UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to_______
Commission file number 0-14772
JW CHARLES FINANCIAL SERVICES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 58-1545984
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
980 North Federal Highway Suite 210
Boca Raton, Florida 33432
--------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 338-2600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - Par Value $.001 per share
----------------------------------------
(Title of class)
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 re-
quirements for the last 90 days. Yes /x/ No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
On March 25, 1997, the Registrant had 3,319,021 outstanding
shares of Common Stock, $.001 par value, and at such date, the
aggregate market value of the shares of Common Stock held by non-
affiliates, was approximately $15,025,000.
DOCUMENTS INCORPORATED BY REFERENCE<PAGE>
Part III - Portions of the Registrant's definitive Proxy
Statement relative to the 1997 Annual Meeting of Stockholders to
be held June 10, 1997. (The Registrant intends to file with the
Commission a definitive proxy statement pursuant to Regulation
14A prior to April 30, 1997.)
<PAGE>
PART I
ITEM 1. BUSINESS
BACKGROUND AND GENERAL
JW Charles Financial Services, Inc. (the "Company"),
primarily through its three principal subsidiaries, Corporate
Securities Group, Inc. ("CSG"), JW Charles Clearing Corp. ("JWC
Clearing") and JW Charles Securities, Inc. ("JWC Securities"),
operates a full-service securities brokerage and investment
banking firm and provides securities transaction processing and
other related services (also referred to as "clearing services").
Its primary business is providing a wide range of securities
brokerage and investment services to a diversified client base,
delivering a broad range of clearing services to affiliated and
independent broker-dealers, including affiliates of commercial
banks, and providing investment banking services to corporate
clients. A fourth subsidiary of the Company, DMG Securities,
Inc. ("DMG"), is also engaged in the securities brokerage
business.
The Company was incorporated as a Florida corporation in
December, 1983. On November 1, 1990, the Company acquired by
merger 100% of a privately owned financial services holding
company then known as JW Charles Financial Services, Inc. ("Old
JWC Financial"). The principal subsidiaries of Old JWC Financial
encompassed the operations of what is now known as JWC Securities
and JWC Clearing. The operations of JWC Securities and JWC
Clearing date back to 1973.
The Company derives revenues primarily from clearing
services and brokerage and investment banking services. These
activities generate revenue for the Company in the form of
commission and fee income, market making and principal
transactions revenues, securities transaction processing fees
("clearing fees") and interest income. The Company also derives
revenues from insurance brokerage services and consulting
services. The following table indicates the percentage of total
revenues represented by each of these activities during the past
three years:
<TABLE>
<CAPTION>
Percentage of Total Revenues
Year Ended December 31,
-------------------------------
1996 1995 1994
-------------------------------
<S> <C> <C> <C>
Commissions 47% 51% 38%
Market making and principal transactions, net 27% 23% 36%
Interest 10% 9% 8%
Clearing fees 13% 13% 12%
Other 3% 4% 6%
</TABLE>
The following table indicates the amounts and percentages of total
revenues generated by each of the Company's principal investment banking
and securities brokerage subsidiaries in each of the past three years:
<TABLE>
<CAPTION>
Revenues
(Amounts in Millions of Dollars)
Year Ended December 31,
-------------------------------------------------------
1996 1995 1994
-------------------------------------------------------
Amount % Amount % Amount %
------ - ------ -- ------- -
<S> <C> <C> <C> <C> <C> <C>
Corporate Securities Group, Inc. $30.2 33 $31.3 39 $25.7 43
JW Charles Securities, Inc. $31.4 35 $24.8 31 $17.2 29
JW Charles Clearing Corp. $24.3 27 $20.6 26 $14.3 24
DMG Securities, Inc. $3.6 4 $2.9 4 $2.6 4
</TABLE>
3-FOR-2 STOCK SPLIT
Unless otherwise indicated, all information with respect to numbers
of shares of common stock, prices of common stock and earnings per common
share appearing in this Form 10-K have been adjusted to reflect the
Company's three-for-two stock split effected in the form of a 50% stock
dividend on February 7, 1997.
2<PAGE>
BROKERAGE
The Company conducts its retail brokerage business through three wholly-
owned subsidiaries: CSG, JWC Securities and DMG. The following table
sets forth certain statistical information concerning registered
representatives and branch offices of each of these subsidiaries:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------
1996 1995 1994
Registered Registered Registered
Representat- Branch Representat- Branch Representat- Branch
ives Offices ives Offices ives Offices
------------ ------- ------------- ------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
JWC Securities 205 13 225 13 212 16
CSG 260 88 266 66 248 50
DMG 31 2 20 2 51 5
----------------------------------------------------------------------------
TOTAL 496 103 511 81 511 71
============================================================================
</TABLE>
JW CHARLES SECURITIES, INC.
JWC Securities is a New York Stock Exchange, Inc. ("NYSE")
member organization and a member of the National Association of
Securities Dealers, Inc. ("NASD"). JWC Securities' activities
primarily consist of retail securities brokerage, management and
participation in underwritings of equity and fixed income
securities, distribution of mutual funds and unit trusts, and
research and investment advisory services. JWC Securities has
clearing agreements with JWC Clearing and Bear Stearns Securities
Corp. ("Bear Stearns"), both NYSE member organizations, under
which agreements they provide JWC Securities with back office
support, transaction processing services on all principal
national and international securities exchanges, and access to
many other financial services and products. These agreements
allow JWC Securities to offer a range of products and services
that is generally offered only by firms that are larger and have
more capital than JWC Securities.
At February 28, 1997, JWC Securities had twelve (12) branch
offices, nine of which are located in Broward, Dade and Palm
Beach Counties, Florida, and one each in Atlanta, Georgia; Young
Harris, Georgia and New York City, New York. At February 28,
1997, it had approximately 210 registered representatives, all of
whom are in-house employees. Through its retail branch network,
JWC Securities markets a wide variety of investment products.
The products, around which categories the major departments of
the firm are organized, include common and preferred equities, tax-
free and taxable bonds, unit trusts, mutual funds, insurance and
annuity products, and options.
CORPORATE SECURITIES GROUP, INC.
CSG, a general securities broker-dealer, provides products
and services similar to those offered by JWC Securities for the
accounts of its customers and for its own account. CSG is a
member of the NASD and has clearing agreements with Bear Stearns
and JWC Clearing, under which agreements they provide CSG with
back office support, transaction processing services on all
principal national and international securities exchanges, and
access to many other financial services and products. These
agreements allow CSG to offer a range of products and services
that is generally offered only by firms that are larger and have
more capital than CSG.
At February 28, 1997, CSG operated 88 branch offices, all of
which operate as independently owned affiliates. In affiliated
branch office situations, the office is owned and operated by an
independent person who obtains appropriate NASD licenses to
supervise or manage the branch office by virtue of affiliating
with CSG and being subject to its supervisory jurisdiction. Each
such office is responsible for its own overhead and other
operational expenses, although all of its revenues from
securities brokerage transactions accrue to CSG. CSG, on the
other hand, pays commissions to the branch offices on the
revenues generated by them (at higher rates than those that would
be paid to registered representatives working at a branch office
owned by CSG) and provides other support for the operations,
including required supervisory functions and access to CSG's
securities transaction clearing agreements with Bear Stearns and
JWC Clearing. All registered representatives who are associated
with CSG, whether by working at a branch office owned by CSG or
at any one of the affiliated branch offices, are licensed with
3
<PAGE>
the NASD. At February 28, 1997, CSG had a total of approximately
245 registered representatives.
The affiliated branch office system permits the Company to
expand its base of revenue and its network for the retail
distribution of securities underwritten by the Company (and for
trading in connection with the Company's market making
activities), without the capital expenditures that would be
required to open company-owned offices and the additional
administrative and other costs of hiring in-house registered
representatives who are employees.
DMG SECURITIES, INC.
DMG is a NASD member firm which provides securities
brokerage and investment services for the accounts of customers.
DMG has a clearing agreement with JWC Clearing which provides DMG
with back office support, execution services on all principal
national and international securities exchanges, and access to
many of their in-house financial services and products. This
agreement allows DMG to offer a range of products and services
that is generally offered only by firms that are larger and have
more capital than DMG.
At February 28, 1997, DMG operated two (2) branch offices
with a total of approximately 30 registered representatives.
Each DMG office is owned and operated by an independent person
who obtains appropriate NASD licenses to supervise or manage the
branch office by virtue of affiliating with DMG and being subject
to its supervisory jurisdiction. Each such office is responsible
for its own overhead and other operational expenses, and operates
in a manner similar to that described for affiliated branch
offices of CSG.
INVESTMENT BANKING
For certain operations (primarily corporate finance,
research and syndicate) in which both JWC Securities and CSG are
involved, the Company uses "JWCharles/CSG" as a stylized
reference to both firms. The Company believes such usage, over
time, will enhance the Company's prominence in the securities
business, by promoting a single name that nonetheless draws upon
the strengths of both of its primary brokerage subsidiaries.
CORPORATE FINANCE
The JWCharles/CSG Corporate Finance Department is involved
in a variety of activities including public and private debt and
equity financing for corporate clients, merger and acquisition
consulting services, fairness opinions, evaluations and general
financial consulting services. Their activities include securing
the Company's participation in the distribution of securities --
both initial public offerings ("IPOs") and secondary offerings --
as the lead underwriter or co-manager. JWCharles/CSG has
traditionally concentrated its underwriting efforts in the IPO
marketplace, seeking out emerging enterprises in industries that
it believes offer reasonable opportunities for future growth,
although JWCharles/CSG did not lead or co-manage any IPOs or
other public offerings during 1996. Compensation for corporate
finance services includes cash fees in the form of underwriting
commissions and, in certain situations, stock purchase warrants,
direct equity positions, or consulting fees.
RESEARCH
In 1995, the Company made a strategic decision to expand the
scope of its Research Department (i) to provide coverage on a
broader range of companies and (ii) to increase the availability
and use of in-house research by the Company's retail oriented
registered representatives by fostering increased coordination
among the research, syndicate, sales and marketing and corporate
finance departments. At February 28, 1997, the JWCharles/CSG
Research Department was staffed by a Director of Research and
Institutional Sales, five research analysts and one institutional
sales person.
SYNDICATE
The JWCharles/CSG Syndicate Department, located in the
Company's New York City office, coordinates the Company's
participation in underwriting syndicates or selling groups of
other underwriters and assists the Company in obtaining
participation from other firms in JWCharles/CSG managed
underwritings. During 1996 the Company participated as an
underwriter, dealer or selling group member in a variety of
common and preferred equity offerings, although JWCharles/CSG did
not lead or co-manage any IPOs or other public offerings during
1996.
4
<PAGE>
PRINCIPAL TRANSACTIONS
MARKET MAKING
The Company's market making activities are coordinated
through JWC Clearing, which currently acts as a market maker for
approximately 60 securities that are traded in the over-the-
counter securities market. In such capacity, it facilitates
trading in select securities by buying and selling securities as
a principal for its own account, rather than as an agent for the
accounts of its customers.
The Company, through its market making activities, attempts
to derive profits by buying stock at its quoted bid price and
then either selling the stock at the current ask price or holding
the stock in inventory for future sale at a higher price. If the
market for such securities declines, however, or if JWC Clearing
is otherwise unable to resell the securities at a favorable
price, the Company could suffer losses and such losses could be
substantial. Additionally, JWC Clearing engages in short sales,
primarily to fill customer orders. A short sale represents an
obligation of the Company to deliver specified securities at the
contracted price, thereby creating a liability to purchase the
securities at a future time at prevailing market prices.
Accordingly, these transactions result in off-balance-sheet risk
as the Company's ultimate obligation to satisfy the sale of these
securities may exceed the amount recognized by the Company at the
time the short sale was executed.
The Company's general policy is not to hold a substantial
volume of securities for any significant period of time, so as to
reduce the risk of losses from market declines or unfavorable
developments. The Company's market making activities have
historically accounted for a significant portion of its revenues,
and the Company anticipates that these activities will continue
to be a significant factor in the Company's operations and its
prospects for profitability.
FIXED INCOME
Through the JWCharles/CSG Fixed Income Department, the
Company distributes both taxable and tax-exempt fixed income
products (such as corporate, government and mortgage-backed
securities as well as municipal bonds and unit investment
trusts). The Company positions taxable fixed income securities
and municipal bonds in both the primary and secondary markets as
principal and participates as underwriter, dealer and selling
group member for corporate, municipal taxable and non-taxable
unit trusts offerings.
PROCESSING OPERATIONS
JWC Clearing provides clearing services on a fully disclosed
basis for a variety of customers ("Correspondents") who are
engaged in the securities brokerage business but who lack the
back office or other support capacities to process and clear
securities transactions for their clients. In a fully disclosed
transaction, the identity of the Correspondent's client is known
to JWC Clearing, and JWC Clearing physically maintains the
client's account and performs a variety of services as agent for
the Correspondent.
The execution and clearing process requires the performance
of a series of complex steps, many of which are accomplished with
the assistance of sophisticated data processing hardware and
software. JWC Clearing has approximately 60 Correspondents, none
of which accounted for more than ten percent of the Company's
revenues.
EMPLOYEES; REGISTERED REPRESENTATIVES; BRANCH OFFICES
As of December 31, 1996, the Company and its subsidiaries
had a total of approximately 250 salaried employees and 500
registered representatives. Of these totals, approximately 280
registered representatives are independent contractors affiliated
with one of the 90 affiliated, but independently owned and
operated, CSG and DMG branch offices.
5<PAGE>
The Company has chosen to focus on the development and
expansion of its retail brokerage business primarily through the
acquisition or establishment of additional CSG affiliated branch
offices (which number increased to 88 from 66 during 1996) and
the recruitment of in-house employee registered representatives
for JWC Securities.
COMPETITION
The Company competes with numerous investment banking and
brokerage firms, consulting firms, and financial service
companies that are larger, better financed, have longer operating
histories, and, in some instances, offer a range of financial and
other services to clients that exceed the services offered by the
Company. In addition, there is increasing competition from other
businesses that now offer financial services, such as commercial
banking and insurance companies and certain accounting firms.
The principal competitive factors in the securities industry are
the quality and ability of professional personnel, the relative
prices of services and products offered, and the efficiency of
back office operations. The Company has tried to position itself
competitively by targeting its investment banking services to
smaller companies and providing competitively priced products and
services. Additionally, the Company has targeted markets that it
believes are not adequately served by, and are not a primary
focus of, most of these other larger firms. The Company believes
that its clearing services and back office support agreements
with Bear Stearns provides it additional ability to compete with
larger firms.
REGULATION
The securities industry in the United States is subject to
extensive regulation under various federal and state laws and
regulations. The Securities and Exchange Commission is the
federal agency charged with the administration of most of the
federal securities laws. Much of the regulation of the
securities industry, however, has been assigned to various self
regulatory organizations ("SRO's"), principally the NASD, and in
the case of NYSE member firms, the NYSE. The SRO's, among other
things, promulgate regulations and provide oversight in areas of
(i) sales practices, (ii) trade practices among broker-dealers,
(iii) capital requirements, (iv) record keeping and (v) conduct
of employees and affiliates of member organizations. In addition
to promulgating regulations and providing oversight, the SEC and
the SRO's have the authority to conduct administrative
proceedings which can result in the censure, fine, suspension or
expulsion of a broker-dealer, its officers or employees.
Furthermore, new legislation, changes in the rules and
regulations promulgated by the SEC and SRO's, or changes in the
interpretation or enforcement of existing laws and rules often
directly affect the operation and profitability of broker-
dealers. The stated purpose of much of the regulation of broker-
dealers is the protection of customers and the securities markets
rather than the protection of creditors and shareholders of
broker-dealers.
ITEM 2. PROPERTIES.
The Company owns no real property. The Company leases its
corporate offices and operations facilities from an unaffiliated
company. Its corporate offices and operations facilities are
located at 980 North Federal Highway, Boca Raton, Florida 33432,
where it occupies approximately 16,000 square feet of space. JWC
Securities branch offices are also leased premises, comprising an
aggregate of approximately 45,000 square feet of office space in
several cities. The Company believes that its office facilities
are adequate for its current and reasonably foreseeable
operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named in various arbitration and legal
proceedings arising out of the ordinary course of its securities
brokerage business. Although arbitration and litigation involves
contingencies that cannot be definitively predicted, including
the unpredictability of actions that might be taken by an
arbitration panel or jury on matters that are submitted to them,
the Company expects that the ultimate disposition of arbitration
and litigation arising from the ordinary course of business will
not have a material adverse impact upon its financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted, during the fourth quarter of the
fiscal year covered by this report, to a vote of security holders
of the Company through the solicitation of proxies or otherwise.
6<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The Nasdaq Small-Cap
Market under the symbol "KORP." The following table sets forth
for the periods indicated the quarterly high and low sales price
information related to trading in the Company's common stock.
Such information has been obtained from Nasdaq. All per share
prices have been adjusted to reflect the Company's three-for-two
stock split effected in the form of a 50% stock dividend on
February 7, 1997.
<TABLE>
<CAPTION>
High Sales Price Low Sales Price
---------------- ---------------
<S> <C> <C>
1997:
First Quarter
(through February 28, 1997) $12.50 $ 7.17
1996:
Fourth Quarter $ 7.67 $ 3.83
Third Quarter $ 5.00 $ 3.17
Second Quarter $ 5.08 $ 3.08
First Quarter $ 3.33 $ 2.75
1995:
Fourth Quarter $ 3.17 $ 2.42
Third Quarter $ 2.75 $ 2.17
Second Quarter $ 2.75 $ 2.17
First Quarter $ 3.42 $ 2.42
</TABLE>
The closing sales price for the Company's common stock on March 25,
1997 was $8.50.
There were approximately 150 holders of record of the Company's
common stock as of March 25, 1997. Investors who beneficially own common
stock that is held in street name by brokerage firms are not included in
this number. Accordingly, based upon the quantities of periodic reports
requested by such brokerage firms, the Company believes that the actual
number of individual beneficial owners of its common stock exceeds 750.
The Company is authorized to issue 9,056,000 shares of common stock.
The holders of shares of common stock are not entitled to cumulative
voting and do not have any pre-emptive rights to subscribe to any
securities of the Company.
No cash dividends have been declared or paid to date on the
Company's common stock, and the Company does not anticipate payment of
common stock dividends in the foreseeable future. The Company has
adopted a policy of cash preservation for future use in the business,
although the declaration and payment of cash dividends on the common
stock is not subject to legal restrictions on the Board's authority.
7
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues $ 91,020,000 $ 80,041,000 $ 60,471,000 $ 50,066,000 $ 39,723,000
Income before cumulative effect
of change in accounting $ 6,025,000 $ 3,810,000 $ 3,300,000 $ 3,114,000 $ 3,135,000
principle
Cumulative effect of change in
accounting principle $ - $ - $ - $ 658,000 $ -
Net income $ 6,025,000 $ 3,810,000 $ 3,300,000 $ 3,772,000 $ 3,135,000
PER SHARE:
Income before cumulative effect
of change in accounting $ 1.27 $ .63 $ .56 $ .51 $ .47
principle
Cumulative effect of change in
accounting principle $ - $ - $ - $ .11 $ -
Net income $ 1.27 $ .63 $ .56 $ .62 $ .47
Weighted average common
shares outstanding 4,744,882 6,025,101 5,907,886 5,941,010 6,158,097
At December 31,
----------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
STATEMENT OF FINANCIAL
CONDITION DATA:
Cash and cash equivalents $ 11,836,000 $ 8,597,000 $ 5,401,000 $ 3,289,000 $ 2,884,000
Total assets $ 127,331,000 $ 115,214,000 $ 82,218,000 $ 77,564,000 $ 50,030,000
Short-term borrowings from
banks $ 17,375,000 $ 28,138,000 $ 7,303,000 $ 20,271,000 $ 10,936,000
Notes payable to affiliates $ 8,625,000 $ 3,500,000 $ 5,161,000 $ 2,661,000 $ 161,000
Total liabilities $ 111,959,000 $ 98,643,000 $ 69,459,000 $ 67,454,000 $ 42,897,000
Redeemable preferred stock $ - $ - $ - $ - $ 519,000
Mandatorily redeemable common
stock $ - $ 7,013,000 $ - $ - $ -
Total stockholders' equity $ 15,372,000 $ 9,558,000 $ 12,759,000 $ 10,110,000 $ 6,614,000
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of financial condition and
results of operations presents the more significant factors affecting the
Company during the years ended December 31, 1996, 1995 and 1994. The
discussion and analysis should be read in conjunction with the Company's
consolidated financial statements and related notes, and with the other
financial information appearing herein. See Item 8.
Certain statements included or incorporated by reference in this
Form 10-K, including without limitation statements containing the words
"believes," "anticipates," "intends," "expects" and words of similar
import, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act. Such forward-looking statements
8<PAGE>
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of the Company to
be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
Such factors include, among others, the following: the impact of general
economic conditions on the capital markets; changes in or amendments to
regulatory authorities' capital requirements or other regulations
applicable to the Company or its subsidiaries; fluctuations in interest
rates; increased levels of competition; and other factors referred to in
this Form 10-K. Given these uncertainties, undue reliance should not be
placed on such forward-looking statements. The Company disclaims any
obligation to update any such factors or to publicly announce the results
of any revisions to any of the forward-looking statements included herein
to reflect future events or developments.
RESULTS OF OPERATIONS -- THREE YEARS ENDED DECEMBER 31, 1996
1996 represented the Company's thirteenth consecutive year of record
revenues. The Company's results of operations for both 1996 and 1995
were buoyed by a vibrant and rising stock market. Substantially all of
the Company's business lines turned in strong performances for these
years, particularly when compared to fiscal 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (Decrease) (000's) (Decrease) (000's)
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $42,945 6 $40,566 76 $22,984
Market making and principal
transactions, net 24,315 31 18,604 (15) 21,971
Interest 9,625 32 7,279 56 4,678
Clearing fees 11,463 13 10,176 38 7,371
Other 2,672 (21) 3,416 (1) 3,467
---------------------------------------------------------
Total Revenues $91,020 14 $80,041 30 $60,471
=========================================================
Number of registered representatives 496 (3) 511 - 511
Number of branch offices 103 27 81 14 71
Year Ended December 31,
---------------------------------------------------------
1996 % Increase 1995 % Increase 1994
(000's) (Decrease) (000's) (Decrease) (000's)
---------------------------------------------------------
Expenses:
Commissions and clearing costs $47,229 12 $42,160 41 $29,890
Employee compensation and benefits 14,911 8 13,820 18 11,754
Occupancy and equipment rental 4,520 8 4,206 17 3,607
Communications 3,809 (2) 3,867 23 3,146
General and administrative 8,431 27 6,647 29 5,146
Interest 3,888 27 3,054 81 1,685
---------------------------------------------------------
Total Expenses $82,788 12 $73,754 34 $55,228
=========================================================
</TABLE>
Total revenues of $91,020,000 recorded in 1996, a record for any
fiscal year in the Company's history, increased 14% over last year's
previous record of $80,041,000. During 1996 and 1995 the Company
experienced increases in almost all revenue categories; the sole
exception being other income. The reduction in other income, which
consists primarily of fee income, was lower in 1996 and 1995 primarily as
a result of a reduction in the Company's managed or co-managed
underwriting activities in 1996 as compared to 1995 and in 1995 as
compared to 1994. Growth in the other revenue categories was primarily
due to heightened client activity, both retail and clearing, associated
with 1996's and 1995's vibrant and rising stock market.
Market making and principal transactions, which represents
the net realized and unrealized gain or loss experienced from
trading or otherwise acting as principal in securities
transactions, represented approximately 27%, 23% and 36% of total
revenues in 1996, 1995 and 1994, respectively. The reduction
from 1994 to 1995 in market making and principal activities in
both absolute and percentage terms is primarily the result of a
shift in the mix of the Company's business between these two
periods primarily due to (i) changes in rules and regulations
governing this type of activity which made it less profitable and
(ii) an effort on the Company's part to reduce its dependence on
9<PAGE>
this type of activity. The increase in market making and
principal transactions in both absolute and percentage terms
during 1996 is primarily due to realized gains of approximately
$3.1 million in the 1996 period related to the exercise and/or
sale of warrant securities received by the Company in connection
with its past underwriting activities.
Commissions and clearing costs, which represent the portion
of fee income payable by the Company to registered
representatives or other broker-dealers as a result of securities
transactions (and the related costs associated with the execution
of such trades) increased, reflecting the Company's overall
business growth. Commissions and clearing costs as a percentage
of commissions and market making and principal transactions, net
(the "Clearing Factor"), in 1996, 1995 and 1994 were 70%, 71% and
66%, respectively. The Company believes that the Clearing Factor
has now leveled off at approximately 70% after having increased
to 71% in 1995 from 66% in 1994 as a result of (i) an increase in
the average production per registered representative, which
resulted in a higher percentage payout and (ii) an increase in
the percentage of the Company's commission business being cleared
through Bear Stearns as compared to JWC Clearing. (Clearing
costs paid to Bear Stearns are recorded as an expense whereas
clearing costs paid to JWC Clearing are eliminated in
consolidation.)
The Company believes that its Clearing Factor is
representative of the prevailing experience in the industry. The
major component is commission rates, and the Company's commission
rates for its independent affiliated branch office registered
representatives and its in-house employee registered
representatives are comparable with that paid by other firms in
the securities brokerage industry (typically ranging from 80% to
90% for registered representatives in affiliated branch offices
and 30% to 50% for its in-house employee registered
representatives, depending upon production levels). Affiliated
branch office registered representatives (who are not employees
of the Company, and who comprise the majority of the Company's
registered representatives) receive higher commissions from the
Company than registered representatives who are Company
employees, which reflects that each affiliated branch office is
responsible for its own overhead. Accordingly, the Company's
overhead attributable to non-employee registered representatives
is less than the overhead attributable to the Company's employee
registered representatives. As a result, the Company's margin is
not adversely affected by engaging additional affiliated branch
office, non-employee registered representatives (and paying them
higher commissions) as opposed to hiring in-house employee
registered representatives.
Comparative employee compensation and benefits, occupancy
and equipment rental and general and administrative expenses
reflect the costs associated with the Company's overall business
growth.
Interest income consists primarily of interest earned on
receivables from customers, securities owned and customer money
market fund balances. Interest expense consists primarily of
interest incurred on short-term borrowings and notes payable used
to finance JWC Clearing receivables from customers and securities
owned. Both have increased in each of the past three years, and
in each case the increase is primarily a result of: (i) a general
increase in interest rates experienced from 1994 through 1995 and
(ii) an increase in the average outstanding loan balances used to
fund increased customer balances from 1994 to 1996, reflecting
the Company's overall business growth.
LIQUIDITY AND CAPITAL RESOURCES
The Company maintains a highly liquid balance sheet with the
majority of the Company's assets consisting of securities owned,
which are marked to market daily, and receivables from customers
arising from customer related securities transactions.
Receivables from customers consist primarily of collateralized
customer margin loans and securities borrowed, which are
typically secured with marketable corporate debt and equity
securities. The nature of the Company's business as a market
maker and securities dealer requires it to carry significant
levels of securities inventories in order to meet its customer
and internal trading needs. Additionally, the Company's role as
a financial intermediary for customer activities, which it
conducts on a principal basis, results in significant levels of
customer related balances. Accordingly, the Company's total
assets and financial leverage can fluctuate significantly
depending largely upon general economic and market conditions,
volume of activity, customer demand and underwriting commitments.
The Company's ability to support increases in its total assets is
a function of its ability to generate funds internally and obtain
short-term borrowings from banks.
At December 31, 1996, the Company had stockholders' equity
of $15,372,000, representing an increase of $5,814,000 from
December 31, 1995, and the Company had cash and cash equivalents
of $11,386,000. The Company also has an aggregate of $5,000,000
of borrowing capacity under bank lines of credit described below.
10<PAGE>
The Company believes that its current borrowing arrangements
(which are discussed below), combined with anticipated levels of
internally generated funds, will be sufficient to fund its
financial requirements for the foreseeable future, based on the
Company's current level of operations and certain assumptions
relating to the Company's business and planned growth. Should
the Company significantly expand either its market making
activities or its underwriting of securities on a "firm-
commitment" basis, however, the Company may need to obtain
additional capital to support such activities and to comply with
regulatory requirements. The Company is not dependent upon
raising additional capital in order to maintain its current
levels of operations, and therefore does not propose to raise
additional capital unless it is available on acceptable terms.
If the Company should find that its ability to generate funds
internally is insufficient to satisfy its future capital needs,
the Company will require additional financing from outside
sources.
BANK LINES OF CREDIT
On January 19, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from Wilmington Trust Company
for general corporate purposes (the "Wilmington Facility"). The
Wilmington Facility matures on December 31, 2002, at which time
all outstanding borrowings plus all accrued and unpaid interest
will become due and immediately payable. Borrowings under the
Wilmington Facility bear interest at Wilmington's National
Commercial Rate, with interest payments due monthly in arrears.
The Company is required to maintain certain debt covenants,
including (i) minimum stockholders' equity equal to at least
$7,000,000, plus 30% of net income for all future fiscal
quarters, plus 75% of the net proceeds from any common stock
issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive six-
quarter period. At March 25, 1997, there was no balance
outstanding under the Wilmington Facility.
In connection with the Wilmington Facility, the Company
entered into a Marketing Agreement with Wilmington Trust FSB (the
"Wilmington Marketing Agreement") and granted W T Investments,
Inc. a warrant to purchase, giving effect to adjustments for the
Company's 3-for-2 stock split, up to 600,000 shares of the
Company's common stock at any time prior to December 31, 2002
(the "Wilmington Warrant"). The exercise price per share, as
adjusted for the stock split, is the greater of $3.67 or an
amount equal to the sum of total (i) gross revenues multiplied by
.175 plus (ii) earnings before tax multiplied by 2.5 and divided
by the weighted average number of common shares outstanding based
upon the Company's audited financial statements. At December 31,
1996, the Wilmington Warrant exercise price per share was
approximately $11.00. The Wilmington Marketing Agreement
provides that the Company will market certain products and
services, initially personal trust and asset management services,
provided by Wilmington Trust FSB to the Company's brokers,
clients and prospects.
On December 18, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from SunTrust Bank, South
Florida, N.A. for general corporate purposes (the "SunTrust
Facility"). The SunTrust Facility matures on April 30, 1999, at
which time all outstanding borrowings plus all accrued and unpaid
interest will become due and immediately payable. Borrowings
under the SunTrust Facility bear interest at the prime rate of
interest as announced from time to time by SunTrust Banks of
Florida, Inc., with interest payments due quarterly in arrears.
The Company is required to maintain certain debt covenants,
including (i) minimum stockholders' equity equal to at least
$9,000,000, plus 75% of net income for all future fiscal
quarters, plus 75% of the net proceeds from any common stock
issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive six-
quarter period. At March 25, 1997, there was no balance
outstanding under the SunTrust Facility.
In connection with the SunTrust Facility, the Company
entered into a Marketing Agreement with SunTrust (the "SunTrust
Marketing Agreement") and granted SunTrust Banks, Inc. a warrant
to purchase, giving effect to adjustments for the Company's 3-for-
2 stock split, 37,500 shares of the Company's common stock at any
time prior to December 31, 2002. The exercise price per share,
as adjusted for the stock split, is $6.67. The SunTrust
Marketing Agreement provides that the Company will market certain
products and services, through the Company's participation as an
underwriter or selling group member of various municipal finance
offerings underwritten by SunTrust Capital Markets, Inc. to the
Company's brokers, clients and prospects.
11
<PAGE>
GILMAN/CMG OBLIGATIONS AND OTHER
From December 1992 until June 11, 1996 (when the Company
accelerated its repurchase of the shares of common stock held by
GCMG), Gilman CMG, Inc. or its affiliates (collectively "GCMG")
had owned up to 49% of the Company's outstanding common stock,
and the Company had borrowed an aggregate of $5,000,000 from
GCMG. On May 15, 1995, as part of a transaction for the
Company's repurchase over time of its common stock owned by GCMG,
the Company and GCMG entered into a loan agreement (the "Gilman
Loan") that converted the Company's then outstanding indebtedness
to GCMG to a $5,000,000 term loan, bearing interest at a rate of
10% per annum. At December 31, 1996, $2,500,000 was outstanding
under the Gilman Loan, with principal payable in equal quarterly
installments of $250,000 due on January 15, April 15, July 15 and
October 15, of each year until paid in full. Interest accrues on
the principal outstanding from time to time and is payable
quarterly on the same dates that principal payments are required.
The Company has the option to prepay principal, in whole or in
part at any time, without premium or penalty.
As part of the May 15, 1995 transaction, the Company entered
into a Stock Repurchase Agreement (the "Old Agreement") with GCMG
to repurchase all of the Company's common stock then held by GCMG
in amounts each year, beginning April 15, 1996, equal to 50% of
annual net income, as defined, until all the GCMG stock was
repurchased. In connection with this transaction, the Company
reclassified $5,978,000, representing $2.08 per share of the
stock owned by GCMG, from additional paid-in capital and retained
earnings to mandatorily redeemable common stock to reflect the
terms of the Old Agreement. The difference between the initially
recorded cost of the mandatorily redeemable common stock and the
adjusted purchase price was accreted to mandatorily redeemable
common stock through a direct charge to retained earnings.
On June 11, 1996, the Company entered into an Amended and
Restated Stock Repurchase Agreement (the "New Agreement") with
GCMG for, and simultaneously consummated, an accelerated
repurchase of all of the Company' shares of common stock owned by
GCMG and subject to the Old Agreement. Including the amount that
had been paid pursuant to the Old Agreement to repurchase 473,265
shares as of April 15, 1996, the Company repurchased all the
shares from GCMG for the total consideration of a promissory note
in the principal amount of $6,125,000 (the "New Loan")and
$1,155,000 in cash. The New Loan bears interest, which is
payable quarterly, at a rate of 10% per annum. Beginning April
15, 1997, the Company is obligated to make principal payments
each year in an amount equal to 50% of annual net income, as
defined, until the New Loan is repaid in full. The New Loan
contains a balloon payment feature requiring, without regard to
the above formula, that the entire outstanding principal balance
be repaid in full on April 15, 2000. The New Loan is prepayable,
in whole or in part, at any time by paying GCMG a prepayment
penalty equal to 10% of the prepayment amount. Simultaneous with
the execution of the New Agreement, $6,125,000 was reclassified
from mandatorily redeemable common stock to notes payable to
affiliate.
In its capacity as a co-general partner in an affiliated
real estate limited partnership, the Company has guaranteed
certain partnership indebtedness. Additionally, under applicable
partnership law, as a co-general partner, the Company is
contingently liable for any obligations of such limited
partnership that remain unpaid after any dissolution of the
partnership. The Company has not made any provision in its
financial statements for the possible effect on the Company's
financial condition of the above guarantees or the Company's
contingent liability as a co-general partner of its affiliated
partnership. The Company does not expect to incur any
significant losses or obligations that may materially affect the
Company's liquidity or financial condition as a result of these
matters.
BROKER-DEALER CAPITAL REQUIREMENTS
CSG, DMG, JWC Securities and JWC Clearing are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule
(Rule 15c3-1 under the Securities Exchange Act of 1934), which
requires the maintenance of minimum net capital and requires that
CSG's, DMG's and JWC Securities' ratio of aggregate indebtedness
to net capital (excess net capital), as defined by the Rule, not
exceed 15 to 1. JWC Clearing has elected to comply with the
"alternative net capital requirement" of Rule 15c3-1, which
requires net capital equal to or greater than 2% of aggregate
debit items computed in applying the formula for determination of
reserve requirements. Additionally, JWC Clearing is subject to
the minimum net capital requirements of the NYSE, which provide
that equity capital may not be withdrawn or cash dividends paid
if the resulting net capital would be less than 5% of aggregate
debits. As of December 31, 1996, CSG, JWC Securities and DMG had
net capital of $1,476,000, $2,153,000 and $317,000 and excess net
12
<PAGE>
capital of $1,226,000, $1,903,000 and $217,000, respectively,
each of which complied with the applicable requirements of Rule 15c3-
1. At December 31, 1996, JWC Clearing's net capital was 11.9% of
aggregate debit balances as compared with the minimum of 2%, and
its Rule 15c3-1 net capital of $12,863,000 was $10,703,000 in
excess of required net capital.
IMPACT OF INFLATION
Although the precise effect of inflation on the present
operations of the Company cannot accurately be determined,
management believes that continuation of the general levels of
inflation experienced in recent years will not have a significant
impact on the Company's current and contemplated operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this item is included in a separate section
of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained in the Company's Proxy Statement,
with respect to the identity and background of directors and
executive officers of the Company, is incorporated herein by
reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the Company's Proxy Statement,
with respect to executive compensation, is incorporated herein by
reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information contained in the Company's Proxy Statement,
with respect to the ownership of common stock by certain
beneficial owners and management, is incorporated herein by
reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the Company's Proxy Statement,
with respect to certain relationships and related transactions,
is incorporated herein by reference in response to this item.
PART IV
13<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) The following consolidated financial statements of JW
Charles Financial Services, Inc. and subsidiaries are
included in Part II - Item 8 of this Form 10-K:
Consolidated Statements of Financial Condition as of
December 31, 1996 and 1995
Consolidated Statements of Income For the Years Ended
December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity For the
Years
Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
(2) All schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted because the
required information is not required under the related
instructions, is inapplicable, or is not present in
amounts sufficient to require submission of the schedules
or because the information required is included in the
consolidated financial statements or notes thereto.
(3) Exhibits included herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <S> <C>
3(a) Restated Articles of Incorporation (incorporated by reference to *
Exhibit 3 to the Company's Current Report on Form 8-K dated
November 1, 1990).
3(b) Articles of Amendment to Restated Articles of Incorporation *
(incorporated by reference to Exhibit 3(b) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993).
3(c) Articles of Amendment to Restated Articles of Incorporation *
(incorporated by reference to Exhibit 3(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1994).
3(d) By-Laws (incorporated by reference to Exhibit D to Amendment No. *
1 to Registrant's Registration Statement of Form S-18 (File
Number 2-897713-A) filed with the Commission on May 2, 1984).
4(a) Article III - Capitalization of the Company's Articles of *
Incorporation (See Exhibit Number 3(b) above).
14<PAGE>
10(a) Amended and Restated Agreement and Certificate of Limited *
Partnership of The Depot Center, Ltd. (incorporated by reference
to Exhibit 10(a) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 1985).
10(b) Agreement for Securities Clearance Services between Corporate *
Securities Group, Inc. and Bear Stearns & Co., Inc.
(incorporated by reference to Exhibit 10(d) to the Company's
Amendment to Application or Report on Form 8-K dated October 3,
1990).
10(c) Amended and Restated Employment Agreement of Marshall T. Leeds *
(incorporated by reference to Exhibit 10(e) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1993).
10(d) Loan Agreement between Gilman CMG, Inc. and JW Charles Financial *
Services, Inc. Dated May 15, 1995 (incorporated by reference to
Exhibit 10(b) to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended June 30, 1995).
10(e) Promissory Note and Loan Agreement between JW Charles Financial *
Services, Inc. and Wilmington Trust Company dated January 19,
1996 (incorporated by reference to Exhibit 10(i) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10(f) Common Stock Purchase Warrant issued to W T Investments, Inc. *
Dated January 19, 1996 (incorporated by reference to Exhibit
10(j) to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10(g) Amended and Restated Stock Purchase Agreement among JW Charles *
Financial Services, Inc., Gilman CMG, Inc., Marshall T. Leeds
and Joel E. Marks dated June 1996 (incorporated by reference to
Item 7(c)(i) of the Company's Quarterly report on Form 10-Q for
the period ending June 30, 1996)
10(h) $6,125,000 Promissory Note issued by JW Charles Financial *
Services, Inc. to Gilman CMG, Inc. dated June 1996 (incorporated
by reference to Item 7(c)(ii) of the Company's Quarterly report
on Form 10-Q for the period ending June 30, 1996).
10(i) Revolving Loan Agreement between JW Charles Financial Services,
Inc. and SunTrust Bank, South Florida, N.A. dated December 18,
1996.
10(m) Common Stock Purchase Warrant issued to SunTrust Banks, Inc.
dated August 26, 1996.
21 Subsidiaries of the Registrant.
27 Financial Data Schedule (for SEC use only)
</TABLE>
* - Incorporated by reference to the referenced document previously filed by
the Registrant with the Commission.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter
of the Registrant's fiscal year.
17<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Date: March 28, 1997 JW CHARLES FINANCIAL
SERVICES, INC.
(Registrant)
By: /s/ Marshall T. Leeds
Marshall T. Leeds
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/s/ Marshall T. Leeds Date: March 28, 1997
Marshall T. Leeds, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ Joel E. Marks Date: March 28, 1997
Joel E. Marks, Vice Chairman,
Secretary (Principal Financial
and Accounting Officer) and Director
/s/ Stephen W. Cropper Date: March 28, 1997
Stephen W. Cropper, Director
/s/ John R. Faiella Date: March 28, 1997
John R. Faiella, Director
/s/ Wm. Dennis Ferguson Date: March 28, 1997
Wm. Dennis Ferguson, Director
/s/ Gregg S. Glaser Date: March 28, 1997
Gregg S. Glaser, Director
/s/ Joseph P. Robilotto Date: March 28, 1997
Joseph P. Robilotto, Director
/s/Michael B. Weinberg Date: March 28, 1997
Michael B. Weinberg, Director
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8 and 14(a)(1)
FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1996
JW CHARLES FINANCIAL SERVICES, INC.
BOCA RATON, FLORIDA<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements
- - ---------------------------------
Reports of Independent Certified Public Accountants
Years Ended December 31, 1996 and 1995 . . . . . . F-2
Year Ended December 31, 1994 . . . . . . . . . . . F-3
Consolidated Statements of Financial Condition . . . . . . . F-4
December 31, 1996 and 1995
Consolidated Statements of Income . . . . . . . . . . . . . . F-5
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity . F-6
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows . . . . . . . . . . . . F-7
Years Ended December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements . . . . . . . . . F-8
Financial Statement Schedules
All schedules are omitted because they are either not applicable or
the required information is included in the Consolidated Financial
Statements or Notes thereto.<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
JW Charles Financial Services, Inc.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of income, of changes
in stockholders' equity and of cash flows present fairly, in all material
respects, the financial position of JW Charles Financial Services, Inc.
and its subsidiaries at December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that
we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Tampa, Florida
March 19, 1997
F - 2<PAGE>
Report of Independent Certified Public Accountants
The Board of Directors and Shareholders
JW Charles Financial Services, Inc.
We have audited the accompanying consolidated statements of income,
changes in shareholders' equity and cash flows of JW Charles Financial
Services, Inc. for the year ended December 31, 1994. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of
operations and cash flows of JW Charles Financial Services, Inc. for the
year ended December 31, 1994, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
West Palm Beach, Florida
March 3, 1995
F-3<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
1996 1995
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 11,836,000 $ 8,597,000
Commissions and other receivables from clearing brokers 2,203,000 2,750,000
Receivable from customers, net of allowance for
doubtful accounts of $421,000 and $667,000 98,610,000 81,438,000
Receivable from brokers and dealers 3,689,000 5,752,000
Securities owned, at market value 5,308,000 11,486,000
Furniture, equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$1,162,000 and $962,000 1,194,000 1,253,000
Deferred tax asset 1,719,000 1,011,000
Other, net of allowance for doubtful accounts
of $608,000 and $888,000 2,772,000 2,927,000
--------------- ---------------
$ 127,331,000 $ 115,214,000
=============== ===============
LIABILITIES, MANDATORILY REDEEMABLE COMMON
STOCK AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks $ 17,375,000 $ 28,138,000
Accounts payable, accrued expenses and other liabilities 10,441,000 8,911,000
Payable to customers 50,898,000 31,351,000
Payable to brokers and dealers 24,136,000 22,210,000
Securities sold, not yet purchased, at market value 450,000 4,074,000
Notes payable to affiliate (Notes 7 and 15) 8,625,000 3,500,000
Income taxes payable 34,000 459,000
--------------- ---------------
111,959,000 98,643,000
--------------- ---------------
Mandatorily redeemable common stock - 7,013,000
--------------- ---------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.001 par value--authorized 5,000,000
shares; no shares issued or outstanding - -
Common stock, $.001 par value--authorized 9,056,000
shares; issued and outstanding 3,230,436 and 5,872,122
shares at December 31, 1996 and 1995, respectively 3,000 6,000
Additional paid-in capital 821,000 762,000
Retained earnings 14,548,000 8,790,000
--------------- ---------------
Total stockholders' equity 15,372,000 9,558,000
$ 127,331,000 $ 115,214,000
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F - 4<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Commissions $ 42,945,000 $ 40,566,000 $ 22,984,000
Market making and principal
transactions, net 24,315,000 18,604,000 21,971,000
Interest 9,625,000 7,279,000 4,678,000
Clearing fees 11,463,000 10,176,000 7,371,000
Other 2,672,000 3,416,000 3,467,000
------------ ------------ ------------
91,020,000 80,041,000 60,471,000
------------ ------------ ------------
Expenses:
Commissions and clearing costs 47,229,000 42,160,000 29,890,000
Employee compensation and benefits 14,911,000 13,820,000 11,754,000
Occupancy and equipment rental 4,520,000 4,206,000 3,607,000
Communications 3,809,000 3,867,000 3,146,000
General and administrative 8,431,000 6,647,000 5,146,000
Interest 3,888,000 3,054,000 1,685,000
------------ ------------ ------------
82,788,000 73,754,000 55,228,000
------------ ------------ ------------
Income before income taxes 8,232,000 6,287,000 5,243,000
Provision for income taxes 2,207,000 2,477,000 1,943,000
Net income $ 6,025,000 $ 3,810,000 $ 3,300,000
============ ============ ============
Earnings per common share:
Net income $ 1.27 $ .63 $ .56
============ ============ ============
Weighted average common
shares outstanding 4,744,882 6,025,101 5,907,886
=========== =========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F - 5<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid-In Retained Stockholders'
Shares Amount Shares Amount Capital Earnings Equity
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 700,000 $ 571,000 5,858,097 $ 6,000 $ 1,072,000 $ 8,461,000 $ 10,110,000
Issuance
of common stock upon
exercise of stock options - - 3,000 - 4,000 - 4,000
Net income - - - - - 3,300,000 3,300,000
Cash flow distributions - (570,000) - - - - (570,000)
Mandatory preferred stock dividend - - - - - (85,000) (85,000)
-------- ------------ --------- --------- ------------- ------------- ----------
Balance at December 31, 1994 700,000 1,000 5,861,097 6,000 1,076,000 11,676,000 12,759,000
Issuance of common stock upon
exercise of stock options - - 2,250 - 3,000 - 3,000
Reinstatement of forfeited common
stock - - 8,775 - - - -
Net income - - - - - 3,810,000 3,810,000
Redemption of preferred stock (700,000) (1,000) - - - - (1,000)
Reclassification of mandatorily
redeemable common stock - - - - (317,000) (5,661,000) (5,978,000)
Accretion of mandatorily
redeemable common stock - - - - - (1,035,000) (1,035,000)
-------- ------------ --------- --------- ------------- ------------- ----------
Balance at December 31, 1995 - - 5,872,122 6,000 762,000 8,790,000 9,558,000
Issuance of common stock upon
exercise of stock options - - 232,087 - 56,000 - 56,000
Net income - - - - - 6,025,000 6,025,000
Purchase of mandatorily
redeemable common stock - - (2,873,773) (3,000) 3,000 - -
Accretion of mandatorily
redeemable common stock - - - - - (267,000) (267,000)
-------- ------------ --------- --------- ------------- -------------- -----------
Balance at December 31, 1996 - $ - 3,230,436 $ 3,000 $ 821,000 $ 14,548,000 $15,372,000
======== ============ ========= ========== ============= ============= ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F-6<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,025,000 $ 3,810,000 $ 3,300,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 264,000 246,000 183,000
Amortization of other assets 535,000 668,000 127,000
Loss on disposal of furniture, equipment and leasehold
improvements 7,000 - -
Provision for doubtful accounts - 679,000 282,000
Change in operating assets and liabilities:
Commissions and other receivables from clearing brokers 547,000 150,000 (1,507,000)
Receivable from customers (17,172,000) (31,984,000) (2,546,000)
Receivable from brokers and dealers 2,063,000 232,000 (14,000)
Securities owned 6,178,000 (148,000) 4,130,000
Deferred tax asset (708,000) (651,000) 237,000
Other assets (380,000) 1,513,000 (2,867,000)
Accounts payable, accrued expenses and other liabilities 1,530,000 2,331,000 221,000
Payable to customers 19,547,000 1,063,000 7,317,000
Payable to brokers and dealers 1,926,000 6,055,000 2,118,000
Securities sold, not yet purchased (3,624,000) (874,000) 2,964,000
Income taxes payable (425,000) 459,000 (133,000)
------------ ------------ -----------
Net cash provided (used) by operating activities 16,313,000 (16,451,000) 13,812,000
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (312,000) (529,000) (567,000)
Disposition of furniture, equipment and leasehold improvements 100,000 24,000 -
------------ ----------- ---------
Net cash (used) by investing activities (212,000) (505,000) (567,000)
------------ ----------- ---------
FINANCING ACTIVITIES
Change in short-term borrowings from banks (10,763,000) 21,811,000 (12,968,000)
Change in notes payable to affiliate (1,000,000) (1,661,000) 2,500,000
Repurchase of mandatorily redeemable common stock (1,155,000) - -
Issuance of common stock 56,000 3,000 4,000
Cash flow distributions and redemptions of preferred stock - (1,000) (570,000)
Mandatory preferred stock dividends paid - - (99,000)
------------ ----------- ---------
Net cash provided (used) by financing activities (12,862,000) 20,152,000 (11,133,000)
------------ ----------- ---------
Net increase in cash and cash equivalents 3,239,000 3,196,000 2,112,000
Cash and cash equivalents at beginning of year 8,597,000 5,401,000 3,289,000
------------ ----------- ---------
Cash and cash equivalents at end of year $ 11,836,000 $ 8,597,000 $ 5,401,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,814,000 $ 2,885,000 $ 1,743,000
============ ============ ============
Income taxes $ 3,886,000 $ 2,404,000 $ 1,918,000
============ ============ ============
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1995, the Company reinstated 8,775 shares of common stock
originally forfeited in fiscal 1992.
During fiscal 1996, the Company redeemed mandatorily redeemable common
stock in the amount of $6,125,000 by
using an unsecured promissory note payable to an affiliate for an equal
amount.
During fiscal 1996, the Company issued 277,500 shares of common stock
relating to options exercised for which
the consideration received was 86,288 shares of common stock.
The accompanying Notes to Consolidated Financial Statements are
an integral part of these financial statements.
F - 7<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Nature of Business and Summary of Significant Accounting Procedures:
Operations
JW Charles Financial Services, Inc. ("JWCFS" and the "Company"),
formerly Corporate Management Group, Inc., was incorporated in the
State of Florida on December 19, 1983, and through its subsidiaries
is primarily engaged in the securities brokerage and investment
banking business.
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of JW Charles Financial Services, Inc. and its
subsidiaries, Corporate Securities Group, Inc. ("CSG"), JW Charles
Securities, Inc. ("JWC Securities"), JW Charles Clearing Corp. ("JWC
Clearing"), CMG Capital Corp., First Investors Life Agency, Inc.,
DMG Securities, Inc. ("DMG") and Discount Securities Group, Inc.
JWCFS does not have any significant assets or liabilities other than
investments in subsidiaries and notes payable to affiliates. JWCFS
functions principally as a holding company and, therefore, it does
not have any operations that are material to the consolidated
financial statements. All significant intercompany transactions and
accounts have been eliminated in consolidation.
Management Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Securities Owned and Securities Sold, Not Yet Purchased
Securities owned, which are readily marketable and securities sold,
not yet purchased are recorded at market value. Securities sold,
not yet purchased represent obligations to the Company to deliver
specified securities at the contracted prices, thereby creating a
liability to purchase the securities at prevailing market prices.
Securities owned, which are not readily marketable, are valued at
fair value as determined by management. The resulting difference
between cost and market (or fair value) is included in income.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are recorded at
cost. Depreciation and amortization on furniture, equipment and
leasehold improvements is provided utilizing the straight-line
method over the estimated useful lives of the related assets, which
range from five to seven years.
Transaction Reporting
F-8<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Securities transactions and the related revenues and expenses are
recorded in the accounts on trade date. Clearing fees include
service charges, execution fees and commissions on order flow.
Earnings Per Common Share
Earnings per common share is based upon the weighted average number
of common stock and common stock equivalents outstanding during the
periods. The effect of common stock equivalents on the Company's
primary and fully diluted earnings per share is immaterial.
Earnings available for common stockholders has been reduced by the
amount of mandatory preferred stock dividends, if any (see Note 13),
but has not been reduced by the amount of accretion of mandatorily
redeemable common stock (see Note 15). Stock repurchasable pursuant
to the mandatorily redeemable common stock agreement is included in
the weighted average number of common shares outstanding until
redeemed.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash, including cash in banks
and money market funds.
Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123") during
1996. Upon adoption of SFAS 123, the Company has retained the
intrinsic value method of accounting for stock-based compensation
and has disclosed pro forma net income and earnings per common share
amounts.
Income Taxes
The Company utilizes the asset and liability approach defined in
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS 109"). SFAS 109 requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the financial
statement amounts and the tax bases of assets and liabilities.
Reclassifications
Certain amounts from prior years have been reclassified to conform
to the current year presentation. These reclassifications are not
material to the consolidated financial statements.
2. Clearing Agreements:
CSG, JWC Clearing and JWC Securities have clearing agreements with
an unaffiliated clearing broker. Under such agreements, the
clearing broker provides CSG, JWC Clearing and JWC Securities with
certain back-office support and clearing services on all principal
exchanges. In order to facilitate transactions with this
unaffiliated clearing broker, CSG, JWC Clearing and JWC Securities
F-9<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
maintain cash balances of approximately $300,000 which earn interest
at a rate equal to 1% above the rate customarily paid on credit
balances to the clients of the clearing broker. The $300,000 is
included in commissions and other receivables from clearing brokers
on the accompanying consolidated statements of financial condition.
Credit losses could arise should the clearing broker fail to
perform. The Company does not require collateral.
3. Receivable from and Payable to Brokers and Dealers:
Amounts receivable from and payable to brokers and dealers consist
of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Receivable:
Securities failed to deliver $ 780,000 $ 3,713,000
Deposits on securities borrowed 2,347,000 977,000
Other amounts due from brokers and dealers 562,000 1,062,000
----------- ------------
$ 3,689,000 $ 5,752,000
=========== ============
Payable:
Securities failed to receive $ 776,000 $ 1,642,000
Deposits on securities loaned 18,049,000 17,719,000
Other amounts due to brokers and dealers 5,311,000 2,849,000
----------- ------------
$24,136,000 $ 22,210,000
=========== ============
</TABLE>
Deposits on securities borrowed and securities loaned represent cash
on deposit with or received from other brokers and dealers relating
to securities borrowed and securities loaned transactions,
respectively. The Company monitors the market value of securities
borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary.
4. Receivable from and Payable to Customers:
Receivable from and payable to customers arise from cash and margin
transactions executed by the Company on the customer's behalf.
Receivables are collateralized by securities owned by customers.
Such collateral is not reflected in the accompanying consolidated
statements of financial condition.
<PAGE>
5. Securities Owned and Securities Sold, Not Yet Purchased:
Securities owned and securities sold, not yet purchased consist of
securities, at market value, as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Securities owned:
U.S. Government obligations $ 1,057,000 $ 3,843,000
State and municipal government obligations 1,837,000 2,877,000
Corporate obligations 510,000 3,312,000
Corporate stocks 1,243,000 821,000
Non-marketable 416,000 560,000
Other 245,000 73,000
------------- --------------
$ 5,308,000 $ 11,486,000
============= ==============
December 31,
1996 1995
Securities sold, not yet purchased:
U.S. Government obligations $ 85,000 $ 3,175,000
Corporate stocks 171,000 736,000
State and municipal government obligations 99,000 105,000
Other 95,000 58,000
------------- --------------
$ 450,000 $ 4,074,000
============= ==============
</TABLE>
F-10<PAGE>
6. Short-Term Borrowings from Banks:
Borrowings under the Company's financing agreement with a bank bear
interest based upon the federal funds rate, are restricted to a
percentage of the market value of the related collateral securities,
and are due on demand. At December 31, 1996, 1995 and 1994
approximately $17,375,000, $28,138,000 and $5,862,000, respectively,
were outstanding under this arrangement. The market value of the
collateral relating to this arrangement was approximately
$20,000,000, $50,000,000 and $9,000,000 at December 31, 1996, 1995
and 1994, respectively, including customer margin account securities
of approximately $9,000,000, $40,000,000 and $7,000,000,
respectively. The maximum and average amounts outstanding during
the year ended December 31, 1996 were approximately $38,000,000 and
$22,000,000, respectively ($28,000,000 and $12,000,000,
respectively, for the year ended December 31, 1995, and $18,000,000
and $10,000,000, respectively, for the year ended December 31,1994).
The average interest rates during the same periods were
6.3%, 6.8% and 5.9%, respectively.
7. Notes Payable to Affiliate:
On May 24, 1993, the Company issued a $2,500,000 unsecured
promissory note to Gilman Securities Corporation ("Gilman"), an
affiliate of a principal stockholder of the Company, and on March
31, 1994, the Company issued a second $2,500,000 unsecured
promissory note to Gilman (collectively, the "Note"). The Note
bears interest at the per annum rate of 1% above the prime rate of
Morgan Guaranty & Trust Company (8.5% at December 31, 1994). On May
15, 1995, the Company and Gilman amended the terms of the Note.
The amended Note provided for a principal payment of $1,000,000 in
May 1995 and quarterly principal payments beginning July 15, 1995.
Interest is payable quarterly at the per annum rate of 10%. Under
the terms of the amended Note, the Company is restricted from
entering into new commitments or borrowings, outside of the ordinary
course of business, over specified amounts. At December 31, 1996
and 1995, $2,500,000 and $3,500,000, respectively, was outstanding
under the Note and is included in notes payable to affiliate on the
accompanying consolidated statements of financial condition.
Aggregate annual future payments due on the Note are as follows:
1997 $ 1,000,000
1998 1,000,000
1999 500,000
-----------------
$ 2,500,000
=================
The Company recorded interest expense of approximately $637,000,
$420,000 and $365,000 for the years ended December 31, 1996, 1995
and 1994, respectively, related to notes payable to affiliate.
8. Estimated Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107, "Disclosure
about Fair Value of Financial Instruments," requires the disclosure
F-11<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
of the fair value of financial instruments, including assets and
liabilities recognized and not recognized in the consolidated
statements of financial condition.
The Company's securities owned, which are readily marketable, and
securities sold, not yet purchased are carried at market value.
Management estimates that the aggregate net fair value of other
financial instruments recognized on the consolidated statements of
financial condition (including cash and cash equivalents,
receivables and payables, and short-term borrowings) approximates
their carrying value, as such financial instruments are short-term
in nature, bear interest at current market rates or are subject to
repricing.
9. Commitments and Contingencies:
In the normal course of business, the Company enters into
underwriting commitments. There were no outstanding underwriting
commitments at December 31, 1996, 1995 and 1994.
The Company leases its operations headquarters, branch offices and
certain equipment under operating leases that generally allow for
renewal and are in effect for various terms through 2001. Lease
expense with respect to operating leases for the years ended
December 31, 1996, 1995 and 1994 approximated $1,448,000, $1,559,000
and $1,273,000, respectively.
Based upon long-term noncancelable leases and other contractual
commitments, the future minimum commitments as of December 31, 1996
are as follows:
1997 $ 1,406,000
1998 1,347,000
1999 1,263,000
2000 1,271,000
2001 315,000
Thereafter 84,000
-----------
$ 5,686,000
===========
Included in other assets in the accompanying consolidated statements
of financial condition at December 31, 1996 and 1995 are investments
in real estate partnerships of $42,000 and $43,000, respectively.
Under applicable partnership law, the Company, as co-general
partner, is contingently liable for any obligations of these real
estate limited partnerships that remain unpaid after any dissolution
of the partnerships. The Company has not made any provision in the
consolidated financial statements for the possible effect on the
Company's financial condition of the Company's contingent liability
as a co-general partner of its affiliated partnerships. The Company
does not expect to incur any losses or obligations that will have a
material adverse effect on its financial position or results of
operations.
F-12<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company is a defendant or co-defendant in various lawsuits
incidental to its securities business. The Company is contesting
the allegations of the complaints in these cases and believes that
there are meritorious defenses in each of these lawsuits. In view
of the number and diversity of claims against the Company, the
number of jurisdictions in which litigation is pending and the
inherent difficulty of predicting the outcome of litigation and
other claims, the Company cannot state with certainty what the
eventual outcome of pending litigation or other claims will be. In
the opinion of management, based on discussions with counsel, the
outcome of the matters will not result in a material adverse effect
on the financial position or results of operations of the Company.
10. Income Taxes:
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
Year ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Current provision:
Federal $ 2,823,000 $ 2,829,000 $ 1,457,000
State 535,000 299,000 249,000
-------------- -------------- -------------
3,358,000 3,128,000 1,706,000
-------------- -------------- -------------
Deferred (benefit) provision:
Federal (998,000) (589,000) 202,000
State (153,000) (62,000) 35,000
-------------- -------------- -------------
(1,151,000) (651,000) 237,000
-------------- -------------- -------------
$ 2,207,000 $ 2,477,000 $ 1,943,000
============== ============== ==============
</TABLE>
At December 31, 1996, the Company has a net operating loss
("NOL") carryforward of approximately $1,000,000 for income
tax purposes that expires in 2005. The NOL carryforward,
which was acquired by merger in 1990, is limited under the
separate return limitation year rules. It is anticipated
that the Company will generate sufficient future taxable
income to realize the deferred income tax asset.
Accordingly, as management believes it is more likely than
not that the deferred income tax asset will be realized, the
remaining valuation allowance was reversed in 1996.
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. Significant components
of the Company's net deferred tax asset as of December 31 are
as follows:
F-13<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Reserve for bad debts $ 476,000 $ 735,000
Contingency accruals 972,000 438,000
Net operating loss carryforward 302,000 821,000
Other 44,000 8,000
------------ ------------
Gross deferred tax asset 1,794,000 2,002,000
------------ ------------
Advances to brokers - (155,000)
Other (75,000) (15,000)
------------ ------------
Gross deferred tax liability (75,000) (170,000)
------------ ------------
Valuation allowance - (821,000)
------------ ------------
Net deferred tax asset $ 1,719,000 $ 1,011,000
============ ============
</TABLE>
The Company's effective tax rate on pre-tax income differs
from the statutory federal income tax rate due to the
following:
<TABLE>
<CAPTION?
December 31,
1996 1995 1994
<S> <C> <C> <C>
Tax at statutory rates 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of state income tax 2.4 3.6 3.6
Effect of reversal of valuation
allowance (10.0) - -
Effect of exercise of nonqualified
stock options (0.7) - -
Effect of nondeductible travel
and entertainment 1.0 1.3 -
Other 0.1 0.5 (0.6)
------ ------ ------
26.8% 39.4% 37.0%
====== ====== ======
</TABLE>
11. Net Capital and Reserve Requirements:
The broker-dealer subsidiaries of the Company are subject to
the requirements of Rule 15c3-1 under the Securities Exchange
Act of 1934. This rule requires that aggregate indebtedness,
as defined, not exceed fifteen times net capital, as defined.
Rule 15c3-1 also provides for an "alternative net capital
requirement" which, if elected, requires that net capital be
equal to the greater of $250,000 or two percent of aggregate
debit items computed in applying the formula for
determination of reserve requirements. The New York Stock
Exchange, Inc. ("NYSE") may require a member organization to
reduce its business if its net capital is less than four
percent of aggregate debit items and may prohibit a member
firm from expanding its business if its net capital is less
than five percent of aggregate debit items. Net capital
positions of the Company's broker-dealer subsidiaries were as
follows:
F-14
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
JWC Clearing (alternative method elected):
Net capital as a percent of aggregate debit items 11.9% 10.1%
Net capital $ 12,863,000 $ 8,742,000
Required net capital $ 2,160,000 $ 1,735,000
CSG:
Ratio of aggregate indebtedness to net capital 1.86 1.46
Net capital $ 1,476,000 $ 2,160,000
Required net capital $ 250,000 $ 250,000
JWC Securities:
Ratio of aggregate indebtedness to net capital 1.53 1.91
Net capital $ 2,153,000 $ 1,372,000
Required net capital $ 250,000 $ 250,000
DMG:
Ratio of aggregate indebtedness to net capital 1.14 .57
Net capital $ 317,000 $ 453,000
Required net capital $ 100,000 $ 100,000
</TABLE>
JWC Clearing is also subject to Rule 15c3-3 under the
Securities Exchange Act of 1934 which specifies certain
conditions under which brokers and dealers carrying customer
accounts are required to maintain cash or qualified
securities in a special reserve bank account for the
exclusive benefit of customers. Amounts to be maintained, if
required, are computed in accordance with a formula defined
in the rule and as required by the NYSE. At December 31,
1996 and 1995, JWC Clearing had no requirement to segregate
funds under the rule.
JWC Securities, CSG and DMG are exempt from the provisions of
Rule 15c3-3, since they clear all transactions with and for
customers on a fully-disclosed basis with affiliated and
unaffiliated clearing brokers.
Additionally, pursuant to Rule 15c3-1, JWC Clearing, JWC
Securities, CSG and DMG must notify and obtain approval from
the Securities and Exchange Commission and either the
National Association of Securities Dealers, Inc. (CSG and
DMG) or the NYSE (JWC Clearing and JWC Securities) for any
advances or loans to JWCFS or any other affiliate, if such
advances or loans would exceed in the aggregate, in any 30
calendar day period, 30% of that company's excess net capital
and $500,000. Rule 15c3-1 also provides that equity capital
may not be withdrawn or cash dividends paid if resulting net
capital would be less than 5% of aggregate debits or 120% of
the minimum net capital required by the rule.
F-15<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
12. Off-Balance-Sheet Risk:
In the normal course of business, the Company's customer and
correspondent clearance activities involve the execution,
settlement, and financing of various customer securities
transactions. These activities may expose the Company to
off-balance-sheet risk in the event the customer or other
broker is unable to fulfill its contracted obligations and
the Company has to purchase or sell the financial instrument
underlying the contract at a loss.
In addition, the Company has sold securities that it does not
currently own and will therefore be obligated to purchase
such securities at a future date. The Company has recorded
these obligations in the financial statements at the December
31, 1996 market values of the related securities and will
incur a loss if the market value of the securities increases
subsequent to December 31, 1996.
The Company's customer securities activities are transacted
on either a cash or margin basis. In margin transactions,
the Company extends credit to its customers, subject to
various regulatory and internal margin requirements,
collateralized by cash and securities in the customers'
accounts. In connection with these activities, the Company
executes and clears customer transactions involving the sale
of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual
exchange regulations. Such transactions may expose the
Company to significant off-balance-sheet risk in the event
margin requirements are not sufficient to fully cover losses
that customers may incur. In the event the customer fails to
satisfy its obligations, the Company may be required to
purchase or sell financial instruments at prevailing market
prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its
customer activities by requiring customers to maintain margin
collateral in compliance with various regulatory and internal
guidelines. The Company monitors required margin levels
daily and, pursuant to such guidelines, requires the customer
to deposit additional collateral, or to reduce positions,
when necessary.
The Company's customer financing and securities settlement
activities require the Company to pledge customer securities
as collateral in support of various secured financing sources
such as bank loans and securities loaned. In the event the
counterparty is unable to meet its contractual obligation to
return customer securities pledged as collateral, the Company
may be exposed to the risk of acquiring the securities at
prevailing market prices in order to satisfy its customer
obligations. The Company controls this risk by monitoring
the market value of securities pledged on a daily basis and
by requiring adjustments of collateral levels in the event of
excess market exposure. In addition, the Company establishes
F-16<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
credit limits for such activities and monitors compliance on
a daily basis.
13. Preferred Stock:
On October 30, 1990, the Company's stockholders voted to
approve an amendment to the Company's Articles of
Incorporation to authorize 5,000,000 shares of $.001 par
value Special Stock and to designate 2,000,000 of such shares
as Series A Special Distribution Stock (the "Series A
Stock"). All of the Series A Stock was issued in 1990 in
connection with the acquisition of certain subsidiaries.
Beginning November 1, 1990, each share of Series A Stock was
entitled to receive a cumulative quarterly dividend of
$.03025 per share ("Mandatory Dividends"). All outstanding
shares of Series A Stock, as a group, are entitled to receive
special cash distributions ("Cash Flow Distributions") in the
aggregate amount of $2,200,000 payable, when and as declared
by the Board of Directors. The Company was required to
declare and pay as Cash Flow Distributions, until the
aggregate amount of Cash Flow Distributions paid was equal to
$2,200,000 (the "Maximum Cash Flow Distributions"), not less
than 80% of the Company's cumulative excess cash flow,
determined at the end of each fiscal quarter of the Company
ending after November 1, 1990, minus the aggregate amount of
Cash Flow Distributions previously paid. Cumulative excess
cash flow is equal to excess cash flow, as defined, for the
period from November 1, 1990 through the calculation date.
Also, to the extent dividends are declared on common stock,
Series A Stock will be entitled to participate in such
dividends on a share-per-share basis with the shares of
common stock.
The Company recorded Mandatory Dividends of approximately
$85,000 during 1994.
As Cash Flow Distributions were paid, the Company had the
right to redeem a number of outstanding shares of Series A
Stock equal to the amount of Cash Flow Distributions
previously paid divided by 1.1. The redemption price is
$.001 per share. Upon liquidation, after payment of any
unpaid Mandatory Dividends, the holders of Series A Stock
shall have no right or claim to any of the remaining assets
of the Company. During 1994, the Company paid $570,000 in
Cash Flow Distributions and redemptions.
In conjunction with a stock repurchase agreement entered into
with Gilman (described in detail in Note 15), the Company
F-17<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
purchased all of the Company's outstanding preferred stock
from Gilman for an aggregate price of $700 during 1995.
14. Common Stock Split
On December 23, 1996, the Company's Board of Directors
declared a 3-for-2 stock split in the form of a dividend
payable on February 7, 1997 to shareholders of record on
January 24, 1997. The Company's capital accounts at December
31, 1996 were adjusted to retroactively give effect to the
dividend in the same manner as would be done if the dividend
were issued before December 31, 1996. All references in the
consolidated financial statements and accompanying notes to
amounts per share and to the number of common shares have
been retroactively adjusted for the stock split.
15. Mandatorily Redeemable Common Stock:
On May 15, 1995, the Company entered into a Stock Repurchase
Agreement (the "Old Agreement") with Gilman to repurchase all
of the approximately 49% of the Company's outstanding common
stock held by Gilman. The repurchase price per share was a
minimum of $2.00, subject to certain adjustments each year
based upon changes in the Company's net tangible book value,
as defined. Beginning April 15, 1996, the Company was
obligated under the Old Agreement to repurchase stock each
year in an amount equal to 50% of annual net income, as
defined, until all Gilman stock was repurchased. For
purposes of determining the aggregate amount of stock
required to be repurchased each year, net income was reduced
by principal repayments on the Note to Gilman (see Note 7).
The Company was required to complete the repurchase of all
Gilman stock by April 15, 2003 or pay a $672,000 penalty.
On May 15, 1995, the Company reclassified $5,978,000,
representing $2.08 per share from additional paid-in capital
and retained earnings to mandatorily redeemable common stock
to reflect the terms of the Old Agreement. The difference
between the initially recorded cost of the mandatorily
redeemable common stock and the adjusted purchase price at
December 31, 1995 was accreted to mandatorily redeemable
common stock through a $1,035,000 direct charge to retained
earnings for the year ended December 31, 1995.
On April 15, 1996, the Company repurchased 473,265 shares of
stock from Gilman at a price per share of $2.44 for a total
consideration of approximately $1,155,000.
On June 11, 1996, the Company entered into an Amended and
Restated Stock Repurchase Agreement (the "New Agreement")
with Gilman for, and simultaneously consummated, the accelerated
repurchase of all of the Company's shares of common stock
owned by Gilman and subject to the Old Agreement.
F-18<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The total consideration paid by the Company consisted of a
promissory note in the principal amount of $6,125,000 (the
"Stock Loan"), along with the $1,155,000 in cash that was
paid to Gilman in connection with the April 15, 1996
installment purchase under the Old Agreement. The difference
between the adjusted purchase price of the mandatorily
redeemable common stock at December 31, 1995, and the
adjusted purchase price at June 11, 1996 was accreted to
mandatorily redeemable common stock through a $267,000 direct
charge to retained earnings for the year ended December 31,
1996. The Stock Loan bears interest, which is payable
quarterly, at a rate of 10% per annum. Beginning April 15,
1997, the Company is obligated to make principal payments
each year in an amount equal to 50% of annual net income, as
defined, until the Stock Loan is repaid in full. The Stock
Loan contains a balloon payment feature requiring, without
regard to the above formula, that the entire outstanding
principal balance be repaid in full on April 15, 2000. The
Stock Loan is prepayable, in whole or in part, at any time by
paying Gilman a prepayment penalty equal to 10% of the
prepayment amount. Simultaneous with the execution of the
New Agreement, $6,125,000, which was the mandatorily
redeemable common stock balance on June 11, 1996, was
reclassified from mandatorily redeemable common stock to
notes payable to affiliate.
16. Employee Benefit Plans:
On October 30, 1990, the Company adopted a stock option plan ("1990
Plan") pursuant to which 600,000 shares of common stock have been
reserved for issuance upon exercise of options designated as "incentive
stock options" or "nonqualified options." During 1994, the Company
increased the number of shares of common stock reserved for issuance
under the 1990 Plan from 600,000 to 1,200,000 shares. These options are
to be issued to certain officers and employees of the Company, and
certain other key persons instrumental to the success of the Company, and
provide them a greater personal interest in the success of the Company.
The 1990 Plan is administered by the Board of Directors of the Company,
or a committee appointed by the Board of Directors, which determines,
among other things, the persons to be granted options under the 1990
Plan, the number of shares subject to each option and the option price.
The options are granted at fair market value. Options granted become
exercisable in equal annual installments over a period of one to three
years and expire five years from the date of grant.
F-19<PAGE>
Information for the 1990 Plan for the years ended December 31, 1996, 1995
and 1994 is summarized as follows:
<TABLE>
<CAPTION>
Number Exercise Price Weighted Average
of Shares Range Exercise Price
--------- -------------- --------------
<S> <C> <C> <C>
Balance, December 31, 1993 160,125 $ 1.33 - 2.50 $ 1.77
Granted 300,000 1.95 1.95
Exercised (3,000) 1.33 1.33
Forfeited (2,250) 1.33 1.33
Balance, December 31, 1994 454,875 1.33 - 2.50 1.89
Granted 210,000 2.25 - 2.55 2.50
Exercised (2,250) 1.33 1.33
Forfeited (60,750) 1.33 - 2.50 2.49
Balance, December 31, 1995 601,875 1.33 - 2.55 2.04
Granted 272,087 2.85 - 4.49 3.74
Exercised (209,625) 1.33 - 1.95 1.69
Forfeited (14,487) 1.33 - 2.85 2.30
Balance, December 31, 1996 649,850 $ 1.95 - 3.67 $ 2.87
</TABLE>
During 1993, the Company granted discretionary options to an officer of
the Company to purchase 225,000 shares of the Company's common stock at
an exercise price of $2.50 per share. The exercise price was greater
than the fair market value of the common stock on the date of grant. The
options vest in increments of 75,000 shares on December 31, 1993, 1994
and 1995, and may be exercised in whole or in part, with respect to such
vested amounts of shares, until the expiration of the options on December
31, 1997. As of December 31, 1996, 112,500 of the options had been
exercised.
The Company has a restricted stock plan providing for the issuance of up
to 750,000 shares of its authorized but unissued common stock to
nonexecutive employees and registered representatives. As of December
31, 1996 and 1995, 10,500 shares had been issued under the restricted
stock plan and 739,500 shares of common stock have been reserved for
future issuance.
In accordance with the provisions of SFAS 123 the Company applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans and does not recognize
compensation expense for its stock-based compensation plans other than
for restricted stock. If the Company had elected to recognize
compensation expense based upon the fair value at the grant date for
awards under these plans consistent with the methodology prescribed by
SFAS 123, the Company's net income and earnings per common share would
be reduced to the pro forma amounts indicated below:
Year ended December 31,
1996 1995
-----------------------
Net income:
As reported $6,025,000 $ 3,810,000
Pro forma 5,774,000 3,758,000
Earnings per common share:
As reported $ 1.27 $ .63
Pro forma 1.22 .62
F-20<PAGE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense
over the vesting period and additional options may be granted in future
years. For disclosure purposes the fair value of these options was
estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions used for stock
purchase rights granted in 1996 and 1995, respectively: dividend yields
of 0.0% for both years; expected volatility of 50.5% and 62.5%; risk-free
interest rates of 6.1% and 6.2%; and expected life of 4 years for all
grants. The weighted average fair value of stock options granted in 1996
and 1995 was $3.33 and $1.99, respectively. The weighted average
remaining contractual life of options outstanding at December 31, 1996
and 1995 is 3.4 years and 3.1 years, respectively. At December 31, 1996,
1995 and 1994, the Company had options available for future grants of
92,788, 364,875 and 574,875, respectively. The following table
summarizes information about the options exercisable at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Number of shares 990,000 567,875 454,875
Exercise price range $ 1.95-10.62 $ 1.33 - 2.55 $ 1.33 - 2.50
Weighted average exercise price $ 6.29 $ 2.17 $ 2.09
</TABLE>
The Company adopted a Pension and Profit Sharing Plan (the "Plan") in
1986 which offers all full-time employees over the age of 21 of the
Company tax advantages pursuant to Section 401(k) of the Internal Revenue
Code. Under the terms of the Plan, participants may elect to defer up to
10% of their compensation. The Company will make a matching contribution
to the Plan of 50% of the first 4% of compensation contributed by each
participant who is employed by the Company or its subsidiary on December
31 of such year. Participant's contributions to the Plan are fully
vested at all times and are not subject to forfeiture. The Company's
matching contribution vests to each participant over a five-year vesting
schedule based upon the participant's years of service with the Company.
Contributions are made by participants by means of a payroll deduction
program. Within specified limits, participants have the right to direct
their savings into certain kinds of investments as specified in the Plan.
Employee compensation and benefits include approximately $264,000,$197,000 and
$145,000 of Company matching contributions made during 1996,
1995 and 1994, respectively.
17. Lines of Credit:
On January 19, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from Wilmington Trust
Company for general corporate purposes (the "Wilmington
Facility"). The Wilmington Facility matures on December 31,
2002, at which time all outstanding borrowings plus all
accrued and unpaid interest will become due and immediately
payable. Borrowings under the Wilmington Facility bear
interest at Wilmington's National Commercial Rate, with
interest payments due monthly in arrears. The Company is
required to maintain certain debt covenants, including (i)
F-21<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
minimum stockholders' equity equal to at least $7,000,000,
plus 30% of net income for all future fiscal quarters, plus
75% of the net proceeds from any common stock issuances and
(ii) net income, as defined, in excess of $1,500,000 for any
four quarters within any six consecutive quarterly periods.
At December 31, 1996, the balance outstanding under the
Wilmington Facility was $0.
In connection with the Wilmington Facility, the Company
entered into a Marketing Agreement with Wilmington Trust FSB
(the "Wilmington Marketing Agreement") and granted W T
Investments, Inc. a warrant to purchase up to 600,000 shares
of the Company's common stock at any time prior to December
31, 2002 (the "Wilmington Warrant"). The exercise price per
share is the greater of $3.67 or an amount equal to the sum
of total (i) gross revenues multiplied by .175 plus (ii)
earnings before tax multiplied by 2.5 and divided by the
weighted average number of common shares outstanding based
upon the Company's audited financial statements. At December
31, 1996, the Wilmington Warrant exercise price per share was
approximately $11.00. The Wilmington Marketing Agreement
provides that the Company will market certain products and
services, initially personal trust and asset management
services, provided by Wilmington Trust FSB to the Company's
brokers, clients and prospects.
On December 18, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from SunTrust Bank, South
Florida, N.A. for general corporate purposes (the "SunTrust
Facility"). The SunTrust Facility matures on April 30, 1999,
at which time all outstanding borrowings plus all accrued and
unpaid interest will become due and immediately payable.
Borrowings under the SunTrust Facility bear interest at the
prime rate of interest as announced from time to time by
SunTrust Banks of Florida, Inc., with interest payments due
quarterly in arrears. The Company is required to maintain
certain debt covenants, including (i) minimum stockholders'
equity equal to at least $9,000,000, plus 75% of net income
for all future fiscal quarters, plus 75% of the net proceeds
from any common stock issuances and (ii) net income, as
defined, in excess of $1,500,000 for any four quarters within
any consecutive six-quarter period. At December 31, 1996,
the balance outstanding under the SunTrust Facility was $0.
In connection with the SunTrust Facility, the Company entered
into a marketing agreement with SunTrust (the "SunTrust
Marketing Agreement") and granted SunTrust Banks, Inc. a
warrant to purchase 37,500 shares of the Company's common
stock at any time prior to December 31, 2002. The exercise
price per share is $6.67. The SunTrust Marketing Agreement
provides that the Company will market certain products and
services, through the Company's participation as an
underwriter or selling group member of various municipal
finance offerings underwritten by SunTrust Capital Markets,
Inc., to the Company's brokers, clients and prospects.
F-22
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT is made and entered into as of
the 18th day of December, 1996, by and between JW
CHARLES FINANCIAL SERVICES, INC., a Florida corporation, whose
address is 980 North Federal Highway, Boca Raton, Florida 33432
(hereinafter referred to as "Borrower"), and SUNTRUST BANK, SOUTH
FLORIDA, N.A., a national banking association, whose address is
501 East Las Olas Boulevard, Fort Lauderdale, Florida
(hereinafter referred to as "Lender").
W I T N E S S E T H:
WHEREAS, Borrower is a Florida corporation and desires to
obtain extensions of credit of up to Two Million Five Hundred
Thousand and No/100 Dollars ($2,500,000.00) from Lender in order
to provide working capital for Borrower's operations; and
WHEREAS, Lender is willing to extend such credit to Borrower
of up to such amount upon the terms and conditions set forth
herein (the "Loan"); and
NOW, THEREFORE, for and in consideration of the sum of Ten
and No/100 Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, and in consideration of the loans or extensions of
credit heretofore now or hereafter made or to be made for the
benefit of Borrower by Lender, the parties do hereby agree as
follows:
ARTICLE I
RECITALS AND DEFINITIONS
1.1 Recitals. The foregoing recitals are acknowledged by
the parties to be true and correct, and are incorporated herein
by reference.
1. 2 Definitions. As used in this Agreement, the terms
listed below shall have the following meanings:
(a) "Advance": A disbursement by Lender of a portion
of the Loan proceeds to provide working capital for the
operations of Borrower in accordance with the terms and
provisions of this Agreement.
(b) "Agreement" or "Loan Agreement": This Revolving
Loan Agreement.
(c) "Authorized Person": A person authorized to
request Advances on behalf of Borrower. MARSHALL T. LEEDS,
Chairman, Chief Executive Officer and President; JOEL E. MARKS,
<PAGE>
Vice Chairman and Chief Financial Officer; and GREGG S. GLASER,
Treasurer and Executive Vice President, shall be Authorized
Persons until Lender receives from Borrower written notice of
revocation of their authority and/or decision of the appointment
of other Authorized Persons.
(d) "Borrower": JW CHARLES FINANCIAL SERVICES, INC., a
Florida corporation, whose address is 980 North Federal Highway,
Boca Raton, Florida 33432.
(e) "Borrower's Counsel Opinion Letter": A letter from
Borrower's Counsel, in form and substance reasonably satisfactory
to Lender and Lender's Counsel, opining as to certain matters
concerning the Loan.
(f) "Broker/Dealer Subsidiary": Any Subsidiary (as
hereinafter defined) of Borrower that is registered as a
broker/dealer under the Securities Exchange Act of 1934, as
amended.
(g) "Business Days": Days upon which Lender is open
for normal business.
(h) "Closing": The time of the execution and delivery
of this Agreement and all other Loan Documents by Borrower and
Lender.
(i) "Code": The Internal Revenue Code of 1986, as
amended from time to time, and applicable Department of Treasury
regulations thereunder.
(j) "Event of Default": The occurrence of any one or
more of the Events of Default described in Article 7 hereof.
(k) "Governmental Authority": Any federal, state,
county, municipal or other governmental department, commission,
board, bureau, court, agency, or any instrumentality of any other
governmental entity.
(1) "Governmental Requirements": Any law, statute,
code, ordinance, order, rule, regulation, judgment, decree writ,
injunction, franchise, permit, certificate, license,
authorization, or other direction or requirement of any
Governmental Authority now existing or hereafter enacted,
adopted, promulgated, entered or issued applicable to the Loan or
to Borrower or Guarantors.
(m) "Generally Accepted Accounting Principles" or
"GAAP": Those principles of accounting set forth in opinions of
the Financial Accounting Standards Board of the American
Institute of Public Accountants or which have other substantial
authoritative support and are applicable in the circumstances as
of the date of any report required herein or as of the date of an
application of such principles as required herein.
2<PAGE>
(n) "Guaranty": An unconditional written guarantee of
the payment and performance of the Loan to be executed and
delivered by the Guarantors (hereinafter defined) to Lender in
accordance with this Agreement.
(o) "Guarantor": (i) JW Charles Capital Corp. ; (ii)
JW Charles Insurance Services, Inc.; (iii) except as herein
limited, any Subsidiary, parent or affiliate of Borrower
hereafter formed, which shall, upon formation, or thereafter have
a net worth, calculated in accordance with GAAP, except as
hereinafter specifically set forth, of Fifty Thousand Dollars
($50,000.00) or more; and (iv) except as herein limited, all
other subsidiaries, parents or affiliates of Borrower hereinafter
formed which shall, at any time have an aggregate net worth,
calculated in accordance with GAAP, except as hereinafter
specifically set forth, of Two Hundred Fifty Thousand and No/100
Dollars ($250,000.00) or more. As an exception to GAAP, sums
payable to a subsidiary, parent or affiliate of an entity shall
be treated as equity instead of debt in determining the net worth
of an entity for the purposes of this paragraph. As a guarantee
of the Loan would reduce the regulatory capital of the
Broker/Dealer Subsidiaries, Broker/Dealer Subsidiaries shall not
be required to guarantee repayment of the Loan. Each of JW
Charles Capital Corp. and JW Charles Insurance Services, Inc.
("Existing Guarantors") shall guarantee payment and performance
of the Loan by the execution and delivery to Lender of a Guaranty
contemporaneously with the execution and delivery of this
Agreement. Each of the other Guarantors shall guarantee the
payment and performance of the Loan by the execution and delivery
to Lender of a Guaranty at the time such subsidiary, parent or
affiliate meets the definition of "Guarantor".
(p) "Indebtedness": Collectively, all of Borrower's
presently existing or hereafter created or assumed obligations
for borrowed money, notes payable and drafts accepted
representing extensions of credit (whether or not representing
obligations for borrowed money), letters of credit and contingent
obligations, arising out of or in connection with the Loan.
(q) "Initial Advance": The first Advance of the Loan
proceeds.
(r) "Maturity Date": The Loan shall be due and
payable, in full, on April 30, 1999. Any renewal of the Loan or
extension of the Maturity Date shall be within the sole
discretion of Lender.
(s) "Note": A Revolving Credit Promissory Note in
the amount of Two Million Five Hundred Thousand and No/100
Dollars ($2,500,000.00) from Borrower to Lender of even date
herewith evidencing the Loan.
(t) "Person": As the case may be, any corporation,
natural person, firm, joint venture, partnership, trust,
unincorporated organization and government, or any department or
agency of any government.
3<PAGE>
(u) "Prime Rate": The interest rate announced by
SUNTRUST BANKS OF FLORIDA, INC. from time to time as its prime
rate, which rate is purely discretionary and is not necessarily
the best or lowest rate charged borrowing customers of Lender.
(v) "Subsidiary": A corporation or entity shall be
considered a "Subsidiary of Borrower" if Borrower owns shares of
stock or other ownership interest having the voting power (other
than the stock or other ownership interest having such power only
by reason of the happening of a contingency) to elect a majority
of the directors of such corporation, or other Persons performing
similar functions for such entity are owned, directly or
indirectly, by Borrower.
1.3 Other Definitional Provisions. (a) The terms
"material" and "materially" shall have the meanings ascribed to
such terms under Generally Accepted Accounting Principles as such
would be applied to the business of Borrower, except as the
context shall clearly otherwise set forth; (b) all of the terms
defined in this Agreement shall have such defined meanings when
used in other documents issued under, or delivered pursuant to,
this Agreement, unless the context shall otherwise require; (c)
all terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa; (d)
accounting terms to the extent not otherwise defined shall have
the respective meanings given them under, and shall be construed
in accordance with Generally Accepted Accounting Principles; (e)
the words "hereby", "hereto", "hereof", "herein", "hereunder"
and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular
provision of this Agreement; (f) the masculine and neuter genders
are used herein and whenever used shall include the masculine,
feminine and neuter as well; and (g) whenever in this Agreement
any of the parties hereto is referred to, such reference shall be
deemed to include their heirs, personal representatives,
successors and assigns of such parties unless the context shall
expressly provide otherwise.
ARTICLE 2
THE LOAN
2.1 Provided there does not exist an Event of Default and
subject to the terms and provisions of this Agreement, Lender
will lend or advance for the account of Borrower from time to
time, and Borrower may borrow and re-borrow under the Note such
amounts as may be required to provide working capital for
Borrower's operations in accordance with the terms of the
Agreement. The aggregate amounts advanced under the Note at any
one time for working capital shall not, however, exceed Two
Million Five Hundred Thousand and No/100 Dollars ($2,500,000.00)
as reduced in accordance with Schedule "A" attached hereto and
made a part hereof.
4<PAGE>
2.2 Borrower's obligation to repay the Loan is evidenced by
the Note of even date herewith.
2.3 Borrower shall also deliver, or cause to be delivered
to Lender simultaneously with the delivery of the Note, the
following documents:
(a) The duly executed Guaranties of the Existing
Guarantors.
(b) The duly executed Assignment of Key Man Life
Insurance (hereinafter described).
(c) Borrower's Counsel Opinion Letter, in form and
substance satisfactory to Lender and Lender's Counsel, opining as
to certain matters concerning the Loan.
(d) Satisfactory evidence of such policies of
liability insurance, worker's compensation insurance and errors
and omissions insurance as Lender may reasonably request.
(e) Incumbency Certificates and Corporate Borrowing
Resolutions of the directors of Borrower and Existing Guarantors
authorizing the Loan and the Guaranties, as applicable.
(f) Certificates of Good Standing evidencing that
Borrower and Existing Guarantors are in good standing under the
laws of the states of their incorporation and duly authorized to
do business in the State of Florida.
(g) Certified copies of Articles of Incorporation and
By-Laws of Borrower and Existing Guarantors.
(h) Such other documentation as may be reasonably
required by Lender or Lender's Counsel.
2.4 The Note, the Guaranties, the Assignment of Key Man
Life Insurance (hereinafter described) above, this Agreement and
all other documents relating hereto, shall collectively be
referred to as the "Loan Documents".
ARTICLE 3
MANNER OF MAKING LOAN ADVANCES
3.1 Each Advance to Borrower for working capital shall be
made by Lender not later than the second Business Day following
delivery to Lender of proper written request of Borrower executed
by an Authorized Person stating the principal amount of the
Advance requested and all supporting documentation reasonably
requested by Lender. Any notice delivered under this section
shall be irrevocable and bind Borrower to consummate the Advance.
5<PAGE>
3.2 The proceeds of any Advance to Borrower shall, on the
date of such Advance, be deposited in immediately available funds
in Borrower's demand deposit account with Lender or in such other
account with Lender as Borrower may, from time to time, designate
in writing to Lender.
ARTICLE 4
CONDITIONS PRECEDENT TO ADVANCE
4.1 The obligations of Lender to make the Initial Advance
and all additional Advances under the Loan are subject to the
following conditions precedent:
(a) Representations and Warranties. The representa-
tions, covenants and warranties made by Borrower in this
Agreement shall be true and correct in all material respects on
and as of the date of such Advance.
(b) No Default. There shall be no material default,
and no event which with notice or lapse of time or both would
become such an Event of Default, under this Agreement, the Note
or any of the Guarantees, or the Assignment of Key Man Life
Insurance.
(c) Delivery of Loan Documents. All of the Loan
Documents shall have been duly executed and delivered to Lender.
(d) Additional Corporate Documents. Borrower shall
have delivered, or caused to be delivered, to Lender (i) an
Incumbency Certificate and Corporate Borrowing Resolutions of the
directors of each Guarantor authorizing the Guaranty of such
Guarantor; (ii) a Certificate of Good Standing for each Guarantor
evidencing that such Guarantor is in good standing under the laws
of the state and its incorporation and duly authorized to do
business in the State of Florida; and (iii) Certified copy of
Articles of Incorporation and By Laws of each Guarantor.
(e) Information Requests. Lender shall have received,
reviewed and found satisfactory, "information requests" from the
National Association of Securities Dealers and the State of
Florida, Division of Securities.
(f) Compliance Review. Lender shall have received,
reviewed and found satisfactory the current New York Stock
Exchange Compliance Review for Borrower and its Subsidiaries.
(g) Key Man Life Insurance. Borrower shall have
delivered to Lender a true and correct copy of the Key Man Life
Insurance Policy on the life of Marshall Leeds hereinafter
described.
6<PAGE>
(h) Delivery of Other Documents. Borrower shall have
delivered, or caused to be delivered to Lender all other
certification or documentation to be executed by Borrower as may
be required hereunder or under the Loan Documents or reasonably
required by Lender or Lender's counsel pursuant to Lender's
rights hereunder or under the other Loan Documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
5.1 Borrower represents and warrants to Lender that, so
long as credit remains available to Borrower or there is any
outstanding balance due under the Note as secured by the Loan
Documents:
(a) Borrower has the corporate power to engage in all
the transactions contemplated by this Agreement and has full
corporate power, authority and legal right to execute and
deliver, and to comply with its obligations under the Loan
Documents, which documents executed by or on behalf of Borrower
constitute the legally binding obligations of Borrower
enforceable against Borrower in accordance with its terms.
(b) To the best of Borrower's knowledge and belief,
there are no suits, actions, or proceedings pending or threatened
against or affecting Borrower or any of its Subsidiaries before
or by any court, administrative agency or other Governmental
Authority which seek to restrain or prohibit the consummation or
performance of the transactions contemplated hereby or could
reasonably be expected to interfere with the ability of Borrower
to comply with the terms hereof.
(c) Borrower and its Subsidiaries are in good standing
within the state in which they are incorporated and are fully
qualified and authorized to do business in the state of Florida
and such other states as they do business where the absence of
such qualification could reasonably be expected to have a
material adverse effect on the business of Borrower.
(d) Neither the execution nor delivery of any of the
Loan Documents will conflict with or result in a material breach
of any of the material provisions of the Articles of
Incorporation or By-Laws of Borrower or, to Borrower's knowledge,
any of its Subsidiaries, or conflict with or result in a material
breach of any applicable law, judgment, order, writ injunction,
decree rule or regulation of any court, administrative agency or
other Governmental Authority which could reasonably be expected
to have a material adverse effect on the business of Borrower,
or, to Borrower's knowledge, conflict with or result in a
material breach of any agreement or other instrument to which
Borrower or any of its subsidiaries is a party or by which
Borrower or any of its Subsidiaries is bound or constitute a
default under any thereof which could reasonably be expected to
have a material adverse effect on the business of Borrower.
7<PAGE>
(e) To Borrower's knowledge, no consent, approval or
other authorization of or by any Governmental Authority is
required in connection with the execution or delivery by Borrower
of the Loan Documents, or compliance with the material provisions
hereof or thereof.
(f) Subject to any limitation stated thereon, all
balance sheets, earnings statements and other financial data
which have been or shall hereafter be furnished to Lender to
induce it to enter into this Agreement or otherwise in connection
herewith, do or will fairly represent, in all material respects,
the financial condition of Borrower and its Subsidiaries as of
the dates thereof, and the results of their operations for the
period for which the same are furnished to Lender, and have been
or will be prepared in accordance with GAAP consistently applied.
To Borrower's knowledge, there are no material liabilities of any
kind of Borrower or its Subsidiaries as of the date of the most
recent financial statements which are not reflected therein. To
Borrower's knowledge, there have been no changes in the financial
condition or operation of Borrower or its subsidiaries since the
date of such financial statements which could reasonably be
expected to have a material adverse effect on the business of
Borrower.
(g) There exists no Event of Default on the part of
Borrower or its Subsidiaries under this Agreement, the Note, any
of the Guarantees or the Assignment of Key Man Life Insurance.
(h) Borrower has not dealt with any broker or finder,
other than SUNTRUST CAPITAL MARKETS, INC., in connection with the
Loan, and Borrower hereby agrees to indemnify Lender and to hold
Lender harmless of and from any and all claims for broker's or
finder's fees or commissions in connection with this Loan, and
agree to pay all expenses (including but not limited to
reasonable attorney's fees and expenses) incurred by Lender in
connection with the defense of any action or proceeding brought
to collect any such fees and commissions, or otherwise relating
to any such broker's claims resulting from or arising out of any
claim that Borrower consulted, dealt or negotiated with the
person or entity making such brokerage claim.
(i) Borrower and its Subsidiaries have filed or caused
to be filed all tax returns, which to the knowledge of Borrower
such entities are required to file, and have fully paid all taxes
shown to be due and payable on said returns or any assessments
made against it or their property, and all other taxes, fees, or
other charges imposed on their or any of their property by any
Governmental Authority except for (i) those taxes, fees or other
charges, the amount or validity of which is currently being
contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been
provided on the books of Borrower and its Subsidiaries; and (ii)
such failures to file or pay such tax liens or claims as could
not, in the aggregate, reasonably be expected to have a material
adverse effect on the business operations, property or financial
or other condition of Borrower and its Subsidiaries, and cannot
reasonably be expected to have an adverse effect on the ability
of Borrower and its Subsidiaries to perform any of its respective
8<PAGE>
obligations in any material respect under this Agreement, the
other Loan Documents, or otherwise with respect to the Loan. No
tax liens have been filed and, to the knowledge of Borrower no
claims have been made or may hereafter be asserted with respect
to any such taxes, fees or other charges except for (i) those,
the amount or validity of which is currently being contested in
good faith by appropriate proceedings and with respect to which
reserves in conformity with GAAP have been provided on the books
of Borrower and its Subsidiaries; and (ii) such failures to file
or pay such tax liens or claims as could not, in the aggregate,
reasonably be expected to have a material adverse effect on the
business operations, property or financial or other condition of
Borrower and its Subsidiaries, and cannot reasonably be expected
to have an adverse effect on the ability of Borrower and its
Subsidiaries to perform any of its respective obligations in any
material respect under this Agreement, the other Loan Documents,
or otherwise with respect to the Loan.
(j) To Borrower's knowledge, all copies of all
documents, reports, and statements heretofore furnished by or on
behalf of Borrower in connection with this Agreement to Lender,
are, and those delivered subsequent to the date hereof will be,
true and correct copies of the originals of such documents,
reports and statements. To Borrower's knowledge, all matters
stated or certified in any written statement, certificate, report
or other writing heretofore furnished pursuant to this Agreement
by or on behalf of Borrower to Lender are, and all matters stated
or certified subsequent to the date hereof will be, true and
correct as of the date stated or certified. All such documents,
reports, statements, writings and certifications shall be in form
and detail reasonably satisfactory to Lender.
ARTICLE 6
COVENANTS OF BORROWER
6.1 Borrower shall do all of the things necessary to
preserve, renew and keep in full force and effect, its corporate
existence and rights, licenses and permits, and shall comply in
all material respects with all laws applicable to it, and at all
times shall maintain all franchises and trade names and preserve
all property used in the conduct of its business, where the
failure to comply with such laws or the absence of such rights,
licenses, permits, franchises, trade names and property could
reasonably be expected to have a material adverse effect on
Borrower's business.
6.2 Borrower shall cause to be done all of the things
necessary to preserve, review and keep in force the corporate
existence, rights, licenses and permits of its Subsidiaries and
shall cause its Subsidiaries to comply in all material respects
with all laws applicable to them, and at all times maintain all
franchises and trade names and preserve all property used in the
conduct of its Subsidiaries' business, where the failure to
9<PAGE>
comply with such laws or the absence of such rights, licensees,
permits, franchises, trade names and property could reasonably be
expected to have a material adverse effect on Borrower's
business.
6.3 Borrower shall, at its expense, comply with or cause to
be complied with all of the material insurance requirements set
forth in this Agreement throughout the term of the Loan.
6.4 Borrower shall indemnify and hold harmless Lender from
any and all loss or damage of whatsoever kind and from any suits,
claims, or demands, including, without limitation, Lender's
reasonable legal fees and expenses, at all trial and appellate
levels, on account of any matter or thing arising out of this
Agreement or in connection herewith, or on account of any act or
omission to act by Borrower in connection with this Agreement or
the Loan, but excluding any suits, claims or demands arising from
negligent or willful acts of Lender. Borrower agrees to pay any
and all taxes (other than taxes on or measured by net income of
Lender) incurred or payable by Lender or Borrower in connection
with the execution and delivery of this Agreement and the Loan,
as well as all costs and expenses (including attorneys' fees in
such amount as the court deems reasonable and just) incurred by
Lender in enforcing this Agreement. Such obligation shall
survive repayment of the Loan.
6.5 Borrower shall duly comply with or cause to be complied
with all material terms and covenants contained in each of the
Loan Documents.
6.6 Borrower shall promptly notify Lender upon the
commencement of any action, suit or claim or counter-claim or
proceeding against, or investigation of, Borrower or any
subsidiary which could reasonably be expected to have a material
adverse effect on the business of Borrower.
6.7 Borrower shall promptly notify Lender in writing of (i)
any material assessments by any taxing authorities for unpaid
taxes as soon as Borrower has written notice thereof; and, (ii)
any alleged material default by Borrower or any Subsidiary in the
performance of any agreement, mortgage or indenture or instrument
to which Borrower or any Subsidiary is a party, or which is
binding upon Borrower or any Subsidiary and upon any material
default by Borrower or any Subsidiary in the payment of any of
its indebtedness where any such default could reasonably be
expected to have a material adverse effect on the business of
Borrower.
6.8 Borrower shall keep its books, and the books of its
Subsidiaries, in accordance with GAAP and shall furnish to
Lender, within One Hundred Twenty (120) days after the close of
its fiscal year a balance sheet as of the close of such year, and
statements of income and retained earnings and statements of cash
10<PAGE>
flows for such year. Such statements shall be consolidated
statements of Borrower and its Subsidiaries and shall be audited
and certified by nationally recognized independent certified
public accountants. Statements meeting these requirements and
included in Borrower's Form 10-K may be submitted by Borrower in
fulfillment of this obligation. Within sixty (60) days after
each fiscal quarter, Borrower shall furnish lender an internally
prepared balance sheet and income statement for such quarter.
Such statements shall be consolidated statements of Borrower and
its Subsidiaries and shall be certified as true, correct and
complete by Borrower's Chief Financial Officer. Statements
meeting these requirements and included in Borrower's Form 10-Q
may be submitted in fulfillment of this obligation.
6.9 Borrower shall furnish to Lender within one hundred
twenty (120) days after the close of its fiscal year, a true,
correct and complete copy of its Form 10-K filed for that fiscal
year. Borrower shall furnish to Lender within sixty (60) days
after the close of each fiscal quarter, a true, correct and
complete copy of its Form 10-Q filed for such fiscal quarter.
Borrower shall furnish Lender within forty five (45) days after
the close of each fiscal year true, correct and complete copies
of all Focus Reports for Borrower and its Subsidiaries. In
addition, Borrower shall timely furnish Lender a copy of all
other reports, and of all proxy statements and annual or
quarterly reports to shareholders that Borrower files with (or is
required to deliver to) the Securities and Exchange Commission
pursuant to applicable provisions of the Securities Exchange Act
of 1934, as amended, or regulations promulgated thereunder.
6.10 Borrower and its Subsidiaries shall at all times comply
with the aggregate indebtedness standards established by SEC Rule
15C3-1. Borrower and its subsidiaries shall comply with all
other Governmental Requirements where noncompliance could
reasonably be expected to have a material adverse affect on the
business of Borrower.
6.11 For Borrower and its Subsidiaries, on a consolidated
basis, the sum of asset accounts, being cash and equivalents
(including segregated cash and special reserve deposits),
commissions and other receivables from clearing brokers,
receivables from customers net of allowance for doubtful
accounts, securities owned (at market value), income tax
receivables, and any other account or note receivable which is
deemed fully collectable within one year from the date of
statement divided by the sum of liability accounts, being short
term borrowings from bank, accounts payable, accrued expenses,
payables to customers, payables to brokers and dealers,
securities sold but not yet purchased (at market value), income
taxes payable, and other liability accounts payable within one
year from the date of statement, all calculated in accordance
with GAAP, shall not fall below 1.05 to 1.00.
11<PAGE>
6.12 For Borrower and its Subsidiaries, on a consolidated
basis, the sum of asset accounts, being cash and equivalents
(including segregated cash and special reserve deposits),
commissions and other receivables from clearing brokers,
receivables from customers net of allowance for doubtful
accounts, securities owned (at market value), income tax
receivables, and any other account or note receivable which is
deemed fully collectable within one year from the date of
statement less the sum of liability accounts, being short term
borrowings from bank, accounts payable, accrued expenses,
payables to customers, payables to brokers and dealers,
securities sold but not yet purchased (at market value) income
taxes payable, and other liability accounts payable within one
year from the date of statement, all calculated in accordance
with GAAP, shall not fall below Ten Million and No/100 Dollars
($10,000,000.00).
6.13 Debt Service Coverage for Borrower and its
Subsidiaries, on a consolidated basis, shall not fall below 1.20
to 1.00. Debt Service Coverage shall be defined as the total of
net income plus interest expense plus depreciation expense plus
amortization expense, divided by the total of interest expense
plus all principal payments made to Gillman CMG, Inc., (exclusive
of the "Stock Loan" as defined in Borrower's 10-Q Report for the
quarter ended March 31, 1996) plus principal payments on other
term debt, all calculated in accordance with GAAP. Debt Service
Coverage for Borrower and its Subsidiaries, on a consolidated
basis, calculated as above set forth but including principal
payments made under the Stock Loan shall not fall below 1.00 to
1.00.
6.14 For Borrower and its Subsidiaries, on a consolidated
basis, reported net income plus amortized expenses reported for
the amortization of intangible expenses associated with the
acquisition of assets or equity, during any four of the preceding
six quarters calculated in accordance with GAAP shall, in the
aggregate, exceed One Million Five Hundred Thousand and No/100
Dollars ($1,500,000.00).
6.15 Stockholder equity for Borrower and its Subsidiaries,
on a consolidated basis, excluding redeemable common stock and
redeemable preferred stock, calculated in accordance with GAAP,
shall not be less than Nine Million and No/100 Dollars
($9,000,000.00), and shall increase each year by seventy five
percent (75%) of annual net income plus seventy five percent
(75%) of net proceeds from common stock equity issues, all
calculated in accordance with GAAP.
6.16 Borrower shall furnish to Lender, within sixty (60)
days after the close of its fiscal year, a statement of the net
worth of all Subsidiaries, in the aggregate and by each
Subsidiary, calculated in accordance with GAAP and certified as
true, correct and complete by Borrower's Chief Financial Officer.
12<PAGE>
6.17 Borrower shall provide or cause to be provided to
Lender such proforma financial statements and other financial
information reasonably requested by Lender from time to time
during the term of the Loan.
6.18 Borrower shall allow Lender, or Lender's designated
agent, to enter upon Borrower's premises and inspect Borrower's
property at all reasonable times during normal business hours.
Lender shall provide Borrower with twenty-four (24) hours written
notice, except where Borrower is in default under the Loan.
6.19 Borrower shall maintain a policy of "key man" life
insurance on Marshall Leeds in the amount of One Million and
No/100 Dollars ($1,000,000.00) (the "Key Man Policy") with a
company rated "A" or better by Best's. The Key Man Policy shall
be assigned to Lender contemporaneously herewith as security for
the payment and performance of the Loan, to the extent of the
lesser of the face amount of the Key Man Policy or the
outstanding amount (principal, interest, fees and charges) of the
Loan, by an Assignment of Key Man Life Insurance in form and
substance reasonably acceptable to Lender, duly executed by the
owner and beneficiaries of the Policy and filed with the issuing
insurer. The Key Man Policy shall only be cancelable upon thirty
(30) days written notice to Lender.
6.20 Borrower shall maintain demand deposit operating
account(s) with Lender during the term of the Loan, into which
funds advanced under the Loan will be deposited.
6.21 Borrower shall transfer its primary depository/treasury
management relationship to Lender within sixty (60) days after
the date of this Agreement and shall maintain such relationship
with Lender during the term of the Loan. For the purposes of
this Agreement, Borrower's primary depository/treasury management
relationship shall mean not less than ninety percent (90%) of the
balances (as reflected in bank statements and records) of all
operating, payroll and zero balance accounts of Borrower and its
Subsidiaries located outside of the State of New York exclusive
of Local Accounts. "Local Accounts", as used herein, shall mean
depository accounts used for Broker/Dealer correspondents and to
facilitate local deposits where a SunTrust Bank is not
convenient.
6.22 The Borrower and its Subsidiaries shall not incur
additional funded debt other than "Permitted Funded Debt" (as
hereinafter defined) in excess of One Hundred Thousand and No/100
Dollars ($100,000.00) in the aggregate per annum or outstanding
at any one time without the prior written consent of Lender. As
used herein, "Permitted Funded Debt" shall mean (a) other
unsecured lines of credit extended to Borrower and/or its
Subsidiaries which do not exceed Five Million and No/100 Dollars
($5,000,000.00) in the aggregate or to which Lender has given its
prior written consent and to which the Loan is at least pari
passu; (b) Borrower's existing Bank of New York Securities
Warehousing line of credit; (c) unsecured current liability
incurred with trade creditors in the ordinary course of business
other than those which are for money borrowed or are evidenced by
13<PAGE>
bonds, debentures, notes or similar instruments; (d) money
borrowed from banks or other financial institutions in the
ordinary course of business and solely for the purpose of
purchasing securities for the accounts of a Broker/Dealer
Subsidiary or customer margin accounts of a Broker/Dealer
Subsidiary; and (e) notes or similar written instructions
excluded in the ordinary course of business and solely for the
purpose of providing fidelity bond insurance and insurance of
customers accounts in excess of the coverage provided by the
Securities Investor Protection Corporation ("SIPC").
6.23 Borrower and/or its Subsidiaries shall not enter into
equipment leases in excess of Five Hundred Thousand and
No/Dollars ($500,000.00) per annum on an aggregate carry-over
basis.
6.24 Borrower and/or its Subsidiaries, excluding
Broker/Dealer subsidiaries, shall not guarantee any other
indebtedness in excess of Five Hundred Thousand and No/100
Dollars ($500,000.00) in the aggregate during the term of the
Loan. Broker/Dealer Subsidiaries shall not guarantee any
indebtedness in excess of Three Hundred Thousand and No/100
Dollars ($300,000.00) in the aggregate during the term of the
Loan.
6.25 Except as permitted in accordance with Section 6.26
hereof, Broker/Dealer Subsidiaries shall not assume liabilities
or acquire assets except in the normal and ordinary course of a
Broker/Dealer Subsidiary's business.
6.26 Borrower and/or its subsidiaries shall not make
acquisitions where the aggregate cash portion of the purchase
price exceeds One Million and No/100 Dollars ($1,000,000.00) per
annum without the prior written consent of Lender. Such written
consent shall not be unreasonably withheld.
6.27 Except as permitted in accordance with Section 6.23,
Borrower and its Subsidiaries shall not permit any of their
assets to be encumbered with liens or other security interests in
favor of third parties without the prior written consent of
Lender. Lender hereby consents to liens created pursuant to
Borrower's existing Bank of New York Securities Warehousing line
of credit.
6.28 Borrower shall not sell or convey any of its assets.,
except in the normal and ordinary course of business, including
any merger, consolidation or reorganization, unless consented to
in writing by Lender, where such sale or conveyance would
reasonably be expected to have a material adverse effect on the
business of Borrower.
6.29 Borrower will, within ten (10) days after written
request from Lender, furnish a written statement in form
satisfactory to Lender, duly acknowledged: (i) setting forth the
unpaid principal balance of, and the interest and other sums due
on, the indebtedness evidenced by the Note and/or secured by any
of the other Loan Documents; (ii) stating whether or not any
offsets or defenses exist against the payments due under the Note
14<PAGE>
or any of the other Loan Documents; and (iii) setting forth such
other information as Lender may request from time to time.
6.30 Borrower will notify Lender immediately of any change
in (a) the name of Borrower or any of its Subsidiaries, (b) the
principal place of business of Borrower or any of its
Subsidiaries, (c) the office where the books and records of
Borrower or any of its Subsidiaries are kept, or (d) any change
in the registered agent of Borrower or any of its Subsidiaries
for the purpose of service of process.
6.31 Borrower shall use or cause to be used the funds
borrowed by Borrower under this Agreement solely for the purpose
of providing working capital for Borrower's business operations.
ARTICLE 7
EVENTS OF DEFAULT
Each of the following is an Event of Default:
(a) Failure by Borrower to pay any installment of
interest or principal under the Note or any other obligation, or
liability of Borrower to Lender as and when the same shall become
due, where such failure extends beyond any applicable grace or
cure period;
(b) If any representation or warranty of Borrower
hereunder shall prove to be incorrect in any material respect and
Borrower knew or reasonably should have known that such
representation or warranty was incorrect at the time it was made;
(c) The commencement of levy, execution or attachment
proceedings against Borrower or any of the Guarantors or
Broker/Dealer Subsidiaries where such proceedings would
reasonably be expected to have a material adverse effect on the
business of Borrower, or the application for or appointment of a
liquidator, receiver, custodian, sequester, conservator, trustee,
or other similar judicial officer where such proceedings would
reasonably be expected to have a material adverse effect on the
business of Borrower (and such appointment continued for a period
of fifteen (15) days), or the insolvency, in the bankruptcy or
equity sense, of Borrower or any of the Guarantors or
Broker/Dealer Subsidiaries where such insolvency would reasonably
be expected to have a material adverse effect on the business of
Borrower;
(d) The assignment for the benefit of creditors, or
the admission in writing of any inability to pay any debts
generally as they become due, or ordering the winding up or
liquidation of its affairs, by Borrower or Broker/Dealer
subsidiaries, or the commencement of a case by Borrower or
Broker/Dealer Subsidiaries, under any insolvency, bankruptcy,
creditor adjustment, debtor rehabilitation or similar law, state
or federal;
15<PAGE>
(e) The determination by Borrower or Broker/Dealer
subsidiaries to request relief under any insolvency, bankruptcy,
creditor adjustment, debtor rehabilitation or similar proceeding,
state or federal, including without limitation the consent by any
of them to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar
official for it or for any of its respective property or assets;
(f) The commencement of a case against Borrower or
Broker/Dealer Subsidiaries under any insolvency, bankruptcy,
creditor adjustment, debtor rehabilitation or similar law, state
or federal, and the failure to have such proceedings dismissed or
stayed within a period of Forty-Five (45) days.
(g) The occurrence of any adverse change in the
financial condition of Borrower or any of its Subsidiaries which
could reasonably be expected to have a material adverse effect on
the business of Borrower;
(h) The entry against Borrower and/or its subsidiaries
of one or more final judgments or decrees which, in Lender's
reasonable judgment, materially impair the ability of Borrower to
perform its obligations under the Loan;
(i) The occurrence of a default by Borrower or any of
its subsidiaries in the performance of its obligations under any
other loan with Lender and/or any other lender where such default
continues beyond any applicable cure or grace period set forth in
the instruments evidencing or securing such loan or loans and
could reasonably be expected to have a material adverse effect on
the business of Borrower;
(j) The occurrence of any change or event which, in
Lender's reasonable judgment, materially increases Lender's risk
in connection with the Loan or indicates that Borrower or any
Guarantor may be unable to perform its obligations under any Loan
Document;
(k) The voluntary or involuntary dissolution,
termination or liquidation of Borrower which, if involuntary, has
not been dismissed or stayed within thirty (30) days after the
commencement thereof, or the merger or consolidation of Borrower
or any Broker Dealer Subsidiary into any other entity without the
prior written consent of Lender;
(1) The (i) assignment for benefit of creditors, or
the admission in writing of any inability to pay debts generally
as they become due, or ordering the winding up or liquidation of
its affairs by any of the Guarantors; or (ii) commencement of a
case by any Guarantor under any insolvency, bankruptcy, creditor
adjustment, debtor rehabilitation or similar law, state or
federal, or (iii) determination by any of the Guarantors to
request relief under any insolvency, bankruptcy, creditor
adjustment, debtor rehabilitation or similar proceeding, state or
federal, including, without limitation, the consent to the
appointment or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestration or similar official
16
<PAGE>
for it or for any of its Property or assets; or (iv) commencement
of a case against any of the Guarantors under any insolvency,
bankruptcy, creditor adjustment, debtor rehabilitation or similar
law, state or federal, and the failure to have such proceedings
dismissed or stayed within a period of forty-five (45) days; or
(v) voluntary or involuntary dissolution, termination or
liquidation of any of the Guarantors, or the merger or
consolidation of any of the Guarantors into any other entity
without the prior written consent of Lender where the aggregate
result of such actions over the term of the Loan, inclusive of
the subject action has been a reduction of the aggregate net
worth, calculated in accordance with GAAP, of all Guarantors of
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) or
more;
(m) The occurrence of any default under any other term
of this Agreement where such default continues for ten (10) days
after written notice thereof by Lender, or the occurrence of any
other default under the Note or any of the Guaranties where any
such default continues beyond any applicable cure or grace period
set forth in such instruments.
ARTICLE 8
SET-OFFS
In addition to any other rights Lender may have at law or in
equity, if Borrower becomes insolvent, howsoever evidenced, or
any Event of Default occurs and is continuing, any indebtedness
from Lender to Borrower and any sums held in any account (other
than accounts of Broker/Dealer Subsidiaries and other than
fiduciary or trust funds, which have been so identified by
Borrower to Lender) or property of Borrower held by Lender, may
be set-off and applied towards the payment of the Indebtedness of
Borrower under this Agreement (including, but not limited to all
Indebtedness evidenced by the Note) to Lender, including, without
limitation, any note payable to Lender, whether or not such
Indebtedness of Borrower to Lender or any part thereof shall then
be due.
ARTICLE 9
LENDER'S REMEDIES IN EVENT OF DEFAULT
9.1 Upon any Event of Default, subject only to any notice
requirement and grace period expressly provided in the Note or
other Loan Documents, Lender shall be entitled to all of its
rights or remedies hereunder, at law or in equity and under the
Note, any other Loan Documents, including, without limitation,
the right to declare the outstanding principal balance of the
Note, the accrued interest thereon, and all other obligations of
Borrower to Lender under this Agreement or otherwise to be
immediately due and payable, without presentment, demand, protest
or other notice of any kind, all of which are hereby expressly
waived, anything in this Agreement or in the Note to the contrary
notwithstanding, and Lender's obligation to make any additional
Advances hereunder shall be permanently terminated.
17<PAGE>
9.2 All of the remedies herein given to Lender or otherwise
available to it shall be cumulative and may be exercised
concurrently. Failure to exercise any of the remedies herein
provided shall not constitute a waiver thereof by Lender, nor
shall use of any such remedies prevent the subsequent or
concurrent resort to any other remedy or remedies which shall be
vested in Lender by this Agreement or at law or in equity. To be
effective, any waiver by Lender must be in writing and such
waiver shall be limited in its effect to the condition or default
specified therein; but no such waiver shall extend to any
subsequent condition or default or impair any right consequent
thereon.
ARTICLE 10
MISCELLANEOUS
10.1 Any condition of this Agreement which requires the
submission of evidence of the existence or non-existence of a
specified fact or facts implies as a condition the existence or
non-existence, as the case may be, of such fact or facts, and
Lender shall, at all times, be free independently to establish to
its satisfaction and in its absolute discretion such existence or
non-existence.
10.2 No part of the Loan will be, at any time, subject or
liable to attachment or levy at the suit of any creditor of
Borrower or of any other interested party, or at the suit of any
contractor, subcontractor, sub-subcontractors or materialman, or
any of their creditors.
10.3 If performance of any provision hereof or any
transaction related hereto is limited by law, then the obligation
to be performed shall be reduced accordingly, and if any clause
or provision herein contained operates or would operate to
invalidate this Agreement in part, then the invalid part of said
clause or provisions only shall be held for naught as though not
contained herein, and the remainder of this Agreement shall
remain operative and in full force and effect.
10.4 If Lender shall waive any provisions of the Loan
Documents, or shall fail to enforce any of the conditions or
provisions of this Agreement, such waiver shall not be deemed to
be a continuing waiver, and shall never be construed as such, and
Lender shall thereafter have the right to insist upon the
enforcement of such conditions or provisions. Furthermore, no
provision of this Agreement shall be amended, waived, modified,
discharged or terminated except by instrument in writing, signed
by the parties hereto.
18<PAGE>
10.5 This Agreement and the documents expressly referred to
herein embody the entire agreement and understanding between the
parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to
the subject matter. This Agreement may be changed, waived,
discharged, or terminated only by an instrument in writing duly
executed by the party against which enforcement of such change,
waiver, discharge, or termination is sought.
10.6 All notices given hereunder shall be in writing and
addressed as follows:
(a) Lender:
SUNTRUST BANK, SOUTH FLORIDA, N.A.
501 East Las Olas Boulevard, Seventh Floor
Fort Lauderdale, FL 33301
Attention: David K. Ross
with copy to:
Lawrence C. Callaway, III, Esq.
BERGER & DAVIS,, P.A.
100 N.E. Third Avenue, Suite 400
Fort Lauderdale, Florida 33301
(b) Borrower:
JW CHARLES FINANCIAL SERVICES, INC.
980 North Federal Highway
Boca Raton, Florida 33432
Attention: Gregg S. Glaser, Executive
Vice President
with a copy to:
Joel E. Marks, Vice Chairman
JW CHARLES FINANCIAL SERVICES, INC.
1117 Perimeter Center West, Suite 500-E
Atlanta, Georgia 30338
and with copy to:
W. Randy Eaddy, Esq.
KILPATRICK & CODY LLP
1100 Peachtree Street, Suite 2800
Atlanta, Georgia 30309
19<PAGE>
Any notice shall be given by hand delivery, nationally recognized
overnight courier service or by mailing the same by certified
mail, return receipt requested, postage prepaid.
10.7 This Agreement, the Loan Documents and all other
documents relating hereto or thereto may be reproduced by Lender,
and, Lender may destroy any original documents so reproduced.
Borrower agrees and stipulates that any such reproduction shall
be admissible in evidence as the original itself in any
jurisdiction or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was
made by Lender in the regular course of business) and that any
enlargement, facsimile, or further reproduction of said document
shall likewise be admissible in evidence.
10.8 In no event, shall Lender's rights hereunder or under
any of the Loan Documents, grant Lender the right to or be deemed
to indicate that Lender is in control of the business, management
or properties of Borrower, or has power over the daily management
functions and operating decisions made by Borrower. Lender is
the lender only and shall not be considered a shareholder, joint
venturer or partner of Borrower.
10.9 The headings preceding the text of the sections of this
Agreement are used solely for convenience of reference and shall
not affect the meaning, construction, or effect of this
Agreement.
10.10 Lender shall have the right at any time to convey
or assign the Loan or any portion thereof, and, additionally,
shall have the right to sell a participation in the Loan to
another lending institution at any time that the Loan is
outstanding, in any amount as solely determined by Lender.
10.11 Borrower shall not assign this Agreement without
the prior written consent of Lender, and any assignment in
violation hereof shall be of no force and effect and shall
constitute an Event of Default herein. Any assignment of this
Agreement shall be in Lender's sole discretion. Subject to the
previous sentence, this Agreement shall extend to and bind the
parties hereto, and their respective successors and assigns.
10.12 This Agreement shall be governed by and construed
in accordance with the laws of the State of Florida.
LENDER AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION BASED HEREON OR ARISING OUT
OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT AND ANY
AGREEMENT CONTEMPLATED OR TO BE EXECUTED IN CONJUNCTION
HEREWITH, UNDER ANY OF THE LOAN DOCUMENTS, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF EITHER
PARTY.
20<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
Signed, sealed and delivered in
the presence of: BORROWER:
JW CHARLES FINANCIAL SERVICES,
INC., a Florida corporation
/s/ Whit Stolz By: /s/ Joel Marks
/s/ Delores Walters Name: Joel Marks
Title: Chief Financial Officer
[CORPORATE SEAL]
LENDER:
SUNTRUST BANK, SOUTH FLORIDA,
N.A., a national banking association
/s/ W. Randy Eaddy By:/s/ David K. Ross
/s/ [unreadable] Name: David K. Ross
Title: Assistant Vice President
[CORPORATE SEAL]
21
<PAGE>
SCHEDULE "A"
Commencing May 31, 1998, and continuing on the last day of each
month thereafter the maximum aggregate principal sum of the Note
shall decrease by Two Hundred Ten Thousand and No/100 Dollars
($210,000.00) as hereafter detailed:
Date Availability
- - ---- ------------
May 31, 1998 $2,290,000.00
June 30, 1998 $2,080,000.00
July 31, 1998 $1,870,000.00
August 31, 1998 $1,660,000.00
September 30, 1998 $1,450,000.00
October 31, 1998 $1,240,000.00
November 30, 1998 $1,030,000.00
December 31, 1998 $820,000.00
January 31, 1999 $610,000.00
February 28, 1999 $400,000.00
March 31, 1999 $190,000.00
April 30, 1999 $ 0.00
Outstanding principal sums in excess of the resulting maximum
aggregate principal sum shall be due and payable, without demand
upon the date reduction is effective.
22
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE HEREOF CAN BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND SUCH SHARES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT, UNLESS, IN THE OPINION OF COUNSEL TO THE
COMPANY, SUCH REGISTRATION IS NOT THEN REQUIRED.
JWCHARLES FINANCIAL SERVICES, INC.
980 North Federal Highway
Boca Raton, Florida 33432
COMMON STOCK PURCHASE WARRANT
Date of Issuance: Right to Purchase
_______________ ___, 1996 25,000 Shares
Expiration Date:
December 31, 2002
THIS CERTIFIES THAT, for value received, the person named
immediately below,
SUNTRUST BANKS, INC.
or the registered assigns of such person (the "Registered
Holder"), is entitled to purchase from JWCHARLES FINANCIAL
SERVICES, INC., a Florida corporation (the "Company"), the number
of shares of the Company's common stock, $.001 par value per
share, set forth above, subject to adjustment pursuant to Section
5 hereof, at the Exercise Price (as defined in subsection 3.1)
per Share, subject to adjustment as set forth in Section 4 hereof
(the "Exercise Price').
The amount and kind of securities purchasable pursuant to
the rights granted under this Warrant and the purchase price for
such securities are subject to adjustment pursuant to the
provisions contained in this Warrant. This Warrant is also
subject to the following provisions:
1.
Certain Definitions
-------------------
As used in this Warrant, the following terms have the
meanings set forth below:
<PAGE>
"Affiliate" means any corporation directly under common
control with the Registered Holder.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.001 par
value per share, as constituted on the Date of Issuance.
However, upon the occurrence of certain events prescribed herein
that affect the Common Stock otherwise issuable upon exercise of
this Warrant, Common Stock shall mean Warrant Stock.
"Common Stock Deemed Outstanding" means, at any given time,
the Weighted Average Common Stock Outstanding plus the number of
shares of Common Stock deemed to be outstanding pursuant to
Section 3 of this Warrant
"Date of Issuance" is the date set forth on the front page
of this Warrant, and the terms "date hereof," "date of this
Warrant," and similar expressions shall be deemed to refer to the
Date of Issuance of this Warrant.
"Exercise Period" means the period of time commencing on the
Date of Issuance and ending at 12:00 Midnight, Eastern Time, on
December 31, 2002.
"GAAP" means generally accepted accounting principles as
applied in the United States and on a basis with respect to the
Company that is consistent for or within each period affected.
"Market Price" means as to any security (i) the average of
the closing prices of such security's sales on the principal
domestic securities exchange on which such security may at the
time be listed (but only if such exchange, as opposed to The
Nasdaq Stock Market, is the principal trading market for such
security), or (ii) if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest
asked prices on such exchange at the end of such day, or (iii) if
on any day such security is not so listed and traded, the average
of the representative bid and asked prices quoted in The Nasdaq
Stock Market as of the close of trading in New York City on such
day, or, if on any day such security is not quoted in The Nasdaq
Stock Market, the average of the high and low bid and asked
prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any
similar successor organization, in each such case averaged over a
period of 20 consecutive business days consisting of the business
day immediately preceding the day as of which "Market Price" is
being determined and the 19 consecutive business days prior to
such day; provided that if such security is listed on any
domestic securities exchange or quoted in The Nasdaq Stock
Market, the term "business day" or "business days" as used in
this sentence means a day or days, as applicable, on which such
exchange or The Nasdaq Stock Market is open for trading or
quotation, as the case may be. If at any time such security is
not listed on any domestic securities exchange or quoted in The
Nasdaq Stock Market or the domestic over-the-counter market, the
"Market Price" will be the fair value thereof determined jointly
by the Company and the Registered Holder; provided that if such
parties are unable to reach agreement, such fair value will be
determined by an appraiser jointly selected by the Company and
the Registered Holder.
-2-<PAGE>
"The Nasdaq Stock Market" means the Nasdaq Inter-Dealer
Quotation System or such other similar inter-dealer quotation
system as may in the future be used generally by members of the
National Association of Securities Dealers, Inc. for
over-the-counter transactions in securities.
"Person" means an individual, a partnership, a corporation,
a trust, a joint venture, an unincorporated organization, and a
government or any department or agency thereof.
"Warrant Stock" means shares of the Company's authorized but
unissued Common Stock issued or issuable upon exercise of this
Warrant or any other of the Warrants; provided that if there is a
change such that the securities issuable upon exercise of a
Warrant are issued by an entity other than the Company, or there
is a change in the class of securities so issuable, then the term
"Warrant Stock" will mean one share of the security issuable upon
exercise of the Warrant if such security is issuable in shares,
or will mean the smallest unit in which such security is issuable
if such security is not issuable in shares.
"Warrant" mean this Warrant providing for the purchase of up
to 25,000 shares of Common Stock, subject to adjustment as
provided herein, and all common stock purchase warrants issued in
exchange or substitution for this Warrant or any such other
common stock purchase warrant issued pursuant to the terms hereof
or thereof, as the case may be.
"Weighted Average Common Stock Outstanding" means, at any
given time, the number of shares of Common Stock deemed to be
outstanding in accordance with GAAP as of the end of the
Company's most recent fiscal quarter ended.
2.
Exercise of Warrant
-------------------
2.1 Exercise Period. The Registered Holder may exercise
this Warrant, in whole or in part (but not as to a fractional
share), at any time and from time to time, during the Exercise
Period.
2.2 Exercise Procedure.
(a) This Warrant will be deemed to have been exercised
at such time as the Company has received all of the following
items (the "Exercise Date"):
(i) a completed Exercise Agreement, as described
below, executed by the Registered Holder
exercising all or part of the purchase rights
represented by this Warrant;
(ii) this Warrant (subject to delivery by the Company
of a new Warrant with respect to any unexercised
portion, as provided in Section 2.2(b)); and
-3-<PAGE>
(iii) a certified check or other certified funds
payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the
number of shares of Warrant Stock being purchased
upon such exercise.
(b) Certificates for shares of Warrant Stock purchased
upon exercise of this Warrant will be delivered by the Company to
the Registered Holder within ten days after the Exercise Date.
Unless this Warrant has expired or all of the purchase rights
represented hereby have been exercised, the Company will prepare
a new Warrant representing the rights formerly represented by
this Warrant that have not expired or been exercised. The
Company will, within such ten-day period, deliver such new
Warrant to the Registered Holder.
(c) The Warrant Stock issuable upon the exercise of
this Warrant will be deemed to have been issued to the Registered
Holder on the Exercise Date, and the Registered Holder will be
deemed for all purposes to have become the record holder of such
Warrant Stock on the Exercise Date.
(d) The issuance of certificates for shares of Warrant
Stock upon exercise of this Warrant will be made without charge
to the Registered Holder for any issuance tax in respect thereof
or any other cost incurred by the Company in connection with such
exercise and the related issuance of shares of Warrant Stock;
provided, however, that the Company 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 or instrument in
a name other than that of the Registered Holder of this Warrant,
and the Company shall not be required to issue or deliver any
such certificate or instrument unless and until the Person or
Persons requesting the issue thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(e) The Company will not close its books for the
transfer of this Warrant or of any of the securities issuable
upon the exercise of this Warrant in any manner that interferes
with the timely exercise of this Warrant. The Company will from
time to time take all such action as may be necessary to assure
that the par value per share of the unissued Warrant Stock
acquirable upon exercise of this Warrant is at all times equal to
or less than the Exercise Price then in effect.
2.3 Exercise Agreement. The Exercise Agreement will be
substantially in the form set forth as Exhibit I hereto.
2.4 Fractional Shares. If a fractional share of Warrant
Stock would be issuable upon exercise of the rights represented
by this Warrant, the Company will, within 20 days after the
Exercise Date, deliver to the Registered Holder a check payable
to the Registered Holder, in lieu of such fractional share, in an
amount equal to the Market Price of such fractional share as of
the close of business on the Exercise Date.
-4-<PAGE>
3.
Exercise Price
--------------
3.1 General.
(a) The exercise price per Share shall be $10.00. In
order to prevent dilution of the rights granted under this
Warrant, the Exercise Price will also be subject to adjustment
from time to time pursuant to this Section 3.
(b) If and whenever the Company issues or sells, or in
accordance with subsection 3.2 is deemed to have issued or sold,
any shares of its Common Stock for a consideration per share less
than the lesser of ninety percent (90%) of the Market Price per
share of Common Stock, on the one hand, and the Exercise Price in
effect immediately prior to the time of such issuance or sale, on
the other hand (such lesser price being hereinafter referred to
as the "Antidilution Strike Price"), then immediately upon such
issuance or sale the Exercise Price will be reduced to a price
determined by multiplying the Exercise Price in effect
immediately prior to the issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding prior to the issuance or sale plus
(ii) the number of shares of Common Stock (in terms of Warrant
Stock issuable upon an exercise of this Warrant) that the maximum
aggregate amount receivable by the Company upon such issuance or
sale would purchase at the Antidilution Strike Price effective
immediately prior to the issuance or sale, and the denominator of
which shall be the number of shares of Common Stock Deemed
Outstanding immediately after such issuance or sale.
(c) The following securities or transactions shall be
excluded from the operation of paragraph (b) of this subsection
3.1 and subsection 3.2:
(i) The existence and any exercise of any option,
warrant, or other right to purchase Common Stock,
or the conversion into or exchange for Common
Stock of any security of the Company, that is
outstanding on the Issuance Date.
(ii) Any grant or exercise of options for Common Stock
under the Company's 1990 Stock Option Plan.
3.2 Effect on Exercise Price of Certain Events. For
purposes of determining the adjusted Exercise Price under
subsection 3.1 above, the following provisions will be
applicable:
(a) Issuance of Rights or Options. If the Company in any
manner grants any rights or options to subscribe for or to
purchase Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the
Antidilution Strike Price effective immediately prior to the time
-5-<PAGE>
of the granting of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such
Options will be deemed to be outstanding and to have been issued
and sold by the Company for such price per share. For purposes
of this paragraph, the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" will be determined by
dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration
payable to the Company upon exercise of all such Options, plus,
in the case of Options that relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any,
payable to the Company upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon the conversion or
exchange of all Convertible Securities issuable upon the exercise
of such Options. Except as otherwise provided in paragraphs (c)
and (d) below, no adjustment of the Exercise Price will be made
when Convertible Securities are actually issued upon the exercise
of such Options or when Common Stock is actually issued upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.
(b) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities,
and the price per share for which Common Stock is issuable upon
such conversion or exchange is less than the Antidilution Strike
Price effective immediately prior to the time of such issuance or
sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities
will be deemed to be outstanding and to have been issued and sold
by the Company for such price per share. For the purposes of
this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" will be determined by
dividing (i) the total amount received or receivable by the
Company as consideration for the issuance or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (ii) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. Except as otherwise
provided in paragraphs (c) and (d) below, no adjustment of the
Exercise Price will be made when Common Stock is actually issued
upon the conversion or exchange of such Convertible Securities,
and if any such issuance or sale of such Convertible Securities
is made upon exercise of any Options for which adjustments of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 3, no further adjustment of the
Exercise Price will be made by reason of such issuance or sale.
(c) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional
consideration, if any, payable upon the conversion or exchange of
any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock
changes at any time (other than under or by reason of provisions
that are designed to protect against dilution of the type set
-6-<PAGE>
forth in this Section 3 and that have no more favorable effect on
the holders of such Options or Convertible Securities than this
Section 3 would have if this Section 3 were included in such
Options or Convertible Securities), then the Exercise Price in
effect at the time of such change will be readjusted to the
Exercise Price that would have been in effect at such time had
such Options or Convertible Securities still outstanding provided
for such changed purchase price, additional consideration, or
changed conversion rate, as the case may be, at the time
initially granted, issued, or sold; such adjustment of the
Exercise Price will be made whether the result thereof is to
increase or reduce the Exercise Price then in effect under this
Warrant, provided that no such adjustment shall increase the
Exercise Price above the initial Exercise Price hereof.
(d) Treatment of Terminated or Expired Options and
Convertible Securities. Upon the expiration or the termination
of any Option or of any right to convert or exchange any
Convertible Security, without the exercise of such Option or
right, the Exercise Price then in effect hereunder will be
adjusted to the Exercise Price that would have been in effect at
the time of such expiration or termination had such Option or
Convertible Security never been issued, but such subsequent
adjustment shall not affect the number of shares of Common Stock
issued upon any exercise of this Warrant prior to the date such
adjustment is made.
(e) Calculation of Consideration Received. If any
Common Stock, Options, or Convertible Securities are issued or
sold or deemed to have been issued or sold for consideration that
includes cash, then the amount of cash consideration actually
received by the Company will be deemed to be the cash portion
thereof. If any Common Stock, Options, or Convertible Securities
are issued or sold or deemed to have been issued or sold for a
consideration part or all of which is other than cash, then the
amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except
where such consideration consists of securities, in which case
the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. If any Common
Stock, Options, or Convertible Securities are issued in
connection with any merger or consolidation in which the Company
is the surviving corporation, then the amount of consideration
therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options, or Convertible
Securities, as the case may be.
(f) Integrated Transactions. If any Option is issued
in connection with the issuance or sale of other securities of
the Company, together comprising one integrated transaction in
which no specific consideration is allocated to such Option by
the parties thereto, the Option will be deemed to have been
issued without consideration.
(g) Treasury Shares. The number of shares of Common
Stock Deemed Outstanding at any given time does not include
shares owned or held by or for the account of the Company, and
the disposition of any shares so owned or held will be considered
an issuance or sale of Common Stock.
3.3 Subdivision or Combination of Common Stock; and Stock
Dividends, Etc. If the Company shall at any time after the date
hereof (a) issue any shares of Common Stock or Convertible
-7-<PAGE>
Securities, or any rights to purchase Common Stock or Convertible
Securities, as a dividend or other distribution upon Common
Stock, (b) issue any shares of Common Stock, in subdivision of
outstanding shares of Common Stock by reclassification or
otherwise, or (c) combine outstanding shares of Common Stock, by
reclassification or otherwise, then the Exercise Price that would
apply if purchase rights hereunder were being exercised
immediately prior to such action by the Company shall be adjusted
by multiplying it by a fraction, the numerator of which shall be
the number of shares of Weighted Average Common Stock Outstanding
immediately prior to such dividend or other distribution,
subdivision, or combination and the denominator of which shall be
the number of shares of Weighted Average Common Stock Outstanding
immediately after such dividend, subdivision, or combination.
3.4 Certain Dividends or Distributions. If the Company
shall declare a dividend or other distribution upon the Common
Stock payable otherwise than out of earnings or earned surplus
and otherwise than in Common Stock or Convertible Securities, the
Exercise Price that would apply if purchase rights under the
Warrants were being exercised immediately prior to the
declaration of such dividend or distribution shall be reduced by
an amount equal, in the case of a dividend or other distribution
in cash, to the amount thereof payable per share of the Common
Stock or, in the case of any other dividend or distribution, to
the fair value of such dividend or distribution per share of the
Common Stock as determined in good faith by the Board of
Directors of the Company. For purposes of the foregoing, a
dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged with an amount equal
to the fair value of such dividend or distribution as determined
in good faith by the Board of Directors of the Company. Such
reductions shall take effect as of the date on which a record is
taken for the purpose of such dividend or distribution, or, if a
record is not taken, the date as of which the holders of Common
Stock of record entitled to such dividend or distribution are to
be determined.
3.5 No De Minimis Adjustments. No adjustment of the
Exercise Price shall be made if the amount of such adjustment
would be less than five cents per share, but in such case any
adjustment that otherwise would be required to be made shall be
carried forward and shall be made at the time and together with
the next subsequent adjustment that, together with any adjustment
or adjustments so carried forward, shall amount to not less than
five cents per share.
4.
Adjustment of Number of
-----------------------
Shares Issuable upon Exercise
-----------------------------
If the Company issues or sells, or, in accordance with
Section 3 hereof, is deemed to have issued or sold, any shares of
its Common Stock for a consideration per share below the
Antidilution Strike Price, then upon each adjustment of the
Exercise Price pursuant to Section 3 hereof, the Registered
Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the adjusted Exercise
Price in effect on the date purchase rights under this Warrant
are exercised, the number of shares of Warrant Stock, calculated
-8-<PAGE>
to the nearest 1/100th share, determined by (a) multiplying the
number of shares of Warrant Stock purchasable hereunder
immediately prior to the adjustment of the Exercise Price by the
Exercise Price in effect immediately prior to such adjustment,
and (b) dividing the product so obtained by the adjusted Exercise
Price in effect on the date of such exercise. The provisions of
subsection 2.4 shall apply, however, so that no fractional share
of Warrant Stock shall be issued upon exercise of this Warrant.
5.
Effect of Reorganization, Reclassification
------------------------------------------
Consolidation, Merger, or Sale
------------------------------
If at any time while this Warrant is outstanding there shall
be any reorganization or reclassification of the capital stock of
the Company (other than a subdivision or combination of shares
provided for in subsection 3.3 hereof), any consolidation or
merger of the Company with another corporation (other than a
consolidation or merger in which the Company is the surviving
entity and which does not result in any change in the Common
Stock), or any sale or other disposition by the Company of all or
substantially all of its assets to any other corporation, then
the Registered Holder of this Warrant shall thereafter upon
exercise of this Warrant be entitled to receive the number of
shares of stock or other securities or property of the Company,
or of the successor corporation resulting from such consolidation
or merger, as the case may be, to which the Common Stock (and any
other securities and property) of the Company, deliverable upon
the exercise of this Warrant, would have been entitled upon such
reorganization, reclassification of capital stock, consolidation,
merger, sale, or other disposition if this Warrant had been
exercised immediately prior to such reorganization,
reclassification of capital stock, consolidation, merger, sale,
or other disposition. In any such case, appropriate adjustment
(as determined in good faith by the Board of Directors of the
Company) shall be made in the application of the provisions set
forth in this Warrant with respect to the rights and interests
thereafter of the Registered Holder of this Warrant to the end
that the provisions set forth in this Warrant (including those
relating to adjustments of the Exercise Price and the number of
shares issuable upon the exercise of this Warrant) shall
thereafter be applicable, as near as reasonably may be, in
relation to any shares or other property thereafter deliverable
upon the exercise hereof as if this Warrant had been exercised
immediately prior to such reorganization, reclassification of
capital stock, consolidation, merger, sale, or other disposition
and the Registered Holder hereof had carried out the terms of the
exchange as provided for by such reorganization, reclassification
of capital stock, consolidation, or merger. If in any such
reorganization, reclassification, consolidation, or merger,
additional shares of Common Stock shall be issued in exchange,
conversion, substitution, or payment, in whole or in part, for or
of a security of the Company other than Common Stock, any such
issue shall be treated as an issue of Common Stock covered by the
provisions of Section 3, with the amount of the consideration
received upon the issue thereof being determined in good faith by
the Board of Directors of the Company. The Company shall not
effect any such reorganization, consolidation, or merger unless,
upon or prior to the consummation thereof, the successor
corporation shall assume by written instrument the obligation to
deliver to the Registered Holder hereof such shares of stock or
-9-<PAGE>
other securities, cash, or property as such Holder shall be
entitled to purchase in accordance with the foregoing provisions.
Notwithstanding any other provisions of this Warrant, in the
event of sale or other disposition of all or substantially all of
the assets of the Company as a part of a plan for liquidation of
the Company, all rights to exercise the Warrant shall terminate
60 days after the Company gives written notice to the Registered
Holder of this Warrant that such sale or other disposition has
been consummated.
6.
Notice of Adjustment
--------------------
Immediately upon any adjustment of the Exercise Price, or
increase or decrease in the number of shares of Common Stock
purchasable upon exercise of this Warrant, the Company will send
written notice thereof to the Registered Holder, stating the
adjusted Exercise Price and the increased or decreased number of
shares purchasable upon exercise of this Warrant and setting
forth in reasonable detail the method of calculation for such
adjustment and increase or decrease. When appropriate, such
notice may be given in advance and included as part of any notice
required to be given pursuant to Section 7 below.
7.
Prior Notice of Certain Events
------------------------------
If at any time:
(a) the Company shall pay any dividend payable in
stock upon its Common Stock or make any distribution (other
than cash dividends) to the holders of its Common Stock;
(b) the Company shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of
stock of any class or any other rights;
(c) there shall be any reorganization or
reclassification of the capital stock of the Company, any
consolidation or merger of the Company with another
corporation (other than a direct or indirect subsidiary of
the Company), or a sale or disposition of all or
substantially all its assets; or
(d) there shall be a voluntary or involuntary
dissolution, liquidation, or winding up of the Company,
then, in each such case, the Company shall give prior written
notice, by hand delivery or by certified mail, postage prepaid,
addressed to the Registered Holder of this Warrant at the address
of such holder as shown on the books of the Company, of the date
on which (i) the books of the Company shall close or a record
shall be taken for such stock dividend, distribution, or
subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up shall take place, as the case may be.
A copy of each such notice shall be sent simultaneously to each
transfer agent of the Company's Common Stock. Such notice shall
also specify the date as of which the holders of Common Stock of
record shall participate in said dividend, distribution, or
subscription rights or shall be entitled to exchange their Common
-10-<PAGE>
Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, as the case may be.
Such written notice shall be given at least 30 days prior to the
record date or the effective date, whichever is earlier, of the
subject action or other event.
8.
Reservation of Common Stock
---------------------------
The Company will at all times reserve and keep available for
issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding
Warrants, and upon such issuance such shares of Common Stock will
be validly issued, fully paid, and nonassessable.
9.
No Stockholder Rights or Obligation
-----------------------------------
This Warrant will not entitle the holder hereof to any
voting rights or other rights as a stockholder of the Company.
No provision of this Warrant, in the absence of affirmative
action under Section 2.2 hereof by the Registered Holder to
purchase Warrant Stock, and no enumeration in this Warrant of the
rights or privileges of the Registered Holder, will give rise to
any obligation of such Holder for the Exercise Price of Warrant
Stock acquirable by exercise hereof or as a stockholder of the
Company.
10.
Non-transferability
-------------------
This Warrant and all rights hereunder are not transferable,
in whole or in part, except to an Affiliate. The Warrant Stock
issued upon exercise hereof may not be offered, sold, or
transferred except in compliance with the Securities Act of 1933,
as amended (the "Act"), and any applicable state securities laws,
and then only against receipt of an agreement of the Person to
whom such offer or sale is made to comply with the provisions of
this Section 10 with respect to any resale or other disposition
of such securities; provided that no such agreement shall be
required from any Person purchasing any security underlying this
Warrant pursuant to a registration statement effective under the
Act. The Registered Holder of this Warrant agrees that, prior to
the disposition of any security purchased on the exercise hereof
under circumstances that might require registration of such
security under the Act, or any similar statute then in effect,
the Registered Holder shall give written notice to the Company,
expressing its intention as to such disposition. Promptly upon
receiving such notice, the Company shall present a copy thereof
to its securities counsel. If, in the opinion of such counsel
(or of other securities counsel reasonably acceptable to the
Company), the proposed disposition does not require registration
of such security under the Act, or any similar statute then in
effect, the Company shall, as promptly as practicable, notify the
Registered Holder of such opinion, whereupon the Registered
Holder shall be entitled to dispose of such security in
-11-
<PAGE>
accordance with the terms of the notice delivered by the
Registered Holder to the Company. The above agreement by the
Registered Holder of this Warrant shall not be deemed to limit or
restrict in any respect the exercise of rights set forth in
Section 11 hereof.
11.
Registration Rights
-------------------
11.1 "Piggyback Rights". If at any time during the Exercise
Period, the Company shall prepare and file one or more
registration statements under the Act with respect to a public
offering of equity or debt securities of the Company, or of any
such securities of the Company held by its security holders, the
Company will include in any such registration statement such
information as is required, and such number of the Warrant Stock
issuable, or previously issued and then outstanding, pursuant to
the exercise of this Warrant (collectively, the "Warrant
Securities") held by the Registered Holders thereof or their
respective designees or transferees as may be requested, to
permit a public offering of the Warrant Securities so requested;
provided, however, that if, in the written opinion of the
Company's managing underwriter, if any, for such offering, the
inclusion of the Warrant Securities requested to be registered,
when added to the securities being registered by the Company or
the selling security holder(s), would exceed the maximum amount
of the Company's securities that can be marketed without
otherwise materially and adversely affecting the entire offering,
then the Company may exclude from such offering all or any
portion of the Warrant Securities requested to be so registered,
but only if no securities are included in such registration
statement other than securities being sold for the account of the
Company or by Persons pursuant to the exercise of "demand"
registration rights or of "piggyback" registration rights granted
prior to the Issuance Date which are expressly senior to those of
the Registered Holder, and then only on a pro rata basis with
respect to all securities not being sold by the Company or by
Persons exercising such "demand" or senior "piggyback"
registration rights.. The Company shall bear all fees and
expenses incurred by it in connection with the preparation and
filing of such registration statement. In the event of such a
proposed registration, the Company shall furnish the then
Registered Holders of Warrant Securities with not less than
thirty (30) days' written notice prior to the proposed or
expected effectiveness date of such registration statement. Such
notice shall continue to be given by the Company to Registered
Holders of Warrant Securities, with respect to subsequent
registration statements filed by the Company, until such time as
all of the Warrant Securities have been registered or may be sold
by the Registered Holders thereof without registration under the
Act or applicable state securities laws and regulations, and
without limitation as to volume, pursuant to Rule 144 of the Act
or any succeeding provision. The holders of Warrant Securities
shall exercise the rights provided for in this subsection 11.1 by
giving written notice to the Company, within twenty (20) days of
receipt of the Company's notice provided for herein.
-12-
<PAGE>
11.2 Certain Procedures and Requirements of Registered Holder.
---------------------------------------------------------
(a) Information to be Furnished by Registered Holder. In
connection with the registration of the Warrant Securities, and
as a condition to the Company's obligations under subsection
11.1, the Registered Holder will furnish to the Company in
writing such information with respect to such Registered Holder
and its proposed disposition as shall be reasonably necessary in
order to assure compliance with the Act and with other federal
and applicable state securities laws. Without limiting the
generality of the foregoing, in connection with an underwritten
public offering, such Registered Holder electing such method of
disposition agrees to enter into, as required, a written
agreement with the managing underwriter in such form and
containing such provisions as is customary in the securities
business for such an arrangement, and to complete and execute all
questionnaires, powers of attorney, indemnities, and other
documents or instruments reasonably required under such terms of
the underwriting arrangements.
(b) Expenses of Registered Holder. All underwriting
discounts and selling commissions applicable to the sale of any
Warrant Securities as well as fees and expenses of any counsel,
accountant, or other advisor to the Registered Holder shall be
borne by the Registered Holder.
(c) Certain Restrictions. Notwithstanding anything to the
contrary contained in this Section 11, if there is a firm
commitment underwritten offering of securities for the Company
pursuant to a registration covering shares of the Warrant
Securities, and if the Registered Holder does not elect to sell
its Warrant Securities to the underwriters of the Company's
securities in connection with such offering, then the Registered
Holder (if requested by the managing underwriter) shall agree to
refrain from selling any of its Warrant Securities that are
otherwise registered pursuant to this Section 11 during the
period in which the underwriting syndicate, as such, participates
in the after-market. Such Registered Holder shall, however, be
entitled to sell such securities, in any event, commencing on the
120th day after the effective date of such registration
statement, if then lawful to do so under applicable securities
laws and rules of the Commission.
(d) Indemnification by Registered Holder. In connection
with a registration of the Warrant Securities under the Act
pursuant to this Section 11, the Company and the Registered
Holder shall enter into customary indemnification agreements with
regard to losses, claims, damages or liabilities arising
therefrom. In addition, if such registration relates to an
underwritten offering, such indemnification agreements shall
include the underwriters thereof as a party thereto.
11.3 Survival. The rights and obligations set forth in this
Section 11 shall survive the exercise and surrender of this
Warrant.
-13-
<PAGE>
12.
Miscellaneous
12.1 Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrant may be amended, and the
Company may take any action herein prohibited or omit to perform
any act herein required to be performed by it, only if the
Company has obtained the prior written consent of the Registered
Holder.
12.2 Notices. Any notices required to be sent to a
Registered Holder of this Warrant or of any Warrant Stock
purchased upon the exercise hereof will be delivered to the
address of such Registered Holder shown on the books of the
Company. All notices referred to herein will be delivered in
person or sent by registered or certified mail, postage prepaid,
and will be deemed to have been given when so delivered in person
or on the third business day following the date so sent by mail.
12.3 Descriptive Headings; Governing Law. The descriptive
headings of the sections and paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of
this Warrant. The construction, validity, and interpretation of
this Warrant will be governed by the laws of the State of
Florida.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed and attested by its duly authorized officers under
its corporate seal.
JWCHARLES FINANCIAL SERVICES, INC.
[SEAL] By:________________________________
Name:_________________________
Title:________________________
Attest:
________________________________
Secretary or Assistant Secretary
-14-
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
To: Dated:
The undersigned Record Holder, pursuant to the
provisions set forth in the within Warrant, hereby subscribes for
and purchases _____ shares covered by such Warrant and herewith
makes full cash payment of $__________________ for such Warrant
Stock at the Exercise Price provided by such Warrant.
______________________________
(Signature)
______________________________
(Print or type name)
______________________________
(Address)
______________________________
______________________________
NOTICE: The signature on this Exercise Agreement must
correspond with the name as written upon the face of the within
Warrant, in every particular, without alteration, enlargement, or
any change whatsoever, and must be guaranteed by a bank, other
than a saving bank, having an office or correspondent in New
York, New York, Boca Raton or Miami, Florida, or Atlanta,
Georgia, or by a firm having membership on a registered national
securities exchange and an office in New York, New York, Boca
Raton or Miami, Florida, or Atlanta, Georgia.
SIGNATURE GUARANTEE
Authorized Signature:____________________________________________
Name of Bank or Firm:____________________________________________
Dated:___________________________________________________________
Exhibit 21
Subsidiaries of the Registrant
State of
Subsidiary Incorporation
- - ----------- -------------
DMG Securities, Inc. Florida
Corporate Securities Group, Inc. Florida
JW Charles Securities, Inc. Florida
JW Charles Insurance Services, Inc. Florida
JW Charles Capital Corp. Florida
JW Charles Clearing Corp. Iowa
Discount Securities Group, Inc. Florida
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000741557
<NAME> JW CHARLES FINANCIAL SERVICES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,836,000
<SECURITIES> 5,309,000
<RECEIVABLES> 104,502,000
<ALLOWANCES> 421,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,194,000
<DEPRECIATION> 1,162,000
<TOTAL-ASSETS> 127,331,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3,000
<OTHER-SE> 15,369,000
<TOTAL-LIABILITY-AND-EQUITY> 127,331,000
<SALES> 0
<TOTAL-REVENUES> 91,020,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 78,900,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,888,000
<INCOME-PRETAX> 8,232,000
<INCOME-TAX> 2,207,000
<INCOME-CONTINUING> 6,025,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,025,000
<EPS-PRIMARY> 1.27
<EPS-DILUTED> 0
</TABLE>
