<PAGE>
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the fiscal year ended September 30, 1997
Or
( ) 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 1-8408
THE ADVEST GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-0950444
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
90 State House Square, - Hartford, Connecticut 06103
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (860) 509-1000
Securities registered pursuant to Section 12(b) of the Act: Yes
Name of each exchange on
Title of each class which registered
Common Stock, $.01 Par Value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by an (X) whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by an (X) 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 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant was $184,116,101 as of December 1, 1997.
On December 1, 1997 the Registrant has outstanding 8,680,332 shares of common
stock of $.01 par value, which is the Registrant's only class of common
stock.
Parts I, II and IV incorporate information by reference from the Registrant's
1997 Annual Report to Shareholders. Part III incorporates information by
reference from the Registrant's definitive proxy statement for the annual
meeting to be held on January 29, 1998.
Total number of sequentialy numbered pages 104
Exhibit index sequetial page number page 28
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Part I
Item 1. Business
General Development of Business
(1) The Advest Group, Inc. ("AGI"), a Delaware corporation, is a financial
services holding company engaged, with its operating subsidiaries
(collectively the "Company"), in securities brokerage, trading, investment
banking, residential lending, asset management, trust and other financial
services. It is organized under the laws of Delaware and commenced operations
on January 1, 1977. AGI is successor to a partnership which resulted from
mergers of five New York Stock Exchange, Inc. ("NYSE") member firms organized
between 1898 and 1919. The Company's broker/dealer subsidiary, Advest, Inc.
("Advest"), was organized to succeed the business of the partnership,
effective January 1, 1977. Since that date, a number of other operating
subsidiaries in the brokerage and financial services industries have been
established or acquired.
In addition to Advest, operating subsidiaries include Advest Bank and
Trust Company (the "Bank"), a federal savings bank; Boston Security
Counsellors, Inc. ("BSC"), an investment management company; and Billings &
Company, Inc. ("Billings"), a real estate services company. Material
acquisitions and dispositions by the Company during the past four years
follow.
During fiscal 1994, Lyons, Zomback & Ostrowski, Inc., a financial
consulting company specializing in the banking industry and a subsidiary of
AGI, was merged into the corporate finance division of Advest as the
Financial Institutions Group (the "FIG"). The FIG unit serves as an advisor
to small and medium-sized community banks.
During fiscal 1995, the Company sold the investment advisory business
related to its proprietary mutual funds in three separate transactions. The
total gain from all sales was $10.1 million and is reported separately on the
Consolidated Statement of Earnings. Additional consideration of $.1 and $.6
million was received in fiscal 1997 and 1996, respectively, under the terms
of one of the sales agreements.
In October 1996, the Company formed The Hannah Consulting Group ("HCG"),
an investment management subsidiary. HCG is located in Boston, MA and its
employees provide investment management services primarily to pension plans.
In October 1997, Advest acquired Ironwood Capital Ltd. ("Ironwood"), a
private investment bank that originates and distributes private placements of
taxable fixed income securities. Ironwood and its twelve employees became
the Corporate Fixed Income Group of Advest's Investment Banking Division.
The Company issued 137,060 shares of its common stock in conjunction with the
acquisition which will be accounted for as a pooling of interests. Due to
the immaterial effect on the Company's consolidated financial position,
results of operations and cash flows, operating results of Ironwood will be
included prospectively in the Company's consolidated financial statements.
(2) Advest is engaged in a broad range of activities in the securities
brokerage, investment banking and asset management businesses. Specific
services include retail brokerage, institutional sales, origination of and
participation in underwritings and distribution of corporate and municipal
securities, market making and trading activities in corporate securities,
government and municipal bonds, research, custody and money management.
Advest has been classified by the Securities and Exchange Commission
("SEC") and the Securities Industry Association as a "large regional"
brokerage firm. "Regional" is a term commonly used in the securities industry
to indicate that a firm's headquarters are located outside New York City.
Advest has retail clients in all fifty states with the largest concentration
in the
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Northeast and Midwest regions and also services institutional accounts
throughout the country. During fiscal 1997, Advest opened 3 new sales offices
- - in Norwell, MA, New Canaan, CT and Garden City, NY. At September 30, 1997,
Advest had sales locations, including satellite offices, and account
executives in 16 states and the District of Columbia as follows:
Number of
Number of Investment
State Locations Executives
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Connecticut 9 72
District of Columbia 1 11
Florida 7 59
Illinois 1 4
Kentucky 3 15
Maine 5 21
Maryland 1 5
Massachusetts 8 52
Missouri 1 11
New Hampshire 3 7
New Jersey 4 24
New York 16 117
Ohio 12 60
Pennsylvania 12 53
Rhode Island 1 11
Vermont 1 3
Virginia 4 13
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89 538
=== ===
Advest is a member of all major securities exchanges in the United
States, the National Association of Securities Dealers ("NASD") and the
Securities Investor Protection Corporation ("SIPC"). In addition, Advest is
registered with the Commodity Futures Trading Commission ("CFTC") as a
commodity trading advisor and a futures commission merchant and clears all
option transactions through an independent third party broker.
The Bank opened for business in 1984 as a state-chartered savings bank.
Effective April 15, 1997, the Bank converted to a federal savings bank, and
ceased to be a state-chartered bank. As a federal savings bank, the Bank is
regulated by the Office of Thrift Supervision ("OTS"), but its deposits
continue to be insured under the Bank Insurance Fund of the FDIC. This
regulatory and charter change enables the Bank to provide residential lending
and trust services in all 50 states. The Bank's headquarters is located at
90 State House Square, Hartford, Connecticut 06103. The Bank closed its sole
retail branch located in Hartford, CT during the current fiscal year,
subsequent to its conversion to a federal charter which does not require it
to have a branch office. The Bank has representative offices in Springfield,
Massachusetts and Columbus, Ohio for trust and mortgage origination,
respectively, as well as two trust offices opened during fiscal 1997 in New
Canaan, CT and Pittsburgh, PA. All representative offices share office space
with Advest retail offices. The Bank's principal business activities consist
of soliciting and servicing fiduciary and retirement plan trust business and
conducting a broad range of mortgage banking services, primarily to clients
of Advest. The Bank also provides residential first mortgage and home equity
lending funded by customer deposits, together with funds from capital and
other borrowings. In recent years, the total assets of the Bank have
declined as part of a planned reduction in its asset base. The Bank's loan
portfolio includes single and multi-family residential mortgages, consumer
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loans and commercial mortgages. The Bank has expanded its residential
mortgage lending production in recent years, and places excess volume not
retained in portfolio with investors, principally federal agencies and major
private mortgage conduits. Investments include government and agency
obligations and mortgage-backed securities. The Bank does not currently have
a material source of deposits other than those obtained through Advest.
Deposits in the Bank are insured by the Bank Insurance Fund of the FDIC,
subject to applicable limits.
In fiscal 1991, the OTS approved requests by AGI and the Bank for the
Bank to be deemed a "savings association" by virtue of its meeting the test
for a qualified thrift lender and for AGI, as the sole shareholder of a
"savings association", to be treated as a unitary thrift holding company. In
order to retain its status as a "savings association" the Bank must continue
to satisfy the "qualified thrift lender" test. This test generally requires
that an institution maintain a minimum of 65% of its assets in residential
real estate and related investments. At September 30, 1997, 86.7% of the
Bank's portfolio consisted of such assets.
(3) The Company's principal executive offices are located at 90 State House
Square, Hartford, Connecticut, 06103 (telephone number (860) 509-1000).
At September 30, 1997, the Company employed 1,631 persons. The Company
considers its compensation and employee benefits, which include medical, life
and disability insurance, and a 401(k) defined contribution plan, to be
competitive with those offered by other securities firms. None of the
Company's employees is covered by collective bargaining agreements. The
Company considers its relations with its employees to be satisfactory.
However, there is considerable competition for experienced financial services
professionals, particularly investment executives, and periodically the
Company may experience the loss of valued professionals.
Financial Information about Industry Segments
The information required by this item is disclosed on page 45 of the 1997
Annual Report to Shareholders in Note 19 of Notes to Consolidated Financial
Statements. Such information is hereby incorporated by reference.
Narrative Description of Business
(1) Revenues
The principal sources of revenue for the last five years are disclosed on
page 18 of the 1997 Annual Report to Shareholders under the caption "Five
Year Financial Summary". A discussion of the components of services provided
and related compensation follows.
Agency Commissions
Listed Advest acts as an agent for its customers in the purchase and
sale of securities on the major securities exchanges. Commissions generated
by these customers represent a large portion of the Company's revenue.
Mutual Funds Advest executes purchases and redemptions of shares for
its clients in many diverse mutual funds.
Nasdaq In executing customers' orders in the Nasdaq market, Advest
generally acts as agent with another firm which is a market maker in the
securities being purchased or sold. The market price executed represents the
best inter-dealer market price available.
Insurance Advest acts as agent for several life insurance companies
and sells life insurance and tax-advantaged annuities to its brokerage
clients. A principal objective of Advest's insurance department is to assist
account executives in protecting the assets of high net worth individuals and
businesses. The department provides customized advice and recommends
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appropriate products to meet unique individual, professional or business
needs.
Options - Advest also effects for its customers the purchase and sale of
put and call options traded on all major stock exchanges.
Other - Other commissions include commissions from commodity trading,
international stocks and bonds, certificates of deposit and income from
correspondent brokers.
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on trading positions of Advest and related sales credits as well
as realized gains and losses on available for sale securities of the Bank.
The Company does not actively participate in the high yield securities
market. Advest manages the risk associated with its corporate and municipal
bond trading securities by entering into derivative transactions, primarily
exchange-traded financial futures contracts, when certain inventory levels
are reached. Derivative positions are generally not material and are marked-
to-market daily.
Advest actively engages in trading as principal in various phases of the
over-the-counter securities business and acts as principal to facilitate the
execution of customers' orders. Advest buys, sells and maintains an
inventory of a security in order to "make a market" in that security. As of
September 30, 1997, Advest made dealer markets in the common stock or other
equity securities of approximately 151 corporations. Advest also actively
engages in trading municipal and corporate bonds and unit investment trusts.
Investment Banking
Advest manages and participates as an underwriter of corporate, municipal and
government securities, mutual funds and private placement offerings. Its
Syndicate Department is responsible for Advest's participation in
underwritings managed by Advest and other firms. The Corporate Finance and
Public Finance Departments are responsible for offerings managed or co-
managed by Advest.
Underwriting involves both economic and regulatory risks. An
underwriter may incur losses if it is unable to resell the securities it is
committed to purchase or if it is forced to liquidate its commitments at less
than the agreed purchase price. In addition, under the Securities Act of
1933, other laws and court decisions with respect to underwriters' liability
and limitation on indemnification of underwriters by issuers, an underwriter
is subject to substantial potential liability for material misstatements or
omissions in prospectuses and other communications with respect to
underwritten offerings. Furthermore, underwriting commitments constitute a
charge against net capital and Advest's underwriting commitments may be
limited by the requirement that it must at all times be in compliance with
the net capital Rule 15c3-1 of the SEC.
Advest also provides merger and acquisition advisory services,
appraisals and related services. Generally, the Company does not engage in
bridge financing activities.
Asset Management and Administration
Advest provides money management services to its brokerage customers through
its Investment Management Department ("IMD"). IMD provides various services
to brokerage clients including client profiling, asset allocation, manager
selection, due diligence and performance measurement. Recommended portfolio
managers include managers in the proprietary Advest Managed Portfolio
Services as well as managers not affiliated with the Company. Revenue is
generated from fees and/or commissions. At September 30, 1997, IMD had
approximately $2.7 billion of assets under management.
BSC, an investment advisor, services private clients and was investment
advisor to the
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Company's proprietary mutual funds, until their sale in fiscal 1995. HCG, an
investment management firm acquired by the Company in the current year,
provides consulting services primarily to pension funds. Other services
include retirement plan administration, securities custody and safekeeping.
The Advest Reserve Cash Account ("ARCA") enables brokerage clients to
participate in an integrated financial services program. ARCA clients have
access to their assets through unlimited checkwriting and a VISA debit card
issued by a major third party bank as well as on-request loans collateralized
by margined securities. Direct deposit is available to ARCA accounts who can
select among several automatic investment options for idle cash balances,
including an FDIC-insured money market account with the Bank and five money
market mutual funds. Other services offered to all clients include
retirement plan servicing, securities custody and asset safekeeping.
The Bank, through its Trust Division, provides fiduciary, trustee and
custody services to individuals, corporate retirement plans, financial
institutions and other entities. The Bank primarily acquires trust and
custody accounts through Advest's retail sales force.
Advest Bank and Trust Company Net Interest Income
Net interest income is the excess of the interest income and loan fee income
over interest expense. The Bank derives interest income from loans extended
for the purposes of residential, commercial and consumer credit. Funds not
used in lending are invested primarily in money market instruments and short
and adjustable rate mortgage-backed securities. The Bank's loans and
investments are funded by interest-bearing deposits, by debt (primarily
advances from the Federal Home Loan Bank of Boston), and by the Bank's equity
capital. The Bank's interest and loan fee income has historically exceeded
the interest expense of funding and has produced positive net interest
income.
The Bank is subject to interest rate risk to the degree that the Bank's
interest-bearing liabilities reprice or mature more rapidly, and in greater
volume, as is the case currently, than its interest-earning assets (see
Distribution of assets, liabilities and shareholder's equity, interest rates
and interest differentials as disclosed on page 10 of this filing and in
Notes 15 and 16 of Notes to Consolidated Financial Statements on pages 43 and
44 in the 1997 Annual Report to Shareholders. Such information is hereby
incorporated by reference).
Interest Income and Customer Financing
Advest's customers' transactions in securities are effected on either a cash
or margin basis. In a margin account, the customer pays less than the full
cost of a security purchased and the broker/dealer makes a loan for the
balance of the purchase price which is secured by the securities purchased,
or other securities owned by the investor. The amount of the loan is subject
to the margin regulations (Regulation T) of the Board of Governors of the
Federal Reserve System, NYSE margin requirements, and the firm's internal
policies which in some instances are more stringent than Regulation T or NYSE
requirements. Currently, in most transactions, Regulation T requires that
the amount loaned to a customer for a particular purchase not exceed 50% of
the purchase price of a security, so that initially the customer's equity in
the purchase exceeds the NYSE's rules. A member firm is required to have the
customer deposit cash or additional securities so that the loan to the
customer for which marginable equity securities are pledged as collateral is
no greater than 75% of the value of the securities in the account.
Interest is charged on the amount borrowed to finance customers' margin
transactions. The rate of interest charged customers is based primarily on
the brokers' call rate (the charge on bank loans to brokers secured by firm
and customers' securities), to which an additional amount is added up to
2.75%. The amount of this interest surcharge is dependent on the average net
margin
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balance and the dollar amount of commissions charged on account transactions
during the month.
Customer credit balances, retained earnings, cash received from stock
loan activities, and short-term borrowings are the primary source for
financing customer margin accounts.
Other Income
Other income includes execution fees, exchange and other marketing credits,
transfer and service fees, gains on sales of mortgages by the Bank in
secondary markets and investment gains and losses.
Research
Through the combined resources of its in-house research staff and
correspondent research provided by three leading outside research firms,
Advest provides its brokerage clients with a full range of research services.
These include corporate data, financial analysis, identification of emerging
trends and objective recommendations. In-house analysts specialize in health
care, regional banking, insurance, technology and consumer products and
services. Correspondent research provides information and recommendations on
approximately 3,000 domestic and international equities in over 60 industries
in 30 countries.
(2) Competition
All aspects of the business of the Company are highly competitive. Advest
competes with numerous regional and national broker/dealers and other
entities, many of which have greater financial resources than the Company.
Because of the variety of financial services offered by the Company and the
various types of entities that provide such services (including other
brokers, banks, insurance companies and retail merchandise outlets), it is
not possible to estimate the number of companies that compete with the
Company for investor assets. Advest competes with other firms on the basis of
transaction prices, quality of service, product availability and locations.
With respect to price, service and product, the Company believes it is
competitively well-positioned; it is impossible to predict, however, the
effect of the broader distribution locales offered by competing entities or
the lower costs which may be offered by certain discount brokers. In
addition, there is competition for investment professionals among the large
number of companies now in the financial services field.
The mortgage banking environment that the Bank operates within is highly
competitive. The Bank competes with mortgage companies, banks, savings banks,
savings and loans, credit unions, finance companies and other financial
intermediaries for conventional and home equity residential loans. The market
for qualifying conventional loans is defined and dominated by federal
agencies such as Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), who effectively act as the
market makers and are the dominant investors. This market is also highly
sensitive to the level and volatility of interest rates, which effects the
volume of business being conducted.
The Bank in soliciting trust business encounters significant competition
from trust companies, savings banks, savings and loans, insurance companies,
broker/dealers, investment firms, mutual funds, and law firms in attracting
trust accounts, particularly fiduciary relationships.
In attracting deposits, the Bank faces strong competition from numerous
savings banks, savings and loan associations, commercial banks,
broker/dealers, credit unions, insurance companies, investment firms and
mutual funds with offices located primarily in its primary market area. The
Bank also faces significant competition for investors' funds from short-term
money market funds and other corporate and government securities.
The Bank's deposit base is substantially derived from Advest's brokerage
clients. A portion of these deposits, primarily certificates of deposits, are
acquired on a fee basis and are considered
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"brokered" under FDIC rules. The Bank does not possess branch operations
with which it may attract significant additional retail deposits other than
those obtained through Advest. Pursuant to the terms of federal banking
regulations concerning brokered deposits, the Bank at September 30, 1997 was
deemed to be a "well capitalized" bank and as such was not subject to
restrictions regarding brokered deposits. Prior to September 30, 1996, the
Bank was deemed to be an "adequately capitalized bank", and as such was
limited as to the maximum interest rates it could offer on its brokered
deposit products to rates which did not exceed (1) the rate paid on deposits
of similar maturity in the Bank's normal market area for deposits accepted or
(2) the "national rate" paid on deposits of comparable maturity for deposits
accepted outside the Bank's normal market area. The Bank had $61.4 million of
brokered deposits as of September 30, 1997.
(3) Regulation
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The SEC is the Federal agency
charged with administration of the Federal securities laws. Much of the
regulation of broker/dealers has been delegated to self-regulatory
authorities, principally the NASD, the CFTC and the securities exchanges.
These self-regulatory organizations conduct periodic examinations of member
broker/dealers in accordance with the rules they have adopted and amended
from time to time, subject to approval by the SEC. Securities firms are also
subject to regulation by state securities commissions in those states in
which they do business.
Broker/dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trading practices among
broker/dealers, uses and safekeeping of customers' funds and securities,
capital structure of securities firms, recordkeeping and the conduct of
directors, officers and employees. Additional legislation, changes in rules
promulgated by the SEC and self-regulatory authorities, or changes in the
interpretation or enforcement of existing laws and rules, may directly affect
the mode of operation and profitability of broker/dealers. The SEC, self-
regulatory authorities and state securities commissions may conduct
administrative proceedings which can result in censure, fine, suspension or
expulsion of a broker/dealer, its officers or employees. Such administrative
proceedings, whether or not resulting in adverse findings, can require
substantial expenditures. The principal purpose of regulation and discipline
of broker/dealers is the protection of customers and the securities markets,
rather than protection of creditors and stockholders of broker/dealers.
The Company's investment advisory subsidiaries, BSC and HCG, are also
subject to extensive Federal and state regulations by the SEC and state
securities commissions.
Advest is required by Federal law to belong to the SIPC. The SIPC fund
provides protection for securities held in customer accounts up to $500,000
per customer, with a limitation of $100,000 on claims for cash balances. The
Company purchases coverage which provides an additional $24.5 million of
coverage per customer for securities held in customers' accounts.
As a federal savings bank whose deposits are insured by the FDIC,
subject to applicable limits, the Bank is subject to extensive regulation and
supervision by both the OTS and the FDIC. The Bank is also subject to various
regulatory requirements of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") applicable to FDIC insured financial
institutions. This governmental regulation is primarily intended to protect
depositors, rather than shareholders, and concerns, among other matters,
capital requirements, safety and soundness, permissible investments,
community reinvestment and credit discrimination. AGI, for the purpose of
ownership of the Bank, is a unitary savings and loan holding company, and is
subject to limited regulation and certain reporting requirements by the OTS.
The Bank posted pre-tax income of $.7 million and $1.1 million,
respectively, for fiscal 1997 and 1996 after posting losses in each of the
previous six fiscal years. In July 1991, the Bank
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entered into a Memorandum of Understanding ("MOU") with its regulators to
address certain concerns arising out of an examination of the Bank. In
February 1993, the Bank entered into a new MOU with its regulators with terms
similar to the original MOU. During 1996, the Bank achieved compliance with
all requirements of the MOU and, in July 1996, the MOU was lifted.
Refer to pages 19 through 27 of the 1997 Annual Report to Shareholders
under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and on page 36 in Note 5 and on page 41
in Note 12 of the Notes to Consolidated Financial Statements for a further
description of capital and regulatory considerations concerning the Bank.
Such information is hereby incorporated by reference.
Certain legislative and regulatory proposals that could affect the Bank
and the banking business in general are pending, or may be introduced, before
the United States Congress, various state legislatures and governmental
agencies. These proposals include measures that may further alter the
structure, regulation and competitive relationship of financial institutions
and that may subject financial institutions to increased regulation,
disclosure and reporting requirements. The Bank is not restricted by federal
bank regulations from the declaration of dividends. No dividends were
declared in 1997. (For further discussion concerning dividend restriction
applicable to the Bank refer to page 41 of the 1997 Annual Report to
Shareholders in Note 12 of Notes to Consolidated Financial Statements. Such
information is hereby incorporated by reference.) It cannot be predicted
whether or in what form any future legislation or regulations will be enacted
or to what extent the business of the Bank may be affected.
Federal banking regulations define five categories of capital adequacy
for all insured depository institutions, including categories that would
prompt supervisory actions. These categories include "well capitalized" (with
total risk based capital of greater than 10% of risk adjusted assets, Tier 1
capital of greater than 6% of risk adjusted assets and leverage capital of
greater than 5% of assets), "adequately capitalized" (greater than 8%, 5% and
4% respectively), "undercapitalized" (less than 8%, less than 4% and less
than 4%, respectively), "significantly undercapitalized" (less than 6%, 3%
and 3%, respectively) and "critically undercapitalized" (tangible capital of
less than 2% of total assets.) In addition, an institution may not be
categorized as "well capitalized" if it is subject to a regulatory order.
Financial institutions classified as one of the three undercapitalized
categories are subject to progressively more restrictive limitations on
activities and may be subject to orders to increase capital and to cease
certain activities and practices. A "critically undercapitalized"
institution, among other additional restrictions, may, under certain
conditions, be placed in a receivership or a conservatorship. Holding Company
guarantees apply if an insured institution is classified "undercapitalized".
Such holding company guarantees include guarantee of compliance with banking
rules, regulations and laws and the improvement of the bank, including
limited capital support. As previously disclosed, the Bank, meets the
criteria to be classified "well capitalized" bank as of September 30, 1997.
(4) Disclosure Requirements for Nonbank Holding Companies
Article 9 of Regulation S-X and Industry Guide 3 specify financial statement
and certain disclosure requirements for bank holding companies. SEC Staff
Accounting Bulletin No. 69 ("SAB 69") details the view of the SEC staff
concerning the applicability of Article 9 and Industry Guide 3 to registrants
which are not bank holding companies. The bulletin concludes that a nonbank
holding company registrant engaged in similar lending and deposit activities
should provide certain disclosures relevant to an understanding of the
Registrant's operations. In accordance with SAB 69, the Company, a nonbank
holding company, makes the following disclosures regarding the Bank.
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Distribution of Assets, Liabilities and Shareholder's Equity; Interest
Rates and Interest Differentials
The following table presents for the periods indicated (I) average
assets, liabilities and shareholder's equity, (II) interest income and
expense, (III) average yields on interest-earning assets and average
rates incurred on interest-bearing liabilities, (IV) the net interest
spread and (V) net interest margin on interest- earning assets.
Yields and rates are computed on a tax equivalent basis at tax rates
of 34% for each of the three years ended September 30, 1997. Average
balances are calculated predominately on a daily basis.
<TABLE>
<CAPTION>
1997 1996 1995
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Interest Average Interest Average Interest Average
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
(In thousands) Balance Expense Rates Balance Expense Rates Balance Expense Rates
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets
CD's, time deposits, federal funds
and other short-term investments $ 5,674 $ 313 5.52% $ 8,132 $ 436 5.36% $ 6,294 $ 366 5.82%
Investment securities: <FN> (1)
U.S. government and agency obligations 905 54 5.96% 541 32 5.91% 2,107 151 7.17%
Other 500 39 7.80% 606 40 6.60% 703 47 6.69%
Mortgage-backed securities 18,265 1,186 6.49% 21,815 1,378 6.32% 35,321 2,044 5.79%
FHLB stock 2,272 145 6.38% 2,233 145 6.49% 2,129 157 7.37%
Loans (net of unearned income) <FN> (2) 184,619 13,867 7.51% 206,680 16,040 7.76% 258,011 19,975 7.74%
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Total interest-earning assets 212,235 15,604 7.35% 240,007 18,071 7.53% 304,565 22,740 7.47%
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Noninterest-earning assets
Cash and cash equivalents 817 874 960
Property and equipment 742 683 692
Interest receivable 1,151 1,593 2,339
OREO and other assets 2,654 5,856 16,839
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Total noninterest-earning assets 5,364 9,006 20,830
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$217,599 $249,013 $325,395
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Liabilities and shareholder's equity
Interest-bearing liabilities
Total deposits <FN> (3) $182,739 $7,619 4.17% $215,117 $8,974 4.17% $275,962 $11,370 4.12%
FHLB advances 18,240 1,175 6.44% 14,364 1,005 7.00% 23,965 1,605 6.70%
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Total interest-bearing liabilities 200,979 8,794 4.38% 229,481 9,979 4.35% 299,927 12,975 4.33%
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Noninterest-bearing liabilities
Accrued interest payable 739 1,023 1,251
Other liabilities 887 4,004 5,138
Accrued expenses 257 474 232
---------- ---------- ----------
Total noninterest-bearing liabilities 1,883 5,501 6,621
---------- ---------- ----------
Shareholder's equity 14,737 14,031 18,847
---------- ---------- ----------
$217,599 $249,013 $325,395
========== ========== ==========
Net interest income (tax equivalent basis) $6,810 $8,092 $ 9,765
========= ========= =========
Net interest spread (tax equivalent basis) 2.98% 3.18% 3.14%
========= ========= =========
Net interest income as a percentage of
interest-earning assets (tax equivalent basis) 3.21% 3.37% 3.21%
========= ========= =========
<FN>
<FN> (1) Securities available for sale are included in investment securities.
<FN> (2) Nonaccrual loans at year end are included in the total loan portfolio.
<FN> (3) Includes net cost of interest rate swaps and caps.
</TABLE> -10-
<PAGE>
Analysis of Changes in Interest Income and Interest Expense
The following table presents an analysis of increases and decreases in
interest income and expense in terms of changes in volume and interest
rates for the periods indicated. Changes not due solely to either a
change in volume or a change in rate have been allocated based on the
respective percentage changes in average balances and average rates.
The table is presented on a tax equivalent basis at tax rates of 34%
for fiscal years 1997 and 1996.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
Increase (decrease) due to change in Increase (decrease) due to change in
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income
CD's, time deposits, federal funds
and other short-term investments $( 132) $ 9 $( 123) $ 112 $( 42) $ 70
Investment securities: <FN> (1)
US government and agency obligations 21 1 22 (120) 1 (119)
Other (7) 6 (1) (6) (1) (7)
Mortgage-backed securities (225) 33 (192) (883) 217 (666)
FHLB stock 3 (3) 0 50 (62) (12)
Loans (net of unearned income) <FN> (2) (1,677) (496) (2,173) (3,978) 43 (3,935)
-------------------------------- ----------------------------
Total interest income (2,017) (450) (2,467) (4,825) 156 (4,669)
-------------------------------- ----------------------------
Interest expense
Total deposits <FN> (3) (1,350) (5) (1,355) (2,634) 238 (2,396)
FHLB advances 269 (99) 170 (420) (180) (600)
-------------------------------- ----------------------------
Total interest expense (1,081) (104) (1,185) (3,054) 58 (2,996)
-------------------------------- ----------------------------
Change in net interest income $( 936) $( 346) $(1,282) $(1,771) $ 98 $(1,673)
================================ ============================
<FN>
<FN> (1) Securities available for sale are included in investment securities.
<FN> (2) Non-accrual loans at year end are included in the total loan portfolio.
<FN> (3) Includes net cost of interest rate swaps and caps.
</TABLE>
Investment Activities
The following table summarizes the composition of the securities
portfolio (book values) for the three years ended September 30, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
(In thousands) Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
US government and agency obligations $ 600 3% $ 599 2% $ 490 3%
Mortgage-backed securities 8,002 38% 10,635 42% 21,965 83%
Other 500 2% 500 2% 596 2%
FHLB stock 2,270 11% 2,233 10% 2,233 8%
Securities available for sale <FN> (4) 9,677 46% 11,157 44% 1,127 4%
----------------------------------------------------------
Total $21,049 100% $25,124 100% $26,411 100%
==========================================================
</TABLE>
The following table sets forth the maturities of investment securities
at September 30, 1997 and the weighted average (tax equivalent) yields
on such securities:
<TABLE>
<CAPTION>
Five to
Within After one but ten After ten
one year within five years years years Total
------------------------------------------------------------------------------------------------------
(In thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
US government and agency
obligations $ 600 5.25% $ 600 5.25%
Mortgage-backed securities $8,002 7.00% 8,002 7.00%
Other $500 8.00% 500 8.00%
FHLB stock 2,270 6.45% 2,270 6.45%
Securities available
for sale <FN> (4) 9,677 5.34% 9,677 5.34%
------------------------------------------------------------------------------------------------------
Total $2,870 6.20% $500 8.00% $0 0.00% $17,679 6.09% $21,049 6.00%
======================================================================================================
<FN>
<FN> (4) Securities available for sale are detailed in Note 4 of Notes to
Consolidated Financial Statements in the 1997 Annual Report to
Shareholders.
As of September 30, 1997, the Bank held no securities investments
which exceeded 10% of shareholder's equity.
-11-
</TABLE>
<PAGE>
Lending Activities
The following table summarizes the composition of loan portfolio for
the three years ended September 30, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ---------------------- ----------------------
(In thousands) Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 4,627 2% $ 2,757 2% $ 3,856 3%
Real estate construction 3,637 2% 4,946 2% 5,597 1%
Real estate mortgage 179,188 94% 177,734 95% 222,424 96%
Installment 3,732 2% 1,097 1% 922 -
------------------- ---------------------- ----------------------
Gross total loans $191,184 100% $186,534 100% $232,799 100%
======== ========== ===========
Less: Allowance for loan loss 2,479 2,278 2,213
----------- ------------ -----------
Net total loans $188,705 $184,256 $230,586
=========== ============ ===========
</TABLE>
Commercial loans, primarily to individuals and small to medium sized
firms, were made at a variety of repayment terms and are primarily
collateralized by equipment, marketable securities or inventory
primarily located in Connecticut. Real estate mortgage and
construction balances as of September 30, 1997 are comprised of
residential, commercial and multifamily mortgages of approximately
$151.7 million, $23.1 million and $8.0 million, respectively.
Commercial real estate loans are primarily located in the Northeast
and include as collateral multifamily, health care, office and
industrial property. The Bank is no longer an active loan originator
in the commercial real estate market. The Bank's residential loan
portfolio is primarily collateralized by mortgages on 1-4 family
residential properties located throughout the eastern United States
with concentrations in Connecticut, New York, Massachusetts, Ohio and
Florida. Installment loans are made to individuals. The Bank also
occasionally purchases residential mortgage loans for its portfolio
from other financial institutions and mortgage bankers. Such
purchases are primarily loans collateralized by property located in
Connecticut and Massachusetts. During fiscal 1997, home equity lines
of credit of approximately $5.8 million were purchased, of which
approximately $1.7 million was advanced.
The following table shows the interest rate sensitivities of loans
outstanding as of September 30, 1997 which are due or reprice in the
periods indicated. Loans due within one year include demand loans.
<TABLE>
After one After
Within but within five
(In thousands) one year five years years Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and financial $ 777 $ 3,234 $ 616 $ 4,627
Real estate construction 2,610 1,027 - 3,637
Real estate mortgage 1,843 34,313 143,032 179,188
Installment 604 2,737 391 3,732
-------- ---------------------- -----------
Total $5,834 $41,311 $144,039 $191,184
======== ====================== ===========
Fixed interest rate 2,239 $11,926 $ 50,940
Variable interest rate 3,595 29,385 93,099
-------- ----------------------
Total $5,834 $41,311 $144,039
======== ======================
</TABLE>
Nonperforming Assets
A summary of nonperforming assets by type follows for the three years
ended September 30, 1997:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $4,135 $1,422 $ 290
Restructured loans - - -
Other real estate owned, net 1,046 984 2,849
---------------------- -----------
Total nonperforming assets $5,181 $2,406 $3,139
====================== ===========
Nonperforming assets as a percentage of loans
and other real estate owned 2.7% 1.3% 1.3%
====================== ===========
</TABLE>
Generally loans are placed on nonaccrual status when interest or
principal is past due for ninety days or earlier if circumstances
indicate collection is doubtful. The Bank resumes the accrual of
interest on such loans if, in the opinion of management, the borrower
has demonstrated adequate financial resources and intent to meet the
terms and conditions of the loan, and all payments are again current.
Interest income forgone on nonperforming loans in fiscal years 1997,
1996, and 1995 amounted to $576,000, $297,000 and $508,000,
respectively. During 1997 and 1996, approximately $2,000 and
$187,000, respectively, of income was recognized on non-accrual loans.
This income was recognized while the loans were performing and was
realized by cash payments. It is management's policy to reverse all
uncollected interest at the time a loan is placed on nonaccrual.
-12-
<PAGE>
Summary of Loan Loss Experience
The following table summarizes the Bank's loan loss experience for
each of the three years ended September 30, 1997:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $2,278 $2,213 $4,645
-------- -------- --------
Charge-offs:
Real estate mortgage 725 1,196 7,845
Installment - - -
Commercial - 81 483
-------- -------- --------
725 1,277 8,328
-------- -------- --------
Recoveries:
Real estate mortgage 297 273 258
Commercial - 15 1
-------- -------- --------
297 288 259
-------- -------- --------
Net charge-offs 428 989 8,069
Additions charged to operations 629 1,054 5,637
-------- -------- --------
Balance at end of period $2,479 $2,278 $2,213
======== ======== ========
Ratio of net charge-offs to average loans
outstanding during the period 0.25% 0.48% 3.13%
======== ======== ========
</TABLE>
The Bank maintains general reserves for potential losses from its loan
portfolio in an Allowance for Possible Loan Losses. (the
"ALL"). The ALL is maintained at a level considered by management
to be adequate. The adequacy of the ALL is reviewed quarterly by the
Bank's management and its Board of Directors, and is determined
primarily by management's informed judgment concerning the amount of
risk inherent in the portfolio at a point in time. Management's
judgment is based on a number of factors including: 1) a detailed
risk rating system for commercial loans in which loans are
individually reviewed with respect to such criteria as the estimated
value of underlying loan collateral and the financial condition of
borrowers, 2) recent historical loan loss experience, 3) industry and
geographic concentrations, 4) the results of the most recent
regulatory examination available, 5) current national and local
economic conditions, and 6) other relevant information as may be
available. The balance of each risk rating category has a reserve
percentage applied for the purpose of estimating each component of
the ALL. A substantial portion of outstanding commercial loan
portfolio balances on an annualized basis are reviewed periodically by
a third party that is independent from the Bank and the results of
such review are factored into the risk rating system.
Management also reviews monthly, certain monitored performing and all
nonperforming loans individually and makes further reserve allocation
adjustments. The Bank's one to four family residential mortgage
portfolio reserves are evaluated primarily upon the basis of portfolio
historical performance. The Bank also maintains an unallocated and
supplemental reserve that reflects management's assessment of local
and national economic, business and real estate market trends, and the
Bank's procedures, controls and personnel.
At September 30, 1997 and 1996, the bank classified $2,948,000
and $5,261,000 respectively, of loans as impaired. A loan is
considered impaired if it is probable that the Company will be
unable to collect scheduled payments according to the terms of
the loan agreement. Impaired loans as of September 30, 1997 and
1996 include $0 and $3,810,000 of loans restructured and
currently classified as performing, $2,948,000 and $639,000 of
loans currently classified as nonaccrual, and $0 and $812,000 of
loans in which potential credit problems may lead to future
nonaccrual status or possible charge-off. The nonaccrual impaired
loans are a component of nonperforming assets.
Loans are charged off against the ALL when management believes that
collection is unlikely. Loan charge-offs are identified during the
loan review process. The charge-offs recorded for all periods were
primarily associated with the real estate mortgage portfolios and
resulted from the decline in the value of the properties serving as
collateral for the loans. The charge-offs recorded during 1995 were
also associated with the discounts necessary to attract buyers of
those distressed commercial OREO assets included in the Bank's
accelerated asset disposition plan and other bulk asset sales.
The following table presents the allocation of the reserve for
possible loan and lease losses by loan categories for the three years
ended September 30, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------------------------------
Loans in Loans in Loans in
Amount category Amount category Amount category
of as a % of of as a % of of as a % of
(Dollars in thousands) reserve total loans reserve total loans reserve total loans
- ---------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial $ 40 2% $ 24 2% $ 26 2%
Real estate construction 31 2% 44 2% 33 2%
Real estate mortgage 1,608 94% 1,587 96% 1,607 96%
Installment 75 2% 22 - 18 -
Commitments 434 - 340 - 219 -
Unallocated 291 - 261 - 310 -
-------------------- -------- -------- -------------------
Total $2,479 100% $2,278 100% $2,213 100%
==================== ======== ======== ===================
-13-
</TABLE>
<PAGE>
Deposits
The Bank offers a variety of deposit accounts designed to attract both
short and long term funds. The Bank provides a money market deposit
account to Advest's customers as a component of various cash
management products available to those customers. The Bank primarily
markets brokered Certificates of Deposit (CD's) through Advest. The
Bank also markets retail deposit accounts, such as money market
accounts, primarily through Advest. At September 30, 1997, deposits
obtained through Advest constituted 75.4% of all deposits at the Bank.
Additional deposit information is disclosed in Note 5 of Notes to
Consolidated Financial Statements in the 1997 Annual Report to
Shareholders.
The following table presents the average balances of and average rates
paid on deposits for the three years ended September 30, 1997:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------------ --------------------
Average Average Average Average Average Average
(Dollars in thousands) balance rate balance rate balance rate
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Demand noninterest-bearing $ 99
Savings noninterest-bearing 95 $ 98 $ 66
Savings 58 2.98% 19 2.36% 33 1.99%
Money market 120,963 2.82% 149,347 2.90% 209,407 3.22%
Time certificates 61,524 6.30% 65,653 6.24% 66,456 6.41%
-------------------- ------------------------ --------------------
Total deposits $182,739 4.17% $215,117 4.17% $275,962 4.12%
==================== ======================== ====================
</TABLE>
Average balances are calculated predominately on a daily basis.
The following table sets forth the maturity distribution of time
deposits of $100,000 or more as of September 30, 1997:
(Dollars in thousands) Amount
---------------------------------------------
Three months or less $ 2,621
Over three months to six months 1,593
Over six months to twelve months 1,871
Over twelve months 5,283
------------
$11,368
============
<TABLE>
<CAPTION>
Return on Equity and Assets
Years ended September 30,
------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on assets (net income/average total assets) 0.31% 0.41% *
Return on equity (net income/average equity) 4.53% 7.21% *
Net interest margin 3.13% 3.25% 3.00%
Equity to assets (average equity/average assets) 6.77% 5.63% 5.79%
* As a result of net losses in 1995,meaningful.
this information is not meaningful.
</TABLE>
Short-Term Borrowings
<TABLE>
<CAPTION>
Years ended September 30,
------------------------------------
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Other short-term borrowings
Balance at year end $29,250 $ 4,750 $ 9,500
Weighted-average interest rate at year end 5.90% 6.76% 6.76%
Average amount outstanding during the year $ 9,368 $ 7,827 $ 6,692
Maximum amount outstanding at any month end $29,250 $10,500 $17,000
Weighted-average interest rate during the year 6.04% 7.01% 6.41%
In the ordinary course of business, short-term borrowings of the Bank
consisted primarily of the current portion of fixed-term, fixed-rate
advances from the Federal Home Loan Bank.
-14-
</TABLE>
<PAGE>
Item 2. Properties
The Company conducts all of its operations from leased premises, generally
under non-cancelable leases with terms up to 15 years.
Item 3. Legal Proceedings
The Company has been named as defendant in a number of legal proceedings
arising principally from its securities and investment banking business. Some
of these actions involve claims by plaintiffs for substantial amounts. While
results of litigation cannot be predicted with certainty, in the opinion of
management, based on discussion with counsel, the outcome of these matters
will not result in a material adverse effect on the financial condition or
future results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is disclosed on pages 37 and 38 of the
1997 Annual Report to Shareholders in Note 9 of the Notes to Consolidated
Financial Statements and on pages 46 and 47 under the captions "Quarterly
Financial Information" and "Shareholder Information", respectively. Such
information is hereby incorporated by reference.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is disclosed on pages 19 through 27 of
the 1997 Annual Report to Shareholders under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Such information is hereby incorporated by reference.
Item 7. Financial Statements and Supplementary Data
The information required by this item is disclosed in the Consolidated
Financial Statements and Notes thereto on pages 28 through 45 and under the
caption "Quarterly Financial Information" on page 46 of the 1997 Annual
Report to Shareholders. Such information is hereby incorporated by reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There were no disagreements with the Company's independent accountants on any
accounting or financial disclosure matters.
Part III
Item 9. Directors and Executive Officers of the Registrant
The information required for "Directors" by this item is included under the
caption "Election of Directors" in the Company's Proxy Statement to be filed
with the Securities and Exchange Commission in connection with the Company's
annual meeting to be held January 29, 1998. Such information is hereby
incorporated by reference.
The following table sets forth the executive officers of the
Company at December 2, 1997. Executive officers of the Company are appointed
annually by the Board of Directors to hold office until their successors are
appointed and qualify.
-15-
<PAGE>
Executive
Officer
Name Age Office Since
- -----------------------------------------------------------------------------
Allen Weintraub 62 Chairman and Chief Executive Officer 1977
Grant W. Kurtz 55 President 1985
Murray M. Beach 43 Senior Vice President of Corporate
Finance, Advest, Inc. 1996
Allen G. Botwinick 54 Executive Vice President, Administration
and Operations 1980
George A. Boujoukos 63 Executive Vice President of Capital
Markets, Advest, Inc. 1977
Harry H. Branning 46 Executive Vice President and National Sales
Manager, Advest, Inc. 1994
Lee G. Kuckro 56 Senior Vice President, Secretary
and General Counsel 1978
Martin M. Lilienthal 55 Senior Vice President, Treasurer and
Chief Financial Officer 1977
Item 10. Executive Compensation
The information required by this item is included under the caption
"Remuneration of Directors and Officers" and "Certain Transactions" of the
Company's Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Company's annual meeting to be held January
29, 1998. Such information is hereby incorporated by reference.
Item 11. Security Ownership Of Certain Beneficial Owners And Management
The information required by this item is contained under the caption
"Election of Directors" in the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's annual
meeting to be held January 29, 1998. Such information is hereby incorporated
by reference.
Item 12. Certain Relationships and Related Transactions
The information required by this item is included under the caption "Certain
Transactions" of the Company's Proxy Statement to be filed with the
Securities and Exchange Commission in connection with the Company's annual
meeting to be held January 29, 1998. Such information is hereby incorporated
by reference.
-16-
<PAGE>
Part IV
Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Page Reference
------------------------
Annual Report 10-K
------------------------
(a) 1. Financial Statements
The Consolidated Financial Statements and The Report of
Independent Accountants contained in the 1997 Annual
Report to Shareholders are
incorporated herein by reference:
Consolidated Statements of Earnings 28
Consolidated Balance Sheets 29
Consolidated Statements of Cash Flows 30
Consolidated Statement of Changes
in Shareholders' Equity 31
Notes to Consolidated Financial Statements 32-45
Report of Independent Accountants 46
2. Financial Statement Schedules
Report of Independent Accountants on all schedules 23
Schedule I - Condensed Financial Information of Registrant 24-26
Schedule II - Valuation and Qualifying Accounts 27
3. Exhibits
The following is a list of exhibits to this Report on Form 10-K filed
herewith or incorporated by reference herein.
Prior Filing(s) to which Reference is made,
Exhibit Description if applicable
- -----------------------------------------------------------------------------
3(a) Restated Certificate of Exhibit 3(a) to Registrant's
Incorporation of Report on Form 10-Q for the quarter
Registration ended March 31, 1989
3(b) By-laws of Registrant, Exhibit 3(b) to Registrant's
as restated and amemded Report on Form 10-Q and amended for the
quarter ended March 31, 1989 and Exhibit
3(a) to Registrant's Report on Form 10-Q
for the quarter ended June 30, 1990
3(c) Second Amendment to Filed Herewith
Restated By-laws of
Registrant
4(a) Shareholder Rights Exhibit to Registrant's Report on Form 8-k
Agreement dated as of November 1, 1988
October 31, 1988 between
Registrant and The
Connecticut Bank and
Trust Company, N.A.,
as Rights Agent
-17-
<PAGE>
Prior Filing(s) to which Reference is made,
Exhibit Description if applicable
- -----------------------------------------------------------------------------
10(a) Registrant's 1994 Exhibit A to Registrant's Proxy
Non-Employee Director Statement dated December 20, 1994
Stock Option Plan
10(b) First and Second Filed Herewith
Amendments to
Non-Employee Director
Stock Option Plan
10(c) Registrant's 1993 Stock Exhibit A to Registrant's Proxy
Option Plan Statement dated December 21, 1993
10(d) Registrant's 1983 Exhibit A to Registrant's Proxy Statement
Incentive Stock Option dated December 21, 1983 and Exhibit 10(a)
Plan, as amended to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1988
10(e) Registrant's Deferred Exhibit 10(f) to Registrant's Report on
Compensation Savings and Form 10-K for the fiscal year ended
Investment Plan, Amended September 30, 1989, Exhibit 10(j) to
and Restated as of Registrant's Report on Form 10-K for its
November 17,1989, as fiscal year ended September 30,1990 and
amended Exhibit 10(b) of Registrant's Report on
Form 10-Q for the quarter ended December
31,1992
10(f) Non-Employee Director Exhibit 10(b) to Registrant's Report on
Equity Plan Form 10-Q for the quarter ended June 30,
1996
10(g) Key Professionals Equity Filed Herewith
Plan, as amended and
restated as of October 1,
1997
10(h) Forms of Executive Officer Exhibit 10 to Registrant's Report on Form
Restricted Stock and Stock 10-Q for the quarter ended December 31,
Option Agreement for 1995, 1994 and Exhibit 10(c) to Registrant's
1996 (as supplemented) Report on Form 10-Q for the quarter ended
and 1997 June 30, 1996 and Exhibit 4.4 to
Registrant's Registration Statement on
Form S-8, File No. 333-17711; and Exhibit
4.5 to Registrant's Registration Statement
4.6 on Form S-8, File No. 333-17711
10(i) Executive Officer Filed Herewith
Restricted Stock
and Stock Option Agreement
for 1998
-18-
<PAGE>
Prior Filing(s) to which Reference is made,
Exhibit Description if applicable
- -----------------------------------------------------------------------------
10(j) The Advest Thrift Plan Exhibit 10(a) to Registrant's Report on
Registrant, effective Form 10-Q for the quarter ended December
as of December 31, 1992 31, 1992 and Exhibit 10(a) to Registrant's
as amended Report on Form 10-Q for the quarter ended
June 30, 1996
10(k) Fifth, Sixth and Seventh Filed Herewith
Amendments to the Advest
Thrift Plan of Registrant
10(l) Registrant's 1991 Exhibit 10(k) to Registrant's Report on
and 1992 Top AE Form 10-k for its fiscal year ended
Stock Option Plans September 30, 1991, and Exhibit 10(c)
to Registrant's report on form 10-Q
for the quarter ended December 31, 1992
10(m) Registrant's Account Exhibit 10(m) to Registrant's Report on
Executive Nonqualified Form 10-K for its fiscal year ended
Defined Benefit Plan, September 30,1993, Exhibit 10(p) to
as amended Registrant's Report on Form 10-K for its
fiscal year ended September 30,1995 and
Exhibit 10(f) to Registrant's Report on
Form 10-Q for the quarter ended June 30,
1996
10(n) Registrant's Nonqualified Exhibit 10(n) to Registrant's Report on
Executive Post-employment Form 10-K for its fiscal year ended
Income Plan, as amended September 30, 1994and Exhibit 10(e) to
Registrant's Report on Form 10-Q for the
quarter ended June 30, 1996
10(o) Registrant's 1995, 1996 Exhibit 4.1 to Registrant's Registration
and 1997 Advest Equity Statement on Form S-8, File No. 33-56275;
Plans Exhibit 4 to Registrant's Registration
Statement on Form S-8, File No. 333-00797;
and Exhibit 4.3 to Registrant's
Registration Statement on Form S-8, File
No. 333-17711
10(p) 1998 Advest Equity Plan Filed Herewith
10(q) Amended and Restated Exhibit 10(h) to Registrant's Report on
Employement Agreement Form 10-Q for the quarter ended June 30,
Chief Executive Officer 1996
10(r) Employment Agreement with Filed Herewith
President
-19-
<PAGE>
Prior Filing(s) to which Reference is made,
Exhibit Description if applicable
- -----------------------------------------------------------------------------
10(s) Note Purchase Agreement Exhibit 10(a) to Registrant's Report on
of Registrant dated Form 10-Q for the quarter ended December
as of December 27, 1996 31, 1996
1996 with respect to
Registrant's 7.95%
Senior Notes due December
31, 2003
10(t) Cash Subordination Exhibit 10(b) to Registrant's Report on
Agreement of the Form 10-Q for the quarter ended December
Registrant dated as of 31, 1996
January 31, 1997
11 Statement Regarding Filed Herewith
Computation of Net
Income per Common Share
13 Annual Report to Filed Herewith *
shareholders for
Fiscal year ended
September 30, 1997
21 Subsidiaries Filed Herewith
23 Consent of Independent Filed Herewith
Accountants
27 Financial Data Schedule Selected financial data - for EDGAR
electronic filing only to SEC
* Pursuant to Item 601(b) (13) of Regulation S-K, except for those portions
of the Annual Report expressly incorporated by reference and included in
Exhibit 13, the Annual Report is not to be deemed filed as part of this
filing on Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended September 30, 1997.
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE ADVEST GROUP, INC.
By /s/Martin M. Lilienthal November 20, 1997
Martin M. Lilienthal
Senior Vice President and Treasurer
(Chief Financial and Principal Accounting 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.
Chief Executive Officer,
Chairman of the Board
and Director (Principal
/s/Allen Weintraub Executive Officer) November 20, 1997
Allen Weintraub
Senior Vice President and
Treasurer (Chief Financial
and Principal Accounting
/s/Martin M. Lilienthal Officer) November 20, 1997
Martin M. Lilienthal
/s/George A. Boujoukos Director November 20, 1997
George A. Boujoukos
/s/Sanford Cloud, Jr. Director November 20, 1997
Sanford Cloud, Jr.
/s/Richard G. Dooley Director November 20, 1997
Richard G. Dooley
/s/William B. Ellis Director November 20, 1997
William B. Ellis
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<PAGE>
SIGNATURES
/s/Robert W. Fiondella Director November 20, 1997
Robert W. Fiondella
/s/Grant W. Kurtz President and Director November 20, 1997
Grant W. Kurtz
Vice Chairman of the
/s/ Anthony A. LaCroix Board and Director November 20, 1997
Anthony A. LaCroix
/s/Barbara L. Pearce Director November 20, 1997
Barbara L. Pearce
/s/John A. Powers Director November 20, 1997
John A. Powers
-22-
<PAGE>
Report of Independent Accountants
The Board of Directors and Shareholders
of The Advest Group, Inc.:
Our report on the consolidated financial statements of The Advest Group, Inc.
and Subsidiaries has been incorporated by reference in this Form 10-K from
page 46 of the 1997 Annual Report to Shareholders of The Advest Group, Inc.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedules listed in the index on page
17 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/ COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
October 22, 1997
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<PAGE>
Schedule I
Condensed Financial Information of Registrant
The Advest Group, Inc.
(Parent Company)
Condensed Balance Sheets
September 30,
-----------------
In thousands 1997 1996
- ---------------------------------------------------------------
Assets
Cash $ 2,166 $ 1,213
Investment in subsidiaries,
equity method(a) 109,977 94,144
Receivables from subsidiaries(a) 7,616 5,857
Loans 9,359 9,787
Subordinated Receivable(a) 10,000 --
Held to maturity securities 11,932 11,226
Other assets 6,831 9,855
-----------------------
Total assets $157,881 $132,082
=======================
Liabilities
Accounts payable and accrued expenses $ 11,517 $ 12,164
Payable to subsidiaries(a) 5,002 4,553
Borrowings 35,817 5,494
Interest payable 954 77
Subordinated borrowings -- 20,552
-----------------------
Total liabilities 53,290 42,840
Shareholders' equity(b) 104,591 89,242
-----------------------
Total liabilities and
shareholders' equity $157,881 $132,082
=======================
(a)Eliminated in consolidation.
(b)For an analysis of shareholders' equity and its components, see
Registrant's Consolidated Balance Sheets and Statements of Changes in
Shareholders' Equity on pages 29 and 31 of the 1997 Annual Report to
Shareholders.
-24-
<PAGE>
Schedule I
(Continued)
The Advest Group, Inc.
(Parent Company)
Condensed Statements of Earnings
For the years ended September 30,
- ----------------------------------------------------------------
In thousands 1997 1996 1995
- ----------------------------------------------------------------
Revenues
Gain on sale of investment
advisory business, net $ 57 $ 627 $ 10,092
Interest 1,741 482 232
Other income 384 65 196
------------------------------
Total revenues 2,182 1,174 10,520
------------------------------
Expenses
Interest 2,898 2,447 2,452
Loss on call of debentures 607 -- --
Other 1,390 1,259 807
------------------------------
Total expenses 4,895 3,706 3,259
------------------------------
Income (loss) before income tax benefit
and equity in earnings
of subsidiaries (2,713) (2,532) 7,261
Income tax benefit 1,019 459 542
------------------------------
Income (loss) before equity in
earnings of subsidiaries (1,694) (2,073) 7,803
Equity in income (loss)
of subsidiaries 15,912 13,871 (1,452)
------------------------------
Net income $14,218 $11,798 $ 6,351
==============================
-25-
<PAGE>
Schedule I
(Continued)
The Advest Group, Inc.
(Parent Company)
Condensed Statements of Cash Flows
For the years ended September 30,
- ---------------------------------------------------------------------
In thousands 1997 1996 1995
- ---------------------------------------------------------------------
Operating Activities:
Net income $14,218 $11,798 $ 6,351
Equity in (loss) income
of subsidiaries (15,912) (13,871) 1,452
Adjustments to reconcile net income to net cash
provide by operating activities 600 429 1,580
Gain on sale of investment
advisory business, net (57) (627) (10,092)
Net (increase) decrease
in operating assets 607 (1,335) (20)
Net increase (decrease)
in operating liabilities 2,335 2,652 (2,103)
------------------------------
Net cash provided by (used for)
operating activities 1,791 (954) (2,832)
------------------------------
Financing Activities:
Proceeds from long term borrowing 35,000 1,250 1,000
Repayment of short term borrowings (3,570) -- --
Repayment of short term borrowings (1,107) (996) (798)
Employee stock transactions 866 1,076 62
Retirement of subordinated borrowings (20,545) -- --
Repurchase of subordinated borrowings -- -- (410)
Net (decrease) increase in payables
to subsidiaries (1,231) 3,863 3,018
Repurchase of common stock (1,835) (3,799) (2,309)
Other 1,241 1,101 846
------------------------------
Net cash provided by
financing activities 8,819 2,495 1,409
------------------------------
Investing Activities:
Proceeds from maturities of held to
maturity securities 21,388 18,400 12,500
Proceeds from investment advisory
business, net 217 788 10,141
Purchase of held to maturity
securities (22,000) (23,388) (15,309)
Purchase of available for
sale securities (26) (23) --
Sales of OREO, net 655 2,090 --
Principal collections on loans 141 1,135 746
Purchases of subordinated receivable (10,000) -- --
Acquisition of subsidiaries assets -- -- (4,585)
Increase in investments in subsidiaries -- -- (152)
Loans originated (32) -- (1,761)
Recovery on write-offs -- -- 161
------------------------------
Net cash (used for) provided by
investing activities (9,657) (998) 1,741
------------------------------
Increase in cash 953 543 318
Cash at beginning of period 1,213 670 352
------------------------------
Cash at period end $ 2,166 $ 1,213 $ 670
==============================
Supplemental Information:
Interest paid $ 2,280 $ 2,447 $ 2,452
Income taxes paid $ 7,987 $10,067 $ 2,273
Non-cash transfers
(reduction of payable to
subsidiaries effected in
the form of dividends) $ -- $ 8,500 $ 3,007
Restricted stock awards,
net of forfeitures $ 515 $ 56 $ --
-26-
<PAGE>
Schedule II
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions Charge-
Balance at charged to offs Balance
beginning cost and and at end
In thousands of period expenses recoveries of period
- --------------------------------------------------------------------------
For the years ended September 30,
- ---------------------------------
1997
- ----
Credit losses:
Brokerage customers $ 791 $ 160 $ (27) $ 924
Loans 2,398 671 (590) 2,479
Asset devaluation:
Other real estate owned -- -- -- --
Other investments/assets 1,450 84 (233) 1,301
Valuation reserve on deferred
taxes 1,671 -- (1,172) 499
-----------------------------------------
$ 6,310 $ 915 $ (2,022) $ 5,203
=========================================
1996
- ----
Credit losses:
Brokerage customers $ 743 $ 160 $ (112) $ 791
Loans 2,334 1,022 (958) 2,398
Asset devaluation:
Other real estate owned 718 20 (738) --
Other investments/assets 1,250 56 144 1,450
Valuation reserve on deferred
taxes 1,510 161 -- 1,671
------------------------------------------
$ 6,555 $ 1,419 $ (1,664) $6,310
==========================================
1995
- ----
Credit losses:
Brokerage customers $ 869 $ 473 $ (599) $ 743
Loans 4,900 5,637 (8,203) 2,334
Asset devaluation:
Other real estate owned 1,201 4,491 (4,974) 718
Other investments/assets 2,218 (263) (705) 1,250
Valuation reserve on deferred
taxes 1,360 150 -- 1,510
------------------------------------------
$ 10,548 $ 10,488 $ (14,481) $6,555
==========================================
-27-
<PAGE>
Form 10-K
Exhibit Index
Exhibit Description Page
- -----------------------------------------------------------------------------
3(c) Second Amendment to Restated By-laws of Registrant 29
10(b) First and Second Amendments to Non-Employee Director Stock
Option Plan 30
10(g) Key Professionals Equity Plan, as amended and restated as of
October 1, 1997 32
10(i) Executive Officer Restricted Stock and Stock Option Agreement of
1998 43
10(k) Fifth, Sixth and Seventh Amendments to the Advest Thrift Plan of
Registrant 50
10(p) 1998 Advest Equity Plan 53
10(r) Employment Agreement with President 66
11 Statement Regarding Computation of Net Income per Common Share 72
13 Selected Excerpts from the Annual Report to Shareholders for fiscal
year ended September 30, 1997 73
21 Subsidiaries 102
23 Consent of Coopers & Lybrand L.L.P. 103
27 Financial Data Schedule (Selected financial data - for EDGAR
electronic filing only to SEC) 104
-28-
<PAGE>
Exhibit 3(c)
As adopted by the Board of
Directors of The Advest Group,
Inc. on September 28, 1995
SECOND AMENDMENT TO
RESTATED BY-LAWS OF
THE ADVEST GROUP, INC.
RESOLVED, that Article III, Section 4 of the Bylaws of the Corporation
be, and it hereby is, amended in its entirety to read as follows:
SECTION 4. Qualification. Directors shall be stockholders. Any
person elected as a Director who is not at the time of election a
stockholder, shall have a period of six months from the date of election
to satisfy the requirement of stock ownership. If, at the end of said
six month period, the Director has not become an owner of the common
stock of the Corporation, he shall cease to be a Director. No person
shall be eligible for election or reelection as a Director after such
person has reached his or her 71st birthday. Nor shall any person be
appointed as a Director to fill any vacancy after such person has
reached his or her 71st birthday.
-29-
<PAGE>
Exhibit 10(b)
As adopted by the Board of
Directors of The Advest Group,
Inc. on September 26, 1996
FIRST AMENDMENT TO
THE NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Effective as of September 26, 1996
The Advest Group, Inc. 1994 Non-Employee Director Stock Option Plan (the
"Plan") is hereby amended, effective for all grants after the date hereof,
to substitute "2,500 Shares" for "1,500 Shares" in each place where it
appears.
In other respects, the Plan will continue in full force and effect.
-30-
<PAGE>
As adopted by the Board of
Directors of The Advest Group,
Inc. on November 20, 1997
SECOND AMENDMENT TO
THE NON-EMPLOYEE DIRECTOR
STOCK OPTION PLAN
Effective as of November 20, 1997
Section 11(b) of The Advest Group, Inc. 1994 Non-Employee Director Stock
Option Plan (the "Plan") is hereby amended by inserting the phrase "or other
Departures" after "Disability or Death" in the heading of that Section.
Section 11(b) is further amended by inserting the following additional
sentence at the end thereof: "If a Participant's service as Director is
terminated for any other reason, other than voluntary resignation or failure
to stand for reelection, any outstanding options shall immediately become
exercisable and the Participant shall have the right to exercise any
outstanding Option for a three month period following the termination of the
Participant's service.
In other respects, the Plan will continue in full force and effect.
-31-
The Advest Group, Inc. Key Professionals Equity Plan Page 10
<PAGE>
Exhibit 10(g)
THE ADVEST GROUP, INC.
KEY PROFESSIONALS EQUITY PLAN
Amended and Restated Effective October 1, 1997
The Advest Group, Inc. (the "Company") hereby amends and restates the
Key Professionals Equity Plan, for a select group of key employees employed
by Advest, Inc. ("Advest"). The purpose of the Plan is to further the long
term growth in earnings of Advest by offering incentives to those employees
to compensate them for their contributions to the Company and its Affiliates'
growth and profits, to encourage their ownership of the Company's stock, and
to encourage them to remain in the employ of Advest.
ARTICLE I
DEFINITIONS
When used herein, each of the following terms shall have the
corresponding meaning set forth below unless a different meaning is plainly
required by the context in which a term is used.
Section 1.1. "Affiliate" means the Company's present or future parent
corporation, each of the present or future subsidiaries of the Company, and
any subsidiaries of the present or future parent of the Company in which the
parent holds a controlling interest.
Section 1.2. "Base Compensation" means the agreed fixed and non-
contingent compensation to be paid to Participant during the Deferral Period.
Notwithstanding the foregoing, (i) all amounts designated as incentive,
override or bonus payments, whether or not guarnanteed, will be
considered Incentive Compensation and not Base Compensation and (ii) the
first $50,000 of compensation earned by branch managers for branch
management activities (or 1% of branch revenues, if greater) will be
considered Base Compensation, and any additional branch manger compensation
will be considered Incentive compensation.
Section 1.3. "Beneficiary" means any person (including, but not
limited to, a Participant's estate) designated by a Participant on a form
provided or approved by the Committee to receive any Restricted Shares to
which such Participant shall be entitled upon their death in accordance with
the terms of the Plan. No designation of Beneficiary shall be effective
until filed with the Committee. If more than one Beneficiary is designated,
the Beneficiaries shall share equally in any rights or interests of the
Participant under the Plan. If a Participant shall fail to file a valid
designation form, or if all persons designated on the designation form shall
have
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<PAGE>
predeceased him, the Company shall distribute all of the Participant's
Restricted Shares to which they shall have been entitled upon death to their
estate.
Section 1.4. "Board of Directors" means the Board of Directors of the
Company or the Executive Committee of such board.
Section 1.5. "Cause" shall be deemed to include any act of dishonesty
or fraud, gross negligence, gross insubordination or willful or reckless
conduct detrimental to the business of the Company or an Affiliate.
Section 1.6. "Change of Control" means a transfer or sale of
substantially all of the assets of the Company or Advest, Inc. or merger or
consolidation of the Company or Advest, Inc. into or with any other
corporation or entity, provided either (a) the other corporation or entity is
engaged in the retail securities brokerage business or investment banking
business at the date of the transaction and such transaction results in
Advest, Inc. not surviving such merger or consolidation or (b) a substantial
change in the senior management of Advest, Inc. occurs within six months as a
result of the transaction.
Section 1.7. "Code" means the Internal Revenue Code of 1986, as
amended.
Section 1.8. "Committee" means an administrative committee designated
to administer this Plan in accordance with Article VII.
Section 1.9. "Company" means The Advest Group, Inc. and any successor
thereto by merger, consolidation, purchase or otherwise.
Section 1.10. "Competitor" means another employer with whom the Company
or an Affiliate competes for labor and/or market share and which conducts a
business substantially similar to that conducted by the Company or an
Affiliate. Such employers typically include securities firms, investment
banks or securities or investment banking operations of banks or other firms.
Section 1.11. "Deferred Amount" for any Participant and for any fiscal
year, shall equal (i) 0% of the first $100,000 of Incentive Compensation
earned by the Participant for that fiscal year, plus (ii) 20% of the next
$200,000 of Incentive Compensation, plus (iii) 25% of the next $300,000
of Incentive Compensation, plus(iv) 30% of the next $400,000 of Incentive
Compensation, plus 35% of all addtional Incentive Compensation.
Section 1.12. "Deferral Period" for any Participant and for any fiscal
year, means the period beginning on the first day of the fiscal year of the
Company (beginning with fiscal 1998) and ending on the earliest of: (a) the
termination of the Participant's employment with the Company or an Affiliate,
(b) the termination of the Plan in accordance with Article VI, or (c) the
last day of such fiscal year.
Section 1.13. "Effective Date" means October 1, 1997.
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<PAGE>
Section 1.14. "Employee" means any person who is a common-law employee
of the Company or an Affiliate.
Section 1.15. "Incentive Compensation" means all incentive payments and
other earnings due to the Participant for the Deferral Period as defined by
the Company other than: (a) Base Compensation and (b) commissions or fees
received by the Participant with respect to retail securities activities,
except that the first $100,000 of such commissions and fees shall be included
in Incentive Compensation for branch managers. Incentive Compensation will
be calculated on income before deductions for Federal, state or local taxes,
FICA withholding, or 401(k) and other benefit plan reductions, and before any
purchases under the Advest Equity Plan or deductions under any other similar
plans in which the Participant participates. Incentive Compensation paid
after the close of a fiscal year based upon performance during that year will
be considered Incentive Compensation for that year.
Section 1.16. "Incentive Threshold" shall mean $100,000. The
Incentive Threshold shall be deemed to be reached by any Participant for a
Deferral Period at such time as the Participant has received Incentive
Compensation with respect to the Deferral Period at least equal to the
Incentive Threshold.
Section 1.17. "Participant" means an Employee participating in the Plan
as provided in Article II.
Section 1.18. "Permanent Disability" means a mental or physical
condition which renders a Participant permanently unable or incompetent to
engage in any substantial gainful activity.
Section 1.19. "Plan" means "The Advest Group, Inc. Key Professionals
Equity Plan".
Section 1.20. "Purchase Price" for each share of Restricted Shares
shall mean 80% of the closing price per share of the Stock on the Composite
Tape of the New York Stock Exchange on the day the Restricted Shares are
purchased; provided, however, that the Purchase Price shall not exceed 150%
of the book value of the Company, and shall not be less than the lesser of
100% of the book value of the Company or the closing price per share of the
stock, with the book value of the Company being determined by the audited
financial statements of the Company for its fiscal year ending immediately
prior to the purchase date.
Section 1.21. "Restricted Shares" means shares of Stock subject to the
restrictions set forth in Article IV that are purchased on behalf of
Participants with Deferred Amounts.
Section 1.22. "Restriction Period" means the period during which a
Participant is not permitted to sell, transfer, pledge or assign Restricted
Shares pursuant to Section 4.2(a), including any extensions of such period as
provided in such Section.
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<PAGE>
Section 1.23. "Stock" means the common stock of the Company.
ARTICLE II
PARTICIPATION
Section 2.1. Participants. Any individual employed by Advest who earns
pretax Incentive Compensation in excess of the Incentive Threshold with
respect to fiscal 1998 or any subsequent fiscal year during the term of the
Plan will become a participant in the Plan for that fiscal year.
Notwithstanding the foregoing, Employees who own more than two million
dollars worth of stock on the last day of a fiscal year or who have attained
age 61 on or prior to the last day of a fiscal year may elect, by delivering
written notice to the Committee prior to the end of such fiscal year (or
prior to December 31, 1997, in the case of fiscal 1998), not to participate
in the plan for the following fiscal year.
Section 2.2. Duration of Participation. A Participant shall cease to
be a Participant when all restrictions on the Participant's Restricted Shares
have lapsed or such shares have been forfeited, or when the Plan is
terminated in accordance with Article VI.
Section 2.3. Reemployment. Reemployment of a former Participant by the
Company or an Affiliate shall not entitle such individual to become a
Participant in the Plan unless the individual again becomes a Participant in
accordance with Section 2.1, and reemployment of a former Participant by the
Company or an Affiliate shall not result in the restoration of any Restricted
Shares previously forfeited by such Participant.
ARTICLE III
DEFERRAL
Section 3.1. Amount Deferred. For any Deferral Period, after the
Incentive Threshold is reached for a Participant with respect to that
Deferral Period the Deferred Amount with respect to any Incentive
Compensation will be deducted automatically from each pay check, draw check,
bonus check or commission check. All amounts deducted will be held in
escrow by Advest on the Participant's behalf. Investment in Restricted
Shares will be made following the end of each Deferral Period with amounts
deducted with respect to that Deferral Period.
Section 3.2. Investment in Restricted Shares. On the 5th business day
after the earning release for any fiscal year during which amounts have been
deferred, the total of a Participant's Deferred Amounts under Section 3.1
shall be applied to acquire Restricted Shares for such Participant at the
then Purchase Price. No interest or other earnings shall accrue on amounts
deferred prior to acquisition of Restricted Shares. Fractional Restricted
Shares may be acquired by a Participant; provided, that the Committee may
establish procedures to eliminate any fractional holdings in a manner
equitable to the Participants.
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<PAGE>
Section 3.3. Stock Subject to Purchase. Shares of Stock subject to
purchase hereunder shall be previously issued shares reacquired by the
Company (including any shares forfeited under this Plan).
ARTICLE IV
RESTRICTED SHARES
Section 4.1. Stock. All Restricted Shares shall be held in the name of
The Advest Group, Inc. as escrow agent for Participants until the end of the
applicable Restriction Period.
Section 4.2. Restrictions. The Restricted Shares purchased hereunder
shall be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan, during the period commencing
on the date of the acquisition of any Restricted Shares hereunder and
terminating on the last day of the 36th month following the date on which the
shares were acquired, a Participant shall not be permitted to sell, transfer,
pledge or assign Restricted Shares acquired under the Plan. One year
extensions of the Restriction Period for the Restricted Shares purchased
hereunder will be made at a Participant's election, which election must be
in writing on a form provided by the Committe and must be made no later than
one year before the Restriction Period would otherwise terminat; provided,
however, that the Committee may at any time determine that no additional
extensions of Restriction Periods will be effective. The Restriction Period
will be determined separately with respect to purchases of Restricted Shares
made with respect to each Deferral Period.
(b) A Participant shall have the right to direct the vote of their
Restricted Shares during the Restriction Period applicable to those shares.
A Participant shall have the right to receive any regular dividends on their
Restricted Shares. In the event of any change in the outstanding Stock of
the Company by reason of any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
other similar event if such change equitably requires an adjustment in the
number or kind of shares that may be issued under the Plan, such adjustment
shall be made by the Committee and shall be conclusive and binding for all
purposes of the Plan.
(c) Restricted Shares shall be transferred to a Participant's brokerage
account with Advest, Inc. within a reasonable time after, and only after, the
Restriction Period with respect to those shares shall expire (or such earlier
time as the restrictions may lapse in accordance with Section 4.3) without
forfeiture in respect of such Restricted Shares.
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<PAGE>
Section 4.3. Termination of Employment. The following provisions shall
apply to a Participant's Restricted Shares prior to the end of the
Restriction Period (including extensions):
(a) Upon a Participant's death, Permanent Disability, involuntary
termination of employment (other than a termination for Cause) or termination
following a Change of Control, (i) the restrictions on a portion of their
Restricted Shares shall immediately lapse, and such shares shall be delivered
to the Participant or the Participant's designated Beneficiary, as the case
may be, within a reasonable time after the occurrence of any such event, (ii)
any remaining Restricted Shares will be forfeited, and (iii) any cash held in
escrow pending investment in Restricted Shares will be returned to the
Participant. The portion of Restricted Shares which will no longer be
subject to restrictions will be determined separately for each Deferral
Period for which the Participant has acquired shares and will equal 80% of
the unvested Restricted Shares purchased for that Deferral Period plus an
additional 0.667% for each full month after the date on which the shares were
acquired during which the Participant has remained in the full time
employment of the Company, up to a maximum of 100%.
(b) If a Participant terminates as a result of voluntary departure
(other than following a Change of Control or under circumstances justifying
termination for Cause), (i) the Restricted Shares will not vest until the
completion of the Restriction Period (including any extensions which the
Participant has elected) and (ii) any cash held in escrow pending investment
will be used to acquire Restricted Shares on the next purchase date. The
Restricted Shares will be forfeited if, before they have vested, the
Participant engages in any activity as an employee, advisor, or in any other
capacity for any Competitor. The Company may require a Participant who has
terminated employment under such circumstances to provide such confirmation
as the Committee may deem appropriate, to evidence that they have not engaged
in any such activity as a condition of their receipt of the Restricted
Shares.
(c) If a Participant is involuntarily terminated for Cause (or departs
under circumstances justifying a termination for Cause) the Participant shall
forfeit their Restricted Shares and any cash held in escrow pending
investment in Restricted Shares.
ARTICLE V
WITHHOLDING
Section 5.1. Withholding. In the event that the Company determines
that it or an Affiliate is required by law to withhold taxes at any time,
including, but not limited to the time of vesting of any Restricted Shares,
the Company shall have the right to require a Participant to pay to the
Company the amount of taxes that the Company or Affiliate is required to
withhold or, in lieu thereof, (a) to retain, or sell without notice, a
sufficient number of Restricted Shares held by it for the Participant to
cover the amount to be withheld, or (b) to withhold the amount of such taxes
from any other sums due or to become due from the Company or an Affiliate to
the Participant upon such terms and conditions as the Committee shall
prescribe.
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<PAGE>
ARTICLE VI
ALTERATION OF TERMS, AMENDMENT AND TERMINATION
Section 6.1. Power to Alter Terms of Plan. The Board of Directors may,
with respect to all Participants for a fiscal year, or with respect to a
single Participant or a selected group of Participants, modify the Purchase
Price for Restricted Shares, the Restriction Period, the Incentive Threshold
or Deferred Amount, or any of the provisions of Sections 4.2 and 4.3, and, in
addition may provide for the granting of stock options and/or stock
appreciation rights in connection with the purchase of Restricted Shares on
such terms as the Board of Directors may determine. In addition, the Board
of Directors may, prior to the commencement of any fiscal year, modify the
participation requirements set forth in Section 2.1 for such fiscal year.
Section 6.2. Power to Amend. The Board of Directors may amend, modify,
change, or revise the Plan by amendment at any time; provided, however, that
(a) no amendment shall increase the duties or liabilities of the Board of
Directors or the Committee without written consent of each member and (b) no
amendment shall be made without the written consent of a Participant if the
effect of such amendment would reduce the rights of a Participant with
respect to Restricted Shares acquired prior to the date of the amendment.
Section 6.3. Plan Termination. The continuation of the Plan is not
assumed as a contractual obligation of the Company and the right is reserved
by the Company at any time to discontinue the Plan. The Plan may be
terminated by the Board of Directors at any time, when in its judgment,
business, financial or other good causes make such termination necessary or
appropriate; such termination to become effective upon the delivery of notice
by the Board of Directors or the Committee to the Participants. Termination
of the Plan shall cause the Restriction Period to end with respect to all
Restricted Shares on the date of such termination.
ARTICLE VII
ADMINISTRATION OF THE PLAN
Section 7.1. Authority and Responsibility of the Committee. The Board
of Directors shall appoint the members of a Committee, which members shall
hold office at the pleasure of the Board of Directors. Said Committee shall
consist of not less than three nor more than eight members, any one or more
of whom may, but need not, be an officer of the Company. If there is at any
time a vacancy on the Committee for any reason, the Board of Directors shall
fill such vacancy, but the Committee may act notwithstanding the existence of
vacancies as long as there shall continue to be at least two members of the
Committee. The Committee shall select a Chairman from among its members.
The Committee shall have overall responsibility for the administration and
operation of the Plan. The Committee will have all powers as may be
necessary to discharge its duties hereunder.
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<PAGE>
Section 7.2. Committee Duties. The Committee, on behalf of the
Participants and all other Beneficiaries of the Plan, will administer and
operate the Plan in accordance with the terms of the Plan and will have all
powers necessary to accomplish that purpose, including, but not limited to,
the following:
(a) To issue rules and regulations necessary for the proper conduct and
administration of the Plan and to change, alter, or amend such rules and
regulations;
(b) To construe the Plan;
(c) To determine all questions arising in the administration of the
Plan, including those relating to the eligibility of persons to become
Participants in accordance with Article II and the rights of Participants and
their Beneficiaries, and its decisions thereon shall be final and binding
upon all persons hereunder;
(d) To oversee the retention of records relating to Participants and
other matters applicable to the Plan;
(e) To make available to Participants and Beneficiaries upon request,
for examination during business hours, such records as pertain exclusively to
the examining Participant (or Beneficiary);
(f) To prescribe procedures to be followed by Participants and
Beneficiaries in making claims hereunder;
(g) To make available for inspection and to provide upon request at
such charge as may be permitted and determined by the Company, such documents
and instruments, if any, as the Committee deems appropriate;
(h) To prescribe and adopt the use of necessary forms;
(i) To appoint such agents and other specialists to aid it in the
administration of the Plan as it deems necessary; and
(j) To make periodic reports on the operation and administration of the
Plan to the Board of Directors as may be required in any articles of
incorporation, charter, or by-laws pertaining to the Company.
Section 7.3. Records. The regularly kept records of the Committee and
the Company shall be conclusive evidence as to all matters contained therein
applicable to this Plan.
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Section 7.4. Committee Decisions Final. The decisions of the Committee
concerning matters within its jurisdiction shall be final, binding, and
conclusive upon the Company and its Affiliates, the Participants,
Beneficiaries and any other person or party interested or concerned.
Section 7.5. Committee as Agent. The Committee shall act as agent for
the Company in the administration of the Plan.
Section 7.6. Plan Expenses. All clerical, legal and other expenses of
the Plan shall be paid by the Company.
Section 7.7. Allocations and Delegations of Responsibility.
(a) Delegations. The Committee shall have the authority to delegate,
from time to time, all or any part of its responsibilities under the Plan to
such person or persons as it may deem advisable and in the same manner to
revoke any such delegation of responsibility. Any action of the delegate in
the exercise of such delegated responsibilities shall have the same force and
effect for all purposes herein as if such action had been taken by the
Committee. The Board of Directors or the Committee shall not be liable for
any act or omission of any such delegate. The delegate shall report
periodically to the Committee concerning the discharge of the delegated
responsibilities.
(b) Allocations. The Committee shall have the authority to allocate,
from time to time, all or any part of its responsibilities under the Plan to
one or more of its members as it may deem advisable, and in the same manner
to revoke such allocation of responsibilities. Any action of the member to
whom responsibilities are allocated in the exercise of such allocated
responsibilities shall have the same force and effect for all purposes
hereunder as if such action had been taken by the Committee. The Board of
Directors or the Committee shall not be liable for any acts or omissions of
such member. The member to whom responsibilities have been allocated shall
report periodically to the Committee concerning the discharge of the
allocated responsibilities.
(c) Limit on Liability. Duties and responsibilities which are carried
out in good faith by the Committee hereunder or which have been allocated or
delegated pursuant to the terms of the Plan or subsections (a) or (b) of this
Section 7.7 shall not create any liability of the Company, Board of
Directors, or Committee, or any member thereof.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1. Merger. Any successor corporation to the Company, by
merger, consolidation, purchase or otherwise, shall be substituted hereunder
for the Company. This Plan
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shall be binding on all successors to and assigns of the Company; provided
that such successors or assigns may terminate the Plan in accordance with the
provisions hereof.
Section 8.2. Securities Laws. The Committee may require each person
purchasing Restricted Shares to represent and agree with the Company in
writing that such person is acquiring the shares without a view to
distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restriction on
transfer. Furthermore, all certificates for shares of Stock delivered under
the Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
Section 8.3. Indemnification. The Company shall indemnify and hold
harmless to the extent legally permitted each member of the Board of
Directors, the Committee and each officer and Employee of the Company to whom
are delegated duties, responsibilities, and authority with respect to the
Plan against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon such delegate or agent (including but
not limited to reasonable attorney fees) which arise as a result of actions
or failure to act in connection with the operation and administration of the
Plan.
Section 8.4. Contract of Employment. Nothing contained herein shall be
construed to constitute a contract of employment between the Company or an
Affiliate and any Employee or Participant. Nothing contained herein will
confer upon any Participant the right to be retained in the service of the
Company or an Affiliate or limit the right of the Company or an Affiliate to
discharge or otherwise deal with any Participant without regard to the
existence of the Plan.
Section 8.5 Disclosure. Each Participant shall receive a copy of the
summary of the Plan and the Committee will make available for inspection by
any Participant or Beneficiary a copy of the Plan and any written procedures
used by the Committee in administering the Plan.
Section 8.6. Headings. The headings of Articles and Sections are
included solely for convenience of reference, and if there is any conflict
between such headings and the text of the Plan, the text shall control.
Section 8.7. Invalidity of Certain Provisions. If any provision of the
Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and the Plan
shall be construed and enforced as if such provisions, to the extent invalid
or unenforceable, had not been included.
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Section 8.8. Law Governing. The Plan shall be construed and enforced
according to the laws of the State of Connecticut (other than its laws
respecting choice of law).
Section 8.9. Limitation on Liability. Neither the Company nor any
agent or representative of the Company who is an employee, officer, or
director of the Company in any manner guarantees the payments to be made
under the Plan against loss or depreciation, and to the extent not prohibited
by federal law, none of them shall be liable (except for their own gross
negligence or willful misconduct), for any act or failure to act, done or
omitted in good faith, with respect to the Plan. The Company shall not be
responsible for any act or failure to act of any agent appointed to
administer the Plan.
Section 8.10. Gender. Except when otherwise indicated by the context,
any masculine terminology herein shall also include the feminine, and the
definition of any term herein in the singular shall also include the plural.
THE ADVEST GROUP, INC.
By:/s/ Allen Weintraub
-------------------
Allen Weintraub
Chief Executive Officer
ATTEST:
- ---------------------------
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Exhibit 10(i)
EXECUTIVE OFFICER
1998 RESTRICTED STOCK AND
STOCK OPTION AGREEMENT
Percentage of All Income
(minimum of 2.5% of Compensation,
maximum of 7.5% of Compensation): -------
Percentage of Bonus: -------
Effective Date: January 1, 1998
This Executive Officer Restricted Stock and Stock Option Agreement (the
"Agreement") is entered into as of the above date, by the undersigned
executive officer ("Executive Officer") and The Advest Group, Inc. (the
"Company").
ARTICLE I Election to Participate and Amount Deferred. Executive
Officer hereby elects to receive the percentage set forth above of his or her
Compensation and/or Bonus (the "Deferred Amount") in the form of Units. A
Unit consists of one share of common stock of the Company subject to the
restrictions set forth below (the "Restricted Stock") and one non-qualified
stock option to purchase shares of common stock of the Company which is not
an incentive stock option under Section 422 of the Internal Revenue Code of
1986 (an "Option"). For purposes of this Agreement, Compensation shall mean
the amount of earnings due to Executive Officer for the Deferral Period, and
shall include amounts contributed to the Company's 401(k) plan, Deferred
Compensation Savings and Investment Plan, Key Professionals Equity Plan, or
any successor plan(s). Deferral Period shall mean the period beginning on
January 1, 1998 and ending on the earliest of: (a) the termination of
Executive Officer's employment with the Company or an affiliate of the
Company (an "Affiliate"), (b) the termination of this Agreement in accordance
with Article IV(D), or (c) December 31, 1998.
Executive Officer hereby authorizes the Company to withhold from his or
her paycheck, draw, bonus and/or commission the Deferred Amount. Amounts
Deferred hereunder (other than amounts deferred out of bonus) shall be
withheld from Executive Officer's paycheck in periodic installments. The
Company may, but shall not be obligated to, invest any Amount Deferred in
insured bank deposit accounts or other money-market investments pending
investment under this Agreement. On the fifth business day after the date of
release by the Company of annual summary statements of financial data the
Executive Officer's Deferred Amount, together with any earnings thereon,
shall be applied by the Company to acquire shares of the Company's common
stock (the "Stock") at 100% of the closing price per share of the Stock on
the New York Stock Exchange on the day the Restricted Stock is purchased to
be held as Restricted Stock for Executive Officer.
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All purchases of Stock to be delivered under this Agreement shall be from the
unallocated treasury stock of the Company. Fractional units may be acquired
by Executive Officer, provided that the Company may establish procedures to
eliminate any fractional holdings of Units held on behalf of Executive
Officer as of December 31, 1998.
ARTICLE II Restricted Stock Agreement. Executive Officer hereby
authorizes Company to hold in the Company's name as escrow agent for
Executive Officer, all shares of Restricted Stock to which Executive Officer
is entitled.
A. Restrictions. Shares of Restricted Stock which are placed into
escrow for the benefit of Executive Officer will be subject to the following
restrictions and conditions:
(1) During the period commencing on the date of the acquisition of
any shares of Restricted Stock hereunder and terminating on January 1,
2002 (together with any extensions of such period approved as provided
herein) (the "Restriction Period"), Executive Officer shall not be
permitted to sell, transfer, pledge or assign shares of Restricted Stock
acquired hereunder. One year extensions of the Restriction Period for
Restricted Stock purchased hereunder will be made at Executive Officer's
election, which election must be in writing on a form provided by the
Company and must be made no later than one year before the Restriction
Period would otherwise terminate; provided, however, that the Company
may at any time determine that no additional extensions of Restricted
Periods will be effective;
(2) Executive Officer shall have the right to direct the vote of
his or her shares of Restricted Stock during the Restriction Period.
Executive Officer shall have the right to receive any regular dividends
on such shares of Restricted Stock. The Company shall in its sole
discretion determine Executive Officer's rights with respect to
extraordinary dividends on the shares of Restricted Stock; and
(3) Shares of Restricted Stock shall be transferred to Executive
Officer's brokerage account with Advest, Inc. within a reasonable time
after, and only after, the Restriction Period shall expire (or such
earlier time as the restrictions may lapse in accordance with this
Article) without forfeiture in respect of such shares of Restricted
Stock.
B. Termination of Employment. Subject to the provisions of
subparagraph (A) above, the following provisions shall apply to Executive
Officer's shares of Restricted Stock prior to the end of the Restriction
Period (including extensions):
(1) Upon Executive Officer's death, Permanent Disability,
Retirement with the written consent of the President or the Chief
Executive Officer of the Company or an Affiliate by which
Executive Officer is employed, voluntary termination of employment
more than nine months after a Change of Control, or involuntary
termination of
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employment (other than a termination for Cause), the restrictions
on Executive Officer's Restricted Stock shall immediately lapse,
and such shares shall be delivered to Executive Officer or
Executive Officer's designated Beneficiary, as the case may be,
within a reasonable time after the occurrence of any such event.
For purposes of this Agreement, the following terms shall have the
stated definitions:
(i) "Permanent Disability" means a mental or physical
condition which renders Executive Officer permanently unable or
incompetent to engage in any substantial gainful activity.
(ii) "Retirement" means the date Executive Officer retires
after attaining the age of fifty-five.
(iii)"Change of Control" means a transfer or sale of
substantially all of the assets of the Company or merger or
consolidation of the Company into or with any other corporation or
entity that occurs after the effective date of this Agreement,
provided either (a) the other corporation or entity is engaged in
the retail securities brokerage business at the date of the
transaction and such transaction results in the Company not
surviving such merger or consolidation or (b) a substantial change
in the senior management of the Company occurs within six months as
a result of the transaction.
(iv) "Cause" shall be deemed to include any act of dishonesty
or fraud, gross negligence, gross insubordination or willful or
reckless conduct detrimental to the business of the Company or an
Affiliate.
(v) "Beneficiary" means any person (including, but not
limited to, Executive Officer's estate) designated by Executive
Officer on a form provided or approved by the Company to receive
any Stock or Options to which Executive Officer shall be entitled
upon Executive Officer's death in accordance with the terms of this
Agreement. If more than one Beneficiary shall be designated, the
Beneficiaries shall share equally in any rights or interests of
Executive Officer under this Agreement. If Executive Officer shall
fail to file a valid designation form, or if all persons designated
on the designation form shall have predeceased Executive Officer,
the Company shall distribute all of Executive Officer's Stock and
Options to which he or she shall have been entitled upon his or her
death to the Executive Officer's estate.
(2) Upon Executive Officer's Retirement without the written consent
of the President or the Chief Executive Officer of the Company
or the Affiliate by which Executive Officer is employed or
voluntary termination of employment within nine months of a
Change of Control, Executive Officer shall forfeit all of
Executive Officer's
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shares of Restricted Stock and receive in return, without
interest, a cash payment equal to (a) the lesser of: (i) the
aggregate purchase price for such Restricted Stock, and (ii) the
closing price per share of Stock on the Composite Tape of the New
York Stock Exchange on Executive Officer's date of termination or
Retirement, multiplied by (b) the number of shares of Restricted
Stock owned by Executive Officer.
(3) If Executive Officer voluntarily terminates employment (other
than as set forth in subparagraphs (1) or (2) of this Article), is
involuntarily terminated for Cause, or retires prior to attaining the
age of fifty-five, Executive Officer shall forfeit Executive Officer's
Restricted Stock.
ARTICLE III Stock Option Agreement. Executive Officer will be entitled
to an Option to purchase one share of stock for each share of Restricted
Stock acquired for Executive Officer pursuant to Article I. The Options to
which Executive Officer is entitled will be issued under The Advest Group,
Inc. 1993 Stock Option Plan on the last date on which Stock is acquired for
the Executive Officer pursuant to Article I at an exercise price per share
equal to the closing price per share on the Composite Tape of the New York
Stock Exchange on the date of the issuance of the Options. The Options are
not transferable by Executive Officer other than by will or the laws of
descent and distribution, and during the lifetime of Executive Officer the
Options may be exercised only by Executive Officer.
A. Exercise of Options. Options acquired hereunder will vest and
become exercisable on January 1, 2003 (unless earlier forfeited or
terminated) and will remain exercisable for a period of twenty-four months,
until December 31, 2005. An Option shall not be exercisable unless payment
in full is made for the shares being acquired thereunder at the time of
exercise; such payment shall be made (a) in United States dollars by cash or
check, or (b) in lieu thereof, unless the Company shall in its sole
discretion determine otherwise, by tendering to the Company Stock owned by
the person exercising the Option (or owned by the person exercising the
Option and his or her spouse, jointly) and acquired more than six months
prior to such tender, and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be
determined in such reasonable manner as may be provided for from time to time
by the Company or as may be required in order to comply with or to conform to
the requirements of any applicable or relevant laws or regulations, or (c) by
a combination of United States dollars and Stock as aforesaid.
B. Termination Of Employment. An Option shall not be exercisable
unless the person exercising the Option has been, at all times during the
period beginning with the date of purchase of the Option and ending on the
date of such exercise, an employee of the Company or an Affiliate, except
that:
(1) Upon Executive Officer's death, Permanent Disability, or
Retirement with the written consent of the President or the
Chief Executive Officer of the Company or the Affiliate by
which Executive Officer is employed, the Options shall
immediately vest and
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shall be exercisable by Executive Officer or Executive Officer's
designated Beneficiary, as the case may be, for a period of three
months after Executive Officer's termination of employment.
(2) If Executive Officer's employment is involuntarily terminated
(other than a termination for Cause), the Company shall give Executive
Officer at least one day's advance notice prior to the date of
termination, and the Options shall immediately vest and shall be
exercisable by Executive Officer upon receipt of such notice, and shall
expire on the date of termination. If Executive Officer voluntarily
terminates employment more than nine months after a Change of Control,
then the Options shall immediately vest and shall be exercisable by
Executive Officer upon the later of a receipt by the Company of
notification by Executive Officer of the termination or the tenth day
prior to the termination, and shall expire upon the date of termination.
(3) Upon Executive Officer's termination of employment (other than
as set forth in subparagraphs (1) or (2) of this Article III(B)),
Executive Officer shall forfeit Executive Officer's unvested Options.
(4) If Executive Officer shall have terminated employment for any
reason after the acquisition of Units hereunder but prior to the
issuance of the Option portion of such Units, any Option acquired as
part of the Unit shall be forfeited as provided in subparagraph (3) of
this Article III(B).
ARTICLE IV Miscellaneous.
A. Change of Election. Following an election by Executive Officer to
have an Amount Deferred, he or she at any time during the Deferral Period may
choose to discontinue all (but not less than all) Amounts Deferred with
respect to Compensation due to him or her during subsequent calendar quarters
of the Deferral Period. Such election shall be made on such form as the
Company may prescribe and shall become effective as of the first day of the
calendar quarter following receipt of such form by the Company.
B. Adjustments Upon a Change in Common Stock. In the event of any
change in the outstanding Stock of the Company by reason of any
stock split, stock dividend, recapitalization, merger,
consolidation,reorganization, combination or exchange of shares or
other similar event, if such change equitably requires an
adjustment in the number or kind of shares that may be issued
hereunder, or in the number or kind of shares subject to, or the
option price per share under, any outstanding Option which has been
purchased by Executive Officer,such adjustment shall be made by the
Company and shall be conclusive and binding for all purposes
hereunder. In no event shall the excess of the aggregate fair
marketvalue of the Stock subject to the Options immediately
after any subsitution, exchange or adjustment over the aggregate option price
for such Stock be more than the excess of the aggregate fair market value of
all of the Stock subject to the Option immediately before any such
substitution,exchange or adjustment over the aggregate option price
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of such Stock nor shall the adjusted Option give the holder thereof any
additional benefits he did not have under the old Option.
C. Withholding. In the event that the Company determines that it or
an Affiliate is required by law to withhold taxes at any time, including,
but not limited to, upon the exercise of an Option or upon the vesting of
shares of Restricted Stock, the Company shall have the right to require
Executive Officer to pay to the Company the amount of taxes that the Company
or Affiliate is required to withhold, or, in lieu thereof: (1) retain, or
sell without notice, a sufficient number of shares of Restricted Stock held
by it for Executive Officer to cover the amount to be withheld, or (2)
withhold the amount of such taxes from any other sums due or to become due
from the Company or an Affiliate to Executive Officer upon such terms and
conditions as the Company shall prescribe.
D. Amendment and Termination. The Board of Directors of the Company
may amend, modify, change, or revise this Agreement by amendment at any
time; provided, however, that (a) no amendment shall increase the duties or
liabilities of the Board of Directors or the Company without written
consent of each member and (b) no amendment shall be made without the
written consent of Executive Officer if the effect of such amendment would
reduce the rights of Executive Officer with respect to Units acquired prior
to the date of the amendment.
The continuation of this Agreement is not assumed as a contractual
obligation of the Company and the right is reserved by the Company at any
time to discontinue this Agreement. This Agreement may be terminated by
the Board of Directors at any time, when in its judgment, business,
financial or other good causes make such termination necessary or
appropriate; such termination to become effective upon the delivery of
notice by the Board of Directors or the Company to Executive Officer.
E. Merger. Any successor corporation to the Company, by merger,
consolidation, purchase or otherwise, shall be substituted hereunder for
the Company. This Agreement shall be binding on all successors to and
assigns of the Company; provided that such successors or assigns may
terminate this Agreement in accordance with the provisions hereof.
F. Securities Laws. Regarding the purchasing of shares pursuant to
an Option or shares of Restricted Stock the Company may require Executive
Officer to represent and agree with the Company in writing that he or she
is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Company
deems appropriate to reflect any restriction on transfer. Furthermore,
all certificates for shares of Stock delivered under this Agreement shall
be subject to such stock-transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Stock is then listed, and as any applicable Federal or state
securities law, and the Company may cause a legend or legends to be put on
any such certificates to make appropriate reference to such restrictions.
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G. Contract of Employment. Nothing contained herein shall be construed
to constitute a contract of employment between the Company or an Affiliate
and Executive Officer. Nothing contained herein will confer upon Executive
Officer the right to be retained in the service of the Company or an
Affiliate or limit the right of the Company or an Affiliate to discharge or
otherwise deal with Executive Officer without regard to the existence of
this Agreement.
H. Headings. The headings of Articles are included solely for
convenience of reference, and if there is any conflict between such
headings and the text of this Agreement, the text shall control.
I. Invalidity of Certain Provisions. If any provision of this
Agreement shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and this
Agreement shall be construed and enforced as if such provisions, to the
extent invalid or unenforceable, had not been included.
J. Law Governing. This Agreement shall be construed and enforced
according to the laws of the State of Connecticut (other than its laws
respecting choice of law).
K. Limitation on Liability. Neither the Company nor any agent or
representative of the Company who is an employee, officer, or director of
the Company in any manner guarantees the payments to be made under this
Agreement against loss or depreciation, and to the extent not prohibited
by federal law, none of them shall be liable (except for his own gross
negligence or willful misconduct), for any act or failure to act, done or
omitted in good faith, with respect to this Agreement. The Company shall
not be responsible for any act or failure to act of any agent appointed to
administer this Agreement.
L. Gender. Except when otherwise indicated by the context, any
masculine terminology herein shall also include the feminine, and the
definition of any term herein in the singular shall also include the plural.
EXECUTIVE OFFICER
-----------------
(Signature)
-----------------
(Print Executive Officer's Name)
THE ADVEST GROUP, INC.
By:-------------------
Allen Weintraub
Chief Executive Officer
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Exhibit 10(k)
As adopted by the Executive
Committee of the Board of
Directors of The Advest Group,
Inc. as of April 11, 1997
FIFTH AMENDMENT TO
THE ADVEST THRIFT PLAN
Effective as of April 11, 1997
The first sentence of Section 5.10 of The Advest Thrift Plan is hereby
amended to read as follows:
Any cash dividends received on Shares allocated to Participant's ESOP
Accounts, at the discretion of the Board, (a) shall be used to satisfy Stock
Obligations, (b) shall be allocated to the Participants' respective ESOP
Accounts or (c) shall be allocated to the Participants' respective 401(k)
Accounts."
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As adopted by the Executive
Committee of the Board of
Directors of The Advest Group,
Inc. as of May 1, 1997
SIXTH AMENDMENT TO
THE ADVEST THRIFT PLAN
Effective as of May 1, 1997
The final paragraph of Section 9.1 of Article IX of The Advest Thrift
Plan (beginning "Any such loan") is hereby amended in its entirety to read as
follows:
"Any loan, shall, by its terms, require that repayment (principal and
interest) be amortized in level payments, not less frequently than monthly,
over a period not extending beyond five years from the date of the loan,
unless such loan is used to acquire a dwelling unit which, within a
reasonable time (determined at the time the loan is made) will be used as the
principal residence of the Participant. Any such loan shall provide for
monthly payments of not less than $20 each and shall be immediately due and
payable in full upon death, disability or separation from service."
As adopted by the Executive
Committee of the Board of
Directors of The Advest Group,
Inc. as of November 20, 1997
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SEVENTH AMENDMENT TO
THE ADVEST THRIFT PLAN
Effective as of October 1, 1997
1. Section 2.42 of The Advest Thrift Plan (the "Plan") is hereby
amended by adding the following new paragraph to the end thereof, to read in
its entirety as follows:
"Years of Service with Irownood Capital Partners Ltd. and its
affiliated corporations shall be recognized for purposes of
eligiblity and vesting."
2. Section 4.1 of the Plan is hereby amended by deleting the phrase
"this Section 4.1" at the end thereof, and substituting the phrase
"eligibility and vesting".
3. Article V of the Plan is hereby amended by adding the following new
Section 5.15 to the end thereof, to read in its entirety as follows:
"5.15 Special Transfers. Except for purposes of Section
5.3 and 5.4 hereof, all amounts transferred to the Plan from the
Ironwood Capital Partners Ltd. 401(k) Plan shall be treated as
Employee contributions pursuant to Section 5.2 of the Plan."
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Exhibit 10(p)
THE ADVEST GROUP, INC.
1998 EQUITY PLAN
The Advest Group, Inc. hereby establishes the 1998 Equity Plan, for a
select group of top performing account executives and key employees. The
purpose of the Plan is to further the long term growth in earnings of the
Company by offering incentives to select Employees to compensate them for
their contributions to the Company's growth and profits, to encourage their
ownership of the Company's stock, and to encourage them to remain in the
employ of the Company.
ARTICLE I
DEFINITIONS
When used herein, each of the following terms shall have the
corresponding meaning set forth below unless a different meaning is plainly
required by the context in which a term is used.
Section 1.1. "Affiliate" means the Company's present or future parent
corporation, each of the present or future subsidiaries of the Company, and
any subsidiaries of the present or future parent of the Company in which the
parent holds a controlling interest.
Section 1.2. "Beneficiary" means any person (including, but not limited
to, a Participant's estate) designated by a Participant on a form provided or
approved by the Committee to receive any Stock or Options to which such
Participant shall be entitled upon such Participant's death in accordance
with the terms of the Plan. No designation of Beneficiary shall be effective
until filed with the Committee. If more than one Beneficiary shall be
designated, the Beneficiaries shall share equally in any rights or interests
of the Participant under the Plan. If a Participant shall fail to file a
valid designation form, or if all persons designated on the designation form
shall have predeceased the Participant, the Company shall distribute all of
the Participant's Stock and Options to which he shall have been entitled upon
his death to such Participant's estate.
Section 1.3. "Board of Directors" means the Board of Directors of the
Company or the Executive Committee of such Board.
Section 1.4. "Cause" shall be deemed to include any act of dishonesty
or fraud, gross negligence, gross insubordination or willful or reckless
conduct detrimental to the business of the Company or an Affiliate.
Section 1.5. "Change of Control" means a transfer or sale of
substantially all of the assets of the Company or merger or consolidation of
the Company into or with any other
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corporation or entity that occurs after the Effective Date, provided either
(a) the other corporation or entity is engaged in the retail securities
brokerage business at the date of the transaction and such transaction
results in the Company not surviving such merger or consolidation or (b) a
substantial change in the senior management of the Company occurs within six
months as a result of the transaction.
Section 1.6. "Code" means the Internal Revenue Code of 1986, as
amended.
Section 1.7. "Committee" means an administrative committee designated
to administer this Plan in accordance with Article X.
Section 1.8. "Company" means The Advest Group, Inc. and any successor
thereto by merger, consolidation, purchase or otherwise.
Section 1.9. "Compensation" means the amount of earnings due to the
Participant for the Deferral Period as defined by the Company. Compensation
shall include amounts contributed to a Participant's account established
under the Company's or an Affiliate's 401(k) plan or The Advest Group, Inc.'s
Deferred Compensation Savings and Investment Plan, or any successor plan(s).
Section 1.10. "Deferral Period" means the period beginning on January
1, 1998 and ending on the earliest of: (a) the termination of a
Participant's employment with the Company or an Affiliate, (b) the
termination of the Plan in accordance with Article IX, or (c) December 31,
1998.
Section 1.11. "Deferred Amount" or "Amount Deferred" means that portion
of a Participant's Compensation a Participant has elected to receive in the
form of Units in accordance with Section 3.1.
Section 1.12. "Effective Date" means December 1, 1997.
Section 1.13. "Employee" means any person who is a common-law employee
of the Company or an Affiliate.
Section 1.14. "Options" means non-qualified stock options to purchase
shares of Stock that are not incentive stock options under Section 422 of the
Code and that are received as a part of a Unit by Participants with Deferred
Amounts.
Section 1.15. "Participant" means an Employee participating in the Plan
as provided in Article II.
Section 1.16. "Permanent Disability" means a mental or physical
condition which renders a Participant permanently unable or incompetent to
engage in any substantial gainful activity.
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Section 1.17. "Plan" means "The Advest Group, Inc. 1998 Equity Plan".
Section 1.18. "Restricted Stock" means shares of Stock subject to the
restrictions set forth in Article IV that are received as part of a Unit by
Participants with Deferred Amounts.
Section 1.19. "Retirement" means the date a Participant retires after
attaining the age of fifty-five.
Section 1.20. "Stock" means the common stock of the Company.
Section 1.21. "Unit" means a grouping consisting of one share of
Restricted Stock and one Option.
Section 1.22. "Unit Price" means the amount of Compensation a
Participant must elect to forego receiving in cash in order to receive a Unit
under the Plan. Such price shall be the closing price per share of the Stock
portion of the Unit on the Composite Tape of the New York Stock Exchange on
the day the Unit is acquired.
ARTICLE II
ELIGIBILITY
Section 2.1. Participants. An Employee eligible to become a
Participant in this Plan for the Deferral Period is any Employee who:
(a) is an account executive, other than an account executive in
the first 36 months of a recruitment loan program (measured as of
January 1, 1998), who is a member of the Chairman's Council, the
Advisory Council, the President's Council, or the Associates'
Council by the standards the Company has set based upon levels of
achievement with respect to the last complete fiscal year
commencing prior to such Deferral Period; or
(b) is a key employee designated by the Chief Executive Officer of
the Company on a list provided by the Chief Executive Officer to
the Committee on or before December 31, 1997 as eligible to
participate in the Plan ("Key Employees").
Notwithstanding the foregoing, Employees who are executive officers
shall not be eligible to participate in the Plan.
Section 2.2. Duration of Participation. A Participant shall cease to
be a Participant on the earliest of: (a) the date all restrictions with
respect to Stock purchased hereunder lapse and all Options purchased
hereunder have terminated, (b) the date such Stock and Options are forfeited
in accordance with Section 4.3 or Section 5.5, or (c) the date the Plan is
terminated in accordance with Article IX.
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Section 2.3. Reemployment. Reemployment of a former Participant by the
Company or an Affiliate shall not entitle such individual to become a
Participant in the Plan unless the individual again becomes a Participant in
accordance with Section 2.1, and reemployment of a former Participant by the
Company or an Affiliate shall not result in the restoration of any Stock or
Options previously forfeited by such Participant.
ARTICLE III
DEFERRAL
Section 3.1. Amount Deferred. During the Deferral Period:
(a) A Participants who is a member of the Chairman's Council may
elect to receive a minimum of 2.5% and a maximum of 10% of his or
her Compensation in the form of Units.
(b) A Participant who is (i) a member of the Advisory Council,
(ii) a member of the President's Council, or (iii) a Key Employee
who had total compensation during 1997 of $125,000 or more, may
elect to receive a minimum of 2.5% and a maximum of 7.5% of his or
her Compensation in the form of Units.
(c) A Participant who is (i) a member of the Associates' Council,
or (ii) a Key Employee who had total compensation during 1997 of
less than $125,000, may elect to receive a minimum of 1.5% and a
maximum of 5% of his or her Compensation in the form of Units.
(d) In addition to the percentage elections set forth above in
clause (b) or (c), whichever may be applicable, a salaried Key
Employee who elects at least the minimum level of investment may
also elect to receive a greater percentage, up to a maximum
aggregate of 100%, of his or her Compensation above base salary in
the form of Units, provided that at no time may the amount of
Compensation received in the form of Units exceed the maximum
permitted percentages of Compensation specified in clause (b) or
(c) above, whichever may be applicable.
Notwithstanding the foregoing, no Participant may elect to receive
during the Deferral Period Units with an aggregate Unit Price in excess of
$50,000, and no further Units shall be acquired for Participants under the
Plan if such acquisition would cause the aggregate number of Units sold to
exceed 400,000. If, based upon Participant elections, the Committee
anticipates at the commencement of 1998 that these aggregate limit is likely
to be exceeded, the Committee may reduce the maximum percentage investments
in a manner it determines to be equitable to all participants. Participants
will be notified of any reduction applicable to them by January 31, 1998.
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Section 3.2. Receipt of Units. Amounts deferred hereunder shall be
withheld from a Participant's paycheck in periodic installments. On the
last business day of each month, the total of a Participant's Deferred
Amounts under Section 3.1 shall be applied to acquire Units for such
Participant at the then Unit Price. No interest or other earnings shall
accrue on amounts deferred prior to acquisition of Units. Fractional units
may be acquired by a Participant; provided, that the Committee may establish
procedures to eliminate any fractional holdings of Units held on behalf of
Participants as of December 31, 1998 in a manner equitable to all
Participants.
Section 3.3. Stock Subject to Purchase. Shares of Stock subject to
purchase hereunder shall be previously issued shares reacquired by the
Company (including any shares forfeited under this Plan).
ARTICLE IV
RESTRICTED STOCK
Section 4.1. Stock. All shares of Restricted Stock shall be held in
the name of The Advest Group, Inc. as escrow agent for Participants.
Section 4.2. Restrictions. The shares of Restricted Stock purchased
hereunder shall be subject to the following restrictions and conditions:
(a) Subject to the provisions of the Plan and the Restricted Stock
Agreements, during the period commencing on the date of the acquisition
of any shares of Restricted Stock hereunder and terminating on January
1, 2002 (together with any extensions of such period approved as
provided herein) (the "Restriction Period"), a Participant shall not be
permitted to sell, transfer, pledge or assign shares of Restricted Stock
acquired under the Plan. One year extensions of the Restriction Period
for Restricted Stock purchased hereunder will be made at a Participant's
election, which election must be in writing on a form provided by the
Committee and must be made no later than one year before the Restriction
Period would otherwise terminate; provided, however, that the Committee
may at any time determine that no additional extensions of Restricted
Periods will be effective.
(b) A Participant shall have the right to direct the vote of such
Participant's shares of Restricted Stock during the Restriction Period,
in accordance with Section 4.4. A Participant shall have the right to
receive any regular dividends on such shares of Restricted Stock. The
Committee shall in its sole discretion determine a Participant's rights
with respect to extraordinary dividends on the shares of Restricted
Stock.
(c) Shares of Restricted Stock shall be transferred to a
Participant's brokerage account with Advest, Inc.
within a reasonable time after, and only after, the
Restriction Period shall expire (or such earlier time
as the restrictions may lapse in
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accordance with Section 4.2(a) or Section 4.3) without forfeiture
in respect of such shares of Restricted Stock.
Section 4.3. Termination of Employment. Subject to the provisions of
Section 4.2(a), the following provisions shall apply to a Participant's
shares of Restricted Stock prior to the end of the Restriction Period
(including extensions):
(a) Upon a Participant's death, Permanent Disability, Retirement
with the written consent of the President or the Chief Executive Officer
of the Company or the Affiliate by which the Participant is employed,
voluntary termination of employment more than nine months after a Change
of Control, or involuntary termination of employment (other than a
termination for Cause), the restrictions on such Participant's
Restricted Stock shall immediately lapse, and such shares shall be
delivered to the Participant or the Participant's designated
Beneficiary, as the case may be, within a reasonable time after the
occurrence of any such event.
(b) Upon a Participant's Retirement without the written consent of
the President or the Chief Executive Officer of the Company or the
Affiliate by which the Participant is employed or voluntary termination
of employment within nine months of a Change of Control, the Participant
shall forfeit all of such Participant's shares of Restricted Stock and
receive in return, without interest, a cash payment equal to (i) the
lesser of: (1) the aggregate Unit Price for such Restricted Stock, and
(2) the closing price per share of Stock on the Composite Tape of the
New York Stock Exchange on the Participant's date of termination or
Retirement, multiplied by (ii) the number of shares of Restricted Stock
owned by the Participant.
(c) If a Participant voluntarily terminates employment (other than
as set forth in subsections (a) or (b) of this Section 4.3), is
involuntarily terminated for Cause, or retires prior to attaining the
age of fifty-five, such Participant shall forfeit such Participant's
Restricted Stock.
Section 4.4. Voting Rights. During the Restriction Period the shares
of Restricted Stock shall be voted by the Chairman of the Committee, and the
Chairman shall vote such shares in accordance with instructions received from
Participants. Shares as to which no instructions are received shall be voted
by the Chairman proportionately in accordance with instructions received from
Participants in the Plan.
ARTICLE V
OPTIONS
Section 5.1. Issuance. Options received as part of a Unit shall be
issued to the Participant (or the Participant's designated Beneficiary in
accordance with Section 5.5(c) below) on July 1, 1998 and January 1, 1999, in
each case with an exercise price per share equal to the closing price per
share on the Composite Tape of the New York Stock Exchange on the last
business day prior to the issuance of the Options and covering the purchase
of a
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number of shares of Stock equal to the number of shares of Restricted Stock
acquired by the Participant during the preceding six calendar months.
Section 5.2. Stock Option Agreement. Recipients of Options shall enter
into a Stock Option Agreement or Agreements with the Company, in such form as
the Committee shall determine, which Agreement or Agreements shall set forth,
among other things, the exercise price or prices of the Options (or the
formula for determining such exercise price), the term of the Option and
provisions regarding exercisability of the Options granted thereunder.
Section 5.3. Transfer Restrictions. Options are not transferable other
than by will or the laws of descent and distribution. During the lifetime of
a Participant, the Options may be exercised only by the Participant.
Section 5.4. Exercise of Options. Options acquired hereunder will vest
and become exercisable on January 1, 2004 (unless earlier forfeited or
terminated) and will remain exercisable for a period of twenty-four months,
until December 31, 2005. An Option shall not be exercisable unless payment
in full is made for the shares being acquired thereunder at the time of
exercise; such payment shall be made (a) in United States dollars by cash or
check, or (b) in lieu thereof, unless the Committee shall in its sole
discretion determine otherwise, by tendering to the Company Stock owned by
the person exercising the Option (or owned by the person exercising the
Option and his or her spouse, jointly) and acquired more than six months
prior to such tender, and having a fair market value equal to the cash
exercise price applicable to such Option, such fair market value to be
determined in such reasonable manner as may be provided for from time to time
by the Committee or as may be required in order to comply with or to conform
to the requirements of any applicable or relevant laws or regulations, or (c)
by a combination of United States dollars and Stock as aforesaid.
Section 5.5. Termination of Employment. An Option shall not be
exercisable unless the person exercising the Option has been, at all times
during the period beginning with the date of purchase of the Option and
ending on the date of such exercise, an Employee of the Company, except that:
(a) Upon a Participant's death, Permanent Disability, Retirement
with the written consent of the President or the Chief Executive Officer
of the Company or the Affiliate by which such Participant is employed,
voluntary termination of employment more than nine months after a Change
of Control, or involuntary termination of employment (other than a
termination for Cause), the Options shall immediately vest and shall be
exercisable for a period of three months after the Participant's
termination of employment by the Participant or the Participant's
designated Beneficiary, as the case may be.
(b) Upon a Participant's voluntary termination of employment
(other than as set forth in subsection (a) of this Section 5.5),
involuntary termination for Cause, retirement prior to attaining
the age of fifty-five, or Retirement without the written consent
of the President or the Chief Executive Officer of the Company or
the Affiliate
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by which such Participant is employed, the Participant
shall forfeit such Participant's unvested Options.
(c) If a Participant shall have terminated employment for any
reason after the acquisition of Units hereunder but prior to the
issuance of the Option portion of such Units, any Option acquired as
part of the Unit shall be forfeited as provided in subsection (b) of
this Section 5.5.
ARTICLE VI
ELECTION
Section 6.1. Election. A Participant as defined in Section 2.1 shall
elect the Amount Deferred as defined in Section 3.1 for the Deferral Period
on such forms as the Committee may prescribe according to Section 10.2(h).
Such election shall be made by or on December 31, 1997.
Section 6.2. Change of Election. Following an election by a
Participant made pursuant to Section 6.1 to have an Amount Deferred, such
Participant at any time during the Deferral Period may choose to discontinue
all (but not less than all) Amounts Deferred with respect to Compensation due
to the Participant during subsequent calendar quarters of the Deferral
Period. Such election shall be made on such form as the Committee may
prescribe and shall become effective as of the first day of the calendar
quarter following receipt of such form by the Committee.
ARTICLE VII
ADJUSTMENTS UPON A CHANGE IN COMMON STOCK
In the event of any change in the outstanding Stock of the Company by
reason of any stock split, stock dividend, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares or other
similar event if such change equitably requires an adjustment in the number
or kind of shares that may be issued under the Plan, or in the number or kind
of shares subject to, or the option price per share under, any outstanding
Option which has been purchased by any Participant, such adjustment shall be
made by the Committee and shall be conclusive and binding for all purposes of
the Plan. In no event shall the excess of the aggregate fair market value of
the Stock subject to the Options immediately after any substitution, exchange
or adjustment over the aggregate option price for such Stock be more than the
excess of the aggregate fair market value of all of the Stock subject to the
Option immediately before any such substitution, exchange or adjustment over
the aggregate option price of such Stock nor shall the adjusted Option give
the holder thereof any additional benefits he did not have under the old
Option.
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ARTICLE VIII
WITHHOLDING
In the event that the Company determines that it or an Affiliate is
required by law to withhold taxes at any time, including, but not limited to,
upon the exercise of an Option or upon the vesting of shares of Restricted
Stock, the Company shall have the right to require a Participant to pay to
the Company the amount of taxes that the Company or Affiliate is required to
withhold or, in lieu thereof, (a) to retain, or sell without notice, a
sufficient number of shares of Restricted Stock held by it for the
Participant to cover the amount to be withheld, or (b) to withhold the amount
of such taxes from any other sums due or to become due from the Company or an
Affiliate to the Participant upon such terms and conditions as the Committee
shall prescribe.
ARTICLE IX
AMENDMENT AND TERMINATION
Section 9.1. Power to Amend. The Board of Directors may amend, modify,
change, or revise the Plan by amendment at any time; provided, however, that
(a) no amendment shall increase the duties or liabilities of the Board of
Directors or the Committee without written consent of each member and (b) no
amendment shall be made without the written covenant of a Participant if the
effect of such amendment would reduce the rights of a Participant with
respect to Units acquired prior to the date of the amendment.
Section 9.2. Plan Termination. The continuation of the Plan is not
assumed as a contractual obligation of the Company and the right is reserved
by the Company at any time to discontinue the Plan. The Plan may be
terminated by the Board of Directors at any time, when in its judgment,
business, financial or other good causes make such termination necessary or
appropriate; such termination to become effective upon the delivery of notice
by the Board of Directors or the Committee to the Participants.
ARTICLE X
ADMINISTRATION OF THE PLAN
Section 10.1. Authority and Responsibility of the Committee. The Board
of Directors shall appoint the members of a Committee, which members shall
hold office at the pleasure of the Board of Directors. Said Committee shall
consist of not less than three nor more than eight members, any one or more
of whom may, but need not, be an officer of the Company. If there is at any
time a vacancy on the Committee for any reason, the Board of Directors shall
fill such vacancy, but the Committee may act notwithstanding the existence of
vacancies as long as there shall continue to be at least two members of the
Committee. The Committee shall select a Chairman from among its members.
The Committee shall have overall responsibility for the administration and
operation of the Plan. The Committee will have all powers as may be
necessary to discharge its duties hereunder.
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Section 10.2. Committee Duties. The Committee, on behalf of the
Participants and all other Beneficiaries of the Plan, will administer and
operate the Plan in accordance with the terms of the Plan and will have all
powers necessary to accomplish that purpose, including, but not limited to,
the following:
(a) To issue rules and regulations necessary for the proper
conduct and administration of the Plan and to change, alter, or
amend such rules and regulations;
(b) To construe the Plan;
(c) To determine all questions arising in the administration of
the Plan, including those relating to the eligibility of persons to
become Participants in accordance with Article II and the rights of
Participants and their Beneficiaries, and its decisions thereon
shall be final and binding upon all persons hereunder;
(d) To oversee the retention of records relating to Participants
and other matters applicable to the Plan;
(e) To make available to Participants and Beneficiaries upon
request, for examination during business hours, such records as
pertain exclusively to the examining Participant (or Beneficiary);
(f) To prescribe procedures to be followed by Participants and
Beneficiaries in making claims hereunder;
(g) To make available for inspection and to provide upon request
at such charge as may be permitted and determined by the Company,
such documents and instruments, if any, as the Committee deems
appropriate;
(h) To prescribe and adopt the use of necessary forms;
(i) To appoint such agents and other specialists to aid it in the
administration of the Plan as it deems necessary; and
(j) To make periodic reports on the operation and administration
of the Plan to the Board of Directors as may be required in any
articles of incorporation, charter, or by-laws pertaining to the
Company.
Section 10.3. Records. The regularly kept records of the Committee and
the Company shall be conclusive evidence as to all matters contained therein
applicable to this Plan.
Section 10.4. Committee Decisions Final. The decisions of the
Committee concerning matters within its jurisdiction shall be final, binding,
and conclusive upon the Company and its
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Affiliates, the Participants, Beneficiaries and any other person or party
interested or concerned.
Section 10.5. Committee as Agent. The Committee shall act as agent for
the Company in the administration of the Plan.
Section 10.6. Plan Expenses. All clerical, legal and other expenses of
the Plan shall be paid by the Company.
Section 10.7. Allocations and Delegations of Responsibility.
(a) Delegations. The Committee shall have the authority to
delegate, from time to time, all or any part of its
responsibilities under the Plan to such person or persons as it may
deem advisable and in the same manner to revoke any such delegation
of responsibility. Any action of the delegate in the exercise of
such delegated responsibilities shall have the same force and
effect for all purposes herein as if such action had been taken by
the Committee. The Board of Directors or the Committee shall not
be liable for any act or omission of any such delegate. The
delegate shall report periodically to the Committee concerning the
discharge of the delegated responsibilities.
(b) Allocations. The Committee shall have the authority to
allocate, from time to time, all or any part of its
responsibilities under the Plan to one or more of its members as it
may deem advisable, and in the same manner to revoke such
allocation of responsibilities. Any action of the member to whom
responsibilities are allocated in the exercise of such allocated
responsibilities shall have the same force and effect for all
purposes hereunder as if such action had been taken by the
Committee. The Board of Directors or the Committee shall not be
liable for any acts or omissions of such member. The member to
whom responsibilities have been allocated shall report periodically
to the Committee concerning the discharge of the allocated
responsibilities.
(c) Limit on Liability. Duties and responsibilities which are
carried out in good faith by the Committee hereunder or which have
been allocated or delegated pursuant to the terms of the Plan or
subsections (a) or (b) of this Section 10.7 shall not create any
liability of the Company, Board of Directors, or Committee, or any
member thereof.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1. Merger. Any successor corporation to the Company, by
merger, consolidation, purchase or otherwise, shall be substituted hereunder
for the Company. This
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Plan shall be binding on all successors to and assigns of the Company;
provided that such successors or assigns may terminate the Plan in accordance
with the provisions hereof.
Section 11.2. Securities Laws. The Committee may require each person
purchasing shares pursuant to an Option or shares of Restricted Stock to
represent and agree with the Company in writing that such person is acquiring
the shares without a view to distribution thereof. The certificates for such
shares may include any legend which the Committee deems appropriate to
reflect any restriction on transfer. Furthermore, all certificates for
shares of Stock delivered under the Plan shall be subject to such stock-
transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, any stock exchange upon which the Stock is then listed,
and any applicable Federal or state securities law, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
Section 11.3. Indemnification. The Company shall indemnify and hold
harmless to the extent legally permitted each member of the Board of
Directors, the Committee and each officer and Employee of the Company to whom
are delegated duties, responsibilities, and authority with respect to the
Plan against all claims, liabilities, fines and penalties, and all expenses
reasonably incurred by or imposed upon such delegate or agent (including but
not limited to reasonable attorney fees) which arise as a result of actions
or failure to act in connection with the operation and administration of the
Plan.
Section 11.4. Contract of Employment. Nothing contained herein shall
be construed to constitute a contract of employment between the Company or an
Affiliate and any Employee or Participant. Nothing contained herein will
confer upon any Participant the right to be retained in the service of the
Company or an Affiliate or limit the right of the Company or an Affiliate to
discharge or otherwise deal with any Participant without regard to the
existence of the Plan.
Section 11.5 Disclosure. Each Participant shall receive a copy of the
summary of the Plan and the Committee will make available for inspection by
any Participant or Beneficiary a copy of the Plan and any written procedures
used by the Committee in administering the Plan.
Section 11.6. Headings. The headings of Articles and Sections are
included solely for convenience of reference, and if there is any conflict
between such headings and the text of the Plan, the text shall control.
Section 11.7. Invalidity of Certain Provisions. If any provision of
the Plan shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof, and the Plan
shall be construed and enforced as if such provisions, to the extent invalid
or unenforceable, had not been included.
Section 11.8. Law Governing. The Plan shall be construed and enforced
according to the laws of the State of Connecticut (other than its laws
respecting choice of law).
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Section 11.9. Limitation on Liability. Neither the Company nor any
agent or representative of the Company who is an employee, officer, or
director of the Company in any manner guarantees the payments to be made
under the Plan against loss or depreciation, and to the extent not prohibited
by federal law, none of them shall be liable (except for his own gross
negligence or willful misconduct), for any act or failure to act, done or
omitted in good faith, with respect to the Plan. The Company shall not be
responsible for any act or failure to act of any agent appointed to
administer the Plan.
Section 11.10. Gender. Except when otherwise indicated by the context,
any masculine terminology herein shall also include the feminine, and the
definition of any term herein in the singular shall also include the plural.
THE ADVEST GROUP, INC.
By: /S/ ALLEN WEINTRAUB
---------------------
Allen Weintraub
Chief Executive Officer
ATTEST:
/S/ DAVID A. HOROWITZ
- ---------------------
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Exhibit 10(r)
EMPLOYMENT AGREEMENT BETWEEN
THE ADVEST GROUP, INC. AND GRANT W. KURTZ
THIS EMPLOYMENT AGREEMENT is entered into as of this first
day of October, 1997 between GRANT W. KURTZ ("Mr. Kurtz") and The
Advest Group, Inc. ("Advest").
W I T N E S S E T H
WHEREAS, Mr. Kurtz has been employed by Advest since 1985
and has served as its President since March 1995; and
WHEREAS, the parties now wish to enter into this Agreement
(the "Employment Agreement") to set forth their mutual
understanding concerning Mr. Kurtz's continued employment by
Advest;
NOW, THEREFORE, for good and valid consideration the parties
agree as follows:
1. Employment and Duties. Advest hereby agrees to employ
Mr. Kurtz as President, to perform all of the duties and
responsibilities normally performed and pertinent to this office,
reporting to and under the direction of the Chief Executive
Officer. Mr. Kurtz agrees to be so employed.
2. Term. The term of this Agreement shall commence as of
October 1, 1997 and continue through September 30, 2002, unless
earlier terminated pursuant to Section 5. The term "Agreement
Term" shall mean the term of this Agreement plus any extensions
thereto.
3. Compensation. Mr. Kurtz's compensation shall be
established each year by the Compensation Committee of the Board
of Directors and will include both salary and additional
compensation under the Management Incentive Plan ("MIP") adopted
by the Board of Directors. In no event shall Mr. Kurtz's salary
be less than his salary as of the date this Agreement is
executed, or any amount to which his salary is thereafter
increased; provided, however, that Mr. Kurtz's salary shall with
his written consent be subject to reduction in the event of a
reduction in the salaries of senior executive officers of Advest
generally. Nor will Mr. Kurtz's share of the MIP be less than
any other participant eligible for MIP other than the Chief
Executive Officer.
4. Representations. Mr. Kurtz agrees that during the term
of his employment with Advest he will not be employed by any
other person or organization except for Advest subsidiaries and
except also for outside directorships in accordance with Advest's
usual policies.
5. Termination. This Agreement may be terminated by Mr.
Kurtz's voluntary resignation upon a minimum of three months
notice (other than in the case of unforeseen health problems).
If Mr. Kurtz's employment is terminated during the Agreement
Term, the following provisions shall apply:
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(a) Termination of Employment by Advest Without Cause or by
Mr. Kurtz for Good Reason. If, before the end of the Agreement
Term, Advest terminates Mr. Kurtz's employment for any reason
other than for Cause (as defined below), or if Mr. Kurtz
terminates his employment with Advest for Good Reason (as defined
below), Advest shall pay to Mr. Kurtz immediately after the date
of termination in a lump-sum in immediately available funds, an
amount equal of the sum of (i) Mr. Kurtz's annual base salary
which is accrued but unpaid as of the date of the termination,
(ii) that portion of Mr. Kurtz's additional compensation under
the MIP ("Bonus") which is earned with respect to the fiscal year
ending prior to the date of termination but that is unpaid as of
the date of termination, (iii) the product of (A) the amount of
the Bonus to which Mr. Kurtz would have been entitled had he been
employed by Advest on the last day of the fiscal year containing
the date of termination (calculated based upon Mr. Kurtz's
average Bonus for the three years immediately prior to his
termination of employment) multiplied by (B) a fraction, the
numerator of which is the number of days which have elapsed in
such fiscal year through the date of termination and the
denominator of which is 365 ("Pro-Rata Annual Bonus"), (iv) Mr.
Kurtz's salary through the end of the Agreement Term, and (v) Mr.
Kurtz's Bonus through the end of the Agreement Term (calculated
based upon his average Bonus for the three years immediately
prior to his termination of employment). In addition,
notwithstanding any other provision of this Agreement, if Mr.
Kurtz's employment is terminated by Advest other than for Cause
or by Mr. Kurtz for Good Reason, all options granted to Mr. Kurtz
under the Advest Group, Inc. 1993 Stock Option Plan, the Advest
Group, Inc. 1986 Stock Option Plan, the Advest Group, Inc. 1983
Incentive Stock Option Plan, the Advest Group Executive Equity
Plans, and any other outstanding equity that Mr. Kurtz received
under any other plan or agreement (collectively, "Equity
Incentive Awards"), shall immediately and fully vest upon the
date of termination, and shall remain exercisable for not less
than 90 days therefrom. Through the end of the Agreement Term,
Mr. Kurtz shall also continue to participate in all Advest-
sponsored incentive, savings and retirement plans, and shall
continue to receive benefits under all welfare benefit plans,
practices, policies and programs provided by Advest (including,
and without limitation, medical, prescription, dental,
disability, employee life, group life, dependent life, accidental
death and travel insurance plans and programs) applicable to
other senior executives of Advest; provided, however, that any
amounts paid under this sentence shall be reduced by any similar
benefits earned by Mr. Kurtz as a result of employment by another
employer.
For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any one of the following events:
(i) failure of Mr. Kurtz to continue to be appointed
or elected to the positions of President and member of the
Board of Directors of Advest;
(ii) assignment of Mr. Kurtz of any duties materially
and adversely inconsistent with Mr. Kurtz's position as
President and member of the Board of Directors, including
status, offices, or responsibilities, or any other
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<PAGE>
action of Advest that results in a material and
adverse change in such position, status, offices,
titles or responsibilities or any other material
adverse change to the terms and conditions of Mr.
Kurtz's employment under this Agreement;
(iii) any material and adverse change in Mr.
Kurtz's reporting responsibilities;
(iv) any material breach by Advest of the provisions of
this Agreement;
(v) Advest's requiring, without written consent of Mr.
Kurtz, that Mr. Kurtz be based at any office or location
more than 50 miles from his regular place of business as of
the date of the execution of this Agreement;
(vi) the liquidation or dissolution of Advest, or sale
of substantially all of the assets of Advest or the sale of
assets of Advest which produce more than 30% of Advest's
gross revenues unless in advance of any such sale Mr. Kurtz
waives this provision in writing; or
(vii) any purported termination of Mr. Kurtz's
employment under this Agreement which is not for Cause in
strict accordance with Sections 5(a) and 5(d) and of this
Agreement.
For purposes of this Agreement, "Cause" shall mean willful
misconduct, gross negligence, the conviction of Mr. Kurtz of a
criminal offense for violation of the securities laws or
involving moral turpitude, or a determination by the Board (a
"Determination") that (i) Mr. Kurtz has or is engaged in the
securities industry in any capacity, including as an employee or
consultant, that the Board has determined to be materially
detrimental to Advest or its business, and Mr. Kurtz has not
provided the Board with adequate assurance that he will refrain
therefrom after written request from the Board, or (ii) Mr. Kurtz
has breached his obligation under Section 6. Notwithstanding the
foregoing, Mr. Kurtz shall not be deemed to have been terminated
for Cause without (1) Cause having been committed by Mr. Kurtz,
(2) advance written notice provided to Mr. Kurtz not less than
fourteen (14) days prior to the date of termination, setting
forth Advest's intention to consider terminating Mr. Kurtz
including a statement of the date of termination and the specific
detailed basis for such consideration for Cause, (3) an
opportunity for Mr. Kurtz, together with his counsel, to be heard
before the Board during the fourteen (14) day period ending on
the date of termination, (4) determination in accordance with the
next to last sentence of this Section 5(a) by the members of the
Board, that the actions of Mr. Kurtz constituted Cause and that
Mr. Kurtz's employment should accordingly be terminated for
Cause, and (5) a written determination provided by the Board
setting forth in full specificity the basis of such termination
of employment. By determination of the Board in accordance with
the next to the last sentence of this Section 5(a), Advest may
suspend Mr. Kurtz from his duties for a period of up to thirty
(30) days with full pay and benefits hereunder during the period
of time in which the Board is making a determination as to
whether to terminate for Cause. Any determination by the Board
hereunder shall be made by the affirmative vote of the non-
employee members of the Board with a vote in favor of the
determination by a number of non-employee members who constitute
at least 75% of
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<PAGE>
the non-employee members of the Board. Any purported termination
of employment of Mr. Kurtz by Advest which does not meet each and
every substantive and procedural requirement of this Section 5(a)
shall be treated for all purposes under this Agreement as a
Termination of Employment Without Cause as addressed under this
Section 5(a).
(b) Termination Due to Death. If before the end of the
Agreement Term Mr. Kurtz's employment terminates due to death,
Advest shall immediately after the date of such termination pay
to Mr. Kurtz, or to Mr. Kurtz's Beneficiary (as defined below), a
lump-sum amount equal to the sum of (A) Mr. Kurtz's annual base
salary which is accrued but unpaid as of the date of termination,
plus (B) that portion of Mr. Kurtz's annual Bonus which is earned
with respect to the fiscal year ending prior to the date of
termination but which is unpaid as of the date of termination,
plus (C) Mr. Kurtz's Pro-Rata Annual Bonus for the fiscal year
containing the date of termination. In addition, Mr. Kurtz's
Equity Incentive Awards shall immediately and fully vest upon the
date of termination, and shall remain exercisable for not less
than one year therefrom. For purposes of this Agreement, Mr.
Kurtz's "Beneficiary" shall mean such person as Mr. Kurtz shall
designate pursuant to Section 11.2 of the Advest Thrift Plan, or,
if no such beneficiary designation is in effect, his estate.
(c) Termination Due to Disability. If before the end of the
Agreement Term Mr. Kurtz's employment is terminated due to a
mental or physical disability which prevents Mr. Kurtz from
performing the essential functions of the office of President for
a continuous period of at least six months, and which in the
opinion of the Board of Directors will be permanent or will last
for an indefinite duration, Mr. Kurtz shall receive immediately
after the date of termination: (i) all benefits which are
normally provided to senior Advest executives in the event of
disability, and (ii) a lump-sum amount equal to the sum of (A)
Mr. Kurtz's annual base salary which is accrued but unpaid as of
the date of termination, plus (B) that portion of Mr. Kurtz's
annual Bonus which is earned with respect to the fiscal year
ending prior to the date of termination but which is unpaid as of
the date of termination, plus (C) Mr. Kurtz's Pro-Rata Annual
Bonus for the fiscal year containing the date of termination. In
addition, Mr. Kurtz's Equity Incentive Awards shall immediately
and fully vest upon the date of termination, and shall remain
exercisable for not less than one year therefrom.
(d) Termination of Employment by Advest for Cause, or by Mr.
Kurtz for other than Good Reason. If Mr. Kurtz's employment is
terminated by Advest for Cause, or by Mr. Kurtz for other than
Good Reason, Mr. Kurtz shall receive immediately after the date
of termination a lump-sum amount equal to the sum of (i) Mr.
Kurtz's annual base salary which is accrued but unpaid as of the
date of termination, and (ii) that portion of Mr. Kurtz's annual
Bonus which is earned with respect to the fiscal year ending
prior to the date of termination but which is unpaid as of the
date of termination.
(e) Other Termination Benefits. In addition to any amounts or
benefits payable upon a termination of employment under the terms
of this Agreement, and except as otherwise provided herein, Mr.
Kurtz shall be entitled to any payments or benefits provided
under the terms of any
-69-
<PAGE>
plan, policy or program of Advest or as otherwise required by
applicable law; provided, however, that amounts payable hereunder
shall be reduced by any severance compensation to which Mr. Kurtz
may be entitled and is paid under any plan, policy, or program of
Advest.
(f) Notwithstanding anything to the contrary set forth in this
Agreement, in the event that Advest is otherwise obligated to
provide certain benefits under this Agreement, Advest may elect
to provide an alternative benefits as follows:
(i) In the event that Advest would otherwise be obligated
to alter the vesting or exercisability provisions of any
Equity Incentive Awards, in its discretion Advest may offer
to pay to Mr. Kurtz in lieu thereof a lump sum amount equal
to the amount, if any, by which the market value of the
underlying equity as of the date of termination exceeds the
exercise price. Mr. Kurtz may accept this offer by Advest
or elect to exercise any rights he may have under the Equity
Incentive Awards without modification.
(ii) To the extent that it would violate applicable law
or regulation or the provisions of any Advest-sponsored
incentive, savings or retirement plan or any welfare benefit
plan, practices policy or program, Advest shall be excused
from offering Mr. Kurtz participation in such plan, policy
or program. In that event, Advest shall pay to Mr. Kurtz an
amount equal to the net after-tax cost that would be
incurred by Mr. Kurtz in obtaining comparable alternative
benefits. In the case of any benefits receivable under
health, life or disabilty insurance policies, this amount
will be deemed to be the net after-tax cost of obtaining
such coverage.
(iii) Advest will use its best efforts to obtain for Mr.
Kurtz Directors and Officers insurance coverage to the
extent called for under paragraph 6(c) and will do so unless
it would involve excessive and unreasonable expense. If
Advest fails to obtain required coverage for Mr. Kurtz,
without limitation of Advest's obligations under Section
6(c), it will nevertheless provide to Mr. Kurtz
indemnification for costs and expenses comparable to that
which would have been provided by such a policy.
6. Confidential Information. Mr. Kurtz shall not at any
time after termination of employment reveal to anyone other
than authorized representatives of Advest, or use for his
own benefit or the benefit of any third party, any trade
secrets, customer information or other information that has
been designated as confidential by Advest or is understood
by Mr. Kurtz to be confidential, unless such information is
or becomes available to the public or is otherwise public
knowledge or in the public domain for reasons other than Mr.
Kurtz's acts or omissions.
7. Amendments. This Agreement can only be altered by
written amendment executed by both parties.
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<PAGE>
8. Arbitration. Any claim controversy arising between the
parties shall be settled by arbitration before a New York
Stock Exchange, National Association of Securities Dealers,
or American Arbitration Association panel at the option of
the employee. The arbitrators shall have no authority to
modify any provision of this Agreement or to award a remedy
for a dispute involving this Agreement other than a benefit
specifically provided under this Agreement. The decision of
the arbitrators shall be final and binding on Advest and Mr.
Kurtz, who shall each pay their own legal fees and expenses
associated with arbitration and share any arbitration fees.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first written above.
THE ADVEST GROUP, INC.
By: /S/ ALLEN WEINTRAUB /s/ GRANT W. KURTZ
----------------------- ------------------
Allen Weintraub Grant W. Kurtz
Chief Executive Officer in his individual
capacity
CONFIRMED
By: /S/ RICHARD G. DOOLEY
--------------------------------
Richard G. Dooley
Chairman, Compensation Committee
for the Board of Directors
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<PAGE>
<TABLE>
<CAPTION>
Exhibit 11
The Advest Group, Inc. and Subsidiaries
Computation of Net Income Per Common Share
For the years ended September 30,
----------------------------------------------------
Assuming
(Primary) Full dilution
----------------------------------------------------
In thousands, except
per share amounts 1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $14,218 $11,798 $6,351 $14,218 $11,798 $6,351
Interest expense
on debentures, net -- -- -- 249 814 1,001
-------------------------------------------------------
Net income applicable to
common stock $14,218 $11,798 $6,351 $14,467 $12,612 $7,352
========================================================
Average number of common
shares outstanding during
the period 8,512 8,426 8,501 8,512 8,426 8,501
Additional shares assuming:
Exercise of stock
options 366 322 234 416 329 270
Conversion of
debentures -- -- -- 466 1,515 1,527
---------------------------------------------------------
Average number of common
shares outstanding 8,878 8,748 8,735 9,394 10,270 10,298
========================================================
Net income per share $ 1.60 $ 1.35 $ 0.73 $ 1.54 $ 1.23 $ 0.71
========================================================
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</TABLE>
<PAGE>
[Page 1 of Annual Report]
<TABLE>
<CAPTION>
Financial Highlights For the years ended September 30,
- -------------------------------------------------------------------------------------------------------
In thousands, except per share
amounts and percentages 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 289,345 $261,381 $232,633
Income before taxes $ 24,098 $ 21,068 $ 11,761
Net income $ 14,218 $ 11,798 $ 6,351
Net income per common and common equivalent shares:
Primary $ 1.60 $ 1.35 $ 0.73
Assuming full dilution $ 1.54 $ 1.23 $ 0.71
Total assets $1,076,806 $965,177 $830,815
Shareholders' equity $ 104,591 $ 89,242 $ 78,932
Book value per share $ 12.12 $ 10.62 $ 9.42
Return on average equity 14.8% 14.0% 8.4%
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</TABLE>
<PAGE>
[Page 18 of Annual Report]
<TABLE>
<CAPTION>
Five Year Financial Summary
For the years ended September 30,
- ----------------------------------------------------------------------------------------------------------------------
In thousands, except per share
amounts and percentages 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
Commissions:
Listed $ 49,499 $ 43,390 $ 39,773 $ 36,284 $ 39,199
Mutual funds 36,661 34,210 22,693 22,337 21,448
Over-the-counter 23,352 19,714 12,554 10,374 9,527
Insurance 8,227 7,969 4,487 5,164 3,634
Options 4,339 3,552 3,071 2,570 2,407
Other 954 1,280 1,686 2,761 1,620
---------------------------------------------------------------------------
123,032 110,115 84,264 79,490 77,835
---------------------------------------------------------------------------
Interest:
Margin accounts 28,670 25,246 23,761 17,868 14,158
Loans 13,867 16,041 20,005 19,016 19,615
Stock borrowed 10,645 6,970 3,773 978 645
Investments 2,953 3,836 6,132 6,793 6,227
Securities inventory 2,525 1,849 1,470 1,016 1,015
Other 1,222 1,283 941 413 783
---------------------------------------------------------------------------
59,882 55,225 56,082 46,084 42,443
Principal transactions 43,880 38,591 41,424 32,297 33,662
Investment banking 29,429 28,166 17,470 25,743 31,102
Asset management
and administration 25,844 20,050 16,810 16,399 14,111
Gain on sale of investment
advisory business, net 57 627 10,092 0 0
Other 7,221 8,607 6,491 5,216 2,878
---------------------------------------------------------------------------
Total revenues 289,345 261,381 232,633 205,229 202,031
---------------------------------------------------------------------------
Expenses
Compensation and benefits 163,200 147,091 121,611 114,800 111,615
---------------------------------------------------------------------------
Interest:
Stock loaned 10,261 6,496 4,050 1,103 731
Brokerage customers 8,565 8,769 9,928 6,342 5,383
Deposits 7,596 8,449 11,002 9,613 11,290
Borrowings 5,369 4,651 4,704 5,064 5,120
Other 667 1,060 882 462 498
---------------------------------------------------------------------------
32,458 29,425 30,566 22,584 23,022
Communications 23,955 20,917 18,999 19,135 17,154
Occupancy and equipment 17,758 17,567 17,369 15,614 15,637
Professional 6,729 5,543 5,468 6,231 5,248
Business development 6,664 5,613 4,204 4,532 4,033
Brokerage, clearing
and exchange 4,788 4,221 3,922 3,693 3,579
Provision for credit losses
and asset devaluation 915 1,258 10,338 5,411 4,292
Other 8,780 8,678 8,395 7,874 9,380
---------------------------------------------------------------------------
Total expenses 265,247 240,313 220,872 199,874 193,960
---------------------------------------------------------------------------
Income before taxes
and extraordinary credit 24,098 21,068 11,761 5,355 8,071
Provision for income taxes 9,880 9,270 5,410 2,302 2,903
---------------------------------------------------------------------------
Income before
extraordinary credit 14,218 11,798 6,351 3,053 5,168
Extraordinary credit -
utiliztion of operating
loss carryforwards 0 0 0 0 2,103
---------------------------------------------------------------------------
Net income $ 14,218 $ 11,798 $ 6,351 $ 3,053 $ 7,271
===========================================================================
- ----------------------------------------------------------------------------------------------------------------------
Per share data
Primary net income $ 1.60 $ 1.35 $ 0.73 $ 0.34 $ 0.79
Net income assuming $ 1.54 $ 1.23 $ 0.71 $ 0.34 $ 0.75
full dilution
Book value $ 12.12 $ 10.62 $ 9.42 $ 8.62 $ 8.16
Dividends declared $ 0.09 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Other data
Total assets $1,076,806 $ 965,177 $ 830,815 $ 884,855 $ 885,182
Shareholders' equity $ 104,591 $ 89,242 $ 78,932 $ 73,980 $ 73,989
Subordinated borrowings $ 0.00 $ 20,552 $ 20,552 $ 20,997 $ 21,375
Long-term borrowings $ 41,321 $ 19,744 $ 17,240 $ 30,388 $ 15,038
Return on average equity 14.8% 14.0% 8.4% 4.1% 10.2%
Average common and common
equivalent shares
outstanding 8,878 8,748 8,735 8,997 9,248
- ----------------------------------------------------------------------------------------------------------------------
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</TABLE>
<PAGE>
[Page of 19 Annual Report]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Advest Group, Inc. ("AGI"), together with its subsidiaries (the
"Company"), provides diversified financial services including securities
brokerage, trading, investment banking, consumer lending, trust and asset
management. Advest, Inc. ("Advest"), a regional broker/dealer and the
Company's principal subsidiary, provides brokerage, investment banking and
asset management services to retail and institutional investors through 89
sales offices in 16 states and Washington, DC. Advest Bank and Trust Company
(the "Bank"), an FDIC-insured, federal savings bank, offers residential
mortgage lending and trust services primarily through Advest's branch
network.
All aspects of the Company's business are highly competitive and impacted by
regulatory and other factors outside of its control, including general
economic and financial conditions, the volume and price levels of securities
markets, the demand for investment banking services and interest rate
volatility. The Company closely monitors its operating environment to enable
it to respond promptly to market cycles. In addition, the Company seeks to
lessen earnings volatility by controlling expenses, increasing fee-based
business and developing new revenue sources. Nonetheless, operating results
of any individual period should not be considered representative of future
performance.
For the year ended September 30, 1997, the Company reported record net
income and earnings per share of $14.2 million ($1.60 per share) compared
with net income of $11.8 million ($1.35 per share) in 1996 and $6.4 million
($.73 per share) in 1995. Record revenue levels were achieved for the third
consecutive year with individual record levels attained from agency
commissions, principal transactions and asset management activities.
Subsequent to fiscal year end, during the week ending October 31, 1997, the
equity markets experienced one of the most volatile weeks in market history.
On October 27, the Dow Jones Industrial Average ("DJIA") posted its largest
ever single day point decline - 554 points - causing the first use of the
halt feature implemented following the market turmoil of October 1987. As a
percentage, the decline was 13% from its August record high of 8259, however,
the DJIA was still up 11% for the calendar year. One day later, the DJIA
posted its single largest one day point increase of 337 on record trading
volume. By week's end, the DJIA had recouped most of the losses in a very
volatile trading week, limiting losses for the week to 273 points. This
unanticipated volatility underscores the fact that the markets can be
unpredictable and are impacted by many factors, in this case, turmoil in
foreign markets. The economy remains healthy with low interest rates,
inflation and unemployment and there are no indications that recent events
are anything more than a normal market correction, defined as declines of 10%
or more. However, as previously noted, markets are impacted by many factors
out of the Company's control and their direction cannot be predicted with any
certainty.
Advest, Inc.
Despite some mid-year volatility, the equity markets continued their
unprecedented upward momentum of the past seven years throughout fiscal 1997.
Sustained by healthy corporate earnings, low levels of inflation,
unemployment and interest rates, the Dow Jones Industrial Average surpassed
6000, 7000 and 8000, achieved a record high 8259, and closed at 7945 on
September 30, a 35% one year gain. The S&P 500 and Nasdaq indices also set
several new highs during the period closing up 38% and 35%, respectively. For
the second consecutive year, technology stocks led the way much of the year
and small-cap stocks substantially outperformed the blue chips in the fourth
quarter. Equity underwriting remained at high levels, benefiting from low
interest rates and a steady infusion of cash into mutual funds.
Advest's results were favorably impacted by the robust markets. It reported
pre-tax income of $26.8 million, a record high and an increase of 20% from
the prior year. Total revenues increased 13% to $269.7 million, a record high
with record levels achieved in all categories with the exception of other
income. Total expenses increased 12% to $242.9 million, primarily due to
increased compensation costs related to market-driven sales compensation and
higher firm-wide payroll.
Advest Bank and Trust Company
The Bank's 1997 pre-tax earnings were $.7 million compared with $1.1 million
last year. The decline is primarily attributable to a change in the mix of
average loans outstanding to lower yielding mortgages and home equity lines
from higher yielding commercial loans as well as a $2.7 million increase in
nonperforming assets ("NPAs"). During 1997 and 1996, the Bank continued its
strategic transition from a portfolio residential and commercial lender to a
mortgage banker, originating loans primarily for sale into secondary markets,
and a provider of personal trust services. The Bank provides first mortgage
and home equity lending and trust services primarily through referrals from
Advest's retail sales force. During 1997, $90.4 million of residential
mortgage and home equity loans were originated and secondary market mortgage
transactions totaled $30.1 million. Trust assets increased 61% to
approximately $475 million.
At September 30, 1997 the Bank's leveraged capital, risk-based and Tier 1
capital ratios were 6.84%, 10.04% and 8.79%, respectively, which satisfied
all regulatory requirements. The Bank is deemed a "well capitalized" bank and
as such is able to accept brokered deposits without restriction.
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<PAGE>
[Page 20 of Annual Report]
Effective April 15, 1997, the Bank converted to a federal savings bank, and
ceased to be a state-chartered bank. As a federal savings bank, the Bank is
regulated by the Office of Thrift Supervision ("OTS"), but its deposits
continue to be insured under the Bank Insurance Fund of the FDIC. This
regulatory and charter change enables the Bank to provide residential lending
and trust services in all 50 states.
Other
During fiscal 1995, the Company sold the investment advisory business related
to its proprietary mutual funds in three separate transactions. The total
gain from all sales was $10.1 million and is reported as a separate line item
on the Consolidated Statements of Earnings. Fiscal 1997 and 1996 revenues
include $.1 million and $.6 million, respectively, in trailer payments
received under the terms of one of the sales agreements.
Year 2000
In anticipation of technology and other changes required for the transition
to the year 2000, the Company has been in regular contact with all of its
external providers of technology and software services. The Company will be
an active participant in the testing process of securities industry
procedures. In addition, committees have been formed to identify all internal
processes and services that will be impacted. Work has already commenced to
effect all required changes on a timely basis. Management has not determined
what the cost associated with implementing all necessary changes for the Year
2000 conversion will be but does not expect it to be material to the
Company's results of operations, financial condition or cash flows.
Management believes the Company has taken all reasonable precautions to
ensure a smooth transition. However, like all securities firms, the Company's
brokerage business is highly dependent on outside service providers and, as
such, any problems encountered would potentially have a material adverse
effect on the Company's business activities and, accordingly, its results of
operations, financial condition and cashflows.
Subsequent Event
In October 1997, Advest acquired Ironwood Capital Ltd., ("Ironwood") a
private investment bank that originates and distributes private placements of
taxable fixed income securities. Ironwood and its twelve employees will
become the Corporate Fixed Income Group of Advest's Investment Banking
Division. The Company issued 137,060 shares of its common stock in
conjunction with the acquisition which will be accounted for as a pooling of
interests. Due to the immaterial effect on the Company's consolidated
financial position and results of operations, operating results of Ironwood
will only be included prospectively in the Company's consolidated financial
statements.
Results of Operations
Net income for the years ended September 30, 1997, 1996 and 1995 was $14.2
million, $11.8 million and $6.4, million respectively. The following table
summarizes percentage changes for revenues, expenses and pre-tax income for
the three years in the period ended September 30, 1997.
- --------------------------------------------------------------------------
% %
In thousands, Increase Increase
except percentages 1997 (Decrease) 1996 (Decrease) 1995
- --------------------------------------------------------------------------
Revenues
Commissions $123,032 12% $110,115 31% $84,264
Interest 59,882 8 55,225 (2) 56,082
Principal transactions 43,880 14 38,591 (7) 41,424
Investment banking 29,429 4 28,166 61 17,470
Asset management and
administration 25,844 29 20,050 19 16,810
Gain on sale of investment
investment advisory
business,net 57 (91) 627 (94) 10,092
Other 7,221 (16) 8,607 33 6,491
----------------------------------------------
289,345 11 261,381 12 232,633
Interest expense 32,458 10 29,425 (4) 30,566
----------------------------------------------
Net revenues 256,887 11 231,956 15 202,067
----------------------------------------------
Non-interest expenses 232,789 10 210,888 11 190,306
----------------------------------------------
Pre-tax income $ 24,098 14% $ 21,068 79% $ 11,761
==============================================
- -----------------------------------------------------------------------------
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<PAGE>
[Page 21 of Annual Report]
Commissions
Current year agency commissions increased $12.9 million (12%) to a record
$123.0 million as equity markets sustained the upward momentum of the past
seven years. Year-to-year revenue gains were posted in each quarter.
Commissions on listed securities increased $6.1 million (14%).
Record revenue levels were attained for a second consecutive year from over-
the-counter securities, up $3.6 million (19%), mutual funds, including
distribution and deferred sales charges, up $2.5 million (7%) and insurance
products, primarily variable annuities, up $.3 million (3%).
Agency commissions increased $25.9 million (31%) to $110.1 million in
fiscal 1996 reflecting strong equity markets throughout the year. Mutual fund
revenues, including distribution and deferred sales charges, increased $11.5
million (51%), over-the-counter issues, increased $7.2 million (57%) and
insurance products, primarily variable annuities, increased $3.5 million
(78%). Commissions on listed securities gained $3.6 million (9%).
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains
and losses on Advest's trading accounts and related sales credits. During the
second quarter of fiscal 1996, Advest established a corporate bond trading
desk specializing in investment grade corporate bonds. Advest enters into
derivative transactions to manage the interest rate risk associated with its
municipal and corporate bond inventories. Derivatives are marked to market
daily with unrealized gains and losses reflected in revenue from principal
transactions. (Further discussion of derivatives is included under the
caption "Derivative Financial Instruments" and in Notes 1 and 15 to the
Consolidated Financial Statements.) Advest holds only nominal inventory
positions of high yield securities. Realized gains and losses on the Bank's
trading and available for sale securities are reflected in revenue from
principal transactions.
Current year revenue from principal transactions increased $5.3 million
(14%) to a record $43.9 million. Over-the-counter trading profits were $.6
million compared with a loss of $1.9 million in 1996 and related commissions
increased $1.8 million (11%). Corporate bond trading profits increased $1.1
million (191%) in that trading department's first full year of operations.
Municipal and government bond trading profits rose $.5 million (25%) and $.3
million (59%), respectively. Commissions on debt securities declined $.8
million (4%) reflecting investor interest in the equity markets. Advest
realized a $76,000 loss on derivative transactions in the current year
compared with a $20,000 profit in the prior year. The Bank posted a $72,000
loss from principal transactions in the current year compared with a small
profit in 1996.
In fiscal 1996, revenue from principal transactions declined $2.8 million
(7%) to $38.6 million. Equity commissions increased $3.9 million (31%)
reflecting strong investor demand for small cap stocks during 1996. This
increase was substantially offset by a $3.3 million swing in over-the-counter
trading results from a $1.4 million profit in 1995 to a loss of $1.9 million
in 1996. Commissions on debt securities declined $2.7 million (12%) primarily
reflecting interest rate uncertainty and strong equity markets.
Investment Banking
To generate investment banking revenue, Advest manages and participates in
underwritings of corporate and municipal securities and closed-end funds.
Advest's Corporate Finance Department also provides merger and acquisition,
consulting and valuation services. In general, the Company does not
participate in bridge financing activities. Advest's Corporate Finance
Department concentrates its efforts on raising capital for mid-size
companies, primarily in the banking, insurance, high tech and health care
industries. Public Finance services health care and educational institutions
as well as state and local issuers primarily in New England and New York.
Current year investment banking revenues rose $1.3 million (4%) to $29.4
million. Consulting and valuation fees increased $1.2 million (122%) while
merger and acquisition fees declined $.8 million (13%). Corporate Finance
completed 15 public offerings and private placements raising over $412
million for clients. Commissions on equity underwritings and unit investment
trust offerings each increased $1.1 million reflecting year-to-year gains of
14% and 42%, respectively. Underwriting fees declined $.2 million (6%) as a
result of a substantial fee related to the conversion of a mutual company to
a stock company earned in fiscal 1996. Prior year revenues included a $1.1
million gain on the exercise of stock warrants.
Investment banking revenues increased $10.7 million (61%) in fiscal 1996.
Underwriting fees, including private placements, increased $3.2 million
(555%) and related commissions increased $2.6 million (48%). Syndicate
trading profits increased $.7 million (81%). Merger and acquisition fees rose
$2.5 million (66%). Consulting and valuation fees declined $.9 million (49%).
Public finance underwriting fees more than doubled to $1.1 million. During
1996, Advest recognized gains of $1.1 million on the exercise of warrants, a
239% increase from the prior year.
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[Page 22 of Annual Report]
Asset Management and Administration
Advest's Investment Management Department provides various services for its
managed account base including client profiling, asset allocation, manager
selection and performance measurement. The Bank provides personal trust
services primarily through Advest's retail sales force. Boston Security
Counsellors ("BSC"), an investment advisor, services private clients and was
investment advisor to the Company's proprietary mutual funds, until their
sale in fiscal 1995. Hannah Consulting Group ("HCG"), an investment
management firm acquired by the Company in the current year, provides
consulting services primarily to pension funds. Other services include
retirement plan administration, securities custody and safekeeping.
Current year revenues increased $5.8 million (29%) to $25.8 million, a
record high for the third consecutive year. Advest's revenues increased $4.9
million (27%) due primarily to increased money management fees. During the
year, Advest's Investment Management Department opened 1,226 new accounts and
together with increased business from existing accounts increased its managed
account base more than $1 billion. At September 30, 1997, managed accounts
totaled $2.8 billion, reflecting a 44% year-to-year gain. HCG, acquired by
the Company in the current year, generated $.5 million in management fees.
The Bank's revenues increased $.3 million primarily related to higher trust
revenues.
Revenues increased $3.2 million (19%) in fiscal 1996. Advest's revenue
increased $4.8 million (36%) primarily related to increased managed account
business. BSC's revenue declined $1.9 million (61%). The 1995 sale of the
Company's proprietary mutual fund advisory business accounted for a $2.1
million decline in revenue as BSC had served as sole investment advisor for
the funds. Revenue from BSC's private client business increased $.2 million
(15%) in 1996. The Bank's revenues increased $.2 million (41%) primarily due
to growth in trust business.
Other Income
Other income declined $1.4 million (16%) to $7.2 million in the current year
primarily due to a $.6 million (38%) decline in execution fee income at
Advest related to regulatory changes which impact over-the-counter trading
revenues. Fiscal 1996 revenues also included a $.9 million gain on the sale
of an equity investment.
During 1996, other income increased $2.1 million (33%). Advest's revenue
increased $1.7 million primarily due to higher fee income and a $.9 million
first quarter gain on the sale of an equity investment. Fiscal 1995 revenue
included a $.5 million gain from the sale of an exchange seat. The Bank's
income increased $.3 million in 1996 primarily due to a $.4 million increase
in gains on secondary markets mortgage transactions.
Net Interest Income
Net interest income is the excess of interest income and loan fee income over
interest expense and is derived primarily by the Bank and Advest. The Bank
derives most of its interest income from residential mortgage and home equity
loans and from investments. The Bank's loans and investments are primarily
funded by interest-bearing deposits, advances from the Federal Home Loan Bank
of Boston ("FHLBB") and by the Bank's equity capital. The Bank also enters
into derivative transactions, including interest rate swap and interest rate
cap contracts, as part of its interest rate risk management. The net payments
or receipts under these contracts are accounted for as an adjustment to
interest expense. (Further discussion of derivatives appears under the
caption "Derivative Financial Instruments" and in Note 15.) Advest derives
interest income primarily from financing brokerage customers margin
transactions, its stock borrowing activities and securities inventory. Advest
pays interest primarily on brokerage customer credits held for reinvestment,
its stock lending activities and short and long-term borrowings. The
components of interest revenue and expense are detailed in the Five Year
Financial Summary on page 17.
Current year net interest income increased $1.6 million (6%). Advest's net
interest income increased $2.4 million (12%) primarily due to significantly
higher average margin balances. Average free credit balances in brokerage
accounts increased during the year but not enough to support the increased
margin balances. Together with higher securities inventory levels, this
resulted in increased bank borrowings which reduced overall interest spreads.
The Bank's net interest income declined $1.3 million (16%) during 1997. The
decline is attributable to a year-to-year $29 million (12%) decrease in
average assets and a change in the mix of average loans to lower yielding
residential mortgages and home equity lines from higher yielding commercial
loans. In addition, NPAs increased $2.7 million in the current year primarily
due to three commercial loans which were placed in a nonaccrual status and
which had an average interest rate of 10%. The Bank's ratio of earning assets
to total bank assets was 93.5% in the current year compared with 96.7% in
1996. AGI's net interest improved $.8 million primarily due to lower
borrowing rates associated with its current year private placement of $35
million of notes. The proceeds were used to retire its convertible debentures
and other higher cost debt and loan $10 million to Advest with the balance
invested in short-term securities.
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[Page 23 of Annual Report]
Net interest income increased $.3 million (1%) to $25.8 million in 1996.
Advest's net interest increased $1.7 million (10%) primarily due to
significantly higher average margin balances. Interest spreads declined
slightly primarily due to lower average interest rates in 1996, a sizable
decline in average free credit balances in brokerage accounts and increased
borrowing costs related to higher levels of trading inventories, specifically
corporate bonds. Increased stock lending/borrowing activities also favorably
impacted net interest income in fiscal 1996. The Bank's net interest income
declined $1.7 million (17%) during 1996. The decline was attributable to a
$48.3 million (18%) decline in the Bank's asset base.
Non-Interest Expenses
Current year compensation costs increased $16.1 million (11%). Advest's
compensation costs increased $15.3 million (11%) related primarily to
increased sales compensation and related incentives and higher firm payroll
costs. HCG, acquired in the current fiscal year, had compensation costs of
$.7 million. Communication costs increased $3.0 million (15%) primarily due
to substantial upgrades in software, quote services and service bureaus in
the Company's firm-wide Advantage2000 System. In addition, Advest's costs for
its third party back office data processor increased $.9 million (29%)
primarily related to higher securities transaction volume. Professional fees
increased $1.2 million (21%). Advest's professional fees increased $.5
million with consulting fees and personnel agency fees increasing $.5 million
(57%) and $.3 million (40%), respectively and legal fees declining $.4
million (15%). Professional fees for AGI increased $.5 million primarily due
to increased consulting costs associated with the Company's centennial
celebration. HCG, acquired in the current year, incurred $.4 million in
consulting expenses. Business development costs increased $1.1 million (19%)
primarily due to increases in the number of investment executives qualifying,
as a result of sales production and contests, to attend Advest's National
Sales and Education Conference and other Company-sponsored events. Brokerage,
clearing and exchange costs increased $.6 million (13%) due to increased
securities volume. The provision for credit losses and asset devaluation
declined $.3 million (27%) primarily due to lower loss provisions required at
the Bank. Other expenses were substantially unchanged year-to-year, however,
the current year expenses includes a $.6 million loss on the second quarter
retirement of the Company's outstanding convertible debentures. This loss was
substantially offset by declines in carrying costs of other real estate
owned.
Fiscal 1996 compensation costs increased $25.5 million (21%). Advest's
compensation increased $26.7 million (23%) primarily as a result of increased
sales compensation and related incentives and higher firm payroll. BSC's
payroll declined $.6 million (49%) as a result of personnel reductions
related to the sale of the Company's proprietary mutual fund advisory
business in fiscal 1995. Communication costs increased $1.6 million (9%)
primarily due to higher volume-driven costs for Advest's third party back
office data processing provider and increased software and supplies costs
related to technology upgrades. Business development costs increased $1.4
million (34%) primarily due to significant increases in the number of
investment executives qualifying, as a result of sales production and
contests, to attend various Company-sponsored events. Provisions for credit
losses and asset devaluation declined $9.1 million in 1996 due to substantial
charges recorded in fiscal 1995 primarily related to an accelerated asset
disposition plan at the Bank. Other expenses increased $.6 million (7%)
primarily due to higher settlement costs at Advest which were partly offset
by a decline in FDIC deposit insurance premiums at the Bank.
Income Taxes
The effective income tax rates were 41%, 44% and 46%, respectively, for 1997,
1996 and 1995. The effective tax rate declined to 41% in the current year due
to reduced state tax obligations, primarily in Connecticut, where a portion
of the previously reserved tax benefit of state carryforward losses was
recognized. The higher rates of 1996 and 1995 are reflective of greater
levels of income apportioned to states with higher average tax rates.
At September 30, 1997 the Company had net deferred tax assets, net of a $.5
million valuation allowance, of $2.2 million. The Company expects to realize
all deferred tax assets, except for certain state net operating loss
carryforwards for which it has established the above valuation allowance. For
further information on the Company's income taxes refer to Notes 1 and 13 to
the Consolidated Financial Statements.
Derivative Financial Instruments
Advest Bank and Trust Company
The Bank enters into transactions involving derivative securities, including
interest rate swap and interest rate cap contracts as part of the Bank's
management of interest rate risk. (See Note 1 for further disclosure.) Swap
and cap contracts are used to hedge the cost of funds so that a more stable
net interest income will be earned by the Bank. The Bank is exposed to credit-
related losses in the event of nonperformance by counterparties but does not
expect any parties to fail to meet their obligations. The Bank currently has
outstanding contracts only with the
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[Page 24 of Annual Report]
FHLBB, which is the counterparty in $10.0 million and $5.0 million of the
Bank's swap and cap contracts, respectively. The notional amounts of
contracts entered into by the Bank and their potential credit exposure are
in Note 15.
Advest, Inc.
Advest enters into derivative transactions, primarily short-term exchange-
traded futures to manage the interest rate risk associated with its trading
inventories, primarily municipal and corporate bonds, when inventory levels
exceed pre-determined levels, as defined in its risk management policy.
Hedging is limited to the underlying trading portfolio's interest rate risk
and is not speculative in and of itself. Derivatives and the underlying
inventory are marked to market daily. Positions are reviewed daily and, at
least annually, the strategy is re-evaluated based on anticipated inventory
levels and composition.
The fair value of a derivative contract is the amount Advest would have to
pay a third party to assume its obligation under the contract or the amount
Advest would receive for its benefits under the contract in the reverse
situation. At September 30, 1997, Advest had only nominal open positions. At
September 30, 1996, Advest had no open positions. (See Note 15.)
Asset Quality
Advest Bank and Trust Company
The Bank's primary lending activity is originating loans collateralized by
owner-occupied one-to-four family residential property. During 1997 and 1996,
respectively, $37.0 million and $43.1 million of fixed rate and adjustable
loans were originated, and secondary market sales and loan securitizations
totaled $30.1 million and $67.8 million. In addition, in 1997 and 1996,
respectively, $58.1 million and $47.1 million of home equity lines of credit
were originated and retained in portfolio and advances on home equity lines
of credit increased by a net $19.2 million and $16.1 million for the
respective year.
Residential (including home equity line of credit loan advances) and
commercial loan portfolios increased $8.0 million and decreased $6.0 million,
respectively, in 1997, and increased $26.4 million and $20.1 million,
respectively, in 1996. At September 30, 1997 and 1996, respectively, the
Bank's loan portfolio was comprised of $151.7 million and $143.7 million of
single-family residential mortgages and $39.5 million and $42.9 million of
commercial and other loans, representing 79% and 77% and 21% and 23% of total
loans, respectively.
During fiscal 1995, the Bank evaluated alternatives to expedite the
disposition of its NPAs and implemented an accelerated asset disposition plan
with the objectives of allowing Bank management to focus on its residential
mortgage banking and trust businesses and expediting conditions under which a
Memorandum of Understanding ("MOU") the Bank was subject to would be lifted.
Both in anticipation of and in accordance with the plan, the Bank recorded
loss provisions of $5.6 million in 1995 to dispose of NPAs and commercial
real estate loans. In July 1996, the Bank's regulators lifted the MOU. At
September 30, 1997 and 1996, the Bank's NPAs were $5.2 million and $2.4
million, respectively, reflecting 2% and 1%, respectively, of total bank
assets.
At September 30, 1997 and 1996, respectively, earning assets were 93.5% and
96.7% of total bank assets. Loan delinquency was 3.43%, 1.84% and .87% of
total loans at September 30, 1997, 1996 and 1995, respectively. Had interest
been accrued at contractual rates on nonaccrual and re-negotiated loans,
interest income would have increased by approximately $.6 million, $.3
million and $.5 million in 1997, 1996 and 1995, respectively.
Bank loans classified impaired as of September 30, 1997 and 1996,
respectively, totaled $2.9 million and $5.3 million. Included in Bank
impaired loans at September 30, 1996 were $3.8 million of restructured loans
that had been returned to accruing status under the terms of their
restructuring, and $.8 million of loans where there was potential credit
problems. Both situations were satisfactorily resolved in the current year.
All remaining amounts classified impaired for both fiscal 1997 and 1996 were
included in nonaccrual loans, (See Note 2.)
Advest Group, Inc.
At September 30, 1995, the Bank transferred $4.6 million of NPAs to AGI in
accordance with an accelerated asset disposition. The assets were transferred
at their expected sales prices which reflected discounts from fair value.
During 1997 and 1996, respectively, $.9 million and $3.2 million of these
assets were liquidated.
AGI holds a $9.0 million first mortgage on a property owned by a real estate
limited partnership for which Billings Management Company, a subsidiary of
the Company, serves as general partner. The first payment under the mortgage
is not due until January 2000, therefore, the loan is technically performing.
The property has been at full occupancy with a waiting list for most of the
past four years, however, given its significant future financial commitments,
the Company has decided to treat the mortgage as a nonperforming loan and,
accordingly, no interest income is being accrued.
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[Page 25 of Annual Report]
Liquidity and Capital Resources
The Company's total assets were $1.1 billion at September 30, 1997,
reflecting a 12% increase from the prior year. Substantially all of the
increase was attributable to Advest where assets increased $110.4 million
(15%). The increase is primarily due to higher receivables related to stock
borrowing activities and higher margin debits.
With the primary exception of loans held in portfolio by the Bank which
comprise 18% of total assets, the Company's assets are highly liquid in
nature. Liquid assets which include cash and cash equivalents, receivables
from brokerage customers, securities borrowed, receivables from brokers and
dealers, available for sale and trading securities comprised 75% of total
assets at September 30, 1997 compared with 72% for the prior year.
Shareholders' equity increased $15.3 million (17%) to $104.6 million,
primarily as a result of a $14.2 million increase in retained earnings from
current year operating results and a $2.5 million increase in paid-in capital
primarily related to the sales of treasury stock to the Company's equity
plans and the exercise of stock options. The Company paid quarterly dividends
of $.03 per share on April 15, 1997, July 15, 1997 and October 15, 1997. The
total amount paid was $.8 million. At September 30, 1997, 2,696,277 shares of
the Company's common stock had been purchased since the inception of the
stock buyback program in August 1990, at an average price of $6.17 per share.
AGI's principal source of funding is the earnings distributions from its
subsidiaries which are unrestricted. In December 1996, AGI issued $35 million
7.95% seven year senior notes in an unsecured private placement transaction
with three institutional investors. In December 1996, AGI repaid in full its
outstanding indebtedness of $4.4 million, including accrued interest and
fees, under a loan from a third party bank. On January 30, 1997, the Company
redeemed $20.3 million outstanding principal amount of its 9% convertible
subordinated debentures due 2008. The redemption price was 101.2% of the par
value of the debentures, together with accrued interest. A total of 18,716
shares were issued to debenture holders electing to convert $.3 million par
value of debentures into the Company's common stock at the conversion price
of $13.57. Cash was issued in lieu of fractional shares. The conversion of
the debentures eliminated the potential dilution of the Company's common
stock by 15%.
Advest, Inc.
In addition to funds generated from operations, sources used by Advest to
finance assets include credit balances in brokerage accounts which increased
$36.5 million (13%), short-term borrowings which decreased $1.8 million (5%),
deposits for securities loaned which increased $44.3 million (21%),
securities sold short which increased $4.7 million (10%) and long-term
borrowings which declined $6.3 million (100%). In January 1997, AGI loaned
Advest $10.0 million at a rate of 8% per annum, utilizing a portion of the
proceeds of its $35.0 million borrowing. The loan is unsecured and
subordinated to certain other corporate obligations. The purpose of the loan
was to increase Advest's regulatory net capital. On April 1, 1997, Advest
repaid in full an outstanding secured collateralized note in the amount of
$6.3 million to an unrelated third party lender.
Prior to fiscal 1996, Advest's short-term borrowings primarily resulted from
timing differences related to trade settlements and were usually repaid
within a day or two. A significant increase in margin debits and Advest's
corporate bond trading inventories, together with the securities industry
conversion to same day funds settlement in February 1996, have resulted in
substantial and recurring short-term borrowings by Advest. Advest has
arrangements with certain financial institutions whereby it can borrow
amounts on a collateralized basis, principally to support securities
settlements and underwriting activities, including an uncommitted line of
credit of $90 million with its lead lending bank. Advest has substantial
levels of customer and firm securities which can be used as collateral.
During fiscal 1998, Advest has planned approximately $2.5 million of new
expenditures related to technology upgrades. Management believes that
operating cash flow together with available credit lines will provide
sufficient resources to meet all present and reasonably foreseeable capital
needs.
The Securities and Exchange Commission ("SEC") requires Advest to maintain
liquid net capital to meet its obligations to customers. At September 30,
1997, Advest had excess net capital of approximately $51.9 million. (See Note
12.)
Advest Bank and Trust Company
At September 30, 1997, the Bank's regulatory liquid assets included cash,
federal funds and qualified securities (which include all available for sale
and certain held to maturity securities) of $6.5 million. In addition, the
Bank is a member of the FHLBB and, accordingly, has access to advances from
the FHLBB to the extent the Bank possesses eligible collateral. At September
30, 1997, the Bank had uncommitted, eligible collateral of $137.9 million.
Without giving effect to any operating results from subsequent periods,
management believes that the Bank has sufficient capital to comply with the
regulatory requirements.
Pursuant to federal statute, federal savings banks are subject to a
liquidity requirement that specifies that at least 5% of total Bank assets to
be invested in qualified assets. As of September 30, 1997, the Bank's
liquidity ratio was 5.07%.
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[Page 26 of Annual Report]
The Federal Deposit Insurance Corporation ("FDIC") requires banks to
maintain a minimum leverage capital ratio of between 4% and 5%. At September
30, 1997, the Bank's leverage capital ratio was 6.84%. The Bank is also
subject to the FDIC's risk-based capital regulations which require the Bank
to maintain a total risk-based capital ratio of 8%, including at least 4%
Tier 1 capital. At September 30, 1997, the Bank's total risk-based and Tier 1
capital ratios were 10.04% (with capital of $17.4 million) and 8.79% (with
capital of $15.2 million), respectively, which met all regulatory
requirements.
Pursuant to the FDIC Improvement Act ("FDICIA"), all banks are subject to
rules limiting brokered deposits and interest rates. Under FDICIA, the Bank
meets the conditions to be deemed a "well capitalized" bank, which means it
may accept brokered deposits without restriction. At September 30, 1997, the
Bank had $61.4 million of brokered deposits.
Cash Flows
Cash and cash equivalents increased $1.0 million, and $4.2 million in fiscal
1997 and 1996, respectively, compared with a negligible increase in 1995. The
current year increase resulted from increases in cash of $1.0 million and $.8
million at AGI and the Bank, respectively, offset by a decrease in cash of
$.8 million at Advest. AGI's cash from financing activities increased $10.0
million primarily related to a $35 million private placement of notes offset
by a $20.5 million payment for the retirement of the Company's convertible
debentures and $4.6 million of other debt repayment. AGI's cash from
investing activities declined $9.7 million primarily related to a $10.0
million subordinated loan to Advest. The 1996 increase was attributed to
increases in cash of $2.7 million, $.9 million and $.5 million at Advest, the
Bank and AGI, respectively. Advest generated $25.2 million from financing
activities, primarily short-term borrowings, but used $7.7 million for
investing and $14.9 million in operating cash primarily to finance increased
margin debits and trading inventories. The Bank generated $47.5 million from
investing activities, primarily loan collections and sales of available for
sale securities, and used $47.0 million for financing activities, primarily a
decrease in deposits. The break even results for 1995 resulted from $1.0
million and $.3 million increases at the Bank and AGI, respectively, which
were offset by a $1.3 million decline at Advest. The Bank's increase was
primarily attributed to net funds generated by the accelerated asset
disposition plan and improved cash flow from operations. Advest generated
strong cash flow primarily from operations and a $6.25 million long-term
borrowing in 1995. However, the broker/dealer made significant 1995 capital
investments in computer hardware and software to support its sales force. In
addition, Advest incurred high costs associated with the recruitment of
investment professionals.
During the current year, the Company generated $10.4 million of operating
cash primarily related to increased net income, as adjusted for non-cash
items, of $24.6 million, higher short inventory positions up $4.7 million and
increased liabilities. This was offset by a net $26.5 million cash used for
stock borrowing activities. $11.3 million of cash was used in investing
activities due primarily to an increase in loans originated of $79.6 million
compared with cash receipts from mortgage payments of $43.8 million and $26.4
million of cash received on the sale of loans. Cash from financing activities
increased $1.9 million primarily as a result of a $35 million private
placement of notes by AGI which was offset by a $20.5 million payment to
retire its debentures as well as other debt extinguishment. The Bank's
deposits declined $21.6 million necessitating increased net short-term
borrowings of $20.4 million to support its lending activities.
During fiscal 1996, the Company used $20.4 million of operating cash
primarily to finance a $43.8 million increase in margin debits, a $17.4
million decline in brokerage customer credits and a $9.8 million increase in
trading inventories net of short sales. Operating cash was provided primarily
by net income plus non-cash items of $19.1 million and a $31.0 million
decline in segregated cash required by Rule 15c3-3. Financing activities used
$14.2 million of cash primarily related to a $44.5 million decline in
deposits of the Bank which was partly offset by a net increase of $23.3
million in short-term borrowings. Investing activities generated $38.8
million of cash, including $25.2 million decrease in available for sale
securities, $49.3 million in proceeds from loan sales which were offset by
the use of $30.7 million for net loan originations.
During fiscal 1995, the Company generated $28.9 million of operating cash
primarily from $6.4 million of net income adjusted for non-cash revenue and
expense items. Margin debits declined $13.1 million and 15c3-3 requirements
for segregated customer funds declined $18.0 million generating cash.
Brokerage customer credits declined $10.5 million and Advest increased its
trading positions $11.1 million decreasing operating cash. Financing
activities used $93.6 million primarily due to a $56.2 million decline in
customer deposits at the Bank. Advest's short-term borrowings declined $22.5
million and its long-term debt increased $6.25 million. The Bank paid down
its short and long-term borrowings by $9.5 million and $10.0 million,
respectively. Investing activities produced positive cash flow of $64.7
million primarily as a result of $49.5
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<PAGE>
[Page 27 of Annual Report}
million in proceeds from the sales of performing and NPAs of the Bank and
$29.6 million from securities sales by the Bank. The Company generated $10.1
million of cash from the sales of its proprietary mutual fund investment
advisory business.
Risk Management
During its normal course of business, Advest keeps an inventory of securities
which consists largely of fixed income securities. To make product available
and facilitate order flow to its retail and institutional customers, Advest
makes markets in investment-grade corporate bonds, mortgages and mortgage-
backed securities, municipal bonds and over-the-counter equities. Advest
holds only nominal positions of high yield securities. Trading positions are
held for re-sale, not investment.
Since trading positions are generally biased, specifically, more long
than short or the reverse, they are exposed to market risk related to
fluctuations in interest rates. Trading authorization levels for each
category of inventory have been established above which policy requires that
derivative transactions be entered into. Through the use of derivatives,
principally exchange-traded futures contracts, management seeks to manage the
risk of the portfolio in aggregate and not the value of any individual
security.
The Bank is engaged in the business of attracting deposits and investing
such deposits, together with funds from capital and other borrowings, in
loans, primarily residential, and investments. The Bank conducts mortgage
banking with investors, principally federal agencies and major private
mortgage conduits, retaining nominal balances of new production in portfolio,
primarily interest rate sensitive home equity lines of credit. Investments
include government and agency obligations, mortgage-backed securities and
money market instruments.
The Bank enters into interest rate swap and cap contracts as part of its
interest rate risk management strategy. These instruments are intended to
maintain a targeted level of net interest margin between the return on the
Bank's interest-earning assets and the cost of funds.
Potential future losses associated with the Company's non-hedged
financial instruments are within pre-determined levels of loss tolerance
which are not material to results of operations, financial condition or cash
flows.
Accounting Pronouncements
In fiscal 1997, the Company adopted SFAS 123, "Accounting for Stock-
based Compensation," as required. SFAS 123 encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion 25, "Accounting for Stock Issued to Employees."
(Refer to Note 10.)
Effective October 1, 1996, the Company prospectively adopted Statement
of Financial Accounting Standards ("SFAS") 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Effective January 1, 1997, the Company prospectively adopted SFAS 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," as amended by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." The
adoptions of SFAS 121 and SFAS 125, as amended by SFAS 127 which the Company
will adopt in its 1998 fiscal year as required, have not had a material
impact on the Company's financial position, results of operations or cash
flows.
The Financial Accounting Standards Board ("FASB") issued SFAS 128, "Earnings
Per Share" in February 1997. The Company will adopt SFAS 128 in its 1998
fiscal year, as required, and its implementation will not have a material
impact on the Company's computation of earnings per share.
The FASB issued SFAS 129, "Disclosure of Information about Capital
Structure" in February 1997. The Company will adopt SFAS 129 in its 1998
fiscal year, as required, and its implementation will not have a material
impact on the Company's financial condition, results of operations or cash
flows.
The FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" in June
1997. The Company will adopt these pronouncements in its 1999 fiscal year, as
required. The Company is reviewing the provisions of both statements and has
not yet determined whether their implementation will have a material impact
on the presentation of the Company's financial condition, results of
operations or cash flows.
-83-
<PAGE>
[Page 28 of Annual Report]
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Earnings
Fiscal years ended September 30,
(In thousands, except per share amounts) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Commissions $ 123,032 $ 110,115 $ 84,264
Interest 59,882 55,225 56,082
Principal transactions 43,880 38,591 41,424
Investment banking 29,429 28,166 17,470
Asset management and administration 25,844 20,050 16,810
Gain on sale of investment advisory business, net 57 627 10,092
Other 7,221 8,607 6,491
-------------- -------------- --------------
Total revenues 289,345 261,381 232,633
-------------- -------------- --------------
Expenses
Compensation 163,200 147,091 121,611
Interest 32,458 29,425 30,566
Communications 23,955 20,917 18,999
Occupancy and equipment 17,758 17,567 17,369
Professional 6,729 5,543 5,468
Business development 6,664 5,613 4,204
Brokerage, clearing and exchange 4,788 4,221 3,922
Provision for credit losses and
asset devaluation 915 1,258 10,338
Other 8,780 8,678 8,395
-------------- -------------- --------------
Total Expenses 265,247 240,313 220,872
-------------- -------------- --------------
Income before taxes 24,098 21,068 11,761
Provision for income taxes 9,880 9,270 5,410
-------------- -------------- --------------
Net income $ 14,218 $ 11,798 $ 6,351
============== ============== ==============
Net income per common and common equivalent shares:
Primary $ 1.60 $ 1.35 $ 0.73
Assuming full dilution $ 1.54 $ 1.23 $ 0.71
Cash dividends per common share $ 0.09 $ 0.00 $ 0.00
Average common and common equivalent shares outstanding:
Primary 8,878 8,748 8,735
Assuming full dilution 9,394 10,270 10,298
<FN>
See Notes to Consolidated Financial Statements
-80-
</TABLE>
<PAGE>
[Page 29 of Annual Report]
<TABLE>
The Advest Group, Inc.
Consolidated Balance Sheets
September 30, September 30,
In thousands, except share and per share amounts 1997 1996
- -------------------------------------------------------------------------------------------- --------------
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 12,459 $ 11,461
Cash and securities segregated under federal and other regulations 265 265
----------------- --------------
12,724 11,726
----------------- --------------
Receivables
Brokerage customers, net 389,137 352,434
Loans, net 199,166 194,956
Securities borrowed 290,745 219,919
Brokers and dealers 4,096 5,394
Other 12,751 11,212
----------------- --------------
895,895 783,915
----------------- --------------
Securities
Trading, at market value 94,841 93,937
Held to maturity (market values of $20,931 and $22,876) 21,034 22,959
Available for sale, at market value 13,978 15,127
----------------- --------------
129,853 132,023
----------------- --------------
Other assets
Equipment and leasehold improvements, net 14,500 14,187
Other 23,834 23,326
----------------- --------------
38,334 37,513
----------------- --------------
Total assets $ 1,076,806 $965,177
================= ==============
Liabilities & shareholders' equity
Liabilities
Brokerage customers 319,101 282,618
Deposits 169,583 191,186
Securities loaned 258,295 213,996
Short-term borrowings 61,496 39,301
Securities sold, not yet purchased, at market value 52,113 47,438
Long-term borrowings 41,321 19,744
Compensation and benefits 25,477 21,517
Checks payable 18,366 16,976
Brokers and dealers 9,389 7,634
Subordinated borrowings 0 20,552
Other 17,074 14,973
----------------- --------------
972,215 875,935
----------------- --------------
Commitments and contingent liabilities (see Notes 1, 12 and 14)
Shareholders' equity
Common stock, par value $.01, authorized 25,000,000 shares,
issued 10,812,404 and 10,710,289 shares 108 107
Paid-in capital 71,309 68,842
Retained earnings 48,198 34,754
Net unrealized loss on securities available for sale, net of taxes (63) (223)
Treasury stock, at cost, 2,179,725 and 2,306,948 shares (14,390) (14,182)
Unamortized restricted stock compensation (571) (56)
----------------- --------------
104,591 89,242
----------------- --------------
Total liabilities and shareholders's equity $ 1,076,806 $ 965,177
================= ==============
<FN>
See Notes to Consolidated Financial Statements
-84-
</TABLE>
<PAGE>
[Page 30 of Annual Report]
<TABLE>
The Advest Group,Inc.
Consolidated Statements of Cash Flows
Fiscal years ended September 30,
In thousands 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 14,218 $ 11,798 $ 6,351
Adjustments to reconcile net income to net
cash provided by (used for) operating activities:
Depreciation and amortization 8,526 8,221 8,905
Provision for credit losses and asset devaluation 915 1,258 10,338
Loss on retirement of subordinated borrowings 607 0 0
Deferred income taxes (122) 107 1,730
Other 292 (1,496) (218)
(Increase) decrease in operating assets:
Receivables from brokerage customers, net (36,794) (43,823) 13,079
Securities borrowed (70,826) (109,238) (44,930)
Receivables from brokers and dealers 1,298 (3,003) 1,148
Trading securities (904) (52,437) (6,633)
Cash and securities segregated under
federal and other regulations 0 30,994 18,046
Other (1,989) 917 104
Increase (decrease) in operating liabilities:
Brokerage customers 36,483 (17,393) (10,526)
Securities loaned 44,299 100,364 34,173
Securities sold, not yet purchased 4,675 42,591 2,660
Checks payable 1,390 10,225 (49)
Other 8,389 1,133 4,784
------------------------------------------
Net cash provided by (used for) operating activities 10,457 (19,782) 38,962
------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (21,603) (44,470) (56,229)
Proceeds from short-term borrowings 57,436 0 0
Repayment of short-term borrowings (37,044) (10,496) (10,298)
Short-term brokerage borrowings, net (1,800) 33,800 (22,501)
Proceeds from long-term borrowings 35,000 8,250 7,250
Repayment of long-term borrowings (9,820) 0 (10,000)
Retirement of subordinated borrowings (20,545) 0 0
Other 272 (1,318) (1,811)
------------------------------------------
Net cash provided by (used for) financing activities 1,896 (14,234) (93,589)
------------------------------------------
INVESTING ACTIVITIES
Proceeds from (payments for):
Sales of available for sale securities 4,871 26,290 23,075
Maturities of available for sale securities 1,759 1,969 2,544
Maturities of held to maturity securities 24,000 22,252 18,466
Purchases of available for sale securities (1,598) (3,033) (1,215)
Purchases of held to maturity securities (22,000) (23,986) (16,439)
Sale of investment advisory business, net 217 788 10,141
Loans sold 26,350 49,257 36,129
Sales of OREO, net 791 3,959 6,021
Principal collections on loans 43,830 21,777 60,432
Loans originated (79,570) (52,439) (67,674)
Other (9,948) (8,024) (6,745)
------------------------------------------
Net cash (used for) provided by investing activities (11,298) 38,810 64,735
------------------------------------------
Increase in cash and cash equivalents 1,055 4,794 10,108
Cash and cash equivalents at beginning of period 11,461 7,294 7,278
------------------------------------------
Cash and cash equivalents at end of period $ 12,516 $ 12,088 $ 17,386
==========================================
Interest paid $ 31,705 $ 29,580 $ 30,560
Income taxes paid $ 7,987 $ 10,067 $ 2,273
Non-cash activities:
Securities available for sale from
held to maturity / investment securities $ 0 $ 9,962 $ 20,891
Securitization of mortgages $ 3,684 $ 27,307 $ 26,315
Restricted stock awards, net of forfeitures $ 515 $ 56 $ 0
<FN>
See Notes to Consolidated Financial Statements.
-85-
</TABLE>
<PAGE>
[Page 31 of Annual Report]
<TABLE>
The Advest Group,Inc.
Consolidated Statements of Changes in Shareholders' Equity
<CAPTION>
Net unrealized
gain (loss) on
securities
available
for
$.01 par value Unamortized sale,
Common stock Treasury stock restricted net Share-
In thousands, except -------------------- Paid-in Retained -------------------------- stock of holders'
share and per share amount Shares Amount capital earnings Shares Amount compensation taxes Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
September 30, 1994 10,570,222 $106 $67,405 $16,605 (1,987,357) $(10,136) $ - $ - $ 73,980
Adjustment to
beginning balance
for change in
accounting principle (57) (57)
Net income 6,351 6,351
Exercise of
stock options 14,266 62 62
Repurchase of
common stock (344,554) (2,309) (2,309)
Sale of treasury
stock to
equity plans 129,392 846 846
Change in unrealized
gain (loss),
net of taxes 59 59
--------------------------------------------------------------------------------------------------------
Balance as of
September 30, 1995 10,584,488 106 67,467 22,956 (2,202,519) (11,599) (57) 59 78,932
Net income 11,798 11,798
Exercise of
stock options 125,801 1 571 138,270 504 1,076
Repurchase of
common stock (398,900) (3,799) (3,799)
Sale of treasury
stock to
equity plans 782 150,499 677 1,459
Change in unrealized
gain (loss),
net of taxes (225) (225)
Stock issued under
restricted stock
plans, less
amortization
of $1 22 5,702 35 (56) 1
--------------------------------------------------------------------------------------------------------
Balance as of
September 30, 1996 10,710,289 107 68,842 34,754 (2,306,948) (14,182) (113) (166) 89,242
Net income 14,218 14,218
Exercise of
stock options 83,399 1 839 60,925 26 866
Dividends declared
($.09 per share) (774) (774)
Repurchase of
common stock (183,200) (1,835) (1,835)
Sale of treasury
stock to
equity plans 1,104 191,296 1,221 2,325
Change in unrealized
gain (loss),
net of taxes 160 160
Conversion of
subordinated
debentures
at $13.57
per share 18,716 254 254
Stock issued under
restricted stock
plans, less
amortization
of $95 255 54,436 355 (515) 95
Other 15 3,766 25 40
--------------------------------------------------------------------------------------------------------
Balance as of
September 30, 1997 10,812,404 $108 $71,309 $48,198 (2,179,725) $(14,390) $(628) $(6) $104,591
========================================================================================================
<FN>
See Notes to Consolidated Financial Statements
-86-
</TABLE>
<PAGE>
[Page 32 of Annual Report]
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements include the accounts of The Advest
Group, Inc. ("AGI") and all subsidiaries (collectively the "Company").
Principal operating subsidiaries are Advest, Inc. ("Advest"), a broker/dealer
and Advest Bank and Trust Company (the "Bank"), a federal savings bank. The
Company provides diversified financial services including securities
brokerage, trading, investment banking, consumer lending, trust and asset
management. 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. All material intercompany accounts and transactions are
eliminated. Certain 1996 and 1995 amounts have been reclassified in the
accompanying consolidated financial statements to provide comparability with
the current year presentation.
Cash equivalents are defined as short-term, highly liquid investments
with an original maturity of three months or less including amounts due from
banks, federal funds sold and overnight time deposits. At September 30, 1996,
Federal funds sold were $3,200,000. There were no positions at September 30,
1997.
Cash and securities segregated under federal and other regulations
Investments held in special reserve accounts for the exclusive benefit of
customers, in accordance with Rule 15c3-3, are primarily securities purchased
under agreements to resell which are financing transactions collateralized by
U.S. Government and Agency obligations and are carried at the amounts at
which the securities will be subsequently resold. The collateral, which is
held by a third party custodian bank, is valued daily and additional
collateral is obtained when appropriate. There were no positions at September
30, 1997 and 1996. Certain interest-bearing cash deposits are held in special
reserve accounts for the exclusive benefit of customers.
Loans
Loans are carried at their unpaid principal balances, and related interest is
recognized as income when earned but only to the extent considered
collectible. Generally loans are placed on a nonaccrual status when interest
or principal is unpaid for ninety days or earlier if circumstances indicate
collection is doubtful. The Company resumes the accrual of interest on a
delinquent loan if, in the opinion of management, the borrower has
demonstrated adequate financial resources and intent to meet the terms and
conditions of the loan, and all payments are current. If a loan has been
restructured during a period in which it was delinquent, or had sufficiently
met the definition of a restructured troubled loan in any other regard, a
loan would not be restored to accruing status until 1) adequate collateral
coverage had been provided and 2) an appropriate period (minimum six months)
has elapsed during which the restructured loan has performed according to the
terms and conditions of the restructuring.
Loan origination fees and direct costs related to origination are
deferred and amortized into interest income over the contractual life of the
loan, using the level yield method. When a loan is prepaid or sold, any
remaining unamortized fees and costs are credited or charged to income at
that time.
Loans, usually mortgages, held for sale are carried at the lower of cost
or market, as determined by outstanding commitments from investors or current
investor yield requirements calculated on the aggregate loan basis,
stratified based on their predominate risk characteristics, including loan
type, amortization type (fixed or adjustable), and note rate. Gains and
losses resulting from changes in carrying values are included in other
income.
Allowance for loan losses
Management's determination of the adequacy of the allowance, established
through charges against income, is based upon continuing evaluation of the
risk characteristics of the loan portfolio, current economic and real estate
market conditions, reviews of specific loans, estimates of current value of
underlying collateral, changes in loan portfolio composition, the results of
the most recent regulatory examination and other relevant factors. Loans are
charged against the allowance when management believes that collection is
unlikely. Any subsequent recoveries are credited to the allowance. The
Company's reserves are general reserves and are available to absorb losses to
the total loan portfolio as well as off-balance-sheet commitments, such as
commitments to extend credit, guarantee and standby letters of credit.
Receivables from and payables to brokerage customers
Receivables from and payables to brokerage customers arise from cash and
margin transactions executed by Advest on their behalf. In virtually all
instances, receivables are collateralized by securities with market values in
excess of the amounts due. The
-87-
<PAGE>
[Page 33 of Annual Report]
collateral is not reflected in the accompanying financial statements. A
reserve for doubtful accounts is established based upon reviews of individual
credit risks, as well as prevailing and anticipated economic conditions. At
September 30, 1997 and 1996, the reserve was $719,000 and $791,000,
respectively. Included in payables to brokerage customers are free credit
balances of $288,070,000 and $259,910,000 at September 30, 1997 and 1996,
respectively. Advest pays interest on credit balances when the customer has
indicated that the funds are for reinvestment purposes.
Securities loaned and securities borrowed
Advest loans, to other brokers and dealers, securities owned by its customers
and others for which it receives cash deposits or other securities as
collateral. Advest also borrows securities from one broker/dealer and lends
to another. Securities borrowed and securities loaned are recorded at the
amount of cash collateral advanced or received, respectively. The initial
collateral advanced or received has a market value equal to the market value
of the underlying securities. The values of such securities at September 30,
1997 and 1996 approximate amounts owed.
Trading positions
Advest's trading securities and securities sold, not yet purchased are valued
at market with unrealized gains and losses reflected in current period
revenues from principal transactions and investment banking.
Investment securities
Securities available for sale are carried at fair value with unrealized
holding gains or losses, net of tax, credited or charged directly to
shareholders' equity. Realized gains and losses are recorded on trade date by
the specific identification method and are included in revenue from principal
transactions. Securities which the Company has the positive intent and
ability to hold until maturity are carried at amortized cost and classified
as held to maturity investments. Available for sale and held to maturity
securities are reduced to fair value, through charges to income, for declines
in value that are considered to be other than temporary.
Depreciation and amortization
Equipment and leasehold improvements are carried at cost. Depreciation of
equipment for financial accounting purposes is calculated primarily using the
straight-line method and is based upon the estimated useful lives of the
assets ranging from three to ten years. Leasehold improvements are amortized
over the shorter of the terms of the respective leases or the estimated
useful lives of the improvements. At September 30, 1997 and 1996, accumulated
depreciation and amortization were $37,215,000 and $33,314,000, respectively.
The excess cost over the fair value of net assets of acquired companies
is recorded as goodwill and is amortized on a straight-line basis over
periods between 15 and 40 years. At September 30, 1997 and 1996, the amount
of goodwill reported in other assets is $5,874,000 and $6,124,000,
respectively.
Revenues from securities transactions and investment banking
Advest records securities transactions on a settlement date basis, which does
not materially differ from a trade date basis. Revenues and related expenses
for transactions executed but not settled are accrued on a trade date basis.
Securities transactions of the Bank are recorded on a trade date basis.
Investment banking revenues are recorded, net of expenses, on the
settlement date for management fees and sales concessions, and on the dates
the underwriting syndications are closed for underwriting fees.
Provision for credit losses and asset devaluation
The provision for credit losses and asset devaluation reflects reserve
accruals and writedowns for loans, other real estate owned ("OREO") and
certain other investments and receivables.
Income taxes
Deferred income taxes are recognized for the future tax consequences of
differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year end based on enacted tax rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to an amount which is more likely than not realizable.
Income tax expense is the sum of the taxes currently payable and the change
during the period in deferred tax assets and liabilities.
Net income per common and common equivalent shares
Primary net income per share is calculated by dividing net income by the
average shares of common stock and common stock equivalents outstanding
during the period. Common stock equivalents are dilutive stock options which
are assumed exercised for calculation purposes. Fully diluted calculations
assume full conversion of the Company's outstanding subordinated debentures
into common stock and elimination of the related interest expense, net of
taxes. The debentures were retired in January 1997. (See Note 8.)
The Financial Accounting Standards Board ("FASB") has issued Statement
of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share" in
February 1997. The Company will adopt SFAS 128 in its 1998 fiscal year, as
required, and its implementation will not have a material impact on the
Company's computation of earnings per share.
-88-
<PAGE>
[Page 34 of Annual Report]
Derivative financial instruments
Advest uses derivatives (primarily financial futures contracts) solely to
manage the risk associated with its municipal and corporate bond trading
inventories. Derivative transactions are entered into when inventory levels
exceed pre-determined thresholds specified in Advest's hedging policy, which
was developed and is reviewed at least annually by the chief executive
officer of the Company. Derivatives are considered off-balance-sheet
instruments because their notional amounts are not recorded on the balance
sheet. However, the fair values of Advest's futures contracts, which are
based on quoted market prices, are reflected in the consolidated balance
sheets within trading securities and the changes therein are reflected in the
operating activities section of the consolidated statements of cash flows.
Futures contracts are marked to market daily. Unrealized and realized gains
and losses from the termination or sale of the futures contracts are
reflected in revenue from principal transactions.
The Bank enters into interest rate swap and cap contracts as part of its
interest rate risk management strategy. Such instruments are held for
purposes other than trading. These swaps and caps are intended to maintain a
targeted level of net interest margin between the return on the Bank's
interest-earning assets and the cost of funds. Interest rate swaps involve
the exchange of fixed and floating rate interest payments based on an
underlying notional amount. The Bank accrues interest expense based on a
fixed contract rate and accrues interest income based on a floating rate
which is reset according to the contract index (usually tied to 3-month
LIBOR) and settled quarterly. Interest rate cap contracts provide that, in
exchange for the payment of an initial premium, the Bank will receive
payments from the counterparty in the event that interest rates rise above a
predetermined level (the "strike rate"). The Bank amortizes the premium
monthly over the term of the cap contract as interest expense,
and accrues interest income when the reset of the contract rate
(usually tied to 3-month LIBOR) exceeds the strike rate, settled quarterly.
Interest income and interest expense arising from interest rate swap and
cap contracts are recorded as components of accrued interest in the
consolidated balance sheet, as components of cash flows from operating
activities in the consolidated statements of cash flows, and as components of
interest expense in the consolidated statements of earnings. In the unlikely
event of perceived inability of a counterparty to meet the terms of a
contract, the Bank would record interest income on a cash basis. Unamortized
premiums paid on cap contracts are recorded as a component of deposits in the
consolidated balance sheets, with amortization of such premiums reflected as
a component of cash flows from operating activities in the consolidated
statements of cash flows and as a component of interest expense in the
consolidated statements of earnings.
Stock-based compensation
In fiscal 1997, the Company adopted SFAS 123, "Accounting for Stock-based
Compensation," as required. SFAS 123 encourages, but does not require
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for stock-
based compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
(Refer to Note 10.)
Other accounting pronouncements
Effective October 1, 1996, the Company prospectively adopted SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." Effective January 1, 1997, the Company prospectively
adopted SFAS 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," as amended by SFAS 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125." The
adoptions of SFAS 121 and SFAS 125, as amended by SFAS 127 which the Company
will adopt in its 1998 fiscal year as required, have not had a material
impact on the Company's financial position, results of operations or cash
flows.
The FASB issued SFAS 129, "Disclosure of Information about Capital
Structure" in February 1997. The Company will adopt SFAS 129 in its 1998
fiscal year, as required, and its implementation will not have a material
impact on the Company's financial condition, results of operations or cash
flows.
The FASB issued SFAS 130, "Reporting Comprehensive Income" and SFAS 131,
"Disclosures about Segments of an Enterprise and Related Information" in June
1997. The Company will adopt these pronouncements in its 1999 fiscal year, as
required. The Company is reviewing the provisions of both statements and has
not yet determined whether their implementation will have a material impact
on the presentation of the Company's financial condition, results of
operations or cash flows.
-89-
<PAGE>
[Page 35 of Annual Report]
Note 2: Loans
At September 30, 1997 and 1996, loans consisted of:
------------------------------------------------
In thousands 1997 1996
------------------------------------------------
Advest Bank and Trust Company:
Mortgages
Commercial $ 23,144 $ 27,717
Multi-family residential 7,975 11,285
1 - 4 family residential
conventional 73,846 84,987
Home equity credit 77,860 58,691
Commercial 4,627 2,757
Consumer 3,732 1,097
Advest Group, Inc.:
Mortgages
Commercial 9,000 9,000
1 - 4 family residential 232 555
Home equity credit 127 232
Other 1,102 1,033
-------- --------
$201,645 $197,354
======== ========
------------------------------------------------
The Company maintains an allowance for possible future loan losses and
asset devaluation. For the three years in the period ended September 30,
1997, activity in the allowance for loan losses was as follows:
---------------------------------------------------
In thousands 1997 1996 1995
---------------------------------------------------
Balance at the beginning
of the year $2,398 $2,334 $4,900
Provisions 671 1,022 5,637
Charge-offs (838) (1,249) (8,462)
Recoveries 248 291 259
------------------------------
Balance at the end
of the year $2,479 $2,398 $2,334
==============================
- -----------------------------------------------------------
Nonperforming assets include nonaccruing loans, loans ninety days past
due and accruing interest, loans renegotiated on other than prevailing market
terms and OREO. OREO is included in other assets in the consolidated balance
sheets. All other nonperforming assets are classified as loans. It is
management's policy to reverse all uncollected interest at the time a loan is
placed on nonaccrual. Interest forgone on nonaccrual and restructured loans
of the Bank was $576,000, $297,000 and $509,000 for the years ended September
30, 1997, 1996 and 1995, respectively. As of September 30, 1997, no
additional funds were committed to clients whose loans have been restructured
or were nonperforming. At September 30, 1997 and 1996, nonperforming assets
were comprised of:
---------------------------------------------------
In thousands 1997 1996
---------------------------------------------------
Advest Group, Inc.:
Nonaccrual loans $ 9,326 $ 9,555
OREO 159 800
Advest Bank and Trust Company:
Nonaccrual loans 4,135 1,422
OREO, net 1,046 984
Other 750 750
----------------------
$15,416 $13,511
======================
Nonperforming assets as a percentage
of loans and OREO 7.6% 6.8%
======================
Nonperforming assets as a percentage
of total assets 1.4% 1.4%
======================
At September 30, 1997 and 1996, the Company classified $2,948,000 and
$5,261,000, respectively, of loans as impaired. A loan is considered impaired
if it is probable that the Company will be unable to collect scheduled
payments according to the terms of the loan agreement. Impaired loans as of
September 30, 1997 and 1996 include $-0- and $3,810,000 of loans restructured
and currently classified as performing, $2,948,000 and $639,000 of loans
currently classified as nonaccrual, and $-0- and $812,000 of loans in which
potential credit problems may lead to future nonaccrual status or possible
charge-off. The nonaccrual impaired loans are a component of nonperforming
assets.
Note 3: Trading Positions
At September 30, 1997 and 1996, Advest's trading positions consisted of:
- -----------------------------------------------------------------
Securities sold,
Trading securities not yet purchased
------------------ -----------------
- -----------------------------------------------------------------
In thousands 1997 1996 1997 1996
- -----------------------------------------------------------------
Corporate obligations $55,546 $53,114 $32,298 $44,825
State and municipal
obligations 24,627 25,796 1,402 183
U.S. government and
agency obligations 10,559 10,612 16,244 697
Stocks and warrants 4,109 4,415 2,169 1,733
--------------------------------------
$94,841 $93,937 $52,113 $47,438
======================================
- -----------------------------------------------------------------
-90-
<PAGE>
[Page 36 of Annual Report]
Note 4: Investment Securities
As of September 30, 1997, the amortized cost and fair values of debt
securities, by contractual maturity, were:
- ----------------------------------------------------------------
Available for sale Held to maturity
---------------------------------------
Amortized Fair Amortized Fair
In thousands cost value cost value
- ----------------------------------------------------------------
Due in one year or less $ -- $ -- $12,532 $12,549
Due after one year
through five years -- -- 500 500
Due after ten years 9,677 9,575 8,002 7,882
--------------------------------------
$9,677 $9,575 $21,034 $20,931
======================================
- ----------------------------------------------------------------
For the three years ended September 30, 1997, 1996 and 1995,
respectively, proceeds from the sale of securities available for sale were
$4,871,000, $26,290,000 and $23,075,000 and gross gains realized were
$11,000, $115,000 and $152,000, respectively. Gross losses realized were
$82,000 and $255,000 for 1997 and 1995, respectively, and there were no gross
losses realized for 1996. The amortized cost and fair values of the Company's
available for sale securities at September 30, 1997 and 1996 were:
- ---------------------------------------------------------------
Gross unrealized
Amortized ---------------- Fair
In thousands cost gains losses value
- ---------------------------------------------------------------
1997
----
FHLB stock $ 2,270 $ -- $ -- $ 2,270
Mortgage-backed securities
of federal agencies 9,066 49 (157) 8,958
Other 2,740 25 (15) 2,750
-------------------------------------
$14,076 $ 74 $(172) $13,978
=====================================
1996
----
FHLB stock $ 2,233 $ -- $ -- $ 2,233
Mortgage-backed securities
of federal agencies 8,998 7 (350) 8,655
Other mortgage-backed
securities 99 -- -- 99
Other 4,132 15 (7) 4,140
-------------------------------------
$15,462 $ 22 $(357) $15,127
=====================================
- ---------------------------------------------------------------
There were no sales of held to maturity securities during the three
years in the period ended September 30, 1997. The amortized cost and fair
values of the Company's held to maturity securities at September 30, 1997 and
1996 were:
- ---------------------------------------------------------------
Gross unrealized
Amortized ---------------- Fair
In thousands cost gains losses value
- ---------------------------------------------------------------
1997
----
Mortgage-backed
securities $ 8,002 $3 $(123) $ 7,882
U.S. government and agency
obligations 12,532 -- 17 12,549
Other 500 -- -- 500
-------------------------------------
$21,034 $3 $(106) $20,931
=====================================
1996
----
Mortgage-backed
securities $10,635 $11 $(85) $10,561
U.S. government and agency
obligations 11,824 -- (9) 11,815
Other 500 -- -- 500
-------------------------------------
$22,959 $11 $(94) $22,876
=====================================
- ---------------------------------------------------------------
Note 5: Deposits
Pursuant to the FDIC Improvement Act ("FDICIA"), banks are subject to rules
limiting brokered deposits and related interest rates. The Bank meets the
conditions of such rules to be deemed a "well capitalized" bank and as such
may accept brokered deposits without restriction. At September 30, 1997 and
1996, deposits at the Bank consisted of:
- ------------------------------------------------
In thousands 1997 1996
- ------------------------------------------------
Money market $107,499 $127,840
Certificates of deposit 61,673 63,271
Savings 411 75
---------------------
$169,583 $191,186
=====================
- ------------------------------------------------
Note 6: Short-term Borrowings
In the ordinary course of business, primarily to facilitate securities
settlements and finance trading inventories, Advest obtains bank loans which
are collateralized by its trading securities and customers' margin
securities. The loans are payable on demand and bear interest based on the
federal funds rate. At September 30, 1997 and 1996, Advest had $32,001,000
and $33,801,000, respectively, in firm loans outstanding. The weighted
average interest rate on bank loans outstanding at September 30, 1997 and
1996, was 5.85% and 5.71%, respectively, and the weighted average interest
rates during fiscal 1997 and 1996 were 5.82% and 5.86%, respectively.
Short-term borrowings of the Bank consisted primarily of the current
portion of advances from the Federal Home Loan Bank ("FHLB"). At September
30, 1997, borrowings totaled $29,250,000 at rates from
-91-
<PAGE>
[Page 37 of Annual Report]
5.61% to 7.17%. At September 30, 1996, borrowings totaled $4,750,000 at rates
from 6.30% to 8.60%. The Bank has unused short term credit lines of
approximately $7,942,000 with the FHLB at September 30, 1997. The Bank's
borrowings with the FHLB are collateralized by its holdings of FHLB stock as
well as otherwise unencumbered mortgage loans and investment securities.
Based on available qualified collateral balances of approximately
$137,902,000, the Bank had total borrowing capacity with the FHLB of
approximately $104,654,000 at September 30, 1997.
The advances are subject to prepayment penalties, which are intended to
make the FHLB indifferent to the prepayment and are approximately equivalent
to settlement of the obligations at their current fair value.
AGI's short-term borrowings at September 30, 1997 were $245,000 which
represented the current portion of a promissory note due in 2000. At
September 30, 1996, AGI's short-term borrowings were $750,000, representing
the current portion of a mortgage due a third party lender which was repaid
in full in December 1996. Refer to Note 7 for additional information on both
borrowings.
Note 7: Long-term Borrowings
Long-term borrowings of the Bank were $5,750,000 and $8,750,000 as of
September 30, 1997 and 1996, respectively, and represent the non-current
portion of FHLB advances. The borrowings are collateralized in the same
manner as short-term borrowings. As of September 30, 1997, the interest rates
and maturities of outstanding borrowings were:
---------------------------------------------------------
In thousands Interest rates Amount
---------------------------------------------------------
Year ending
September 30, 1999 6.58% $ 750,000
Year ending
September 30, 2001 6.27% - 6.68% 3,500,000
Year ending
September 30, 2002 6.73% 1,500,000
----------
$5,750,000
==========
- ------------------------------------------------------------
At September 30, 1996, Advest had long-term borrowings of $6,250,000,
consisting entirely of a non-recourse note, collateralized exclusively by
furniture and computer equipment. Under the terms of the note, the principal
was due October 1, 1998, however, on April 1, 1997, Advest repaid the note in
full. The note bore interest at the variable rate of the LIBOR rate plus 2.5%
per annum. As required by the non-recourse note, AGI signed a collateralized
letter of credit with a third party bank guaranteeing 20% of Advest's debt.
Upon repayment of the note, the letter of credit was canceled and the
collateral, consisting of government securities, was released.
At September 30, 1997 and 1996, long-term borrowings of AGI were
$35,571,000 and $4,744,000, respectively. On December 26, 1996, AGI entered
into a private placement transaction with three institutional investors. AGI
borrowed $35,000,000 on an unsecured basis and received an investment grade
rating. Under the terms of the note, the principal is payable in 5 equal
installments with payments due on December 31, 1999 and on the last day of
each December thereafter through and including December 31, 2003. The note
bears interest at the rate of 7.95% per annum payable semiannually on the
last day of June and December. On November 1, 1995, AGI signed a promissory
note with a third party lender for $1,250,000 due November 1, 2000. Under the
terms of the note, the principal is payable in 60 equal monthly installments
at an interest rate of 6.25%. On December 27, 1996, AGI repaid in full a loan
from a third party lender on a first mortgage which bore interest at 1.25%
over prime with interest and principal payments due monthly. The debt was
collateralized by a first mortgage on real estate managed by a subsidiary, as
well as a pledge of subsidiary stock. This collateral was released following
repayment of the loan.
Note 8: Subordinated Borrowings
In December 1996, the Company called for redemption of all of its then
outstanding 9% convertible subordinated debentures due in 2008. On January
30, 1997, the Company redeemed $20,298,000 at the redemption price of 101.2%
of the par value of the debentures, together with accrued interest. A total
of 18,716 shares were issued to debenture holders electing to convert
$254,000 par value of debentures into the Company's common stock at the
conversion price of $13.57. Cash was issued in lieu of fractional shares.
Note 9: Common Stock
The Company instituted a common stock repurchase program in August 1990. A
total of 3,000,000 shares have been authorized to be repurchased under the
program. During the years ended September 30, 1997 and 1996, 183,200 and
398,900 shares, respectively, were acquired for a total of 2,696,277 shares
repurchased since the start of the program.
The payment of dividends on the Company's common stock is subject to (1)
the availability of funds from Advest, which may be restricted under the net
capital rule of the SEC and the New York Stock Exchange ("NYSE"), and from
the Bank, which is subject to minimum bank regulatory requirements, and (2) a
Note Purchase Agreement dated as of December 27, 1996 with a consortium of
third party institutional investors. Such restrictions have never curtailed
the Company's
-92-
<PAGE>
[Page 38 of Annual Report]
ability to declare dividends; however, until the current fiscal year, the
Company had not paid a dividend since December 1990. The Company resumed
quarterly dividend payments, currently $.03 per share, as of April 15, 1997.
In 1988, the Board of Directors of the Company adopted a shareholder
rights plan. The plan provides for the distribution of one common stock
purchase right for each outstanding share of common stock of the Company.
Each right entitles the holder, following the occurrence of certain events,
to purchase one share of common stock at a purchase price of $30 per share
subject to adjustment. The rights will not be exercisable or transferable
apart from the common stock except under certain circumstances in which
either a person or group of affiliated persons acquires, or commences a
tender offer to acquire 20% or more of the Company's common stock or a person
or group of affiliated persons acquires 15% of the Company's common stock and
is determined by the Board of Directors to be an "Adverse Person." Rights
held by such an acquiring person or persons may thereafter become void. Under
certain circumstances, a right may become a right to purchase common stock or
assets of the Company or common stock of an acquiring company at a
substantial discount. Under certain circumstances, the Company may redeem the
rights at $.01 per right. The rights will expire in October 1998 unless
earlier redeemed or exchanged by the Company.
The Company has 2,000,000 shares, $.01 par value, preferred stock which
was authorized by shareholders in 1988. The board of directors has full
discretion with respect to designating and establishing the terms of each
class or series of preferred stock prior to its issuance. No preferred stock
has been issued to date.
Note 10: Stock Option Plans
1993 Stock Option Plan
The Company's 1993 Stock Option Plan (the "1993 Plan"), established during
fiscal 1994, provides for grants of incentive stock options or nonqualified
stock options for up to 500,000 shares of the Company's common stock. At
September 30, 1997, options for 363,061 shares had been granted under the
1993 Plan, of which 329,894 options were outstanding. Option grants under the
1993 Plan are made at the discretion of the Human Resources Committee of the
Board of Directors and become exercisable at such times (but not within six
months of grant) and expire at such time (but not later than ten years after
grant), as that committee determines.
1994 Non-Employee Director Stock Option Plan
The Company's 1994 Non-Employee Director Stock Option Plan (the "1994 Plan"),
established during fiscal 1995, as amended, provides for annual grants of
2,500 incentive stock options to each director not employed by the Company up
to an aggregate of 100,000 options for all directors. At September 30, 1997,
options for 37,000 shares had been granted, of which 34,000 options were
outstanding under the 1994 Plan. Options granted under the 1994 Plan become
exercisable in equal thirds 30, 42 and 54 months after grant and expire 60
months after the grant.
Prior Stock Option Plans
At September 30, 1997, the Company had outstanding an aggregate of 125,946
options issued to employees under stock option plans maintained by the
Company in prior years under which no further grants are authorized. These
include 29,483 and 33,462 nonqualified stock options granted to top
investment executives under performance-based plans offered in calendar 1991
and 1992, respectively, which become exercisable five years after grant and
expire one year thereafter. These also include 63,001 five-year options
granted to executive officers and key employees other than investment
executives in February 1993.
Advest Equity Plans
During calendar 1997, 1996 and 1995 the Company offered the Advest Equity
Plan (the "Equity Plan") to certain eligible employees. The Equity Plan is a
salary deferral investment program and is described in more detail in Note
11. For deferrals during 1996 and 1995, 155,125 and 169,708, respectively,
nonqualified stock options were granted. For deferrals during 1997 through
June 30, 1997, 64,273 options were granted and additional options will be
granted based on deferrals from June 30, 1997 through December 31, 1997.
Options granted under the equity plans are nonqualified stock options which
will become exercisable five years after the end of the plan year and expire
two years later.
Exercise Price of Options
All options granted by the Company to date, or which may be granted under the
1993 Plan, the 1994 Plan and the Equity Plan, have or will have exercise
prices not less than 100% of the fair market value of the Company's common
stock on the date of grant.
-93-
<PAGE>
[Page 39 of Annual Report]
The Company applies the intrinsic value method under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
in accounting for stock-based compensation and, accordingly, no compensation
cost has been recognized in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options under SFAS 123, the Company's net earnings would have been
the pro forma amounts indicated below:
In thousands 1997 1996
---------------------------------------------
Net earnings
As reported $14,218 $11,798
Pro forma 14,022 11,698
Primary earnings per share
As reported $1.60 $1.35
Pro forma 1.58 1.34
Fully diluted earnings per share
As reported $1.54 $1.23
Pro forma 1.52 1.22
---------------------------------------------
Pro forma compensation expense associated with option grants is
recognized over the vesting period. The initial impact of applying SFAS 123
on pro forma disclosure is not representative of the potential impact on pro
forma net earnings for future years, which will include compensation expense
related to vesting of 1996, 1997 and subsequent grants.
Transactions under the Company's stock option plans are summarized
below:
-------------------------------------------------------------
Number of Weighted-average
shares exercise price
-------------------------------------------------------------
Options outstanding at
September 30, 1994 705,767 $4.27
Granted 156,500 5.98
Forfeited (50,358) 5.54
Exercised (13,266) 4.40
---------
Options outstanding at
September 30, 1995 798,643 4.52
Granted 431,818 9.03
Forfeited (1,244) 5.21
Exercised (327,148) 2.84
---------
Options outstanding at
September 30, 1996 902,069 7.29
Granted 172,838 15.70
Forfeited (22,249) 8.42
Exercised (186,674) 5.38
---------
Options outstanding at
September 30, 1997 865,984 $9.35
=========
- ----------------------------------------------------------------------
At September 30, 1997, 1996 and 1995, options were exercisable on
145,987, 116,537 and 190,501 shares, respectively, and the weighted average
exercise price were $5.87, $5.63 and $4.62, respectively.
The weighted-average fair value of options granted in 1997 and 1996 is
$6.67 and $3.72 per option, respectively. Fair value is estimated as of the
grant date based on a Black-Scholes option pricing model using the following
weighted-average assumptions:
1997 1996
---------------------------------------
Risk-free interest
rate 6.33% 5.67%
Expected life 5.41 yrs 4.9 yrs
Expected volatility 36.00% 36.00%
Dividend yield 0.46% --%
---------------------------------------
The following table summarizes information related to outstanding and
exercisable options at September 30, 1997:
- ---------------------------------------------------------------------------
Options outstanding Options exercisable
---------------------------------------------------------
Weighted- Weighted- Weighted-
average average average
Exercise Number of exercise remaining Number of exercise
prices shares price life shares price
- ---------------------------------------------------------------------------
$5.13 - $ 6.25 282,779 $ 5.91 1.52 yrs 145,987 $5.87
$8.50 - $ 11.375 519,532 9.45 4.85 yrs -- --
$23.75 63,673 23.75 7.26 yrs -- --
--------------------------------------------------------
Total 865,984 $ 9.35 3.69 yrs 145,987 $5.87
========================================================
- ---------------------------------------------------------------------------
-94-
<PAGE>
[Page 40 of Annual Report]
Note 11: Employee Compensation and Benefit Plans
Advest Thrift Plan
The Company maintains the Advest Thrift Plan (the "Thrift Plan") which is a
qualified employee stock ownership plan ("ESOP") and 401(k) plan covering all
employees who have completed one year of service. The Thrift Plan is the
successor to the December 31, 1992, merger of the Employee Stock Ownership
Plan, Incentive Savings Plan and Employees' Retirement Plan. The Company
matches 100% of participants' contributions to their Thrift Plan accounts up
to 2% of compensation. In addition, the Company has made or will make
discretionary contributions to participants' Thrift Plan accounts equal to
2.5%, 2.5% and 2.0% of their compensation for calendar 1997, 1996 and 1995,
respectively. Contribution expense for fiscal 1997, 1996 and 1995 was
$3,900,735, $3,610,731 and $2,624,281, respectively. No ESOP contributions
have been made by the Company since 1993.
Defined Benefit Plans
The Company's Account Executive Nonqualified Defined Benefit Plan (the "AE
Defined Benefit Plan"), effective October 1, 1992, offers certain high-
performing investment executives retirement benefits based upon a formula
reflecting their years of service, the gross commissions they generate and
Company contributions to their Thrift Plan 401(k) accounts.
The Company's Executive Nonqualified Post-Employment Income Plan (the
"Executive Defined Benefit Plan"), effective October 1, 1993, provides
certain senior executives with income for 10 years after retirement equal to
a percentage of their final average earnings based upon a formula reflecting
years of service, assumed social security benefits and Company contributions
to certain other benefit plans on the executive's behalf.
Although the AE Defined Benefit Plan and the Executive Defined Benefit
Plan are considered to be "unfunded," assets have been set aside in revocable
trusts for each to fund future payments. These trusts are available to
general creditors of the Company in the event of liquidation. The fair value
of these trusts, which are included in trading securities and other assets,
at September 30, 1997 was $7,754,000, which was more than the projected
benefit obligation by $372,000.
The following table sets forth the status of the AE Defined Benefit Plan
and Executive Defined Benefit Plan as well as amounts recognized in the
Company's consolidated financial statements at September 30, 1997 and 1996:
------------------------------------------------
In thousands 1997 1996
------------------------------------------------
Actuarial present value of benefit obligations:
Vested $ 38 $ --
Non-vested 5,607 3,952
-------------------
Accumulated benefit obligation 5,645 3,952
Effect of projected future
compensation levels 1,737 1,440
-------------------
Projected benefit obligation 7,382 5,392
Unrecognized net loss (354) (111)
Unrecognized prior service cost (476) (529)
------------------
Accrued pension liability $6,552 $4,752
==================
- ---------------------------------------------------------
Pension expense for the plans for the three years ended September 30,
1997 is included in the following components:
---------------------------------------------------
In thousands 1997 1996 1995
---------------------------------------------------
Service cost $1,369 $1,257 $ 878
Interest cost 408 288 175
Net amortization
and deferral 23 65 6
---------------------------
Net benefit costs $1,800 $1,610 $1,059
===========================
---------------------------------------------------
The following table provides the assumptions used in determining the
projected benefit obligation for the plans for the three years ended
September 30, 1997:
- -----------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------
Weighted average discount rate 7.25% 7.5% 7.0%
Rate of increase in future
compensation levels 5.0 5.0 5.0
- -----------------------------------------------------------------
Equity Plans
For calendar 1997, 1996 and 1995 the Company offered the Advest Equity Plan
(the "Advest Equity Plan") to certain top performing investment executives
and designated key employees. The Advest Equity Plan allows those employees
to defer a portion of their compensation and invest it on a pre-tax basis in
units consisting of one share of the Company's common stock and one option to
purchase an additional share of common stock. The share portion of the unit
is issued monthly from treasury stock and will be restricted for three years
after the year of deferral. The option portion is described under Note 10.
Both the restricted stock
-95-
<PAGE>
[Page 41 of Annual Report]
and options will be subject to forfeiture under certain circumstances. For
calendar 1997, 1996 and 1995, the Company offered substantially similar plans
to executive officers, although under the executive officer plans restricted
stock was purchased on the open market through December 1996 and options
granted under the 1993 Stock Option Plan.
Beginning with fiscal 1996, the Company offered certain key
professionals the opportunity to defer a portion of their compensation over
certain levels and invest it in restricted stock at a discounted price of 75%
of market. Also, beginning with calendar 1996, 50% of the annual retainer of
each director of the Company (or a greater portion, at their election) is
invested in restricted stock at 100% of market.
Management Incentive Plan
The Company has a Management Incentive Plan (the "MIP") which provides for
incentive compensation to salaried employees. Compensation presently is based
on the Company's pre-tax income. During fiscal 1997, 1996 and 1995, MIP
compensation was $2,311,000, $2,482,000 and $1,330,000, respectively. For
fiscal 1996, any MIP award to an executive officer in excess of 150% of the
amount of the MIP award for the prior fiscal year was invested in restricted
shares of the Company's common stock.
Restricted Stock
Restricted stock awards are made, and shares issued, to certain key employees
without cash payment by the employee. The shares are restricted for a vesting
period, generally five years from the award date. Certain key employees were
awarded 54,436 and 5,702 shares of restricted stock, with a fair value of
$1,432,000 and $56,000, during 1997 and 1996, respectively. As of September
30, 1997, stock awards for 60,138 shares were outstanding, with restrictions
expiring at various dates through 2003. The deferred cost of the restricted
stock awards is amortized on a straight-line basis.
Note 12: Capital and Regulatory Requirements
Advest is subject to the net capital rule adopted and administered by the
NYSE and the SEC. Advest has elected to compute its net capital under the
alternative method of the rule which requires the maintenance of minimum net
capital equal to 2% of aggregate debit balances arising from customer
transactions, as defined. The NYSE also may require a member firm to reduce
its business if net capital is less than 4% of aggregate debit balances and
may prohibit a member firm from expanding its business and declaring cash
dividends if net capital is less than 5% of aggregate debit balances. As of
September 30, 1997, Advest's regulatory net capital of $60,733,000 was 14% of
aggregate debit balances and exceeds required net capital by $51,870,000.
Under bank regulatory restrictions, the Bank is required to maintain a
minimum level of capital. With its conversion to a federal charter in April
1997, the Bank is required to limit annual dividends to the total of the
current and prior four quarters retained net income. No dividends have been
declared or paid by the Bank in fiscal year 1997. At September 30, 1997, the
Bank's leverage capital, risk-based and Tier 1 capital ratios were 6.84%,
10.04% and 8.79%, respectively, which met all regulatory requirements. At
September 30, 1996, the Bank's leverage capital, risk-based and Tier 1
capital ratios were 6.56%, 10.44% and 9.19%, respectively, which also met
regulatory requirements. Refer to discussion in Management's Discussion and
Analysis under the caption "Liquidity and Capital Resources - Advest Bank and
Trust Company."
Note 13: Income Taxes
The provision for income taxes for the three years ended September 30, 1997
consisted of the following:
--------------------------------------------------
In thousands 1997 1996 1995
--------------------------------------------------
Current:
Federal $7,549 $5,893 $1,695
State and local 2,453 3,270 1,985
---------------------------
10,002 9,163 3,680
---------------------------
Deferred:
Federal 380 181 1,747
State and local (502) (74) (17)
---------------------------
(122) 107 1,730
---------------------------
Provision for income
taxes $9,880 $9,270 $5,410
===========================
- ----------------------------------------------------------
At September 30, 1997 and 1996, deferred tax assets and liabilities were
comprised of:
-------------------------------------------------
In thousands 1997 1996
-------------------------------------------------
Deferred tax assets:
Provision for credit losses and
asset devaluation $2,709 $2,753
Employee benefits 4,756 4,446
Lease commitments -- 434
FAS115 losses 35 112
State NOL carryforwards 1,069 1,671
Valuation allowance -
state taxes (499) (1,671)
Other 46 86
-------------------
Total deferred tax assets $8,116 $7,831
-------------------
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 528 $ 614
Depreciation 1,430 1,367
Investment income 168 449
Partnership basis difference 2,487 2,305
Other 1,325 961
-------------------
Total deferred tax
liabilities $5,938 $5,696
-------------------
Net deferred tax asset $2,178 $2,135
===================
-------------------------------------------------
-96-
<PAGE>
[Page 42 of Annual Report]
The Company will only recognize a deferred tax asset when, based on
available evidence, realization is more likely than not. Accordingly, at
September 30, 1997 and 1996, the Company has recorded no valuation allowance
against federal deferred tax assets based on reversals of existing taxable
amounts and anticipated future earnings. A valuation reserve has been
established to cover state net operating loss carryforwards which are not
expected to be realized due to short carryforward time periods. At September
30, 1997, state net operating loss carryforwards were approximately
$11,250,000 which expire in various years between 1998 and 2000.
A reconciliation of the difference between the statutory federal income
tax rate and the effective income tax rate follows for the three years ended
September 30, 1997 follows:
------------------------------------------------------
Percent of pre-tax income 1997 1996 1995
------------------------------------------------------
Statutory income tax rate 35.0% 35.0% 34.0%
State and local income taxes,
net of federal tax effect 6.9 9.8 11.1
Recognition of state net
operating losses (1.5) -- --
Tax-exempt interest income (1.5) (1.6) (1.9)
Intangible assets 0.4 0.4 0.7
Other 1.7 0.4 2.1
--------------------------
Effective income tax rate 41.0% 44.0% 46.0%
==========================
-------------------------------------------------------
Effective for the fiscal year ended September 30, 1997, the Bank changed
its tax bad debt method to the specific charge-off method in accordance with
provisions of the Small Business Job Protection Act. The change in method
will result in taxable income of approximately $1,485,000 representing the
excess of the Bank's tax bad debt reserve at September 30, 1996 over the
reserve that arose in tax years beginning before December 31, 1987 (base year
reserve). Generally, the income will be recognized ratably over a six year
period. Accordingly, the deferred tax liability resulting from the change in
method is approximately $528,000 at September 30, 1997.
As of September 30, 1997, the Bank has not recorded a deferred tax
liability for its base year reserve of $2,155,000. An income tax liability
could be incurred if certain excess distributions were made with respect to
the Bank's stock. It is not anticipated that such excess distributions would
be made.
Note 14: Commitments and Contingent Liabilities
Leases
The Company conducts all of its operations from leased premises, and leases
data processing and communications equipment under noncancelable operating
leases primarily varying from one to ten years, with certain renewal options
for similar terms. Minimum rentals based upon the original terms (excluding
taxes, insurance and maintenance expenses which also are obligations) at
September 30, 1997 are (in thousands):
----------------------------------------------------------
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
----------------------------------------------------------
1998 $ 7,313 $1,895 $ 9,208
1999 5,890 1,077 6,967
2000 5,836 759 6,595
2001 5,551 759 6,310
2002 4,247 428 4,675
2003 and thereafter 11,601 -- 11,601
-------------------------------------
$40,438 $4,918 $45,356
=====================================
----------------------------------------------------------
Rental expense under these leases was $9,338,000, $8,928,000 and
$9,458,000 for the years ended September 30, 1997, 1996 and 1995,
respectively.
Loan guarantees and letters of credit
Billings Management Company, a subsidiary of the Company, acts as general
partner in various real estate limited partnerships. At September 30, 1997
and 1996, AGI was a guarantor of borrowings by one of the partnerships in the
amount $275,000 and $503,000, respectively. The borrowings are
uncollateralized.
At September 30, 1996, AGI was contingently liable under a
collateralized bank letter of credit in the amount of $1,250,000 required
under the terms of a non-recourse note entered into between Advest and a
third party lender. The note was repaid in full during fiscal 1997 and the
letter of credit was canceled. (See Note 7.)
At September 30, 1997 and 1996, Advest was contingently liable under
bank letter of credit agreements in the amount of $1,835,000 and $1,255,000,
respectively, which are collateralized by securities held in customer
accounts.
At September 30, 1997 and 1996, the Bank and AGI were contingently
liable under standby letters of credit and commitments to extend credit to
customers in the amount of $88,800,000 and $68,405,000, respectively. The
value of collateral required to be held for letter of credit commitments as
of September 30, 1997 ranges from 0% to 1174% of individual commitments with
a weighted average of 148%.
<PAGE>
-97-
<PAGE>
[Page 43 of Annual Report]
Litigation
The Company has been named as defendant in a number of legal proceedings
arising principally from its securities and investment banking business. Some
of these actions involve claims by plaintiffs for substantial amounts. While
results of litigation cannot be predicted with certainty, in the opinion of
management, based on discussion with counsel, the outcome of these matters
will not result in a material adverse effect on the financial condition or
future operating results of the Company.
Note 15: Financial Instruments With Off-Balance-Sheet Risk
In the normal course of business, Advest executes, settles and finances
customer and proprietary securities transactions. These activities may expose
Advest to off-balance-sheet risk in the event that customers or other parties
are unable to fulfill their contractual obligations.
In accordance with industry practice, Advest records securities
transactions executed on behalf of its customers on settlement date which is
generally three business days after trade date. Should a customer or broker
fail to deliver cash or securities as agreed, Advest may be required to
purchase or sell securities at unfavorable market prices.
Customer securities activities are transacted on either a cash or margin
basis. For margin transactions, in which Advest extends credit to customers,
it seeks to control its risk by requiring customers to maintain margin
collateral in compliance with various regulatory and internal guidelines.
Advest monitors required margin levels daily and requests customers to
deposit additional collateral or liquidate securities positions when
necessary. Such transactions expose Advest to off-balance-sheet risk in the
event margin requirements are not sufficient to cover customer losses.
Advest's collateralized financing activities require it to pledge
customer securities as collateral for various secured financing sources such
as bank loans and securities loaned. In the event the counterparty is unable
to meet its contractual obligations, Advest may be exposed to the off-balance-
sheet risk of acquiring securities at prevailing market prices. The Company
monitors the credit standing of counterparties with whom it conducts
business. Risk is further controlled by monitoring the market value of
securities pledged on a daily basis and by requiring adjustment of collateral
levels as needed.
Advest has sold securities that it does not currently own and will
therefore be obligated to purchase such securities at prevailing market
prices in the future. These obligations are recorded in the financial
statements at the market values of the related securities and Advest will
incur a loss if the market value of the securities increases.
Advest seeks to manage the interest rate risk associated with its
trading positions, primarily its municipal and corporate bond inventories, by
entering into derivative transactions, principally short-term futures
contracts. The average fair value of futures contracts during the years ended
September 30, 1997 and 1996 were $875,752 and $598,303, respectively. A net
trading loss of $76,000 was realized in 1997, a net trading profit of $20,000
was realized in 1996 and a net trading loss of $100,000 was realized in
fiscal 1995. At September 30, 1997, Advest had only nominal open positions.
In 1996 there were no open hedge positions.
The Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments involve, to varying degrees, elements
of credit and interest rate risk. The Bank's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument is
represented by the contractual amount of these instruments. The Bank uses the
same credit policies in making commitments as it does for existing loans and
management believes that the Bank controls the risk of these financial
instruments through credit approvals, limits and monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Since
many of the commitments could expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
amount of collateral obtained, if deemed necessary by the Bank, upon
extension of credit is based on credit evaluation of its customer. Collateral
held varies but may include income-producing commercial properties, accounts
receivable, inventory and property, plant and equipment.
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of customers to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that
involved in standing loan facilities to customers. The Bank holds real estate
and marketable securities as collateral supporting those commitments for
which collateral is deemed necessary.
The Bank enters into interest rate swap and cap contracts as part of its
interest rate risk management strategy. The notional values do not represent
direct credit exposures. The Bank's credit exposure is limited to the net
difference between the calculated pay and receive amounts on each transaction
which is generally netted and paid quarterly.
-98-
<PAGE>
[Page 44 of Annual Report]
The following table illustrates the Bank's outstanding swap and cap
contracts at September 30, 1997:
- ---------------------------------------------------------------------
Maturities
--------------------- Balance Balance
In thousands 1998 1999 2001 9/30/97 9/30/96
- ---------------------------------------------------------------------
Fixed pay interest rate swaps:
Notional value $5,000 $5,000 $ -- $10,000 $20,000
Weighted average
receive rate 5.813% 5.719% --% 5.719% 5.556%
Weighted average
pay rate 8.790% 7.090% --% 7.940% 7.145%
Interest rate caps:
Notional value $ -- $ -- $5,000 $ 5,000 $ 5,000
Strike rate --% --% 6.000% 6.000% 6.000%
Unamortized premium $ -- $ -- $ 167 $ 167 $ 51
Total notional value $5,000 $5,000 $5,000 $15,000 $25,000
- ---------------------------------------------------------------------
In the absence of these interest rate swaps, net interest income would
have been higher by approximately $233,000 in 1997, $441,000 in 1996 and
$472,000 in 1995. In the absence of these cap contracts, net interest income
would have been higher by approximately $75,000 in 1997 and $57,000 in 1996,
and lower by approximately $128,000 in 1995.
Note 16: Concentrations of Credit Risk
Advest generally conducts business with brokers and dealers located in the
New York metropolitan area that are members of the major securities
exchanges. Advest's clients are predominantly retail investors located
throughout the United States but primarily in the Northeast and Florida.
Advest's activities primarily involve collateralized arrangements and may
result in credit exposure if the counterparties do not fulfill their
obligations. Advest's exposure to credit risk can be directly impacted by
volatile securities markets which may impair the ability of counterparties to
satisfy their contractual obligations.
When entering into interest rate swap and cap agreements, the Bank is
subject to the risk of dealing with counterparties and their ability to meet
the terms of the contracts. The Bank enters into swap and cap contracts with
counterparties that are either highly rated by recognized rating agencies or
are federal agencies. The Bank minimizes the credit risk by performing credit
reviews on the swap counterparties and minimizes the interest rate risk by
its asset and liability management policies.
Note 17: Related Parties
As of September 30, 1997 and 1996, loans to related parties made by the Bank
totaled approximately $3,623,000 and $4,764,000, respectively. There were
approximately $1,130,000 of new loans and $2,271,000 of repayments during
1997. Related parties include directors and executive officers of the
Company, and their respective affiliates in which they have a 10% or more
interest. Such loans were made in the ordinary course of business. As of
September 30, 1997, all loans to related parties were performing.
Note 18: Fair Value of Financial Instruments
Fair values generally represent estimates of amounts at which a financial
instrument could be exchanged between willing parties in a current
transaction other than in forced liquidation. Where current exchange prices
are not available, other valuation techniques are used, such as discounting
the expected future cash flows. Fair value estimates are subjective and
depend on a number of significant assumptions based on management's judgment
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. In
addition, a wide range of valuation techniques are permitted, making
comparisons difficult, even between similar entities. The fair value of other
financial assets and liabilities (consisting primarily of receivable from and
payable to brokers and dealers, customers, securities borrowed and loaned)
are considered to approximate the carrying value due to the short-term nature
of the financial instruments.
For residential one to four family real estate mortgages, fair value is
estimated using quoted market prices for similar loans, adjusted for
differences in loan characteristics. For multi-family mortgages, commercial
real estate loans and commercial and consumer loans, fair value is estimated
by discounting the expected future cash flows using the current rates at
which similar loans would be originated to borrowers with similar credit
ratings for comparable remaining maturities. Fair values for fixed-rate
certificates of deposit are estimated by discounting future cash flows using
interest rates currently offered on time deposits with similar remaining
maturities. The fair value of advances from the FHLB, including the current
portion, are estimated using rates which approximate
-99-
<PAGE>
[Page 45 of Annual Report]
those currently being offered by the FHLB for advances with similar remaining
maturities. The fair value of interest rate swap and cap agreements are
obtained from quoted market prices and dealer quotes. These values represent
the estimated amount that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current interest rates
and the current credit worthiness of the counterparties.
The fair values of the Company's financial instruments at September 30,
1997 and 1996 are:
- ---------------------------------------------------------------
1997 1996
-------------------------------------
Carrying Fair Carrying Fair
In thousands amount value amount value
- ---------------------------------------------------------------
Financial assets:
Loans, net $199,166 $202,103 $194,956 $196,135
Investment
securities 35,012 34,909 38,086 38,003
Financial liabilities:
Deposits 169,583 169,747 191,186 191,554
Short-term
borrowings 61,496 61,544 39,301 39,326
Long-term
borrowings 41,321 41,273 19,744 19,873
Subordinated
borrowings -- -- 20,552 21,374
Notional Fair Notional Fair
In thousands amount value amount value
-------------------------------------------------------------
Unrecognized financial instruments:
Fixed pay interest
rate swaps $10,000 $(163) $ 20,000 $(317)
Interest rate caps 5,000 114 5,000 16
Commitments to
extend credit (87,922) 6 (67,935) 31
Standby letters
of credit (2,193) (3) (2,975) (11)
-------------------------------------------------------------
Note 19: Segment Reporting
The Company operates principally in the financial services and banking
industries. Operations in the financial services industry include agency
transactions, principal transactions, investment banking, asset management
and consulting. The banking operations include residential mortgage lending,
trust services and investment of funds generated from borrowings and customer
deposits. Financial information by industry segments for the three years in
the period ended September 30, 1997 are summarized as follows:
------------------------------------------------------------------
Financial
In thousands services Banking Other Consolidated
------------------------------------------------------------------
1997
----
Total revenues $271,105 $ 16,925 $ 1,315 $ 289,345
Operating income
(loss) 26,100 720 (2,722) 24,098
Identifiable assets 812,116 222,014 42,676 1,076,806
Capital expenditures 4,235 377 4 4,616
Depreciation and
amortization 8,230 364 (68) 8,526
1996
----
Total revenues $240,509 $ 19,324 $ 1,548 $261,381
Operating income
(loss) 22,604 1,074 (2,610) 21,068
Identifiable assets 712,176 219,245 33,756 965,177
Capital expenditures 5,573 344 14 5,931
Depreciation and
amortization 7,694 332 195 8,221
1995
----
Total revenues $207,573 $ 23,464 $ 1,596 $232,633
Operating income
(loss) 23,175 (9,301) (2,113) 11,761
Identifiable assets 530,997 269,500 30,318 830,815
Capital expenditures 4,182 193 2 4,377
Depreciation and
amortization 8,391 313 201 8,905
-------------------------------------------------------------------
Note 20: Subsequent Event
On October 2, 1997, the Company announced that it has entered into a letter
of intent to acquire Ironwood Capital, Ltd. ("Ironwood"), a private
investment bank, in exchange for 137,060 shares of AGI common stock. The
closing is expected to occur on or before November 15, 1997 and it is
anticipated that the acquisition will be accounted for as a pooling of
interests. Following the acquisition, Ironwood and its twelve employees will
become the Corporate Fixed Income Group within the Investment Banking
Division of Advest. Restatement of prior years' financial statements, as
required under a pooling of interests transaction, would not have a material
impact on the Company's financial condition, results of operations or cash
flows. Consequently, Ironwood will be included in consolidated financial
statements of the Company prospectively from the acquisition date.
-100-
<PAGE>
[Page 46 of Annual Report]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of The Advest Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Advest
Group, Inc. and Subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of earnings, changes in shareholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express and opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of The Advest Group, Inc. and Subsidiaries as of September 30, 1997 and 1996,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1997, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of" as of October 1, 1996.
As discussed in Notes 1 and 10 to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation", as of October 1, 1996.
As discussed in Note 1 to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", as amended by Statement of Financial
Accounting Standards No. 127, "Deferral of the Effective date of Certain
Provisions of FASB Statement No. 125" as of January 1, 1997.
Coopers & Lybrand L.L.P.
Hartford, Connecticut
October 22, 1997
<TABLE>
<CAPTION>
Quarterly Financial Information (unaudited)
- -----------------------------------------------------------------------------------------------------------------
In millions, except 1997 by fiscal quarters 1996 by fiscal quarters
--------------------------------------------------------------------------------
per share data 1st 2nd 3rd 4th 1st 2nd 3rd 4th
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash dividends per
common shares $- $ .03 $ .03 $ .03 $- $- $- $-
Stock price range: High $10-7/8 $15 $27-1/2 $27-1/2 $9-3/4 $10-1/8 $11 $10-5/8
Low $9 $10-3/8 $11-1/2 $20-1/2 $8-1/2 $8-5/8 $9-5/8 $9-1/4
Close $10-3/4 $11-7/8 $23-3/4 $26-5/16 $8-1/2 $9-5/8 $10-1/4 $9-3/4
Revenues $69.9 $68.5 $72.7 $78.2 $65.0 $65.9 $68.6 $61.8
Income before taxes $5.9 $5.5 $5.9 $6.9 $5.8 $6.3 $5.6 $3.4
Net income $3.3 $3.2 $3.4 $4.4 $3.1 $3.5 $3.1 $2.1
Net income per common share $.38 $.36 $.38 $.48 $.36 $.40 $.35 $.24
</TABLE>
-101
<PAGE>
Exhibit 21
The Advest Group, Inc.
List of Subsidiaries
Jurisdiction Present
Name Where Incorporated Ownership
- -------------------------------------------------------------------
Advest, Inc. Delaware 100%
Advest Insurance Agency, Inc. Massachusetts 100%
Balanced Capital Services, Inc. Connecticut 100%
Vercoe Insurance Agency, Inc. Ohio 100%
Advest Bank and Trust Company Connecticut 100%
A.B. Realty Corp. Connecticut 100%
Advest Capital, Inc. Connecticut 100%
Advest Properties, Inc. Delaware 100%
Advest Transfer Services, Inc. Delaware 100%
Bank Street Management Company Connecticut 100%
Billings & Company, Inc. Connecticut 100%
Billings Management Co. Connecticut 100%
Boston Security Counsellors, Inc. Massachusetts 100%
Central Row Corp. Connecticut 100%
The Hannah Consulting Group, Inc. Connecticut 100%
SRNY, Ltd.
(formerly Shore & Reich, Ltd.) Connecticut 100%
Coordinated Planning, Ltd. New York 100%
-102-
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
of The Advest Group, Inc.:
We consent to the incorporation by reference in the registration statements
of The Advest Group, Inc. and Subsidiaries on Form S-8 (File No. 2-92868)
concerning its 1983 Incentive Stock Option Plan, Form S-8 (File No. 33-17674)
concerning its 1986 Incentive Stock Option Plan, Form S-8 (File No. 33-72042)
concerning its Advest Thrift Plan, Form S-8 (File No. 33-56275) concerning
its 1995 Equity Plan, Form S-8 (File No. 333-00797) concerning its Executive
Officer 1996 Restricted Stock and Stock Option Agreement; Form S-8 (File
No. 33-60425) concerning its 1990, 1991, and 1992 Top Account Executive Stock
Option Plans, its 1993 Stock Option Plan and its 1994 Non-Employee Director
Option Plan; and Form S-8(File No. 333-17711) concerning its Key Professionals
Equity Plan, 1996 Executive Equity Plan, 1997 Executive Equity Plan and 1997
Equity Plan, of our reports dated October 22, 1997, on our audits of the
consolidated financial statements and financial statement schedules of The
Advest Group, Inc. and Subsidiaries as of September 30, 1997 and 1996 and for
each of the three years in the period ended September 30, 1997, which reports
are incoporated by reference and included, respectively, in this Annual Report
on Form 10-K.
/s/ COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
December 11, 1997
-103-
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<PERIOD-END> SEP-30-1997
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