<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------------
FOR THE FISCAL YEAR ENDED COMMISSION FILE NUMBER
DECEMBER 31, 1995 0-12926
----------------
JMC GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2627415
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9710 SCRANTON ROAD, SUITE 100, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 619-450-0055
----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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 the voting stock held by non-affiliates of the
registrant as of February 29, 1996 was approximately $13,606,202 representing
approximately 4,947,710 shares.
As of February 29, 1996, the registrant had 6,198,898 shares of its common
stock, $.01 par value, issued and outstanding.
----------------
DOCUMENTS INCORPORATED BY REFERENCE
None.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
JMC Group, Inc. (the "Company") is a Delaware corporation which was founded
in 1983. Its executive offices are located at 9710 Scranton Road, Suite 100,
San Diego, California 92121 and its telephone number is (619) 450-0055.
The Company operates its business in one industry segment--annuity,
insurance and mutual fund sales through financial institutions and the related
servicing of products previously sold. This business has historically been
carried out through the Company's subsidiaries, James Mitchell & Co. and its
subsidiaries ("JMC") and Priority Investment Services, Inc. ("Priority"). JMC
and Priority are structured marketing organizations that sell tax-advantaged
annuities, insurance products and mutual funds as investment vehicles to
customers of financial institutions through relationships with banks and
savings and loan associations and thrifts. The Company's products consist
primarily of fixed and variable annuities underwritten by independent life
insurance companies (rated A or higher by A.M. Best) and mutual fund shares.
In January of 1996, the Company modified its relationship with First Tennessee
Bank National Association ("First Tennessee Bank") and Priority, which offered
and sold mutual funds and annuities exclusively to customers of First
Tennessee Bank. See "Material Customers." In addition, the Company terminated
its relationship with Barnett Banks, Inc. ("Barnett")during 1995. See
"Material Customers."
Although the termination or modification of contracts with financial
institutions usually ends new sales activities, JMC continues, in most cases,
to provide services to the customers of the institution and earns fees for
these services based on the accumulated asset value of the accounts being
serviced. The First Tennessee Bank modification will result in JMC receiving
such asset fees as well as additional fees for services contracted for in the
new agreement. Barnett selected the option of acquiring JMC's right to such
future asset-based fees and made a one time payment to JMC during 1995 for
such right. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Results of Operations--1995 compared to 1994."
During 1995, the average monthly accumulated value of assets being serviced,
for such clients (excluding First Tennessee Bank and Barnett), was over $273
million generating annual 1995 revenues of $1,019,000.
During 1995, the Company's subsidiaries entered into selling agreements with
numerous additional distributors of mutual fund shares.
During 1995, the Company further restructured its operations by closing down
its Florida operations upon the termination of its contract with Barnett and
moved the servicing of its Tennessee customers to its corporate office upon
the modification of its agreement with First Tennessee Bank. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations, --
Results of Operations--1995 Compared to 1994-- Restructuring."
PRINCIPAL MARKETS AND METHODS OF DISTRIBUTION
The principal market for JMC's services is banks, savings and loan
associations and thrifts. Management believes that these types of financial
institutions perceive a need to provide their customers with a wider mix of
financial products, yet often lack the infrastructure and corporate culture to
market products which are not traditional to financial institutions. In
addition, these institutions are focusing on developing fee income as a major
source of revenue. An independent marketing organization such as JMC provides
these institutions with the ability to make such products available to their
customers and receive fee income. Specifically, the Company believes the
primary market for such services, in the future, is the small to medium size
financial institution which would have more difficulty offering the depth of
services the Company provides in a cost effective manner.
1
<PAGE>
Historically, the primary distribution method employed by the Company and
its financial institution clients for the sale of annuities and insurance
products has been a fully-managed alternative investment program. In most
cases, this program is implemented by the establishment of a group trust at
the institution, in which the client's customers may participate. The
institution acts as trustee of the trust, and acquires annuities and insurance
products for the benefit of the participants as they direct. The Company's
subsidiaries act as the trustor and are appointed as the record keeping and
servicing agent for the trust. Mutual fund products are generally sold
directly by JMC's or Priority's employees to financial institution customers.
In both cases, JMC's or Priority's structured retail marketing organization
employs the retail sales force and thereby controls the point of sale.
As a result of the streamlining of administrative and sales management
functions accomplished in the 1994 restructuring and further consolidation in
1995, the Company has positioned itself to expand the type and nature of
services which it provides and the manner in which they are delivered. In
addition to its fully-managed program, the Company will contract with
financial institution clients to provide other programs such as the dual
employee program where the financial institution rather than the Company
employs the retail sales force, or the integrated support services program
("ISS program") where the bank internalizes all sales functions while the
Company provides appointment tracking, business processing and customer
account servicing. The ISS program would enable the Company to deliver a
competitive package of services which would enhance the effectiveness and
efficiency of non-deposit alternative investment programs instituted and
managed by financial institutions themselves. These services include product
selection and due diligence, sales and appointment management tracking and
reporting, annuity and mutual fund transaction processing, commission
accounting, customer service, sales personnel licensing, sales and marketing
support, and training programs. The Company commenced its first ISS program at
First Tennessee Bank as of February 1, 1996. See "Material Customers" below.
On January 28, 1996, the Company signed an exclusive marketing agreement
with USBA Holdings, Ltd. ("USBA"), an Atlanta-based financial services company
which provides financial institutions across the country with programs,
products and financial expertise focused upon improving shareholder value.
Under the agreement, JMC will gain exposure to nearly 4,000 financial
institutions through the direct clients of US Banking Alliance, Diversified
Consulting, Inc., PROACTIVE, Inc., and Financial Suppliers, Inc., all wholly-
owned subsidiaries of USBA. JMC will become an integral part of USBA's package
of products and services as the exclusive provider of mutual funds, insurance
and annuity products to USBA's direct and indirect client financial
institutions.
Management believes the agreement benefits JMC by providing an immediate
avenue for substantial new client growth as part of a comprehensive financial
institution performance package. It benefits USBA by enhancing its offerings
to clients through the addition of alternative investment products and
services for its distribution system. Both parties hope to benefit from sales-
based fee income from these products.
This agreement is a result of JMC's strategic business plan to gain market
share and increase revenues. USBA currently has approximately 1,000 diverse
direct clients, most ranging in asset size from $100 million to $2 billion,
with several clients ranging up to $5 billion in assets. In addition, USBA has
exclusive agreements with data processors, trade associations and other
industry product providers who serve approximately 3,000 financial
institutions.
The terms of the marketing agreement offer JMC access to the USBA network as
the exclusive alternative investments provider. For this access, JMC granted
USBA one million common stock warrants exercisable after January 1, 1997, at
$2.50 per share. Under certain circumstances, the warrants would be
immediately exercisable at a lower price of $1.4375 per share.
USBA has established a program that offers banks a comprehensive analysis of
their financial performance in key areas and compares them to peers with
similar operating characteristics grouped by size, regions and markets. From
this, USBA has generated an array of products and services intended to allow
the institution to attract and retain customers, generate fee income and
provide quality products and competitive positioning while enhancing
efficiency and profitability. It is believed that the alliance with JMC
augments these abilities since alternative investment programs are often an
important avenue for banks to earn fee income while strengthening customer
relationships.
2
<PAGE>
Under a separate consulting agreement, JMC paid USBA $1.25 million in cash
to provide a strategic plan, training and preparation to help JMC shift focus
into the new market segment to significantly increase market share over the
next five years.
PRINCIPAL PRODUCTS
The principal non-deposit investment products offered by JMC and Priority to
customers of their financial institution clients are annuities, both fixed and
variable, and mutual funds, including equity funds, fixed income funds and tax
exempt funds. Annuities are primarily used as tax-deferred retirement savings
vehicles. There is a penalty if funds are withdrawn before age 59 1/2 or
within a specified period of time, usually 5 to 8 years. Unlike individual
retirement accounts there is no maximum investment cap either annually or in
total and contributions are not tax-deductible. Immediate annuities provide
guaranteed income for a specified number of years or for an individual's
lifetime.
During 1995, the mix of annuities and insurance products sold by JMC was as
follows: 65% fixed annuities and 35% variable and other annuities. The
corresponding product mix percentages of annuities sold by the Company in 1994
and 1993 were 75% fixed/25% variable and other and 74% fixed/26% variable and
other, respectively. Sales of annuities represented 65%, 90% and 94%,
respectively, of total sales in each of 1995, 1994 and 1993. The gross revenue
rate received by JMC on the sale of annuity products is significantly greater
than the gross revenue rate received on mutual fund shares. In addition, the
gross revenue rate received on fixed annuity products is greater than the
gross revenue rate received on variable and other annuities. See "Managements
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--1995 Compared to 1994" for further explanation of the
impact of product mix on revenues and gross margin.
The Company's subsidiaries have negotiated relationships with numerous
national insurance providers and, during 1995, such subsidiaries sold the
products of Keyport Life Insurance Company, The Life Insurance Company of
Virginia, Aetna Life Insurance and Annuity Company, Liberty Life Assurance
Company, Allianz Life Insurance Company of North America, Western and Southern
Life Assurance Company and Transamerica Life Insurance and Annuity Company,
among others. All of these companies have A or higher ratings from A.M. Best.
The Company's subsidiaries' arrangements with each of its annuity and
insurance provider companies are very similar. JMC or Priority, as the case
may be, acts as an agent and sells the provider's products to customers of
financial institution clients. In addition, the Company's subsidiaries handle
certain administrative responsibilities and provide ongoing customer service.
Both of these functions are often provided directly by the annuity and
insurance provider in other agency relationships. The Company's subsidiaries
earn commissions for the sale of the provider's products. In addition to the
commission on the initial sale, they also earn a monthly asset-based fee on
most products, based on the accumulated value of each contract for as long as
the contract is in force and annuity payments have not started. Contracts with
annuity and insurance providers are generally terminable by either party on
thirty days' notice with regard to all of their provisions, except that the
provider company continues to be obligated to pay the Company its monthly
asset-based fee so long as there remains in force any accumulated value of
contracts sold prior to termination of the contract. During 1995, the Company
earned approximately $7.3 million in annuity commissions and $4.6 million in
asset-based fee payments related to annuity contracts. Commissions are net of
actual and projected chargebacks for surrenders. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Results of
Operations--1995 Compared to 1994" related to events impacting asset-based fee
income during 1995 such as the net gain on the sale of rights to certain
future asset-based fee revenue.
Management believes that the Company's subsidiaries have maintained strong
relations with their current annuity and insurance provider companies. Many of
the products are developed jointly by the Company with the annuity and
insurance provider companies specifically for use in the Company's programs.
During 1995, one of the Company's target provider companies, LICOVA, entered
into an agreement to be acquired by Great Northern Annuity Company (GNA), a
competitor of the Company. While this acquisition will not be consummated
until mid 1996, the impact on product availability is uncertain at this time.
However, the Company continues to work with current and prospective provider
companies to insure the availability of competitive consumer products.
3
<PAGE>
In connection with the sale of annuity and insurance products, neither JMC
nor Priority assumes any of the underwriting risks or obligations of the
insurance company itself. The Company conducts due diligence and has an
established policy of selling only the products of insurance companies which
it believes are highly-rated and financially sound.
The Company's subsidiaries have agreements to sell mutual fund shares for a
large number of highly-regarded mutual fund families, including Putnam,
Federated, Fidelity, Oppenheimer, Flagship, Franklin-Templeton and American
Capital. JMC and Priority receive commissions for the sale of mutual fund
shares and, in most instances, receive ongoing asset-based fees for providing
continuing customer service. In connection with the sale of mutual fund
shares, JMC's and Priority's representatives act strictly as agents and
neither company underwrites securities. The Company reviews the mutual fund
families it offers to ensure that they provide what the Company believes to be
an appropriate range of quality products. JMC, through its subsidiary JMC
Financial Corporation ("JMC Financial") acts as a self-clearing agent and a
clearing agent for Priority and First Tennessee Brokerage, Inc.
The Company continues to work with and negotiate for new and more
competitive products supplied by current and potential insurance carriers and
thus believes that its business is not substantially dependent upon any one of
these provider company contracts, and that if the products of any one of its
suppliers were no longer available, they could be replaced by additional
providers without a material adverse impact on the Company's results of
operation or financial condition. As product competition increases, however,
the Company may have to lower its compensation in order to generate higher
rates of return to customers in order to increase or maintain production
levels.
MATERIAL CUSTOMERS
During 1995, Barnett, Central Fidelity National Bank ("Central Fidelity")
and First Tennessee Bank accounted for approximately 31%, 30% and 22%,
respectively, of the Company's commission revenues. During 1995, the Company
terminated its relationship with Barnett Bank and modified its relationship
with First Tennessee Bank. JMC's current contract with Central Fidelity
expires on December 31, 1996, but is subject to termination or may be renewed
upon written notice prior to that time.
On January 31, 1996, the Company signed definitive agreements with First
Tennessee Bank to provide for a transition of the Company's fully-managed
alternative investment sales program to a newly-developed integrated support
services program with an initial two-year term through 1997. The Company has
developed this program to provide a variety of services to support alternative
investment programs at banks utilizing an internal sales force to market
mutual funds and annuities to its customers. The new services program enables
First Tennessee Bank to internalize the sales functions of the Company's
fully-managed program while maintaining the controls and efficiencies of the
program's business processing and single-point customer service capabilities.
Although the Company will no longer earn fees for the provision of a fully-
managed sales program, the Company will generate revenues in the form of
administration fees which provide for a minimum monthly payment of $25,000
through December 31, 1997. The fees will increase from such minimum level
based on the success of the bank's internal sales program.
COMPETITION
The Company operates in a very competitive environment and competes for
client bank relationships with other third-party marketing firms. Some of its
competitors are subsidiaries of major insurance and mutual fund companies that
operate marketing organizations similarly targeting sales of annuities,
insurance products and mutual fund shares to customers of banks, savings and
loan associations and thrifts. Many of the organizations affiliated with
underwriters and distributors have the ability to offer very attractive
pricing to potential client financial institutions. The largest and most
recognized organizations competing in this general field are Great Northern
Annuity (GNA), Essex, Liberty Securities, Marketing One and INVEST. Some
financial institutions also elect to manage annuity, insurance and mutual fund
sales programs internally, rather than use an outside
4
<PAGE>
marketing firm. Generally it is the larger financial institutions who
establish such internal programs. In addition, customers of financial
institutions who might purchase products from the Company can obtain similar
products from other licensed insurance agents, through stockbrokers and
through financial institutions not affiliated with JMC.
The principal method of competition is price. Product and service are also
important competitive factors.
From a competitive standpoint, management believes that many of the
Company's sales management and administrative procedures and systems set it
apart from its competitors and make its programs more attractive to potential
financial institution clients than its competitors' programs. These include
its proprietary sales and appointment tracking and reporting systems, which
support its regimented sales management approach and its comprehensive
recruiting procedures as well as established administrative procedures which
insure efficient business processing and high level customer service. Selling
is not left to chance or the individual methods of salespeople. Defined
operating procedures are implemented. Sales specialists account for their time
on a daily basis by communicating with one of the Company's two service
centers. Individual sales specialists are also directly supervised by sales
managers.
The Company maintains an independence towards product distribution which it
considers to be a competitive edge in terms of customer suitability and bank
regulatory control. The independence is created through the Company's strong
relationships with more than one insurance provider company as well as certain
internal procedures, such as, product neutral incentive compensation for sales
representatives. The result is the ability to offer a wide array of high-
quality, attractive alternative non-deposit investment products to suit the
needs of the customers of financial institutions. As banking regulators
continue to emphasize the quality and suitability of non-deposit investment
products sold through financial institutions, the ability of a marketing firm
to provide a broad selection of suitable and attractive products to their
customers will continue to be important to potential client financial
institutions.
REGISTRATION AND LICENSING
JMC and certain of its subsidiaries and Priority are required to be licensed
to do business in certain states where they transact business. In addition,
JMC Financial Corporation and Priority are registered broker-dealers with the
Securities and Exchange Commission ("SEC"), are members of the National
Association of Securities Dealers, Inc. ("NASD") and are required to be
licensed or registered as a securities broker-dealers in certain states where
they transact business. Finally, certain of JMC's subsidiaries and Priority
must be licensed or registered as an insurance agency or agent in order to
engage in business in certain states. Each of JMC and its subsidiaries and
Priority are duly qualified to transact business, and are duly registered or
licensed or exempt from the registration or licensing requirements of broker-
dealers and entities which engage in securities and insurance businesses, in
every state where management believes such entities should be so qualified,
registered or licensed.
Material federal, state and local regulations affecting the business of JMC
and its subsidiaries and Priority include the Securities Exchange Act of 1934,
as amended, the Investment Company Act of 1940, as amended, the securities and
insurance laws of each state in which JMC and Priority do business and the
local ordinances of each city and county in which JMC and Priority maintain an
office.
REGULATION
JMC and certain of its subsidiaries and Priority are subject to extensive
state regulation in those states in which they are licensed to do insurance
business. Each insurance department exercises jurisdiction over the licensing
of agents, supervises the form and content of sales literature and other
materials distributed to the public, and generally acts to protect consumers
from misrepresentation and other unfair conduct. Legislation changing the
substantive or procedural rules governing the insurance departments, insurers
or agents may affect the mode of operation and profitability of insurance
agencies. Insurance commissioners, to protect the public, may maintain
administrative proceedings which could result in cease and desist orders,
fines or the suspension or cancellation of an agent's license. (See "Legal
Proceedings.")
5
<PAGE>
The securities industry in the United States is also subject to extensive
regulation under both federal and state law. The SEC is the federal agency
responsible for the administration of federal securities laws. Much of the
regulation of broker-dealers has been delegated to the self-regulatory
organizations, principally the NASD and the securities exchanges. Certain of
the Company's subsidiaries are subject to regulation by the SEC and the NASD.
The NASD conducts periodic examinations of member broker-dealers in accordance
with rules it has adopted and amended from time to time, subject to approval
by the SEC. These subsidiaries are also subject to regulation by state
securities authorities in those states in which they do business. Additional
legislation, changes in the rules promulgated by the SEC and the NASD, or
changes in the interpretation or enforcement of existing laws and rules, may
directly affect the mode of operation and profitability of broker-dealers. In
December, 1995, the NASD submitted for approval to the SEC proposed rules
applicable to NASD members operating on the premises of financial
institutions. These rules, if adopted, would be similar to the rules already
adopted by bank regulators. See the discussion of the "Interagency Guidelines"
below. These rules would allow the NASD to also regulate the physical location
of sales within financial institutions, the signage necessary, customer
disclosures, compensation of unregistered bank employees and public
communications, among other aspects of the business. While the rules are
substantially similar to those embodied in prior SEC communications on these
issues, they are more comprehensive and cover areas not previously addressed
by the SEC, but have been addressed and promulgated in the "Interagency
Guidelines," as discussed below. The SEC, the NASD 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. The principal purpose of regulation and discipline of broker-
dealers is the protection of customers and the securities markets rather than
the protection of creditors and stockholders of broker-dealers.
The Company's client financial institutions also operate in a highly
regulated environment. Existing federal rulings allow national banks and
certain other federally-regulated financial institutions to sell annuities and
mutual fund shares, but restrict the sale of many types of insurance products.
See the discussions of NationsBank vs. Variable Annuity Life Insurance Company
-------------------------------------------------------
below. In February, 1994, all of the primary federal banking regulators issued
a single set of guidelines (the "Interagency Guidelines") regarding the retail
sale of non-deposit investment products, such as annuities and mutual funds,
through banks, savings and loan associations and thrifts. These guidelines and
their manner of implementation could significantly affect the ability of, and
the means by which, the Company's subsidiaries conduct business with
federally-regulated banks, savings and loan associations and thrifts. Since
issuance of the Interagency Guidelines, the federal banking agencies conducted
audits of the non-deposit investment programs at numerous financial
institutions. As a result of these audits, certain of the agencies have
further clarified certain provisions of the Interagency Guidelines especially
in regards to customer disclosures. In addition, state-chartered financial
institutions are subject to regulation by state banking agencies. These
agencies and state insurance regulators may limit the ability of the Company's
financial institution clients and other banks, savings and loan associations
and thrifts to engage in the annuity, insurance and mutual fund sales
businesses through third-party marketing organizations or otherwise.
On January 18, 1995, the United States Supreme Court issued its decision in
the case of NationsBank vs. Variable Annuity Life Insurance Company (the
-------------------------------------------------------
"VALIC case"). The ruling upheld the Office of the Comptroller of the
Currency's ("OCC") decision that national banks could sell annuities. The
Comptroller had found that such products were not insurance within the meaning
of the National Bank Act and that the sale of annuities by national banks was
within the "incidental powers" granted to them under that act. The U. S.
Supreme Court concurred with this judgment. The ruling in the VALIC case
appears to open the door for federally-chartered financial institutions to
sell annuities, even in states where state insurance laws would prohibit such
sales. It also appears to create a similar opportunity for state banks in the
majority of states where state law permits state-chartered financial
institutions to engage in any business permitted for a national bank. In spite
of the decision in the VALIC case, at the present time there are federal court
proceedings and state and federal legislative proposals which could limit or
alter the ability of banking institutions to sell annuities and insurance
products. In particular, the United States Supreme Court recently heard oral
argument in the case of Barnett Bank of Marion County, N.A. vs. Gallagher.
--------------------------------------------------
This 11th Circuit Federal District Court case indicated that a state insurance
agency could prevent a bank from selling insurance through an insurance agency
located in a town of less than 5,000 people
6
<PAGE>
in the exercise of its power to regulate the business of insurance within a
state. It is not possible to predict the outcome of any such proceeding or the
likelihood that any particular proposal will be enacted or what effect such a
change would have on the Company's continued ability to market annuities and
insurance products and mutual funds through banking institutions. In light of
the VALIC case, it is possible that banking institutions that currently
utilize the Company's subsidiaries to market such products would market such
products themselves, rather than through the Company. The same result might
flow from any other change in regulatory landscape. In such an event, the
Company's ability to continue its business as described herein would be
impaired. However, the Company's subsidiaries currently market annuities,
insurance products and mutual funds to customers of financial institutions
that could legally sell such products themselves. These financial institutions
prefer to use the Company's marketing services instead of developing their
own. It is possible that a number of banking institutions will choose to
utilize the Company's subsidiaries despite their ability to sell these
products directly. In such an event, the Company's subsidiaries would be able
to continue to sell annuities, insurance products and mutual funds through
such institutions, although perhaps on a more limited basis. It is also
possible that a change resulting from court proceedings or legislative
initiatives could further restrict the ability of banking institutions to make
annuities, insurance products and mutual funds available to their customers
either directly through third-party marketing organizations or otherwise.
Legislation or changes in tax regulations with regard to the tax-deferred
status of earnings from annuities could also significantly affect the ability
of the Company to market these products.
EMPLOYEES
As of February 29, 1996, the Company had 78 full-time employees.
ITEM 2. PROPERTIES
During 1995, the Company closed its Florida office upon the termination of
business with Barnett, and closed its Tennessee office on February 2, 1996,
moving all customer service for Tennessee to the Company's corporate office.
All facilities are suitable and adequate to meet the Company's requirements.
The Company intends to either renegotiate new leases for the existing
facilities or locate alternative suitable space upon expiration of these
leases, as market conditions indicate. The following is a list of the leases
for the principal facilities utilized in the Company's operations as of
January 1, 1996.
Corporate Headquarters
9710 Scranton Road
Suites 100 and 120
San Diego, CA 92121
Exp. Date: March 1998
Square Footage: 18,451
JMC TENNESSEE
850 Ridge Lake Blvd.
Suite 207
Memphis, TN 38120
Exp. Date: February 2, 1996
Square Footage: 2,814
JMC VIRGINIA
6800 Paragon Place
Suite 526
Richmond, VA 23230
Exp. Date: July 1997
Square Footage: 3,171
7
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On July 7, 1995, the Florida Department of Insurance ( the "Department")
issued a Final Order in its administrative proceeding against the Company's
wholly-owned subsidiary, JMC, which was commenced on March 11, 1993. The
enforcement of the majority of the Final Order has been stayed pending the
outcome of its appeal and JMC has complied with all other aspects of the Final
Order.
The Final Order is similar in many respects to the Recommended Order which
was issued by an administrative hearing officer in August 1994. The Department
found that JMC was not involved in an unlawful association with its Florida
financial institution client with regard to the sale of annuities. JMC was
ordered to cease and desist from certain advertising and sales practices which
the Department found to be in violation of Florida insurance laws regarding
deceptive advertising and sales practices. The Final Order also requires JMC
to obtain an insurance agency license prior to engaging in any activity which
by state law may be performed only by a licensed agent and revokes the Florida
insurance license of James K. Mitchell, Chairman and Chief Executive Officer
of the Company. No monetary damages or penalties were assessed against JMC or
Mr. Mitchell.
JMC has filed an appeal of the Final Order and intends vigorously to pursue
the appeal. Until the Final Order was issued, JMC was limited to participating
in an administrative proceeding before what management believes was a
politically-motivated state agency. Management believes that many of its
strongest arguments could not be raised in the administrative proceeding.
These issues have been raised in the appeal before what management hopes is an
impartial judicial panel.
Effective October 31, 1995, JMC concluded its relationship with its Florida
financial institution client and is not presently in business in the state of
Florida. The Company has incurred most of the anticipated costs of the appeal
and management believes that amounts accrued as of December 31, 1995 will be
sufficient to cover any additional costs.
The Company's broker-dealer subsidiary, Priority (formerly Spear Rees &
Co.), has been named as a defendant in lawsuits arising out of the sale of
real estate limited partnerships to customers of Spear Rees & Co. and Rees
Financial Group, Inc. and Rees Capital Group, Inc. ("Rees") prior to 1992.
Spear Rees & Co. was a full service brokerage firm which acquired the assets
of Rees in September 1991. Subsequent to year-end, the Company reached a
settlement with certain of the Plaintiffs in this case, while other claims
remain the subject of NASD arbitration. The amounts to be paid subject to
Bankruptcy Court approval in the settlement were accrued in the Company's
financial statements and are included in accrued expenses and other
liabilities as of December 31, 1995. Management does not believe that
resolution of the NASD arbitration will have a material adverse effect on the
Company.
In addition, the Company and its subsidiaries are involved in various legal
and regulatory proceedings from time to time in the ordinary course of
business. Management does not believe that any such proceedings will have a
material adverse effect on the Company's financial condition or results of
operation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1995.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The common stock of the Company is principally traded in the NASDAQ National
Market System under the symbol JMCG and is owned as of February 29, 1996 by
approximately 262 shareholders of record with approximately 1,200 beneficial
owners. Approximately fifteen broker-dealers are market makers in the
Company's stock on the NASDAQ National Market System.
The Company is also listed on the Pacific Stock Exchange under the symbol
JMC, but the trading volume in the Company's common stock on the Pacific Stock
Exchange is not material.
The following table reflects the high and low sales prices on the NASDAQ
National Market System for the Company's common stock for the four quarters of
each of 1995 and 1994.
<TABLE>
<CAPTION>
SALES PRICES
-------------
HIGH LOW
------ ------
<S> <C> <C>
1995
First Quarter............................................. $1.875 $1.125
Second Quarter............................................ $1.625 $0.875
Third Quarter............................................. $1.188 $0.625
Fourth Quarter............................................ $1.031 $0.688
1994
First Quarter............................................. $9.375 $3.750
Second Quarter............................................ $4.750 $2.875
Third Quarter............................................. $3.250 $1.375
Fourth Quarter............................................ $2.375 $1.250
</TABLE>
DIVIDENDS
No dividends were paid by the Company during fiscal 1995. Future dividends,
if any, will be determined by the Company's Board of Directors, based upon the
Company's profitability, its cash position and other considerations deemed
appropriate.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED ANNUAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER
31, 1995 1994 1993 1992 1991
-------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total Revenues........ $20,371,860 $33,357,242 $49,318,460 $39,247,926 $20,576,673
Income (loss) from
continuing operations
before extraordinary
item and accounting
change............... $ 1,741,124 $(2,370,155) $ 4,368,141 $ 4,422,688 $ 1,376,943
Income (loss) from
discontinued opera-
tions................ $ -- $ -- $ 514,904 $(2,912,225) $ 199,151
Extraordinary item.... $ -- $ -- $ -- $ -- $ 170,000
Accounting change..... $ -- $ -- $ -- $ 185,000 $ --
Net income (loss)..... $ 1,741,124 $(2,370,155) $ 4,883,045 $ 1,695,463 $ 1,746,094
----------- ----------- ----------- ----------- -----------
Earnings Per Share:
Income (loss) from
continuing operations
before extraordinary
item and accounting
change............... $ 0.28 $ (0.36) $ 0.62 $ 0.59 $ 0.19
Income (loss) from
discontinued
operations........... $ -- $ -- $ 0.07 $ (0.38) $ 0.03
Extraordinary item.... $ -- $ -- $ -- $ -- $ 0.02
Accounting change..... $ -- $ -- $ -- $ 0.02 $ --
Net income (loss)..... $ 0.28 $ (0.36) $ 0.69 $ 0.23 $ 0.24
----------- ----------- ----------- ----------- -----------
Balance Sheet Data:
Total assets.......... $ 9,511,828 $ 8,380,931 $15,426,738 $14,079,204 $50,324,413
Long-term debt........ $ -- $ -- $ -- $ -- $ 35,459
Total liabilities..... $ 2,511,006 $ 3,121,233 $ 6,868,923 $ 5,430,721 $40,119,067
Stockholders equity... $ 7,000,822 $ 5,259,698 $ 8,557,815 $ 8,648,483 $10,205,346
----------- ----------- ----------- ----------- -----------
</TABLE>
No cash dividends were paid during the period from January 1, 1991 through
December 31, 1992.
Cash dividends of $456,465 and $969,798 were paid during 1994 and 1993,
respectively.
No cash dividends were paid during 1995.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1995
Commissions.................. $4,554,338 $4,139,820 $ 3,453,664 $2,164,885
Net income (loss)*........... $ 419,326 $ (335,134) $ 1,832,789 $ (175,857)
Earnings per share:
Net income (loss).......... $ 0.07 $ (0.05) $ 0.30 $ (0.03)
---------- ---------- ----------- ----------
1994
Commissions.................. $9,445,217 $9,620,564 $ 7,708,117 $5,373,657
Net income (loss)**.......... $ (217,839) $ 255,528 $(2,604,705) $ 196,861
Earnings per share:
Net income (loss).......... $ (0.03) $ 0.04 $ (0.40) $ 0.03
---------- ---------- ----------- ----------
</TABLE>
- --------
* Non-recurring items included in the quarterly net income (loss) figures for
1995 include: (a) payment of $1,309,000 ($785,000 after-tax provision) for
the right to hire certain personnel in the first quarter; and (b) after-tax
net gain on sale of rights to certain future asset-based fees revenues of
$1,987,000 in the third quarter and $361,000 in the fourth quarter. See
further explanation of these items in "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Results of Operations--
1995 Compared to 1994."
** Includes a one-time charge for restructuring of $557,000 (or $345,000 after
estimated tax benefit of $212,000) and a write-off of goodwill in the
amount of $2,517,000 (with no corresponding tax benefit) in the third
quarter. The fourth quarter includes revenue of approximately $1,000,000
(or $600,000 after estimated tax provision of $400,000) resulting from a
payment from a financial institution client for the right to hire certain
JMC employees.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 Compared to 1994
---------------------
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and Priority.
The Company reported net income for the year ended December 31, 1995 of
$1,741,000 (after providing for income taxes of $1,256,000) compared with a
net loss of $2,370,000 (after providing for income taxes of $492,000) in 1994.
Included in the 1995 and 1994 results were the following:
1995:
-----
. A net gain of $3,914,000 ($2,349,000 or $0.38 per share after
estimated tax provision) on the sale of the rights to certain future
asset-based fee revenues to a client financial institution.
. Other revenue in the amount of approximately $1,309,000 ($785,000 or
$0.13 per share after estimated tax provision) related to the final
portion of that same client financial institution's payment for the
right to hire certain employees and certain other services.
1994:
-----
. One-time pre-tax charges totaling $3,074,000. As explained in detail
below, the charges consisted of a restructuring charge of $557,000
($345,000 or $.05 per share after estimated tax benefit of $212,000)
and a write-off of goodwill which amounted to $2,517,000 (or $.39 per
share) with no corresponding tax benefit.
. Revenue in the amount of approximately $1,000,000 ($600,000 or $.09
per share after estimated tax provision of $400,000) resulting from a
payment from a financial institution client for the right to hire
certain JMC employees.
Excluding the above-mentioned items and amortization of goodwill in 1994,
the Company would have reported an after tax loss of $1,393,000 (or $0.22 per
share after an estimated tax benefit of $833,000) in 1995 compared to net
income of $407,000 (or $0.06 per share after providing for income taxes of
$304,000) in 1994.
Total revenues for 1995 were $20,372,000 compared to revenues of $33,357,000
in 1994, a decrease of $12,985,000 or 39%. Revenues for 1995 include the
previously mentioned one-time payments from a client financial institution and
the net gain on the sale of rights to certain asset-based fee revenues to that
same client totaling $5,223,000 as well as transition fees of $538,000 which
are included in other revenues:
. The transition fees were intended to cover the cost of operating the
Florida operations during a transitional period prior to termination
of the Company's relationship with its Florida financial institution
client. For purposes of analyzing revenues from operations, these
transition fees have been included as they relate to services
performed. As such, all expenses related to the same operational
transition are included in total operating expenses.
1994 revenues include the previously mentioned $1,000,000. Excluding the
one-time payments for the right to hire certain JMC employees in 1994 and 1995
and the net gain on the sale of the rights to certain asset-based fee revenues
in 1995, but including $538,000 for transition fees, revenues for 1995 would
have been $15,149,000 compared to $32,357,000 in 1994 (a decrease of
$17,208,000 or 53%). This reduction in revenues is primarily attributable to
the following:
. Lower gross sales volumes which declined $297 million or 62% due
primarily to:
* The reconfiguration and ultimate termination of the Company's
Florida operations contributed to $241 million or 81% of the sales
volume decline. The Company terminated its relationship with its
Florida financial institution client in August, 1995.
11
<PAGE>
* The termination of another client relationship in the fourth quarter
of 1994 due to that client being acquired by First Interstate Bank
contributed to $18 million or 6% of the total gross sales decline in
1995 compared to 1994.
* Declining interest rates and increased competition, primarily from
Certificates of Deposits during 1995 also contributed to the sales
decline.
. A decrease of approximately 70 basis points or 12% in the gross revenue
rate on products sold in 1995 compared to 1994 due to a shift in the
product mix to mutual funds and variable annuities, both of which pay
lower commissions than that of fixed annuities. Annuity sales as a
percentage of total product sales were 65% in 1995 compared to 90% in
1994. In addition, fixed annuity sales as a percentage of total annuity
sales were 65% in 1995 as compared to 75% in 1994.
. A decrease of approximately $654,000 in asset-based fee revenue in 1995
compared to 1994. This decrease is a result of the sale of the rights to
certain future asset-based fee revenues at the end of August for which
the Company recognized a pre-tax net gain of approximately $3,914,000
during 1995. Because of the timing of this sale, the Company did not
receive asset-based fee revenues for the last four months of 1995 which
would have generated approximately $1.1 million in additional asset-based
fee revenue for 1995.
Total expenses for 1995 were $17,375,000 compared to $35,235,000 in 1994.
Excluding the previously described one-time charges of $3,074,000, total
expenses for 1994 would have been $31,646,000 (which also excludes
amortization of goodwill in 1994 of $515,000). Excluding the aforementioned
charges in 1994, total expenses in 1995 decreased $14,271,000 or 45% when
compared to 1994 expenses. This drop in total expenses is primarily
attributable to the following:
. A $6,744,000 or 51% reduction in fees to financial institutions due to
lower sales volume.
. A $783,000 or 48% reduction in salesperson's commissions also due to
lower sales volume, and
. An additional $6,745,000 or 40% reduction in base operating expenses as a
result of the following:
. The full impact of the Company's restructuring plan implemented in
the latter part of 1994, coupled with additional cost reductions
during 1995.
. The reconfiguration and ultimate termination of the Company's Florida
operations; and
. A reduction in legal fees related to the Company's administrative
proceeding with the Florida Department of Insurance. The Company
incurred significant legal expenses in connection with the five-week
administrative hearing which occurred in February and March of 1994.
The percentage decrease in fees to financial institutions in 1995 compared
to 1994 is less than the percentage decrease in sales volume primarily due to
the following:
. The Company pays out to its financial institution clients a higher
percentage of its asset-based fee revenue than it does on front
commission revenue. Thus, as asset-based fee revenue becomes a larger
percentage of total revenue (32% in 1995 vs. 17% in 1994) the total
payout percentage to the financial institution will increase. The
increased percentage of revenues paid out offset the decrease due to
decreased revenues generated.
The Company's gross margin rate (gross revenue rate less payout rate to
financial institutions and salesperson commissions) is sensitive to changes in
product mix which is impacted by fluctuations in interest rates and other
market conditions. The highest gross margin rate is achieved on the sale of
fixed annuities, followed by variable annuities with mutual funds producing
the lowest gross margin rate.
Fixed annuities achieve a higher gross margin rate because the Company
receives a higher gross revenue rate on fixed annuities but makes payments to
its financial institution clients and sales personnel at a constant. Mutual
funds achieve the lowest gross margin rate due to the significantly lower
gross revenue rate paid on
12
<PAGE>
these products, even though the payout to the Company's financial institution
clients is a fixed percentage of the gross revenue rate. During 1995, variable
annuity and mutual fund sales comprised 58% of total sales compared to 33% of
total sales in 1994, resulting in a decline in the gross margin rate on total
product sales in 1995 from 1994.
RESTRUCTURING. During the third quarter of 1994, the Company's Board of
Directors approved a restructuring plan which was developed by management to
enhance operating efficiencies by streamlining the Company's administrative
and sales management functions. See explanation of restructuring in "Results
of Operations--1994 compared to 1993--Restructuring". During 1995 the Company
realized the benefits from this restructuring in terms of a reduced base
operating overhead at the beginning of the year. In addition, with the
centralization of support functions the Company was able to react quickly to
effect further cost reductions as sales volumes continued to decline,
primarily as a result of the reconfiguration and ultimate termination of its
Florida operations.
As of December 31,1995 the balance remaining in the restructuring reserve
was approximately $60,000 which is primarily to cover the remaining net
obligation on leases of offices closed during restructuring. Management
believes this reserve balance is adequate to cover its remaining obligations
related to the restructuring.
1994 COMPARED TO 1993
- ---------------------
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and Priority.
The Company reported a net loss for the year ended December 31, 1994 of
$2,370,000 (after providing for income taxes of $492,000) compared with after-
tax income from continuing operations of $4,368,000 (after providing for
income taxes of $3,256,000) and net income of $4,883,000 (after providing for
income taxes of $3,599,000) in 1993. Included in the 1994 results were the
following:
. One-time pre-tax charges totaling $3,074,000. As explained in detail
below, the charges consisted of a restructuring charge of $557,000 (or
$345,000 after estimated tax benefit of $212,000) and a write-off of
goodwill which amounted to $2,517,000 with no corresponding tax benefit.
. Revenue in the amount of approximately $1,000,000 (or $600,000 after
estimated tax provision of $400,000) resulting from a payment from a
financial institution client for the right to hire certain JMC employees.
Included in 1993 after-tax income from continuing operations was a one-time
pre-tax charge of $575,000 (or $352,000 after estimated tax benefit of
$223,000) recorded in the third quarter arising out of an arbitration
proceeding with a former bank client. Net income for 1993 included an after-
tax gain from disposal of the Company's specialist and securities brokerage
businesses of $515,000 (net of applicable income taxes of $343,000). Excluding
the above-mentioned items and amortization of goodwill for both periods, the
after-tax income from continuing operations would have been $407,000 (after
providing for income taxes of $304,000) in 1994 compared to $5,406,000 (after
providing for income taxes of $3,479,000) in 1993.
Total revenues for 1994 were $33,357,000 compared to revenues of $49,318,000
from continuing operations in 1993, a decrease of $15,961,000 or 32%. Included
in 1994 revenues was the previously mentioned one-time payment from a client
financial institution. Without this one-time payment, 1994 revenues would have
been $32,357,000, a reduction of $16,961,000 or 34% from 1993. This reduction
in revenues is primarily attributable to the following:
. Lower sales volume which declined 37% principally as a result of the
changing regulatory environment nationwide and surrounding negative news
coverage, changing economic conditions in the financial markets and the
reconfiguring of the Company's Florida operations. See "Trends and
Uncertainties--Declining Revenues". Annuity sales volume decreased 40%
while mutual fund sales remained relatively constant.
13
<PAGE>
.Offset, in part, by:
. An approximately 3% increase in the gross revenue rate on annuities
resulting from an increase in the front commission rate paid on
variable annuities in the beginning of the second quarter of 1994.
The increase was accomplished by increasing front commissions and
reducing trail commissions on an actuarially-equivalent basis. The
Company also obtained a slight increase in trail commissions from
those previously paid; and
. A $1,593,000 increase in asset-based fee revenues due to an increase
over 1993 in the average accumulated value of assets generating fees.
Total expenses for 1994 were $35,235,000 compared to $41,694,000 in 1993.
Excluding the previously described one-time charges of $3,074,000 and $575,000
in 1994 and 1993, respectively, total expenses for 1994 would have been
$31,646,000 (excluding amortization of goodwill of $515,000) compared to total
expenses of $40,433,000 (excluding amortization of goodwill of $686,000) in
1993, a decrease of $8,787,000 or 22%. This drop in total expenses is
attributable to the following:
. A $6,118,000, or 32%, reduction in fees to financial institutions due to
lower sales volume;
. A $2,149,000, or 57%, reduction in salespersons' commissions also due to
lower sales volume; and
. An additional $1,333,000 or 8% reduction in base operating expenses
(excluding Florida legal fees) due to management of base operating
expenses and the initial impact from the Company's restructuring. See
"Restructuring".
. Offset, in part, by an increase of approximately $813,000 in legal fees
primarily related to the Florida Department of Insurance administrative
proceedings.
The percentage decrease in fees to financial institutions in 1994 is less
than the percentage decrease in sales volume due to the increase in asset-
based fees paid to the financial institutions. Asset-based fees increased due
to an increase over 1993 in the average accumulated value of assets generating
fees.
Excluding the one-time charges and non-recurring revenue in 1994, the one-
time charge in 1993 and amortization of goodwill for both periods, the Company
had pre-tax return on total revenues of 2.2% in 1994 compared to 18.0% in
1993. The principal reason for the reduction in pre-tax return was that the
decline in sales volume experienced throughout 1994 occurred more rapidly than
the Company was able to effectuate base operating expense reductions. This
resulted in a sales production level which only marginally exceeded the
minimum production level required to cover its base operating expenses. See
"Restructuring" and "Trends and Uncertainties--Declining Revenues".
The Company's gross revenue rate is sensitive to changes in product mix
which is impacted by fluctuations in interest rates. Fluctuations in gross
revenue rates are not followed by a change in production-based expenses due to
contractual obligations with financial institutions. Thus, changes in gross
revenue rate will impact the Company's gross margin rate. As interest rates
declined in 1993, the product mix moved toward a higher percentage of variable
annuities and mutual funds with lower gross revenue rates. This resulted in a
decrease in the gross revenue rate. Conversely, during 1994 interest rates
increased and during the second half of the year, the amount of fixed
annuities as a percentage of annuity sales also increased. As a result, the
Company's gross revenue rate increased. If interest rates stabilize or
increase further, management believes that the product mix will stabilize and
potentially move towards an even higher percentage of fixed rate annuity
products, but management is unable to predict interest rate movement and there
can be no assurance that product mix will react as management anticipates.
During 1994, management negotiated a change in the structure of commission
payments it receives on variable annuities. As a result, beginning in the
second quarter of 1994, the total compensation rate paid on variable annuities
increased.
14
<PAGE>
Restructuring. During the third quarter of 1994, the Company's Board of
Directors approved a restructuring plan which was developed by management to
enhance operating efficiencies by streamlining the Company's administrative
and sales management functions. The primary reason for the restructuring plan
was to bring costs in line with the decline in sales volumes by taking
advantage of operating efficiencies. See "Trends and Uncertainties--Declining
Revenues". The restructuring, which was completed in the fourth quarter of
1994, involved the consolidation of five service centers in Florida into a
single center in Tampa, the consolidation of the Company's northern California
operations into its corporate offices in San Diego, the centralization of
mutual fund processing in San Diego and a reduction in the number of sales
managers in relation to active sales people. Approximately 31 administrative
employees were terminated as a result of the restructuring.
During the third quarter, the Company recorded one-time restructuring
charges in the amount of $557,000. The restructuring charges included current
and future cash requirements for severance costs and costs related to
premature lease terminations of $64,000 and $280,000, respectively and non-
cash expenses of $213,000 associated with the write-off of certain assets. As
of December 31, 1994, there was a balance of $295,000 remaining in the
restructuring accrual primarily related to premature lease termination costs.
Management estimated the Company will incur an additional $200,000 of
expenditures related to the revised structure of future operations which were
not included in the restructuring charges recorded during the third quarter.
These additional expenditures represent the cash outlays related to the
expansion of the Tampa and San Diego facilities to accommodate the
consolidated operations and the centralization of mutual fund processing. As
of February 28, 1995, $150,000 of these additional expenses had been incurred.
Management anticipates that most of these additional expenditures, which
relate to the purchase of fixed assets and the construction of leasehold
improvements, will be capitalized. The cash required to effect the
restructuring was, and will continue to be, generated from operations.
Write-off of Goodwill. The Company acquired JMC in 1988. The purchase price
was determined by an earn-out formula over a period which ended in 1992. The
Company allocated to goodwill the excess purchase price over the fair value of
the tangible assets acquired. The goodwill was being amortized over a ten-year
period which was an estimate of the time during which JMC would have strong
earnings potential from the financial institution clients it had at the time
of the acquisition.
During the third quarter of 1994, management was notified that JMC's
contract with Sacramento Savings would be terminated in the fourth quarter.
This contract was in fact terminated effective October 31, 1994. Sacramento
Savings was the last significant JMC client remaining from those existing at
the time of the 1988 acquisition. This event caused management to conclude
that the original amortization period was too long. Accordingly, the Company
accelerated its amortization and wrote off $2,517,000 representing the
remaining unamortized book value of the goodwill.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1995, the Company had cash and cash equivalents of
approximately $5,833,000, an increase of $1,686,000 from $4,147,000 in cash
and cash equivalents plus short-term investments at December 31, 1994.
Significant sources and uses of such amounts during 1995 included:
. The net proceeds on the sale of rights to certain future asset-based fees
generated approximately $2,348,000 (after providing for taxes of
$1,566,000). This sale was effective as of the end of August, in 1995,
thus the Company did not receive asset fee revenues related to this
business sold for September through December, 1995, which for that
period, would have generated approximately $177,000 in income after taxes
for the year.
. The Company recognized $1,309,000 (pre-tax) for the purchase of the right
to hire certain JMC personnel. As of December 31,1995, all but $109,000
of this amount had been received (the remaining amount was received in
January of 1996). Thus the Company generated $1,200,000 (or $720,000
after providing for taxes) in cash during 1995 related to this
transaction.
15
<PAGE>
. Excluding the above two transactions and the tax effected non-cash
expense reflected in the Company's Statement of Operations for 1995 the
Company's operations used approximately $1,155,000 during 1995. As
previously noted, the Company has reduced operating expenses, however, it
was necessary to maintain the Company's Florida operations at a certain
level through August, 1995 despite the low sales volumes in order for it
to realize the previously noted revenues associated with the transition
and termination of its relationship with its Florida financial
institution client.
. The remaining uses of cash of approximately $220,000 are primarily due to
the reduction in liability balances from December 31, 1994 to December
31, 1995 and are not related to 1995 operating activities. Such
liabilities consisted primarily of payroll related accruals which were
paid down as personnel left the Company during the year.
The Company's cash needs are affected by its ongoing expenses. These
expenses include fees to financial institutions and sales commissions, which
fluctuate with sales production volumes ("production-based expenses") and
other operating expenses, such as employee salaries and rent, which bear no
precise correlation to sales volume ("base operating expenses"). The Company's
base operating expenses were significantly reduced during 1995 due to cost
containment and the impact from the Company's restructuring plan initiated in
the later part of 1994. Base monthly operating expenses decreased from
approximately $1,000,000 in January of 1995 to $600,000 in December of 1995.
The Company is actively pursuing new client financial institutions (see
explanation of USBA agreement). Management believes that, as new client
financial institutions are acquired, the Company will benefit from spreading
its base operating expenses over a larger revenue base. However, the exact
amount and nature of this benefit cannot be ascertained with any certainty and
will depend, in large part, upon the nature of the services provided to new
client financial institutions and sales volume generated. Depending upon the
nature of these services and sales volume produced, the Company may need to
increase base operating expenses from their current levels. In any event,
under the new consolidated structure, the Company believes it has the ability
to add new clients with significantly reduced start-up costs compared to
historical amounts. In addition, the Company will service these new
relationships on a more centralized basis to take full advantage of operating
efficiencies. In the past, as the Company added new client financial
institutions, it would incur between $125,000 to $250,000 in start-up costs to
establish a new distribution center, which also resulted in ongoing increased
base operating expenses. Management does not anticipate opening a new
distribution center for each new client financial institution in the future.
The Company sells financial products, primarily annuities and mutual funds.
Under its arrangements with the provider companies, the Company earns
commissions on each sale and it's entitled to ongoing asset-based fees and 12
B-1 fees on the average accumulated value of assets. Under arrangements with
most of its client financial institutions, the Company is also required to pay
an asset-based fee which, although varying by product, amounts to
approximately two-thirds of the fee earned from its provider companies for as
long as the marketing relationship with the financial institution continues.
The provisions for payment of asset-based fees to client financial
institutions after the termination of the marketing relationship varies from
institution to institution and depends upon the manner in which the
relationship is terminated. Future fees, both those due from the provider
company and those due to financial institution clients, are not reflected as
an asset or a liability in the Consolidated Balance Sheets. At December
31,1995, the accumulated value of assets on which the Company receives asset-
based fee payments was approximately $890 million (including mutual funds
paying 12 B-1 fees). Asset-based fee income and asset-based fees paid to
financial institutions amounted to approximately $4,866,000 and $3,068,000,
respectively, in 1995. The reduction in these amounts as compared to 1994 is a
result of the sale of the rights to asset-based fees generated by the Florida
operation at the end of August, 1995. The fourth quarter asset-based fee
income and asset-based fees paid to financial institutions amounted to
approximately $654,000 and $363,000 respectively. This is reflective of the
current levels of asset-based fee revenues and asset-based fees paid to
financial institutions after the sale of asset-based fee revenues during the
third quarter of 1995.
16
<PAGE>
Due to the reduction in the Company's base operating expenses as a result of
the restructuring and other cost reductions, management expects the Company
will meet its operating and capital expenditure needs over the next twelve
months. The Company's cash flow from operations in 1996 is expected to
approximate net income with the exception of the depreciation and amortization
expense (estimated to be approximately $320,000 in 1996). However, in
connection with an exclusive Marketing Agreement executed with USBA Holding,
LTD., the Company paid out $1.25 million in the first quarter of 1996. This
payment is not reflected on the balance sheet as of December 31, 1995.
TRENDS AND UNCERTAINTIES
REGULATORY ENVIRONMENT. The Company and its financial institution clients
operate in a highly regulated environment. Both state and federal laws govern
the manner in which insurance agencies, broker-dealers and financial
institutions may make annuities, insurance products and mutual funds available
to customers of financial institutions. Recently, federal banking regulators,
the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc. have focused attention in this area. Changes in, or
interpretations of, the laws and regulations governing these activities or
changes in the implementation or enforcement of such laws and regulations
could affect the ability of, and the means by which, the Company and its
financial institution clients make annuities, insurance products and mutual
funds available to customers of banks, savings and loan associations and
thrifts.
DECLINING REVENUES. During 1995, the Company experienced a continued decline
in sales volume which generated a corresponding decrease in revenues. The
primary reason for this decline was the transition and ultimate termination of
the Company's relationship with Barnett. This accounted for 81% of the
decrease in sales volume. See further explanation of revenue decline in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--1995 Compared to 1994".
Management believes that interest rate competition also impacted sales
volumes and revenues adversely. As long term interest rates declined, the
Company's financial institution clients began aggressively pursuing deposit
growth to meet loan demand by offering attractive interest rates on bank
deposits which compete with the Company's products. Management believes that
many conservative investors were attracted to the higher rates on FDIC insured
deposits. In addition, as interest rates on fixed annuities came under
increasing competition and the stock market rose, the product mix shifted to
mutual funds and variable annuity products which provide the opportunity for
customers to realize higher returns but pay lower commission rates to the
Company. During the first quarter of 1995 the product mix was 65% fixed
annuities, 15% variable annuities and 20% mutual funds compared to 17%, 31%,
and 52%, respectively, for the fourth quarter of 1995.
Most of these factors are outside the Company's control and, accordingly,
management cannot predict when or if they will change or cease to affect sales
volumes and revenues. In 1995, management responded to these events by
developing an expanded choice of alternative investment programs for potential
bank clients and intensifying its marketing efforts for new client
acquisition. In addition, management reduced operating expenses to bring them
in line with revenue. See explanation of reduction in expenses in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation--Results of Operations--1995 Compared to 1994 and 1994 Compared to
1993--Restructuring". In January 1996, the Company announced an exclusive
marketing arrangement with USBA. See description of the USBA marketing
agreement in Item 1 "Description of Business--Principal Markets and Methods of
Distribution".
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
JMC GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
CONTENTS
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT................................................ 19
CONSOLIDATED BALANCE SHEETS................................................. 20
CONSOLIDATED STATEMENTS OF OPERATIONS....................................... 21
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY.................. 22
CONSOLIDATED STATEMENTS OF CASH FLOWS....................................... 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................................. 24
</TABLE>
18
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of JMC Group,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of JMC Group, Inc. and
subsidiaries at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
San Diego, California
February 20, 1996
19
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $5,832,598 $3,610,888
Short-term investments............................. -- 536,000
Cash segregated under securities regulations....... 894,269 47,746
Receivables from insurance companies............... 826,971 1,425,466
Receivable from financial institution.............. 109,450 --
Income taxes receivable............................ 65,334 168,992
Deferred tax asset................................. 159,354 424,584
Other assets....................................... 281,947 354,261
---------- ----------
TOTAL CURRENT ASSETS............................. 8,169,923 6,567,937
Furniture, equipment and leasehold improvements--net
of accumulated depreciation and amortization of
$1,498,291 in 1995 and $1,321,307 in 1994........... 362,261 677,155
Asset-based fees purchased--net of accumulated
amortization of $417,485 in 1995 and $261,290 in
1994................................................ 979,644 1,135,839
---------- ----------
TOTAL ASSETS..................................... $9,511,828 $8,380,931
========== ==========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued fees to financial institutions............. $ 367,287 $ 978,542
Customer funds segregated under securities
regulations....................................... 894,269 47,746
Accrued expenses and other liabilities............. 833,811 878,172
Accrued restructuring expenses..................... 60,369 294,675
Allowance for contract cancellations............... 142,503 390,539
Accrued payroll and related expenses............... 212,767 531,559
---------- ----------
TOTAL CURRENT LIABILITIES........................ 2,511,006 3,121,233
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; authorized 5,000,000
shares ........................................... -- --
Common stock, $.01 par value; authorized 20,000,000
shares;
issued and outstanding 6,198,898 shares in 1995
and 1994.......................................... 61,989 61,989
Additional paid-in-capital......................... 624,851 624,851
Retained earnings.................................. 6,313,982 4,572,858
---------- ----------
TOTAL STOCKHOLDERS' EQUITY....................... 7,000,822 5,259,698
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY....... $9,511,828 $8,380,931
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Commissions............................. $14,312,707 $32,147,555 $49,043,905
Net gain on sale of rights to certain
future asset-based fee revenues........ 3,914,350 -- --
Interest................................ 244,401 199,530 206,631
Other................................... 1,900,402 1,010,157 67,924
----------- ----------- -----------
TOTAL REVENUES........................ 20,371,860 33,357,242 49,318,460
----------- ----------- -----------
EXPENSES:
Employee compensation and benefits...... 7,428,369 13,095,319 15,964,591
Fees to financial institutions.......... 6,400,349 13,144,841 19,262,515
Professional fees....................... 770,121 1,514,468 637,084
Rent.................................... 510,691 638,744 640,582
Telephone............................... 231,714 474,148 508,896
Depreciation and amortization........... 394,188 1,054,770 1,257,034
Other general and administrative
expenses............................... 1,639,136 2,239,510 2,848,097
Goodwill write-off...................... -- 2,516,683 --
Restructuring charges................... -- 557,002 --
Litigation settlement and related costs. -- -- 575,401
----------- ----------- -----------
TOTAL EXPENSES........................ 17,374,568 35,235,485 41,694,200
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES.................... 2,997,292 (1,878,243) 7,624,260
INCOME TAX PROVISION...................... 1,256,168 491,912 3,256,119
----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................. 1,741,124 (2,370,155) 4,368,141
GAIN ON DISPOSAL OF SECURITIES BUSINESSES
(INCLUDES APPLICABLE TAX EXPENSE OF
$343,270)................................ -- -- 514,904
----------- ----------- -----------
NET INCOME (LOSS)................... $ 1,741,124 $(2,370,155) $ 4,883,045
=========== =========== ===========
EARNINGS (LOSS) PER SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS............................. $ 0.28 $ (0.36) $ 0.62
GAIN ON DISPOSAL OF SECURITIES
BUSINESSES............................. -- -- 0.07
----------- ----------- -----------
NET INCOME (LOSS)................... $ 0.28 $ (0.36) $ 0.69
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
OUTSTANDING PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances--January 1,
1993................... 6,829,698 $68,297 $ 5,093,955 $ 3,486,231 $ 8,648,483
Stock options exercised. 151,433 1,514 251,300 -- 252,814
Reduction of income
taxes payable due to
stock option
transactions........... -- -- 389,824 -- 389,824
Repurchase and retire-
ment of common stock... (496,233) (4,962) (4,641,591) -- (4,646,553)
Dividends paid ($0.14
per share)............. -- -- -- (969,798) (969,798)
Net income for the year
ended December 31,
1993................... -- -- -- 4,883,045 4,883,045
--------- ------- ----------- ----------- -----------
Balances--December 31,
1993................... 6,484,898 64,849 1,093,488 7,399,478 8,557,815
Dividends paid ($0.07
per share)............. -- -- -- (456,465) (456,465)
Stock options exercised. 40,000 400 56,960 -- 57,360
Reduction of income
taxes payable due to
stock option transac-
tions.................. -- -- 114,453 -- 114,453
Repurchase and retire-
ment of common stock... (326,000) (3,260) (640,050) -- (643,310)
Net loss for the year
ended December 31,
1994................... -- -- -- (2,370,155) (2,370,155)
--------- ------- ----------- ----------- -----------
Balances--December 31,
1994................... 6,198,898 61,989 624,851 4,572,858 5,259,698
Net income for the year
ended December 31,
1995................... -- -- -- 1,741,124 1,741,124
--------- ------- ----------- ----------- -----------
Balances--December 31,
1995................... 6,198,898 $61,989 $ 624,851 $ 6,313,982 $ 7,000,822
========= ======= =========== =========== ===========
</TABLE>
The Company's certificate of incorporation also authorizes 5,000,000 shares
of no par value preferred stock, none of which have been issued.
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)....................... $1,741,124 $(2,370,155) $ 4,883,045
Adjustments to reconcile net income
(loss) to net cash provided (used) by
operating activities:
Net gain on sale of rights to certain
future asset-based fee revenues........ (3,914,350) -- --
Gain on disposal of securities
businesses............................. -- -- (514,904)
Realized loss on short-term
investments........................... -- 72,763 --
Loss on sale of furniture and
equipment............................. 28,170 -- --
Depreciation and amortization.......... 394,188 1,054,770 1,347,877
Goodwill write-off..................... -- 2,516,683 --
Amortization of asset-based fees
purchased............................. 156,195 170,447 --
Deferred tax provision................. 265,230 496,535 1,899,407
Changes in assets and liabilities:
Cash segregated under securities
regulations........................... (846,523) (47,746) --
Short-term investments................. 536,000 (536,000) --
Receivables from insurance companies... 598,495 587,565 (450,040)
Receivable from financial institution.. (109,450) -- --
Income taxes receivable................ 103,658 837,228 (1,006,220)
Other assets........................... 26,299 (64,877) 21,876
Accrued fees to financial institutions. (611,255) (630,101) 225,518
Customer funds segregated under
securities regulations................ 846,523 47,746 --
Payable to former officer/stockholder.. -- -- (165,740)
Accrued expenses and other liabilities. (44,361) (434,451) (902,230)
Accrued restructuring expenses......... (201,865) 472,804 --
Allowance for contract cancellations... (248,036) (344,968) 78,314
Accrued payroll and related expenses... (318,792) (109,970) (64,553)
Reserve for discontinued operations.... -- (492,836) 492,836
---------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES........................... (1,598,750) 1,225,437 5,845,186
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and
leasehold improvements................ (109,677) (158,013) (632,917)
Proceeds from net sale of rights to
certain future asset-based fee
revenues.............................. 3,914,350 -- --
Proceeds from sale of furniture and
equipment............................. 15,787 -- --
Purchase of future asset-based fees and
related costs......................... -- -- (1,397,129)
Proceeds from sale of securities
businesses............................ -- -- 3,860,791
Purchase of short-term investments..... -- (2,389,463) (4,203,037)
Redemption of short-term investments... -- 6,519,737 --
---------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES........................... 3,820,460 3,972,261 (2,372,292)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock............. -- (2,606,641) (2,683,222)
Proceeds from stock options exercised.. -- 57,360 252,814
Dividends paid......................... -- (456,465) (969,798)
---------- ----------- -----------
NET CASH USED BY FINANCING ACTIVITIES. -- (3,005,746) (3,400,206)
---------- ----------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS.......................... 2,221,710 2,191,952 72,688
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.............................. 3,610,888 1,418,936 1,346,248
---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $5,832,598 $ 3,610,888 $ 1,418,936
========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest............................... $ 1,395 $ 6,365 $ 733,772
Income taxes........................... $ 979,550 $ 248,837 $ 2,612,402
SUPPLEMENTAL DISCLOSURES OF NON-CASH OP-
ERATING ACTIVITIES
Depreciation charged against accrued re-
structuring expenses.................... $ 32,441 $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACQUISITIONS
The consolidated financial statements include the accounts of JMC Group,
Inc. ("JMCG" or the "Company"), its wholly-owned subsidiaries, James Mitchell
& Co. ("JMC"), and Priority Investment Services, Inc. ("Priority") (formerly
known as Spear Rees & Co.). The Company is engaged in the business of selling
annuities, insurance products, and mutual funds to the customers of banks,
savings and loan associations and thrifts. Effective January 25, 1994, Spear
Rees & Co. changed its name to Priority. Priority is registered with the
Securities and Exchange Commission as a broker-dealer and during 1995
exclusively served customers of First Tennessee Bank National Association and
its affiliates and correspondent banks. All significant intercompany
transactions and balances have been eliminated in the consolidated financial
statements.
In 1988, JMCG acquired all of the outstanding stock of JMC in a business
combination accounted for by the purchase method of accounting. The total cost
of the acquisition exceeded the fair value of the net assets acquired and the
excess was allocated to the cost of goodwill which was originally being
amortized over ten years. This amortization period was derived from the terms
of the contracts that JMC had with its remaining financial institution clients
at the time of the acquisition. During the third quarter of 1994, management
was notified that JMC's contract with Sacramento Savings Bank ("SSB") would be
terminated during the fourth quarter of that year. This contract was in fact
terminated on October 31, 1994. SSB was the last significant JMC client
remaining from those existing at the time of the 1988 acquisition. This event
caused management to conclude that the original amortization period was too
long. Accordingly, the Company accelerated its amortization and wrote-off
$2,516,683 representing the remaining unamortized book value of goodwill
during 1994.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers cash on hand, cash in banks, and all highly liquid
investments purchased with a maturity of three months or less to be cash and
cash equivalents.
Short-Term Investments
During 1994 the Company had a line of credit agreement which required it to
maintain a collateral account which had a balance of $536,000 as of December
31, 1994. In December of 1995, the line of credit agreement was terminated;
therefore, the collateral account is no longer required.
Cash Segregated Under Securities Regulations
JMC Financial, a wholly owned subsidiary of JMC and a broker-dealer
registered with the SEC and NASD, began self-clearing of mutual fund
transactions for itself and Priority at the end of 1994. As such, JMC
Financial carries cash balances for customers from the trade date of a mutual
fund transaction through the settlement date of such transactions. These cash
balances have been segregated in special bank accounts for the benefit of
customers under Rule 15C3-3 of the Securities and Exchange Commission. Total
deposits in these accounts as of December 31, 1995 are $894,269.
Revenue Recognition
The Company recognizes and records commission revenue when a sale has been
consummated. Annuity and insurance sales are deemed to be consummated when
proof of premium payment, the completed application and supporting
documentation have been received in the Company's distribution/service center.
Mutual fund
24
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
sales are recorded on the trade date of such sale. Commission revenues for
1995, 1994 and 1993 were $9,447,074, $26,628,216 and $45,117,202,
respectively. Annuity and insurance sales commission revenue is reported net
of chargebacks. The Company recognizes and records asset-based fee revenues as
they become due from the provider companies, based upon the average
accumulated value of assets in force. Asset-based fee revenues for 1995, 1994
and 1993 were $4,865,633, $5,519,339 and $3,926,703, respectively.
Allowance for Contract Cancellations
The Company reflects a liability on its balance sheet identified as
"Allowance for Contract Cancellations". This allowance is a recognition that
certain commissions earned by the Company on the sale of annuities and
insurance products must be returned to the provider companies when policies
are surrendered within the first year after purchase. A formula is used to
calculate the returned commission exposure. This formula was developed based
on the Company's policy surrender patterns, actual commissions received by
month, "known" unprocessed surrenders, and the availability of recoveries of
client fees and sales personnel commissions.
Net Gain on Sale of Rights to Certain Future Asset-Based fee Revenue
During the third quarter of 1995 the Company signed an agreement to
terminate its Florida operations. As part of the termination agreement, the
Florida based financial institution exercised its rights to purchase certain
future asset-based revenues from the Company. The Company recorded a net gain
of $3,914,350 from the sale. See discussion of Barnett Bank, Inc. at Note 5
and 10.
Other Income
For 1995 and 1994, other income includes payments made by the Company's
Florida based financial institution client, for the right to hire certain JMC
employees of $1,308,500 and $1,000,000, respectively. In addition, 1995 other
income includes fees of $538,200 paid to the Company by the same financial
institution to transition the sales operation to the financial institution.
Costs incurred by the Company to facilitate such transactions are included in
Expenses for the year.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment are recorded at cost. Depreciation is provided using
the straight line method over the estimated useful lives of the property which
range from three to five years. Leasehold improvements, also recorded at cost,
are amortized over the lesser of the estimated life of the improvement or the
term of the lease.
Asset-Based Fees Purchased
During 1993, the Company recorded $1,397,129 as a capital asset, which
represented the discounted present value of the future asset-based fees
acquired by the Company as a result of an arbitration proceeding involving a
former bank client. The asset is being amortized over 13 years from the
acquisition date which represents the estimated life of the asset-based fees
purchased. The unamortized balance of this capital asset as of December 31,
1995 was $979,644.
Financial Statement Classification
Certain reclassifications have been made to the 1994 and 1993 financial
statements in order for them to conform to the presentation for 1995.
25
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Restructuring
Restructuring expenses represent costs specifically associated with the
Company's restructuring, which was approved in the third quarter of 1994,
including employee severance, asset write-downs and lease write-offs for
closed offices.
NOTE 3. REVOLVING LINE OF CREDIT
As of December 31, 1994, the Company had available a $500,000 bank line of
credit for short-term working capital requirements, which permitted borrowing
at the bank's prime rate plus .5%. The line of credit required the Company to
maintain a collateral account of $536,000 which was recorded as short-term
investments as of December 31, 1994. The line of credit was terminated in
December 1995.
NOTE 4. DISCONTINUED OPERATIONS
During 1993, the Company entered into two separate agreements for the
disposition of its specialist and securities brokerage businesses. One
agreement was for the sale of TCW, Inc., Spear Investment Services, Inc. and
Spear Insurance Services, Inc. to a former officer/stockholder of the Company
for $1,554,017. An outstanding severance liability of $1,193,226 due to the
former officer/stockholder was offset against the sales price of these
entities at the time of the disposition. The second agreement was for the sale
of the customer accounts of Spear Rees & Co. to a major discount brokerage
firm for $3,500,000.
Amounts related to the dispositions, initially established as of December
31, 1992, were revised and a gain on disposal of securities businesses of
$514,904, net of applicable taxes, was recorded during the year ended December
31, 1993.
NOTE 5. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases office facilities and equipment under the terms of
operating leases which expire through 1998. At December 31, 1995 the aggregate
minimum annual noncancelable lease commitments are as follows:
<TABLE>
<CAPTION>
MINIMUM
AGGREGATE
RENTALS
----------
<S> <C>
Year Ending December 31,
1996......................................................... $ 462,703
1997......................................................... 426,565
1998......................................................... 324,803
----------
$1,214,071
==========
</TABLE>
The above schedule of minimum aggregate rentals represents lease payments on
all of the Company's offices as if rents were paid on all offices through
their respective lease terms less amounts to be received by the Company for
offices which have been subleased.
As of January 1, 1996 the Company had three offices which were being
subleased. The net obligation on such offices, included in the above minimum
aggregate rentals, is included in the remaining restructuring reserve and
reserve for discontinued operations, included in accrued restructuring
expenses and accrued expenses and other liabilities as of December 31, 1995.
26
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEGAL MATTERS
On July 7, 1995, the Florida Department of Insurance (the "Department")
issued a Final Order in its administrative proceeding against the Company's
wholly-owned subsidiary, JMC, which was commenced on March 11, 1993. The
enforcement of the majority of the Final Order has been stayed pending the
outcome of its appeal and JMC has complied with all other aspects of the Final
Order.
The Final Order is similar in many respects to the Recommended Order which
was issued by an administrative hearing officer in August 1994. The Department
found that JMC was not involved in an unlawful association with its Florida
financial institution client with regard to the sale of annuities. JMC was
ordered to cease and desist from certain advertising and sales practices which
the Department found to be in violation of Florida insurance laws regarding
deceptive advertising and sales practices. The Final Order also requires JMC
to obtain an insurance agency license prior to engaging in any activity which
by state law may be performed only by a licensed agent and revokes the Florida
insurance license of James K. Mitchell, Chairman and Chief Executive Officer
of the Company. No monetary damages or penalties were assessed against JMC or
Mr. Mitchell.
JMC has filed an appeal of the Final Order and intends vigorously to pursue
the appeal. The Company has incurred most of the anticipated costs of the
appeal and management believes that the amounts accrued as of December 31,1995
will be sufficient to cover any additional costs.
Effective October 31, 1995, JMC concluded its relationship with its Florida
financial institution client, Barnett Banks, Inc., and is not presently doing
business in the State of Florida. As described in Note 10, Barnett Bank
accounted for revenues of $10,239,630, $20,176,680 and $35,388,162 during
1995, 1994 and 1993, respectively.
The Company's broker-dealer subsidiary, Priority (formerly Spear Rees &
Co.), has been named as a defendant in lawsuits arising out of the sale of
real estate limited partnerships to customers of Spear Rees & Co. and Rees
Financial Group, Inc. and Rees Capital Group, Inc. ("Rees") prior to 1992.
Spear Rees & Co. was a full service brokerage firm which acquired the assets
of Rees in September 1991. Subsequent to year-end, the Company reached a
settlement with certain of the Plaintiffs in this case, while other claims
remain the subject of NASD arbitration. The amounts to be paid subject to
Bankruptcy Court approval in the settlement were accrued in the Company's
financial statements and are included in accrued expenses and other
liabilities as of December 31, 1995. Management does not believe that
resolution of the NASD arbitration will have a material adverse effect on the
Company.
In addition, the Company and its subsidiaries are involved in various legal
and regulatory proceedings from time to time in the ordinary course of
business. Management does not believe that any such proceedings will have a
material adverse effect on the Company's financial condition or results of
operation.
27
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Furniture and fixtures............................ $ 858,151 $ 967,062
Computer equipment................................ 959,440 973,913
Leasehold improvements............................ 42,961 57,487
----------- -----------
1,860,552 1,998,462
----------- -----------
Less:
Accumulated depreciation and amortization....... (1,498,291) (1,321,307)
----------- -----------
Net furniture, equipment and leasehold
improvements..................................... $ 362,261 $ 677,155
=========== ===========
</TABLE>
NOTE 7. STOCKHOLDERS' EQUITY
In 1994, the Board of Directors authorized the purchase of up to 500,000
shares of the Company's common stock. During 1994, the Company repurchased
326,000 shares of common stock at a total cost of $643,310.
During 1993, the Company repurchased 496,233 shares of common stock at a
total cost of $4,646,553. During 1994, a final payment of $1,963,331 was made
related to this repurchase of stock.
In 1983, the Company adopted a Stock Option Plan (the "1983 Plan") pursuant
to which options to purchase an aggregate of 1,000,000 shares of common stock
could be granted to directors, officers and key employees. The 1983 Plan
expired by its terms in November 1993, although there are still options
outstanding under the 1983 Plan. In 1993, the Company adopted the 1993
Executive Stock Option Plan (the "Executive Plan") pursuant to which options
to purchase an aggregate of 750,000 shares of common stock may be granted to
officers and directors of the Company and its subsidiaries and the 1993
Employee Stock Option Plan (the "Employee Plan") pursuant to which options to
purchase an aggregate of 750,000 shares of common stock may be granted to
employees of the Company and its subsidiaries (collectively, the "1993 Plans"
and, together with the 1983 Plan, the "Plans"). Under the Plans, incentive
stock options, as defined in section 422A of the Internal Revenue Code, or
non-qualified stock options may be granted. Non-employee directors receive
formula grants of options pursuant to the Executive Plan.
A summary of changes in outstanding common stock options during 1995, 1994,
and 1993 follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTION PRICE
SHARES PER SHARE
-------- -------------
<S> <C> <C>
Stock options outstanding at December 31, 1992...... 279,433 $1.380- 6.380
1993
Granted........................................... 128,000 $6.250-11.000
Canceled or exercised............................. (153,433) $1.380- 6.380
1994
Granted........................................... 243,000 $4.000- 4.400
Canceled or exercised............................. (91,000) $1.380- 9.000
1995
Granted........................................... 218,000 $0.625- 3.625
Canceled or exercised............................. (112,000) $1.690-11.000
-------- -------------
Outstanding at December 31, 1995.................. 512,000 $0.625-11.000
======== =============
</TABLE>
28
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the 218,000, 243,000 and 128,000 options granted in 1995, 1994 and 1993
respectively, options granted under the Executive Plan amounted to 152,000 for
1995, 170,000 for 1994 and 37,000 for 1993. Options granted under the Employee
Plan amounted to 66,000 in 1995 and 73,000 in 1994. The remaining shares in
each of these years were granted under the 1983 Plan. The 512,000 options
outstanding at December 31, 1995 became or will become exercisable as follows:
207,500 shares in 1995 and prior; 193,166 in 1996; 82,666 in 1997 and 28,668
in 1998. As of December 31, 1995, options to purchase 546,834 shares had been
exercised under the 1983 Plan and options for 101,000 shares were outstanding.
As of December 31, 1995, 436,000 shares were available for future grants under
the Executive Plan and 653,000 shares were available for future grants under
the Employee Plan. As of December 31, 1995, a total of 1,601,000 shares were
reserved for issuance under the Plans.
NOTE 8. EARNINGS PER SHARE
Earnings per share was computed based upon the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods. The weighted average number of shares outstanding was adjusted to
reflect the dilutive effect of the assumed exercise of stock options using the
treasury stock method.
The weighted average number of shares of common stock and common stock
equivalents outstanding for the periods presented is as follows: 1995-
6,201,318; 1994-6,494,388; 1993-7,010,004.
NOTE 9. INCOME TAXES
The provision (benefit) for income taxes is allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
Continuing operations........................ $1,256,168 $ 606,365 $3,645,943
Discontinued operations...................... -- -- 343,270
Additional tax deduction due to stock option
transactions................................ -- (114,453) (389,824)
---------- --------- ----------
Total.................................... $1,256,168 $ 491,912 $3,599,389
========== ========= ==========
<CAPTION>
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
Current:
Federal.................................... $ 792,750 $ 86,843 $1,652,410
State...................................... 198,188 22,987 437,396
---------- --------- ----------
990,938 109,830 2,089,806
Deferred..................................... 265,230 496,535 1,899,407
Additional tax deduction due to stock option
transactions................................ -- (114,453) (389,824)
---------- --------- ----------
Total.................................... $1,256,168 $ 491,912 $3,599,389
========== ========= ==========
</TABLE>
The provisions for income taxes for continuing operations differs from the
amount computed using the statutory federal tax rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Expecting tax (benefit) using statutory
rate....................................... $1,019,079 $ (638,603) $2,592,248
Effects of:
State income taxes, net of Federal tax
benefit.................................. 178,039 (109,051) 423,619
Nondeductible amortization................ -- 1,212,585 276,480
Other..................................... 59,050 26,981 (36,228)
---------- ---------- ----------
Total................................... $1,256,168 $ 491,912 $3,256,119
========== ========== ==========
</TABLE>
29
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995 and 1994, the components of the deferred income tax
asset are as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Allowance for contract cancellations..................... $ 56,916 $155,981
Accrued restructuring expenses........................... 24,111 117,693
Accrued payroll and related expenses..................... 69,161 101,692
Other.................................................... (22,760) 33,212
Franchise taxes.......................................... 31,926 16,006
-------- --------
Deferred taxes......................................... $159,354 $424,584
======== ========
</TABLE>
NOTE 10. MAJOR CUSTOMERS
During the years ended December 31, 1995, 1994 and 1993, the following
client financial institutions individually accounted for 10% or more of the
Company's total revenues:
<TABLE>
<S> <C>
1995
Barnett Banks, Inc. (Florida)................................. $10,239,630
Central Fidelity National Bank (Virginia)..................... $ 4,331,633
First Tennessee Bank (Tennessee).............................. $ 3,149,677
1994
Barnett Banks, Inc. (Florida)................................. $20,176,680
Central Fidelity National Bank (Virginia)..................... $ 6,210,464
1993
Barnett Banks, Inc. (Florida)................................. $35,388,162
Central Fidelity National Bank (Virginia)..................... $ 7,579,735
</TABLE>
As described in Note 5, the Company terminated its relationship with Barnett
Banks, Inc. effective October 31, 1995.
As described in Note 12, effective February 1, 1996, the Company reduced its
level of service provided to First Tennessee Bank from a fully-managed
alternative investments program to an administrative support program.
The Company's current contract with Central Fidelity expires on December 31,
1996, but is subject to termination or may be renewed upon written notice
prior to that time.
NOTE 11. SHAREHOLDER RIGHTS PLAN
In 1990, the Company's Board of Directors adopted a Shareholder Rights Plan
(the "Plan"). The Plan provided for the distribution of one common stock
purchase right as a dividend for each outstanding share of common stock of the
Company as of April 1, 1990. The right entitles stockholders to buy one share
of the Company's common stock at thirty dollars per share, subject to
adjustment per the Plan. All rights expire on February 23, 2000.
Generally, each right may be exercised ten days after any person or group
("Acquirer") acquires beneficial ownership of 20% of the outstanding shares of
common stock, or ten days after an Acquirer announces a tender offer or other
business combination, which would result in the Acquirer obtaining beneficial
ownership of 20% or more of the voting power of the Company, unless such
tender offer or acquisition is made with approval of the Board of Directors.
30
<PAGE>
JMC GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under certain circumstances, including the acquisition of 25% of the
Company's common stock and the occurrence of certain "self-dealing
transactions" by an Acquirer or certain other 20% holders, all rights holders
except the Acquirer may purchase the Company's common stock at approximately
50% of the prevailing market price. Similarly, if the Company is acquired in a
merger after the acquisition of specified percentages of the voting power of
the Company, and the Acquirer is the resultant corporation, the rights holders
with the exception of the Acquirer, may purchase the Acquirer's shares at a
similar discount.
The Board of Directors may effect the redemption of the rights at any time
before the rights become exercisable at a nominal price payable in cash and/or
shares of common stock.
NOTE 12. SUBSEQUENT EVENTS
Effective February 1 1996, the Company entered into an agreement with First
Tennessee Bank pursuant to which such client has internalized the distribution
of annuities and mutual funds. Although the Company will no longer provide a
fully-managed alternative investment program to this client, effective with
the new agreement, the Company will provide this financial institution
administrative support for which it will receive fees based on the number of
customers serviced and the amount of transactions processed on a monthly
basis. Regardless of the volume administered, the Company will receive a
minimum monthly fee of $25,000 through December 31, 1997. For the period from
February 1, 1996 through December 31, 1996 the Company and the client bank
will share asset-based fees on the block of annuities and mutual funds
generated as of January 31,1996 in the same proportion as before the new
agreement. Subsequent to that date, the Company will earn a larger portion of
the shared fees. Based on this new agreement, no material liabilities were
created which would have required an accrual as of December 31, 1995.
The Company entered into an agreement with USBA Holdings, LTD ("USBA") on
January 28, 1996. This agreement was established to provide JMC with access to
financial institutions through the consulting and other relationships
established by USBA and its subsidiaries. In connection with this transaction,
the Company paid USBA $1.25 million on January 28, 1996 to assist in the
preparation and implementation of a five year marketing plan focusing on the
establishment of relationships with new financial institution clients. The
Company has the right to recover $1 million of the amount paid under certain
circumstances. In addition, USBA was given warrants to purchase up to 1
million shares of the Company's common stock at $2.50 per share which may be
adjusted to approximately $1.44 per share under certain circumstances. The
warrants, which are exercisable after January 29, 1997, have an estimated
value of $315,000. Amounts associated with this transaction will be deferred
and amortized over future benefit periods.
31
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth names and certain other information
concerning the Company's Directors and executive officers, as of February 29,
1996:
<TABLE>
<CAPTION>
TERM OF OFFICE
NAME AGE POSITION AS DIRECTOR EXPIRES
---- --- -------- -------------------
<C> <C> <S> <C>
James K. Mitchell........... 57 Chairman, Chief 1998
Executive Officer and
Director
Brian J. Finneran........... 52 President, Chief 1998
Operating Officer and
Director
D. Mark Carlson............. 36 Senior Vice President, --
Chief Financial Officer
William L. Webster.......... 48 Senior Vice President, --
Chief Administrative
Officer
Edward J. Baran............. 59 Director 1997
Barton Beek................. 72 Director 1996
Charles H. Black............ 69 Director 1997
Robert A. Cervoni........... 43 Director 1996
Herbert G. Kawahara......... 67 Director 1996
Robert G. Sharp............. 60 Director 1998
Donald A. Weeden............ 65 Director 1997
</TABLE>
Information with respect to the principal occupation during the past five
years of each nominee, each current Director and each executive officer is set
forth below. There are no family relationships among Directors or executive
officers of the Company.
James K. Mitchell became a Director in October 1988 and became Chairman and
Chief Executive Officer of the Company on January 1, 1993. Mr. Mitchell is the
founder of the Company's principal subsidiary, James Mitchell & Co. In 1973,
Mr. Mitchell was a founding officer of Security First Group (now The Holden
Group), a financial services firm which pioneered the concept of marketing
insurance and annuity products through stock brokerage firms. Before joining
that firm, Mr. Mitchell served as Vice President of Marketing for the Variable
Annuity Life Insurance Company of Houston, Texas. He attended Portland State
University and is a registered Principal with the National Association of
Securities Dealers, Inc. (the "NASD").
Brian J. Finneran became President and Chief Operating Officer and a
Director of the Company on January 10, 1994. From May 1, 1993 to January 9,
1994, he served as Executive Vice President of the Company, with
responsibility for sales and marketing. Mr. Finneran joined James Mitchell &
Co. in 1984. Prior to that time, Mr. Finneran was an officer of Security First
Group. He also held marketing and management positions with Allstate Insurance
Company and Investors Diversified Services (IDS). Mr. Finneran received
undergraduate and graduate degrees from Fairfield University and is a
registered Principal with the NASD.
D. Mark Carlson became Senior Vice President of the Company on January 10,
1994. Mr. Carlson joined James Mitchell & Co. in 1990 as Assistant Vice
President--Accounting and became Chief Financial Officer of James Mitchell &
Co. in January 1991. He became Vice President and Chief Financial Officer of
the Company on May 1, 1993. Prior to joining James Mitchell & Co., Mr. Carlson
was an audit manager with Steres, Alpert & Carne, a San Diego-based accounting
firm, which he joined in 1988 after serving as an audit supervisor with the
accounting firm of Arthur Young & Company. Mr. Carlson is a graduate of
California Lutheran University, is a certified public accountant and is a
registered Financial and Operations Principal with the NASD.
32
<PAGE>
William L. Webster became Senior Vice President and Chief Administrative
Officer of the Company on January 10, 1994. Mr. Webster joined James Mitchell
& Co. in June 1993 as Vice President of Operations. Prior to that time, he was
Vice President of New Business Administration and Vice President of
Information Systems for The Holden Group. In such capacities, Mr. Webster was
responsible for the administration of the company's annuity sales business
which consisted of over 250,000 accounts representing approximately $4 billion
in assets. Prior to joining The Holden Group, Mr. Webster was an
Administrative Services Manager with Arthur Andersen & Co. Mr. Webster
received his undergraduate degrees from Lehigh University.
Edward J. Baran became a Director in August 1992. Mr. Baran, who has spent
more than thirty years in the insurance business, is currently Chairman and
Chief Executive Officer of BCS Financial Corporation, a financial services
holding company. Prior to joining BCS in November 1987, Mr. Baran was Vice
Chairman, President and Chief Executive Officer of Capitol Life Insurance
Company of Denver, Colorado. He is a graduate of Georgetown University and a
member of the Compensation Committee of the Board of Directors.
Barton Beek became a Director in January 1984. Mr. Beek is a senior partner
of O'Melveny & Myers, a law firm which he joined in 1955, with offices
worldwide. Mr. Beek is a graduate of the California Institute of Technology,
the Stanford University Graduate School of Business and Loyola College of Law.
Mr. Beek is a director of Wynns International, Inc. He is a member of the
Compensation Committee of the Board of Directors.
Charles H. Black became a Director in June, 1993. Mr. Black is currently a
private investor, having most recently served as Vice Chairman of Pertron
Controls Corporation. From 1982 to 1985, Mr. Black served as Executive Vice
President, Director and Chief Financial Officer of Kaiser Steel Corporation.
He served as Executive Vice President and Chief Financial Officer of Great
Western Financial Corporation and Great Western Savings and Loan from 1980 to
1982 after having spent over 20 years in various financial and management
positions with Litton Industries, Inc., the most recent being Corporate Vice
President and Treasurer. Mr. Black is a member of the Board of Governors of
the Pacific Stock Exchange and serves as a director of Investment Company of
America, AMCAP Fund, Inc., Fundamental Investors, Inc., American Variable
Insurance Trust, and The Global Swap Fund, all mutual funds. He also serves as
a director of Wilshire Technologies, Inc., in addition to several privately-
held corporations. Mr. Black is a graduate of the University of Southern
California. He is a member of the Audit Committee of the Board of Directors.
Robert A. Cervoni became a Director in June 1987. Mr. Cervoni is the
Managing Director of Finance and Compliance of Weeden & Co., L.P., a New York
Stock Exchange member firm. Weeden & Co., L.P. makes a market in the Company's
Common Stock on the NASDAQ National Market System. Mr. Cervoni served as
Treasurer and Chief Financial Officer of the Company and its subsidiaries
until July 1989. Prior to joining the Company, Mr. Cervoni was Controller of
Trading Company of the West. Before joining Trading Company of the West in
April 1982, Mr. Cervoni was audit manager with the public accounting firm of
Spicer & Oppenheim, formerly Oppenheim, Appel, Dixon & Co., where he
specialized in auditing securities brokerage firms and financial institutions.
Mr. Cervoni is a certified public accountant and an allied member of and a
Registered Financial Principal and Registered Compliance Officer with the New
York Stock Exchange. Mr. Cervoni is Chairman of the Audit Committee of the
Board of Directors.
Herbert G. Kawahara became a Director in June 1989. Mr. Kawahara is the
former President of the Pacific Stock Exchange, having served in that capacity
from January 1988 to May 1989. Previously, Mr. Kawahara had a 29-year career
with E.F. Hutton and Company Inc., starting as trainee in 1958 and filling
various positions in the retail system. From 1982 to 1987, he served as an
Executive Vice President and was the firm's top executive in Southern
California. Mr. Kawahara was also a member of the Board of Directors of E.F.
Hutton and Company, Inc. from 1982 to 1987. He is a graduate of the University
of California at Los Angeles. Mr. Kawahara is Chairman of the Compensation
Committee of the Board of Directors.
Robert G. Sharp became a Director in May 1995. Mr. Sharp retired from his
position as President and Chief Executive Officer of Keyport Life Insurance
Company in February 1992 after having served in that position since 1979. Mr.
Sharp is the past chairman of the National Association for Variable Annuities
and a former director of the National Association of Life Companies. Mr. Sharp
is a graduate of the California State University at Sacramento and is a
registered Principal with the NASD.
33
<PAGE>
Donald E. Weeden became a Director in February 1987. Since January 1986, Mr.
Weeden has been the Chief Executive Officer of Weeden & Co., L.P. Weeden &
Co., L.P. makes a market in the Company's Common Stock on the NASDAQ National
Market System. Prior to that time, he was Vice President of Moseley,
Hallgarten, Estabrook & Weeden Inc. Mr. Weeden is a director of National
Semiconductor, Inc. Mr. Weeden is a member of the Compensation Committee of
the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the
Securities and Exchange Commission, NASDAQ and the Pacific Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Executive officers,
Directors and greater than 10% stockholders are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) reports they file.
Specific due dates for these reports have been established and the Company
is required to identify those persons who failed to timely file these reports.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1995 all
Section 16(a) filing requirements applicable to its executive officers,
Directors and greater than 10% beneficial owners were complied with, except
for Donald A. Weeden, who filed his Form 4 on January 12, 1996, which was due
on January 10, 1996.
34
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's
Chief Executive Officer and the four highest paid executive officers of the
Company (the "named executive officers"):
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) AWARDS
--------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL OPTIONS/ COMPENSATION
POSITION YEAR SALARY($) BONUS($)(2) SARS(#)(3) ($)
- ------------------ ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
James K. Mitchell, 1995 248,664 -- -- 9,449
Chairman and 1994 280,500 42,075 75,000 8,740
Chief Executive 1993 275,000 267,027 -- 8,617
Officer(4)
Brian J. Finneran, 1995 217,692 -- -- 8,542
President and 1994 240,000 36,000 30,000 7,970
Chief Operating 1993 306,450 106,171 30,000 7,847
Officer(5)
D. Mark Carlson, 1995 127,699 -- 20,000 3,600(6)
Senior Vice President 1994 130,000 19,500 15,000 3,600(6)
and Chief Financial 1993 101,100 45,179 15,000 3,547(6)
Officer
William L. Webster, 1995 112,880 -- 20,000 3,694(6)
Senior Vice President 1994 117,589 17,250 10,000 1,779(6)
and Chief 1993 -- -- -- --
Administrative Officer
G. Richard Sippel, 1995 133,526 -- 20,000 4,177
Senior Vice President 1994 134,486 16,500 15,000 4,175
and Chief Marketing 1993 -- -- -- --
Officer(7)
</TABLE>
- --------
(1) Disclosure of compensation for fiscal 1993 is not required for Messrs.
Sippel and Webster, who were not executive officers of the Company at any
time during 1993. Mr. Sippel's position as an executive officer was
eliminated in February 1996.
(2) Reflects bonuses earned for the respective fiscal year, which in some
instances all or a portion of which was paid during the subsequent fiscal
year.
(3) The Company does not have any outstanding Stock Appreciation Rights
("SARs").
(4) Amounts reported for Mr. Mitchell in the "All Other Compensation" column
include $4,620, $4,620, and $4,497, respectively, for 1995, 1994 and 1993,
representing the Company's contributions to its 401(k) Savings Plan on his
behalf and $4,829 for 1995 and $4,120 for 1994 and 1993, representing life
insurance premiums advanced by the Company pursuant to a split dollar
insurance agreement.
(5) Salary amount for 1993 includes commission overrides of $171,650. Amounts
reported for Mr. Finneran in the "All Other Compensation" column include
$4,620, $4,620 and $4,497 representing the Company's contributions to its
401(k) Savings Plan on his behalf for 1995, 1994 and 1993, respectively,
and $3,922 for 1995, and $3,350 for 1994 and 1993 representing life
insurance premiums advanced by the Company pursuant to a split dollar
insurance agreement.
(6) Represents the Company's contributions to its 401(k) Savings Plan on
behalf of the named executive officer.
(7) Salary amount includes commission overrides of $25,506 for 1995 and
$24,486 for 1994. Amounts reported for Mr. Sippel in the "All Other
Compensation" column represent the Company's contribution to its 401(k)
Savings Plan on his behalf.
35
<PAGE>
OPTION GRANTS
The following table provides information related to grants of options to
purchase Common Stock to the named executive officers during the 1995 fiscal
year:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
- -------------------------------------------------------------------------------- --------------------
PERCENT OF TOTAL
NUMBER OF OPTIONS/SARS
SECURITIES GRANTED TO ALL
UNDERLYING EMPLOYEES EXERCISE PRICE
OPTIONS/SARS DURING FISCAL OR BASE PRICE EXPIRATION
NAME GRANTED(1) YEAR(1) ($/SH) DATE 5%($) 10%($)
---- ------------ ---------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
D. Mark Carlson......... 20,000 13.7% $1.00 6/15/00 12,578 31,875
William L. Webster...... 20,000 13.7% $1.00 6/15/00 12,578 31,875
G. Richard Sippel....... 20,000 13.7% $1.00 6/15/00 12,578 31,875
</TABLE>
- --------
(1) The Company does not have any outstanding SARs. Each of the options shown
vest in two equal installments on December 31, 1995 and June 14, 1996, or
all shares may vest immediately under certain circumstances.
(2) The 5% and 10% assumed rates of appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future Common Stock price. The potential
realizable value was calculated using the closing price of the Common
Stock on June 14, 1995, the date of grant, of $1.00 per share. The
exercise price was also determined by using the closing price of the
Common Stock on that date.
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table provides information related to options exercised by the
named executive officers during the 1995 fiscal year and the number and value
of options held at fiscal year-end.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY OPTIONS/
FY-END(#)(1) SARS AT FY-END($)(1)(2)
------------------------- -------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James K. Mitchell....... 0 0 25,000 50,000 0 0
Brian J. Finneran....... 0 0 30,000 30,000 0 0
D. Mark Carlson......... 0 0 20,000 30,000 0 0
William L. Webster...... 0 0 13,334 16,666 0 0
G. Richard Sippel....... 0 0 15,000 20,000 0 0
</TABLE>
- --------
(1) The Company does not have any outstanding SARs.
(2) The closing price for the Common Stock on December 29, 1995, as reported
by the NASDAQ National Market System, was $0.906. All of the named
executive officers' outstanding options were exercisable for a price
greater than $0.906 at fiscal year end.
COMPENSATION OF DIRECTORS
The members of the Board of Directors who are not full-time employees of the
Company are entitled to receive reimbursement for out-of-pocket expenses they
incur in attending Board meetings and otherwise performing their duties and
receive fees of $1,000 for each meeting of the Board of Directors which they
attend. Members of committees additionally receive $500 per committee meeting
held on the same day as a Board of Directors' meeting, or $1,000 per committee
meeting if held on a different day. Committee chairpersons receive an
additional $500 per committee meeting. Non-employee Directors receive formula
grants of non-qualified
36
<PAGE>
stock options under the Company's 1993 Executive Stock Option Plan. Options to
acquire 12,000 shares of Common Stock are to be granted within six months
after an individual takes office as a Director and options to acquire an
additional 12,000 shares are to be granted within six months after every third
anniversary of such Director's taking office. Officers of the Company are not
compensated for their services as Directors or committee members.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee of the Board of Directors served as
an officer or employee of the Company or its subsidiaries. No executive
officers of the Company served during fiscal 1995 on the board of directors of
any company which had a representative on the Company's Board of Directors. No
member of the Company's Board of Directors served during 1995 as an executive
officer of a company whose board of directors had a representative from the
Company or the Company's Board of Directors.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed entirely
of independent members of the Board of Directors. During fiscal year 1995,
this Committee met three times, February 13, April 18 and June 6,1995. The
Committee recommends executive compensation policy and practice to the Board
of Directors and administers the Company's 1993 Executive Stock Option Plan.
The Board of Directors did not modify or reject in any material way any action
or recommendation of the Committee during fiscal year 1995.
The Committees compensation policy with regards to the Company's executive
officers has been to provide these officers, in aggregate, with salary and
incentive compensation competitive with the marketplace. Compensation has
primarily consisted of salaries, stock options and cash bonuses based upon the
Company's pre-tax earnings. No executive is currently a party to an employment
contract. For the first three months of 1995 the salary of the Chief Executive
Officer remained fixed at $284,427 by a past employment agreement which
expired on January 1, 1996, but from April 1, he voluntarily reduced his
salary by 20% to an annual rate of $225,000. The President similarly reduced
his salary by 20%.
The Committee at its February 6, 1996 meeting considered the reporting
operating results for 1995 and recognized that when the net gain on sale of
rights to certain future asset fee revenue were not included, there was a net
operating loss for that year. Therefore, although the Committee felt that
management during the year had acted appropriately in attempting to maintain
revenues and reducing costs in a very difficult industry environment, it
decided not to award any cash bonuses to the Chief Executive Officer or the
other executive officers. However, the committee did reinstate the salaries of
the Chief Executive Officer as well as the President to the annual salary
rates earned prior to the 1995 salary reductions as of February 1, 1996.
While there is no established policy with respect to the frequency or amount
of options grants, the Committee desires that the executive officers own
Company stock to both provide incentive compensation based on performance
factors deemed important to the Company's stockholders and to provide an
element of downside risk to more closely align the interests of executives
with the interests of the stockholders. The Committee considers the granting
of stock options annually and, in reviewing the Chief Executive Officers
recommendation, considers the individual executive officers contributions to
the Company and the amount and terms of existing options. The grants of
options made by the Committee on June 6, 1995 covering approximately 80,000
shares at an average exercise price of $1.00 were based solely upon the
recommendations of the Chief Executive Officer who desired to continue to
provide key executives with stock options to encourage retention in light of a
reduction in their salaries from mid year and to reinforce the objectives of
the Committee as articulated above. The options granted were to four
executives other than the Chief Executive Officer and President and
represented less than two percent of the outstanding Common Stock.
37
<PAGE>
As noted above, Mr. Mitchell's compensation as Chairman and Chief Executive
Officer of the Company was governed by the terms of a written Employment
Agreement for the first three months of 1995. Mr. Mitchell, who became Chief
Executive Officer of the Company effective January 1, 1993, received a total
of $248,664 in salary for fiscal 1995. This compares to a $280,500 salary and
a $42,075 bonus for a total of $322,575, exclusive of standard benefits in
1994. This also compares to $275,000 salary and $267,027 bonus for a total of
$542,027 in 1993. At the close of 1995, Mr. Mitchell was the largest
stockholder of the Company with a total of 703,607 shares.
The report of the Committee shall not be deemed incorporated by reference by
any general statement incorporating by reference this Proxy Statement into
filing under the Securities Act of 1993 or under the Securities Exchange Act
of 1934, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
Herbert G. Kawahara, Chairman of the Compensation Committee
Edward J. Baran
Barton Beek
Donald E. Weeden
38
<PAGE>
PERFORMANCE GRAPH
The following chart compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock during the five fiscal
years ended December 31, 1995 with the cumulative total return on the S&P 500
Index and the NASDAQ Financial Stocks Industry Index.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
ASSUMES $100 INVESTED IN JNCG, S&P 500, AND MASDQ AS OF 12/31/88
INDEX $100 INVESTED
NASDAQ: NASDAQ FACTOR VALUE %INCREASE
------ ------ ------------- ---------
<S> <C> <C> <C> <C>
12/31/90 96.641 N/A 100
12/31/91 149.54 1.55 154.74
12/31/92 213.884 1.43 221.32
12/31/93 248.587 1.16 257.23
12/31/94 249.168 1.00 257.83
12/31/95 363.023 1.46 375.64
<CAPTION>
% $100 INVESTED
S&P 500: S&P 500 INC/(DEC) VALUE
------ --------- -------------
<S> <C> <C> <C>
12/31/90 N/A 100
12/31/91 30.55% 130.55
12/31/92 7.67% 140.56
12/31/93 9.99% 154.61
12/31/94 1.20% 156.46
12/31/95 37.60% 215.29
<CAPTION>
# OF SHARES CLOSING
JMCG $100 INITIAL MARKET VALUE
JMCG STOCK PERFORMANCE: CLOSE MV/SHR INVESTMENT $100 INITIAL
------------ ------------ ------------
<S> <C> <C> <C>
12/31/90 3 33.33 100
12/31/91 3.375 33.33 113
12/31/92 6.25 33.33 208
12/31/93 8.375 33.33 279
12/31/94 1.563 33.33 52
12/31/95 0.906 33.33 30
</TABLE>
The foregoing information shall not be deemed incorporated by reference by
any general statement incorporating by reference this Form 10-K into any
filing under the Securities Act of 1933 or under the Securities Exchange Act
of 1934, except to the extent the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
39
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Unless otherwise noted below, the following table presents certain
information with respect to the ownership of the Common Stock as of February
29, 1996 by each person known by the Company to own beneficially more than 5%
of the Common Stock, by each person who is a Director or nominee for Director
of the Company, by each named executive officer and by all executive officers
and Directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK
BENEFICIALLY
OWNED AS OF
FEBRUARY 29,
1996(1)
-----------------
NAME NUMBER(2)(3) %
---- ------------ ----
<S> <C> <C>
James K. Mitchell......................................... 732,826 11.5
JMC Group, Inc.
9710 Scranton Road, Suite 100
San Diego, CA 92121
Thomas W. Smith(4)........................................ 535,000 8.1
Edward J. McAree
Thomas N. Tryforos
323 Railroad Avenue
Greenwich, CT 06830
Brian J. Finneran......................................... 239,549 3.8
D. Mark Carlson........................................... 43,304 *
William L. Webster........................................ 15,170 *
G. Richard Sippel......................................... 22,222 *
Edward J. Baran........................................... 12,000 *
Charles H. Black(5)....................................... 257,031 4.0
Barton Beek............................................... 40,000 *
Robert A. Cervoni......................................... 34,000 *
Herbert G. Kawahara....................................... 20,000 *
Robert G. Sharp........................................... 0 *
Donald E. Weeden(6)....................................... 30,938 *
All Executive Officers and Directors as a group (12 per-
sons).................................................... 1,447,038 22.7
Total outstanding shares(7)........................... 6,383,232
</TABLE>
- --------
* Less than 1%
(1) All ownership figures include options to purchase shares of Common Stock
exercisable within 60 days of February 29, 1996, as set forth below. Except
as otherwise noted below, each individual, directly or indirectly, has sole
or shared voting and investment power with respect to the shares listed.
(2) Includes 8,600, 8,549, 6,304, 7,222, 1,836 and 32,511 vested shares of
Common Stock contributed by the Company to the Company's 401(k) Savings
Plan for Messrs. Mitchell, Finneran, Carlson, Sippel, Webster and for all
executive officers and Directors as a group, respectively.
(3) Includes options to purchase 25,000, 30,000, 25,000, 15,000, 13,334,
12,000, 16,000, 8,000, 16,000, 12,000, 12,000 and 184,334 shares of Common
Stock for Messrs. Mitchell, Finneran, Carlson, Sippel, Webster, Baran,
Beek, Black, Cervoni, Kawahara, Weeden and for all executive officers and
Directors as a group, respectively.
(4) Information is as of March 13,1996. Each of Messrs. Smith, McAree and
Tryforos beneficially own the shares shown in his capacity as investment
manager for three private investment limited partnerships of which he is a
general partner.
(5) Includes 22,800 shares held by the Charles H. Black Pension Trust and
14,000 shares held by Mr. Black as trustee for the benefit of Richard S.
Black, Charles H. Black, Jr., and Mr. Black in which Mr. Black has a 1/3
beneficial ownership interest. Also includes 36,200 shares owned
individually by Mr. Black's wife as to which he disclaims beneficial
ownership.
(6) Includes 3,000 shares held by Weeden & Co., L.P., of which Mr. Weeden is
Chief Executive Officer.
(7) Includes 184,334 shares issuable upon exercise of stock options.
40
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)The following documents are filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets as of
December 31, 1995 and 1994
Consolidated Statements of Operations
For the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in
Stockholders' Equity
For the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
For the Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(a)(2)Not applicable.
(a)(3)The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
--------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Registrant.*
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant.*
3.3 By-laws of the Registrant.*
4.1 Shareholder Rights Agreement, dated as of February 21, 1990, be-
tween Spear Financial Services, Inc. and First Interstate Bank,
Ltd., as Rights Agent, as amended effective, July 16, 1992.*
m10.1 JMC Group, Inc. 1993 Executive Stock Option Plan.**
m10.2 JMC Group, Inc. 1993 Employee Stock Option Plan.***
10.3 Agreement, dated December 9, 1994, by and between James Mitchell &
Co. and Barnett Banks, Inc.****
10.4 Amendment No. 3 to Services Agreement dated January 1, 1995, by and
between James Mitchell & Co. and Central Fidelity National
Bank.****
10.5 Interim Services Agreement dated October 19, 1995 between James
Mitchell & Co., Barnett Banks, Inc. and Barnett Banks Trust Compa-
ny, N.A.
10.6 Termination and Assignment Agreement dated October 19, 1995 between
James Mitchell & Co., Barnett Banks, Inc. and Barnett Banks Trust
Company, N.A.
10.7 Assignment and Notice of Assignment of Renewal (Asset) Fees between
James Mitchell & Co., JMC Insurance Services Corporation and JMC
Financial Corporation and Barnett Annuities Corporation and the
Acknowledgment and Acceptance of Assignment from Keyport Life In-
surance Company.
10.8 Assignment and Notice of Assignment of Renewal (Asset) Fees between
James Mitchell & Co., JMC Insurance Services Corporation and JMC
Financial Corporation and Barnett Annuities Corporation and the
Acknowledgment and Acceptance of Assignment from Life Insurance
Company of Virginia.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
--------- -----------
<C> <S>
10.9 Assignment of Renewal (Asset) Fees and Notice of Assignment of Re-
newal (Asset) Fees between James Mitchell & Co., JMC Financial
Corporation and JMC Insurance Services Corporation and Barnett An-
nuities Corporation and the Acknowledgment and Consent to Assign-
ment from Transamerica Life and Annuity Co.
10.10 Assignment and Notice of Assignment between James Mitchell & Co.,
JMC Financial Corporation and JMC Insurance Services Corporation
and Barnett Annuities Corporation and the Acceptance and Release
between Western and Southern Life Assurance Company and James
Mitchell & Co., JMC Insurance Services Corporation and JMC Finan-
cial Corporation.
10.11 Consulting Agreement between USBA Holdings, Ltd. and James Mitchell
& Co. dated January 26, 1996.
10.12 Marketing Agreement between JMC Group, Inc. and USBA Holdings, Ltd.
dated January 29, 1996 with exhibits.
10.13 Integrated Support Services Agreement dated January 31, 1996 be-
tween JMC Group, Inc., James Mitchell & Co., JMC Insurance Serv-
ices Corporation, JMC Financial Corporation, First Tennessee Bank
National Association and First Tennessee Brokerage, Inc.
10.14 Termination and Transition Agreement dated January 31, 1996 between
JMC Group, Inc., James Mitchell & Co., Priority Investment Servic-
es, Inc., and First Tennessee Bank National Association.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
</TABLE>
(b) No current reports on Form 8-K were filed by the Company during the
fourth quarter of fiscal year 1995.
- --------
* Filed as an exhibit to the Registrant's Form 10-k for the Fiscal Year
ended December 31, 1993.
** Filed as an exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74842 filed with the SEC on February 7, 1994.
*** Filed as an exhibit to the Registrant's Form S-8 Registration Statement
No. 33-74840 filed with the SEC on February 7, 1994.
**** Filed as an exhibit to the Registrant's Form 10-k for the Fiscal Year
ended December 31, 1994.
m Management Contract or Compensatory Plan or Arrangement.
42
<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, in Los Angeles,
California, on the 25th day of March, 1996
JMC GROUP, INC.
By: /s/ James K. Mitchell
----------------------------------
James K. Mitchell
Chairman 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.
SIGNATURE TITLE DATE
/s/ James K. Mitchell Chairman and Chief Executive March 25, 1996
- --------------------- Officer
James K. Mitchell
/s/ D. Mark Carlson Chief Financial Officer and March 25, 1996
- --------------------- Principal Accounting Officer
D. Mark Carlson
/s/ Edward J. Baran Director March 25, 1996
- ---------------------
Edward J. Baran
/s/ Charles H. Black Director March 25, 1996
- ---------------------
Charles H. Black
/s/ Robert Cervoni Director March 25, 1996
- ---------------------
Robert Cervoni
/s/ Brian J. Finneran Director March 25, 1996
- ---------------------
Brian J. Finneran
/s/ Herbert Kawahara Director March 25, 1996
- ---------------------
Herbert Kawahara
/s/ Robert G. Sharp Director March 25, 1996
- ---------------------
Robert G. Sharp
/s/ Donald E. Weeden Director March 25, 1996
- ---------------------
Donald E. Weeden
43
<PAGE>
EXHIBIT 10.5
INTERIM SERVICES AGREEMENT
This Interim Services Agreement (this "Agreement") is executed this 19th day of
October, 1995, effective August 15, 1995, by and between James Mitchell & Co., a
California corporation ("JMC"), Barnett Banks, Inc., a Florida corporation
("Barnett"), and Barnett Banks Trust Company, N.A., as Trustee ("Trustee") under
that certain Trust Agreement ("Trust Agreement"), dated as of August 1, 1990, as
amended, by and between Trustee and JMC as Trustor of the Trust thereby
established.
R E C I T A L S:
----------------
On August 1, 1990, the parties hereto entered into that certain Services
Agreement (as amended and restated effective December 9, 1994, the "Services
Agreement"), pursuant to which JMC and its Subsidiaries agreed to provide
certain services to the Trust, Trustee and Barnett. Capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Services Agreement.
Barnett and JMC have agreed to terminate the Services Agreement pursuant to the
Termination and Assignment Agreement, dated the date hereof, among the parties
hereto (the "Termination Agreement"). For a period of time following
termination of the Services Agreement, JMC has agreed to provide certain interim
services to the Trust, Trustee and Barnett, subject to the terms and conditions
provided herein.
NOW THEREFORE, in consideration of the premises and mutual covenants and
undertakings hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. JMC SERVICES. JMC will provide administrative support services to
------------
Barnett during an interim period commencing August 15, 1995 and ending October
27, 1995 (the "Transition Period"). Except as otherwise outlined herein, these
services will be provided in a manner consistent with the performance standards
set forth in Sections I.A. and I.B. of Schedule C to the Services Agreement.
The administrative support services shall consist of:
a. New Business Processing. Processing of annuity sales made by Barnett
-----------------------
personnel according to written procedures agreed to by JMC and Barnett. It is
understood and agreed that JMC will process annuity sales for only those
products previously sold by JMC pursuant to the Services Agreement as listed on
Schedule A attached hereto ("JMC Products").
1
<PAGE>
b. Add-on Business Processing. JMC will process additional premiums added
--------------------------
to JMC Products by Barnett's customers who became participants in the Tax
Advantage Program prior to August 15, 1995 ("Tax Advantage Customers") in a
manner consistent with past practice and the performance standards set forth in
Sections I.A. and I.B. of Schedule C to the Services Agreement.
c. Customer Service. Handling routine customer service requests for Tax
----------------
Advantage Customers and customers who purchase JMC Products during the
Transition Period, including processing surrenders, change of address requests,
change of beneficiary forms, annuitizations, death claims and other
distributions, and providing other forms of customer assistance that do not
involve rendering investment advice.
d. Training. Assisting in the on-the-job training of any Barnett
--------
employees who will provide customer service and perform business processing
functions after the Transition Period. All training shall be provided by the
Barnett employees' nearest counterpart in the JMC organization. The business
processing training will consist of hands-on sessions with JMC's existing San
Diego-based administrative assistants concerning the details of processing
business with the providers of JMC Products. The customer service training will
consist of hands-on sessions with JMC's existing Tampa-based Divisional
Operations Manager and customer service representatives, as the case may be,
concerning the details of processing customer service requests with the
providers of JMC Products. JMC is under no obligation to provide proprietary
manuals, forms, or systems used in such service, processing or training, written
training materials or any formalized training program. Barnett will be
responsible for product and technical skills training. Customer service training
shall take place at JMC's Tampa Service Center and business processing training
will take place at JMC's corporate offices in San Diego. Barnett shall pay all
out-of-pocket expenses incurred for such training.
e. Reporting. During the Transition Period, JMC will continue to provide
---------
Barnett with any production, performance, customer reporting and electronic data
files previously provided under the Services Agreement. Such reports and files
will be delivered through the reporting period ended October 31, 1995. JMC will
also deliver to Barnett on October 27, 1995 an electronic data file of all
information concerning Tax Advantage Customers in JMC's possession.
SECTION 2. BARNETT'S RESPONSIBILITIES. During the Transition Period,
--------------------------
Barnett will assume the following responsibilities relative to the processing of
annuity sales of JMC Products:
a. Documentation. Barnett's annuity sales personnel will be responsible
-------------
for providing JMC with complete and accurate documentation of sales sufficient
for processing. In the event any documentation provided to JMC is illegible,
JMC will contact Barnett's Jacksonville Investment Services Center ("ISC") for
clarification. The ISC will coordinate with the appropriate Barnett area
manager to obtain 48-hour resolution of the problem. Documentation which is
incomplete will be returned immediately to the ISC for completion. No sale will
be processed by JMC until legible and complete documentation has been provided
by Barnett to
2
<PAGE>
JMC. In addition, the performance standards referenced in Section 1 hereof will
relate only to processable business.
b. Suitability. Barnett shall be responsible for reviewing the
-----------
suitability of each and every sales transaction delivered to JMC for processing.
JMC will not verify the suitability of any transaction.
c. Licensing. Barnett shall provide JMC with a list of the names of each
---------
Barnett sales representative who will be selling JMC Products during the
Transition Period. This list shall be updated as necessary to ensure its
accuracy at all times. The list shall contain the following additional
information:
i) the states in which each representative is licensed to sell
annuity products;
ii) the representative's agent number with each of the Provider
Companies; and
iii) the representative's identification number with Barnett.
JMC shall rely on this list when processing sales transactions and, other than
consulting the list to ensure that the list indicates that the representative is
appropriately licensed, JMC will not verify any representative's authority to
make any sale JMC processes. JMC will not process any sale unless the list
indicates that the selling representative is appropriately licensed.
d. Cash Control. Barnett will be responsible for all cashiering
------------
functions associated with sales of JMC Products during the Transition Period,
including, without limitation, cash balancing and transmitting funds to the
Provider Companies.
SECTION 3. TERMINATION.
-----------
a. Upon termination of the Transition Period, Barnett or its designee
will assume all of JMC's rights, duties and obligations as Trustor under the
Trust Agreement, and as recordkeeping agent and Agent for the Trust created
thereby pursuant to the Services Agreement and the Trust Agreement and JMC will
cease to have any responsibilities thereunder. At that time, JMC will make its
hard copy original customer files maintained in its Tampa Service Center
available to Barnett for delivery at JMC's Tampa Service Center.
b. Upon termination of the Transition Period, Barnett or its designee
will assume all of JMC's duties and responsibilities under this Agreement,
including without limitation, providing ongoing customer service to all Tax
Advantage Customers.
c. Upon termination of the Transition Period, Barnett will assume the
current customer service 800-number utilized in JMC's Tampa Service Center.
Barnett will promptly pay or reimburse JMC for all costs associated with
transferring the number.
3
<PAGE>
SECTION 4. TRANSITION PAYMENTS.
-------------------
On August 15, 1995, Barnett will pay JMC a lump sum transition fee of
$300,000 (the "Transition Fee"). In addition to the lump sum payment, Barnett
will pay JMC a monthly service fee during the Transition Period. For the month
of August, the service fee will be $47,600. The service fee for September and
October will be $95,300 per month. All monthly payments shall be due and
payable in advance on the first business day of the month.
SECTION 5. COMPLIANCE WITH LAWS.
--------------------
a. JMC hereby agrees to comply with any and all applicable laws, rules
and regulations of any state or federal government, or any department, division,
office or agency of any of them, with respect to the performance of the services
described herein.
b. Barnett hereby agrees to comply with any and all applicable laws,
rules and regulations of any state or federal government, or any department,
division, office or agency of any of them, or of any self-regulatory
organization with jurisdiction over Barnett or its affiliates in connection with
its sales of annuities during the Transition Period.
SECTION 6. MISCELLANEOUS.
-------------
a. During the Transition Period and for a period of three years
thereafter the termination thereof, JMC agrees that it will not, nor will any of
its Subsidiaries or affiliates, or any current officer, director, agent or
employee of any of them, knowingly solicit Tax Advantage Customers for the sale
of annuities or similar investment products.
b. This Agreement may not be changed orally, but only by agreement in
writing signed by the parties hereto. Any provision of this Agreement can be
waived, amended, supplemented or modified only by written agreement of the
parties hereto.
c. This Agreement has been negotiated fully and fairly between the
parties. If this Agreement becomes the subject of interpretation by a court of
law or equity or other third party, this Agreement shall not be construed either
against, or in favor of, JMC, Barnett or Trustee, by virtue of one of the
parties being deemed the draftsman of this Agreement.
d. This Agreement is governed by, and shall be construed and enforced in
accordance with, the laws of the State of Florida, except such laws that would
render this choice of laws ineffective.
e. All notices that are required or may be given pursuant to this
Agreement shall be in writing and shall be sufficient in all respects if
delivered or mailed by registered or certified mail postage prepaid, or if sent
by telex or telefax (in each as promptly confirmed by registered or certified
mail postage prepaid), or by overnight courier, addressed as follows:
4
<PAGE>
If to Barnett: BARNETT SECURITIES, INC.
9000 Southside Blvd.
Jacksonville, Florida 32256
Attn: President
Telecopy number: (904) 464-3798
If to Trustee: BARNETT BANKS TRUST COMPANY, N.A.
9000 Southside Blvd.
Jacksonville, Florida 32256
Attn: President
Telecopy number: (904) 464-2299
If to JMC: JAMES MITCHELL & CO.
9710 Scranton Rd., Ste. 100
San Diego, California 92121
Attn: James K. Mitchell, Chairman and
Chief Executive Officer
Telecopy number: (619) 450-9102
f. This Agreement, together with the Termination Agreement, evidence the
entire agreement of the parties hereto with respect to the subject matter
hereof. The terms and conditions of this Agreement and the Termination
Agreement shall supersede the terms and conditions of the letter of
understanding, dated August 15, 1995, and shall operate to terminate such letter
in accordance with Section 7.A. thereof.
5
<PAGE>
This Agreement has been executed by the parties hereto as of the date first
above written.
JAMES MITCHELL & CO.
By: /s/James K. Mitchell
--------------------
James K. Mitchell, Chairman and Chief Executive
Officer
BARNETT BANKS TRUST COMPANY, N.A.
By: /s/Patricia A. Clemens
----------------------
Authorized Officer
BARNETT BANKS, INC.
By: /s/Richard H. Jones
-------------------
Authorized Officer
6
<PAGE>
SCHEDULE A
BARNETT BANK
TAX ADVANTAGE PROGRAM
PROVIDER COMPANY/PRODUCTS SOLD
10/1/90 - 8/31/95
<TABLE>
<CAPTION>
PROVIDER JMC PROV. CO. POLICY
COMPANY PRODUCT NAME PRODUCT NAME FORM #
===============================================================================
<S> <C> <C> <C>
ALLIANZ LIFE INSURANCE Tax Advantage Single Form #L40011
COMPANY OF NORTH AMERICA Income Plan Premium (8/92)
This product was originally (later Immediate Instant
sold on NALAC paper with "Annuity" Annuity Form #L30136
the same Policy Form instead of Standard
#L30136 Standard Issue only "Plan")
===============================================================================
FIRST PENN-PACIFIC LIFE Tax Advantage Single Form
INSURANCE COMPANY Single Premium Life #L-1541AA
Premium Life Policy (3/87)
===============================================================================
KEYPORT LIFE INSURANCE Tax Advantage Single Form #SPIA
COMPANY Immediate Premium
Annuity Immediate
Annuity
===============================================================================
Tax Advantage Single Form #SPDA (3)
Growth Annuity Premium Form #SPDA
Deferred (10)S
Annuity Form #SPDA
(10)I
===============================================================================
LIFE INSURANCE COMPANY OF Tax Advantage Flexible Form #P1098A
VIRGINIA Flexible Premium 8/87
Annuity Variable Form #P1140
Deferred 10/90
Annuity
===============================================================================
Tax Advantage Flexible Form #P1855
Growth Annuity Premium 6/90
Deferred Form #P1857
Annuity 8/92
Instant
Form # P18575S
Standard
===============================================================================
TRANSAMERICA LIFE INSURANCE Tax Advantage Flexible Form #4-597
ANNUITY COMPANY Growth Annuity Premium 11-192
Deferred
Annuity
===============================================================================
WESTERN-SOUTHERN LIFE Tax Advantage Flexible Form
ASSURANCE COMPANY Growth Annuity Premium #9202-5510 WSA
Deferred Form
Annuity #9301-5510 WSA
===============================================================================
</TABLE>
<PAGE>
EXHIBIT 10.6
TERMINATION AND ASSIGNMENT AGREEMENT
This Termination and Assignment Agreement (this "Agreement") is executed
this 19th day of October, 1995, effective August 15, 1995, by and between James
Mitchell & Co., a California corporation ("JMC"), Barnett Banks, Inc., a Florida
corporation ("Barnett"), and Barnett Banks Trust Company, N.A., as Trustee
("Trustee") under that certain Trust Agreement ("Trust Agreement"), dated as of
August 1, 1990, as amended, by and between Trustee and JMC as Trustor of the
Trust thereby established.
R E C I T A L S
On August 1, 1990, JMC, Barnett and the Trustee entered into that certain
Services Agreement (as amended and restated effective December 9, 1994, the
"Services Agreement"), pursuant to which JMC and its Subsidiaries agreed to
provide certain services to the Trust, Trustee and Barnett.
As a result of recent interpretations of federal law and proposed changes
in state regulations governing the sale of annuities by financial institutions,
Barnett and JMC have agreed to terminate the Services Agreement in accordance
with Section 12.1(b) of such agreement, subject to the terms and conditions set
forth below. Barnett and JMC previously have manifested their intent to
terminate the Services Agreement by execution and delivery of that certain
letter of understanding dated August 15, 1995 (the "Letter of Understanding").
In connection with the termination of the Services Agreement, Barnett has agreed
to purchase and JMC has agreed to sell, transfer and assign all of its right,
title and interest to all asset and renewal fees earned after August 31, 1995 in
connection with annuity contracts sold to Barnett customers by JMC through the
Tax Advantage Program since the date of its inception (the "Asset Fee Income").
JMC, Barnett and Trustee have entered into that certain Interim Services
Agreement, dated the date hereof, pursuant to which JMC and its Subsidiaries
will provide certain administrative support services to Barnett's new annuity
sales program (the "Interim Services Agreement") for a period commencing August
15, 1995, and ending October 27, 1995.
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to those terms in the Services Agreement or the Interim
Services Agreement, as the case may be.
NOW THEREFORE, in consideration of the premises and mutual covenants and
undertakings hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1
<PAGE>
ARTICLE I.
TERMINATION AND ASSIGNMENT
Section 1.1 Termination of Services Agreement. Pursuant to the terms
---------------------------------
of the Letter of Understanding, the parties hereby acknowledge that the Services
Agreement was terminated effective August 15, 1995 pursuant to Section 12.1(b)
thereof. All rights and obligations of the parties to the Services Agreement
with respect to the subject matter thereof arising after August 15, 1995 shall
be governed by the terms of this Agreement and the Interim Services Agreement.
Section 1.2 Assignments.
-----------
(a) JMC agrees, and agrees to cause its wholly-owned subsidiaries, JMC
Financial Services Corporation and JMC Insurance Services Corporation, to (i)
sell, assign, transfer and convey to Barnett, or its designee, all of JMC's
right, title and interest in and to the Asset Fee Income earned by JMC or its
Subsidiaries after August 31, 1995 from Keyport Life Insurance Company, The Life
of Insurance Company of Virginia, Transamerica Life Insurance and Annuity
Company and Western-Southern Life Insurance Company (collectively, the "Provider
Companies") as a result of sales of annuity contracts sold to Barnett customers
by JMC through the Tax Advantage Program from November 5, 1990 to and including
the last day of the Transition Period (the "JMC Assignment"), subject only to
JMC's obtaining the prior written consent of the Provider Companies to the JMC
Assignment, and (ii) to execute any and all documents reasonably required in
connection with the JMC Assignment.
(b) Barnett and Trustee agree to sell, assign, transfer and convey to
JMC, or its designee, all of Barnett's right, title and interest in and to the
Asset Fee Income earned by Barnett pursuant to the terms of the Services
Agreement and the Trust Agreement after August 31, 1995 as a result of sales of
First Penn-Pacific Life Insurance Company single premium life insurance
contracts sold to Barnett customers through the Tax Advantage Program from
November 5, 1990 to and including the last day of the Transition Period (the
"Barnett Assignment").
Section 1.3 Consideration. In consideration of the termination of
-------------
the Services Agreement, the JMC Assignment and the Barnett Assignment the
parties agree to make the following payments:
(a) Barnett will pay JMC:
(i) in consideration of the JMC Assignment, the sum of
$4,045,000 (the "Asset Fee Income Purchase Price"), payable
subject to and promptly upon receipt of written consent to
the JMC Assignment from each affected Provider Company. In
the event that JMC does not deliver all of the required
consents to the JMC Assignment from the Provider Companies
at the same time, Barnett agrees to
2
<PAGE>
pay JMC the portion or portions of the Asset Fee Income
Purchase Price set forth opposite the name of each Provider
Company on Schedule 1.3(a)(i) hereto promptly upon receipt
of the written consent to the JMC Assignment from such
Provider Company.
(ii) in consideration of the termination of the Services
Agreement, the Transition Fee in the amount of $300,000,
payable in accordance with the terms of the Interim Services
Agreement.
(b) JMC will pay Barnett:
(i) in consideration of the Barnett Assignment, the sum of
$25,410, payable October 31, 1995; and
(ii) in full satisfaction of JMC's outstanding obligation to
indemnify Barnett under the Services Agreement for all legal
fees associated with JMC's administrative proceedings before
the Florida Department of Insurance and any related matters,
the sum of $75,000, payable August 15, 1995.
(c) On or prior to October 31, 1995, JMC shall provide Barnett with a
reconciliation of:
(i) any Asset Fee Income earned by JMC after August 31, 1995 and
received by JMC from the Provider Companies prior to the
effective date of any Provider Company's written consent to
the JMC Assignment;
(ii) any Chargebacks processed by the Provider Companies on or
after August 15, 1995 and prior to the effective date of any
Provider Company's written consent to the JMC Assignment
which Chargebacks were deducted from amounts payable to JMC
during this period; and
(iii) any additional Set-up Fees payable by JMC to Trustee
pursuant to Section 2.1 of this Agreement for the month of
August.
It is understood and agreed that upon obtaining the written consent of each
Provider Company and payment of the portion of the Asset Fee Income Purchase
Price identified on Schedule 1.3(a)(i) hereto, JMC will promptly pay Barnett the
amounts set forth in subsection 1.3(c)(i) above and Barnett will promptly
reimburse JMC for the amounts set forth in subsection 1.3(c)(ii) above. JMC and
Barnett may agree to setoff the amounts owing from one to the other, such that
only one party is obligated to make any transfer of funds. In addition, JMC
will pay Barnett any additional Set-up Fees no later than October 31, 1995.
3
<PAGE>
(d) JMC hereby acknowledges receipt of payment of the sums required
under Section 1.3(a)(ii) of this Agreement. Barnett hereby acknowledges receipt
of payment of the sums payable under Section 1.3(b)(ii) of this Agreement.
Section 1.4 Florida-based Sales Personnel. The separate December 9, 1994
-----------------------------
agreement between JMC and Barnett relating to Barnett's right to hire certain of
JMC's Florida-based sales personnel shall remain in full force and effect and
Barnett shall continue to make all payments due JMC thereunder including
payments for systems support services.
ARTICLE II.
SALES AND SERVICING
Section 2.1 Future Sales. JMC hereby acknowledges that, effective
------------
August 15, 1995, Barnett is free of any restrictions imposed by the Services
Agreement with respect to offering annuity products directly to its customers.
To the extent Barnett enters into contracts with Provider Companies, Barnett
shall be entitled to continue to offer to its customers annuity products
previously designed and offered by JMC ("JMC Products). Barnett shall be
entitled to receive all compensation related to any future sales of annuity
products, including premiums for additions to existing annuity policies in the
event Barnett has entered into contracts for the sale of JMC Products with the
Provider Companies. If Barnett has not entered into or does not enter into such
contracts, JMC shall continue to permit Tax Advantage Customers to add
additional premiums to JMC Products during the Transition Period and will
process such transactions as provided in the Interim Services Agreement. During
the Transition Period, JMC will continue to pay Trustee a Set-up Fee of 7.00% on
all additions to the Trust Assets in accordance with the terms of the Services
Agreement and the Trust Agreement. To the extent Barnett has not entered into
contracts with any Provider Company prior to termination of the Transition
Period, Tax Advantage Customers will need to contact any such Provider Company
directly if they wish to make additional premium payments and neither JMC nor
Barnett will receive any compensation in connection with such additions.
Section 2.2 Chargebacks. In the event any Tax Advantage Customers
-----------
surrenders a JMC Product during the chargeback period, the Provider Company will
chargeback some or all of the front sales commission paid at the time the
products was sold ("Chargeback"). JMC and Barnett agree Barnett is financially
responsible for all Chargebacks processed by the Provider Companies on and after
August 15, 1995. Such Chargebacks shall be deducted from the Asset Fee Income
otherwise payable by the Provider Companies to Barnett or paid to JMC by Barnett
as provided in Section 1.3(c) hereof.
Section 2.3 Sales Management and Compliance. On and after August 15,
-------------------------------
1995, Barnett shall have complete and sole responsibility (including financial
responsibility) for all sales, sales management and compliance aspects of its
annuities program including, without limitation, the following:
4
<PAGE>
(a) Supervision, management and compensation of the annuity sales
force;
(b) All appointment setting, tracking and reporting;
(c) All sales support, including product training, promotions,
marketing materials and sales personnel inquiries;
(d) All compliance responsibilities, including suitability reviews and
sales supervision; and
(e) All commission accounting with the exception of asset fee
accounting on the existing block prior to the JMC Assignment of the Asset Fee
Income to Barnett.
Section 2.4 Customer Complaints.
-------------------
(a) On and after August 15, 1995, Barnett shall have complete and sole
responsibility for the resolution of all complaints (whether written or oral)
received by JMC, any of its Subsidiaries or affiliates, or by any officer,
director, agent or employee of any of them or by Barnett, any of its
subsidiaries or affiliates, or by any officer, director, agent or employee or
any of them, from any person (including state and government agencies,
departments, divisions or offices or any self-regulatory organization
("Regulators")) with respect to the sales of JMC Products or the provision of
any of the services described in the Services Agreement ("Customer Complaints")
which arise on and after August 15, 1995, including Customer Complaints which
arise out of sales made or services provided by JMC, any of its Subsidiaries or
affiliates or any officer, director, agent or employee of any of them prior to
August 15, 1995. Such responsibility shall include, without limitation, the
research and investigation necessary to determine the validity of any Customer
Complaint, any and all communication with the complaining person, any former JMC
officer, director, employee or agent, or any Provider Company concerning the
Customer Complaint and the payment of all sums and other compensation which
Barnett shall determine in its sole judgment is merited under the circumstances.
In the event JMC receives any Customer Complaints on and after August 15, 1995,
it will forward them promptly to Barnett.
(b) JMC shall have complete and sole responsibility for the resolution
of all Customer Complaints which are listed on Schedule 3.4 attached hereto.
JMC shall make such payments and other compensation to the complaining persons
as JMC shall determine in its sole judgment is merited under the circumstances.
JMC will notify Barnett of the manner in which each of the Customer Complaints
listed on Schedule 3.4 attached hereto is resolved.
(c) Notwithstanding the foregoing, in the event that any Regulator
with jurisdiction over JMC, any of its affiliates or Subsidiaries, or any
officer, director, agent or employee of any of them, shall initiate a Customer
Complaint or become involved in any manner in any Customer Complaint, JMC shall
be responsible for the research and investigation necessary to determine the
validity of such Customer Complaint and any communication with the complaining
person, any current or former JMC officer, director, employee or agent, any
5
<PAGE>
Provider Company or such Regulator and Barnett, its subsidiaries and affiliates,
and any officer, director, agent or employee of any of them, shall cooperate
with JMC in connection therewith. In the event such Customer Complaint is
initiated by the Regulator, JMC shall be responsible for the payment of all sums
and other compensation to the complaining person. In the event the complaining
person contacts JMC or Barnett directly prior to the involving the Regulator,
subject to Section 2.4(f) hereof, Barnett shall be responsible for the payment
of all sums and other compensation to the complaining person.
(d) JMC, its affiliates and Subsidiaries will cooperate, and will use
their best efforts to cause any current officer, director, employee or agent of
any of them, to cooperate with Barnett in connection with the research and
investigation of any Customer Complaint.
(e) Barnett agrees that in connection with the resolution of any
Customer Complaint that it will obtain a written release satisfactory in form
and substance to JMC from the complaining person or persons releasing JMC, its
affiliates and Subsidiaries, and any officer, director, employee or agent of any
of them, from any future liability to such persons(s) prior to paying any
compensation to such complaining person or persons. In addition, in connection
with the negotiation and resolution of any Customer Complaint, Barnett agrees
that no licensed representative of Barnett Securities, Inc. or Barnett Annuities
Corporation will admit or imply orally or in writing that JMC, any of its
affiliates or Subsidiaries, or any officer, director, employee or agent or any
of them, engaged in any wrongful act or omission or is in any way responsible or
liable for any Customer Complaint nor will Barnett or any officer or employee of
Barnett issue any press release or make any statement to the press or general
public that would in any way damage or disparage the reputation of JMC, its
affiliates or Subsidiaries.
(f) Subject to Section 2.4(g) hereof, to the extent Barnett makes any
payment to a complaining person or persons arising out of Customer Complaints
for which Barnett is responsible pursuant to Section 2.4(a) hereof, JMC will
reimburse Barnett an amount equal to the Settlement Amount (as hereinafter
defined) if:
(i) JMC or its employees or agents affirmatively misrepresented
any material term of the annuity contract at the time it was
sold;
(ii) JMC or its employees or agents failed to make any required
disclosure to the complaining person. For purposes of this
Section 2.4(f)(ii), JMC shall not be deemed to have failed
to make any required disclosure if, to the extent
applicable, each of the following disclosures were made:
(1) that the annuity was not insured by the FDIC;
(2) that the annuity was not a bank deposit;
6
<PAGE>
(3) if the annuity was a variable annuity, that its market
value would fluctuate;
(4) if the annuity was an immediate annuity, that the
customers funds were irrevocably committed for a
specified period of time;
(5) that withdrawal penalties and income taxes may be
payable on distributions or terminations and the amount
and duration of any withdrawal penalties;
(6) that a withdrawal prior to age 59 1/2 may result in a
10% IRS tax penalty; and
(7) if the participant is not the annuitant or there is
more than one participant, that the convalescent care
waiver, if any, may not apply;
(iii) JMC or its employees or agents failed to provide the
complaining person with a product brochure, and if the
annuity is a variable annuity, a prospectus;
(iv) Any fixed annuity sold after February 15, 1994 or any
variable annuity sold at any time by JMC or its employees or
agents was not a suitable investment for the complaining
persons(s); or
(v) the Customer Complaint arises out of an error or omission in
connection with the sale or servicing of an annuity contract
other than those listed in subsections 2.4(f)(i) through
2.4(f)(iv).
(g) For purposes of determining whether any of the circumstances set
forth in Section 2.4(f) occurred, the following shall apply:
(i) All such determinations shall be based solely on the written
materials contained in JMC's customer files which materials
were created contemporaneously with the annuity sale or
service transaction being questioned and shall be made
without regard to any written or oral allegations or
statements made by the complaining person(s) or any oral or
non-contemporaneous written statements of the agent who
handled the annuity transaction at issue or of any other
person (including officers, employees or agents of Barnett
or any of its subsidiaries or affiliates);
7
<PAGE>
(ii) It shall be conclusive evidence that all of the required
disclosures set forth in Section 2.4(f)(ii) were made, if
the confidential profile and customer disclosure form, if
any, indicates by signature of the complaining person(s),
that such disclosures were made:
(iii) It shall be conclusive evidence that the complaining
person(s) received a product brochure and prospectus, if
necessary, if the confidential customer profile and customer
disclosure form, if any, indicates, by signature of the
complaining persons(s), that these documents were delivered;
(iv) All suitability judgments required by Section 2.4(f)(iv)
shall be based solely on the information contained on the
confidential customer profile. In addition, it shall be
conclusive evidence that any annuity was suitable if
applying the financial and other information set forth on
the confidential customer profile, the investment is found
to be suitable under the standards set forth on Schedule 2.4
hereto;
(v) Barnett shall undertake a complete investigation of all
Customer Complaints as provided in Section 2.4(a) hereof and
shall provide JMC with a copy of its complete file on any
Customer Complaint for which it seeks reimbursement from JMC
pursuant to Section 2.4(g) hereof. Such file shall include
at a minimum all written communications from the complaining
persons(s) or any written summaries of the complaining
persons(s) complaints and allegations prepared by Barnett or
its employees or agents, any written documentation provided
by the licensed representative who sold the annuity at
issue, the confidential customer profile and the customer
disclosure form, if any.
(vi) All requests for reimbursement by JMC pursuant to Section
2.4(f) shall be submitted, together with the complete
Customer Complaint file as provided in Section 2.4(g)(v), to
JMC within 30 days of the resolution by Barnett of any
Customer Complaint.
(h) For purposes of this Section 2.4, the term Settlement Amount shall
be the amount determined by subtracting the amount the complaining person(s)
actually receives from the issuer of the annuity upon full surrender of same
from the Investment Value (as hereinafter defined); provided, however, that the
-----------------
Settlement Amount cannot be a negative number. The Investment Value shall be an
amount equal to the product of the sum of money originally invested by the
complaining person(s) multiplied by the applicable rate available at Barnett on
a one-year certificate of deposit at the time the investment was made.
8
<PAGE>
ARTICLE III.
JMC REPRESENTATIONS AND WARRANTIES
Section 3.1 Corporate Authority. JMC is a California corporation,
-------------------
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to enter
into this Agreement and the Interim Services Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
Section 3.2 Enforceability of Agreement. The execution, delivery
---------------------------
and performance of this Agreement and the Interim Services Agreement by JMC and
the consummation by JMC of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action. This Agreement and the
Interim Services Agreement constitute legal, valid and binding obligations of
JMC enforceable against it in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors rights generally and except as the enforcement of certain provisions
thereof may be limited by the application of general equitable principals of law
in certain circumstances (whether such provisions are considered in a proceeding
at law or in equity).
Section 3.3 Effect of Agreement. The execution and delivery of this
-------------------
Agreement and the Interim Services Agreement, the consummation of all other
transactions contemplated hereby and thereby and the fulfillment of the terms
hereof and thereof as well as the terms of all other documents executed in
connection herewith by JMC shall not (a) result in a breach of any of the terms
or provisions of, or constitute a default under, or conflict with: (i) except as
provided on Schedule 3.3 attached hereto, any agreement, indenture or other
instrument to which JMC is a party or by which it is bound; (ii) the Articles of
Incorporation or Bylaws of JMC; (iii) any judgment, decree, order or award of
any court, governmental body or arbitrator by which JMC is bound; or (iv) any
law, rule or regulation applicable to JMC or (b) except as provided on Schedule
3.3 attached hereto, require the consent, waiver, approval, license or
authorization of, or the filing with, any federal, state or local government,
governmental department or agency, with the exception of any required filing
with the Securities and Exchange Commission.
Section 3.4 Disclosure of Customer Complaints. Schedule 3.4
---------------------------------
attached hereto contains a complete and accurate list of all pending or
threatened Customer Complaints received by JMC, or any of its subsidiaries or
affiliates or by any officer, director, agent or employee of any of them prior
to August 15, 1995, from any person and JMC does not know or have reason to know
of the existence of any additional or threatened Customer Complaints other than
as listed in Schedule 3.4. JMC has furnished Barnett copies of all
correspondence and other documents in its possession related to any pending or
threatened Customer Complaints. All Customer Complaints received by JMC, or any
of its Subsidiaries or affiliates or by any officer, director, agent or employee
of any of them, on or after August 15, 1995 have been delivered to Barnett to be
handled as provided in Section 2.4 hereof.
9
<PAGE>
Section 3.5 JMC Annuity Provider Companies. JMC has contacted all
------------------------------
of the Provider Companies to request their consent to the JMC Assignment. JMC
has also encouraged the Provider Companies to enter into agreements with Barnett
which would enable Barnett to continue to sell JMC Products through its annuity
sales program.
ARTICLE IV.
BARNETT REPRESENTATIONS AND WARRANTIES
Section 4.1 Corporate Authority. Barnett is a Florida corporation,
-------------------
duly organized, validly existing and in good standing under the laws of the
State of Florida and has all requisite corporate power and authority to enter
into this Agreement and the Interim Services Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. Trustee is a national banking association,
duly organized, validly existing and in good standing under the laws of the
State of Florida, is the sole trustee under the Trust Agreement and has all
requisite power and authority to enter into this Agreement and the Interim
Services Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
Section 4.2 Enforceability of Agreement. The execution, delivery
---------------------------
and performance of this Agreement and the Interim Services Agreement by Barnett
and Trustee and the consummation by Barnett and Trustee of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. This Agreement and the Interim Services Agreement constitute
legal, valid and binding obligations of Barnett and Trustee enforceable against
them in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors rights generally
and except as the enforcement of certain provisions thereof may be limited by
the application of general equitable principals of law in certain circumstances
(whether such provisions are considered in a proceeding at law or in equity).
Section 4.3 Effect of Agreement. The execution and delivery of this
-------------------
Agreement and the Interim Services Agreement, the consummation of all other
transactions contemplated hereby and thereby and the fulfillment of the terms
hereof and thereof as well as the terms of all other documents executed in
connection herewith by Barnett and Trustee shall not (a) result in a breach of
any of the terms or provisions of, or constitute a default under, or conflict
with: (i) any agreement, indenture or other instrument to which either Barnett
or the Trustee is a party or by which they are bound; (ii) the Articles of
Incorporation or Bylaws of Barnett or Trustee; (iii) the Trust Agreement; (iv)
any judgment, decree, order or award of any court, governmental body or
arbitrator by which either Barnett or the Trustee are bound; or (v) any law,
rule or regulation applicable to Barnett or Trustee, or (b) require the consent,
waiver, approval, license or authorization of, or the filing with, any federal,
state or local government, governmental department or agency, the receipt of
which either Barnett or Trustee, as the case may be, have not obtained.
10
<PAGE>
ARTICLE V.
COOPERATION
The parties hereto shall execute and deliver any such additional
documents, and shall take such additional actions as are reasonably requested by
the other party hereto, for the purpose of accomplishing the transactions
contemplated hereby or carrying out the provisions hereof. In addition, Barnett
will, to the full extent necessary, assist and cooperate with JMC in
negotiations to obtain the consent of the Provider Companies to the JMC
Assignment.
ARTICLE VI.
MUTUAL RELEASE AND INDEMNIFICATION
Section 6.1 Release of Claims by Barnett and Trustee. Barnett and
----------------------------------------
Trustee for themselves, their successors and assigns, do hereby release, remise,
acquit, exonerate, satisfy and forever discharge JMC, its Subsidiaries and
affiliates and their successors and assigns, and all of their respective
partners, shareholders, directors, officers, employees and agents,
(collectively, the "JMC Parties") from and with respect to any and all actions,
causes, causes of action, suits, disputes, controversies, claims, debts, sums of
money, offset rights, defenses, agreements, promises, covenants, losses,
damages, liabilities, judgments and demands of any and every kind and nature
whatsoever, known or unknown, whether in contract, in tort, or otherwise, at law
or in equity, which have accrued or may accrue, may have been had, may now be
possessed or may or shall be possessed in the future by Barnett or Trustee, or
any of their subsidiaries, affiliates, successors and assigns or their
respective partners, shareholders, directors, officers, employees and agents
(collectively, the "Barnett Parties") against the JMC Parties arising out of the
Services Agreement.
Section 6.2 Release of Claims by JMC. JMC, for itself, its
------------------------
successors and assigns, does hereby release, remise, acquit, exonerate, satisfy
and forever discharge the Barnett Parties from and with respect to any and all
actions, causes, causes of action, suits, disputes, controversies, claims,
debts, sums of money, offset rights, defenses, agreements, promises, covenants,
losses, damages, liabilities, judgments and demands of any and every kind and
nature whatsoever, known or unknown, whether in contract, in tort, or otherwise,
at law or in equity, which have accrued or may accrue, may have been had, may
now be possessed or may or shall be possessed in the future by the JMC Parties
against the Barnett Parties arising out of the Services Agreement.
Section 6.3 Survival. The respective representations and warranties
--------
of the parties contained in this Agreement or in any Schedule attached hereto
shall survive the consummation of the transactions contemplated hereby.
11
<PAGE>
Section 6.4 Indemnification by JMC. JMC hereby agrees to defend,
----------------------
indemnify and hold the Barnett Parties harmless against any and all liabilities,
claims, actions, proceedings, suits, damages, losses, penalties, judgments,
costs, expenses, fines, disbursements, and other obligations of any kind
whatsoever (including reasonable attorneys' fees and other expenses of
investigation, defense, litigation and settlement) with respect to or arising
out of (i) the failure of any representation or warranty made by JMC in this
Agreement to be true and correct in all material respects as of the date hereof,
or (ii) the failure of JMC to fulfill any of its covenants or agreements
hereunder or under the Interim Services Agreement.
Section 6.5 Indemnification by Barnett and Trustee. Barnett and
--------------------------------------
Trustee, jointly and severally, agree to defend, indemnify and hold the JMC
Parties harmless against any and all liabilities, claims, actions, proceedings,
suits, damages, losses, penalties, judgments, costs, expenses, fines,
disbursements, and other obligations of any kind whatsoever (including
reasonable attorneys' fees and other expenses of investigation, defense,
litigation and settlement) with respect to or arising out of (i) the failure of
any representation or warranty made by Barnett or Trustee in this Agreement to
be true and correct in all material respects as of the date hereof, (ii) the
failure of Barnett or Trustee to fulfill any of their covenants or agreements
hereunder or under the Interim Services Agreement, (iii) any actions by the
Barnett Parties as Trustee, Trustor, recordkeeping agent or Agent for the Trust
subsequent to October 27, 1995, (iv) Barnett's sales of annuities (including JMC
Products) on and after August 15, 1995, or (v), subject to Section 2.4(f)
hereof, Customer Complaints which are not listed on Schedule 3.4 attached
hereto.
Section 6.6 Defense. In defending the party indemnified pursuant to
-------
Sections 6.5 and 6.4 hereof, the indemnifying party agrees to (a) accept
immediately the defense of any of the indemnified parties in any action in which
any of the indemnified parties is an object of indemnifiable claims and (b)
disclose immediately to all parties in any action regarding such claims that the
indemnifying party is the party responsible for defending and indemnifying the
indemnified party. The indemnifying party agrees to reimburse the indemnified
party for any and all expenses including reasonable attorney's fees and costs
incurred as a result of the filing of any actions arising from any indemnifiable
claims or as a result of the receipt of settlement demands or other demands
relative to any indemnifiable claim.
Section 6.7 Time for Payment. All indemnification payments required
----------------
to be made pursuant to this Article VI shall be made promptly after demand for
payment has been made by the indemnified party upon the indemnifying party.
Section 6.8 Transfer of Claims. Each of the parties hereto
------------------
represents and warrants that as of the date of this Agreement, it has not
heretofore assigned, transferred, pledged or hypothecated or purposed to assign,
transfer, pledge or hypothecate to any person or entity any claim or matter
herein released, disclaimed, discharged or terminated.
ARTICLE VII.
MISCELLANEOUS
12
<PAGE>
Section 7.1 Notices. All notices that are required or may be given
-------
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if delivered or mailed by registered or certified
mail postage prepaid, or if sent by telex or telefax (in each case promptly
confirmed by registered or certified mail postage prepaid), or by overnight
courier, addressed as follows:
If to Barnett, to: BARNETT SECURITIES, INC.
9000 Southside Blvd.
Jacksonville, Florida 32256
Attn: President
Telecopy number: (904) 464-3798
If to Trustee, to: BARNETT BANK TRUST COMPANY, N.A.
9000 Southside Blvd.
Jacksonville, Florida 32256-0708
Attn: President
Telecopy number: (904) 464-2299
If to JMC, to: JAMES MITCHELL & CO.
9710 Scranton Rd. Ste. 100
San Diego, California 92121
Attn: James K. Mitchell, Chairman and
Chief Executive Officer
Telecopy number: (619) 450-9102
Section 7.2 Expenses. Except as otherwise expressly provided herein, the
--------
parties hereto shall pay all of their own expenses relating to the transactions
contemplated hereby, including, without limitation, the fees and expenses of
their respective counsel, accountants, and financial advisors. In the event of
litigation or other adversary proceeding with respect to this Agreement or the
transactions contemplated hereby, the nonprevailing party shall reimburse the
prevailing party for all reasonable attorney's fees and court costs incurred in
connection therewith.
Section 7.3 Amendments. This Agreement may not be changed orally, but
----------
only by agreement in writing signed by the parties hereto. Any provision of
this Agreement can be waived, amended, supplemented or modified only by written
agreement of the parties hereto.
Section 7.4 Interpretation. This Agreement has been negotiated fully
--------------
and fairly between the parties. If this Agreement becomes the subject of
interpretation by a court of law or equity or other third party, this Agreement
shall not be construed either against, or in favor of, JMC, Barnett or Trustee,
by virtue of one of the parties being deemed the draftsman of this Agreement.
Section 7.5 Severability. Any provision of this Agreement which is
------------
invalid, illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability,
13
<PAGE>
without affecting in any way the remaining provisions hereof or rendering any
other provision of this Agreement invalid, illegal or unenforceable.
Section 7.6 Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and shall be binding upon the directors, principals, shareholders,
successors and assigns of the parties hereto.
Section 7.7 Dispute Resolution. In the event of any dispute, claim or
------------------
controversy which in any way relates to, results from or arises out of this
Agreement or the Interim Services Agreement, any amendment or breach hereof or
thereof, or any resulting transactions ("Dispute"), if the Dispute cannot be
settled through negotiations, the parties hereto agree to first try in good
faith to settle the Dispute by mediation under the Commercial Mediation Rules of
the American Arbitration Association, before resorting to arbitration, as
mandated below. Regardless of the outcome of such mediation, each party shall
bear its own costs and attorneys' fees and any mediation fees shall be shared by
the parties on an equal basis, one-half by JMC and one-half by Barnett and
Trustee.
Thereafter, any remaining Dispute shall be decided by neutral binding
arbitration in accordance with the rules of the American Arbitration Association
and not by court action. Such arbitration shall be conducted in Duval County
Florida. Regardless of the outcome of the arbitration, each party shall bear
its own costs and attorneys' fees and any costs of expenses assessed by the
American Arbitration Association shall be shared by the parties on an equal
basis, one-half by JMC and one-half by Barnett and Trustee. Judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof; provided, however, that no arbitrator shall be permitted to award
punitive damages in such arbitration proceeding.
If any party hereto, after notice thereof, fails to be present or
represented at an arbitration hearing, or adjournment thereof, the arbitrator
may, nevertheless, in their discretion, proceed with the adjudication of the
Dispute.
Section 7.8 Confidentiality. Neither Barnett nor JMC shall disclose any
---------------
information or make any public announcement with respect to this Agreement or
the Interim Services Agreement prior to its execution. JMC and Barnett will
coordinate the content and timing of any internal and public announcements
regarding this Agreement and the Interim Services Agreement.
Section 7.9 Applicable Law. This Agreement is governed by, and shall be
--------------
construed and enforced in accordance with, the laws of the State of Florida,
except such laws that would render this choice of laws ineffective.
Section 7.10 Entire Agreement. This Agreement, together with the Interim
----------------
Services Agreement, evidence the entire agreement of the parties hereto with
respect to the subject matter hereof. The terms and conditions of this
Agreement and the Interim Services Agreement shall supersede the terms and
conditions of the Letter of Understanding and shall operate to terminate such
letter in accordance with Section 7.A. thereof.
14
<PAGE>
This Agreement has been executed by the parties hereto as of the date first
above written.
JAMES MITCHELL & CO.
By: /s/ James K. Mitchell
---------------------
James K. Mitchell, Chairman and Chief Executive
Officer
BARNETT BANKS TRUST COMPANY, N.A.
By: /s/ Patricia A. Clemens
----------------------
Authorized Officer
BARNETT BANKS, INC.
By: /s/ Richard H. Jones
--------------------
Authorized Officer
15
<PAGE>
SCHEDULE 1.3(a)
JAMES MITCHELL & COMPANY
BARNETT BANK
ASSET FEE PURCHASE
IN FORCE ASSETS
AS OF JULY 31, 1995
<TABLE>
<CAPTION>
ASSETS IN FORCE
PROVIDER BALANCES AS OF ALLOCATION OF
COMPANY JULY 31, 1995 % OF TOTAL PURCHASE PRICE
--------- --------------- ---------- --------------
<S> <C> <C> <C>
LICOVA 370,488,950 32.35% $1,308,521
Keyport 460,397,718 40.20% 1,626,068
WSLAC 172,663,091 15.08% 609,825
TransAmerica 141,733,539 12.38% 500,585
------------- ------- ----------
1,145,283,298 100% $4,045,000
============= ======= ==========
</TABLE>
<PAGE>
ANNUITY SUITABILITY GUIDE
<TABLE>
<CAPTION>
IMMEDIATE
FIXED VARIABLE ANNUITY
Annuity Type ANNUITY ANNUITY (FIXED)
- -------------------------------------------------------------
<C> <S> <S> <S>
1. Personal Date
- -------------------------------------------------------------
Age 1-2**3-6 1-2**3-6 2-6
- -------------------------------------------------------------
2. Invested Assets
- -------------------------------------------------------------
Prior Investment 1-4 2+ 1-4
Experience
- -------------------------------------------------------------
3. Income & Taxes
- -------------------------------------------------------------
Income 2+ 2+ 2+
- -------------------------------------------------------------
Tax Bracket 1-4 1-4 1-4
- -------------------------------------------------------------
4. Assets
- -------------------------------------------------------------
a. Liquid Assets 2+ 2+ 2+
- -------------------------------------------------------------
b. Asset Allocation 1+ 2+ 1+
- -------------------------------------------------------------
5. Customer Needs
- -------------------------------------------------------------
Risk Tolerance 1 2-5 1-5
- -------------------------------------------------------------
Investment Objectives 1 & 4 1-4 1,2 & 4
- -------------------------------------------------------------
</TABLE>
CATEGORY KEYS
<TABLE>
<CAPTION>
1 2 3 4 5 6
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. Personal Date
- ------------------------------------------------------------------------------------------------------------------------------------
Age 1-30 31-45 46-55 56-65 66-75 76+
- ------------------------------------------------------------------------------------------------------------------------------------
2. Invested Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Prior Investment CDs only Some Moderate Extensive
Experience
- ------------------------------------------------------------------------------------------------------------------------------------
3. Income & Taxes
- ------------------------------------------------------------------------------------------------------------------------------------
Income $0-$9,999 $10,000-$29,999 $30,000-$59,999 $60,000-$99,999 $100,000+
- ------------------------------------------------------------------------------------------------------------------------------------
Tax Bracket 15% 28% 31% 31%+
- ------------------------------------------------------------------------------------------------------------------------------------
4. Assets
- ------------------------------------------------------------------------------------------------------------------------------------
a. Liquid Assets (after $0-$9,999 $10,000-$29,999 $30,000-$59,999 $60,000-$99,999 $100,000+
investment)
- ------------------------------------------------------------------------------------------------------------------------------------
b. Current Asset 100% low 100% low - 75%+ Low-moderate 50%+ Low Less than 50% - Low-
Allocation no risk moderate risk risk moderate risk moderate risk
- ------------------------------------------------------------------------------------------------------------------------------------
5. Customer Needs
- ------------------------------------------------------------------------------------------------------------------------------------
Risk Tolerance Low Moderate Moderate+ High Speculative
- ------------------------------------------------------------------------------------------------------------------------------------
Investment Objectives PRESERVING INCREASING INCOME MAXIMIZING GROWTH- TAX ADVANTAGES
PRINCIPAL WHILE OR VALUE - MODERATE GREATER FLUCTUATIONS
EARNING INTEREST FLUCTUATION
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Information extracted for the client profile is categorized in the Category
Keys chart and then compared to the Suitability Guide for approval
* May vary depending upon investment option selected.
** Would require a statement indicating funds are for retirement savings or
other long-term savings.
<PAGE>
Schedule 3.3
1. Each of JMC's contracts with its Provider Companies prohibits JMC from
assigning its rights under the contract to another party without the prior
written consent of the Provider Company. Any attempt to assign these fees
in the absence of such consents would be a breach of the Provider Company
contracts.
1. On September 1, 1995, the Florida Department of Insurance published
proposed rules governing the sale of annuities on bank premises. One of
those proposed rules, Rule 4-223.031, purports to require any person
providing any of the services of an insurance administrator (as defined by
Florida law) in connection with annuities marketed in association with
financial institutions to obtain a certificate of authority from the
Department. As of the date of this Agreement, these proposed rules have
not taken effect.
In addition, Section 626.8805 Florida Statutes requires any person who is
an insurance administrator (as defined by Florida law) to obtain a
certificate of authority from the Department and other sections of the
Florida Statutes require the insurance administrator to maintain certain
records and provide certain notices, among other things.
JMC does not believe that its activities under this Agreement make it an
insurance administrator under Florida law. However, Florida-licensed
insurance agents are excluded from the definition of insurance
administrator. All business processing services provided by JMC under this
Agreement will be performed by Florida-licensed insurance agents.
<PAGE>
SCHEDULE 3.4
BARNETT BANK
CUSTOMER COMPLAINTS - AS OF 8/15/95
<TABLE>
<CAPTION>
CASE NO. CUSTOMER NAME DATE RCVD PROVIDER TYPE RESOLUTION
<S> <C> <C> <C> <C> <C>
BB95-121 Sperrazza, Constance 7/20/95 WSLAC MS Surrendered - paid $1,189.49
BB95-124 Shanes, Arlene 7/27/95 KLIC MS Letter to customer
BB95-125 Beecher, Wendell 7/27/95 WSLAC SU Surrendered - paid $355.74
BB95-126 Thurston, Lorene 7/27/95 TLIAC DS Letter to customer
BB95-127 Cowart, Dorothy 8/4/95 WSLAC DS, MS Letter to customer
BB94-999 Southall, Gabrielle 2/8/94 ALIC OH Referred to Legal
BB94-998 Orschler, Gladys 2/21/94 KLIC OH Referred to Legal
BB95-128 Smith, Betty 7/1/95 ALIC MS Letter to customer
BB95-117 Mercer, Dorothy 7/17/95 LICOVA MS Letter to customer
BB95-123 Row, Marilyn 7/24/95 LICOVA DS, MS Letter to SEC
BB95-119 Edwards, Neville 7/17/95 LICOVA MS Letter to customer
BB95-120 Miller, Helen 7/17/95 TLIAC MS Letter to customer
BB95-129 Marbury, Richard 9/7/95 KLIC MS In process
BB95-130 Demske, Helen 5/26/95 KLIC MS In process
BB95-122 Galatis, Nicholas 7/24/95 KLIC MS Letter to SEC
</TABLE>
MS - Misrepresentation DS - Disclosure SU - Unsuitable Investment OH - Other
<PAGE>
EXHIBIT 10.7
ASSIGNMENT AND NOTICE OF ASSIGNMENT OF RENEWAL (ASSET) FEES
To: Keyport Life Insurance Company
125 High Street
Boston, MA 02210-2712
Effective August 31, 1995, JMC Insurance Services Corporation ("JMC"), with the
agreement of James Mitchell & Co., hereby assigns to Barnett Annuities
Corporation, all of JMC's right, title and interest in and to any and all
monthly renewal or asset fees earned after August 31, 1995 by JMC as a result of
the sales of fixed annuities issued by Keyport Life Insurance Company
("Keyport") which annuities were sold by JMC between October 1, 1990 and October
31, 1995 to customers of Barnett Banks, Inc. in the States of Florida and
Georgia. Chargebacks processed by Keyport on or after August 15, 1995 are to be
deducted from commissions payable to Barnett Annuities Corporation under this
Assignment, rather than from funds otherwise payable to JMC. All such monthly
renewal or asset fees earned after August 31, 1995 are to be paid directly to
Barnett Annuities Corporation at:
Barnett Annuities Corporation
9000 Southside Blvd., Bldg. 100
Jacksonville, FL 32256
Executed as of October 23, 1995.
James Mitchell & Co.
JMC Insurance Services Corporation
JMC Financial Corporation Barnett Annuities Corporation
By: /s/ Brian J. Finneran /s/ Joel Kaye
-------------------------------------- -------------------------------
Brian J. Finneran, President and Chief Joel Kaye, President
Operating Officer
<PAGE>
ACKNOWLEDGMENT AND ACCEPTANCE OF ASSIGNMENT
Keyport Life Insurance Company ("Keyport") hereby acknowledges that it is
obligated to pay JMC monthly renewal or asset fees based upon the value of in-
force single premium deferred annuity contracts sold by JMC to customers of
Barnett Banks, Inc. in the States of Florida and Georgia, between October 1,
1990 and October 31, 1995, that are still in-force when each monthly fee is
calculated. Keyport accepts the within assignment and agrees to pay all such
fees earned after August 31, 1995, less chargebacks processed on or after August
15, 1995, directly to Barnett Annuities Corporation or its designee (acceptable
to Keyport) at the address above specified for as long as such contracts remain
in-force.
Executed as of September 25, 1995
Keyport Life Insurance Company
By: /s/ John W. Rosensteel
---------------------------------
J. W. Rosensteel, President & CEO
---------------------------------
Name and Title
<PAGE>
EXHIBIT 10.8
ASSIGNMENT AND NOTICE OF ASSIGNMENT OF RENEWAL (ASSET) FEES
TO: The Life Insurance Company of Virginia
6610 West Broad Street
Richmond, VA 23230
Effective October 18, 1995, JMC Insurance Services Corporation ("JMC") hereby
assigns to Barnett Annuities Corporation all of JMC's right, title, and interest
in and to any and all monthly renewal or asset fees earned after August 31, 1995
by JMC as a result of the sales of fixed annuities issued by The Life Insurance
Company of Virginia ("LICOVA") which annuities were sold by JMC between October
1, 1990 and October 31, 1995 to customers of Barnett Banks, Inc. in the States
of Florida and Georgia.
Effective October 18, 1995, JMC Financial Corporation ("Broker/Dealer") hereby
assigns to Barnett Annuities Corporation all of Broker/Dealer's right, title and
interest in and to any and all monthly renewal or asset fees earned after August
31, 1995 by Broker/Dealer as a result of the sales of variable annuity contracts
issued by LICOVA which were sold by Broker/Dealer between October 1, 1990 and
October 31, 1995 to customers of Barnett Banks, Inc. in the States of Florida
and Georgia.
Chargebacks processed by LICOVA on or after August 15, 1995 are to be deducted
from commissions payable to Barnett Annuities Corporation under this Assignment,
rather than from funds otherwise payable to JMC.
All such monthly renewal or asset fees earned after August 31, 1995 are to be
paid directly to Barnett Annuities Corporation at :
Barnett Annuities Corporation
9000 Southside Blvd., Bldg. 100
Jacksonville, FL 32256
Executed as of October 18, 1995.
James Mitchell & Co.
JMC Insurance Services Corporation
JMC Financial Corporation Barnett Annuities Corporation
By: /s/ James K. Mitchell /s/ Joel Kaye
-------------------------------- --------------------------------
James K. Mitchell, Chairman & CEO Joel Kaye, President
<PAGE>
ACKNOWLEDGMENT AND ACCEPTANCE OF ASSIGNMENT
The Life Insurance Company of Virginia ("LICOVA") hereby acknowledges that it is
obligated to pay JMC and Broker/Dealer monthly renewal or asset fees based upon
the value of in-force annuity contracts sold by JMC to customers of Barnett
Banks, Inc. in the States of Florida and Georgia, between October 1, 1990 and
October 31, 1995, that are still in-force when each monthly fee is calculated.
LICOVA accepts the within assignment and agrees to pay all such fees earned
after August 31, 1995, less chargebacks processed on or after August 15, 1995,
directly to Barnett Annuities Corporation or its designee (acceptable to LICOVA)
at the address above specified for as long as such fees remain payable.
Executed as of October 19, 1995.
The Life Insurance Company of Virginia
By: /s/ Thomas Barefield
--------------------
Senior Vice President
---------------------
Name and Title
<PAGE>
EXHIBIT 10.9
ASSIGNMENT OF RENEWAL (ASSET) FEES
Effective October 20, 1995, James Mitchell & Co., JMC Financial Corporation and
JMC Insurance Services Corporation (collectively "JMC") hereby assign to Barnett
Annuities Corporation all of JMC's right, title and interest in and to any and
all monthly renewal or asset fees earned after August 31, 1995 by JMC as a
result of the sales of flexible premium deferred annuities issued by
Transamerica Life Insurance and Annuity Co. ("Transamerica") which annuities
were sold by JMC between January 1, 1993 and October 31, 1995 to customers of
Barnett Banks, Inc. through the Tax Advantage Program.
Executed as of October 20, 1995.
James Mitchell & Co. Barnett Annuities Corporation
By: /s/ Brian J. Finneran By: /s/ Joel Kaye
-------------------------------- ------------------------------------
Brian J. Finneran, President Joel Kaye, President
JMC Financial Corporation
By: /s/ Brian J. Finneran
--------------------------------
Brian J. Finneran, President
JMC Insurance Services Corporation
By: /s/ Brian J. Finneran
-------------------------------
Brian J. Finneran, President
<PAGE>
NOTICE OF ASSIGNMENT OF RENEWAL (ASSET) FEES
To: Transamerica Life Insurance and Annuity Co.
1150 South Olive
Los Angeles, CA 90015
By Assignment, effective October 20, 1995, James Mitchell & Co., JMC Financial
Corporation and JMC Insurance Services Corporation (collectively "JMC") has
assigned to Barnett Annuities Corporation all of JMC's right, title and interest
in and to any and all monthly renewal or asset fees earned after August 31, 1995
by JMC as a result of the sales of flexible premium deferred annuities issued by
Transamerica Life Insurance and Annuity Co. ("Transamerica") which annuities
were sold by JMC between January 1, 1993 and October 31, 1995 to customers of
Barnett Banks, Inc. through the Tax Advantage Program. Chargebacks with respect
to such business processed on or after the date hereof are to be deducted from
commissions payable to Barnett Annuities Corporation under the Assignment,
rather than from funds otherwise payable to JMC. All such monthly renewal or
asset fees payable after the date hereof, except payments arising from
reconciliation of records with respect to matters predating the Assignment, are
to be paid directly to Barnett Annuities Corporation at:
Barnett Annuities Corporation
9000 Southside Blvd., Bldg. 100
Jacksonville, FL 32256
Executed as of October 20, 1995.
James Mitchell & Co. Barnett Annuities Corporation
By: /s/ Brian J. Finneran By: /s/ Joel Kaye
---------------------------- ---------------------------------
Brian J. Finneran, President Joel Kaye, President
JMC Financial Corporation
By: /s/ Brian J. Finneran
----------------------------
Brian J. Finneran, President
JMC Insurance Services Corporation
By: /s/ Brian J. Finneran
---------------------------
Brian J. Finneran, President
<PAGE>
ACKNOWLEDGMENT AND CONSENT TO ASSIGNMENT
Transamerica Life Insurance and Annuity Co. ("Transamerica") hereby acknowledges
that it is party to that certain Distribution/Sales Agreement, dated October 20,
1992, by and among Transamerica, James Mitchell & Co., JMC Insurance Services
Corporation, and JMC Financial Corporation (collectively "JMC"), as amended (the
"Sales Agreement"), pursuant to which Transamerica pays JMC monthly renewal or
asset fees (the "Asset Fees") as set forth therein with respect to certain
flexible premium deferred annuity contracts sold by JMC to customers of Barnett
Banks, Inc. (the "Barnett Business"). Transamerica consents to the Assignment
of Renewal (Asset) Fees and Notice of Assignment of Renewal (Asset) Fees, both
dated October 20, 1995, and agrees to pay all such Asset Fees payable on or
after the date hereof, less chargebacks with respect to the Barnett Business
processed on or after the date hereof, directly to Barnett Annuities Corporation
or its designee (acceptable to Transamerica) at the address specified in the
Assignment of Renewal (Asset) Fees in accordance with the terms of the Sales
Agreement.
Payments due to JMC from Transamerica or to Transamerica from JMC as a result of
the reconciliation of records with respect to matters predating the Assignment
of Renewal (Asset) Fees are not affected by this instrument.
Executed as of October 20, 1995
Transamerica Life Insurance and Annuity Co.
By: /s/ Paul L. Norris
-----------------------------------
Paul L. Norris, VP & Actuary
-----------------------------------
Name and Title
<PAGE>
EXHIBIT 10.10
ASSIGNMENT AND NOTICE OF ASSIGNMENT
To: Western-Southern Life Assurance Company (hereinafter "WSLAC")
318 Broadway
Cincinnati, OH 45202
Effective October 20, 1995, James Mitchell & Co., JMC Insurance Services
Corporation and JMC Financial Corporation (hereinafter collectively referred to
as "JMC") hereby assign to Barnett Annuities Corporation ("Barnett") all of
JMC's right, title and interest in and to any and all commissions earned after
August 15, 1995, but unpaid, and all hereafter earned on additional premiums
received on flexible premium deferred annuity contracts sold by JMC between
January 1, 1992 and August 15, 1995 (hereinafter, "FPDAs") to customers of
Barnett Banks, Inc. pursuant to the Sales Agreement dated January 1, 1992
between JMC and WSLAC. In addition, JMC hereby assigns to Barnett any and all
monthly asset (renewal) fees earned after August 31, 1995 by JMC as a result of
the sale of FPDAs by JMC to customers of Barnett Banks, Inc. pursuant to the
above-referenced Sales Agreement. Chargebacks processed by WSLAC on or after
August 15, 1995 pursuant to Schedule B, paragraph 2 of the Sales Agreement may
be offset in whole or in part, at the option of WSLAC, and deducted from amounts
payable to Barnett by virtue of this Assignment and the separate Supplemental
Agreement between WSLAC and Barnett.
Barnett hereby accepts the foregoing assignment and assumes the liability and
obligations for payment of any chargebacks by WSLAC with respect to the FPDAs
after August 15, 1995. Barnett acknowledges that this Assignment, as between
Barnett and WSLAC, will be effected and implemented through the separate
Supplemental Agreement between said parties, executed and delivered concurrently
herewith.
All amount payable to Barnett Annuities Corporation pursuant to this Assignment
shall be transmitted to:
Barnett Annuities Corporation
9000 Southside Blvd., Bldg. 100
Jacksonville, FL 32256
Executed as of October 20, 1995.
James Mitchell & Co.
JMC Insurance Services Corporation
JMC Financial Corporation Barnett Annuities Corporation
By: /s/James K. Mitchell /s/ Joel Kaye
--------------------------------- ----------------------------------
James K. Mitchell, Chairman & CEO Joel Kaye, President
<PAGE>
ACCEPTANCE AND RELEASE
Western-Southern Life Assurance Company ("WSLAC") hereby acknowledges
receipt of the Assignment and Notice of Assignment ("Assignment") executed as of
October 20, 1995 between James Mitchell & Co., JMC Insurance Services
Corporation and JMC Financial Corporation (collectively, "JMC") and Barnett
Annuities Corporation ("Barnett"), with respect to payment of new business
commissions and monthly asset (renewal) fees on flexible premium deferred
annuity contracts ("FPDAs") underwritten by WSLAC and sold by JMC to customers
of Barnett Banks, Inc. between January 1, 1992 and August 15, 1995 , pursuant to
that certain Sales Agreement dated January 1, 1992, by and between JMC and WSLAC
(the "Sales Agreement").
In consideration for WSLAC's approval of and consent to the assignment, and
for other good and valuable consideration, WSLAC and JMC agree as follows:
1. WSLAC hereby consents to and approves the Assignment. WSLAC further
acknowledges that the Assignment, as between WSLAC and Barnett, will be effected
and implemented by a separate Supplemental Agreement between WSLAC and Barnett,
executed and delivered concurrently herewith.
2. The Sales Agreement is hereby terminated, except that, as provided in
Section 10(c) of the Sales Agreement, Sections 5, Joint Duties and Obligations,
8, Compensation of Agent (subject to the Assignment), and 9, Indemnification, of
the Sales Agreement shall survive the within termination and do continue in full
force and effect.
3. JMC hereby releases and discharges WSLAC from all claims, liabilities
or causes of action arising from or relating to the payment of any and all
compensation, paid by WSLAC to Barnett, which is the subject of the Assignment.
Executed as of November 13, 1995
Western-Southern Life Assurance Company
By: /s/ William F. Ledwin By: /s/Jill T. McGruder
------------------------------- -------------------------------------
Senior Vice President Executive Vice President
------------------------------ -------------------------------------
James Mitchell & Co.
JMC Insurance Services Corporation
JMC Financial Corporation
By: /s/James K. Mitchell
--------------------------------
James K. Mitchell, Chairman & CEO
<PAGE>
EXHIBIT 10.11
USBA Holdings, LTD.
Two Concourse Parkway, Suite 650
Atlanta, Georgia 30328
(770) 804-5675
================================
January 26,1996
Mr. James K. Mitchell
Chairman & CEO
James Mitchell & Co.
#100, 9710 Scranton Road
San Diego, CA 92121
Dear Jim:
I am extremely pleased that we have reached agreement on our joint effort
together. The end result for JMCG should prove to be one which positions you as
a leader in providing investment products and services to a significantly
broader range of financial institutions and other clients than you enjoy today.
In this communication, I will summarize for you our directive in assisting you
strategically, and ultimately tactically, in accomplishing that objective, using
the unique resources of USBA.
Initially we will undertake research by USBA to gather and organize tactical
information on the operation of your business, including past performance,
current resources, problems, opportunities and management directives. With this
comprehensive understanding of your business and your product line, we will
collectively determine, utilizing our financial modeling and screening
capability, the appropriate criteria which we will incorporate into an automated
analysis of the marketplace on a prioritized and highly qualified basis.
Based upon the information collected, analyzed and discussed in the initial
phase, we will work with appropriate JMCG key management and consulting
resources to more appropriately define the current situation facing the company,
develop objectives, prepare action plans, assign responsibilities and establish
benchmarks and deadlines. As we move into this phase of our process, we will
refine further the previous screens done on an industry basis in an effort to
customize more definitive priorities as they relate to the various captive
distribution systems that USBA has to offer, including but not limited to our
own direct clients and the indirect clients through various arrangements that we
both now enjoy and intend to expand. In this process the highest priorities
will be overlaid against a ranked order of client relationships, in order to
better qualify our best opportunities, which should result in a shorter sales
cycle and an increased success ratio as it relates to closure of sales. This
process should be completed in 90 days on our part and would be designed to be
implemented by you over a five-year period.
In addition, I believe it will be important to survey our direct and indirect
clients in an effort to evaluate the JMCG product and service line as it exists
today, and to determine improvements that might need to be strategically
determined going forward which will ensure that the ultimate product provides
the very best solution to the marketplace. The extent to which alterations are
made here will be weighed, giving consideration to the costs and subsequent
benefits in appropriate time frame, in order to make the appropriate risk/reward
decisions. This part of the process should be ongoing, as the company needs to
constantly assess its position in the marketplace, and direct the considerable
resources of JMCG and USBA into a consistent collective assessment of the
opportunity available to be a dominant participant in the chosen niche.
<PAGE>
Mr. James K. Mitchell
January 26,1996
Page 2
JMCG will therefore end up with a much more focused plan to address the
significant opportunity that exists in the marketplace today. In addition, by
virtue of its commitment to USBA as a strategic partner in this effort, JMCG
will gain more effective distribution, which is so critical in today's financial
service arena, and on a much more economically efficient basis. This plan will
become the road map for the company to follow, and will enable JMCG to be more
adept at responding to unanticipated developments that influence performance.
Jim, we are delighted that you have chosen USBA as your resource in this
undertaking. We are in agreement with you that a fee of $1,250,000 is
acceptable and payable upon receipt of this agreement. If this accurately
reflects our agreement, please sign below to indicate your acceptance.
Jim, I am excited that all of our diligent work together has led us to this
agreement. On behalf of USBA, we look forward to a mutually rewarding
association. Thank you for your confidence in me and in USBA.
Best personal regards.
Sincerely,
/s/ Ron Wallace
Ronald D. Wallace
President
/smt
cc: Si Baitler
ACCEPTED AND AGREED:
JAMES MITCHELL & CO.
BY: /s/ James K. Mitchell
-------------------------
James K. Mitchell
DATE: 1-29-96
------------------------
<PAGE>
EXHIBIT 10.12
-------------
MARKETING AGREEMENT
This MARKETING AGREEMENT (this "Agreement") is entered into as of January 29,
1996 by and between JMC GROUP, INC., a Delaware corporation ("JMCG"), and USBA
HOLDINGS, LTD., a Georgia corporation ("USBA"), with reference to the following:
RECITALS
A. JMCG, through its subsidiaries, sells annuities, insurance and mutual
funds to customers of various financial institutions through on-site programs
with such financial institutions, and provides administrative support services
to financial institutions with their own annuity, insurance and mutual fund
sales programs.
B. USBA provides consulting and other services to various financial
institutions which services consist, in part, of recommending products and
services to enhance the earnings potential and financial performance of such
financial institutions.
C. JMCG and USBA desire to enter into this Agreement whereby USBA will
market JMCG's services to USBA's client financial institutions, and JMCG,
through its subsidiaries, will provide its services to USBA client financial
institutions.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises of the
parties contained herein, and for other good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the parties hereto
agree as follows:
AGREEMENT
1. Obligations of USBA. USBA hereby agrees proactively to market and
-------------------
promote the products and services offered by JMCG to USBA's client financial
institutions and to the client financial institutions of USBA's affiliates or
business partners, including, without limitation, Unisys and OKRA Marketing
Corporation when contracts with Unisys and OKRA Marketing Corporation are
finalized (collectively, "USBA Customers"). Notwithstanding the previous
sentence, USBA shall have no obligation to market and promote the JMCG Services
if USBA's contract with its client financial institution or affiliate or
business partner expressly prohibits the marketing of such JMCG Services (as
hereinafter defined). The products and services offered by JMCG and marketed by
USBA shall include, without limitation, JMCG's alternative investment sales
programs designed to deliver insurance, annuity and mutual fund products to
retail banking customers ("JMCG Programs") and any other financial products or
administrative support services now or
1
<PAGE>
hereafter offered by JMCG ("JMCG Products" and collectively with JMCG Programs,
the "JMCG Services"). Notwithstanding the foregoing, if JMC hereafter shall
offer new financial products or administrative services, USBA shall have no
obligation to market and promote such new services if USBA at that time shall
have existing relationships with other business partners to offer such new
services.
2. Obligations of JMCG. JMCG hereby agrees to provide JMCG Services to
-------------------
USBA Customers who desire to utilize such services, under the terms and
conditions specified in Exhibit "A" hereto. JMCG shall work actively with USBA
to develop and implement a program to market the JMCG Services to USBA
Customers, and JMCG shall work diligently to maximize the results of any JMCG
Services initiated with a USBA Customer.
3. Exclusive Efforts.
-----------------
3.1 USBA shall not during the term of this Agreement introduce, sell
or promote to USBA Customers (i) any third party marketer of annuity, insurance,
or mutual fund products designed for use within the retail financial institution
marketplace other than JMCG, or (ii) any third party administrator or product
provider or other entity which offers services substantially similar to the JMCG
Services offered by JMCG at such time, other than JMCG.
3.2 JMCG shall not, during the term of this Agreement, contact any
USBA Customer directly or sell any JMCG Services to a USBA Customer without
first notifying USBA and making payment to USBA of the referral fees described
in Section 7 of this Agreement.
4. Marketing Approach. USBA shall integrate the JMCG Services as an
------------------
integral part of the products and consulting services it provides to USBA
Customers. Information concerning the JMCG Services shall have equal prominence
with other information USBA provides to USBA Customers concerning services or
products of its subsidiaries and affiliates. In addition, a representative from
JMCG shall participate actively, whenever feasible, in the preparation of all
written and oral communications with USBA Customers concerning the JMCG Services
and shall be present, whenever feasible, at all presentations made to USBA
Customers concerning the JMCG Services. USBA shall not enter into any agreement
or relationship with another third party marketer or service or product provider
which provides for such organization's services to be marketed more aggressively
or visibly than the JMCG Services.
5. Term. The term of this Agreement shall be five (5) years from the
----
date hereof. JMCG shall be entitled to terminate this Agreement for any reason
and with or without cause upon thirty (30) days' prior written notice to USBA.
USBA shall be entitled to terminate this Agreement, but only in the following
circumstances: (i) if JMCG completely fails to perform all of its obligations
hereunder as described in Section 2 of this
2
<PAGE>
Agreement, or (ii) in the event of conduct by JMCG which is a material and
continuing breach of this Agreement or which causes irreparable damage to the
business relationship of USBA with the USBA Customers. Prior to any termination
of this Agreement by USBA, however, USBA shall provide JMCG with written notice
describing such conduct and shall afford JMCG thirty (30) days' opportunity to
cure such breach. In the event JMCG has not cured such breach within thirty
days, USBA may terminate this Agreement upon fifteen (15) days' written notice
to JMCG.
6. Consideration. As consideration for entering into this Agreement,
-------------
JMCG shall grant USBA a five-year Warrant to purchase one million (1,000,000)
shares of JMCG common stock, par value $.01 per share, at an initial exercise
price of $2.50 per share (the "USBA Warrant"). The initial exercise price of
the USBA Warrant is subject to adjustment as provided in the USBA Warrant. The
USBA Warrant shall be issued in the form attached as Exhibit "B" hereto.
7. Referral/Finder's Fee. The fees described below in Section 7.1 and
---------------------
Section 7.2 shall apply only to JMC Services that are fully-managed sales
programs.
7.1 Front Fee: Upon the execution of a definitive contract by JMCG
---------
and a USBA Customer for the purchase of JMCG Services, JMCG shall pay to USBA a
one-time fee of five-hundred dollars ($500) for each one-hundred million
($100,000,000) in core retail customer deposits of such USBA Customer.
7.2 Variable Fee on Production: JMCG shall pay USBA a monthly fee
--------------------------
which shall be equal to the sum of (i) Total Insurance Production (as
hereinafter defined) multiplied by the applicable basis points set forth in the
following table and (ii) Total Mutual Fund Production (as hereinafter defined)
multiplied by the applicable basis points set forth in the following table.
"Total Insurance Production" for any month shall be the aggregate gross sales of
annuity and insurance products sold by JMCG and its subsidiaries through sales
programs with USBA Customers during that month less the amount of gross sales of
insurance and annuity products initially sold by JMCG and its subsidiaries
through sales programs with USBA Customers which are the subject of commission
chargebacks during that month. "Total Mutual Fund Production" for any month
shall be equal to the aggregate gross sales of mutual fund products sold by JMCG
and its subsidiaries through sales programs with USBA Customers during that
month. The applicable basis points shall be determined with reference to the
aggregate core retail customer deposits of USBA Customers with whom JMCG and its
subsidiaries have active sales programs.
3
<PAGE>
Applicable Basis Points
-----------------------
<TABLE>
<CAPTION>
Annuities
And Mutual
Aggregate Core Deposits Insurance Fund
- ----------------------- --------- ------
<S> <C> <C>
$ 0 - 10 billion 10 6
$10 - 25 billion 30 18
$25 billion and above 35 21
</TABLE>
JMCG shall continue to pay USBA the fees referred to in this Section 7.2 until
January 1, 2001, even if this Agreement is terminated before that date.
8. Termination Fee. If this Agreement terminates for any reason, USBA
---------------
shall pay to JMCG, at the sole option of JMCG, either (i) One Million Dollars
($1,000,000), together with interest thereon (the "Termination Payment"); or
(ii) 18,182 shares of USBA common stock, par value $1.00 per share, or such
greater or lesser number of shares of USBA common stock or other securities as
shall be determined in accordance with the antidilution provisions of Exhibit C
hereto (the "Termination Shares"). Interest on the Termination Payment shall
accrue from the date of termination of this Agreement at the prime rate (as
published in The Wall Street Journal on the date of termination of this
-----------------------
Agreement), plus one-half percent (0.5%), compounded daily until the Termination
Payment is fully paid. Notwithstanding the foregoing, JMCG shall have the
right, at the sole option of JMCG, to receive the Termination Shares in the
event of a Change in Control (as that term is defined in Section 12 of the USBA
Warrant attached hereto as Exhibit "B") of USBA, without terminating this
Agreement. If JMCG shall receive the Termination Shares without terminating
this Agreement, then JMCG shall not be entitled to the Termination Payment upon
any termination of this Agreement.
9. Representations and Warranties of USBA. USBA hereby represents and
--------------------------------------
warrants to JMCG that:
9.1 Organization and existence. USBA is a corporation duly
--------------------------
incorporated, validly existing and in good standing under the laws of the State
of Georgia and has all corporate power and authority and all government
licenses, authorizations, consents and approvals required to carry on its
business as now conducted by it in each jurisdiction in which it is conducted.
9.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by USBA of this Agreement and the consummation by USBA of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of USBA.
4
<PAGE>
9.3 Capitalization. The authorized capital stock of USBA consists of
--------------
500,000 shares of common stock, of which 320,928 shares are issued and
outstanding, and 10,000 shares of preferred stock, of which 3,758.131 shares are
issued and outstanding. All of the issued and outstanding shares of common
stock of USBA are validly issued, fully paid and nonassessable. Except for
65,600 options issued under the Stock Option Agreement dated November 23, 1993
and 86,950 Value Appreciation Rights which have been issued from time to time,
there are no outstanding (i) securities convertible into the capital stock or
other equity of the USBA, (ii) outstanding options, warrants or other rights to
purchase or subscribe for capital stock or other equity of USBA, (iii)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance of any capital stock or other equity of USBA, any such
convertible or exchangeable securities or any such options, warrants or rights
or (iv) stock appreciation rights plans or other "phantom" stock plans.
9.4 Reservation of Shares. USBA shall authorize and reserve for
---------------------
issuance such number of shares of USBA common stock, par value $1.00 per share,
as may be required for issuance of the Termination Shares. If and when issued,
all such shares of USBA common stock shall be validly issued, fully paid and
nonassessable.
10. Representations and Warranties of JMCG. JMCG hereby represents and
--------------------------------------
warrants to USBA that:
10.1 Organization and existence. JMCG is a corporation duly
--------------------------
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power and authority and all government
licenses, authorizations, consents and approvals required to carry on its
business as now conducted by it in each jurisdiction in which it is conducted.
10.2 Corporate Authorization. The execution, delivery and
-----------------------
performance by JMCG of this Agreement and the consummation by JMCG of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of JMCG.
10.3 Capitalization. The authorized capital stock of JMCG consists
--------------
of twenty million (20,000,000) shares of common stock, of which 6,198,898 shares
are issued and outstanding, and five million (5,000,000) shares of preferred
stock, none of which are issued and outstanding. All of the issued and
outstanding shares of common stock of JMCG are validly issued, fully paid and
nonassessable. Except for options granted to employees, officers and directors
of JMCG and its subsidiaries pursuant to the 1983 Stock Option Plan, the 1993
Employee Stock Option Plan and the 1993 Executive Stock Option Plan, and
outstanding rights issued pursuant to JMCG's Shareholder Rights Plan, there are
no outstanding (i) securities convertible into the capital stock or other equity
of JMCG, (ii) options,
5
<PAGE>
warrants or other rights to purchase or subscribe for capital stock or other
equity of JMCG, (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock or other
equity of JMCG, any such convertible or exchangeable securities or any such
options, warrants or rights or (iv) stock appreciation rights plans or other
"phantom" stock plans.
10.4 Reservation of Shares. JMCG shall authorize and reserve for
---------------------
issuance such number of shares of JMCG common stock, par value $.01 per share,
as may be required for issuance pursuant to the USBA Warrant. When issued
pursuant to the terms of the USBA Warrant, all such shares of JMCG common stock
shall be validly issued, fully paid and nonassessable.
11. Assignment. Neither USBA nor JMCG may assign its rights or
----------
obligations under this Agreement without the prior express written consent of
the other party hereto. Any permitted assignee shall assume all obligations of
its assignor under this Agreement.
12. Notices. Any consent, notice or report required or permitted to be
-------
given or made under this Agreement by a party hereto to the other shall be in
writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, U.S. first class mail or courier), U.S. first class mail or
courier, postage prepaid (where applicable), addressed to such other party at
its address indicated below, or to such other address as the addressee shall
have last furnished in writing to the addressor and (except as otherwise
provided in this Agreement) shall be effective upon receipt by the addressee.
If to
JMCG: JMC Group, Inc.
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attention: James K. Mitchell,
Chief Executive Officer
If to USBA: USBA Holdings, Ltd.
2 Concourse Parkway, Suite 650
Atlanta, GA 30328
Attention: Ronald D. Wallace,
President
13. Entire Agreement. This Agreement embodies the entire understanding
----------------
between the parties and supersedes any prior understanding and agreements
between and among them respecting the subject matter hereof. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties hereto relating to the subject matter of this Agreement
which are not fully expressed herein and therein.
14. Waivers and Amendments. No change, modification, extension,
----------------------
termination or waiver of this Agreement, or any of the provisions therein
contained, shall be valid unless made in
6
<PAGE>
writing and signed by duly authorized representatives of the parties thereto.
15. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Georgia, without regard to the
conflicts of law principles thereof.
16. Alternative Dispute Resolution. In the event of any dispute, claim or
------------------------------
controversy which in any way relates to, results from, or arises out of this
Agreement, any amendment or breach hereof or thereof, or any resulting
transactions ("Dispute"), if the Dispute cannot be settled through negotiation,
the parties hereto agree to first try in good faith to settle the Dispute by
mediation under the Commercial Mediation Rules of the American Arbitration
Association, before resorting to arbitration, as mandated below. Regardless of
the outcome of such mediation, each party shall bear its own costs, attorneys'
fees and share of mediation fees.
Thereafter, any remaining Dispute shall be decided by neutral binding
arbitration in accordance with the rules of the American Arbitration Association
and not by court action. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof; provided, however, that
no arbitrator(s) shall be permitted to award punitive damages in such
arbitration proceeding. Regardless of the outcome of such arbitration, each
party shall bear its own costs, attorneys' fees and share of arbitration fees.
17. Severability. This Agreement shall be severable, and the invalidity
------------
or unenforceability of any term or provision of this Agreement shall not affect
the validity or enforceability of this Agreement or of any other term hereof.
18. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement effective as of the date first written above.
USBA HOLDINGS, LTD.
By: /s/ Ronald D. Wallace
-------------------------------
Title: President
-----------------------------
JMC GROUP, INC.
By: /s/ James K. Mitchell
------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
8
<PAGE>
EXHIBIT A
---------
JMCG will provide the JMCG Services to any USBA Customer who enters into an
agreement with JMCG or one of its subsidiaries, which agreement is in form and
substance satisfactory to JMCG. The agreement shall contain certain commitments
from the USBA Customer which will include, without limitation, the following:
. The JMCG Services will receive overt support from senior bank
management;
. The availability of the JMCG Services will be promoted and marketed
actively to bank customers;
. Each bank branch will receive credit for the fee income generated by
its referrals to the JMCG Services;
. Sales of annuities, insurance and mutual fund products by JMCG and its
subsidiaries will be counted in the same manner as actual bank
deposits for purposes of determining branch deposit goals;
. Each bank branch will be assigned an appointment referral goal and the
bank will sponsor a cash incentive program to encourage referrals to
the JMCG Services;
. A senior retail banking officer of the bank will be assigned specific
accountability for the success of the JMCG Services; and
. Bank employees will be adequately informed about the availability and
nature of the JMCG Services and will be properly trained to handle
referrals to the JMCG Services.
The USBA Customer also may be responsible for certain costs and expenses
associated with the JMCG Services.
9
<PAGE>
EXHIBIT B
---------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933 (the "Act"), OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT.
Void after 3:30 p.m., San Diego Time, January 29, 2001
Warrant to Purchase
1,000,000 Shares of
Common Stock
WARRANT TO PURCHASE COMMON STOCK
OF
JMC GROUP, INC.
This is to certify that, FOR VALUE RECEIVED,
USBA HOLDINGS, LTD.
or registered assigns ("Holder") is entitled to purchase, subject to the
provisions of this Warrant, from JMC GROUP, INC., a Delaware corporation
("Company"), at any time on or after January 29, 1997 and not later than 3:30
p.m., San Diego Time, on January 29, 2001, 1,000,000 shares of common stock,
$.01 par value, of the Company ("Common Stock") at an initial purchase price per
share of $2.50. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
may be adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise are hereinafter sometimes referred
to as "Warrant Stock" and the exercise price of a share of Common Stock in
effect at any time is hereinafter sometimes referred to as the "Exercise Price."
1. Acceleration in Exercise and Adjustment in Price. Notwithstanding
------------------------------------------------
anything to the contrary above, (i) if Company shall terminate that certain
Marketing Agreement between Company and Holder dated as of January 29, 1996 (the
"Marketing Agreement") for any reason other than a Change in Control (as that
term is defined in Section 12 of this Warrant) of Holder or for Holder's
complete failure to perform all of its obligations under the Marketing Agreement
as described in Section 1 thereof; (ii) if Company shall enter into a Change in
Control or (iii) if Holder shall terminate the Marketing Agreement for
Company's complete failure to perform all of its obligations under the Marketing
Agreement as described in Section 2 thereof, then Holder shall have the right to
exercise this Warrant immediately upon such termination or the effective date of
such Change in Control of Company, as applicable, at a purchase price per share
equal to $1.4375.
10
<PAGE>
2. Exercise of Warrant. Subject to Section 1 above, this Warrant may be
-------------------
exercised in whole but not in part at any time on or after January 29, 1997, or
if such date is a day on which banking institutions are authorized by law to
close, then on the next succeeding day which shall not be such a day, by
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, with the Notice of Exercise attached hereto as Exhibit A
duly executed and accompanied by payment of the Exercise Price, together with
all federal and state taxes applicable upon such exercise. Upon receipt by the
Company of this Warrant at the office or agency of the Company, in proper form
for exercise, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
3. Reservation of Shares. The Company hereby agrees that at all times
---------------------
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of its Common Stock as shall be required for
issuance or delivery upon exercise of this Warrant.
4. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
4.1 If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average closing bid and asked prices for such
day on such exchange; or
4.2 If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the closing price, or if none,
then the mean of the last reported bid and asked prices reported by the National
Association of Securities Dealers Quotation System (or, if not so quoted on
NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior
to the date of the exercise of this Warrant; or
4.3 If the Common Stock is not so listed or admitted to unlisted
trading privileges and closing, or bid and asked prices are not so reported, the
current value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company,
such determination to be final and binding on the Holder.
5. Loss of Warrant. Upon receipt by the Company of evidence
---------------
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or
11
<PAGE>
destruction) of reasonably satisfactory indemnification including a surety bond,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will execute and deliver a new Warrant of like tenor and date. Any such new
Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company, whether or not this Warrant so lost,
stolen, destroyed, or mutilated shall be at any time enforceable by anyone.
6. Rights of the Holder. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a stockholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in this Warrant and
are not enforceable against the Company except to the extent set forth herein.
7. Anti-Dilution Provisions.
------------------------
7.1 Adjustments of Exercise Price. If the Company should at any
-----------------------------
time or from time to time hereafter issue or sell any shares of Common Stock
(other than Common Stock underlying options existing on the date hereof, Common
Stock underlying options issued in the future to employees, officers and
directors pursuant to the 1993 Employee Stock Option Plan and the 1993 Executive
Stock Option Plan, and common stock underlying outstanding rights issued
pursuant to JMCG's Shareholder Rights Plan, and this Warrant Stock which may be
purchased under this Warrant), without consideration or for a consideration per
share less than the Exercise Price in effect immediately prior to the time of
such issue or sale, then forthwith upon such issue or sale, the Exercise Price
shall be adjusted to a price (computed to the nearest cent) determined by
dividing (i) the sum of (x) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price in
effect immediately prior to such issue or sale, and (y) the consideration, if
any, received by the Company upon such issue or sale, by (ii) the total number
of shares of Common Stock outstanding immediately after such issue or sale. For
purposes of this section 7.1, the following provisions 7.1.1 to 7.1.5 shall also
be applicable:
7.1.1 Options. In case at any time hereafter the Company
-------
shall in any manner grant any right to subscribe for or to purchase, or any
option for the purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such convertible or
exchangeable stock or securities being hereinafter referred to as "Convertible
Securities") other than this Warrant and other than any options or similar
rights issued to officers, directors or employees pursuant to the the 1993
Employee Stock Option Plan and the 1993 Executive Stock Option Plan, and the
minimum price per share for which Common Stock is issuable, pursuant to such
rights or options or upon conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration payable to the Company
upon the exercise of such
12
<PAGE>
rights or options, plus, in the case of such Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable pursuant to such rights or options or upon the conversion
or exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such rights or options) shall be less than the Exercise
Price in effect immediately prior to the time of the granting of such rights or
options, then the total maximum number of shares of Common Stock issuable
pursuant to such rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the exercise of such
rights or options shall (as of the date of granting of such rights or options)
be deemed to be outstanding and to have been issued for said price per share as
so determined; provided, that no further adjustment of the Exercise Price shall
--------
be made upon the actual issuance of Common Stock so deemed to have been issued;
and further provided, that upon the expiration of such rights (including rights
------- --------
to convert or exchange) or options, (a) the number of shares of Common Stock
deemed to have been issued and outstanding by reason of the fact that they were
issuable pursuant to such rights or options (including rights to convert or
exchange) which were not exercised, shall no longer be deemed to be issued and
outstanding, and (b) the Exercise Price shall forthwith be adjusted to the price
which would have prevailed had all adjustments been made on the basis of the
issuance only of the shares of Common Stock actually issued upon the exercise of
such rights or options or upon conversion or exchange of such Convertible
Securities.
7.1.2 Convertible Securities. In case the Company shall in any
manner issue or sell any Convertible Securities, and the minimum price per share
for which Common Stock is issuable upon conversion or exchange of such
Convertible Securities (determined by dividing (i) the total amount received or
receivable by the Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock issuable
upon the conversion or exchange of all such Convertible Securities) shall be
less than the Exercise Price in effect immediately prior to the time of such
issue or sale, then the total maximum number of shares of Common Stock issuable
upon conversion or exchange of all such Convertible Securities shall (as of the
date of the issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for said price per share as so determined;
provided, that no further adjustment of the Exercise Price shall be made upon
- --------
the actual issuance of Common Stock so deemed to have been issued; and, further
-------
provided, that if any such issue or sale of such Convertible Securities is made
- --------
upon exercise of any right to subscribe for or to purchase or any option to
purchase any such Convertible Securities for which an adjustment of the Exercise
Price has been or is to be made pursuant to other provisions of this Section
7.1, no further adjustment of the Exercise Price shall be made by reason of such
issue or sale; and, further
-------
13
<PAGE>
provided, that, upon the termination of the right to convert or to exchange such
- --------
Convertible Securities for Common Stock, (a) the number of shares of Common
Stock deemed to have been issued and outstanding by reason of the fact that they
were issuable upon conversion or exchange of any such Convertible Securities,
which were not so converted or exchanged, shall no longer be deemed to be issued
and outstanding, and (b) the Exercise Price shall forthwith be adjusted to the
price which would have prevailed had all adjustments been made on the basis of
the issuance only of the number of shares of Common Stock actually issued upon
conversion or exchange of such Convertible Securities.
7.1.3 Determination of Issue Price. In case any shares of
----------------------------
Common Stock or Convertible Securities or any rights or options to purchase any
such stock or securities shall be issued for cash, the consideration received
therefor, after deducting therefrom any commission or other expenses paid or
incurred by the Company for any underwriting of, or otherwise in connection
with, the issuance thereof, shall be deemed to be the amount received by the
Company therefor. In case any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such stock or securities shall be
issued for a consideration, part or all of which shall be other than cash, then,
for the purpose of this Section 7.1, the Board of Directors of the Company shall
reasonably determine in good faith the fair value of such consideration,
irrespective of accounting treatment, and such Common Stock, Convertible
Securities, rights or options shall be deemed to have been issued for an amount
of cash equal to the value so determined by the Board of Directors. The
reclassification of securities other than Common Stock into securities including
Common Stock shall be deemed to involve the issuance, for consideration other
than cash, of such Common Stock immediately prior to the close of business on
the date fixed for the determination of security holders entitled to receive
such Common Stock. In case any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such stock or other securities shall be
issued together with other stock or securities or other assets of the Company
for a consideration which includes both, the Board of Directors of the Company
shall determine what part of the consideration so received is to be deemed to be
consideration for the issuance of such shares of such Common Stock, Convertible
Securities, rights or options.
7.1.4 Determination of Date of Issue. In case the Company
------------------------------
shall take a record of the holders of any Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution payable in Common
Stock or in Convertible Securities, or (ii) to subscribe for or purchase Common
Stock or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the share of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
14
<PAGE>
7.1.5 Treasury Share. For the purpose of this Section 7.1,
---------------
shares of Common Stock at any relevant time owned or held by, or for the account
of, the Company shall not be deemed outstanding.
7.2 Adjustment if Change in Number of Outstanding Shares.
----------------------------------------------------
Notwithstanding anything in this Section 7 to the contrary, in case the Company
shall at any time issue Common Stock or Convertible Securities by way of
dividend or other distribution on any stock of the Company or subdivide or
combine the outstanding shares of Common Stock, the Exercise Price shall be
proportionately decreased in the case of such issuance (on the day following the
date fixed for determining stockholders entitled to receive such dividend or
other distribution) or decreased in the case of such subdivision or increased in
the case of such combination (on the date that such subdivision or combination
shall become effective).
7.3 No Adjustment for Small Amounts. Notwithstanding anything in
-------------------------------
this Section 7 to the contrary, the Company shall not be required to give effect
to any adjustment in the Exercise Price unless and until the net effect of one
or more adjustments, determined as above provided, shall have required a change
of the Exercise Price by at least five cents, but when the cumulative net effect
of more than one adjustment so determined shall be to change the actual Exercise
Price by at least five cents, such change in the Exercise Price shall thereupon
be given effect.
7.4 Number of Warrant Shares Adjusted. Upon any adjustment of the
---------------------------------
Exercise Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number of
shares, calculated to the nearest full share, obtained by multiplying the number
of shares of Common Stock initially issuable upon exercise of this Warrant by
the Exercise Price in effect on the date hereof and dividing the product so
obtained by the new Exercise Price.
7.5 Common Stock Defined. Whenever reference is made in this
--------------------
Section 7 to the issue or sale of shares of Common Stock, the term "Common
Stock" shall mean the Common Stock of the Company of the class authorized as of
the date hereof and any other class of stock ranking on a parity with such
Common Stock. However, subject to the provisions of Section 10 hereof, shares
issuable upon exercise hereof shall include only shares of the class designated
as Common Stock of the Company as of the date hereof.
8. Officer's Certificate. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of Section 7 hereof, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office, and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided and setting
forth in reasonable detail the facts requiring such adjustment. Each such
officer's certificate shall be made available at all reasonable times for
inspection by the Holder and the Company shall, forthwith after each such
adjustment, deliver a
15
<PAGE>
copy of such certificate to the Holder. Such certificate shall be conclusive as
to the correctness of such adjustment.
9. Notices to Warrant Holder. So long as this Warrant shall be
-------------------------
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any shares of stock
of any class or any other rights or (iii) if any capital reorganization of the
Company, reclassification of the capital stock of the Company, consolidation or
merger of the Company with or into another corporation, sale, lease or transfer
of all or substantially all of the property and assets of the Company to another
corporation, shall be effected, then, in any such case, the Company shall cause
to be delivered to the Holder, at least ten days prior to the date specified in
(x) or (y) below, as the case may be, a notice containing a brief description of
the proposed action and stating the date on which (x) a record is to be taken
for the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance or lease is
to take place and the date, if any is to be fixed, as of which the holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger or conveyance.
10. Reclassification, Reorganization or Merger. In case of any
------------------------------------------
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), or in the case of any consolidation or merger of
the Company with or into another corporation in which the Company is not the
surviving entity (other than a merger with a subsidiary in which merger the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale or conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety, the Company shall cause
effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization or other change, consolidation, merger,
sale or conveyance. Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Warrant. The foregoing provisions of this Section 10 shall
similarly apply to successive reclassification, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in any such capital reorganization or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution
16
<PAGE>
or payment, in whole or in part, for or of a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of Section 7.1 hereof with the amount of the
consideration received upon the issue thereof being determined by the Board of
Directors of the Company, such determination to be final and binding on the
Holder.
11. Dissolution. If, at any time prior to the expiration of this Warrant
-----------
and prior to the exercise thereof, any dissolution, liquidation or winding up of
the Company shall be proposed, the Company shall cause at least 30 days' notice
to be mailed by certified mail to the registered Holder of this Warrant at its
address as it appears on the books of the Company. Such notice shall specify
the date as of which holders of record of Common Stock shall participate in any
distribution or shall be entitled to exchange their Common Stock for securities
or other property, deliverable upon such dissolution, liquidation or winding up,
as the case may be; to the end that, during such period of 30 days, the Holder
of this Warrant may exercise this Warrant and purchase Common Stock (or other
stock substituted therefor as hereinbefore provided) and be entitled in respect
of shares so purchased to all of the rights of the other holders of Common Stock
of the Company. In case of a dissolution, liquidation or winding up of the
Company, all purchase rights under this Warrant shall terminate at the close of
business on the date as of which holders of record of the Common Stock shall be
entitled to participate in a distribution of the assets of the Company in
connection with such dissolution, liquidation or winding up (provided that in no
event shall said date be less than 30 days after completion of service by
certified mail of notice as aforesaid). If this Warrant is not exercised prior
to such time, it shall be void and no rights shall exist hereunder. In any such
case of termination of purchase rights, a statement thereof shall be included in
the notice provided for herein.
12. Change in Control. A change in control ("Change in Control") shall
-----------------
occur upon any of the following: (i) any consolidation or merger of the Company
or Holder with or into a third party (other than a merger with a subsidiary in
which the party hereto is the continuing corporation and which does not result
in any reclassification, capital reorganization or other change of outstanding
shares of common stock of the class issuable upon exercise of this Warrant);
(ii) any sale or conveyance to a third party of all or substantially all of the
business or assets or property of the Company or Holder; or (iii) in the event
of the acquisition by a third party of twenty-five percent or more of the equity
of the Company or Holder. Notwithstanding the foregoing, a merger of Holder
with OKRA Marketing Corporation shall not constitute a Change in Control of
Holder.
13. Any consent, notice, certificate or report required or permitted to
be given or made under this Warrant by a party hereto to the other shall be in
writing, delivered personally or by facsimile (and promptly confirmed by
personal delivery, U.S. first class mail or courier), U.S. first class mail or
courier, postage
17
<PAGE>
prepaid (where applicable), addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and (except as otherwise provided in this
Warrant) shall be effective upon receipt by the addressee.
If to
Company: JMC Group, Inc.
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attention: James K. Mitchell,
Chief Executive Officer
If to Holder: USBA Holdings, Ltd.
2 Concourse Parkway, Suite 650
Atlanta, GA 30328
Attention: Ronald D. Wallace
President
14. Transfer to Comply With the Securities Act of 1933.
--------------------------------------------------
14.1 This Warrant or the Warrant Stock or any other security issued
or issuable upon exercise of this Warrant may not be offered or sold except in
compliance with the Securities Act of 1933, as amended.
14.2 The Company may cause the following legend to be set forth on
each certificate representing Warrant Stock, unless counsel for the Company is
of the opinion as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an effective registration
statement made under the Securities Act of 1933 (the "Act"), or pursuant to
an exemption from registration under the Act the availability of which is
to be established to the satisfaction of the Company.
15. Applicable Law. This Warrant shall be governed by, and construed in
--------------
accordance with, the laws of the State of Delaware.
JMC GROUP, INC.
By: _________________________________________
USBA HOLDINGS, LTD.
By: _________________________________________
Date: January 29, 1996
18
<PAGE>
EXHIBIT A TO USBA WARRANT
Notice of Exercise
To:
1. The undersigned hereby elects to purchase _________ shares of common
stock of JMC GROUP, INC. pursuant to the terms of the attached Warrant, and
tenders herewith payment in full of the purchase price of such shares.
2. Please issue a certificate or certificates representing such shares in
the name of the undersigned specified below:
USBA Holdings, Ltd.
2 Concourse Parkway, Suite 650
Atlanta, GA 30328
Attention: Ronald D. Wallace
President
3. The undersigned represents that the shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares.
USBA Holdings, Ltd.
By: _________________________________
Its: _________________________________
__________________
(Date)
19
<PAGE>
EXHIBIT C
---------
1. The initial number of Termination Shares is based on the number of
shares of USBA common stock, par value $1.00 per share ("Common Stock"), which
JMCG could purchase as of the date of this Agreement for one million dollars
($1,000,000) at $55 per share (the "Exercise Price"). Prior to the issuance of
the Termination Shares, the number of Termination Shares and the Exercise Price
shall be adjusted according to the following provisions:
2. Anti-Dilution Provisions.
------------------------
2.1 Adjustments of Exercise Price. If USBA should at any time or
-----------------------------
from time to time hereafter issue or sell any shares of Common Stock (other than
Common Stock underlying options existing on the date hereof, Common Stock
underlying options issued in the future to employees, officers and directors
pursuant to the Stock Option Agreement dated November 23, 1993, and the
Termination Shares), without consideration or for a consideration per share less
than the Exercise Price in effect immediately prior to the time of such issue or
sale, then forthwith upon such issue or sale, the Exercise Price shall be
adjusted to a price (computed to the nearest cent) determined by dividing (i)
the sum of (x) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Exercise Price in effect
immediately prior to such issue or sale, and (y) the consideration, if any,
received by USBA upon such issue or sale, by (ii) the total number of shares of
Common Stock outstanding immediately after such issue or sale. For purposes of
this subsection 2.1, the following provisions 2.1.1 to 2.1.5 shall also be
applicable:
2.1.1 Options. In case at any time hereafter USBA shall in any manner
-------
grant any right to subscribe for or to purchase, or any option for the purchase
of, Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such convertible or exchangeable stock or
securities being hereinafter referred to as "Convertible Securities") other than
the Termination Shares and other than any options or similar rights issued to
officers, directors or employees pursuant to the Stock Option Agreement dated
November 23, 1993, and the minimum price per share for which Common Stock is
issuable, pursuant to such rights or options or upon conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by USBA as consideration for the granting of such
rights or options, plus the minimum aggregate amount of additional consideration
payable to USBA upon the exercise of such rights or options, plus, in the case
of such Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable pursuant to such
rights or options or upon the conversion or exchange of the total maximum amount
of such Convertible Securities issuable upon the exercise of such rights or
options) shall be less than the Exercise Price in effect immediately prior to
the time of the granting of such rights or options, then the total maximum
number of shares of Common Stock
20
<PAGE>
issuable pursuant to such rights or options or upon conversion or exchange of
the total maximum amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of granting of such
rights or options) be deemed to be outstanding and to have been issued for such
price per share as so determined; provided, that no further adjustment of the
--------
Exercise Price shall be made upon the actual issuance of Common Stock so deemed
to have been issued; and further provided, that upon the expiration of such
------- --------
rights (including rights to convert or exchange) or options, (a) the number of
shares of Common Stock deemed to have been issued and outstanding by reason of
the fact that they were issuable pursuant to such rights or options (including
rights to convert or exchange) which were not exercised, shall no longer be
deemed to be issued and outstanding, and (b) the Exercise Price shall forthwith
be adjusted to the price which would have prevailed had all adjustments been
made on the basis of the issuance only of the shares of Common Stock actually
issued upon the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities.
2.1.2 Convertible Securities. In case USBA shall in any manner issue
----------------------
or sell any Convertible Securities, and the minimum price per share for which
Common Stock is issuable upon conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount received or receivable
by USBA as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to USBA upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued for
said price per share as so determined; provided, that no further adjustment of
---------
the Exercise Price shall be made upon the actual issuance of Common Stock so
deemed to have been issued; and, further provided, that if any such issue or
------- --------
sale of such Convertible Securities is made upon exercise of any right to
subscribe for or to purchase or any option to purchase any such Convertible
Securities for which an adjustment of the Exercise Price has been or is to be
made pursuant to other provisions of this Section 2.1, no further adjustment of
the Exercise Price shall be made by reason of such issue or sale; and, further
-------
provided, that, upon the termination of the right to convert or to exchange such
- --------
Convertible Securities for Common Stock, (a) the number of shares of Common
Stock deemed to have been issued and outstanding by reason of the fact that they
were issuable upon conversion or exchange of any such Convertible Securities,
which were not so converted or exchanged, shall no longer be deemed to be issued
and outstanding, and (b) the Exercise Price shall forthwith be adjusted to the
price which would have prevailed had all adjustments been made on the basis of
the issuance only of the
21
<PAGE>
number of shares of Common Stock actually issued upon conversion or exchange of
such Convertible Securities.
2.1.3 Determination of Issue Price. In case any shares of Common
----------------------------
Stock or Convertible Securities or any rights or options to purchase any such
stock or securities shall be issued for cash, the consideration received
therefor, after deducting therefrom any commission or other expenses paid or
incurred by USBA for any underwriting of, or otherwise in connection with, the
issuance thereof, shall be deemed to be the amount received by USBA therefor. In
case any shares of Common Stock or Convertible Securities or any rights or
options to purchase any such stock or securities shall be issued for a
consideration, part or all of which shall be other than cash, then, for the
purpose of this Section 2.1, the Board of Directors of USBA shall reasonably
determine in good faith the fair value of such consideration, irrespective of
accounting treatment, and such Common Stock, Convertible Securities, rights or
options shall be deemed to have been issued for an amount of cash equal to the
value so determined by the Board of Directors. The reclassification of
securities other than Common Stock into securities including Common Stock shall
be deemed to involve the issuance, for consideration other than cash, of such
Common Stock immediately prior to the close of business on the date fixed for
the determination of security holders entitled to receive such Common Stock. In
case any shares of Common Stock or Convertible Securities or any rights or
options to purchase any such stock or other securities shall be issued together
with other stock or securities or other assets of USBA for a consideration which
includes both, the Board of Directors of USBA shall determine what part of the
consideration so received is to be deemed to be consideration for the issuance
of such shares of such Common Stock, Convertible Securities, rights or options.
2.1.4 Determination of Date of Issue. In case USBA shall take a
-------------------------------
record of the holders of any Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock or in
Convertible Securities, or (ii) to subscribe for or purchase Common Stock or
Convertible Securities, then such record date shall be deemed to be the date of
the issuance or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
2.1.5 Treasury Share. For the purpose of this Section 2.1, shares of
--------------
Common Stock at any relevant time owned or held by, or for the account of, USBA
shall not be deemed outstanding.
2.2 Adjustment if Change in Number of Outstanding Shares.
----------------------------------------------------
Notwithstanding anything in this Section 2 to the contrary, in case USBA shall
at any time issue Common Stock or Convertible Securities by way of dividend or
other distribution on any stock of USBA or subdivide or combine the outstanding
shares of Common Stock, the Exercise Price shall be proportionately
22
<PAGE>
decreased in the case of such issuance (on the day following the date fixed for
determining shareholders entitled to receive such dividend or other
distribution) or decreased in the case of such subdivision or increased in the
case of such combination (on the date that such subdivision or combination shall
become effective).
2.3 No Adjustment for Small Amounts. Notwithstanding anything in
-------------------------------
this Section 2 to the contrary, USBA shall not be required to give effect to any
adjustment in the Exercise Price unless and until the net effect of one or more
adjustments, determined as above provided, shall have required a change of the
Exercise Price by at least five cents, but when the cumulative net effect of
more than one adjustment so determined shall be to change the actual Exercise
Price by at least five cents, such change in the Exercise Price shall thereupon
be given effect.
2.4 Number of Termination Shares Adjusted. Upon any adjustment of
-------------------------------------
the Exercise Price, JMCG shall thereafter (until another such adjustment) be
entitled to receive upon termination of this Agreement, the number of
Termination Shares, calculated to the nearest full share, obtained by
multiplying the initial number of Termination Shares by the Exercise Price in
effect on the date hereof and dividing the product so obtained by the new
Exercise Price.
2.5 Common Stock Defined. Whenever reference is made in this Section
--------------------
2 to the issue or sale of shares of Common Stock, the term "Common Stock" shall
mean the Common Stock of USBA of the class authorized as of the date hereof and
any other class of stock ranking on a parity with such Common Stock. However,
subject to the provisions of Section 6 hereof, shares issuable upon exercise
hereof shall include only shares of the class designated as Common Stock of USBA
as of the date hereof.
3. Officer's Certificate. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of Section 2 hereof, USBA shall forthwith file in
the custody of its Secretary or an Assistant Secretary at its principal office,
and with its stock transfer agent, if any, an officer's certificate showing the
adjusted Exercise Price determined as herein provided and setting forth in
reasonable detail the facts requiring such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
JMCG and USBA shall, forthwith after each such adjustment, deliver a copy of
such certificate to JMCG. Such certificate shall be conclusive as to the
correctness of such adjustment.
4. Fractional Shares. No fractional shares or scrip representing
-----------------
fractional shares shall be issued pursuant to this Agreement. With respect to
any fraction of a share called for pursuant to the provisions of this Exhibit
"C", USBA shall pay to JMCG an amount in cash equal to such fraction multiplied
by the current market value of such fractional share, determined as follows:
23
<PAGE>
4.1 If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current value
shall be the last reported sale price of the Common Stock on such exchange on
the last business day prior to the date of termination of this Agreement or if
no such sale is made on such day, the average closing bid and asked prices for
such day on such exchange; or
4.2 If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current value shall be the closing price, or if none,
then the mean of the last reported bid and asked prices reported by the National
Association of Securities Dealers Quotation System (or, if not so quoted on
NASDAQ, by the National Quotation Bureau, Inc.) on the last business day prior
to the date of the termination of this Agreement; or
4.3 If the Common Stock is not so listed or admitted to unlisted
trading privileges and closing, or bid and asked prices are not so reported, the
current value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of USBA, such
determination to be final and binding on JMCG.
5. Notices to JMCG. So long as USBA may be obligated to issue the
---------------
Termination Shares (i) if USBA shall pay any dividend or make any distribution
upon the Common Stock or (ii) if USBA shall offer to the holders of Common Stock
for subscription or purchase by them any shares of stock of any class or any
other rights or (iii) if any capital reorganization of USBA, reclassification of
the capital stock of USBA, consolidation or merger of USBA with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of USBA to another corporation, or a spin-off of assets of USBA shall
be effected, then, in any such case, USBA shall cause to be delivered to JMCG,
at least ten days prior to the date specified in (x) or (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, or spin-off is to take place and the
date, if any is to be fixed, as of which the holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, or spin-off.
6. Reclassification, Reorganization or Merger. In case any
------------------------------------------
reclassification, capital reorganization or other change of outstanding shares
of Common Stock (other than a change in par value, or from par value to no par
value, or from no par value to par value, or as a result of an issuance of
Common Stock by way of dividend or other distribution or of a subdivision or
combination), or in the case of any consolidation or merger of USBA with or into
another corporation in which USBA is not the surviving entity (other than a
merger with OKRA Marketing
24
<PAGE>
Corporation in which USBA survives or a merger with a subsidiary in which merger
USBA is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of JMCG's right to the
Termination Shares) or in case of any sale or conveyance to another corporation
of the property of USBA as an entirety or substantially as an entirety, USBA
shall cause effective provision to be made so that JMCG shall have the right
thereafter, by exercising its right to the Termination Shares, to purchase the
kind and amount of shares of stock and other securities and property receivable
upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Exhibit "C". The foregoing
provisions of this Section 6 shall similarly apply to successive
reclassification, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in any such capital reorganization or reclassification, consolidation,
merger, sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for or of a
security of USBA other than Common Stock, any such issue shall be treated as an
issue of Common Stock covered by the provisions of subsection 2.1 hereof with
the amount of the consideration received upon the issue thereof being determined
by the Board of Directors of USBA, such determination to be final and binding on
JMCG.
7. Spin-Offs. In the event USBA spins-off a subsidiary by distributing
---------
to the shareholders of USBA as a dividend or otherwise the stock of the
subsidiary, USBA shall reserve, for the life of the Marketing Agreement, shares
of the subsidiary to be delivered to JMCG to the same extent as if JMCG were an
owner of record of the Termination Shares on the record date for payment of the
shares of the subsidiary.
8. Transfer to Comply With the Securities Act of 1933.
--------------------------------------------------
8.1 The Termination Shares may not be offered or sold except in
compliance with the Securities Act of 1933, as amended.
8.2 USBA may cause the following legend to be set forth on each
certificate representing Termination Shares, unless counsel for USBA is of the
opinion as to any such certificate that such legend is unnecessary:
The securities represented by this certificate may not be offered for sale,
sold or otherwise transferred except pursuant to an effective registration
statement made under the Securities Act of 1933 (the "Act"), or pursuant to
an exemption from registration under the Act the availability of which is
to be established to the satisfaction of USBA.
25
<PAGE>
EXHIBIT 10.13
INTEGRATED SUPPORT SERVICES AGREEMENT
This Integrated Support Services Agreement (this "Agreement") is entered into
this 31st day of January, 1996, by and among JMC Group, Inc., a Delaware
corporation, James Mitchell & Co., a California corporation, and its
subsidiaries JMC Insurance Services Corporation and JMC Financial Corporation,
each California corporations, and First Tennessee Bank National Association
("FTB"), in its own capacity and as trustee under the Trust Agreement, dated
August 31, 1988, as amended from time to time, by and between James Mitchell &
Co., as trustor and FTB, as trustee of the trust thereby established and First
Tennessee Brokerage, Inc., a Tennessee corporation ("FTBR").
RECITALS
A. In August, 1988, James Mitchell & Co. and FTB entered into a
Services Agreement pursuant to which James Mitchell & Co. and its subsidiaries
agreed to provide certain services to FTB, in its own capacity and as trustee,
and to the Trust (as hereinafter defined).
B. In January, 1994, FTB, James Mitchell & Co. and certain of its
affiliates entered into a series of agreements which expanded the nature of the
parties relationship with each other and restated the terms of the original
Services Agreement.
C. FTB and James Mitchell & Co. and its affiliates have agreed to
terminate the Existing Agreements (as hereinafter defined) pursuant to the
Termination Agreement (as hereinafter defined), dated the date hereof, and enter
into a new arrangement whereby JMC (as hereinafter defined) will provide support
services for FTB's and FTBR's internal annuity and mutual fund sales programs
pursuant to this Agreement. FTB, FTBR and JMCG (as hereinafter defined) have
previously manifested their intent to terminate the Existing Agreements and
enter into the new arrangement by execution and delivery of that certain letter
of understanding, dated December 8, 1995.
AGREEMENT
In consideration of the foregoing, the mutual covenants and undertakings herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1
<PAGE>
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall have the following meanings.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings assigned to those terms in the Termination Agreement.
1.1 "Accumulated Value," as of any month-end, means the total of all amounts
deposited by Participants in the Trust as of that date, plus all accumulated
investment yield thereon less any amounts withdrawn by Participants prior to
that date. Such yields and amounts shall be determined by each Product Provider
in good faith in accordance with the normal accounting practices of such Product
Providers and shall be recorded by JMC.
1.2 "Action(s)" means any and all actions, suits or proceedings.
1.3 "Active Account(s)" means either: (i) for mutual funds, any unique account
registration maintained under a separate Social Security number by a Product
Provider which has a positive share balance at the end of any month; or (ii) for
annuities or insurance, any individual primary policies, excluding those
policies issued for the sole purpose of making an added payment to a previously
issued policy, which has an outstanding premium balance at the end of the month
or was in an active payout phase during the month.
1.4 "Asset Fee Purchase Price" shall have the meaning assigned to that term in
SECTION 5.2 hereof.
1.5 "Change of Control" means (i) any direct or indirect change of more than
40% of the equity ownership of JMC Group, Inc. or JMC (ii) any merger, business
combination or sale of all or substantially all of the assets of or liquidation
of JMC Group, Inc. or JMC or any similar transaction in which the stockholders
of JMC Group, Inc. or JMC, as the case may be, immediately prior to the
transaction do not continue to represent more than 50% of the stockholders of
JMC Group, Inc. or JMC, as the case may be, or its successor after the
transaction, or (iii) any material change in the senior management of JMC Group,
Inc. or JMC which shall include the resignation or termination of the Chief
Executive or Chief Operating Officer thereof.
1.6 "Change of Law" shall have the meaning assigned to that term in SECTION
16.2.3 hereof.
1.7 "Chargeback" shall have the meaning assigned to that term in SECTION 4.7
hereof.
1.8 "Claim(s)" shall have the meaning assigned to that term in SECTION 12.1.1.1
hereof.
1.9 "Clearing Agreement" means that certain Clearing Agreement, dated the date
hereof, by and between JMC Financial Corporation and FTBR.
2
<PAGE>
1.10 "Competing Financial Institution" shall have the meaning assigned to that
term in SECTION 10.1.1 hereof.
1.11 "Contract Term" shall have the meaning assigned to that term in ARTICLE XV
hereof.
1.12 "Conversion Notice" shall have the meaning assigned to that term in
SECTION 17.8.1 hereof.
1.13 "Current Annuity Block" means the block of business consisting of
insurance and annuity policies sold by JMC or Priority to FTB customers from the
inception of the annuity sales program at FTB in August 1988 through the
Termination Date, together with any and all additional premiums added to such
policies after the Termination Date, which policies are still in force.
1.14 "Current Block" means the block of business consisting of the Current
Annuity Block and the Current Mutual Fund Block.
1.15 "Current Block Annuity Product(s)" means any insurance or annuity policy
which is part of the Current Block. A list of the Current Block Annuity
Products is attached to the Termination Agreement as EXHIBIT A.
1.16 "Current Block Product Provider(s)" means any Product Provider whose
product is a Current Block Annuity Product.
1.17 "Current Mutual Fund Block" means the block of business consisting of all
mutual fund shares sold by Priority to FTB customers from the inception of the
mutual fund sales program at FTB in February 1994 through the Termination Date,
which shares are still outstanding.
1.18 "Customer(s)" shall have the meaning assigned to that term in the Clearing
Agreement.
1.19 "Customer Account(s)" shall have the meaning assigned to that term in the
Clearing Agreement.
1.20 "Customer Complaint(s)" means any complaint (whether written or oral)
received by JMC, any of its subsidiaries or affiliates, or by any officer,
director, agent or employee of any of them or by FTB, any of its subsidiaries or
affiliates, or by any officer, director, agent or employee of any of them from
any person (including state and governmental agencies, departments, divisions or
offices or self-regulatory organizations) with respect to: (i) annuity,
insurance or mutual fund sales or servicing made or provided by JMC or Priority
personnel prior to the Termination Date; (ii) servicing of annuity, insurance
and mutual fund products provided by JMC personnel after the Termination Date
pursuant to this Agreement or the Clearing Agreement; or (iii) the FTB Program.
1.21 "Default" shall mean the occurrence of any one or more of the events
listed in ARTICLE XIV hereof.
3
<PAGE>
1.22 "Definitive Agreements" means this Agreement, the Termination Agreement
and the Clearing Agreement
1.23 "Designated Person" shall have the meaning assigned to that term in
ARTICLE XIII hereof.
1.24 "Dispute" shall have the meaning assigned to that term in SECTION 18.8.1
hereof.
1.25 "Documentation Guidelines" means the written guidelines prepared by JMC,
FTB and FTBR after consultation with the Product Providers regarding the
documentation which will be required for JMC to process sales of a particular
JMC ISS Product or additions to the Current Annuity Block pursuant to this
Agreement and the Clearing Agreement.
1.26 "Exclusive Territory" shall have the meaning assigned to that term in
SECTION 10.1.1 hereof.
1.27 "Exception Product Provider(s)" means any Product Provider who cannot meet
the Industry Guidelines.
1.28 "Existing Agreements" means the License Agreement, the Services Agreement,
the Mutual Fund Agreement and the Option Agreement.
1.29 "FTBR" means First Tennessee Brokerage, Inc., a Tennessee corporation and
registered broker/dealer and member NASD.
1.30 "FTB" means First Tennessee Bank National Association, a federally-
chartered national bank.
1.31 "FTB Business" means all mutual fund and annuity sales (other than sales
of JMC ISS Products and Current Annuity Block Products) made by FTB Employees,
which FTB or its affiliates, in its sole discretion, subject to SECTION 2.1.2
hereof, requests that JMC process pursuant to this Agreement.
1.32 "FTB Contact" means the single individual identified by FTB or FTBR from
time to time who will handle the resolution of documentation issues as described
in SECTION 3.2.1 hereof.
1.33 "FTB Employees" means all employees and agents of FTB and FTBR or any of
their affiliates, but does not include any employees of FTB's Bond Division.
1.34 "FTB Information" has the meaning assigned to that term in SECTION 8.3
hereof.
1.35 "FTB Parties" means FTB, its subsidiaries (including FTBR), affiliates,
successors and assigns and their respective partners, shareholders, directors,
officers, employees and agents.
4
<PAGE>
1.36 "FTB Program" means the internal mutual fund and annuity sales programs of
FTB or its affiliates (including the Platform Program) which target customers
with investable assets of less than $250,000, but does not include any sales
program of FTB's Bond Division.
1.37 "Industry Guidelines" shall have the meaning assigned to that term in
SECTION 2.3.2.1 hereof.
1.38 "Industry Product Provider(s)" means any Product Provider who has
represented in writing their ability and willingness to meet the Industry
Guidelines.
1.39 "Initial Term" shall have the meaning assigned to that term in ARTICLE XV
hereof.
1.40 "Integrated Support Services" means the services provided to FTB by JMC
pursuant to this Agreement.
1.41 "ISS Block" means the block of business consisting of JMC ISS Products
sold by FTB Employees. The ISS Block shall not include add-on sales of Current
Annuity Block Products which are part of the Current Annuity Block.
1.42 "JMC" means James Mitchell & Co. and the Subsidiaries.
1.43 "JMC Annuity Product(s)" means any JMC ISS Product or any Current Block
Annuity Product.
1.44 "JMC Annuity Product Provider(s)" means any Product Provider whose product
is a JMC Annuity Product.
1.45 "JMC Business" means all sales of JMC ISS Products and Current Annuity
Block Products by FTB Employees.
1.46 "JMC Financial" means JMC Financial Corporation, a California corporation
and registered broker/dealer and member NASD.
1.47 "JMC Information" has the meaning assigned to that term in SECTION 11.2
hereof.
1.48 "JMC Insurance" means JMC Insurance Services Corporation, a California
corporation and licensed insurance agency.
1.49 "JMC ISS Product(s)" means any annuity or insurance product which JMC
recommends to FTB or FTBR for use in the FTB Program in accordance with SECTION
2.3.1 hereof and which FTB or FTBR decides to offer and sell to its customers,
including any Current Block Annuity Product which JMC recommends to FTB or FTBR
and which FTB or FTBR decides to offer for initial (as opposed to add-on) sales
in the FTB Program.
5
<PAGE>
1.50 "JMC ISS Product Provider(s)" means any Product Provider whose product is
a JMC ISS Product.
1.51 "JMC Parties" means JMC, its subsidiaries, affiliates, successors and
assigns and their respective partners, shareholders, directors, officers,
employees and agents.
1.52 "JMC Product Provider(s)" means any Product Provider whose product is part
of the Current Block or the ISS Block.
1.53 "JMC-Processed Business" means the JMC Business and the FTB Business.
1.54 "JMCG" means JMC Group, Inc., James Mitchell & Co. and Priority.
1.55 "Letter of Understanding" means that certain letter of understanding,
dated December 8, 1995, by and among JMCG and FTB.
1.56 "License Agreement" means that certain Service Mark License Agreement,
dated January 28, 1994, by and among JMCG and FTB.
1.57 "Mutual Fund Agreement" means that certain Mutual Fund Sales Agreement and
Mutual Fund Sales Agreement Supplement No. 1, each dated January 28, 1994, by
and among JMCG and FTB.
1.58 "NASD" means the National Association of Securities Dealers, Inc.
1.59 "OCC" means the United States Office of the Comptroller of Currency.
1.60 "Option Agreement" means that certain Option Agreement, dated January 28,
1994, by and among JMCG and FTB.
1.61 "Participant(s)" has the meaning assigned to that term in the Trust
Agreement.
1.62 "Performance Standards" means the performance standards set forth on
EXHIBIT A attached hereto.
1.63 "Proceeding(s)" means any cease and desist order, written agreement,
undertaking or memorandum of understanding with, or other order or supervisory
letter from, any Regulator.
1.64 "Product Provider(s)" means the company underwriting or distributing any
insurance, annuity or mutual fund product.
1.65 "Publicity" shall have the meaning assigned to that term in ARTICLE XIII
hereof.
1.66 "Regulator(s)" means the NASD or other regulatory authority having
jurisdiction over the activities of any party hereto.
6
<PAGE>
1.67 "SEC" means the United States Securities and Exchange Commission.
1.68 "Services Agreement" means that certain Services Agreement and Services
Agreement Supplement No. 1, each dated January 28, 1994, by and among JMCG and
FTB.
1.69 "Set-Up Fees" shall have the meaning assigned to that term in SECTION
4.2.1.1 hereof.
1.70 "Significant Competitor" shall have the meaning assigned to that term in
SECTION 9.2 hereof.
1.71 "Solicitations" shall have the meaning assigned to that term in ARTICLE
XIII hereof.
1.72 "Subsidiaries" means JMC Financial and JMC Insurance.
1.73 "Termination Agreement" means that certain Termination and Transition
Agreement, dated the date hereof, by and among JMCG and FTB.
1.74 "Termination Date" means the effective date of termination of the Existing
Agreements as provided in the Termination Agreement.
1.75 "Total Initial Value" shall have the meaning assigned to that term in
SECTION 4.2.1.1 hereof.
1.76 "Trail Commissions" means all trail commissions payable by JMC Product
Providers, including, without limitation, asset and renewal fees and 12b-1 fees.
1.77 "Transaction Fees" shall have the meaning assigned to that term in SECTION
4.1 hereof.
1.78 "Transition Period" means the period commencing December 8, 1995 and
ending on the Termination Date.
1.79 "Trust" means the trust established by the Trust Agreement.
1.80 "Trust Assets" shall have the meaning assigned to that term in the Trust
Agreement.
1.81 "Trust Agreement" means that certain Trust Agreement, dated August 31,
1988, as amended from time to time, by and between James Mitchell & Co. and FTB.
1.82 "Trustee" means FTB in its capacity as trustee of the Trust.
1.83 "Trustor" means James Mitchell & Co. in its capacity as trustor of the
Trust.
7
<PAGE>
ARTICLE II
INTEGRATED SUPPORT SERVICES
2.1 INTEGRATED SUPPORT SERVICES.
----------------------------
2.1.1 JMC will provide the following services to the FTB Program during the
Contract Term:
2.1.1.1 New Business Processing and Revenue Accounting. Processing
-----------------------------------------------
of all JMC Business and all FTB Business. Such processing shall
include revenue accounting for the JMC Business and the FTB Business,
other than revenue accounting for the Current Mutual Fund Block which
accounting is FTBR's responsibility as provided in SECTION 4.3 hereof.
Notwithstanding the foregoing, as regards The Life of Virginia
flexible premium variable deferred annuity sold by JMC and its
affiliates to FTB's customers as the Taxavers Flexible Annuity, JMC
will accept for processing only unsolicited add-ons.
2.1.1.2 Customer Service. Handling customer service requests for
-----------------
the Current Block and for customers of the JMC-Processed Business.
2.1.2 FTB and FTBR may elect to have JMC process and service some but not
all of the business FTB and its affiliates conduct with a particular
Product Provider (other than a JMC ISS Product Provider or a Current
Annuity Block Product Provider). In such circumstance, it shall be FTB's
and FTBR's sole and exclusive responsibility to ensure that such business
is conducted in a manner that segregates it from the JMC-Processed Business
and JMC shall have no responsibility for processing or servicing such
business. In the event FTB and FTBR are unable to successfully segregate
the business, FTB and FTBR shall use their best efforts to remedy the
situation, but such failure shall not constitute an Default by FTB or FTBR
hereunder.
2.1.3 All mutual fund and variable annuity sales processed hereunder shall
be processed in accordance with the terms of the Clearing Agreement.
2.1.4 The Integrated Support Services shall be provided by JMC from its
central operations center in San Diego, California.
2.2 PERFORMANCE STANDARDS.
----------------------
2.2.1 JMC shall use its best efforts to comply with the Performance
Standards for all JMC ISS Product Providers and any other Product Providers
which contractually agree in writing to abide by the Performance Standards.
2.2.2 With respect to any Product Provider which does not contractually
agree to abide by the Performance Standards, JMC will use reasonable
efforts to comply with the Performance Standards.
8
<PAGE>
2.2.3 Compliance with the Performance Standards shall be measured from the
time JMC receives documentation which is complete and legible and meets the
Documentation Guidelines.
2.3 PRODUCTS.
---------
2.3.1 Product Selection. Subject to SECTION 2.3.2 hereof, FTB and FTBR
------------------
shall determine, in their sole discretion, which annuity and mutual fund
products will be offered and sold through the FTB Program. JMC shall be
entitled to present annuity and insurance products for consideration by FTB
and FTBR and such products will be included in the FTB Program based upon
product benefits and customer acceptability in the sole discretion of FTB
and FTBR.
2.3.2 Product Providers.
------------------
2.3.2.1 In order to permit JMC to effectively and efficiently
provide the Integrated Support Services for the consideration outlined
herein, FTB and FTBR will use their best efforts to select Product
Providers which meet the following industry guidelines for the
products selected (the "Industry Guidelines"):
2.3.2.1.1 Capable of instant issue or "app-less" processing.
2.3.2.1.2 Willing to accept contractual changes and surrender
requests at JMC's direction without signed forms or to accept
JMC's universal forms.
2.3.2.1.3 Able and willing to commit to process any complete
request within 72 hours.
2.3.2.1.4 Able and willing to accept account and transaction
data electronically (preferred).
2.3.2.1.5 Permit net commission processing.
2.3.2.1.6 Provide remote account data access and monthly account
value files.
2.3.2.1.7. Have an established service group dedicated to the
bank distribution channels.
2.3.2.2 In the event FTB or FTBR desires to utilize an Exception
Product Provider, JMC will provide the Integrated Support Services for
such Product Provider for the Transaction Fees outlined in SECTION 4.1
hereof if it can perform the Integrated Support Services without
increased cost to JMC. If FTB or FTBR selects an Exception Product
Provider and, JMC experiences increased cost as a result of such
Exception Product Providers inability or unwillingness to meet the
Industry Guidelines, JMC will have the option to increase the fees for
the business processing and/or customer servicing of that Exception
Product Provider's product(s). In such a circumstance, JMC will
notify FTB or FTBR, as the case may be, of the amount of any increased
charges to FTB or FTBR and will provide
9
<PAGE>
documentation supporting such increases. Any increase in the fees will
be proportional to the increased efforts required by JMC. Beginning
thirty (30) days after JMC's notice, FTB or FTBR shall pay the
increased fees on business processed and accounts serviced for such
Exception Product Provider unless FTB or FTBR, as the case may be, has
provided JMC with prior written notice of its intention not to utilize
the Exception Product Provider in light of such increased charges or
the Exception Product Provider has altered its operations in a manner
which permits JMC to perform the Integrated Support Services without
increased cost to JMC.
2.3.2.3 Within 15 business days after submitting the name of a
Product Provider to JMC in writing, JMC shall notify FTB or FTBR, as
the case may be, whether the Product Provider is an Industry Product
Provider or an Exception Product Provider. If the Product Provider is
an Exception Product Provider, JMC shall provide with such notice, its
best estimate of the increased cost, if any to JMC for performing the
Integrated Support Services. Notwithstanding the foregoing, if at any
time JMC is unable to perform the Integrated Support Services for any
Exception Product Provider without increased cost to it, then JMC will
notify FTB or FTBR, as the case may be, and the foregoing provisions
hereof shall apply.
2.3.2.4 Until December 31, 1996, JMC shall provide the Integrated
Support Services for the Provider Companies listed on Exhibit B hereto
for the Transaction Fees.
2.3.2.5 All JMC ISS Product Providers shall be Industry Product
Providers.
2.3.3 Appointments. In the event FTB or FTBR, as the case may be, elects
------------
to offer a JMC ISS Product, JMC will facilitate the appointment of FTB
Employees with JMC ISS Product Providers. Prior to such appointment, it
shall be FTB's and FTBR's responsibility to ensure that such sales
personnel are properly licensed and trained. JMC will also facilitate the
appointment of FTB Employees with Current Annuity Block Product Providers
for purposes of add-on sales only.
2.4 SURRENDERS AND RESCISSIONS. JMC shall promptly process all surrender
---------------------------
requests in accordance with the Performance Standards. In the event FTBR
notifies JMC of the necessity to cancel any mutual fund transaction before the
settlement date or to rescind a variable annuity transaction, JMC shall process
such a request no later than the end of the business day following notification
by FTBR. Such notification shall take the form of a telephone call confirmed by
facsimile. In the event FTBR notifies JMC of the necessity to rescind or cancel
a mutual fund or variable annuity transaction less than one hour prior to the
close of the securities market on the settlement date, JMC will use its best
efforts to accomplish the rescission or cancellation. If as a result of a
cancellation or rescission, a Product Provider charges JMC for any market loss,
FTBR or FTB shall promptly reimburse JMC for such market loss.
10
<PAGE>
2.5 RECORDKEEPING AGENT FOR THE TRUST. JMC shall maintain on behalf of
----------------------------------
Trustee, a list of all Participants together with the Participant's last known
address and a list of all Trust Assets held by Trustee for the benefit of such
Participants and shall prepare any tax-reporting documents for the Trust.
2.6 CUSTOMER ACCOUNT INFORMATION. With respect to customer account
-----------------------------
information, JMC will provide FTBR with tapes containing customer account
information on a monthly basis. In addition, JMC will have the ability to
provide mutual fund customers who call the central operations center with the
most recent share balance and account value information, if any, which is
available through networking with the mutual fund Product Provider.
2.7 REPORTS. JMC will provide FTBR with various monthly reports as may from
--------
time to time be agreed upon by JMC and FTBR. Such reports shall include
information concerning JMC's performance as measured against the Performance
Standards, sales production for the FTB Program and individual FTB Employees,
revenue accounting and surrenders. In addition, JMC will notify FTBR promptly
of the results of any audit by any Regulator. JMC will also provide FTBR with
copies of any deficiency letter or other correspondence received from any
Regulator which is related to JMC's business with FTB or FTBR.
2.8 COMPLIANCE WITH LAWS. JMC shall comply with all rules and regulations of
---------------------
the NASD, the SEC and any other Regulator which are applicable to the Integrated
Support Services provided to the FTB Program under the Definitive Agreements.
JMC shall cooperate with FTB's and FTBR's efforts to comply with all applicable
rules and regulations of the OCC, the NASD, the SEC and any other Regulator
which are applicable to the FTB Program.
ARTICLE III
FTB RESPONSIBILITIES
3.1 RESPONSIBILITY FOR THE FTB PROGRAM.
-----------------------------------
3.1.1 General. During the Contract Term, FTB and FTBR shall have sole
--------
responsibility (including financial responsibility) for all sales, sales
management and compliance aspects of the FTB Program, including, without
limitation, the following:
3.1.1.2 Supervision, management and compensation of the annuity,
insurance and mutual fund sales force.
3.1.1.3 All appointment setting, tracking and reporting.
3.1.1.4 All sales support, including product training, promotions,
marketing materials and sales personnel inquiries.
3.1.1.5 All FTB Employee commission accounting.
11
<PAGE>
3.1.2 Compliance. Without limiting the generality of the foregoing, FTB
-----------
and FTBR alone shall be responsible for performing all compliance functions
for the FTB Program, including, without limitation, acceptance of accounts
and approval of transactions, sales supervision and sales personnel
licensing, registration and training. This shall include, without
limitation, the preparation of all necessary new account and customer
disclosure forms to be used in the FTB Program.
3.1.3 Licensing and Appointment.
--------------------------
3.1.3.1 FTB or FTBR, as the case may be, shall provide JMC with a
list of the names of each FTB Employee whose sales will be processed
by JMC under this Agreement. This list shall be updated as necessary
to ensure its accuracy at all times. The list shall contain the
following information:
3.1.3.1.1 The states in which each FTB Employee is licensed to
sell annuity, insurance and mutual fund products;
3.1.3.1.2 The FTB Employee's agent number with each Product
Provider; and
3.1.3.1.3 The FTB Employee's identification number with FTB or
FTBR, as the case may be.
JMC shall rely on this list when processing sales transactions and,
other than consulting the list to ensure that the list indicates that the
FTB Employee is appropriately licensed, JMC will not verify any FTB
Employee's authority to make any sale JMC processes.
3.1.3.2 Without limiting the generality of the foregoing, FTB and FTBR
shall be responsible for the appointment of all FTB Employees with all
Product Providers (other than JMC ISS Product Providers and Current Annuity
Block Product Providers).
3.2 RESPONSIBILITY FOR JMC-PROCESSED BUSINESS. During the Contract Term, FTB
------------------------------------------
and FTBR shall be responsible for the following relative to the processing of
annuity and mutual fund transactions by JMC pursuant to this Agreement:
3.2.1 Documentation. FTB Employees will be responsible for providing JMC
--------------
with complete and accurate documentation of a sale which meets the
Documentation Guidelines. In the event any documentation is incomplete,
illegible or does not comply with the Documentation Guidelines or in the
event JMC or its employees have any questions concerning the processing of
annuity or mutual fund business submitted to them, JMC shall contact the
FTB Contact no later than the end of the next business day after receipt of
the documentation. FTB and FTBR will provide JMC with an FTB Contact who
will resolve any problems or questions which arise directly with FTB
12
<PAGE>
Employees no later than the end of the next business day. JMC will use its
best efforts to resolve any discrepancy in documentation over the
telephone; however, documentation which cannot be corrected over the
telephone will be returned immediately to the FTB Contact via facsimile or
in any manner reasonably requested by the FTB Contact at FTB's or FTBR's
expense. Under no circumstances will JMC be responsible for contacting FTB
Employees directly. At its option, JMC may not process any sale until
legible and complete documentation which satisfies the Documentation
Guidelines has been provided by FTB or FTBR to JMC.
3.2.2 Completed Applications. Upon receipt from JMC of an Application
-----------------------
Delivery List Report, FTB or FTBR, as the case may be, shall promptly
forward all completed applications to the Product Providers.
3.3 DUTIES AS TRUSTEE. FTB, in its capacity as Trustee, shall carry out its
------------------
duties as set forth in the Trust Agreement.
3.4 COMPLIANCE WITH LAWS.
---------------------
3.4.1 FTB and FTBR shall comply with all rules and regulations of the OCC,
the SEC and the NASD and any other Regulator which are applicable to the
FTB Program and Trust. In addition, FTB and FTBR shall cooperate with JMC
in JMC's efforts to comply with all applicable rules and regulations of the
NASD, the SEC and any other Regulator.
3.4.2 FTB shall establish and maintain a Statement of Policy as required
by the Interagency Statement on Retail Sales of Nondeposit Investment
Products, dated February 15, 1994, and shall provide a copy of such
Statement of Policy to JMC.
ARTICLE IV
FEES AND OTHER COMPENSATION
4.1 TRANSACTIONS FEES. During the Contract Term, FTB or FTBR, as the case
------------------
may be, will pay JMC the following transaction fees (the "Transaction
Fees") on a monthly basis; provided, however, that regardless of
------------------
transaction volume, FTB or FTBR, as the case may be, shall pay JMC minimum
monthly Transaction Fees of $25,000.
4.1.1 $22 per annuity or insurance deposit or mutual fund order
processed during the month. There will be no charge for the
processing of surrenders, redemptions, or exchanges and after the
initial investment, there will be no charge for processing additional
investments which are part of a systematic investment program offered
by a Product Provider. In addition, annual investments of less than
$5,000 into existing individual retirement accounts (excluding
rollovers and transfers) will be invoiced at $11 per transaction.
Add-on payments of less than $500 to existing mutual fund accounts
will be invoiced at $11.00 per order;
13
<PAGE>
provided, however, that if the number of such orders exceed 20 per
--------- --------
month, the fee shall be $22 per transaction thereafter.
4.1.2 $2.08 per month for each Active Account which JMC is servicing
at the end of the month.
4.1.3 JMC will provide FTBR with an invoice for the Transaction Fees
incurred in the previous month no later than the tenth (10th) day of
the following month. Such invoices shall be promptly paid by FTB or
FTBR, as the case may be. All invoices will be accompanied by
information, in form and substance satisfactory to FTBR concerning
accounts opened and closed during the preceding month and active
accounts as of the end of such month.
4.1.4 FTBR shall examine promptly all invoices for Integrated Support
Services and any other reports provided by JMC to FTBR. Any notice of
error shall be accompanied by such documentation as may be necessary
to substantiate FTBR's claimed error. JMC shall promptly investigate
any such claimed error and advise FTBR accordingly.
4.2 TRUST FEES.
-----------
4.2.1 Set-Up Fees. JMC shall pay Trustee Set-Up Fees (as hereinafter
------------
defined) in respect of all additional premiums deposited by existing
Participants into existing Trust accounts with the Trust after the
Termination Date. The Set-Up Fees shall be paid monthly within 10 days
after the month in which the addition to the Participant's account takes
place.
4.2.1.1 Subject to SECTION 4.2.1.2 hereof, the "Set-Up Fee" shall
be 6% of the initial value of additional Trust Assets deposited by any
existing Participant into his or her existing Trust account after the
Termination Date. The monthly payment shall be computed by adding the
initial values of any additional deposits made by existing
Participants into existing Trust accounts during the month (the "Total
Initial Value") and multiplying that amount by 6%.
4.2.1.2 In the event a Participant withdraws assets from his or her
Trust account during the first 12 months after any additional deposit
into his or her Trust account, an adjustment will be made to the Set-
Up Fee payable in the subsequent month. For purposes of calculating
such adjustment, the Total Initial Value for the subsequent month
shall be reduced by (a) one hundred percent (100%) of any amount (in
excess of investment yield on the initial value) withdrawn during the
preceding month from Participants' Trust accounts if such withdrawals
occurred during the first six months after the addition to such Trust
accounts and (b) fifty percent (50%) of any amount (in excess of the
investment yield on the initial value) withdrawn during the preceding
month from the
14
<PAGE>
Participants' Trust accounts if such withdrawals occurred after the
sixth but prior to the end of the twelfth month after the addition to
such Trust accounts.
4.2.2 Asset Fees. JMC shall pay Trustee an Asset Fee (as hereinafter
-----------
defined) based on the Accumulated Value of Trust Assets. The Asset Fee
shall be paid monthly within 45 days after the end of each month in which
the Asset Fees are earned. The "Asset Fee" shall be .22% (22 basis points)
for any month ending on or prior to December 31, 1996 and .15% (15 basis
points) thereafter. The monthly payment shall be computed by adding the
Accumulated Value of all Trust Assets at the beginning and end of each
month and dividing this sum by two to obtain the average Accumulated Value
for the month. Such average Accumulated Value shall then be multiplied by
.22% (on or prior to December 31, 1996) or .15% (after December 31, 1996),
as the case may be, with the product divided by twelve.
4.3 CURRENT MUTUAL FUND BLOCK 12B-1 FEES. JMC will be entitled to receive
-------------------------------------
fifty percent (50%) of all Trail Commissions paid by Product Providers in
respect of the Current Mutual Fund Block. Notwithstanding the foregoing, JMC's
share of the Trail Commissions paid on the Current Block of First Funds shall be
12.5 basis points. FTBR shall pay JMC its share of the Trail Commissions paid
by Product Providers in respect of the Current Mutual Fund Block within 10 days
after the end of the quarter in which such Trail Commissions are actually
received by FTBR. Such payment shall be accompanied by documentation, in form
and substance satisfactory to JMC, supporting the amount of such payment.
4.4 FTBR FRONT COMMISSIONS ON JMC ISS PRODUCTS. With respect to all FTBR sales
-------------------------------------------
of JMC ISS Products, JMC shall pay FTBR the front commissions paid by JMC ISS
Product Providers under an integrated support services program for sales of JMC
ISS Products thorough the FTBR Program. JMC shall remit such commissions to
FTBR within 10 days after the end of the month in which such commissions are
actually received by JMC.
4.5 FTBR TRAIL COMMISSIONS ON JMC ISS PRODUCTS. JMC shall pay FTBR fifty
-------------------------------------------
percent (50%) of all Trail Commissions paid by JMC ISS Product Providers in
respect of JMC ISS Products. Such Trail Commissions shall be paid to FTBR on a
monthly basis within 10 days after the end of the month in which such Trail
Commissions are actually received by JMC.
4.6 OUT-OF-POCKET EXPENSES. During the Contract Term, FTB or FTBR shall,
-----------------------
promptly upon presentation to FTBR, reimburse JMC for:
4.6.1 Telephone Invoices. The actual amount of all telephone invoices
-------------------
received by JMC in respect of 800 numbers exclusively dedicated to JMC's
provision of the Integrated Support Services pursuant to this Agreement;
and
4.6.2 Other Expenses. Any other out-of-pocket expenses incurred by JMC at
---------------
FTB's or FTBR's request pursuant to SECTION 3.2.1 hereof.
15
<PAGE>
4.7 CHARGEBACKS. In the event that any customer surrenders a JMC ISS Product
------------
or a Current Annuity Block Product during the chargeback period, the Product
Provider will chargeback some or all of the front sales commission paid at the
time the product was sold ("Chargeback"). FTB and FTBR agree that, to the extent
it received or receives all or any portion of any front commission which is
subsequently subject to Chargeback, it will be responsible for its pro rata
share of the Chargeback. To the extent feasible, the Set-Up Fees due FTB
pursuant to SECTION 4.2.1 hereof will be adjusted as provided therein for any
such surrender of a Current Annuity Block Product, but JMC may also deduct FTB's
share of such Chargeback from any Asset Fees due FTB pursuant to SECTION 4.2.2
hereof. JMC may deduct FTBR's share of any Chargeback resulting from the
surrender of a JMC ISS Product from any other compensation due FTBR hereunder.
4.8 FAILURE TO PAY.
---------------
4.8.1 If FTB or FTBR fail to make any payment required hereunder within 30
days of its due date, FTBR has not notified JMC in writing of any claimed
error in an unpaid invoice and JMC is not otherwise in Default hereunder
and no event has occurred which with notice or the passage of time or both
would constitute a Default by JMC hereunder, JMC shall have the right to
charge any other account maintained by JMC for FTB or FTBR or any other
assets of FTB or FTBR held by JMC for the net amount due JMC.
4.8.2 If JMC fails to make any payment required hereunder within 30 days
of its due date, JMC has not notified FTB or FTBR in writing of any claimed
error in the amount due FTB or FTBR and FTB and FTBR are not otherwise in
Default hereunder and no event has occurred which with notice or the
passage of time or both would constitute a Default by FTB or FTBR
hereunder, FTB and FTBR shall have the right to charge any other account
maintained by FTB or FTBR for JMC or any other assets of JMC held by FTB
for the net amount due FTB or FTBR.
4.8.3 Nothing in this SECTION 4.8 is intended to authorize JMC, FTB or
FTBR to change any account maintained by JMC, FTB or FTBR for the benefit
of JMC's, FTB's or FTBR's customers.
16
<PAGE>
ARTICLE V
ASSET FEE PURCHASE OPTION
5.1 TERM OF THE OPTION. At any time during the Contract Term, FTB may at its
-------------------
option purchase all of the Trail Commissions payable by Product Providers on the
Current Block and the ISS Block by paying JMC the Asset Fee Purchase Price. It
shall be a condition precedent to FTB's obligation to pay JMC the Asset Fee
Purchase Price with respect to any portion of the Trail Commissions that such
Trail Commissions be assignable and that, to the extent the consent of any JMC
Annuity Product Provider is required to effectuate any assignment, such JMC
Annuity Product Provider shall have consented in writing to the assignment of
the trail commissions to FTB. In the event some, but not all, of the JMC
Annuity Product Providers give their consent to such an assignment, the Asset
Fee Purchase Price shall be calculated with reference to only that portion of
the then existing Current Block and ISS Block for which consents have been
obtained or which are assignable without consent. Notwithstanding the
foregoing, FTB may only elect to purchase all of the Trail Commissions payable
on the Current Block and the ISS Block and may not selectively purchase Trail
Commissions from only some of the JMC Product Providers. Only JMC's inability
to obtain any necessary consent from a JMC Annuity Product Provider shall
relieve FTB of its obligation to pay the entire Asset Fee Purchase Price for all
Trail Commissions payable on the Current Block and the ISS Block. Upon receipt
of FTB's payment of the Asset Fee Purchase Price, JMC shall assign to FTB all of
its right, title and interest in and to all Trail Commissions which were
included in the calculation of the Asset Fee Purchase Price and thereafter FTB
shall receive one hundred percent (100%) of such Trail Commissions paid by
Product Providers.
5.2 ASSET FEE PURCHASE PRICE. The "Asset Fee Purchase Price" shall be the sum
-------------------------
of (i) fifty percent (50%) of the present value, discounted at a rate of 9
percent per annum, of all Trail Commissions thereafter payable by Product
Providers on the then existing Current Annuity Block and the then existing ISS
Block using an estimated remaining life of 15 years for such assets and (ii)
fifty percent (50%) of the present value, discounted at the rate of 9 percent
per annum, of all Trail Commissions thereafter payable by mutual fund Product
Providers on the then existing Current Mutual Fund Block using an estimated
remaining life of 5 years for such mutual fund assets. For purposes of the
Current Block of First Funds, "fifty percent (50%) of the Trail Commissions
payable by mutual fund Product Providers" shall mean 12.5 basis points. If the
parties cannot agree on such present value then it will be determined by an
independent actuarial consultant to be chosen by FTB and JMC with the cost of
such consultant to be borne 50% by each; provided, however, that the actuary may
------------------
not vary the above assumptions concerning the 9 percent discount rate or the
remaining life of the assets being valued.
5.3 ASSET FEE PURCHASE OPTION. The Asset Fee Purchase Option may be exercised
--------------------------
by FTB or any of its affiliates which under then applicable law may receive
Trail Commissions from Product Providers, including FTBR.
17
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JMC
JMC Group, Inc., for itself and JMC, and James Mitchell & Co., for itself and
the Subsidiaries, and each of the Subsidiaries for itself only, represent and
warrant as follows:
6.1 DUE ORGANIZATION. Each of JMC Group, Inc., James Mitchell & Co. and the
-----------------
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has all requisite
corporate power and authority to enter into this Agreement and the other
Definitive Agreements to which it is a party, to perform the obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
6.2 DUE EXECUTION AND DELIVERY; LEGALLY BINDING. The execution, delivery and
--------------------------------------------
performance of this Agreement and the other Definitive Agreements to which it is
a party by JMC Group, Inc., James Mitchell & Co. and each of the Subsidiaries,
and the consummation by JMC Group, Inc., James Mitchell & Co. and each of the
Subsidiaries of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement and the other
Definitive Agreements to which it is a party constitute legal, valid and binding
obligations of JMC Group, Inc., James Mitchell & Co. and each of the
Subsidiaries enforceable against JMC Group, Inc., James Mitchell & Co. and each
of the Subsidiaries in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and except as the enforcement of certain provisions may be limited by
the application of general equitable principles of law in certain circumstances
(whether such provisions are considered in a proceeding at law or in equity).
6.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the other Definitive Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with: (i) any agreement, indenture or other instrument to which JMC Group, Inc.,
James Mitchell & Co. or any Subsidiary is a party or by which it is bound; (ii)
the charter or bylaws of JMC Group, Inc., James Mitchell & Co. or any
Subsidiary; (iii) any judgment, decree, order or award of any court,
governmental body or arbitrator by which JMC Group, Inc., James Mitchell & Co.
or any Subsidiary is bound; or (iv) any law, rule or regulation applicable to
JMC Group, Inc., James Mitchell & Co. or any Subsidiary.
6.4 NO ACTIONS OR PROCEEDINGS.
--------------------------
6.4.1 No Actions are pending or threatened against, affecting or related
to, JMC Group, Inc. or James Mitchell & Co., in equity or otherwise, which
Actions would materially and adversely affect the ability of JMC Group,
Inc. or James Mitchell & Co. to perform its obligations hereunder or under
any of the other Definitive Agreements to which it is a party.
18
<PAGE>
6.4.2 No Actions are pending or threatened against, affecting or related
to, the Subsidiaries, in equity or otherwise, which Actions would affect
the ability of either Subsidiary to perform its obligations hereunder or
under any of the other Definitive Agreements to which it is a party.
6.4.3 James Mitchell & Co. is not, directly or indirectly, subject or
party to, or the recipient of, any Proceeding nor has it been advised that
any Regulator is contemplating issuing or requesting any such Proceeding,
which Proceeding would materially and adversely affect the ability of James
Mitchell & Co. to perform its obligations hereunder or under the other
Definitive Agreements to which it is a party.
6.4.4 Neither Subsidiary is, directly or indirectly, subject or party to,
or the recipient of, any Proceeding nor has either of them been advised
that any Regulator is contemplating issuing or requesting any such
Proceeding, which Proceeding would materially and adversely affect its
ability to perform its obligations hereunder or under the other Definitive
Agreements to which it is a party.
6.5 QUALIFICATION. Prior to the Termination Date, James Mitchell & Co. and
--------------
each of the Subsidiaries will be qualified to do business in the States of
Tennessee and Mississippi, to the extent such qualification is required to carry
on its business as provided in the Definitive Agreements to which it is a party,
and in any other jurisdictions where such qualification is required to carry on
its business and to provide the services to the FTB Program as provided in the
Definitive Agreements to which it is a party. James Mitchell & Co. owns 100
percent of the outstanding capital stock of each of the Subsidiaries free and
clear of any and all liens, charges and encumbrances. JMC Group, Inc. owns 100
percent of the outstanding capital stock of James Mitchell & Co.
6.6 LICENSING. James Mitchell & Co. and each of the Subsidiaries have now, or
----------
prior to the Termination Date will have, all licenses, permits and other
governmental permission and authority necessary to perform its obligations under
this Agreement and the other Definitive Agreements to which it is a party.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF FTB AND FTBR
FTB, for itself and FTBR, and FTBR for itself only, represent and warrant as
follows:
7.1 DUE ORGANIZATION.
-------------------
7.1.1 FTB is a national banking association duly organized and validly
existing under the laws of the United States. FTB, in its own capacity and
as Trustee, has all requisite corporate and trust power and authority to
enter into this Agreement and the other Definitive Agreements to which it
is a party, to perform its obligations hereunder and
19
<PAGE>
thereunder and to perform the obligations and covenants contemplated hereby
and thereby.
7.1.2 FTBR is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Tennessee and has all requisite
corporate power and authority to enter into this Agreement and the other
Definitive Agreements to which it is a party, to perform the obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
7.2 DUE EXECUTION AND DELIVERY; LEGALLY BINDING. The execution, delivery and
--------------------------------------------
performance of this Agreement and the other Definitive Agreements to which it is
a party by each of FTB, in its own capacity and as Trustee, and FTBR and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action. This Agreement and the other
Definitive Agreements to which it is a party constitute legal, valid and binding
obligations of each of FTB, in its own capacity and as Trustee, and FTBR
enforceable against each of FTB, in both capacities, and FTBR, in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and except as the enforcement of
certain provisions may be limited by the application of general equitable
principles of law in certain circumstances (whether such provisions are
considered in a proceeding at law or in equity).
7.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the other Definitive Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with: (i) any agreement, indenture or other instrument to which FTB or FTBR is a
party or by which it is bound; (ii) the charter or bylaws of FTB or FTBR; (iii)
any judgment, decree, order or award of any court, governmental body or
arbitrator by which FTB or FTBR is bound; or (iv) any law, rule or regulation
applicable to FTB as a national bank or FTBR.
7.4 NO ACTIONS OR PROCEEDINGS.
--------------------------
7.4.1 No Actions are pending or threatened against, affecting or related
to, FTB, in equity or otherwise, which Actions would materially and
adversely affect the ability of FTB to perform its obligations hereunder or
under any of the other Definitive Agreements to which it is a party.
7.4.2 No Actions are pending or threatened against, affecting or related
to, FTBR, in equity or otherwise, which Actions would affect the ability of
FTBR to perform its obligations hereunder or under any of the other
Definitive Agreements to which it is a party.
7.4.3 FTB is not directly or indirectly, subject or party to, or the
recipient of, any Proceeding nor has it been advised that any Regulator is
contemplating issuing or
20
<PAGE>
requesting any such Proceeding, which Proceeding would materially and
adversely affect its ability to perform its obligations hereunder or under
the other Definitive Agreements to which it is a party.
7.4.4 FTBR is not, directly or indirectly, subject or party to, or the
recipient of, any Proceeding nor has it been advised that any Regulator is
contemplating issuing or requesting any such Proceeding, which Proceeding
would materially and adversely affect its ability to perform its
obligations hereunder or under the other Definitive Agreements to which it
is a party.
7.5 QUALIFICATION. FTBR is qualified to do business in the States of Tennessee
--------------
and Mississippi and in any other jurisdictions where such qualification is
required to carry on its business as provided in the Definitive Agreements to
which it is a party. FTB is qualified to do business in the States of Tennessee
and Mississippi, to the extent such qualification is required to carry on its
business as provided in the Definitive Agreements.
7.6 LICENSING. Each of FTB and FTBR has all licenses, permits and other
----------
governmental permission and authority necessary to perform its obligations under
this Agreement and the other Definitive Agreements to which it is a party.
ARTICLE VIII
COVENANTS OF JMC
JMC covenants and agrees as follows:
8.1 ACTIVE ACCOUNT LISTING. Prior to the Termination Date, JMC shall provide
-----------------------
FTBR with a list, in form and substance satisfactory to FTBR, of all Active
Accounts in the Current Block.
8.2 REPRESENTATIVES AND WARRANTIES. JMC Group, Inc. and JMC shall use their
-------------------------------
best efforts to ensure that the representations and warranties in ARTICLE VI
hereof shall remain true and correct in all material respects at all times
during the term of this Agreement. JMC shall provide FTB or FTBR with prompt
written notice in the event that any representation or warranty in ARTICLE VI
hereof becomes untrue in any material respect at any time during the term of
this Agreement; provided, however, that with respect to the representations and
warranties made in SECTIONS 6.4.2 AND 6.4.4, JMC shall provide FTB or FTBR with
prompt written notice in the event any of these representations and warranties
become untrue in any respect at any time during the term of this Agreement.
8.3 CONFIDENTIAL INFORMATION. All of the information JMC receives from FTB,
-------------------------
FTBR or any of their affiliates pursuant to this Agreement shall be confidential
information ("FTB Information") and JMC shall keep all such FTB Information
confidential and treat such FTB Information with the same degree of care that it
treats its own confidential information. Except as required by order of a court
of competent jurisdiction and upon prior notice to FTB or FTBR, as the case may
be, JMC shall not disclose any FTB Information concerning FTB, FTBR or any of
21
<PAGE>
their affiliates, the Trust, or any FTB or FTBR customer which FTB Information
was acquired by it in connection with carrying out its duties hereunder or under
the other Definitive Agreements, nor shall JMC utilize such FTB Information in
any manner other than as required to carry out its duties hereunder or
thereunder. The obligations of this provision shall survive the termination or
expiration of this Agreement and the other Definitive Agreements for any reason.
8.4 CUSTOMER SOLICITATION. Except as contemplated by this Agreement, unless
----------------------
JMC first obtains the written consent of FTB, JMC shall not solicit customers of
FTB, FTBR or any of their affiliates for any type of services which FTB, FTBR or
any of their affiliates may currently or hereafter provide during the term of
this Agreement. Upon termination of this Agreement as provided in ARTICLE XVI
hereof, JMC shall not solicit customers of FTB, FTBR or any of their affiliates,
except that it may accept unsolicited add-on payments if it continues servicing
some or all of such customers.
8.5 NET CAPITAL REQUIREMENTS. JMC Financial shall maintain the minimum net
-------------------------
capital required to operate its business in accordance with all applicable rules
and regulations of any Regulator with jurisdiction over JMC Financial.
8.6 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
8.6.1 JMC shall provide FTBR with copies of JMC Group, Inc.'s annual
report to stockholders which shall contain audited financial statements of
JMC Group, Inc. and with copies of quarterly financial statements of JMC
Group, Inc.'s which shall be prepared in accordance with generally accepted
accounting principles. Upon the request of FTB, FTB's Regulators, FTBR or
FTBR's Regulators, JMC shall provide FTB's and FTBR's Regulators with
access to all records, documentation or information maintained by JMC
hereunder.
8.6.2 JMC Financial will furnish to FTBR a copy of its balance sheet for
the current fiscal year and other copies of the executed Forms X-17A-5 Part
II A filed with its self-regulatory organization, or of such successor
forms as may be applicable.
ARTICLE IX
CHANGE OF CONTROL
9.1 COMMUNICATIONS. In the event of a Change of Control, FTB and FTBR shall be
---------------
entitled to review and approve any proposed communication with their customers
concerning the Change of Control and James Mitchell & Co. or its successor in
interest shall continue to process business and service customers in the same
manner as provided herein and in the other Definitive Agreements with no
unreasonable turnover in service personnel assigned to the FTB Program unless
FTB and FTBR consent to modify these requirements.
9.2 SIGNIFICANT COMPETITORS. FTB shall have the right to consent (which
------------------------
consent shall not be unreasonably withheld) to any Change of Control involving
any financial institution which at
22
<PAGE>
the time the Change of Control occurs has a 3% or greater share of the retail
banking market in the Exclusive Territory as established by an independent third
party survey (a "Significant Competitor"). In the event JMC is unable to perform
its obligations under SECTION 9.1 hereof or FTB elects not to consent to a
Change of Control involving a Significant Competitor, FTB and FTBR shall be
entitled to terminate this Agreement and the Clearing Agreement on ninety (90)
days notice and will not be required to pay JMC as required in SECTION 17.5
hereof, but such failure or lack of consent shall not constitute a Default by
JMC hereunder.
ARTICLE X
EXCLUSIVITY
10.1 COMPETING FINANCIAL INSTITUTIONS.
---------------------------------
10.1.1 Except as provided in SECTION 10.1.2, neither JMC nor any of its
affiliates shall, during the Initial Term of this Agreement, sell mutual
funds or annuities anywhere within the 21 counties in the State of
Tennessee where FTB has a full service retail banking location (other than
an automated teller machine) as of the date hereof (the "Exclusive
Territory") through a fully-managed, dual employee or integrated support
services arrangement or agreement with a financial institution which has a
full service retail banking location (other than an automated teller
machine) in the Exclusive Territory (a "Competing Financial Institution").
10.1.2 Notwithstanding the foregoing, commencing six months after the date
hereof, but in no event later than August 1, 1996, JMC shall have the
option, at any time, to rescind its obligation under SECTION 10.1.1 hereof
by providing FTB with ninety (90) days prior written notice, which notice
may be given at any time after the earlier of (i) three months after the
date hereof or (ii) April 30, 1996. In such event, FTB and FTBR may elect
one of the following options:
10.1.2.1 FTB and FTBR may terminate this Agreement and the Clearing
Agreement effective at the end of such ninety (90) day period, in
which case, this Agreement and the Clearing Agreement shall be
terminated as provided in SECTIONS 17.3 and 17.4 hereof and FTB and
FTBR shall not be required to pay JMC as required in SECTION 17.5
hereof; or
10.1.2.2 FTB and FTBR may continue this Agreement under the terms and
conditions outlined herein; provided, however, that should FTB and
------------------
FTBR subsequently elect to terminate this Agreement upon ninety (90)
days prior written notice as provided in ARTICLE XVI hereof, FTB and
FTBR shall not be required to pay JMC as required in SECTION 17.5
hereof.
10.2 JMC EMPLOYEES. During the Initial Term of this Agreement, neither JMC nor
--------------
any of its affiliates will solicit for hire or hire any Selected Sales Personnel
or any former employee of
23
<PAGE>
JMC's Service Center who accepts an offer of employment with FTB or FTBR unless
such individual has been terminated by FTB or FTBR, as the case may be.
10.3 JMC PRODUCTS. During the Initial Term of this Agreement, JMC will not
-------------
offer for sale in the State of Tennessee through any Competing Financial
Institution or wholesale to a Competing Financial Institution for sale in the
Exclusive Territory any annuity or insurance product (other than a JMC Annuity
Product) which JMC is processing and servicing under this Agreement. For
purposes of this SECTION 10.3 only, "JMC Annuity Products" shall include any
annuity or insurance product issued by any Product Provider with whom JMC has a
written agreement which predates any agreement FTB or FTBR may have with such
Product Provider regardless of whether such product has been sold by JMC, FTB or
FTBR to FTB or FTBR customers at any time. Nothing in this SECTION 10.3 shall
in any way limit JMC's ability to process or service the business of any Product
Provider in connection with an integrated support services program with another
financial institution provided such program does not violate any other provision
of this SECTION 10.3.
ARTICLE XI
COVENANTS OF FTB AND FTBR
FTB and FTBR covenant and agree as follows:
11.1 REPRESENTATIONS AND WARRANTIES. FTB and FTBR shall use their best efforts
-------------------------------
to ensure that the representations and warranties of FTB and FTBR in ARTICLE VII
hereof shall remain true and correct in all material respects at all times
during the term of this Agreement. FTB or FTBR shall provide JMC with prompt
written notice in the event that any representation or warranty in ARTICLE VII
shall become untrue in any material respect during the term of this Agreement;
provided, however, that with respect to the representations and warranties made
in SECTIONS 7.4.2 AND 7.4.4 hereof, FTB or FTBR shall provide JMC with prompt
written notice in the event any of these representations and warranties become
untrue in any respect at any time during the term of this Agreement.
11.2 CONFIDENTIAL INFORMATION. All of the information FTB and FTBR receive from
-------------------------
JMC pursuant to this Agreement (excluding any books and records which FTB and
FTBR receive under SECTION 17.9 hereof) shall be confidential information ("JMC
Information") and FTB and FTBR shall keep all such JMC Information confidential
and treat such JMC Information with the same degree of care that it treats its
own confidential information. Except as required by order of a court of
competent jurisdiction and upon prior notice to JMC, FTB and FTBR shall not
disclose any JMC Information which JMC Information was acquired by it in
connection with carrying out its duties hereunder or under the other Definitive
Agreements, nor shall FTB or FTBR utilize such JMC Information in any manner
other than as required to carry out their duties hereunder or thereunder. The
obligations of this provision shall survive the termination or expiration of
this Agreement and the other Definitive Agreements for any reason.
24
<PAGE>
11.3 FINANCIAL STATEMENTS AND OTHER REPORTS. FTBR will furnish to JMC a copy of
--------------------------------------
its balance sheet for the current fiscal year and other copies of the executed
Forms X-17A-5 Part II A filed with its self-regulatory organization, or of such
successor forms as may be applicable.
11.4 SUSPENSION OR RESTRICTION OF FTB EMPLOYEES. In the event that FTBR or any
------------------------------------------
registered representative of FTBR shall become subject to suspension or
restriction by the NASD or any other Regulator having jurisdiction over FTBR and
their securities business, FTBR will notify JMC immediately and FTBR authorizes
JMC to take such steps as may be necessary for JMC to maintain compliance with
the rules and regulations to which JMC is subject. FTBR further authorizes JMC,
in such event, to comply with directives or demands made upon JMC by any
Regulator. In the event any FTB Employee (other than a registered
representation of FTBR) who performs services for FTB or FTBR in connection with
the JMC-Processed Business shall become subject to suspension or restriction by
the NASD, OCC or any other Regulator having jurisdiction over FTB or FTBR in
connection with such services, FTB or FTBR, as the case may be, will notify JMC
immediately.
ARTICLE XII
INDEMNIFICATION AND CUSTOMER COMPLAINTS
12.1 INDEMNIFICATION BY JMC GROUP, INC. AND JMC.
-------------------------------------------
12.1.1 Claims Arising Under the Definitive Agreements.
-----------------------------------------------
12.1.1.1 JMC Group, Inc. and JMC hereby agree to defend, indemnify
and hold the FTB Parties harmless from any and all liabilities,
claims, actions, proceedings, suits, damages, losses, penalties,
judgments, costs, expenses, fines, disbursements, and other
obligations of any kind whatsoever (including reasonable attorneys'
fees and other expenses of investigation, defense, litigation and
settlement) (a "Claim") regardless of when made or incurred by the FTB
Parties, whether prior to or after termination of this Agreement and
the other Definitive Agreements, with respect to or arising out of (i)
the failure by JMC Group, Inc. or JMC to perform any of their
respective covenants and agreements hereunder or under the other
Definitive Agreements and (ii) any Customer Complaints with respect to
any servicing made by JMC personnel after the Termination Date
pursuant to this Agreement.
12.1.1.2 Without limiting the generality of the foregoing, JMC Group,
Inc. and JMC hereby agree to defend, indemnify and hold the FTB
Parties harmless from any and all Claims with respect to or arising
out of:
12.1.1.2.1 the negligence or willful misconduct of JMC, or its
employees or agents (other than any FTB Employee) in providing
the services contemplated hereunder;
25
<PAGE>
12.1.1.2.2 the loss of cash after actual receipt by JMC or its
employees from FTB or FTBR; or
12.1.1.2.3 any legal challenge by a Regulator or any other
entity or individual that seeks to declare, or which is based,
in whole or in part, on a claim that JMC is without authority to
offer the services contemplated by this Agreement and the
Clearing Agreement, or has violated or will violate any statute,
regulation or other rule of law in connection with the offering
of such services to FTB or FTBR.
12.1.2 Claims Arising Under the Services Agreement and Mutual Fund
-----------------------------------------------------------
Agreement. JMC Group, Inc. and James Mitchell & Co. hereby agree to
----------
indemnify FTB as provided in Section 9.1 through 9.3 of the Services
Agreement and Section 8.1 and 8.2 of the Mutual Fund Agreement with respect
to Claims arising thereunder.
12.1.3 Claims Arising Under the Trust Agreement. Subject to SECTION
-----------------------------------------
12.2.1 hereof, and except for liability arising as a result of FTB's gross
negligence or willful misconduct, James Mitchell & Co. hereby indemnifies
FTB, in its individual capacity and as Trustee, and each officer, director,
employee or agent thereof, against, and none of the foregoing shall have
any liability for, any and all claims, proceedings, losses, liabilities,
suits, judgments, costs, expenses, fines or penalties (regardless of when
the same shall be made or incurred, whether prior to or after the
termination of the Trust Agreement) which may be imposed on, incurred by or
asserted against FTB, in its individual capacity or as Trustee, in any way
relating to the acceptance or administration of the Trust or the action or
inaction of FTB, as Trustee of the Trust to the extent, and only to the
extent that such claims, proceedings, losses, liabilities, suits,
judgments, costs, expenses, fines or penalties arise out of events
occurring or circumstances existing on or prior to the Termination Date.
12.2 INDEMNIFICATION BY FTB AND FTBR.
--------------------------------
12.2.1 FTB and FTBR hereby agree to defend, indemnify and hold the JMC
Parties harmless from any and all Claims regardless of when made or
incurred by the JMC Parties, whether prior to or after termination of this
Agreement and the other Definitive Agreements, with respect to or arising
out of (i) the failure by either FTB or FTBR to perform any of its
covenants and agreements hereunder or under the other Definitive
Agreements, (ii) any actions by the FTB Parties as Agent under the Trust on
or after the Termination Date; (iii) JMC's continuing role as Trustor under
the Trust on and after the Termination Date; and (iv) FTB's and FTBR's
sales of mutual funds, annuities and insurance (including JMC ISS Products
and Current Annuity Block Products) on and after the Termination Date,
including, without limitation, any Customer Complaints with respect to
annuity, insurance or mutual fund sales made by FTB Employees except for
Customer Complaints arising out of the servicing of annuity and mutual fund
products by JMC personnel after the Termination Date pursuant to this
Agreement.
26
<PAGE>
12.2.2 Without limiting the generality of the foregoing, FTB and FTBR
hereby agree to defend, indemnify and hold the JMC Parties harmless from
any and all Claims with respect to and arising out of:
12.2.2.1 the negligence or willful misconduct of FTB Employees,
including, without limitation, the unreasonable failure to obtain
relevant information from Customers as required under the Clearing
Agreement;
12.2.2.2 failure to promptly or accurately enter orders with JMC;
12.2.2.3 any legal challenge by a Regulator or any other entity or
individual that seeks to declare, or which is based, in whole or in
part, on a claim that FTB or FTBR is without authority to conduct the
FTB Program, or has violated or will violate any statute, regulation
or other rule of law in connection with the FTB Program;
12.2.2.4 the loss of cash prior to the actual receipt by JMC from FTB
or FTBR; or
12.2.2.5 any errors, misunderstandings, controversies or failure of
any customer to satisfy his or her obligations, unless such losses,
claims, damages, liabilities or expenses, are the result of JMC's
negligence or willful misconduct.
12.3 DEFENSE. In defending the party indemnified pursuant to SECTIONS 12.1.1
--------
and 12.2 hereof, the indemnifying party agrees to (a) accept immediately the
defense of any of the indemnified parties to any action in which any of the
indemnified parties is an object of indemnifiable Claims and (b) disclose
immediately to all parties in any action regarding such Claims that the
indemnifying party is the party responsible for defending and indemnifying the
indemnified party. The indemnifying party agrees to reimburse the indemnified
party for any and all expenses including reasonable attorney's fees and costs
incurred as a result of the filing of any actions arising from any indemnifiable
Claim or as a result of the receipt of settlement demands and other demands
relative to indemnifiable Claims. The indemnified party may participate in, but
may not control, any defense in respect of a Claim; provided, however, that the
indemnified party shall be responsible for all the fees and expenses of any
independent counsel it elects to retain unless it is determined by such
independent counsel that the indemnified party has defenses to the Claim which
are not available to the indemnifying party and a conflict of interest exists
between the indemnifying and the indemnified parties.
12.4 SETTLEMENT. No party shall consent to the entry of any judgment against it
-----------
without the prior consent of the other party. No party shall, without the prior
written consent of the other party, enter into any settlement or compromise
which does not include the giving by the plaintiff or complainant of a release
in form and substance satisfactory to the other party from all its liability
with respect to such Claim.
27
<PAGE>
12.5 CUSTOMER COMPLAINTS.
--------------------
12.5.1 JMC's Responsibility. JMC shall have complete and sole
---------------------
responsibility for the resolution of all Customer Complaints related to or
arising out of annuity, insurance or mutual fund sales or servicing made or
provided by JMC personnel prior to the Termination Date and with respect
to: (i) servicing of annuity, insurance and mutual fund products provided
by JMC personnel after the Termination Date pursuant to this Agreement or
(ii) the services performed by JMC Financial pursuant to the Clearing
Agreement. JMC shall make such payments and other compensation to the
complaining persons as JMC shall determine in its sole judgment to be
merited under the circumstances.
12.5.2 FTB's and FTBR's Responsibility. FTB and FTBR shall have complete
--------------------------------
and sole responsibility for the resolution of all Customer Complaints
related to or arising out of annuity, insurance, or mutual fund sales or
servicing made or provided by FTB Employees with the exception of Customer
Complaints with respect to annuity, insurance and mutual fund sales or
servicing made prior to the Termination Date by JMC personnel who are now
FTB Employees. FTB and FTBR shall make such payments and other
compensation to the complaining persons as FTB and FTBR shall determine in
their sole judgment to be merited under the circumstances.
12.5.3 Notwithstanding SECTIONS 12.5.1 and 12.5.2 hereof, with respect to
any Customer Complaint relating to the Current Block or to JMC's servicing
of the JMC-Processed Business, to the extent FTB, FTBR or any FTB Employee
is named in such Customer Complaint or is alleged to have participated in
any manner related to the Customer Complaint, FTB or FTBR, as the case may
be, shall participate in the resolution of the Customer Complaint.
12.5.4 Notification of Customer Complaints.
------------------------------------
12.5.4.1 By JMC. JMC shall:
12.5.4.1.1 Notify FTBR immediately of the receipt of all written
Customer Complaints relating to the Current Block and of the
resolution thereof; and
12.5.4.1.2 Notify FTBR immediately of the receipt of any
material Customer Complaint involving JMC's servicing of annuity
and mutual fund products after the Termination Date pursuant to
this Agreement or the services provided by JMC Financial pursuant
to the Clearing Agreement, and of the resolution thereof. A
material Customer Complaint shall include any written complaint
and two or more oral complaints from the same customer regarding
the same matter.
28
<PAGE>
12.5.4.1.3 Notify FTB or FTBR, as the case may be, no later than
the end of the next business day after determining that any
Customer Complaint relates to FTB Employee.
12.5.4.2 By FTB and FTBR. FTB or FTBR shall notify JMC immediately
of the receipt of any Customer Complaint for which JMC is responsible
pursuant to SECTION 12.5.1 hereof or which involves JMC personnel.
12.5.5 Cooperation. JMC, FTB and FTBR will cooperate, and will use their
------------
best efforts to cause any current officer, director, employee or agent of
any of them, to cooperate with the other in the research and investigation
of any Customer Complaint.
12.5.6 Procedures for Customer Complaints on the Current Block. In
--------------------------------------------------------
addition to the foregoing, JMC, FTB, and FTBR will agree on certain policies and
procedures for the handling of Customer Complaints on the Current Block which
will be substantially similar in substance to those contained in FTB's
Compliance Procedures for the Priority Investment Alternatives program as in
effect on the date hereof.
12.6 SURVIVAL. The provisions of this ARTICLE XII shall survive the termination
---------
or expiration of this Agreement for any reason.
ARTICLE XIII
PUBLICITY
JMC, FTB and FTBR shall coordinate and obtain the written consent of the other
party, for all press releases, publicity statements or other public notices
("Publicity") initiated by or on behalf of any one of them relating to this
Agreement and the other Definitive Agreements which Publicity identifies another
party to the Definitive Agreements by name. FTB, FTBR and JMC shall each
designate one person (the "Designated Person") to respond to third parties
soliciting a statement from any one of them concerning another party's rights,
obligations or services under this Agreement or the other Definitive Agreements
(the "Solicitations"). JMC, FTB and FTBR shall each use their reasonable
efforts to direct all such Solicitations to their respective Designated Person.
The Designated Person shall limit his or her comments to such Solicitation to
factual statements concerning any other party to the Definitive Agreement and
will promptly notify the other party concerning such Solicitation. Except as
specified above, this ARTICLE XIII is not intended to otherwise limit FTB, FTBR
or its affiliates, officers or employees in making statements or initiating
Publicity concerning the FTB Program.
29
<PAGE>
ARTICLE XIV
DEFAULT
Any one of the following events shall constitute a Default hereunder:
14.1 NON-PAYMENT. Failure to pay when due any amount required to be paid under
------------
this Agreement or any of the other Definitive Agreements, if such failure to pay
remains uncured for a period of thirty (30) days after written notice is given
by the other party or parties hereto.
14.2 REPRESENTATIONS AND WARRANTIES. The representations or warranties made by
-------------------------------
any party herein or in the Clearing Agreement or in any statement or certificate
at any time given in writing pursuant hereto shall be or become untrue in any
material respect which materially and adversely affects such party's ability to
perform its obligations hereunder or under any of the other Definitive
Agreements. Notwithstanding the foregoing, if any representation or warranty
shall become untrue due to a Change of Law, such event shall not constitute a
Default hereunder.
14.3 COVENANTS. Any party hereto shall fail to perform, or comply with, any
----------
other term or condition contained in this Agreement or the other Definitive
Agreements (other than the covenant contained in SECTION 8.5 hereto which
requires JMC Financial to maintain certain minimum net capital), including,
without limitation, the Performance Standards, and such failure shall have not
been remedied or waived within sixty (60) days after written notice thereof is
given by the other party or parties hereto.
14.4 NET CAPITAL. JMC Financial shall fail to maintain the minimum net capital
------------
required under SECTION 8.5 hereof and such failure shall have not been remedied
or waived within fifteen (15) business days.
14.5 INSOLVENCY OF JMC.
------------------
14.5.1 Involuntary. The entry of a decree or order by a court of
------------
competent jurisdiction for relief in respect of JMC Group, Inc., James
Mitchell & Co. or any Subsidiary under Title II of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other
similar law, or the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or other similar official for JMC Group, Inc., James
Mitchell & Co. or any Subsidiary or of any substantial part of the property
of any of them or the imposition of an order to wind up or liquidate the
affairs of any of them and the continuance of any such decree or order
unstayed and in effect for a period of thirty (30) consecutive days.
14.5.2 Voluntary. The filing by JMC Group, Inc., James Mitchell & Co. or
----------
any Subsidiary under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or other similar law of
a petition for relief, or the consent by any of them to the filing of such
a petition, or the making by any of them of an assignment for the benefit
of creditors, or the admission by any of them in writing of their
30
<PAGE>
inability to pay their debts generally as they become due or the taking of
corporate action by any of them in furtherance of any such action.
14.6 INSOLVENCY OF FTB OR FTBR.
--------------------------
14.6.1 FTB. The declaration by the Comptroller of the Currency, the
----
Federal Deposit Insurance Corporation or any other Regulator with
jurisdiction over FTB, of the insolvency of FTB.
14.6.2 FTBR.
-----
14.6.2.1 Involuntary. The entry of a decree or order by a court of
------------
competent jurisdiction for relief in respect of FTBR under Title II of
the United States Code or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or other similar
official for FTBR or of any substantial part of its property or the
imposition of an order to wind up or liquidate the affairs of FTBR and
the continuance of any such decree or order unstayed and in effect for
a period of thirty (30) consecutive days.
14.6.2.2 Voluntary. The filing by FTBR under Title 11 of the United
----------
States Code or any other applicable federal or state bankruptcy,
insolvency or other similar law of a petition for relief, or the
consent by FTBR to the filing of such a petition, or the making by
FTBR of an assignment for the benefit of creditors, or the admission
by FTBR in writing of its inability to pay its debts generally as they
become due or the taking of corporate action by FTBR in furtherance of
any such action.
ARTICLE XV
TERM OF AGREEMENT
The term of this Agreement (the "Contract Term") shall commence on the
Termination Date and shall run for an initial period of no more than twenty-four
(24) months until December 31, 1997 (the "Initial Term"). The Contract Term
will automatically renew for an additional year on December 31 of each
succeeding year unless FTB and FTBR or JMC shall give the other party ninety
(90) days prior written notice of its intention to terminate this Agreement
effective at the end of that calendar year.
ARTICLE XVI
TERMINATION OF AGREEMENT
16.1 GENERAL. This Agreement and the Clearing Agreement are intended to run
--------
concurrently with one another and to terminate at the same time. Either party
may terminate this Agreement
31
<PAGE>
and the Clearing Agreement for any reason at any time (including during the
Initial Term) by giving ninety (90) days prior written notice to the other.
16.2 OTHER TERMINATIONS. This Agreement and the Clearing Agreement may also be
-------------------
terminated:
16.2.1 At any time by mutual consent of the parties;
16.2.2 In the event of a Default hereunder, by the non-defaulting party at
any time upon written notice; or
16.2.3 At any time, by FTB and FTBR, if any Regulator with jurisdiction
over FTB or FTBR shall issue any written interpretation, policy statement,
ruling, order or judgment which, in the judgment of FTB, FTBR, or FTB's or
FTBR's counsel would make the FTB Program or the performance of any of
FTB's or FTBR's obligations under this Agreement or the Clearing Agreement
unlawful or in violation of such interpretation, policy statement, ruling,
order or judgment (a "Change of Law").
ARTICLE XVII
EFFECTS OF TERMINATION
Termination of this Agreement and the Clearing Agreement shall have the
following effects upon the parties depending on the circumstances:
17.1 DEFAULT BY JMC. In the event this Agreement and the Clearing Agreement are
---------------
terminated by FTB and FTBR because of a Default by JMC, FTB and FTBR shall be
entitled to receive all Trail Commissions paid thereafter by Product Providers
on the then existing Current Block and the then existing ISS Block and JMC shall
assign to FTB or FTBR all of its right, title and interest in and to such Trail
Commissions, subject to the written consent of the Product Providers, or
otherwise pay all such Trail Commissions to FTB or FTBR.
17.2 DEFAULT BY FTB OR FTBR. In the event this Agreement and the Clearing
-----------------------
Agreement are terminated by JMC because of a Default by FTB or FTBR, JMC shall
be entitled to receive all Trail Commissions paid thereafter by Product
Providers on the then existing Current Block and the then existing ISS Block.
17.3 OTHER TERMINATIONS. Subject to SECTION 17.6 hereof, in the event this
-------------------
Agreement and the Clearing Agreement are terminated for any reason other than a
Default of a party, then FTB and FTBR may elect one of the following two
alternatives.
17.3.1 FTB and FTBR may retain JMC as servicing agent for the Current
Block, the ISS Block and any other then existing block of JMC-Processed
Business in which case:
32
<PAGE>
17.3.1.1 FTB or FTBR shall pay JMC a monthly servicing fee of $2.08
per month for each Active Account (or such higher rate as shall have
been determined pursuant to the provisions of SECTION 2.3.2 hereof)
which JMC is servicing at the end of the month and will promptly
reimburse JMC for the actual amount of all telephone invoices received
by JMC in respect of 800 numbers exclusively dedicated to JMC's
servicing of these accounts; and
17.3.1.2 Unless FTB or FTBR has previously elected to purchase the
Current Block and the ISS Block pursuant to ARTICLE V hereof, JMC
shall be entitled to retain fifty percent (50%) of all Trail
Commissions paid by Product Providers on the then existing Current
Block and the then existing ISS Block. For purposes of the Current
Block of First Funds, "fifty percent (50%) of the 12b-1 fees paid by
Product Providers" shall mean 12.5 basis points. It is understood and
agreed by FTB, FTBR and JMC that all Trail Commissions payable on the
Current Block and the ISS Block will be paid directly to JMC and JMC
will, in turn, promptly pay FTB or FTBR fifty percent (50%) of all
amounts so received.
17.3.2 Subject to SECTION 17.4 hereof, FTB, FTBR or their designee shall
act as servicing agent in which case, unless FTB or FTBR has previously
elected to purchase the Current Block and the ISS Block pursuant to ARTICLE
V hereof, FTB or FTBR shall promptly pay JMC the Asset Fee Purchase Price
in the manner and subject to the terms and conditions set forth in SECTION
5.1 hereof. Upon receipt of payment of the Asset Fee Purchase Price, JMC
shall assign to FTB or FTBR all of its right, title and interest in and to
all Trail Commissions which were included in the calculation of the Asset
Fee Purchase Price and thereafter FTB or FTBR, as the case may be, shall
receive one hundred percent (100%) of such Trail Commissions paid by
Product Providers.
17.4 FTB SERVICING. Notwithstanding SECTION 17.3 hereof, if FTB or FTBR desires
--------------
to service the business of a particular JMC Product Provider and JMC is unable
to obtain the consent of such JMC Product Provider to the assignment of Trail
Commissions to FTB or FTBR as provided in SECTION 5.1 hereof, FTB or FTBR shall
be entitled to service the business of such JMC Product Provider and retain
fifty percent (50%) of all Trail Commissions paid by such JMC Product Provider
in respect of the Current Annuity Block and the then existing ISS Block, if and
------
only if:
- --------
17.4.1 FTB, FTBR or their designee (which shall be a third party
administrator not affiliated with any insurance company) is able and
willing to commit to use its best efforts to comply with the Performance
Standards; and
17.4.2 FTB, FTBR or their designee (which shall be a third party
administrator not affiliated with any insurance company) does in fact use
its best efforts to comply with the Performance Standards.
In the event FTB, FTBR or their qualified designee fails to use its best
efforts to comply with the Performance Standards and such failure is not
remedied or waived within sixty (60)
33
<PAGE>
days after written notice thereof is given to FTB or FTBR, as the case may be,
by JMC, then JMC shall promptly resume servicing of the business for such JMC
Product Provider(s) and FTB or FTBR shall pay JMC the servicing fees outlined in
SECTION 17.3.1.1 hereof.
17.5 EARLY TERMINATION. Notwithstanding the foregoing, and except as provided
------------------
in SECTIONS 9.2, 10.1.2 and 17.6 hereof, in the event FTB and FTBR elect to
terminate this Agreement or the Clearing Agreement prior to December 31, 1997
for any reason other than JMC's Default, FTB or FTBR shall pay JMC a termination
fee equal to $25,000 times the number of unpaid months remaining in the Initial
Term.
17.6 CHANGE OF LAW. In the event of a Change of Law, the following alternatives
--------------
apply.
17.6.1 If the Change of Law negatively impacts FTB's or FTBR's ability to
conduct the FTB Program or to perform its obligations hereunder or under
the Clearing Agreement in a limited way, but does not dictate that FTB and
FTBR entirely cease all activities under the FTB Program, then FTB and FTBR
shall continue this Agreement under the terms and conditions outlined
herein; provided, however that the minimum monthly Transaction Fees
-------- -------
provided in SECTION 4.1 hereof shall be reduced proportionately by the same
amount as the anticipated reduction in annual production for the revised
scope of the FTB Program. The amount of such anticipated reduction shall
be based solely upon actual production volumes for the immediately
preceding 6 months. If FTB or FTBR subsequently elect to terminate this
Agreement, the early termination payment required under SECTION 17.5 shall
be based on the amount of the reduced monthly minimum Transaction Fees
calculated in accordance with this SECTION 17.6.1.
17.6.2 If the Change of Law dictates that FTB and FTBR entirely cease all
activities under the FTB Program, then FTB and FTBR shall promptly notify
JMC and this Agreement and the Clearing Agreement shall automatically
terminate in accordance with SECTION 17.3 and 17.4 hereof and, FTB and FTBR
shall not be required to pay JMC as required in SECTION 17.5 hereof. Until
such time as FTB or FTBR notify JMC in writing which of the alternatives
provided in SECTION 17.3 hereof it desires, JMC shall continue to act as
servicing agent as provided in SECTION 17.3.1 hereof.
17.7 TRANSACTIONS FEES. In the event this Agreement it terminated for any
------------------
reason, on the effective date of termination, FTB or FTBR shall pay JMC all
Transaction Fees earned by JMC pursuant to SECTION 4.1 hereof for Integrated
Support Services performed by JMC prior to and including the effective date of
termination.
17.8 CONVERSION OF ACTIVE ACCOUNTS. In the event this Agreement is terminated
------------------------------
for any reason and JMC does not continue to service the Active Accounts after
such termination, it shall be FTB's or FTBR's responsibility to:
17.8.1 Mutual Funds and Variable Annuities. With respect to all mutual
------------------------------------
fund and variable annuity accounts, arrange for the conversion of the
Customer Accounts to another clearing broker which may be FTBR or one of
its affiliates. FTBR will give JMC notice (the
34
<PAGE>
"Conversion Notice") of (i) the name of the broker which will assume
responsibility for clearing services for Customers and FTBR, (ii) the date
on which such broker will commence providing such services, (iii) FTBR's
undertaking, in form and substance satisfactory to JMC, that FTBR's
agreement with such broker provides that such broker will accept on
conversion all Customer Accounts then maintained by JMC and (iv) the name
of an individual with that organization whom JMC can contact to coordinate
the conversion. The Conversion Notice shall accompany FTB's and FTBR's
notice of termination given pursuant to ARTICLE XVI hereof. If FTBR fails
to give the Conversion Notice to JMC, JMC may give to Customers such notice
as JMC deems appropriate of the termination of this Agreement and may make
such arrangements as JMC deems appropriate for transfer or delivery of
Customer Accounts. FTB and FTBR shall reimburse JMC for all costs incurred
in making the conversion unless this Agreement has been terminated by JMC
under SECTION 16.1 hereof or FTB and FTBR terminate this Agreement under
SECTION 16.2.2 hereof.
17.8.2 Fixed Annuities and Other Insurance Products. With respect to all
---------------------------------------------
fixed annuity and other insurance accounts, arrange for the conversion of
such accounts to another servicing agent which may be FTBR or one of its
affiliates. The Conversion Notice shall contain (i) the name of the
servicing agent which will assume responsibility for servicing these
accounts for FTB or FTBR, (ii) the date on which such servicing agent will
commence providing such services, (iii) FTB's or FTBR's undertaking, in
form and substance satisfactory to JMC, that FTB's or FTBR's agreement with
such servicing agent provides that such servicing agent will accept on
conversion all accounts then maintained by JMC and (iv) the name of an
individual with that organization whom JMC can contact to coordinate the
conversion. The Conversion Notice shall accompany FTB's and FTBR's notice
of termination given pursuant to ARTICLE XVI hereof. If FTB or FTBR fail
to give the Conversion Notice to JMC, JMC may give to customers such notice
as JMC deems appropriate of the termination of this Agreement and may make
such arrangements as JMC deems appropriate for transfer or delivery of such
accounts. FTB and FTBR shall reimburse JMC for all costs incurred in
making the conversion unless this Agreement has been terminated by JMC
under SECTION 16.1 hereof or FTB and FTBR terminate this Agreement under
SECTION 16.2.2 hereof.
17.9 FTB INFORMATION. Upon termination or expiration of this Agreement for any
----------------
reason, FTB and FTBR shall be entitled to the following:
17.9.1 The right to all books and records concerning its customers except
to the extent JMC needs to retain such books and records and in its
capacity and only for the purpose of acting as servicing agent or as are
required by law; and
17.9.2 The return of all FTB Information received or under the control of
JMC except to the extent JMC needs to retain such FTB Information and in
its capacity and only for the purpose of acting as servicing agent or as
are required by law.
17.10 JMC EMPLOYEES. Notwithstanding any other provision of this Agreement, if
--------------
this Agreement is terminated for any reason other than upon the Default of JMC,
then FTB and
35
<PAGE>
FTBR shall not solicit or retain the services of any employee of JMC for a
period of 90 days after the effective date of termination.
ARTICLE XVIII
MISCELLANEOUS
18.1 NOTICES. All notices, requests, demands and other communications hereunder
--------
shall be in writing and shall be deemed given, if delivered personally or sent
by telecopy with receipt confirmed, on the day given or, if mailed by certified
or registered mail, postage prepaid, return receipt requested, three days after
placement in the United States mail properly addressed to the addressees below:
If to JMC:
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attn: Brian Finneran, President
Telecopy number: (619) 450-9102
If to FTB or FTBR:
4990 Poplar Avenue
Memphis, TN 381117
Attn: Paul Mann
President
Telecopy number: (901) 537-2627
With a Copy To:
Dan Overbey
Vice President, Retail Sales Manager
First Tennessee Bank National Association
165 Madison Ave.
Memphis, TN 38103
Telecopy number: (901) 523-4145
18.2 GOVERNING LAW. This Agreement (including the Exhibits attached hereto),
--------------
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Tennessee without regard to principles of conflicts of law and the
forum for any legal action or proceeding hereunder shall be the State of
Tennessee.
18.3 INTEGRATION. This Agreement and the other Definitive Agreements contain
------------
the entire agreement between the parties hereto with respect to the transactions
contemplated hereby and thereby and supersede all previous oral and written
agreements, commitments and understandings and all contemporaneous oral
negotiations, commitments, writings and
36
<PAGE>
understandings relating to the activities contemplated hereunder and thereunder.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
18.4 HEADINGS. The headings contained in this Agreement are for reference
---------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
18.5 ILLEGALITY. Any provision of this Agreement which is invalid, illegal or
-----------
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
18.6 ATTORNEY'S FEES. Except as provided in SECTION 18.8 hereof, in the event
----------------
any legal action or proceeding is brought to enforce the terms of this
Agreement, the prevailing parties shall be entitled to reimbursement from the
other parties for all reasonable legal fees and court costs incurred with
respect to such action or proceeding.
18.7 APPLICABLE REGULATIONS. Notwithstanding any other provisions of this
-----------------------
Agreement, the ability of FTB, FTBR and JMC to perform their mutual duties and
fulfill their mutual responsibilities hereunder shall at all times be subject to
any applicable state and federal laws and regulations.
18.8 ALTERNATIVE DISPUTE RESOLUTION.
-------------------------------
18.8.1 In the event of any dispute, claim or controversy which in any way
relates to, results from, or arises out of this Agreement or the Clearing
Agreement, any amendment or breach hereof or thereof, or any resulting
transactions ("Dispute"), if the Dispute cannot be settled through
negotiation, the parties hereto agree to first try in good faith to settle
the Dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association, before resorting to arbitration, as
mandated below. Regardless of the outcome of such mediation, each party
shall bear its own costs, attorneys' fees and share of mediation fees.
18.8.2 Thereafter, any remaining Dispute shall be decided by neutral
binding arbitration in accordance with the rules of the NASD and not by
court action. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof; provided, however, that
no arbitrator(s) shall be permitted to award punitive damages in such
arbitration proceeding. Regardless of the outcome of such arbitration, each
party shall bear its own costs, attorneys' fees and share of arbitration
fees.
18.9 EXPENSES. JMC, FTB and FTBR shall pay all expenses associated with the
---------
performance of their obligations hereunder.
37
<PAGE>
18.10 NO JOINT VENTURE. In accordance with the limitations set forth herein,
-----------------
this Agreement does not create the relationship of a joint venture, partnership
or agency among the parties.
18.11 COUNTERPARTS. This Agreement may be executed by the parties hereto in
-------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all of such counterparts shall together constitute one instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed as of the date first written above.
FIRST TENNESSEE BANK NATIONAL FIRST TENNESSEE BROKERAGE,
ASSOCIATION INC.
By: /s/Paul Harless By: /s/ Paul Mann
--------------- -------------
Its: Sr. Vice President Its: President
------------------ ---------
JAMES MITCHELL & CO. JMC INSURANCE SERVICES
CORPORATION
By: /s/Brian J. Finneran By: /s/Brian J. Finneran
-------------------- --------------------
Its: President Its: President
--------- ---------
JMC FINANCIAL CORPORATION JMC GROUP, INC.
By: /s/Brian J. Finneran By: /s/Brian J. Finneran
-------------------- --------------------
Its: President Its: President
--------- ---------
38
<PAGE>
EXHIBIT A
PERFORMANCE STANDARDS
---------------------
All service requests shall be completed or directed to the appropriate Product
Provider no later than the end of the business day following receipt of all
necessary information and documentation. The telephone shall be answered within
3 rings 95% of the time.
Subject to Section 2.2 of this Agreement, the following elapsed service
standards from time of initiation by the customer to completion by JMC will be
met 95% of the time:
<TABLE>
<CAPTION>
Fixed Variable Mutual Life
Annuity Annuity Funds Products
<S> <C> <C> <C> <C>
Policy Issue 30 days 30 days N/A 60 days*
Contract or Account Changes 21 days 21 days 7 days 21 days
Confirmations 7 days 7 days 1 day 7 days
Surrenders/Liquidations 21 days 7 days 1 day 21 days
Annuitizations 60 days 60 days N/A N/A
Death Claims 90 days 90 days N/A 90 days
</TABLE>
Service times may vary based upon underwriting considerations such as medical
examinations, attending physician statement requirements, etc.
39
<PAGE>
EXHIBIT B
PROVIDER COMPANIES
------------------
Aetna Life Insurance & Annuity Company
ITT Hartford Life Insurance Company
Nationwide Life Insurance Company
Great Northern Insured Annuity Corporation (GNA)
Providian
40
<PAGE>
EXHIBIT 10.14
TERMINATION AND TRANSITION AGREEMENT
This Termination and Transition Agreement (this "Agreement") is entered into
this 31st day of January, 1996, by and among JMC Group, Inc., a California
corporation, James Mitchell & Co., a California corporation, and its affiliate,
Priority Investment Services, Inc., a Delaware corporation ("Priority") and
First Tennessee Bank National Association ("FTB"), in its own capacity and as
trustee under the Trust Agreement, dated August 31, 1988, as amended from time
to time, by and between James Mitchell & Co., as trustor and FTB, as trustee of
the trust thereby established.
RECITALS
A. In August, 1988, James Mitchell & Co. and FTB entered into a Services
Agreement pursuant to which James Mitchell & Co. and its subsidiaries agreed to
provide certain services to FTB, in its own capacity and as trustee, and to the
Trust (as hereinafter defined).
B. In January, 1994, FTB, JMC Group, Inc., James Mitchell & Co. and
Priority entered into a series of agreements which expanded the nature of the
parties' relationship with each other and restated the terms of the original
Services Agreement. As a result of this transaction, the parties' existing
relationship is currently governed by the terms of the following agreements:
(i) a Services Agreement and Services Agreement Supplement No. 1,
each dated January 28, 1994, by and among JMC Group, Inc., James Mitchell & Co.,
Priority and FTB;
(ii) a Mutual Fund Sales Agreement and Mutual Fund Sales Agreement
Supplement No. 1, each dated January 28, 1994, by and among JMC Group, Inc.,
James Mitchell & Co., Priority and FTB;
(iii) a Trust Agreement, dated August 31, 1988, by and between James
Mitchell & Co. and FTB;
(iv) an Option Agreement, dated January 28, 1994, by and among JMC
Group, Inc., James Mitchell & Co., Priority and FTB; and
(v) a Service Mark License Agreement, dated January 28, 1994, by and
among JMC Group, Inc., James Mitchell & Co., Priority and FTB.
C. FTB desires to provide mutual funds and annuity products to its
customers through its affiliated broker-dealer, First Tennessee Brokerage, Inc.
("FTBR"), and certain FTB platform employees.
1
<PAGE>
D. FTB, JMC Group, Inc., Priority and James Mitchell & Co. have agreed to
terminate the Existing Agreements (as hereinafter defined) prior to the
expiration of their original terms and enter into a new arrangement whereby JMC
(as hereinafter defined) will provide support services for FTB's and FTBR's
annuity and mutual fund sales programs pursuant to the ISS Agreement (as
hereinafter defined). FTB, JMC Group, Inc., James Mitchell & Co. and Priority
have previously manifested their intent to terminate the Existing Agreements and
enter into the ISS Agreement by execution and delivery of that certain letter of
understanding, dated December 8, 1995.
AGREEMENT
In consideration of the foregoing, the mutual covenants and undertakings herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall have the following meanings.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings assigned to those terms in the ISS Agreement.
1.1 "Action(s)" means any and all actions, suits or proceedings.
1.2 "Clearing Agreement" means that certain Clearing Agreement, dated the date
hereof, by and between JMC Financial Corporation and FTBR.
1.3 "Contract Term" has the meaning assigned to that term in the ISS Agreement.
1.4 "Current Annuity Block" means the block of business consisting of insurance
and annuity policies sold by JMC or Priority to FTB customers from the inception
of the annuity sales program at FTB in August 1988 through the Termination Date,
together with any and all additional premiums added to such policies after the
Termination Date, which policies are still in force.
1.5 "Current Block" means the block of business consisting of the Current
Annuity Block and the Current Mutual Fund Block.
1.6 "Current Block Annuity Product(s)" means any insurance or annuity policy
which is part of the Current Block. A list of the Current Block Annuity
Products is attached hereto as Exhibit A.
2
<PAGE>
1.7 "Current Block Product Provider(s)" means any Product Provider whose
product is a Current Block Annuity Product.
1.8 "Current Mutual Fund Block" means the block of business consisting of all
mutual fund shares sold by Priority to FTB customers from the inception of the
mutual fund sales program at FTB in February 1994 through the Termination Date,
which shares are still outstanding.
1.9 "Customer Complaint(s)" means any complaint (whether written or oral)
received by JMC, any of its subsidiaries or affiliates, or by any officer,
director, agent or employee of any of them or by FTB, any of its subsidiaries or
affiliates, or by any officer, director, agent or employee of any of them from
any person (including state and governmental agencies, departments, divisions or
offices or self-regulatory organizations) with respect to: (i) annuity,
insurance or mutual fund sales or servicing made or provided by JMC or Priority
personnel prior to the Termination Date; (ii) servicing of annuity, insurance
and mutual fund products provided by JMC personnel after the Termination Date
pursuant to the ISS Agreement or the Clearing Agreement; or (iii) the FTB
Program.
1.10 "Definitive Agreements" means this Agreement, the ISS Agreement and the
Clearing Agreement.
1.11 "Dispute" shall have the meaning assigned to that term in SECTION 6.7.1
hereof.
1.12 "Existing Agreements" means the License Agreement, the Services Agreement,
the Mutual Fund Agreement and the Option Agreement.
1.13 "FTB" means First Tennessee Bank National Association, a federally-
chartered national bank.
1.14 "FTB Employee" means all employees and agents of FTB and FTBR or any of
their affiliates, but does not include any employee of FTB's Bond Division.
1.15 "FTBR" means First Tennessee Brokerage, Inc., a Tennessee corporation and
registered broker-dealer and member of the NASD.
1.16 "FTB Program" means the internal mutual fund and annuity sales programs of
FTB or its affiliates (including the Platform Program) which target customers
with investable assets of less than $250,000, but does not include any sales
program of FTB's Bond Division.
1.17 "Integrated Support Services" means the services provided to FTB and FTBR
by JMC pursuant to the terms of the ISS Agreement and the Clearing Agreement.
1.18 "ISS Agreement" means that certain Integrated Support Services Agreement,
dated the date hereof, between James Mitchell & Co. and its subsidiaries, FTB
and FTBR.
1.19 "JMC" means James Mitchell & Co. and its subsidiaries.
3
<PAGE>
1.20 "JMCG" means JMC Group, Inc., James Mitchell & Co. and Priority.
1.21 "Letter of Understanding" means that certain letter of understanding,
dated December 8, 1995, by and among JMCG and FTB.
1.22 "License Agreement" means that certain Service Mark License Agreement,
dated January 28, 1994, by and among JMCG and FTB.
1.23 "Minimum Monthly Production" shall have the meaning assigned to that term
in SECTION 3.5.2 hereof.
1.24 "Monthly Production" shall have the meaning assigned to that term in
SECTION 3.5.2 hereof.
1.25 "NASD" means the National Association of Securities Dealers, Inc.
1.26 "Monthly Subsidy" shall have the meaning assigned to that term in SECTION
3.5 hereof.
1.27 "Mutual Fund Agreement" means that certain Mutual Fund Sales Agreement and
Mutual Fund Sales Agreement Supplement No. 1, each dated January 28, 1994, by
and among JMCG and FTB.
1.28 "Option Agreement" means that certain Option Agreement, dated January 28,
1994, by and among JMCG and FTB.
1.29 "Plan" shall have the meaning assigned to that term in SECTION 3.4.2
hereof.
1.30 "Platform Program" means the platform fixed annuity sales program
initiated by FTB under the terms of the Letter of Understanding pursuant to
which FTB Employees will make only fixed annuity sales of less than $20,000.
1.31 "Priority" means Priority Investment Services, Inc., a Delaware
corporation.
1.32 "Product Provider(s)" means the company underwriting or distributing any
insurance, annuity or mutual fund product.
1.33 "Regulator(s)" means the NASD or other regulatory authority having
jurisdiction over the activities of any party hereto.
1.34 "Selected Sales Personnel" shall have the meaning assigned to that term in
SECTION 3.3.1 hereof.
1.35 "Services Agreement" means that certain Services Agreement and Services
Agreement Supplement No. 1, each dated January 28, 1994, by and among JMCG and
FTB.
4
<PAGE>
1.36 "Service Center" means JMC's Memphis Service Center.
1.37 "Set-Up Fees" shall have the meaning assigned to that term in SECTION
4.2.1.1 of the ISS Agreement.
1.38 "Subsidy Period" means the period commencing December 1, 1995 and ending
on the Termination Date.
1.39 "Termination Date" means the effective date of termination of the Existing
Agreements as provided in SECTION 2.1.1 hereof.
1.40 "Transition Period" means the period commencing December 8, 1995 and
ending on the Termination Date.
1.41 "Trust" means the trust established by the Trust Agreement.
1.42 "Trust Agreement" means that certain Trust Agreement, dated August 31,
1988, as amended from time to time, by and between James Mitchell & Co. and FTB.
1.43 "Trustee" means FTB in its capacity as trustee of the Trust.
1.44 "Trustor" means James Mitchell & Co. in its capacity as trustor of the
Trust.
ARTICLE II
TERMINATION
2.1 TERMINATION OF EXISTING AGREEMENTS.
-----------------------------------
2.1.1 The Existing Agreements will terminate as soon hereafter as possible
on a date to be agreed to by the parties hereto, but in no event later than
February 29, 1996 (the "Termination Date"); provided, however, that if, on
-----------------
February 29, 1996, Definitive Agreements have not been entered into due to
(i) pending regulatory review or approval of any Definitive Agreement or
(ii) acts of God, earthquakes, fire or floods, the Termination Date shall
be such later date as may be agreed upon by the parties.
2.1.2 On the Termination Date, FTB's and JMCG's continuing obligations
under the Existing Agreements will terminate and all outstanding
obligations under the Existing Agreements will be discharged and cease to
exist; provided, however, that the parties' obligations under the following
-----------------
provisions of the Existing Agreements shall survive the termination thereof
and nothing herein or in the other Definitive Agreements shall alter or in
any way modify these provisions:
2.1.2.1 Sections 8.1 and 8.2 of the Mutual Fund Agreement and
Sections 9.1 through 9.3 of the Services Agreement;
5
<PAGE>
2.1.2.2 Sections 5.4 and 6.4 of the Mutual Fund Agreement and
Sections 6.4 and 7.5 of the Services Agreement;
2.1.2.3 Section 5.5 of the Mutual Fund Agreement and Section 6.5 of
the Services Agreement; and
2.1.2.4 Section 9 of the License Agreement.
2.1.3 After termination of the Existing Agreements, except as expressly
outlined above, all rights and obligations of the parties to the Existing
Agreements with respect to the subject matter thereof shall be governed by
the terms of the Definitive Agreements.
2.1.4 Promptly following the Termination Date, Priority will initiate all
actions required to change its name from "Priority Investment Services,
Inc." to some other name which shall not include the word "Priority."
2.2 CONDITIONS TO COMMENCEMENT OF CONTRACT TERM. The Contract Term shall
--------------------------------------------
commence on the Termination Date. The commencement of the Contract Term is
subject to the prior or concurrent satisfaction of the following conditions:
2.2.1 The completion of all actions necessary to permit JMC to deliver the
Integrated Support Services in the manner contemplated by the ISS Agreement
and in full compliance with all applicable laws, rules and regulations.
2.2.2 The completion of all actions necessary to permit FTB and FTBR to
perform their supervision, management and compliance obligations under
SECTION 3.1 of the ISS Agreement in the manner contemplated by the ISS
Agreement and in full compliance with all applicable laws, rules and
regulations.
2.2.3 The preparation, negotiation, execution and delivery of all other
necessary documentation between FTB, FTBR, JMC and the Product Providers,
including, without limitation, master general agency agreements, selling
agreements, networking and clearing agreements and the like, which
documentation will permit the commission fund flow outlined in the ISS
Agreement to be accomplished in a manner that meets all applicable legal
and regulatory requirements.
2.2.4 JMC demonstrating that, with respect to customer account
information, it can provide FTB or FTBR, as the case may be, with tapes
containing customer account information on a monthly basis and that it will
have the ability to provide mutual fund customers who call the operations
center with the most recent share balance and account value information, if
any, which is available through networking with the mutual fund Product
Provider.
6
<PAGE>
The failure to meet any of the conditions outlined in this SECTION 2.2
shall not entitle either party to postpone the Termination Date beyond February
29, 1996. The Termination Date may only be extended as provided in SECTION
2.1.1 hereof.
2.3 COMPENSATION AND FEES.
----------------------
2.3.1 Prior to the Termination Date, JMCG shall continue to calculate and
pay FTB's compensation under the Services Agreement and the Mutual Fund
Agreement as provided therein.
2.3.2 Upon termination of the Existing Agreements, JMCG shall prepare a
final statement of all amounts due to FTB under the terms of the Mutual
Fund Agreement for mutual fund sales prior to the Termination Date and
shall pay such amount to FTB in accordance with the terms of the Mutual
Fund Agreement. On the Termination Date (but no sooner than February 1,
1996), FTB shall pay JMCG all deferred revenue due JMCG with respect to
sales of First Funds prior to the Termination Date, including, without
limitation, an amount equal to the sum of AGENT's Deferred First Fund Share
(as that term is defined in Supplement No. 1 to the Mutual Fund Agreement)
for each of the twelve months immediately preceding the Termination Date
and all other revenue earned by JMCG prior to the Termination Date with
respect to First Fund sales which revenue has not been paid on or prior to
the Termination Date. For purposes of the immediately preceding sentence
only, AGENT's Deferred First Fund Share for the twelve months immediately
----
preceding the Termination Date shall be equal to the product of (i) 53
basis points and (ii) the sum of First Fund Gross Monthly Production for
each of the twelve months immediately preceding the Termination Date. All
other calculations of AGENT's Deferred First Fund Share shall be made in
accordance with the terms of the Mutual Fund Agreement.
2.3.3 Upon termination of the Existing Agreements, JMCG will prepare a
final statement of all Set-up Fees due FTB, in its capacity as Trustee,
under the terms of the Services Agreement for deposits made to the Trust
prior to the Termination Date and shall pay such amount to FTB in
accordance with the terms of the Services Agreement.
ARTICLE III
SALES AND SERVICING
3.1 DURING THE TRANSITION PERIOD.
-----------------------------
3.1.1 Subject to SECTION 3.1.2 hereof, during the Transition Period, JMCG
and FTB will continue to perform their respective obligations under the
Existing Agreements according to the terms thereof.
3.1.2 Notwithstanding Section 8.2 of the Services Agreement (and as such
provision may be incorporated into the Mutual Fund Agreement), during the
Transition Period,
7
<PAGE>
3.1.3 JMCG agrees that FTB may institute the Platform Program. JMCG's
rights under Section 8.2 of the Services Agreement (and as such provision
may be incorporated into the Mutual Fund Agreement) are hereby waived, but
only to the extent necessary to permit FTB to commence the Platform
Program.
3.2 AFTER THE TERMINATION DATE.
---------------------------
3.2.1 JMCG hereby acknowledges that, from and after the Termination Date,
FTB is free of any restrictions imposed by the Existing Agreements with
respect to the offering of annuity or mutual funds directly to its
customers. On the Termination Date, FTB, either directly or through its
affiliate, FTBR, will assume full responsibility (including financial
responsibility) for all sales, sales management and compliance aspects of
the FTB Program as provided in the ISS Agreement.
3.2.2 Except as expressly provided in the ISS Agreement, on the
Termination Date, FTB, either directly or through its affiliate, FTBR, will
assume all of JMCG's rights, duties and obligations as Agent for the Trust
pursuant to the Services Agreement and the Trust Agreement and JMCG will
cease to have any responsibilities thereunder. Subject to SECTION 12.2 of
the ISS Agreement, this SECTION 3.2.2 is not intended to relieve JMCG of
its obligations to indemnify FTB, its officers, agents or employees as
provided in the Trust Agreement for any losses which arise out of events
occurring or circumstances existing prior to the Termination Date.
3.3 JMC PERSONNEL.
--------------
3.3.1 FTB or FTBR will extend offers of employment to no fewer than ten of
JMC's existing sales representatives who are currently servicing FTB. FTB
will notify JMC of the identity of the successful sales candidates (the
"Selected Sales Personnel").
3.3.2 FTB agrees to assist, on a best efforts basis, all JMCG personnel
employed in the Service Center in securing permanent positions with FTB or
FTBR. In the event FTB or FTBR desire to hire any of the Service Center
personnel, FTB, FTBR and JMCG will mutually agree on hire dates.
3.3.3 FTB and JMCG agree that JMCG may, in its sole discretion, terminate
any or all JMCG sales representatives who are not offered positions with
FTB or FTBR at anytime after December 18, 1995. JMCG, FTB and FTBR agree
that the provisions of this SECTION 3.3 are not intended to reflect an
agreement to employ any particular JMCG sales representative or service
center employee and no such individual is intended to be a third party
beneficiary of this Agreement.
3.3.4 JMCG will terminate the employment of all Selected Sales Personnel
on the Termination Date. The actual Termination Date will be February 29,
1996 or such earlier date agreed to by the parties hereto on which JMCG and
FTB have met all conditions precedent to the commencement of the Contract
Term as provided in SECTION 2.2 hereof.
8
<PAGE>
The failure to meet such conditions shall not entitle any party to postpone
the Termination Date which may only be extended as provided in SECTION
2.1.1 hereof.
3.4 SERVICE CENTER.
---------------
3.4.1 FTB agrees that JMCG may close the Service Center at any time after
December 8, 1995. Upon execution of the Letter of Understanding, FTB waived
the requirement contained in Schedule B of the Services Agreement that JMCG
maintain a service center for the FTB annuity and mutual fund sales
program.
3.4.2 JMCG shall submit a written transition plan to FTB for the closing
of the Memphis Service Center and the transition of the operations to its
central operations center in San Diego, California no earlier than January
15, 1996 (the "Plan"). The Plan shall ensure that JMCG will continue to
perform its obligations under the Existing Agreements in accordance with
the Performance Standards of Schedule C to the Services Agreement during
the Transition Period.
3.5 SALES PERSONNEL SUBSIDY PAYMENTS. JMCG, FTB and FTBR acknowledge that FTB
---------------------------------
and FTBR intend to identify the Selected Sales Personnel by December 18, 1995.
However, no Selected Sales Personnel will actually begin employment with FTB or
FTBR until after the Termination Date. JMCG and FTB agree that FTB will
reimburse Priority for fifty percent (50%) of the cost of Priority carrying the
Selected Sales Personnel on its payroll during the Subsidy Period. This amount
will be paid to Priority in the form of a monthly subsidy (the "Monthly
Subsidy") payable on the fifteenth (15th) day of the next succeeding month. The
Monthly Subsidy for each month shall be calculated and paid in the following
manner:
3.5.1 Priority shall calculate the sum of all fixed compensation (salary
plus travel allowance) paid to the Selected Sales Personnel during that
month and add 25% of the salary as a benefit factor. Fifty percent (50%)
of this sum shall be the Monthly Subsidy.
3.5.2 Priority shall then determine the Monthly Combined Gross Insurance
and Mutual Fund Production for that month for all Priority's Tennessee-
based sales employees by reference to the Sales Accounting Report generated
by Priority (the "Monthly Production"). FTB shall pay Priority a Monthly
Subsidy for each month in the Transition Period during which the Monthly
Production is less than the Minimum Monthly Production (as hereinafter
defined) for that month. The "Minimum Monthly Production" for any month
shall be the amount set forth in the following table for such month unless
the weighted average number of Selected Sales Personnel Priority has
carried on its payroll during that month is greater than or less than 10.
In such circumstance, the aggregate amount set forth in the following table
for that month shall be increased or decreased, as the case may be, by
$250,000 multiplied by the amount by which the weighed average number of
Selected Sales Personnel which Priority has carried on its payroll for that
month exceeds or is less than 10. Such weighted average number of Selected
Sales Personnel shall be determined by adding the total number of Selected
9
<PAGE>
Sales Personnel employed by Priority on the first, last and fifteenth day
of each month and dividing by 3.
Month Minimum Monthly Production
-------- --------------------------
December $2,000,000
January $2,500,000
February and thereafter $2,500,000
JMCG and FTB acknowledge that FTB shall not be responsible to pay any
Monthly Subsidy with regard to any month after February, 1996 unless the
parties hereto agree on a later Termination Date in accordance with SECTION
2.1.1 hereof.
3.6 CUSTOMER COMPLAINTS. All Customer Complaints shall be handled as provided
--------------------
in SECTION 12.5 of the ISS Agreement. Nothing in this SECTION 3.6 or in SECTION
12.1 of the ISS Agreement is intended to modify the obligations of the parties
hereto under Sections 8.1 and 8.2 of the Mutual Fund Agreement or Sections 9.1
through 9.3 of the Services Agreement.
ARTICLE IV
JMCG REPRESENTATIONS AND WARRANTIES
JMC Group, Inc., for itself, James Mitchell & Co. and Priority, and James
Mitchell & Co. and Priority for themselves only, represent and warrant as
follows:
4.1 DUE ORGANIZATION. JMC Group, Inc., James Mitchell & Co. and Priority are
-----------------
corporations, duly organized, validly existing and in good standing under the
laws of their respective states of incorporation and have all requisite
corporate power and authority to enter into this Agreement, to perform the
obligations hereunder and to consummate the transactions contemplated hereby.
4.2 DUE EXECUTION; LEGALLY BINDING. The execution, delivery and performance of
-------------------------------
this Agreement by JMC Group, Inc., James Mitchell & Co. and Priority, and the
consummation by each of JMC Group, Inc., James Mitchell & Co. and Priority of
the transactions contemplated hereby, have been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of each of JMC Group, Inc., James Mitchell & Co. and Priority
enforceable against each of JMC Group, Inc., James Mitchell & Co. and Priority
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and except as the enforcement of
certain provisions may be limited by the application of general equitable
principles of law in certain circumstances (whether such provisions are
considered in a proceeding at law or in equity).
4.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the consummation of the transactions contemplated hereby will not result in
a breach of any of the terms or provisions of, or constitute a default under, or
conflict with: (i) any agreement, indenture
10
<PAGE>
or other instrument to which JMC Group, Inc., James Mitchell & Co. or Priority
is a party or by which it is bound; (ii) the charter or bylaws of JMC Group,
Inc., James Mitchell & Co. or Priority; (iii) any judgment, decree, order or
award of any court, governmental body or arbitrator by which JMC Group, Inc.,
James Mitchell & Co. or Priority is bound; or (iv) any law, rule or regulation
applicable to JMC Group, Inc., James Mitchell & Co. or Priority.
4.4 NO ACTIONS. No Actions, are pending or threatened against, affecting or
-----------
related to, JMC Group, Inc., James Mitchell & Co. or Priority, in equity or
otherwise, which Actions would materially and adversely affect the ability of
JMC Group, Inc., James Mitchell & Co. or Priority to perform its obligations
hereunder.
ARTICLE V
FTB REPRESENTATIONS AND WARRANTIES
FTB represents and warrants as follows:
5.1 DUE ORGANIZATION. FTB is a national banking association duly organized and
-----------------
validly existing under the laws of the United States. FTB, in its own capacity
and as Trustee, has all requisite corporate and trust power and authority to
enter into this Agreement, to perform its obligations hereunder and to perform
the obligations and covenants contemplated hereby.
5.2 DUE EXECUTION; LEGALLY BINDING. The execution, delivery and performance of
-------------------------------
this Agreement by FTB, in its own capacity and as Trustee, and the consummation
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action. This Agreement constitutes a legal, valid and
binding obligation of FTB, in its own capacity and as Trustee, enforceable
against it, in both capacities, in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and except as the enforcement of certain provisions may be limited by
the application of general equitable principles of law in certain circumstances
(whether such provisions are considered in a proceeding at law or in equity).
5.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the consummation of the transactions contemplated hereby will not result in
a breach of any of the terms or provisions of, or constitute a default under, or
conflict with: (i) any agreement, indenture or other instrument to which FTB is
a party or by which it is bound; (ii) the charter or bylaws of FTB; (iii) any
judgment, decree, order or award of any court, governmental body or arbitrator
by which FTB is bound; or (iv) any law, rule or regulation applicable to FTB as
a national bank.
5.4 NO ACTIONS. No Actions are pending or threatened against, affecting or
-----------
related to, FTB, in equity or otherwise, which Actions would materially and
adversely affect the ability of FTB to perform its obligations hereunder.
11
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices, requests, demands and other communications hereunder
--------
shall be in writing and shall be deemed given, if delivered personally or sent
by telecopy with receipt confirmed, on the day given or, if mailed by certified
or registered mail, postage prepaid, return receipt requested, three days after
placement in the United States mail properly addressed to the addressees below:
If to JMCG:
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attn: Brian Finneran, President
Telecopy number: (619) 450-9102
If to FTB:
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
165 Madison Avenue
Memphis, TN 38103
Attn: Dan Overbey,
Vice President, Retail Sales Manager
Telecopy number: (901) 523-4145
6.2 GOVERNING LAW. This Agreement (including Exhibit A attached hereto), shall
--------------
be governed by, and construed and enforced in accordance with, the laws of the
State of Tennessee without regard to principles of conflicts of law and the
forum for any legal action or proceeding hereunder shall be the State of
Tennessee.
6.3 INTEGRATION. This Agreement and the other Definitive Agreements contain
------------
the entire agreement between the parties hereto with respect to the transactions
contemplated hereby and thereby and supersede all previous oral and written
agreements, commitments and understandings and all contemporaneous oral
negotiations, commitments, writings and understandings relating to the
activities contemplated hereunder and thereunder. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
6.4 HEADINGS. The headings contained in this Agreement are for reference
---------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
6.5 ILLEGALITY. Any provision of this Agreement which is invalid, illegal or
-----------
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in
12
<PAGE>
such jurisdiction or rendering any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
6.6 ATTORNEY'S FEES. Except as provided in SECTION 6.7 hereof, in the event
----------------
any legal action or proceeding is brought to enforce the terms of this
Agreement, the prevailing parties shall be entitled to reimbursement from the
other parties for all reasonable legal fees and court costs incurred with
respect to such action or proceeding.
6.7 ALTERNATIVE DISPUTE RESOLUTION.
-------------------------------
6.7.1 In the event of any dispute, claim or controversy which in any way
relates to, results from, or arises out of this Agreement, any amendment or
breach hereof or thereof, or any resulting transactions ("Dispute"), if the
Dispute cannot be settled through negotiation, the parties hereto agree to
first try in good faith to settle the Dispute by mediation under the
Commercial Mediation Rules of the American Arbitration Association, before
resorting to arbitration, as mandated below. Regardless of the outcome of
such mediation, each party shall bear its own costs, attorneys' fees and
share of mediation fees.
6.7.2 Thereafter, any remaining Dispute shall be decided by neutral
binding arbitration in accordance with the rules of the American
Arbitration Association and not by court action. Judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof; provided, however, that no arbitrator(s) shall be
permitted to award punitive damages in such arbitration proceeding.
Regardless of the outcome of such arbitration, each party shall bear its
own costs, attorneys' fees and share of arbitration fees.
6.8 EXPENSES. JMCG and FTB shall pay all expenses associated with the
---------
performance of their obligations hereunder.
6.9 COUNTERPARTS. This Agreement may be executed by the parties hereto in
-------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all of such counterparts shall together constitute one instrument.
13
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed as of the date first written above.
JMC GROUP, INC. FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By: /s/Brian J. Finneran By: /s/Paul Harless
----------------------------- ---------------------------------
Its: President Its: Sr. Vice President
---------------------------- -------------------------------
JAMES MITCHELL & CO. PRIORITY INVESTMENT SERVICES,
INC.
By: /s/Brian J. Finneran By: /s/Brian J. Finneran
----------------------------- --------------------------------
Its: President Its: President
---------------------------- -------------------------------
14
<PAGE>
EXHIBIT A
---------
CURRENT ANNUITY BLOCK PRODUCTS
PROVIDER COMPANY PRODUCT
- ----------------------------- ----------------------------------------------
Beneficial Standard Life Single Premium Whole Life
Insurance Company Single Premium Immediate Annuity
First Penn Pacific Life Single Premium Life
Insurance Company
Keyport Life Insurance Individual Deferred Annuity Flexible Payments
Company (FPDA (3))
Single Premium Immediate Annuity (SPIA)
Individual Variable Annuity Flexible Purchase
Payments (Flex (1) Variable Split Product and
Flex (4) Preferred Income Plan)
Single Premium Deferred Annuity (SPDA (3) and
SPDA (10))
Life Insurance Company of Flexible Premium Variable Deferred Annuity
Virginia Flexible Premium Variable Life
Flexible Premium Deferred Annuity
15
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
. James Mitchell & Co.
. JMC Insurance Services Corporation
. JMC Financial Corporation
. JMC Insurance Agency of New York, Inc.
. JMC Insurance Agency, Inc.
. JMC Insurance Services Corporation of Nevada
. JMC Insurance Services Corporation of Texas
. Priority Investment Services, Inc.
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post Effective Amendment No. 1
to Registration Statement No. 33-1482, Registration Statement No. 33-44354,
Registration Statement No. 33-74840, and Registration Statement No. 33-74842 of
JMC Group, Inc. on Forms S-8 of our report dated February 20, 1996 appearing in
this Annual Report on Form 10-K of JMC Group, Inc. for the year ended December
31, 1995.
/s/ Deloitte & Touche LLP
February 20, 1996
San Diego, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from JMC Group,
Inc.'s 1995 Form 10-K and is qualified in its entirety by reference to such 10-K
filing.
</LEGEND>
<CIK> 0000746425
<NAME> JMC GROUP, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 5833
<SECURITIES> 0
<RECEIVABLES> 1002
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8170
<PP&E> 1860
<DEPRECIATION> 1498
<TOTAL-ASSETS> 9512
<CURRENT-LIABILITIES> 2511
<BONDS> 0
<COMMON> 62
0
0
<OTHER-SE> 6939
<TOTAL-LIABILITY-AND-EQUITY> 9512
<SALES> 0
<TOTAL-REVENUES> 20372
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17375
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2997
<INCOME-TAX> 1256
<INCOME-CONTINUING> 1741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1741
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
