<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, 1999
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 $147,575,711 as of December 3, 1999.
On December 3, 1999 the Registrant has outstanding 8,929,124 shares of common
stock of $.01 par value, which is the Registrant's only class of common stock.
Part III incorporates information by reference from the Registrant's definitive
proxy statement for the annual meeting to be held on January 27, 2000.
<PAGE>
Part I
Item 1. Business
General Development of Business
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, 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 Advisors ("BA"), an
investment advisor, and Billings & Company, Inc. ("Billings"), a real estate
services company. Material acquisitions and dispositions by the Company during
the past five years follow.
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. 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, located in Boston, MA, that provided
investment management services primarily to pension plans. Effective October 1,
1997, HCG was merged into Advest's Investment Management Services Department.
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 was
accounted for as a pooling of interests. Due to the immaterial effect on the
Company's consolidated financial condition, results of operations and cash
flows, operating results of Ironwood were included prospectively in the
Company's consolidated financial statements. Under a separation agreement
entered with the Company during the fourth quarter of fiscal 1999, the employees
of the Corporate Fixed Income Group once again became an independent
corporation, effective September 30, 1999. Expenses related to the separation
agreement have been accrued as of September 30, and are not material to results
of operations.
In May 1999, the Company announced that it would enter into two agreements
with Hudson United Bank ("Hudson"), a subsidiary of Hudson United Bancorp, a
Mahwah, New Jersey-based bank holding company. Advest and Hudson entered into a
strategic alliance whereby Hudson became the exclusive provider of banking
products and services to Advest and its clients. The strategic alliance
agreement became effective September 1, 1999 and, concurrently, the Bank ceased
its mortgage origination operations. Under the terms of a separate purchase and
sale agreement, Hudson acquired the loan and other financial assets and assumed
the deposit liabilities of the Bank. The purchase and sale agreement was
approved by the Office of Thrift Supervision ("OTS") and closed November
30,1999. The Bank retained its federal bank charter and will provide trust and
custody services through referrals from Advest's retail sales force.
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,
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market making and trading activities in equities and fixed income securities,
research, custody and asset 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 Northeast and
Midwest regions and also services institutional accounts throughout the country.
At September 30, 1999, Advest had 91 sales locations, including satellite
offices, and account executives, including trainees, in 16 states and the
District of Columbia as follows:
Number of Number of
State Locations Investment Executives
Connecticut 11 80
District of Columbia 1 9
Florida 8 57
Illinois 1 5
Kentucky 3 13
Maine 5 21
Maryland 1 4
Massachusetts 8 45
Missouri 1 8
New Hampshire 4 8
New Jersey 4 20
New York 15 113
Ohio 12 68
Pennsylvania 11 45
Rhode Island 1 13
Vermont 1 3
Virginia 4 14
-- ---
91 526
== ===
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 commenced operations in 1984 as a state-chartered savings bank
and converted to a federal savings bank during fiscal 1997. The Office of
Thrift Supervision ("OTS") regulates the Bank and its federal charter enables
the Bank to provide trust services in all 50 states. The Bank's headquarters
are located at 90 State House Square, Hartford, Connecticut 06103 and maintains
no retail branches. The Bank has trust representatives in Springfield, MA,
Columbus, OH, Farmington, CT, Pittsburgh, PA and Boca Raton, FL, the last of
which was opened in fiscal 1998. Trust representatives share office space with
Advest retail offices. The Bank's principal business activities consist of
soliciting and servicing fiduciary and retirement plan trust business, primarily
to clients of Advest.
In fiscal 1997, 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
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institution maintain a minimum of 65% of its assets in residential real estate
and related investments. At September 30, 1999, 86.6% of the Bank's portfolio
consisted of such assets.
As previously discussed, the Company entered into two agreements with
Hudson. In concurrence with the terms of the agreements, the Bank ceased its
loan origination and deposit operations. The Bank's principal activities
consisted of soliciting and servicing fiduciary and retirement plan trust
business, primarily to clients of Advest.
Financial Information about Industry Segments
The information required by this item is disclosed in item 8 of this filing in
Note 16 of Notes to Consolidated Financial Statements.
Narrative Description of Business
The principal sources of revenue for the last five years are disclosed in item 6
of this filing under the caption "Five Year Financial Summary." A discussion of
the components of services provided and related compensation follows.
Agency Commissions
During the three years in the period ended September 30, 1999, agency
commissions represented 42%, 40% and 42%, respectively, of the Company's total
revenues. Agency commissions are substantially derived from sales of listed and
over-the-counter securities, mutual funds and insurance products primarily to
retail clients.
For sales of listed securities, Advest acts as an agent for its customers
in the purchase and sale of securities on the major securities exchanges.
Advest executes purchases and redemptions of shares for its clients in many
diverse mutual funds. Included in mutual fund revenues are 12b-1 distribution
fees which Advest receives from mutual fund companies as reimbursement for
distributing shares of their funds. 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. 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 insurance department
provides customized advice and recommends appropriate products to meet unique
individual, professional or business needs. Advest also effects for its
customers the purchase and sale of put and call options traded on all major
stock exchanges. 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 Advest's trading accounts and related sales credits. Advest's
institutional corporate bond trading desk specializes in investment grade
corporate bonds, while the market-making activities of its retail fixed income
and NASDAQ trading desks primarily involve making product available to clients
and supporting Advest's research and equity capital markets activities. During
fiscal 1998, Advest established an institutional agency and mortgage-backed
securities trading group in Boca Raton, Florida and a Community Reinvestment Act
("CRA") unit in New York City, which markets securitized and whole loans to
banks and other financial institutions. Advest does not actively participate in
the high yield securities market.
Advest seeks to reduce the risk associated with its trading portfolio,
which has grown substantially during the past three years, on an aggregate
basis. Inventory policies reflect the level of aggregate short and long
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positions that may be held for trading and are specified by product line. In
addition, Advest manages the risk associated with its municipal bond trading
securities by entering into derivative transactions, primarily exchange-traded
financial futures contracts, when inventory levels exceed pre-determined levels
as defined in its risk management policy. Derivative positions are generally
not material and are marked-to-market daily. Hedging is limited to the
underlying trading portfolios' interest rate risk and is not speculative in and
of itself.
Advest's NASDAQ desk 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 and to
support the activities of Advest's Equity Capital Markets Group. In recent
years, certain rule changes implemented by the SEC have reduced the profit
spreads of market makers. Primarily in response to the SEC changes, there is an
ongoing transition in the mix of over-the-counter business from principal to
agency transactions. During fiscal 1999, a comprehensive review was completed of
Advest's NASDAQ trading activities and the decision was made to reduce overnight
inventory and more aggressively manage the number of stocks it made a market in.
As of September 30, 1999, Advest made dealer markets in the common stock or
other equity securities of approximately 206 corporations.
Investment Banking
Advest manages and participates in underwritings of corporate and municipal
securities and closed-end funds. Advest's Investment Banking Division also
provides merger and acquisition, consulting and valuation services. Advest's
Investment Banking Division concentrates its efforts on raising capital for mid-
size companies, primarily in the banking, insurance, technology, consumer and
commercial markets 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. The Syndicate Department is responsible for
Advest's participation in underwritings managed by Advest and other firms and
acts as co-manager of other offerings, principally closed-end funds. Generally,
the Company does not engage in bridge financing activities.
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.
Asset Management and Administration
Advest's Investment Management Services Department ("IMS"), provides various
services for its fee-base accounts including client profiling, asset allocation,
manager selection and performance measurement. The Bank's Trust Services
Department provides personal trust and custody services primarily through
Advest's retail sales force and Boston Advisors provides investment advisory
services to private retail and institutional clients. Advest also receives
service fees related to brokerage clients' investments in money market funds of
a third party money manager. Asset management and administration revenues also
include fees for money market services, retirement plan administration,
Centennial Accounts and securities custody and safekeeping.
The Advest Centennial Account enables brokerage clients to participate in
an integrated financial services program. Centennial Account clients have
access to their assets through unlimited checkwriting and a Mastercard debit
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card issued by a major third party bank as well as on-request loans
collateralized by margined securities. Automated Clearing House ("ACH")
deposits and withdrawals are available to Centennial Accounts who can select
among various automatic daily investment options for idle cash balances,
including an FDIC-insured money market account with the Bank and eleven money
market mutual funds in a single fund family.
The Bank provides fiduciary, trust 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.
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 balance
and the dollar amount of commissions charged on account transactions during the
month.
Customer credit balances, retained earnings, cash received from
collateralized financing transactions and short-term borrowings are the primary
source for financing customer margin accounts.
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 specialty retailing and consumer products.
Correspondent research provides information and recommendations on approximately
3,000 domestic and international equities in over 90 industries in 30 countries.
Administration and Operations
Administrative and operations personnel are responsible for the execution of
orders, processing of securities transactions, receipt, identification and
delivery of funds and securities, custody of clients' securities, extension of
credit to clients, general accounting and office services functions, internal
financial and management controls and regulatory compliance.
Since 1993, Advest has used the services of a third party data processor
for all back office brokerage operations technology including securities and
money transactions, trade confirmations and statements. A new financial and
management reporting system was installed in fiscal 1999.
The Company believes its internal controls and safeguards are adequate,
although fraud and misconduct by clients and employees are risks inherent in the
securities business. As required by the NYSE and other regulators, the company
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carries fidelity bonds covering loss or theft of securities as well as
embezzlement or forgery. The Company believes the amounts of coverage provided
by the bonds is adequate.
Employees
The Company employs approximately 1,772 persons primarily at Advest, its broker-
dealer subsidiary. Advest has some 1,717 employees including 503 non-trainee
retail sales professionals. The Company considers its compensation and employee
benefits, which include medical, life and disability insurance, a 401(k) defined
contribution plan and restricted stock and option programs, to be competitive
with those offered by other securities firms. None of the Company's employees
are 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.
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. It is impossible to predict the
effect of the broader distribution locales offered by competing entities, or the
lower costs which may be offered by certain discount and online brokers. In
addition, there is competition for investment professionals among the large
number of companies now in the financial services field.
In soliciting trust business, the Bank 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.
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.
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The Company's investment advisory subsidiary, BA, is 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 $49.5 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.
Refer to item 7 of this filing under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and in item 8 of
this filing in Notes 2 and 10 of the Notes to Consolidated Financial Statements
for further information regarding capital and regulatory considerations of the
Bank.
Federal banking regulations define five categories of capital adequacy for
all insured depository institutions, including categories that would prompt
supervisory actions. These categories range from the highest capitalization
designation which is "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) to the
lowest level which is "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. Holding Company
guarantees apply if an insured institution is classified in one of three
"undercapitalized" designations. The Bank meets the criteria to be classified a
"well capitalized" bank as of September 30, 1999.
Item 2. Properties
The Company's principal executive offices are located at 90 State House Square,
Hartford, Connecticut, 06103 (telephone number (860) 509-1000). 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, or has been threatened with being named
defendant in various actions, suits and proceedings before a court or arbitrator
arising principally from its securities and investment banking business. Such
matters involve alleged violations of federal and state securities laws and
other laws. Certain of these actions claim substantial damages and, if
determined adversely to the Company, could have a material adverse effect on the
consolidated financial condition, results of operations or cash flows of the
Company. The Estate of Gabriel Levine and his wife and various related entities
have threatened a proceeding before the American Arbitration Association against
Advest. They originally commenced related arbitration and court proceedings in
1993, which were stayed pending consideration of statute of limitations
defenses. In 1998, the Connecticut Supreme Court ruled that arbitrators, and not
a court, should decide whether those defenses apply. The claimants allege that
the option trading in their accounts was unsuitable, and that there was a
failure to disclose risks and to supervise their accounts. In court papers filed
in 1993, the claimants asserted claims for principal losses of nearly
$30,000,000, plus interest, since October 1987. Management believes that Advest
has strong defenses to these claims and intends to defend them vigorously. While
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the outcome of any litigation is uncertain, management, based in part upon
consultation with legal counsel, believes that the resolution of all matters
pending or threatened against the Company will not have a material adverse
effect on the financial condition or future results of operations or cash flows
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 in item 8 of this filing in
Note 7 of the Notes to Consolidated Financial Statements and under the caption
"Quarterly Financial Information".
Shareholder Information
Annual Meeting
The annual meeting of shareholders will be held at the Old State House,
Hartford, CT on January 27, 2000 at 10:30 AM. Proxy statements and proxies are
mailed to shareholders of record as of December 10, 1999. As of September 30,
1999 there were 610 common stockholders of record.
Additional Information - Form 10K
One copy of the Company's annual report on Form 10-K to the Securities and
Exchange Commission will be provided at no charge upon written request to
Corporate Marketing, The Advest Group, Inc.
The Advest Group, Inc. is listed on the New York Stock Exchange under the symbol
ADV.
Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street, 46th floor
New York, NY 10005
(212) 936-5100 or (800) 937-5449
Independent Accountants
PricewaterhouseCoopers LLP
100 Pearl Street
Hartford, CT 06103
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<TABLE>
Five Year Financial Summary
For the years ended September 30,
- ----------------------------------------------------------------------------------------
In thousands, except per share
amounts and percentages 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues 335,238 309,801 275,204 241,220 209,772
Interest expense 34,965 31,341 23,799 19,513 17,613
--------------------------------------------------------------
Net revenues 300,273 278,460 251,405 221,707 192,159
Total non-interest expenses 277,961 250,632 227,323 203,250 171,692
--------------------------------------------------------------
Income before taxes 22,312 27,828 24,082 18,457 20,467
Provision for income taxes 8,925 10,853 9,873 8,121 9,414
--------------------------------------------------------------
Income from continuing
operations 13,387 16,975 14,209 10,336 11,053
Income (loss) from discontinued
operations 877 977 723 924 (4,666)
Loss on sale of discontinued
operations (713) - - - -
----------------------------------------------------------------
$ 13,551 $ 17,952 $ 14,932 $ 11,260 $ 6,387
================================================================
Per share data
Basic earnings:
Income from continuing
operations $ 1.67 $ 2.08 $ 1.77 $ 1.26 $ 1.31
Income (loss) from
discontinued operations $ 0.11 $ .12 $ 0.09 $ 0.11 $ 0.55
Net income $ (0.09) $ -- $ -- -- --
Diluted earnings:
Income from continuing
operations $ 1.46 $ 1.82 $ 1.54 $ 1.09 $ 1.17
Income (loss) from
discontinued operations 0.10 0.10 0.08 0.09 (0.45)
Loss on sale of discontinued
operations (0.08) -- -- -- --
----------------------------------------------------------
Net income $ 1.48 $ 1.92 $ 1.62 $ 1.18 $ 0.72
===========================================================
Book value $ 15.14 $ 13.82 $ 12.24 $ 10.66 $ 9.52
Dividends $ 0.19 $ 0.16 $ 0.09 -- --
Other data
Total assets $1,462,621 $1,061,116 $ 908,040 $ 779,109 $ 595,125
Shareholders' equity $ 135,136 $ 123,667 $ 105,653 $ 89,590 $ 79,818
Subordinated borrowings -- -- -- 20,552 20,552
Long-term borrowings $ 30,526 $ 41,308 $ 41,321 $ 19,774 $ 17,240
Return on average equity 10.5% 15.6% 15.4% 13.2% 8.3%
- ------------------------------------------------------------------------------------------
</TABLE>
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
In addition to presenting historical information, in this annual report and
elsewhere, the Company may make or publish forward-looking statements about
management expectations, strategic objectives, business prospects, anticipated
financial performance and similar matters. The Company cautions readers that
any forward-looking information presented is not a guarantee of future
performance. Numerous factors, many beyond the Company's control, could cause
actual results to differ materially from the expectations expressed. The
Company conducts its businesses in financial markets that are influenced by
economic conditions, monetary policies, interest and inflation rates, market
liquidity, national and international political events, regulatory developments,
changing tax laws, the competitive environment, investor sentiment and other
risks and uncertainties. These factors can significantly affect the transaction
volume, price levels and volatility of financial markets, as well as the
competitiveness of the Company's products and services within its industry. As
a result, the Company's revenues and net earnings may vary significantly from
period to period and may diverge significantly from expectations. Any forward-
looking statements speak only as of the date on which they are made, and the
Company does not undertake any obligation to update or revise any forward-
looking statements.
Business Environment and Overview
The Advest Group, Inc. ("AGI"), together with its subsidiaries (the "Company"),
provides diversified financial services including securities brokerage, trading,
investment banking, trust and asset management. Advest, Inc. ("Advest"), a
regional broker/dealer and the Company's principal subsidiary, provides
securities brokerage, investment banking, institutional sales and trading and
asset management services to retail and institutional investors through 91 sales
offices in 16 states and Washington, DC. Boston Advisors, an investment
advisory firm, manages the financial assets of individuals, endowment funds and
retirement plans. Advest Bank and Trust Company (the "Bank"), an FDIC-insured,
federal savings bank, provides trust and custody services primarily through
Advest's branch network. During fiscal 1999, the Company entered into a
strategic alliance agreement concerning the sale of banking products with a
third party financial institution and agreed to sell or transfer its loans and
deposits to that third party. As required, the Company has recorded the net
loss from the sale of the discontinued operations as a separate component of
earnings and reclassified prior periods to conform to the 1999 presentation.
Refer to discussion following and under the caption "Advest Bank and Trust
Company."
All aspects of the Company's business are highly competitive and impacted
by regulatory and other factors outside of its control, including domestic and
global economic and financial conditions, volume and price levels in securities
markets, demand for investment banking services, interest rates, inflation and
investor sentiment. Technological developments such as the Internet and events
such as Year 2000 may also materially impact the Company's operating results.
In addition to competition from other full-service securities firms, the Company
faces competition from other sources including banks, insurance companies,
mutual fund companies and online trading firms. Recently enacted legislation to
eliminate or lessen the restrictions of the Glass-Steagall Act will likely
further heighten competition among banking, insurance and securities firms. 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, 1999, the Company reported net income and
diluted earnings per share of $13.6 million ($1.48 per share) compared with
$18.0 million ($1.92 per share) in 1998 and $14.9 million ($1.62 per share) in
1997. Record revenue levels were achieved for a fifth consecutive year;
however, increased expenses primarily related to compensation and technology
11
<PAGE>
upgrades as well as nonrecurring charges related to the sale of the Bank's
discontinued operations of $.7 million or $.08 per share, resulted in a year-to-
year decline in net income.
During the fourth quarter of fiscal 1998, AGI was paid $9.0 million
representing the principal on first mortgage it held on property owned by a real
estate limited partnership managed by a subsidiary of the Company. Given the
significant financial obligations of the partnership, the Company had classified
the mortgage as a nonperforming loan and, accordingly, no interest income had
been accrued. AGI received approximately $3 million of interest at the time of
the payoff, which was recognized in fiscal 1998. The impact of the payoff,
after expenses and taxes, was to increase fiscal 1998 net income by $1.4 million
or $.15 per diluted share.
Advest, Inc.
The major equity indices posted double-digit gains during the 12 months ended
September 30, 1999 but closed down from their summer highs. The Dow Jones
Industrial Average closed at 10337, a 32% one year gain, but off 9% from its
August high. The S&P 500 and NASDAQ Composite closed up 26% and 62%,
respectively, for the 12-month period. The gains were not broad-based; most
stocks were off more than 20% from their highs, while the large blue chips have
elevated the indices. The Federal Reserve raised the fed funds rate 25 basis
points twice during the summer to curb inflationary threats but the anticipated
increase did not have a significant impact on the equity markets. Financial
news remains positive: no budget deficit, benign inflation and consistent profit
growth. Underwriting activity, while slowing in the fourth quarter, continues
at a record pace. Equity underwritings were heavily weighted to high-tech and
Internet offerings at the expense of other industry sectors. Fixed income
underwritings strongly favored investment-grade corporates as companies looked
to raise capital amid Year 2000 concerns and investors favored high quality
investments. During the year ended September 30, 1999, despite near record
volume, merger and acquisition activity declined significantly in all but a
handful of industry sectors.
For fiscal 1999, Advest's pre-tax income declined 10% to $25.2 million.
The broker/dealer earned record revenues of $331.7 million, up 9% from the prior
year's record high. Record revenues were achieved across the board with the
exception of investment banking revenues. Investment banking revenues were
second to last year's high. Revenue declines in all investment banking
categories were partly offset by a significant increase in the valuation of
warrants held by Advest. Net interest income declined $1.0 million (4%)
primarily as a result of lower spreads on margin debits and higher carrying
costs of inventory. Total expenses increased 11% to $306.4 million primarily as
a result of higher salesmen's compensation and firm payroll related to
technology and capital markets departments. Communications costs increased $4.5
million (17%) primarily due to technology upgrades and volume-driven processing
costs.
For fiscal 1998, Advest's pre-tax profits were $28.1 million compared with
$28.0 million in 1997, reflecting a second consecutive year of record revenues
and profits. Total revenues increased 12% to $303.0 million with record levels
attained for agency commissions, interest income, principal transactions,
investment banking and asset management revenue. Total expenses increased 13%
to $275.0 million primarily due to higher sales-volume-related compensation and
increased staffing levels firm-wide, higher interest expense related to
increased short-term borrowings and higher communication expenses related
primarily to technology upgrades and volume-driven costs of Advest's third party
data processor.
Advest Bank and Trust Company
During the third quarter, the Company announced that it would enter into two
agreements with Hudson United Bank ("Hudson"), a subsidiary of Hudson United
Bancorp, a Mahwah, New Jersey-based bank holding company. Under the terms of a
purchase and sale agreement, Hudson will acquire the loan and other financial
assets and assume the deposit liabilities of the Bank. Under the terms of a
12
<PAGE>
separate agreement, Advest and Hudson entered into a strategic alliance whereby
Hudson became the exclusive provider of banking products and services to Advest
and its clients. The strategic alliance agreement became effective September 1,
1999 and, concurrently, the Bank ceased its mortgage origination operations.
The purchase and sale agreement was approved by the Office of Thrift Supervision
("OTS") and is expected to close during the fall of 1999. The Bank has retained
its bank charter and will provide trust and custody services through referrals
from Advest's retail sales force. As a federal savings bank, the Bank is
regulated by the OTS, and is able to offer trust and custody services in all 50
states.
Under the terms of the purchase and sale agreement, Hudson will make a
one-time payment of $2.0 million to the Bank. After deducting expenses related
to the disposition, the Bank recognized a pre-tax profit of $.2 million on the
transaction. The net loss of $.7 million on the sale of discontinued operations
reflects a $.9 million tax expense related to the Bank's loan loss reserves.
See also Notes 2 and 11.
Income from discontinued operations reflects the after tax operating
results of the Bank's lending and deposit operations. Operating revenues and
expenses for the Bank's retained trust and custody operations are reflected in
the Company's consolidated financial statements and are not material to
consolidated results of operations, financial condition or cash flows for the
three years in the period ended September 30, 1999. The Bank is deemed a "well
capitalized" bank.
Other
In October 1997, Advest acquired Ironwood Capital Ltd. ("Ironwood"), a private
investment bank involved in the origination and distribution of private
placements of taxable fixed income securities. Ironwood's 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 had been accounted for as a pooling of interests. Due to the
immaterial effect on the Company's consolidated financial position and results
of operations, Ironwood's operating results were included prospectively in the
Company's consolidated financial statements.
Under a separation agreement entered with the Company during the fourth
quarter of fiscal 1999, the employees of the Corporate Fixed Income Group once
again became an independent corporation, effective September 30, 1999. Expenses
related to the separation agreement have been accrued as of September 30, and
are not material to results of operations; however, for fiscal 1999, the
operating losses, including severance costs related to the Corporate Fixed
Income Group, resulted in an after-tax loss of $.7 million or $.08 per share.
13
<PAGE>
Results of Operations
Net income for the years ended September 30, 1999, 1998 and 1997 was $13.6
million, $18.0 million and $14.9 million, respectively. The following table
summarizes results of operations and percentage changes for the three years in
the period ended September 30, 1999.
In millions, except percentages 1999 % 1998 % 1997
- -------------------------------------------------------------------
Revenues $335.2 8 $309.8 13 $275.2
Interest expense 34.9 11 31.4 32 23.8
------ ---- ---------- ---------
Net revenues 300.3 8 278.4 11 251.4
Non-interest expenses 278.0 11 250.6 10 227.3
------ ---- -------- -- ---------
Pre-tax income 22.3 (20) 27.8 15 24.1
====== ==== ========= == =========
Income from continuing operations 13.4 (21) 17.0 20 14.2
Income from discontinued
operations, net of taxes .9 (10) 1.0 43 .7
Loss on sale of discontinued
operations, net of taxes (.7) -- -- -- --
------ ---- --------- -- ---------
Net income $ 13.6 (24) $ 18.0 21 $ 14.9
Agency Commissions
The number of investment executives has remained fairly constant over the past
several years; however, the recruitment and retention of experienced
professionals has contributed to substantial increases in average annual
production per broker. Record broker productivity was achieved in each of the
last four fiscal years and, together with record stock market volume and prices,
contributed to the record revenue levels achieved during the same period.
In millions, except percentages 1999 % 1998 % 1997
- ---------------------------------------------------------------------------
Listed $ 54.5 8 $ 50.5 2 $ 49.5
Mutual funds 42.1 2 41.2 12 36.7
Over-the-counter 27.6 14 24.2 4 23.3
Insurance 11.2 33 8.4 2 8.2
Options 4.4 5 4.2 (2) 4.3
Other 1.8 38 1.3 30 1.0
------ -- ------- --- ------
$141.6 9 $129.8 6 $123.0
====== == ====== === ======
Current year agency commissions achieved a record high with individual
record levels attained across the board. Commissions on listed and over-the-
counter securities increased primarily due to high share volume and prices. In
addition, over-the-counter commissions reflect the impact of certain rule
changes implemented by the SEC that have reduced the profit spreads of market
makers over the past several years. Primarily in response to the SEC changes,
there is an ongoing transition in the mix of over-the-counter business from
principal to agency transactions as is evidenced by the sharp decline in
principal business and a corresponding increase in agency business. Refer to
the discussion of principal transactions as well. Insurance commissions
increased 33% with sales of life insurance products increasing over 100%,
primarily related to the cross-selling efforts of the insurance and trust
departments and expanded education programs for investment executives. Total
14
<PAGE>
client assets serviced in-house increased to $25.6 billion, up 19% from the
prior year.
Fiscal 1998 agency commissions surpassed the record set in the prior year
as equity markets sustained their longest upward rally in history. Consistent
with the record stock market volume and prices, agency commissions increased
virtually across the board. The largest increase was for mutual fund
commissions, including 12b-1 fees, which reflected the record infusions of cash
primarily from 401(k) plans into mutual funds during the year.
Principal Transactions
Revenue from principal transactions includes realized and unrealized gains and
losses on Advest's trading accounts and related sales credits. Advest's
institutional corporate bond trading desk specializes in investment grade
corporate bonds, while the market-making activities of its retail fixed income
and Nasdaq trading desks primarily involve making product available to clients
and supporting Advest's research and equity capital markets activities. During
fiscal 1998, Advest established an institutional agency and mortgage-backed
securities trading group in Boca Raton, Florida and a Community Reinvestment Act
("CRA") unit in New York City, which markets securitized and whole loans to
banks and other financial institutions.
Advest enters into derivative transactions to manage the interest rate
risk associated with its municipal 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 13 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 and are not material to consolidated results.
In millions, except percentages 1999 % 1998 % 1997
- -------------------------------------------------------------------
Fixed income commissions $33.1 55 $21.4 8 $19.8
Equity commissions 14.4 (17) 17.4 (6) 18.6
Other 8.8 47 6.0 7 5.6
----- -- ----- -- -----
$56.3 26 $44.8 2 $44.0
===== == ===== == =====
Current year revenue from principal transactions attained a record high
level for the third year in a row, as significant gains in taxable fixed income
sales and trading offset declines in municipal and equity sales and trading.
Commissions on fixed income securities increased 55%, led by investment grade
corporate bonds, up $3.8 million (88%), government agency obligations, up $2.5
million (170%), and collateralized mortgage obligations ("CMOs"), up $2.0
million (108%). The increases in government agency and CMOs sales were due
primarily to the two new fixed income sales units discussed above. Trading
profits for corporate bonds increased $3.0 million (85%), despite interest rate
uncertainty in the fixed income markets, primarily due to Advest's aggressive
hedge policy related to its institutional taxable sectors as well as strong
investor demand for investment grade issues. Advest's municipal inventories are
not hedged and trading results declined 30% to $1.6 million largely as a result
of a weak bond market in the second half of the Company's fiscal year, although
related sales credits increased $2.5 million (34%). On the equity side, current
year trading losses were 18% lower than fiscal 1998, as a $.8 million
improvement in fourth quarter trading results offset declines through the first
nine months. In April, a comprehensive review was completed of Advest's NASDAQ
trading activities and the decision was made to reduce overnight inventory and
more aggressively manage the number of stocks in which it made a market; this
contributed to the fourth quarter improvement in trading results. Equity sales
credits declined 17% primarily related to the transition from principal to
agency business discussed previously.
15
<PAGE>
During fiscal 1998, revenue from principal transactions achieved a record
high for the second consecutive year. Equity market volatility in the fourth
quarter negatively impacted revenues as over-the-counter trading losses and
declines in equity commissions contributed to a 9% year-to-year decline in
fourth quarter revenues. These fourth quarter results negated gains through the
first nine months of the fiscal year with equity commissions declining and
current year equity trading resulted in a loss compared with a profit in 1997.
Commissions on fixed income securities increased year-to-year with fourth
quarter gains offsetting declines through nine months as investors turned away
from the equity markets. Corporate bond trading profits increased 114%, while
the institutional agency and mortgage-backed trading desk posted a $.4 million
loss in its first year.
Investment Banking
To generate investment banking revenue, Advest manages and participates in
underwritings of corporate and municipal securities and closed-end funds.
Advest's Investment Banking Division also provides merger and acquisition and
consulting and valuation services. In general, the Company does not participate
in bridge financing activities. Advest's Investment Banking Division
concentrates its efforts on raising capital for mid-size companies, primarily in
the banking, insurance, technology, consumer and commercial markets and health
care industries. Warrants received in conjunction with investment banking
activities are carried at market value, as prescribed by EITF 96-11. Public
Finance services health care and educational institutions as well as state and
local issuers primarily in New England and New York.
In millions, except percentages 1999 % 1998 % 1997
- ----------------------------------------------------------------------
Valuation of warrants $ 4.0 300 $ 1.0 (33) $ 1.5
Underwriting commissions 15.6 (12) 17.7 20 14.7
Consulting and valuation fees 1.7 21 1.4 (36) 2.2
Merger and acquisition fees 4.2 (34) 6.4 14 5.6
Private placement fees 1.9 (42) 3.3 267 .9
Management fees 3.4 (8) 3.7 (5) 3.9
Other 2.2 (46) 4.1 64 2.5
----- ---- ----- -- ------
$33.0 (12) $37.6 20 $31.3
===== ==== ===== == ======
Investment banking revenues declined 12% from the record level attained in
fiscal 1998, with declines posted in all business activities. The Investment
Banking Division completed 25 transactions during the year valued at $738
million, including eight merger and acquisition transactions with a combined
value of $244 million and 17 public and private placement transactions valued at
over $494 million. The declines in merger and acquisition income, equity
underwriting commissions and related underwriting fees reflect a dearth of
activity in most industry sectors in Advest's target client size. Private
placement fees in the Corporate Fixed Income Group declined 42%; as previously
discussed, the professionals in this group left Advest at the close of fiscal
1999. These declines were partly offset by a $3.0 million increase in the
valuation account for warrants, primarily related to a $3.7 million realized
gain in the first quarter on an equity investment acquired in connection with
Advest's investment banking activities.
Fiscal 1998 investment banking revenues attained a record high for the
second consecutive year primarily due to higher private placement revenues and
commissions on equity underwritings and closed-end funds. The Investment
Banking Division completed 33 transactions during the year valued at over $1.1
billion, including 11 merger and acquisition transactions with a combined value
of $338 million and 22 public and private placement transactions valued at $850
million. The Syndicate Department co-managed four closed-end funds raising $3.5
16
<PAGE>
billion compared with no deals during fiscal 1997. Commissions on equity
underwritings increased $2.8 million (31%) reflecting the robust underwriting
environment on Wall Street through most of the year. The increase in revenue
from private placements, in part, related to deals completed by the Corporate
Fixed Income Group.
Asset Management and Administration
Advest's Investment Management Services Department ("IMS"), provides various
services for its fee-based accounts including client profiling, asset
allocation, manager selection and performance measurement. The Bank's Trust
Services Department provides personal trust and custody services primarily
through Advest's retail sales force and Boston Advisors provides investment
advisory services to private retail and institutional clients. Advest also
receives service fees related to brokerage clients' investments in money market
funds of a third party money manager. Other services include retirement plan
administration, securities custody and safekeeping.
In millions, except percentages 1999 % 1998 % 1997
- -------------------------------------------------------------------
Investment management services $24.8 18 $21.0 27 $16.5
Money market accounts 8.7 30 6.7 49 4.5
Advisory and other 5.7 (2) 5.8 23 4.7
----- --- ----- -- -----
$39.2 17 $33.5 30 $25.7
===== === ===== == =====
Current year revenues achieved a record high level primarily as a result
of increased fee-based and money market accounts at Advest. At September 30,
1999, total assets serviced by IMS in its fee-based programs were $4.7 billion,
up 25% from the prior year. More than 2,800 new accounts were opened during the
year. The Bank's revenues increased 36% to $1.4 million as trust assets
serviced increased 52% to $740 million during fiscal 1999. The increase in
money market service fee income related to higher average money market balances
and higher interest rates. Boston Advisors' revenues declined 21% year-to-year;
however, fourth quarter revenues were on par with the prior year and, at
September 30, 1999, its managed accounts had increased more than 100% from the
prior year.
Asset management revenues increased to a record $33.5 million in fiscal
1998, primarily due to an increase in fee-based assets serviced by Advest.
Assets serviced by IMS totaled $3.7 billion with 1,800 new accounts opened
during fiscal 1998. The increase in money market service fee income related to
higher average money market balances.
Other Income
Other income includes fees from mutual funds marketing, exchange order flow and
executions and postage at Advest and loan development and service fees at the
Bank.
During fiscal 1999, other income increased $1.0 million (14%) primarily
due to higher fee income and proceeds from a legal settlement at Advest.
Fiscal 1998 other income declined 1% to $6.7 million. A $.4 million
increase in marketing fees was more than offset by a $.5 million decline in
execution fees related to regulatory changes impacting over-the-counter trading
and a $.3 million decline in income from the sale of residential mortgages.
17
<PAGE>
Net Interest Income
Net interest income is the excess of interest income over interest expense and
is earned primarily by Advest. 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. As a result of the pending sale of the
Bank's loan and deposit businesses, previously discussed, all interest income
and interest expense related to the discontinued operations are netted with all
other revenue and expense items and separately reported, net of taxes, on the
consolidated statement of earnings. See also Notes 2 and 11.
In millions, except percentages 1999 % 1998 % 1997
- --------------------------------------------------------------------
Interest income:
Brokerage customers $31.9 (5) $33.5 17 $28.7
Stock borrowed 18.2 16 15.7 48 10.6
Investments 1.2 3 .9 (31) 1.3
Security inventory 4.6 53 3.0 20 2.5
Other 1.5 (65) 4.3 231 1.3
----- ---- ----- --- -----
57.4 -- 57.4 29 44.4
----- ---- ----- --- -----
Interest expense:
Stock loaned 14.7 4 14.1 37 10.3
Brokerage customers 7.5 (19) 9.3 8 8.6
Borrowings 12.4 65 7.5 74 4.3
Other .3 40 .5 (17) .6
----- ---- ----- --- -----
34.9 11 31.4 32 23.8
----- ---- ----- --- -----
Net interest income $22.5 (13) $26.0 26 $20.6
===== ==== ===== == =====
Current year net interest income declined $3.5 million (13%) primarily due
to approximately $3.0 million in interest revenue recognized in fiscal 1998
related to the early payoff of a nonperforming mortgage on AGI's books.
Advest's net interest income declined $1.0 million (4%) primarily as a result of
lower average margin interest rates and reduced spreads due to higher costs of
financing the debits. Average margin debits increased 4% to $439.2 million,
however, total interest revenue from margin debits declined $1.6 million (5%).
Average free credit balances increased only 2% to $273.8 million requiring
increased short-term borrowings and stock loan to meet financing requirements of
margin debits and trading inventories. Interest revenue from stock borrowing
activities increased $2.5 million (15%) primarily due to increased short trading
positions.
For fiscal 1998, net interest income increased $5.4 million (26%),
primarily as a result of the payoff of a mortgage on AGI's books in the fourth
quarter, as discussed in the Overview. AGI's net interest income increased $3.3
million as a result of the payoff. Advest's net interest income increased $2.1
million (9%) primarily as a result of higher average margin debits during 1998.
Average margin debits during fiscal 1998 were $422.3 million, an increase of 16%
from 1997. Average free credit balances during 1998 were $267.4 million, an
increase of only 5%; consequently, Advest had to finance the balance of the
increase in margin debits as well as increased trading inventories with
additional short-term borrowings.
18
<PAGE>
Non-Interest Expenses
In millions, except percentages 1999 % 1998 % 1997
- -----------------------------------------------------------------
Compensation and benefits $198.4 10 $180.9 12 $161.5
Communications 32.1 17 27.5 19 23.1
Occupancy and equipment 20.8 11 18.7 7 17.5
Professional 5.6 19 4.7 (20) 5.9
Business development 7.7 7 7.2 11 6.5
Brokerage, clearing and exchange 5.1 13 4.5 (4) 4.7
Other 8.3 17 7.1 (12) 8.1
------ ---- ------ ---- -------
$278.0 11 $250.6 10 $227.3
====== ==== ====== ==== =======
Volume-driven salesmen's compensation and other retail compensation expenses
account for 75% of the increase in compensation and benefits costs, with higher
costs in the equity capital markets, technology and the fixed income departments
comprising most of the balance. Communications costs increased $4.6 million
primarily related to technology upgrades to provide enhanced desktop services
and keep pace with the significant increases in securities trading volume, and
higher volume-driven costs of Advest's third party data processor. Occupancy
and equipment costs increased $2.1 million primarily due to a $1.0 million (12%)
increase in rent expense of Advest's retail offices and increased expenses
related to technology upgrades. Professional fees increased $.9 million due to
higher consulting costs and personnel agency fees at Advest.
Fiscal 1998 compensation and benefits costs increased primarily as a
result of increased headcount firm-wide, particularly in the capital markets
departments as well as higher volume-driven compensation and general salary
increases. Advest's communications costs increased $4.4 million primarily
related to ongoing technology upgrades, partly related to Year 2000, and higher
volume-driven costs of Advest's third party data processor. Occupancy and
equipment costs increased $1.2 million primarily due to increased depreciation
related to new computer equipment and increased rent expense of Advest's retail
sales offices as well as a home office expansion. Professional fees declined
$1.2 million primarily as a result of lower legal and personnel agency expenses
at Advest. Other expenses declined $1.0 million primarily due to lower
settlement costs at Advest and a decrease in expenses at AGI related to a loss
on the call of the Company's outstanding convertible debentures during fiscal
1997.
Income Taxes
The effective income tax rates were 40%, 39% and 41%, respectively, for 1999,
1998, and 1997. The effective rate for the year 2000 is expected to be no less
than 41%. This higher rate recognizes a trend towards increased levels of
income apportioned to various states with higher average tax rates. The
effective rate for periods subsequent to 2000 is undetermined at this time.
For further information on the Company's income taxes, refer to Notes 1
and 11 to the financial statements.
Derivative Financial Instruments
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 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, periodically, the strategy is re-
19
<PAGE>
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, 1999, Advest's open derivative positions were
nominal and, at September 30, 1998, Advest had no open positions. See Note 13.
Liquidity and Capital Resources
The Company's total assets were $1.5 billion at September 30, 1999, reflecting a
$401.5 million (38%) increase from fiscal 1998 and a $554.6 million (61%)
increase from fiscal 1997. The increases are attributable to asset growth at
Advest during the past two years, primarily a $224.9 million (77%) increase in
securities borrowed, a $208.8 million (214%) increase in trading inventories,
principally fixed income securities, and a $114.0 million (29%) increase in
receivables from brokerage customers.
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 92%, 92% and 89% for the years ended September
30, 1999, 1998, and 1997, respectively.
Shareholders' equity increased $29.5 million (28%) during the past two
years, primarily from net earnings and increases to paid-in capital 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 $.04 per share for each
of the four fiscal quarters of fiscal 1998 and the first quarter of fiscal 1999.
In the second quarter of fiscal 1999, the Company's Board of Directors raised
the quarterly dividend to $.05 per share. Total dividends declared and/or paid
during the past two fiscal years were $3.1 million. At September 30, 1999,
3,055,146 shares of the Company's common stock (30% of outstanding shares) had
been purchased, at an average price of $7.59 per share, under a buyback program
begun in 1990 for which the repurchase of up to 4,000,000 shares is authorized.
AGI's principal source of funding is the earnings distributions from its
subsidiaries. As a result of the strategic alliance agreement and the
previously discussed pending close of the purchase and sale transaction between
the Bank and Hudson United Bancorp, the ongoing capital requirements of the Bank
are expected to be significantly lower. Subject to regulatory approval, this
will enable the Company to redeploy a significant portion of capital currently
invested in the Bank. Most of the redeployed capital is expected to be invested
in Advest for the purpose of reducing its short-term borrowings.
In December 1997, the Company filed a Form S-3 shelf registration with the
Securities and Exchange Commission. The registration enables the Company to
issue debt and/or equity securities up to an aggregate of $50.0 million.
Management believes that earnings distributions from subsidiaries,
together with AGI's own assets and potential proceeds from a shelf registration
offering, will be sufficient to meet AGI's current and foreseeable liquidity and
capital requirements.
Advest, Inc.
In fiscal 1998, AGI issued a $10 million demand note to Advest at a rate of
federal funds plus 70 basis points; $2.5 million of the loan was repaid prior to
fiscal year end. During fiscal 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 unsecured loan was to increase Advest's
regulatory net capital.
Advest has arrangements with certain financial institutions whereby it can
borrow amounts on a collateralized basis, principally to support securities
settlements, trading inventories, margin debits and underwriting activities.
Increases in average margin balances as well as firm trading positions,
primarily fixed income securities, have resulted in higher short-term borrowing
20
<PAGE>
levels for Advest during the past few years. Advest has uncommitted lines of
credit with three financial institutions in the total amount of $430 million.
With the exception of $40 million in unsecured lines of credit, all of Advest's
lines of credit are for collateralized borrowing for which it has substantial
levels of customer and firm securities that can be pledged.
During the past few years, Advest has made substantial capital investments
($4.6 million in fiscal 1999 and $3.8 million in fiscal 1998) primarily to
technology-related hardware and software upgrades. Technology enhancements
include the upgrade of desktop computers firm-wide and expanded hardware and
software capacity to provide enhanced services as well as handle the substantial
current and anticipated increases in securities market volume. At the same
time, Advest has increased the number and/or caliber of its employees firm-wide,
particularly its retail sales, capital markets and technology professionals,
which has substantially increased compensation and benefits costs during the
past two years. These costs are anticipated to remain at similar or higher
levels in the future. Management believes that operating cash flow together
with available credit lines will provide sufficient resources for Advest 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, 1999,
Advest had excess net capital of approximately $61.1 million and a net capital
ratio of 12.9%. See Note 10.
Advest Bank and Trust Company
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, 1999, the Bank had uncommitted, eligible collateral of $38.4 million making
available $7.4 million of additional credit. Subsequent to the pending close of
the purchase and sale transaction with Hudson, it is expected that the Bank's
capital requirements will be substantially reduced. Management believes that
operating cash flow together with available credit lines will provide sufficient
resources for the Bank to meet current and reasonably foreseeable capital needs.
The Federal Deposit Insurance Corporation ("FDIC") requires "well
capitalized" banks to maintain a minimum Tier 1 or leverage capital ratio of 5%.
At September 30, 1999, the Bank's Tier 1 or leverage capital ratio was 9.94%.
The Bank is also subject to the FDIC's risk-based capital regulations, which
require the Bank, as "well capitalized," to maintain a total risk-based capital
ratio of 10%, including at least 6% Tier 1 risk-based capital. At September 30,
1999, the Bank's total risk-based and Tier 1 risk-based capital ratios were
11.07% and 11.07%, 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, 1999, the Bank
had $43.6 million of brokered deposits. After the close of the purchase and
sale transaction with Hudson United Bancorp, the Bank will transfer all brokered
deposits to Hudson and will substantially cease its deposit operations.
Cash Flows
Cash and cash equivalents decreased $6.1 million. Advest's cash and equivalents
increased $2.3 million. Advest used $10.0 million of cash from investing
activities primarily to finance capital expenditures and funding of recruitment
bonuses. Advest generated cash from operating activities of $12.4 with
increases in customer receivables ($69.1 million), stock borrowed ($245.0
million) and securities inventory ($65.0 million) and a decrease in customer
free credits ($31.3 million). These uses of operating cash were financed by net
income plus noncash income adjustments ($26.5 million), stock loan ($306.8
million), short sales ($81.3 million) and repurchase agreements ($18.4 million).
21
<PAGE>
The Bank's cash and equivalents decreased $8.2 million. Net cash provided
by operating activities was $32.6 million primarily due to proceeds from loans
held for sale of $74.7 million, which were partly offset by loan originations
and acquisitions. Net cash used for financing activities was $35.9 million with
a $50.4 million decrease in deposits partly offset by a net increase in short-
term borrowings. Net cash used for investing activities was $4.9 million
primarily due to loan originations of $81.5 million offset by principal
collections and a net decrease in investment securities.
AGI's cash and equivalents increased $.7 million. Net cash from financing
activities decreased $4.8 million primarily due to purchases by the employee and
executive equity plans offset by treasury stock repurchases and cash dividends
paid. Net cash provided by investing activities was $1.8 million primarily
related to principal collections on loans and mortgages and net cash provided by
operations was $3.7 million.
Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard ("SFAS") 130,
"Reporting Comprehensive Income," SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," and SAFS 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits" during the current fiscal year. The
Company elected to use the statement of changes in equity approach in adopting
SFAS 130 and its implementation did not have a material impact on the Company's
financial condition, results of operations or cash flows. The implementation of
SFAS 131 requires certain disclosures about identified operating segments of the
Company and has no effect on the Company's financial condition, results of
operations or cash flows. Refer to Note 16. SFAS 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable and requires additional information on changes in the benefit
obligations and fair values of plan assets. Its adoption had no impact on the
Company's financial condition, results of operations or cash flows.
In October 1998, the FASB issued SFAS 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." The Company adopted SFAS 134 as of January 1,
1999, as required, and its adoption did not have a material impact on the
Company's financial condition, results of operations or cash flows.
In June 1999, the FASB issued SFAS 137, "Deferral of the Effective Date of
SFAS 133. SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998. SFAS 137 defers the effective date for
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company will adopt SFAS 133, as amended by SFAS 137, during fiscal
2001, as required, and has not determined whether its implementation will have a
material impact on the Company's financial condition, results of operations or
cash flows.
Year 2000
Many computer programs and equipment with embedded chips use two rather than
four digits to represent the year and may be unable to accurately process dates
after December 31, 1999. This, as well as other date-related programming
issues, may result in miscalculations or system failures that can disrupt the
businesses that rely on them. The term "Year 2000 issue" is used to refer to
all difficulties the turn of the century may bring to computer users.
Starting in 1996, the Company undertook a program to address the possible
impact of the Year 2000 issue on its business. This effort has been led by a
project team within the Company's Information Systems Group, with the assistance
of a Year 2000 Steering Committee consisting of senior representatives from the
Company's principal departments. This project team developed an action plan
incorporating five general stages: awareness, assessment, remediation,
validation and implementation.
In carrying out this plan, the Company identified many internal computer
programs and some items of equipment that were susceptible to potential Year
2000 failures or errors. All these programs and equipment have been modified or
22
<PAGE>
replaced, using internal and external resources, and the modifications or
replacements have been successfully tested. In this process, priority was given
to those "mission critical" systems whose failure might have a material impact
on the Company
The Company relies heavily on vendors, correspondents and service
providers in its operations. An important part of the Year 2000 program has
been to determine the extent to which the Company may be vulnerable to failure
by these third parties to address their own Year 2000 issues. The Company has
communicated with them and received satisfactory assurances concerning their
Year 2000 preparations. Where practical, the Company has verified these
assurances with testing, particularly on mission critical relationships. The
Company is not aware of any Year 2000 issue of any third party likely to
materially interfere with the Company's business.
The Company's brokerage subsidiary is highly dependent on a single third
party service provider to maintain client account information, process
transactions, and deliver client and operational reports. This service provider
has advised the Company that it has addressed its Year 2000 issues. However,
any failure by this third party could seriously disrupt the Company's
operations. More generally, the financial services industry operates with a
high degree of interdependence among firms. Unresolved Year 2000 issues in one
firm potentially could disrupt the securities markets and materially impact
other firms, including the Company. To address this concern, the Company, the
service provider referred to above, and many other firms have participated in an
industry-wide testing program. This testing program, which began in April 1998
and will continue through December 1999, has not identified any material
deficiencies likely to adversely impact the Company or its industry.
The Company has developed contingency plans to minimize any Year 2000
disruptions in the event that a mission critical system does not function
properly. These contingency plans may include manual processing of
transactions, use of alternative service providers, relocation to temporary
facilities, programming fixes and other measures.
The Company believes that it has taken appropriate steps to address the
Year 2000 issue. However, if unanticipated Year 2000 problems arise, the
consequences could include business interruption, exposure to monetary claims by
clients and others, loss of business goodwill, and regulatory noncompliance and
possible sanctions. The likelihood of these events and the possible financial
impact if they occur cannot be predicted. Generally, the Company's insurance
coverage will provide little or no recovery to the Company for losses of this
nature.
The Company estimates that the costs of its Year 2000 efforts will be
about $2.5 million, of which approximately $2.2 million had been spent through
September 30, 1999. These costs are being funded through operating cash flows
and are being expensed as incurred. They do not include costs of replacing
computer hardware or software with Year 2000 compliant systems on an expedited
basis where that replacement was otherwise contemplated as part of an updating
of the Company's systems. Such replacement costs are estimated to be
approximately $3.0 million firm wide, substantially all of which will be
capitalized or financed under operating leases. These estimates also do not
include costs, which would be incurred if the Company is required to implement
contingency plans.
The estimates and conclusions set forth above contain forward-looking
statements and are based on management's best estimate of future events. Risks
include the availability of resources, our ability to discover and correct
material Year 2000 issues and the ability of the vendors, correspondents and
other third parties on which the Company relies to bring their systems into Year
2000 compliance.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Risk Management
During its normal course of business, Advest engages in the trading of
securities, primarily fixed income, in both a proprietary and market making
capacity, and holds securities for trading, rather than investment, purposes.
23
<PAGE>
Advest makes a market in certain investment-grade corporate bonds, mortgage-
backed securities, municipal bonds and over-the-counter equities in order to
facilitate order flow and accommodate its retail and institutional customers.
During fiscal 1999 and 1998, Advest significantly increased its institutional
corporate bond, government agency and mortgage-backed securities trading
activities. The activities of these trading areas accounted for most of a $64.7
million (27%) and $144.1 million (148%) increase in trading inventories and a
$81.3 million (54%) and $97.1 million (186%) increase in short security
positions, for 1999 and 1998, respectively.
Market Risk
Market risk represents the potential change in the value of financial
instruments due to fluctuations in interest rates, foreign currency exchange
rates, equity and commodity prices. In the course of its trading and hedging
activities, the Company is exposed to interest rate and equity price risk.
The Company is exposed to market risk arising from changes in interest
rates. Advest's management seeks to reduce the risk of its trading portfolio on
an aggregate basis. Its risk management activities include inventory and
hedging policies. Inventory policies reflect the level of aggregate short and
long positions that may be held for trading and are specified by product line.
Risk management strategies also include the use of derivatives, principally
exchange-traded futures contracts.
The Company is exposed to equity price risk as a result of making a market
in over-the-counter equity securities. Equity price risk arises from changes in
the price and volatility of equity securities. In April 1999, a comprehensive
review was completed of Advest's NASDAQ trading activities and the decision was
made to reduce overnight inventory and more aggressively manage the number of
stocks in which it made a market.
Trading Accounts (Value at Risk Analysis)
For purposes of the Securities and Exchange Commission's market risk disclosure
requirements, the Company has performed a value at risk analysis of its trading
financial instruments and derivatives. The value at risk calculation uses
standard statistical techniques to measure the potential loss in fair value
based upon a one-day holding period and a 95% confidence level. For 1999,
Advest has significantly upgraded its VaR capability. In 1997 and 1998,
Advest's VaR values relied upon RiskMetrics VaR system. In 1999, Advest
converted to the Bloomberg Value at Risk System. The Bloomberg System utilizes
the RiskMetrics System as a basis, but then it takes advantage of a number of
enhancements that allows for more accurate financial modeling for determining
Advest's trading assets' value at risk. The field of Risk Management is
constantly evolving, and it is our practice to continually update our abilities
to more accurately and effectively utilize material advances in the
quantification of Financial Risk Management when these improvements become
accepted practice and available. Although value at risk models are
sophisticated, they can be limited, as historical data is not always an accurate
predictor of future conditions. Accordingly, Advest manages its market exposure
through other measures, including predetermined trading authorization levels and
the hedging requirement policy described previously.
At September 30, 1999, 1998 and 1997, Advest's value at risk for each
component of market risk and in total was as follows:
In thousands 1999 1998 1997
---- ---- ----
Interest rate risk $301 $480 $213
Equity price risk 56 77 64
Diversification benefit (10) (69) (16)
---- ---- ----
$347 $488 $261
==== ==== ====
24
<PAGE>
The potential future loss represented by the total value at risk falls
within predetermined levels of loss that are not material to the Company's
results of operations, financial condition or cash flows. The changes in the
value at risk amounts reported in 1998 from those reported in 1997 reflect
changes in the size and composition of Advest's trading portfolio, in particular
the increased concentration in corporate bonds and mortgage-backed securities
discussed above.
The value at risk estimate has limitations that should be considered in
evaluating the Company's potential future losses based on the year-end portfolio
positions. Recent market conditions may result in statistical relationships
that result in a higher value at risk than would be estimated from the same
portfolio under different market conditions. In addition, a critical risk
management strategy is the active management of portfolio levels to mitigate
market risk. The Company's, in particular Advest's, market risk exposure will
continue to change with changes in the portfolio and market conditions.
Non-trading Accounts (Tabular Presentation)
The following table shows the interest sensitivity of non-trading assets,
liabilities and financial instruments of Advest at September 30, 1999 and 1998,
based on their estimated maturity/repricing structure:
25
<TABLE>
<PAGE>
September 30, 1999
- ------------------ Percent of After
In thousands, except percentages Amount Total 2000 2001 2002 2003 2004 2004
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets
Investment securities (a) $ 21,948 98.82% $ 16,965 $ 750 $ 250 $ - $ - $ 3,983
Average interest rate 5.80% 5.34% 6.37% 7.25% - - 5.93%
Interest-bearing deposits 262 1.18% 262 - - - - -
Average interest rate 5.04% 5.04% - - - - -
--------------------------------------------------------------------------------
Total interest-sensitive assets $ 22,210 100.00% $ 17,227 $ 750 $ 250 $ - $ - $ 3,983
--------------------------------------------------------------------------------
Interest-sensitive liabilities
FHLB advances $ 31,000 16.13% $ 28,500 $ 1,500 $ $ $ $ 1,000
Average interest rate 5.59% 5.55% 6.73% 4.99%
Other borrowings 161,190 83.87% 133,164 7,026 7,000 7,000 7,000 -
Average interest rate 5.80% 5.34% 7.94% 7.95% 7.95% 7.95% -
--------------------------------------------------------------------------------
Total interest-sensitive
liabilities $ 192,190 100.00% $ 161,664 $ 8,526 $ 7,000 $ 7,000 $ 7,000 $ 1,000
---------------------------------------------------------------------------------
Interest rate derivatives
Interest rate swaps:
Interest rate caps $ 5,000
Average interest rate 6.00%
</TABLE>
<TABLE>
September 30, 1998
- ------------------
Percent of After
In thousands, except percentages Amount Total 1999 2000 2001 2002 2003 2003
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets
Investment securities (a) $ 22,176 99.08% $ 21,676 $ 250 $ 250 $ - $ - $ -
Interest-bearing deposits 206 0.92% 200 - - 6 - -
Average interest rate 5.17% 5.27% 0.00% 0.00% 2.00% - -
-----------------------------------------------------------------------------------
Total interest-sensitive assets $ 22,382 100.00% $ 21,876 $ 250 $ 250 $ 6 $ - $ -
-----------------------------------------------------------------------------------
Interest-sensitive liabilities
FHLB advances $ 16,500 9.34% $ 10,500 $ 3,500 $ 1,500 $ $ $ 1,000
Average interest rate 5.86% 5.62% 6.45% 6.73% 4.99%
Other borrowings 160,103 90.66% 124,798 7,281 7,024 7,000 7,000 7,000
Average interest rate 6.32% 5.86% 7.88% 7.94% 7.95% 7.95% 7.95%
------------------------------------------------------------------------------------
Total interest-sensitive
liabilities $ 176,603 100.00% $ 135,298 $ 10,781 $ 8,524 $ 7,000 $ 7,00 $ 8,000
------------------------------------------------------------------------------------
Interest rate derivatives
Interest rate swaps:
Fixed to variable notional amount $ 5,000
Average pay rate 7.09%
Average receive rate 5.69%
Interest rate caps $ 5,000
Average interest rate 6.00%
(a) Investment securities include investment securities available for sale and FHLB stock.
</TABLE>
26
<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Earnings
Fiscal year ended September 30,
-------------------------------
In thousands, except per share amounts 1999 1998 1997
-------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Commissions $ 141,603 $ 129,825 $ 123,032
Interest 57,431 57,439 44,391
Principal transactions 56,347 44,752 43,952
Asset management and administratio 39,188 33,473 25,702
Investment banking 33,006 37,607 31,290
Other 7,663 6,705 6,837
---------- --------- ---------
Total revenues 335,238 309,801 275,204
---------- --------- ---------
Expenses
Compensation 198,322 180,886 161,546
Interest 34,965 31,341 23,799
Communications 32,136 27,530 23,062
Occupancy and equipment 20,813 18,744 17,479
Business development 7,728 7,197 6,517
Professional 5,610 4,686 5,950
Brokerage, clearing and exchange 5,085 4,542 4,675
Other 8,267 7,047 8,094
---------- ---------- ----------
Total expenses 312,926 281,973 251,122
---------- ---------- ----------
Income before taxes 22,312 27,828 24,082
Provision for income taxes 8,925 10,853 9,873
---------- ---------- ----------
Income from continuing operations 13,387 16,975 14,209
Income from discontinued
operations, net of taxes 877 977 723
Loss on sale of discontinued
operations, net of taxes (713) -
----------- ----------- -----------
Net income $ 13,551 $ 17,952 $ 14,932
Per share data:
Basic earnings:
Continuing operations $ 1.67 $ 2.08 $ 1.77
Discontinued operations 0.11 0.12 0.09
Loss on sale of discontinued
operations (0.09) - -
------------ ---------- ------------
Net income $ 1.69 $ 2.20 $ 1.86
============ ========== ============
Diluted earnings:
Continuing operations $ 1.46 $ 1.82 $ 1.54
Discontinued operations 0.10 0.10 0.08
Loss on sale of discontinued
operations (0.08) - -
------------ ----------- -----------
Net income $ 1.48 $ 1.92 $ 1.62
============ =========== ===========
Dividends declared $ 0.19 $ 0.16 $ 0.09
============ =========== ===========
- ---------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
- ---------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Balance Sheets
In thousands, except per share amounts September 30, 1999 September 30, 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and short-term investments
Cash and cash equivalents $ 7,812 $ 13,882
Cash and securities segregated
under federal and other regulations 253 248
Interest-earning deposits and investments - -
-------------- -------------
8,065 14,130
-------------- -------------
Receivables
Securities borrowed 515,676 270,638
Brokerage customers, net 503,116 433,840
Brokers and dealers 6,447 5,310
Other 30,455 19,608
-------------- ------------
1,055,694 729,396
-------------- ------------
Securities
Trading, at market value 306,426 241,681
Available for sale, at market value 5,063 11,787
Held to maturity (market values of $16,886
and $18,911) 16,885 18,776
-------------- -----------
328,374 272,244
-------------- -----------
Other assets
Net assets of discontinued operations 30,972 8,267
Equipment and leasehold improvements, net 13,028 13,377
Other 26,488 23,702
-------------- -----------
70,488 45,346
-------------- -----------
$ 1,462,621 $ 1,061,116
============== ===========
Liabilities and Shareholders' Equity
Liabilities
Securities loaned $ 523,095 $ 216,275
Brokerage customers 298,119 329,975
Securities sold, not yet purchased, at market value 230,486 149,189
Short-term borrowings 161,007 134,762
Long-term borrowings 30,526 41,308
Compensation and benefits 27,648 27,247
Repurchase agreements 18,406 -
Brokers and dealers 10,839 13,984
Checks payable 4,971 2,973
Deposits - -
Net liabilities of discontinued operations - -
Other 22,388 21,736
Subordinated borrowings - -
------------ -----------
1,327,485 937,449
============ ===========
Shareholders' equity
Preferred Stock - -
Common stock, par value $.01, authorized 25,000 shares,
issued 10,914 and 10,893 shares 109 109
Paid-in capital 76,814 72,966
Retained earnings 77,644 65,785
Accumulated other comprehensive income, net - (12)
Unamortized restricted stock compensation (2,081) (1,081)
Treasury stock, at cost, 1,989 and 1,944 shares (17,350) (14,100)
------------ ------------
135,136 123,667
------------ ------------
$ 1,462,621 $ 1,061,116
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
28
<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Cash Flows
Fiscal year ended September 30,
In thousands 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES
Net income $ 13,551 $ 17,952 $ 14,932
Income from discontinued operations (877) (977) (723)
Loss on sale of discontinued operations 713 - -
------------ ---------- ----------
Income from continuing operations 13,387 16,975 14,209
Adjustments to reconcile net income to net cash provided
by operating activities of continuing operations:
Depreciation and amortization 11,071 9,425 8,295
Provision for credit losses and asset devaluation 306 159 237
Deferred income taxes (3,664) (347) (69)
Loss on retirement of subordinated borrowings 607
Other (636) 10 (1,820)
(Increase) decrease in operating assets:
Securities borrowed (245,038) 20,106 (70,826)
Receivables from brokerage customers, net (69,079) (44,791) (36,794)
Trading securities (64,922) (138,472) (904)
Receivables from brokers and dealers (1,137) (1,213) 1,298
Cash and securities segregated under federal and other regulatio (5) 17 -
Other (17,606) (7,340) (3,873)
Increase (decrease) in operating liabilities:
Securities loaned 306,820 (42,020) 44,300
Securities sold, not yet purchased 81,297 97,076 4,675
Repurchase agreements 18,406 - -
Checks payable 1,998 (15,394) 1,390
Short-term brokerage borrowings, net 1,227 92,000 (1,800)
Brokerage customers (31,856) 10,875 36,482
Other 8,649 7,083 9,323
--------------- ----------- ----------
Net cash provided by operating activities of continuing operations 9,218 4,149 4,730
--------------- ----------- ----------
FINANCING ACTIVITIES
Repayment of short-term borrowings (264) (248) (1,107)
Proceeds from long-term borrowings - - 35,000
Retirement of subordinated debentures - - (20,545)
Repayment of long-term borrowings - - (9,820)
Other (4,515) (218) 270
---------------- ----------- ----------
Net cash (used in) provided by financing activities
of continuing operations (4,779) (466) 3,798
---------------- ----------- ----------
INVESTING ACTIVITIES
Proceeds from (payments for):
Maturities of held to maturity securities 23,879 22,712 24,000
Maturities of available for sale securities 983 2,260 1,759
Sales of available for sale securities 19,607 42,853 4,872
Purchases of available for sale securities (13,110) (47,024) (1,598)
Purchases of held to maturity securities (21,539) (20,500) (22,000)
Principal collections on loans 1,661 13,185 254
Loans originated (619) (5,841) (335)
Other (10,135) (8,950) (9,185)
---------------- ---------- ----------
Net cash provided by (used in) investing activities of continuing operat 727 (1,305) (2,233)
Net cash used in discontinued operations (11,236) (955) (5,297)
---------------- ---------- ----------
(Decrease) increase in cash and cash equivalents (6,070) 1,423 998
Cash and cash equivalents at beginning of period 13,882 12,459 11,461
---------------- ----------- ----------
Cash and cash equivalents at end of period $ 7,812 $ 13,882 $ 12,459
================ =========== ==========
Interest paid $ 34,824 $ 40,517 $ 31,817
Income taxes paid $ 12,386 $ 15,297 $ 7,987
Non-cash activities:
Restricted stock awards, net of forfeitures $ 1,605 $ 811 $ 516
See Notes to Consolidated Financial Statements.
</TABLE>
29
<PAGE>
<TABLE>
The Advest Group, Inc.
Consolidated Statements of Changes in Shareholders' Equity
$.01 par value Unamortized Accumulated
Common stock Treasury stock restricted other Share-
In thousands, except --------------- Paid-in Retained ----------------- stock comprehensive holders'
per share amounts Shares Amount capital earnings Shares Amount compensation income, net equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of
September 30, 1996 10,710 $ 107 $ 68,842 $ 35,102 (2,307) $ (14,182) $ (56) $ (223) $ 89,590
Comprehensive income:
Net income 14,932
Unrealized holding gain
on investment securities
(net of taxes of $79) 160
Total comprehensive income 15,092
Exercise of stock options 83 1 839 61 26 866
Dividends declared
($.09 per share) (774) (774)
Repurchase of common stock (183) (1,835) (1,835)
Sale of treasury stock to
equity plan 1,104 191 1,221 2,325
Conversion of subordinated debentures
at $13.57 per share 19 254 254
Stock issued under restricted stock
plans, less amortization of $95 255 54 355 (515) 95
Other 15 4 25 40
Balance as of ------ ------ ------ ------ ------- ------- ------ ------- -------
September 30, 1997 10,812 108 71,309 49,260 (2,180) (14,390) (571) (63) 105,653
Comprehensive income:
Net income 17,952
Unrealized holding gain
on investment securities
(net of taxes of $24) 51
Total comprehensive income 18,003
Exercise of stock options 81 1 577 32 (224) 354
Dividends declared
($.16 per share) (1,427) (1,427)
Repurchase of common stock (60) (1,167) (1,167)
Sale of treasury stock to
equity plan 1,421 90 521 1,942
Stock issued under restricted stock
plans, less amortization of $301 601 31 210 (510) 301
Other (942) 143 950 8
Balance as of ------ ------ ------ ------ ------- -------- ------- -------- ------
September 30, 1998 10,893 109 72,966 65,785 (1,944) (14,100) (1,081) (12) 123,667
Comprehensive income:
Net income 13,551
Unrealized holding gain
on investment securities
(net of taxes of $9) 12
Total comprehensive income 13,563
Exercise of stock options 21 - 104 2 34 138
Dividends declared
($.19 per share) (1,692) (1,692)
Repurchase of common stock (298) (5,383) (5,383)
Sale of treasury stock to
equity plan 1,439 123 984 2,423
Stock issued under restricted stock
plans, less amortization of $809 1,222 62 587 (1,000) 809
Other 1,083 66 528 1,611
Balance as of ------- ------- --------- --------- ------- ----------- ------------ --------- -----
September 30, 1999 10,914 $ 109 $ 76,814 $ 77,644 (1,989) $ (17,350) $ (2,081) $ - $ 135,136
======= ======= ========= ========= ======= =========== ============ ========= ====
See Notes to Consolidated Financial Statements.
</TABLE>
30
<PAGE>
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"). The Company
provides diversified financial services including securities brokerage, trading,
investment banking, trust and asset management. Principal operating
subsidiaries are Advest, Inc. ("Advest"), a broker/dealer and Advest Bank and
Trust Company (the "Bank"), a federal savings bank. In May 1999, the Company
announced that it was entering into two agreements with a third party financial
institution, which include the sale of the Bank's loans and other financial
assets and assumption of the Bank's deposit liabilities. See Note 2,
"Discontinued Operations."
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 1998 and
1997 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, 1999 and 1998,
federal funds sold were $500,000 and $6,050,000, respectively.
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 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, 1999 and 1998, the reserve was $548,000 and
$791,000, respectively. Included in payables to brokerage customers are free
credit balances of $281,860,000 and $303,030,000 at September 30, 1999 and 1998,
respectively. Advest pays interest on credit balances when the customer has
indicated that the funds are for reinvestment purposes.
Collateralized financing transactions
Securities loaned and borrowed are accounted for as collateralized financing
transactions and are recorded at the amount of cash collateral received or
advanced. The fee received or paid by Advest is recorded as interest revenue or
expense. The initial collateral advanced or received has a market value in
excess of the market value of the underlying securities. The Company monitors
the market value of securities borrowed and loaned on a daily basis, with
additional collateral obtained or refunded, as necessary.
The Company utilizes short-term repurchase agreements as supplementary
short-term financing and delivers U.S. Treasury securities as collateral for
cash received. These repurchase agreements are accounted for as collateralized
financings. The fee paid by the Company is recorded as interest expense. The
Company monitors the market value of securities transferred on a daily basis,
and obtains or refunds collateral as necessary.
Securities
Advest records securities transactions on a settlement date basis, which does
not differ materially from a trade date basis. Revenues and related expenses for
transactions executed but not settled are accrued on a trade date basis.
31
<PAGE>
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 or investment banking. Periodically, Advest
receives stock warrants in connection with its investment banking activities.
Warrants are carried at their fair value which is determined using the Black-
Scholes model or another standard option valuation technique.
Securities available for sale are carried at fair value with unrealized
holding gains or losses, net of tax, reflected in shareholders' equity and
comprehensive income. 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.
Investment banking
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.
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, 1999 and 1998, accumulated depreciation and
amortization were $15,236,000 and $41,848,000, 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 40 years. At
September 30, 1999 and 1998, the amount of goodwill reported in other assets was
$5,374,000 and $5,624,000, respectively.
Income taxes
Deferred income taxes are recognized for the future tax consequences of
differences between the tax basis 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.
32
<PAGE>
Derivative financial instruments
Advest uses derivatives (primarily financial futures contracts) solely to manage
the risk associated with its municipal bond trading securities. 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.
Recent accounting pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 137, "Deferral of the Effective Date
of SFAS 133." SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities" was issued in June 1998. SFAS 137 defers the effective date for
SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15,
2000. The Company will adopt SFAS 133 as amended by SFAS 137 during fiscal 2001,
as required, and has not yet determined whether its implementation will have a
material impact on the Company's financial condition, results of operations or
cash flows.
Note 2: Discontinued Operations
During the third quarter, the Company announced that it would enter into two
agreements with Hudson United Bank ("Hudson"), a subsidiary of Hudson United
Bancorp, a Mahwah, New Jersey-based bank holding company. Under the terms of a
purchase and sale agreement, Hudson will acquire the loan and other financial
assets and assume the deposit liabilities of the Bank. Under the terms of a
separate agreement, Advest and Hudson entered into a strategic alliance whereby
Hudson became the exclusive provider of banking products and services to Advest
and its clients. The strategic alliance agreement became effective September 1,
1999 and, concurrently, the Bank ceased its mortgage origination operations.
The purchase and sale agreement was approved by the Office of Thrift
Supervision ("OTS") and is expected to close during the fall of 1999. Under the
terms of the purchase and sale agreement, Hudson will make a one-time payment of
$2.0 million to the Bank. After deducting expenses related to the disposition,
the Bank recognized a pre-tax profit of $.2 million on the transaction. The net
loss of $.7 million on the sale of discontinued operations reflects a $.9
million tax expense related to the Bank's loan loss reserves. See Note 11.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," the consolidated financial statements of the Company reflect the
disposition of certain assets and liabilities of the Bank. Accordingly, the
Company's revenues, costs and expenses, assets and liabilities, and cash flows
have been restated to exclude the lending and deposit businesses of the Bank
from the respective captions in the Consolidated Statement of Earnings,
Consolidated Balance Sheets and Consolidated Statements of Cash Flows, and have
been reported through their respective dates of disposition as "Income from
discontinued operations, net of taxes," as "Net assets of discontinued
operations," and as "Net cash used in discontinued operations."
Financial information for discontinued operations for the three years
ended September 30, 1999 is summarized below (See Note 11 for analysis of
income taxes):
33
<PAGE>
-------------------------------------------------------------
In thousands 1999 1998 1997
-------------------------------------------------------------
Statement of earnings data:
Revenues $12,273 $15,427 $16,002
Expenses 10,811 13,826 14,776
------- ------- -------
Income before taxes 1,462 1,601 1,226
Provision for income taxes 585 624 503
------- ------- -------
Income from discontinued
operations $ 877 $ 977 $ 723
======= ======= =======
-------------------------------------------------------------
Balance sheet data:
Loans $151,603 $178,072
Interest receivable 1,028 1,265
Other assets (389) 1,085
Deposits (120,660) (171,074)
Interest payable (136) (309)
Other payables (474) (772)
----------- ----------
Net assets of discontinued
operations $ 30,972 $ 8,267
=========== ==========
As of September 30, 1999 and 1998, loans to related parties, which will be
included in the sale of the Bank's assets, totaled approximately $1,601,000 and
$2,556,000, respectively. There were approximately $269,000 of new loans and
advances and $1,224,000 of net repayments during 1999. 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, 1999, all loans to related parties were
performing.
Note 3: Trading Securities
At September 30, 1999 and 1998, trading securities consisted of:
Securities sold,
Trading securities not yet purchased
------------------ -------------------
In thousands 1999 1998 1999 1998
- -------------------------------------------------------------------
Corporate obligations $175,743 $196,029 $194,710 $ 89,641
State and municipal
Obligations 42,912 23,323 314 526
U.S. government and agency
Obligations 51,969 4,041 34,831 57,566
Mortgage-backed securities 31,605 11,562 2 408
Stocks and warrants 4,197 6,726 629 1,048
---------- --------- --------- --------
$306,426 $241,681 $230,486 $149,189
========== ======== ========= ========
34
<PAGE>
Note 4: Investment Securities
As of September 30, 1999, the amortized cost and fair values of debt securities,
by contractual maturity, were:
- ----------------------------------------------------------
Held to maturity
---------------------------
Amortized Fair
In thousands cost value
- -----------------------------------------------------------
Due in one year or less $12,402 $12,402
Due after one year through five years 500 500
Due after ten years 3,983 3,984
- -----------------------------------------------------------
$16,885 $16,886
======= =======
For the three years ended September 30, 1999, 1998 and 1997, proceeds
from the sale of securities available for sale were $19,607,000, $42,853,000 and
$4,871,000, respectively, and gross gains realized were $0, $66,000 and $11,000,
respectively. Gross losses realized were $537,000, $2,000 and $82,000 for 1999,
1998 and 1997, respectively. The amortized cost and fair values of the
Company's available for sale securities at September 30, 1999 and 1998 were:
Gross unrealized
Amortized ---------------- Fair
In thousands cost gains losses value
- ------------------------------------------------------------------
1999
- ----
FHLB stock $ 2,270 $-- $ -- $ 2,270
Other 2,793 -- -- 2,793
------- --- ---- -------
$ 5,063 $-- $ -- $ 5,063
======= === ==== =======
1998
- ----
FHLB stock $ 2,270 $-- $ -- $ 2,270
Mortgage-backed securities 1,990 -- -- 1,990
Other 7,542 9 (24) 7,527
------- --- ---- -------
$11,802 $ 9 $(24) $11,787
======= === ===== =======
There were no sales of held to maturity securities during the three years
in the period ended September 30, 1999. The amortized cost and fair values of
the Company's held to maturity securities at September 30, 1999 and 1998 were:
35
<PAGE>
- ---------------------------------------------------------------------------
Gross unrealized
Amortized ---------------- Fair
In thousands cost gains losses value
1999
- ----
Mortgage-backed securities $ 3,983 $1 $-- $ 3,984
U.S. government and agency
obligations 12,402 -- -- 12,402
Other 500 -- -- 500
------- --- ---- -------
$16,885 $1 $-- $16,886
======= === ==== =======
1998
- ----
Mortgage-backed securities $ 5,876 $135 $-- $ 6,011
U.S. government and agency
obligations 12,400 -- -- 12,400
Other 500 -- -- 500
-------- --- ---- -------
$18,776 $135 $-- $18,911
======= === ==== =======
Note 5: Short-term Borrowings
In the ordinary course of business, primarily to facilitate securities
settlements and finance margin debits and 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, 1999 and 1998, Advest had $125,228,000
and $124,001,000, respectively, in bank loans all collateralized by firm trading
securities. The weighted average interest rate on bank loans outstanding at
September 30, 1999 and 1998, was 5.57% and 5.81%, respectively, and the weighted
average interest rates during fiscal 1999 and 1998 were 5.21% and 5.87%,
respectively.
Short-term borrowings of the Bank consisted primarily of the current
portion of advances from the FHLB. At September 30, 1999, borrowings totaled
$28,500,000 at rates from 5.37% to 6.68%. At September 30, 1998, borrowings
totaled $10,500,000 at rates from 5.53% to 6.58%. 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. 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, 1999 and 1998, were
$7,279,000 and $261,000, respectively, representing the current portion of notes
due between 2000 and 2003. Refer to Note 6 for additional information.
Note 6: Long-term Borrowings
Long-term borrowings of the Bank were $2,500,000 and $6,000,000 as of September
30, 1999 and 1998, 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, 1999, the interest rates and maturities of
outstanding borrowings were:
In thousands Interest rates Amount
-------------------------------------------------------
Year ending September 30, 2001 6.73% $1,500
Year ending September 30, 2008 4.99% 1,000
------
$2,500
======
36
<PAGE>
In fiscal 1997, AGI entered into a private placement transaction with
three institutional investors, borrowing $35,000,000 on an unsecured basis.
Under the terms of the note, the principal is payable in five 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 is investment-grade
rated and 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%.
At September 30, 1999 and 1998, total long-term borrowings of AGI were
$28,026,000 and $35,308,000, respectively.
Note 7: Common Stock
Basic earnings per share is calculated by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is calculated by dividing income
available to common shareholders by the weighted-average shares of common stock
and common stock equivalents outstanding during the period. Common stock
equivalents are dilutive stock options that are assumed exercised for
calculation purposes. Diluted earnings per share for fiscal 1997 assumes full
conversion of the Company's outstanding subordinated debentures into common
stock and elimination of the related interest expense, net of taxes, for the
periods outstanding. The debentures were retired in January 1997.
The following table provides the calculation of net income per common
share for the years ended September 30, 1999, 1998 and 1997:
In thousands, except per share amounts 1999 1998 1997
- ----------------------------------------------------------------
Net income $13,551 $17,952 $14,932
======= ======= =======
Average number of common shares
outstanding during the period 8,888 8,877 8,512
Adjustments:
Contingently issuable shares (892) (726) (469)
Average number of common ------ ------ -------
shares outstanding 7,996 8,151 8,043
------- ------- -------
Basic earnings per common share $ 1.69 $ 2.20 $ 1.86
======= ======= =======
37
<PAGE>
In thousands, except per share amounts 1999 1998 1997
- ---------------------------------------------------------------
Net income $13,551 $17,952 $14,932
Interest expense
on debentures, net -- -- 249
------- ------- -------
Net income applicable to
common stock $13,551 $17,952 $15,181
======= ======= =======
Average number of common shares
outstanding during the period 8,888 8,877 8,512
Adjustments:
Exercise of stock options 293 467 366
Conversion of debentures -- -- 466
------- ------- -------
Average number of common
shares outstanding 9,181 9,344 9,344
======= ======= =======
Diluted earnings per common share $ 1.48 $ 1.92 $ 1.62
======= ======= =======
Under a common stock repurchase program, the Company is authorized to
purchase up to 4,000,000 shares. During the years ended September 30, 1999 and
1998, 298,369 and 60,500 shares, respectively, were acquired for a total of
3,055,146 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 three institutional
investors. Such restrictions have never curtailed the Company's ability to
declare dividends.
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. In March 1998,
the Board of Directors adopted an amendment to the plan extending the term of
the rights, increasing their exercise price, and making other changes to the
plan. After giving effect to this amendment, each right entitles the holder,
following the occurrence of certain events, to purchase one share of common
stock at a purchase price of $60 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 2008 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.
38
<PAGE>
Note 8: Stock Option Plans
Employee stock option plans
The Company's 1993 Stock Option Plan (the "1993 Plan") 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, 1999, options for 506,195 shares
had been granted under the 1993 Plan, of which 427,363 options were outstanding.
In September, 1999, the Board of Directors approved the 1999 Stock Option Plan
(the "1999 Plan") subject to approval by the Company's Shareholders. If
approved, the 1999 Plan will authorize grants of incentive stock options or
nonqualified stock options for up to 300,000 shares. Option grants under the
1993 Plan and 1999 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.
Non-employee director stock option plans
The Company's 1994 Non-Employee Director Stock Option Plan (the "1994 Plan"), as
amended, provided for annual grants of 2,500 nonqualified stock options to each
non-employee director through January 1999 up to an aggregate of 100,000 for all
directors. In September 1999, the Board of Directors approved the 2000 Non-
Employee Director Stock Option Plan (the "2000 Plan"), subject to approval by
the Company's Shareholders. If approved, the 2000 Plan will authorize continued
annual grants at the same level of up to an additional 100,000 options. At
September 30, 1999, 74,500 options had been granted under the 1994 Plan, of
which 66,000 were outstanding, and no options had been granted under the 2000
Plan. Options granted under either Plan become exercisable in equal thirds 30,
42 and 54 months after grant and expire 60 months after grant.
Advest equity plans
Since 1995, the Company has offered the Advest Equity Plans (the "Equity Plan")
to certain eligible employees. The Equity Plan is a salary deferral investment
program and is described in more detail in Note 9. For deferrals during
calendar 1999 through June 30, 1999, 57,650 options were granted and additional
options will be granted based on deferrals from June 30, 1999 through December
31, 1999. For deferrals during calendar 1998 and 1997, respectively, 91,724 and
111,020 options were granted. 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 all
plans, 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.
Pro forma compensation expense
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:
39
<PAGE>
In thousands 1999 1998 1997
--------------------------------------
Net earnings
As reported $13,551 $17,952 $14,932
Pro forma 12,901 17,573 14,736
Basic earnings per share
As reported $ 1.69 $ 2.20 $ 1.86
Pro forma 1.61 2.16 1.83
Diluted earnings per share
As reported $ 1.48 $ 1.92 $ 1.62
Pro forma 1.41 1.88 1.60
Pro forma compensation expense associated with option grants is recognized
over the vesting period. The impact of applying SFAS 123 on pro forma disclosure
for the years shown is not fully representative of the potential impact on pro
forma net earnings for future years, which will include compensation expense
related to vesting of 1997, 1998, 1999 and subsequent grants.
Stock option activity
Transactions under the Company's stock option plans are summarized below:
Number of Weighted-average
shares exercise price
-----------------------------------------------------------
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
Granted 127,533 26.13
Forfeited (14,031) 6.51
Exercised (144,506) 12.45
---------
Options outstanding at
September 30, 1998 834,980 12.34
Granted 249,336 18.82
Forfeited (38,393) 12.28
Exercised (18,989) 8.11
---------
Options outstanding at
September 30, 1999 1,026,934 $13.99
=========
At September 30, 1999, 1998 and 1997, options were exercisable,
respectively, on 224,327, 151,348 and 145,987 shares and the weighted average
exercise prices were $7.22, $6.84 and $5.87.
The weighted-average fair value of options granted in 1999, 1998, and 1997
were $7.46, $10.16 and $6.67 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:
40
<PAGE>
1999 1998 1997
--------------------------------------------------
Risk-free interest rate 5.07% 5.59% 6.33%
Expected life 5.64yrs 5.19 yrs 5.41 yrs
Expected volatility 37.8% 36.0% 36.0%
Dividend yield 1.10% 0.79% 0.46%
The following table summarizes information related to outstanding and
exercisable options at September 30, 1999:
Options outstanding Options exercisable
------------------- -------------------
Weighted- Weighted- Weighted-
Average average average
Number of exercise remaining Number of exercise
Exercise prices shares price life (in years) shares price
$ 5.63-$ 6.00 137,000 $ 5.98 .5 137,000 $5.98
$ 8.50-$11.38 465,418 9.47 2.3 87,327 9.16
$15.44-$22.63 255,991 18.81 6.8 -- --
$23.75-$30.00 168,525 25.69 4.5 -- --
--------- ------ --- ------- -----
Total 1,026,934 $13.99 3.6 224,327 $7.22
========= ====== === ======= =====
Note 9: 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 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 1.5%, 2.5% and 2.5%
of their compensation for the calendar years ended December 31, 1999, 1998 and
1997, respectively. Contribution expense for fiscal 1999, 1998 and 1997 was
$3,573,000, $4,324,000 and $3,901,000, 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, as amended, 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, as amended,
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. In June
1999, the Board of Directors adopted an amendment to the Executive Defined
Benefit Plan which increased the amount of incentive compensation considered in
determining final average earnings.
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
41
<PAGE>
trusts, which are included in trading securities and other assets, at September
30, 1999 was $13,600,000, which was more than the projected benefit obligation
by $2,930,000.
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, 1999 and 1998:
In thousands 1999 1998
------------------------------------------------------------
Change in benefit obligations:
Benefit obligation, beginning of year $ 9,686 $7,382
Service cost 1,302 1,167
Interest cost 625 558
Amendments 391 --
Actuarial (gain) loss (1,328) 698
Benefits paid (6) (119)
-------- ------
Benefit obligation, end of year $10,670 $9,686
======== ======
Change in plan assets:
Fair value of plan assets at
beginning of year $ -- $ --
Employer contribution 6 119
Benefits paid (6) (119)
-------- -------
Fair value of plan assets at end of year $ -- $ --
======== ========
Funded status $(10,670) $(9,686)
Unrecognized actuarial (gain) loss (281) 1,044
Unrecognized prior service cost 742 424
-------- --------
Accrued benefit cost $(10,209) $(8,218)
======== ========
Pension expense for the plans for the three years in the period ended
September 30, 1999 is included in the following components:
In thousands 1999 1998 1997
------------------------------------------------
Service cost $1,302 $1,167 $1,374
Interest cost 625 558 408
Recognized net actuarial
(gain) loss (2) 6 (29)
Amortization of prior service
cost 72 53 53
------ ------ ------
Net benefit costs $1,997 $1,784 $1,806
====== ====== ======
The following table provides the assumptions used in determining the
projected benefit obligation for the plans for the three years in the period
ended September 30, 1999:
1999 1998 1997
- -------------------------------------------------------------
Weighted average discount rate 7.625% 6.50% 7.25%
Rate of increase in future compensation
levels 5.00% 5.00% 5.00%
Advest Equity Plan
The Company has offered the Advest Equity Plan (the "Equity Plan") to certain
top performing investment executives and designated key employees since the 1995
calendar year. The Equity Plan allows those employees to defer a portion of
their compensation on a calendar year basis, and invest it on a pre-tax basis in
42
<PAGE>
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 8. Both the
restricted stock and options will be subject to forfeiture under certain
circumstances. The Company offers similar plans to executive officers.
Under the Advest Equity Plan and other arrangements, 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,
net of forfeitures, 44,872 and 28,937 shares of restricted stock, with a fair
value of $1,262,000 and $770,000, during 1999 and 1998, respectively. As of
September 30, 1999, stock awards for 131,175 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.
Under employment agreements with certain key employees, a portion of their
compensation is invested in restricted shares of the Company's stock on a
discounted basis. Under these arrangements, during fiscal 1999 and 1998, 17,024
and 1,819 shares were issued with a fair value of $343,000 and $41,000,
respectively, at discounts ranging from 75% to 80% of fair market value. These
shares are subject to forfeiture if certain conditions are not met.
Management Incentive Plan
The Company has a Management Incentive Plan (the "MIP") which provides for
incentive compensation to salaried employees. Compensation is presently based on
the Company's pre-tax income. During fiscal 1999, 1998 and 1997, MIP
compensation was $1,777,000, $2,812,000 and $2,462,000, respectively.
Note 10: 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, 1999, Advest's
regulatory net capital of $72,386,000 was 12.86% of aggregate debit balances and
exceeds required net capital by $61,130,000.
Advest maintains separate accounts for the exclusive benefit of customers
in accordance with Securities and Exchange Commission Rule 15c3-3, as determined
by periodic computations. The rule allows Advest to maintain the required
amounts in cash or qualified securities.
Under bank regulatory restrictions, the Bank is required to maintain a
minimum level of capital. With its conversion to a federal charter during
fiscal 1997, the Bank is required to limit annual dividends to a percentage of
retained net income of the most recent four-quarter period, as defined. No
dividends were declared or paid by the Bank during the past three fiscal years.
At September 30, 1999, the Bank's Tier 1 leverage capital, Tier 1 risk-based,
and total risk-based capital ratios were 9.94%, 11.07% and 11.07%, respectively,
which met all regulatory requirements for well capitalized banks.
43
<PAGE>
Note 11: Income Taxes
The provision for income taxes for the years ended September 30, 1999, 1998 and
1997 consisted of the following:
In thousands 1999 1998 1997
----------------------------------------------------
Current:
Federal $7,559 $11,645 $7,142
State and local 2,006 3,666 2,321
------ ------- ------
9,565 15,311 9,463
------ ------ ------
Deferred:
Federal (743) (3,259) 833
State and local 103 (1,199) (423)
------ ------- ------
(640) (4,458) 410
------ ------- ------
Provision for income taxes $8,925 $10,853 $9,873
====== ======= ======
At September 30, 1999 and 1998, deferred tax assets and liabilities were
comprised of:
In thousands 1999 1998
----------------------------------------------------
Deferred tax assets:
Provision for credit losses and
asset devaluation $3,006 $2,772
Employee benefits 6,629 5,503
SFAS115 losses -- 9
State NOL carryforwards -- 444
State tax credits 144 --
Other 91 67
------ ------
Total deferred tax assets $9,870 $8,795
------ ------
Deferred tax liabilities:
Tax loan loss reserve in
excess of base year $ 301 $ 414
Depreciation 964 813
Investment income -- 70
Partnership basis difference 1,743 1,500
Other 333 100
------ ------
Total deferred tax liabilities $3,341 $2,897
------ ------
Net deferred tax assets $6,529 $5,898
====== ======
The Company will only recognize a deferred tax asset when, based on
available evidence, realization is more likely than not. Accordingly, at
September 30, 1999 and 1998, the Company has recorded no valuation allowance
against federal and state deferred tax assets based on reversals of existing
taxable amounts and anticipated future earnings. At September 30, 1999, it is
anticipated that state net operating loss carryforwards will be fully utilized.
Effective fiscal 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 resulted in taxable income of
approximately $1,485,000 representing the excess of the Bank's tax bad debt
44
<PAGE>
reserve at September 30, 1996 over the reserve that arose in tax years beginning
before December 31, 1987 (base year reserve). Generally, the income is being
recognized ratably over a six-year period. Accordingly, the deferred tax
liability resulting from the change in method is approximately $301,000 and
$414,000, at September 30, 1999 and 1998, respectively.
As of September 30, 1998, the Bank did not record a deferred tax liability
for its base year reserve of $2,155,000 (as it was not anticipated that a tax
liability would be incurred in the foreseeable future.) A tax liability,
relating to the base year reserve, would be incurred if certain excess
distributions were made with respect to the bank's stock or if the bank failed
to qualify as a bank for tax purposes. In May 1999, the Company announced the
sale of the Bank's deposit and lending businesses. As a result of this sale, it
is expected the Bank will make excess distributions with respect to its stock.
Accordingly, a deferred tax liability has been established at September 30, 1999
in the amount of $862,000. The deferred tax has been charged to income from
discontinued operations. See Note 2.
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, 1999:
Percent of pre-tax income 1999 1998 1997
-----------------------------------------------------
Statutory income tax rate 35.0% 35.0% 35.0%
State and local income taxes,
net of federal tax effect 6.7 6.9 6.9
Recognition of state net
operating losses -- (1.1) (1.5)
Tax-exempt interest income (1.0) (1.1) (1.5)
Intangible assets 0.3 0.3 0.4
Other (1.0) (1.0) 1.7
----- ----- -----
Effective income tax rate 40.0% 39.0% 41.0%
===== ===== =====
Note 12: Commitments and Contingencies
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,
1999 are (in thousands):
Data processing
Fiscal year ended Office & communications
September 30, facilities equipment Total
--------------------------------------------------------
2000 $ 9,036 $ 4,976 $14,012
2001 8,593 4,354 12,947
2002 7,496 1,237 8,733
2003 6,639 -- 6,639
2004 5,235 -- 5,235
2005 and thereafter 9,315 -- 9,315
------- ------- -------
$46,314 $10,567 $56,881
======= ======= =======
Rental expense under these leases was $10,799,000, $9,637,000 and
$9,338,000 for the years ended September 30, 1999, 1998 and 1997, respectively.
45
<PAGE>
Loan guarantees and letters of credit
At September 30, 1999 and 1998, Advest was contingently liable under bank letter
of credit agreements in the amount of $5,335,000 and $3,335,000, respectively,
which are collateralized by securities held in customer accounts.
At September 30, 1999 and 1998, the Bank and AGI were contingently liable
under standby letters of credit and commitments to extend credit to customers in
the amount of $93,628,000 and $101,675,000, respectively. The value of
collateral required to be held for letter of credit commitments as of September
30, 1999 ranges from 172% to 1781% of individual commitments with a weighted
average of 165%.
Litigation
The Company has been named as defendant, or has been threatened with being named
defendant in various actions, suits and proceedings before a court or arbitrator
arising principally from its securities and investment banking business. Such
matters involve alleged violations of federal and state securities laws and
other laws. Certain of these actions claim substantial damages and, if
determined adversely to the Company, could have a material adverse effect on the
consolidated financial condition, results of operations or cash flows of the
Company. The Estate of Gabriel Levine and his wife and various related entities
have threatened a proceeding before the American Arbitration Association against
Advest. They originally commenced related arbitration and court proceedings in
1993, which were stayed pending consideration of statute of limitations
defenses. In 1998, the Connecticut Supreme Court ruled that arbitrators, and not
a court, should decide whether those defenses apply. The claimants allege that
the option trading in their accounts was unsuitable, and that there was a
failure to disclose risks and to supervise their accounts. In court papers filed
in 1993, the claimants asserted claims for principal losses of nearly
$30,000,000, plus interest, since October 1987. Management believes that Advest
has strong defenses to these claims and intends to defend them vigorously. While
the outcome of any litigation is uncertain, management, based in part upon
consultation with legal counsel, believes that the resolution of all matters
pending or threatened against the Company will not have a material adverse
effect on the financial condition or future results of operations or cash flows
of the Company.
Note 13: 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, including the sale of securities not yet
purchased ("short sales"), 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
and firm securities as collateral for various secured financing sources such as
bank loans, repurchase agreements 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
46
<PAGE>
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
municipal 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, 1999 and 1998 were $680,725 and $797,325,
respectively. Net trading profits (losses) of $56,000, $(162,000) and $(76,000)
were realized in 1999, 1998 and 1997, respectively. At September 30, 1999,
Advest had only nominal open positions. At September 30, 1998, Advest had no
open positions. Advest hedges its taxable fixed income positions by taking
short positions in like products with similar maturities as well as U.S.
treasuries.
The Bank enters into interest rate 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.
The following table illustrates the Bank's outstanding swap and cap
contracts at September 30, 1999 and 1998:
Maturities Balance Balance
In thousands 2001 9/30/99 9/30/98
Interest rate caps:
Notional value $5,000 $5,000 $ 5,000
Strike rate 6.000% 6.000% 6.000%
Unamortized premium $88 $ 88 $ 128
Fixed pay interest rate swaps:
Notional value -- -- $ 5,000
Weighted average
receive rate -- -- 5.688%
Weighted average
pay rate -- -- 7.090%
Total notional value $5,000 $5,000 $10,000
In the absence of these interest rate cap contracts, net interest income
would have been higher by approximately $39,300, $39,300 and $75,000 in 1999,
1998 and 1997, respectively.
Note 14: 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
47
<PAGE>
credit risk can be directly impacted by volatile securities markets which may
impair the ability of counterparties to satisfy their contractual obligations.
Note 15: 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 receivables from and payables to brokers, and dealers and customers
and securities borrowed and loaned) are considered to approximate the carrying
value due to the short-term nature of the financial instruments.
The fair value of advances from the FHLB, including the current portion,
are estimated using rates which approximate those currently being offered by the
FHLB for advances with similar remaining maturities. The fair value of interest
rate 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,
1999 and 1998 are:
1999 1998
- ------------------------------------------------------------------------
Carrying Fair Carrying Fair
In thousands amount value amount value
- ------------------------------------------------------------------------
Financial assets:
Investment securities $ 21,948 $ 21,949 $ 30,563 $ 30,698
Financial liabilities:
Short-term borrowings 161,007 161,080 134,762 134,804
Long-term borrowings 30,526 30,769 41,308 41,834
- -------------------------------------------------------------------------
Notional Fair Notional Fair
In thousands amount value amount value
- -------------------------------------------------------------------------
Unrecognized financial instruments:
Interest rate caps $ 5,000 $ 49 $ 5,000 $ 14
Fixed pay interest
rate swaps -- -- 5,000 (92)
Commitments to extend
credit (92,924) -- (100,814) (28)
Standby letters of
credit (6,039) (27) (4,196) (17)
- --------------------------------------------------------------------------
Note 16: Segment Reporting
In 1999, the Company adopted the provisions of SFAS 131, "Disclosures About
Segments of an Enterprise and Related Information." The Company's reportable
segments are Private Clients, Capital Markets, Interest and Other. The Private
Clients segment includes securities brokerage and investment management services
including the sale of equities, mutual funds, fixed income products and
insurance to individual investors through Advest's 91 retail offices. The
Capital Markets segment includes market-making activities on over-the-counter
equities, institutional trading in both equities and fixed income products,
trading in corporate bonds, government agency and mortgage-backed securities,
corporate underwriting and merger and acquisition, public finance and syndicate
48
<PAGE>
participations. Sales credits associated with underwritten offerings are
reported in the Private Client segment when sold to individual investors and in
the Capital Markets segment when sold to institutional investors. The Interest
segment includes revenue from financing margin debits, stock borrowing
activities and trading and investment securities. The Other segment includes
all corporate expenses and miscellaneous revenues and expenses, which are not
allocated to the reportable segments. The Company has not disclosed asset
information by segment as the information is not produced internally. All of
the Company's business is within the U.S.. The following table summarizes
financial information by segment for the three years in the period ended
September 30, 1999:
In thousands 1999 1998 1997
-------------------------------------------------
Revenues:
Private Clients $218,211 $202,205 $188,597
Capital Markets 52,275 41,719 35,639
Interest 57,431 57,439 44,391
Other 7,321 8,438 6,577
-------- -------- --------
$335,238 $309,801 $275,204
======== ======== ========
Income before taxes:
Private Clients $ 53,501 $ 49,985 $ 47,315
Capital Markets (4,895) (4,525) (2,974)
Interest 22,466 26,098 20,592
Other (48,760) (43,730) (40,851)
-------- -------- --------
$ 22,312 $ 27,828 $ 24,082
======== ======== ========
49
<TABLE>
<PAGE>
Quarterly Financial Information (unaudited)
- -------------------------------------------
In millions, except 1999 by fiscal quarters 1998 by fiscal quarters
per share data -------------------------------- ------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $82.6 $79.7 $86.7 $86.2 $73.8 $78.4 $79.2 $78.4
Income before $ 7.5 $ 4.8 $ 4.9 $ 5.1 $ 6.4 $ 7.5 $ 6.5 $ 7.4
taxes
Income from continuing
Operations $ 4.5 $ 2.9 $ 2.9 $ 3.1 $ 3.9 $ 4.5 $ 3.9 $ 4.7
Income from discontinued
operations 0.2 0.1 0.3 0.3 0.2 0.3 0.2 0.3
Loss on sale of discontinued
operations -- -- (0.7) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income $ 4.7 $ 3.0 $ 2.5 $ 3.4 $ 4.1 $ 4.8 $ 4.1 $ 5.0
===== ===== ===== ===== ===== ===== ===== =====
Per share data:
Basic earnings:
Continuing
operations $0.57 $0.36 $0.36 $0.38 $0.47 $0.55 $0.48 $0.58
Discontinued
operations 0.02 0.02 0.04 0.03 0.02 0.03 0.03 0.04
Loss on sale
of discontinued
operations -- -- (0.09) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income $0.59 $0.38 $0.31 $0.41 $0.49 $0.58 $0.51 $0.62
===== ===== ===== ===== ===== ===== ===== =====
Diluted earnings:
Continuing
operations $0.49 $0.32 $0.32 $0.33 $0.42 $0.48 $0.42 $0.50
Discontinued
operations 0.02 0.01 0.04 0.03 0.01 0.03 0.02 0.04
Loss on sale
of discontinued
operations -- -- (0.08) -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income $0.51 $0.33 $0.28 $0.36 $0.43 $0.51 $0.44 $0.54
===== ===== ===== ===== ===== ===== ===== =====
Dividends $0.04 $0.05 $0.05 $0.05 $0.04 $0.04 $0.04 $0.04
Stock price range:
High $23-7/16 $25-1/4 $22-3/16 $25-1/8 $26-15/16 $25-1/2$33-3/4 $32
Low $14-1/8 $18-3/8 $18-5/16 $17-1/2 $21-3/4 $21 $24-1/2 $16-1/2
Close $18-1/2 $18-1/2 $19-15/16$18-1/4 $24-11/16 $24-5/8$28-7/8 $20-3/8
</TABLE>
50
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders
of The Advest Group, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, changes in shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of The
Advest Group, Inc. and its subsidiaries (the "Company") at September 30, 1999
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in the notes to the consolidated financial statements, the Company
adopted the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits as of
October 1, 1998 and SFAS No. 134, "Accounting for Mortgage-Backed Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise," as of January 1, 1999.
/s/ PricewaterhouseCoopers LLP
Hartford, CT
October 27, 1999
Item 9. 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.
51
<PAGE>
Part III
Item 10. 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 27, 2000. Such information is hereby
incorporated by reference.
The following table sets forth the executive officers of the Company at
December 10, 1999. Executive officers of the Company are appointed annually by
the Board of Directors to hold office until their successors are appointed and
qualify.
Executive
Officer
Name Age Office Since
- --------------------------------------------------------------------------
Grant W. Kurtz 57 President and Chief Executive Officer 1985
Allen G. Botwinick 56 Executive Vice President of
Administration and Operations 1980
George A. Boujoukos 65 Senior Executive Vice President
and Director Capital Markets
of Advest, Inc. 1977
Harry H. Branning 48 Senior Executive Vice President and
Director Private Client Group
of Advest, Inc. 1994
John C. Giesea 55 Senior Executive Vice President
and Director Capital Markets of
Advest, Inc. 1999
Lee G. Kuckro 58 Executive Vice President, Secretary
and General Counsel 1978
Martin M. Lilienthal 57 Executive Vice President, Treasurer and
Chief Financial Officer 1977
Item 11. 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
27, 2000. Such information is hereby incorporated by reference.
Item 12. 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 27, 2000. Such information is hereby incorporated by reference.
Item 13. 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 27, 2000. Such information is hereby incorporated by reference.
52
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
Page Reference
--------------
(a) 1. Financial Statements
The Consolidated Financial Statements and The Report of
Independent Accountants contained herein:
Consolidated Statements of Earnings 27
Consolidated Balance Sheets 28
Consolidated Statements of Cash Flows 29
Consolidated Statements of Changes in Shareholders' Equity 30
Notes to Consolidated Financial Statements 31-49
Report of Independent Accountants 51
2. Financial Statement Schedule
Report of Independent Accountants on schedule 59
Schedule II - Valuation and Qualifying Accounts 60
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
Exhibit Description made, if applicable
- --------------------------------------------------------------------------
3(a) Restated Certificate of Exhibit 3(a) to Registrant's
Incorporation of Report on Form 10-Q for the quarter ended
Registration March 31, 1989
3(b) By-laws of Registrant, as Exhibit 3(b) to Registrant's Report
restated and amended on Form 10-Q 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 Restated Exhibit 3(c) to Registrant's Report on
By-laws of Registrant Form 10-K for its fiscal year ended
September 30, 1997
4(a) Shareholder Rights Agreement Exhibit to Registrant's Report on Form
dated as of October 31, 8-K dated November 1, 1988 and to
1988, as amended on March Exhibit 4 to Registrant's Report on
12, 1998 Form 8-K dated March 13, 1998
53
<PAGE>
Prior Filing(s) to which Reference is
Exhibit Description made, if applicable
- ----------------------------------------------------------------------------
10(a) Registrant's 1994 Non- Exhibit A to Registrant's Proxy Statement
Employee Director Stock December 20, 1994; Exhibit 10(b) to
Option Plan, as amended Registrant's Report on Form 10-K for its
fiscal year ended September 30,1998
10(b) Registrant's 2000 Non- Exhibit B to Registrant's Proxy Statement
Employee Director Stock for its Annual Meeting of Stockholders to
Option Plan be held January 27, 2000
10(c) Registrant's 1993 Stock Exhibit A to Registrant's Proxy Statement
Option Plan dated December 21, 1993
10(d) Registrant's 1999 Stock Exhibit B to Registrant's Proxy Statement
Option Plan for its Annual Meeting of Stockholders to
be held January 27, 2000
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 and September 30, 1989, Exhibit 10(j) to
Restated as of November 17, Registrant's Report on Form 10-K for its
1989, as amended fiscal year ended September 30, 1990 and
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 Exhibit 10(g) to Registrant's Report on
Plan, as amended and Form 10-K for its fiscal year ended
Restated as of October September 30, 1997
1, 1997
10(h) Forms of Executive Officer Exhibit 10 to Registrant's Report on
Restricted Stock and Stock Form 10-Q for the quarter ended December
Option Agreement for 1995, 31, 1994 and Exhibit 10(c) to Registrant's
1996 (as supplemented) Report on Form 10-Q for the quarter ended
and 1997 and 1998 June 30, 1996 and Exhibit 4.4 to
Registrant's Registration Statement on
Form S-8, File No. 333-17711; Exhibit
4.5 to Registrant's Registration Statement
on Form S-8, File No. 333-17711; and
Exhibit 10(i) to Registrant's Report on
Form 10-K for its fiscal year ended
September 30, 1997
54
<PAGE>
Prior Filing(s) to which Reference is
Exhibit Description made, if applicable
- ----------------------------------------------------------------------------
10(i) Ninth Amendment to Advest Filed Herewith
Thrift Plan, effective as
of January 1, 1997
10(j) The Advest Thrift Plan, Filed Herewith
amended and restated
effective as of January 1, 1999
10(k) Registrant's Account Exhibit 10(m) to Registrant's Report on
Executive Nonqualified Form 10-K for its fiscal year ended
Defined Benefit September 30, 1993, Exhibit 10(p) to
Plan, 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(l) 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; Exhibit 10(b)
to Registrant's Report on Form 10-Q for
its fiscal quarter ended June 30, 1999
10(m) Registrant's 1995 through Exhibit 4.1 to Registrant's Registration
1998 Advest Equity Plans Statement on Form S-8, File No. 33-56275;
Exhibit 4 to Registrant's Registration
Statement on Form S-8, File No. 333-00797;
Exhibit 4.3 to Registrant's Registration
Statement on Form S-8, File No. 333-17711;
and Exhibit 10(p) to Registrant's Report
on Form10-K for its fiscal year ended
September 30, 1997
10(n) Advest Equity Plan, amended Filed Herewith
and restated as of June 3,
1999
10(o) Amended and Restated Exhibit 10(h) to Registrant's Report on
Employment Agreement with Form 10-Q for the quarter ended June 30,
former Chief Executive 1996; Exhibit 10(a) to Registrant's Report
Officer, as amended on Form 10-Q for its fiscal quarter ended
December 31, 1998
10(p) Employment Agreement with Exhibit 10(r) to Registrant's Report on
Chief Executive Officer and Form 10-K for its fiscal year ended
President, as amended September 30, 1997;
Exhibit 10(a) Registrant's Report on Form
10-Q for its fiscal quarter ended June 30,
1999
55
<PAGE>
Prior Filing(s) to which Reference is
Exhibit Description made, if applicable
10(q) Form of Executive Agreement Exhibit 10(q) to Registrant's Report on
dated September 24, 1998 Form 10-K for its fiscal year ended
September 30, 1998
10(r) Note Purchase Agreement of Exhibit 10(a) to Registrant's Report on
Registrant dated as of Form 10-Q for the quarter ended December
December 27, 1996 with 31, 1996
respect to Registrant's
7.95% Senior Notes due
December 31, 2003
10(s) Cash Subordination Agreement Exhibit 10(b) to Registrant's Report on
of the Registrant dated as Form 10-Q for the quarter ended December
of January 31, 1997 31, 1996
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
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of the year
ended September 30, 1999.
56
<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/ Grant W. Kurtz December 3, 1999
Grant W. Kurtz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Allen Weintraub Chairman of the Board December 3, 1999
Allen Weintraub
President, Chief Executive
/s/ Grant W. Kurtz Officer and Director December 3, 1999
Grant W. Kurtz
Executive Vice President and
Treasurer (Chief Financial
and Principal Accounting
/s/ Martin M. Lilienthal Officer) December 3, 1999
Martin M. Lilienthal
/s/ Sanford Cloud, Jr. Director December 3, 1999
Sanford Cloud, Jr.
Director December , 1999
Ronald E. Compton
Director December , 1999
Richard G. Dooley
57
<PAGE>
SIGNATURES
/s/ William B. Ellis Director December 3, 1999
William B. Ellis
/s/ Robert W. Fiondella Director December 3, 1999
Robert W. Fiondella
/s/ Marne Obernauer, Jr. Director December 3, 1999
Marne Obernauer, Jr.
/s/ Barbara L. Pearce Director December 3, 1999
Barbara L. Pearce
58
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
The Board of Directors and Shareholders
of The Advest Group, Inc.:
Our audits of the consolidated financial statements referred to in our report
dated October 27, 1999, appearing in the Annual Report to Shareholders of The
Advest Group, Inc. (which report and consolidated financial statements are
included in this Annual Report on Form 10-K) also included an audit of the
financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
October 27, 1999
59
<PAGE>
Schedule II
The Advest Group, Inc. and Subsidiaries
Valuation and Qualifying Accounts
Additions
Balance at charged to Charge-offs Balance
Beginning cost and and at end
In thousands of period expenses recoveries of period
- ------------------------------------------------------------------------
For the years ended September 30,
- --------------------------------
1999
- ----
Credit losses:
Brokerage customers $ 791 $100 $(343) $ 548
Asset devaluation:
Other investments/assets 1,371 503 (134) 1,740
------ ---- ------ -----
$2,162 $603 $(477) $2,288
====== ==== ====== ======
1998
- ----
Credit losses:
Brokerage customers $ 719 $ 88 $ (16) $ 791
Asset devaluation:
Other investments/assets 1,507 (13) (123) 1,371
------ ---- ------ -----
$2,226 $ 75 $(139) $2,162
====== ==== ====== ======
1997
- ----
Credit losses:
Brokerage customers $ 791 $ 91 $(163) $ 719
Asset devaluation:
Other investments/assets 1,708 153 (354) 1,507
------ ---- ------ -----
$2,499 $244 $(517) $2,226
====== ==== ====== ======
60
<PAGE>
Form 10-K
Exhibit Index
Exhibit Description
10(i) Ninth Amendment to The Advest Thrift Plan, effective
as of January 1, 1997
10(j) The Advest Thrift Plan, amended and restated effective
as of January 1, 1999
10(n) Advest Equity Plan, amended and restated as of June 3, 1999
21 Subsidiaries
23 Consent of PricewaterhouseCoopers LLP
27 Financial Data Schedule (Selected financial data - for EDGAR
electronic filing only to SEC)
61
<PAGE>
EXHIBIT 10(i)
NINTH AMENDMENT TO
THE ADVEST THRIFT PLAN
Effective as of January 1, 1997
(except as otherwise indicated)
1. Section 2.11 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, effective as of January 1, 1998:
"For Plan Years beginning after December 31, 1997, for purposes of
this Section, the determination of "415 Compensation" shall be made by
including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includible in the gross
income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in
Code Section 414(h)(2) that are treated as Employer contributions."
2. Section 2.14 of the Plan is hereby amended by deleting the last two
sentences from the end thereof.
3. Section 2.20 of the Plan is hereby amended by deleting the last paragraph
from the end thereof.
4. Article II is hereby further amended by deleting therefrom Section 2.21
and by renumbering subsequent sections accordingly.
5. Existing Section 2.24 of the Plan is hereby amended by deleting the last
paragraph from the end thereof.
6. Existing Section 2.25 of the Plan is hereby amended to read in its
entirety as follows:
"2.25 "Highly Compensated Employee" shall mean an Employee
who performed services for the Employer during the determination
year and is in one or more of the following groups:
(a) Employees who at any time during the determination
year or look-back year were five-percent owners of the
Employer. Five-percent owner means any person who owns
(or is considered as owning within the meaning of Section
318 of the Code) more than five percent of the outstanding
stock of the Employer or stock possessing more than five
percent of the total combined voting power of all stock of
62
<PAGE>
the Employer. In determining percentage ownership hereunder,
employers that would otherwise be aggregated under Sections
414(b), (c), (m) or (o) of the Code shall be treated as
separate employers.
(b) Employees who received Code Section 415 Compensation
during the look-back year from the Employer in excess of
$80,000 (as adjusted at the same time and in the same manner
as provided under Section 415(d) of the Code).
The "determination year" shall be the Plan Year for which testing
is being performed, and the "look-back year" shall be the immediately
preceding twelve-month period.
For purposes of this Section, the determination of Code Section
415 Compensation for Plan Years beginning before January 1, 1998 shall be
made by including amounts which are contributed by the Employer pursuant
to a salary reduction agreement and which are not includible in the gross
income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in
Code Section 414(h)(2) that are treated as Employer contributions.
Additionally, the dollar threshold amount specified in (b) above shall be
adjusted at such time and in the same manner as under Code Section
415(d), except that the base period shall be the calendar quarter ending
September 30, 1996. In the case of such an adjustment, the dollar limit
which shall be applied is the limit for the calendar year in which the
"look-back year" begins."
7. Existing Section 2.30 of the Plan is hereby amended to read in its
entirety as follows:
"2.30 "Non-Highly Compensated Participant" shall mean any
Participant who is not a Highly Compensated Employee."
8. Article II of the Plan is hereby further amended by adding the following
new Section 2.39 and by renumbering existing Section 2.39 and subsequent
sections accordingly: effective as of December 12, 1994:
"2.39 "USERRA" shall mean the Uniform Services Employment and
Reemployment Rights Act of 1994. Notwithstanding any provision of this
Plan to the contrary, contributions, benefits and service credit with
respect to qualified military service will be provided in accordance with
Code Section 414(u)."
63
<PAGE>
9. Section 5.3(b) of the Plan is hereby amended to read in its entirety as
follows:
"(b) For the purpose of this Section 5.3, "Actual Deferral Percentage"
for a Plan Year means, with respect to the Highly Compensated
Participant group and Non-Highly Compensated Participant group, the
average of the ratios, (calculated separately for each Active
Participant in such group) of:
(1) The Employee contributions and Employer contributions
designated as Employee contributions (if any) allocated to
each Highly Compensated Participant's Account for such Plan
Year (and contributed to the Plan within 12 months following
the end of the Plan Year) and to each Non-Highly Compensated
Participant's Elective Account for the preceding Plan Year
(and contributed to the Plan within 12 months following the
end of the Plan Year); to
(2) The Active Participant's 414(s) Compensation for such Plan
Year or preceding Plan Year respectively.
The actual deferral ratio for each Active Participant and the
Actual Deferral Percentage for each group shall be calculated to
the nearest one-hundredth of one percent. Employee contributions
allocated to each Non-Highly Compensated Employee's Account for the
preceding Plan Year shall be reduced by excess Employee
contributions for the preceding Plan Year to the extent such excess
amounts arise under this Plan or any other plan maintained by the
Employer."
10. Section 5.3(c) of the Plan is hereby deleted and subsequent subsections
are relettered accordingly.
11. Section 5.4(a)(2) of the Plan is hereby amended to read in its entirety as
follows:
"(2) On or before the fifteenth day of the third month following
the end of each Plan Year, the Highly Compensated Participant
having the largest amount of Employee contributions and
Employer contributions designated as Employee contributions
(if any) shall have his portion of excess Employee
contributions distributed to him until one of the tests set
forth above is satisfied, or until his amount of Employee
contributions and Employer contributions designated as
Employee contributions (if any) equals the amount of Employee
contributions and Employer contributions designated as
64
<PAGE>
Employee contributions (if any) of the Highly Compensated
Participant having the second largest amount. This process
shall continue until one of the tests set forth above is
satisfied. For each Highly Compensated Participant, the
amount of excess contributions is equal to the Employee
contributions and applicable Employer contributions (if any)
used to satisfy the Actual Deferral Percentage tests on
behalf of such Highly Compensated Participant (determined
prior to the application of this paragraph) minus the amount
determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after
application of this paragraph) by his 414(s) Compensation.
However, in determining the amount of excess Employee
contributions to be distributed with respect to an affected
Highly Compensated Participant as determined herein, such
amount shall be reduced by any excess Employee contributions
previously distributed to such affected Highly Compensated
Participant for his taxable year ending with or within such
Plan Year."
12. Section 5.4(b) of the Plan is hereby deleted.
13. Section 5.5(b) of the Plan is hereby amended to read in its entirety as
follows:
"(b) For the purpose of this Section 5.5, "Actual Contribution
Percentage" for a Plan Year means, with respect to the Highly
Compensated Participant group and Non-Highly Compensated
Participant group, the average of the ratios (calculated separately
for each Participant in each group) of:
(1) the Employer matching contributions (if any) made pursuant to
Section 5.1(b) on behalf of each such Highly Compensated
Participant for such Plan Year and each Non-Highly
Compensated Participant group for the preceding Plan Year; to
(2) the Active Participant's 414(s) Compensation for such Plan
Year or preceding Plan Year respectively.
The actual contribution ratio must be rounded to the nearest one-
hundredth of one percent."
65
<PAGE>
14. Section 5.5(d) of the Plan is hereby deleted and subsequent subsections
are hereby relettered accordingly.
15. Section 5.6(a) of the Plan is hereby amended to read in its entirety as
follows:
"(a) In the event that the Actual Contribution Percentage for the
Highly Compensated Participant group exceeds the Actual
Contribution Percentage for the Non-Highly Compensated
Participant group pursuant to Section 5.5(a), the Committee
(on or before the fifteenth day of the third month following
the end of the Plan Year, but in no event later than the
close of the following Plan Year) shall direct the Trustee to
distribute to the Highly Compensated Participant having the
largest amount of Employer matching contributions, his vested
portion of excess matching contributions (and income
allocable to such contributions) and, if forfeitable, forfeit
such non-vested Employer matching contributions (and income
allocable to such forfeitures) until either one of the tests
set forth in Section 5.5(a) is satisfied, or until his
remaining amount equals the amount of Employer matching
contributions of the Highly Compensated Participant having
the second largest amount. This process shall continue until
one of the tests set forth in Section 5.5(a) is satisfied.
The distribution of excess matching contributions shall be
made in the following order:
(1) Employer matching contributions distributed pursuant to
Section 5.4(a);
(2) Remaining Employer matching contributions."
16. Section 5.6(f) of the Plan is hereby deleted.
17. Article IX of the Plan is hereby amended by adding the following new
Section 9.5 to the end thereof, to read in its entirety as follows, effective as
of December 12, 1994:
"9.5 USERRA Compliance. Loan repayments will be suspended under
this Plan, as permitted under Code Section 414(u). "
18. Section 10.2 of the Plan is hereby amended to read in its entirety as
follows:
66
<PAGE>
"10.2 Commencement of Benefit Payments. The payment of benefits
under the Plan shall be made or begin on or after the date a Participant
terminates his service with the Employer and not later than the 120th day
after the Participant terminates his service with the Employer (or, in
the event of a Participant's Total Disability, within 120 days after the
determination of Total Disability). In addition, payment of a
Participant's benefits may be made or begin, at the Participant's
election, at any time on or after January 1 of the calendar year in which
the Participant attains age 70-1/2. Notwithstanding the foregoing,
payment of a Participant's benefits shall be made or begin not later than
April 1 of the calendar year following the later of (i) the calendar year
in which the Participant attains age 70-1/2, or (ii) the calendar year in
which the Participant retires, provided, however, that this clause (ii)
shall not apply in the case of a Participant who is a "five (5) percent
owner" at any time during the five (5) Plan Year period ending in the
calendar year in which he attains age 70 1/2 or, in the case of a
Participant who becomes a "five (5) percent owner" during any subsequent
Plan Year, clause (ii) shall no longer apply and the required beginning
date shall be the April 1st of the calendar year following the calendar
year in which such subsequent Plan Year ends."
19. Sections 10.8, 10.9, 10.11 and 10.13 of the Plan are hereby amended by
changing all references to "$3,500" to "$5,000", effective as of January 1,
1998.
20. Section 17.7 of the Plan is hereby amended by adding the following new
paragraph to the end thereof, to read in its entirety as follows:
"Notwithstanding any provision of this Section to the contrary, an
offset to a Participant's accrued benefit against an amount that the
Participant is ordered or required to pay the Plan with respect to a
judgment, order, or decree issued, or a settlement entered into, on or
after August 5, 1997, shall be permitted in accordance with Code Sections
401(a)(13)(C) and (D)."
67
<PAGE>
Exhibit 10(j)
The Advest Thrift Plan
Amended and Restated
Effective as of January 1, 1999
68
<PAGE>
Table of Contents
Page
ARTICLE I Establishment of the Plan 1
1.1 Establishment of the Plan 1
1.2 Applicability of the Plan 1
ARTICLE II Definitions 1
ARTICLE III Administration 5
3.1 Committee 5
3.2 Named Fiduciary 5
3.3 Powers of the Committee 5
3.4 Delegation of Duties 5
3.5 Administrator 5
3.6 Agent for Service 5
3.7 Action by Majority 5
3.8 Secretary; Action by Single Member 5
3.9 Member's Own Participation 5
3.10 Records 6
3.11 Compensation; Agents 6
3.12 Bonding; Liability of Committee 6
3.13 Fiduciary Responsibility 6
ARTICLE IV Participation and Enrollment 6
4.1 Service Requirement 6
4.2 Entry 6
4.3 Termination of Active Participation 6
4.4 Re-entry After Ceasing to be an Active Participant 6
ARTICLE V Contributions 7
5.1 Employer Contributions 7
5.2 Employee Contributions 7
5.3 Actual Deferral Percentage Test 7
5.4 Adjustment to Actual Deferral Percentage Tests 8
5.5 Actual Contribution Percentage Tests 9
5.6 Adjustment to Actual Contribution Percentage Tests 10
5.7 Crediting of 401(k) Account Contributions to Participants 11
5.8 Allocations of ESOP Contributions 11
5.9 Release of Shares for Allocation 11
5.10 Allocation of Dividends 11
5.11 Pass-Through of Dividends 12
5.12 Rollovers and Transfers 12
5.13 Allocation of Forfeitures 12
5.14 Limitation 12
5.15 Special Transfers 13
ARTICLE VI Vesting 13
6.1 Vesting 13
ARTICLE VII Investment Elections 13
7.1 Investment of Contributions 13
ARTICLE VIII Withdrawals 14
8.1 Hardship Withdrawals 14
ARTICLE IX Loans 14
9.1 Loans 14
9.2 Rate of Interest 15
9.3 Committee Approval 15
9.4 Loan Collateral 15
9.5 USERRA Compliance 15
ARTICLE X Payment of Benefits 15
10.1 Payment Options 15
10.2 Commencement of Benefit Payments 16
10.3 Form of Payment to Participants 16
10.4 Put Option 16
10.5 Protections and Rights 17
10.6 Protections and Rights Nonterminable 17
10.7 Fair Market Value 17
10.8 Special Distribution and Payment Requirements 17
10.9 Special Distributions to Qualified Participants 17
10.10 Change of Payment Method 18
10.11 Consent to Distributions 18
10.12 Direct Transfers 18
10.13 Forfeitures 18
ARTICLE XI Death Benefits 18
11.1 Distribution Upon Death 18
11.2 Designation of Beneficiary 19
ARTICLE XII Stock Rights of Participants 19
12.1 Voting Rights 19
12.2 Rights on Tender or Exchange Offer 19
12.3 Rights in Event of Default 20
ARTICLE XIII Termination of Plan 20
13.1 Termination 20
13.2 Distribution 20
13.3 Final Expenses 20
ARTICLE XIV Amendment of Plan 20
14.1 Amendment 20
14.2 Trustee 20
14.3 Change in Vesting 20
ARTICLE XV Claims Procedure 21
15.1 Claims 21
15.2 Notice of Denial 21
15.3 Review 21
ARTICLE XVI The Trustee 21
ARTICLE XVII Miscellaneous Provisions 22
ARTICLE XVIII Top-Heavy Plan Provisions 22
18.1 Compensation 22
18.2 Key Employee 22
18.3 Top-Heavy Plan 22
18.4 Top-Heavy Ratio 23
18.5 Permissive Aggregation Group 23
18.6 Required Aggregation Group 23
18.7 Determination Date 23
18.8 Determination Period 23
18.9 Valuation Date 23
18.10 Special Provisions 23
69
<PAGE>
ARTICLE I
Establishment of the Plan
1.1 Establishment of the Plan. The Advest Group, Inc. hereby amends and
restates The Advest Thrift Plan (hereinafter referred to as the "Plan"),
effective as of January 1, 1999.
1.2 Applicability of the Plan. The provisions set forth herein are applicable
only to Employees in the employ of the Company on or after the Effective Date
(except as otherwise indicated).
ARTICLE II
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:
2.1 "Account" shall mean the 401(k) Account and ESOP Account of a Participant
whether or not such accounts have actually been combined into one account.
2.2 "Accrued Benefit" shall mean the balance of a Participant's Account.
2.3 "Act" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and all regulations issued pursuant thereto.
2.4 "Active Participant" shall mean an Employee who is eligible to participate
in the Plan and has become and continues to be an Active Participant in the Plan
under the terms of Article IV hereof; provided, however, that for purposes of
Section 5.1, an "Active Participant" shall mean an Employee who is eligible to
be allocated Employer contributions under Section 5.1.
2.5 "Administrator" shall mean the person or persons designated by the
Committee, pursuant to Section 3.5 hereof, as the Administrator of the Plan,
within the meaning of Section 3 (16)(a) of the Act.
2.6 "Affiliate" shall mean (i) a member of a controlled group of corporations,
as defined in Section 1563(a) of the Code, determined without regard to Sections
1563(a)(4) and 1563(e)(3)(C), of which the Company is a member or (ii) an
unincorporated trade or business which is under common control with the Company
as determined in accordance with Section 414(c) of the Code. Notwithstanding
the foregoing, for purposes of applying the contribution limitation set forth in
Section 5.14 hereof, any determination under Section 1563 of the Code shall be
made assuming the phrase "more than 50 percent" was substituted for the phrase
"at least 80 percent" each place it appears in Section 1563(a)(1) of the Code.
2.7 "Beneficiary" shall mean a Participant's surviving spouse, if any, or any
other person designated by a Participant who is entitled to receive any benefits
payable hereunder upon the Participant's death pursuant to Section 11.2 hereof,
or the executor or administrator of the Participant's estate if there is no
surviving spouse and if no other Beneficiary shall have been effectively
designated by the Participant.
2.8 "Board" shall mean the Board of Directors of the Company or its Executive
Committee.
2.9 "1-Year Break in Service" shall mean the failure of an individual to
complete more than 500 Hours of Service in a Plan Year; provided, however, that
for the short Plan Year beginning October 1, 1992 and ending December 31, 1992,
a 1-Year Break in Service shall mean the period from January 1, 1992 to December
31, 1992 during which an Employee fails to complete more than 500 Hours of
Service. For purposes of this Section 2.9 only, an Employee who is absent from
work will be credited with an Hour of Service either during the Plan Year in
which such absence commences, or, if the Employee would not have incurred a 1-
Year Break in Service in such Plan Year without regard to this sentence, during
the following Plan Year, for each hour, based on the Employer's standard work
week and work day as in effect from time to time, during which such Employee is
absent from work by reason of (i) the pregnancy of the Employee, (ii) the birth
of a child of the Employee, (iii) the placement of a child with the Employee in
connection with the Employee's adoption of such child, or (iv) the need for
caring for a child referred to in clause (ii) or (iii) immediately following
such birth or placement, but only if the Participant has furnished to the
Administrator such timely information as may be reasonably required to establish
that the absence from work is for one or more of the reasons described in
clauses (i) through (iv).
2.10 "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and all regulations issued pursuant thereto.
2.11 "Code Section 415 Compensation" shall mean the Participant's wages and
salaries for personal services actually rendered in the course of employment
with the Employer maintaining the Plan paid or accrued during the Plan Year.
Code Section 415 Compensation shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, before the
application of the Code Section 415 limitations to the Plan, the contributions
are not includable in the gross income of the Employee for the taxable year in
which contributed, (2) Employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section 408(k) to the extent
such contributions are excludable from the Employee's gross income, and (3) any
distributions from a plan of deferred compensation regardless of whether such
amounts are includable in the gross income of the Employee when distributed
except any amounts received by an Employee pursuant to an unfunded non-qualified
plan to the extent such amounts are includable in the gross
70
<PAGE>
income of the Employee; (b) amounts realized from the exercise of a non-
qualified stock option or when restricted stock (or property) held by an
Employee either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture; (c) amounts realized from the sale, exchange or
other disposition of stock acquired under a qualified stock option; and (d)
other accounts which receive special tax benefits, such as premiums for group
term life insurance (but only to the extent that the premiums are not includable
in the gross income of the Employee), or contributions made by the Employer
(whether or not under a salary reduction agreement) towards the purchase of any
annuity contract described in Code Section 403(b) (whether or not the
contributions are excludable from the gross income of the Employee).
For purposes of this Section, the determination of "415 Compensation" shall be
made by including amounts which are contributed by the Employer pursuant to a
salary reduction agreement and which are not includable in the gross income of
the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or
457(b), and Employee contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
2.12 "Committee" shall mean the Administrative Committee established pursuant to
Section 3.1 hereof.
2.13 "Company" shall mean The Advest Group, Inc. or any successor corporation or
business organization that assumes the obligations of the Plan with respect to
its employees.
2.14 "Compensation" shall mean the base pay, plus any premiums for overtime or
night work, plus any additional compensation under any bonus or incentive plans
paid to an Employee during the Plan Year, including any salary deferrals under a
plan intended to meet the requirements of either Section 401(k) or Section 125
of the Code, but excluding any deferrals under nonqualified plans.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
Compensation of each Employee taken into account under the Plan shall not exceed
the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit
is $150,000, as adjusted by the Commissioner for increases in the cost of living
in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which Compensation and 414(s) Compensation is determined (a "determination
period") beginning in such calendar year. If a determination period consists of
fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision.
2.15 "Effective Date" shall mean January 1, 1999.
2.16 "Employee" shall mean any person employed by the Employer, excluding any
person hired or retained on a contract basis.
2.17 "Employer" shall mean the Company and each Affiliate that has adopted the
Plan or otherwise agreed to participate in the Plan, provided that the Board has
approved the participation of such Affiliate under the Plan.
2.18 "Entry Date" shall mean the first day of any month.
2.19 "ESOP Account" shall mean the account kept for a Participant, which
reflects amounts attributable to contributions made to the Plan prior to
December 31, 1992, amounts transferred to the Plan from The Advest Group, Inc.
Employees' Retirement Plan attributable to amounts transferred to such plan from
The Advest Group, Inc. Employee Stock Ownership Plan which was in effect on
September 30, 1984, any amounts contributed to the Plan on or after December 31,
1992 pursuant to Section 5.1(a), and any forfeitures of any such amounts
allocated pursuant to Section 5.13.
2.20 "ESOP Compensation" shall mean the total payments received by a Participant
from the Employer during the Plan Year and reportable on his Internal Revenue
Service Form W-2, including any amounts deferred by a Participant under a
qualified cash or deferred arrangement maintained by the Employer pursuant to
Section 401(k) of the Code and the amount of any reduction in a Participant's
compensation under a cafeteria plan maintained by the Employer pursuant to
Section 125 of the Code, and excluding amounts in excess of $60,000, multiplied
by the sum of one (1) plus a fraction, the numerator of which is the
Participant's Years of Service (not to exceed twenty (20)) and the denominator
of which is forty (40).
2.21 "Fiduciary" shall mean any person (i) who exercises any discretionary
authority or discretionary control respecting management of the Plan or any
authority or control respecting management or disposition of assets held under
the Plan but shall not include a Participant exercising such authority or
control solely by reason of investment of his own Account under Article VII of
this Plan; (ii) who renders investment advice, direct or indirect, as to assets
held under the Plan or has any authority or responsibility to do so; or (iii)
who has any discretionary authority or discretionary responsibility in the
administration of the Plan, within the meaning of Section 4975(e)(3) of the
Code.
2.22 "401(k) Account" shall mean the account kept for a Participant, which
reflects the Participant's Account excluding the Participant's ESOP Account.
2.23 "414(s) Compensation" shall mean, with respect to any Employee, his
deferred compensation plus Code Section 415 Compensation paid during a Plan
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Year. The amount of 414(s) Compensation with respect to any Employee shall
include 414(s) Compensation during the twelve (12) month period ending on the
last day of the Plan Year, except that for Plan Years beginning prior to January
1, 1990, 414(s) Compensation shall only be recognized as of an Employee's
effective date of participation in the Plan.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, the annual
414(s) Compensation of each Employee taken into account under the Plan shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation
limit is $150,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Code Section 401(a)(17)(B). The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which Compensation and 414(s) Compensation is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the OBRA '93 annual compensation limit
will be multiplied by a fraction, the numerator of which is the number of months
in the determination period, and the denominator of which is 12.
Any reference in this Plan to the limitation under Code Section 401(a)(17) shall
mean the OBRA '93 annual compensation limit set forth in this provision.
2.24 "Highly Compensated Employee" shall mean an Employee who performed services
for the Employer during the determination year and is in one or more of the
following groups:
(a) Employees who at any time during the determination year or look-back year
were five-percent owners of the Employer. Five-percent owner means any person
who owns (or is considered as owning within the meaning of Section 318 of the
Code) more than five percent of the outstanding stock of the Employer or stock
possessing more than five percent of the total combined voting power of all
stock of the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Sections 414(b), (c), (m) or (o) of the
Code shall be treated as separate employers.
(b) Employees who received Code Section 415 Compensation during the look-back
year from the Employer in excess of $80,000 (as adjusted at the same time and in
the same manner as provided under Section 415(d) of the Code).
The "determination year" shall be the Plan Year for which testing is being
performed, and the "look-back year" shall be the immediately preceding twelve-
month period.
The dollar threshold amount specified in (b) above shall be adjusted at such
time and in the same manner as under Code Section 415(d), except that the base
period shall be the calendar quarter ending September 30, 1996. In the case of
such an adjustment, the dollar limit which shall be applied is the limit for the
calendar year in which the "look-back year" begins.
2.25 "Highly Compensated Participant" shall mean any Highly Compensated Employee
who is eligible to participate in the Plan.
2.26 "Hour of Service" shall mean (i) each hour for which an individual is
directly or indirectly paid, or entitled to payment, by the Company or an
Affiliate, for the performance of duties, such hours to be credited to the
individual for the Plan Year in which the duties were performed, the foregoing
not to include holiday, vacation, sickness or disability time; (ii) each hour
for which an individual is directly or indirectly paid, or entitled to payment,
by the Company or an Affiliate for reasons (such as holidays, vacation, sickness
or disability) other than the performance of duties (to be credited in
accordance with Labor Department Regulation 2530.200b-2(c) or any successor
regulation); (iii) each hour, for which the individual is not otherwise
credited, for which back pay, irrespective of mitigation of damages, has been
either awarded or agreed to by the Company or an Affiliate, such hours to be
credited to the individual for the Plan Year to which the award or agreement
pertains rather than the Plan Year in which the award, agreement or payment is
made, and (iv) each hour, based on the Company's or an Affiliate's standard work
week and work day as in effect from time to time, during which the individual is
absent from work on account of:
(a) a leave of absence granted by the Company or an Affiliate for sickness or
disability, provided the individual returns to work with the Company or an
Affiliate within one week after the expiration of such leave of absence; and
(b) a leave of absence granted by the Company or an Affiliate for service in the
Armed Forces, provided the individual returns to work with the Company or an
Affiliate, under circumstances in which his rights to return are protected under
the terms of applicable Federal law, within 90 days, either:
(1) after having become entitled to release from active service in the Armed
Forces; or
(2) after release from hospitalization continuing for a period of not more than
one year after discharge from active service in the Armed Forces.
such hours to be credited to the individual for the Plan Year in which the
absence occurred. In determining Hours of Service for the purpose of clause
(ii) above, the provisions of Labor Department Regulation 2530.200b-2(b) or any
successor regulation shall be applicable.
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2.27 "Investment Date" shall mean the scheduled purchase dates determined by the
Committee, occurring not less frequently than once per month.
2.28 "Investment Vehicle" shall mean one or more of the following:
(a) "Equity Funds" which shall be invested in common stock and other equity
securities. Equity funds can include funds generally viewed as conservative,
growth oriented or aggressive.
(b) "Balanced Funds" which shall be invested in a balanced mixture of equity and
fixed income securities. Balanced Funds can include funds generally viewed as
conservative or growth oriented.
(c) "Fixed Funds" which shall be invested in fixed income securities. Fixed
Funds can include funds generally viewed as conservative.
(d) "Cash Funds" shall include money market funds and interest bearing accounts.
(e) "GIC Funds" which shall be invested in guaranteed investment contracts
(GICs) issued by insurance companies.
(f) Any securities which the Committee may determine to be a permissible
investment, subject to the conditions set forth in Section 7.1 hereof; provided,
that until the Committee otherwise determines, the following shall be
permissible investments: any investment in U.S. Treasury bills, notes and other
obligations; certificates of deposit; and zero coupon instruments.
2.29 "Non-Highly Compensated Participant" shall mean any Participant who is not
a Highly Compensated Employee.
2.30 "Normal Retirement Date" shall mean the date of a Participant's 65th
birthday.
2.31 "Participant" shall mean an individual (i) who is an Active Participant or
(ii) is a former Active Participant with an interest under the Plan.
2.32 "Plan Year" shall mean each twelve-month period ending on December 31.
2.33 "Shares" shall mean shares of common stock of the Company, which are
"qualifying employer securities" within the meaning of Sections 409(l) and
4975(e)(8) of the Code, or any successor sections.
2.34 "Stock Obligation" shall mean indebtedness arising from any extension of
credit to the Plan or the Trust obtained for the purpose of buying Shares.
2.35 "Total Disability" shall mean that disability which qualifies an Employee
to be considered a total and permanently disabled Employee as determined by the
Social Security Administration to be eligible to receive disability income
benefits under Title II of the Social Security Act, as amended from time to
time.
2.36 "Trust" shall mean the trust created by the trust agreement, as amended
from time to time, entered into by the Company and the Trustee for the purpose
of holding the Trust Fund.
2.37 "Trustee" shall mean the person or persons who may at any time be acting as
trustee or trustees of the Trust.
2.38 "Trust Fund" shall mean all funds received by the Trustee from the Employer
or any Participant or as a rollover amount as defined in Section 402(a)(5),
403(a)(4), 408(d)(3) or 409(b)(3)(C) of the Code, pursuant to the terms hereof,
together with all income, profits and increments thereon, and less any expenses,
losses and payments therefrom.
2.39 "USERRA" means the Uniformed Services Employment and Reemployment Rights
Act of 1994. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code Section 414(u).
2.40 "Unallocated Stock Account" shall mean the account maintained pursuant to
Section 5.9 hereof.
2.41 "Valuation Date" shall mean the close of business on the last business day
of each month, and such other date or dates determined by the Committee, in its
discretion. The assets of the Plan shall be valued, and each Participant's
Account shall be adjusted for income or loss on each Valuation Date.
2.42 "Year of Service" shall mean each Plan Year during which the Employee has
completed not less than 1,000 Hours of Service, including any such Plan Year
prior to the Effective Date. For the short Plan Year which commenced October 1,
1992, an individual shall be credited with a Year of Service upon completion of
1,000 Hours of Service during the 12-month period that began January 1, 1992 and
ended December 31, 1992.
Years of Service with Ironwood Capital Partners Ltd. and its affiliated
corporations shall be recognized for purposes of eligibility and vesting. Years
of Service with Newhard, Cook & Co. Incorporated shall be recognized for
purposes of eligibility. In addition, the Committee may designate in writing
other organizations for which Years of Service with will be recognized for
purposes of eligibility and/or vesting.
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.
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ARTICLE III
Administration
3.1 Committee. The Board shall appoint the members of a Committee to be known
as the Administrative Committee, which members shall hold office at the pleasure
of the Board. Said Committee shall consist of not less than 3 nor more than 10
members, any one or more of whom may, but need not, be an officer of the Company
or any Affiliate. If there is at any time a vacancy on the Committee for any
reason, the Board or Chief Executive Officer of the Company shall fill such
vacancy, but the Committee may act notwithstanding the existence of vacancies as
long as there shall continue to be at least three members of the Committee.
The Committee may select a Chairman from among its members.
3.2 Named Fiduciary. The Committee is hereby designated the Named Fiduciary of
the Plan, within the meaning of Section 402(a) of the Act, and subject to the
provisions hereof, shall have the authority to control and manage the operation
and administration of the Plan.
3.3 Powers of the Committee. The Committee shall have all powers necessary to
determine in its sole discretion all questions concerning the administration of
the Plan, including without limitation questions of eligibility of Employees,
funding policy and the amount of any benefits payable hereunder. In addition,
the Committee shall have full authority to interpret and apply the provisions
hereof, including without limitation authority to correct any defects or
omissions or reconcile any inconsistencies herein, in such a manner and to such
an extent as it shall deem necessary or desirable to effectuate the Plan. The
Committee may make such rules and regulations for the administration of the Plan
and the interpretation and application of the provisions hereof, as it deems
necessary or desirable. Subject to the provisions of Article XIV hereof, any
determination by the Committee within the scope of its authority and any action
taken thereon in good faith shall be conclusive and binding on all persons.
3.4 Delegation of Duties. The Committee shall have authority in its sole
discretion to designate or appoint, from time to time, in writing (i) persons to
render advice to it with regard to any responsibility it has under the Plan, and
(ii) persons to carry out specified fiduciary responsibilities for the operation
and administration of the Plan, other than any responsibility concerning the
assets of the Plan provided for in the trust agreement creating the Trust. Any
such person shall serve at the pleasure of the Committee and may delegate any of
its powers and duties to any person referred to in clause (ii) above, subject to
the limitation contained therein. Any such delegation of powers and duties
shall be made and acknowledged in writing.
3.5 Administrator. The Committee shall designate an Administrator of the Plan
who may, but need not be, an officer of the Company or any Affiliate. In
addition to carrying out any duties required of the Administrator by applicable
provisions of the Act, the Administrator shall prepare and file, or cause to be
prepared and filed, such reports, descriptions, summaries and statements (which
may consist of copies of regularly issued broker-dealer statements with respect
to the accounts) to Participants and Beneficiaries as may be necessary or
desirable, within the time specified thereof. Any delegation of duties to the
Administrator by the Committee shall be made and acknowledged in writing. The
Administrator shall serve at the pleasure of the Committee and may resign by
delivering written notice to the Committee. If at any time there shall be a
vacancy in the position of the Administrator, the Chairman of the Committee
shall serve as Administrator until said position has been filled as herein
provided, (or, if no Chairman has been designated, the Director of Human
Resources at Advest).
3.6 Agent for Service. The Administrator shall be the agent for service of
legal process in connection with any claim or proceeding relating to the Plan.
3.7 Action by Majority. Any action which the Committee is authorized or
required to take may be taken by a majority of the members of the Committee then
holding office. The action of such majority of the members of the Committee,
expressed by a vote at a meeting, or in writing without a meeting, shall
constitute the action of the Committee, and shall have the same effect for all
purpose as if assented to by all the members of the Committee then holding
office.
3.8 Secretary; Action by Single Member. The Committee may from time to time
appoint a Secretary, who may or may not be a member of the Committee and who
shall serve at the pleasure of the Committee and may resign by delivering
written notice to the Committee. The Committee may from time to time authorize
any one or more of its members to execute any document on behalf of the
Committee. The Committee shall certify to the Trustee the name of any such
member authorized to act for it in its relationship with the Trustee and the
extent and duration of such authorization.
3.9 Member's Own Participation. The member of the Committee who is also a
Participant shall not vote on the exercise of any rights or options or any other
matter with respect to his individual rights as a Participant; provided,
however, that this prohibition shall not be construed as preventing such member
from voting on matters which affect all or a broad category of Participants.
3.10 Records. The Committee shall keep such records of its proceedings and acts
as may in its discretion be necessary or desirable for the proper administration
of the Plan. The Committee shall make available to each Participant or
Beneficiary, for examination at its principal office or such other place as the
Committee may in its sole discretion decide is necessary or desirable to make
available all pertinent records to such Participant or
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Beneficiary, such of its records as may pertain to such Participant or
Beneficiary, and such Participant or Beneficiary shall have the right to examine
the same during normal business hours. The Company may at any time inspect the
records of the Committee or have the same inspected by an agent or Employee and
may at any time demand an accounting from the Committee.
3.11 Compensation; Agents. Any members of the Committee may be paid such
reasonable compensation for attending meetings of the Committee as may be voted
by the Board in its sole discretion. All expenses properly attributable to the
operations and administration of the Plan, including fees paid to agents,
advisors, counsel, investment managers and other persons designated or appointed
by the Committee to assist it, shall be paid by the Employer.
3.12 Bonding; Liability of Committee. The Committee, or the Administrator, if
so directed by the Committee, shall insure that each Fiduciary of the Plan,
including each member of the Committee, is bonded in accordance with applicable
laws, rules or regulations, including without limitation Section 412 of the Act.
The Employer shall indemnify and hold harmless each member of the Committee, the
Administrator, and any other Fiduciary with respect to the Plan, if he is, or
was at the time of the acts or failure to act in question, a director, officer
or Employee of the Employer, from any liability, claim, demand, suit or action
of any type, including without limitation reasonable attorneys' fees, arising
from any action or failure to act, provided that such persons acted in good
faith, in a manner he reasonably believed to be in the best interests of the
Plan and consistent with the provisions of the Plan and, with respect to any
criminal action or proceeding, that he had no reasonable cause to believe his
conduct was unlawful.
3.13 Fiduciary Responsibility. Any Fiduciary with respect to the Plan shall
discharge his duties solely in the interest of the Participants and
Beneficiaries for the exclusive purpose of providing benefits to Participants
and Beneficiaries and defraying reasonable expenses of administering the Plan.
In addition, any Fiduciary with respect to the Plan shall discharge his duties
with the care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such
matters would use in the conduct of any enterprise of a like character with like
aims.
ARTICLE IV
Participation and Enrollment
4.1 Service Requirement. Effective April 1, 1999, every Employee of the
Employer who is scheduled to work at least 20 hours per week and who is not
classified by the Employer as a "temporary employee" shall be eligible to
participate in the Plan as of the Entry Date coinciding with or next following
the date the Employee first becomes an Employee. Notwithstanding the foregoing,
an Employee shall not be eligible to be allocated Employer contributions under
Section 5.1, and an Employee scheduled to work less than 20 hours per week or
who is classified by the Employer as a "temporary employee" shall not be
eligible to participate in the Plan at all, until the Entry Date coinciding with
or next following the date one year following the date the Employee first
completed an Hour of Service if he has completed 1,000 Hours of Service within
that consecutive 12-month period, or if he has not completed 1,000 Hours of
Service during that initial 12 consecutive months, the end of the first Plan
Year in which he completes at least 1,000 Hours of Service.
If an individual associated with an Affiliate that has not adopted the Plan
meets the requirements of the preceding paragraph but is not an Employee of the
Employer on the applicable Entry Date, he shall be eligible to participate in
the Plan in accordance with the preceding paragraph as of the date he
subsequently becomes an Employee of the Employer.
4.2 Entry. Every Employee on the Effective Date who met the requirement of
Section 4.1 hereof shall be eligible to participate in the Plan as of that date.
Each Employee who is eligible to participate in the Plan shall become an Active
Participant as of the first Entry Date after he becomes eligible. The Committee
shall notify each Employee of his eligibility to participate in the Plan as of
the applicable Entry Date upon meeting the requirement of Section 4.1 hereof.
4.3 Termination of Active Participation. If an Employee who is an Active
Participant in the Plan ceases to be an Employee he shall cease to be an Active
Participant.
4.4 Re-entry After Ceasing to be an Active Participant. If an Active
Participant ceases to be an Employee but thereafter again becomes an Employee,
he shall again become an Active Participant as of the date on which he again
becomes an Employee.
ARTICLE V
Contributions
5.1 Employer Contributions.
(a) The Employer shall contribute to the Plan (for allocation to Participants'
ESOP Accounts) for each Plan Year, within the time prescribed by law for filing
of the income tax return for the Company's fiscal year, including any extensions
thereof, in cash or Shares as determined by the Board, such amount as shall be
determined by the Board; provided, however, that the Employer shall contribute
in cash to the Plan hereunder amounts sufficient to pay, as they become due, all
currently maturing obligations under any Stock Obligation and all amounts
required under any contributions agreement between the Employer and the Trustee.
(b) The Employer shall contribute to the Plan (for allocation to Participant's
401(k) Accounts) for each Plan Year, within the time prescribed by law for
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filing of the income tax return for the Company's fiscal year, including
extensions thereof, an amount on behalf of each Active Participant, as
determined by the Board, subject to the limitations of Section 5.14 hereof,
according to one or both of the following formulas:
(1) The Employer Percentage Contribution Formula. The Employer shall contribute
an amount determined by the Board, which shall be allocated among the 401(k)
Accounts of each Active Participant in proportion to such Active Participant's
Compensation earned while an Active Participant. Such contribution made for any
month shall only be allocated to Participants who receive pay on the last pay
day of such month and such contribution made for any year shall only be
allocated to Participants who receive pay on the last pay day of such year.
(2) The Employer Matching Contribution Formula. The Employer shall contribute
to the Plan an amount to be allocated among the 401(k) Accounts of each Active
Participant for each Active Participant equal to such Active Participant's
Employee contributions, not in excess of 2% of such Active Participant's
Compensation earned while an Active Participant, which are collected by payroll
deduction. Such contribution shall only be allocated to Participants with
respect to Employer contributions made for a month if such Participants receive
pay on the last pay day of such month and with respect to Employer contributions
made for a year if such Participants receive pay on the last pay day of such
year.
5.2 Employee Contributions. Each Active Participant may contribute to the Plan
in any Plan Year such amount as he may determine to be desirable; provided,
however, that such contributions may not exceed $7,000 in a calendar year (as
adjusted at the same time and in the same manner as provided under Section
415(d) of the Code in accordance with Treasury Regulations).
Notwithstanding the above, the amount of each Active Participant's contribution
for any Plan Year which is collected for the Plan by payroll deductions shall
not exceed 15% of such Active Participant's Compensation or such other
percentage as the Committee may from time to time determine. The minimum
payroll deduction amount shall be determined by the Committee but shall in no
event be less than $20.00 a month. Within the permissible limits, each
Participant shall determine the amount of his payroll deduction by written
direction to the Committee within 30 days after becoming a Participant.
Thereafter, the Active Participant may change the amount of his payroll
deduction contribution quarterly, or more frequently as permitted on a uniform
basis by the Committee, by filing another written direction with the Committee
within 30 days after the Plan's Entry Dates, or at such other times permitted by
the Committee. Such contributions shall be paid by the Employer to the Active
Participant's 401(k) Account not less frequently than once every 30 days.
In addition to, or exclusive of, payroll deduction contributions, Active
Participants may make lump-sum contributions from specific payroll periods to
the Plan by written direction to the Committee at time periods as determined by
the Committee and within the time prescribed by law for filing of the income tax
return of the Company's fiscal year, including extensions.
5.3 Actual Deferral Percentage Test.
(a) For this Article V to maintain its status as a qualified cash or deferred
arrangement pursuant to Section 401(k) of the Code, the Actual Deferral
Percentage for Highly Compensated Participants (as defined below) for each Plan
Year must bear a relationship to the Actual Deferral Percentage for all other
eligible employees for such Plan Year which meets one of the following tests:
(1) The Actual Deferral Percentage of the Highly Compensated Participant group
shall not be more than the Actual Deferral Percentage of the Non-Highly
Compensated Participant group multiplied by 1.25, or
(2) The excess of the Actual Deferral Percentage of the Highly Compensated
Participant group over the Actual Deferral Percentage of the Non-Highly
Compensated Participant group shall not be more than two percentage points.
Additionally, the Actual Deferral Percentage of the Highly Compensated
Participant group shall not exceed the Actual Deferral Percentage of the Non-
Highly Compensated Participant group multiplied by 2. The provisions of Section
401(k)(3) of the Code and Treasury Regulations Section 1.401(k)-1(b) are
incorporated herein by reference. In order to prevent the multiple use of the
alternative method described in this paragraph and in Section 401(m)(9)(A) of
the Code, any Highly Compensated Participant eligible to make Employee
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contributions pursuant to this Plan or to receive Employer matching
contributions under this Plan or under any other plan maintained by the Employer
or an Affiliate shall have his actual contribution ratio reduced pursuant to
Treasury Regulations Section 1.401(m)-2, the provisions of which are
incorporated herein by reference.
(b) For the purpose of this Section 5.3, "Actual Deferral Percentage" for a Plan
Year means, with respect to the Highly Compensated Participant group and Non-
Highly Compensated Participant group, the average of the ratios, (calculated
separately for each Active Participant in such group) of:
(1) The Employee contributions and Employer contributions designated as Employee
contributions (if any) allocated to each Highly Compensated Participant's
Account for such Plan Year (and contributed to the Plan within 12 months
following the end of the Plan Year) and to each Non-Highly Compensated
Participant's Elective Account for the preceding Plan Year (and contributed to
the Plan within 12 months following the end of the Plan Year); to
(2) The Active Participant's 414(s) Compensation for such Plan Year or preceding
Plan Year respectively.
The actual deferral ratio for each Active Participant and the Actual Deferral
Percentage for each group shall be calculated to the nearest one-hundredth of
one percent. Employee contributions allocated to each Non-Highly Compensated
Employee's Account for the preceding Plan Year shall be reduced by excess
Employee contributions for the preceding Plan Year to the extent such excess
amounts arise under this Plan or any other plan maintained by the Employer.
(c) For the purpose of this Section, a Highly Compensated Participant and a Non-
Highly Compensated Participant shall include any Employee eligible to make a
payroll deduction pursuant to Section 5.2, whether or not such contribution was
made or amended.
(d) For purposes of this Section, if two or more plans of the Employer (other
than an employee stock ownership plan as defined in Section 4975(e)(7) of the
Code), which include cash or deferred arrangements, are considered one plan for
the purposes of Section 401(a)(4) or 410(b) of the Code (other than the average
benefits test under Section 410(b)(2)(A)(ii) of the Code), the cash or deferred
arrangements included in such plans shall be treated as one arrangement.
(e) For the purposes of this Section, if a Highly Compensated Participant is an
Active Participant under two or more cash or deferred arrangements of the
Employer or an Affiliate (other than a cash or deferred arrangement which is
part of an employee stock ownership plan), all such cash or deferred
arrangements shall be treated as one cash or deferred arrangement for the
purpose of determining the deferral percentage with respect to such Highly
Compensated Participant. However, if the cash or deferred arrangements have
different plan years, this paragraph shall be applied by treating all cash or
deferred arrangements ending with or within the same calendar year as a single
arrangement.
5.4 Adjustment to Actual Deferral Percentage Tests.
(a) In the event that the initial allocations of the Employee contributions and
Employer contributions designated as Employee contributions (if any) do not
satisfy one of the tests set forth above, the Committee shall adjust excess
contributions pursuant to the options set forth below:
(1) Within 12 months after the end of the Plan Year, the Employer may make an
additional Employer contribution, designated as an Employee contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy
one of the tests set forth in Section 5.3. Such contribution shall be allocated
in proportion to each such Non-Highly Compensated Participant's Compensation,
and shall be treated as an Employee contribution for purposes of Articles VI and
VIII of the Plan; or
(2) On or before the fifteenth day of the third month following the end of each
Plan Year, the Highly Compensated Participant having the largest amount of
Employee contributions and Employer contributions designated as Employee
contributions (if any) shall have his portion of excess Employee contributions
distributed to him until one of the tests set forth above is satisfied, or until
his amount of Employee contributions and Employer contributions designated as
Employee contributions (if any) equals the amount of Employee contributions and
Employer contributions designated as Employee contributions
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(if any) of the Highly Compensated Participant having the second largest amount.
This process shall continue until one of the tests set forth above is satisfied.
For each Highly Compensated Participant, the amount of excess contributions is
equal to the Employee contributions and applicable Employer contributions (if
any) used to satisfy the Actual Deferral Percentage tests on behalf of such
Highly Compensated Participant (determined prior to the application of this
paragraph) minus the amount determined by multiplying the Highly Compensated
Participant's actual deferral ratio (determined after application of this
paragraph) by his 414(s) Compensation. However, in determining the amount of
excess Employee contributions to be distributed with respect to an affected
Highly Compensated Participant as determined herein, such amount shall be
reduced by any excess Employee contributions previously distributed to such
affected Highly Compensated Participant for his taxable year ending with or
within such Plan Year.
With respect to the distribution of excess Employee contributions, such
distribution:
(A) may be postponed but not later than the close of the succeeding Plan Year;
(B) shall be made first from unmatched Employee contributions and, thereafter,
simultaneously from Employee contributions which are matched (if any) and
Employer matching contributions (if any) which relate to such Employee
contributions provided, however, that any Employer matching contributions that
are not vested, shall be forfeited in lieu of distribution;
(C) shall be adjusted for income; and
(D) shall be designated by the Employer as a distribution of excess Employee
contributions and income.
Any distribution of less than the entire amount of excess Employee contributions
shall be treated as a pro rata distribution of excess Employee contributions and
income.
For purposes of this Section 5.4, "income" means the income or losses allocable
to excess contributions which shall equal the allocable gain or loss for the
Plan Year. The income allocable to excess contributions for the Plan Year is
determined by multiplying the income for the Plan Year by a fraction. The
numerator of the fraction is the excess contribution for the Plan Year. The
denominator of the fraction is the total Participant's 401(k) Account
attributable to Employee contributions as of the end of the Plan Year, reduced
by the gain allocable to such total amount for the Plan Year and increased by
the loss allocable to such total amount for the Plan Year.
5.5 Actual Contribution Percentage Tests.
(a) For this Plan to maintain its qualified status, the Actual Contribution
Percentage for the Highly Compensated Participant group shall not exceed the
greater of:
(1) 125% of such percentage of the Non-Highly Compensated Participant group; or
(2) the lesser of 200% of such percentage of the Non-Highly Compensated
Participant group, or such percentage of the Non-Highly Compensated Participant
group plus two percentage points. However, to prevent the multiple use of the
alternative method described in this paragraph and Code Section 401(m)(9)(A),
any Highly Compensated Participant eligible to make Employee contributions
pursuant to Section 5.2 or any other cash or deferred arrangement maintained by
the Employer or an Affiliate and to receive Employer matching contributions
under this Plan or under any other plan maintained by the Employer or an
Affiliate shall have his actual contribution ratio reduced pursuant to Treasury
Regulations Section 1.401(m)-2. The provisions of Section 401(m) of the Code
and Treasury Regulations Sections 1.401(m)-1(b) and 1.401(m)-2 are incorporated
herein by reference.
(b) For the purpose of this Section 5.5, "Actual Contribution Percentage" for a
Plan Year means, with respect to the Highly Compensated Participant group and
Non-Highly Compensated Participant group, the average of the ratios (calculated
separately for each Participant in each group) of:
(1) the Employer matching contributions (if any) made pursuant to Section 5.1(b)
on behalf of each such Highly Compensated Participant for such Plan Year and
each Non-Highly Compensated Participant group for the preceding Plan Year; to
(2) the Active Participant's 414(s) Compensation for such Plan Year or preceding
Plan Year respectively.
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The actual contribution ratio must be rounded to the nearest one-hundredth of
one percent.
(c) For purposes of determining the Actual Contribution Percentage and the
amount of excess matching contributions pursuant to Section 5.6, only Employer
matching contributions (excluding Employer matching contributions forfeited
pursuant to Section 3.4(a)(2)) contributed to the Plan prior to the end of the
succeeding Plan Year shall be considered.
(d) For purposes of this Section, if two or more plans of the Employer (other
than an employee stock ownership plan as defined in Section 4975(e)(7) of the
Code) to which matching contributions or elective deferrals are made are treated
as one plan for purposes of Section 401(a)(4) or 410(b) of the Code (other than
the average benefits test under Section 410(b)(2)(A)(ii) of the Code), such
plans shall be treated as one plan for purposes of this Section 5.5. In
addition, two or more plans of the Employer to which matching contributions or
elective deferrals are made may be considered as a single plan for purposes of
this Section. In such a case, the aggregated plans must satisfy Code Sections
401(a)(4) and 410(b) as though such aggregated plans were a single plan.
Notwithstanding the above, contributions to an employee stock ownership plan as
defined in Code Section 4975(e)(7) shall not be aggregated with this Plan.
(e) If a Highly Compensated Participant participates in two or more plans (other
than an employee stock ownership plan) which are maintained by the Employer or
an affiliate to which matching contributions or elective deferrals are made, all
such contributions on behalf of such Highly Compensated Participant shall be
aggregated for purposes of this Section 5.5.
(f) For purposes of Sections 5.5(a) and 5.6, the terms "Highly Compensated
Participant" and "Non-Highly Compensated Participant" shall include any Employee
eligible to have Employer matching contributions pursuant to Section 5.1(b)
(whether or not a deferral election was made or suspended pursuant to Sections
5.2 and 8.2) allocated to his Account for the Plan Year.
5.6 Adjustment to Actual Contribution Percentage Tests.
(a) In the event that the Actual Contribution Percentage for the Highly
Compensated Participant group exceeds the Actual Contribution Percentage for the
Non-Highly Compensated Participant group pursuant to Section 5.5(a), the
Committee (on or before the fifteenth day of the third month following the end
of the Plan Year, but in no event later than the close of the following Plan
Year) shall direct the Trustee to distribute to the Highly Compensated
Participant having the largest amount of Employer matching contributions, his
vested portion of excess matching contributions (and income allocable to such
contributions) and, if forfeitable, forfeit such non-vested Employer matching
contributions (and income allocable to such forfeitures) until either one of the
tests set forth in Section 5.5(a) is satisfied, or until his remaining amount
equals the amount of Employer matching contributions of the Highly Compensated
Participant having the second largest amount. This process shall continue until
one of the tests set forth in Section 5.5(a) is satisfied. The distribution of
excess matching contributions shall be made in the following order:
(1) Employer matching contributions distributed pursuant to Section 5.4(a);
(2) Remaining Employer matching contributions.
(b) Any distribution of less than the entire amount of excess matching
contributions and income shall be treated as a pro rata distribution of excess
matching contributions and income. Distribution of excess matching
contributions shall be designated by the Employer as a distribution of excess
matching contributions and income.
(c) Excess matching contributions including forfeited matching contributions
shall be treated as Employer contributions for purposes of Code Sections 404 and
415 even if distributed from the Plan.
(d) For each Highly Compensated Participant, the amount of excess matching
contributions is equal to the total Employer matching contributions made
pursuant to Section 5.1(b) minus the amount determined by multiplying the Highly
Compensated Participant's actual contribution ratio (determined after
application of this paragraph) by his 414(s) Compensation. In no case shall the
amount of excess matching contributions with respect to any Highly Compensated
Participant exceed the amount of Employer matching contributions made pursuant
to Section 5.1(b) on behalf of such Highly Compensated Participant for such Plan
Year.
(e) The determination of the amount of excess matching contributions with
respect to any Plan Year shall be made after first determining the excess
contributions, if any, to be treated as employee contributions due to
recharacterization for the plan year of any other qualified cash or deferred
arrangement (as defined in Code Section 401(k)) maintained by the Employer that
ends with or within the Plan Year of this Plan.
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For purposes of this Section 5.6, "income" means the income or losses allocable
to excess matching contributions which shall equal the allocable gain or loss
for the Plan Year. The income allocable to excess matching contributions for
the Plan Year is determined by multiplying the income for the Plan Year by a
fraction. The numerator of the fraction is the excess matching contribution for
the Plan Year. The denominator of the fraction is the total Participant's
401(k) Account attributable to Employer matching contributions as of the end of
the Plan Year, reduced by the gain allocable to such total amount for the Plan
Year and increased by the loss allocable to such total amount for the Plan Year.
5.7 Crediting of 401(k) Account Contributions to Participants. The Employer
contributions identified in Section 5.1(b) above and the Employee contributions
identified in Section 5.2 above for each Plan Year shall be credited as of the
date of receipt by the Trust Fund to the 401(k) Accounts of Participants on
whose behalf or by whom they were made.
5.8 Allocations of ESOP Contributions. Subject to the limitations of Section
5.14, as of the last day of a Plan Year, the sum of (a) the Shares released from
the Unallocated Stock Account for that year pursuant to Section 5.9 which have
not been allocated pursuant to Section 5.10, plus (b) any Employer contributions
under Section 5.1(a) for that year not applied against Stock Obligations or
allocated pursuant to Section 5.10, shall be allocated among the ESOP Accounts
of the Participants on the basis of the percentage that each Participant's ESOP
Compensation during all or that part of the Plan Year in which he was a
Participant is of the total ESOP Compensation of all Participants for all or
that portion of the Plan Year in which they were Participants.
Notwithstanding the foregoing, no allocation shall be made pursuant to this
Section 5.8 to the ESOP Account of a Participant who was not a Participant on
the last day of the Plan Year; provided that a Participant who retires, incurs a
Total Disability or dies prior to the end of a Plan Year shall be included in
the allocation made pursuant to this Section 5.8.
5.9 Release of Shares for Allocation. An Unallocated Stock Account shall be
maintained in which the Plan's holdings of Shares which have been purchased on
credit, whether or not the Shares are pledged as collateral, shall be segregated
until payments on the corresponding Stock Obligations permit the release of the
Shares for allocation to Participants in accordance with this Section 5.9. Any
dividends with respect to such segregated Shares which are paid by the Company
in the form of additional Shares shall also be segregated in the Unallocated
Stock Account and thereafter treated in the same manner as the underlying
segregated Shares. For each Plan Year for which Employer contributions or
earnings on contributions are applied to satisfy a portion of a Stock
Obligation, a certain number of Shares held in the Unallocated Stock Account
shall be released for allocation among the Participants. The number of Shares
released shall bear the same ratio to the number of Shares attributable to the
Stock Obligation which are then in the Unallocated Stock Account (prior to the
release) as (a) the principal and interest payments made on the Stock Obligation
for the Plan Year bears to (b) the payments described in clause (a) plus the
total remaining principal and interest payments required (or projected to be
required on the basis of the interest rate in effect at the end of the Plan
Year) to satisfy the Stock Obligation. For this purpose, each Stock Obligation,
the Shares purchased in connection with it, and any stock dividends on such
Shares, shall be considered separately. Notwithstanding the foregoing, if a
Stock Obligation provides for equal annual principal payments, and has a term
not in excess of ten years, the number of Shares to be released may be
determined solely with reference to principal payments made for a Plan Year. In
addition, if the Stock Obligation is not made by or guaranteed by a disqualified
person (as defined in Section 4975(e)(2) of the Code), the number of Shares to
be released shall be determined in accordance with the terms of any pledge
agreement entered into in connection with the Stock Obligation.
5.10 Allocation of Dividends. Any cash dividends received on Shares allocated
to Participants' 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. In the event that the fair market value of all
Shares released from the Unallocated Stock Account is less than the aggregate
amount of cash dividends on Shares allocated to Participant's ESOP Accounts for
a Plan Year used to satisfy Stock Obligations, then the Employer shall
contribute an amount equal to the difference which shall be allocated among the
ESOP Accounts of Participants so that the sum of the fair market value of shares
released from the Unallocated Stock Account and such Employer contributions
allocated to each Participant's ESOP Account equals the cash dividends on Shares
allocated to such Participant's ESOP Account used to satisfy Stock Obligations.
Any dividends in the form of additional Shares received on Shares allocated to
Participants' ESOP Accounts shall be allocated to the same ESOP Accounts. Any
cash dividends received on Shares held in the Unallocated Stock Account which
are not used to satisfy Stock Obligations shall be included in the net income
(or loss) of the Trust for the Plan Year. Notwithstanding the foregoing, any
cash dividends received on Shares which are distributed to Participants pursuant
to Section 5.11 shall not be allocated to their accounts.
5.11 Pass-Through of Dividends. Any cash dividends received by the Trust on
Shares allocated to Participants' ESOP Accounts shall be paid in cash to such
Participants, rather than being allocated to Participants' ESOP Accounts
pursuant to Section 5.10, not later than 90 days after the close of the Plan
Year in which such dividends are paid, if the Board so directs the Trustee.
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5.12 Rollovers and Transfers. An Employee may, with the consent of the
Committee, which shall be granted or withheld in a nondiscriminatory manner,
roll over to the Employee's 401(k) Account within 60 days of his receipt
thereof, all or any part of the amount distributed to him in cash or in kind
within one taxable year of the Employee as a rollover amount, as defined in
Section 402(a)(5), 403(a)(4), 408(d)(3) or 409(b)(3)(C) of the Code, or from a
conduit individual retirement account under Sections 402 and 408 of the Code, to
the extent permitted by the Code; provided, however, that no such rollover
amount may include any amounts constituting the Employee's contributions. The
Committee may require such information or documentation with respect to any such
rollover contribution hereunder as it deems necessary or desirable. Any
expenses related to such rollover account shall be allocated to such 401(k)
Account.
Amounts may be transferred by the Employer from other tax qualified plans under
Section 401(a) of the Code maintained by the Employer provided that the trust
from which such funds are transferred permits the transfer to be made and the
transfer will not jeopardize the tax exempt status of the Plan or create adverse
tax consequences for the Employer. The amounts transferred shall be placed in
the Participant's 401(k) Account. This Plan shall not accept any direct or
indirect transfers (as that term is defined and interpreted under Code Section
401(a)(11) and the regulations thereunder) from a defined benefit plan, money
purchase plan (including a target benefit plan), stock bonus or profit sharing
plan which would otherwise have provided for a life annuity form of payment to
the Participant. Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction having the
effect of such a transfer) shall only be permitted if it will not result in the
violation of Code Section 411(d)(6).
5.13 Allocation of Forfeitures. As of the end of each Plan Year, the
Administrator shall determine the value of forfeitures, pursuant to Section
10.13 hereof, during the Plan Year then ending. The Administrator shall use the
portion of such forfeitures attributable to Employer contributions pursuant to
Section 5.1(b) and earnings thereon to reduce the Employer contribution
calculated pursuant to Section 5.1(b) for the Plan Year in which such
forfeitures occur. The Administrator shall apply the portion of such
forfeitures attributable to amounts held in Participants' ESOP Accounts to the
payment of administration of the Trust Fund, with any remaining balance
allocated among the ESOP Accounts of Active Participants in proportion to each
Active Participant's ESOP Compensation for such Plan Year.
5.14 Limitation. Anything to the contrary herein notwithstanding, in no event
shall the sum of annual additions to an Active Participant's Account in any Plan
Year attributable to (1) Employer contributions (including contributions made by
the Employer pursuant to Section 401(k) of the Code) and forfeitures and (2)
Employee contributions, when combined with any annual additions to such Active
Participant's account under any other defined contribution plan maintained by
the Employer, be greater than the lesser of (1) $30,000 (as adjusted under
Section 415(d) of the Code), or (2) 25% of all the Active Participant's
Compensation from the Employer. For any Plan Year in which no more than one-
third (1/3) of the Employer contributions are allocated to Participants who are
highly compensated employees within the meaning of Section 414(q) of the Code,
for purposes of this Section 5.14, "Annual Additions" shall not include
forfeitures of Shares acquired with the proceeds of a Stock Obligation and
contributions that are deductible under Section 404(a)(9)(B) of the Code and are
charged against the Participant's ESOP Account. For purposes of this Section
5.14, Employer contributions used to repay principal and interest on a Stock
Obligation shall be treated as a contribution of Shares to the Plan. Any excess
amount hereunder (i) to the extent of Employee contributions in such Plan Year
pursuant to Section 5.2 shall be returned to such Active Participant; and (ii)
to the extent of Employer contributions pursuant to Section 5.1 shall be applied
to reduce any further Employer contributions under this Plan.
Amounts allocated to an individual medical account, as defined in Section
415(l)(1) of the Code, which is part of a defined benefit plan maintained by the
Employer, are treated as annual additions to a defined contribution plan. Also,
amounts derived from contributions paid or accrued in taxable years ending after
such date, which are attributable to post- retirement medical benefits allocated
to the separate account of a key employee, as defined in Section 419A(d)(3) of
the Code, under a welfare benefit fund, as defined in Section 419(e) of the
Code, maintained by the Employer, are treated as annual additions to a defined
contribution plan.
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, and such other plans as may be designated in writing by the Committee,
shall be treated as Employee contributions pursuant to Section 5.2 of the Plan.
ARTICLE VI
Vesting
6.1 Vesting. An Active Participant shall have a vested right to any Employer
contributions and earnings thereon, in accordance with the following schedule:
Years of Service Non-forfeitable Percentage
1 10%
2 25%
3 40%
4 55%
5 70%
6 85%
7 or more 100%
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(b) Notwithstanding the foregoing, the following contributions shall at all
times be fully vested and non-forfeitable:
(1) All Employee contributions made by a Participant;
(2) All amounts transferred to the Trust Fund representing a Participant's
interest in The Advest Group, Inc. Employees' Retirement Plan;
(3) All amounts transferred to the Trust Fund representing a Participant's
interest in The Advest Group, Inc. Incentive Savings Plan; and
(4) All Employer contributions made on behalf of an Active Participant who has
attained his Normal Retirement Date, or in the event of his Total Disability or
death.
ARTICLE VII
Investment Elections
7.1 Investment of Contributions. Each Participant shall elect with respect to
amounts held in his 401(k) Account to have such funds invested in any one or
more of the Investment Vehicles. Each Participant shall make such election by
filing an investment selection form with the Committee upon becoming a
Participant. Such investment selection for contributions may be changed
effective as of any Investment Date, provided that a properly completed
investment selection form is received by the Committee not less than 10 days
prior to such Investment Date or otherwise as permitted by the Committee in a
nondiscriminatory manner.
In the event that a Participant wishes to liquidate his investment in any
Investment Vehicle and reinvest in another, he must so indicate on a properly
completed investment selection form or otherwise as permitted by the Committee
in a nondiscriminatory manner. Such changed investment selection will be
effective as of any Investment Date, provided that the properly completed
investment selection form is received by the Committee not less than 10 days
prior to such Investment Date or otherwise as permitted by the Committee in a
nondiscriminatory manner. The liquidation of the previous Investment Vehicle
will occur within 5 business days of receipt of the properly completed
investment selection form by the Committee.
Investments in the Investment Vehicles described in Section 2.27(f) hereof shall
be subject to the following conditions:
(a) All purchases and sales of securities must be executed by the Company as
broker or must be principal transactions between the Plan and the Company, to
the extent permitted by the Act, the Code and other applicable laws;
(b) If brokerage commissions are charged by the Company, such commissions will
be charged by the Company to the Account for which a securities transaction is
executed, and such charges will comply with the recapture provisions of
Department of Labor Prohibited Transaction Class Exemption 86-128 which permits
the Company to execute securities transactions for the Plan provided that it
credits to the Plan all charges relating to effecting or executing the
securities transactions, less reasonable and necessary expenses, including
reasonable and direct expenses (such as overhead costs) properly allocated to
the performance of these transactions under generally accepted accounting
principles, and further provided that the notice and record keeping requirements
of PTCE 86-128 are complied with; and
(c) Investments shall be made in accordance with such rules as may be
established by the Committee from time to time.
Pending the investment of contributions in, or the shifting of investments
among, the Investment Vehicles, funds shall be invested in such short-term
investment vehicle(s) as the Committee shall determine.
ARTICLE VIII
Withdrawals
8.1 Hardship Withdrawals. The Committee, at the election of an Active
Participant, shall direct the Trustee to distribute to any Active Participant in
any one Plan Year all or part of the vested portion of his 401(k) Account
(excluding post-1988 earnings on Employee contributions to the Plan and to The
Advest Group, Inc. Incentive Savings Plan that have been transferred to the
Plan). For purposes of this Section 8.1, a withdrawal shall be authorized only
if the distribution is on account of:
(a) Expenses for medical care described in Code Section 213(d) previously
incurred by the Active Participant, his spouse, or any of his dependents (as
defined in Code Section 152) or necessary for these persons to obtain the
medical care described in Section 213(d);
(b) Costs directly related to the purchase of a principal residence for the
Active Participant (excluding mortgage payments);
(c) Funeral expenses for a member of the Active Participant's Family;
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(d) Payment of tuition, related educational fees and room and board expenses for
the next 12 months of post-secondary education for the Active Participant, his
spouse, children or dependents; or
(e) The need to prevent the eviction of the Active Participant from his
principal residence or foreclosure on the mortgage of the Active Participant's
principal residence.
No distribution shall be made pursuant to this Section unless the Committee,
based upon the Active Participant's representation and such other facts as are
known to the Committee, determines that all of all of the following conditions
are satisfied:
(a) The distribution is not in excess of the amount of the immediate and heavy
financial need of the Active Participant; and
(b) The Active Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer, including the Plan; provided, however, that the
Active Participant will not be required to obtain a nontaxable loan if the loan
would disqualify the Active Participant from obtaining other necessary
financing.
8.2 If an Active Participant receives a hardship withdrawal pursuant to Section
8.1, such Active Participant's Employee contributions will be suspended until
January 1 of the second calendar year after receipt of the hardship withdrawal.
Application for withdrawal shall be made on such forms as the Committee
prescribes and shall contain the information required by such forms, including
the Investment Vehicle(s) from which the withdrawal is to be made. Only one
such withdrawal shall be permitted in any six month period.
The withdrawal shall be paid to the Participant within 30 days after the Active
Participant's application form is approved by the Committee. The Active
Participant's 401(k) Account shall be charged accordingly as of such date.
No make-up contributions will be permitted.
ARTICLE IX
Loans
9.1 Loans. The Committee may, upon receipt of a completed loan application form
by an Active Participant or a Participant who is a "party in interest" as
defined in Section 3(14) of the Act, direct the Trustee to make a loan to such
Participant from the Investment Vehicle(s) credited to the 401(k) Account of
such Participant as the Participant directs. Employees who are not Active
Participants shall also be eligible to request loans, and all references to
Participants in this Article IX shall include such Employees. Each Participant
may have no more than 2 loans outstanding at one time, and no loan may be for
less than $500. No Participant may receive more than 2 loans in any twelve-
month period. In no event shall the total of any such loan or loans to any one
Participant (when aggregated with other loans under this Plan or any other
qualified plan of the Employer) exceed the lesser of:
(a) $50,000 reduced by the excess (if any) of the highest outstanding balance of
loans from the Plan to the Participant during the one year period ending on the
day before the date on which such loan is made, over the outstanding balance of
loans from the Plan to the Participant on the date on which such loan was made,
or
(b) 50% of the present value of the nonforfeitable Accrued Benefit of the
Employee attributable to his 401(k) Account.
The balance of the Participant's 401(k) Account will be determined as of the
date the application is approved by the Committee.
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.
9.2 Rate of Interest. Each loan shall bear a reasonable rate of interest,
determined by the Committee. The Committee, in determining the interest rate,
shall take into consideration the rates of interest currently being charged by
lenders. Loans may bear different interest rates, if in the Committee's
opinion, the difference is justified by different terms for repayment or changes
in economic conditions. The rate of interest need not be fixed for the term of
the loan. In no event shall the interest rate exceed the maximum legal rate
that may be charged to individuals for loans of this nature. All interest and
principal payments shall be credited to the 401(k) Account of the Participant to
whom the loan is made.
Every Participant with an outstanding loan from the Plan shall receive a clear
statement (which may consist of copies of the periodic statements issued with
respect to the Participant's Account) of the charges involved.
9.3 Committee Approval. The Committee shall approve loan applications and
determine rate of interest in a uniform and nondiscriminatory manner. Loans
shall be available to all such Participants on a reasonably equivalent basis as
determined by the Committee, and, in approving such loans, the Committee shall
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not discriminate in favor of Highly Compensated Employees or officers of the
Company as to the amount of such loans in proportion to the Participant's 401(k)
Account or the rate of interest. All loans shall comply with the requirements
of Section 408(b)(1) of ERISA as amended.
9.4 Loan Collateral. Each loan shall be made against the collateral of the
assignment of 50% of the Participant's entire right, title and interest in and
to his 401(k) Account. In addition to the assignment of the Participant's
401(k) Account, the Committee may, in its discretion, require such additional
collateral as it may deem necessary from time to time to adequately secure such
loan. In the event of a default by a Participant in the repayment of any loan
provided for hereunder and the Participant has not supplied other satisfactory
collateral, the Participant's 401(k) Account under this Plan shall be charged
with the full unpaid balance of the loan, together with any accrued but unpaid
interest thereon (up to an amount equal to the collateral), at the time of the
earlier of the Participant's termination of service with the Employer, his
retirement or his disability.
For purposes of this Section, a loan made to a Participant shall not be treated
as an assignment or alienation of any benefit due to the fact that the loan will
be secured by the Participant's 401(k) Account and will be exempt from the tax
imposed on prohibited transactions according to Section 4975(d)(1) of the Code.
No distribution under the Plan, other than withdrawals made pursuant to Article
VIII, shall be made to any Participant or to the Beneficiary of any such
Participant unless and until all unpaid loans, including accrued interest
hereto, have been liquidated. The Committee shall have the right to apply to
the repayment of any loan and the accrued interest thereon the amount of any
distribution from the Trust Fund to which the Participant or his Beneficiary
becomes entitled to satisfy the liquidation of such loan.
9.5 USERRA Compliance. Loan repayments will be suspended under this Plan, as
permitted under Code Section 414(u).
ARTICLE X
Payment of Benefits
10.1 Payment Options. The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to the Participant or his
Beneficiary the Participant's vested Accrued Benefit under the Plan in one or
more of the following methods:
(a) One lump-sum payment in cash or in kind to the extent the Participant so
elects; or
(b) For an amount in a Participant's Account equal to the balance of such
Participant's Accounts under The Advest Group, Inc. Incentive Savings Plan and
The Advest Group, Inc. Employees' Retirement Plan on September 30, 1989,
payments over a period certain in monthly, quarterly, semiannual, or annual
installments, in cash or in kind to the extent the Participant so elects, not
extending beyond the Participant's life expectancy (or the life expectancy of
the Participant and his designated Beneficiary).
10.2 Commencement of Benefit Payments. The payment of benefits under the Plan
shall be made or begin on or after the date a Participant terminates his service
with the Employer and not later than the 120th day after the Participant
terminates his service with the Employer (or, in the event of a Participant's
Total Disability, within 120 days after the determination of Total Disability).
In addition, payment of a Participant's benefits may be made or begin, at the
Participant's election, at any time on or after January 1 of the calendar year
in which the Participant attains age 70-1/2. Notwithstanding the foregoing,
payment of a Participant's benefits shall be made or begin not later than April
1 of the calendar year following the later of (i) the calendar year in which the
Participant attains age 70-1/2, or (ii) the calendar year in which the
Participant retires, provided, however, that this clause (ii) shall not apply in
the case of a Participant who is a "five percent owner" at any time during the
five Plan Year period ending in the calendar year in which he attains age 70 1/2
or, in the case of a Participant who becomes a "five percent owner" during any
subsequent Plan Year, clause (ii) shall no longer apply and the required
beginning date shall be the April 1st of the calendar year following the
calendar year in which such subsequent Plan Year ends.
10.3 Form of Payment to Participants. A Participant's benefits held in a
Participant's ESOP Account shall generally be paid in Shares. In connection
with a distribution, the Administrator shall cause the portion of the
Participant's interest in his ESOP Account not held in Shares to be used to
purchase Shares on the stock exchange, if any, on which the Shares are primarily
traded, or, if Shares are not primarily traded on a stock exchange, on the over-
the-counter market, or, if neither of the above is applicable, at their current
fair market value as determined pursuant to Section 10.7. Any fractional shares
credited to a Participant's Accounts shall be converted into cash at the Shares'
current fair market value as determined pursuant to Section 10.7.
Notwithstanding the foregoing, a Participant may elect pursuant to rules adopted
by the Committee to receive benefits held in his ESOP Account in the form of
cash. In addition, if a Participant has less than 100 Shares credited to his
ESOP Account, his benefits attributable to his ESOP Account shall be paid in the
form of cash, unless the Participant elects to receive benefits in the form of
Shares. If a Participant is to receive a distribution in cash, the Shares
credited to the Participant's ESOP Account shall be sold on the stock exchange,
if any, on which the Shares are primarily traded, or, if Shares are not
primarily traded on a stock exchange, on the over-the-counter market, or, if
neither of the above is applicable, shall be converted into cash at their
current fair market value as determined pursuant to Section 10.7, and the
Participant shall be paid the proceeds.
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10.4 Put Option.
(a) In the event that Shares are distributed pursuant to this Article X, such
Shares shall be subject to a put option, if, when distributed, such Shares are
(i) not listed on a national securities exchange registered under Section 6 of
the Securities Exchange Act of 1934 or quoted on a system sponsored by a
national securities association registered under section 15A(b) of the
Securities Exchange Act ("Publicly Traded") or (ii) subject to a restriction
("Trading Restriction") under any Federal or state securities law or any
regulation thereunder or under an agreement which makes such Shares not as
freely tradable as Shares not subject to such restriction.
(b) The put option shall be exercisable by the distributee of the Shares.
(c) The put option shall permit the shares to be put to the Company at their
fair market value as determined pursuant to Section 10.7.
(d) The put option shall be exercisable at any time during the 60 day period
commencing on the date of distribution of the Shares. If the distributee does
not exercise the put option within such 60 day period, the option will
temporarily lapse. After the close of the Company's taxable year in which such
temporary lapse occurs and following a determination of the fair market value of
the Shares as of the end of that taxable year, the Company shall notify each
distributee who did not exercise the initial put option in the preceding year of
the fair market value of the Shares. Each such distributee shall then have the
right to exercise the put option at any time during the 60 day period following
such notice. If the distributee does not then exercise this put option, the
shares will cease to be subject to any put option.
(e) Payment upon exercise of the put option shall be made or commence no later
than 30 days after exercise and, in the discretion of the Company, shall be in a
lump sum or in substantially equal periodic installments (not less frequently
than annually) which shall extend over a period not to exceed five years from
the date of exercise, with interest at a reasonable rate on the unpaid balance;
provided, however, that if the Shares with respect to which the put option is
exercised were not part of a distribution of the entire Accrued Benefit of the
Participant attributable to the Participant's ESOP Account within one taxable
year of the recipient, payment must be made in a lump sum.
(f) If payment upon exercise of the put option is to be made by the Company in
installments, the Company shall deliver to the distributee its promissory note
which provides to the distributee the right to require full payment if the
Company defaults in the payment of a scheduled installment. The Company shall
also deliver to the distributee adequate security for the outstanding amount of
the promissory note.
10.5 Protections and Rights. Except as provided in Section 10.4 or as otherwise
required by law, no Shares acquired with the proceeds of a Stock Obligation may
be subject to a put, call or other option, or buy-sell or similar arrangements,
while held by or when distributed from the Plan.
10.6 Protections and Rights Nonterminable. The provisions of Sections 10.4 and
10.5 are nonterminable, and shall continue notwithstanding the repayment of any
Stock Obligation the proceeds of which were used to acquire Shares and
notwithstanding the fact that the Plan ceases to be an employee stock ownership
plan.
10.7 Fair Market Value. The fair market value of Shares on a specified date
shall mean the closing price for a Share on the stock exchange, if any, on which
the Shares are primarily traded, but if no Shares were traded on such date, then
on the last previous date on which a Share was so traded, or, if Shares are not
primarily traded on a stock exchange, the average of the high and low sales
prices at which one Share is traded on the over-the-counter market, as reported
on the National Association of Securities Dealers Automated Quotation System,
or, if none of the above is applicable, the value of a Share as established no
less frequently than annually by an independent appraiser that does not
otherwise provide service to the Company and that meets requirements similar to
those contained in Treasury regulations under Section 170(a)(i) of the Code.
10.8 Special Distribution and Payment Requirements. Notwithstanding any other
provisions of the Plan, other than such provisions as require the consent of the
Participant to a distribution with a present value in excess of $5,000, a
Participant may elect to have the portion of the Participant's ESOP Account
attributable to Shares, distributed as follows:
(a) If the Participant separates from service by reasons of retirement, death,
or Total Disability, the distribution of such portion of the Participant's ESOP
Account will be made not later than one year after the close of the Plan Year in
which such event occurs.
(b) If the Participant separates from service for any reason other than those
enumerated in paragraph (a) above and is not reemployed by the Employer at the
end of the fifth Plan Year following the Plan Year of such separation from
service, distribution of such portion of the Participant's ESOP Account will
begin not later than one year after the close of the fifth Plan Year following
the Plan Year in which the participant separated from service.
(c) If the Participant separates from service for a reason other than those
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described in paragraph (a) above and is employed by the Employer as of the last
day of the fifth Plan Year following the Plan Year of such separation from
service, distribution to the Participant, prior to any subsequent separation
from service, shall be in accordance with terms of the Plan other than this
Section 10.8.
For purposes of this Section 10.8, Shares shall not include any Shares acquired
with the proceeds of a Stock Obligation until the close of the Plan Year in
which such Stock Obligation is repaid in full.
10.9 Special Distributions to Qualified Participants.
(a) Definitions. For the purposes of this Section 10.9, the following terms
shall have the following meanings:
(i) "Qualified participant" shall mean a Participant who has attained age 55 and
who has completed at least 10 years of participation in the Plan.
(ii) "Qualified Election Period" shall mean the six Plan Year period beginning
with the Plan Year in which the Participant first becomes a Qualified
Participant.
(b) Election by Qualified Participant. Each Qualified Participant shall be
permitted to direct the Plan to distribute up to 25% of the value of the
Participant's ESOP Account balance as of the last day of a Plan Year
attributable to Shares (to the extent such portion exceeds the amount to which a
prior election or elections under this subsection (b) applies) by written notice
delivered to the Committee within 90 days after the last day of each Plan Year
during the Participant's Qualified Election Period. Within 90 days after the
close of the last Plan Year in the Participant's Qualified Election Period, a
Qualified Participant may direct the Plan to distribute up to 50% of the value
of such ESOP Account balance (to the extent such portion exceeds the amount to
which a prior election or elections under this subsection (b) applies). Such
distribution shall be made by the Plan within 90 days after the last day of the
period during which the election can be made. Such distribution shall be
subject to the put option provisions of Section 10.4 hereof. This Section 10.9
shall apply notwithstanding any other provision of the Plan other than such
provisions as require the consent of the Participant to a distribution in excess
of $5,000. If the Participant does not consent, such amount shall be retained
in the Plan.
10.10 Change of Payment Method. If benefits are being paid to a Participant or
to a Beneficiary in installments, the Participant (or the Beneficiary, if the
Participant is deceased) may, as of the end of any Plan Year, direct that the
amount then credited to the Account of such Participant be paid in a lump sum.
10.11 Consent to Distributions. Notwithstanding anything to the contrary
contained in this Plan, if the value of a Participant's Account exceeds $5,000,
no distribution of such Account shall be made prior to the earlier of such
Participant's attainment of age 65 or such Participant's death unless such
Participant shall consent in writing to such distribution.
10.12 Direct Transfers. If a Participant (or Beneficiary) is to be a recipient
of an eligible rollover distribution (as defined in Section 402(f)(2)(A) of the
Code) from the Plan and elects to have such distribution paid directly to an
eligible retirement plan and specifies the eligible retirement plan to which
such distribution is to be paid (in such form and at such time as the Committee
may prescribe), then such distribution shall be made in the form of a direct
trustee-to-trustee transfer to the eligible retirement plan so specified. The
above provision shall apply (a) only to the extent that the eligible rollover
distribution would be includable in gross income if not transferred as provided
above (determined without regard to Sections 402(c) and 403(a)(4) of the Code)
and (b) only to the extent required by the Code. For purposes of this Section
10.12, "eligible retirement plan" shall have the meaning set forth in Section
402(c)(8)(b) of the Code, except that a qualified trust shall be considered an
eligible retirement plan only if it is a defined contribution plan, the terms of
which permit the acceptance of rollover distributions.
10.13 Forfeitures. Any portion of the Account of a Participant who incurs five
consecutive 1-Year Breaks in Service other than by reason of death, retirement
or Total Disability, which is not vested at the time of such 1-Year Breaks in
Service, shall be forfeited and allocated pursuant to Section 5.13. In
addition, if a Participant who terminates employment other than by reason of
death, retirement or Total Disability receives a lump sum distribution of the
entire vested portion of his Account no later than the close of the second Plan
Year following the Plan Year in which termination of employment occurs, and
before incurring five consecutive 1-Year Breaks in Service, he shall forfeit the
unvested portion of his Account if either: (1) the amount of the distribution
from his Account is not in excess of $5,000 (or such greater amount that may be
established by Treasury Regulations under Section 411(a)(7)(B) of the Code), or
(2) the Participant requests the lump sum distribution. Any amount forfeited
pursuant to the preceding sentence shall be restored to the Account of the
Participant if he returns to work with the Employer before incurring five
consecutive 1-Year Breaks in Service and repays the entire amount of the
distribution before the fifth anniversary of his date of reemployment. The
amount restored shall be the exact amount forfeited without adjustment for gains
or losses incurred subsequent to the distribution.
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If restoration is no longer permissible under the foregoing rules, the forfeited
amounts shall be allocated pursuant to Section 5.13.
ARTICLE XI
Death Benefits
11.1 Distribution Upon Death. In the event a Participant ceases to be an
Employee through the death of the Participant, prior to his retirement, the
Accrued Benefit credited to his Account shall be determined as of the Valuation
Date coinciding with or next following the date of death. The Accrued Benefit
and any amounts that are contributed, pursuant to Article V hereof, to the
Participant's Account for the Plan Year in which the Participant's death occurs
shall be paid to his Beneficiary. In the event of the death of a Participant
after ceasing to be an Employee, but prior to the complete distribution to him
of the balance of his Account, any unpaid amount at the time of his death shall
be payable to his Beneficiary.
The Participant's vested Accrued Benefit shall be paid to the Participant's
Beneficiary by either of the following methods, as elected by the Participant
(or if no election has been made prior to the Participant's death, by his
Beneficiary): (a) One lump-sum payment; or (b) For an amount in a Participant's
Account equal to the balance of such Participants account under The Advest
Group, Inc. Incentive Savings Plan on September 30, 1989, payments over a period
certain in monthly, quarterly, semiannual, or annual cash installments over a
period to be determined by the Participant or his Beneficiary, and in
installments as nearly equal as practicable. After periodic installments have
commenced, the Beneficiary shall have the right to direct the Trustee to reduce
the period over which such periodic installments shall be made, and the Trustee
shall adjust the cash amount of such periodic installments accordingly.
If a Beneficiary designation designating both a primary and an alternate
Beneficiary is in effect at the time of a Participant's death and the
Participant's vested Accrued Benefit is payable in installments, the
installments shall be paid to the primary Beneficiary for his lifetime if said
primary Beneficiary is living at the death of the Participant, and upon the
death of the primary Beneficiary, or upon the death of the Participant if the
primary Beneficiary is not then living, any unpaid installments shall be paid to
the alternate Beneficiary.
Notwithstanding anything herein to the contrary, if the distribution of a
Participant's vested Accrued Benefit has begun in accordance with a method
selected in Section 10.1 and the Participant dies before his entire interest has
been distributed to him, the remaining portion of such interest shall be
distributed at least as rapidly as under the method of distribution selected
pursuant to Section 10.1 as of his date of death. If a Participant dies before
he has begun to receive any distributions of his vested Accrued Benefit, his
entire vested Accrued Benefit shall be distributed to his Beneficiaries within
five years after his death. This five-year distribution requirement shall not
apply to any portion of the deceased Participant's vested Accrued Benefit which
is payable to or for the benefit of a designated Beneficiary. In such event,
such portion may be distributed over a period not extending beyond the life
expectancy of such designated Beneficiary, provided such distribution begins not
later than one year after the date of the Participant's death, or such later
date as may be prescribed by Treasury Regulations. However, in the event that
the Participant's spouse is his Beneficiary, the requirement that distributions
commence within one year of a Participant's death shall not apply. In lieu
thereof, such distribution must commence no later than the date on which the
deceased Participant would have attained age 70-1/2. If the surviving spouse
dies before the distributions to such spouse begin, then the five-year
distribution requirement shall apply as if the spouse were the Participant. Any
amount paid to a child shall be treated as if paid to the surviving spouse of
the Participant if such amount will become payable to the surviving spouse upon
such child reaching majority (or other designated event permitted under Treasury
Regulations).
11.2 Designation of Beneficiary. In the event of the death of a Participant or
former Participant, any benefits payable hereunder shall be paid to the
Participant's surviving spouse, if any, or to any other Beneficiary who may be
designated by the Participant as hereinafter provided if such surviving spouse
consents thereto or if there is no surviving spouse. For purposes of
entitlement to receive benefits pursuant to the foregoing sentence, only a
spouse who has been married to the Participant for the 1-year period ending on
the date of the Participant's death shall be considered a surviving spouse
unless otherwise specifically provided by a qualified domestic relations order
pursuant to Section 414(p)(5) of the Code.
The consent of a surviving spouse to the designation of any other Beneficiary
shall be made in writing on a form provided by the Administrator, which form
shall contain the surviving spouse's acknowledgment of the effect of such
consent and shall be witnessed by the Administrator, his representative, or a
notary public. Notwithstanding the foregoing, such written consent shall not be
required if it is established to the satisfaction of the Administrator or his
representative that such consent may not be obtained because there is no spouse,
because the spouse cannot be located, or because of such other circumstances as
the Secretary of the Treasury may by regulations prescribe.
Subject to the foregoing paragraphs of this Section, each Participant shall have
the right at any time to designate a primary and an alternate Beneficiary to
receive any benefits payable hereunder on the death of the Participant, and from
time to time to change any such designation. Each such designation shall be
evidenced by a written instrument filed with the Committee, signed by the
Participant. Such designation or change made pursuant to the first sentence of
this paragraph shall take effect as of the date of execution of such written
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instrument, whether or not the Participant is living at the time of such filing,
but without prejudice to the Trust Fund on account of any payments made before
receipt of such written instrument by the Committee.
ARTICLE XII
Stock Rights of Participants
12.1 Voting Rights. Each Participant (or, in the event of his death, his
Beneficiary) shall have the right to direct the Trustee as to the manner in
which Shares allocated to his ESOP Account are to be voted on each matter
brought before an annual or special stockholders' meeting of the Company.
Before each such meeting of stockholders, the Trustee shall cause to be
furnished to each Participant (or Beneficiary) a copy of the proxy solicitation
material, together with a form requesting confidential directions on how such
Shares allocated to such Participant's ESOP Account shall be voted on each such
matter; provided, however, that the Committee shall in a timely manner provide
the Trustee with such proxy solicitation material and forms, and shall also
provide the Trustee with the mailing address of each Participant (or
Beneficiary). Upon timely receipt of such directions the Trustee shall on each
such matter vote as directed the number of shares (including fractional Shares)
allocated to such Participant's ESOP Account, and the Trustee shall have no
discretion in such matter. The instructions received by the Trustee from
Participants shall be held by the Trustee in confidence and shall not be
divulged or released to any person, including officers or Employees of the
Company or any Affiliate. The Trustee, to the extent consistent with the Act,
shall vote both allocated Shares for which it has not received direction, as
well as unallocated Shares, in the same proportion as directed Shares are voted,
and the Trustee shall have no discretion in such matter.
12.2 Rights on Tender or Exchange Offer. Each Participant (or, in the event of
his death, his Beneficiary) shall have the right, to the extent of the number of
Shares allocated to his ESOP Account, to direct the Trustee in writing as to the
manner in which to respond to a tender or exchange offer with respect to Shares.
The Trustee shall use its best efforts to timely distribute or cause to be
distributed to each Participant (or Beneficiary) such information as will be
distributed to stockholders of the Company in connection with any such tender or
exchange offer; provided, however, that the Committee shall in a timely manner
provide the Trustee with all such information, and shall also provide the
Trustee with the mailing address of each Participant (or Beneficiary). Upon
timely receipt of such instructions, the Trustee shall respond as instructed
with respect to Shares. The instructions received by the Trustee from
Participants shall be held by the Trustee in confidence and shall not be
divulged or released to any person, including officers or Employees of the
Company or any Affiliate. If the Trustee shall not receive timely instruction
from a Participant (or Beneficiary) as to the manner in which to respond to such
a tender or exchange offer, the Trustee shall not tender or exchange any Shares
with respect to which such Participant has the right of direction, and the
Trustee shall have no discretion in such matter. Unallocated Shares shall be
tendered or exchanged by the Trustee in the same proportion as Shares with
respect to which Participants (or Beneficiaries) have the right of direction are
tendered or exchanged, and the Trustee shall have no discretion in such matter.
12.3 Rights in Event of Default. Notwithstanding the provisions of Sections
12.1 and 12.2, the rights provided in those sections with respect to unallocated
Shares may be exercised by the lender under any Stock Obligation, the proceeds
of which were used to purchase such Shares, to the extent provided by the terms
of such Stock Obligation in the event of any default thereunder.
ARTICLE XIII
Termination of Plan
13.1 Termination. Although the Company hopes to continue the Plan and its
contributions to the Trust Fund indefinitely, the Company may, by action of the
Board, for any reason, terminate the Plan, in whole or in part, and all further
contributions to the Trust Fund at any time. Any liability of the Company
hereunder shall automatically terminate upon its being legally dissolved, upon
the filing of a petition in bankruptcy (either voluntarily or involuntarily) or
upon its making any general assignment for the benefit of creditors.
13.2 Distribution. Upon (1) the termination, in whole or in part, of the Plan,
(2) the complete discontinuance of contributions by the Employer to the Trust
Fund, or (3) the termination of the liability of the Company, as provided for in
Section 13.1 hereof, the Committee shall make a final allocation of Employer
contributions, if any, and net earnings or losses in the manner prescribed
herein to the Accounts of Participants who are Employees of the Employer.
Thereafter, the funds in the Accounts of each Participant shall be paid and
distributed to such person under any one or more of the options set forth in
Article X hereof, upon the earliest of (1) a date that is not more than 60 days
following the later of termination of the Plan or receipt of a favorable
determination letter (if requested) from the Internal Revenue Service following
such termination, but only if another defined contribution plan (other than an
employee stock ownership plan) has not been established or is not maintained by
the Employer, (2) the Participant's attainment of age 59 1/2, (3) the
Participant's termination of employment with the Employer, (4) the Participant's
Total Disability, or (5) the Participant's death. Any final payment or
distribution to any Participant or Beneficiary in accordance with the provisions
hereof shall be in full satisfaction of all claims against the Employer, the
Trust Fund, the Trustee and the Committee.
13.3 Final Expenses. Notwithstanding anything to the contrary herein, all
expenses of the administration of the Trust Fund, and other expenses incident to
the termination and distribution of the Trust Fund, incurred prior to or
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after the termination of the Plan, shall be paid from the Trust Fund, unless
voluntarily paid by the Employer.
ARTICLE XIV
Amendment of Plan
14.1 Amendment. The Company shall have the right, by action of the Board, to
modify or amend this Plan, in whole or in part, at any time and from time to
time; provided, however, that no such action shall adversely affect Participants
to the extent of their vested benefits, nor shall such action decrease a
Participant's Accrued Benefit or eliminate an optional form of distribution.
Any such modifications or amendments may be made retroactively.
If the Plan shall at any time become a transferee of a plan which is subject to
the requirements of Section 401(a)(11)(A) of the Code, the Plan will be amended
to meet said requirements.
14.2 Trustee. The Committee shall deliver a copy of each amendment to the Plan,
and the Board resolution adopting the same, to the Trustee promptly after its
adoption. No amendment shall be made that would adversely affect the Trustee or
impose additional duties on it without the Trustee's written consent thereto.
14.3 Change in Vesting. If an amendment or a change in the top-heavy status of
the Plan changes the vesting schedule of the Plan, as set forth in Section 6.1
hereof, any Active Participant having three or more years of service, within the
meaning of Section 1.411(a)-8(b)(3) of the Treasury Regulations, on the date
which is 60 days after such amendment or change is adopted or becomes effective
(or, if later, 60 days after written notice of the amendment or change is given)
may, no later than the end of the election period, elect to remain subject to
the vesting schedule in effect prior to such amendment or change. For purposes
of the foregoing, the "election period" shall begin on the date the amendment
changing the vesting schedule is adopted or the date on which the Plan's top-
heavy status is changed and shall end no earlier than the latest of the
following dates (provided that in the case of a change in the Plan's top-heavy
status, only clause (ii) shall apply):
(i) the date which is 60 days after the day the Plan amendment is adopted;
(ii) the date which is 60 days after the day the Plan amendment becomes
effective or the top-heavy status of the Plan changes; or
(iii) the date which is 60 days after the day the Participant is issued written
notice of the Plan amendment by the Employer or the Committee.
ARTICLE XV
Claims Procedure
15.1 Claims. Each Participant and Beneficiary of the Plan shall submit all
claims for benefits, claims relating to the amount or manner of any
distribution, and any other request relating to any Account, in writing, to the
Administrator of the Plan. The Administrator shall within a reasonable period
of time, but not later than 60 days after receipt thereof, either approve or
deny such claim or request, either wholly or in part, and notify the claimant in
writing of the action taken.
15.2 Notice of Denial. If such claim or request is wholly or partially denied,
the written notice of the Administrator shall set forth in a manner calculated
to be understood by the claimant:
(a) specific reason for the denial;
(b) specific reference to the pertinent Plan provisions on which the denial is
based;
(c) specific reference to any additional material or information necessary for
the claimant to perfect review of the claim and explanation of why such material
or information is necessary; and
(d) an explanation of the Plan's claims review procedure.
15.3 Review. Upon denial of such a claim or request, the claimant shall be
entitled within 60 days after the receipt of written notice of denial by the
Administrator:
(a) to request, in writing, a review by the Committee of the denial;
(b) to review pertinent documents; and
(c) to submit issues and comments in writing.
This 60-day period may be extended in special circumstances.
The Committee shall render a decision on its review of the denial promptly, but
not later than 60 days after the receipt of the request for review, unless
special circumstances require an extension of time, in which case a decision
shall be rendered not later than 120 days after the receipt of a request for
review.
The decision of the Committee shall be in writing and shall set forth reasons
therefore stated in a manner calculated to be understood by the claimant,
including specific references to the pertinent Plan provisions on which the
decision is based. All interpretations, determinations, decisions and other
actions of the Committee, taken in accordance with the provisions hereof shall
be final, conclusive and binding on all parties.
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ARTICLE XVI
The Trustee
16.1 All contributions hereunder to the Trust Fund shall be held, in trust, by
such Trustee as may be selected by the Board, from time to time, under a trust
agreement approved by the Board, with such powers in the Trustee as to
investment, reinvestment, control and disbursement of all or part of the Trust
Fund as the Board shall approve and as shall be in accordance with the
provisions hereof. The Board may in its sole discretion remove any Trustee at
any time, upon reasonable notice, and upon such removal or upon the resignation
of any Trustee, the Board shall designate a successor Trustee.
ARTICLE XVII
Miscellaneous Provisions
17.1 The Plan and the Trust provided for hereunder are created for the exclusive
benefit of the Participants and their Beneficiaries. Under no circumstances
whatsoever shall any assets of the Trust Fund ever revert to, or be used or
enjoyed by, the Employer, or any successor thereto, nor shall any such assets
ever be used other than for the exclusive benefit of the Participants or their
Beneficiaries.
17.2 No Participant or Beneficiary shall have any legal or equitable right or
interest in the Trust Fund established hereunder, except as expressly provided
for herein, and no Employee shall be deemed to possess a right to share in any
moneys allocated by the Committee as hereinabove set forth, except as herein
provided.
17.3 Participation in the Plan shall not give any Participant the right to
continue as an Employee of the Employer or any right or claim to a retirement
pension unless the right to such retirement pension is provided for herein.
17.4 All decisions of the Committee hereunder shall be made in a uniform,
nondiscriminatory manner.
17.5 Whenever the Company or any Affiliate is permitted or required under the
terms of this Plan to take any action, it shall be done by its Board of
Directors or its Executive Committee and shall be evidenced by proper
resolutions certified by the appropriate officers.
17.6 The Plan shall not be automatically terminated by the Company's acquisition
by, or merger into, any other company. The Plan shall be continued after such
merger if the successor company agrees to continue the Plan. All rights to
amend or terminate the Plan shall be transferred to the successor company,
effective as of the date of the merger.
The merger or consolidation with, or transfer of assets and liabilities to, any
other qualified retirement plan shall be permitted only if the benefit each
Participant would receive if the Plan were terminated immediately after such
merger or consolidation, or transfer of assets and liabilities, would be at
least as great as the benefit he would have received had the Plan been
terminated immediately before any such transaction.
17.7 To the extent permitted by law and with the exception of payments pursuant
to a qualified domestic relations order within the meaning of Section 414(p) of
the Code, no benefit payable hereunder shall be subject in any manner to
anticipation, assignment, garnishment, or pledge. Any attempt to anticipate,
assign, garnishee or pledge the same will be of no effect. No such benefits
will be in any manner liable for or subject to the debts, liabilities, or torts
of any Participants, and if any Participant is adjudicated bankrupt or attempts
to anticipate, assign or pledge any such benefits, then such benefits will, in
the discretion of the Committee, cease. In such event, the Committee will have
the authority to cause the same or any part thereof to be held or applied to or
for the benefit of such Participant, his spouse, his children or other
dependents, or any of them, in such manner and in such proportion as the
Committee may in its discretion deem proper.
Notwithstanding any provision of this Section to the contrary, an offset to a
Participant's accrued benefit against an amount that the Participant is ordered
or required to pay the Plan with respect to a judgment, order, or decree issued,
or a settlement entered into, on or after August 5, 1997, shall be permitted in
accordance with Code Sections 401(a)(13)(C) and (D).
17.8 A Participant shall not, with or without cause, be divested of any Accrued
Benefits under the terms of the Plan.
17.9 Notwithstanding any other provisions of the Plan, a former Participant
shall not be entitled to payment of duplicate benefits upon again becoming a
Participant.
17.10 The headings of the Sections herein are for reference only. In the event
of a conflict between such a heading and the content of a Section, the content
of the Section shall control.
17.11 The interpretation of the provisions hereof and the administration of the
Plan shall be governed, to the extent applicable, by the Act and, to the extent
the Act is not applicable, by the laws of Connecticut.
ARTICLE XVIII
Top-Heavy Plan Provisions
(Sections 18.1 - 18.9 provide definitions for Article XVIII)
18.1 Compensation. Compensation of an Employee which is reportable on Form W-2
for the calendar year ending with or within the Plan year.
18.2 Key Employee. Any Employee or former Employee (and the Beneficiaries of
such Employee) who at any time during the Determination Period was an officer
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of the Employer with Compensation greater than 150% of the dollar limitation
under Section 415(c)(1)(A) of the Code, an owner (or considered an owner under
Section 318 of the Code) of one of the ten largest interests in the Employer if
such individual's Compensation exceeds the dollar limitation under Section
415(c)(1)(A) of the Code and such individual's ownership interest exceeds 1/2%,
a 5% owner of the Employer, or a 1% owner of the Employer who has Compensation
of more than $150,000. The determination of who is a Key Employee will be made
in accordance with Section 416(i)(1) of the Code.
18.3 Top-Heavy Plan. This Plan is top-heavy if any of the following conditions
exists:
(a) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part
of any Required Aggregation Group or Permissive Aggregation Group of plans.
(b) If this Plan is a part of a Required Aggregation Group of plans (but which
is not part of a Permissive Aggregation Group) and the Top-Heavy Ratio for the
Required Aggregation Group of plans exceeds 60%.
(c) If this Plan is a part of a Required Aggregation Group of plans and part of
a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60%.
18.4 Top-Heavy Ratio.
(a) The Top-Heavy Ratio for this Plan alone or for the Required or Permissive
Aggregation Group as appropriate is a fraction, the numerator of which is the
sum of the account balances under the aggregated defined contribution plan or
plans of all Key Employees as of the Determination Date(s) (including any part
of any account balance distributed in the Determination Period(s)), and the
denominator of which is the sum of all account balances (including any part of
any account balance distributed in the Determination Period(s)) under the
aggregated defined contribution plan or plans for all participants, determined
in accordance with Section 416 of the Code and the Regulations thereunder.
(b) For purposes of (a) above, the value of account balances shall be determined
as of the most recent Valuation Date that falls within or ends with the 12-month
period ending on the Determination Date. The account balances of a participant
(1) who is not a Key Employee but who was a Key Employee in a prior year, or (2)
who has not received any Compensation from any Employer maintaining the plan at
any time during the Determination Period shall be disregarded. The calculation
of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and
transfers are taken into account shall be made in accordance with Section 416 of
the Code and the Regulations thereunder. Deductible employee contributions
shall not be taken into account for purposes of computing the Top-Heavy Ratio.
When aggregating plans, the value of account balances shall be calculated with
reference to the Determination Date(s) that falls within the same calendar year.
18.5 Permissive Aggregation Group. The Required Aggregation Group of plans plus
any other plan or plans of the Employer which, when considered as a group with
the Required Aggregation Group, would continue to satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
18.6 Required Aggregation Group. (a) Each qualified plan of the Employer,
whether or not terminated, in which at least one Key Employee participated
during the Determination Period, and (b) any other qualified plan of the
Employer which enabled a plan described in (a) to meet the requirements of
Section 401(a)(4) and 410 of the Code during the Determination Period.
18.7 Determination Date. For any Plan Year, the last day of the preceding Plan
Year.
18.8 Determination Period. The Plan Year containing the Determination Date and
the four (4) preceding Plan Years.
18.9 Valuation Date. For purposes of computing the Top- Heavy Ratio, the
Valuation Date shall be the normal annual valuation date for the Plan.
18.10 Special Provisions. If the Plan is or becomes a Top-Heavy Plan, the
following provisions shall supersede any conflicting provisions in the Plan:
(a) Minimum Allocations
(1) Except as otherwise provided in (2) and (3) below, for any Plan Year in
which this Plan is a Top-Heavy Plan, the Employer contributions (including
salary deferral contributions) and forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the lesser of 3% of
such Participant's Compensation or the largest percentage of Employer
contributions (including salary deferral contributions) and forfeitures, as a
percentage of the first $200,000 of the Key Employee's Compensation, allocated
on behalf of any Key Employee for that year. The minimum allocation is
determined without regard to any Social Security contribution. This minimum
allocation shall be made even though, under other Plan provisions, the
Participant would not otherwise be entitled to receive an allocation, or would
have received a lesser allocation for the year because of (i) the Participant's
failure to complete 1,000 Hours of Service (or any equivalent provided in the
Plan), or (ii) the Participant's failure to make mandatory employee
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contributions to the Plan, or (iii) Compensation less than a stated amount.
(2) The provision in (1) above shall not apply to any Participant who was not
employed by the Employer on the last day of the Plan Year.
(3) The provision in (1) above shall not apply to any Participant to the extent
the Participant is covered under any other plan or plans of the Employer which
provide(s) for the minimum allocation or benefit applicable to Top-Heavy Plans.
(b) Vesting
Notwithstanding the provisions of Section 6.1(a), a Participant shall vest in
his Account in accordance with the following table:
Years of Service Non-forfeitable Percentage
less than 1 0%
1 10%
2 25%
3 40%
4 55%
5 70%
6 100%
Notwithstanding the foregoing, a Participant shall be fully vested in his
Account to the extent provided in Section 6.1(b).
* * * * * * * * * * * * * * * *
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EXHIBIT 10(n)
THE ADVEST GROUP, INC.
EQUITY PLAN
The Advest Group, Inc. hereby amends and restates The Advest Group, Inc. Equity
Plan, effective June 3, 1999 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 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
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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 XI.
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,
1999 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 X, or (c) December 31, 1999. In the event that this
Plan is extended for additional years under Section 9.3, "Deferral Period" for
purposes of those additional years shall mean the period beginning on the first
day of such year 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) the last day of such year.
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. "Employee" means any person who is a common-law employee of
the Company or an Affiliate.
Section 1.13. "Executive Officer" means any person who is an "executive
officer" for purposes of Section 16 of the 1934 Act.
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 Articles II or VII.
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. Equity Plan". The
Plan offered during calendar 1999 may sometimes be referred to as "The Advest
Group, Inc. 1999 Equity Plan," and, in the event that this Plan is extended for
additional years under Section 10.3, the Plan offered during those additional
years may be referred to in a corresponding manner.
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 the first day of the
Deferral Period), 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 an Executive Officer or another key employee designated by the Chief
Executive Officer of the Company on a list provided by the Chief Executive
Officer to the Committee before the first day of the Deferral Period as eligible
to participate in the Plan ("Key Employees").
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
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with Section 4.3, Section 5.5 or Article VII, or (c) the date the Plan is
terminated in accordance with Article X.
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 Participant 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) an Executive Officer or other Key Employee
who had total compensation of $125,000 or more during the calendar year
immediately preceding the Deferral Period, 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 other than one described in paragraph (b) above, 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 the Deferral Period 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 the end of the first month of
the Deferral Period.
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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 the last
day of the Deferral Period 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 RECEIVED AS PART OF UNITS
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. Shares of
restricted stock purchased by executive officers under the 1995, 1996, 1997 and
1998 Executive Officer Restricted Stock and Stock Option Agreements shall be
deemed granted pursuant to this Article IV, and such shares shall be subject to
the terms and conditions of this Plan.
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 the fourth anniversary of the
first day of the Deferral Period (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 Restriction 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.
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(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 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.
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ARTICLE V
OPTIONS RECEIVED AS PART OF UNITS
Section 5.1. Issuance.
(a) Except with respect to Executive Officers, 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 the first July 1st and
January 1st following commencement of the Deferral Period, 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 number of shares of Stock
equal to the number of shares of Restricted Stock acquired by the Participant
during the period from January 1st to June 30 (in the case of the July 1st
grant) or July 1st to December 31st (in the case of the January 1st grant).
Options granted to Participants other than Executive Officers shall be subject
to the terms and conditions specified in Section 5.2 to 5.5 below.
(b) For Executive Officers, 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) promptly following the end of the Deferral Period
under The Advest Group, Inc. 1993 Stock Option Plan 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 and covering the
purchase of a number of shares of Stock equal to the number of shares of
Restricted Stock acquired by the Participant during the Deferral Period.
Options granted to Participants who are Executive Officers shall be subject to
the terms and conditions of the 1993 Stock Option Plan and, to the extent
consistent with the 1993 Stock Option Plan, to the terms and conditions
specified in Section 5.2 to 5.5 below.
Section 5.2. Stock Option Certificate. Recipients of Options shall
receive a notification or certificate, in such form as the Committee shall
determine, which 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 the sixth anniversary of the first day of the Deferral
Period (unless earlier forfeited or terminated) and will remain exercisable for
a period of twenty-four months, terminating on the last day of the second year.
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
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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 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 11.2(h). Such
election shall be made prior to the commencement of the Deferral Period.
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
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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
ADDITIONAL RESTRICTED STOCK AND OPTION GRANTS
In addition to the Restricted Stock and Options granted as part of Units,
the Chief Executive Officer of the Company, or any officer of the Company
designated by the Chief Executive Officer, may grant restricted stock and/or
options to newly hired or continuing employees of the Company or its
subsidiaries as an incentive to such persons to accept employment with the
Company or to remain in such employ. Such grants may be made on a discretionary
basis, without any requirement of compensation deferral, and will be subject to
the following terms.
Section 7.1. Restricted Stock. Restricted Stock granted under this
Article VII ("Article VII Restricted Stock") shall be issued pursuant to
restricted stock agreements containing such terms and conditions as the Chief
Executive Officer (or designee), in his or her sole discretion, may determine.
Subject to Article VIII, no more than 300,000 shares of Article VII Restricted
Stock shall be granted; provided, however, that if Article VII Restricted Stock
is forfeited, then the Article VII Restricted Stock shall again be available for
grant; and provided further, that the Board may raise the limit of grants under
this Section 7.1. Any restricted stock granted by the Company on or after August
23, 1996 pursuant to the discretionary authority granted by the Board of
Directors on November 21, 1996 and November 20, 1997 shall be deemed granted
pursuant to this Article VII, and shall be counted against the foregoing limits.
Section 7.2. Options. Options granted under this Article VII ("Article
VII Options") shall be issued under such terms and conditions as the Chief
Executive Officer (or designee), in his or her sole discretion, subject to the
following sentence, may determine. Any Article VII Option shall be subject to
the terms and conditions of the 1993 Stock Option Plan, and such other terms and
conditions, to the extent consistent with the 1993 Stock Option Plan, contained
in the certificate or notification of option grant; provided, that all Article
VII Options shall be nonqualified options and, upon exercise, the holders will
receive shares of Stock from treasury. Subject to Article VIII, no more than
200,000 shares of Stock shall be subject to Article VII Options; provided,
however, that if Article VII Options expire unexercised, then such Article VII
Options shall again be available for grant; and provided further, that the Board
may raise the limit of grants under this Section 7.1.
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ARTICLE VIII
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.
ARTICLE IX
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 X
AMENDMENT; TERMINATION; EXTENSION
Section 10.1. 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 consent of a Participant if the effect of such
amendment would reduce the rights of a Participant with respect to Units,
Restricted Stock, Options, Article VII Restricted Stock or Article VII Options
acquired prior to the date of the amendment.
Section 10.2. 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
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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.
Section 10.3. Plan Extension. The Board of Directors may elect to
continue the provisions of this Plan respecting purchase of Units for additional
years after calendar 1999, in which case the Plan shall apply to the successive
Deferral Periods after calendar 1999 in the same manner as to the calendar 1999
Deferral Period. The provisions of Article VII will continue notwithstanding
any continuation of provisions of this Plan respecting purchase of Units through
May 31, 2009.
ARTICLE XI
ADMINISTRATION OF THE PLAN
Section 11.1. 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.
Section 11.2. 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 Articles II or VII 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);
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(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 11.3. 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 11.4. 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 11.5. Committee as Agent. The Committee shall act as agent for
the Company in the administration of the Plan.
Section 11.6. Plan Expenses. All clerical, legal and other expenses of
the Plan shall be paid by the Company.
Section 11.7. 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
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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 11.7
shall not create any liability of the Company, Board of Directors, or Committee,
or any member thereof.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1. Merger. Any successor corporation to the Company, by
merger, consolidation, purchase or otherwise, shall be substituted hereunder for
the Company. This 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 12.2. 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 12.3. 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 12.4. 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.
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Section 12.5. 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 12.6. 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 12.7. 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 12.8. 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 12.9. 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 12.10. 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:_____________________________
Grant W. Kurtz
Chief Executive Officer
ATTEST:
__________________________________
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Exhibit 21
The Advest Group, Inc.
List of Subsidiaries
Present
Jurisdiction
Name Where Incorporated Ownership
- -----------------------------------------------------------------------
Advest, Inc. Delaware 100%
Advest Insurance Agency Massachusetts 100%
Balanced Capital Services, Inc. Connecticut 100%
Advest Bank and Trust Company Connecticut 100%
Advest Capital, Inc. Connecticut 100%
Advest Properties, Inc. Delaware 100%
Advest Transfer Services, Inc. Delaware 100%
A.B. Realty Corp. Connecticut 100%
Bank Street Management Company Connecticut 100%
Billings & Company, Inc. Connecticut 100%
Billings Management Co. Connecticut 100%
Boston Advisors, Inc. Massachusetts 100%
Vercoe Insurance Agency, Inc. Ohio 100%
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Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
of The Advest Group, Inc.:
We hereby 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 Stock Option Plan; Form S-8 (File No. 333-17711) concerning Key
Professionals Equity Plan, 1996 Executive Equity Plan, 1997 Executive Equity
Plan and 1997 Equity Plan; Form S-3 (File No. 333-43053) and Form S-8 (File No.
333-82235) concerning its 1994 Non-Employee Director Stock Option Plan, Equity
Plan, Key Professionals Equity Plan, Non-Employee Director Equity Plan and
Thrift Plan, of our reports dated October 27, 1999, relating to the consolidated
financial statements and financial statement schedule, which appear in this Form
10-K.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
December 15, 1999
108
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