<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
Freedom Securities Corporation
(Name of Registrant as Specified In Its Charter)
Freedom Securities Corporation
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[FSI logo]
April 29, 1999
Dear Stockholders:
On behalf of the Board of Directors and employees of Freedom Securities
Corporation, I cordially invite you to attend the 1999 Annual Meeting of Freedom
Securities Corporation's stockholders. We will be holding the Annual Meeting on
Thursday, June 10, 1999 at 10:00 a.m. eastern time at the Omni Parker House
Hotel, located at 60 School Street, Boston, Massachusetts.
Enclosed with this letter is a Notice of Annual Meeting, a Proxy Statement,
a proxy card, and a return envelope. Both the Notice of Annual Meeting and the
Proxy Statement provide details of the business that we will conduct at the
Annual Meeting and other information about Freedom Securities Corporation.
Whether or not you plan to attend the Annual Meeting, please sign, date and
promptly return the proxy card in the enclosed prepaid return envelope. Your
shares will be voted at the Annual Meeting in accordance with your proxy
instructions. Of course, if you attend the Annual Meeting you may vote in
person. If you plan to attend the meeting, please mark the appropriate box on
the enclosed proxy card.
Sincerely,
/s/ John H. Goldsmith
John H. Goldsmith
Chairman of the Board
<PAGE> 3
YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy Card Before the Annual Meeting
FREEDOM SECURITIES CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Date: Thursday, June 10, 1999
Time: 10:00 a.m.
Place: Omni Parker House Hotel
60 School Street
Boston, Massachusetts
<PAGE> 4
FREEDOM SECURITIES CORPORATION
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 10, 1999
Notice is hereby given that Freedom Securities Corporation's 1999 Annual
Meeting will be held at the Omni Parker House Hotel, 60 School Street, Boston,
Massachusetts on Thursday, June 10, 1999, at 10:00 a.m. eastern time for the
following purposes:
- To elect ten directors;
- To ratify the selection of Ernst & Young, LLP as our independent
accountants for the fiscal year ending December 31, 1999; and
- To transact any other business that is properly presented at the Annual
Meeting.
You will be able to vote your shares at the Annual Meeting if you were a
stockholder of record at the close of business on April 14, 1999.
By Order of the Board of Directors:
/s/ Kevin J. McKay
Kevin J. McKay
Secretary
April 29, 1999
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE MEETING.
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR PROXY AND VOTE IN
PERSON.
<PAGE> 5
FREEDOM SECURITIES CORPORATION
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
April 29, 1999
PROXY STATEMENT FOR ANNUAL MEETING
This Proxy Statement provides information that you should read before you
vote on the proposals that will be presented to you at the 1999 Annual Meeting
of the stockholders of Freedom Securities Corporation ("Freedom" or the
"Company"). The 1999 Annual Meeting will be held on Thursday, June 10, 1999 at
10:00 a.m. eastern time at the Omni Parker House Hotel, 60 School Street,
Boston, Massachusetts.
This Proxy Statement provides detailed information about the Annual
Meeting, the proposals you will be asked to vote on at the Annual Meeting, and
other relevant information.
On or about April 29, 1999 we began mailing this Proxy Statement to persons
who, according to our records, owned shares of our common stock at the close of
business on April 14, 1999.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Information About the 1999 Annual Meeting and Voting........ 2
Proposals to be Presented at the Annual Meeting............. 4
1. Election of Directors
2. Ratification of Ernst & Young, LLP as Independent
Accountants
Share Ownership............................................. 5
The Board of Directors...................................... 7
Executive Compensation...................................... 10
Compensation Committee Report on Executive Compensation..... 15
Certain Relationships and Related Transactions.............. 17
Other Information........................................... 19
</TABLE>
1
<PAGE> 7
INFORMATION ABOUT THE 1999 ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The Annual Meeting will be held on Thursday, June 10, 1999 at 10:00 a.m.
eastern time at the Omni Parker House Hotel, 60 School Street, Boston,
Massachusetts. On or about April 29, 1999 we began mailing this Proxy Statement
to persons who, according to our records, owned shares of our common stock at
the close of business on April 14, 1999.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because our Board of Directors is
seeking a proxy to vote your shares at the Annual Meeting. This Proxy Statement
is intended to assist you in deciding how to vote your shares.
Freedom is paying the cost of requesting these proxies. Our directors,
officers and employees may request proxies in person or by telephone, mail,
telecopy or letter. Such persons will receive no additional compensation for
such services, but we will reimburse them for their reasonable out-of-pocket
expenses. We will also provide copies of proxy materials to fiduciaries,
custodians, nominees and brokerage houses for forwarding to beneficial owners of
our common stock, and we will reimburse them as well for their reasonable
out-of-pocket expenses.
RECORD DATE AND QUORUM
The record date for the Annual Meeting was April 14, 1999. If you held
shares of our common stock as of the record date, you may attend and vote at the
Annual Meeting. On the record date, 19,788,379 shares of the Company's common
stock were issued and outstanding. Each share of our common stock is entitled to
one vote at the Annual Meeting.
A "quorum" must be present at the Annual Meeting in order to transact
business. A quorum will be present if 9,894,190 shares of the Company's common
stock are represented at the Annual Meeting, either in person (by the
stockholders) or by proxy. If a quorum is not present, a vote cannot occur. If
you indicate on a proxy or ballot that you abstain from voting or that your
shares are not to be voted on a particular proposal, your shares will not be
counted as having been voted on that proposal, but those shares will be counted
as in attendance at the Annual Meeting for purposes of determining a quorum.
Broker non-votes will also be counted as shares that are represented at the
Annual Meeting for quorum purposes.
VOTING YOUR SHARES
You have one vote for each share of Freedom common stock that you owned of
record at the close of business on April 14, 1999. The number of shares you own
(and may vote at the Annual Meeting) is listed on the enclosed proxy card. You
may not cumulate your votes in voting for directors.
You may vote your shares at the Annual Meeting either in person or by
proxy. To vote in person, you must attend the Annual Meeting and obtain and
submit a ballot. Ballots for voting in person will be available at the Annual
Meeting. To vote by proxy, you must complete and return the enclosed proxy card.
By completing and returning the proxy card, you will be directing the persons
designated on the proxy card to vote your shares at the Annual Meeting in
accordance with the instructions you give on the proxy card.
2
<PAGE> 8
If you decide to vote by proxy, your proxy card will be valid only if you
sign, date and return it before the Annual Meeting. IF YOU COMPLETE THE PROXY
CARD EXCEPT FOR THE VOTING INSTRUCTIONS, THEN YOUR SHARES WILL BE VOTED FOR THE
PROPOSED ELECTION OF DIRECTORS AND FOR RATIFICATION OF THE SELECTION OF ERNST &
YOUNG, LLP AS THE INDEPENDENT ACCOUNTANTS OF FREEDOM FOR THE 1999 FISCAL YEAR.
REVOKING YOUR PROXY
If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in any one of three ways:
- You may notify the Secretary of Freedom in writing that you wish to
revoke your proxy.
- You may submit a proxy dated later than your original proxy.
- You may attend the Annual Meeting and vote. Merely attending the Annual
Meeting will not by itself revoke a proxy; you must obtain a ballot and
vote your shares to revoke the proxy.
VOTE REQUIRED FOR APPROVAL
Proposal 1: Election of Ten
Directors The ten nominees for director who receive the
most votes will be elected. If you indicate
"withhold authority to vote" for a particular
nominee on your proxy card, your vote will not
count either for or against the nominee.
Proposal 2: Ratification of
Selection of Independent
Accountants Ratification of the selection of our
independent accountants requires the
affirmative vote of a majority of the votes
cast at the Annual Meeting. If you abstain from
voting, it has the same effect as if you voted
against this proposal.
If you hold your shares with a broker and you do not tell your broker how
to vote, your broker has the authority to vote on both of the proposals
scheduled to be presented at the Annual Meeting.
ADDITIONAL INFORMATION ABOUT FREEDOM
Our Annual Report to Stockholders for the fiscal year ended December 31,
1998, including consolidated financial statements, is being mailed to all
stockholders entitled to vote at the Annual Meeting together with this Proxy
Statement. The Annual Report does not constitute a part of the proxy
solicitation material. The Annual Report tells you how to get additional
information about Freedom.
3
<PAGE> 9
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
We will present the following two proposals at the Annual Meeting. We do
not expect anyone to present any other proposals. If anyone validly presents any
other proposal, we will use your proxy to vote on those proposals as we believe
is appropriate.
ITEM 1: ELECTION OF DIRECTORS
Holders of proxies solicited by this proxy statement will vote the proxies
received by them as directed on the proxy card or, if there is no direction on
the proxy card, for the Board of Director nominees listed below. Nominees for
election to our Board of Directors are:
John H. Goldsmith Winston J. Churchill
John F. Luikart Thomas M. Hagerty
David P. Prokupek David V. Harkins
Robert H. Yevich Hugh R. Harris
C. Hunter Boll Seth W. Lawry
Each director will be elected to serve for a one-year term, or thereafter
until his replacement is elected and qualified or until his earlier resignation
or removal. Each of the ten nominees is presently a member of the Board of
Directors and has consented to serve as a director if re-elected. More detailed
information about each of the nominees is available in the section of this
booklet titled "The Board of Directors," which begins on page 7.
If any of the nominees cannot serve for any reason (which we do not
anticipate), our Board of Directors may designate a substitute nominee or
nominees. If a substitute is nominated, we will vote all valid proxies for the
election of the substitute nominee or nominees. Our Board of Directors may also
decide to leave the seat or seats open until a suitable candidate or candidates
are located, or it may decide to reduce the size of the Board of Directors.
Proxies for the Annual Meeting may not be voted for more than ten nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THESE
DIRECTORS.
ITEM 2: RATIFICATION OF ERNST & YOUNG, LLP
AS INDEPENDENT ACCOUNTANTS
We are requesting that you ratify our Board's selection of Ernst & Young,
LLP as our independent accountants for 1999. Ernst & Young, LLP have been our
independent accountants since Freedom's inception in 1996 and were the
independent accountants for Freedom Securities Holding Corporation (the
"Predecessor Company" to Freedom). The Audit Committee and the Board believe
that Ernst & Young's experience with and knowledge of Freedom and the
Predecessor Company are important and we would like to continue this
relationship.
Although the selection of independent accountants does not require
ratification, we are submitting this proposal to you because we believe this
matter is significant enough to warrant your participation. If you do not ratify
the appointment of Ernst & Young, LLP, our Board of Directors, after review by
the Audit Committee, will consider the appointment of other independent
accountants. Representatives from Ernst & Young will be available at the Annual
Meeting to answer your questions and make a statement if they desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS
PROPOSAL.
4
<PAGE> 10
SHARE OWNERSHIP
There were 19,788,379 shares of Freedom's common stock issued and
outstanding on April 14, 1999. The following table sets forth information
regarding the beneficial ownership of the Company's common stock as of April 14,
1999 by (1) each person known to us as beneficially owning more than 5% of the
Company's common stock, (2) each of our directors and nominees, (3) each officer
listed in the Summary Compensation Table (we will refer to these officers as the
"Named Executive Officers") and (4) all directors and executive officers as a
group. Except as noted in the footnotes to this table, to our knowledge each
person listed below has sole voting and investment power with respect to all
shares of Company common stock beneficially owned by him.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT OF
BENEFICIALLY COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) STOCK
- --------------------------------------- ------------ ----------
<S> <C> <C>
Thomas H. Lee Equity Fund III, L.P.(3)...................... 4,305,212 21.76%
Thomas H. Lee Equity Advisors III, Limited Partnership(3)... 4,571,606 23.10%
Thomas H. Lee Equity Trust III(3)........................... 4,571,606 23.10%
John H. Goldsmith(4)........................................ 136,510 *
William C. Dennis, Jr.(5)................................... 107,448 *
John F. Luikart(6).......................................... 111,917 *
David P. Prokupek(7)........................................ 143,156 *
Robert H. Yevich(8)......................................... 118,930 *
C. Hunter Boll(9)........................................... 5,018,197 25.36%
Winston J. Churchill........................................ -- *
Thomas M. Hagerty(10)....................................... 5,018,197 25.36%
David V. Harkins(11)........................................ 5,018,197 25.36%
Hugh R. Harris.............................................. -- *
Seth W. Lawry(12)........................................... 5,018,197 25.36%
All directors and executive officers as a group (12
persons)(13).............................................. 5,720,727 28.91%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the address of each of the directors and named
executive officers is c/o the Company, One Beacon Street, Boston, MA 02108
(2) We determine beneficial ownership according to the rules of the Securities
and Exchange Commission ("SEC"). In determining the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person are deemed
outstanding if those options are currently exercisable or are exercisable
within 60 days after April 14, 1999. Such shares, however, are not deemed
outstanding for purposes of determining the percentage ownership of each
other person.
(3) Such information as to beneficial ownership is derived from Reports on
Schedule 13G filed on February 12, 1999. Thomas H. Lee Equity Trust III
("Trust") is the general partner of Thomas H. Lee Equity Advisors III,
Limited Partnership ("Advisors"), and Advisors is the general partner of
each of Thomas H. Lee Equity Fund III ("Fund") and Thomas H. Lee Foreign
Fund III, L.P. ("Foreign Fund"). Therefore, Trust and Advisors may each be
deemed beneficial owners of shares held by Fund and Foreign Fund, although
each disclaims beneficial ownership of such shares except to the extent it
has a pecuniary interest in such shares. Fund directly owns 4,305,212
shares, and Foreign Fund directly
5
<PAGE> 11
owns 266,394 shares. Neither Trust nor Advisors owns any shares directly.
Each of Trust, Advisors and Fund maintain its principal business address
c/o Thomas H. Lee Company, 75 State Street, Boston, MA 02109.
(4) Includes 21,816 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 1999. Also includes
4,614 shares of common stock held in a retirement account for the benefit
of Mr. Goldsmith. Does not include 100 shares of common stock owned by Mr.
Goldsmith's wife with respect to which he disclaims beneficial ownership.
(5) Includes 14,544 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 1999. Also includes
2,004 shares of common stock held in a retirement account for the benefit
of Mr. Dennis.
(6) Includes 17,816 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 1999. Also includes
3,201 shares of common stock held in a retirement account for the benefit
of Mr. Luikart. Does not include 10,000 shares of common stock owned by Mr.
Luikart's wife with respect to which he disclaims beneficial ownership.
(7) Includes 4,000 shares of common stock held in a retirement account for the
benefit of Mr. Prokupek and 8,000 shares of common stock owned by Mr.
Prokupek and his wife as joint tenants.
(8) Includes 17,816 shares as to which the owner has the right to acquire
beneficial ownership within 60 days after April 14, 1999. Also includes 214
shares of common stock held in a retirement account for the benefit of Mr.
Yevich, and 10,000 shares of common stock owned by Mr. Yevich and his wife
as joint tenants. Does not include 1,000 shares of common stock owned by
Mrs. Yevich as custodian for their children with respect to which he
disclaims beneficial ownership.
(9) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, L.P. ("THL-CCI"), which Mr. Boll may be deemed to beneficially own
by virtue of his position as an officer of each of the Trust and THL
Investment Management Corp. ("THL Investment"), the general partner of
THL-CCI. Mr. Boll disclaims beneficial ownership of such shares. Mr. Boll
maintains his principal business address c/o Thomas H. Lee Company, 75
State Street, Boston, MA 02109.
(10) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Hagerty may be deemed to beneficially own by virtue of
his position as an officer of each of the Trust and THL Investment. Mr.
Hagerty disclaims beneficial ownership of such shares. Mr. Hagerty
maintains his principal business address c/o Thomas H. Lee Company, 75
State Street, Boston, MA 02109.
(11) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Harkins may be deemed to beneficially own by virtue of
his position as a Trustee of the Trust and officer of THL Investment. Mr.
Harkins disclaims beneficial ownership of such shares. Mr. Harkins
maintains his principal business address c/o Thomas H. Lee Company, 75
State Street, Boston, MA 02109.
(12) Consists of shares of common stock held by the Fund, the Foreign Fund and
THL-CCI, which Mr. Lawry may be deemed to beneficially own by virtue of his
position as an officer of each of the Trust and THL Investment. Mr. Lawry
disclaims beneficial ownership of such shares. Mr. Lawry maintains his
principal business address c/o Thomas H. Lee Company, 75 State Street,
Boston, MA 02109.
(13) Includes 83,627 shares as to which the owners have the right to acquire
beneficial ownership within 60 days after April 14, 1999. Also includes
5,036,197 shares as to which voting and investment power are shared.
6
<PAGE> 12
THE BOARD OF DIRECTORS
The following table and biographical descriptions set forth the name, age,
and principal occupation during the past five years for each Board of Directors
nominee, and the positions they currently hold with Freedom. The information is
as of April 14, 1999 unless otherwise indicated. If you elect them, they will
hold office until our next annual meeting or until their successors have been
elected. As of the date of this Proxy Statement, we are not aware that any
nominee for our Board of Directors would be unable to or would decline to serve
if elected.
<TABLE>
<CAPTION>
DIRECTOR OF THE
COMPANY OR THE
PREDECESSOR
NAME AGE POSITION COMPANY SINCE
- ---- --- -------- ---------------
<S> <C> <C> <C>
John H. Goldsmith.................. 57 Chairman of the Board of Directors 1988
and Chief Executive Officer of
Freedom, and Chief Executive
Officer of Tucker Anthony
Incorporated
John F. Luikart.................... 50 Director of Freedom and Chairman 1995
and Chief Executive Officer of
Sutro & Co. Incorporated
David P. Prokupek.................. 37 Director of Freedom and President 1998
and Chief Executive Officer of
Cleary Gull & Reiland Inc.
Robert H. Yevich................... 50 Director of Freedom and President 1995
of Tucker Anthony Incorporated
C. Hunter Boll..................... 43 Director 1996
Winston J. Churchill(1)(2)......... 58 Director 1996
Thomas M. Hagerty(2)............... 36 Director 1996
David V. Harkins(2)................ 58 Director 1996
Hugh R. Harris(1)(2)............... 47 Director 1998
Seth W. Lawry...................... 34 Director 1996
</TABLE>
- ---------------
(1) Members of the Audit Committee
(2) Members of the Compensation Committee
JOHN H. GOLDSMITH. Mr. Goldsmith joined Freedom Securities Holding
Corporation (the Predecessor Company to Freedom) in 1988 and has served as
Chairman, Director and Chief Executive Officer of the Predecessor Company as
well as Chief Executive Officer of Tucker Anthony since that time. Mr. Goldsmith
has served as Chairman, Director and Chief Executive Officer of the Company
since its acquisition from John Hancock Mutual Life Insurance Company (the
"Acquisition") in 1996. Prior to joining Freedom Securities Holding Corporation,
Mr. Goldsmith served in various capacities at Prescott, Ball & Turben in
Cleveland, Ohio, including as Managing Partner and Chief Executive Officer from
1978 to 1982 and as President and Chief Executive Officer from 1982 to 1988. Mr.
Goldsmith worked in the institutional sales department of L.F. Rothschild from
1963 to 1971.
JOHN F. LUIKART. Mr. Luikart joined Sutro in 1988 as Executive Vice
President and was responsible for directing all of the firm's capital markets
activities. Mr. Luikart became President of Sutro in 1990. Mr. Luikart was
subsequently elected to the Board of Directors of Freedom Securities Holding
Corporation
7
<PAGE> 13
and appointed Chief Executive Officer of Sutro in October 1995. Mr. Luikart
became Chairman of Sutro in October 1998 and has served as a Director of Freedom
since the Acquisition in November 1996. Prior to joining Sutro, Mr. Luikart
served as General Partner and Executive Vice President at Prescott, Ball &
Turben in Cleveland, Ohio. Mr. Luikart is a former Chairman of the NASD District
Business Conduct Committee and is a former member of the New York Stock Exchange
Regional Firm Advisory Committee.
DAVID P. PROKUPEK. Mr. Prokupek was elected to the Freedom Board of
Directors in May 1998, following the acquisition of Cleary Gull. He joined
Cleary Gull as Managing Director of the Investment Banking Department in 1992,
was elected a director in 1994, and was named Chief Executive Officer in 1996.
Prior to joining Cleary Gull, Mr. Prokupek was a Managing Director of American
Asset Management, a New York-based investment counselor and merchant bank, and
from 1987 to 1989 he was a member of Bankers Trust Company's Merchant Banking
Group.
ROBERT H. YEVICH. Mr. Yevich joined Tucker Anthony in 1985 and became
National Sales Manager in 1988. Mr. Yevich was elected to the Board of Directors
of Freedom Securities Holding Corporation and promoted to President of Tucker
Anthony in 1995. Mr. Yevich has served as a Director of Freedom since the
Acquisition in November 1996. Mr. Yevich has 25 years of varied experience in
the retail brokerage business as a stockbroker, branch manager and research
associate. Prior to joining Tucker Anthony, Mr. Yevich served as a branch
manager with Paine Webber.
C. HUNTER BOLL. Mr. Boll was elected to the Freedom Board of Directors in
1996. He joined Thomas H. Lee Company ("THL") in 1986. Affiliates of THL
provided equity financing for Freedom's Acquisition in 1996. From 1984 through
1986, Mr. Boll was with The Boston Consulting Group. From 1977 through 1982, he
served as an Assistant Vice President, Energy and Minerals Division of Chemical
Bank. Mr. Boll is a Director of Big V Supermarkets, Inc., Cott Corp., New York
Restaurant Group, TransWestern Publishing, L.P. and United Industries
Corporation. Mr. Boll is also a Vice President of Thomas H. Lee Advisors I, T.H.
Lee Mezzanine II, and the Administrative General Partner of Thomas H. Lee
Advisors II, L.P., which is also affiliated with the ML-Lee Acquisition Fund II,
L.P.
WINSTON J. CHURCHILL. Mr. Churchill was elected to the Freedom Board of
Directors in 1996. Mr. Churchill joined SCP Private Equity Partners, L.P.
("SCP") at its founding in 1996 as a Managing General Partner. SCP provided
equity financing for Freedom's Acquisition in 1996. Prior to joining SCP, Mr.
Churchill formed CIP Capital, Inc., in 1990 and Churchill Investment Partners,
Inc., in 1989. Mr. Churchill serves as Chairman of the Board of Central
Sprinkler Corporation, and as a director of Geotek Communications, Inc., IBAH
Inc., Millenium Multimedia, Tescorp, Inc., Cinema Star Luxury Theaters, Inc.,
and Griffin Land and Nurseries, Inc. Mr. Churchill also serves as a director of
Fordham University, Georgetown University, and several other institutions.
THOMAS M. HAGERTY. Mr. Hagerty was elected to the Freedom Board of
Directors in 1996. He joined THL in 1988. Prior to joining THL, Mr. Hagerty was
in the Mergers and Acquisitions Department of Morgan Stanley & Co. Incorporated.
Mr. Hagerty is a director of ARC Holdings, LLC, Cott Corp. and Syratech
Corporation. Mr. Hagerty is also a Vice President of Thomas H. Lee Advisors I,
T.H. Lee Mezzanine II, and the Administrative General Partner of Thomas H. Lee
Advisors II, L.P., which is also affiliated with the ML-Lee Acquisition Fund II,
L.P.
DAVID V. HARKINS. Mr. Harkins was elected to the Freedom Board of
Directors in 1996. He has been affiliated with THL since its founding in 1974
and joined THL as a full time employee in 1986. Mr. Harkins is Chairman of the
Board of National Dentex Corporation and is a director of Cott Corp., First
Security Services, Inc., Fisher Scientific International, Inc., Stanley
Furniture Company, Inc. and Syratech Corporation. Mr. Harkins also serves as
Senior Vice President and Trustee of Thomas H. Lee Advisors I, and T.H.
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<PAGE> 14
Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., and the ML-Lee
Acquisition Fund II, L.P., respectively.
HUGH R. HARRIS. Mr. Harris was elected to the Freedom Board of Directors
in June 1998. From 1988 until 1997, Mr. Harris was the President and Chief
Operating Officer of BancBoston Mortgage Corporation, until it was sold to
HomeSide Lending, Inc. HomeSide Lending, Inc. was sold to National Australia
Bank in February 1998 and is now a wholly-owned subsidiary thereof. Mr. Harris
remained as the President and Chief Operating Officer of HomeSide Lending, Inc.
until April 1999 at which time he became Chief Executive Officer.
SETH W. LAWRY. Mr. Lawry was elected to the Freedom Board of Directors in
1996. He worked at THL from 1989 to 1990 and rejoined in 1994. From 1987 to 1989
and 1992 to 1994, Mr. Lawry worked at Morgan Stanley & Co. Incorporated in the
Mergers and Acquisitions, Corporate Finance and Equity Capital Markets
Departments. Mr. Lawry is a director of Safelite Glass Corp. and Syratech
Corporation.
BOARD ORGANIZATION AND MEETINGS
Board of Directors. A ten-member Board of Directors manages Freedom. The
Board of Directors met four times during 1998. Each of the current directors
attended (either in person or by telephone) at least 75% of the aggregate number
of (1) meetings of the Board of Directors and (2) meetings of the committees of
the Board of Directors on which such director served, except that Mr. Boll did
not attend 75% of the meetings of the Board of Directors and Mr. Harris did not
attend 75% of the meetings of the Board of Directors and Audit Committee.
Audit Committee. Our Board of Directors has established an Audit
Committee. The Audit Committee makes recommendations concerning the engagement
of independent accountants, reviews with the independent accountants the plans
and results of the audit engagement, approves professional services provided by
the independent accountants, reviews the independence of the independent
accountants, considers the range of audit and non-audit fees and reviews the
adequacy of Freedom's internal accounting controls. The Audit Committee met
three times in 1998. Messrs. Churchill and Harris are members of the Audit
Committee.
Compensation Committee. The Board of Directors of Freedom has established
a Compensation Committee. The Compensation Committee determines Freedom's
compensation programs for executive officers. The Board of Directors makes
recommendations, or accepts recommendations from the President and Chief
Executive Officer, and forwards them to the Compensation Committee for
consideration. The Compensation Committee independently determines the executive
compensation (including any bonus or incentive compensation) to be paid to each
executive officer. Although the Compensation Committee did not meet in 1998, it
met in early 1999 to review 1998 Executive Officer performance. Messrs.
Churchill, Hagerty, Harkins and Harris are members of the Compensation
Committee.
COMPENSATION OF DIRECTORS
During 1998, Freedom's directors (other than Mr. Harris) received no
compensation for service as directors, other than reimbursement for expenses of
attending meetings of the Board of Directors. During 1998, Mr. Harris received
$1,000 per board meeting, $750 per committee meeting and an annual retainer of
$15,000.
9
<PAGE> 15
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows, for the periods indicated, cash and non-cash
compensation paid during the last two fiscal years to our Chief Executive
Officer and each of our four other most highly compensated executive officers
(referred to as the "Named Executive Officers") who were serving as executive
officers on December 31, 1998 and whose salary plus bonus exceeded $100,000 for
the fiscal year then ended. The Company was organized in November 1996 and did
not conduct any operations prior to that date.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION (1) ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- ------------------ ---- ------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
John H. Goldsmith..... 1998 400,000 1,200,000 -- -- 44,519(3)
Chairman, Director and 1997 400,000 850,000 (2) 54,540 48,158(3)
Chief Executive
Officer of Freedom
William C. Dennis,
Jr.................. 1998 400,000 550,000 -- -- 5,764(3)
Chief Financial
Officer of 1997 350,000 400,000 -- 36,360 5,250(3)
Freedom
John F. Luikart....... 1998 250,000 900,000 (2) -- 3,000(3)
Director of Freedom
and 1997 250,000 800,000 (2) 44,541 4,194(3)
Chairman and Chief
Executive Officer of
Sutro
David P. Prokupek..... 1998 233,333(4) 1,757,812(4) -- 45,450(5) 717(3)
Director of Freedom
and 1997 -- -- -- -- --
President and Chief
Executive Officer of
Cleary Gull
Robert H. Yevich...... 1998 300,000 900,000 -- -- 5,764(3)
Director of Freedom
and 1997 300,000 700,000 (2) 44,541 9,763(3)
President of Tucker
Anthony
</TABLE>
- ---------------
(1) Amounts shown reflect compensation earned in the period presented, although
payments earned in prior periods may have been paid in the period presented
and compensation earned in the period presented may have been paid in a
subsequent period.
(2) The amount does not exceed the lesser of $50,000 or 10% of compensation.
(3) Represents contributions in cash or stock to 401(k) and profit sharing plans
and, in the case of Mr. Goldsmith, payment of insurance premiums in the
amounts of $38,755 and $38,395 in 1998 and 1997, respectively.
(4) Mr. Prokupek's employment with the Company began May 1, 1998, when the
acquisition of Cleary Gull was completed, at an effective annual base salary
rate of $350,000. In addition to his role as an Executive Officer of the
Company and Chief Executive Officer of Cleary Gull, Mr. Prokupek is a
Managing Director of investment banking at Cleary Gull. Accordingly, a
significant portion of Mr. Prokupek's
10
<PAGE> 16
bonus is his share of the Cleary Gull investment banking and investment
management services bonus pools.
(5) Option grants were made in connection with the acquisition of Cleary Gull.
The table does not include options for 45,450 shares that were canceled in
1998 and repriced. The table also does not include options for 60,319 shares
which were granted to replace options which previously had been awarded by
Cleary Gull to acquire its stock and Mr. Prokupek exercised these options
during 1998.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning the grant of options
pursuant to the 1998 Long-Term Incentive Plan to each of the Named Executive
Officers in the fiscal year ended December 31, 1998. The Company did not issue
any stock appreciation rights in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SECURITIES OPTIONS ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES IN EXERCISE OR OPTION TERM(1)
GRANTED FISCAL YEAR BASE PRICE EXPIRATION ----------------------
NAME (#) (%) ($/SHARE) DATE 5%($) 10%($)
- ---- ---------- ------------ ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John H. Goldsmith.......... -- -- -- -- -- --
William C. Dennis, Jr...... -- -- -- -- -- --
John F. Luikart............ -- -- -- -- -- --
David P. Prokupek.......... 1,578(2) 0.14 4.95 4/30/08 -- --
58,741(2) 5.25 5.70 4/30/08 -- --
45,450(3)(Canceled) 4.06 20.00 (3) -- --
45,450(4)(Re-issued) 4.06 13.00 10/29/08 371,582 941,663
Robert H. Yevich........... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Potential realizable value is based on certain rates of appreciation
pursuant to rules prescribed by the SEC and do not represent the Company's
estimate or projection of future common stock prices. The potential
realizable value is reported net of the option price, but before the income
taxes associated with exercise. These amounts represent assumed compounded
rates of appreciation at 5% and 10% from the date of the grant to the
expiration date of the options.
(2) In connection with the acquisition of Cleary Gull, options to purchase 1,578
and 58,741 shares of stock were granted with exercise prices of $4.95 and
$5.70, respectively, to replace options which previously had been awarded by
Cleary Gull to acquire its stock. These options vested immediately, expired
10 years from the date of the grant (May 1, 1998) and were exercised in
1998.
(3) These options were canceled in 1998 and repriced (see Report on Repricing of
Options).
(4) The options granted were at the closing price per share of the Company's
common stock on the date of the grant (October 29, 1998). These options vest
three years from the date of the grant, expire ten years from such date and
replaced the options which had been awarded at Freedom's initial public
offering price that were canceled in 1998 and repriced (see Report on
Repricing of Options).
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END STOCK OPTION
VALUES
The following table sets forth for each of the Named Executive Officers
certain information concerning options exercised during the fiscal year ended
December 31, 1998 and the number of shares subject to both exercisable and
unexercisable stock options as of that date. The table also shows values for
"in-the-money"
11
<PAGE> 17
options. These values represent the positive spread between the respective
exercise prices of outstanding options and the fair market value of the
Company's common stock as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1998 DECEMBER 31, 1998
ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
(#) ($)(1) (#)(2) ($)(3)
----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John H. Goldsmith.......... -- -- 21,816/32,724 209,979/314,969
William C. Dennis, Jr...... -- -- 14,544/21,816 139,986/209,979
John F. Luikart............ -- -- 17,816/26,725 171,479/257,228
David P. Prokupek.......... 60,319 441,512 --/45,450 --/ 96,581
Robert H. Yevich........... -- -- 17,816/26,725 171,479/257,228
</TABLE>
- ---------------
(1) Based on the fair market value of the Company's common stock on the exercise
date (the closing price) minus the exercise price and multiplied by the
number of shares acquired.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of the
Company's common stock on December 31, 1998.
(3) Based on the closing price of the Company's common stock on December 31,
1998 ($15.125) minus the exercise price.
REPORT ON REPRICING OF OPTIONS
In 1998 Freedom acquired Cleary Gull. As a part of that acquisition,
Freedom granted options to purchase common stock to certain employees of Cleary
Gull, including one of the Named Executive Officers, Mr. Prokupek. In October
1998, Freedom reduced the exercise price of these options to the then current
market price of its common stock. Our Board approved this repricing to
facilitate the integration of Cleary Gull's operations into Freedom. The Board
believed that reducing the exercise price of the Cleary Gull options to bring
them closer to the exercise price of options previously awarded to other Freedom
officers and employees would help align the incentives of the Cleary Gull
employees with the rest of Freedom's workforce. Mr. Prokupek did not participate
in the vote approving this repricing. Freedom has not changed the exercise price
of any options other than those granted in connection with the Cleary Gull
acquisition.
<TABLE>
<CAPTION>
NUMBER OF LENGTH OF
SECURITIES MARKET PRICE ORIGINAL
UNDERLYING OF STOCK AT EXERCISE PRICE TERM
OPTIONS TIME OF AT TIME OF NEW REMAINING
REPRICED OR REPRICING OR REPRICING OR EXERCISE AT DATE OF
AMENDED AMENDMENT AMENDMENT PRICE REPRICING OR
NAME DATE (#) ($) ($) ($) AMENDMENT
- ---- ---- ----------- ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
David P. Prokupek................. 1998 45,450 13.00 20.00 13.00 9.5 years
Director of Freedom, and President
and Chief Executive Officer of
Cleary Gull
</TABLE>
John H. Goldsmith Winston J. Churchill
John F. Luikart Thomas M. Hagerty
David P. Prokupek David V. Harkins
Robert H. Yevich Seth W. Lawry
C. Hunter Boll
MEMBERS OF THE BOARD OF DIRECTORS
12
<PAGE> 18
EMPLOYMENT AGREEMENTS
We employ Mr. Goldsmith pursuant to a three-year employment agreement
expiring on December 31, 1999. The agreement renews annually thereafter if the
parties mutually agree to such renewal. Mr. Goldsmith is entitled to receive
such annual base salary and bonus compensation as we agree to with Mr. Goldsmith
from time to time, but his cash compensation in any calendar year must be at
least $750,000. Mr. Goldsmith is also entitled to participate in the employee
benefit and incentive compensation plans that we make available to our key
executives. If we terminate Mr. Goldsmith's employment without cause or if he
resigns for certain enumerated reasons, such as a reduction in executive duties,
a decrease in his compensation or benefits or a default by us ("Good Reason"),
Mr. Goldsmith is entitled to receive cash compensation at his then-current rate
of pay and benefits through the end of the twenty-four months following such
date of termination. In such an event, we must pay him a lump sum equal to
$500,000 at the time of termination with the remaining amounts paid in equal
monthly installments, plus interest. In addition, in the event of any such
termination, any unexercisable stock options granted to Mr. Goldsmith will
become fully exercisable. If we terminate Mr. Goldsmith's employment for cause
or if he resigns other than for Good Reason, he is only entitled to receive
compensation accrued through the date of termination. Mr. Goldsmith's employment
agreement prohibits him from soliciting any of our clients, officers, senior
managers or senior investment executives for a period of two years following our
termination without cause or Mr. Goldsmith's termination for Good Reason, or for
a period of six months following termination by Mr. Goldsmith for any other
reason.
We employ Mr. Dennis pursuant to a two-year employment agreement that
expires May 11, 1999. Mr. Dennis received base salary of $150,000 during the
first year of employment and is receiving $400,000 during the second year of
employment. In addition, we loaned Mr. Dennis $250,000 upon commencement of his
employment and forgave that loan on May 12, 1998, pursuant to his employment
agreement. He received bonuses of $400,000 and $550,000 for 1997 and 1998,
respectively. If, prior to May 12, 2001, we terminate Mr. Dennis' employment
without cause or if he resigns for Good Reason, he will be entitled to receive
the greater of his salary and bonus compensation through the end of his initial
two year term of employment, if any, or $600,000. If we terminate him for cause
or he resigns other than for Good Reason, Mr. Dennis will receive only the
compensation accrued up to the date of termination or resignation. Mr. Dennis is
also entitled to participate in our benefit and incentive plans to the same
extent as any of our senior management executives.
We employ Mr. Prokupek pursuant to a three-year employment agreement
expiring on May 1, 2001. The agreement is terminable by either party at any time
upon at least 30 days' prior written notice. Mr. Prokupek is entitled to receive
such annual base salary and bonus compensation as we agree to with Mr. Prokupek
from time to time, but his cash compensation in any calendar year must be at
least $700,000. Mr. Prokupek is also entitled to participate in certain bonus
and benefit plans relating to Cleary Gull and in all other employee benefit and
incentive compensation plans that we or Cleary Gull make available to our key
executives. If we terminate Mr. Prokupek's employment without cause or if he
resigns for Good Reason (which in Mr. Prokupek's case also includes relocation
of his principal place of business), Mr. Prokupek is entitled to receive cash
compensation equal to the average of his total cash compensation from the
Company for the previous three years (or, if less, the number of full calendar
years the executive has been employed by us) in equal monthly installments
through the end of the twelve-month period following such termination. If we
terminate Mr. Prokupek's employment for cause (which includes his material
default under the employment agreement or indictment or conviction for certain
crimes) or if he resigns other than for Good Reason, he is only entitled to
receive compensation accrued through the date of termination. Mr. Prokupek's
employment agreement prohibits him from soliciting any of our clients, officers,
senior managers or senior brokers prior to March 9, 2001. Although not part of
his employment agreement, Mr. Prokupek also receives compensation
13
<PAGE> 19
from the Cleary Gull investment banking and investment management services bonus
pools for his role as a Managing Director of investment banking at Cleary Gull.
See "Summary Compensation Table" on page 10.
In addition, we issued shares of our common stock to Mr. Prokupek in
connection with our acquisition of Cleary Gull in May 1998. We issued Mr.
Prokupek 143,156 shares of our common stock in exchange for Mr. Prokupek's
interest in Cleary Gull, which shares were valued at the same price per share as
the other shares of our common stock which we issued to Cleary Gull
stockholders. Pursuant to a registration rights agreement which we entered into
with the former stockholders of Cleary Gull, we registered 103,656 of Mr.
Prokupek's shares of our common stock for sale to the public in September 1998.
We employ Mr. Luikart pursuant to an employment agreement expiring on
September 15, 2000. The agreement is terminable by either party at any time upon
at least 30 days' prior written notice. Mr. Luikart is entitled to receive such
annual base salary and bonus compensation as we agree to with Mr. Luikart from
time to time, but his cash compensation in any calendar year must be at least
$700,000. Mr. Luikart is also entitled to participate in the employee benefit
and incentive compensation plans that we make available to our key executives.
If we terminate Mr. Luikart's employment without cause or if he resigns for Good
Reason, Mr. Luikart is entitled to receive cash compensation at his then-current
rate of pay (which shall not be less than the amount of compensation he earned
for the year ended immediately prior to the date of termination) and benefits
through the end of the twenty-four months following such date of termination. In
such an event, we must pay him a lump sum equal to $500,000 at the time of
termination with the remaining amounts paid in equal monthly installments, plus
interest. In addition, in the event of any such termination, any unexercisable
stock options granted to Mr. Luikart will become fully exercisable. If we
terminate Mr. Luikart's employment for cause (which includes his material
default under the employment agreement or indictment or conviction for certain
crimes) he is only entitled to receive compensation accrued through the date of
termination at an annual rate of $700,000. If Mr. Luikart resigns other than for
Good Reason, he is only entitled to receive compensation accrued through the
date of termination at his then-rate of compensation (which shall not be less
than the amount of compensation he earned for the year ended immediately prior
to the date of termination and must be at least $700,000). Mr. Luikart's
employment agreement prohibits him from soliciting any of our clients, officers,
senior managers or senior brokers for a period of two years following our
termination without cause or Mr. Luikart's termination for Good Reason, or for a
period of six months following termination by Mr. Luikart for any other reason.
LIMITATION OF LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
As the Delaware General Corporation Law permits, we have included in our
certificate of incorporation a provision to eliminate the personal liability of
our directors for monetary damages for breach or alleged breach of their
fiduciary duties as directors, subject to certain exceptions. In addition, our
bylaws provide that we must indemnify our officers and directors under certain
circumstances, including those circumstances in which indemnification would be
discretionary under applicable law. We are also required to advance expenses to
our officers and directors as incurred in connection with proceedings against
them for which they may be indemnified. We have also agreed to indemnify our
directors and officers to the maximum extent permitted by Delaware law pursuant
to agreements with such officers and directors. At present, we are not aware of
any pending or threatened litigation or proceeding involving any of our
directors, officers, employees or agents in which we would be required or
permitted to indemnify them. We believe that these charter provisions and
indemnification agreements are necessary to attract and retain qualified persons
as directors and officers.
14
<PAGE> 20
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed entirely of non-employee directors, establishes the
compensation philosophy of Freedom Securities Corporation on behalf of the Board
of Directors, determines the compensation of Freedom's Chief Executive Officer,
and approves the compensation of the Company's Executive Officers.
Freedom seeks to attract, motivate and retain highly qualified employees,
which is critical to both the short-term and long-term success of the Company.
To accomplish this, the Compensation Committee has developed a compensation
philosophy which seeks to reward outstanding performance and align the
compensation of Executive Officers with the interests of stockholders.
Specifically, the Compensation Committee seeks to achieve the following
objectives:
- to provide highly competitive compensation that rewards outstanding
Company, business unit and individual results.
- to encourage Executive Officers to purchase and hold significant amounts
of Freedom Securities Corporation stock.
COMPONENTS OF EXECUTIVE OFFICER COMPENSATION
Compensation of Executive Officers consists of base salaries, bonuses, and
long-term incentive compensation.
Base Salaries
The first component of the Company's Executive Officer compensation program
is cash compensation in the form of base salaries. Base salaries are determined
by individual and Company performance as well as relevant labor market factors.
There were no increases in base salaries for any Executive Officers in 1998.
Bonuses
The second component of the Company's Executive Officer compensation
program consists of annual performance-based bonuses. In order to align
Executive Officer compensation with the financial results of the Company,
bonuses to Executive Officers have been awarded under the 1998 Executive
Performance Bonus Plan (the "Bonus Plan") which was established at the time of
the Company's initial public offering. Under the Bonus Plan, the amount included
in the bonus pool is equal to a percentage of pre-tax operating income of the
Company (as defined) before provision for incentive compensation and
extraordinary items. The percentage used for this bonus pool may not exceed 15%
as established by the Bonus Plan. The Bonus Plan further establishes that the
maximum award to any one participant is 50% of the bonus pool. Bonuses to
individual Executive Officers are awarded based on Company, business unit and
individual performance. The Compensation Committee has the discretion to reduce
or eliminate award pools.
Long-Term Incentive Compensation
The third component of the Company's Executive Officer compensation is the
granting of awards pursuant to the Company's 1996 Stock Option Plan and 1998
Long-Term Incentive Plan. Under these plans, Executive Officers and other key
employees may be granted stock options, stock appreciation rights, restricted
stock and long-term performance awards. Both the 1996 Stock Option Plan and the
1998 Long-Term Incentive Plan are administered by the Compensation Committee.
During 1998, awards were made to Mr. Prokupek in connection with the acquisition
of Cleary Gull & Reiland Inc. No other Executive Officer received awards during
1998.
15
<PAGE> 21
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee considered a number of factors in determining
Mr. Goldsmith's 1998 bonus under the Bonus Plan. First, the Committee considered
the Company's outstanding financial performance evidenced by its significant
revenue growth, record net income and earnings per share. Second, the
Compensation Committee believed that Mr. Goldsmith's leadership was critical to
executing the Company's initial public offering and acquiring Cleary Gull &
Reiland Inc., both of which, in the Committee's view, have established a solid
foundation for future growth. Third, the Committee reviewed performance and
compensation data from a peer group of regional brokerage firms in order to
determine Mr. Goldsmith's 1998 bonus. The peer group used consisted of
substantially the same firms as are included in the Regional Sub-Index of the
Financial Service Analytics Stock Price Index referred to in the Stock
Performance graph on page 19.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code establishes a limit on
corporate income tax deductions of $1 million per year paid to any Named
Executive Officer. In designing compensation plans to meet the \executive
compensation objectives described above, Freedom reserves the right to establish
plans which may result in the Company's inability to deduct compensation under
Section 162(m).
SUMMARY
The Committee believes that the compensation plans for Freedom's Executive
Officers are designed to be performance-based and align the Executive Officers'
interests with those of the Company. The Committee will continue to evaluate
compensation of Executive Officers to ensure that it is consistent with the
compensation philosophy described above and that it is in the best interests of
the stockholders.
Winston J. Churchill David V. Harkins
Thomas M. Hagerty Hugh R. Harris
MEMBERS OF THE COMPENSATION COMMITTEE
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the following persons served on our Compensation Committee:
Mr. Churchill, Mr. Hagerty, Mr. Harkins and Mr. Harris. In addition, Mr.
Goldsmith, our Chief Executive Officer, served on the Compensation Committee
until June 30, 1998. Except for Mr. Goldsmith, none of these persons is or has
been an officer or employee of Freedom or our subsidiaries. Mr. Hagerty and Mr.
Harkins are employed by THL, and Mr. Churchill is employed by SCP. Each of THL
and SCP has been involved in transactions with the Company. See the following
section for a description of those transactions.
16
<PAGE> 22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE ACQUISITION
Pursuant to a Contribution Agreement dated October 4, 1996 (the
"Contribution Agreement"), on November 29, 1996, THL, SCP and approximately 350
employees of Freedom Securities Holding Corporation paid Hancock approximately
$180,000,000 in cash in exchange for shares representing approximately 95% of
the then-outstanding shares of the company.
Pursuant to an Additional Share Agreement which we entered into with John
Hancock Mutual Life Insurance Company ("Hancock") in connection with the
Acquisition, we issued to Hancock in 1998, for no additional consideration,
8,671 shares of our common stock.
STOCKHOLDERS AGREEMENT
We entered into a Stockholders Agreement with certain of our stockholders
(the "Stockholders Agreement"). Under the agreement, THL can require us to
register their shares of common stock for sale to the public on two occasions,
subject to certain limitations. SCP could also require us to register their
shares on one occasion (although SCP no longer holds shares of our common
stock). After the second offering of shares of our common stock to the public,
the other stockholders party to the Stockholders Agreement as a group can cause
us to register their shares on two occasions. In addition, if we decide to
register shares of our common stock for sale to the public, for our own account
or someone else's, we must notify each of the parties to the Stockholders
Agreement and they have a right to include their shares in such registration,
subject to certain limitations. We must pay all of the fees and expenses (other
than underwriting discounts and attorneys' fees) of any registration conducted
pursuant to the Stockholders Agreement. The Stockholders Agreement also grants
certain "tag-along" rights to the parties in the event THL enters into an
agreement to sell more than 50% of the stock it acquired when the Company was
acquired from Hancock.
The Stockholders Agreement also required the stockholder parties thereto to
vote their shares so as to elect four nominees of THL and one nominee of SCP to
our Board of Directors. That voting agreement expired in May 1998.
Four of our directors, Messrs. Boll, Hagerty, Harkins and Lawry are
affiliated with THL. In addition, Mr. Churchill is affiliated with SCP. As of
April 1, 1999, THL and its affiliates owned 25.4% of our common stock. In
January 1999, we purchased 494,748 shares from SCP, one of the original
investors in the Company, at $15.56 per share. The purchase was funded from
operations. SCP no longer holds any of our common stock.
SERVICES FROM AFFILIATED PARTIES
In connection with the Contribution Agreement, we entered into management
agreements with THL and SCP pursuant to which we agreed to pay annual management
fees of $250,000 and $62,500, respectively, in exchange for certain management
services. Each of these management agreements terminated in April 1998. In 1998,
we paid Advisors and THL a total amount of $125,000 and we paid SCP a total
amount of $31,250 under the respective management agreements.
A partnership in which the CEO has a controlling interest makes available
to the Company an airplane for business purposes. During 1998, the Company paid
$225,000 in expenses for use of the plane.
MARGIN LOANS
Certain of our executive officers and directors borrow from time to time
under margin accounts maintained at Wexford. All such borrowings on margin are
made in the ordinary course of business and on
17
<PAGE> 23
substantially the same terms (including interest rates and collateral
requirements) as those prevailing for transactions with unaffiliated persons at
the same time. Such borrowings by our executive officers and directors do not
entail more than normal collectibility and other risks.
INVESTMENT PARTNERSHIPS
Certain of our executive officers and other employees are limited or
general partners in investment vehicles (we will refer to these as the "Employee
Investment Vehicles"), through which they invest in funds sponsored by third
parties, some of whom are clients of ours. These Employee Investment Vehicles
also co-invest in transactions with certain of our clients. In certain
instances, we lend to employees, including these executive officers, the amounts
they use to purchase their partnership interests. The interest rate charged on
such loans is a floating rate equal to our broker call rate, which is the
interest rate charged by our brokerage subsidiaries to their margin customers.
The Employee Investment Vehicles in their discretion may redeem the interest of
these executive officers and other employees if they terminate their employment
with us during a specified period following their initial investment in such
vehicle. Upon such redemption, the executive officers and other employees would
receive the lesser of (1) their paid-in capital contribution less interim
distributions, or (2) the value of their partnership interest at that time. We
may also call any outstanding loans to such limited partners when they terminate
employment with us.
The table below shows the amounts contributed by our executive officers to
the Employee Investment Vehicles, and the distributions made to them, in 1998.
The table also shows the outstanding balances of loans we have made to these
executive officers as of March 1, 1999 and the largest amount outstanding under
such loans at any time since January 1, 1998.
<TABLE>
<CAPTION>
AMOUNTS DISTRIBUTIONS LOAN BALANCE LARGEST LOAN
CONTRIBUTED MADE AS OF BALANCE SINCE
IN 1998 IN 1998 MARCH 1, 1999(1) JANUARY 1, 1998(1)
----------- ------------- ---------------- ------------------
<S> <C> <C> <C> <C>
John H. Goldsmith.................. $ -- $ 46,081 $ 20,424 $ 26,667
William C. Dennis, Jr.............. -- -- -- --
John F. Luikart.................... 386,994 9,302 106,780 106,780
Kevin J. McKay..................... 31,667 33,710 85,229 106,861
David P. Prokupek.................. 40,000 164,483 -- --
Robert H. Yevich................... -- 29,286 20,424 26,667
</TABLE>
- ---------------
(1) Includes loans previously made in connection with Employee Investment
Vehicles into which no new amounts were contributed in 1998.
18
<PAGE> 24
OTHER INFORMATION
STOCK PERFORMANCE
The graph below compares the cumulative total shareholder return on Freedom
Securities' common stock for the period of April 2, 1998 (the date of the
Company's initial public offering) to December 31, 1998 with the cumulative
total return of Standard & Poor's 500 Stock Index and the Regional Sub-Index of
the Financial Service Analytics Stock Price Index ("FSA Regional") over the same
period. The graph assumes a $100 investment made on April 2, 1998 and the
reinvestment of all dividends. The FSA Regional Index is comprised of 11
publicly traded regional securities firms, including the Company.
<TABLE>
<CAPTION>
FREEDOM SECURITIES FSA REGIONAL BROKERAGE
CORPORATION INDEX S&P 500 INDEX
------------------ ---------------------- -------------
<S> <C> <C> <C>
4/2/98 100 100 100
6/30/98 84 101 102
9/30/98 62 78 92
12/31/98 71 83 111
</TABLE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors and executive officers, and persons who own more than ten percent
(10%) of the Company's common stock, file with the SEC initial reports of
ownership and reports of changes in ownership of the Company's common stock. Our
officers, directors and greater-than-ten-percent stockholders of the Company are
required to furnish us with copies of all Section 16(a) reports they file.
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Based solely on our review of the Section 16(a) reports furnished to us and
written representations that no other reports were required, we believe that our
directors, officers and greater-than-ten-percent stockholders reported all
transactions in Freedom common stock and options on a timely basis during the
fiscal year ended December 31, 1998 except for Mr. Henry Greenleaf, a former
executive officer, who was late in filing a Form 3.
PROPOSALS FOR THE 2000 ANNUAL MEETING
If you want to include a proposal in the Proxy Statement for Freedom's 2000
Annual Meeting, please send the proposal to us at One Beacon Street, Boston,
Massachusetts 02108, Attn: Secretary. Proposals submitted pursuant to SEC Rule
14a-8 must be received on or before December 29, 1999 to be included in next
year's Proxy Statement. Under SEC Rule 14a-4, we will be able to use proxies
given to us for the 2000 Annual Meeting to vote for or against any stockholder
proposal submitted other than pursuant to Rule 14a-8 at our discretion unless
the proposal is submitted to us on or before 60 days before next year's Annual
Meeting. If the proposal is submitted before that deadline, we will retain our
discretion to vote proxies we receive as long as we include in our Proxy
Statement information on the nature of the proposal and how we intend to
exercise our voting discretion and the proponent does not issue a proxy
statement.
By Order of the Board of Directors
/s/ John H. Goldsmith
John H. Goldsmith
Chairman of the Board and
Chief Executive Officer
April 29, 1999
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PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS OF
FREEDOM SECURITIES CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
The undersigned stockholder(s) of Freedom Securities Corporation (the
"Company") hereby appoint(s) Messrs. John H. Goldsmith and Kevin J. McKay, and
each of them singly, as proxies, each with full power of substitution, for and
in the name of the undersigned at the Annual Meeting of stockholders of the
Company to be held on Thursday, June 10, 1999, and at any and all adjournments
thereof, to vote all common shares of said Company held of record by the
undersigned on April 14, 1999, as if the undersigned were present and voting
the shares.
(TO BE SIGNED ON REVERSE SIDE)
A [X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR all WITHHOLD
nominees AUTHORITY to
(except as vote for the
indicated to nominees listed
the contrary) below.
1. ELECTION [ ] [ ] NOMINEES:
OF John H. Goldsmith
DIRECTORS. John F. Luikart
David P. Prokupek
Robert H. Yevich
(INSTRUCTIONS: To withhold authority to vote for C. Hunter Boll
any nominee, write the nominee's name on the Winston J.Churchill
space provided below.) Thomas M. Hagerty
David V. Harkins
Hugh R. Harris
Seth W. Lawry
FOR AGAINST ABSTAIN
2. Ratification of the appointment of the accounting [ ] [ ] [ ]
firm of Ernst & Young, LLP to serve as independent
accountants for the Company for the fiscal year
ending December 31, 1999.
3. The proxies are authorized to vote in their discretion
upon such other business as may properly come before the
meeting to the extent permitted by law.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR EACH NOMINEE NAMED IN
PROPOSAL 1 AND FOR PROPOSAL 2, AND IN ACCORDANCE WITH THE PROXIES' DISCRETION
ON SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE MEETING TO THE EXTENT
PERMITTED BY LAW.
I PLAN TO ATTEND THE MEETING [ ]
SIGNATURE _______________ SIGNATURE _________________________ DATE ________ 1999
SIGNATURE IF HELD JOINTLY
NOTE: (Please date this Proxy and sign exactly as your name appears hereon. When
signing as attorney, executor, administrator, trustee or guardian, please give
your full title. If there is more than one trustee, all should sign. All joint
owners should sign.)
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