for FAS Wealth by James D. Cullen, Esq., Naples, Florida.
EXPERTS
The financial statements of FAS at June 25, 1998 appearing in this
Information Statement/Prospectus have been audited by Harper & Pearson Company,
independent auditors, as set forth in their report thereon appearing elsewhere
herein and are included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing. The financial statements of
FAS Wealth included elsewhere in this Information Statement/Prospectus have been
included herein in reliance upon the report of Bobbitt, Pittenger & Company,
P.A., independent accountants, given on the authority of that firm as experts in
giving said report. No other information contained in this Information
Statement/Prospectus has been audited, reviewed or compiled by Harper & Pearson
Company or Bobbitt, Pittenger & Company, P.A. Consequently, the independent
auditors are not providing any opinions or any other form of assurances on the
information contained herein. Each of the individual reports by the independent
auditors should be read in conjunction with this Information
Statement/Prospectus.
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
FAS WEALTH
<S> <C>
Report of Independent Auditors F - 2
Statements of Financial Condition as of December 31, 1997 F - 3
Statement of Income as of December 31, 1997 F - 4
Statement of Changes in Stockholders' Equity as of December 31, 1997 F - 5
Statement of Cash Flows as of December 31, 1997 F - 6
Notes to Financial Statements as of December 31, 1997 F - 7-12
Balance Sheet as of September 30, 1998 (Unaudited) F - 13
Statements of Operation for the nine months ended September 30, 1998 (Unaudited) F - 14
Statement of Changes in Stockholders' Equity for the nine months ended
September 30, 1998 (Unaudited) F - 15
Statement of Cash Flows for the nine months ended September 30, 1998 (Unaudited) F - 16
Notes to Financial Statements for the nine months ended September 30, 1998 (Unaudited) F -17-20
FAS GROUP, INC.
Report of Independent Auditors F - 21
Balance Sheet F - 22
Statement of Income F - 23
Statement of Changes in Stockholders' Equity F - 24
Statement of Cash Flows F - 25
Notes to Financial Statements F - 26-31
Consolidated Balance Sheets F - 32
Consolidated Statements of Operations F - 33
Consolidated Statements of Cash Flows F - 34
</TABLE>
F - 1
February 6, 1998
BOARD OF DIRECTORS
FAS Wealth Management Services, Inc.
Sarasota, Florida
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
--------------------------------------------
We have audited the accompanying statements of financial condition of FAS Wealth
Management Services, Inc., as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity, changes in liabilities
subordinated to claims of general creditors, and cash flows for the years then
ended that you are filing pursuant to rule 17a-5 under the Securities Exchange
Act of 1934. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of FAS Wealth Management Services,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Certified Public Accountants
F - 2
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF FINANCIAL CONDITION
December 31,
-----------------------
1997 1996
----------- ----------
ASSETS
<S> <C> <C>
Cash $ 127,771 $
Receivables
Broker/dealers 45,406 40,306
Correspondent brokers 68,766 122,201
Customers 13,105 13,000
Affiliates and employees 18,363 3,650
Other 14,847
Furniture, fixtures and equipment
at cost, net of accumulated depreciation 27,343 37,192
Deposits with clearing organizations 45,157 43,742
Other deposits 1,934 1,934
Syndication costs 15,000
-----------
$ 377,692 $ 262,025
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 107,465 $ 36,483
Commissions payable 101,291 143,566
----------- ----------
208,756 180,049
STOCKHOLDERS' EQUITY
Common stock - authorized 5,000,000 shares;
par value $.002 in 1997 and $.002 in 1996; issued
and outstanding, 2,615,485 shares and 2,491,490
shares in 1997 and 1996, respectively 5,231 4,983
Preferred stock - authorized 750,000 shares
of $.01 par value; no shares issued
Stock warrants 4,410 4,410
Additional paid-in capital 1,105,639 913,688
Accumulated deficit (946,344) (841,105)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 168,936 81,976
----------- ----------
$ 377,692 $ 262,025
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF INCOME
Year Ended December 31,
1997 1996
----------- -----------
REVENUE
<S> <C> <C>
Commissions $3,723,815 $2,909,749
Underwriting fees 304,002 32,500
Other 144,899 57,795
----------- -----------
4,172,716 3,000,044
EXPENSES
Employer compensation and benefits 406,052 345,561
Commissions 3,131,258 2,275,456
Clearing charges and regulatory fees 346,223 262,542
Occupancy and equipment rental 130,494 125,968
Depreciation 10,811 11,844
Other operating expenses 280,670 214,687
----------- -----------
4,305,508 3,236,058
----------- -----------
OPERATING LOSS (132,792) (236,014)
OTHER INCOME
Rent 27,553 23,969
----------- -----------
LOSS BEFORE INCOME TAXES (105,239) (212,045)
INCOME TAXES
NET LOSS $ (105,239) $ (212,045)
=========== ===========
NET LOSS PER SHARE - basic $ (.041) $ (.088)
=========== ===========
NET LOSS PER SHARE - assuming dilution $ (.038) $ (.079)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Preferred Paid-in Accumulated Stock
Stock Stock Capital Deficit Warrants Total
---------- -------- ------------- ---------- ---------- ---------
BALANCE,
<S> <C> <C> <C> <C> <C> <C>
January 1, 1996 $ 4,629 $ $ 706,853 $(629,060) $ 4,410 $ 86,832
Issuance of
common stock 354 222,638 222,992
Syndication costs (15,803) (15,803)
Net loss (212,045) (212,045)
---------- -------- ------------- ---------- ---------- ---------
BALANCE,
December 31, 1996 4,983 913,688 (841,105) 4,410 81,976
Issuance of
common stock 248 213,752 214,000
Syndication costs (21,801) (21,801)
Net loss (105,239) (105,239)
---------- -------- ------------- ---------- ---------- ---------
BALANCE,
December 31, 1997 $ 5,231 $ $ 1,105,639 $(946,344) $ 4,410 $168,936
========== ======== ============= ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
F - 5
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1997 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(105,239) $(212,045)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 10,811 11,844
(Increase) decrease in operating assets:
Receivables:
Broker dealers (5,100) (963)
Correspondent brokers 53,435 20,772
Affiliates and employees (14,713) (3,650)
Customers (105) (13,000)
Other (14,847)
Deposits (1,415) (1,318)
Syndication costs (15,000)
(Decrease) increase in operating liabilities:
Accounts payable 70,982 (21,570)
Commissions payable (42,275) (977)
---------- ----------
41,773 (8,862)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (63,466) (220,907)
---------- ----------
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (962) (6,685)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of common stock 214,000 222,992
Syndication costs (21,801) (15,803)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 192,199 207,189
---------- ----------
NET INCREASE (DECREASE) IN CASH 127,771 (20,403)
CASH, at beginning of year 20,403
----------
CASH, at end of year $ 127,771 $
========== ==========
Supplemental Disclosures:
Interest Paid $ - $ -
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
FAS WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
- ------------
FAS Wealth Management Services, Inc. (the "Company") is a securities
broker/dealer that transacts business through correspondent brokers and does not
handle any customer securities or funds. Customer security transactions and
related commission revenue and expenses are recorded on the trade date. The
Company also acts as a broker/dealer in selling both public and private
securities offerings on a best efforts basis. The Company receives commissions
and underwriting fees for its services.
Use of Estimates
- ------------------
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.
Receivables from Correspondent Brokers and Broker/Dealers
- --------------------------------------------------------------
The receivables from correspondent brokers and broker/dealers represent
commissions earned which had not been received at year-end. Management has
determined that these amounts are fully collectible.
Furniture, Fixtures and Equipment
- ------------------------------------
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided in amounts sufficient to relate the cost of assets to operations over
their estimated useful lives using the straight-line method.
Investments
- -----------
The Company was issued 55,263 shares of common stock of Flight Sciences,
Inc. This stock was issued to the Company in relation to a private offering of
Flight Sciences' promissory notes. These shares represent 5% of Flight
Sciences, Inc.'s outstanding common stock. The Company has assigned no value to
the stock due to the fact there is no ready market and its value is not
determinable.
During 1997, the Company acted as managing placement agent on a best
efforts basis for the Outlet Mall Network, Inc.'s private placement offering of
2.5 million units. The Company earned commissions and placement fees of
$111,287 for the year ended December 31, 1997. Additionally, for serving as
best efforts managing placement agent, the Company received warrants to purchase
shares of OMNI's Class "B" Common Stock. The warrants have an exercise price of
$2.00 and expire June 10, 2007. The Company has assigned no value to the
warrants due to the fact that there is no liquid quotable market and therefore,
their value is not determinable.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per Share
- --------------------
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share". Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excluded any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
prepared, and where appropriate, restated to conform to the Statement 128
requirements.
Statements of Cash Flows
- ---------------------------
For purposes of reporting cash flows, the Company considers cash and cash
equivalents as those amounts which are not subject to restrictions or penalties
and have an original maturity of three months or less.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
NOTE B - DEPOSITS WITH CLEARING ORGANIZATIONS
Deposits with clearing organizations represent investments in money market
funds and mutual funds. The investments are required by the Company's clearing
brokers and are in accordance with the correspondent broker agreements between
the parties. Deposits are reflected at their fair market value.
NOTE C - FURNITURE, FIXTURES AND EQUIPMENT
A summary of furniture, fixtures and equipment follows at December 31:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Furniture and fixtures $ 37,951 $ 37,951
Equipment 34,202 33,240
Leasehold improvements 6,622 6,622
--------- ---------
78,775 77,813
Less accumulated depreciation (51,432) (40,621)
--------- ---------
$ 27,343 $ 37,192
========= =========
</TABLE>
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - OPERATING LEASE
The Company leases office space under operating lease agreements which
expire in 1996 through 1998. Rent expense for the years ended December 31,
1997 and 1996 was $112,403 and $103,452, respectively.
The future minimum rental commitment for the noncancellable lease
agreements as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $103,452
1999 36,000
2000 36,000
2001 36,000
2002 18,000
--------
$229,452
========
</TABLE>
NOTE E - NET CAPITAL REQUIREMENT
Pursuant to the net capital provisions of Rule 15c3-1 of the Securities and
Exchange Act of 1934, the Company is required to maintain a minimum net capital
of $5,000. In December, 1991, the National Association of Securities Dealers,
Inc. approved the Company as a fully disclosed broker/dealer. The Company has a
restrictive agreement to maintain the greater of a net capital of 130% of the
minimum requirement or 6 2/3% of aggregate indebtedness for each of the two
years in the period ended December 31, 1997.
The Company had a net capital of $101,615 or 730% and $22,618 or 188% of
the minimum requirement at December 31, 1997 and 1996, respectively. The net
capital rules may effectively restrict the payment of dividends to the Company's
stockholders. The Company operates pursuant to the (K)(2)(ii) exemptive
provisions of the Securities and Exchange Commission's Rule 15c3-3 and does not
hold customer funds or securities.
Rule 15c3-1 also requires that the ratio of aggregate indebtedness to net
capital, both as defined, shall not exceed 15 to 1. The Company's ratio was
2.05 to 1 and 7.85 to 1 at December 31, 1997 and 1996, respectively.
NOTE F - INCOME TAXES
At December 31, 1997, the Company has a net operating loss carryforward of
approximately $769,000 that will be available to offset future taxable income
through 2012. Based on historical operations, management has elected to record
a valuation allowance equal to the deferred tax asset of $285,000, calculated
using an effective income tax rate of 37% for the Company. The Company has no
significant differences between book and taxable income.
NOTE G - NET LOSS PER SHARE
<TABLE>
<CAPTION>
The following sets forth the computation of basic and diluted earnings per
share.
Numerator 1997 1996
----------- -----------
<S> <C> <C>
Net Loss $ (105,239) $ (212,045)
=========== ===========
Denominator
Denominator for basic earnings
per share - weighted average shares 2,560,117 2,413,300
Effect of dilutive securities:
Stock warrants 182,663 257,250
----------- -----------
Denominator for dilutive earnings
per share - adjusted weighted average
shares and assumed conversion 2,742,780 2,670,550
=========== ===========
Basic Net Loss Per Share $ (.041) $ (.088)
=========== ===========
Diluted Net Loss Per Share $ (.038) $ (.079)
=========== ===========
</TABLE>
NOTE H - STOCK-BASED COMPENSATION
The Company adopted SFAS No. 123 "Accounting for Stock-Based Compensation,"
effective January 1, 1997. This statement encourages companies to adopt a fair
value based method of accounting for compensation costs of employee stock
compensation plans. As permitted by SFAS No. 123, the Company will continue to
apply its current accounting policy using the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25 with respect
to measuring stock-based compensation. The adoption of SFAS No. 123, therefore,
had no effect on the Company's financial position or results of operations for
1997. Pro forma footnote disclosures of net earnings and earnings per share, as
if the fair value based method of accounting had been applied, have not been
presented as awards have not been granted during the year.
NOTE I - RELATED PARTY TRANSACTIONS
The majority stockholder is the controlling stockholder of a corporation
organized in 1995 to develop and implement a franchise business pursuant to
which the franchisee will purchase residential single family houses for resale.
The Company realized placement and management fees of $32,500 during 1996,
relating to the offering of notes for this corporation.
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
The majority stockholder is the sole stockholder of a corporation formed
and capitalized primarily to originate, underwrite, acquire, hold and deal in a
portfolio of primarily first lien residential mortgage loans. The Company
realized commission and fees of approximately $110,000 and $80,000,
respectively, relating to the offering of notes for this corporation.
During the years ended December 31, 1997 and 1996, companies affiliated
with the Company's majority stockholder shared office space with the Company and
paid rent of $27,500 and $24,000, respectively, for the use of the space.
During the year ended December 31, 1997 and 1996, the Company paid rent of
$36,000 and $36,000, respectively, to the Company's majority stockholder for the
use of office space. The lease with this stockholder expires June, 2002.
Effective June 1, 1997, the Corporation entered into an Independent
Contractor Agreement with a member of the Board of Directors to act as a
Director of Medical Affinity Programs.
In September 1997, the Corporation purchased accounts receivable from an
affiliated corporation. There was no gain or loss on the transaction. The
receivable is believed by management to be fully collectible.
In the ordinary course of business the Company makes and receives loans
with affiliated entities and stockholders. These loans are short term and are
non-interest bearing. Loans made and repaid in 1997 totaled approximately
$230,000.
See Note K for additional related party transactions.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS IN ACCORDANCE WITH THE
REQUIREMENTS OF SFAS NO. 107
The Corporation's financial instruments consist of all of its assets and
liabilities. The Corporation's management has determined that the fair value of
all of its financial instruments is equivalent to the carrying cost.
NOTE K - COMMON STOCK TRANSACTIONS
During 1995, the Company and its majority stockholder sold 44,100 shares of
the Company's common stock. The price of the stock was $5.90 per share and each
purchaser of a share received a warrant which gave the purchaser the right to
purchase one share of the Company's stock from the Company for $7.00 per share.
The price of the warrants were $.10 each and expire on December 1, 1999. The
proceeds of the warrants were retained by the Company. After the 1996 stock
split there are now 220,500 warrants outstanding with an exercise price of
$1.40.
In November, 1995, the Company approved a plan to grant options to certain
employees to purchase the Company's common stock. The plan provides for the
granting of options to purchase a maximum of 500,000 shares of the Company's
stock at a price to be determined at the time of grant. The price, however,
shall not be greater than $.60 per share. The plan requires a participant to be
employed by the Company for a number of years before exercise. Granted options
expire 10 years from the grant date. At December 31, 1995, all of the options
had been granted. Under the plan the Company has complete discretion in
approving exercise of the options, which encompasses the option price as well as
whether any options will be allowed to be exercised.
On December 15, 1995, the Company and the majority stockholder initiated a
private placement of 80,000 shares of the Company's common stock at a price of
$6.00 per share. The shares contained in the offering are to be drawn equally
from the authorized but unissued shares of the Company and the majority
stockholder. Accordingly, gross proceeds from the sale of the stock will be
shared equally by the Company and the majority stockholder. The proceeds from
this private placement were utilized for additional expansion and working
capital by the Company. During 1996, the Company sold 38,164 shares, of which
10,898 were sold to the majority stockholder. All sales were at $6.00 per
share.
In May 1996, the Board approved a five to one stock split of its common
stock which reduced its par value to $.002. In September 1996 the split became
effective.
In January 1997, the Company authorized the issuance of a maximum of
100,000 shares of its common stock at a price of $1.20 per share. 42,500 shares
were sold to the controlling stockholder. The proceeds from these shares were
utilized for working capital.
In June 1997, the Company initiated a private placement of 250,000 shares
of common stock at a price of $2.00 per share. During 1997, the Company sold
81,500 shares. All sales were at $2.00 per share. The proceeds from these
shares were utilized for expansion and working capital by the Company.
<PAGE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
BALANCE SHEET
September 30, 1998 (Unaudited)
ASSETS
------
CURRENT ASSETS
<S> <C>
Cash $ 43,957
Accounts receivable from
correspondent brokers 253,699
Accounts receivable from affiliates 74,923
Accounts receivable from others 2,448
------------
TOTAL CURRENT ASSETS 375,027
INVESTMENTS ---
FURNITURE, FIXTURES AND EQUIPMENT at cost
Net of accumulated depreciation 24,837
OTHER ASSETS
Deposits with clearing organizations 140,510
Other Deposits 1,934
Trading Account 851,348
------------
TOTAL ASSETS $ 1,393,656
============
LIABILITIES AND STOCKHOLDERS' EQUITY
- -----------------------------------------
CURRENT LIABILITIES
Accounts payable $ 37,211
Commissions payable 179,474
------------
TOTAL CURRENT LIABILITIES 216,685
STOCKHOLDERS' EQUITY
Preferred Stock - authorized 750,000
shares of $.01 par value; no shares
issued or outstanding ---
Common Stock - authorized 5,000,000
shares of $.002 par value; issued and
outstanding 2,664,560 shares 5,329
Additional paid-in capital 2,331,731
Additional paid-in capital, warrants 4,410
Retained earnings (1,164,499)
------------
TOTAL STOCKHOLDERS' EQUITY $ 1,176,971
------------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $1,393,656
============
</TABLE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENTS OF OPERATION
For The Three and Nine Months Ended September 30 (Unaudited)
Nine Months Ended September 30 Three Months Ended September 30
1998 1997 1998 1997
----------- ----------- ----------- -----------
REVENUE
<S> <C> <C> <C> <C>
Commissions $1,834,265 $2,896,686 $ 561,959 $1,124,606
Underwriting fees 209,920 133,548 118,950 59,948
RIA Income 171,858 --- 104,053 ---
Trading Profit 227,777 --- 227,777 ---
Other Income 132,596 109,810 109,635 39,410
----------- ----------- ----------- -----------
TOTAL REVENUE 2,576,416 3,140,044 1,122,374 1,223,964
----------- ----------- ----------- -----------
EXPENSES
Advertising 4,350 1,921 2,431 308
Bad debt expense 13,110 --- 13,105 ---
Board of Directors fees 18,000 14,000 6,000 6,000
Branch office support 25,000 58,000 25,000 55,000
Clearing charges 116,754 241,182 37,307 104,458
Commissions 1,964,680 2,369,145 841,741 917,879
Consulting fees 81,053 40,236 52,400 17,045
Dues and Subscriptions 6,297 7,160 1,508 2,870
Depreciation 7,769 9,092 2,601 3,031
Employee benefits 2,750 --- 2,750 ---
Insurance 8,091 9,565 6,750 6,363
Meetings and seminars (6,500) (471) (5,750) (500)
Miscellaneous 6,191 17,951 4,722 3,736
Occupancy costs 74,487 64,722 24,833 21,311
Office expenses 29,962 20,854 14,397 7,725
Professional development --- 187 --- 187
Regulatory 14,814 13,605 2,073 1,754
Rental Equipment 6,065 7,302 3,054 3,017
Salaries and wages 313,800 262,530 142,354 83,880
Taxes 30,973 26,382 11,392 6,609
Travel and lodging 50,599 24,123 34,099 8,356
Utilities 26,327 22,296 11,836 9,502
----------- ----------- ----------- -----------
TOTAL
OPERATING EXPENSES 2,794,572 3,209,782 1,234,603 1,258,531
----------- ----------- ----------- -----------
OPERATING
INCOME/(LOSS) (218,154) (69,738) (112,230) (34,567)
----------- ----------- ----------- -----------
NET INCOME/(LOSS) $ (218,154) $ (69,738) $ (112,230) $ (34,567)
=========== =========== =========== ===========
NET INCOME/(LOSS)
PER SHARE $ (.082) $ (.027) $ (.042) $ (.013)
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30 (Unaudited)
Additional
Additional Paid-In Retained
Preferred Common Paid-In Capital Earnings
Stock Stock Capital Warrants (Deficit) Total
------------ ----------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 - $ 4,983 $ 913,687 $ 4,410 $(841,105) $ 81,975
Issuance of common stock 248 213,752 214,000
Syndication costs (21,800) (21,800)
Net loss for the Nine
months ended
September 30, 1997 (69,738) (69,738)
------------ -----------
Balance at
September 30, 1997 $ - $ 5,231 $ 1,105,639 $ 4,410 $(910,843) $ 204,437
============ =========== =========== ============ ========== ===========
Additional Retained
Preferred Common Paid-In Earnings Stock
Stock Stock Capital (Deficit) Warrants Total
- -------------------------- ----------- ----------- ------------ ----------
Balance at
January 1, 1998 $ - $ 5,231 $1,105,689 $ (946,344) $ 4,410 $ 168,936
Issuance of Common Stock 98 1,246,569 1,246,667
Syndication Costs (20,477) (20,477)
Net loss for nine
months ended
September 30, 1998 - - - (218,154) - (218,154)
------------ ----------- ----------- ------------ ---------- -----------
Balance at
September 30, 1998 $ - $ 5,329 $ 2,331,781 $(1,164,498) $ 4,410 $1,176,972
============ =========== =========== ============ ========== ===========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30 (Unaudited)
1998 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ (218,154) $ (69,738)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 6,817 9,092
(Increase) decrease in operating assets:
Receivable from correspondent brokers (139,527) (217,155)
Receivable - other (31,056) (30,585)
Deposits (95,353) (1,030)
Other assets 15,000 (5,000)
Increase (decrease) in operating liabilities:
Accounts payable (69,663) 1,953
Commissions payable 78,183 134,973
----------- ----------
Net cash provided by (used in) operating activities (453,753) (177,490)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets (4,311) ---
Trading Account (851,348) ---
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,246,667 214,000
Cash paid for syndication costs (20,477) (21,800)
----------- ----------
Net cash provided by (used in) financing activities 1,226,190 192,200
----------- ----------
NET INCREASE (DECREASE) IN CASH (83,222) 14,710
CASH AT BEGINNING OF PERIOD 127,179 ---
----------- ----------
CASH AT END OF PERIOD $ 43,957 $ 14,710
=========== ==========
</TABLE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS
For The Nine Months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------- ----------------------------------------------
Organization
- ------------
FAS Wealth Management Services, Inc., (formerly Executive Wealth Management
Services, Inc. (the Company) is a securities broker/dealer that transacts
business through correspondent brokers and does not handle any customer
securities or funds. Customer security transactions and related commission
revenue and expenses are recorded on the trade date. The Company also markets
insurance products and services, acts as a broker/dealer in selling both public
and private securities offerings on a best efforts basis and markets to Affinity
Groups . In addition, the Company receives commissions, investment banking and
underwriting fees for its services.
Effective August 31, 1998, the Agreement and Plan of Merger ("Agreement") with
FAS Group, Inc. was effective. Executive Wealth Management Services, Inc.
merged with a subsidiary of FAS Group, Inc. and changed its name to FAS Wealth
Management Services, Inc. Details of the capitalization from the parent
company, FAS Group, Inc. are detailed in Note 8 of these financials.
On September 1998, the NASDR granted the firm's application to change its
Restrictive Letter to allow for market making and proprietary trading. The new
Restrictive Letter with the NASDR limits the number of securities in which the
firm can make markets to 15. It also limits the firms proprietary positions to
less than 90% of excess net capital.
Receivable from Correspondent Brokers
- ----------------------------------------
The receivable from correspondent brokers and broker/dealers represent
commissions earned which had not been received at September 30, 1998.
Management has determined that these amounts are fully collectible.
Furniture, Fixtures and Equipment
- ------------------------------------
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided for in amounts sufficient to relate the cost of assets to operations
over their estimated useful lives using the straight-line method.
Investments
- -----------
The Company was issued 55,263 shares of common stock of Flight Sciences, Inc.
This stock was issued to the Company in relation to a private offering of Flight
Sciences' promissory notes. These shares represented 5% of Flight Sciences,
Inc.'s outstanding common stock at the time. The Company has assigned no value
to the stock due to the fact that there is no ready market and its value is not
determinable.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
- ------- -----------------------------------------------------------
Warrants Outlet Mall Network
- -------------------------------
The Company was issued 5,555 warrants of the Outlet Mall Network, Inc. ("OMNI").
OMNI had two reverse splits during 1998. The net effect of these splits was a
4.35 to 1 reverse split. The Company originally had 24,167 shares. These
warrants were issued in relation to a private offering of OMNI stock. The
warrants have an exercise price of $8.70 and expire June 10, 2002. The Company
has assigned no value to the warrants due to the fact that there is no ready
market and their value is not determinable.
Loss Per Share
- ----------------
Loss per share is computed based upon 2,664,560 and 2,615,485 shares outstanding
during the periods ended September 30, 1998 and 1997, respectively.
Note 2 - DEPOSIT WITH CLEARING ORGANIZATION
- ------- -------------------------------------
Deposits with clearing organizations represent investments in money markets. The
investments are required by the Company's clearing brokers and are in accordance
with the correspondent broker agreements between the parties. Deposits are
reflected at fair market value.
Note 3 - FURNITURE, FIXTURES AND EQUIPMENT
- ------- ------------------------------------
<TABLE>
<CAPTION>
A summary of furniture, fixtures and equipment follows:
September 30, 1998
--------------------
<S> <C>
Furniture and fixtures $ 37,951
Equipment 37,034
Leasehold improvements 8,101
--------------------
83,086
Less: Accumulated Depreciation (58,249)
--------------------
$ 24,837
====================
</TABLE>
NOTE 4 - OPERATING LEASES
- ------- -----------------
Rent expense for the nine months ended September 30, 1998 and 1997 was $74,487
and $64,722, respectively.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 5 - NET CAPITAL REQUIREMENT
- ------- -------------------------
Pursuant to the net capital provisions of Rule 15c3-1(a)(2)(iii) of the
Securities and Exchange Act of 1934, the Company is required to maintain a
minimum net capital of $100,000 as of September 30, 1998, and $5,000 as of the
same period ended 1997. The Company had net capital of $903,823 or 903% and
$131,521 or 622% of the minimum requirement at September 30, 1998 and 1997,
respectively. The net capital rules may effectively restrict the payment of
dividends to the Company's stockholders. The Company operates pursuant to the
(K)(2)(ii) exemption provisions of the Securities and Exchange Commissions Rule
15c3-3 and does not hold customer funds or securities.
NOTE 6 - INCOME TAXES
- ------- -------------
At December 31, 1996, the Company had a net operating loss carry forward of
approximately $946,000 that will begin to expire in the year 2009. Due to the
lack of historical operations, management has elected to record a valuation
allowance equal to the deferred tax asset of $350,000, calculated using an
effective income tax rate of 37% for the Company.
.
NOTE 7 - RELATED PARTY TRANSACTIONS
- ------- ----------------------------
During the nine months ended September 30, 1998 and 1997, companies affiliated
with the Company's majority stockholder shared office space with the Company and
paid rent of $8,586 and $17,188, respectively, for the use of the space.
During the nine months ended September 30, 1998 and 1997, the Company paid rent
of approximately $27,000 to the Company's majority stockholder.
NOTE 8 - COMMON STOCK TRANSACTIONS
- ------- ---------------------------
In November, 1995, the Company approved a plan to grant options to certain
employees to purchase the Company's common stock. The plan provided for the
granting of options to purchase a maximum of 500,000 shares of the Company's
stock at a price to be determined at the time of grant. The price, however, is
not greater than $.60 per share. The plan required a participant to be employed
by the
Company for a number of years before exercise. Granted options expire 10 years
from the grant date. At September 30, 1998, none of the options have been
exercised.
<PAGE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(FORMERLY EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
NOTE 8 - COMMON STOCK TRANSACTIONS (Continued)
- ------- ----------------------------------------
During the first quarter of 1998, the majority shareholder purchased 42,500
shares of common stock at $1.20 per share.
In May, 1996, the Board of Directors passed a resolution to forward split the
outstanding common stock shares of Executive Wealth Management Services, Inc. on
a five for one basis to common stockholders of record as of September 20, 1996.
On June 9, 1997, the Company initiated a private placement of 250,000 shares of
the Company's Common Stock at a price of $2.00 per share. Net proceeds from the
sale of stock were used for general working capital and expansion of operations.
In March, 1998, the Company and the majority shareholder initiated a private
placement of 150,000 shares of the Company's Common Stock at a price of $2.00
per share. The shares contained in the offering were drawn one third from the
authorized but unissued shares of the Company and two thirds from the majority
shareholder. As of September 30, 1998, 147,250 shares of the Company's Common
Stock had been sold under this private placement. Net proceeds from the
issuance of shares by the Company were used for costs of the merger, affinity
group marketing programs, working capital and general corporate purposes. The
majority shareholder received net proceeds for sale of its shares.
On August 19, 1998, the parent company, FAS Group, Inc. initiated a private
placement of 750,000 units consisting of 750,000 share of the Company's Class A
Common Stock and 750,000 Redeemable Class A Common Stock Purchase Warrants at a
price of $2.00 per unit. As of September 30, 1998, all 750,000 units were sold
and proceeds were used for working capital and investment in its subsidiary, FAS
Wealth Management Services, Inc., the broker/dealer.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[LETTERHEAD OF HARPER & PEARSON COMPANY]
To the Board of Directors
FAS Group, Inc.
San Diego, California
We have audited the accompanying balance sheet of FAS Group, Inc. (A Development
Stage Company) as of June 25, 1998, and the related statements of income,
changes in stockholders' equity and cash flows for the period ended June 25,
1998. These financial statements are the responsibility of the Company. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of FAS Group, Inc. (A Development
Stage Company) as of June 25, 1998, in conformity with generally accepted
accounting principles.
As more fully discussed in Note A to the financial statements, FAS Group, Inc.
is a development stage enterprise and therefore has no current operations.
Consequently, the Company must raise substantial financing or capital in order
to put its business plan into operation. If the Company is unable to raise
adequate amounts of financing or capital, its operations and continuation as a
going concern may not occur.
/s/HARPER & PEARSON COMPANY
Houston, Texas
June 29, 1998
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 25, 1998
ASSETS
- ---------------------------------------------------
<S> <C>
MARKETABLE SECURITIES $1,200,000
ORGANIZATION COSTS 2,544
----------
TOTAL ASSETS $1,202,544
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------
LIABILITIES
Federal income tax payable $ 408,000
----------
STOCKHOLDERS' EQUITY
Convertible Preferred Stock, par value $.001 per
share, 1,000,000 shares authorized, no shares
issued and outstanding -0-
Common Stock, Class A, par value $.001 per share,
25,000,000 shares authorized, 1,914,000 shares
issued and outstanding 1,914
Common Stock, Class B, par value $.001 per share,
1,000,000 shares authorized, 630,000 shares
issued and outstanding 630
Retained earnings 792,000
----------
TOTAL STOCKHOLDERS' EQUITY 794,544
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,202,544
==========
</TABLE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF INCOME
FOR THE PERIOD ENDED JUNE 25, 1998
<S> <C>
CONSULTING FEE $1,200,000
FEDERAL INCOME TAX EXPENSE 408,000
----------
NET INCOME $ 792,000
==========
</TABLE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JUNE 25, 1998
Common Stock Retained
------------
Shares Amount Earnings Total
<S> <C> <C> <C> <C>
ISSUANCE OF CLASS A COMMON STOCK 1,914,000 $ 1,914 $ - $ 1,914
ISSUANCE OF CLASS B COMMON STOCK 630,000 630 - 630
NET INCOME - - 792,000 792,000
------------ ----------- ---------- ----------
BALANCE, JUNE 25, 1998 2,544,000 $ 2,544 $ 792,000 $ 794,544
============ =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED JUNE 25, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C>
Net income $ 792,000
------------
Adjustments to reconcile net income to net cash
used by operating activities:
Receipt of marketable securities for brokerage commissions (1,200,000)
Organization costs (2,544)
Change in operating assets and liabilities
Federal income tax payable 408,000
------------
Total adjustments (794,544)
------------
Net cash flows used by operating activities (2,544)
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, Class A 1,914
Issuance of common stock, Class B 630
------------
Net cash provided by financing activities 2,544
------------
NET INCREASE IN CASH -0-
CASH AT BEGINNING OF PERIOD -0-
------------
CASH AT END OF PERIOD $ -0-
============
</TABLE>
FAS GROUP, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 25, 1998
NOTE 1. ORGANIZATION
FAS Group, Inc. (the "Company") was incorporated on June 23, 1998 under the
general corporation laws of the State of Delaware with the intent to combine by
merger or acquisition with a registered broker-dealer that is a member of the
National Association of Securities Dealers, Inc. for the purpose of becoming a
full service investment banking firm including brokerage and asset management.
Accordingly, the Company has no current business operations and no intention of
engaging in active business prior to its anticipated combination with a
broker-dealer registered with the Securities and Exchange Commission.
Nature of Operations - The Company is a development stage enterprise and has
- ----------------------
devoted substantially all of its efforts to financial planning, raising capital
- ---
and identifying business opportunities. The Company is subject to the risks
associated with development stage companies. Substantial financing or capital
investment will be required to continue to fund the Company's activities until a
significant sales volume can be obtained. Because the Company has not yet puts
its business plan into operation, there is no assurance that such financing and
additional capital investment will be available when needed, or that the
Company's business plan will be commercially successful when implemented in the
future. If the Company is unable to raise adequate amounts of financing or
capital, its operations and continuation as a going concern may not occur.
Estimates - 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.
Marketable Securities - On June 25, 1998, the Company was paid a consulting fee
- ----------------------
negotiated by the Company's president, Mr. Jack Alexander, acting as agent and
founder for FAS Group, Inc. Payment of the fee was received in the form of
200,000 shares of stock in the Tollycraft Yacht Corporation. These shares of
stock have been classified as available for sale and are reflected on the
accompanying balance sheet at market value.
NOTE 2. COMMON STOCK
Common Stock. The holders of Class A Common Stock and the holders of Class B
- -------------
Common Stock shall have the respective rights and preferences set forth below.
- ---
Rights and Privileges. Except as provided in this Certificate, the holders of
- -----------------------
the Common Stock shall exclusively possess all voting power. Except as otherwise
provided or as otherwise required by applicable law, all shares of Class A
Common Stock and Class B Common Stock will be identical and will entitle the
holders thereof to the same rights and privileges and shall rank equally, share
ratably, and be identical in all respects as to all matters.
Voting Rights. Except as otherwise required by law: (i) the holders of
--------------
Class A Common Stock will be entitled to one vote per share on all matters to be
voted on by the Corporation's shareholders; (ii) the holders of Class B Common
Stock will be entitled to fifty votes per share on all matters to be voted on by
the Corporation's shareholders; and (iii) the holders of Class A Common Stock
and Class B Common Stock shall vote together as a single voting group.
Payment of Dividends. Whenever there shall have been paid, or declared and set
- ---------------------
aside for payment, to the holders of the outstanding shares of any class or
series of stock having preference over the Common Stock as to the payment of
dividends, the full amount of dividends and sinking fund or retirement fund or
other retirement payments, if any, to which such holders are respectively
entitled in preference to the Common Stock, then dividends may be paid on the
Common Stock, and on any class or series of stock entitled to participate
therewith as to dividends, out of any assets legally available for the payment
of dividends, but only when and as declared by the board of directors of the
Corporation.
Distributions in Liquidation. In the event of any liquidation, dissolution or
- ------------------------------
winding up of the Corporation, after there shall have been paid, or declared and
set aside for payment, to the holders of the outstanding shares of any class
having preference over the Common Stock in any such event, the full preferential
amounts to which they are respectively entitled, the holders of the Class A
Common Stock and Class B Common Stock and of any class or series of stock
entitled to participate therewith, in whole or in part, as to distribution of
assets shall be entitled, after payment or provision for payment of all debts
and liabilities of the Corporation, to participate ratably on a per share basis
in all distributions of the remaining assets of the Corporation available for
distribution, in cash or in kind, as though all shares of Common Stock were of a
single class.
Limitation on Stock Splits, Combinations or Reclassifications.
-------------------------------------------------------------------
(a) The Corporation shall not: (i) subdivide its outstanding Class A Common
Stock by stock dividend or otherwise; or (ii) combine its outstanding Class A
Common Stock into a smaller number of shares; or (iii) reclassify its
outstanding Class A Common Stock (including any reclassification in connection
with a merger, consolidation or other business combination in which the
Corporation is the surviving corporation); unless at the same time the
Corporation subdivides, combines or reclassifies, as applicable, the shares of
outstanding Class B Common Stock on the same basis as the Corporation so
subdivides, combines or reclassifies the outstanding Class A Common Stock.
(b) The Corporation shall not: (i) subdivide its outstanding Class B Common
Stock by stock dividend or otherwise; or (ii) combine its outstanding Class B
Common Stock into a smaller number shares; or (iii) reclassify its outstanding
Class B Common Stock (including any reclassification in connection with a
merger, consolidation or other business combination in which the Corporation is
the surviving corporation); unless at the same time the Corporation subdivides,
combines or reclassifies, as applicable, the shares of outstanding Class A
Common Stock on the same basis as the Corporation so subdivides, combines or
reclassifies the outstanding Class B Common Stock.
Conversion of Shares of Class B Common Stock Into Shares of Class A Common
---------------------------------------------------------------------------
Stock.
- -----
(a) For the purposes of conversion, the following definitions shall apply:
(i) "Employee" means a person employed by the Corporation or by a legal entity
that is controlled, directly or indirectly, by the Corporation;
(ii) "Transfer" means any sale, transfer, gift, assignment, devise or other
disposition, whether directly or indirectly, voluntarily or involuntarily or by
operation of law or otherwise; and
(iii) "Uncertificated Shares" means shares without certificates within the
meaning of the General Corporation Law of Delaware, as it may be amended from
time to time, or any subsequent statute replacing this statute.
(b) At the option of the Corporation: (1) outstanding shares of Class B Common
Stock which are the subject of a Transfer shall be convertible into a number of
shares of Class A Common Stock equal to the number of shares of outstanding
Class B Common Stock subject to the Transfer; and (2) in the event that an
Employee ceases to be an Employee for any reason whatsoever, the outstanding
shares of Class B Common Stock held by such Employee shall be convertible into a
number of shares of Class A Common Stock equal to the number of shares of
outstanding Class B Common Stock held by such Employee. For purposes of Article
V, the conversion of shares of Class B Common Stock as a result of a Transfer
and the conversion of shares of Class B Common Stock as a result of cessation of
an Employee's status as an Employee shall both be referred to as a "Conversion
Event."
(i) Each Conversion Event shall be effective immediately upon transmission or
delivery of a written notice of conversion by the Corporation to the record
holder of such shares (the "Effective Date") at such holder's address as it
appears in the records of the Corporation.
(ii) Each conversion of shares of Class B Common Stock into shares of Class A
Common Stock shall be deemed to be effective upon the Effective Date and at the
Effective Date the rights of the holder of the converted Class B Common Stock as
such holder shall cease and the holder of the converted Class B Common Stock
shall be deemed to have become the holder of record of the shares of Class A
Common Stock into which such shares of Class B Common Stock have been converted
as a result of the applicable Conversion Event.
(iii) The Board of Directors of the Corporation shall have the power to
determine whether a Conversion Event has taken place with respect to any
situation based upon the facts known to it. Each shareholder shall provide such
information that the Corporation may reasonably request in order to ascertain
facts or circumstances relating to a Transfer or proposed Transfer or a
Conversion Event or proposed Conversion Event.
(c) Notwithstanding any other provision of Article V, shares of Class B Common
Stock sold in a public offering of the Corporation's securities registered with
the United States Securities and Exchange Commission (the "Public Offering"),
regardless of the identity of the purchaser, transferee or other recipient of
the disposition in the Public Offering, shall be automatically converted into a
number of shares of Class A Common Stock equal to the number of shares of Class
B Common Stock sold in the Public Offering. Such conversion of shares of Class
B Common Stock into shares of Class A Common Stock shall be deemed to be
effective at such time as the holder of the Class B Common Stock who is selling
such shares in a Public Offering transfers such shares for disposition in the
Public Offering, at which time the rights of the holder of the converted Class B
Common Stock as such holder shall cease and the holder of the converted Class B
Common Stock shall be deemed to have become the holder of record of the shares
of Class A Common Stock into which such shares of Class B Common Stock have been
converted as a result of the Public Offering.
(d) The holder of shares of Class B Common Stock converted shall promptly
surrender the certificate or certificates representing the shares so converted
at the principal office of the Corporation (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of Class B Common Stock) at any time during its usual business hours,
and if such shares of Class B Common Stock are Uncertificated Shares, shall
promptly notify the Corporation in writing of such transfer at the principal
office of the Corporation (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holders of the Class B
Common Stock).
(e) In no event shall the Corporation be liable to any such holder or any third
party arising from any such conversion.
(f) The shares of Class A Common Stock resulting from a conversion of duly
authorized, validly issued, fully paid and nonassessable shares of Class B
Common Stock into shares of Class A Common Stock shall be duly authorized,
validly issued, fully paid and nonassessable. Any share of Class B Common Stock
which is converted into a share of Class A Common Stock shall become an
authorized but unissued share of Class B Common Stock.
(g) The Corporation will at all times reserve and keep available out of its
authorized but unissued shares of Class A Common Stock solely for the purpose of
issue upon conversion of Class B Common Stock, such number of shares of Class A
Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Class B Common Stock.
(h) The issuance of certificates evidencing (or in the case of Uncertificated
Shares, the provision of applicable written statements or other documents with
respect to) shares of Class A Common Stock upon conversion of shares of Class B
Common Stock shall be made without charge to the holders of such shares for any
issue tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion; provided, however, the Corporation shall not be
required to pay any tax that may be payable in respect of any Transfer involved
in the issuance and delivery of any certificate in (or in the case of
Uncertificated Shares, the provision of applicable written statements or other
documents with respect to) a name other than that of the holder of the Class B
Common Stock converted.
NOTE 3. PREFERRED STOCK
Serial Preferred Stock. Except as provided in this Certificate, the board of
- ------------------------
directors of the Corporation is authorized, by resolution or resolutions from
- --
time to time adopted, to provide for the issuance of serial preferred stock in
- --
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series, and the qualifications, limitation or restrictions thereof, including,
but not limited to determination of any of the following:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the rights in respect of dividends, if any, to be paid on the shares of
such series, whether dividends shall be cumulative and, if so, from which date
or dates, the payment or date or dates for dividends, and the participating or
other special rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of the shares of such
series;
(4) whether the shares of such series shall be redeemable and, if so, the price
or prices at which, and the terms and conditions upon which such shares may be
redeemed;
(5) the amount or amounts payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(6) whether the shares of such series shall be entitled to the benefits of a
sinking or retirement fund to be applied to the purchase or redemption of such
shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) the subscription or purchase price and form of consideration for which the
shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of serial preferred stock and
whether such shares may be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same relative
powers, preferences and rights as, and shall be identical in all respects with,
all the other shares of the Corporation of the same series, except the times
from which dividends on shares which may be issued from time to time of any such
series may begin to accrue.
NOTE 4. INCOME TAXES
It is anticipated that the Company will file its federal income tax return as a
"C Corporation." Consequently, federal income taxes have been calculated at a
34% rate and are reflected as a current liability on the accompanying balance
sheet.
NOTE 5. MERGER OF FAS WEALTH AND FAS
Jack Alexander, as founder and on behalf of the Company, entered into an
Agreement and Plan of Merger dated May 7, 1998 (the "Merger Agreement") among
FAS Wealth Management Services, Inc. and certain shareholders of FAS Wealth
whereby a wholly owned subsidiary of the Company, newly created under the
General Corporation Laws of Delaware, will merge with and into FAS Wealth with
FAS Wealth surviving the merger (the "Merger"). The Merger will result in (i)
FAS Wealth being governed by Delaware law, (ii) certain officers and directors
of FAS Wealth becoming officers and directors of the Company, (iii) FAS Wealth's
name being changed to FAS Wealth Management Services, Inc.; and (iv) FAS Wealth
becoming a wholly owned subsidiary of the Company.
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS Dec. 31 Dec. 31 Sept. 30
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Cash $ - $ 127,791 $ 51,565
Organization Costs - - 57,544
Receivables
Broker dealers 40,306 45,406 -
Correspondent brokers 122,201 68,766 253,699
Customers 13,000 13,105 -
Affiliates and employees 3,650 18,363 74,923
Other 14,847 2,448
Furniture, fixtures and
Equipment at cost, net of
Accumulated depreciation 37,192 27,343 24,837
Deposits with clearing organizations 43,742 45,157 140,510
Other deposits 1,934 1,934 1,934
Syndication costs - 15,000 -
Equity Securities - - 587,600
Trading Account - - 851,348
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 36,483 $ 107,465 38,477
Commissions payable 143,566 101,291 179,474
Federal Income Tax Payable - - 186,515
---------- ----------- -----------
180,049 208,756 404,466
---------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock -0- -0- -0-
Common Stock 4,983 7,775 5,284
Stock warrants 4,410 4,410 884
Additional paid-in-capital 913,688 1,105,639 2,439,216
Accumulated deficit (841,105) (946,344) (803,442)
---------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY 81,976 171,480 1,641,943
---------- ----------- -----------
$ 262,025 $ 380,236 $2,046,408
========== =========== ===========
<FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended Nine Mths Ended
December December September 30
1996 1997 1998
<S> <C> <C> <C>
Revenue
Commissions $ 2,909,749 $ 3,723,815 $ 2,006,123
Underwriting Fees 32,500 304,002 209,920
Other 57,795 144,899 361,118
Consulting Fee - - 1,200,000
3,000,044 4,172,716 3,777,161
Expenses
Employer compensation and benefits 345,561 406,052 316,550
Commissions 2,275,456 3,131,258 1,964,680
Clearing charges and regulatory fees 262,542 346,223 116,754
Occupancy and equipment rental 125,968 130,494 84,024
Depreciation 11,844 10,811 7,769
Other Operating Expenses 214,687 280,670 957,962
3,236,058 4,305,508 3,447,744
Operating Income (Loss) (236,014) (132,792) 329,419
Other Income
Rent 23,969 27,553 -
Federal Income Tax - - -
Net Income (Loss) $ (212,045) $ (105,239) $ 329,419
</TABLE>
Net income of $329,419 takes into consideration the net loss carryforward
of FAS Wealth resulting in a zero tax liability at September 30, 1998.
<TABLE>
<CAPTION>
FAS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Nine Mths Ended
December 31 December 31 September 30
1996 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (loss) $ (212,045) $ (105,239) $ 329,419
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 11,844 10,811 6,817
(Increase) decrease in operating assets:
Receivables:
Broker dealers (963) (5,100)
Correspondent brokers 20,772 53,435 (139,527)
Customers (13,000) (105)
Affiliates and employees (3,650) (14,847) (31,056)
Deposits (1,318) (1,415) (95,353)
Other Assets (42,544)
Marketable Securities (587,600)
Syndication costs (15,000)
(Decrease) increase in operating liabilities:
Accounts payable (21,570) 70,982 118,117
Commissions payable (977) (42,275) 78,183
(8,862) 41,773 (692,963)
NET CASH USED IN OPERATING ACTIVITIES (220,907) (63,466) (550,059)
CASH FLOWS USED BY INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment (6,685) (962) (4,311)
Trading Account (851,348)
Investment - subsidiary - - (1,148,500)
NET CASH USED BY INVESTING ACTIVITIES (6,685) (962) (2,004,159)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale of Preferred Stock -0- -0- -0-
Proceeds from sale of common stock 222,992 214,020 2,749,211
Syndication costs (15,803) (21,801) (270,607)
NET CASH PROVIDED BY FINANCING
ACTIVITIES 207,189 192,219 2,478,604
NET INCREASE (DECREASAE) IN CASH (20,403) 127,791 (75,614)
CASH, at beginning of period 20,403 -0- 127,179
CASH, at end of period $ -0- $ 127,791 $ 51,565
</TABLE>
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
FAS GROUP, INC.
ARTICLE I
Name
The name of the Corporation is FAS Group, Inc.
ARTICLE II
Duration
The Corporation is to have perpetual existence.
ARTICLE III
Registered Office and Agent
The address of its registered office in the State of Delaware is the
Corporation Trust Center at 1209 Orange Street, in the City of Wilmington,
County of New Castle, State of Delaware. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE IV
Purposes
The purpose for which the Corporation is organized is to transact all
lawful business for which corporations may be incorporated pursuant to the laws
of the State of Delaware. The Corporation shall have all the powers of a
corporation organized under the General Corporation Law of the State of
Delaware.
ARTICLE V
Capital Stock
A. Number and Designation. The Corporation shall have authority to issue 27
million shares of capital stock, of which 25 million shall be shares of Class A
common stock, par value $0.001 per share ("Class A Common Stock"), 1 million
shall be shares of Class B common stock, par value $0.001 per share ("Class B
Common Stock" and, together with the Class A Common Stock, "Common Stock"), and
1 million shall be shares of preferred stock, par value $0.001 per share
("Preferred Stock"). The shares may be issued by the Corporation from time to
time as approved by the board of directors of the Corporation without the
approval of the stockholders except as otherwise provided in this Article V or
the rules of a national securities exchange if applicable. The consideration
for the issuance of the shares shall be paid to or received by the Corporation
in full before their issuance and shall not be less than the par value per
share. The consideration for the issuance of the shares shall be cash, services
rendered, personal property (tangible or intangible), real property, leases of
real property or any combination of the foregoing. In the absence of actual
fraud in the transaction, the judgment of the board of directors as to the value
of such consideration shall be conclusive. Upon payment of such consideration
such shares shall be deemed to be fully paid and nonassessable. In the case of
a stock dividend, the part of the surplus of the Corporation which is
transferred to stated capital upon the issuance of shares as a stock dividend
shall be deemed to be the consideration for their issuance.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
B. Common Stock. The holders of Class A Common Stock and the holders of
Class B Common Stock shall have the respective rights and preferences set forth
in this Article V.
(1) Rights and Privileges. Except as provided in this Certificate, the holders
of the Common Stock shall exclusively possess all voting power. Except as
otherwise provided in this Article V or as otherwise required by applicable law,
all shares of Class A Common Stock and Class B Common Stock will be identical
and will entitle the holders thereof to the same rights and privileges and shall
rank equally, share ratably, and be identical in all respects as to all matters.
(2) Voting Rights. Except as otherwise required by law: (i) the holders of
Class A Common Stock will be entitled to one vote per share on all matters to be
voted on by the Corporation's shareholders; (ii) the holders of Class B Common
Stock will be entitled to ten votes per share on all matters to be voted on by
the Corporation's shareholders; and (iii) the holders of Class A Common Stock
and Class B Common Stock shall vote together as a single voting group.
(3) Payment of Dividends. Whenever there shall have been paid, or
declared and set aside for payment, to the holders of the outstanding shares of
any class or series of stock having preference over the Common Stock as to the
payment of dividends, the full amount of dividends and sinking fund or
retirement fund or other retirement payments, if any, to which such holders are
respectively entitled in preference to the Common Stock, then dividends may be
paid on the Common Stock, and on any class or series of stock entitled to
participate therewith as to dividends, out of any assets legally available for
the payment of dividends, but only when and as declared by the board of
directors of the Corporation.
(4) Distributions in Liquidation. In the event of any liquidation,
dissolution or winding up of the Corporation, after there shall have been paid,
or declared and set aside for payment, to the holders of the outstanding shares
of any class having preference over the Common Stock in any such event, the full
preferential amounts to which they are respectively entitled, the holders of the
Class A Common Stock and Class B Common Stock and of any class or series of
stock entitled to participate therewith, in whole or in part, as to distribution
of assets shall be entitled, after payment or provision for payment of all debts
and liabilities of the Corporation, to participate ratably on a per share basis
in all distributions of the remaining assets of the Corporation available for
distribution, in cash or in kind, as though all shares of Common Stock were of a
single class.
(5) Limitation on Stock Splits, Combinations or Reclassifications.
(a) The Corporation shall not: (i) subdivide its outstanding Class A Common
Stock by stock dividend or otherwise; or (ii) combine its outstanding Class A
Common Stock into a smaller number of shares; or (iii) reclassify its
outstanding Class A Common Stock (including any reclassification in connection
with a merger, consolidation or other business combination in which the
Corporation is the surviving corporation); unless at the same time the
Corporation subdivides, combines or reclassifies, as applicable, the shares of
outstanding Class B Common Stock on the same basis as the Corporation so
subdivides, combines or reclassifies the outstanding Class A Common Stock.
(b) The Corporation shall not: (i) subdivide its outstanding Class B Common
Stock by stock dividend or otherwise; or (ii) combine its outstanding Class B
Common Stock into a smaller number shares; or (iii) reclassify its outstanding
Class B Common Stock (including any reclassification in connection with a
merger, consolidation or other business combination in which the Corporation is
the surviving corporation); unless at the same time the Corporation subdivides,
combines or reclassifies, as applicable, the shares of outstanding Class A
Common Stock on the same basis as the Corporation so subdivides, combines or
reclassifies the outstanding Class B Common Stock.
(5) Conversion of Shares of Class B Common Stock Into Shares of Class A Common
Stock.
(a) For the purposes of this Article V, the following definitions shall apply:
(i) "Employee" means a person employed by the Corporation or by a legal entity
that is controlled, directly or indirectly, by the Corporation;
(ii) "Transfer" means any sale, transfer, gift, assignment, devise or other
disposition, whether directly or indirectly, voluntarily or involuntarily or by
operation of law or otherwise; and
(iii) "Uncertificated Shares" means shares without certificates within the
meaning of the General Corporation Law of Delaware, as it may be amended from
time to time, or any subsequent statute replacing this statute.
(b) At the option of the Corporation: (1) outstanding shares of Class B Common
Stock which are the subject of a Transfer shall be convertible into a number of
shares of Class A Common Stock equal to the number of shares of outstanding
Class B Common Stock subject to the Transfer; and (2) in the event that an
Employee ceases to be an Employee for any reason whatsoever, the outstanding
shares of Class B Common Stock held by such Employee shall be convertible into a
number of shares of Class A Common Stock equal to the number of shares of
outstanding Class B Common Stock held by such Employee. For purposes of this
Article V, the conversion of shares of Class B Common Stock as a result of a
Transfer and the conversion of shares of Class B Common Stock as a result of
cessation of an Employee's status as an Employee shall both be referred to as a
"Conversion Event."
(i) Each Conversion Event shall be effective immediately upon transmission or
delivery of a written notice of conversion by the Corporation to the record
holder of such shares (the "Effective Time") at such holder's address as it
appears in the records of the Corporation.
(ii) Each conversion of shares of Class B Common Stock into shares of Class A
Common Stock pursuant to this Article V shall be deemed to be effective upon the
Effective Time and at the Effective Time the rights of the holder of the
converted Class B Common Stock as such holder shall cease and the holder of the
converted Class B Common Stock shall be deemed to have become the holder of
record of the shares of Class A Common Stock into which such shares of Class B
Common Stock have been converted as a result of the applicable Conversion Event.
(iii) The Board of Directors of the Corporation shall have the power to
determine whether a Conversion Event has taken place with respect to any
situation based upon the facts known to it. Each shareholder shall provide such
information that the Corporation may reasonably request in order to ascertain
facts or circumstances relating to a Transfer or proposed Transfer or a
Conversion Event or proposed Conversion Event.
(c) Notwithstanding any other provision of this Article V, shares of Class B
Common Stock sold in a public offering of the Corporation's securities
registered with the United States Securities and Exchange Commission (the
"Public Offering"), regardless of the identity of the purchaser, transferee or
other recipient of the disposition in the Public Offering, shall be
automatically converted into a number of shares of Class A Common Stock equal to
the number of shares of Class B Common Stock sold in thr Public Offering. Such
conversion of shares of Class B Common Stock into shares of Class A Common Stock
shall be deemed to be effective at such time as the holder of the Class B Common
Stock who is selling such shares in a Public Offering transfers such shares for
disposition in the Public Offering, at which time the rights of the holder of
the converted Class B Common Stock as such holder shall cease and the holder of
the converted Class B Common Stock shall be deemed to have become the holder of
record of the shares of Class A Common Stock into which such shares of Class B
Common Stock have been converted as a result of the Public Offering.
(d) The holder of shares of Class B Common Stock converted pursuant to this
Article V shall promptly surrender the certificate or certificates representing
the shares so converted at the principal office of the Corporation (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of Class B Common Stock) at any time during its
usual business hours, and if such shares of Class B Common Stock are
Uncertificated Shares, shall promptly notify the Corporation in writing of such
transfer at the principal office of the Corporation (or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the holders of the Class B Common Stock).
(e) In no event shall the Corporation be liable to any such holder or any third
party arising from any such conversion.
(f) The shares of Class A Common Stock resulting from a conversion of duly
authorized, validly issued, fully paid and nonassessable shares of Class B
Common Stock into shares of Class A Common Stock pursuant to this Article V
shall be duly authorized, validly issued, fully paid and nonassessable. Any
share of Class B Common Stock which is converted into a share of Class A Common
Stock pursuant to this Article V shall become an authorized but unissued share
of Class B Common Stock.
(g) The Corporation will at all times reserve and keep available out of its
authorized but unissued shares of Class A Common Stock solely for the purpose of
issue upon conversion of Class B Common Stock, such number of shares of Class A
Common Stock as shall then be issuable upon the conversion of all outstanding
shares of Class B Common Stock.
(h) The issuance of certificates evidencing (or in the case of Uncertificated
Shares, the provision of applicable written statements or other documents with
respect to) shares of Class A Common Stock upon conversion of shares of Class B
Common Stock shall be made without charge to the holders of such shares for any
issue tax in respect thereof or other cost incurred by the Corporation in
connection with such conversion; provided, however, the Corporation shall not be
required to pay any tax that may be payable in respect of any Transfer involved
in the issuance and delivery of any certificate in (or in the case of
Uncertificated Shares, the provision of applicable written statements or other
documents with respect to) a name other than that of the holder of the Class B
Common Stock converted.
C. Serial Preferred Stock. Except as provided in this Certificate, the
board of directors of the Corporation is authorized, by resolution or
resolutions from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the powers, designations,
preferences and relative, participating, optional or other special rights of the
shares of each such series, and the qualifications, limitation or restrictions
thereof, including, but not limited to determination of any of the following:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the rights in respect of dividends, if any, to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from which
date or dates, the payment or date or dates for dividends, and the participating
or other special rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of the shares of such
series;
(4) whether the shares of such series shall be redeemable and, if so, the
price or prices at which, and the terms and conditions upon which such shares
may be redeemed;
(5) the amount or amounts payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(6) whether the shares of such series shall be entitled to the benefits of
a sinking or retirement fund to be applied to the purchase or redemption of such
shares, and, if so entitled, the amount of such fund and the manner of its
application, including the price or prices at which such shares may be redeemed
or purchased through the application of such funds;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes or any other series of
the same or any other class or classes of stock of the Corporation and, if so
convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such conversion
or exchange may be made, and any other terms and conditions of such conversion
or exchange;
(8) the subscription or purchase price and form of consideration for which
the shares of such series shall be issued; and
(9) whether the shares of such series which are redeemed or converted shall
have the status of authorized but unissued shares of serial preferred stock and
whether such shares may be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the Corporation of the same series,
except the times from which dividends on shares which may be issued from time to
time of any such series may begin to accrue.
ARTICLE VI
Preemptive Rights
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock or carrying any right to purchase
stock which may be issued pursuant to resolution of the board of directors of
the Corporation to such persons, firms, corporations or associations, whether or
not holders thereof, and upon such terms as may be deemed advisable by the board
of directors in the exercise of its sole discretion.
ARTICLE VII
Repurchase of Shares
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences or indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE VIII
Meetings of Stockholders; Cumulative Voting
A. Action by Written Consent. No action that is required or permitted to
be taken by the stockholders of the Corporation at any annual or special meeting
of stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the board of directors of the Corporation.
B. Special Meetings. Special meeting of the stockholders of the
Corporation for any purpose or purposes may be called at any time by the board
of directors of the Corporation, or by a committee of the board of directors
which has been duly designated by the board of directors and whose powers and
authorities, as provided in a resolution of the board of directors or in the
bylaws of the Corporation, include the power and authority to call such meetings
but such special meetings may not be called by another person or persons.
C. Cumulative Voting. There shall be no cumulative voting by stockholders
of any class or series in the election of directors of the Corporation.
D. Place of Meetings. Meetings of stockholders may be held at such place
as the bylaws may provide.
ARTICLE IX
Notice for Nominations and Proposals
A. Nominations and Proposals. Nominations for the election of directors
and proposals for any new business to be taken up at any annual or special
meeting of stockholders may be made by the board of directors of the Corporation
or by any stockholder of the Corporation entitled to vote generally in the
election of directors. In order for a stockholder of the Corporation to make
any such nominations and/or proposals at an annual meeting or such proposals at
a special meeting, he or she shall give notice thereof in writing, delivered or
mailed by first class United States mail, postage prepaid, to the Secretary of
the Corporation of less than thirty days nor more than sixty days prior to any
such meeting; provided, however, that if less than forty days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to stockholders. Each such notice given by a stockholder with respect to
nominations for the election of directors shall set forth (1) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (2) the principal occupation or employment of each such nominee,
and (3) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee. In addition, the stockholder making such nomination
shall promptly provide any other information reasonably requested by the
Corporation.
B. Form of Notice. Each such notice given by a stockholder to the
Secretary with respect to business proposals to bring before a meeting shall set
forth in writing as to each matter: (1) a brief description of the business
desired to be brought before the meeting and the reasons for conducting such
business at the meeting; (2) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business; (3) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder; and (4) any material interest of the stockholder in such business.
Notwithstanding anything in this Certificate to the contrary, no business shall
be conducted at the meeting except in accordance with the procedures set forth
in this Article.
C. Determination of Adequacy of Notice. The Chairman of the annual or
special meeting of stockholders may, if the facts warrant, determine and declare
to such meeting that a nomination or proposal was not made in accordance with
the foregoing procedure, and, if he should so determine, he shall so declare to
the meeting and the defective nomination or proposal shall be disregarded and
laid over for action at the next succeeding adjourned, special or annual meeting
of the stockholders taking place thirty days or more thereafter. This provision
shall not require the holding of any adjourned or special meeting of
stockholders for the purpose of considering such defective nomination or
proposal.
ARTICLE X
Directors
A. Number and Vacancies. The number of directors of the Corporation shall
be such number, not less than one nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation), as shall
be provided from time to time in a resolution adopted by the board of directors,
provided that no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director, and provided further that no
action shall be taken to decrease or increase the number of directors from time
to time unless at least two-thirds of the directors then in office shall concur
in said action. Exclusive of directors, if any, elected by holders of preferred
stock, vacancies in the board of directors of the Corporation, however caused,
and newly created directorships shall be filled by a vote of two-thirds of the
directors then in office, whether or not a quorum, and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires and
when the director's successor is elected and qualified. The board of directors
shall be classified in accordance with the provisions of Section B of this
Article X.
B. Classified Board. The board of directors of the Corporation (other
than directors which may be elected by the holders of preferred stock), shall be
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, exclusive of directors,
if any, elected by holders of preferred stock, with the terms of office of all
members of one class expiring each year. Should the number of directors not be
equally divisible by three, the excess director or directors shall be assigned
to Classes I or II as follows: (1) if there shall be an excess of one
directorship over the number equally divisible by three, such extra directorship
shall be classified in Class I; and (2) if there be an excess of two
directorships over a number equally divisible by three, one shall be classified
in Class I and the other in Class II. At the organizational meeting of the
Corporation, directors of Class I shall be elected to hold office for a term
expiring at the first annual meeting of stockholders, directors of Class II
shall be elected to hold office for a term expiring at the second succeeding
annual meeting of stockholders and directors of Class III shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the position(s) to
be abolished. Notwithstanding the foregoing, no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director. Should the number of directors of the Corporation be increased, other
than directors which may be elected by the holders of preferred stock, the
additional directorships shall be allocated among classes as appropriate so that
the number of directors in each class is as specified in the immediately
preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall include said
directors so elected and not be in addition to the number of directors fixed as
provided in this Article X. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation elect one or more directors of the
Corporation, the terms of the director or directors elected by such holders
shall expire at the next succeeding annual meeting of stockholders.
ARTICLE XI
Removal of Directors
Notwithstanding any other provision of this Certificate or the bylaws of
the Corporation, any director or all the directors of a single class (but not
the entire board of directors) of the Corporation may be removed, at any time,
but only for cause and only by the affirmative vote of the holders of at least
75% of the voting power of the outstanding shares of capital stock of the
Corporation entitled to vote generally in the election of directors (considered
for this purpose as one class) cast at a meeting of the stockholders called for
that purpose. Notwithstanding the foregoing, whenever the holders of any one or
more series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
preceding provisions of this Article XI shall not apply with respect to the
director or directors elected by such holders of preferred stock.
ARTICLE XII
Acquisition of Capital Stock
A. Definitions. For the purpose of this Article:
(1) The term "Act" shall mean the Securities Exchange Act of 1934, as
amended, and any successor statute.
(2) The term "acting in concert" shall mean (i) knowing participation
in a joint activity or conscious parallel action towards a common goal whether
or not pursuant to an express agreement, and (ii) a combination or pooling of
voting or other interest in the Corporation's outstanding shares of capitol
stock for a common purpose, pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise.
(3) The term "acquire," "acquisition" or "acquiring" with respect to
the acquisition of any security of the Corporation shall refer to the
acquisition of such security by any means whatsoever, including without
limitation, an acquisition of such security by gift, by operation of law, by
will or by intestacy, whether voluntarily or involuntarily.
(4) The term "Code" means the Internal Revenue Code of 1986, as
amended, and any successor statute.
(5) The term "Common Stock" means all Common Stock of the Corporation
and any other securities issued by the Corporation (other than the Warrants)
which are treated as stock for purposes of Section 382 of the Code.
(6) The term "Fair Market Value" of the Common Stock shall mean the
average of the daily closing prices of the Common Stock for 15 consecutive
trading days commencing 20 trading days before the date of such computation The
closing price is the last reported sale price on the principal securities
exchange on which the Common Stock is listed or, if the Common Stock is not
listed on any national securities exchange, the NASDAQ National Marked System,
or, if the Common Stock is not designated for trading on the NASDAQ National
Market System, the average of the closing bid and asked prices as reported on
NASDAQ or, if not so reported, as furnished by the National Quotation Bureau
Incorporated. In the absence of such a quotation, the Corporation shall
determine the current market rice on a reasonable and appropriate basis of the
average of the daily closing prices for 15 consecutive trading days commencing
20 trading days before the date of such computation.
(7) The term "own," "owing," "ownership" or "owning" refer to the
ownership of securities within the meaning of Section 382 of the Code after
taking into account the attribution rules of Section 382(l)(3) of the Code and
the regulations promulgated hereunder (except insofar as such attribution would
be inconsistent with provisions of this Article XII relating to Warrants).
(8) The term "Person" shall mean any individual, firm, corporation,
partnership, joint venture or other entity and shall include any group composed
of such person and any other person with whom such person or any Affiliate or
Associate (as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Act) of such person has any agreement, arrangement or
understanding, directly or indirectly, for the purposes of acquiring, holding,
voting or disposing of Common Stock or Warrants, and any other person who is a
member of such group.
(9) The term "Transfer Agent" shall mean the transfer agent with
respect to the Common Stock nominated and appointed by the Board of Directors
from time to time.
(10) The term "Warrant" shall mean any securities issued or assumed
by the Corporation, or any securities issuable by the Corporation in respect to
issued securities which are convertible into, or which include the right to
acquire, shares of Common Stock, whether or not the right to make such
conversion or acquisition is subject to any contingencies, including, without
limitation, warrants, options, calls, contracts to acquire securities,
convertible debt instruments or any other interests treated as an option
pursuant to Section 382(l)(3) of the Code.
(11) The term "Warrant Agent" shall mean any warrant agent for any
Warrants nominated and appointed by the Board of Directors from time to time.
B. Acquisition of Control Shares.
(1) If, at any time during the ten years from the effective date of this
Certificate, any Person shall acquire the beneficial ownership (as determined
pursuant to Rules 13d-3 and 13d-5 under the Act) of more than 20% of any class
of Common Stock, then the record holders of Common stock beneficially owned by
such acquiring Person shall have only the voting rights set forth in this
paragraph B on any matter requiring their vote or consent. With respect to each
vote in excess of 20% of the voting power of the outstanding shares of Common
Stock which such record holders would otherwise be entitled to cast without
giving effect to this paragraph B, the record holders in the aggregate shall be
entitled to cast only one-hundredth of a vote. A Person who is a record owner
of shares of Common Stock that are beneficially owned simultaneously by more
than one person shall have, with respect to such shares, the right to cast the
least number of votes that such person would be entitled to cast under this
paragraph B by virtue of such shares being so beneficially owned by any of such
acquiring Persons. The effect of the reduction in voting power required by this
paragraph B shall be given effect in determination the presence of a quorum for
purposes of convening a meeting of the stockholders of the Corporation
(2) The limitation on voting rights prescribed by this paragraph B
shall terminate and be of no force and effect as of the earliest to occur of:
(i) the date that any person becomes the beneficial owner of shares
of stock representing at least 75% of the total number of votes entitled to be
cast in respect of all outstanding shares of stock, before giving effect to the
reduction in votes prescribed by this paragraph B; or
(ii) the date (the "Reference Date") one day prior to the date on which,
as a result of such limitation of voting rights, the Common Stock will be
delisted from (including by ceasing to be temporarily or provisionally
authorized for listing with) the New York Stock Exchange (the "NYSE") or the
American Stock Exchange (the "AMEX"), or be no longer authorized for inclusion
(including by ceasing to be provisionally or temporarily authorized for
inclusion) on the National Association of Securities Dealers, Inc. Automated
Quotation System/National Market System ("NASDAQ/NMS"); provided, however, that
(a) such termination shall not occur until the earlier of (x) the 90th day after
the Reference Date or (y) the first day on or after a Reference Date that there
is not pending a proceeding under the rules of the NYSE, the AMEX or the
NASDAQ/NMS or any other administrative or judicial proceeding challenging such
delisting or removal of authorization of the Common Stock, an application for
listing of the Common stock with the NYSE or the AMEX or for authorization for
the Common Stock to be including on the NASDAQ/NMS, or an appeal with respect to
any such application, and (b) such termination shall not occur by virtue of such
delisting or lack of authorization if on or prior to the earlier of the 90th day
after the Reference Date or the day on which no proceeding, application or
appeal of the type described in (y) above is pending, the Common Stock is
approved for listing or continued listing on the NYSE or the AMEX or authorized
for inclusion or continued inclusion on the NASDAQ/NMS (including any such
approval or authorization which is temporary or provisional). Nothing contained
herein shall be construed so as to prevent the Common Stock from continuing to
be listed with the NYSE or AMEX or continuing to be authorized for inclusion on
the NASDAQ/NMS in the event that the NYSE, AMEX or NASDAQ/NMS, as the case may
be, adopts a rule or is governed by an order, decree, ruling or regulation of
the Securities and Exchange Commission which provides in whole or in part that
companies having Common Stock with differential voting rights listed on the NYSE
or the Amex or authorized for inclusion on the NASDAQ/NMS may continue to be so
listed or included.
C. Exceptions. The restrictions contained in this Article XII shall not
apply to (1) any underwriter or member of an underwriting or selling group
involving a public sale or resale of securities of the Corporation or a
subsidiary thereof; provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 4.9% of any class of equity security of the
Corporation, (2) any revocable proxy granted pursuant to a proxy solicitation in
compliance with section 14 of the Act by a stockholder of the Corporation or (3)
any employee benefit plans of the Corporation. In addition, the Continuing
Directors of the Corporation, the officers and employees of the Corporation and
its subsidiaries, the directors of subsidiaries of the Corporation, the employee
benefit plans of the Corporation and its subsidiaries, entities organized or
established by the Corporation or any subsidiary thereof pursuant to the terms
of such plans and trustees and fiduciaries with respect to such plans acting in
such capacity shall not be deemed to be a group with respect to their beneficial
ownership of voting stock of the Corporation solely by virtue of their being
directors, officers or employees of the Corporation or a subsidiary thereof or
by virtue of the Continuing Directors of the Corporation, the officers and
employees of the Corporation and its subsidiaries and the directors of
subsidiaries of the Corporation being fiduciaries or beneficiaries of an
employee benefit plan of the Corporation or a subsidiary of the Corporation.
Notwithstanding the foregoing, no director, officer or employee of the
Corporation or any of its subsidiaries or group of any of them shall be exempt
from the provisions of this Article XII should any such person or group become a
beneficial owner of more than 20% of any class of equity security of the
Corporation.
D. Construction. A majority of the Continuing Directors, as defined in
Article XIII, shall have the power to construe and apply the provisions of
paragraphs B, C and D of this Article XII and to make all determinations
necessary or desirable to implement such provisions, including but not limited
to matters with respect to (1) the number of shares beneficially owned by any
person, (2) whether a person has an agreement, arrangement or understanding with
another as to the matters referred to in the definition of beneficial ownership,
(3) the application of any other definition or operative provision of this
Article XII to the given facts or (4) any other matter relating to the
applicability or effect of paragraphs B, C and D of this Article XII. Any
constructions, applications, or determinations made by the Continuing Directors
pursuant to paragraphs B, C and D of this Article XII in good faith and on the
basis of such information and assistance as was then reasonably available for
such purpose shall be conclusive and binding upon the Corporation and its
stockholders.
E. Legend on Certificates. All certificates evidencing ownership of
Common Stock or ownership of Warrants of the Corporation shall bear a
conspicuous legend in compliance with the General Corporation Law of Delaware
describing the restrictions on transfers set forth in this Article XII.
F. Partial Invalidity. If any provision of this Article XII or any
application of any such provision is determined to be invalid by any federal or
state court having jurisdiction over the issues, the validity of the remaining
provisions shall not be affected and other applications of such provision shall
be affected only to the extent necessary to comply with the determination of
such court.
ARTICLE XIII
Approval of Certain Business Combinations
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. Required Affirmative Vote.
(1) Except as otherwise expressly provided in this Article XIII, and in
addition to any other vote required by law, the affirmative vote required by
law, the affirmative vote of the holders of (i) at least 75% of the voting power
of the outstanding shares entitled to vote thereon (and, if any class or series
of shares is entitled to vote thereon separately the affirmative vote of the
holders of at least 75% of the outstanding shares of each such class or series),
and (ii) at least a majority of the outstanding shares entitled to vote thereon,
not including shares deemed beneficially owned by a Related Person (as
hereinafter defined), shall be required in order to authorize any of the
following:
(a) any merger or consolidation of the Corporation or a
subsidiary of the Corporation with or into a Related person (as hereinafter
defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage or pledge, of all or any Substantial
Part (as hereinafter defined) of the assets of the Corporation (including
without limitation any voting securities of a subsidiary) or of a subsidiary, to
a Related Person;
(c) any merger or consolidation of a Related Person with or into
the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the Corporation
or a subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person other than on a pro rata basis
to all holders of capital stock of the Corporation of the same class or classes
held by the Related person, pursuant to a stock split, stock dividend or
distribution or warrants or rights, and other than in connection with the
exercise or conversion of securities exercisable for or convertible into
securities of the Corporation or any of its subsidiaries which securities have
been distributed pro rata to all holders of capital stock of the Corporation;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the Common Stock of the Corporation,
or any recapitalization involving the Common Stock of the Corporation or any
similar transaction (whether or not with or into or otherwise involving a
Related Person) that has the effect directly or indirectly, of increasing by
more than 1% the proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any subsidiary that are
directly or indirectly owned by any Related Person; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article XIII.
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Certificate, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote; provided, however, that in no instance shall the
provisions of this Article XIII require the vote of greater than 85% of the
voting power of the outstanding shares entitled to vote thereon for the approval
of a Business Combination.
(3) The term "Business Combination" as used in this Article XIII shall
mean any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (h) above.
B. Exceptions. The provisions of paragraph A shall not be applicable to
any particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved in advance by a two-thirds vote of the Continuing Directors (as
hereinafter defined; provided, however, that such approval shall only be
effective if obtained at a meeting at which a continuing Director Quorum (as
hereinafter defined) is present.
C. Definitions. For the purposes of this Article XIII the following
definitions apply:
(1) The term "Related Person" shall mean and include (i) any individual,
corporation, partnership or other person or entity which together with its
"affiliates" or "associates" (as those terms are defined in the Act)
"beneficially owns" (as that there is defined in the Act) in the aggregate 10%
or more of the outstanding shares of the Common Stock of the Corporation; and
(ii) any "affiliate" or "associate" (as those terms are defined in the Act) of
any such individual, Corporation, partnership or other person or entity;
provided, however, that the term "Related Person" shall not include the
Corporation, any subsidiary of the Corporation, any employee benefit plan,
employee stock plan of the Corporation or of any subsidiary of the Corporation,
or any trust established by the Corporation in connection with the foregoing, or
any person or entity organized, appointed, established or holding shares of
capital stock of the Corporation for or pursuant to the terms of any such plan,
nor shall such term encompass shares of capital stock of the Corporation held by
any of the foregoing (whether or not held in a fiduciary capacity or otherwise).
Without limitation, any shares of the Common Stock of the Corporation which any
Related Person has the right to acquire pursuant to any agreement, or upon
exercise or conversion rights, warrants or options, or otherwise, shall be
deemed "beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25% of the total
assets of the entity at issue, as of the end of its most recent fiscal year
ending prior to the time the determination is made.
(3) The term "Continuing Director" shall mean any member of the board of
directors of the Corporation who is unaffiliated with and who is not the Related
Person and was a member of the board prior to the time that the Related Person
became a Related Person, and any successor of a Continuing Director who is
unaffiliated with and who is not the Related Person and is recommended to
succeed a Continuing Director by a majority of Continuing Directors then on the
board.
(4) The term "Continuing Director Quorum" shall mean two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
ARTICLE XIV
Evaluation of Business Combinations
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the stockholders, when evaluating a
Business Combination (as defined in Article XIII) or a tender or exchange offer,
the board of directors of the Corporation shall, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant; (A) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees and customers, creditors and other
elements of the communities in which the Corporation and its subsidiaries
operate or are located; (B) the business and financial condition and earnings
prospects of the acquiring person or entity, including, but not limited to, debt
service and other existing financial obligations, financial obligations to be
incurred in connection with the acquisition and other likely financial
obligations of the acquiring person or entity and the possible effect of such
conditions upon the Corporation and its subsidiaries and the other elements of
the communities in which the Corporation and its subsidiaries operate or are
located; and (C) the competence, experience, and integrity of the acquiring
person or entity and its or their management.
ARTICLE XV
Indemnification
Any person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (whether or not by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
incorporator, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, incorporator, employee,
partner, trustee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including an employee benefit plan), shall be
entitled to be indemnified by the corporation to the full extent then permitted
by law against expenses (including counsel fees and disbursements), judgments,
fines (including excise taxes assessed on a person with respect to an employee
benefit plan), and amounts paid in settlement incurred by him in connection with
such action, suit, or proceeding. Such right of indemnification shall inure
whether or not the claim asserted is based on matters which antedate the
adoption of this Article XV. Such right of indemnification shall continue as to
a person who has ceased to be a director, officer, incorporator, employee,
partner, trustee, or agent and shall inure to the benefit of the heirs and
personal representatives of such a person. The indemnification provided by this
Article XV shall not be deemed exclusive of any other rights which may be
provided now or in the future under any provision currently in effect or
hereafter adopted of the bylaws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provisions of law, or otherwise.
ARTICLE XVI
Limitations on Directors' Liability
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (A) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (B) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (C) under Section 174 of the General Corporation Law of the State of
Delaware, or (D) for any transaction from which the director derived any
improper personal benefit. If the General Corporation law of the State of
Delaware is amended after the date of filing of this Certificate to further
eliminate or limit the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
ARTICLE XVII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by a vote of
two-thirds of the board of directors. Notwithstanding any other provision of
this Certificate or the bylaws of the Corporation, and in addition to any
affirmative vote required by law (and notwithstanding the fact that some lesser
percentage may be specified by law), the bylaws shall be adopted, repealed,
altered, amended or rescinded by the stockholders of the Corporation only by the
vote of the holders of not less than 75% of the voting power of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed adoption, repeal, alteration, amendment or rescission is included
in the notice of such meeting), or, as set forth above, by the board of
directors.
ARTICLE XVIII
Amendment of Certificate of Incorporation
Subject to the provisions hereof, the Corporation reserves the right to
repeal, alter, amend or rescind any provision contained in this Certificate in
the manner now or hereafter prescribed by law, and all rights conferred on
stockholders herein are granted subject to this reservation. Notwithstanding
the foregoing at any time and from time to time, the provisions set forth in
Articles VIII, IX, X, XI, XII, XIII, XIV, XV, XVI, XVII and this Article XVIII
may be repealed, altered, amended or rescinded in any respect only if the same
is approved by the affirmative vote of the holders of not less than 75% of the
voting power of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors (considered for this
purpose as a single class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting).
ARTICLE XIX
The name and address of the incorporator is:
Danyel Owens
770 South Post Oak Lane
Suite 435
Houston, Texas 77056-1913
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation pursuant to the General Corporation Law of Delaware, does make and
file this Certificate of Incorporation, hereby declaring and certifying that the
facts herein stated are true, and accordingly have hereunto set my hand this
22nd day of June, 1998.
/s/Danyel Owens
Danyel Owens
EXHIBIT B
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10Q-SB
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the nine months ended Commission File Number
September 30, 1998 33-48017-A
FAS WEALTH MANAGEMENT SERVICES, INC.
(Formerly FAS Wealth Management Services, Inc.
(a Delaware corporation, formerly a Florida corporation)
(Exact name of Registrant as specified in its Charter)
Delaware (formerly Florida 59-2087068
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
2323 Stickney Point Road, Sarasota, Florida 34231
(Address of principal FAS Wealth offices, zip code)
Registrant's telephone number, including area code: (941) 921-9700
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
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 past 90 days. Yes X No .
For the nine months ended September 30, 1998, the Registrant had revenues of
$2,576,416.
As of September 30, 1998, the Registrant had 5,000,000 Shares authorized and
2,664,560 Shares outstanding. The aggregate market value of the outstanding
shares held by non-affiliates, computed by reference to the price at which the
stock was sold is $1,752,492.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Set forth below are the unaudited financial statements reflecting the
Company's financial condition as of September 30, 1998, and the related
statements of operations and shareholders' equity for the nine and three months
ended September 30, 1998 and 1997.
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(Formerly Executive Wealth Management Services, Inc.)
BALANCE SHEET
September 30, 1998 (Unaudited)
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 43,957
Accounts receivable from
correspondent brokers 253,699
Accounts receivable from affiliates 74,923
Accounts receivable from others 2,448
TOTAL CURRENT ASSETS 375,027
INVESTMENTS ---
FURNITURE, FIXTURES AND EQUIPMENT at cost
Net of accumulated depreciation 24,837
OTHER ASSETS
Deposits with clearing organizations 140,510
Other Deposits 1,934
Trading Account 851,348
TOTAL ASSETS $ 1,393,656
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 37,211
Commissions payable 179,474
TOTAL CURRENT LIABILITIES 216,685
STOCKHOLDERS' EQUITY
Preferred Stock - authorized 750,000
shares of $.01 par value; no shares
issued or outstanding ---
Common Stock - authorized 5,000,000
shares of $.002 par value; issued and
outstanding 2,664,560 shares 5,329
Additional paid-in capital 2,331,731
Additional paid-in capital, warrants 4,410
Retained earnings (1,164,499)
TOTAL STOCKHOLDERS' EQUITY $ 1,176,971
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 1,393,656
</TABLE>
<TABLE>
<CAPTION>
FAS WEALTH MANAGEMENT SERVICES, INC.
(Formerly Executive Wealth Management Services, Inc.)
STATEMENTS OF OPERATION
For The Three and Nine Months Ended September 30 (Unaudited)
Nine Months Ended September 30 Three Months Ended September 30
1998 1997 1998 1997
REVENUE
<S> <C> <C> <C> <C>
Commissions $1,834,265 $2,896,686 $ 561,959 $1,124,606
Underwriting fees 209,920 133,548 118,950 59,948
RIA Income 171,858 --- 104,053 ---
Trading Profit 227,777 --- 227,777 ---
Other Income 132,596 109,810 109,635 39,410
TOTAL REVENUE 2,576,416 3,140,044 1,122,374 1,223,964
EXPENSES
Advertising 4,350 1,921 2,431 308
Bad debt expense 13,110 --- 13,105 ---
Board of Directors fees 18,000 14,000 6,000 6,000
Branch office support 25,000 58,000 25,000 55,000
Clearing charges 116,754 241,182 37,307 104,458
Commissions 1,964,680 2,369,145 841,741 917,879
Consulting fees 81,053 40,236 52,400 17,045
Dues and Subscriptions 6,297 7,160 1,508 2,870
Depreciation 7,769 9,092 2,601 3,031
Employee benefits 2,750 --- 2,750 ---
Insurance 8,091 9,565 6,750 6,363
Meetings and seminars (6,500) (471) (5,750) (500)
Miscellaneous 6,191 17,951 4,722 3,736
Occupancy costs 74,487 64,722 24,833 21,311
Office expenses 29,962 20,854 14,397 7,725
Professional development --- 187 --- 187
Regulatory 14,814 13,605 2,073 1,754
Rental Equipment 6,065 7,302 3,054 3,017
Salaries and wages 313,800 262,530 142,354 83,880
Taxes 30,973 26,382 11,392 6,609
Travel and lodging 50,599 24,123 34,099 8,356
Utilities 26,327 22,296 11,836 9,502
TOTAL
OPERATING EXPENSES 2,794,572 3,209,782 1,234,603 1,258,531
OPERATING
INCOME/(LOSS) (218,154) (69,738) (112,230) (34,567)
NET INCOME/(LOSS) $ (218,154) $ (69,738) $ (112,230) $ (34,567)
NET INCOME/(LOSS)
PER SHARE $ (.082) $ (.027) $ (.042) $ (.013)
</TABLE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(Formerly Executive Wealth Management Services, Inc.)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For The Nine Months Ended September 30 (Unaudited)
Additional
Additional Paid-In Retained
Preferred Common Paid-In Capital Earnings
Stock Stock Capital Warrants (Deficit)
Total
Balance at January 1, 1997 - $ 4,983 $ 913,687 $
4,410 $ (841,105) $ 81,975
Issuance of common stock 248 213,752
214,000
Syndication costs (21,800)
(21,800)
Net loss for the Nine
months ended
September 30, 1997 (69,738) (69,738)
Balance at
September 30, 1997 $ - $ 5,231 $ 1,105,639 $
4,410 $ (910,843) $ 204,437
Additional Retained
Preferred Common Paid-In Earnings Stock
Stock Stock Capital (Deficit) Warrants
Total
Balance at
January 1, 1998 $ - $ 5,231 $ 1,105,689 $
(946,344) $ 4,410 $ 168,936
Issuance of Common Stock 98 1,246,569
1,246,667
Syndication Costs (20,477)
(20,477)
Net loss for nine
months ended
September 30, 1998 - - - (218,154)
- - (218,154)
Balance at
September 30, 1998 $ - $ 5,329 $ 2,331,781 $
(1,164,498) $ 4,410 $ 1,176,972
<TABLE>
<CAPTION>
EXECUTIVE WEALTH MANAGEMENT SERVICES, INC.
(Formerly Executive Wealth Management Services, Inc.)
STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30 (Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income (Loss) $ (218,154) $ (69,738)
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation 6,817 9,092
(Increase) decrease in operating assets:
Receivable from correspondent brokers (139,527) (217,155)
Receivable - other (31,056) (30,585)
Deposits (95,353) (1,030)
Other assets 15,000 (5,000)
Increase (decrease) in operating liabilities:
Accounts payable (69,663) 1,953
Commissions payable 78,183 134,973
Net cash provided by (used in) operating activities (453,753) (177,490)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of assets (4,311) ---
Trading Account (851,348) ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,246,667 214,000
Cash paid for syndication costs (20,477) (21,800)
Net cash provided by (used in) financing activities 1,226,190 192,200
NET INCREASE (DECREASE) IN CASH (83,222) 14,710
CASH AT BEGINNING OF PERIOD 127,179 ---
CASH AT END OF PERIOD $ 43,957 $ 14,710
</TABLE>
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
For The Nine Months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
FAS Wealth Management Services, Inc., (formerly Executive Wealth Management
Services, Inc. (the Company) is a securities broker/dealer that transacts
business through correspondent brokers and does not handle any customer
securities or funds. Customer security transactions and related commission
revenue and expenses are recorded on the trade date. The Company also markets
insurance products and services, acts as a broker/dealer in selling both public
and private securities offerings on a best efforts basis and markets to Affinity
Groups . In addition, the Company receives commissions, investment banking and
underwriting fees for its services.
Effective August 31, 1998, the Agreement and Plan of Merger ("Agreement") with
FAS Group, Inc. was effective. Executive Wealth Management Services, Inc.
merged with a subsidiary of FAS Group, Inc. and changed its name to FAS Wealth
Management Services, Inc. Details of the capitalization from the parent
company, FAS Group, Inc. are detailed in Note 8 of these financials.
On September 1998, the NASDR granted the firm's application to change its
Restrictive Letter to allow for market making and proprietary trading. The new
Restrictive Letter with the NASDR limits the number of securities in which the
firm can make markets to 15. It also limits the firms proprietary positions to
less than 90% of excess net capital.
Receivable from Correspondent Brokers
The receivable from correspondent brokers and broker/dealers represent
commissions earned which had not been received at September 30, 1998.
Management has determined that these amounts are fully collectible.
Furniture, Fixtures and Equipment
Furniture, fixtures and equipment are recorded at cost. Depreciation is
provided for in amounts sufficient to relate the cost of assets to operations
over their estimated useful lives using the straight-line method.
Investments
The Company was issued 55,263 shares of common stock of Flight Sciences, Inc.
This stock was issued to the Company in relation to a private offering of Flight
Sciences' promissory notes. These shares represented 5% of Flight Sciences,
Inc.'s outstanding common stock at the time. The Company has assigned no value
to the stock due to the fact that there is no ready market and its value is not
determinable.
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Warrants Outlet Mall Network
The Company was issued 5,555 warrants of the Outlet Mall Network, Inc. ("OMNI").
OMNI had two reverse splits during 1998. The net effect of these splits was a
4.35 to 1 reverse split. The Company originally had 24,167 shares. These
warrants were issued in relation to a private offering of OMNI stock. The
warrants have an exercise price of $8.70 and expire June 10, 2002. The Company
has assigned no value to the warrants due to the fact that there is no ready
market and their value is not determinable.
Loss Per Share
Loss per share is computed based upon 2,664,560 and 2,615,485 shares outstanding
during the periods ended September 30, 1998 and 1997, respectively.
Note 2 - DEPOSIT WITH CLEARING ORGANIZATION
Deposits with clearing organizations represent investments in money markets. The
investments are required by the Company's clearing brokers and are in accordance
with the correspondent broker agreements between the parties. Deposits are
reflected at fair market value.
Note 3 - FURNITURE, FIXTURES AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of furniture, fixtures and equipment follows:
September 30, 1998
<S> <C>
Furniture and fixtures $ 37,951
Equipment 37,034
Leasehold improvements 8,101
83,086
Less: Accumulated Depreciation (58,249)
$ 24,837
</TABLE>
NOTE 4 - OPERATING LEASES
Rent expense for the nine months ended September 30, 1998 and 1997 was $74,487
and $64,722, respectively.
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
Note 5 - NET CAPITAL REQUIREMENT
Pursuant to the net capital provisions of Rule 15c3-1(a)(2)(iii) of the
Securities and Exchange Act of 1934, the Company is required to maintain a
minimum net capital of $100,000 as of September 30, 1998, and $5,000 as of the
same period ended 1997. The Company had net capital of $903,823 or 903% and
$131,521 or 622% of the minimum requirement at September 30, 1998 and 1997,
respectively. The net capital rules may effectively restrict the payment of
dividends to the Company's stockholders. The Company operates pursuant to the
(K)(2)(ii) exemption provisions of the Securities and Exchange Commissions Rule
15c3-3 and does not hold customer funds or securities.
NOTE 6 - INCOME TAXES
At December 31, 1996, the Company had a net operating loss carry forward of
approximately $946,000 that will begin to expire in the year 2009. Due to the
lack of historical operations, management has elected to record a valuation
allowance equal to the deferred tax asset of $350,000, calculated using an
effective income tax rate of 37% for the Company.
.
NOTE 7 - RELATED PARTY TRANSACTIONS
During the nine months ended September 30, 1998 and 1997, companies affiliated
with the Company's majority stockholder shared office space with the Company and
paid rent of $8,586 and $17,188, respectively, for the use of the space.
During the nine months ended September 30, 1998 and 1997, the Company paid rent
of approximately $27,000 to the Company's majority stockholder.
NOTE 8 - COMMON STOCK TRANSACTIONS
In November, 1995, the Company approved a plan to grant options to certain
employees to purchase the Company's common stock. The plan provided for the
granting of options to purchase a maximum of 500,000 shares of the Company's
stock at a price to be determined at the time of grant. The price, however, is
not greater than $.60 per share. The plan required a participant to be employed
by the
Company for a number of years before exercise. Granted options expire 10 years
from the grant date. At September 30, 1998, none of the options have been
exercised.
FAS WEALTH MANAGEMENT SERVICES, INC.
(formerly Executive Wealth Management Services, Inc.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
For The Nine months Ended September 30, 1998 and 1997
NOTE 8 - COMMON STOCK TRANSACTIONS (Continued)
During the first quarter of 1998, the majority shareholder purchased 42,500
shares of common stock at $1.20 per share.
In May, 1996, the Board of Directors passed a resolution to forward split the
outstanding common stock shares of Executive Wealth Management Services, Inc. on
a five for one basis to common stockholders of record as of September 20, 1996.
On June 9, 1997, the Company initiated a private placement of 250,000 shares of
the Company's Common Stock at a price of $2.00 per share. Net proceeds from the
sale of stock were used for general working capital and expansion of operations.
In March, 1998, the Company and the majority shareholder initiated a private
placement of 150,000 shares of the Company's Common Stock at a price of $2.00
per share. The shares contained in the offering were drawn one third from the
authorized but unissued shares of the Company and two thirds from the majority
shareholder. As of September 30, 1998, 147,250 shares of the Company's Common
Stock had been sold under this private placement. Net proceeds from the
issuance of shares by the Company were used for costs of the merger, affinity
group marketing programs, working capital and general corporate purposes. The
majority shareholder received net proceeds for sale of its shares.
On August 19, 1998, the parent company, FAS Group, Inc. initiated a private
placement of 750,000 units consisting of 750,000 share of the Company's Class A
Common Stock and 750,000 Redeemable Class A Common Stock Purchase Warrants at a
price of $2.00 per unit. As of September 30, 1998, all 750,000 units were sold
and proceeds were used for working capital and investment in its subsidiary, FAS
Wealth Management Services, Inc., the broker/dealer.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Current Operations
The table set forth below reflects the source of revenue earned by the Company
during the nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997 Increase/(Decrease)
Source of Revenue Earned
Commission:
<S> <C> <C> <C>
Investment banking fees $ 209,920 $ 133,548 $ 76,372
Transactional 740,813 1,762,944 (1,022,131)
Mutual Fund Sales 442,548 443,847 (1,299)
Insurance/Annuity 433,940 468,558 (34,618)
Limited partnership sales 216,965 221,337 (4,372)
Total Commissions 2,044,186 3,030,234 (986,048)
Other:
RIA income 171,858 28,784 143,074
Trading Profits 227,777 277,777
Miscellaneous 132,595 81,026 51,569
Total $2,576,416 $3,140,044 $ (563,628)
</TABLE>
The Company received investment banking fees of $209,920 and $133,548 from the
sale of proprietary products or commissions which were (in-house) in character
for the nine months ended 1998 and 1997, respectively. The increase of $76,372
or 57.2% from the nine month period ended 1997 compared to the same period ended
1998 reflects the best efforts public offering of $5,000,000 in promissory notes
of Federal Mortgage Management II, Inc. During the nine months ended September
30, 1998, the Company earned fees and commissions of $91,470 compared to none
for the same period ended 1997 from such offering. The Company also earned
commission of $29,450 from the best efforts offering of 150,000 shares of its
common stock for the period ended September 30, 1998. The Company earned
commissions of $89,000 from its parent company FAS Group, Inc. for the private
placement of 750,000 units, each unit consisting of one (1) Class A Common Stock
and one (1) Redeemable Class A Common Stock Purchase Warrant.
Transactional revenues decreased by 1,022,131 or 58% for the nine month ended
September 30, 1998 as compared to same period in 1997. This decrease relates to
the fact that during the fourth quarter of 1997, one of the Altamonte Springs
branch offices began their own broker/dealer operation. Also contributing to
the decrease were general market and seasonal conditions as well as another
branch shifting from transactional to Registered Investment Advisory based fees.
The decrease of $1, 022, 131 is offset to some degree with the increase in RIA
income of $143,074 and trading profit increase of $227,777 for a net decrease of
transactional revenue of $651,280 or 37%. The firm believes that this decrease
in transaction revenue will not continue and will be offset with increased RIA
income, trading profit income and securities and insurance commissions over the
next two fiscal quarters.
Mutual fund, insurance/annuity and limited partnership revenue all decreased for
the nine month period ended September 30, 1998 as compared to the same period in
1997. The decreases of $1,299, $34,619, $4,372, respectively for $40,289
cumulative decrease are primarily due to general market conditions.
As noted above RIA income increased $143,074 for the nine month period ended
September 30, 1998 as compared to the same period ended 1997. This increase
represents a 497% increase over 1997. Management believes this revenue stream
from the Registered Investment Advisor will continue throughout fiscal 1998 and
well into fiscal 1999.
During the month of September 1998, assets under management has surpassed the
$25,000,000 benchmark for registration with the SEC. At September 30, 1998, the
firm had filed an application to register its RIA with the SEC and assets under
management as of October 15, had surpassed approximately $30,000,000.
Overall total revenues decreased $563,628 or 18% for the nine months ended
September 30, 1998 as compared to the same period ended 1997. Such decrease is
expected to level off during the last fiscal quarter of 1998 and into the first
fiscal quarter of 1999. Management believes that with the bulk transfer of the
Ft. Lauderdale and New York office, the change of operations to allow for market
making and proprietary trading and other offices that the firm is seeking to
recruit that revenues will steadily increase over the next two to three fiscal
quarters.
The Company had considered market making and proprietary trading for several
years. However, management had never found the right individuals with whom to
participate or undertake this endeavor.
The merger with FAS Wealth Management Services, Inc., a subsidiary of FAS Group,
Inc., whose principal, Jack Alexander, had experience in growing a retail
brokerage firm, with emphasis in investment banking, firm commitment
underwritings, market making and proprietary trading in conjunction with the
asset purchase and bulk transfer of agents from Biltmore Securities, Inc.,
afforded the Company the opportunity to implement this phase of its business
plan in an expeditious and orderly manner.
The union of the Company, FAS Wealth Management Services, Inc., and the agents
from Biltmore Securities, Inc., gives the Company an additional base upon which
to expand this area of the business. Management understands the task into which
it has entered regarding these agents and is prepared to utilize the talents of
its senior management team to give them the opportunity to grow their careers on
a broader product base which includes mutual funds, variable annuities, life
insurance and investment advisory services under strict supervision and
compliance training .
The Company received a Cease and Desist Order from the State of Alabama on
September 17, 1998, regarding the transfer of agents from Biltmore Securities,
Inc. To date, the Company has supplied the State of Alabama with its requested
information, including a copy of the asset purchase documents, plan of
rehabilitation and voluntarily issued U-5s terminating those former Biltmore
agents' licensed in the State of Alabama. The Company also requested an
informal hearing with Alabama's regulators to bring this issue to resolution.
Other states, such as New Hampshire have requested that the Company withdraw its
request for registration in their respective state until the matter such as the
one with Alabama is resolved. Management has requested that New Hampshire
reconsider its position based upon the structure of the asset purchase, the plan
of rehabilitation and the Company's history of compliance with all regulatory
bodies. As of October 27, 1998, the Company has not received a response from
the State of New Hampshire.
The table set forth below reflects the expense categories of the Company in
which there was a significant increase or decrease for the nine months ended
September 30, 1998 as compared to the same period in 1997. Several expense
categories increased dramatically during the third fiscal quarter of 1998.
These increases are directly related to the changes to the firm's Restrictive
Letter with the NASD and the bulk transfer of the Ft. Lauderdale and New York
offices. In order to facilitate the growth in the firm's future plan of
operation, areas such as advertising for new personnel, consulting fees, dues
and subscriptions, office expense, regulatory fees, salaries, wages and taxes,
travel and lodging as well as utilities all increased during the nine months
ended September 30, 1998 as compared to the same period ended 1997.
<TABLE>
<CAPTION>
Increase/
Expense Category 1998 1997 (decrease)
<S> <C> <C> <C>
Advertising $ 4,350 $ 1,921 $ 2,429
Bad debt expense 13,110 --- 13,110
Board of Directors fees 18,000 14,000 4,000
Branch office support 25,000 58,000 (33,000)
Clearing fees 116,754 241,182 (124,428)
Commissions 1,964,680 2,369,145 (404,465)
Consulting fees 81,053 40,236 40,817
Dues and subscriptions 13,297 7,160 6,137
Employee Benefits 2,750 --- 2,750
Meetings and seminars (6,500) (471) 6,029
Miscellaneous expense 6,191 17,951 (11,760)
Occupancy costs 74,487 64,722 9,765
Office Expense 31,354 20,854 10,500
Regulatory 21,006 13,605 7,401
Salaries & Wages 313,800 262,530 51,270
Taxes 30,973 26,382 4,591
Travel and lodging 50,599 24,123 26,476
Utilities 26,327 22,296 4,031
</TABLE>
Future Operations
As of September 30, 1998, FASWMS had approximately 120 registered
representatives and is in the process of recruiting several new office
locations.
During the remainder of 1998 and into 1999, management will continue to
focus on several growth and expansion related initiatives. These initiatives
will include, but are not limited to the following:
- Expanded service and marketing to "Affinity Groups",
- Possible secondary public offering,
- Continued branch development and expansion,
- Registered investment advisory activities
- Increased investment banking activities, and
- Implementation of market making and proprietary trading activities
For approximately two and one half years, the Company has aggressively
engaged in, and committed significant financial and personnel resources to an
extensive market study and analysis of the viability of marketing, on an
exclusive and endorsed basis, various insurance, financial and
securities-related products, and other services to members of large medical
affinity groups and associations. In this regard, FAS Wealth has established
contacts and relationships with various medical associations and affinity groups
and has presented comprehensive marketing proposals to specific groups. The
Company will continue to develop these relationships along with attempting to
establish additional relationships with new groups throughout 1998.
As of March 13, 1997, the Company had entered into a Letter of Intent with
American Healthcare Alliance ("AHA"), the largest nationwide network of
Preferred Provider Managed Healthcare Systems and Organizations, whereby the
parties agreed to undertake a formal contractual relationship in which FAS
Wealth will engage in the marketing, on an endorsed basis, of designated
financial services and products as well as other services to physician and
healthcare providers who are members of AHA's Preferred Provider Organizations.
In this regard, FAS Wealth has obtained an exclusive marketing agreement with
the nation's largest provider of a pre-paid tax audit defense program to offer
their services to AHA's 180,000 plus physician members on an endorsed basis.
The marketing of this program, conducted on a direct mail basis, commenced on
February 4, 1997. Pursuant to the terms of the exclusive marketing agreement,
the Company receives first year and renewal commissions on the fees paid by the
physician members for the service.
On October 15, 1998 the American Medical Association ("AMA") and AMA
Solutions, Inc., a wholly owned subsidiary of the AMA, entered into a contract
with TaxResources, Inc.'s pre-paid tax audit defense service for sale and
solicitation to its physician members through AMA Solutions, Inc. FASWMS acted
as a broker in the transaction and will receive first year and renewal
commissions on the sale of the service. Solicitation of AMA physician members
for the sale of TaxResources, Inc.'s services should commence during the end of
the third quarter or beginning of the fourth quarter of 1998.
Regulatory Net Capital
As a securities broker-dealer, the Company is subject to the net capital
rules of the United States Securities and Exchange Commission and similar rules
in force in the states where the Company is registered as a securities
broker-dealer. The aggregate indebtedness of a securities broker-dealer in
relation to its net capital is also subject to Commission rules. Such rules are
somewhat complex in the manner that regulatory net capital is computed. In
summary, however, the computation of regulatory net capital relates to the
stockholder's equity of the Company taking into account deductions from such
stockholder's equity which relate to non-allowable assets which are a non-liquid
type and reductions in the market value of investment securities owned by the
Company in accordance with rule-prescribed "haircuts". Under the rules, the
aggregate indebtedness of the Company in relation to its net capital may not
exceed a ration of 15 to 1.
The table set forth below, with respect to the Company, the amount of
regulatory net capital and the amount of aggregate indebtedness and the ratio
thereof to such regulatory net capital as of September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
Net Capital $903,823 $131,521
<S> <C> <C>
Aggregate Indebtedness 216,685 316,975
Ratio of aggregate indebtedness
to net capital .24 to 1 2.41 to 1
</TABLE>
Year 2000
The challenge of the year 2000, is fast approaching for every organization
world wide. The regulatory bodies of the securities industry began their
response by mandating that all member firms assess its information technology
environments and make the necessary changes to insure that automated processes
with date-sensitive components will correctly identify "00" as the year 2000,
when processing dates on and after January 1, 2000.
The firm has adopted a plan of action which will ensure that not only are the
firm's automated systems year 2000 compliance ready, but also those of the third
party vendors upon whom the firm relies. The capital costs associated with the
assessment and implementation of the firm's plan has been estimated at
approximately $50,000 for 1998, $75,000 for 1999, and $50,000 for 2000. These
figures are based upon current operating facilities and are not reflective of
potential growth areas that management is considering.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
Reference is made to the S-4 recently filed.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Reference is made to the S-4 recently filed.
Item 5. Other Information.
FAS Group, Inc., the parent company, and the consolidated financials.
Item 6. Exhibits and Reports on Form 8-K.
Not Applicable
[THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]
In accordance with the requirements of the Exchange Act, the registrant
causes this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FAS WEALTH MANAGEMENT
SERVICES, INC.
Date:__________________
By: /s/Guy S. Della Penna
Guy S. Della Penna, President and
Chief Executive Officer
Date:__________________
By: /s/Bonnie S. Gilmore
Bonnie S. Gilmore, Senior Vice President
Chief Financial Officer and Secretary
ITEM 5. Other Information: Financials of the Parent Company
FAS Group, Inc. and Consolidated Financials
<TABLE>
<CAPTION>
BALANCE SHEET
As of September 30, 1998 (unaudited)
FAS Group, Inc. FAS Wealth Eliminations Consolidated
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash 7,608 43,957 --- 51,565
Accounts receivable from
correspondent brokers --- 253,699 --- 253,699
Accounts receivable from affiliates --- 74,923 --- 74,923
Accounts receivable from others --- 2,448 --- 2,448
Total Current Assets 7,608 375,027 --- 382,635
INVESTMENTS
Marketable Securities 587,600 --- --- 587,600
Investments Subsidiary 1,148,500 --- (1,148,500) ---
TOTAL INVESTMENTS 1,736,100 --- (1,148,500) 587,600
FURNITURE, FIXTURES AND EQUIPMENT AT COST
Net of accumulated depreciation --- 24,837 --- 24,837
OTHER ASSETS
Organizational costs
net of accumulated amortization 57,544 --- --- 57,544
Deposits with clearing
organizations --- 140,510 --- 140,510
Other deposits --- 1,934 --- 1,934
Trading account --- 851,348 --- 851,348
TOTAL OTHER ASSETS 57,544 993,792 --- 1,051,336
TOTAL ASSETS 1,801,252 1,393,656 (1,148,500) 3,194,908
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable 1,266 37,211 --- 38,477
Incomes taxes payable 186,515 --- --- 186,515
Commissions payable --- 179,474 --- 179,474
187,781 216,685 --- 404,466
Common stock --- 5,329 (5,329) ---
Common stock Class A 2,664 --- 1,620 4,284
Common stock Class B 630 --- 370 1,000
Paid in capital 1,248,370 2,331,731 (1,140,885) 2,439,216
Paid in stock warrants 750 4,410 (4,276) 884
Retained earnings 361,058 (1,164,499) --- (803,442)
TOTAL STOCKHOLDERS
EQUITY 1,613,472 1,176,971 (1,148,500) 1,641,943
TOTAL STOCKHOLDERS
EQUITY 1,801,252 1,393,656 (1,148,500)1 2,046,408
<FN>
Footnote:
1. Elimination and proforma calculations. Proforma calculations assumes merger effective as of
September 30, 1998.
</TABLE>
ITEM 5. Other Information: Financials of the Parent Company
FAS Group, Inc. and Consolidated Financials
<TABLE>
<CAPTION>
Statement of Cash Flow
As of September 30, 1998 (unaudited)
FAS Group, Inc. FAS Wealth Consolidated
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss) 361,058 (218,154) 142,904
Adjustments to reconcile net income to net
cash used in operating activities --- --- ---
Depreciation --- 6,817 6,817
(Increase) decrease in operating assets --- --- ---
Receivable from correspondent brokers --- (139,527) (139,527)
Receivable - other --- (31,056) (31,056)
Deposits --- (95,353) (95,353)
Other assets (57,544) 15,000 (42,544)
Marketable securities (587,600) --- (587,600)
Increase (decrease) in operating liabilities
Accounts payable 187,780 (69,663) 118,117
Commissions payable --- 78,183 78,183
Net cash provided by (used in)
operating activities (96,306) (453,753) (550,059)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of assets --- (4,311) (4,311)
Trading account --- (851,348) (851,348)
Investment - subsidiary (1,148,500) --- (1,148,500)
Net cash provided by (used in)
investing activities (1,148,500) (855,659) (2,004,159)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,502,544 1,246,667 2,749,211
Cash paid for syndication costs (250,130) (20,477) (270,607)
Net cash provided by (used in)
financing activities 1,252,414 1,226,190 2,478,604
NET INCREASE (DECREASE) IN CASH 7,608 (83,222) (75,614)
CASH AT BEGINNING OF PERIOD --- 127,179 127,179
CASH AT END OF PERIOD 7,608 43,957 51,565
</TABLE>
ITEM 5. Other Information: Financials of the Parent Company
FAS Group, Inc. and Consolidated Financials
<TABLE>
<CAPTION>
Income Statement
As of September 30, 1998 (unaudited)
FAS Group, Inc. FAS Wealth Consolidated
<S> <C> <C> <C>
REVENUE
Commissions --- 1,834,265 1,834,265
Underwriting fees --- 209,920 209,920
RIA income --- 171,858 171,858
Trading profits --- 227,777 227,777
Other income 745 132,596 133,341
Consulting fees 1,200,000 --- 1,200,000
TOTAL REVENUE 1,200,745 2,576,416 3,777,161
EXPENSES
Advertising --- 4,350 4,350
Bad debt expense --- 13,110 13,110
Board of director fees --- 18,000 18,000
Branch office support --- 25,000 25,000
Clearing charges --- 116,754 116,754
Commissions --- 1,964,680 1,964,680
Consulting fees 30,000 81,053 111,053
Dues and subscriptions --- 6,297 6,297
Depreciation --- 7,769 7,769
Employee benefits --- 2,750 2,750
Insurance --- 8,091 8,091
Loss on investment 612,400 --- 612,400
Meetings and seminars --- (6,500) (6,500)
Miscellaneous 2,032 6,191 8,223
Occupancy costs 3,477 74,487 77,964
Office expense --- 29,962 29,962
Regulatory --- 14,814 14,814
Rental equipment --- 6,065 6,065
Salaries and wages --- 313,800 313,800
Taxes 4,810 30,973 35,783
Travel and lodging --- 50,599 50,599
Utilities 453 26,327 26,780
TOTAL OPERATING EXPENSES 653,172 2,794,572 3,447,744
OPERATING INCOME (LOSS) 547,573 (218,154) 329,419
PROVISION FOR INCOME TAXES 186,515 --- ---
NET INCOME (LOSS) 361,058 (218,154) 329,419 3
NET INCOME (LOSS) PER SHARE .111 (0.08)2 .08
<FN>
Footnotes:
1. Per share is based on 3,294,000 shares outstanding at September 30, 1998.
2. Per share is based on 2,664,570 shares outstanding at September 30, 1998.
3. Net income of $329,419 takes into consideration the net loss carry forward
resulting in a zero tax liability at September 30, 1998.
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL applies to FAS and FAS Wealth, and the relevant portion
of the DGCL provides as follows:
145. Indemnification of Officers, Directors, Employees and Agents;
Insurance. (a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The FAS Certificate of Incorporation limits the liability of directors (in their
capacity as directors, but not in their capacity as officers) to FAS or its
stockholders to the fullest extent permitted by the DGCL, as amended.
Specifically, no director of FAS will be personally liable to FAS or its
stockholders for monetary damages for breach of the director's fiduciary duty as
a director, except as provided in Section 102 of the DGCL for liability: (i) for
any breach of the director's duty of loyalty to FAS or its stockholders; (ii)
for acts or omissions not in good faith and which involve intentional misconduct
or knowing violation of law; (iii) under Section 174 of the DGCL, which relates
to unlawful payments of dividends or unlawful stock repurchases or redemptions;
or (iv) for any transaction from which the director derived an improper personal
benefit. The inclusion of this provision in the FAS Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such action, if successful, might otherwise have benefited FAS
and its stockholders.
Under the FAS Certificate of Incorporation and in accordance with Section 145 of
the DGCL, FAS will indemnify any person who was or is a party, or is threatened
to be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
a "derivative" action by or in the right of FAS) by reason of the fact that such
person was or is a director or officer of FAS, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in connection with such action, suit or proceeding if such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of FAS, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such acts were
unlawful. A similar standard of care is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such an action and then, where the person is adjudged to be
liable to FAS, only if and to the extent that the Court of Chancery of the State
of Delaware or the court in which such action was brought determines that such
person is fairly and reasonably entitled to such indemnity and then only for
such expenses as the court deems proper. FAS will indemnify, pursuant to the
standard enumerated in Section 145 of the DGCL, any past or present officer or
director who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed derivative action by or in the right of FAS.
The Certificate of Incorporation of FAS provides that FAS may pay for the
expenses incurred by an indemnified director or officer in defending the
proceedings specified above in advance of their final disposition, provided
that, if the DGCL so requires, such indemnified person agrees to reimburse FAS
if it is ultimately determined that such person is not entitled to
indemnification. The FAS Certificate of Incorporation also allows FAS, in its
sole discretion, to indemnify any person who is or was one of its employees and
agents to the same degree as the foregoing indemnification of directors and
officers. To the extent that a director, officer, employee or agent of FAS has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145 of the DGCL, or
in defense of any claim, issue or matter therein, such person shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith. In addition FAS may purchase
and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of FAS or another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against and
incurred by such person in such capacity, or arising out of the person's status
as such whether or not FAS would have the power or obligation to indemnify such
person against such liability under the provisions of the DGCL. FAS maintains
insurance for the benefit of FAS's officers and directors insuring such persons
against certain liabilities, including civil liabilities under the securities
laws. Additionally, FAS has entered into indemnification agreements with each
of the Directors of FAS, which, among other things, provides that FAS will
indemnify such Directors to the fullest extent permitted by the FAS Certificate
of Incorporation and the DGCL and will advance expenses of defending claims
against such Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Reference is made to the exhibit index immediately following the
signature page to the Registration Statement.
(b) The Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and, therefore, have been omitted.
(c) The following opinions are included in the Information
Statement/Prospectus as indicated:
NONE
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
2. That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Information
Statement/Prospectus, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
4. That every prospectus (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
5. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
6. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form S-4, within one business day of receipt
of such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
7. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became Effective.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of San Diego, State of
California, on the 21st day of January, 1999.
FAS GROUP, INC.
By: /s/Jack A. Alexander
Jack A. Alexander, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed on the dates indicated by the following
persons in the capacities indicated.
BY: /S/JACK A. ALEXANDER BY: /S/BONNIE S. GILMORE
JACK A. ALEXANDER BONNIE S. GILMORE, SENIOR VICE
CHIEF EXECUTIVE OFFICER, DIRECTOR PRESIDENT, CHIEF FINANCIAL
OFFICER, CHIEF ACCOUNTING
OFFICER AND SECRETARY
/S/GUY S. DELLA PENNA /S/DENNIS SCHROEDER
GUY S. DELLA PENNA DENNIS SCHROEDER, DIRECTOR
Chief Operating Officer, Director
/S/ROBERT E. WINDOM, M.D.
ROBERT E. WINDOM, M.D., DIRECTOR
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<S> <C>
2.1 AGREEMENT AND PLAN OF MERGER BETWEEN BY AND AMONG FAS GROUP, INC., FAS
WEALTH DELAWARE AND FAS WEALTH AND CERTAIN STOCKHOLDERS OF FAS WEALTH, DATED
MARCH 7, 1998 (INCORPORATED BY REFERENCE TO ANNEX A TO THE INFORMATION
STATEMENT/PROSPECTUS). **
3.1 CERTIFICATE OF INCORPORATION OF FAS GROUP, INC. (INCORPORATED BY
REFERENCE TO ANNEX B TO THE INFORMATION STATEMENT/PROSPECTUS). **
3.2 CERTIFICATE OF INCORPORATION OF FAS WEALTH DELAWARE **
3.3 BY LAWS OF FAS GROUP, INC. **
3.4 BY LAWS OF FAS WEALTH DELAWARE **
4.1 CERTIFICATE OF DESIGNATIONS OF CLASS A CONVERTIBLE EXCHANGEABLE
PREFERRED STOCK***
4.2 COMMON STOCK WARRANT TO FMC CAPITAL MARKETS, INC. **
4.3 FAS GROUP, INC. STOCK INCENTIVE PLAN (INCORPORATED BY REFERENCE TO ANNEX
C TO THE INFORMATION STATEMENT/PROSPECTUS) **
5.1 OPINION OF SONFIELD & SONFIELD RE: LEGALITY OF SECURITIES**
8.1 OPINION OF SONFIELD & SONFIELD RE: TAX MATTERS**
10.1 LETTER OF INTENT DATED JULY 4, 1998 WITH UNITED STATES REFINING &
PETROCHEMICALS, INC. ***
11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS****
12.1 STATEMENTS RE: COMPUTATION OF RATIOS****
15.1 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION****
23.1 CONSENT OF HARPER & PEARSON COMPANY**
23.2 CONSENT OF BOBBITT, PITTENGER & COMPANY, P.A. **
23.2 CONSENT OF SONFIELD & SONFIELD (INCLUDED IN EXHIBIT 5.1) **
<FN>
_________________________________
** PREVIOUSLY FILED.
*** DELETED.
**** TO BE FILED BY AMENDMENT.
</TABLE>
