UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A #1
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
/ / 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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (561) 338-2600
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - Par Value $.001 per share
----------------------------------------
(Title of class)
Securities registered pursuant to Section 12(g) of the Act: None
Name of Exchange of Which Registered: The American Stock Exchange
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the last 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /x/
On March 4, 1998, the Registrant had 3,728,093 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 $32,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
FOR CONVENIENT REFERENCE, THIS FORM 10-K/A COMPLETELY AMENDS
AND RESTATES THE FORM 10-K FILED ON MARCH 6, 1998, INCLUDING THE
EXHIBITS. THE CHANGES FROM THE PRIOR FILING ARE MARKED AS REQUIRED
BY EDGAR.
PART I
ITEM 1. BUSINESS
BACKGROUND AND GENERAL
JW Charles Financial Services, Inc. (the "Company" or
"JWCFS"), 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:
2<PAGE>
<TABLE>
<CAPTION>
Percentage of Total Revenues
Year Ended December 31,
--------------------------------
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
Commissions 51% 47% 51%
Market making and principal transactions, net 21% 27% 23%
Interest 12% 10% 9%
Clearing fees 13% 13% 13%
Other 3% 3% 4%
</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,
--------------------------------------------------------
1997 1996 1995
--------------------------------------------------------
Amount % Amount % Amount %
------ -- ------ -- ------ --
<S> <C> <C> <C> <C> <C> <C>
Corporate Securities Group, Inc. $34.2 35 $30.2 34 $31.3 39
JW Charles Securities, Inc. $34.8 35 $31.4 35 $24.8 31
JW Charles Clearing Corp. $26.4 27 $24.3 27 $20.6 26
DMG Securities, Inc. $2.9 3 $3.6 4 $ 2.9 4
</TABLE>
RECENT DEVELOPMENTS
THE GENESIS MERCHANT GROUP SECURITIES LLC ACQUISITION
On January 21, 1998, the Company executed an Agreement and Plan
of Combination (the "Combination Agreement"), which was amended and
restated as of March 9, 1998, with Genesis Merchant Group Securities
Group, LLC ("Genesis"), the owners (the "Genesis Members") of all of
the outstanding equity interests in Genesis (the "Genesis Membership
Interests") and JWGenesis Financial Corp., a newly formed Florida
corporation and currently a wholly owned subsidiary of the Company
("JWGenesis"). Genesis is a San Francisco-based investment banking
firm with special expertise in institutional research, sales and
trading, corporate finance and brokerage processing services.
The Combination Agreement contemplates, among other things,
that (i) JWGenesis will acquire the outstanding shares of JWCFS
Common Stock, pursuant to a statutory share exchange, in exchange
for shares of JWGenesis Common Stock, on a one-for-one basis, with
the result that JWCFS will become a wholly owned subsidiary of
JWGenesis and each issued and outstanding share of JWCFS will be
exchanged for and become the right to receive one share of JWGenesis
Common Stock and (ii) Genesis Members holding at least 90% of the
Genesis Membership Interests will exchange such interests for up to
3<PAGE>
1,500,000 shares of JWGenesis Common Stock with the result that
Genesis will become at least a 90% owned limited liability company
of JWGenesis (collectively, the "Combination").
THE AMERICAS GROWTH FUND, INC. TENDER
On September 22, 1997, the Company completed its exchange
tender offer (the "Exchange Offer") for all (but not less than 51%)
of the outstanding shares of common stock of The Americas Growth
Fund, Inc. ("AGRO"), a publicly held investment company. Prior to
the commencement of the Exchange Offer, the Company owned 26% of the
outstanding shares of common stock of AGRO. A total of
approximately 823,000 shares of AGRO common stock, representing
approximately 65% of the outstanding shares of AGRO common stock,
were tendered pursuant to the Exchange Offer. All shares of AGRO
common stock tendered were accepted for exchange by the Company
according to the terms of the Exchange Offer on the basis of .431
shares of the Company's common stock for each share of AGRO
resulting in the issuance by the Company of 354,851 shares of common
stock at a price of $8.25 per share. The tendered shares, together
with the shares already owned by the Company, represent
approximately 91% of the outstanding shares of AGRO common stock,
with the remaining 9% of AGRO shares held by other unaffiliated
shareholders. The AGRO acquisition was accounted for under the
purchase method of accounting.
The Company is presently considering its options to effect a
transaction that would result in its ownership of 100% of the shares
of AGRO or the liquidation of AGRO and prorata distribution of its
assets to the Company and the holders of the other 9% of AGRO
shares. Any such transaction would be subject to certain regulatory
approvals under the Investment Company Act of 1940, as amended, and
the Company is exploring obtaining the requisite approvals.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company or
statements made by its directors, officers or employees may
constitute "forward-looking" statements under the Private
Securities Litigation Reform Act of 1995 and are subject to
numerous risks and uncertainties. Any statements made in this
Prospectus, including any statements incorporated herein by
reference, that are not statements of historical fact are forward-
looking statements. Such forward-looking statements and other forward-
looking statements made by the Company or its representatives are
based on a number of assumptions and involve a number of risks
and uncertainties, and, accordingly, actual results could differ
materially. Factors that may cause such differences include, but
are not limited to, those set forth under the heading "Risk
Factors".
RISK FACTORS
INHERENT UNCERTAINTIES RELATING TO CERTAIN EFFECTS OF THE COMBINATION
COORDINATION OF OPERATIONS. The success of the Combination in
enhancing long-term shareholder value depends in part on the ability
of the respective managements of the Company and Genesis to coordinate
the operations of their two business enterprises. As in every business
4<PAGE>
combination, such coordination will require the dedication of
management resources, which may temporarily divert attention from
the day-to-day business of JWGenesis. The difficulties of
coordination may be increased by the necessity of managing
geographically separated organizations, in that the Company will
remain (and JWGenesis will be) headquartered in Boca Raton, Florida,
whereas Genesis will remain based in San Francisco. There can be no
assurance that the coordination necessary to maximize the benefits
of the Combination will be wholly realized. See " Recent
Developments The Genesis Merchant Group securities LLC
Acquisition."
REALIZATION OF COST REDUCTIONS AND REVENUE INCREASES. The
senior managements of the Company and Genesis expect certain
reductions in expenses and increases in revenue as a result of the
Combination, without taking into account or attempting to quantify
any of the incremental operating profits or other cost savings
expected to be realized over time through the Combination. The
Board of Directors of the Company took into account this expectation
in deciding to approve the Combination. There can be no assurance,
however, that JWGenesis will be able to realize, or do so within any
particular time frame, the expected cost reductions and revenue
increases, or generate additional revenue to offset any
unanticipated inability to realize such expected cost reductions and
revenue increases. See " Recent Developments The Genesis Merchant
Group securities LLC Acquisition."
VOLATILE NATURE OF THE SECURITIES BUSINESS
The securities business is, by its nature, subject to
significant risks, particularly in volatile or illiquid markets,
including the risk of trading losses, losses resulting from the
ownership or underwriting of securities, counterparty failure to
meet commitments, customer fraud, employee fraud, issuer fraud,
errors and misconduct, failures in connection with the processing of
securities transactions and litigation. The Company's principal
business activities consist of retail securities brokerage,
investment banking and clearing and execution services and are
highly competitive and subject to various risks, volatile trading
markets and fluctuations in the volume of market activity. The
securities business is directly affected by many factors, including
economic and political conditions, broad trends in business and
finance, legislation and regulation affecting the business and
financial communities, currency values, inflation, market
conditions, the availability and cost of short-term or long-term
funding and capital, the credit capacity or perceived
creditworthiness of the securities industry in the marketplace and
the level and volatility of interest rates. These and other factors
can contribute to lower price levels for securities and illiquid
markets.
Lower price levels of securities may result in (i) reduced
volumes of securities transactions, with a consequent reduction in
commission revenues; (ii) losses from declines in the market value
of securities held in trading, investment and underwriting positions
and (iii) reduced management fees calculated as a percentage of
assets managed. In periods of low volume, levels of profitability
are further adversely affected because certain expenses remain
relatively fixed. Sudden sharp declines in market values of
securities and the failure of issuers and counterparties to perform
their obligations can result in illiquid markets, which, in turn,
may result in the Company having difficulty selling securities,
5<PAGE>
hedging its securities positions, and investing funds under its
management. Such negative market conditions, if prolonged, may also
lower the Company's revenues from investment banking and other
activities. As a result of the varied risks associated with the
securities business, which are beyond the Company's control, the
Company's commissions and other revenues could be adversely
affected. A reduction in revenues or a loss resulting from the
underwriting or ownership of securities could have a material
adverse effect on the Company's results of operations and financial
condition. In addition, as a result of such risks, the Company's
revenues and operating results may be subject to significant
fluctuations from quarter to quarter and from year to year.
SIGNIFICANT COMPETITION
All aspects of the Company's business are highly competitive.
The Company competes directly with national and regional full
service broker-dealers and, to a lesser extent, with discount
brokers, dealers, investment banking firms, investment advisors and
certain commercial banks. The financial services industry has
become considerably more concentrated as numerous securities firms
have either ceased operations or have been acquired by or merged
into other firms. Such mergers and acquisitions have increased
competition from these firms, many of which have significantly
greater equity capital and financial and other resources than the
Company. With respect to retail brokerage activities, certain of
the regional firms with which the Company competes have operated in
certain markets longer than has the Company and have established long-
standing client relationships. In addition, the Company expects
competition from commercial banks to increase as a result of recent
and anticipated legislative and regulatory initiatives in the United
States to remove or relieve certain restrictions on commercial banks
relating to the sale of securities. The Company also competes with
others in the financial services industry with respect to the
recruiting of new employees and the retention of current employees.
The Company expects to face increasing competition from
companies offering electronic brokerage services, which is a rapidly
developing industry. These competitors may have lower costs or
provide fewer services, and may offer certain customers more
attractive pricing or other terms, than the Company offers. The
Company also anticipates competition from underwriters who attempt
to effect public offerings for emerging growth companies through new
means of distribution, including transactions effected using
electronic media such as the Internet. In addition,
disintermediation may occur as issuers attempt to sell their
securities directly to purchasers, including sales using electronic
media such as the Internet. To the extent that issuers and
purchasers of securities transact business without the assistance of
financial intermediaries such as the Company, the Company's
operating results could be adversely affected.
DEPENDENCE ON KEY PERSONNEL
Most aspects of the Company's business is dependent on highly
skilled individuals. The Company devotes considerable resources to
recruiting, training, and compensating such individuals. In
addition, one component of the Company's strategy will be to
increase market penetration by recruiting experienced investment
consultants. There can be no assurance that such recruiting efforts
will be successful or, if successful, that they will enhance the
Company's business, results of operations, or financial condition.
6<PAGE>
COMPETITION FOR PROFESSIONAL EMPLOYEES. From time to time,
individuals employed by the Company may choose to leave at any time
to pursue other opportunities. The Company has experienced losses
of research, investment banking and sales and trading professionals,
including recent losses of research analysts. The level of
competition for key personnel remains intense. There can be no
assurance that losses of key personnel due to such competition or
otherwise will not occur in the future. The loss of an investment
banking, research or sales and trading professional, particularly a
senior professional with a broad range of contacts in an industry,
could materially and adversely affect the Company's operating
results.
LIMITATIONS OF EMPLOYEE RETENTION MECHANISMS. The Company
depends on many key employees, and in particular on its senior
executive officers, Marshall T. Leeds, its Chairman, President and
Chief Executive Officer; and Joel E. Marks, its Chief Financial
Officer. The loss of any key employee could materially and adversely
affect the Company. While the Company generally does not have employment
agreements with its employees, it attempts to retain its employees
with incentives such as long-term deferred compensation plans, the
issuance of stock subject to continued employment and the grant of
options to buy stock that vest over a number of years of employment.
These incentives, however, may be insufficient in light of the
increasing competition for experienced professionals in the
securities industry, particularly if the Company's stock price were
to decline or fail to appreciate sufficiently to be a competitive
source of a portion of professional compensation.
DEPENDENCE ON OUTSIDE SOURCES OF FINANCING
The Company, like others in the securities industry, relies on
external sources to finance a significant portion of its day-to-day
operations, principally customer margin account balances and certain
transactions. The principal sources of the Company's cash and
liquidity are commissions, trading profits and collateralized bank
loans. Liquidity management includes the monitoring of assets
available to hypothecate or pledge against short-term borrowings.
The Company maintains working capital credit lines with banks
aggregating approximately $5.0 million. Availability of financing
to the Company will vary depending on market conditions, the volume
of certain trading activities, credit ratings, credit capacity and
the overall availability of credit to the financial services
industry. There can be no assurance that adequate financing to
support the Company's business will be available in the future on
terms attractive to the Company, or at all.
NET CAPITAL REQUIREMENTS; HOLDING COMPANY STRUCTURE
The Commission, the NYSE, the National Association of
Securities Dealers, Inc. (the "NASD"), and various other regulatory
bodies in the United States have rules with respect to net capital
requirements that affect the Company. These rules have the effect
of requiring that at least a substantial portion of a broker-
dealer's assets be kept in cash or highly liquid investments.
Compliance with the net capital requirements by broker-dealer
subsidiaries of the Company could limit operations that require
intensive use of capital, such as underwriting or trading
activities. These rules could also restrict the ability of the
Company to withdraw capital from these subsidiaries, even in
circumstances where these subsidiaries have more than the minimum
7<PAGE>
amount of required capital, which, in turn, could limit the ability
of the Company to pay dividends, implement its strategies and pay
interest on and repay the principal of its debt. In addition, a
change in such rules, or the imposition of new rules, affecting the
scope, coverage, calculation or amount of such net capital
requirements, or a significant operating loss or any unusually large
charge against net capital, could have similar adverse effects.
DEPENDENCE ON SYSTEMS
The Company's business is highly dependent on communications
and information systems. Any failure or interruption of such
systems could cause delays in securities trading activities and an
inability to execute client transactions, which could have a
material adverse effect on operating results of the Company. There
can be no assurance that the Company will not suffer any such
systems failure or interruption, whether caused by an earthquake,
fire, other natural disaster, power or telecommunications failure,
act of God, act of war, or otherwise or that the back-up procedures
of the Company and capabilities in the event of any such failure or
interruption will be adequate.
YEAR 2000
The "year 2000 issue" arises from the widespread use of
computer programs that rely on two-digit date codes to perform
computations or decision-making functions. Many of these programs
may fail due to an inability to properly interpret date codes
beginning January 1, 2000. For example, such programs may
misinterpret "00" as the year 1900 rather than 2000. In addition,
some equipment, being controlled by microprocessor chips, may not
deal appropriately with the year "00". The Company is evaluating
its computer systems to determine which modifications and
expenditures will be necessary to make its systems compatible with
year 2000 requirements. The Company believes that their systems
will be year 2000-compliant upon implementation of such
modifications.
The Company currently estimates that the total cost of such
modifications will not be significant. However, there can be no
assurance that all necessary modifications will be identified and
corrected or that unforeseen difficulties or costs will not arise.
In addition, there can be no assurance that the systems of other
companies on which the Company systems rely will be modified on a
timely basis, or that the failure by another company to properly
modify its systems will not negatively impact the systems or
operations of the Company.
RISK OF REDUCED REVENUES DUE TO DECLINE IN TRADING OF GROWTH COMPANY
SECURITIES
The Company's revenues from brokerage transactions are
generally substantially lower when the level of public offering and
trading activities of securities of emerging growth companies
declines. The Company derives a significant portion of its revenues
from brokerage transactions related to the securities of growth
companies. In the past, revenues from such brokerage transactions
have declined when underwriting activities in these industry sectors
declined, the volume of trading on NASDAQ declined or industry
sectors or individual companies reported results below investors'
expectations.
8<PAGE>
RISKS ASSOCIATED WITH REGULATION
The securities industry and the business of the Company are
subject to extensive regulation by the Commission, state securities
regulators and other governmental regulatory authorities. The
business of each company also is regulated by industry self-
regulatory organizations ("SROs"), including the NASD, the NYSE, the
AMEX, and other exchanges. Compliance with many of the regulations
applicable to each company involves a number of risks, particularly
in areas where applicable regulations may be subject to varying
interpretation. In the event of noncompliance by the Company with
an applicable regulation, governmental regulators and SROs may
institute administrative or judicial proceedings that may result in
censure, fine, civil penalties (including treble damages in the case
of insider trading violations), the issuance of cease-and-desist
orders, the deregistration or suspension of the non-compliant broker-
dealer, the suspension or disqualification of the broker-dealer's
officers or employees or other adverse consequences. The imposition
of any such penalties or orders on the Company could have a material
adverse effect on the Company's operating results and financial
condition.
The regulatory environment is also subject to change. The
Company may be adversely affected as a result of new or revised
legislation or regulations imposed by the Commission, other federal
or state governmental regulatory authorities or SROs. The Company
also may be adversely affected by changes in the interpretation or
enforcement of existing laws and rules by these governmental
authorities and SROs.
RISK OF LOSSES FROM UNDERWRITING AND TRADING
The Company's underwriting, securities trading and market-
making activities are conducted by it as principal and subject the
company's capital to significant risks, including market, credit,
counterparty and liquidity risks. These activities often involve
the purchase, sale or short sale of securities as principal in
markets that may be characterized by relative illiquidity or that
may be particularly susceptible to rapid fluctuations in liquidity.
The Company from time to time has large position concentrations in
securities of, or commitments to, a single issuer, or issuers
engaged in a specific industry, particularly as a result of
underwriting activities. The Company expects to concentrate its
trading positions and underwriting activities in a more limited
number of industry sectors and portfolio companies than many other
investment banks, which might result in higher trading losses than
would occur if the Company's positions and activities were less
concentrated. In addition, the trend in all major capital markets,
for competitive and other reasons, toward larger commitments on the
part of lead underwriters means that, from time to time, an
underwriter (including a co-manager) may retain significant position
concentrations in individual securities.
RISK OF LOSSES ASSOCIATED WITH LITIGATION AND SECURITIES LAWS
Many aspects of the Company's business will involve substantial
risks of liability. An underwriter is exposed to substantial
liability under federal and state securities laws, other federal and
state laws and court decisions, including decisions with respect to
underwriters' liability and limitations on indemnification of
underwriters by issuers. For example, a firm that acts as an
underwriter may be held liable for material misstatements or
9<PAGE>
omissions of fact in a prospectus used in connection with the
securities being offered or for statements made by its securities
analysts or other personnel.
INCREASING FREQUENCY OF SECURITIES LITIGATION. In recent
years, there has been an increasing incidence of litigation
involving the securities industry, including class actions that
seeks substantial damages. The Company's underwriting activities
will usually involve offerings of the securities of emerging and mid-
size growth companies, which often involve a higher degree of risk
and are more volatile than the securities of more established
companies. In comparison with more established companies, such
emerging and mid-size growth companies are also more likely to be
the subject of securities class actions, to carry directors and
officers liability insurance policies with lower limits, or no such
insurance and to become insolvent. Each of these factors increases
the likelihood that an underwriter of an emerging or mid-size growth
company's securities will be required to contribute to an adverse
judgment or settlement of a securities lawsuit.
FREQUENT CLAIMS AGAINST UNDERWRITERS. The plaintiffs'
attorneys in securities class action lawsuits frequently name as
defendants the managing underwriters of a public offering. The
Company has not been a named defendant in any class action lawsuit
relating to public offerings in which it served as a managing
underwriter. Plaintiffs' attorneys also name as defendants
investment banks that provide advisory services in corporate finance
transactions. The Company is not a defendant in any such lawsuit.
The Company anticipates, however, that securities class action
lawsuits naming the Company as a defendant may be filed from time to
time in the future, particularly if the Company increases its level
of activity in such transactions. In such lawsuits, all members of
the underwriting syndicate typically are included as members of a
defendant class or are required by law, or pursuant to the terms of
the underwriting agreement, to bear a portion of any expenses or
losses (including amounts paid in settlement of the litigation)
incurred by the underwriters as a group in connection with the
litigation, to the extent not covered by the indemnification
obligation of the issuer of the securities underwritten. If the
Company were to become a party to such lawsuits, the Company's
assets would be subject to risks. If the plaintiffs in any suits
against the Company were to successfully prosecute their claims, or
if the Company were to settle such suits by making significant
payments to the plaintiffs, the Company's operating results and
financial condition could be materially and adversely affected. As
is common in the securities industry, the Company does not carry
insurance that would cover any such payments. In addition, the
Company's charter documents allow indemnification of the Company's
officers, directors, and agents to the maximum extent permitted
under Florida law. The Company may be the subject of
indemnification assertions under these charter documents by
officers, directors or agents of the Company who are or may become
defendants in litigation.
In addition, the laws relating to securities class actions are
currently in a state of flux. The eventual impact of the Private
Securities Litigation Reform Act of 1995 on securities class action
litigation is not known.
DIVERSION OF MANAGEMENT ATTENTION. In addition to these
financial costs and risks, the defense of litigation can, to a
certain extent, divert the efforts and attention of management and
staff. The amount of time that management and other employees may
10<PAGE>
be required to devote in connection with the defense of litigation
could be substantial and might materially divert their attention
from other responsibilities. Securities class action litigation in
particular is highly complex and can extend for a protracted period
of time, thereby consuming substantial time and effort of management
and substantially increasing the cost of such litigation.
RISKS ASSOCIATED WITH OTHER DISPUTES. In the normal course of
business, the Company is a defendant in various civil actions and
arbitrations arising out of its activities as a broker-dealer in
securities, as an underwriter, as an employer and as a result of
other business activities. The Company has in the past made
significant payments in connection with the resolution of disputed
claims, and there can be no assurance that significant payments in
connection with the resolution of disputed claims will not occur in
the future with respect to the Company.
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
Over the past several years, the Company has experienced
significant growth in its business activities and the number of its
employees, and it is contemplated that the Company will continue to
experience similar growth in the future. Such growth has required
and will continue to require increased investments in management
personnel, financial and management systems and controls and
facilities, which, in the absence of continued revenue growth, would
cause the Company's operating margins to decline from current levels
for the Company. In addition, as is common in the securities
industry, the Company is highly dependent on the effective and
reliable operation of its communications and information systems.
The Company believes that its current and anticipated future growth
will require implementation of new and enhanced communications and
information systems and training of its personnel to operate such
systems. Any difficulty or significant delay in the implementation
or operation of existing or new systems or the training of personnel
could adversely affect the Company's ability to manage growth.
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.
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:
11<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1997 1996 1995
--------------------------------------------------------------------------------
Registered Branch Registered Branch Registered Branch
Representatives Offices Representatives Offices Representatives Offices
---------------- ------- --------------- ------- --------------- -------
<S> <C> <C> <C> <C> <C> <C>
JWC Securities 210 10 205 10 225 12
CSG 242 86 260 88 266 66
DMG 18 1 31 2 20 2
--------------------------------------------------------------------------------
TOTAL 470 97 496 100 511 80
================================================================================
</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, 1998, JWC Securities had ten (10) branch
offices, seven 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, 1998, 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
12<PAGE>
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, 1998, CSG operated 90 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 home
office 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 the NASD. At February
28, 1998, CSG had a total of approximately 250 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
securities exchanges, and access to many of its in-house financial
services and products. This agreement allows DMG to offer a range
of products and services that is generally offered only by firms
that are larger and have more capital than DMG.
At February 28, 1998, DMG operated one (1) branch office with a
total of approximately 20 registered representatives. DMG's office
is owned and operated by an independent person who obtains
appropriate NASD licenses to supervise or manage the branch office
by virtue of affiliating with DMG and being subject to its
supervisory jurisdiction. 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 Clearing and JWC Securities, on the
one hand and CSG, on the other hand, are involved, the Company uses
"JWCharles/CSG" as a stylized reference to the 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 all three of its
primary brokerage subsidiaries.
13<PAGE>
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. During 1997,
JWCharles/CSG co-managed one IPO. 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
The Company maintains a Research Department (i) to provide
coverage on a broad range of companies, daily market commentary and
trading ideas, 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, 1998, the JWCharles/CSG Research
Department was staffed by a Director of Research and Institutional
Sales and five research analysts.
SYNDICATE
The JWCharles/CSG Syndicate Department coordinates the
Company's participation in underwriting syndicates or selling groups
of other underwriters and assists the Company in obtaining
participation from other firms in JWCharles/CSG managed
underwritings. During 1997 the Company participated as an
underwriter, dealer or selling group member in a variety of common
and preferred equity offerings and facilitated the distribution of
the one offering co-managed by JWCharles/CSG during 1997.
PRINCIPAL TRANSACTIONS
MARKET MAKING
The Company's market making activities are coordinated through
JWC Clearing, which currently acts as a market maker for
approximately 90 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
14<PAGE>
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 90 Correspondents, none of which
accounted for more than five percent of the Company's revenues.
EMPLOYEES; REGISTERED REPRESENTATIVES; BRANCH OFFICES
As of December 31, 1997, the Company and its subsidiaries had a
total of approximately 270 salaried employees and 470 registered
representatives. Of these totals, approximately 260 registered
representatives are independent contractors affiliated with one of
the 87 affiliated, but independently owned and operated, CSG and DMG
branch offices which existed at such time.
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 and the recruitment of in-house employee registered
representatives for JWC Securities.
15<PAGE>
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 19,500 square feet of space. JWC
Securities branch offices are also leased premises, comprising an
aggregate of approximately 46,000 square feet of office space in
several cities. The Company believes that its office facilities are
adequate for its current and reasonably foreseeable operations.
16<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company has been named in various arbitration and legal
proceedings arising in the ordinary course of its securities
brokerage business. Although arbitration and litigation involves
contingencies that cannot be definitively predicted, including the
unpredictability of actions that might be taken by an arbitration
panel or jury on matters that are submitted to them, the Company
expects that the ultimate disposition of arbitration and litigation
arising from the ordinary course of business will not have a
material adverse impact upon its financial position 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on The American Stock
Exchange (the "AMEX") under the symbol "JWC". 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 on the AMEX or on The Nasdaq Small-Cap Market (where such
shares were previously traded prior to the listing on the AMEX on
May 8, 1997). Such information has been obtained from Nasdaq or
AMEX, respectively. All per share prices have been adjusted to
reflect the Company's three-for-two stock split effected in the form
of a 50% stock dividend on February 7, 1997.
High Sales Price Low Sales Price
---------------- ---------------
1998:
First Quarter
(through March 4, 1998) $13.75 $11.38
1997:
First Quarter $12.50 $ 7.17
Second Quarter $10.13 $ 6.00
Third Quarter $ 8.88 $ 7.25
Fourth Quarter $15.88 $ 8.38
1996:
First Quarter $ 3.33 $ 2.75
Second Quarter $ 5.08 $ 3.08
Third Quarter $ 5.00 $ 3.17
Fourth Quarter $ 7.67 $ 3.83
The closing sales price for the Company's common stock on March 4,
1998 was $12.50.
There were approximately 150 holders of record of the Company's
common stock as of March 4, 1998. 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
17<PAGE>
believes that the actual number of individual beneficial owners of
its common stock exceeds 1,500.
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.
18<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Total revenues $ 97,182,000 $ 91,020,000 $ 80,041,000 $ 60,471,000 $ 50,066,000
Income before income taxes and
cumulative effect of change
in accounting principle $ 9,792,000 $ 8,232,000 $ 6,287,000 $ 5,243,000 $ 4,944,000
Income before cumulative effect
of change in accounting
principle $ 6,103,000 $ 6,025,000 $ 3,810,000 $ 3,300,000 $ 3,114,000
Cumulative effect of change in
accounting principle $ - $ - $ - $ - $ 658,000
Net income $ 6,103,000 $ 6,025,000 $ 3,810,000 $ 3,300,000 $ 3,772,000
Earnings Per Share:
Basic $ 1.77 $ 1.42 $ .65 $ .56 $ .63
Diluted $ 1.50 $ 1.26 $ .64 $ .56 $ .63
Weighted Average Number of
Common Shares Outstanding:
Basic 3,443,141 4,245,895 5,862,296 5,858,097 5,975,130
Diluted 4,069,594 4,783,582 5,999,767 5,906,646 6,024,108
At December 31,
-----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
STATEMENT OF FINANCIAL
CONDITION DATA:
Cash and cash equivalents $ 11,512,000 $ 11,836,000 $ 8,597,000 $ 5,401,000 $ 3,289,000
Total assets $ 140,732,000 $ 127,331,000 $ 115,214,000 $ 82,218,000 $ 77,564,000
Short-term borrowings from
banks $ 29,423,000 $ 17,375,000 $ 28,138,000 $ 7,303,000 $ 20,271,000
Notes payable to affiliates $ 5,113,000 $ 8,625,000 $ 3,500,000 $ 5,161,000 $ 2,661,000
Total liabilities $ 116,066,000 $ 111,959,000 $ 98,643,000 $ 69,459,000 $ 67,454,000
Mandatorily redeemable common
stock $ - $ - $ 7,013,000 $ - $ -
Total stockholders' equity $ 24,666,000 $ 15,372,000 $ 9,558,000 $ 12,759,000 $ 10,110,000
__________
</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, 1997, 1996
and 1995. 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.
19<PAGE>
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 of 1995.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results,
performance or achievements of the Company to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such
factors include, among others, the following: the impact of general
economic conditions on the capital markets; changes in or amendments
to regulatory authorities' capital requirements or other regulations
applicable to the Company or its subsidiaries; fluctuations in
interest rates; increased levels of competition; and other factors
referred to in this Form 10-K. Given these uncertainties, undue
reliance should not be placed on such forward-looking statements.
The Company disclaims any obligation to update any such factors or
to publicly announce the results of any revisions to any of the forward-
looking statements included herein to reflect future events or
developments.
RESULTS OF OPERATIONS -- THREE YEARS ENDED DECEMBER 31, 1997
1997 represented the Company's thirteenth consecutive year of
record revenues. The Company's results of operations for both 1997
and 1996 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
1995.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 % Increase 1996 % Increase 1995
(000's) (Decrease) (000's) (Decrease) (000's)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions $49,907 16 $42,945 6 $40,566
Market making and principal
transactions, net 20,836 (14) 24,315 31 18,604
Interest 11,363 18 9,625 32 7,279
Clearing fees 12,338 8 11,463 13 10,176
Other 2,738 2 2,672 (22) 3,416
------- -- ------ --- ------
Total Revenues $97,182 7 91,020 14 80,041
======= == ====== === ======
</TABLE>
20<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1997 % Increase 1996 % Increase 1995
(000's) (Decrease) (000's) (Decrease) (000's)
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Expenses:
Commissions and clearing costs $51,238 8 $47,229 12 $42,160
Employee compensation and benefits 16,278 9 14,911 8 13,820
Occupancy and equipment rental 5,180 15 4,520 7 4,206
Communications 3,361 (12) 3,809 (2) 3,867
General and administrative 6,946 (18) 8,431 27 6,647
Interest 4,387 13 3,888 27 3,054
------ --- ------- -- -------
Total Expenses $87,390 6 $82,788 12 $73,754
====== === ======= == =======
</TABLE>
Total revenues of $97,182,000 recorded in 1997, a record for
any fiscal year in the Company's history, increased 7% over last
year's previous record of $91,020,000. During 1997, the Company
experienced increases in almost all revenue categories; the sole
exception being market making and principal transactions, net, which
is discussed below. During 1996 the Company experienced increases
in almost all revenue categories; the sole exception being reduction
in other income, which consists primarily of fee income, which was
lower in 1996 primarily as a result of a reduction in the Company's
managed or co-managed underwriting activities in 1996 as compared to
1995. Growth in the other revenue categories was primarily due to
heightened client activity, both retail and clearing, associated
with 1997's and 1996'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 21%, 27% and 23% of total revenues in
1997, 1996 and 1995, respectively. The reduction from 1996 to 1997
in market making and principal activities, in both absolute and
percentage terms, is primarily the result of a decrease in realized
gains of approximately $2.6 million in the 1997 period related to
the exercise and/or sale of warrant securities received by the
Company in connection with its past underwriting activities as
compared to the 1996 period. The increase in market making and
principal transactions in both absolute and percentage terms during
1996 was 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 1997, 1996 and 1995 were 72%, 70% and 71%,
respectively.
21<PAGE>
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 reflect the
costs associated with the Company's overall business growth.
Occupancy and equipment rental expenses increased by 15% from
1996 to 1997 primarily due to the expansion of and relocation of the
Company's New York City branch office in April, 1997.
Communications expense declined from 1996 to 1997 and from 1995
to 1996 due primarily to the Company's ability to take advantage of
the fiercely competitive communications environment and integrate
new cost effective technologies into its operations.
Interest income consists primarily of interest earned on
receivables from customers, securities owned and customer money
market fund balances. Interest expense consists primarily of
interest incurred on short-term borrowings and deposits on
securities loaned used to finance 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
1995 through 1997 and (ii) an increase in the average outstanding
loan balances used to fund increased customer balances from 1995 to
1997, 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 customers 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
22<PAGE>
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, 1997, the Company had stockholders' equity of
$24,666,000, representing an increase of $9,294,000 from December
31, 1996. The increase in stockholders' equity is primarily the
result of the Company's 1997 net income of $6,103,000 and its
September, 1997 tender for shares of AGRO. Furthermore, at December
31, 1997, the Company had cash and cash equivalents of $11,512,000
and an aggregate of approximately $4,100,000 of available borrowing
capacity under bank lines of credit described below.
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.
See Item 1, "Business" for a discussion regarding evaluations
that are currently underway by the Company to determine that its
systems are year-2000 compliant. The Company currently estimates
that the total cost of such modifications will not be significant.
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 19, 1998, the balance outstanding under the
Wilmington Facility was $1 million.
In connection with the Wilmington Facility, the Company entered
into a Marketing Agreement with Wilmington Trust FSB (the
"Wilmington Marketing Agreement") and granted W T Investments, Inc.
("WTI") a common stock purchase warrant, which was amended and
23<PAGE>
restated on February 27, 1998. Pursuant to the warrant, WTI may
purchase 400,000 shares of the Company's common stock at any time
prior to December 31, 2002 (the "Wilmington Warrant") at an exercise
price per share of $11.30. The Wilmington Marketing Agreement
provides that the Company will market certain products and services,
initially personal trust and asset management services, provided by
Wilmington Trust FSB to the Company's brokers, clients and
prospects.
On December 18, 1996, the Company obtained an unsecured
$2,500,000 revolving line of credit from SunTrust Bank, South
Florida, N.A. for general corporate purposes (the "SunTrust
Facility"). The SunTrust Facility matures on April 30, 2000, at
which time all outstanding borrowings plus all accrued and unpaid
interest will become due and immediately payable. Borrowings under
the SunTrust Facility bear interest at the prime rate as announced
from time to time by SunTrust Banks of Florida, Inc., with interest
payments due quarterly in arrears. The Company is required to
maintain certain debt covenants, including (i) minimum stockholders'
equity equal to at least $9,000,000, plus 75% of net income for all
future fiscal quarters, plus 75% of the net proceeds from any common
stock issuances and (ii) net income, as defined, in excess of
$1,500,000 for any four quarters within any consecutive six-quarter
period. At March 19, 1998, the balance outstanding under the
SunTrust Facility was $890,000.
In connection with the SunTrust Facility, the Company entered
into a Marketing Agreement with SunTrust (the "SunTrust Marketing
Agreement") and granted SunTrust Banks, Inc. a warrant to purchase
37,500 shares of the Company's common stock at any time prior to
December 31, 2002. The exercise price per share is $6.67. The
SunTrust Marketing Agreement provides that the Company will market
certain products and services, through the Company's participation
as an underwriter or selling group member of various municipal
finance offerings underwritten by SunTrust Capital Markets, Inc. to
the Company's brokers, clients and prospects.
GILMAN/CMG OBLIGATIONS AND OTHER
From December 1993 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 February 28,
1998, $1,250,000 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
24<PAGE>
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, the repurchase of all of the
Company' shares of common stock owned by GCMG and subject to the Old
Agreement. Effective as of April 15, 1996, the Company had
repurchased 473,265 shares of common stock from GCMG pursuant to the
Old Agreement, which was amended and restated by the New Agreement
to accelerate the repurchase by the Company for the remaining
2,400,599 shares of common stock owned by GCMG. The total
consideration paid by the Company consisted of a promissory note in
the principal amount of $6,125,000 (the "New Loan"), along with the
$1,155,000 in cash that was paid to GCMG in connection with the
April 15, 1996 installment purchase under the Old Agreement. The
New Loan bears interest, which is payable quarterly, at a rate of
10% per annum. Beginning April 15, 1997, the Company became
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. At February 28, 1998, the balance outstanding
under the New Loan was $3,612,500.
The Combination Agreement pursuant to which the Company and
Genesis would become subsidiaries of JWGenesis, requires the consent
of GCMG. GCMG has advised the Company that it would not provide the
consent unless the Company agreed to prepay, without penalty, the
entire outstanding balance on any GCMG Loan requiring such consent.
The Company estimates that the maximum prepayment amount will not
exceed approximately $2,062,500. The Company expects to draw upon
it existing lines of credit to facilitate any such prepayment.
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 made adequate 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.
25<PAGE>
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, 1997, CSG, JWC
Securities and DMG had net capital of $2,024,000, $1,685,000 and
$451,000 and excess net capital of $1,774,000, $1,435,000 and
$351,000, respectively, each of which complied with the applicable
requirements of Rule 15c3-1. At December 31, 1997, JWC Clearing's
net capital was 10.4% of aggregate debit balances as compared with
the minimum of 2%, and its Rule 15c3-1 net capital of $12,222,000
was $9,881,000 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.
26<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company's Board of Directors presently consists of ten
members, each of whom serves for a one-year term until the next
annual meeting of stockholders and until his successor, if there is
to be one, is duly elected and qualified. All of the Company's
executive officers (four persons) serve on its Board of Directors.
Each of the directors of the Company, including the executive
officers, is listed below, along with certain background
information.
Director Position(s) with
Name Age Since the Company
---- --- -------- ----------------
Marshall T. Leeds 42 1983 President, Chief Executive Officer
and Chairman of the Board
Joel E. Marks 41 1983 Vice Chairman, Chief Financial
Officer and Secretary
Wm. Dennis Ferguson 54 1990 Executive Vice President and
Director
Gregg S. Glaser 38 1990 Executive Vice President,
Treasurer and Director
Stephen W. Cropper 50 1995 Director
John R. Faiella 56 1995 Director
Joseph P. Robilotto 54 1995 Director
Jerome A. Siegel 55 1997 Director
Curtis R. Sykora 68 1997 Director
Michael B. Weinberg 60 1995 Director
MARSHALL T. LEEDS, a co-founder of the Company in 1983, serves
as Chairman, President and Chief Executive Officer of the Company.
Mr. Leeds also serves as President and Chief Executive Officer of
four of the Company's wholly-owned subsidiaries. Mr. Leeds is past
Chairman of Regional Investment Association, Inc., ("RIBA"), the
country's largest association of independent broker-dealers involved
in the underwriting of debt and equity securities, and he currently
serves on the Independent Contractor Firm Committee of the
27
<PAGE>
Securities Industries Association.
JOEL E. MARKS, the other co-founder of the Company, is Vice
Chairman, Chief Financial Officer and Secretary of the Company. Mr.
Marks also serves as the Senior Managing Director of Investment
Banking and as Executive Vice President of four of the Company's wholly-
owned subsidiaries. From 1987 to 1994, he served as Senior Vice
President and Chief Financial Officer of Automobile Protection
Corporation - APCO, an unaffiliated public corporation engaged in
the marketing and administration of extended vehicle service
contracts and warranty programs. Prior to 1983, he was employed in
various capacities as a certified public accountant in both the
audit and tax departments of the international accounting and
consulting firm of Deloitte & Touche LLP. Mr. Marks currently
serves as the Chairman of RIBA.
WM. DENNIS FERGUSON serves as Executive Vice President of the Company
and each of the Company's wholly-owned subsidiaries. For six months
prior to the acquisition by JWCFS of its predecessor company, Mr. Ferguson
served as acting President and Chief Executive Officer of such
predecessor company, which was acquired by the Company on November
1, 1990. From 1981 to 1990, he held various executive positions at
the predecessor company. From 1978 to 1980, Mr. Ferguson was Area
Vice President and Office Manager for the investment banking firm of
Dean Witter Reynolds.
GREGG S. GLASER is Executive Vice President and Treasurer of
the Company and Executive Vice President and Treasurer of each of
it's wholly-owned subsidiaries. From 1981 to 1986, when he joined
JWCFS, Mr. Glaser was a senior auditor with the Fort Lauderdale
office of the international accounting and consulting firm of Price
Waterhouse LLP.
STEPHEN W. CROPPER is a director and officer of Gilman
Securities Corporation and GCMG, subsidiaries of Gilman Investment
Company, a holding company which through its principal subsidiary,
Gilman Paper Company, is engaged in the manufacture and sale of
paper and lumber products. Mr. Cropper also serves as Assistant
General Counsel of Gilman Paper Company.
JOHN R. FAIELLA is a director and President of Gilman
Securities Corporation and GCMG, as well as Treasurer of Gilman
Investment Company and Gilman Paper Company.
JOSEPH P. ROBILOTTO is an officer of Gilman Securities
Corporation and is Vice President of Gilman Paper Company.
CURTIS SYKORA has over 30 years of management experience with
an emphasis on finance and real estate development. As a self-
employed business consultant he remains active in these endeavors
today. Mr. Sykora received his Masters in Business Administration
from Harvard University School of Business in 1956.
JEROME SIEGEL is a practicing attorney with a specialization in
taxation and financial consultation.
MICHAEL B. WEINBERG is both an attorney-at-law engaged in the
private practice of law and a Certified Public Accountant. Mr.
Weinberg currently serves as Tax Counsel to Gilman Paper Company.
During the last fiscal year, the Board of Directors held five
28<PAGE>
meetings. All directors attended all the Board and committee
meetings held during their directorship with the exception of
Messrs. Leeds, Ferguson and Robilotto, who each attended four of the
five meetings of the Board of Directors.
BOARD COMMITTEES
AUDIT COMMITTEE. The Audit Committee supervises independent
audits of the Company and its subsidiaries and oversees the
establishment of appropriate accounting policies and internal
accounting controls. Members are Mr. Weinberg, Chairman; Mr. Siegel
and Mr. Glaser. The Audit Committee met two times during 1997.
The Audit Committee's principal functions include reviews of
audit plans, scope of examinations and findings of the Company's
independent public accountants; significant legal matters; internal
controls; and the adequacy of insurance coverage. Further, it is
the responsibility of this committee to recommend to the Board the
annual appointment of the independent public accountants, to review
the findings of external regulatory agencies and to oversee the
accounting policies used in preparing the Company's financial
statements.
COMPENSATION COMMITTEE. The Compensation Committee oversees
the Company's compensation policies and programs. Members are Mr.
Marks, Chairman; Mr. Faiella and Mr. Glaser. The Compensation
Committee met one time during 1997.
The Compensation Committee reviews and approves the Company's
general compensation policies and programs to maintain an
environment that attracts and retains people of high capability,
commitment and integrity, while also providing incentives for
executives and other personnel of the Company to contribute to the
success and profitability of the Company for the benefit of its
stockholders.
OTHER COMMITTEES. In addition to the committees described
above, the Board also has an Investment and Risk Committee whose
function is primarily to oversee the Company's investment policies
and procedures and to establish guidelines to be used by the
Company's principal product managers. Members of the Investment and
Risk Committee are Mr. Ferguson, Chairman, Mr. Cropper, Mr. Leeds
and Mr. Robilotto.
The Company does not have a standing nominating committee of
the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Company's officers and directors and persons
who beneficially own more than ten percent of the Company's Common
Stock ("ten-percent stockholders") to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
(the "SEC") and with the National Association of Securities Dealers,
Inc. ("NASD"). Officers, directors and ten-percent stockholders are
required by SEC regulations to furnish the Company with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received
by it and information furnished to the Company by such persons, the
Company believes that during the Company's fiscal year ended
29<PAGE>
December 31, 1997, all its officers, directors and ten-percent
stockholders complied with the Section 16(a) reporting requirements,
except that Messrs. Leeds, Marks and Glaser, all directors and
officers of the Company, omitted to file, on a timely basis, a
report on Form 5 describing the issuance to them on September 17,
1997 of options to purchase 75,000, 26,250 and 11,250 shares of
Common Stock of the Company, respectively.
ARRANGEMENTS FOR BOARD
Messrs. Leeds and Marks, on the one hand, and GCMG, on the
other hand, have agreed to support an equal number of persons
identified by the other for election as directors of the Company.
They have also agreed to certain restrictions on their respective
rights to dispose of their shares.
In connection with the series of transactions between the
Company and Wilmington Trust Company ("Wilmington") described
under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," herein, the Company
granted Wilmington the right to appoint one person to serve on its
Board of Directors. Wilmington has not yet exercised such right.
EMPLOYMENT AGREEMENT
Effective January 1, 1994, the Company entered into an
employment agreement with Mr. Leeds to provide for his continued
service as President and Chief Executive Officer for a three year
"evergreen" period. In this context, "evergreen" means that the
term of the agreement on any given day, unless the agreement has
previously been terminated, extends for three years from that day.
Under the terms of his employment agreement, Mr. Leeds receives a
base annual salary of $250,000, subject to an annual adjustment to
reflect changes in the consumer price index. Additionally, Mr.
Leeds receives an annual bonus equal to the sum of (i) 10% of the
Company's consolidated net income available to common shareholders
up to $500,000 plus (ii) 10% of the amount by which the Company's
consolidated net income available to common shareholders exceeds
$2,000,000. Mr. Leeds is also eligible to participate in other
employee benefit plans as generally made available to senior
management of the Company. Mr. Leed's employment is terminable by
the Company without cause at any time by paying Mr. Leeds a lump sum
equal to the greater of $1 million or the sum of (i) his base salary
payable for the remainder of the term plus (ii) three times the
greater of (A) the amount of the annual bonus that was payable to
him with respect to the immediately preceding fiscal year or (B) the
arithmetic average of the amounts of annual bonus that were payable
to him with respect to the immediately preceding three fiscal years,
and by immediately vesting him in any and all options he may possess
which have not yet vested.
The Company has entered into a similar employment arrangement
with Mr. Marks to provide for his continued service as Chief
Financial Officer and Secretary of the Company. Mr. Marks
"evergreen" arrangement provides that Mr. Marks receives a base
annual salary of $175,000, subject to annual adjustment to reflect
changes in the consumer price index. Additionally, Mr. Marks receives
30<PAGE>
an annual bonus equal to the sum of (i) 3.5% of the Company's
consolidated net income available to common shareholders up
to $175,000 plus (ii) 3.5% of the amount by which the Company's
consolidated net income available to common shareholders exceeds
$2,000,000. The other terms of Mr. Marks' employment are similar
to that of Mr. Leeds.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Marks and Glaser are members of the Compensation
Committee of the Board of Directors and are Chief Financial Officer
and Secretary; and Executive Vice-President and Treasurer,
respectively of the Company. The third member of the Compensation
Committee, Mr. Faiella, is President of Gilman Securities Inc. and
GCMG. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Gilman/CMG Obligations Other"
for a discussion of relationships between the Company and GCMG.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the annual and long-term
compensation for services rendered in all capacities to the Company
and its subsidiaries for the Company's Chief Executive Officer and
each of the other executive officers whose aggregate cash
compensation exceeded $100,000 ("Named Executive Officers") during
any of the Company's last three fiscal years:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards <F1>
- ------------------------------------------------------------------------- ------------
Name Options All Other
and Principal Position Year Salary Bonus Other SARS Compensation
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds 1997 $ 279,446 $1,110,895 $430,868<F2> 75,000 $ 13,200<F3>
President and Chief 1996 $ 270,519 $1,246,612 - 75,000 $ 13,000
Executive officer 1995 $ 263,681 $1,050,672 - - $ 13,000
Joel E. Marks 1997 $ 180,775 $ 388,813 - 26,250 $ 3,200 <F4>
Chief Financial Officer and 1996 $ 175,000 $ 431,616 - 26,250 $ 3,000
Executive Vice President 1995 $ 120,000 $ 267,407 - - $ 3,000
Wm. Dennis Ferguson 1997 $ 120,000 $ 194,977 - - $ 3,200 <F4>
Executive Vice President 1996 $ 120,000 $ 262,563 - 7,500 $ 3,000
1995 $ 120,000 $ 180,199 - - $ 3,000
Gregg S. Glaser 1997 $ 128,594 $ 85,450 - 11,250 $ 3,200 <F4>
Treasurer and Executive 1996 $ 125,253 $ 72,696 - 11,250 $ 3,000
Vice President 1995 $ 122,592 $ 56,408 - - $ 3,000
<FN>
<F1> There were no payouts of long-term compensation during the
fiscal year.
<F2> Represents gross-up for the payment of taxes upon exercise of
stock options.
<F3> Includes $10,000 for tax return preparation and financial
services and a Company matching contribution of $3,200 with
respect to the Company's 401(k) plan.
<F4> Represents Company matching contribution with respect to the
Company's 401(k) plan.
</FN>
</TABLE>
31<PAGE>
____________
Directors are not compensated for their attendance at Board of
Directors or Board Committee meetings. Each director is reimbursed
for travel expenses incurred in connection with attendance at
meetings of the Board of Directors and Board Committees.
The following tables show, as to the Company's Chief Executive
Officer and Named Executive Officers, certain information with
respect to options granted to them. No stock appreciation rights
("SARs") have been granted.
Option/SAR Grants In Last Fiscal Year
(Individual Grants)
The following table sets forth further information on grants of
stock options during 1997 to the Named Executive Officers pursuant
to the Company's 1990 Stock Option Plan. No stock appreciation
rights were granted during 1997.
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Appreciation
for Option
Individual Grants Term <F1>
- ------------------------------------------------------------------------
% of total
Number of Options
Securities granted to
Underlying employees Exercise or
Options in fiscal base price Expiration
Granted year ($/Share) date 5% 10%
Name (#)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Marshall T. Leeds 75,000 16.7 $9.075 9/16/02 $187,941 $415,299
Joel E. Marks 26,250 5.8 $9.075 9/16/02 $ 65,779 $145,355
Gregg S. Glaser 11,250 2.5 $8.250 9/16/02 $ 25,642 $ 56,663
<FN>
<F1> Illustrates the value that may be realized upon the exercise of
options immediately prior to the expiration of their term,
assuming specified compound rates of appreciation on the
Company's common stock over the five year term of the options.
Assumed rates of appreciation are not necessarily indicative of
future stock performance. The assumed annual rates of
appreciation of five and ten percent would result in the per
share price of the Company's common stock increasing to $11.58
and $14.61, respectively. Over the past five years, the market
price for the Company's common stock has increased at a
compound annual rate of approximately 34%.
</FN>
</TABLE>
32<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth further information with respect
to option exercises during 1997 and unexercised stock options held
by the Named Executive Officers at December 31, 1997.
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised In-
Options at the Money Options at
December 31, 1997 (#) December 31, 1997
Shares Acquired on Exercisable (E)/ ($) <F1>
Name exercise (#) Value Realized ($) Unexercisable (U) Exercisable (E)/
Unexercisable (U)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marshall T. Leeds 112,500 $618,750 75,000 (E) $534,900 (E)
75,000 (U) $191,250 (U)
Joel E. Marks - - 26,250 (E) $187,222 (E)
26,250 (U) $ 66,938 (U)
Wm. Dennis Ferguson 15,000 $ 86,955 52,500 (E) $491,775 (E)
- (U) $ - (U)
Gregg S. Glaser - 11,250 (E) $ 84,803 (E)
11,250 (U) $ 37,969 (U)
<FN>
<F1> At December 31, 1997, the closing price of the Company's Common
Stock on The American Stock Exchange was $11.625.
</FN>
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth the holdings of Common Stock,
which is the Company's only class of voting securities, by the only
stockholders who, as of March 19, 1998, were known by the Company to
own beneficially more than five percent of the Company's outstanding
Common Stock, by all directors, and disclosed Named Executive
Officers and by all directors and executive officers of the Company
as a group, as of the same date. Unless otherwise indicated, the
person or entity has sole power to vote and dispose of the shares.
The address for each of Messrs. Leeds, Marks, Ferguson , Glaser and
Sykora is c/o the Company at 980 North Federal Highway, Suite 310,
Boca Raton, Florida 33432; the address for each of and Messrs.
Cropper, Faiella, Robilotto, Siegel and Weinberg is c/o Gilman
Investment Company, 111 West 50th Street, New York, New York 10020;
the address for Avatex Corporation is 5910 North Central Expressway,
Dallas, Texas, 75206; and the address for WT Investments, Inc. is
1100 N. Market Street, Wilmington, Delaware 19890.
33<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name of Beneficial Owner Beneficially Owned Percent of Class
- ------------------------ ------------------- ----------------
<S> <C> <C>
Marshall T. Leeds <F1> <F2> 618,906 16.3
Avatex Corporation 300,000 8.1
WT Investments, Inc. <F3> 400,000 9.7
Joel E. Marks <F1> <F4> 293,934 7.9
Gregg S. Glaser <F5> 67,200 1.8
Wm. Dennis Ferguson <F6> 74,250 2.0
Stephen W. Cropper - -
John R. Faiella - -
Jerome Siegel - -
Curtis Sykora - -
Joseph P. Robilotto - -
Michael B. Weinberg - -
All directors and
executive officers 1,054,290 27.4
as a group (10 persons)
<F2> <F4> <F5> <F6>
______________
<FN>
<F1> Mr. Leeds and GCMG, which had previously owned up to 49% of
the Company's outstanding common stock, have had an agreement
for several years to support an equal number of persons
identified by the other for election as directors of the
Company. On June 11, 1996, the Company entered into an Amended
and Restated Stock Repurchase Agreement with GCMG for, and
simultaneously consummated, the repurchase of all of the
Company' shares of Common Stock owned by GCMG. In connection
with that transaction, Messrs. Leeds and Marks agreed with GCMG
to vote for the election as directors of the Company an equal
number of nominees identified by GCMG, on the one hand and by
Messrs. Leeds and Marks, on the other hand, until such time
that the promissory note given by the Company to pay a portion
of the repurchase price is paid in full.
<F2> Includes 75,000 shares of Common Stock issuable upon
exercise of currently exercisable stock options.
<F3> Includes 400,000 shares of Common Stock issuable upon
exercise of currently exercisable warrants.
<F4> Includes 73,750 shares of Common Stock owned by Mr. Marks'
wife, 120,000 shares of Common Stock owned by Mr. Marks as
custodian for his minor children and 26,251 shares of Common
Stock issuable upon exercise of currently exercisable stock
options.
<F5> Includes 11,250 shares of Common Stock issuable upon
exercise of currently exercisable stock options.
<F6> Includes 7,500 shares of Common Stock issuable upon exercise
of currently exercisable stock options.
</FN>
</TABLE>
34<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For a discussion of these items, see "Bank Lines of Credit" and
"Gilman/CMG Obligations and Other" sections of "Item 7. -
Management's Discussion And Analysis Of Financial Condition And
Results Of Operations" and "Item 10 - Directors and Executive
Officers of the Registrant - Arrangements for Board" contained
elsewhere herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) The following consolidated financial statements of 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, 1997 and 1996.
Consolidated Statements of Income For the Years Ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity For the
Years Ended December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1997, 1996 and 1995.
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.
35<PAGE>
(3) Exhibits included herein:
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
2 Amended and Restated Agreement and Plan of Combination, dated as
of March 9, 1998, among JW Charles Financial Services, Inc.,
JWGenesis Financial Corp. and the owners of all of the equity
interests Genesis Merchant Group Securities, LLC.
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).
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).
36<PAGE>
10(f) Amended and Restated Common Stock Purchase Warrant issued to W T
Investments, Inc. dated February 27, 1998.
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 (incorporated by reference to Item 10(i) of the Company's
Annual Report on Form 10-K for the year ended December 31,
1996).
10(m) Common Stock Purchase Warrant issued to SunTrust Banks, Inc.
dated August 26, 1996 (incorporated by reference to Item 10(m)
of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996).
22 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
</TABLE>
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of
the Registrant's fiscal year.
37
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Page
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants
Years Ended December 31, 1997, 1996 and 1995 .............. F-2
Consolidated Statements of Financial Condition ............... F-3
December 31, 1997 and 1996
Consolidated Statements of Income ............................ F-4
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders' Equity ... F-5
Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows......................... F-6
Years Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements ................... F-7
Financial Statement Schedules
- -----------------------------
All schedules are omitted because they are either not applicable
or the required information is included in the Consolidated
Financial Statements or Notes thereto.
F-1<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
JW Charles Financial Services, Inc.
In our opinion, the accompanying consolidated statements of
financial condition and the related consolidated statements of
income, changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of JW
Charles Financial Services, Inc. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 1997, 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.
PRICE WATERHOUSE LLP
Tampa, Florida
March 5, 1998
F-2
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Financial Condition
===========================================================================
<TABLE>
<CAPTION>
December 31,
1997 1996
-----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 11,512,000 $ 11,836,000
Commissions and other receivables from clearing brokers 716,000 2,203,000
Receivable from customers, net of allowance for
doubtful accounts of $546,000 and $421,000 107,507,000 98,610,000
Receivable from brokers and dealers 4,532,000 3,689,000
Securities owned, at market value 9,010,000 5,308,000
Furniture, equipment and leasehold improvements, net
of accumulated depreciation and amortization of
$1,433,000 and $1,162,000 1,742,000 1,194,000
Income taxes receivable 294,000 -
Deferred tax asset 1,621,000 1,719,000
Other, net of allowance for doubtful accounts
of $900,000 and $608,000 3,798,000 2,772,000
-------------- --------------
$ 140,732,000 $ 127,331,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Short-term borrowings from banks $ 29,423,000 $ 17,375,000
Accounts payable, accrued expenses and other liabilities 12,043,000 10,441,000
Payable to customers 35,055,000 50,898,000
Payable to brokers and dealers 32,975,000 24,136,000
Securities sold, not yet purchased, at market value 567,000 450,000
Line of credit 890,000 -
Notes payable to affiliates (Notes 7 and 15) 5,113,000 8,625,000
Income taxes payable - 34,000
-------------- --------------
116,066,000 111,959,000
-------------- --------------
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 3,690,743 and 3,230,436
shares at December 31, 1997 and 1996, respectively 4,000 3,000
Additional paid-in capital 4,018,000 821,000
Retained earnings 20,651,000 14,548,000
Treasury stock, at cost, 900 shares in 1997 and 0 shares in 1996 (7,000) -
-------------- --------------
Total stockholders' equity 24,666,000 15,372,000
-------------- --------------
$ 140,732,000 $ 127,331,000
============= ==============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these financial statements.
F-3
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Consolidated Statements of Income
===========================================================================
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
--------------------------------------------------
<S> <C> <C> <C>
Revenues:
Commissions $ 49,907,000 $ 42,945,000 $ 40,566,000
Market making and principal
transactions, net 20,836,000 24,315,000 18,604,000
Interest 11,363,000 9,625,000 7,279,000
Clearing fees 12,338,000 11,463,000 10,176,000
Other 2,738,000 2,672,000 3,416,000
------------- ------------- --------------
97,182,000 91,020,000 80,041,000
------------- ------------- --------------
Expenses:
Commissions and clearing costs 51,238,000 47,229,000 42,160,000
Employee compensation and benefits 16,278,000 14,911,000 13,820,000
Occupancy and equipment rental 5,180,000 4,520,000 4,206,000
Communications 3,361,000 3,809,000 3,867,000
General and administrative 6,946,000 8,431,000 6,647,000
Interest 4,387,000 3,888,000 3,054,000
------------- ------------- --------------
87,390,000 82,788,000 73,754,000
------------- ------------- --------------
Income before income taxes 9,792,000 8,232,000 6,287,000
Provision for income taxes 3,689,000 2,207,000 2,477,000
------------- ------------- --------------
Net income $ 6,103,000 $ 6,025,000 $ 3,810,000
============= ============= ==============
Net income per common share:
Basic $ 1.77 $ 1.42 $ .65
------------- ------------- --------------
Diluted $ 1.50 $ 1.26 $ .64
------------- ------------- --------------
Weighted average common shares:
Basic 3,443,141 4,245,895 5,862,296
------------ ------------- --------------
Diluted 4,069,594 4,783,582 5,999,767
------------ ------------- --------------
</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 Changes in Stockholders' Equity
===========================================================================
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid-In Retained Treasury Stock Stockholders'
Shares Amount Shares Amount Capital Earnings Shares Amount Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Issuance of common stock upon
exercise of stock options - - 105,456 - 37,000 - - - 37,000
Issuance of common stock for
AGRO acquisition - - 354,851 1,000 2,927,000 - - - 2,928,000
Net income - - - - - 6,103,000 - - 6,103,000
Purchase of treasury shares - - - - - - (900) (7,000) (7,000)
Tax benefit related to non-
qualified option exercise - - - - 233,000 - - - 233,000
-------- -------- --------- ------ ---------- ----------- ---- ------- ------------
Balance at December 31, 1997 - $ - 3,690,743 $4,000 $4,018,000 $20,651,000 (900) $(7,000) $ 24,666,000
======== ======= ========= ====== ========== =========== ==== ======= ============
</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
Consolidated Statements of Cash Flows
===========================================================================
<TABLE>
<CAPTION>
Year ended December 31,
1997 1996 1995
------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,103,000 $ 6,025,000 $ 3,810,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization on furniture,
equipment and leasehold improvements 335,000 264,000 246,000
Amortization of other assets 95,000 535,000 668,000
(Gain) loss on disposal of furniture, equipment and
leasehold improvements (3,000) 7,000 -
Provision for doubtful accounts - - 679,000
Change in assets and liabilities, net of effect from acquisition:
Commissions and other receivables from clearing brokers 1,487,000 547,000 150,000
Receivable from customers (8,897,000) (17,172,000) (31,984,000)
Receivable from brokers and dealers (843,000) 2,063,000 232,000
Securities owned (335,000) 6,178,000 (148,000)
Income taxes receivable (294,000) - -
Deferred tax asset 98,000 (708,000) (651,000)
Other assets (1,121,000) (380,000) 1,513,000
Accounts payable, accrued expenses and other liabilities 1,163,000 1,530,000 2,331,000
Payable to customers (15,843,000) 19,547,000 1,063,000
Payable to brokers and dealers 8,839,000 1,926,000 6,055,000
Securities sold, net yet purchased 117,000 (3,624,000) (874,000)
Income taxes payable (34,000) (425,000) 459,000
------------- ------------ ------------
Net cash (used in) provided by operating activities (9,133,000) 16,313,000 (16,451,000)
------------- ------------ ------------
INVESTING ACTIVITIES
Purchases of furniture, equipment and leasehold improvements (886,000) (312,000) (529,000)
Proceeds from disposal of furniture, equipment and leasehold improvements 6,000 100,000 24,000
------------- ------------ ------------
Net cash used by investing activities (880,000) (212,000) (505,000)
------------- ------------ ------------
FINANCING ACTIVITIES
Change in short-term borrowings from banks 12,048,000 (10,763,000) 21,811,000
Change in line of credit 890,000 - -
Change in notes payable to affiliate (3,512,000) (1,000,000) (1,661,000)
Repurchase of mandatorily redeemable common stock - (1,155,000) -
Issuance of common stock 270,000 56,000 3,000
Cash flow distributions and redemptions of preferred stock - - (1,000)
Purchase of treasury stock, at cost (7,000) - -
------------ ------------ ------------
Net cash provided (used) by financing activities 9,689,000 (12,862,000) 20,152,000
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (324,000) 3,239,000 3,196,000
Cash and cash equivalents at beginning of year 11,836,000 8,597,000 5,401,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 11,512,000 $ 11,836,000 $ 8,597,000
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 3,619,000 $ 3,814,000 $ 2,885,000
============ ============ ============
Income taxes $ 3,611,000 $ 3,886,000 $ 2,404,000
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During fiscal 1995, the Company reinstated 8,755 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 1997 and 1996, respectively, the Company issued 112,500 and 277,500 shares of common stock relating to options
exercised for which the consideration received was 38,156 and 86,288 shares of common stock, respectively.
On September 22, 1997, the Company issued 354,851 shares of common stock in connection with the acquisition of The Americas
Growth Fund, Inc. (Note 18)
</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
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"), Discount Securities Group, Inc., and The Americas Growth
Fund, Inc. ("AGRO"). All consolidated subsidiaries are 100% owned by
the Company except for AGRO, which is 91% owned (see Note 18). 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.
F-7
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
TRANSACTION REPORTING
Securities transactions and the related revenues and expenses are
recorded in the accounts on trade date. Clearing fees include service
charges, execution fees and commissions on order flow.
EARNINGS PER COMMON SHARE
Earnings per common share are calculated in accordance with the
provisions of Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), effective for 1997. SFAS 128
requires the Company to report both basic earnings per common share,
which is based on the weighted average number of common shares
outstanding, and diluted earnings per common share, which is based on
the weighted average number of common shares outstanding and all
dilutive potential common shares outstanding. Earnings available for
common stockholders has 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. All prior years'
earnings per share data in this report have been recalculated to
reflect the provisions of SFAS 128 (see Note 17).
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.
F-8<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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 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,
1997 1996
---- ----
<S> <C> <C>
Receivable:
Securities failed to deliver $ 680,000 $ 780,000
Deposits on securities borrowed 3,642,000 2,347,000
Other amounts due from brokers and dealers 210,000 562,000
----------- -----------
$ 4,532,000 $ 3,689,000
=========== ===========
Payable:
Securities failed to receive $ 805,000 $ 776,000
Deposits on securities loaned 27,622,000 18,049,000
Other amounts due to brokers and dealers 4,548,000 5,311,000
----------- -----------
$32,975,000 $24,136,000
=========== ===========
</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.
F-9<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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.
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,
1997 1996
---- ----
<S> <C> <C>
Securities owned:
U.S. Government obligations $ 4,224,000 $ 1,057,000
Certificates of deposit 86,000 -
State and municipal government obligations 2,054,000 1,837,000
Corporate obligations 1,064,000 510,000
Corporate stocks 751,000 1,243,000
Non-marketable 546,000 416,000
Other 285,000 245,000
----------- -----------
$ 9,010,000 $ 5,308,000
=========== ===========
Securities sold, not yet purchased:
U.S. Government obligations $ 83,000 $ 85,000
Certificates of deposit 101,000 -
State and municipal government obligations 62,000 99,000
Corporate stocks 146,000 171,000
Other 175,000 95,000
----------- -----------
$ 567,000 $ 450,000
=========== ===========
</TABLE>
F-10
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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, 1997, 1996 and 1995
approximately $29,423,000, $17,375,000, and $28,138,000, respectively,
were outstanding under this arrangement. The market value of the
collateral relating to this arrangement was approximately $40,000,000
$20,000,000 and $50,000,000 at December 31, 1997, 1996 and 1995,
respectively, including customer margin account securities of
approximately $37,000,000, $9,000,000, and $40,000,000, respectively.
The maximum and average amounts outstanding during the year ended
December 31, 1997 were approximately $39,000,000, $28,000,000 ,
respectively ($38,000,000 and $22,000,000, respectively, for the year
ended December 31, 1996, and $28,000,000 and $12,000,000,
respectively, for the year ended December 31, 1995). The average
interest rates during the same periods were 6.8%, 6.3%, and 6.8%,
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, 1997 and 1996, $1,500,000 and $2,500,000,
respectively, was outstanding under the Note and is included in notes
payable to affiliates on the accompanying consolidated statements of
financial condition. Aggregate annual future payments due on the Note
are as follows:
1998 $1,000,000
1999 500,000
----------
1,500,000
===========
The Company recorded interest expense of approximately $628,000,
$637,000 and $420,000 for the years ended December 31, 1997, 1996 and
1995, respectively, related to notes payable to affiliates.
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments," requires the disclosure of the
fair value of financial instruments, including assets and liabilities
recognized and not recognized in the consolidated statements of
financial condition.
F-11<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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, 1997, 1996 and 1995.
The Company leases its operations headquarters, branch offices and
certain equipment under operating leases that generally allow for
renewal and are in effect for various terms through 2003. Lease
expense with respect to operating leases for the years ended December
31, 1997, 1996 and 1995 approximated $1,650,000, $1,448,000 and
$1,559,000, respectively.
Based upon long-term noncancelable leases and other contractual
commitments, the future minimum commitments as of December 31, 1997
are as follows:
1998 $ 1,959,000
1999 1,927,000
2000 1,899,000
2001 889,000
2002 336,000
Thereafter 7,000
-----------
$ 7,017,000
===========
Included in other assets in the accompanying consolidated statements
of financial condition at December 31, 1997 and 1996 are investments
in real estate partnerships of $34,000 and $42,000, 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 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,
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Current provision:
Federal $3,115,000 $2,823,000 $2,829,000
State 477,000 535,000 299,000
---------- ---------- ----------
3,592,000 3,358,000 3,128,000
---------- ---------- ----------
Deferred provision (benefit):
Federal 84,000 (998,000) (589,000)
State 13,000 (153,000) (62,000)
---------- ---------- ----------
97,000 (1,151,000) (651,000)
---------- ---------- ----------
$3,689,000 $2,207,000 $2,477,000
========== ========== ==========
</TABLE>
At December 31, 1997, the Company has a net operating loss ("NOL")
carryforward of approximately $750,000 for income tax purposes that
expires in 2005. The NOL carryforward, which was acquired by merger
in 1990, is limited under the separate return limitation year rules.
It is anticipated that the Company will generate sufficient future
taxable income to realize the deferred income tax asset.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of the Company's net deferred tax
asset as of December 31 are as follows:
F-13
<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
1997 1996
---- ----
Reserve for bad debts $ 544,000 $ 476,000
Contingency accruals 793,000 972,000
Net operating loss carryforward 282,000 302,000
Other 2,000 44,000
---------- ------------
Gross deferred tax assets $1,621,000 1,794,000
---------- ------------
Gross deferred tax liability - (75,000)
---------- ------------
Net deferred tax asset $1,621,000 $ 1,719,000
========== ===========
The Company's effective tax rate on pre-tax income differs from the
statutory federal income tax rate due to the following:
December 31,
1997 1996 1995
---- ---- ----
Tax at statutory rate 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
Effect of state income tax 3.6% 2.4% 3.6%
Effect of reversal of valuation
allowance - (10.0%) -
Effect of nondeductible travel
and entertainment 2.0% 1.0% 1.3%
Other (2.0%) (0.6%) 0.5%
------ ----- -----
37.6% 26.8% 39.4%
====== ===== =====
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,
1997 1996
---------------------
<S> <C> <C>
JWC Clearing (alternative method elected):
Net capital as a percentage of aggregate debit items 10.4% 11.9%
Net capital $ 12,222,000 $ 12,863,000
Required net capital $ 2,341,000 2,160,000
CSG:
Ratio of aggregate indebtedness to net capital 1.50% 1.86%
Net capital $ 2,024,000 $ 1,476,000
Required net capital $ 250 000 $ 250,000
JWC Securities:
Ratio of aggregate indebtedness to net capital 2.21% 1.53%
Net capital $ 1,685,000 $ 2,153,000
Required net capital $ 250,000 $ 250,000
DMG:
Ratio of aggregate indebtedness to net capital 0.51% 1.14%
Net capital $ 451,000 $ 317,000
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, 1997
and 1996, 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, 1997
market values of the related securities and will incur a loss if the
market value of the securities increases subsequent to December 31, 1997.
The Company's customer securities activities are transacted on either
a cash or margin basis. In margin transactions, the Company extends
credit to its customers, subject to various regulatory and internal
margin requirements, collateralized by cash and securities in the
customers' accounts. In connection with these activities, the Company
executes and clears customer transactions involving the sale of
securities not yet purchased, substantially all of which are
transacted on a margin basis subject to individual exchange
regulations. Such transactions may expose the Company to significant
off-balance-sheet risk in the event margin requirements are not
sufficient to fully cover losses that customers may incur. In the
event the customer fails to satisfy its obligations, the Company may
be required to purchase or sell financial instruments at prevailing
market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer
activities by requiring customers to maintain margin collateral in
compliance with various regulatory and internal guidelines. The
Company monitors required margin levels daily and, pursuant to such
guidelines, requires the customer to deposit additional collateral, or
to reduce positions, when necessary.
The Company's customer financing and securities settlement activities
require the Company to pledge customer securities as collateral in
support of various secured financing sources such as bank loans and
securities loaned. In the event the counterparty is unable to meet
its contractual obligation to return customer securities pledged as
collateral, the Company may be exposed to the risk of acquiring the
securities at prevailing market prices in order to satisfy its
customer obligations. The Company controls this risk by monitoring
the market value of securities pledged on a daily basis and by
requiring adjustments of collateral levels in the event of excess
market exposure. In addition, the Company establishes credit limits
for such activities and monitors compliance on a daily basis.
F-16<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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.
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.
In conjunction with a stock repurchase agreement entered into with
Gilman (described in detail in Note 15), the Company 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,
F-17<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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. 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. Accordingly, on
April 15, 1997, the Company made a principal payment to Gilman in the
amount of $2,512,000. At December 31, 1997, the balance outstanding
under the Stock Loan was $3,613,000, of which $2,552,000 is due on
April 15, 1998. 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. Additionally, Gilman's consent is required prior to the
Company consummating any merger or reorganization. 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.
F-18<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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.
Information for the 1990 Plan for the years ended December 31, 1997,
1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
EXERCISE WEIGHTED
NUMBER PRICE AVERAGE
OF SHARES RANGE EXERCISE PRICE
-----------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1994 451,875 $ 1.33 - 2.50 $ 1.90
Granted 210,000 2.25 - 2.55 2.50
Exercised (2,250) 1.33 1.33
Forfeited (66,000) 1.33 - 2.50 2.49
-------- -------------- -----------
Balance, December 31, 1995 593,625 1.33 - 2.55 2.05
Granted 272,089 2.85 - 4.49 3.74
Exercised (208,125) 1.33 - 1.95 1.70
Forfeited (18,238) 2.55 - 2.85 2.70
-------- --------------- ------------
Balance, December 31, 1996 639,351 1.95 - 4.49 2.87
Granted 449,190 6.50 -10.00 7.36
Exercised (17,000) 1.95 - 4.09 2.20
Forfeited (5,385) 6.73 -10.00 7.64
--------- --------------- -------------
Balance, December 31, 1997 1,066,156 $ 1.95 - 9.08 $ 4.75
--------- --------------- -------------
F-19<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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, 1997, all 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,
1997 and 1996, 10,500 shares had been issued under the restricted
stock plan and 739,500 shares of common stock have been reserved for
future issuance.
In accordance with the provisions of SFAS 123 the Company applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans and does not
recognize compensation expense for its stock-based compensation plans
other than for restricted stock. If the Company had elected to
recognize compensation expense based upon the fair value at the grant
date for awards under these plans consistent with the methodology
prescribed by SFAS 123, the Company's net income and earnings per
common share would be reduced to the pro forma amounts indicated
below:
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
NET INCOME:
As reported $ 6,103,000 $6,025,000 $3,810,000
Pro forma $ 5,404,000 $5,822,000 $3,643,000
Basic earnings per common share:
As reported $ 1.77 $ 1.42 $ .65
Pro forma $ 1.57 $ 1.37 $ .62
Diluted earnings per common share:
As reported $ 1.50 $ 1.26 $ .64
Pro forma $ 1.33 $ 1.22 $ .61
</TABLE>
These pro forma amounts may not be representative of future
disclosures since the estimated fair value of stock options is
amortized to expense over the vesting period and additional options
may be granted in future years. For disclosure purposes the fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for stock purchase rights granted in 1997 and 1996,
respectively: dividend yields of 0.0% for both years; expected
F-20
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
volatility of 53.2% and 52.1%; risk-free interest rates of 6.0% and
6.1%; and expected life of 5 years for all grants. The weighted
average fair value of stock options granted in 1997 and 1996 was $3.88
and $1.96, respectively. The weighted average remaining contractual
life of options outstanding at December 31, 1997 and 1996 is 3.3 and
3.4 years, respectively. At December 31, 1997, 1996 and 1995, the
Company had options available for future grants of 306,469, 92,788 and
364,875, respectively. The following table summarizes information
about the options exercisable at December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of shares 395,499 262,500 375,625
Exercise price ranges $ 1.95-6.50 $1.95-2.50 $ 1.33-2.50
Weighted average exercise price $ 3.56 $ 2.20 $ 2.03
</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 $225,000, $264,000,
and $197,000 of Company matching contributions made during 1997, 1996
and 1995, respectively.
On October 1, 1997, the Company adopted an Employee Stock Purchase
Plan, which is authorized to issue up to 400,000 shares of common
stock to its full-time employees to purchase shares of common stock
through voluntary contributions, including periodic payroll
deductions. Under the terms of the Plan, employees are limited to a
monthly contribution varying between $50 and $1,650 of after-tax
dollars to purchase the Company's common stock. The purchase price of
the stock is the lesser of 85 percent of the market price on the first
day of the quarter, or on the stock purchase date designated after the
end of each quarter. Under the Plan, the Company is committed to
issue or purchase in the open market 25,151 shares of common stock at
December 31, 1997.
17. EARNINGS PER COMMON SHARE:
Presented below is basic and diluted EPS under SFAS 128 for
the years ended December 31, 1997, 1996 and 1995:
F-21<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
<TABLE>
<CAPTION>
PER SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
1997
Earnings per share of common stock $ 6,103,000 3,443,141 $ 1.77
Effect of dilutive securities:
Stock options --- 626,453 ---
----------- ---------- -----------
Earnings per share of common stock --
assuming dilution $ 6,103,000 4,069,594 $ 1.50
----------- ---------- -----------
1996
Earnings per share of common stock $ 6,025,000 4,245,895 $ 1.42
Effect of dilutive securities:
Stock options --- 537,687 ---
----------- ---------- -----------
Earnings per share of common stock --
assuming dilution $ 6,025,000 4,783,582 $ 1.26
=========== ========== ===========
1995
Earnings per share of common stock $ 3,810,000 5,862,296 $ .65
Effect of dilutive securities:
Stock options --- 137,471 ---
----------- ---------- ----------
Earnings per share of common stock --
assuming dilution $ 3,810,000 5,999,767 $ .64
=========== ========== ==========
</TABLE>
18. ACQUISITION:
On September 22, 1997, the Company completed its exchange tender offer
(the "Exchange Offer") to acquire all of the outstanding shares of
common stock of The Americas Growth Fund, Inc. ("AGRO") not already
owned by the Company. AGRO is a non-diversified, closed-end,
management investment company. Prior to the commencement of the
Exchange Offer, the Company owned 26% of the outstanding shares of
common stock of AGRO. A total of approximately 823,000 shares of AGRO
common stock, representing approximately 65% of AGRO common stock
tendered were accepted for exchange by the Company according to the
terms of the Exchange Offer on the basis of .431 shares of the
Company's common stock for each share of AGRO resulting in the
issuance by the Company of 354,851 shares of common stock at a price
of $8.25 per share. The tendered shares together with the shares
already owned by the Company represent approximately 91% of the
outstanding shares of AGRO common stock, with the remaining 9% of AGRO
shares held by minority shareholders.
The AGRO acquisition was accounted for under the purchase method of
accounting. The Company has consolidated the accounts of AGRO in the
accompanying financial statements effective as of September 22, 1997.
In accordance with the Exchange Offer, the purchase of the 65% of AGRO
common stock tendered was allocated to the fair value of the net
assets acquired as follows:
F-22<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
Tangible assets acquired $2,948,000
Liabilities assumed (20,000)
----------
$2,928,000
==========
The AGRO Minority Shareholders' interests in these accounts is
reflected as accrued expenses in the accompanying financial
statements. The Company is presently considering its options to
effect a transaction that would result in its ownership of 100% of the
shares of AGRO or the liquidation of AGRO and pro rata distribution of
its assets to the Company and the holders of the remaining 9% of AGRO
shares. Pro forma information for AGRO is not presented as management
has determined that this information does not materially impact the
historical financial data.
19. 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 six consecutive quarterly periods. At
December 31, 1997 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, 1997, the Wilmington
Warrant exercise price per share was approximately $11.30. The
Wilmington Marketing Agreement provides that the Company will market
certain products and services, initially personal trust and asset
management services, provided by Wilmington Trust FSB to the Company's
brokers, clients and prospects.
On December 18, 1996, the Company obtained an unsecured $2,500,000
revolving line of credit from SunTrust Bank, South Florida, N.A. for
general corporate purposes (the "SunTrust Facility"). The SunTrust
Facility matures on April 30, 2000, at which time all outstanding
borrowings plus all accrued and unpaid interest will become due and
immediately payable. Borrowings under the SunTrust Facility bear
interest at the prime rate of interest as announced from time to time
by SunTrust Banks of Florida, Inc., with interest payments due
F-23<PAGE>
JW Charles Financial Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
===========================================================================
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,
1997 the balance outstanding under the SunTrust Facility was $890,000.
In connection with the SunTrust Facility, the Company entered into a
marketing agreement with SunTrust (the "SunTrust Marketing Agreement")
and granted SunTrust Banks, Inc. a warrant to purchase 37,500 shares
of the Company's common stock at any time prior to December 31, 2002.
The exercise price per share is $6.67. The SunTrust Marketing
Agreement provides that the Company will market certain products and
services, through the Company's participation as an underwriter or
selling group member of various municipal finance offerings
underwritten by SunTrust Capital Markets, Inc., to the Company's
brokers, clients and prospects.
20. SUBSEQUENT EVENTS
On January 21, 1998, the Company executed an Agreement and Plan of
Combination (the "Combination Agreement") with Genesis Merchant Group
Securities Group, LLC ("Genesis"), the owners (the "Genesis Members")
of all of the outstanding equity interests in Genesis (the "Genesis
Membership Interests") and JWGenesis Financial Corp., a newly formed
Florida corporation and currently a wholly-owned subsidiary of the
Company ("JWGenesis"). Genesis is a San Francisco-based investment
banking firm with special expertise in institutional research, sales
and trading, corporate finance and brokerage processing services.
The Combination Agreement contemplates, among other things, that (i)
JWGenesis will acquire the outstanding shares of JWCFS Common Stock,
pursuant to a statutory share exchange, in exchange for shares of
JWGenesis Common Stock, on a one-for-one basis, with the result that
JWCFS will become a wholly-owned subsidiary of JWGenesis and each
issued and outstanding share of JWCFS will be exchanged for and become
the right to receive one share of JWGenesis Common Stock and (ii)
Genesis Members holding at least 90% of the Genesis Membership
Interests will exchange such interests for up to 1,500,000 shares of
JWGenesis Common Stock with the result that Genesis will become at
least a 90% owned limited liability company of JWGenesis.
The Combination, which will be accounted for as a purchase, is
expected to be completed during 1998 and is subject to approval by the
shareholders of the Company as well as other customary conditions of
closing.
F-24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: March 19, 1998 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 19, 1998
Marshall T. Leeds, Chairman, President
and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Joel E. Marks Date: March 19, 1998
Joel E. Marks, Vice Chairman,
Secretary (Principal Financial
and Accounting Officer) and Director
/s/ Stephen W. Cropper Date: March 19, 1998
Stephen W. Cropper, Director
/s/ John R. Faiella Date: March 19, 1998
John R. Faiella, Director
/s/ Wm. Dennis Ferguson Date: March 19, 1998
Wm. Dennis Ferguson, Director
/s/ Gregg S. Glaser Date: March 19, 1998
Gregg S. Glaser, Director
/s/ Jerome A. Siegel Date: March 19, 1998
Jerome A. Siegel, Director
/s/ Curtis R. Sykora Date: March 19, 1998
Curtis R. Sykora, Director
/s/ Joseph P. Robilotto Date: March 19, 1998
Joseph P. Robilotto, Director
/s/Michael B. Weinberg Date: March 19, 1998
Michael B. Weinberg, Director
AMENDED AND RESTATED
AGREEMENT AND PLAN OF COMBINATION
BY AND AMONG
JW CHARLES FINANCIAL SERVICES, INC.,
A FLORIDA CORPORATION,
JW GENESIS FINANCIAL CORP.,
A FLORIDA CORPORATION,
GENESIS MERCHANT GROUP SECURITIES LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY,
AND
THE GENESIS MEMBERS NAMED HEREIN
DATED AS OF MARCH 9, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1: CERTAIN DEFINITIONS................................................2
1.1 Definitions...........................................................2
1.2 Other Definitional Provisions........................................14
1.3 Captions.............................................................14
ARTICLE 2: THE COMBINATION...................................................15
2.1 Articles of Share Exchange; Delivery of Membership Interests.........15
2.2 The Effective Time...................................................15
2.3 Certain Effects of the Combination...................................15
2.4 Exchange of Genesis Membership Interests; Exchange of JWCFS
Common Stock........................................................16
2.5 Assumption of JWCFS Options, Purchase Rights, and Warrants...........17
2.6 Adjustments..........................................................18
2.7 Surrender of Certificates............................................18
2.8 Escrow Account.......................................................20
2.9 Maintenance of Two Members of Genesis................................20
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF GENESIS MEMBERS.................21
3.1 Investment Intentions................................................21
3.2 Ownership and Status of Genesis Member Interests.....................22
3.3 Power of Genesis Member; Approval of LLC Exchange....................22
3.4 No Conflicts or Litigation...........................................23
3.5 No Brokers...........................................................23
3.6 Preemptive and Other Rights; Waiver..................................23
3.7 Control of Related Businesses........................................23
ARTICLE 4: REPRESENTATIONS AND WARRANTIES OF GENESIS.........................24
4.1 Organization, Etc. of Genesis........................................24
4.2 Capitalization.......................................................24
4.3 Rights to Acquire Genesis Equity Interests...........................24
4.4 Subsidiaries.........................................................24
4.5 Authority............................................................24
4.6 No Default Resulting from Agreement..................................25
4.7 Financial Statements of Genesis; Disclosure..........................25
4.8 Absence of Undisclosed Liabilities...................................26
4.9 Property.............................................................26
4.10 Certain Environmental Matters.......................................27
4.11 Notes and Accounts Receivable.......................................27
4.12 Litigation; Compliance with Laws Generally..........................28
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4.13 Tax Matters.........................................................28
4.14 Material Contracts..................................................29
4.15 Licenses; No Infringement...........................................30
4.16 Bank Accounts; Insurance Policies...................................30
4.17 Genesis Member Materials............................................30
4.18 Obligations for Indemnification.....................................31
4.19 Brokers or Finders..................................................31
4.20 Absence of Changes..................................................31
4.21 Year 2000 Compliance................................................32
4.22 Broker-Dealer Registration; Etc.....................................32
4.23 Employee Matters....................................................33
4.24 Compliance with ERISA, Etc..........................................35
4.25 Representations and Warranties......................................38
ARTICLE 5: CONDUCT PENDING CLOSING...........................................38
5.1 Conduct of Genesis Pending Closing...................................38
5.1.1 General.......................................................38
5.1.2 Ordinary Course; Preservation of Business and Records.........38
5.1.3 Compensation..................................................39
5.1.4 Change in Articles of Organization and Ownership..............39
5.1.5 Access to Properties, Books, Etc..............................39
5.1.6 Monthly Financial Statements..................................39
5.1.7 Distributions.................................................39
5.2 Conduct of JWCFS Pending Closing.....................................39
5.2.1 General.......................................................40
5.2.2 Ordinary Course; Preservation of Business and Records.........40
5.2.3 Access to Properties, Books, Etc..............................40
5.2.4 Monthly Financial Statements..................................40
5.2.5 Distributions.................................................40
5.2.6 Capital Structure.............................................40
ARTICLE 6: REPRESENTATIONS AND WARRANTIES OF JWCFS...........................41
6.1 Organization, Etc. of JWCFS..........................................41
6.2 Capitalization of JWCFS..............................................41
6.3 Organization and Capitalization of Newco.............................42
6.4 Authority............................................................43
6.5 No Default Resulting from Agreement..................................43
6.6 Securities Filings; Financial Statements.............................44
6.7 Absence of Undisclosed Liabilities...................................44
6.8 Litigation; Compliance with Laws Generally...........................45
6.9 Licenses; No Infringement............................................45
6.10 Broker-Dealer Registration; Etc.....................................45
6.11 Material Changes....................................................46
6.12 Tax Matters.........................................................46
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6.13 Employee Matters....................................................46
6.14 Compliance with ERISA, Etc..........................................48
6.15 Certain Environmental Matters.......................................50
6.16 Year 2000 Compliance................................................51
6.17 Representations and Warranties......................................51
ARTICLE 7: RESALE REGISTRATION AND RELATED MATTERS...........................51
7.1 Resale Registration of Weinstein Stock...............................51
7.2 Certain Additional Obligations of JWCFS and Newco....................52
7.3 Certain Conditions to Newco's Obligations............................53
7.4 Registration Indemnification.........................................53
ARTICLE 8: OTHER AGREEMENTS..................................................55
8.1 Stock Options to Certain Genesis Personnel...........................55
8.2 Leeds Employment Agreement...........................................55
8.3 Marks Employment Agreement...........................................55
8.4 Employment of Will K. Weinstein......................................55
8.5 Employment of Stapleton..............................................55
8.6 Establishment of Executive Bonus Pool................................56
8.7 Agreement Among Certain Shareholders.................................56
8.8 Confidentiality......................................................56
8.9 Proxy Statement and Form S-4 Registration Statement..................56
8.10 No Solicitation of Transactions.....................................57
8.11 Tax Return Positions................................................57
8.12 JWCFS Shareholders Meeting..........................................57
8.13 Meeting of or Action by Genesis Members.............................58
8.14 Cooperation.........................................................58
8.15 Expenses............................................................58
8.16 Press Releases......................................................58
8.17 JWCFS's Public Documents and Access to Information..................59
8.18 Agreement by Leeds and Marks........................................59
8.19 Delivery of SEC Compliance Documents................................59
8.20 Nonsolicitation Agreements..........................................59
8.21 Distribution to Genesis Members.....................................59
8.22 Newco Common Stock Deliverable to Putnam, Lovell & Thornton.........59
ARTICLE 9: INDEMNIFICATION...................................................60
9.1 Survival of Representations and Warranties..........................60
9.2 Indemnification of Seller Indemnified Parties.......................60
9.3 Indemnification of JWCFS Indemnified Parties........................61
9.4 Conditions of Indemnification.......................................61
9.5 Limitation on Remedies..............................................64
9.6 Limitations on Indemnification......................................64
ARTICLE 10: CLOSING AND CONDITIONS PRECEDENT.................................65
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<PAGE>
10.1 Closing.............................................................65
10.1.1 Time and Place of Closing....................................65
10.1.2 Exchange of Other Closing Documents..........................65
10.2 Conditions Precedent to the Obligations of JWCFS and Newco..........65
10.2.1 Accuracy of Representations and Warranties...................65
10.2.2 Compliance with Obligations and Conditions...................65
10.2.3 Closing Documents............................................66
10.2.4 Genesis Consents and Approvals...............................66
10.2.5 Securities Law Compliance as to Genesis Members..............67
10.2.6 No Dissenting Genesis Members................................67
10.2.7 Tax Opinion..................................................67
10.2.8 Schedules and Due Diligence..................................67
10.2.9 SEC Compliance Documents.....................................67
10.2.10 AMEX Listing................................................67
10.2.11 Employment Agreement Matters................................68
10.2.12 Shareholder Approval........................................68
10.2.13 Certain Financial Performance Matters.......................68
10.2.14 Accountants' Letters........................................68
10.2.15 HSR Act Matters.............................................68
10.2.16 Maintenance of Two Members of Genesis.......................69
10.2.17 JWCFS Consents and Approvals...............................69
10.3 Conditions Precedent to the Obligations of Genesis and the Genesis
Members.............................................................69
10.3.1 Accuracy of Representations and Warranties...................69
10.3.2 Compliance with Obligations and Conditions...................69
10.3.3 Certain Closing Documents....................................69
10.3.4 Tax-Free Reorganization......................................70
10.3.5 Consents and Approvals.......................................70
10.3.6 Employment Agreement Matters.................................70
10.3.7 Schedules and Due Diligence..................................71
10.3.8 Member Transfer..............................................71
10.3.9 Shareholder Approval.........................................71
10.3.10 AMEX Listing................................................71
ARTICLE 11: TERMINATION......................................................71
11.1 Material Adverse Change to Genesis..................................71
11.2 Material Adverse Change to JWCFS....................................71
11.3 Non-Compliance by Genesis or Genesis Members........................72
11.4 Non-Compliance by JWCFS or Newco....................................72
11.5 Litigation Regarding the Combination................................72
11.6 Requirements and Effect of Termination..............................72
11.7 Election to Close Despite Failure to Satisfy Conditions.............72
11.8 Other Acquisition Proposals; Failure to Receive Fairness Opinion....73
11.9 Review of SEC Compliance Documents..................................73
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11.10 Extended Delay of Combination......................................73
11.11 JWCFS Dissenters...................................................73
ARTICLE 12: GENERAL AND MISCELLANEOUS........................................74
12.1 Notices, Etc........................................................74
12.2 Entire Agreement....................................................75
12.3 Amendments; Modifications; Waivers..................................75
12.4 Counterparts; Headings..............................................75
12.5 Binding Effect......................................................75
12.6 Governing Law.......................................................75
12.7 Further Assurances..................................................76
12.8 Exercise of Rights and Remedies.....................................76
12.9 Time................................................................76
12.10 Restriction on Trading.............................................76
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<PAGE>
SCHEDULES
Schedule 3.1 Selling Genesis Members Who Are Not Accredited Investors
Schedule 3.2 Disclosure of Equity Ownership and Liens
Schedule 3.5 Disclosure of Activities with Brokers
Schedule 3.7 Disclosure of Genesis Members' Controlling Interests and
Material Related Transactions
Schedule 4.1 Jurisdictions of Authorization or Qualification
Schedule 4.6 Defaults
Schedule 4.7 Financial Statements of Genesis
Schedule 4.7(a) Financial Statements of Genesis Not Prepared in
Conformance With GAAP
Schedule 4.8 Liabilities Not Reflected in the Financial Statements of
Genesis; Notices of Unremedied Breach or Default
Schedule 4.9(a) Liens on Personal Property
Schedule 4.9(b) Owned and Leased Real Property and Leased Material
Personal Property
Schedule 4.9(c) Invalid or Nonbinding Leases; Subleases
Schedule 4.9(d) Fixed Assets Not In Good Condition
Schedule 4.10(a) Environmental Matters: Noncompliance
Schedule 4.10(b) Environmental Matters: Release or Disposal of Hazardous
Substances
Schedule 4.10(c) Environmental Matters: Offsite Disposal of
Hazardous Substances
Schedule 4.10(d) Environmental Matters: Storage Tanks
Schedule 4.11 Receivables Not Collectable or Not Valid
Schedule 4.12 Litigation
Schedule 4.13 Exceptions to Tax Representations and Warranties
Schedule 4.14 Material Contracts
Schedule 4.16(a) Bank Accounts
Schedule 4.16(b) Insurance Policies, Loss Runs and Worker's Compensation
Claims
Schedule 4.16(c) Powers of Attorney
Schedule 4.20 Changes Since September 30, 1997
Schedule 4.21 Year 2000 Compliance Plan
Schedule 4.23(a) Employee Matters: Cash Compensation
Schedule 4.23(b) Employee Matters: Engagement and Non-Competition
Agreements
Schedule 4.23(c) Employee Matters: Other Compensation Plans
Schedule 4.23(d) Employee Matters: ERISA Benefit Plans
Schedule 4.23(e) Employee Matters: Employee Policies and Procedures
Schedule 4.23(f) Employee Matters: Unwritten Amendments
Schedule 4.23(g) Employee Matters: Labor Compliance
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<PAGE>
Schedule 4.23(i) Employee Matters: Change of Control Benefits
Schedule 4.23(j) Employee Matters: Retirees
Schedule 4.24(b) Compliance with ERISA: Plans Not Qualified
Schedule 4.24(g) Compliance with ERISA: Participation in
Multiemployer Plans
Schedule 4.24(h) Compliance with ERISA: Claims and Litigation
Schedule 4.24(k) Compliance with ERISA: Liabilities Incurred in Amending or
Modifying Plans
Schedule 6.1 Jurisdictions of Authorization or Qualification
Schedule 6.2(b) Obligations with Respect to JWCFS Capital Stock
Schedule 6.5 Defaults
Schedule 6.7 Liabilities Except Those Incurred After Current Balance Sheet
Date or in Connection with the Transaction
Schedule 6.8 Litigation
Schedule 6.9 Compliance with Laws: Licenses, Permits, and
Government Approvals
Schedule 6.11 Material Changes Since September 30, 1997
Schedule 6.12 Insufficient Tax Provisions
Schedule 6.13(a) Employee Matters: Cash Compensation
Schedule 6.13(b) Employee Matters: Other Compensation Plans
Schedule 6.13(c) Employee Matters: ERISA Benefit Plans
Schedule 6.13(d) Employee Matters: Employee Policies and Procedures
Schedule 6.13(e) Employee Matters: Unwritten Amendments
Schedule 6.13(f) Employee Matters: Labor Compliance
Schedule 6.13(g) Employee Matters: Change of Control Benefits
Schedule 6.13(h) Employee Matters: Retirees
Schedule 6.14(b) Compliance with ERISA: Plans Not Qualified
Schedule 6.14(g) Compliance with ERISA: Participation in
Multiemployer Plans
Schedule 6.14(h) Compliance with ERISA: Claims and Litigation
Schedule 6.14(k) Compliance with ERISA: Liabilities Incurred in Amending or
Modifying Plans
Schedule 6.15(a) Environmental Matters: Noncompliance
Schedule 6.15(b) Environmental Matters: Release or Disposal of Hazardous
Substances
Schedule 6.15(c) Environmental Matters: Offsite Disposal of
Hazardous Substances
Schedule 6.15(d) Environmental Matters: Storage Tanks
Schedule 6.16 Year 2000 Compliance Plan
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<PAGE>
ANNEXES
Annex A Newco Initial Board of Directors
Annex B Newco Initial Officers
Annex C Ownership Interests of Genesis Members;
Shares Received in LLC Exchange; Escrowed Shares
Annex D Issuance of Options to Purchase Newco Common Stock
Annex E Leeds and Marks Contract Buy-Out Terms
Annex F Genesis Employees Executing Nonsolicitation
Agreement
Annex G Addresses of Genesis Members
EXHIBITS
Exhibit A Form of Plan of Share Exchange
Exhibit B Form of Assumption Agreement
Exhibit C Form of Escrow Agreement
Exhibit D Form of Employment Agreement (Leeds, Stapleton,
Marks)
Exhibit E Form of Will K. Weinstein Employment Agreement
Exhibit F Form of Agreement Among Certain Shareholders
Exhibit G Form of Voting Agreement
Exhibit H Form of Genesis Counsel Opinion
Exhibit I Form of JWCFS Counsel Opinion
Exhibit J Form of Nonsolicitation Agreement
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<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF COMBINATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF COMBINATION (the
"Agreement") is made as of March 9, 1998, by and among JW CHARLES FINANCIAL
SERVICES, INC., a Florida corporation ("JWCFS"), JW GENESIS FINANCIAL CORP., a
Florida corporation and a wholly owned subsidiary of JWCFS ("Newco"), GENESIS
MERCHANT GROUP SECURITIES LLC, a California limited liability company
("Genesis"), and the persons listed on and executing the signature pages hereof
under the caption "Genesis Members."
W I T N E S S E T H:
WHEREAS, JWCFS operates a full-service securities brokerage and investment
banking business;
WHEREAS, Genesis operates a securities research, sales and trading,
corporate finance, and brokerage business, with special expertise in
institutional equity trading and innovative research focused on high-growth
industries;
WHEREAS, Newco is a newly formed Florida corporation and wholly owned
subsidiary of JWCFS created for the purpose of effecting the Share Exchange (as
this and certain other capitalized terms used herein are defined in Article 1
hereof) between JWCFS and Newco and the LLC Exchange among Genesis, the Genesis
Members, and Newco;
WHEREAS, the Boards of Directors of JWCFS and Newco and the Executive
Committee of Genesis deem it advisable and for the benefit of each such company
and their respective shareholders or members, as the case may be, that JWCFS,
Genesis, and Newco act to effect such Share Exchange and LLC Exchange in order
to accomplish a business combination to advance the long-term business interests
of all such parties;
WHEREAS, such business combination shall be effected pursuant and subject
to the terms of this Agreement by means of a two-part transaction in which
first, JWCFS and Newco enter into a transaction pursuant to which all shares of
capital stock of JWCFS shall be transferred to Newco in exchange for the
issuance by Newco to the former owners thereof of shares of Newco Common Stock,
all as set forth more particularly herein (the "Share Exchange") and second,
after the Share Exchange, Genesis, the Genesis Members, and Newco enter into a
transaction pursuant to which at least 90% of the outstanding Genesis Voting
Membership Interests shall be transferred to Newco in exchange for the issuance
by Newco to the former owners thereof of shares of Newco Common Stock, all as
set forth more particularly herein (the "LLC Exchange"),
<PAGE>
and the shareholders of JWCFS and the Genesis Members (other than the holder of
any Special Continuing Genesis Interest) will become shareholders of Newco (the
Share Exchange and the LLC Exchange together comprising the "Combination");
WHEREAS, pursuant to the Combination, on the basis set forth in Article 2
hereof and, for purposes of the Share Exchange, the Plan of Share Exchange
substantially in the form attached hereto as EXHIBIT A, (i) each issued and
outstanding share of JWCFS Common Stock will be acquired by Newco in exchange
for one (1) share of Newco Common Stock and (ii) at least 90% of the Genesis
Voting Membership Interests will be acquired by Newco in exchange for an
aggregate of up to 1,500,000 shares of Newco Common Stock, to be allocated among
the Genesis Members as provided herein; and
WHEREAS, this Agreement and the Combination have been approved by the
Boards of Directors of JWCFS and Newco and the Executive Committee of Genesis as
a transaction intended to qualify for federal income tax purposes as a
nonrecognition transaction within the meaning of Section 351 of the Code.
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, representations and undertakings contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
1.1 DEFINITIONS. For the purpose of this Agreement, any amendments
-----------
hereto, and any annexes, schedules, or exhibits attached hereto, the following
terms shall have the following meanings:
"ACQUISITION PROPOSAL" has the meaning set forth in Section 8.10.
"AFFILIATE" means, as to any specified Person, any other Person that,
directly or indirectly through one or more intermediaries or otherwise,
controls, is controlled by, or is under common control with the specified
Person. As used in this definition, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person (whether through ownership of Capital Stock of that Person,
by contract, or otherwise).
"AMEX" means The American Stock Exchange, Inc.
"ANNUAL REPORT" means JWCFS's Annual Report on Form 10-K, as amended, for
its fiscal year ended December 31, 1996.
"ASSUMPTION AGREEMENT" has the meaning set forth in Section 2.3(b).
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<PAGE>
"CAPITAL LEASE" means a lease of (or other agreement conveying the right to
use) real or personal property that is required to be classified and accounted
for as a capital lease in accordance with GAAP as in effect on the date of this
Agreement.
"CAPITAL STOCK" means, with respect to (a) any corporation, any share, or
any depository receipt or other certificate representing any share, of an equity
ownership interest in that corporation, and (b) any other Entity, any share,
membership or other percentage interest, unit of participation, or other
equivalent (however designated) of an equity interest in that Entity.
"CASH COMPENSATION" means, as applied to any employee, non-employee
director or officer of, or any natural person who performs consulting or other
independent contractor services for, JWCFS or Genesis or any Subsidiary thereof,
the wages, salaries, bonuses (discretionary and formula), fees and other cash
compensation paid or payable by JWCFS or Genesis or any Subsidiary thereof to
that employee or other natural person.
"CHARTER DOCUMENTS" means, with respect to any Entity at any time, in each
case as amended, modified, and supplemented at that time, the articles or
certificate of formation, incorporation, or organization (or the equivalent
organizational documents) of that Entity, (b) the bylaws, operating agreement,
trust indenture, or regulations (or the equivalent governing documents) of that
Entity, and (c) each document setting forth the designation, amount and relative
rights, limitations, and preferences of any class or series of that Entity's
Capital Stock or of any rights in respect of that Entity's Capital Stock.
"CLAIM NOTICE" has the meaning set forth in Section 9.4.
"CLASS A-E MEMBERS" means the Class A-E Members of Genesis as defined in
the Genesis Charter Documents.
"CLASS A-E MEMBERSHIP INTEREST" refers to the interest held by the Class A-
E Members as defined in the Genesis Charter Documents.
"CLASS C MEMBERS" mean the Class C Members of Genesis as defined in the
Genesis Charter Documents.
"CLASS C MEMBERSHIP INTEREST" refers to the interest held by the Class C
Members as defined in the Genesis Charter Documents.
"CLASS D MEMBERS" means the Class D Members of Genesis as defined in the
Genesis Charter Documents.
"CLASS D MEMBERSHIP INTEREST" refers to the interest held by the Class D
Members as defined in the Genesis Charter Documents.
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<PAGE>
"CLOSING" has the meaning set forth in Section 10.1.
"CLOSING DATE" has the meaning set forth in Section 10.1.1.
"COMMISSION" means the Securities and Exchange Commission.
"COBRA" means the continuation coverage requirements of Section 1001 of the
Consolidated Omnibus Reconciliation Act of 1985, as amended, as codified in
ERISA Sections 601 through 608 and Section 4980B of the Code.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMBINATION" means the Share Exchange and the LLC Exchange.
"CURRENT BALANCE SHEET" means the unaudited balance sheet of Genesis at the
Current Balance Sheet Date.
"CURRENT BALANCE SHEET DATE" means September 30, 1997.
"CURRENT DATE" means any day during the 14-day period ending on the Closing
Date.
"DAMAGES" to any specified Person means any costs, damages (including any
consequential, exemplary, punitive, or treble damages), or expenses (including
reasonable fees and actual disbursements by attorneys, consultants, experts, or
other Representatives, and Litigation costs) to, any fine of or penalty on, or
any liability (including loss of earnings or profits) of any other nature to
that Person.
"DAMAGES CLAIM" means, as asserted (a) against any specified Person, any
claim, demand, or Litigation made or pending against that Person for Damages to
any other Person, or (b) by the specified Person, any claim or demand of the
specified Person against any other Person for Damages to the specified Person.
"DERIVATIVE SECURITIES" of a specified Entity means any Capital Stock or
debt security or other Indebtedness of the specified Entity or any other Person
that is convertible into or exchangeable for, or any option, warrant, or other
right to acquire, common stock of the specified Entity.
"DISCRETIONARY ALLOCATION POOL" has the meaning set forth in Section 8.6.
"EFFECTIVE TIME" means the date on and time at which the Combination
becomes effective, as determined by Section 2.2 of this Agreement.
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<PAGE>
"EMPLOYEE POLICIES AND PROCEDURES" means at any time all employee manuals
and all material policies, procedures, and work-related rules that apply at that
time to any employee, non-employee director or officer of, or any other natural
person performing consulting or other independent contractor services for, JWCFS
or Genesis or any Subsidiary thereof, as the case may be.
"ENGAGEMENT AND NON-COMPETITION AGREEMENTS" means, at any time, any
agreement to which JWCFS or Genesis or any Subsidiary thereof, as the case may
be, is a party that then (a) relates to the direct or indirect employment or
engagement, or arises from the past employment or engagement, of any natural
person by JWCFS or Genesis or any Subsidiary thereof, as the case may be,
whether as an employee, a non-employee officer or director, a registered
representative, a consultant or other independent contractor, or an agent of any
kind, and (b) limits that Person's competition with JWCFS or Genesis or any
Subsidiary thereof, as the case may be.
"ENVIRONMENTAL LAWS" means any and all Governmental Requirements relating
to the environment or worker health or safety, including ambient air, surface
water, land surface, or subsurface strata, or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals, or industrial
toxic or hazardous substances or wastes (including Hazardous Substances) or
noxious noise or odor into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
recycling, removal, transport, or handling of pollutants, contaminants,
chemicals, or industrial toxic or hazardous substances or wastes (including
petroleum, petroleum distillates, asbestos or asbestos-containing material,
polychlorinated biphenyls, chlorofluorocarbons (including chlorofluorocarbon-
12), or hydrochlorofluoro-carbons), including but not limited to the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.A.
(S) 9601 et seq.; the Resource Conversation and Recovery Act, 42 U.S.C.A. (S)
6901 et seq.; the Federal Water Pollution Control Act, 33 U.S.C.A. (S) 1251 et
seq.; the Federal Clean Air Act, 42 U.S.C.A. (S) 7401 et seq.; the Federal
Insecticide Fungicide and Rodenticide Act, 7 U.S.C.A. (S) 135 et seq.; the Toxic
Substances Control Act, 15 U.S.C.A. (S) 2601 et seq.
"ENTITY" OR "ENTITIES" means one or more sole proprietorships,
corporations, partnerships of any kind having a separate legal status, limited
liability companies, business trusts, unincorporated organizations or
associations, mutual companies, joint stock companies, or joint ventures.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any Person that is, or at any time within six years
of that time was, a member of any "group of organizations" within the meaning of
Section 414(b), (c), (m) or (o) of the Code or any "controlled group" as defined
in Section
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4001(a)(14) of ERISA of which the specified Person is or was a member at the
same time.
"ERISA BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA, excluding any Multiemployer Plan.
"ERISA PENSION BENEFIT PLAN" means any "employee pension benefit plan", as
defined in Section 3(2) of ERISA, excluding any Multiemployer Plan.
"ESCROW AGENT" means American Stock Transfer & Trust Company.
"ESCROW AGREEMENT" means the agreement in the form substantially as set
forth as Exhibit C.
"ESCROWED SHARES" has the meaning set forth in Section 2.8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE AGENT" means American Stock Transfer & Trust Company.
"EXECUTIVE COMPENSATION POOL" has the meaning set forth in Section 8.6.
"FBCA" means the Florida Business Corporation Act.
"FINANCIAL STATEMENTS OF GENESIS" has the meaning set forth in Section 4.7.
"FIXED ALLOCATION POOL" has the meaning set forth in Section 8.6.
"FORM S-4 DOCUMENTS" has the meaning set forth in Section 7.
"GAAP" means generally accepted accounting principles and practices, as
such principles and practices are applied in the United States of America as of
the date of the financial statement with respect to which the term is used.
"GENESIS" means Genesis Merchant Group Securities LLC, a California limited
liability company.
"GENESIS CAPITAL INTERESTS" refers to all of the capital ownership
interests of Genesis including without limitation the Class A-E Membership
Interest, the Class B Membership Interest, the Class C Membership Interest, and
the Class D Membership Interest.
"GENESIS COMBINATION BALANCE SHEET" has the meaning set forth in Section
10.2.13.
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"GENESIS MEMBERS" means those persons who are holders of record of Genesis
Membership Interests and execute this Agreement.
"GENESIS MEMBER INDEMNIFIED LOSS" has the meaning set forth in Section 9.2.
"GENESIS MEMBERSHIP INTEREST" refers to an equity ownership in Genesis,
however denominated or evidenced, except that it does not include any Special
Continuing Genesis Interest or any Class C Membership Interest or Class D
Membership Interest.
"GENESIS PLANS" has the meaning set forth in Section 4.24.
"GENESIS SOFTWARE" has the meaning set forth in Section 4.21.
"GENESIS VOTING MEMBERS" shall mean the Class A-E Members and the Class B
Members of Genesis as defined in the Genesis Charter Documents.
"GENESIS VOTING MEMBERSHIP INTEREST" refers to the interest held by Class
A-E and Class B Members of Genesis.
"GOVERNMENTAL APPROVAL" means at any time any authorization, consent,
approval, permit, franchise, certificate, license, implementing order, or
exemption of, or registration or filing with, any Governmental Authority,
including any certification or licensing of a natural person to engage in a
profession or trade or a specific regulated activity, at that time.
"GOVERNMENTAL AUTHORITY" means (a) any national, state, county, municipal,
or other government, domestic or foreign, or any agency, board, bureau,
commission, court, department, or other instrumentality of any such government,
and (b) any Person having the authority under any applicable Governmental
Requirement to assess and collect Taxes for its own account.
"GOVERNMENTAL REQUIREMENT" means at any time (a) any law, statute, code,
ordinance, order, rule, regulation, judgment, decree, injunction, writ, edict,
award, authorization or other requirement of any Governmental Authority in
effect at that time, and (b) any obligation included in any certificate,
certification, franchise, permit, or license issued by any Governmental
Authority or resulting from binding arbitration, including any requirement under
common law, at that time.
"GUARANTY" means, for any specified Person, without duplication, any
liability, contingent or otherwise, of that Person guaranteeing or otherwise
becoming liable for any obligation of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, and including any liability of
the specified Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) that
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<PAGE>
obligation or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of that obligation, (b) to purchase property,
securities, or services for the purpose of assuring the owner of that obligation
of its payment, or (c) to maintain working capital, equity capital, or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay that obligation; provided, that the term
"Guaranty" does not include endorsements for collection or deposit in the
ordinary course of the endorser's business.
"HAZARDOUS SUBSTANCES" means any material or substance, or combination of
materials or substances, that by reason of quantity, concentration, composition,
or characteristic is or in the future becomes regulated under any Environmental
Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"IMMEDIATE FAMILY MEMBER" of a Person means at any time: (a) if that Person
is a natural person, then any child or grandchild (by blood or legal adoption)
or spouse of that Person at that time, or any child of that spouse, or such
person's parents, siblings, mothers and fathers-in-law, or brothers and sisters-
in-law; and (b) if that Person is an Entity whose ultimate beneficial owner is a
natural person, or a natural person and his or her spouse, then any child or
grandchild (by blood or legal adoption) or spouse at that time, or any child of
that spouse, or such person's parents, siblings, mothers and fathers-in-law, or
brothers and sisters-in-law of the ultimate beneficial owner or owners.
"INDEBTEDNESS" of any Person means, without duplication, (a) any liability
of that Person (i) for borrowed money or arising out of any extension of credit
to or for the account of that Person (including reimbursement or payment
obligations with respect to surety bonds, letters of credit, banker's
acceptances, and similar instruments), for the deferred purchase price of
property or services or arising under conditional sale or other title retention
agreements, other than trade payables arising in the ordinary course of
business, (ii) evidenced by notes, bonds, debentures, or similar instruments, or
(iii) in respect of Capital Leases; (b) any liability secured by any Lien upon
any property or assets of that Person (or upon any revenues, income, or profits
of that Person therefrom), whether or not that Person has assumed that liability
or otherwise becomes liable for the payment thereof; or (c) any liability of
others of the type described in the preceding clause (a) or (b) in respect of
which that Person has incurred, assumed, or acquired a liability by means of a
Guaranty.
"INDEMNIFICATION LIMIT" has the meaning set forth in Section 9.6(a).
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.4(a).
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.4(a).
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"INDEMNITY NOTICE" has the meaning set forth in Section 9.4(d).
"INFORMATION" means written information, including without limitation, (a)
data, certificates, reports, files, records, agreements, correspondence, plans,
policies, practices, manuals, and statements, and (b) summaries of unwritten
agreements, arrangements, contracts, plans, policies, programs, or practices or
of unwritten amendments or modifications of, supplements to, or waivers under
any of the foregoing.
"IRS" means the Internal Revenue Service.
"JWCFS" means JW Charles Financial Services, Inc., a Florida corporation.
"JWCFS COMMON STOCK" means the common stock, $.001 par value, of JWCFS.
"JWCFS INDEMNIFIED PARTY" means (a) each Genesis Member and each of that
Genesis Member's Affiliates (other than Genesis or, following the Effective
Time, Newco or any of its Subsidiaries, if the Genesis Member is an Affiliate of
Newco), agents, and counsel and (b) prior to the Effective Time, Genesis and
each of its officers, directors, employees, agents, and counsel who are not
JWCFS Indemnified Parties within the meaning of clause (a) of this definition.
"JWCFS INDEMNIFIED LOSS" has the meaning set forth in Section 9.3.
"JWCFS STOCK PLANS" means the JWCFS Amended and Restated Stock Option Plan
and the JWCFS Employee Stock Purchase Plan.
"LIENS" means, with respect to any property or asset of any Person (or any
revenues, income, or profits of that Person therefrom) (in each case whether the
same is consensual or nonconsensual or arises by contract, operation of law,
legal process, or otherwise), (a) any mortgage, lien, security interest, pledge,
attachment, levy, or other charge or encumbrance of any kind thereupon or in
respect thereof or (b) any other arrangement under which the same is
transferred, sequestered, or otherwise identified with the intention of
subjecting the same to, or making the same available for, the payment or
performance of any liability in priority to the payment of the ordinary,
unsecured creditors of that Person, including any "adverse claim" (as defined in
Florida Statutes Annotated Section 678.302(2)) in the case of any Capital Stock.
For purposes of this Agreement, a Person shall be deemed to own subject to a
Lien any asset that it has acquired or holds subject to the interest of a vendor
or lessor under any conditional sale agreement, Capital Lease, or other title
retention agreement relating to that asset.
"LITIGATION" means any action, case, proceeding, claim, grievance, suit, or
investigation or other proceeding conducted by or pending before any
Governmental Authority or any arbitration or mediation proceeding.
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"LLC EXCHANGE" has the meaning set forth in the recitals.
"LLC GEORGIA MERGER" has the meaning set forth in Section 2.9.
"MATERIAL" means, as applied to any Entity, material to the business,
operations, property or assets, liabilities, financial condition, results of
operations, or prospects of that Entity and its Subsidiaries considered as a
whole.
"MATERIAL ADVERSE EFFECT" means, with respect to the consequences of any
fact or circumstance (including the occurrence or non-occurrence of any event)
to JWCFS and its Subsidiaries or to Genesis and its Subsidiaries, as the case
may be, considered as a whole (or after the Effective Time, to Newco and its
Subsidiaries considered as a whole), that such fact or circumstance has caused,
is causing, or may reasonably be expected to cause, directly, indirectly, or
consequentially, singularly or in the aggregate with other related facts and
circumstances, any Damages which exceed $500,000 with respect to JWCFS or
$100,000 with respect to Genesis.
"MINIMUM BALANCE SHEET AMOUNT" shall have the meaning set forth in Section
10.2.13.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Section 414 of the Code, or Section 3(37) of ERISA.
"NASD" means the National Association of Securities Dealers, Inc.
"NET CAPITAL" has the meaning set forth in Rule 15c3-1(c) of the General
Rules and Regulations under the Exchange Act.
"NEWCO" means JW Genesis Financial Corp., a Florida corporation and a
wholly owned subsidiary of JWCFS.
"NEWCO COMMON STOCK" means the common stock, $.001 par value of Newco.
"NEW GENESIS-GEORGIA LLC" means a new Georgia limited liability company
that may be formed and wholly owned by Newco for the sole purpose of effecting
the LLC Georgia Merger if the same is determined by JWCFS and Newco to be
necessary or advisable.
"NYSE" means The New York Stock Exchange, Inc.
"OTHER COMPENSATION PLAN" means any compensation or benefit arrangement,
plan, policy, practice, or program established, maintained, or sponsored by
JWCFS or Genesis or any Subsidiary thereof, as the case may be, or to which
JWCFS or Genesis or any Subsidiary thereof, as the case may be, contributes, on
behalf of any of its employees,
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retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries, including, but not limited to, all pension, retirement, profit
sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, medical, vision,
dental or other health plans, life insurance plans, and all other employee
benefit plans or fringe benefit plans, but excluding any ERISA Benefit Plan.
"PARTNERSHIP TAX STATUS" has the meaning set forth in Section 9.1.
"PERSON" means any natural person, Entity, estate, trust, union or employee
organization, or Governmental Authority or, for the purpose of the definition of
"ERISA Affiliate", any trade or business.
"PLAN OF SHARE EXCHANGE" has the meaning set forth in Section 2.3(a).
"PREDECESSOR GENESIS" means Genesis Merchant Group Securities LP, an
Illinois limited partnership.
"PROHIBITED TRANSACTION" means any transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA.
"Recent SEC Documents" has the meaning set forth in Section 8.17.
"RELATED PARTY AGREEMENT" means, as to a specified Person, any contract or
other agreement, written or oral, (a) to which that Person is a party or is
bound or by which any property of that Person is bound or may be subject, and
(b) (i) to which any of that Person's Related Persons or Affiliates also is a
party, (ii) of which any of that Person's Related Persons or Affiliates is a
beneficiary, or (iii) as to which any transaction contemplated thereby properly
would be characterized (without regard to the amount involved) as a related
party transaction for purposes of applying the disclosure requirements of GAAP
or the Commission applicable to the SEC Compliance Documents.
"Related Person" of a specified Person means (a) if that Person is a
natural person, (i) any Immediate Family Member of that Person, (ii) any Estate
of that Person or any Immediate Family Member of that Person, (iii) the trustee
of any inter vivos or testamentary trust of which all the beneficiaries are
Related Persons of that Person, and (iv) any Entity the entire equity interest
in which is owned by any one or more of that Person and Related Persons of that
Person; and (b) if that Person is an Entity, Estate, or trust, then (i) any
Person who owns an equity interest in that Person on the date hereof, (ii) any
Person who would be a Related Person under clause (a) of this definition of a
natural person who is an ultimate beneficial owner of the specified Person, or
(iii) any other Entity the entire equity interest in which is owned by any one
or more of that
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Person and Related Persons of that Person. As used in this definition, "Estate"
means, as to any natural person who has died or been adjudicated mentally
incompetent by a court of competent jurisdiction, that person's estate or the
administrator, conservator, executor, guardian, or representative of that
estate.
"REPRESENTATIVES" means, with respect to any Person, the directors,
officers, employees, Affiliates, accountants (including independent certified
public accountants), advisors, attorneys, consultants, or other agents of that
Person, or any other representatives of that Person or of any of those
directors, officers, employees, Affiliates, accountants (including independent
certified public accountants), advisors, attorneys, consultants or other agents.
"RESALE PROSPECTUS" means the prospectus included as a part of Resale
Registration Statement covering the sale of Weinstein Stock.
"RESALE REGISTRATION STATEMENT" means a registration statement, including
any amendments or supplements thereto, of Newco filed with and declared
effective by the Commission pursuant to the Securities Act that covers the
resale by Weinstein of shares of Weinstein Stock.
"RESTRICTED PAYMENT" means, with respect to any Entity at any time, any of
the following effected by that Entity, (a) any declaration or payment of any
dividend or other distribution, direct or indirect, on account of any Capital
Stock of that Entity or any Affiliate of that Entity or (b) any direct or
indirect redemption, retirement, purchase, or other acquisition for value of, or
any direct or indirect purchase, payment, or sinking fund or similar deposit for
the redemption, retirement, purchase, or other acquisition for value of, or to
obtain the surrender of (i) any then outstanding Capital Stock of that Entity or
any Affiliate of that Entity or (ii) any then outstanding warrants, options, or
other rights to acquire or subscribe for or purchase unissued or treasury
Capital Stock of that Entity or any Affiliate of that Entity; provided, however,
the term "Restricted Payment" shall not include any of (a) payments made to
redeem any Class C Membership Interest or Class D Membership Interest in
Genesis, (b) distributions to the holders of Genesis Capital Interests of
profits of Genesis for the year ended December 31, 1997 and (c) an amount equal
to 62.5% of the net income of Genesis for the period beginning January 1, 1998
and ending on the Closing Date, provided that for the purpose of calculating
Genesis net income, no expenses attributable to the negotiation and carrying out
of the transactions contemplated by this Agreement shall be deducted from gross
income.
"RETURNS" means the returns, reports, or statements (including any
information returns) any Governmental Requirement requires to be filed for
purposes of any Tax.
"SEC COMPLIANCE DOCUMENTS" has the meaning set forth in Section 8.9.
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"SELLER INDEMNIFIED PARTY" means JWCFS, Newco, their Affiliates, and each
of their respective shareholders and Representatives (excluding, however,
Genesis, Genesis Members, and their Affiliates if their status as Affiliates,
shareholders, or Representatives of JWCFS or Newco is based on this Agreement or
the Combination).
"SELLER INDEMNIFIED LOSS" has the meaning set forth in Section 9.2(a).
"SHARE EXCHANGE" has the meaning set forth in the recitals.
"SPECIAL CONTINUING GENESIS INTEREST" has the meaning set forth in Section
2.9.
"SRO REPORTS" means, as to a Person, all forms, reports, statements and
documents required to be filed by that Person with the NASD, AMEX, NYSE, or
other self-regulatory organizations since January 1, 1995.
"SUBSIDIARY" or "SUBSIDIARIES" of any specified Person means any Entity or
Entities, as the case may be, a majority of the Capital Stock of which is or are
at that time owned directly by the specified Person.
"TAX" or "TAXES" means all net or gross income, gross receipts, net
proceeds, sales, use, ad valorem, value added, franchise, bank shares,
withholding, payroll, employment, excise, property, deed, stamp, alternative or
add-on minimum, environmental, or other taxes, assessments, duties, fees,
levies, or other governmental charges or assessments of any nature whatever
imposed by any Governmental Requirement, whether disputed or not, together with
any interest, penalties, or additional amounts with respect thereto.
"TAXING AUTHORITY" means any Governmental Authority having or purporting to
exercise jurisdiction with respect to any Tax.
"THIRD PARTY CLAIM" has the meaning set forth in Section 9.4.
"THRESHOLD AMOUNT" means five percent (5%) of the Indemnification Limit.
"TRANSACTION DOCUMENTS" means this Agreement, the Assumption Agreement, the
Employment Agreements, and the other written agreements, documents, instruments,
and certificates executed pursuant to or in connection with this Agreement or
the Combination, including those specified in Article 10 to be delivered at or
before the Closing Date, all as amended, modified, or supplemented from time to
time.
"WEINSTEIN STOCK" means the shares of Newco Common Stock issued to The Will
K. Weinstein Revocable Trust pursuant to this Agreement as consideration for the
LLC Exchange and any other shares of Newco Common Stock issued or issuable in
respect
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of the Newco Common Stock (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events) to Weinstein.
"WEINSTEIN" means The Will K. Weinstein Revocable Trust Under Trust
Agreement dated February 27, 1990 and any subsequent lawful holder of record of
shares of Weinstein Stock.
"WELFARE PLAN" means an "employee welfare benefit plan" as defined in
Section 3(1) of ERISA.
"WHOLLY-OWNED SUBSIDIARY" means, as a Person, any corporation or other
Entity or Entities, as the case may be, all of the outstanding Capital Stock of
which, on a fully diluted basis, is owned, directly by, or indirectly through
another Wholly Owned Subsidiary, by that Person.
1.2 OTHER DEFINITIONAL PROVISIONS.
-----------------------------
(a) Except as otherwise specified herein, all references herein to any
Governmental Requirement defined or referred to herein, including the Code,
ERISA, the Exchange Act, and the Securities Act, shall be deemed references to
that Governmental Requirement or any successor Governmental Requirement, as the
same may have been amended or supplemented from time to time, and any rules or
regulations promulgated thereunder.
(b) When used in this Agreement, the words "herein", "hereof", and
"hereunder" and words of similar import shall refer to this Agreement as a whole
and not to any provision of this Agreement, and the words "Article", "Section",
"Annex", "Schedule", and "Exhibit" refer to Articles and Sections of, and
Annexes, Schedules, and Exhibits to this Agreement, unless otherwise specified.
(c) Whenever the context so requires, the singular includes the plural and
vice versa, and a reference to one gender includes the other gender and the
neuter.
(d) The word "including" (and, with correlative meaning, the word
"include") means that the generality of any description preceding such word is
not limited, and the words "shall" and "will" are used interchangeably and have
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the same meaning.
1.3 CAPTIONS. Captions to Articles, Sections, and subsections of, and
--------
Annexes, Schedules, and Exhibits to, this Agreement or any Transaction Document
are included for convenience of reference only, and such captions shall not
constitute a part of this Agreement or any Transaction Document for any other
purpose or in any way affect the meaning or construction of any provision of
this Agreement or any Transaction Document.
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ARTICLE 2
THE COMBINATION
Subject and pursuant to the terms and conditions provided herein, the
Combination shall be effected upon the consummation of the Share Exchange and
the LLC Exchange, which shall be accomplished in the manner and with the effects
set forth below:
2.1 Articles of Share Exchange; Delivery of Membership Interests. JWCFS
------------------------------------------------------------
and Newco will cause Articles of Share Exchange to be duly executed and
delivered on or prior to the Closing Date and to be filed with the Secretary of
State of the State of Florida in accordance with the Florida Business
Corporation Act (the "FBCA"). Genesis will deliver to Newco on the Closing Date
instruments or other evidence of ownership representing at least 90% of the
outstanding Genesis Voting Membership Interests, in a form legally sufficient to
convey ownership thereof to Newco.
2.2 The Effective Time. The Combination will be effective (the "Effective
------------------
Time") at the time on the Closing Date that the Articles of Share Exchange
specify or, if the Articles of Share Exchange do not specify another time, 4:30
P.M., Eastern Time, on the Closing Date.
2.3 Certain Effects of the Combination. At and as of the Effective Time:
----------------------------------
(a) Newco shall first acquire all of the issued and outstanding JWCFS
Common Stock in the manner set forth in Section 2.4(b) and in the Plan of Share
Exchange substantially in the form attached hereto as Exhibit A (the "Plan of
Share Exchange") and in accordance with the provisions of the FBCA, and,
thereafter, shall promptly acquire at least 90% of the Genesis Voting Membership
Interests in the manner set forth in Section 2.4(a);
(b) Newco will (i) own all of the outstanding Capital Stock of JWCFS, (ii)
own at least 90% of the Genesis Voting Membership Interests, (iii) assume all of
the obligations of JWCFS under outstanding options, warrants, and other rights
to purchase any shares of JWCFS Common Stock and under the applicable JWCFS
Stock Plans, pursuant to the terms of an assumption agreement substantially in
the form set forth as EXHIBIT B hereto (the "Assumption Agreement"), and (iv) be
governed by the laws of the State of Florida;
(c) the Articles of Incorporation and Bylaws of Newco as of the Effective
Time will remain (until changed in accordance with applicable law or their
terms) the Articles of Incorporation and Bylaws of Newco from and after the
Effective Time;
(d) the initial Board of Directors of Newco following the Effective Time
will consist of the persons set forth on ANNEX A to this Agreement, each of whom
will be so identified in the Plan of Share Exchange and will hold the office of
director of Newco
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subject to the provisions of the laws of the State of Florida and the Articles
of Incorporation and Bylaws of Newco until that person's successor, if there is
to be one, is duly elected and qualified;
(e) the initial officers of Newco following the Effective Time will
consist of the persons set forth on ANNEX B to this Agreement, each of whom will
be so identified in the Plan of Share Exchange and will serve in such office,
subject to the provisions of the laws of the State of Florida and the Articles
of Incorporation and Bylaws of Newco; and
(f) the Share Exchange shall otherwise have the effects specified in
applicable provisions of the FBCA.
2.4 Exchange of Genesis Membership Interests; Exchange of JWCFS Common
------------------------------------------------------------------
Stock. At and as of the Effective Time:
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(a) In accordance with the terms of this Agreement, the Genesis Membership
Interests owned by the Genesis Members outstanding immediately prior to the
Effective Time will be exchanged for an aggregate number of up to 1,500,000
fully paid and nonassessable shares of Newco Common Stock, to be allocated among
the Genesis Members in accordance with their respective ownership of such
Genesis Membership Interests as set forth on ANNEX C; provided, however, this
number of shares is subject to pro rata reduction (without a corresponding
decrease in the Escrowed Shares) if Genesis and the Genesis Members instruct
Newco, in writing, to deliver shares of Newco Common Stock to Putnam, Lovell &
Thornton to satisfy the obligations of Genesis and the Genesis Members with
respect to any brokerage or finders fee in connection with this transaction. Any
holder of Genesis Voting Membership Interests listed on Annex C who does not
execute this Agreement will not be entitled to receive its allocated share of
the 1,500,000 shares of Newco Common Stock, which shares will be retained by
Newco. No fractional shares of Newco Common Stock will be issued, however, and
any Genesis Member who otherwise would be entitled to a fraction of a share of
Newco Common Stock shall be paid an amount in cash equal to such fractional part
of a share multiplied by the closing price of JWCFS Common Stock on the AMEX on
the trading day immediately preceding the Closing Date. In accordance with the
terms and conditions of this Section 2.4(a), Newco shall deliver to the Genesis
Members certificates representing the number of shares of Newco Common Stock to
be issued and delivered to them upon exchange of Genesis Membership Interests,
and shall make available sufficient funds to provide for cash payments in lieu
of the issuance of fractional shares; and
(b) By virtue of the Share Exchange and without any action on the part of
the JWCFS Shareholders, in accordance with the terms of this Agreement and the
Plan of Share Exchange, each share of JWCFS Common Stock issued and outstanding
immediately prior to the Effective Time will be exchanged for and become the
right to receive, without interest, one (1) fully paid and nonassessable share
of Newco Common Stock. In
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accordance with the terms and conditions of this Agreement and the Plan of Share
Exchange, Newco shall deliver to the JWCFS Shareholders certificates
representing the number of shares of Newco Common Stock to be issued and
delivered to them upon exchange of shares JWCFS Common Stock. All shares of
JWCFS Common Stock that, immediately prior to the Effective Time of the
Combination, are owned directly or indirectly by JWCFS as treasury stock, or by
Newco or any other subsidiary of JWCFS, shall be canceled, and no consideration
shall be delivered in exchange therefor.
(c) By virtue of the Share Exchange, all of the shares of Newco Common
Stock owned by JWCFS as of the Effective Time will be canceled.
2.5 Assumption of JWCFS Options, Purchase Rights, and Warrants.
----------------------------------------------------------
(a) At and as of the Effective Time, (i) each outstanding option to
purchase shares of JWCFS Common Stock (a "JWCFS Option"), (ii) each outstanding
warrant to purchase shares of JWCFS Common Stock (a "JWCFS Warrant"), and (iii)
each other outstanding right to purchase shares of JWCFS Common Stock, including
rights under the JWCFS Employee Stock Purchase Plan (a "JWCFS Purchase Right")
shall be assumed by Newco and converted into an option, warrant, or right, as
the case may be, to purchase shares of Newco Common Stock, as provided below.
Following the Effective Time, each JWCFS Option or JWCFS Purchase Right shall
continue to have, and shall be subject to, the same terms and conditions set
forth in the applicable JWCFS Stock Plan pursuant to which such JWCFS Option or
JWCFS Purchase Right was granted and any agreement by which the same was
evidenced, and each JWCFS Warrant shall continue to have, and shall be subject
to, the same terms and conditions set forth in any applicable warrant plan
pursuant to which such JWCFS Warrant was granted and any agreement by which the
same was granted or evidenced, in each case as such JWCFS Stock Plan or warrant
plan as in effect immediately prior to the Effective Time, except that each such
JWCFS Option, JWCFS Purchase Right, or JWCFS Warrant shall be exercisable for
the same number of shares of Newco Common Stock as the number of shares of JWCFS
Common Stock for which such JWCFS Option, JWCFS Purchase Right, or JWCFS Warrant
was exercisable immediately prior to the Effective Time.
(b) As of the Effective Time, Newco shall enter into the Assumption
Agreement covering all JWCFS Options, JWCFS Purchase Rights, and JWCFS Warrants,
which in the case of any JWCFS Option or JWCFS Purchase Right, shall provide for
Newco's assumption of the obligations of JWCFS under the applicable JWCFS Stock
Plans. Prior to the Effective Time, JWCFS shall make such amendments, if any,
to the JWCFS Stock Plans as shall be necessary to permit such assumption in
accordance with this Section 2.5.
(c) It is the intention of the parties that, to the extent that any JWCFS
Option constitutes an "incentive stock option" (within the meaning of Section
422 of the Code) immediately prior to the Effective Time, such JWCFS Option
shall continue to qualify as
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an incentive stock option to the maximum extent permitted by Section 422 of the
Code, and that the assumption of the JWCFS Option provided by this Section 2.5
shall satisfy the conditions of Section 424(a) of the Code.
2.6 Adjustments. The number and kind of shares of Newco Common Stock to
-----------
be issued pursuant to the Combination shall be appropriately adjusted to take
into account any stock split, stock dividend, reverse stock split,
recapitalization, stock repurchase, redemption or other similar change in the
capitalization of JWCFS occurring between the date of this Agreement and the
Effective Time.
2.7 Surrender of Certificates.
-------------------------
(a) Exchange Procedures. (i) Promptly after the Effective Time, Newco
shall cause its transfer agent and registrar, American Stock Transfer & Trust
Company, acting as the exchange agent (the "Exchange Agent"), to mail to the
former shareholders of JWCFS appropriate transmittal materials (which shall
specify that delivery shall be effected, and the risk of loss and title to the
certificates theretofore representing shares of JWCFS Common Stock shall pass,
only upon proper delivery of such certificates to the Exchange Agent) advising
such holder of the effectiveness of the Share Exchange and the procedure for
surrendering to the Exchange Agent (who may appoint forwarding agents with the
approval of Newco) such certificates for exchange into certificates evidencing
Newco Common Stock. Each holder of certificates theretofore evidencing shares of
JWCFS Common Stock, upon proper surrender thereof to the Exchange Agent together
and in accordance with such transmittal form, shall be entitled promptly to
receive in exchange therefor certificates evidencing Newco Common Stock
deliverable in respect of the shares of JWCFS Common Stock evidenced by the
certificates so surrendered, together with all undelivered dividends and
distributions in respect of such shares (without interest thereon) pursuant to
Section 2.7(b). Newco shall not be obligated to deliver the consideration to
which any former holder of JWCFS Common Stock is entitled as a result of the
Share Exchange until such holder surrenders such holder's certificate or
certificates representing the shares of JWCFS Common Stock for exchange as
provided in this Section 2.7(a). The certificate or certificates of JWCFS Common
Stock so surrendered shall be duly endorsed as the Exchange Agent may require.
Any other provision of this Agreement notwithstanding, neither Newco nor the
Exchange Agent shall be liable to a holder of JWCFS Common Stock for any amounts
paid or property delivered in good faith to a public official pursuant to any
applicable abandoned property law.
(ii) Promptly after the Effective Time, Newco shall deliver, or
cause the Exchange Agent to promptly deliver to, each of the Genesis Members
certificates evidencing Newco Common Stock (and cash in lieu of any fractional
share) deliverable to such Genesis Member pursuant to Section 2.4, if there has
--
been delivered to Newco the certificates representing (or other instruments or
evidence of ownership of) all Genesis
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Membership Interests of such Genesis Member (properly endorsed for transfer
to (or otherwise legally sufficient to convey ownership thereof) to Newco.
(b) Rights of Former JWCFS Shareholders. At the Effective Time, the
stock transfer books of JWCFS shall be closed as to holders of JWCFS Common
Stock immediately prior to the Effective Time, and no transfer of JWCFS Common
Stock (as opposed to transfers of Newco Common Stock) by any such holder shall
thereafter be made or recognized. Until surrendered for exchange in accordance
with the provisions of Section 2.7(a), each certificate theretofore representing
shares of JWCFS Common Stock shall from and after the Effective Time represent
for all purposes only the right to receive the consideration provided in Section
2.4(b) in exchange therefor. To the extent permitted by Law, former shareholders
of record of JWCFS shall be entitled to vote after the Effective Time at any
meeting of Newco shareholders the number of shares of Newco Common Stock into
which their respective shares of JWCFS Common Stock were converted in the Share
Exchange, regardless of whether such holders have exchanged their certificates
representing JWCFS Common Stock for certificates representing Newco Common Stock
in accordance with the provisions of this Agreement. Whenever a dividend or
other distribution is declared by Newco on the Newco Common Stock, the record
date for which is at or after the Effective Time, the Newco declaration shall
include dividends or other distributions on all shares of Newco Common Stock
issuable pursuant to this Agreement, but no dividend or other distribution
payable to the holders of record of Newco Common Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing shares of JWCFS Common Stock issued and outstanding at the
Effective Time until such holder surrenders such certificate for exchange as
provided in this Section 2.7. However, upon surrender of such JWCFS stock
certificate, the Newco Common Stock certificate (together with all such
undelivered dividends or other distributions, without interest) shall be
delivered and paid with respect to each share represented by such certificate.
(c) Withholding. Newco or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable or issuable
pursuant to this Agreement to any JWCFS Shareholder or Genesis Member such
amounts as Newco or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment or issuance under the Code or any
Governmental Requirement. To the extent that amounts are so withheld by Newco or
the Exchange Agent, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the JWCFS Shareholder or Genesis Member in
respect of which such deduction and withholding was made by Newco or the
Exchange Agent.
(d) Lost Certificates. If any certificate shall have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen, or destroyed, Newco will issue in
exchange for such lost, stolen, or destroyed certificate the certificate
evidencing shares of Newco Common Stock deliverable in respect thereof, as
determined in accordance with this Article 2. When
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authorizing such issue of the certificate of shares of Newco Common Stock in
exchange therefor, the Board of Directors of Newco may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of such lost,
stolen, or destroyed certificate to give Newco a bond in such sum as it may
direct as indemnity against any claim that may be made against Newco with
respect to the certificate alleged to have been lost, stolen, or destroyed.
2.8 Escrow Account. On the Closing Date, an aggregate of ten percent
--------------
(10%) of the shares of Newco Common Stock to be received by the Genesis Members
in the LLC Exchange (the "Escrowed Shares"), allocated among the Genesis Members
as set forth in ANNEX C, shall be deposited with the Escrow Agent in a
segregated account (the "Escrow Account") pursuant to the Escrow Agreement set
forth as Exhibit C for a period of up to one year from the Closing Date, for the
purpose of securing and funding the obligations of the Genesis Members or
Genesis to Newco that may arise pursuant to Article 9 hereof, except with
respect to an individual Genesis Member as a result of Article 3, in which case,
the liability of such Genesis Member may extend to the value on the Closing Date
of the total number of shares of Newco Common Stock received by the Genesis
Member pursuant to the LLC Exchange. No Genesis Member shall have any personal
liability for, nor shall any Genesis Member's share of the Escrowed Shares serve
as a source of recovery for, any breach or misrepresentation under Article 3 by
any other Genesis Member. The Escrowed Shares shall be held in the Escrow
Account and disbursed in accordance with the terms of the Escrow Agreement.
Notwithstanding the foregoing, the respective Genesis Members as the legal
owners of the Escrowed Shares, unless and until disposed of in accordance with
the terms of this Agreement and the Escrow Agreement, shall be entitled to
exercise the voting rights and to receive any dividends or other distributions
declared and paid with respect to such shares; provided, however, any shares of
-------- -------
Newco Common Stock issued with respect to the Escrowed Shares as a result of a
stock dividend, share exchange, stock split, or other action in respect of the
Newco Common Stock, shall be held in the Escrow Account as additional Escrowed
Shares.
2.9 Maintenance of Two Members of Genesis. Simultaneously with the
-------------------------------------
consummation of the LLC Exchange, but without affecting any right, interest, or
obligation of any Genesis Member otherwise arising under or in connection with
this Agreement, Genesis may be merged with and into New Genesis-Georgia LLC (the
"LLC Georgia Merger"). Newco and Genesis, if requested by JWCFS, shall cause
Articles of Merger of Genesis and New Genesis-Georgia LLC to be duly executed
and delivered on or prior to the Closing Date to be filed with the Secretary of
State of each of California and Georgia, as applicable, in order to cause the
LLC Georgia Merger to be effective from and after the Effective Time. The
parties expressly acknowledge that the purpose of the LLC Georgia Merger is to
avoid possible non-compliance with the California Beverly-Killea Act, which may
not permit the ownership of a limited liability company by only one Person,
whereas the Georgia Business Corporation Act permits such ownership. In lieu of
effecting the LLC Georgia Merger, however, JWCFS and Newco
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shall have the right, notwithstanding any other provision hereof, to establish
an Affiliate of Newco either (i) to be a recipient along with Newco of a portion
of the Genesis Membership Interests from the Genesis Members in the LLC Exchange
(and thereafter, following the LLC Exchange, may effect the LLC Merger), or (ii)
to receive a noneconomic interest in Genesis prior to the Effective Time, which
interest shall continue to be held by such Affiliate and not exchanged in the
LLC Exchange ("Special Continuing Genesis Interest"); provided that any such
--------
action does not affect the consideration payable to the Genesis Members or the
tax consequences of the LLC Exchange or the Combination to any Genesis Member or
any other right, interest, or obligation of a Genesis Member.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF GENESIS MEMBERS
Each Genesis Member, severally and not jointly, represents and warrants to
JWCFS and Newco that, as applied solely to such Genesis Member, all of the
representations and warranties in this Article 3 are, as of the date of this
Agreement, and will be on the Closing Date, true and correct, and do not and
will not contain or omit any disclosure that has or will or could have a
Material Adverse Effect on Genesis or Newco.
3.1 Investment Intentions.
---------------------
(a) The Genesis Member (i) will be acquiring the shares of Newco Common
Stock to be issued pursuant to Section 2.4 to the Genesis Member solely for such
Genesis Member's account, for investment purposes only and with no current
intention or plan to distribute, sell, or otherwise dispose of any of those
shares in connection with any distribution that is not made pursuant to an
appropriate registration statement or in accordance with an applicable exemption
promulgated under the Securities Act and any applicable state securities law;
(ii) is not a party to any agreement or other arrangement for the disposition of
any shares of Newco Common Stock other than this Agreement; (iii) unless
disclosed otherwise on Schedule 3.1, is an "accredited investor" as defined in
Securities Act Rule 501(a); and (iv) (A) is able to bear the economic risks of
an investment in the Newco Common Stock acquired pursuant to this Agreement, (B)
can afford to sustain a total loss of that investment, (C) has such knowledge
and experience in financial and business matters that the Genesis Member is
capable of evaluating the merits and risks of the proposed investment in the
Newco Common Stock, (D) has received and carefully reviewed the Recent SEC
Documents and has had an adequate opportunity to ask questions and receive
answers from the officers of JWCFS and Newco concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of JWCFS and
Newco, the plans for the operations of the business of Newco, and the business,
operations, and financial condition of JWCFS and Newco, and (E) has asked all
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questions of the nature described in preceding clause (D), and all those
questions have been answered to such Genesis Member's satisfaction.
(b) The Genesis Member has no present plan, intention, or arrangement to
dispose of any of the Newco Common Stock to be received in the LLC Exchange if
such disposition would reduce the fair value of the Newco Common Stock (with
such value measured as of the Closing Date) retained by the Genesis Member to an
amount less than 50% of the fair value of the Genesis Membership Interests held
by the Genesis Member immediately before the consummation of the LLC Exchange.
3.2 Ownership and Status of Genesis Member Interests. The Genesis Member
------------------------------------------------
is the record and beneficial owner (or, if the Genesis Member is a trust or the
estate of a deceased natural person, the legal owner) of the percentage of the
outstanding Genesis Membership Interests set forth opposite the Genesis Member's
name in ANNEX C, free and clear of all Liens, except for the Liens accurately
set forth in Schedule 3.2, all of which will be released at or before the
Effective Time.
3.3 Power of Genesis Member; Approval of LLC Exchange.
-------------------------------------------------
(a) The Genesis Member has the full power, legal capacity, and authority
to execute and deliver this Agreement and each Transaction Document to which the
Genesis Member is a party and to perform the Genesis Member's obligations in
this Agreement and in all Transaction Documents to which the Genesis Member is a
party. This Agreement constitutes, and each such Transaction Document when
executed in the Genesis Member's individual or legal capacity and delivered by
the Genesis Member, will constitute the legal, valid, and binding obligation of
the Genesis Member, enforceable against the Genesis Member in accordance with
its terms, except as that enforceability may be (i) limited by any applicable
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors' rights generally and (ii) subject to general
principles of equity (regardless of whether that enforceability is considered in
a proceeding in equity or at law). If the Genesis Member is an Entity, the
Genesis Member has obtained, in accordance with all applicable Governmental
Requirements and its Charter Documents, all approvals and the taking of all
actions necessary for the authorization, execution, delivery, and performance by
the Genesis Member of this Agreement and the Transaction Documents to which the
Genesis Member is a party. If the Genesis Member is acting otherwise than in his
individual capacity (whether as an executor or a guardian or in any other
fiduciary or representative capacity), all actions on the part of the Genesis
Member and all other Persons (including any court) necessary for the
authorization, execution, delivery, and performance by the Genesis Member of
this Agreement and the Transaction Documents to which the Genesis Member is a
party have been duly taken and the transactions contemplated herein have been
duly authorized.
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(b) The Genesis Member, acting in each capacity in which he or it is
required and entitled to vote to approve or disapprove the consummation of the
LLC Exchange, has voted all the Genesis Membership Interests owned by him or it
in favor of the entering of this Agreement and the consummation of the LLC
Exchange and the other transactions contemplated hereby.
3.4 No Conflicts or Litigation. The execution, delivery, and performance
--------------------------
in accordance with their respective terms by the Genesis Member of this
Agreement and the Transaction Documents to which the Genesis Member is a party
do not and will not (a) violate or conflict with any Governmental Requirement
applicable to such Genesis Member, (b) breach or constitute a default under any
agreement or instrument to which the Genesis Member is a party or by which the
Genesis Member or any of the Genesis Membership Interests owned by the Genesis
Member is bound, (c) result in the creation or imposition of, or afford any
Person the right to obtain, any Lien upon any of the Genesis Membership
Interests owned by the Genesis Member, or (d) if the Genesis Member is an
Entity, violate the Genesis Member's Charter Documents. No Litigation is pending
to which such Genesis Member is a party or, to the knowledge of the Genesis
Member, threatened to which the Genesis Member is or may become a party that (i)
questions or involves the validity or enforceability of any of the Genesis
Member's obligations under any Transaction Document or (ii) seeks (or reasonably
may be expected to seek) (A) to prevent or delay the consummation by the Genesis
Member of the transactions contemplated by this Agreement to be consummated by
the Genesis Member or (B) Damages in connection with any consummation by the
Genesis Member of the transactions contemplated by this Agreement.
3.5 No Brokers. Except as set forth on Schedule 3.5, the Genesis Member
----------
has not, directly or indirectly, in connection with this Agreement or the
transactions contemplated hereby (a) employed any broker, finder, or agent or
(b) agreed to pay or incurred any obligation to pay any broker's or finder's
fee, any sales commission, or any similar form of compensation.
3.6 Preemptive and Other Rights; Waiver. Except for the rights of the
-----------------------------------
Genesis Member to receive shares of Newco Common Stock as a result of the LLC
Exchange or to acquire Newco Common Stock pursuant to any written option granted
by JWCFS or Newco to the Genesis Member separate and apart from this Agreement,
the Genesis Member either (a) does not own or otherwise have any statutory or
contractual preemptive or other right of any kind (including any right of first
offer or refusal) to acquire any shares of Newco Common Stock or (b) hereby
irrevocably waives each right of that type the Genesis Member does own or
otherwise has.
3.7 Control of Related Businesses. Except as accurately set forth in
-----------------------------
Schedule 3.7, the Class A-E Members are not, alone or with one or more other
Related Persons, the controlling Affiliate of, or have an equity interest in,
any Entity, business, or trade (other than Genesis Merchant Group, L.P., GMG,
Inc. and GMG Seneca L.P.) that
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(a) is engaged in any line of business that is the same as or similar to the
business of Genesis or JWCFS, as described in the recitals to this Agreement, or
(b) is, or has within the three-year period ending on the date of this
Agreement, engaged in any transaction with Genesis or any Genesis Subsidiary.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF GENESIS
As an inducement to JWCFS to enter into this Agreement and to consummate
the transactions contemplated hereby, Genesis represents and warrants as
follows:
4.1 Organization, Etc. of Genesis. Genesis has power (corporate or
-----------------------------
otherwise) to own or lease its properties and to carry on its business as and in
the places where such properties are now owned, leased, or operated and such
business is now conducted, and has fully complied in all material respects with
all applicable federal, state, foreign, and other laws with respect to its
operations and the conduct of its business, except for any such failures to so
comply (none of which are now known to Genesis) that will not, singly or in the
aggregate, have a Material Adverse Effect on the business, assets, results of
operations, financial condition, or prospects of Genesis. Genesis is duly
qualified and in good standing as a foreign corporation for the transaction of
business under the laws of each jurisdiction in which it owns or leases
property, or conducts business, so as to require such qualification, which
jurisdictions are set forth on Schedule 4.1. Copies of the Articles of
Organization and all amendments thereto, the Operating Agreement, as amended and
currently in force, certificates of authority or qualification to transact
business as a foreign limited liability company in each jurisdiction where such
is required, membership unit records, and corporate minutes and records of
Genesis have heretofore been made available to JWCFS and are true, complete, and
correct at the date hereof.
4.2 Capitalization. Annex C accurately identifies the holders and the
--------------
amounts held by them of all of the Genesis Capital Interests. All of the issued
and outstanding Genesis Capital Interests are duly authorized and validly
issued, fully paid and nonassessable were offered, sold, and issued in
accordance with applicable federal and state securities laws, and there are no
preemptive rights in respect thereof.
4.3 Rights to Acquire Genesis Capital Interests. There are no outstanding
-------------------------------------------
options, warrants, rights, calls, commitments, conversion rights, plans, or
other agreements or arrangements of any character providing for the purchase or
issuance of any additional Genesis Capital Interests.
4.4 Subsidiaries. Genesis has no direct or indirect subsidiaries.
------------
4.5 Authority. Each of Genesis and the Genesis Members has full legal
---------
power and authority to make, execute, and deliver this Agreement and to perform
its or their obligations hereunder and thereunder and in connection with the
transactions contemplated
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hereby and thereby, and the making, execution, and delivery of this Agreement by
each of Genesis and the Genesis Members and the performance of its or their
respective obligations in compliance with their respective terms, have been duly
authorized by all necessary action of Genesis and of the Genesis Members.
4.6 No Default Resulting from Agreement. Except as set forth on Schedule
-----------------------------------
4.6, neither the making, execution, and delivery of this Agreement, nor the
performance by Genesis and the Genesis Members of their respective obligations
in compliance with its terms, will (i) result in a breach or violation of any
term or condition of, or constitute a default under, the Articles of
Organization, or the Operating Agreement of Genesis, as each may have been
amended, (ii) constitute a default that may reasonably be expected to have a
Material Adverse Effect on Genesis under any agreement, instrument, undertaking,
judgment, decree, governmental order, or other restriction or obligation to
which Genesis is a party or by which its properties or assets may be bound or
affected or (iii) result in a violation of any Governmental Requirement. Except
as set forth in Schedule 4.6, no consent of or filing with any Governmental
Authority is required in connection with the valid making, execution, or
delivery of this Agreement by Genesis or the Genesis Members, or the performance
by any of them of their respective obligations in compliance with their
respective terms.
4.7 Financial Statements of Genesis; Disclosure.
-------------------------------------------
(a) Set forth as Schedule 4.7 are true, correct, and complete copies of the
audited consolidated financial statements of Genesis and Predecessor Genesis, as
applicable, for the three fiscal years ended December 31, 1996, and the
unaudited financial statements of Genesis for the nine months ended September
30, 1997, including the notes and any schedules thereto and the reports of its
independent certified public accountants thereon (collectively, the "Financial
Statements of Genesis"). The Financial Statements of Genesis have been prepared
in conformity with GAAP, consistently applied, except as provided in Schedule
4.7(a), and present fairly the consolidated financial position of Genesis at
each of the dates indicated and the consolidated results of its operations and
changes in its cash flow for each of the periods indicated.
(b) (i) As of the date hereof, all Information that has been made
available to JWCFS by or on behalf of Genesis in connection with the
transactions contemplated hereby is, taken together, true and correct in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which those
statements were made.
(ii) All Information that is made available to JWCFS by or on behalf
of Genesis or any Genesis Member from the date hereof to the Closing in
connection with or pursuant to this Agreement or any Transaction Document will
be, when made available and taken together, true and correct in all material
respects and will not contain any
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untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading in any material
respect in light of the circumstances under which those statements are made.
(iii) All financial budgets and projections that have been or are
hereafter from time to time prepared by Genesis or any of its Representatives
and made available to JWCFS prior to the Closing pursuant to or in connection
with the transactions contemplated by this Agreement have been and will be
prepared and furnished to JWCFS in good faith and were and will be based on
facts and assumptions that are believed by Genesis and the Genesis Member to be
reasonable in light of the then current and foreseeable business conditions of
Genesis and represented and will represent Genesis' good faith estimate of the
projected financial performance of Genesis based on the information available to
Genesis at the time so furnished.
4.8 Absence of Undisclosed Liabilities. Except as fully reflected in the
----------------------------------
Financial Statements of Genesis or as set forth in Schedule 4.8, Genesis has no
debt, liability, or obligation of any kind (whether accrued, absolute,
contingent, or otherwise) including without limitation any liability or
obligation on account of taxes or any governmental charge, penalty, interest, or
fine, or any "loss contingencies" considered "probable" or "reasonably possible"
within the meaning of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 5, except (i) liabilities incurred in the
ordinary course of business since the Current Balance Sheet Date, none of which
have, individually or in the aggregate, had a Material Adverse Effect on
Genesis, and (ii) liabilities incurred in connection with the transactions
provided for in this Agreement and the Combination. Genesis is not in default
with respect to any term or condition of any Indebtedness; and except as set
forth on Schedule 4.8, no notice has been given by any holder of any
Indebtedness claiming that any default or breach exists that has not been
remedied by Genesis or waived in writing by such holder.
4.9 Property.
--------
(a) Genesis has good and marketable title to all personal property owned
by it, in each case free and clear of all Liens, except such as are set forth on
Schedule 4.9(a) or such as do not Materially affect the value of such property
and do not interfere with the use made or reasonably anticipated to be made of
such property.
(b) Except as set forth on Schedule 4.9(b), no real property, building, or
material personal property is held under any lease by Genesis, and such as may
be so held are held under a valid lease of which Genesis is not in default or in
breach or violation of any term or condition thereof in a manner that may
reasonably be expected to have a Material Adverse Effect on Genesis. Schedule
4.9(b) accurately lists and correctly describes in all Material respects (i) all
real properties owned or leased by Genesis and, for each of those properties,
the address thereof, the type and square footage of each structure located
thereon, and the use thereof in the business of Genesis, (ii) whether each such
property
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was or is currently owned by any Genesis Member, any Related Person or Affiliate
of any Genesis Member (other than Genesis), and (iii) with respect to any leased
property, the expiration date of the lease.
(c) Genesis has provided JWCFS with true, complete, and correct copies of
all leases under which Genesis is leasing each of the properties listed in
Schedule 4.9(b) as being leased and, except as accurately set forth in Schedule
4.9(c) each of those leases is valid and binding on the lessor party thereto,
and the lessee party thereto has not sublet any of the leased space to any
Person other than Genesis.
(d) The fixed assets of Genesis are located at one or more of the real
properties listed in Schedule 4.9(b) and, except as accurately set forth in
Schedule 4.9(d), are well-maintained and adequate for the purposes for which
they presently are being used or held for use, ordinary wear and tear excepted.
4.10 Certain Environmental Matters. (a) Except as accurately disclosed in
-----------------------------
Schedule 4.10(a), Genesis has complied, and remains in compliance, with the
provisions of all Environmental Laws applicable to it or any of its respective
presently owned or operated facilities, sites, or other properties, businesses,
and operations; (b) except as accurately disclosed in Schedule 4.10(b), no
Hazardous Substances have been disposed of or released at, from, in, or on any
site owned or operated by Genesis in violation of applicable Environmental Laws;
(c) except as accurately disclosed in Schedule 4.10(c), neither Genesis (or any
agent or contractor of Genesis) has transported or arranged for the
transportation of any Hazardous Substances to, or disposed or arranged for the
disposition of any Hazardous Substances at, any off-site location that could
lead to any claim against Genesis, or any Affiliate or Subsidiary of Genesis, as
a potentially responsible party or otherwise, for any clean-up costs, remedial
work, damage to natural resources, personal injury, or property damage,
including any claim under Environmental Laws; and (d) except as accurately
disclosed in Schedule 4.10(d), no storage tanks existed or exist on or under any
of the properties owned, leased, or operated by Genesis from which any Hazardous
Substances could have been released into the surrounding environment. Genesis
has provided JWCFS with copies (or if not available, accurate written summaries)
of all environmental investigations, studies, audits, reviews, inspections, and
other analyses conducted by or on behalf, or which otherwise are in the
possession, of Genesis respecting any facility, site, or other property
presently owned, leased, or operated by Genesis.
4.11 Notes and Accounts Receivable. Except as set forth on Schedule 4.11,
-----------------------------
all receivables reflected in the Financial Statements of Genesis (net of
reserves stated therein) were, and all such receivables held by Genesis on the
date hereof are, valid obligations of the makers thereof. Genesis has not
received any notice from any of the makers of such receivables of any alleged
offsets or counterclaims, nor does Genesis have any reason to believe that any
of such receivables are not collectible. Genesis has no reason to believe that
future experiences with respect to the amount of allowances for uncollectible
receivables
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will vary materially and adversely from the amount of such allowances reflected
in the Financial Statements of Genesis.
4.12 Litigation; Compliance with Laws Generally. Except as set forth on
------------------------------------------
Schedule 4.12, (a) no Litigation is pending or overtly threatened against, by,
or affecting Genesis that might have a Material Adverse Effect on Genesis or
that might prevent or impede the Combination; (b) Genesis has not been charged
with, and to the best knowledge of Genesis is not under investigation with
respect to, any charge concerning any violation of any Governmental Requirement
in respect to its business, except as set forth in Schedule 4.12; and (c) there
are no judgments unsatisfied against Genesis or the Genesis Members, and no
consent decrees to which Genesis or the Genesis Members is subject. Genesis is
in compliance with all applicable Governmental Requirements, except where the
failure to so comply does not and will not have a Material Adverse Effect on
Genesis or on Newco following the Combination.
4.13 Tax Matters. Each of the following representations and warranties in
-----------
this Section 4.13 is qualified to the extent set forth in Schedule 4.13.
(a) For federal, state and local income tax purposes, Genesis is a
Partnership as defined in Section 7701 of the Code. All Returns required to be
filed with respect to any Tax for which Genesis is liable have been duly and
timely filed with the appropriate Taxing Authority. All such Returns were
correct and complete in all Material respects, and each Tax shown to be payable
on each such Return has been paid. Each Tax payable by Genesis by assessment has
been timely paid in the amount assessed, and adequate reserves have been
established on the consolidated books of Genesis for all Taxes for which Genesis
is liable, but the payment of which is not yet due. Genesis is not and never has
been, liable for any Tax payable by reason of the income or property of a Person
other than Genesis or a Genesis Subsidiary. Genesis has timely filed true,
correct and complete declarations of estimated Tax in each jurisdiction in which
any such declaration is required to be filed by it. No Liens for Taxes exist
upon the assets of Genesis except Liens for Taxes which are not yet due. Neither
Genesis nor any Genesis Subsidiary is, or ever has been, subject to Tax in any
jurisdiction outside of the United States. No Litigation with respect to any Tax
for which Genesis is asserted to be liable is pending or, to the knowledge of
Genesis, threatened and no basis which Genesis believes to be valid exists on
which any claim for any such Tax can be asserted against Genesis. There are no
requests for rulings or determinations in respect of any taxes pending between
Genesis and any Taxing Authority. No extension of any period during which any
Tax may be assessed or collected and for which Genesis is or may be liable has
been granted to any Taxing Authority. Neither Genesis nor any Genesis Subsidiary
is or has been a party to any tax allocation or sharing agreement. All amounts
required to be withheld by Genesis and paid to governmental agencies for income,
social security, unemployment insurance, sales, excise, use and other Taxes have
been collected or withheld and paid to the proper Taxing Authority. Genesis has
made all deposits required by law to be made with respect to employees'
withholding and other employment taxes.
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(b) Neither Genesis nor any Genesis Member is a "foreign person", as that
term is referred to in Section 1445(f)(3) of the Code.
(c) Genesis has not filed a consent pursuant to Section 341(f) of the
Code or any comparable provision of any other tax statute and has not agreed to
have Section 341(f)(2) of the Code or any comparable provision of any other tax
statute apply to any disposition of an asset. Genesis has not made, is not
obligated to make, and is not a party to any agreement that could require it to
make any payment that is not deductible under Section 280G of the Code. No asset
of Genesis is subject to any provision of applicable law which eliminates or
reduces the allowance for depreciation or amortization in respect of that asset
below the allowance generally available to an asset of its type. No accounting
method changes of Genesis exist or are proposed or threatened which could give
rise to an adjustment under Section 481 of the Code.
4.14 Material Contracts. Set forth on Schedule 4.14, with respect to
------------------
Genesis, is a list of all presently outstanding (a) collective bargaining
agreements and similar agreements with any group of its employees or with all of
its employees as a group; (b) bonuses, deferred compensation, pension, profit-
sharing, and retirement plans and arrangements; (c) employment agreements,
contracts, and commitments that by their express terms cannot be terminated by
Genesis without Material penalty or liability on thirty (30) days' or less
notice; (d) guarantees of Indebtedness or indemnification agreements; (e)
agreements, contracts, and commitments relating to the acquisition of assets or
capital stock of any business enterprise, other than assets acquired for use in
the ordinary course of business of Genesis; (f) loan agreements and related
documents; (g) licenses, franchises, options, or other rights of any nature
whatsoever to sell, distribute, or otherwise deal in or with the property of
Genesis other than in the ordinary course of business or to use any patent,
trade name, trademark, service mark, copyright, pending applications therefor,
trade secrets, or other proprietary rights of Genesis; (h) licenses, franchises,
options or other rights of any nature whatsoever obligating Genesis to pay
royalties, franchise fees, or any other amounts to any other party for the right
to sell, distribute, or otherwise deal in or with the property of such other
party or for the use of any patent, trade name, trademark, service mark,
copyright, pending applications therefor, trade secrets, or other proprietary
rights of any such other party; (i) agreements, contracts, or commitments
containing any covenant materially limiting the freedom of Genesis to engage in
any line of business or to compete with any person; and (j) agreements,
contracts, and commitments not made in the ordinary course of business and
providing for remaining payments or receipts aggregating in excess of $50,000
for a single such agreement, contract, or commitment, or $100,000 in the
aggregate for all such agreements, contracts or commitments with the same person
or relating to the same subject matter. A true copy of each of the contracts
set forth on Schedule 4.14 has been made available to JWCFS for examination.
Except as set forth on Schedule 4.14, no Material default by Genesis exists or
has been claimed to exist with respect to any such contract or commitment, and
no Material default by any other party thereto is known or claimed by Genesis to
exist.
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4.15 Licenses; No Infringement. Genesis holds all Governmental Approvals
-------------------------
that are necessary to the conduct of its business. Genesis does not know or
have any reason to believe that Genesis has infringed any patent, patent right,
trademark, or copyright of any other party.
4.16 Bank Accounts; Insurance Policies. Set forth on Schedule 4.16, with
---------------------------------
respect to Genesis, are:
(a) the name and address of each bank with which Genesis has an account
or a safe deposit box, the account number of each account maintained at such
bank, and the names of all persons authorized to draw thereon or to have access
thereto; and
(b) except as indicated on Schedule 4.16(b), Schedule 4.16(b) sets forth
a list of all insurance policies carried by Genesis or any Genesis Subsidiary;
and Schedule 4.16(b) sets forth an accurate list of all insurance loss runs and
worker's compensation claims received for the most recently ended three policy
years to the extent reasonably available. True, complete, and correct copies of
all insurance policies carried by Genesis that are presently in effect have been
provided to JWCFS, and all such insurance policies have been issued by insurers
of recognized responsibility and currently are, and will remain without
interruption through the Closing Date, in full force and effect. No insurance
carried by Genesis has been canceled by the insurer during the past five years,
and Genesis has never been denied insurance coverage in any regard or to any
degree. Genesis has not received any notice or other communication from any
issuer of any such insurance policy of any Material increase in any deductibles,
retained amounts, or premiums payable thereunder, and, to the knowledge of
Genesis, no such increase in deductibles, retainages, or premiums is threatened.
Genesis is not aware of any condition or fact that would lead them to believe
that such policies would not insure Genesis in a manner that is fully adequate
at all times to protect it against risks customarily insured against by others
in the same location and engaged in the same or similar business and that may
reasonably be expected to have a Material Adverse Effect upon the business,
assets, results of operations, financial condition, or prospects of Genesis.
(c) the name of each Person holding a general or special power of
attorney from Genesis and a description of the terms of each such power.
4.17 Genesis Member Materials. No materials or information to be
------------------------
furnished by Genesis or the Genesis Members to JWCFS for inclusion in the SEC
Compliance Documents will contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
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4.18 Obligations for Indemnification. Genesis has no knowledge, actual or
-------------------------------
constructive, and no reason to know of any claim of any Person for
indemnification under Genesis's Operating Agreement, or any basis for any such
claim.
4.19 Brokers or Finders. No broker or finder other than Putnam, Lovell &
------------------
Thornton has acted on Genesis' or the Genesis Members' behalf in connection with
this Agreement or any transaction contemplated hereby.
4.20 Absence of Changes. Since September 30, 1997, except as accurately
------------------
set forth in Schedule 4.20, none of the following has occurred with respect to
Genesis:
(a) any circumstance, condition, event, or state of facts (either
singularly or in the aggregate), other than conditions affecting the business of
Genesis in general, that has caused, is causing, or will cause a Material
Adverse Effect on Genesis;
(b) any change in its authorized or outstanding Capital Stock or
Derivative Securities;
(c) any Restricted Payment, except any declaration or payment of
dividends by any Genesis Subsidiary solely to Genesis;
(d) any increase in, or any commitment or promise to increase, the rates
of Cash Compensation, or the amounts or other benefits paid or payable under any
Genesis ERISA Pension Plan or Other Compensation Plan, except for ordinary and
customary bonuses and salary increases for employees (other than the Genesis
Members or an Immediate Family Member) at the times and in the amounts
consistent with its past practice;
(e) any work interruptions, labor grievances or claims filed, or any
similar event or condition of any character, that will, or could reasonably
expect to, have a Material Adverse Effect on Genesis or on Newco;
(f) any distribution, sale, or transfer of, or any commitment of Genesis
to distribute, sell, or transfer, any of its assets or properties of any kind
that singularly is, or in the aggregate are, Material to Genesis, other than
distributions, sales, or transfers in the ordinary course of its business and
consistent with its past practices to Persons other than the Genesis Members or
an Immediate Family Member or Affiliates;
(g) any cancellation of, or agreement to cancel, any Indebtedness,
obligation, or other liability owing to it, including any Indebtedness,
obligation, or other liability of any Stockholder or any Related Person or
Affiliate thereof;
(h) any plan, agreement or arrangement granting any preferential rights
to purchase or acquire any interest in any of its assets, property, or rights or
requiring
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consent of any Person to the transfer and assignment of any such assets,
property, or rights;
(i) any purchase or acquisition of, or agreement, plan, or arrangement to
purchase or acquire, any property, rights, or assets, or the entering of any
other transaction, outside of the ordinary course of its business consistent
with its past practices;
(j) any waiver of any of its rights or claims that singularly is, or in
the aggregate are, Material to Genesis;
(k) any incurrence by it of any Indebtedness or any Guaranty not
constituting its Indebtedness, or any Genesis Commitment to incur any
Indebtedness or any such Guaranty;
(l) any investment in the Capital Stock, Derivative Securities, or
Indebtedness of any Person, other than in the ordinary course of business;
(m) except in accordance with Genesis' consolidated capital expenditure
budget for Genesis' current fiscal year, any capital expenditure or series of
related capital expenditures by Genesis collectively in excess of $50,000, or
commitments by Genesis to make capital expenditures aggregating in excess of
$50,000; or
(n) any cancellation or termination of a Material Agreement of Genesis.
4.21 Year 2000 Compliance. Schedule 4.21 details the plans of Genesis for
--------------------
ensuring that the software utilized by Genesis in its business ("Genesis
Software") will be Year 2000 compliant, will correctly handle the change of the
century in a standard compliant manner, including both the Year 2000 and beyond,
as well as the leap year, and the absence of leap year, and will operate
accurately with respect to date-related operations. Genesis believes that its
plans described on Schedule 4.21 are sufficient to ensure the uninterrupted
conduct of its business
4.22 Broker-Dealer Registration; Etc.
-------------------------------
(a) Genesis is registered as a broker-dealer with the Commission and the
Commissioner of Corporations of the California Department of Corporations, and
is a member in good standing of the NASD.
(b) Genesis has filed all Form BDs and Form ADVs (including all
amendments thereto) required to be filed with the Commission, each of which has
complied with the Exchange Act or the Investment Advisers Act of 1940, as
amended, as the case may be, each as in effect on the date so filed. Genesis has
heretofore furnished to JWCFS correct and complete copies of such Form BDs and
Form ADVs (including all
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amendments thereto). None of such Form BDs or Form ADVs contained, when filed,
any untrue statement of material fact required to be stated or incorporated by
reference therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
amended or superseded by a subsequent filing with the Commission (a copy of
which has been provided to JWCFS prior to the date hereof), none of the Form BDs
or Form ADVs (including all amendments thereto) contains any untrue statement of
a material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. All copies of such
Form BDs and Form ADVs (including all amendments thereto) required to be filed
with any state have been filed in a timely manner.
(c) Genesis and Predecessor Genesis have filed all SRO Reports required
to be filed with any self-regulatory organizations since January 1, 1995, each
of which has complied with the rules of the self-regulatory organization, each
as in effect on the date so filed. Genesis has heretofore furnished to JWCFS
correct and complete copies of the SRO Reports. None of the SRO Reports
contained, when filed, any untrue statement of material fact required to be
stated or incorporated by reference therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent revised or superseded by a subsequent filing
with the self-regulatory organization (a copy of which has been provided to
JWCFS prior to the date thereof), none of the SRO Reports contains any untrue
statement of a material fact or omits to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) Genesis and Predecessor Genesis have registered as a broker-dealer
and investment adviser in each jurisdiction in which such registration has been
required since January 1, 1995. Genesis and Predecessor Genesis have filed or
caused to be filed all forms, reports, statements, and documents (including all
Form U-4s on behalf of registered representatives) required to be filed with any
state since January 1, 1995. All such forms, reports, statements, and documents
are accurate in all material respects.
4.23 Employee Matters.
----------------
(a) Cash Compensation. Schedule 4.23(a) accurately lists the names,
titles, and rates of annual Cash Compensation, at the Current Balance Sheet Date
and at the date hereof (and the portions thereof attributable to salary or the
equivalent, fixed bonuses, discretionary bonuses, and other Cash Compensation,
respectively) of all employees (including all employees who are officers or
directors), nonemployee officers, nonemployee directors, and key consultants and
independent contractors of Genesis that have been paid during the past fiscal
year, or reasonably expect to be paid during the current fiscal year, aggregate
compensation in excess of $100,000.
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(b) Engagement and Non-Competition Agreements. Schedule 4.23(b)
accurately lists all Engagement and Non-Competition Agreements remaining
executory in whole or in part on the date hereof, and Genesis has provided JWCFS
with true, complete, and correct copies of all such Engagement and Non-
Competition Agreements. Genesis is not a party to any oral Engagement and Non-
Competition Agreement with any Person.
(c) Other Compensation Plans. Schedule 4.23(c) of the Disclosure
Statement accurately lists all Other Compensation Plans either in effect at the
date hereof or to become effective after the date hereof. Genesis has provided
JWCFS with a true, correct, and complete copy of each of those Other
Compensation Plans that is in writing and an accurate description of each of
those Other Compensation Plans that are oral. Except as accurately set forth in
Schedule 4.23(c), each of the Other Compensation Plans, may be unilaterally
amended or terminated by Genesis without liability to any of them, except as to
benefits accrued thereunder prior to any such amendment or termination.
(d) ERISA Benefit Plans. Schedule 4.23(d) accurately lists each ERISA
Benefit Plan maintained by, sponsored in whole or in part by, or contributed to
by, Genesis or any ERISA Affiliate currently, or at any time during the six-year
period ending on the date hereof, under which employees, retirees, dependents,
spouses, directors, independent contractors, or other beneficiaries are eligible
to participate, including, but not limited to, all pension, retirement, profit
sharing, deferred compensation, stock option, employee stock ownership,
severance pay, vacation, bonus, or other incentive plans, medical, vision,
dental or other health plans, life insurance plans, and all other employee
benefit plans or fringe benefit plans. Schedule 4.23(d) classifies each of the
ERISA Benefit Plans as an ERISA Pension Benefit Plan or a Welfare Plan. Genesis
has provided JWCFS with a true, correct, and complete copy of each ERISA Benefit
Plan, all related trust agreements and amendments, actuarial reports and
valuations for the most recent three years, summary plan descriptions,
prospectuses, annual report form 5500s or similar forms (and attachments
thereto) for the most recent three years, all Internal Revenue Service
determination letters, and any related documents requested by JWCFS.
(e) Employee Policies and Procedures. Schedule 4.23(e) accurately lists
all Employee Policies and Procedures. Genesis has provided JWCFS with a copy of
all written Employee Policies and Procedures and a written description of all
Material unwritten Employee Policies and Procedures.
(f) Unwritten Amendments. Except as accurately described in Schedule
4.23(f), no Material unwritten amendments have been made, whether by oral
communication, pattern of conduct or otherwise, with respect to any of the
Employment Agreements, Other Compensation Plans, ERISA Benefit Plans, or
Employee Policies and Procedures.
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(g) Labor Compliance. To the knowledge of Genesis, Genesis has been and
is in compliance with all applicable Governmental Requirements respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, and neither Genesis is liable for any arrears of wages or
penalties for failure to comply with any of the foregoing. Genesis has not
engaged in any unfair labor practice or discriminated on the basis of race,
color, religion, sex, sexual orientation, national origin, age, disability, or
handicap in its employment conditions or practices. Except as accurately set
forth in Schedule 4.23(g), there are no (i) unfair labor practice charges or
complaints or racial, color, religious, sex, sexual orientation, national
origin, age, disability, or handicap discrimination charges or complaints
pending or, to the knowledge of Genesis, threatened against Genesis before any
Governmental Authority (nor, to the knowledge of Genesis, does any valid basis
therefor exist) or (ii) existing or, to the knowledge of Genesis, threatened
labor strikes, disputes, grievances, controversies, or other labor troubles
affecting Genesis (nor, to the knowledge of Genesis, does any valid basis
therefor exist).
(h) No Unauthorized Aliens. All employees of Genesis are citizens of, or
are authorized in accordance with federal immigration laws to be employed in,
the United States.
(i) Change of Control Benefits. Except as accurately set forth in
Schedule 4.23(i) of the Disclosure Statement, neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, or otherwise) becoming due to any
director or any employee from Genesis under any ERISA Benefit Plan, Other
Compensation Plan or otherwise, (ii) increase any benefits otherwise payable
under any ERISA Benefit Plan or Other Compensation Plan, or (iii) result in any
acceleration of the time of payment or vesting of any such benefit. Neither
Genesis nor any Genesis ERISA Affiliate, is obligated, contingently or
otherwise, under any agreement to pay any amount that would be treated as a
"parachute payment," as defined in Section 280G(b) of the Internal Revenue Code
(determined without regard to Section 280G(b)(2)(A)(ii) of the Internal Revenue
Code).
(j) Retirees. Except as accurately set forth in Schedule 4.23(j), neither
Genesis nor any Genesis Subsidiary has any obligation or commitment to provide
medical, dental, or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired, except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable parallel provisions of ERISA.
4.24 Compliance with ERISA, Etc.
--------------------------
(a) Compliance. Each of the ERISA Benefit Plans and Other Compensation
Plans (i) is in substantial compliance with all applicable provisions of ERISA,
the Code,
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and all other applicable Governmental Requirements, (ii) has been administered,
operated and managed in accordance with its governing documents, and (iii) has
timely filed or distributed all reports and other documents required to be filed
with any governmental agency or distributed to plan participants or
beneficiaries (including annual reports, summary annual reports (form 5500s),
summary plan descriptions, actuarial reports, PBGC-1 Forms, or returns).
(b) Qualification. Except as accurately set forth on Schedule 4.24(b),
all ERISA Pension Benefit Plans that are intended to be qualified under Section
401(a) of the Code (the "Qualified Plans") are so qualified and have received a
favorable determination letter from the IRS, and Genesis is not aware of any
circumstances likely to result in the revocation of any such favorable
determination letter. To the extent that any Qualified Plans have not been
amended to comply with applicable Governmental Requirements, the remedial
amendment period permitting retroactive amendment of these Qualified Plans has
not expired and will not expire within 120 days after the Effective Time.
(c) No Defined Benefit Plans. Neither Genesis nor any Genesis ERISA
Affiliate, maintains, or within the past six years has maintained, an ERISA
Pension Benefit Plan that is or was a "defined benefit plan" subject to Title IV
of ERISA.
(d) No Prohibited Transactions, Etc. With respect to each ERISA Benefit
Plan, neither such plan, nor any trustee, administrator, fiduciary, agent or
employee thereof, and none of the Genesis Member, nor Genesis has engaged in any
Prohibited Transaction with respect to such ERISA Benefit Plan. With respect to
each ERISA Pension Benefit Plan (i) all minimum funding standards required by
law with respect to funding of benefits payable or to be payable under such plan
have been met; (ii) there is no accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a) of ERISA; and (iii) there have
been no terminations, partial terminations, or discontinuances of contributions
without a determination by the IRS that such action does not adversely affect
the tax-qualified status of that plan.
(e) COBRA. With respect to ERISA Benefit Plans qualifying as "group
health plans" under Section 4980B of the Code or Section 607(l) or 609 of ERISA
and related regulations (relating to the benefit continuation rights imposed by
"COBRA" or qualified medical child support orders), Genesis and the Genesis
Members have complied (and at the Effective Time will have complied) in all
Material respects with all reporting, disclosure, notice, election and other
benefit continuation and coverage requirements imposed thereunder as and when
applicable to those plans, and Genesis has not incurred (nor will incur) any
direct or indirect liability or is (or will be) subject to any loss, assessment,
excise tax penalty, loss of federal income tax deduction or other sanction,
arising on account of or in respect of any direct or indirect failure by Genesis
or any Genesis Member at any time prior to the Effective Time, to comply with
any such federal or state benefit continuation or coverage requirement.
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(f) Financial Disclosure. Genesis has made, and as of the Effective Time
will have made or accrued, all payments and contributions required, or
reasonably expected to be required, to be made under the provisions of each
ERISA Benefit Plan or Other Compensation Plan, or required to be made under
applicable laws, rules and regulations, with respect to any period prior to the
Effective Date, such amounts to be determined using the ongoing actuarial and
funding assumptions of such plan. The Financial Statements and the Current
Balance Sheet reflect the approximate total pension, medical and other benefit
liability for all ERISA Benefit Plans and Other Compensation Plans, and no
Material funding changes or irregularities are reflected thereon which would
cause such statements to be not representative of prior periods.
(g) Multiemployer Plans. Except as set forth in Schedule 4.24(g) neither
Genesis nor any ERISA Affiliate, is, or at any time during the six-year period
ended on the date hereof was, obligated to contribute to a Multiemployer Plan.
Neither Genesis nor any ERISA Affiliate, has taken, or intends to take, any
action and no event has occurred which has resulted or could reasonably be
expected to result in withdrawal liability under Title IV of ERISA with respect
to any Multiemployer Plan.
(h) Claims and Litigation. Except as accurately set forth in Schedule
4.24(h), no Litigation or claims (other than routine claims for benefits) are
pending or, to the knowledge of Genesis, threatened against, or with respect to,
any of the ERISA Benefit Plans or Other Compensation Plans or with respect to
any fiduciary, administrator, sponsor (in their capacities as such), or any
party-in-interest thereof.
(i) Excise Taxes, Damages and Penalties. With respect to any ERISA
Benefit Plan or Other Compensation Plan, no act, omission or transaction has
occurred which would result in the imposition on Genesis of (i) breach of
fiduciary duty liability damages under Section 409 of ERISA, (ii) a civil
penalty assessed pursuant to subsection (c), (i) or (l) of Section 502 of ERISA,
or (iii) any excise tax under applicable provisions of the Code.
(j) VEBA Welfare Trust. Any trust which is intended to be exempt from
federal income taxation pursuant to Section 501(c)(9) of the Code, satisfies the
requirements of that section and has received a favorable determination letter
from the IRS regarding that exempt status and has not, since receipt of the most
recent favorable determination letter, been amended or operated in a way that
would adversely affect that exempt status.
(k) Amendments and Termination. Except as set forth in Schedule 4.24(k)
of Genesis has the right to amend, modify, or terminate any ERISA Benefit Plan
or Other Compensation Plan without incurring any liability thereunder, except as
to any benefits accrued prior to such amendment, modification, or termination.
Prior to the Effective Time, Genesis agrees not to amend or modify any ERISA
Benefit Plan or Other
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Compensation Plan or take any other action which results in an increase in
liability under such ERISA Benefit Plan or Other Compensation Plan. To the
extent JWCFS adopts or continues any ERISA Benefit Plan or Other Compensation
Plan, nothing contained in this Agreement limits or restricts JWCFS's right to
amend, modify, or terminate any of such plans in such manner as JWCFS deems
appropriate.
4.25 Representations and Warranties. No representation, warranty, or
------------------------------
covenant of Genesis contained in this Agreement or in any written statement
delivered pursuant hereto or in connection with the transactions contemplated
hereby contains or shall contain any untrue material statement, or shall omit to
state a material fact necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading. Copies
of all documents furnished by Genesis or any Genesis Member to JWCFS in
connection with this Agreement or pursuant hereto are true and complete in all
material respects. Genesis does not know of any fact that they have not
disclosed in writing to Genesis that has had a Material Adverse Effect or, so
far as Genesis can reasonably foresee, will have a Material Adverse Effect, on
Genesis or the ability of Genesis to perform its obligations under this
Agreement and the Combination.
ARTICLE 5
CONDUCT PENDING CLOSING
5.1 Conduct of Genesis Pending Closing. The following covenants and
----------------------------------
agreements of Genesis shall be effective from the date hereof to the Closing,
unless JWCFS shall consent in writing to the waiver of any such covenant or
agreement.
5.1.1 General. Genesis shall not take any action that would result in, or
fail to take any action required to prevent, the material inaccuracy or breach
of any of the representations and warranties of Genesis set forth in Article 4.
5.1.2 Ordinary Course; Preservation of Business and Records.
(a) The business of Genesis shall be conducted only in the ordinary
course, except for consummation of the transactions contemplated by this
Agreement, including transactions in connection with Genesis's payment of
bonuses and deferred compensation, provided that the resulting effect is
consistent with the requirements of Section 10.2.13 hereof.
(b) Genesis shall maintain its books and records in the usual,
regular, and ordinary course, on a basis consistent with prior years.
(c) Genesis shall use its best efforts to preserve its business
organization, to keep available the services of its present employees, and to
preserve the goodwill of its suppliers, customers, and others having any
business relations with it.
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5.1.3 Compensation. Except for bonuses with respect to prior periods as
set forth in Schedule 5.1.3, there shall be no increase in the compensation or
in the rate of compensation or commissions payable or to become payable by
Genesis to any Genesis Member or executive officer, or to any employee earning
$50,000 or more per annum, or any general increase in the compensation or in the
rate of compensation payable or to become payable to employees of Genesis
earning less than $50,000 per annum ("general increase" for the purpose hereof
meaning any increase generally applicable to a class or group of employees, but
not including increases granted to individual employees for merit, length of
service, change in position or responsibility or other reasons applicable to
specific employees and not generally to a class or group thereof), or any
director, officer, or employee hired at a salary in excess of $50,000 per annum,
or any increase in any payment of or commitment to pay any bonus, profit sharing
or other extraordinary compensation to any employee.
5.1.4 Change in Articles of Organization and Ownership. Genesis shall
make no change in its Articles of Organization or Operating Agreement. Genesis
shall make no change in its authorized or issued Capital Stock, and shall not
issue or grant any right or option to purchase or otherwise acquire any of its
Capital Stock.
5.1.5 Access to Properties, Books, Etc. Genesis shall allow JWCFS and its
authorized Representatives full access during normal business hours to all of
the properties, books, contracts, commitments, and records of Genesis, and shall
furnish JWCFS or its authorized Representatives such information concerning the
affairs as may reasonably be requested.
5.1.6 Monthly Financial Statements. Genesis shall deliver to JWCFS as
soon as possible after each month ending between December 31, 1997 and the
Closing Date, true and correct copies of monthly financial statements of Genesis
for each such month. Such monthly financial statements shall reflect all
material adjustments necessary to be reflected therein (subject to normal year-
end adjustments including accrued bonuses and taxes) in order to present fairly
Genesis's financial position and results of operations at the end of each such
period on a basis consistent with Genesis' financial statements as of September
30, 1997.
5.1.7 Distributions. Genesis will notify JWCFS five (5) business days
prior to declaring or making in respect to the membership interests of Genesis
any distribution or payment, or any direct or indirect, redemption, purchase, or
other acquisition of any of its membership units which exceeds any distribution
paid by Genesis in the corresponding calendar quarter of the previous year.
5.2 Conduct of JWCFS Pending Closing. The following covenants and
--------------------------------
agreements of JWCFS shall be effective from the date hereof to the Closing,
unless Genesis shall consent in writing to the waiver of any such covenant or
agreement.
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5.2.1 General. JWCFS shall not take any action that would result in, or
fail to take any action required to prevent, the material inaccuracy or breach
of any of the representations and warranties of JWCFS set forth in Article 6.
5.2.2 Ordinary Course; Preservation of Business and Records.
(a) The business of JWCFS and its subsidiaries shall be conducted
only in the ordinary course, except for consummation of the transactions
contemplated by this Agreement or referred to in the proxy statement described
in Section 8.9 hereof, including transactions in connection with JWCFS's payment
of bonuses and deferred compensation.
(b) JWCFS and its subsidiaries shall maintain their books and
records in the usual, regular, and ordinary course, on a basis consistent with
prior years.
(c) JWCFS and its subsidiaries shall use their best efforts to
preserve their business organization, to keep available the services of its
present employees, and to preserve the goodwill of its suppliers, customers, and
others having any business relations with it.
5.2.3 Access to Properties, Books, Etc. JWCFS and its subsidiaries shall
allow Genesis and its authorized Representatives full access during normal
business hours to all of the properties, books, contracts, commitments, and
records of JWCFS and its subsidiaries, and shall furnish Genesis or its
authorized representatives such information concerning the affairs as may
reasonably be requested.
5.2.4 Monthly Financial Statements. JWCFS shall deliver to Genesis as
soon as possible after each month ending between December 31, 1997, and the
Closing Date, true and correct copies of monthly financial statements of JWCFS
for each such month. Such monthly financial statements shall reflect all
material adjustments necessary to be reflected therein (subject to normal year-
end adjustments to accrued bonuses and taxes) in order to present fairly JWCFS
financial position and results of operations at the end of each such period on a
basis consistent with JWCFS' audited financial statement as of December 31,
1996.
5.2.5 Distributions. No dividend, distribution, or other payment will be
declared or made in respect to the Capital Stock of JWCFS, and JWCFS will not,
directly or indirectly, redeem, purchase, or otherwise acquire any of its
Capital Stock other than pursuant to the Gilman repurchase transaction described
on Schedule 6.2(b).
5.2.6 Capital Structure. No change will be made in the authorized or
issued Capital Stock of JWCFS or Newco, and JWCFS and Newco will not issue or
grant any right or option to purchase or otherwise acquire any of the Capital
Stock of JWCFS or Newco except pursuant to the JWCFS Stock Plans or otherwise as
contemplated by this Agreement.
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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF JWCFS
As an inducement to Genesis and the Genesis Members to enter into this
Agreement and to consummate the transactions contemplated hereby, JWCFS
represents and warrants as follows:
6.1 Organization, Etc. of JWCFS. JWCFS is a corporation duly organized,
---------------------------
validly existing, and in good standing under the laws of the State of Florida.
JWCFS has adequate power (corporate or otherwise) to own or lease its properties
and to carry on its business as and in the places where such properties are now
owned, leased, or operated and such business is now conducted, and has fully
complied in all material respects with all applicable federal, state, and other
laws with respect to its operations and the conduct of its business, except for
any such failures to so comply (none of which are now known to JWCFS) that will
not, singly or in the aggregate, have a Material Adverse Effect on JWCFS. JWCFS
is duly qualified and in good standing as a foreign corporation for the
transaction of business under the laws of each jurisdiction in which it owns or
leases property, or conducts business, so as to require such qualification
(which jurisdictions are set forth on Schedule 6.1), except for any jurisdiction
in which the failure to so qualify would not have a Material Adverse Effect on
JWCFS. Copies of the Articles of Incorporation and all amendments thereto, By-
Laws as amended and currently in force, certificates of authority or
qualification to transact business as a foreign corporation in each jurisdiction
where such is required, stock records, and corporate minutes and records of
JWCFS have heretofore been made available to Genesis and are true, complete, and
correct at the date hereof.
6.2 Capitalization of JWCFS.
-----------------------
(a) The authorized capital stock of JWCFS consists of 9,056,000 shares of
JWCFS Common Stock and 5,000,000 shares of Preferred Stock, par value $.001 per
share ("JWCFS Preferred Stock"). As of December 31, 1997, (i) 3,690,872 shares
of JWCFS Common Stock were issued and outstanding, all of which were validly
issued, fully paid, and nonassessable and were issued free of preemptive (or
similar) rights, (ii) no shares of JWCFS Common Stock were held in the treasury
of JWCFS, and (iii) an aggregate of 1,073,656 shares of JWCFS Common Stock were
reserved for issuance and issuable upon, or otherwise deliverable in connection
with, the exercise of outstanding JWCFS Options, JWCFS Purchase Rights, or JWCFS
Warrants. Since December 31, 1997, no options or warrants to purchase shares of
JWCFS Common Stock have been granted and no shares of JWCFS Common Stock have
been issued, except for shares issued pursuant to the exercise of JWCFS Options
or JWCFS Warrants outstanding as of December 31, 1997, and JWCFS Purchase Rights
granted pursuant to the JWCFS Employee Stock Purchase Plan. As of the date
hereof, no shares of JWCFS Preferred Stock are issued and outstanding.
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(b) Except (i) as set forth in Schedule 6.2(b) and (ii) as a result of the
exercise of JWCFS Options, JWCFS Purchase Rights, or JWCFS Warrants outstanding
as of December 31, 1997, there are outstanding (A) no shares of Capital Stock of
JWCFS, (B) no securities of JWCFS convertible into or exchangeable for shares of
Capital Stock of JWCFS, (C) no options or other rights to acquire from JWCFS,
and no obligation of JWCFS to issue, any Capital Stock or securities convertible
into or exchangeable for Capital Stock of JWCFS, and (D) no equity equivalents,
interests in the ownership or earnings of JWCFS or other similar rights
(collectively, "JWCFS Securities"). Except as set forth on Schedule 6.2(b),
there are no outstanding obligations of JWCFS or any of its Subsidiaries to
repurchase, redeem, or otherwise acquire any JWCFS Securities. All shares of
JWCFS Common Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid, and nonassessable and free
of preemptive (or similar) rights.
(c) Each of the outstanding shares of Capital Stock of each JWCFS
Subsidiary is duly authorized, validly issued, fully paid, and nonassessable,
and all such shares are owned by JWCFS or another Wholly Owned Subsidiary of
JWCFS and are owned free and clear of all Liens, except where the failure to own
such shares free and clear could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. JWCFS has delivered to
Genesis prior to the date hereof a list of the Subsidiaries of JWCFS that
evidences, among other things, the amount of Capital Stock owned by JWCFS,
directly or indirectly, in such Subsidiaries. No Entity in which JWCFS owns,
directly or indirectly, less than a 50% equity interest is, individually or when
taken together with all such other Entities, material to the business of JWCFS
and its Subsidiaries taken as whole.
6.3 Organization and Capitalization of Newco.
----------------------------------------
(a) Organization. Newco is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Florida. Newco is recently
formed and has conducted no business operations, but will have adequate power
(corporate or otherwise) to own or lease properties and to carry on business as
contemplated hereby following the Combination, and will have fully complied in
all material respects with all applicable federal, state, and other laws with
respect to such operations and the conduct of such business, except for any such
failures to so comply (none of which are now known to JWCFS or Newco) that will
not, singly or in the aggregate, have a Material Adverse Effect on Newco. Copies
of the Articles of Incorporation and all amendments thereto, By-Laws as amended
and currently in force, certificates of authority or qualification to transact
business as a foreign corporation in each jurisdiction where such is required,
stock records, and corporate minutes and records of Newco have heretofore been
made available to Genesis and are true, complete, and correct at the date
hereof.
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(b) Capitalization. The authorized capital stock of Newco consists of
30,000,000 shares of Newco Common Stock and 5,000,000 shares of Preferred Stock,
par value $.001 per share ("Newco Preferred Stock"). As of the date hereof,
1,000 shares of Newco Common Stock were issued and outstanding, all of which
were validly issued, fully paid, and nonassessable and were issued free of
preemptive (or similar) rights.
(c) Options; Warrants. Except as contemplated by this Agreement, as of the
date hereof, there are no outstanding (i) securities of Newco convertible into
or exchangeable for shares of Capital Stock of Newco, (ii) options or other
rights to acquire from Newco, or obligation of Newco to issue, any Capital Stock
or securities convertible into or exchangeable for Capital Stock of Newco, and
(iii) equity equivalents, interests in the ownership or earnings of Newco or
other similar rights (collectively, "Newco Securities"). There are no
outstanding obligations of Newco to repurchase, redeem, or otherwise acquire any
Newco Securities.
(d) Combination Issuances. The shares of Newco Common Stock to be issued
pursuant to the Combination, when so issued, will be duly authorized and validly
issued, fully paid, and nonassessable, and there will be no preemptive (or
similar) rights in respect thereof.
6.4 Authority. Each of JWCFS and Newco has full corporate power and
---------
authority to make, execute, and deliver this Agreement, the Plan of Share
Exchange, the Assumption Agreement, and each other Transaction Document to which
JWCFS or Newco is a party, and to perform its obligations hereunder and
thereunder and in connection with the transactions contemplated hereby and
thereby, and the making, execution, and delivery of this Agreement and the Plan
of Share Exchange by JWCFS, and the performance by JWCFS of its obligations in
compliance with their respective terms, have been duly authorized by all
necessary corporate action of JWCFS, except that this Agreement and the Share
Exchange have not been approved by the JWCFS Shareholders.
6.5 No Default Resulting from Agreement. Neither the making, execution,
-----------------------------------
and delivery of this Agreement, the Share Exchange, or any other Transaction
Document to which JWCFS or Newco is a party, by JWCFS or Newco, as the case may
be, nor the performance by JWCFS or Newco of its obligations in compliance with
the terms hereof and thereof, will result in any material breach of the terms
and conditions of, or constitute a default under, the Articles of Incorporation
or By-Laws (as each may have been amended) of JWCFS or Newco, as the case may
be, or, except as set forth on Schedule 6.5, constitute a default that may
reasonably be expected to have a Material Adverse Effect on JWCFS or Newco under
any material agreement, instrument, undertaking, judgment, decree, governmental
order, or other restriction or obligation to which JWCFS or Newco is a party or
by which it or any of its properties or assets may be bound or affected. No
consent of any federal, state or local authority is required in connection with
the valid making, execution or delivery of this Agreement or the Combination by
JWCFS or Newco or the
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performance by either of them of their respective obligations in compliance with
their terms, except as set forth on Schedule 6.5.
6.6 Securities Filings; Financial Statements. Each registration
----------------------------------------
statement, proxy statement, or report filed and not withdrawn since January 1,
1995, by JWCFS with the Commission under the Securities Act or the Exchange Act
did not, on the date of effectiveness in the case of each such registration
statement, or on the later of the date of filing of each such report or any
subsequent amendment thereof in the case of each such report, or on the date of
mailing in the case of each such proxy or information statement, contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Copies of each such
registration statement, report, and proxy or information statement (the
"Securities Filings") have been furnished to Genesis by JWCFS, and such copies
are accurate and complete copies thereof (excluding exhibits). Since January 1,
1995, JWCFS has filed all documents required to be filed by it with the
Commission pursuant to Sections 13 and 14(a) of the Exchange Act, and all such
documents complied in all material respects as to form with applicable
requirements of law. JWCFS's Annual Report on Form 10-K, as amended, for its
fiscal year ended December 31, 1996 (the "Annual Report") includes, among other
things, JWCFS's audited consolidated financial statements at December 31, 1996,
and for the three years then ended (the "JWCFS Financial Statements"), and
JWCFS' Quarterly Report on Form 10-Q for the quarter ended September 30, 1997
(the "Third Quarter 10-Q"), contains unaudited consolidated financial statements
for the nine months ended on that date. The financial statements contained in
the Annual Report and the Third Quarter 10-Q have been prepared in conformity
with GAAP, consistently applied, and present fairly the consolidated financial
position of JWCFS at the respective dates indicated and the consolidated results
of its operations and changes in its cash flow position for each of the
respective periods indicated.
6.7 Absence of Undisclosed Liabilities. Except as reflected in the JWCFS
----------------------------------
Financial Statements or the unaudited financial statements of JWCFS at and as of
September 30, 1997, or as set forth in Schedule 6.7, JWCFS has no debt,
liability, or obligation of any kind (whether accrued, absolute, contingent, or
otherwise) including without limitation any liability or obligation on account
of taxes or any governmental charge, penalty, interest, or fine, or any "loss
contingencies" considered "probable" or "reasonably possible" within the meaning
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 5, except (a) liabilities incurred in the ordinary course of
business since September 30, 1997, none of which have, individually or in the
aggregate, had a Material Adverse Effect on JWCFS, and (b) liabilities incurred
in connection with the transactions provided for in this Agreement and the
Combination. JWCFS is not in default with respect to any term or condition of
any Indebtedness; and except as set forth on Schedule 6.7, no notice has been
given by any holder of any Indebtedness claiming that any default or breach
exists that has not been remedied by JWCFS or waived in writing by such holder.
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6.8 Litigation; Compliance with Laws Generally. Except as set forth in
------------------------------------------
the Securities Filings or on Schedule 6.8, (a) no Litigation is pending or
overtly threatened against, by, or affecting JWCFS that might have a Material
Adverse Effect on JWCFS or that might prevent or impede the Combination; (b)
JWCFS has not been charged with, and to the best of its knowledge, is not under
investigation with respect to, any charge concerning any violation of any
Governmental Requirement in respect to its business; and (c) there are no
judgments unsatisfied against JWCFS, and no consent decrees to which JWCFS is
subject. JWCFS is in compliance with all applicable Governmental Requirements,
except where the failure to so comply does not and will not have a Material
Adverse Effect on JWCFS or on Newco following the Combination.
6.9 Licenses; No Infringement. JWCFS holds all material Governmental
-------------------------
Approvals that are necessary to the conduct of its businesses. JWCFS does not
know or have any reason to believe that JWCFS has infringed any patent, patent
right, trademark, or copyright of any other party, except as set forth on
Schedule 6.9.
6.10 Broker-Dealer Registration; Etc.
-------------------------------
(a) JWCFS is registered as a broker-dealer with the Commission and the
Securities Division of the Florida Department of Banking and Finance, and is a
member in good standing of the NASD.
(b) JWCFS and, to the extent applicable, its Subsidiaries, has filed all
Form BDs and Form ADVs (including all amendments thereto) required to be filed
with the Commission, each of which has complied with the Exchange Act or the
Investment Advisers Act of 1940, as amended, as the case may be, each as in
effect on the date so filed. JWCFS has heretofore furnished to Genesis correct
and complete copies of such Form BDs and Form ADVs (including all amendments
thereto). None of such Form BDs or Form ADVs contained, when filed, any untrue
statement of material fact required to be stated or incorporated by reference
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Except to the extent
amended or superseded by a subsequent filing with the Commission (a copy of
which has been provided to JWCFS prior to the date hereof), none of the Form BDs
or Form ADVs (including all amendments thereto) contains any untrue statement of
a material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. All copies of such
Form BDs and Form ADVs (including all amendments thereto) required to be filed
with any state have been filed in a timely manner.
(c) JWCFS and, to the extent applicable, its Subsidiaries, has filed all
SRO Reports required to be filed with any self-regulatory organizations since
January 1, 1995, each of which has complied with the rules of the self-
regulatory organization, each as in effect on the date so filed. JWCFS has
heretofore furnished to Genesis correct and
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complete copies of the SRO Reports. None of the SRO Reports contained, when
filed, any untrue statement of material fact required to be stated or
incorporated by reference therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Except
to the extent revised or superseded by a subsequent filing with the self-
regulatory organization (a copy of which has been provided to Genesis prior to
the date thereof), none of the SRO Reports contains any untrue statement of a
material fact or omits to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(d) JWCFS and, to the extent applicable, its Subsidiaries, has registered
as a broker-dealer and investment adviser in each jurisdiction in which such
registration has been required since January 1, 1995. JWCFS and, to the extent
applicable, its Subsidiaries, has filed or caused to be filed all forms,
reports, statements, and documents (including all Form U-4s on behalf of
registered representatives) required to be filed with any state since January 1,
1995. All such forms, reports, statements, and documents are accurate in all
material respects.
6.11 Material Changes. Except as set forth on Schedule 6.11, since
----------------
September 30, 1997, there has been no material adverse change in the business,
assets, results of operations, financial condition, or prospects of JWCFS, or in
JWCFS's relationship with its lenders, suppliers, customers, employees, or
others, whether occurring in the ordinary course of business or otherwise.
6.12 Tax Matters. Except as set forth on Schedule 6.12, the provisions
-----------
made for Taxes reflected in the balance sheet at September 30, 1997, included in
the Third Quarter 10-Q are sufficient for the payment of all Taxes of JWCFS
through the Effective Time.
6.13 Employee Matters.
----------------
(a) Cash Compensation. Schedule 6.13(a) accurately lists the names,
titles, and rates of annual Cash Compensation, at the Current Balance Sheet Date
and at the date hereof (and the portions thereof attributable to salary or the
equivalent, fixed bonuses, discretionary bonuses, and other Cash Compensation,
respectively) of all employees (including all employees who are officers or
directors), nonemployee officers, nonemployee directors, and key consultants and
independent contractors of JWCFS that have been paid during the past fiscal
year, or reasonably expect to be paid during the current fiscal year, aggregate
compensation in excess of $150,000.
(b) Other Compensation Plans. Schedule 6.13(b) accurately lists all Other
Compensation Plans either in effect at the date hereof or to become effective
after the date hereof. JWCFS has provided Genesis with a true, correct, and
complete copy of each of those Other Compensation Plans that is in writing and
an accurate description of each of those Other Compensation Plans that are oral.
Except as accurately set forth in
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Schedule 6.13(b), each of the Other Compensation Plans, may be unilaterally
amended or terminated by JWCFS without liability to any of them, except as to
benefits accrued thereunder prior to any such amendment or termination.
(c) ERISA Benefit Plans. Schedule 6.13(c) accurately lists each ERISA
Benefit Plan maintained by, sponsored in whole or in part by, or contributed to
by, JWCFS or any JWCFS ERISA Affiliate currently, or at any time during the six-
year period ending on the date hereof, under which employees, retirees,
dependents, spouses, directors, independent contractors, or other beneficiaries
are eligible to participate, including, but not limited to, all pension,
retirement, profit sharing, deferred compensation, stock option, employee stock
ownership, severance pay, vacation, bonus, or other incentive plans, medical,
vision, dental or other health plans, life insurance plans, and all other
employee benefit plans or fringe benefit plans. Schedule 6.13(c) classifies each
of the ERISA Benefit Plans as an ERISA Pension Benefit Plan or a Welfare Plan.
JWCFS has provided Genesis with a true, correct, and complete copy of each ERISA
Benefit Plan, all related trust agreements and amendments, actuarial reports and
valuations for the most recent three years, summary plan descriptions,
prospectuses, annual report form 5500s or similar forms (and attachments
thereto) for the most recent three years, all Internal Revenue Service
determination letters, and any related documents requested by JWCFS.
(d) Employee Policies and Procedures. Schedule 6.13(d) accurately lists
all Employee Policies and Procedures. JWCFS has provided Genesis with a copy of
all written Employee Policies and Procedures and a written description of all
Material unwritten Employee Policies and Procedures.
(e) Unwritten Amendments. Except as accurately described in Schedule
6.13(e), no Material unwritten amendments have been made, whether by oral
communication, pattern of conduct or otherwise, with respect to any of the
Employment Agreements, Other Compensation Plans, ERISA Benefit Plans, or
Employee Policies and Procedures.
(f) Labor Compliance. To the knowledge of JWCFS, JWCFS has been and is in
compliance with all applicable Governmental Requirements respecting employment
and employment practices, terms and conditions of employment, and wages and
hours, and JWCFS is not liable for any arrears of wages or penalties for failure
to comply with any of the foregoing. JWCFS has not engaged in any unfair labor
practice or discriminated on the basis of race, color, religion, sex, sexual
orientation, national origin, age, disability, or handicap in its employment
conditions or practices. Except as accurately set forth in Schedule 6.13(f),
there are no (i) unfair labor practice charges or complaints or racial, color,
religious, sex, sexual orientation, national origin, age, disability, or
handicap discrimination charges or complaints pending or, to the knowledge of
JWCFS, threatened against JWCFS before any Governmental Authority (nor, to the
knowledge of JWCFS, does any valid basis therefor exist) or (ii) existing or, to
the
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knowledge of JWCFS, threatened labor strikes, disputes, grievances,
controversies, or other labor troubles affecting JWCFS (nor, to the knowledge of
JWCFS, does any valid basis therefor exist).
(g) Change of Control Benefits. Except as accurately set forth in Schedule
6.13(g) of the Disclosure Statement, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, or otherwise) becoming due to any director or
any employee from JWCFS under any ERISA Benefit Plan, Other Compensation Plan or
otherwise, (ii) increase any benefits otherwise payable under any ERISA Benefit
Plan or Other Compensation Plan, or (iii) result in any acceleration of the time
of payment or vesting of any such benefit. Neither JWCFS nor any JWCFS ERISA
Affiliate, is obligated, contingently or otherwise, under any agreement to pay
any amount that would be treated as a "parachute payment," as defined in Section
280G(b) of the Internal Revenue Code (determined without regard to Section
280G(b)(2)(A)(ii) of the Internal Revenue Code).
(h) Retirees. Except as accurately set forth in Schedule 6.13(h), neither
JWCFS nor any JWCFS Subsidiary has any obligation or commitment to provide
medical, dental, or life insurance benefits to or on behalf of any of its
employees who may retire or any of its former employees who have retired, except
as may be required pursuant to the continuation of coverage provisions of
Section 4980B of the Code and the applicable parallel provisions of ERISA.
6.14 Compliance with ERISA, Etc.
--------------------------
(a) Compliance. Each of the JWCFS ERISA Benefit Plans and Other
Compensation Plans (i) is in substantial compliance with all applicable
provisions of ERISA, the Code, and all other applicable Governmental
Requirements, (ii) has been administered, operated and managed in accordance
with its governing documents, and (iii) has timely filed or distributed all
reports and other documents required to be filed with any governmental agency or
distributed to plan participants or beneficiaries (including annual reports,
summary annual reports (form 5500s), summary plan descriptions, actuarial
reports, PBGC-1 Forms, or returns).
(b) Qualification. Except as accurately set forth on Schedule 6.14(b), all
ERISA Pension Benefit Plans that are intended to be qualified under Section
401(a) of the Code (the "Qualified Plans") are so qualified and have received a
favorable determination letter from the IRS, and JWCFS is not aware of any
circumstances likely to result in the revocation of any such favorable
determination letter. To the extent that any Qualified Plans have not been
amended to comply with applicable Governmental Requirements, the remedial
amendment period permitting retroactive amendment of these Qualified Plans has
not expired and will not expire within 120 days after the Effective Time.
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(c) No Defined Benefit Plans. Neither JWCFS nor any JWCFS ERISA Affiliate,
maintains, or within the past six years has maintained, an ERISA Pension Benefit
Plan that is or was a "defined benefit plan" subject to Title IV of ERISA.
(d) No Prohibited Transactions, Etc. With respect to each ERISA Benefit
Plan, neither such plan, nor any trustee, administrator, fiduciary, agent or
employee thereof, and none of the JWCFS Shareholders, nor JWCFS has engaged in
any Prohibited Transaction with respect to such ERISA Benefit Plan. With respect
to each ERISA Pension Benefit Plan (i) all minimum funding standards required by
law with respect to funding of benefits payable or to be payable under such plan
have been met; (ii) there is no accumulated funding deficiency, as defined in
Section 412(a) of the Code and Section 302(a) of ERISA; and (iii) there have
been no terminations, partial terminations, or discontinuances of contributions
without a determination by the IRS that such action does not adversely affect
the tax-qualified status of that plan.
(e) COBRA. With respect to ERISA Benefit Plans qualifying as "group health
plans" under Section 4980B of the Code or Section 607(l) or 609 of ERISA and
related regulations (relating to the benefit continuation rights imposed by
"COBRA" or qualified medical child support orders), JWCFS and the JWCFS
Shareholders have complied (and at the Effective Time will have complied) in all
Material respects with all reporting, disclosure, notice, election and other
benefit continuation and coverage requirements imposed thereunder as and when
applicable to those plans, and JWCFS has not incurred (nor will incur) any
direct or indirect liability or is (or will be) subject to any loss, assessment,
excise tax penalty, loss of federal income tax deduction or other sanction,
arising on account of or in respect of any direct or indirect failure by JWCFS
or any JWCFS Shareholders, at any time prior to the Effective Time, to comply
with any such federal or state benefit continuation or coverage requirement.
(f) Financial Disclosure. JWCFS has made, and as of the Effective Time
will have made or accrued, all payments and contributions required, or
reasonably expected to be required, to be made under the provisions of each
ERISA Benefit Plan or Other Compensation Plan, or required to be made under
applicable laws, rules and regulations, with respect to any period prior to the
Effective Date, such amounts to be determined using the ongoing actuarial and
funding assumptions of such plan. The Financial Statements and the Current
Balance Sheet reflect the approximate total pension, medical and other benefit
liability for all ERISA Benefit Plans and Other Compensation Plans, and no
Material funding changes or irregularities are reflected thereon which would
cause such statements to be not representative of prior periods.
(g) Multiemployer Plans. Except as set forth in Schedule 6.14(g), neither
JWCFS nor any ERISA Affiliate of any of them, is, or at any time during the six-
year period ended on the date hereof was, obligated to contribute to a
Multiemployer Plan. Neither JWCFS nor any ERISA Affiliate, has taken, or intends
to take, any action and no
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event has occurred which has resulted or could reasonably be expected to result
in withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan.
(h) Claims and Litigation. Except as accurately set forth in Schedule
6.14(h), no Litigation or claims (other than routine claims for benefits) are
pending or, to the knowledge of JWCFS, threatened against, or with respect to,
any of the ERISA Benefit Plans or Other Compensation Plans or with respect to
any fiduciary, administrator, sponsor (in their capacities as such), or any
party-in-interest thereof.
(i) Excise Taxes, Damages and Penalties. With respect to any ERISA Benefit
Plan or Other Compensation Plan, no act, omission or transaction has occurred
which would result in the imposition on JWCFS of (i) breach of fiduciary duty
liability damages under Section 409 of ERISA, (ii) a civil penalty assessed
pursuant to subsection (c), (i) or (l) of Section 502 of ERISA, or (iii) any
excise tax under applicable provisions of the Code.
(j) VEBA Welfare Trust. Any trust which is intended to be exempt from
federal income taxation pursuant to Section 501(c)(9) of the Code, satisfies the
requirements of that section and has received a favorable determination letter
from the IRS regarding that exempt status and has not, since receipt of the most
recent favorable determination letter, been amended or operated in a way that
would adversely affect that exempt status.
(k) Amendments and Termination. Except as set forth in Schedule 6.14(k)
JWCFS has the right to amend, modify, or terminate any ERISA Benefit Plan or
Other Compensation Plan without incurring any liability thereunder, except as to
any benefits accrued prior to such amendment, modification, or termination.
Prior to the Effective Time, JWCFS agrees not to amend or modify any ERISA
Benefit Plan or Other Compensation Plan or take any other action which results
in an increase in liability under such ERISA Benefit Plan or Other Compensation
Plan. To the extent JWCFS adopts or continues any ERISA Benefit Plan or Other
Compensation Plan, nothing contained in this Agreement limits or restricts
JWCFS's right to amend, modify, or terminate any of such plans in such manner as
JWCFS deems appropriate.
6.15 Certain Environmental Matters. (a) Except as accurately disclosed in
-----------------------------
Schedule 6.15(a), JWCFS has complied, and remains in compliance, with the
provisions of all Environmental Laws applicable to any of it or any of its
presently owned or operated facilities, sites, or other properties, businesses,
and operations; (b) except as accurately disclosed in Schedule 6.15, no
Hazardous Substances have been disposed of or released at, from, in, or on any
site owned or operated by JWCFS in violation of applicable Environmental Laws;
(c) except as accurately disclosed in Schedule 6.15(c), neither JWCFS (or any
agent or contractor of JWCFS) has transported or arranged for the transportation
of any Hazardous Substances to, or disposed or arranged for the disposition of
any Hazardous Substances at, any off-site location that could lead to any claim
against
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JWCFS, or any Affiliate or Subsidiary of JWCFS, as a potentially responsible
party or otherwise, for any clean-up costs, remedial work, damage to natural
resources, personal injury, or property damage, including any claim under
Environmental Laws; and (d) except as accurately disclosed in Schedule 6:15(d),
no storage tanks existed or exist on or under any of the properties owned,
leased, or operated by JWCFS from which any Hazardous Substances could have been
released into the surrounding environment. JWCFS has provided Genesis with
copies (or if not available, accurate written summaries) of all environmental
investigations, studies, audits, reviews, inspections, and other analyses
conducted by or on behalf, or which otherwise are in the possession, of JWCFS
respecting any facility, site, or other property presently owned, leased, or
operated by JWCFS.
6.16 Year 2000 Compliance. Schedule 6.16 details the plans of JWCFS for
--------------------
ensuring that the software utilized by JWCFS in its business ("JWCFS Software")
will be Year 2000 compliant, will correctly handle the change of the century in
a standard compliant manner, including both the Year 2000 and beyond, as well as
the leap year, and the absence of leap year, and will operate accurately with
respect to date-related operations. JWCFS believes that the plans detailed on
Schedule 6.16 are sufficient to ensure the uninterrupted conduct of its
business.
6.17 Representations and Warranties. No representation, warranty, or
------------------------------
covenant of JWCFS or Newco contained in this Agreement or in any written
statement delivered pursuant hereto or in connection with the transactions
contemplated hereby contains or shall contain any untrue material statement, or
shall omit to state a material fact necessary in order to make the statements
made, in the light of the circumstances under which they were made, not
misleading. Copies of all documents furnished by JWCFS or Newco to Genesis in
connection with this Agreement or pursuant hereto are true and complete in all
material respects. JWCFS does not know of any fact that it has not disclosed in
writing to Genesis that has had a Material Adverse Effect or, so far as JWCFS
can reasonably foresee, will have a Material Adverse Effect, on JWCFS or Newco
or the ability of JWCFS or Newco to perform its obligations under this
Agreement, the Share Exchange, and the Combination.
ARTICLE 7
RESALE REGISTRATION AND RELATED MATTERS
7.1 Resale Registration of Weinstein Stock. JWCFS and Newco agree that
--------------------------------------
a registration statement of Newco (the "Resale Registration Statement") shall be
filed with the Commission in connection with the Form S-4 registration statement
to be filed by Newco and JWCFS in connection with the Combination, which shall
contain such information as may be necessary under the Securities Act and the
rules and regulation of the Commission to cover the resale by Weinstein of the
Weinstein Stock , and that they will use their best efforts to cause the Resale
Registration Statement to become effective by the Closing Date (or as soon
thereafter as is permitted by applicable rules or policies
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of the Commission) and to remain effective for a period of two years after the
Closing Date. Weinstein agrees to provide JWCFS and Newco reasonable assistance
as necessary in preparing and maintaining the effectiveness of the Resale
Registration Statement.
7.2 Certain Additional Obligations of JWCFS and Newco. In connection
-------------------------------------------------
with the registration provided for hereunder, JWCFS and Newco shall:
(a) cause to be printed and furnished to Weinstein such number of copies
of the Resale Registration Statement, the Resale Prospectus, and any and all
amendments or supplements thereto as Weinstein may reasonably request;
(b) immediately notify Weinstein, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the happening
of any event as a result of which the Resale Prospectus, as then in effect,
contains an untrue statement of a material or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(c) cause any legend placed on certificates representing shares of
Weinstein Stock to be removed with respect to such shares sold or to be offered
for sale pursuant to the Resale Registration Statement;
(d) as expeditiously as reasonably practicable, prepare and file with the
Commission any amendments and supplements to the Resale Registration Statement
and the Resale Prospectus as may be necessary to keep the Resale Registration
Statement effective for a period of not less than two years from the Closing
Date or, if sooner, until all of the Weinstein Stock has been sold;
(e) use their best efforts to register or qualify the Weinstein Stock
covered by the Resale Registration Statement under the securities or Blue Sky
laws of such states as shall be reasonably requested by Weinstein, and do any
and all other acts and things that may be necessary or desirable to enable
Weinstein to consummate the public sale or other disposition, in accordance with
the method of distribution described in the Resale Registration Statement, in
such jurisdictions of the Weinstein Stock; provided, however, that JWCFS and
-------- -------
Newco shall not be required in connection herewith to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction; and
(f) pay all expenses of the registration pursuant to this Article 7
(except as to fees and expenses of counsel for Weinstein, underwriting discounts
or selling commissions, and amounts required by law to be paid by Weinstein).
The expenses excluded above shall be borne by Weinstein.
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7.3 Certain Conditions to Newco's Obligations.
------------------------------------------
(a) The performance by JWCFS or Newco of their obligations under this
Article 7 shall be subject to compliance by Weinstein with all reasonable
requests by JWCFS or Newco or its counsel for information, documents, or
certificates necessary for such performance.
(b) Notwithstanding any other provisions hereof, (i) until the Resale
Registration Statement has become effective, Weinstein will not sell, contract
to sell, or offer to sell any of the Weinstein Stock in any transaction
requiring registration under the Securities Act or under the securities or blue
sky laws of any jurisdiction, and (ii) after the Resale Registration Statement
shall become effective, upon receipt of notice from JWCFS or Newco (A) that the
Resale Prospectus, as then in effect, contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, or (B) that the Resale Prospectus requires
amendment or supplementation in order to comply with any applicable provisions
of the Securities Act or of blue sky or securities law of any relevant
jurisdiction, Weinstein shall cease making offers and sales of any Weinstein
Stock pursuant to such Resale Prospectus, and shall return to Newco any
remaining copies of the Resale Prospectus. Newco shall promptly provide
Weinstein with a revised Resale Prospectus and, following receipt thereof,
Weinstein shall be free to resume making offers of Weinstein Stock.
7.4 Registration Indemnification. Notwithstanding any other provision of
----------------------------
this Agreement respecting indemnification for other matters, in connection with
the registration pursuant to this Article 7, the following provisions of this
Section 7.4 shall apply and shall be controlling in the event of any conflict
with any such other provision:
(a) JWCFS and Newco will indemnify and hold harmless Weinstein against any
losses, claims, damages, or liabilities to which Weinstein may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained
in the Resale Registration Statement or the Resale Prospectus, or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances in which made; provided, however,
-------- -------
JWCFS and Newco will not be liable in any such case to the extent any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission, so made or omitted in
conformity with information furnished by Weinstein for use in the Resale
Registration Statement or the Resale Prospectus.
(b) Weinstein will indemnify and hold harmless JWCFS and Newco and each
person, if any, who controls JWCFS and Newco within the meaning of the
Securities Act,
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each officer of JWCFS and Newco who signs the Resale Registration Statement,
each director of JWCFS or Newco and each underwriter and each person who
controls any underwriter within the meaning of the Securities Act, against all
losses, claims, damages, or liabilities, joint or several, to which JWCFS or
Newco or such officer, director, underwriter, or controlling person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Resale Registration Statement or the Resale Prospectus, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances in which made,
made in reliance upon and in conformity with information pertaining to Weinstein
furnished to JWCFS or Newco by Weinstein for use in the Resale Registration
Statement or Resale Prospectus, or (ii) in the case of the utilization by
Weinstein of a method of disposition not involving an underwriter, the failure
of Weinstein to deliver, in compliance with applicable law, a Resale Prospectus
after sufficient copies thereof have been furnished to Weinstein, provided,
however, that the liability of Weinstein hereunder shall be limited to the
proportion of any such loss, claim, damage, liability, or expense that is equal
to the proportion that the public offering price of shares sold by Weinstein
under the Resale Registration Statement bears to the total public offering price
of all securities sold thereunder.
(c) The indemnification by Weinstein of underwriters provided for in this
Section 7.4 shall be on such other terms and conditions as may be customary and
reasonably required by such underwriters.
(d) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability that it may have otherwise
than on account of this indemnity provision. In any matter in which JWCFS,
Newco, or any of their Affiliates is named as a party, JWCFS or Newco shall be
entitled to select counsel who will have primary charge of handling the defense
in the matter, and the costs and expenses of such counsel shall be borne by the
party or parties, if any, who have an indemnity obligation to such Persons under
this Section 7.4. In the case of parties indemnified pursuant to Section 7.4(a)
above, counsel to the indemnified parties shall be selected by such indemnified
parties, subject to the approval of JWCFS or Newco. An indemnifying party may
otherwise participate, at its own expense, in the defense of any action with
counsel of its own choosing; provided, however, that counsel to the indemnifying
-------- -------
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions
arising out of the same general allegations or circumstances.
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No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 7 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise, or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding, or claim and (ii)
does not include a statement as to or an admission of fault, culpability, or a
failure to act by or on behalf of any indemnified party.
ARTICLE 8
OTHER AGREEMENTS
8.1 Stock Options to Certain Genesis Personnel. In connection with the
------------------------------------------
Closing, Newco shall issue options to purchase, in the aggregate, up to 25,000
shares of Newco Common Stock to the Genesis Members as set forth on ANNEX D
hereto.
8.2 Leeds Employment Agreement. Marshall T. Leeds ("Leeds") shall
--------------------------
agree to the termination on the Closing Date of that certain Amended and
Restated Employment Agreement currently in effect between him and JWCFS, in
consideration of which JWCFS shall pay to him the amounts at the times specified
on ANNEX E, and Newco shall enter into a new employment with him in substance
and form substantially as provided in EXHIBIT D, providing for his employment as
Chairman of the Board, President and Chief Executive Officer.
8.3 Marks Employment Agreement. Joel E. Marks ("Marks") shall agree to
--------------------------
the termination on the Closing Date of the employment arrangement currently in
effect between him and JWCFS, in consideration of which JWCFS shall pay to him
the amounts at the times specified on ANNEX E, and Newco shall enter into a new
employment with him in substance and form substantially as provided in
EXHIBIT D, providing for his employment as Executive Vice President and Chief
Financial Officer.
8.4 Employment of Will K. Weinstein. Will K. Weinstein and Newco shall
-------------------------------
enter into an employment agreement in substance and form substantially as
provided in EXHIBIT E providing for his employment as Vice Chairman of Newco
following the Combination.
8.5 Employment of Stapleton. Philip C. Stapleton ("Stapleton") and Newco
-----------------------
shall enter into an employment agreement in substance and form substantially as
provided in EXHIBIT D providing for his employment as Chief Operating Officer of
Newco following the Combination.
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8.6 Establishment of Executive Bonus Pool. In addition to the base
-------------------------------------
compensation provided to Leeds, Stapleton, and Marks in their respective
employment agreements, Newco shall establish an Incentive Bonus Plan (the
"Incentive Bonus Plan") to be administered by a committee or subcommittee of its
Board of Directors comprised solely of two or more outside directors (the
"Committee") pursuant to and subject to the provisions of which Messrs. Leeds,
Stapleton, and Marks shall be awarded Incentive Awards totaling 15% of Newco's
annual pre-tax profits, which for purposes of Newco's 1998 fiscal year (and
subsequent fiscal years unless and until modified by the Committee consistent
with the terms of the Incentive Bonus Plan) shall be allocated and paid 50% to
Mr. Leeds, 28.5% to Mr. Stapleton, and 21.5% to Mr. Marks, provided that such
awards may be reduced by the Committee in its discretion but not below 35% to
Mr. Leeds, 20% to Mr. Stapleton, and 5% to Mr. Marks.
8.7 Agreement Among Certain Shareholders. Messrs. Leeds and Weinstein
------------------------------------
shall enter into an Agreement Among Certain Shareholders in substantially the
form attached as EXHIBIT F hereto whereby they agree to vote for the election as
directors of Newco a specified number of nominees identified by Leeds, on the
one hand, and by Weinstein, on the other hand.
8.8 CONFIDENTIALITY. Each party understands that certain information
---------------
that it has been furnished and will be furnished in connection with the
transactions contemplated by this Agreement is confidential and proprietary, and
each party agrees that it will maintain the confidentiality of such information
and will not disclose it to others or use it except in connection with such
transactions, without the consent of the party furnishing such information,
except as required by applicable law or legal process (in which case prior
notice will be given to the party that furnished the information). Information
that is generally known in the industry of a party or has been generally
disclosed to its shareholders, members, or creditors, or that has been disclosed
to the other party by third parties who have a right to do so, shall not be
deemed confidential or proprietary information for these purposes. If the
Combination is not consummated, each party agrees to promptly return to the
other, upon its request, all materials (and all copies thereof) that have been
furnished to it regarding the business and financial condition of the other
party, including, without limitation, all financial statements, reports,
contracts, customer lists, accounts, records, tax returns, data, plans,
processes, and trade secrets.
8.9 Proxy Statement And Form S-4 Registration Statement. Genesis
---------------------------------------------------
acknowledges that JWCFS and Newco intend to prepare (a) a proxy statement of
JWCFS to be used to solicit the votes of the JWCFS Shareholders with respect to
approval of the Share Exchange and certain other matters related thereto and
(b) one or more SEC Compliance Documents of Newco under the Securities Act to
cover (i) the issuance of shares of Newco Common Stock to the JWCFS Shareholders
in connection with the Share Exchange and (ii) the resale by Weinstein of the
Weinstein Stock as provided in Article 7 (the "SEC Compliance Documents"). Each
of the SEC Compliance Documents shall comply with the applicable rules and
regulations of the Commission. Genesis agrees to provide to JWCFS
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and Newco for use in such SEC Compliance Documents all the information about it
and its Affiliates and their business (including financial statements and pro
forma financial information in appropriate form) required to be included in any
such SEC Compliance Documents and shall indemnify JWCFS and Newco and their
respective directors, officers, and controlling persons against any loss or
Damage resulting from any material misstatement of fact or omission of material
fact in connection with the provision of any such information.
8.10 No Solicitation of Transactions. Prior to the termination of this
-------------------------------
Agreement, the parties hereto will not, and will direct their respective
officers, directors, financial advisors, counsels and other agents or
representatives not to, directly or indirectly, (a) solicit, initiate or
encourage submission of proposals or offers from any Person other than a party
hereto relating to any acquisition or purchase of all or a material part of the
stock issued by or assets of, or any share exchange, merger, consolidation or
business combination with, or any recapitalization, restructuring or issuance or
offering of debt or equity securities of, Genesis or JWCFS (an "Acquisition
Proposal") or (b) participate in any discussions or negotiations regarding,
furnish any information to any Person other than a party hereto or its
representatives with respect to, or otherwise assist, facilitate or encourage
any Acquisition Proposal by any Person other than a party hereto. If,
notwithstanding the foregoing, any party or its representatives should receive
any Acquisition Proposal or any inquiry regarding any such proposal from a third
party during the term of this Agreement, such party shall promptly inform the
other parties hereto. Notwithstanding the foregoing, JWCFS may furnish
information concerning its business, properties, or assets to any Person and may
negotiate and participate in discussions and negotiations with such Person
concerning an Acquisition Proposal, if such Person has submitted a bona fide
written proposal to the Board of Directors of JWCFS relating to any such
transaction and if the Board of Directors of JWCFS determines, after receipt of
advice from legal counsel to JWCFS, that the failure to provide such information
or access or to engage in such discussions or negotiations could cause the Board
of Directors of JWCFS to violate its fiduciary duties to the shareholders of
JWCFS under applicable law.
8.11 Tax Return Positions. None of JWCFS, Newco, Genesis or the Genesis
--------------------
Members shall take any position on their respective Tax Returns inconsistent
with the position that the Combination qualifies as a nonrecognition transaction
within the meaning of Section 351 of the Code, unless such inconsistent position
shall arise out of or through an inquiry or examination by the Internal Revenue
Service or other Tax Authority.
8.12 JWCFS Shareholders Meeting. JWCFS shall convene a special meeting of
--------------------------
the holders of the JWCFS Common Stock and use its best efforts to obtain thereat
approval of the Share Exchange and each other matter submitted by JWCFS for a
vote of such holders in connection with the consummation of the Share Exchange
or the Combination.
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8.13 Meeting of or Action by Genesis Members. Genesis shall convene a
---------------------------------------
meeting of, or otherwise cause the taking of appropriate action by, the holders
of the Genesis Membership Interests to obtain approval of the LLC Exchange and
each other matter for which approval is necessary by such holders in connection
with the consummation of the Combination.
8.14 Cooperation. JWCFS, Newco and Genesis shall cooperate fully with
-----------
each other and their respective counsel, accountants, and other authorized
representatives in connection with any steps required to be taken as part of
their respective obligations under this Agreement or otherwise as reasonably
necessary to consummate the Combination.
8.15 Expenses. The expenses incurred by the parties hereto in connection
--------
with the authorization, preparation, execution, and delivery of this Agreement
and the performance of their respective obligations hereunder, including without
limitation all fees and expenses of agents, representatives, counsel, and
accountants, shall be paid by the party that incurred such expenses whether or
not the transactions contemplated hereby are consummated, provided that if the
Combination is consummated, any such expenses incurred or payable by Genesis and
not yet paid shall be fully accrued and reflected on the Genesis Combination
Balance Sheet. If Genesis terminates this Agreement during the period provided
in Section 11.9, and for reasons specified in Section 11.9, then Genesis will
pay JWCFS the reasonable expenses actually incurred by the nonterminating party
in negotiating and carrying out the transactions contemplated by this Agreement
including without limitation, printing costs and fees and expenses of counsel,
accountants, financial consultants, and investment bankers. If this Agreement
is terminated pursuant to Section 11.4 or 11.8 and Genesis and the Genesis
Members are not in breach of the Agreement in any material respect, then JWCFS
shall pay to Genesis (in each case, as the sole and exclusive remedy of Genesis
and the Genesis Members therefor and for any breach or misrepresentation by
JWCFS or Newco) $1,500,000 if the Agreement is terminated pursuant to Section
11.4, $2,000,000 if the Agreement is terminated under Section 11.8(a), or
$500,000 if the Agreement is terminated pursuant to Section 11.8(b). If this
Agreement is terminated by JWCFS pursuant to paragraph 11.3 and JWCFS is not in
breach of the Agreement in any material respect, then Genesis shall pay to JWCFS
$1,500,000 to compensate JWCFS for its costs and expenses incurred (and, as
JWCFS' sole and exclusive remedy therefore and for any breach or
misrepresentation by Genesis or any Genesis Member).
8.16 Press Releases. Prior to the Effective Time, JWCFS, Newco and
--------------
Genesis shall consult with each other as to the form and substance of any press
release or other public disclosure relating to this Agreement, its subject
matter, or any transaction contemplated hereby; provided, however, that nothing
in this Section 8.16 shall be deemed to prohibit JWCFS from making any
disclosure that its counsel advises is necessary or advisable in order to
satisfy its disclosure obligations imposed by law.
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8.17 JWCFS' Public Documents and Access to Information. JWCFS has
-------------------------------------------------
delivered to Genesis and the Genesis Members a true and complete copy of (i)
JWCFS' annual report on Form 10-K for the fiscal year ended December 31, 1996,
(ii) JWCFS' definitive proxy statement relating to its 1997 annual shareholders'
meeting, and (iii) all other filings (other than preliminary registration or
proxy statements) made by JWCFS with the Commission between December 31, 1996
and the date hereof (collectively, the "Recent SEC Documents"). In addition to
the Recent SEC Documents, JWCFS has provided Genesis and each Genesis Member
opportunities to become familiar with the business, financial condition,
management, and operations of JWCFS, including reasonable opportunities to ask
questions of, receive answers from and obtain information regarding, JWCFS and
concerning its business and prospects that may be material to their investment
decision.
8.18 Agreement by Leeds and Marks. Contemporaneously with the execution
----------------------------
of this Agreement, Messrs. Leeds and Marks will each execute and deliver to
Genesis an agreement, the form of which is attached hereto as Exhibit G,
pursuant to which each of them agrees to vote the Capital Stock of JWCFS owned
or controlled by them in favor of the Share Exchange.
8.19 Delivery of SEC Compliance Documents. JWCFS will deliver to Genesis
------------------------------------
and each of the Genesis Members copies of the SEC Compliance Documents within 5
business days of the initial filing of such documents with the Commission.
8.20 Nonsolicitation Agreements. Contemporaneously with the Closing of
--------------------------
this Agreement, the Genesis employees listed in ANNEX F attached hereto will
each execute and deliver to Newco a Nonsolicitation Agreement, the form of which
is attached hereto as Exhibit J.
8.21 Distribution To Genesis Members. Not later than 60 days after the
-------------------------------
Closing Date, Genesis will distribute to the Genesis Members their allocable
share of the members' capital of Genesis as of the Closing Date which is in
excess of the Minimum Balance Sheet Amount.
8.22 Newco Common Stock Deliverable to Putnam, Lovell & Thornton. If
-----------------------------------------------------------
instructed by Genesis and the Genesis Members in accordance with the provisions
of Section 2.4(a) to deliver a portion of the Genesis Members' Newco Common
Stock to Putnam, Lovell, & Thornton, Newco shall deliver such shares of Newco
Common Stock to Putnam, Lovell & Thornton and reduce, on a pro rata basis in
accordance with their respective ownership of such Genesis Membership Interests
as set forth on ANNEX C (without a corresponding decrease in the Escrowed
Shares), the number of shares of Newco Common Stock allocable to each Genesis
Member.
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ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations and Warranties. All of the provisions of
------------------------------------------
this Agreement will survive the Closing and the Effective Time indefinitely
notwithstanding any investigation at any time made by or on behalf of any party
hereto, provided that the representations and warranties set forth in Articles
3, 4, and 5 and in any certificate delivered in connection herewith with respect
to any of those representations and warranties will terminate and expire on the
first anniversary of the Effective Time, except as follows: (a) the
representations and warranties that relate expressly or by necessary implication
to the representation in the first sentence of Section 4.13(a) that Genesis is
taxable as a partnership for income tax purposes ("Partnership Tax Status") will
survive until the expiration of the applicable statutes of limitations
(including all periods of extension and tolling); and (b) the representation and
warranties of Sections 3.2 and 3.3 shall survive indefinitely. After a
representation and warranty has terminated and expired, no indemnification or
other claim for indemnity, Damages or otherwise, will or may be sought pursuant
to this Article 9 or otherwise on the basis of that representation and warranty,
unless prior to such termination and expiration a claim therefor had been
presented in writing by the Person seeking indemnification pursuant to this
Article 9 on the basis of that representation and warranty.
9.2 Indemnification of Seller Indemnified Parties.
---------------------------------------------
Subject to the provisions of Sections 9.1 and 9.6, the Genesis Members covenant
and agree that they, jointly and severally, will indemnify each Seller
Indemnified Party against, and hold each Seller Indemnified Party harmless from
and in respect of, all Damages Claims that arise from, are based on, or relate
or otherwise are attributable to (i) any breach of the representations and
warranties of Genesis set forth in Article 4 or in certificates delivered in
connection herewith, (ii) any nonfulfillment of any covenant or agreement on the
part of Genesis under this Agreement, or (iii) any liability under the
Securities Act, the Exchange Act, or other applicable Governmental Requirement
that arises out of or is based on (A) any untrue statement or alleged untrue
statement of a material fact relating to Genesis, any Genesis Subsidiary, or any
Genesis Member that is (1) provided to JWCFS or Newco or its counsel by Genesis
or the Genesis Members, and (2) contained in any Form S-4 Document, or (B) any
omission or alleged omission to state therein a material fact relating to
Genesis, any Genesis Subsidiary, or the Genesis Members required to be stated
therein or necessary to make the statements therein not misleading, and not
provided to JWCFS or Newco by Genesis or the Genesis Members (each such Damages
Claim being a "Seller Indemnified Loss").
(b) Subject to the provisions of Section 9.6, each Genesis Member,
severally and not jointly with any other Person, covenants and agrees that he
will indemnify each Seller Indemnified Party against, and hold each Seller
Indemnified Party harmless from and in respect of, all Damages Claims that arise
from, are based on, or relate or otherwise
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are attributable to (i) any breach of the representations and warranties of that
Genesis Member, solely as to that Genesis Member, set forth in Article 3 or in
certificates delivered by that Genesis Member and relating to those
representations and warranties, (ii) any nonfulfillment of any several, and not
joint and several, agreement on the part of that Genesis Member under this
Agreement, or (iii) any liability under the Securities Act, the Exchange Act, or
other applicable Governmental Requirement that arises out of or is based on (A)
any untrue statement or alleged untrue statement of a material fact relating
solely to that Genesis Member that is (1) provided in writing to JWCFS or Newco
or its counsel by that Genesis Member for purpose of inclusion in the Form S-4
Document and (2) contained in any Form S-4 Document, or (B) any omission or
alleged omission to state therein a material fact relating solely to that
Genesis Member required to be stated therein or necessary to make the statements
therein not misleading, and not provided to JWCFS or Newco or its counsel by
that Genesis Member (each such Damages Claim being a "Genesis Member Indemnified
Loss"); notwithstanding any other provision of this Agreement, any Damages Claim
against a Genesis Member pursuant to a breach of a representation, covenant or
warranty contained in Article 3 shall be recoverable from such Member from the
first dollar of loss, up to an amount equal to the consideration (valued as of
the Effective Time) received by such Genesis Member in the LLC Exchange, first
from such Genesis Members' pro rata share of the Escrowed Shares and then from
such Genesis Member. In no event shall a Genesis Member's liability exceed an
amount equal to the consideration (valued as of the Effective Time) received by
such Genesis Member in the LLC Exchange.
9.3 Indemnification of JWCFS Indemnified Parties. JWCFS covenants
--------------------------------------------
and agrees that it will indemnify each JWCFS Indemnified Party against, and hold
each JWCFS Indemnified Party harmless from and in respect of, all Damages Claims
that arise from, are based on, or relate or otherwise are attributable to
(i) any breach by JWCFS or, if applicable, Newco of its representations and
warranties set forth herein or in its certificates delivered to Genesis or the
Genesis Members in connection herewith, (ii) any nonfulfillment of any covenant
or agreement on the part of JWCFS or, if applicable, Newco under this Agreement
(each such Damages Claim being an "JWCFS Indemnified Loss"); or (iii) any
liability under the Securities Act, the Exchange Act, or other applicable
Governmental Requirement that arises out of or is based on (A) any untrue
statement or alleged untrue statement of a Material fact relating to JWCFS or
any JWCFS Subsidiary (other than Genesis prior to the Effective Time) contained
in the Registration Statement or any prospectus forming a part thereof, or any
amendment thereof or supplement thereto, or (B) any omission or alleged omission
to state therein a Material fact relating to JWCFS any JWCFS Subsidiary (other
than Genesis prior to the Effective Time) required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made.
9.4 Conditions of Indemnification. All claims for indemnification
-----------------------------
under this Agreement shall be asserted and resolved as follows in this
Section 9.4:
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(a) A party claiming indemnification under this Agreement (an
"Indemnified Party") shall promptly (i) notify the party from whom
indemnification is sought (the "Indemnifying Party") of any third-party claim or
claims asserted against the Indemnified Party ("Third Party Claim") that could
give rise to a right of indemnification under this Agreement (ii) transmit to
the Indemnifying Party a written notice ("Claim Notice") describing in
reasonable detail the nature of the Third Party Claim, a copy of all papers
served with respect to that claim (if any), an estimate of the amount of Damages
attributable to the Third Party Claim to the extent feasible (which estimate
shall not be conclusive of the final amount of such claim), and the basis for
the Indemnified Party's request for indemnification under this Agreement. Except
as set forth in Section 9.1, the failure to promptly deliver a Claim Notice
shall not relieve the Indemnifying Party of its obligations to the Indemnified
Party with respect to the related Third Party Claim, except to the extent that
the resulting delay is materially prejudicial to the defense of that claim.
Within 30 days after receipt of any Claim Notice (the "Election Period"), the
Indemnifying Party shall notify the Indemnified Party whether the Indemnifying
Party disputes its potential liability to the Indemnified Party under this
Article 9 with respect to that Third Party Claim and, if the Indemnifying Party
does not dispute its potential liability to the Indemnified Party with respect
to that Third Party Claim, whether the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend the Indemnified Party
against that Third Party Claim.
(b) If the Indemnifying Party does not dispute its potential liability
to the Indemnified Party and notifies the Indemnified Party within the Election
Period that the Indemnifying Party elects to assume the defense of the Third
Party Claim, then the Indemnifying Party shall have the right to defend, at its
sole cost and expense, that Third Party Claim by all appropriate proceedings,
which proceedings shall be prosecuted diligently by the Indemnifying Party to a
final conclusion or settled at the discretion of the Indemnifying Party in
accordance with this Section 9.4(b) and the Indemnified Party will furnish the
Indemnifying Party with all information in its possession with respect to that
Third Party Claim and otherwise cooperate with the Indemnifying Party in the
defense of that Third Party Claim; provided, however, that the Indemnifying
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Party shall not enter into any settlement with respect to any Third Party Claim
that purports to limit the activities of, or otherwise restricts in any way, any
Indemnified Party or any Affiliate of any Indemnified Party without the prior
consent of that Indemnified Party (which consent may be withheld in the sole
discretion of that Indemnified Party). The Indemnified Party is hereby
authorized, at the sole cost and expense of the Indemnifying Party, to file,
during the Election Period, any motion, answer, or other pleadings that the
Indemnified Party shall deem necessary or appropriate to protect its interests.
The Indemnified Party may participate in, but not control, any defense or
settlement of any Third Party Claim controlled by the Indemnifying Party
pursuant to this Section 9.4(b) and will bear its own costs and expenses with
respect to that participation; provided, however, that if the named parties to
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any such action (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party, and the Indemnified Party has been advised by
counsel that there may be one or more legal defenses available
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to it that are different from or additional to those available to the
Indemnifying Party, then the Indemnified Party may employ separate counsel at
the expense of the Indemnifying Party, and, on its written notification of that
employment, the Indemnifying Party shall not have the right to assume or
continue the defense of such action on behalf of the Indemnified Party.
(c) If the Indemnifying Party (i) within the Election Period (A) disputes
its potential liability to the Indemnified Party under this Article 9, (B)
elects not to defend the Indemnified Party pursuant to Section 9.4(a) or (c)
fails to notify the Indemnified Party that the Indemnifying Party elects to
defend the Indemnified Party pursuant to Section 9.4(b) or (ii) elects to defend
the Indemnified Party pursuant to Section 9.4(b) but fails to prosecute
diligently and promptly or otherwise dispose of or settle the Third Party Claim,
then the Indemnified Party shall have the right to defend, at the sole cost and
expense of the Indemnifying Party (if the Indemnified Party is entitled to
indemnification hereunder), the Third Party Claim by all appropriate
proceedings, which proceedings shall be promptly and vigorously prosecuted by
the Indemnified Party to a final conclusion or settled. The Indemnified Party
shall have full control of such defense and proceedings. Notwithstanding the
foregoing, if the Indemnifying Party has delivered a written notice to the
Indemnified Party to the effect that the Indemnifying Party disputes its
potential liability to the Indemnified Party under this Article 9 and if such
dispute is resolved in favor of the Indemnifying Party, the Indemnifying Party
shall not be required to bear the costs and expenses of the Indemnified Party's
defense pursuant to this Section 9.4 or of the Indemnifying Party's
participation therein at the Indemnified Party's request, and the Indemnified
Party shall reimburse the Indemnifying Party in full for all reasonable costs
and expenses of such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this Section 9.4(c), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
(d) If any Indemnified Party has a claim against any Indemnifying Party
hereunder that does not involve a Third Party Claim, the Indemnified Party shall
transmit to the Indemnifying Party a written notice (the "Indemnity Notice")
describing in reasonable detail the nature of the claim, an estimate of the
amount of Damages attributable to that claim to the extent feasible (which
estimate shall not be conclusive of the final amount of such claim), and the
basis of the Indemnified Party's request for indemnification under this
Agreement. If the Indemnifying Party does not notify the Indemnified Party
within 30 days from its receipt of the Indemnity Notice that the Indemnifying
Party disputes such claim, the claim specified by the Indemnified Party in the
Indemnity Notice shall conclusively be deemed a liability of the Indemnifying
Party hereunder. If the Indemnifying Party has timely disputed such claim, as
provided above, such dispute may be resolved by proceedings in an appropriate
court of competent jurisdiction if the parties do not reach a settlement of such
dispute within 30 days after notice of a dispute is given.
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(e) Payments of all amounts owing by an Indemnifying Party pursuant to
this Article 9 relating to a Third Party Claim shall be made within 30 days
after the latest of (i) the settlement of that Third Party Claim, (ii) the
expiration of the period for appeal of a final adjudication of that Third Party
Claim, or (iii) the expiration of the period for appeal of a final adjudication
of the Indemnifying Party's liability to the Indemnified Party under this
Agreement. Payments of all amounts owing by an Indemnifying Party pursuant to
Section 9.4(d) shall be made within 30 days after the later of (i) the
expiration of the 30-day Indemnity Notice period or (ii) the expiration of the
period for appeal of a final adjudication of the Indemnifying Party's liability
to the Indemnified Party under this Agreement.
9.5. Limitation on Remedies. The remedies provided in this Agreement
----------------------
shall not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity but shall be exclusive with
respect to any Claim arising out of this Agreement or any transaction
contemplated by this Agreement.
9.6. Limitations on Indemnification.
------------------------------
(a) Notwithstanding the provisions of Section 9.2, no Genesis Member
shall be required to pay any indemnification under Section 9.2(a) or 9.2(b)
until the aggregate liability of the Genesis Members in respect of all Seller
Indemnified Losses and Genesis Member Indemnified Losses exceeds, and only to
the extent the aggregate amount does exceed, the Threshold Amount. In no event
shall (i) the aggregate of (A) the joint and several liability of the Genesis
Members under Section 9.2(a), and (B) the several liability of the Genesis
Members under Section 9.2(b), except as expressly provided in Section 9.2(b)
with respect to the Article 3 representations, exceed an amount equal to the
closing sales price of the Newco Common Stock to be received on the Closing Date
as listed on the AMEX (or the price of JWCFS Common Stock if Newco Common Stock
is not yet trading) times ten percent of the number of shares of Newco Common
Stock received by Genesis Members in the LLC Exchange (the "Indemnification
Limit"), and (ii) the aggregate liability of any Genesis Member exceed that
Genesis Member's Pro Rata Share of the Indemnification Limit (as set forth in
ANNEX C hereto); provided, however, any and all recovery (except as expressly
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set forth in Section 9.2(b) with respect to the Article 3 representations) shall
be limited to the Escrowed Shares, except with respect to any damage claim
properly made with respect to Section 3.2 or 3.3 and the representations with
respect to Partnership Tax Status after release of shares from the Escrow
Account. For purposes of determining the amount of any Seller Indemnified Loss
or Genesis Member Indemnified Loss, no effect will be given to any resulting Tax
benefit to any Seller Indemnified Party. Notwithstanding anything to the
contrary set forth elsewhere in this Agreement, no Genesis Member shall have any
personal liability (nor shall such Member's share of the Escrowed Shares be a
source of recovery for) any breach of any representation, warranty or covenant
by any other Genesis Member.
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(b) Notwithstanding the provisions of Section 9.3, JWCFS shall not be
required to pay any indemnification to any of the JWCFS Indemnified Parties
until the aggregate liability of JWCFS in respect of all JWCFS Indemnified
Losses, exceeds, and only to the extent the aggregate amount does exceed, the
Threshold Amount. In no event shall JWCFS be liable under this Agreement,
including Section 9.3, for any amount in excess of the Indemnification Limit.
For purposes of determining the amount of JWCFS Indemnified Losses, no effect
will be given to any resulting Tax benefit to any JWCFS Indemnified Party.
ARTICLE 10
CLOSING AND CONDITIONS PRECEDENT
10.1 Closing.
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10.1.1 Time and Place of Closing. The transactions contemplated herein
shall be consummated (the "Closing") at the offices of Kilpatrick Stockton LLP,
or such other place that the parties mutually agree upon, as soon as practicable
after approval of the Share Exchange by the JWCFS Shareholders as contemplated
by Section 8.12 hereof, such date (the "Closing Date") to be mutually agreed
upon by the parties hereto, but in any event to be not later than June 30, 1998.
Articles of Share Exchange (including a copy of the Plan of Share Exchange)
shall be filed in the State of Florida not later than the Closing Date, and the
Share Exchange shall become effective as provided in the Plan of Share Exchange.
10.1.2 Exchange of Other Closing Documents. The closing certificates,
documents, opinions of counsel, and other instruments to be delivered and
actions to be taken pursuant to this Agreement to effectuate the Combination,
and not previously so delivered or taken, shall be delivered or taken at the
Closing.
10.2 Conditions Precedent to the Obligations of JWCFS and Newco. All of
----------------------------------------------------------
the obligations of JWCFS and Newco under this Agreement are subject to the
fulfillment or waiver prior to or at the Closing of each of the following
conditions:
10.2.1 Accuracy of Representations and Warranties. The representations and
warranties of Genesis and the Genesis Members contained herein or in any
certificate, schedule, or other document delivered pursuant to the provisions
hereof or in connection herewith shall be true and correct as of the Closing
Date with the same effect as though such representations and warranties had been
made at the Closing Date, except to the extent such representations and
warranties expressly relate only to an earlier date, and except for changes
expressly approved by JWCFS.
10.2.2 Compliance with Obligations and Conditions. Genesis and the
Genesis Members shall have performed each of its or their obligations and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by
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it or them prior to or at the Closing, including any obligation of Genesis or a
Genesis Member contemplated by a condition referred to in this Section 10.2.
10.2.3 Closing Documents. Genesis shall have delivered to JWCFS and
Newco:
(a) Certifications from at least 90% of the holders of Voting
Membership Interests of the Genesis Members authorizing the proper officers of
Genesis to effect a transfer of all of their outstanding Membership Interests of
Genesis to Newco in exchange for Newco Stock.
(b) Certificates executed by the President and the Chief
Financial Officer of Genesis, dated the Closing Date, and certifying in such
detail as JWCFS may reasonably request to the fulfillment of the conditions
specified in Sections 10.2.1 and 10.2.2 hereof;
(c) Duly adopted resolutions of the Genesis Members and Board of
Directors, certified by the Secretary or an Assistant Secretary of Genesis as of
the Closing Date, (i) authorizing and approving the execution and delivery of
this Agreement and the LLC Exchange on behalf of Genesis, and the consummation
of the transactions contemplated herein and therein in accordance with their
respective terms, and (ii) authorizing and approving all other necessary and
proper corporate actions to enable Genesis to comply with the terms hereof;
(d) A Certificate of the Secretary of State of California, dated
a Current Date, as to the legal existence and good standing of Genesis under
California law;
(e) Certificates from the Secretary of State of each jurisdiction
in which Genesis is required to be qualified as a foreign corporation for the
transaction of business, dated a Current Date, as to the due qualification and
good standing of Genesis under the laws of such jurisdiction; and
(f) An opinion of Feldman, Waldman & Kline, counsel for Genesis,
dated the Closing Date, substantially in the form set forth as EXHIBIT H, with
such modifications as shall be reasonably acceptable to legal counsel for JWCFS.
(g) Fully paid up key man term life insurance policies, owned by
and in the name of Genesis, insuring the lives of Messrs. Will K. Weinstein and
Stapleton with a death payout of $3,500,000 and $600,000, respectively.
10.2.4 Genesis Consents and Approvals. Genesis shall have obtained and
delivered to JWCFS and Newco the consent of any Person to the transactions
contemplated by this Agreement (including any consents or approvals required
from any Governmental Authority and any required approval of the NYSE), where
such consent or approval is required for effective consummation of the
Combination.
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10.2.5 Securities Law Compliance as to Genesis Members. Genesis shall
have delivered to JWCFS and Newco an agreement of the Genesis Members in form
and substance reasonably satisfactory to JWCFS with respect to such persons
eligibility to be issued shares of Newco Common Stock in exchange for their
Genesis Membership Interests without the registration of such issuance under the
Securities Act and any applicable state laws.
10.2.6 No Dissenting Genesis Members. No Genesis Member shall have
exercised any statutory or other right to dissent from the LLC Exchange and
receive payment in cash for any Genesis Membership Interest.
10.2.7 Tax Opinion. JWCFS shall have received an opinion from Kilpatrick
Stockton LLP in form and substance reasonably satisfactory to JWCFS, to the
effect that: (a) the Combination and the issuance of shares of Newco Common
Stock in connection therewith, as described herein will constitute a
nonrecognition transaction under Section 351 of the Code with respect to the
JWCFS Shareholders; (b) no gain or loss will be recognized by JWCFS Shareholders
upon the exchange of JWCFS Common Stock solely for Newco Common Stock in
connection with the Combination; and (c) the tax basis of Newco Common Stock
received by JWCFS Shareholders pursuant to the Combination will be the same as
the tax basis of JWCFS Common Stock exchanged therefor.
10.2.8 Schedules and Due Diligence. Genesis shall have delivered to JWCFS
not later than January 31, 1998, the Schedules to this Agreement to be delivered
by Genesis (the "Genesis Disclosure Schedules"), and JWCFS, based on its review
of the Genesis Disclosure Schedules and other due diligence reviews and
examinations of information about Genesis and its business (whether or not
included as part of the Genesis Disclosure Schedules), shall not have informed
Genesis in writing by February 15, 1998 that JWCFS in good faith is dissatisfied
with information learned about Genesis and that JWCFS wishes to terminate this
Agreement.
10.2.9 SEC Compliance Documents. The Form S-4 Registration Statement for
the issuance of shares of Newco Common Stock to JWCFS Shareholders in the Share
Exchange shall have become effective, and no stop order suspending the
effectiveness thereof or other action preventing the use thereof for that
purpose shall have been issued and be in effect, and the Commission shall not
have initiated or threatened to initiate Litigation for that purpose.
10.2.10 AMEX Listing. The shares of Newco Common Stock to be outstanding,
covered by outstanding options, purchase rights, or warrants, or covered by
Newco Option Plans upon effectiveness of the Combination, shall have been
approved for listing upon issuance on the AMEX.
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10.2.11 Employment Agreement Matters. The agreements with respect to the
existing and future employment and compensation arrangements for Messrs. Leeds,
Marks, Weinstein, and Stapleton contemplated by Sections 8.2 through 8.6 shall
be performed as and to the extent required hereby to be performed as of the
Closing.
10.2.12 Shareholder Approval. The holders (a) a majority of the
outstanding shares of JWCFS Common Stock entitled to vote thereon shall have
voted in favor of approval of the Share Exchange and (b) a majority of the
shares of JWCFS Common Stock voting thereon shall have voted in favor of each
other matter required to be submitted for a shareholders' vote thereon in
connection with the consummation of the Share Exchange or the Combination.
10.2.13 Certain Financial Performance Matters. Genesis shall deliver an
unaudited balance sheet of Genesis, prepared in accordance with GAAP and
Regulation S-X of the Commission, without footnotes, certified by the Chief
Financial Officer of Genesis and dated not earlier than five business days
immediately preceding the Closing Date (the "Genesis Combination Balance
Sheet"), which shall reflect members' capital (which shall not include as
capital any amounts allocable to the Class C and Class D members of Genesis) of
at least (a) $3,000,000, no part of which shall be goodwill, plus (b) an amount
equal to 37.5% of the net income of Genesis for the period beginning January 1,
1998 and ending on the Closing Date (the "Minimum Balance Sheet Amount"),
provided that for the purpose of calculating Genesis net income, no expenses
attributable to the negotiation and carrying out of the transactions
contemplated by this Agreement shall be deducted from gross income and in no
event shall the Minimum Balance Sheet Amount be less than $3,000,000. In
addition, the audited statement of operations of Genesis for the year ended
December 31, 1997 shall reflect net income of at least $3,800,000. JWCFS shall
have received from Genesis a certificate of the Chief Financial Officer of
Genesis dated the Closing Date stating that as of the Closing Date the members'
capital of Genesis on the Closing Date is at least equal to the Minimum Balance
Sheet Amount reflected on the Genesis Combination Balance Sheet.
10.2.14 Accountants' Letters. JWCFS shall have received from Lallman,
Feltman, Shelton & Peterson, P.A., letters dated not more than five days prior
to (a) the date of the filing or effectiveness, as the case may be, of each SEC
Compliance Document and (b) the Effective Time, in each such case with respect
to financial information regarding Genesis included in such SEC Compliance
Document, in form and substance that is customary in such letters in connection
with transactions of the nature contemplated by this Agreement.
10.2.15 HSR Act Matters. If JWCFS shall determine that filings pursuant
to and under the HSR Act are necessary or appropriate in connection with the
effectuation of this Agreement, and shall advise Genesis of that determination,
Genesis and the Genesis Members will promptly compile and file under the HSR Act
such information respecting it as the HSR Act requires of Genesis or the Genesis
Members, and the expiration or
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termination of the applicable waiting period and any extension thereof under the
HSR act shall be deemed a condition precedent to the Closing.
10.2.16 Maintenance of Two Members of Genesis. At the election of JWCFS
and Newco: (a) Genesis shall have taken the actions contemplated by Section 2.9
hereof in order to permit the LLC Georgia Merger to become effective
simultaneously with the LLC Exchange; (b) the Genesis Members shall have caused
their Membership Interests to be conveyed in the LLC Exchange to Newco and a
designated Newco Affiliate rather than solely to Newco; or (c) an Affiliate of
Newco shall have received a Special Continuing Genesis Interest.
10.2.17 JWCFS Consents and Approvals. JWCFS shall have received any and
all consents and approvals to this transaction required pursuant to the terms of
contracts or agreements to which JWCFS is a party on the date of this Agreement
and which are referred to in Schedule 6.5.
10.3 Conditions Precedent to the Obligations of Genesis and the Genesis
------------------------------------------------------------------
Members. All of the obligations of Genesis and the Genesis Members under this
- -------
Agreement are subject to the fulfillment or waiver prior to or at the Closing of
each of the following conditions:
10.3.1 Accuracy of Representations and Warranties. The representations
and warranties of JWCFS and Newco contained herein or in any certificate,
schedule, or other document delivered pursuant to the provisions hereof, or in
connection herewith, shall be true and correct as of the Closing Date with the
same effect as though such representations and warranties had been made as of
the Closing Date, except to the extent such representations and warranties
expressly relate only to an earlier date, and except for changes contemplated by
this Agreement or approved by Genesis.
10.3.2 Compliance with Obligations and Conditions. JWCFS and Newco shall
have performed each of its or their respective obligations and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by it or them prior to or at the Closing, including any obligation of JWCFS
or Newco contemplated by a condition referred to in this Section 10.3.
10.3.3 Certain Closing Documents. JWCFS or Newco, as the case may be,
shall have delivered to Genesis:
(a) Certificates executed by the President and the Chief
Financial Officer of JWCFS, dated the Closing Date, and certifying in such
detail as Genesis may reasonably request to the fulfillment of the conditions
specified in Sections 10.3.1 and 10.3.2 hereof;
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(b) Duly adopted resolutions of the respective Boards of
Directors of JWCFS and Newco, certified by the Secretary or an Assistant
Secretary of JWCFS or Newco, as the case may be, as of the Closing Date, (i)
authorizing and approving the execution and delivery of this Agreement and the
Share Exchange on behalf of JWCFS or Newco, as the case may be, and the
consummation of the transactions contemplated herein and therein in accordance
with their respective terms, and (ii) authorizing and approving all other
necessary and proper corporate actions to enable JWCFS or Newco, as the case may
be, to comply with the terms hereof;
(c) A certificate of the Secretary or an Assistant Secretary of
JWCFS confirming the approval of the Share Exchange by the holders of a majority
of the outstanding shares of JWCFS Common Stock;
(d) A certificate from the Secretary of State of the State of
Florida, dated a Current Date, as to the legal existence and good standing of
JWCFS and Newco under the laws of Florida;
(e) Certificates from the Secretary of State of each jurisdiction
in which JWCFS is required to be qualified as a foreign corporation for the
transaction of business, dated a Current Date, as to the due qualification and
good standing of JWCFS under the laws of such jurisdiction; and
(f) An opinion of Kilpatrick Stockton LLP, counsel for JWCFS,
dated the Closing Date, substantially in the form set forth as Exhibit I, with
such modifications as shall be reasonably acceptable to legal counsel for
Genesis.
10.3.4 Tax-Free Reorganization. Genesis shall have received reasonable
assurance (other than a ruling from the Internal Revenue Service) that the
Combination will constitute a nonrecognition transaction within the meaning of
Section 351 of the Code, including an opinion of Kilpatrick Stockton LLP
addressed to Genesis with respect to the matters addressed in Section 10.2.7
hereof.
10.3.5 Consents and Approvals. JWCFS and Newco shall have obtained and
delivered copies thereof to Genesis the consent of any Person to the
transactions contemplated by this Agreement (including any consents or approvals
required from any Governmental Authority), where such consent or approval is
required for effective consummation of the Combination.
10.3.6 Employment Agreement Matters. The agreements with respect to the
existing and future employment arrangements for Messrs. Leeds, Marks, Weinstein,
and Stapleton contemplated by Sections 8.2 through 8.6 shall be performed as and
to the extent required hereby as of the Closing.
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10.3.7 Schedules and Due Diligence. JWCFS shall have delivered to Genesis
not later than January 31, 1998, the Schedules to be delivered by JWCFS (the "
JWCFS Disclosure Schedules"), and Genesis, based on its review of the JWCFS
Disclosure Schedules and other due diligence reviews and examinations of
information about JWCFS and its business (whether or not included as part of the
JWCFS Disclosure Schedules), shall not have informed JWCFS in writing by
February 15, 1998 that Genesis in good faith is dissatisfied with information
learned about JWCFS and that Genesis wishes to terminate this Agreement.
10.3.8 Member Transfer. The holders of at least 90% of the outstanding
Genesis Voting Membership Interests shall have effected the transfer of their
Genesis Membership Interests in the LLC Exchange.
10.3.9 Shareholder Approval. The holders (a) a majority of the outstanding
shares of JWCFS Common Stock entitled to vote thereon shall have voted in favor
of approval of the Share Exchange and (b) a majority of the shares of JWCFS
Common Stock voting thereon shall have voted in favor of each other matter
required to be submitted for a shareholders' vote thereon in connection with the
consummation of the Share Exchange or the Combination.
10.3.10 AMEX Listing. The shares of Newco Common Stock to be outstanding,
covered by outstanding options, purchase rights, or warrants, or covered by
Newco Option Plans upon effectiveness of the Combination, shall have been
approved for listing upon issuance on the AMEX.
ARTICLE 11
TERMINATION
To the extent and under the circumstances set forth in the following Sections
of this Article 11, this Agreement may be terminated, and the Combination may be
abandoned, at any time by Genesis or JWCFS, prior to the Effective Time, before
or after the approval thereof by the JWCFS Shareholders or the Genesis Members,
upon written notice to the other party:
11.1 Material Adverse Change to Genesis. By JWCFS, if a material adverse
----------------------------------
change in the financial condition or business of Genesis, considered as a whole,
shall have occurred, or Genesis shall have suffered a material loss or damage to
any of its properties or assets, which loss or damage materially adversely
affects or impairs the ability of to conduct such business after the
Combination.
11.2 Material Adverse Change to JWCFS. By Genesis, if a material adverse
--------------------------------
change in the financial condition or business of JWCFS, considered as a whole,
shall have occurred, or JWCFS shall have suffered a material loss or damage to
any of its properties or
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assets, which loss or damage materially and adversely affects or impairs the
ability of Newco to conduct such business after the Combination.
11.3 Non-Compliance by Genesis or Genesis Members. By JWCFS, if the terms,
--------------------------------------------
covenants, or conditions of this Agreement to be complied with or performed by
Genesis or any Genesis Member at or before the Closing shall not by that time
have been complied with or performed and such non-compliance or non-performance
shall not have been waived by JWCFS in writing or by means of the election
described in the last sentence of Section 11.7 hereof.
11.4 Non-Compliance by JWCFS or Newco. By Genesis, if the terms,
--------------------------------
covenants, or conditions of this Agreement to be complied with or performed by
JWCFS or Newco at or before the Closing shall not by that time have been
complied with or performed and such non-compliance or non-performance shall not
have been waived by Genesis in writing or by means of the election described in
the last sentence of Section 11.7 hereof.
11.5 Litigation Regarding the Combination. By the Board of Directors of
------------------------------------
either Genesis or JWCFS, if there shall be pending against Genesis, Newco, or
JWCFS, or threatened in a writing received by either party, any Litigation
seeking or threatening to seek to enjoin the Combination, or to obtain material
damages or the payment of material penalties if the Combination is consummated;
provided, however, that the Board of Directors or the Executive Committee of the
- -------- -------
party seeking to terminate this Agreement on that basis (a) shall have received
a written opinion of its counsel, within thirty (30) days after the institution
or threat of such Litigation to the effect that, after reasonable investigation
and based on facts available to such counsel, such Litigation (whether directed
at such party or another party) has a reasonable probability of success, and (b)
shall have on a reasonable basis determined that the payment of such damages or
penalties would materially and adversely affect the business, assets, results of
operations, financial condition, or prospects of the party against whom such
damages or penalties would be assessed. Genesis and JWCFS (on behalf of itself
and Newco) each shall promptly notify the other of any Litigation of the type
that is the subject of this Section 11.5 that is commenced or threatened against
such party.
11.6 Requirements and Effect of Termination. Upon any termination of this
--------------------------------------
Agreement pursuant to any of SECTIONS 11.1 through 11.5, no party hereto shall
have any liability or further obligation to any other party, except to the
extent provided in Sections 8.8 and 8.15.
11.7 Election to Close Despite Failure to Satisfy Conditions. If any of
-------------------------------------------------------
the conditions specified in Section 10.2 hereof has not been satisfied, JWCFS
may nevertheless, at its election, proceed with the transaction contemplated
hereby; and, if any of the conditions specified in Section 10.3 hereof has not
been satisfied, Genesis may nevertheless, at the election of Genesis, proceed
with the transactions contemplated hereby.
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If either Genesis or JWCFS shall have notified the other party in writing of an
occurrence that will cause a condition precedent to the obligations of the
notified party hereunder to close not to be satisfied (and such condition
precedent is identified by number in such notice), including without limitation
a change in circumstances or discovery of information not previously known to
the notifying party that would make any representation or warranty by the
notifying party in this Agreement not true as at the Closing Date (and such
representation or warranty is identified by number in such notice), then an
election by the notified party to proceed with the Closing despite a failure by
the notifying party to satisfy the conditions to this Agreement shall constitute
a waiver by the notified party of any right it may have as a result of the
notifying party's breach of any representation, warranty, covenant, or agreement
contained in this Agreement.
11.8 Other Acquisition Proposals; Failure to Receive Fairness Opinion. By
----------------------------------------------------------------
the Board of Directors of JWCFS, upon two days' prior notice to Genesis, if, (a)
as a result of an Acquisition Proposal by a Person other than Genesis or Newco,
the Board of Directors of JWCFS determines, after receipt of advice from legal
counsel to JWCFS, that the failure by JWCFS to accept such proposal could cause
the Board of Directors to violate its fiduciary duties to the shareholders of
JWCFS under applicable law, or (b) if JWCFS shall be unable to obtain from an
independent investment banking firm an opinion to the effect that the Share
Exchange and the Combination as a whole are fair, from a financial point of
view, to the shareholders of JWCFS.
11.9 Review of SEC Compliance Documents. By the Executive Committee of
----------------------------------
Genesis, upon written request from a Genesis Member made within seven (7)
business days of delivery to the Genesis Members of the SEC Compliance Documents
as provided in Section 8.19 if such Genesis Member objects to consummation of
the LLC Exchange as a result of reviewing the SEC Compliance Documents and
Genesis and JWCFS do not otherwise agree upon a resolution of such Genesis
Member's objection.
11.10 Extended Delay of Combination. By the Board of Directors of JWCFS or
-----------------------------
Newco or by the Executive Committee of Genesis if the Combination shall not have
become effective by June 30, 1998.
11.11 JWCFS Dissenters. By Genesis, if the holders of more than 10% of the
----------------
outstanding shares of JWCFS Common Stock elect to exercise any applicable right
to dissent from the Share Exchange and demand payment of the fair value of their
shares.
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<PAGE>
ARTICLE 12
GENERAL AND MISCELLANEOUS
12.1 Notices, Etc. All notices required or permitted hereunder shall be in
------------
writing, and shall be deemed to be delivered and received (a) if personally
delivered or, if delivered by telegram, facsimile, or courier service, when
actually received by the party to whom notice is sent (or upon confirmation of
receipt received by the sender), or (b) if delivered by mail (whether actually
received or not), at the close of business on the third business day next
following the day when placed in the mail, postage prepaid, certified or
registered, addressed to the appropriate party or parties, at the address of
such party set forth below (or at such other address as such party may designate
by written notice to all other parties in accordance herewith):
(a) If to JWCFS or Newco:
980 North Federal Highway
Suite 210
Boca Raton, Florida 33432
Attention: Marshall T. Leeds, President
With a copy to:
Kilpatrick Stockton LLP
1100 Peachtree Street
Suite 1100
Atlanta, Georgia, 30309
Attention: W. Randy Eaddy, Esq.
(b) If to Genesis:
909 Montgomery, Suite 600
San Francisco, California 94133
Attention: Will K. Weinstein, President
With a copy to:
Feldman, Waldman & Kline
3 Embarcadero Center
28th Floor
San Francisco, California 94111-4066
Attention: David L. Kanel, Esq.
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<PAGE>
(c) If to the Genesis Members then addressed and sent to each Genesis
Member set forth on ANNEX G.
With a copy to:
Feldman, Waldman & Kline
3 Embarcadero Center
28th Floor
San Francisco, California 94111-4066
Attention: David L. Kanel, Esq.
12.2 Entire Agreement. This Agreement, including the Annexes, Exhibits and
----------------
Schedules hereto, supersedes all prior discussions, understandings, term sheets,
and agreements of any sort by and among Genesis, the Genesis Members, and JWCFS
with respect to the Combination and the other matters contained herein or
contemplated hereby, and this Agreement constitutes the sole and entire
agreement by and among the parties hereto with respect to the transactions
contemplated herein.
12.3 Amendments; Modifications; Waivers. This Agreement may be amended or
----------------------------------
modified only by an instrument in writing executed by the party against whom
enforcement of the amendment or modification is sought. The President or any
Vice President of any party may by a signed writing give any consent, take any
action, waive any inaccuracies in representations or other compliance by any
other party to any of the covenants or conditions herein, modify the terms of
this Agreement, or take any other action deemed by him to be necessary or
appropriate to consummate the transactions contemplated by this Agreement;
provided, however, that no such consent, waiver (other than a waiver described
- -------- -------
in Section 11.7 hereof), modification, or other action given or taken after this
Agreement has been approved by the Genesis Members or the JWCFS Shareholders
shall (i) reduce the consideration payable to the Genesis Members in the
Combination, (ii) reduce substantially the rights or benefits of the JWCFS
Shareholders, or (iii) increase the indemnification obligation of any Genesis
Member.
12.4 Counterparts; Headings. This Agreement may be executed in any number
----------------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings set out
herein are for convenience of reference only and shall not be deemed a part of
this Agreement.
12.5 Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto and their respective successors, but it may
not be assigned by any party without the consent of the other.
12.6 Governing Law. This Agreement is made under, and shall be governed by
-------------
and construed and enforced in accordance with, the substantive laws of the State
of Florida without regard to the conflict of interests provisions thereto.
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<PAGE>
12.7 Further Assurances. Each party hereby agrees that it will, from time
------------------
to time, whether before or after the Closing, at any other party's reasonable
and good faith request and without further consideration, execute and deliver
such further and other transfers, assignments and documents and do all matters
and things that may be necessary or convenient to more effectively and
completely carry out the intentions of this Agreement.
12.8 Exercise of Rights and Remedies. Except as otherwise provided herein,
-------------------------------
no delay or omission in the exercise of any right, power, or remedy accruing to
any party hereto as a result of any breach or default hereunder by any other
party hereto shall impair any such right, power, or remedy, nor shall it be
construed, deemed, or interpreted as a waiver of or acquiescence in any such
breach or default, or of any similar breach or default occurring later; nor
shall any waiver of any single breach or default be construed, deemed, or
interpreted as a waiver of any other breach or default hereunder occurring
before or after that waiver.
12.9 Time. Time is of the essence in the performance of this Agreement in
----
all respects.
12.10 Restriction on Trading. Genesis and the Genesis Members agree that
----------------------
they will not trade (or cause or encourage any third party to trade), and
Genesis and the Genesis Members will use their respective best efforts to assure
that none of the Genesis Representatives will trade (or cause or encourage any
third party to trade), in the JWCFS Common Stock (or securities convertible into
or exercisable for shares of JWCFS Common Stock), while in possession of any
material non-public information concerning JWCFS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers and their corporate seals to be affixed, all as
of the day and year first above written.
(CORPORATE SEAL) "JWCFS"
JW CHARLES FINANCIAL SERVICES, INC.
Attest:
/s/ Joel E. Marks By: /s/ Marshall T. Leeds
- ----------------------------------- -----------------------------------
Secretary or Assistant Secretary Marshall T. Leeds, President
and Chief Executive Officer
(CORPORATE SEAL) "NEWCO"
JW GENESIS FINANCIAL CORP.
Attest:
/s/ Joel E. Marks By: /s/ Marshall T. Leeds
- ----------------------------------- -----------------------------------
Secretary or Assistant Secretary Marshall T. Leeds, President
and Chief Executive Officer
(SEAL) "GENESIS"
GENESIS MERCHANT GROUP SECURITIES
LLC
By: /s/ Philip C. Stapleton
-----------------------------------
Name: Philip C. Stapleton
Title: President
[Signature Blocks Continue on Following
Page]
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<PAGE>
"GENESIS MEMBERS"
THE WILL K. WEINSTEIN REVOCABLE
TRUST UNDER TRUST AGREEMENT DATED
FEBRUARY 27, 1990
By: /s/ Will K. Weinstein
------------------------------------
WILL K. WEINSTEIN, TRUSTEE
/s/ Philip C. Stapleton (Seal)
---------------------------------
PHILIP C. STAPLETON
/s/ Jeffrey H. Lehman (Seal)
---------------------------------
JEFFREY H. LEHMAN
/s/ Oded Levy (Seal)
---------------------------------
ODED LEVY
/s/ Harvey Morgan (Seal)
---------------------------------
HARVEY MORGAN
/s/ Erik C. Colberg (Seal)
---------------------------------
ERIK C. COLBERG
/s/ Mat J. Holscher (Seal)
---------------------------------
MATHEW J. HOLSCHER
/s/ Mark S. Scarmato (Seal)
---------------------------------
MARK S. SCARMATO
[Signature Blocks Continue on Following Page]
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<PAGE>
/s/ Barbara A. Yamanaka (Seal)
----------------------------------
BARBARA A. YAMANAKA
/s/ Adam P. Atherton (Seal)
----------------------------------
ADAM P. ATHERTON
[Signature Blocks Continue on Following Page]
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<PAGE>
SZRL Investments, an Illinois partnership
By: Samuel Zell Revocable Trust established
Under Trust Agreement dated January 17,
1990, General Partner
By: /s/ Samuel Zell
---------------------------------------
Samuel Zell, Trustee
By: Robert H. and Ann Lourie Trust established
Under Trust Agreement establishing The
Robert Lourie Revocable Trust dated
December 1989, General Partner
By: /s/ Mark Slezak
---------------------------------------
Mark Slezak, Trustee
[Signature Blocks Continue on Following Page]
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<PAGE>
N.F.P. TRUSTS NOS. 2, 4, 6, 8, 10, 12,
14, 16, 18, 20, AND 22
By: /s/ Robert A. Pritzker
---------------------------------------
Robert A. Pritzker, Co-Trustee
By: /s/ Jay A. Pritzker
---------------------------------------
Jay A. Pritzker, Co-Trustee
N.F.P. QSST TRUSTS NOS. 1, 3, 5, 7, 9,
11, 13, 15, 17, 19, AND 21
By: /s/ Robert A. Pritzker
---------------------------------------
Robert A. Pritzker, Co-Trustee
By: /s/ Jay A. Pritzker
---------------------------------------
Jay A. Pritzker, Co-Trustee
The agreement of the foregoing parties (collectively, the "N.F.P. Trusts")
to the Agreement and Plan of Combination, and to the First Amendment thereof, is
subject to acceptance of the following additional provisions to be made a part
of the Agreement and Plan of Combination by the other parties thereto:
1. With respect to the JWCFS Disclosure Schedules and the Genesis
Disclosure Schedules, the N.F.P. Trusts shall have the same rights to
receipt of the schedules and to approval granted to Genesis and JWCFS
in Sections 10.3.7 and 10.2.8, respectively.
2. When this Agreement is executed by the trustee of any trust, such
execution is by the trustee, not individually but solely as trustee in
the exercise of and under the power and authority conferred upon and
invested in such trustee, and it is expressly understood and agreed
that nothing herein contained shall be construed as creating any
liability on any such trustee personally to pay any amounts required
to be paid hereunder, or to perform any covenant, either express or
implied, contained herein, all such liability, if any, being expressly
waived by the parties hereto by their execution hereof.
[Signature Blocks Continue on Following Page]
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<PAGE>
/s/ Gail Seneca (Seal)
------------------------------------
GAIL SENECA
JB CAPITAL MANAGEMENT, INC.
By: /s/ Robert J. Puck
---------------------------------
Robert J. Puck, CFO
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Exhibit 10(f)
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.
J W CHARLES FINANCIAL SERVICES, INC.
980 North Federal Highway
Boca Raton, Florida 33432
AMENDED AND RESTATED
COMMON STOCK PURCHASE WARRANT
Date of Issuance: Right to Purchase
January 19, 1996 400,000 Shares
Expiration Date:
December 31, 2002
THIS CERTIFIES THAT, for value received, the person named
immediately below,
W T INVESTMENTS, INC.
or the registered assigns of such person (the "Registered
Holder"), is entitled to purchase from J W CHARLES 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:
"AFFILIATE" means any corporation directly under common
control with the Registered Holder.
"COMMISSION" means the Securities and Exchange Commission.
-3-<PAGE>
"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 number of shares of 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 (referring to the date of initial issuance of the
Old Warrant for which this Warrant is an amendment and
restatement), 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.
"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
-4-
<PAGE>
National Association of Securities Dealers, Inc. for over-the-
counter transactions in securities.
"OLD WARRANT" means that certain Common Stock Purchase
Warrant dated as of January 19, 1996 pursuant to which the
Company granted to W T Investments, Inc. the right to purchase,
subject to adjustments stated therein, up to 400,000 shares of
the Company's Common Stock.
"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" means this Warrant providing for the purchase of
up to 400,000 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.
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
(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
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<PAGE>
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.
3.
EXERCISE PRICE
3.1 GENERAL.
(a) The exercise price per Share shall be $11.30. 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
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<PAGE>
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, as it
has been or may be amended.
(iii) Any issuance of Common Stock as the payment
of all or part of the purchase price in connection
with the Company's acquisition of the business and
operations of another party.
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
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
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<PAGE>
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
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
-8-<PAGE>
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
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
-9-<PAGE>
the number of shares of Common Stock Deemed Outstanding
immediately prior to such dividend or other distribution,
subdivision, or combination and the denominator of which shall be
the number of shares of Common Stock Deemed 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
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.
-10-<PAGE>
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
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.
-11-<PAGE>
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
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
-12-<PAGE>
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
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
-13-
<PAGE>
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.
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.
-14-
<PAGE>
(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.
12.
MISCELLANEOUS
12.1 AMENDMENT, RESTATEMENT, AND CANCELLATION OF PREVIOUS
WARRANTS. Notwithstanding anything to the contrary contained or
implied herein or in the Old Warrant, and as set forth in that
certain letter from W T Investments, Inc. to the Company dated
February 6, 1998 whereby W T Investments, Inc. consented to the
amendment, restatement, and cancellation of that certain Common
Stock Purchase Warrant dated as of January 19, 1996 pursuant to
which the Company initially granted to W T Investments, Inc. the
right to purchase, subject to adjustments stated therein, up to
400,000 shares of the Company's Common Stock (the "Old Warrant"),
the Old Warrant is hereby cancelled and of no further force or
effect, and this Warrant, which amends and restates the Old
Warrant in connection with such cancellation, is hereby
substituted in lieu thereof and in lieu of, any prior rights or
expectations concerning the issuance to the Registered Holder of
shares of Common Stock or rights to acquire Common Stock from the
Company.
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.
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<PAGE>
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.
J W CHARLES FINANCIAL SERVICES, IC.
[SEAL] By: /s/ Joel E. Marks
Name: Joel E. Marks
Title: Vice Chairman
Attest:
________________________________
Secretary or Assistant Secretary
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<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 22
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
JWGenesis Financial Corp. Florida
Discount Securities Group, Inc. Florida
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-44949) of JW Charles Financial Services,
Inc. of our report dated March 5, 1998 appearing on page F-2 of this Form
10-K Amendment No. 1.
/s/ PRICE WATERHOUSE LLP
Tampa, Florida
March 23, 1998
