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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-12926
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JMC GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 95-2627415
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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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 [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 10, 1997 was approximately $6,213,061 representing
approximately 4,970,449 shares.
As of March 10, 1997, the registrant had 6,024,351 shares of its common
stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The discussion of the Company's business contained in this Annual Report on
Form 10-K includes certain forward-looking statements. For a discussion of
factors which may affect the outcome projected in such statements, see
"Material Customers," "Competition," "Registration and Licensing,"
"Regulation," "Legal Proceedings," "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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 and sales support services 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 JMC Investment Services,
Inc. ("JMCI"). JMC and JMCI 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. As previously reported, in January of 1996, the Company modified its
relationship with First Tennessee Bank National Association ("First Tennessee
Bank") and JMCI, which offered and sold mutual funds and annuities exclusively
to customers of First Tennessee Bank. The Company now provides support
services ("Integrated Support Services" or "ISS") for First Tennessee Bank's
internal program for which the Company earns monthly service fees. The Company
also terminated its relationship with Central Fidelity Bank, N. A. ("Central
Fidelity") at the end of 1996. 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 resulted in JMC receiving
asset fees as well as additional fees for services contracted for in the new
agreement. Central Fidelity selected the option of acquiring JMC's right to
future asset-based fee revenues and made a one time payment to JMC during 1996
for such right. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--1996 compared to
1995."
During 1996, the average monthly accumulated value of assets being serviced
for such inactive clients, including First Tennessee Bank, was over $444
million generating annual 1996 asset-based fee revenues of $1,424,000.
During 1996, the Company further restructured its operations by closing down
its Virginia operations upon the termination of its contract with Central
Fidelity. The Virginia office also serviced the Company's New York customers
so servicing of those customers was moved to its corporate office. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--1996 Compared to 1995--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
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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.
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. Mutual fund
products are generally sold directly by JMC's employees to financial
institution customers. JMC'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 and 1996, 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 intends to 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.
The Company has also developed a product wholesaling program in which the
Company will provide annuity and insurance products directly from provider
companies to the Bank while still providing tracking, processing and servicing
functions similar to those involved in managed and dual employee programs. The
Company anticipates this type of program to be available by the second quarter
of 1997 and that this program will be attractive to a large number of
financial institutions including the large and medium sized banks.
PRINCIPAL PRODUCTS
The principal investment products offered by JMC to customers of its
financial institution clients are fixed and variable annuities 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 1996, the mix of annuities and insurance products sold by JMC was as
follows: 41% fixed annuities and 59% variable and other annuities. The
corresponding product mix percentages of annuities sold by the Company in 1995
and 1994 were 65% fixed/35% variable and other and 75% fixed/25% variable and
other, respectively. Sales of annuities represented 55%, 65% and 90%,
respectively, of total sales in each of 1996, 1995 and 1994. 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Results of Operations--1996 Compared to 1995" 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 1996, such subsidiaries sold the
products of New York Life Insurance and Annuity Company, Keyport Life
Insurance Company, Aetna Life Insurance and Annuity Company, Liberty Life
Assurance Company, The Life Insurance Company of Virginia, Allianz Life
Insurance Company of North America and Transamerica Life
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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 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 from 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 1996, the Company received approximately
$4.2 million in annuity commissions and $2.4 million in asset-based fee
revenues 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--1996 Compared to 1995" related to events impacting asset-based fee
income during 1996 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, Life Insurance
Company of Virginia, entered into an agreement to be acquired by Great
Northern Annuity Company (GNA), a competitor of the Company. This acquisition
was not consummated until mid 1996 and the impact on product availability is
uncertain at this time. However, the Company continues to work with current
and prospective provider companies to ensure the availability of competitive
consumer products.
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.
In connection with the sale of annuity and insurance products, JMC does not
assume 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 mutual fund families, including Putnam, Federated, Fidelity,
Oppenheimer, Franklin-Templeton and American Capital. JMC receives commissions
for the sale of mutual fund shares and, in most instances, receives ongoing
fees for providing continuing customer service. 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 First Tennessee Brokerage, Inc. In connection with the
sale of mutual fund shares, JMC's representatives act strictly as agents and
neither company underwrites securities.
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MATERIAL CUSTOMERS
During 1996, Central Fidelity, Independence Savings Bank and First Tennessee
accounted for approximately 53%, 18% and 14%, respectively, of the Company's
commission revenues. The Company's relationship with First Tennessee Bank was
modified during 1996 and its contract with Central Fidelity expired on
December 31, 1996.
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 the end of 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
has enabled 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 no longer earns fees for the
provision of a fully managed sales program, the Company will generate revenues
in the form of minimum monthly administration fees of $25,000 through December
31, 1997. The fees may increase from such minimum level based on the success
of the bank's internal sales program. In addition, the Company earns asset-
based fee revenues on products sold through January 1996. The Company's
portion of such asset-based fee revenues increased effective January 1, 1997.
On August 30, 1996, the Company entered into a Program Agreement with
Horizon Bancorp of Beckley, West Virginia, to provide services on a fully
managed program basis. In addition, on November 6, 1996, the Company entered
into an agreement with Provest Services Corp. II, a wholly owned subsidiary of
Provident Bank, F. A., of Montebello, New York, to provide products and
services to bank customers. In both cases, it is too early to estimate the
fiscal impact of these agreements on the Company.
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 a third-party 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 licensed insurance
agents, stockbrokers and 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 relies upon the Company's sales
management and administrative procedures and systems to 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. Defined
operating procedures are implemented and sales specialists account for their
time on a daily basis by communicating with the Company's service center.
Individual sales specialists are also directly supervised by sales managers.
For its managed programs, 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
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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 for their sales representatives to offer to
their customers will continue to be important to potential client financial
institutions.
REGISTRATION AND LICENSING
JMC and certain of its subsidiaries and JMCI are required to be licensed to
do business in certain states where they transact business. In addition, JMC
Financial Corporation and JMCI are registered broker-dealers with the
Securities and Exchange Commission ("SEC"), are members of the National
Association of Securities Dealers, Inc. ("NASD") and are licensed or
registered as securities broker-dealers in certain states where they transact
business. Finally, certain of JMC's subsidiaries and JMCI 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 JMCI 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 JMCI 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 JMCI do business and the local
ordinances of each city and county in which JMC and JMCI maintain an office.
REGULATION
JMC and certain of its subsidiaries and JMCI 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."
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
January 1996, the NASD submitted for approval to the SEC, revised 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. The rules are more
comprehensive and cover areas not previously addressed by the SEC, but have
been addressed 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
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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 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.
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In January 1997, national banks were notified of the Office of the
Comptroller of the Currency's regulatory proposal concerning qualification
requirements for certain securities transactions conducted by bank employees.
If implemented, the qualification requirements would be administered by the
National Association of Securities Dealers, Inc. (NASD) and would require bank
employees to take and pass an examination as a prerequisite to engaging in the
retail securities transactions. After passing the exam, they would be required
to register with the NASD as a bank securities representative.
EMPLOYEES
As of March 10, 1997, the Company had 49 full-time employees.
ITEM 2. PROPERTIES
During 1996, the Company closed its Virginia office upon the termination of
business with Central Fidelity, and closed its Tennessee office, moving all
customer service for Tennessee and New York to the Company's corporate office.
This facility is suitable and adequate to meet the Company's requirements. The
Company intends to either renegotiate a new lease for the existing facility or
locate alternative suitable space upon expiration of the lease, as market
conditions indicate. The following is the lease for the principal facility
utilized in the Company's operations as of January 1, 1997:
Corporate Headquarters
9710 Scranton Road
Suites 100 and 120
San Diego, CA 92121
Exp. Date: October 1998
Square Footage: 14,169
ITEM 3. LEGAL PROCEEDINGS
FLORIDA LEGAL PROCEEDINGS
During March 1993, the Florida Department of Insurance (the "Department")
commenced an administrative proceeding against the Company's wholly owned
subsidiary, JMC. A Final Order was issued in July 1995, however, the
enforcement of the majority of the Final Order was stayed pending the outcome
of JMC's appeal. The District Court of Appeal, for all material matters,
affirmed the Final Order in August 1996, and in October 1996, the District
Court of Appeal denied JMC's Motion for Rehearing. In March 1997, the Florida
Supreme Court denied JMC's petition for review.
The Company has incurred most of the anticipated costs of the appeal and
management believes that amounts accrued as of December 31, 1996 will be
sufficient to cover any additional costs. Effective October 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.
OTHER PROCEEDINGS
The Company's broker-dealer subsidiary, JMCI, has been named as a defendant
in lawsuits arising out of the sale of real estate limited partnerships prior
to 1992 to customers of its predecessor. 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, and as of March 10, 1997, no such
proceedings were pending.
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USBA MARKETING AGREEMENT AND PROPOSED MERGER
The Company entered into an agreement with USBA Holdings, LTD ("USBA") in
January 1996. In connection with this transaction, the Company paid USBA $1.25
million to assist in the preparation and implementation of a five-year
marketing plan. The Company had the right to recover $1 million 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 have
been adjusted to approximately $1.44 per share under certain circumstances.
The warrants, which were exercisable after January 29, 1997, had an estimated
value of $315,000. Both the payment and the value of the warrants were
capitalized and were being amortized over an expected benefit period of five
years.
In the second quarter of 1996, the Company and USBA entered into an
Agreement and Plan of Merger and began the process of consummating such
merger. All costs associated with such merger were capitalized, beginning in
the second quarter of 1996, as these costs were expected to be included in the
purchase price upon consummation of the transaction. During the third quarter
of 1996, the Company terminated the Agreement and Plan of Merger, at which
time all costs previously capitalized in the second quarter and all costs
incurred during the third quarter related to the merger were expensed. These
merger related expenses, which amounted to $884,000, are included in the 1996
Statements of Operations, primarily within professional fees and other general
and administrative expenses.
The Company filed an action against USBA to recover costs incurred related
to the terminated Agreement and Plan of Merger and to recover fees paid for
the Marketing Agreement and for return of the warrants. During the fourth
quarter of 1996, the Company reached an agreement with USBA and received a
cash payment of $500,000, constituting a partial refund of amounts paid by the
Company under the Marketing Agreement and Consulting Agreement and payment of
a portion of the Company's expenses incurred in connection with the Agreement
and Plan of Merger, and the warrants were returned. The Company, during this
period, wrote off the remaining unamortized balance of the payment of $1.25
million, reversed the capitalization of the value of the returned warrants and
the amortization expense thereon for the first three quarters of 1996 and
recorded the recovery of $500,000. The write-off of the payment and the value
of warrants was not made until the fourth quarter as the Marketing Plan and
Marketing Agreement were in effect and the Company was working with several
financial institutions referred through the Marketing Agreement up through the
termination and settlement made in the fourth quarter.
The entire $1.25 million payment and recovery of $500,000 are included in
the line "Marketing plan payment--net of recovery" and thus, amortization of
the plan payment included in depreciation and amortization for the first three
quarters of 1996 has been reclassified to this line for more appropriate
presentation of material operating transactions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters other than election of directors at the annual meeting on October
7, 1996 were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 1996.
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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 March 10, 1997 by
approximately 234 shareholders of record with approximately 1,600 beneficial
owners. Approximately eight 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 1996 and 1995.
<TABLE>
<CAPTION>
SALES PRICES
-------------
HIGH LOW
------ ------
<S> <C> <C>
1996
First Quarter............................................. $3.125 $0.906
Second Quarter............................................ $4.125 $3.000
Third Quarter............................................. $3.688 $1.125
Fourth Quarter............................................ $1.563 $0.750
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
</TABLE>
DIVIDENDS
No dividends were paid by the Company during fiscal 1996. 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.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED ANNUAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total revenues........ $11,845,436 $20,371,860 $33,357,242 $49,318,460 $39,247,926
Income (loss) from
continuing operations
before accounting
change............... $ (502,919) $ 1,741,124 $(2,370,155) $ 4,368,141 $ 4,422,688
Income (loss) from
discontinued
operations........... $ -- $ -- $ -- $ 514,904 $(2,912,225)
Accounting change..... $ -- $ -- $ -- $ -- $ 185,000
Net income (loss)..... $ (502,919) $ 1,741,124 $(2,370,155) $ 4,883,045 $ 1,695,463
=========== =========== =========== =========== ===========
Earnings Per Share:
Income (loss) from
continuing operations
before accounting
change............... $ (0.08) $ 0.28 $ (0.36) $ 0.62 $ 0.59
Income (loss) from
discontinued
operations........... $ -- $ -- $ -- $ 0.07 $ (0.38)
Accounting change..... $ -- $ -- $ -- $ -- $ 0.02
Net income (loss)..... $ (0.08) $ 0.28 $ (0.36) $ 0.69 $ 0.23
=========== =========== =========== =========== ===========
Balance Sheet:
Total assets.......... $ 8,766,023 $ 9,511,828 $ 8,380,931 $15,426,738 $14,079,204
Total liabilities..... $ 2,248,120 $ 2,511,006 $ 3,121,233 $ 6,868,923 $ 5,430,721
Stockholders' equity.. $ 6,517,903 $ 7,000,822 $ 5,259,698 $ 8,557,815 $ 8,648,483
=========== =========== =========== =========== ===========
</TABLE>
- --------
No cash dividends were paid during 1992.
Cash dividends of $456,465 and $969,798 were paid during 1994 and 1993,
respectively.
No cash dividends were paid during 1996 or 1995.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1996
Commission revenues........... $2,763,979 $2,491,021 $2,244,812 $2,041,916
Net income (loss)*............ $ (132,242) $ (215,121) $ (682,406) $ 526,850
Earnings per share:
Net income (loss)........... $ (0.02) $ (0.03) $ (0.11) $ 0.08
========== ========== ========== ==========
1995
Commission revenues........... $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)
========== ========== ========== ==========
</TABLE>
- --------
* Non-recurring items included in the quarterly net income (loss) figures for
1996 include: (a) expenses related to the proposed merger with USBA of
$704,000 ($433,000 after-tax benefit) in the third quarter; and (b) net
gain on sale of rights to future asset-based fees of $1,844,000 ($1,189,000
after-tax provision) and the write-off of the remaining unamortized balance
of the Marketing Agreement with USBA, net of a settlement with USBA, in the
amount of $515,000 ($332,000 after-tax benefit) in the fourth quarter.
11
<PAGE>
** Non-recurring items included in the quarterly net income (loss) figures for
1995 include: (a) other revenues of $1,309,000 ($785,000 after-tax
provision) for a third party's 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 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--1996 Compared to 1995."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
When used in this Annual Report on Form 10-K, the words "expects,"
"believes," "estimates," and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties, including those set forth below and in Item 1 of this Annual
Report on Form 10-K, that could cause actual results to vary materially from
those projected. These forward-looking statements speak only as of the date
hereof. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with
regard thereto or any change in events, conditions or circumstances on which
any such statement is based.
1996 Compared to 1995
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and JMCI.
The Company reported a net loss for the year ended December 31, 1996 of
$503,000 (after providing for income tax benefit of $243,000) compared with
net income of $1,741,000 (after providing for income taxes of $1,256,000) in
1995. Included in the 1996 and 1995 results were the following:
1996:
. A net gain of $1,844,000 ($1,189,000 or $.19 per share after estimated
tax provision) on the sale of the rights to future asset-based fee
revenues to a client financial institution. The net gain is a result of
a sales price of $2.1 million less costs associated with the loss of
Central Fidelity Bank as a client of $256,000. These costs are primarily
related to closing of facilities and consolidation of personnel
functions due to the resulting loss of business created by the Central
Fidelity termination.
. Expenses net of recoveries related to a Marketing Plan and Marketing
Agreement as well as a proposed merger with USBA (all included in 1996)
as follows:
. Payment for a Marketing Plan and Marketing Agreement of $1.25
million, which had been capitalized and was being amortized over a
five-year period, written off in its entirety in the fourth quarter
of 1996 ($806,000 or $.13 per share after estimated tax benefit);
. Expenses related to the proposed merger including primarily legal,
accounting, investment banking and printing expenses of $884,000
($570,000 or $0.09 per share after estimated tax benefit); and
. Recovery on settlement of legal proceedings with USBA for amounts
paid on the Marketing Plan as well as expenses incurred on the
proposed merger of $500,000 ($322,000 or $.05 per share after
estimated tax provision).
12
<PAGE>
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. The net gain is a result
of a purchase price of $4.05 million less costs associated with the loss
of the Company's Florida operations of $136,000.
. 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.
Excluding the above-mentioned items, the Company would have reported an
after-tax loss of $639,000 (or $.10 per share after an estimated tax benefit
of $318,000) in 1996 as compared to an after-tax loss of $1,393,000 (or $0.22
per share after an estimated tax benefit of $833,000) in 1995.
Total revenues for 1996 were $11,845,000 compared to revenues of $20,372,000
in 1995, a decrease of $8,527,000 or 42%. As previously stated, revenues for
1996 and 1995 include net gains on the sale of rights to certain asset-based
fee revenues of $1,844,000 and $3,914,000, respectively, and 1995 revenues
include a payment of $1,309,000 for the right to hire certain employees and
certain other services. In addition to these revenue items, the Company earned
transition fee revenue of $250,000 and $538,000 in 1996 and 1995,
respectively. These transition fees, which were negotiated by the Company,
were intended to cover the cost of operations during a transitional period
prior to termination of the Company's relationships with certain financial
institution clients. 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 transitions are included in
total operating expenses.
Excluding the one-time payments for the right to hire certain JMC employees
in 1995 and the net gain on the sale of the rights to certain asset-based fee
revenues in 1996 and 1995, but including transition fees, revenues for 1996
would have been $10,001,000 compared to $15,149,000 in 1995 (a decrease of
$5,148,000 or 34%). This reduction in revenues is primarily attributable to
the following:
. Lower gross sales volumes which declined $67 million or 36% due
primarily to:
. The transition of the First Tennessee program as of January 31, 1996
and the termination of the Florida operations during 1995 (see also
"Trends and Uncertainties" later in this section) contributed to a
$92 million sales volume decline in 1996 vs. 1995. This decrease is
offset by an increase of $25 million from existing clients. The
Company transitioned the relationship with its Tennessee client from
sales to services on February 1, 1996 and thus sales production for
this client is not reflected after this date. The Company terminated
sales production with its Florida client after August 1995.
. A slight decrease in the gross revenue rate on products sold in 1996
compared to 1995 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 55% in 1996 compared to 65% in 1995. In addition, fixed annuity
sales as a percentage of total annuity sales were 41% in 1996 as
compared to 65% in 1995.
. A decrease of approximately $2,161,000 in asset-based fee revenue in
1996 compared to 1995. This decrease is primarily a result of the sale
of the rights to certain future asset-based fee revenues for its
Florida-based client at the end of August 1995.
13
<PAGE>
Total expenses for 1996 were $12,592,000 compared to $17,375,000 in 1995.
Excluding the previously described one-time charges of $884,000 in merger-
related expenses and $750,000 net loss on a marketing agreement, total
expenses for 1996 would have been $10,958,000, a decrease of $6,417,000 or
37%, when compared to 1995 expenses. This drop in total expenses is primarily
attributable to the following:
. A $2,472,000 or 39% reduction in fees to financial institutions due to
lower sales volume. The percentage decrease to financial institutions is
slightly more than the decrease in production due to the fact that the
fee rates on those clients with lower production volumes was greater
than the fee rates on the remaining clients or clients who had an
increase in production;
. A $284,000 or 34% reduction in salesperson's commissions also due to
lower sales volume; and
. An additional $3,661,000 or 36% reduction in base operating expenses as
a result of the following:
. The reconfiguration and ultimate termination of the Company's
Florida operations in August 1995.
. The reconfiguration of the Company's Tennessee operations in
February 1996.
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 rate.
Mutual Funds achieve the lowest gross margin rate due to the significantly
lower gross revenue rate paid on these products, even though the payout to the
Company's financial institution clients is a fixed percentage of the gross
revenue rate. During 1996, variable annuity and mutual fund sales comprised
77% of total sales compared to 58% of total sales in 1995, resulting in a
decline in the gross margin rate on total product sales in 1996 from 1995.
As previously stated, the Company transitioned its Tennessee operations from
a sales program to a services program for which it generates service fees. Due
to the restructuring of the Company's operations, the Company is able to
provide such services in a more cost efficient manner. Thus, although service
revenue is less than what was generated by sales revenue, management expects
pre-tax operating profit from such services will equal or even exceed what was
generated by sales production due to significantly reduced costs.
As of December 31,1996, the balance remaining in the restructuring reserve
was approximately $12,000, 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.
1995 Compared to 1994
General. Revenues and expenses include the accounts of the Company's
subsidiaries, JMC and JMCI.
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.
14
<PAGE>
. 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.
. 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
15
<PAGE>
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 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. 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.
16
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company had cash and cash equivalents of
approximately $4,683,000, a decrease of $1,150,000 from $5,833,000 in cash and
cash equivalents at December 31, 1995.
Significant sources and uses of such amounts during 1996 included:
. The Company generated approximately $1,800,000 related to the net gain
on sale of rights to future asset fees. This amount was generated by a
sales price of $2.1 million less $300,000 of such sale which was
received in the first quarter of 1997. The approximately $250,000 in
accrued costs associated with this transaction will impact cash flow
primarily in 1997.
. The Company paid $1,250,000 to USBA Holdings, Ltd. for a Consulting
Agreement established in connection with a five-year business plan and
$884,000 in costs associated with a proposed merger with the same
company. Upon termination of the Merger Agreement, the Company filed
suit against USBA Holdings for which it received a cash settlement in
the amount of $500,000, which payment constituted a partial refund of
amounts paid by the Company under the Marketing Agreement and Consulting
Agreement and a portion of the Company's expenses incurred in connection
with the proposed JMCG/USBA merger during the fourth quarter of 1996.
. Excluding the above-mentioned items, the Company's operations generated
a pre-tax loss of $957,000 for the year.
Note: While the Company did not realize the positive cash flow from tax
benefits during 1996, it does intend to file for a refund on prior-year
taxes paid. The Company plans to file for such refund immediately upon
completion of its 1996 tax return and anticipates in excess of $300,000
to be generated during 1997.
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
has made a diligent effort and has been successful in reducing and controlling
the level of base operating expenses since its restructuring plan was
implemented in 1994. Base monthly operating expenses decreased from
approximately $650,000 in January of 1996 to $515,000 in December of 1996.
The Company is actively pursuing new client financial institutions.
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. 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 is entitled to ongoing asset-based
17
<PAGE>
fees and 12b-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 50-55% 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. At December 31,1996, the accumulated value of
assets on which the Company will receive asset-based fee revenue was
approximately $580 million (including mutual funds paying 12b-1 fees). Asset-
based fee revenue and asset-based fee expense to financial institutions
amounted to approximately $2,705,000 and $1,558,000, respectively, in 1996.
The reduction in these amounts as compared to 1995 is primarily the result of
the sale of the rights to asset-based fees generated by the Florida operation.
Due to the sale of rights to future asset-based fees to Central Fidelity at
the end of 1996, future asset fee revenues and asset fees expensed to
financial institutions will be lower in 1997. During 1996, the Central
Fidelity assets, for which the right to future asset-based fees was sold to
the bank on December 31, 1996, generated $849,000 in asset fee revenues but
also required $631,000 in fees to the bank for a net to JMC of $218,000.
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. However, management does believe a value
exists related to the present value of the projected future net asset fees to
be retained by the Company. Such projected future net asset fees are a
function of the projected accumulated value of assets in-force multiplied by
the net asset fee rate (gross asset fee rate less amount committed to the
financial institution). The current value to the Company would then be the
discounted present value of such projected future asset fees less the present
value of an estimated cost to service the customers making up such in-force
assets. Management's belief that a present value for such future asset-based
fees exists and the estimates used to calculate the range of such value are
supported by the sale of the right to these types of future fees in 1996 and
prior years. The projected value of the future asset-based fees on the
remaining block of business at December 31, 1996 is based on assumptions as to
growth, persistency and risk adjusted discount rates. The assumptions as to
persistency and growth of the business are based on historical data maintained
by the Company since its inception. The discount rate used of between 8% and
10% is based on a risk-free rate of return plus a nominal additional factor
for risk (taking into account that risk factors are materially covered by the
estimated persistency and growth rates). Management believes the value of
these net future revenues is appropriately estimated at $6 million to $8
million, pre-tax, based on the Company's valuation calculations. Such
estimated value is based on realization of the estimates on the variables used
in the calculation (which are consistent with estimates used in prior sales of
future rights) and the actual realization, if any, could be higher or lower
than this range.
While the Company's revenue base declined during 1996 and will decline even
further in 1997 due to the termination of the Central Fidelity program, base
operating expenses have declined as well. Thus, with the approximate $4.7
million of cash at year-end coupled with the anticipated cash flow in 1997
resulting from the final installment on the Central Fidelity purchase
($300,000 in February 1997) and a tax refund (approximately $300,000 projected
for the third quarter of 1997), management expects the Company will meet its
operating and capital expenditure needs over the next twelve months, exclusive
of adding new business which would most likely generate positive cash flow for
the Company.
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.
18
<PAGE>
Declining Revenues. The Company experienced a continued decline in revenues
in 1996 as compared to 1995. The primary reason for this decline was the
termination of the Company's Florida program in August 1995 and the transition
of the First Tennessee Bank fully managed program to an Integrated Support
Services ("ISS") program effective February 1, 1996. The ISS program generates
less gross revenue but produces a comparable pre-tax contribution as the
Company's fully managed program due to the significantly reduced costs.
Based on a continuing trend of the larger financial institutions
internalizing their alternative investment product distribution and not
utilizing services of third-party marketing firms like the Company and the
exposure to low production volumes at the smaller financial institutions, the
Company has taken a strategic approach which includes the following:
. Target the small to medium sized financial institutions with the
Company's dual employee program. This offers the bank all of the
benefits of the fully managed program but requires the bank to employ
the sales force and pay salaries and benefits of such sales force.
. Offer services which are logically outsourced by financial institutions
to assist their alternative product distribution programs. Utilizing the
Company's reduced cost structure, these services can be offered to
financial institutions with competitive pricing while still allowing the
Company to realize adequate profit margins.
. Offer tracking, processing and servicing capabilities to other
institutions outside the bank marketplace.
. Offer products to the larger financial institutions in a "wholesaling"
capacity while still providing business processing and customer
servicing for the provider company and the financial institution.
In general, these new type of services offered by the Company generate less
gross revenue than the traditional fully managed program. However, with a
significantly reduced cost commitment, management believes the Company can
generate comparable pre-tax contributions and not be subject to the same
production break-even risk as was the case in the past.
19
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................... 21
CONSOLIDATED BALANCE SHEETS................................................ 22
CONSOLIDATED STATEMENTS OF OPERATIONS...................................... 23
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY................. 24
CONSOLIDATED STATEMENTS OF CASH FLOWS...................................... 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................................. 26
</TABLE>
20
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of JMC Group,
Inc. and subsidiaries as of December 31, 1996 and 1995 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, 1996.
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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
February 21, 1997
21
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................ $4,682,883 $5,832,598
Cash segregated under securities regulations......... 1,247,231 894,269
Receivables from insurance companies................. 674,409 826,971
Receivable from financial institution................ 325,000 109,450
Income taxes receivable.............................. 424,746 65,334
Deferred tax asset................................... 194,361 159,354
Other assets......................................... 243,256 281,947
---------- ----------
TOTAL CURRENT ASSETS............................... 7,791,886 8,169,923
Furniture, equipment and leasehold improvements--net of
accumulated depreciation and amortization of
$1,466,390 in 1996 and $1,498,291 in 1995............. 212,844 362,261
Asset-based fees purchased--net of accumulated
amortization of $635,836 in 1996 and $417,485 in 1995. 761,293 979,644
---------- ----------
TOTAL ASSETS....................................... $8,766,023 $9,511,828
========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accrued fees to financial institutions............... $ 321,609 $ 367,287
Customer funds segregated under securities
regulations......................................... 1,247,231 894,269
Accrued expenses and other liabilities............... 491,556 894,180
Allowance for contract cancellations................. 53,813 142,503
Accrued payroll and related expenses................. 133,911 212,767
---------- ----------
TOTAL CURRENT LIABILITIES.......................... 2,248,120 2,511,006
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 6,218,898 shares in
1996 and 6,198,898 in 1995.......................... 62,189 61,989
Additional paid-in-capital........................... 644,651 624,851
Retained earnings.................................... 5,811,063 6,313,982
---------- ----------
TOTAL STOCKHOLDERS' EQUITY......................... 6,517,903 7,000,822
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $8,766,023 $9,511,828
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
22
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Commissions............................ $ 9,541,728 $14,312,707 $32,147,555
Net gain on sale of rights to certain
future asset-based fee revenues....... 1,844,393 3,914,350 --
Interest............................... 204,505 244,401 199,530
Other.................................. 254,810 1,900,402 1,010,157
----------- ----------- -----------
TOTAL REVENUES....................... 11,845,436 20,371,860 33,357,242
----------- ----------- -----------
EXPENSES
Employee compensation and benefits..... 4,852,670 7,428,369 13,095,319
Fees to financial institutions......... 3,928,024 6,400,349 13,144,841
Professional fees...................... 1,089,861 770,121 1,514,468
Rent................................... 376,917 510,691 638,744
Telephone.............................. 142,273 231,714 474,148
Depreciation and amortization.......... 227,040 394,188 1,054,770
Other general and administrative
expenses.............................. 1,224,926 1,639,136 2,239,510
Goodwill write-off..................... -- -- 2,516,683
Restructuring charges.................. -- -- 557,002
Marketing plan payment--net of
recovery.............................. 750,000 -- --
----------- ----------- -----------
TOTAL EXPENSES....................... 12,591,711 17,374,568 35,235,485
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........ (746,275) 2,997,292 (1,878,243)
INCOME TAX PROVISION (BENEFIT)........... (243,356) 1,256,168 491,912
----------- ----------- -----------
NET INCOME (LOSS).................. $ (502,919) $ 1,741,124 $(2,370,155)
=========== =========== ===========
EARNINGS (LOSS) PER SHARE................ $ (0.08) $ 0.28 $ (0.36)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<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,
1994................... 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
transactions........... -- -- 114,453 -- 114,453
Repurchase and
retirement 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
Stock options exercised. 20,000 200 19,800 -- 20,000
Net loss for the year
ended December 31,
1996................... -- -- -- (502,919) (502,919)
--------- ------- ---------- ----------- -----------
Balances--December 31,
1996................... 6,218,898 $62,189 $ 644,651 $ 5,811,063 $ 6,517,903
========= ======= ========== =========== ===========
</TABLE>
The Company's certificate of incorporation also authorizes 5,000,000 shares
of no par value preferred stock, none of which has been issued.
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................... $ (502,919) $ 1,741,124 $(2,370,155)
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...... (1,844,393) (3,914,350) --
Realized loss on short-term
investments.......................... -- -- 72,763
Loss on sale of furniture and
equipment............................ 5,036 28,170 --
Depreciation and amortization......... 227,040 394,188 1,054,770
Marketing plan payment--net of
recovery............................. 750,000 -- --
Goodwill write-off.................... -- -- 2,516,683
Amortization of asset-based fees
purchased............................ 218,351 156,195 170,447
Deferred tax provision (benefit)...... (35,007) 265,230 496,535
Changes in assets and liabilities:
Cash segregated under securities
regulations.......................... (352,962) (846,523) (47,746)
Short-term investments................ -- 536,000 (536,000)
Receivables from insurance companies.. 152,562 598,495 587,565
Receivable from financial institution. 84,450 (109,450) --
Income taxes receivable............... (359,412) 103,658 837,228
Other assets.......................... 26,887 26,299 (64,877)
Accrued fees to financial
institutions......................... (45,678) (611,255) (630,101)
Customer funds segregated under
securities regulations............... 352,962 846,523 47,746
Accrued expenses and other
liabilities.......................... (402,624) (44,361) (434,451)
Accrued restructuring expenses........ -- (201,865) 472,804
Allowance for contract cancellations.. (88,690) (248,036) (344,968)
Accrued payroll and related expenses.. (78,856) (318,792) (109,970)
Reserve for discontinued operations... -- -- (492,836)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.......................... (1,893,253) (1,598,750) 1,225,437
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from net sale of rights to
certain future asset-based fee
revenues.............................. 1,544,393 3,914,350 --
Payment for the consulting and
marketing agreement................... (1,250,000) -- --
Recovery of payment and expenses for
consulting and marketing agreement.... 500,000 -- --
Purchase of furniture, equipment and
leasehold improvements................ (89,464) (109,677) (158,013)
Proceeds from sale of furniture and
equipment............................. 18,609 15,787 --
Purchase of short-term investments..... -- -- (2,389,463)
Redemption of short-term investments... -- -- 6,519,737
----------- ----------- -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES.......................... 723,538 3,820,460 3,972,261
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock............. -- -- (2,606,641)
Proceeds from stock options exercised.. 20,000 -- 57,360
Dividends paid......................... -- -- (456,465)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.......................... 20,000 -- (3,005,746)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... (1,149,715) 2,221,710 2,191,952
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR................... 5,832,598 3,610,888 1,418,936
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................ $ 4,682,883 $ 5,832,598 $ 3,610,888
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest.............................. $ 765 $ 1,395 $ 6,365
Income taxes.......................... $ 273,468 $ 979,550 $ 248,837
SUPPLEMENTAL DISCLOSURES OF NON-CASH
OPERATING ACTIVITIES
Depreciation charged against accrued
restructuring expenses................ $ -- $ 32,441 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND ACQUISITION
The consolidated financial statements include the accounts of JMC Group,
Inc. ("JMCG" or the "Company"), its wholly owned subsidiaries, JMC Investment
Services, Inc. ("JMCI") (formerly Priority Investment Services, Inc. which was
formerly Spear Rees & Co.) and James Mitchell & Co. and its subsidiaries
("JMC"). The Company is engaged in the business of selling and providing
support services for the sales of 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
Investment Services, Inc. Effective July 23, 1996, Priority Investment
Services, Inc. changed its name to JMCI. JMCI is registered with the
Securities and Exchange Commission and the National Association of Securities
Dealers (NASD) as a broker-dealer.
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, the Company
was notified of the termination of its contract with the last significant
client remaining from those existing at the time of the 1988 acquisition.
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.
Cash Segregated Under Securities Regulations
JMC Financial Corporation, James Mitchell & Co.'s broker-dealer subsidiary
("JMC Financial"), began self-clearing mutual fund transactions for itself and
JMCI at the end of 1994. As such, JMC Financial carries customer funds for
transactions which have been initiated but not settled as of the balance sheet
date. Cash of $1,247,231 has been segregated in a special bank account for the
benefit of customers under Rule 15c3-3 of the Securities and Exchange
Commission.
Long-Lived Assets
Statement of Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," was adopted by
the Company in 1996. The standard requires that impairment losses be
recognized when the carrying value of an asset exceeds its fair value.
The Company periodically reviews the value of its long-lived assets to
determine if an impairment has occurred. The Company measures the potential
impairment of the recorded amount by the undiscounted value of expected future
operating cash flows in relation to its net capital investment in the
subsidiaries. Based on its review, the Company does not believe that an
impairment of its long lived assets has occurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
26
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 sales are recorded on the trade date of such sale. Front
commission revenues for 1996, 1995, and 1994 were $6,470,807, $9,447,074, and
$26,628,216, 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
1996, 1995 and 1994 were $2,705,055, $4,865,633, and $5,519,339, respectively.
Beginning in 1996, the Company began providing support services related to the
sale of annuities and mutual funds with its Tennessee client. Revenue is
recognized when services have been performed. Service related fees for 1996
were $365,866 and are included in commission revenue for the year.
Fees to Financial Intermediaries
Fees to financial intermediaries consist of front commission fees and asset-
based fees. The Company records front commission fees when a sale has been
consummated as described in Revenue Recognition. Front commission fees to
financial institutions for 1996, 1995 and 1994 were $2,369,951, $3,332,006 and
$9,379,359, respectively. The Company recognizes and records asset-based fees
monthly as they become due to the financial intermediaries, based upon the
average accumulated assets in force during the month. Asset-based fees to
financial institutions for 1996, 1995 and 1994 were $1,558,074, $3,068,343 and
$3,765,482, 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 if 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. The chargeback expense associated
with this liability is reflected as a reduction in commission revenue as
previously stated in "Revenue Recognition."
Net Gain on Sale of Rights to Certain Future Asset-Based Fee Revenue
During the fourth quarter of 1996, the Company signed an agreement to
terminate its contract with its Virginia-based financial institution client.
As part of the termination agreement, the financial institution exercised its
right to purchase future asset-based fee revenues from the Company. The
Company recorded a net gain of $1,844,393 from the sale.
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 right to purchase certain
future asset-based fee revenues from the Company. The Company recorded a net
gain of $3,914,350 from the sale.
27
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Income
For 1995 and 1994, other income includes revenue received from 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. In
1996, other income includes fees of $250,000 paid to the Company by the
Company's Virginia-based financial institution client to transition the sales
operations to the financial institution. Costs incurred by the Company to
facilitate such transactions are included in expenses for each respective
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
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, 1996 was
$761,293.
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.
USBA Marketing Agreement and Proposed Merger
The Company entered into an agreement with USBA Holdings, Ltd. ("USBA") in
January 1996. In connection with this transaction, the Company paid USBA $1.25
million to assist in the preparation and implementation of a five-year
marketing plan. The Company had the right to recover $1 million 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 have
been adjusted to approximately $1.44 per shares under certain circumstances.
The warrants, which were exercisable after January 29, 1997, had an estimated
value of $315,000. Both the payment and the value of the warrants were
capitalized and were being amortized over an expected benefit period of five
years.
In the second quarter of 1996, the Company and USBA entered into an
Agreement and Plan of Merger and began the process of consummating such
merger. All costs associated with such merger were capitalized, beginning in
the second quarter of 1996, as these costs were expected to be included in the
purchase price upon consummation of the transaction. During the third quarter
of 1996, the Company terminated the Agreement and Plan of Merger, at which
time all costs previously capitalized in the second quarter and all costs
incurred during the third quarter related to the merger were expensed. These
merger related expenses, which amounted to $884,000, are included in the 1996
Statements of Operations, primarily within professional fees and other general
and administrative expenses.
The Company filed an action against USBA to recover costs incurred related
to the terminated Agreement and Plan of Merger and to recover fees paid for
the Marketing Agreement and for return of the warrants. During
28
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the fourth quarter of 1996, the Company reached an agreement with USBA and
received a cash payment of $500,000, constituting a partial refund of amounts
paid by the Company under the Marketing Agreement and Consulting Agreement and
payment of a portion of the Company's expenses incurred in connection with the
Agreement and Plan of Merger, and the warrants were returned. The Company,
during this period, wrote off the remaining unamortized balance of the payment
of $1.25 million, reversed the capitalization of the value of the returned
warrants and the amortization expense thereon for the first three quarters of
1996 and recorded the recovery of $500,000. The write-off of the payment and
the value of warrants was not made until the fourth quarter as the Marketing
Plan and Marketing Agreement were in effect and the Company was working with
several financial institutions referred through the Marketing Agreement up
through the termination and settlement made in the fourth quarter.
The entire $1.25 million payment and recovery of $500,000 are included in
the line "Marketing plan payment--net of recovery" and thus, amortization of
the plan payment included in depreciation and amortization for the first three
quarters of 1996 has been reclassified to this line for more appropriate
presentation of material operating transactions.
NOTE 3. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases an office facility and equipment under the terms of
operating leases which expire through 1998. At December 31, 1996 the aggregate
minimum annual noncancelable lease commitments are as follows:
<TABLE>
<CAPTION>
MINIMUM
AGGREGATE
YEAR ENDING DECEMBER 31, RENTALS
------------------------ ---------
<S> <C>
1997........................................................ $352,783
1998........................................................ 180,307
--------
$533,090
========
</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, 1997 the Company had two offices which were being
subleased. The net obligation on such offices, included in the above minimum
aggregate rentals, is included in accrued expenses and other liabilities as of
December 31, 1996.
LEGAL MATTERS
Florida Legal Proceedings
During March 1993, the Florida Department of Insurance (the "Department")
commenced an administrative proceeding against the Company's wholly owned
subsidiary, JMC. A Final Order was issued in July 1995, however, the
enforcement of the majority of the Final Order was stayed pending the outcome
of JMC's appeal. The District Court of Appeal, for all material matters,
affirmed the Final Order in August 1996, and in October 1996, the District
Court of Appeal denied JMC's Motion for Rehearing. In March 1997, the Florida
Supreme Court denied JMC's petition for review.
The Company has incurred most of the anticipated costs of the appeal and
management believes that amounts accrued as of December 31, 1996 will be
sufficient to cover any additional costs. Effective October 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 8, Barnett Bank accounted for revenues of
$10,239,630 and $20,176,680 during 1995 and 1994, respectively.
29
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Other Matters
The Company's broker-dealer subsidiary, JMCI, has been named as a defendant
in lawsuits arising out of the sale of real estate limited partnerships prior
to 1992 to customers of its predecessor. 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, and of March 10, 1997, no such
proceedings were pending.
NOTE 4. FURNITURE, EQUIPMENT, AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Furniture, equipment and leasehold improvements
consist of:
Furniture and fixtures.......................... $ 621,247 $ 858,151
Computer equipment.............................. 1,007,262 959,440
Leasehold improvements.......................... 50,725 42,961
----------- -----------
1,679,234 1,860,552
Less:
Accumulated depreciation and amortization..... (1,466,390) (1,498,291)
----------- -----------
Net furniture, equipment and leasehold
improvements.................................... $ 212,844 $ 362,261
=========== ===========
</TABLE>
NOTE 5. STOCKHOLDERS' EQUITY
Common Stock
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. In January of
1997, the Company repurchased 194,547 shares of common stock from a former
officer and director at a price of $1.00 per share.
Stock Compensation Plans
At December 31, 1996, the Company has three stock-based compensation plans
which are described below. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation." Accordingly, no compensation cost has been
recognized for the stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair market value at the grant
date for awards in 1996 and 1995, consistent with the provisions of SFAS No.
123, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
Net income (loss)
As reported....................................... $(502,919) $1,741,124
Pro forma......................................... $(510,093) $1,692,197
Earnings (loss) per share
As reported....................................... $ (0.08) $ 0.28
Pro forma......................................... $ (0.08) $ 0.27
</TABLE>
The assumption regarding the stock options issued in 1995 and 1996 was that
100% of such options vested in the respective year rather than the actual
vesting schedules which range from one year to three years.
The impact of outstanding non-vested stock options granted prior to 1995 has
been excluded from the pro forma calculation; accordingly, the 1996 and 1995
pro forma adjustments are not indicative of future period pro
30
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
forma adjustments, when the calculation will apply to all applicable stock.
The estimated fair value of options granted is subject to the assumptions
illustrated below and if the assumptions changed, the estimated fair value
amounts could be significantly different.
The fair value of options granted during 1996 and 1995 was estimated at
$11,000 and $82,000, respectively, on the date of grant using the Black-
Scholes option-pricing model with the following weighted average assumptions
by respective year:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Dividend yield rate................................... 0% 0%
Volatility rate....................................... 122% 70%
Risk free interest rate............................... 6.04% 5.25%
Expected lives........................................ 3 years 3 years
</TABLE>
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 1996, 1995,
and 1994 follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTION PRICE
SHARES PER SHARE
-------- -------------
<S> <C> <C>
Stock options outstanding at December 31, 1993..... 254,000 $1.380-11.000
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
1996
Granted............................................ 25,000 $0.969- 3.750
Canceled or exercised.............................. (107,000) $0.750- 4.000
-------- -------------
Outstanding at December 31, 1996................... 430,000 $0.625-11.000
======== =============
</TABLE>
31
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Of the 25,000, 218,000 and 243,000 options granted in 1996, 1995 and 1994
respectively, options granted under the Executive Plan amounted to 12,000 for
1996, 152,000 for 1995 and 170,000 for 1994. Options granted under the
Employee Plan amounted to 13,000 in 1996, 66,000 in 1995 and 73,000 in 1994.
The 430,000 options outstanding at December 31, 1996 became or will become
exercisable as follows: 328,001 shares in 1996 and prior; 66,000 in 1997;
28,666 in 1998; and 7,333 in 1999. As of December 31, 1996, options to
purchase 546,834 shares had been exercised under the 1983 Plan and options for
93,000 shares were outstanding. As of December 31, 1996, 482,000 shares were
available for future grants under the Executive Plan and 661,000 shares were
available for future grants under the Employee Plan. As of December 31, 1996,
a total of 1,593,000 shares were reserved for issuance under the Plans.
NOTE 6. EARNINGS PER SHARE
Earnings per share for 1996 and 1994 were computed based upon the weighted
average number of shares of common stock during such periods. Earnings per
share for 1995 was computed based upon the weighted average number of shares
of common stock and common stock equivalents outstanding during the period.
The weighted average number of shares outstanding for 1995 was adjusted to
reflect the dilutive effect of the assumed exercise of stock options using the
treasury stock method.
For earnings per share purposes, the weighted average number of shares of
common stock and common stock equivalents outstanding for the periods
presented is as follows: 6,218,898 in 1996; 6,201,318 in 1995; and 6,494,388
in 1994.
In February of 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share
(EPS). This statement requires the presentation of earnings per share to
reflect both "Basic EPS" as well as "Diluted EPS" on the face of the income
statement. In general, Basic EPS excludes dilution created by stock
equivalents and is a function of the weighted average number of common shares
outstanding for the period. Diluted EPS does reflect the potential dilution
created by stock equivalents if such equivalents are converted into common
stock and is calculated in the same manner as fully Diluted EPS illustrated in
Accounting Principals Board Opinion No. 15 "Earnings Per Share" ("APB
No. 15").
The Company will be required to adopt the new method of reporting EPS for
the year ending December 31, 1997. The Company's EPS as reflected in this
document includes Basic EPS for 1996 and 1994 and Diluted EPS for 1995 due to
the rules of APB No. 15 and the use of stock equivalents only when they are
dilutive.
Based on the Company's capital structure, the anticipated results of
implementing SFAS No. 128 would reflect EPS materially in the same manner as
currently reported.
32
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7. INCOME TAXES
The provision (benefit) for income taxes is allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
(Benefit) Provision........................ $(243,356) $1,256,168 $ 606,365
Additional tax deduction due to stock
option transactions........................ -- -- (114,453)
--------- ---------- ---------
Total.................................... $(243,356) $1,256,168 $ 491,912
========= ========== =========
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Current:
Federal................................... $(166,680) $ 792,750 $ 86,843
State..................................... (41,669) 198,188 22,987
--------- ---------- ---------
(208,349) 990,938 109,830
Deferred................................... (35,007) 265,230 496,535
Additional tax deduction due to stock
option transactions........................ -- -- (114,453)
--------- ---------- ---------
Total.................................... $(243,356) $1,256,168 $ 491,912
========= ========== =========
</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>
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Expected tax (benefit) using statutory
rate...................................... $(253,734) $1,019,079 $ (638,603)
Effects of:
State income taxes, net of Federal tax
benefit................................. 9,642 178,039 (109,051)
Nondeductible amortization.............. -- -- 1,212,585
Other................................... 736 59,050 26,981
--------- ---------- ----------
Total................................... $(243,356) $1,256,168 $ 491,912
========= ========== ==========
</TABLE>
At December 31, 1996 and 1995, the components of the deferred income tax
asset are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Allowance for contract cancellations...................... $ 21,493 $ 56,916
Accrued restructuring expenses............................ 4,617 24,111
Accrued payroll and related expenses...................... 102,016 69,161
Other..................................................... 6,084 (22,760)
Franchise taxes........................................... 60,151 31,926
-------- --------
Deferred taxes.......................................... $194,361 $159,354
======== ========
</TABLE>
33
<PAGE>
JMC GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8. MAJOR CUSTOMERS
During the years ended December 31, 1996, 1995 and 1994, the following
client financial institutions individually accounted for 10% or more of the
Company's total revenues:
<TABLE>
<S> <C>
1996
Central Fidelity National Bank (Virginia)....................... $ 7,373,399
Independence Savings Bank (New York)............................ $ 1,716,939
First Tennessee Bank (Tennessee)................................ $ 1,346,557
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
</TABLE>
As described in Note 3, the Company's relationship with Barnett Banks, Inc.
was terminated effective October 31, 1995.
Effective February 1, 1996, the Company's level of service provided to First
Tennessee Bank was reduced from a fully managed alternative investments
program to an administrative support program.
As described in Note 2, effective December 31, 1996, the Company's
relationship with Central Fidelity National Bank was terminated.
NOTE 9. 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.
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.
34
<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
Incorporated by reference from information contained in the Proxy Statement
for the 1997 Annual Meeting of Stockholders under the headings "DIRECTORS AND
EXECUTIVE OFFICERS" and "SECURITY OWNERSHIP--Compliance with Section 16(a) of
the Securities Exchange Act of 1934."
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information contained in the Proxy
Statement for the 1997 Annual Meeting of Stockholders under the headings
"EXECUTIVE COMPENSATION" and "BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information contained in the Proxy
Statement for the 1997 Annual Meeting of Stockholders under the heading
"SECURITY OWNERSHIP."
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, 1996 and 1995
Consolidated Statements of Operations For the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity For the
Years Ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows For the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
(a)(2) Not applicable.
35
<PAGE>
(a)(3) The following exhibits are filed herewith:
<TABLE>
<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, between
Spear Financial Services, Inc. and First Interstate Bank, Ltd., as
Rights Agent, as amended effective, July 16, 1992.*
m10.1 JMC Group, Inc. 1993 Employee Stock Option Plan.**
m10.2 JMC Group, Inc. 1993 Executive 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 Company,
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
Insurance 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.*****
10.9 Assignment of Renewal (Asset) Fees and Notice of Assignment of
Renewal (Asset) Fees between James Mitchell & Co., JMC Financial
Corporation and JMC Insurance Services Corporation and Barnett
Annuities Corporation and the Acknowledgment and Consent to
Assignment 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 Financial
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 between
JMC Group, Inc., James Mitchell & Co., JMC Insurance Services
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 Services,
Inc., and First Tennessee Bank National Association.*****
10.15 Termination and Assignment Agreement dated December 31, 1996 between
James Mitchell & Co., JMC Insurance Services Corporation, JMC
Financial Corporation and Central Fidelity National Bank.
</TABLE>
36
<PAGE>
<TABLE>
<C> <S>
10.16 Settlement and Mutual Release dated November 20, 1996 between JMC
Group, Inc., James K. Mitchell, D. Mark Carlson, Simon C. Baitler,
Kevin L. Rakin, USBA Holdings, Ltd., James P. Cotton, Jr., Ronald D.
Wallace and Louie W. Moon.
10.17 Nondeposit Investment Sales Agreement dated November 6, 1996 between
James Mitchell & Co., JMC Insurance Agency of New York, Inc., JMC
Financial Corporation, Provest Services Corp. II and Provident Savings
Bank, F. A. with sample sublease and sub-sublease.
10.18 Program Agreement dated August 30, 1996 between James Mitchell & Co.,
JMC Insurance Services Corporation, JMC Financial Corporation and
Horizon Bancorp, Inc. with sample lease attached.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
27 Financial Data Schedule
</TABLE>
- --------
* 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.
***** Filed as an exhibit to the Registrant's Form 10-K for the Fiscal Year
ended December 31, 1995.
m Management Contract or Compensatory Plan or Arrangement.
(b) No current reports on Form 8-K were filed by the Company during the
fourth quarter of fiscal year 1995.
37
<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 31st day of March, 1997.
JMC Group, Inc.
/s/ James K. Mitchell
By:____________________________
James K. Mitchell
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ James K. Mitchell
- ------------------------------------ March 31, 1997
<S> <C> <C>
James K. Mitchell Chairman and Chief
Executive Officer
<CAPTION>
/s/ D. Mark Carlson
- ------------------------------------ March 31, 1997
<S> <C> <C>
D. Mark Carlson Chief Financial Officer and
Principal Accounting
Officer
<CAPTION>
/s/ Edward J. Baran
- ------------------------------------ March 31, 1997
<S> <C> <C>
Edward J. Baran Director
<CAPTION>
/s/ Barton Beek
- ------------------------------------ March 31, 1997
<S> <C> <C>
Barton Beek Director
<CAPTION>
/s/ Charles H. Black
- ------------------------------------ March 31, 1997
<S> <C> <C>
Charles H. Black Director
<CAPTION>
/s/ Herbert Kawahara
- ------------------------------------ March 31, 1997
<S> <C> <C>
Herbert Kawahara Director
<CAPTION>
/s/ Robert G. Sharp
- ------------------------------------ March 31, 1997
<S> <C> <C>
Robert G. Sharp Director
<CAPTION>
/s/ Donald E. Weeden
- ------------------------------------ March 31, 1997
<S> <C> <C>
Donald E. Weeden Director
</TABLE>
38
<PAGE>
EXHIBIT 10.15
TERMINATION AND ASSIGNMENT AGREEMENT
This Termination and Assignment Agreement (this "Agreement") is executed
this 31st day of December, 1996, effective December 31, 1996, by and between
CENTRAL FIDELITY NATIONAL BANK ("CFB") and JMC Group, Inc., James Mitchell & Co.
and JMC Financial Corporation, (collectively "JMC")
R E C I T A L S
On June 4, 1992, JMC and CFB entered into that certain Services Agreement
pursuant to which JMC and its Subsidiaries agreed to provide certain services to
CFB.
CFB 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. CFB and JMC previously have manifested their intent to terminate
the Services Agreement by execution and delivery of two letters of understanding
dated July 11, 1996 and December 23, 1996 (the "Letters of Understanding"). In
connection with the termination of the Services Agreement, CFB has agreed to
purchase and JMC has agreed to sell, transfer and assign all of its right, title
and interest to (1) all asset and renewal fees earned after December 31, 1996 in
connection with annuity contracts sold to CFB customers by JMC since the date of
inception (the "Asset Fee Income") and (2) all 12b-1 fees earned after December
31, 1996 in connection with non-Market Watch funds sold to CFB customers by JMC
since the date of inception (the "12b-1 Fee Income")
JMC and CFB have entered into certain other agreements and letters of
understanding in addition to the Services Agreement as set out below:
(i) a Mutual Fund Services Agreement dated June 4, 1992, and Supplements
and Amendments thereto, by and among James Mitchell & Co. and JMC Financial
Corporation and CFB (the "Mutual Fund Agreement"),
(ii) a Trust Agreement, dated June 4, 1992, by and between James Mitchell
& Co. and CFB (the "Trust Agreement"),
(iii) an Option Agreement, dated June 4, 1992, by and among James Mitchell
& Co. and CFB (the "Option Agreement"),
(iv) a Subcontractor Shareholder Servicing Agreement, dated January 27,
1993, by and among JMC Financial Corporation and CFB,
(v) a letter of understanding, dated July 11, 1996, and
(vi) a second letter of understanding, dated December 23, 1996
<PAGE>
(collectively (i) through (iv), the "Existing Agreements" and
collectively, (v) and (vi), the "Letters of Understanding").
Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to those terms in the Services Agreement or the Existing
Agreements, 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:
ARTICLE I.
TERMINATION AND ASSIGNMENT
1.1 Termination of Services Agreement. The parties hereby acknowledge
---------------------------------
that the Existing Agreements shall be terminated effective December 31,1996
provided, however, that the indemnification provisions of the Existing
Agreements and such other provisions of the Existing Agreements and Letters of
Understanding which define the responsibilities and duties of the parties after
December 31, 1996, shall survive termination.
1.2 Assignments.
-----------
(a) JMC agrees, and agrees to cause its wholly-owned subsidiaries, to
(i) sell, assign, transfer and convey to CFB, 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 December 31, 1996 from Keyport Life Insurance Company and The
Life of Insurance Company of Virginia, (collectively, the "Provider Companies")
as a result of sales of annuity contracts sold to CFB customers by JMC from June
4, 1992 to and including December 31, 1996, and (ii) to execute any and all
documents reasonably required in connection with the JMC Assignment in
accordance with the Services Agreement.
(b) JMC agrees, and agrees to cause its wholly-owned subsidiaries, to
(i) sell, assign, transfer and convey to CFB, or its designee, all of JMC's
right, title and interest in and to the 12b-1 Fee Income earned by JMC or its
Subsidiaries after December 31, 1996 as a result of sales of mutual funds sold
to CFB customers by JMC from June 4, 1992 to and including December 31, 1996,
and (ii) to execute any and all documents reasonably required in connection with
the JMC Assignment.
1.3 Consideration. The parties agree to make the following termination
-------------
payments in accordance with the Existing Agreements and the Letters of
Understanding:
(a) The agreed to present value of the future asset fees for annuities
and 12b-1 fees for non-Market Watch funds as of and at December 31, 1996 shall
be two million one hundred thousand dollars ($2,100,000).
<PAGE>
The purchase price shall be paid in two installments. The first
installment of $1,800,000 shall be paid on December 31, 1996 by wire transfer,
according to instruction. The second component of $300,000 shall be paid on
February 14, 1997.
(b) pursuant to the terms of the letter of understanding dated July
11, 1996, a transition fee in the amount of $250,000, payable in accordance with
the terms of that letter.
(c) On or prior to February 14, 1997, JMC shall provide CFB with a
reconciliation of:
(i) any Asset Fee Income earned after December 31,1996 and
received by JMC from the Provider Companies;
(ii) any 12b-1 Fee Income earned after December 31,1996 and
received by JMC from the Investment Companies; and
(iii) any Chargebacks processed by the Provider Companies on or
after December 31, 1996 which Chargebacks were deducted from amounts paid to
JMC.
It is understood and agreed that upon obtaining the amounts
identified in subsection 1.3(c)(i) and (ii) hereto, JMC will promptly pay CFB
the amounts set forth and CFB will promptly reimburse JMC for the amounts set
forth in subsection 1.3(c)(iii) above. JMC and CFB 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.
1.4 Virginia-based Sales Personnel. The separate July 11, 1996 letter of
------------------------------
understanding between JMC and CFB relating to CFB's right to hire certain of
JMC's Virginia-based sales personnel shall remain in full force and effect and
CFB shall continue to make all payments due JMC thereunder.
ARTICLE II.
SALES AND SERVICING
2.1 Future Sales. JMC hereby acknowledges that, effective January 1, 1997
------------
CFB is free of any restrictions imposed by the Existing Agreements with respect
to offering annuity and mutual fund products directly to its customers. CFB
shall be entitled to continue to offer to its customers annuity and mutual fund
products previously designed and offered by JMC ("JMC Products). CFB shall be
entitled to receive all compensation related to any future sales of annuity and
mutual fund products, including premiums, asset fees, front end loads and 12b-1
fees. To the extent CFB has not entered into contracts with any Provider Company
or mutual fund, Customers will need to contact any such Provider Company or
mutual fund directly if they wish to make additional purchases and neither JMC
nor CFB will receive any compensation in connection with such additions.
<PAGE>
2.2 Chargebacks. In the event any 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 CFB agree CFB is financially responsible for all Chargebacks processed
by the Provider Companies on and after January 1, 1997. Such Chargebacks shall
be deducted from the Asset Fee Income otherwise payable by the Provider
Companies to CFB or paid to JMC by CFB as provided in Section 1.3(c) hereof.
2.3 Sales Management and Compliance. On and after January 1, 1997, CFB
-------------------------------
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:
(a) Supervision, management and compensation of the annuity and mutual
fund 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, asset fee and 12b-1 fee accounting with the
exception of accounting on the existing block prior to the JMC Assignment
of the Asset Fee Income and 12b-1 fee income to CFB.
2.4 Customer Complaints.
-------------------
(a) On and after January 1, 1997, CFB shall have complete and sole
responsibility for the research and investigation 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 CFB, 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
Existing Agreements ("Customer Complaints") which arise on and after
January 1, 1997, 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 January 1,
1997. 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 or
mutual fund concerning the Customer Complaint. In the event JMC receives
any Customer Complaints on and after January 1, 1997, it will forward them
promptly to CFB.
<PAGE>
(b) JMC shall have complete and sole responsibility for the resolution
of all Customer Complaints which are listed on the attached Schedule 3.4.
(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 relating to the sale
of JMC Products prior to January 1, 1997, 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 Provider Company, mutual
fund or such Regulator and CFB, 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 unless CFB is otherwise liable under the
indemnification provisions of the Existing Agreements.
(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 CFB in connection with the research and
investigation of any Customer Complaint.
(e) CFB shall undertake a complete investigation of all Customer
Complaints as provided in Section 2.4(a) hereof and its recommendation for
resolution and shall provide JMC with a copy of its complete file on any
Customer Complaint for which it seeks reimbursement from JMC pursuant to
indemnification provisions of the Existing Agreements. 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 CFB or its employees or agents, any written documentation provided
by the licensed representative who sold the product at issue, the confidential
customer profile and the customer disclosure form, if any. CFB 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, CFB agrees that no licensed representative of CFB 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 CFB or any officer or employee of CFB 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.
<PAGE>
ARTICLE III.
JMC REPRESENTATIONS AND WARRANTIES
3.1 Corporate Authority. Each of the JMC entities are California
-------------------
corporations, 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 to perform its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby.
3.2 Enforceability of Agreement. The execution, delivery and performance of
---------------------------
this 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 constitutes 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).
3.3 Effect of Agreement. The execution and delivery of this Agreement and
-------------------
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) any agreement, indenture or other instrument to which JMC is
a party or by which it is bound except for agreements with Provider companies
that require the consent of such companies to the assignment of JMC's rights
which consents are being requested (See Section 3.5 and attachments hereto);
(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) 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.
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 December 15, 1996,
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 CFB 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 January 1, 1997 will be delivered to CFB to be handled as provided in
Section 2.4 hereof.
<PAGE>
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 CFB which would
enable CFB to continue to sell JMC Products through its annuity sales program.
ARTICLE IV.
CFB REPRESENTATIONS AND WARRANTIES
4.1 Corporate Authority. CFB is a national banking, duly organized, validly
-------------------
existing and in good standing under the laws of the United States and has all
requisite corporate power and authority to enter into this Agreement and to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
4.2 Enforceability of Agreement. The execution, delivery and performance of
---------------------------
this Agreement by CFB and the consummation by CFB of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. This Agreement constitutes legal, valid and binding
obligations of CFB enforceable against it in accordance with its 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).
4.3 Effect of Agreement. The execution and delivery of this 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 CFB 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
CFB is a party or by which it is bound; (ii) the Articles of Incorporation or
Bylaws of CFB; (iii) the Trust Agreement; (iv) any judgment, decree, order or
award of any court, governmental body or arbitrator by which CFB is bound; or
(v) any law, rule or regulation applicable to CFB, 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 CFB has not obtained.
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
<PAGE>
addition, CFB 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.
MISCELLANEOUS
6.1 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 CFB, to: CENTRAL FIDELITY NATIONAL BANK
1021 East Cary Street
Richmond, VA 232119
Attn.: Rick Arthur, Senior V. P.
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
6.2 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 non-prevailing party shall reimburse the
prevailing party for all reasonable attorney's fees and court costs incurred in
connection therewith.
6.3 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.
6.4 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, CFB or Trustee, by virtue of one
of the parties being deemed the draftsman of this Agreement.
6.5 Severability. Any provision of this Agreement which is invalid, illegal
------------
or unenforceable shall be ineffective to the extent of such invalidity,
illegality or unenforceability,
<PAGE>
without affecting in any way the remaining provisions hereof or rendering any
other provision of this Agreement invalid, illegal or unenforceable.
6.6 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.
6.7 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 CFB.
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 Richmond, VA.
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 CFB 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.
6.8 Confidentiality. Neither CFB nor JMC shall disclose any information or
---------------
make any public announcement with respect to this Agreement prior to its
execution. JMC and CFB will coordinate the content and timing of any internal
and public announcements regarding this Agreement.
6.9 Applicable Law. This Agreement is governed by, and shall be construed
--------------
and enforced in accordance with, the laws of the State of Virginia, except such
laws that would render this choice of laws ineffective.
6.10 Entire Agreement. This Agreement evidences the entire agreement of the
----------------
parties hereto with respect to the subject matter hereof. The terms and
conditions of this Agreement shall supersede any conflicting terms and
conditions of the Letters of Understanding.
<PAGE>
This Agreement has been executed by the parties hereto as of the date first
above written.
JMC GROUP, INC.
JAMES MITCHELL & CO.
JMC INSURANCE SERVICES CORPORATION
JMC FINANCIAL CORPORATION
By: /s/ Daniel M. Harkins
-----------------------------------
Daniel M. Harkins,
Senior Vice President and General
Counsel
CENTRAL FIDELITY NATIONAL BANK
By: /s/ Erich A. Arthur
-----------------------------------
Authorized Officer
<PAGE>
EXHIBIT 10.16
GENERAL SETTLEMENT AND MUTUAL RELEASE AGREEMENT
-----------------------------------------------
JMC GROUP, INC., a Delaware corporation ("JMCG"), James K. Mitchell, D.
Mark Carlson, Simon C. Baitler, Kevin L. Rakin, USBA HOLDINGS, LTD., a Georgia
corporation ("USBA"), James P. Cotton, Jr., Ronald D. Wallace, and Louie W. Moon
hereby enter into this General Settlement and Mutual Release Agreement dated as
of November 20, 1996 (hereinafter the "Agreement") for the purpose of
compromising all disputes between them (and/or any of their agents, employees,
attorneys, successors and assigns), including those disputes pending in an
action styled JMC Group, Inc. v. USBA Holdings, Ltd., James P. Cotton, Jr.,
-------------------------------------------------------------
Louie W. Moon and Ronald D. Wallace v. JMC Group, Inc., James K. Mitchell, D.
- -----------------------------------------------------------------------------
Mark Carlson, Simon C. Baitler, and Kevin L. Rakin, Civil Action File No. 96-
- --------------------------------------------------
1775-K-JFS, United States District Court for the Southern District of California
(hereinafter the "Litigation").
WITNESETH
WHEREAS, it is the mutual desire of the parties to this Agreement to
resolve and to settle all claims and disputes between them, including those at
issue in the Litigation and otherwise as provided for herein;
NOW, THEREFORE, for the consideration hereinafter set forth, together with
the premises, mutual promises and covenants contained herein, and such other
good and valuable consideration, the receipt, adequacy and sufficiency of which
are hereby acknowledged by each of the parties to this Agreement, the parties
agree as follows:
1. MUTUAL RELEASE AMONGST THE PARTIES
---------------------------------------
A. Except as provided for in this Agreement, each party to this Agreement
for herself, himself or itself and her, his or its successors, assigns, heirs,
executors, administrators and personal representatives, hereby fully releases,
remises, acquits and forever discharges the other party/parties to this
Agreement and their/her, his or its allied, affiliated, parent and associated
companies and their/her, his or its officers, agents, attorneys, accountants
(including without limitation Gross, Collins & Cress, P.C.), employees and
servants from any and all claims, demands, actions, causes of action, damages,
obligations, losses and expenses of whatsoever kind or nature arising out of any
acts, omissions, transactions, transfers, happenings, violations, promises,
contracts, agreements, facts or situations which occurred or existed at any time
before the execution of this Agreement, whether or not now known or suspected or
claimed, whether in law, admiralty, arbitration, administrative, equity or
otherwise, and whether accrued or hereafter maturing, including, but not limited
to, any and all claims, counterclaims, damages, demands, actions or causes of
action of any kind or nature that have been asserted or that could have been
asserted by any party in the Litigation.
B. It is expressly understood and agreed that any and all consideration
received, as herein described, is in full accord and satisfaction and in
compromise of disputed claims, and that
<PAGE>
the payment and receipt thereof is not an admission of liability, but is made
for the purpose of terminating disputes in litigation and all other disputed
matters amongst the parties to this Agreement, and that there is no
understanding or agreement amongst the parties of any kind for any further or
future consideration whatsoever, implied or expected, or to come to or among the
parties, except as set forth in this Agreement.
C. The parties to this Agreement acknowledge that except as stated in
this Agreement, no representations of fact or opinion have been made by any
other party or anyone acting in his, her, their or its behalf to induce this
compromise with respect to the nature of the damages or issues of liability, and
this Release shall be complete as to all matters referred to in this Agreement.
2. DISMISSAL OF THE LITIGATION
--------------------------------
The parties hereto agree that their attorneys shall sign and file with the
United States District Court for the Southern District of California, within
five (5) days after the date of this Agreement, a stipulation of voluntary
dismissal of the Litigation, with prejudice, and that a true and correct copy of
the stipulation of voluntary dismissal that shall be signed and filed is
attached hereto as Exhibit A. JMCG shall cooperate with USBA in any reasonable
efforts USBA shall undertake to cause all public records regarding the
Litigation to be permanently sealed or to cause any portion of the Litigation to
be stricken from the record.
3. CONSIDERATION
------------------
A. Upon the execution of this Agreement, USBA shall pay and JMCG shall
receive the sum of $500,000.00 in the form of a wire transfer to the client
trust account of JMCG's attorney of record, which payment shall constitute a
partial refund of amounts paid by JMCG under the Consulting Agreement described
below and a payment of a portion of JMCG's expenses incurred in connection with
the proposed JMCG/USBA merger.
B. Upon the execution of this Agreement, the Consulting Agreement dated
January 26, 1996, the Marketing Agreement dated January 29, 1996 and the Merger
Agreement dated as of May 20, 1996, each between USBA and JMCG, shall be
terminated in their entirety and be of no further force nor effect and neither
party shall have any duties, obligations or liabilities to the other thereunder
as a result of any such termination, and any other business relationship between
JMCG and USBA, whether evidenced by a writing or otherwise, shall also be
terminated in its entirety without liability of either party to the other as a
result thereof.
C. Upon the execution of this Agreement, the Warrant to purchase
1,000,000 Shares of Common Stock of JMC Group, Inc. issued by JMCG to USBA on
January 29, 1996 shall be canceled and terminated in its entirety and be of no
further force nor effect. Within five (5) days of the execution of this
Agreement, USBA shall deliver the original of said Warrant to JMCG free and
clear of any liens, claims or encumbrances.
<PAGE>
4. ACKNOWLEDGMENT
-------------------
The parties to this Agreement acknowledge that they have read the terms of
this Agreement, that these terms are fully understood by each of them, that they
each have entered into this Agreement voluntarily, with full knowledge of the
effect thereof and upon the advice of counsel.
5. CONFIDENTIALITY
--------------------
Promptly after the execution of this Agreement, JMCG will issue a press
release in the form of Exhibit B hereto. All communications by any party to
this Agreement or anyone acting on their behalf regarding the Litigation or this
Agreement, whether oral or written, will be consistent with and limited to the
substance of such press release, except where required by law, governmental
regulation or stock exchange requirements. In any event, any filings or
statements that contain information describing the financial terms of the
settlement contained herein or from which such financial terms could be derived
will also contain the description of such payments contained in Section 3A of
this Agreement.
6. BENEFIT
------------
The terms and conditions of this Agreement shall be binding upon, and inure
to the benefit of, the parties to this Agreement, their heirs, successors,
assigns, transferees, administrators, representatives and trustees.
7. ENTIRE AGREEMENT
---------------------
This Agreement, together with the stipulation or order of dismissal of the
Litigation, with prejudice, shall constitute the entire agreement between the
parties and anyone acting for, associated with or employed by any party to this
Agreement concerning all matters and supersedes any prior discussions,
agreements or understandings, and there are no promises, representations or
agreements between the parties hereto or anyone acting for, associated with or
employed by any party hereto, except as provided herein. Each party to this
Agreement represents and warrants that, other than as recited herein, there has
been no reliance, inducement, representation or agreement causing, affecting or
in connection with this Agreement. No representation or promise not included in
this Agreement is binding on any party to this Agreement or anyone acting for,
associated with or employed by any party hereto.
8. MODIFICATION; WAIVER
-------------------------
A. No person is or will be authorized by any party to this Agreement
orally to modify, terminate or waive any provision of this Agreement or orally
to make any additional or other agreement relating to this Agreement or its
subject matter. Any discussion or conversation pertaining to any such
modification, termination, waiver or additional or other agreement is to be
considered preliminary and non-binding. If any such modification, termination,
waiver or additional or other agreement is in the future authorized by or to be
binding on a party hereto, it shall be set forth in writing signed on behalf of
such party.
<PAGE>
B. No waiver with respect to any portion of this Agreement shall apply to
any other portion of the Agreement, and a waiver on one occasion shall not be
deemed to be a waiver of the same of any other breach on a future occasion. No
course of dealing by any party, and no failure, omission, delay or forbearance
by any party in exercising such party's rights or remedies shall be deemed a
waiver of any such rights or remedies or modification of this Agreement.
9. CAPTIONS
-------------
The captions used herein are for the convenience of the parties to this
Agreement only and shall not be deemed to be a part of this Agreement and shall
have no independent significance or bear upon the intent of the parties hereto.
10. PRESUMPTIONS
------------------
This Agreement has been drafted mutually among the parties hereto, and the
parties expressly acknowledge and agree that no presumption, interpretation or
construction of this Agreement shall be made either for or against the drafter
or drafters of this Agreement.
11. COUNTERPARTS
------------------
This Agreement may be executed simultaneously in one or more counterparts,
each of which shall be deemed an original, all of which together shall
constitute one and the same document. Facsimile signatures on this Agreement
shall be deemed to be effective signatures for all purposes.
12. COOPERATION OF THE PARTIES HEREIN
---------------------------------------
Each of the parties hereto agrees, by its signature hereon, that they shall
cooperate with each other in the execution and delivery of all documents
necessary to consummate the intent of this Agreement.
13. SEVERABILITY
------------------
If any provision of this Agreement shall, to any extent, be held invalid,
illegal or unenforceable, in whole or in part, the validity, legality, and
enforceability of the remaining part of such provision, and the validity,
legality and enforceability of the other provisions of this Agreement shall not
be affected thereby. Any provision of this Agreement which is held invalid,
illegal or unenforceable in any jurisdiction shall not be deemed invalid,
illegal or unenforceable in any other jurisdiction.
<PAGE>
14. ASSIGNMENT
----------------
Neither this Agreement nor any right, remedy, obligation or liability
arising hereunder or by reason hereof, shall be assignable by any party, without
prior written consent of the other party or parties.
15. FURTHER ASSURANCES
------------------------
The parties to this Agreement shall execute, deliver, acknowledge or supply
such further documents, instruments and assurances as shall be reasonably
necessary or appropriate to carry out the full intent and purposes of this
Agreement.
16. USE OF TERMS
------------------
Use of the terms "herein", "hereto", "hereby", "hereunder", "hereof",
"hereinbefore", "hereinafter", and other equivalent words refer to this
Agreement in its entirety and not solely to the particular portion of the
Agreement in which such word is used. Reference to "this Article", "this
Section", or a similar reference to a specific part of this Agreement shall
refer to the particular Article, Section or specific part in which such
reference appears.
17. CIVIL CODE SECTION 1542
-----------------------------
Each party hereto expressly waives any and all rights under Section 1542 of
the Civil Code of the State of California, and any like provision or principal
of common law in any foreign jurisdiction. Section 1542 provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected her
settlement with the debtor."
This, notwithstanding the provision of Section 1542, and for the purpose of
implementing a full and complete release and discharge of all parties released
herein, each party hereto expressly acknowledges that this Agreement is intended
to include in its effect, without limitation, claims and causes of action,
against any other party hereto, which they do not know or suspect to exist in
their favor at the time of execution hereof, and that this Agreement
contemplates extinguishment of all such claims and causes of action.
18. ATTORNEY'S FEES
---------------------
If any party employs counsel to enforce this Agreement, the prevailing
party shall be entitled to recover its reasonable attorneys' fees and court
costs in addition to any other remedy it may obtain or be awarded.
<PAGE>
19. GOVERNING LAW
-------------------
This Agreement shall be construed and interpreted in accordance with
the laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals on the day
and year first above written.
JMCGROUP, Inc.
By: /s/James K. Mitchell
---------------------
Title: Chairman, CEO
--------------
/s/James K. Mitchell
--------------------
James K. Mitchell
/s/D. Mark Carlson
------------------
D. Mark Carlson
/s/Simon C. Baitler
-------------------
Simon C. Baitler
/s/Kevin L. Rakin
-----------------
Kevin L. Rakin
USBA HOLDINGS, LTD.
By: /s/Ronald D. Wallace
---------------------
Title: President & CEO
---------------
/s/James P. Cotton, Jr.
-----------------------
James P. Cotton, Jr.
/s/Louie W. Moon
----------------
Louie W. Moon
/s/Ronald D. Wallace
--------------------
Ronald D. Wallace
<PAGE>
David E. Kleinfeld (110734)
PILLSBURY MADISON & SUTRO, L.L.P.
101 West Broadway, Suite 1800
San Diego, CA 92101-8219
(619) 234-5000
ATTORNEYS FOR PLAINTIFF
William H. Boice
Admitted pro hac vice
KILPATRICK & CODY
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
(404) 815-6500
ATTORNEYS FOR DEFENDANTS
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA
<TABLE>
<CAPTION>
- -----------------------------
<S> <C>
)
JMC GROUP, INC., )
a Delaware corporation ) Civil No. 96-1775K(JFS)
Plaintiff, )
)
vs. )
)
USBA HOLDINGS, LTD., a ) MUTUAL STIPULATION OF
Georgia corporation; JAMES ) VOLUNTARY DISMISSAL WITH
P. COTTON, JR., an ) PREJUDICE
individual, LOUIE W. MOON, )
an individual, RONALD D. )
WALLACE, an individual, )
)
Defendants, )
)
vs. )
)
JMC GROUP, INC., a )
Delaware corporation; )
JAMES K. MITCHELL, an )
individual; D. MARK )
CARLSON, an individual; )
SIMON C. BAITLER, an )
individual; and KEVIN L. )
RAKIN, an individual, )
)
Defendants-in- )
Counterclaim )
_____________________________
</TABLE>
EXHIBIT A
<PAGE>
Pursuant to Fed. R. Civ. P. 41(a)(1)(ii), plaintiff hereby dismisses all of
its claims against the defendants, with prejudice.
Pursuant to Fed. R. Civ. P. 41(a)(1)(ii), defendants hereby dismiss all of
their counterclaims against the plaintiff and the defendants-in counterclaim,
with prejudice.
<TABLE>
<S> <C>
____________________________ ___________________________________
David E. Kleinfeld (110734) John H. Stephens (#82971)
PILLSBURY MADISON & SUTRO LLP ROBBINS & KEEHN
101 West Broadway, Suite 1800 530 B Street, 24th Floor
San Diego, CA 92101-8219 San Diego, CA 92101
(619) 234-5000 (619)232-1700
___________________________________
William H. Boice
Stephen E. Hudson
David Hopkins
Admitted pro hac vice
KILPATRICK & CODY, LLP
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
(404) 815-6500
ATTORNEYS FOR DEFENDANTS
</TABLE>
<PAGE>
EXHIBIT 10.17
NONDEPOSIT INVESTMENT SALES AGREEMENT
This NONDEPOSIT INVESTMENT SALES AGREEMENT (this "Agreement") is entered
into as of November 6, 1996, by and among JAMES MITCHELL & CO., a California
corporation, and its subsidiaries, JMC INSURANCE AGENCY OF NEW YORK, INC., a New
York corporation and JMC FINANCIAL CORPORATION, a California corporation
(collectively, JMC Insurance Agency of New York, Inc. and JMC Financial
Corporation shall be referred to as the "Subsidiaries") (collectively, James
Mitchell & Co. and the Subsidiaries shall be referred in this Agreement to as
"JMC"), and Provest Services Corp. II ("Provest"), a wholly owned subsidiary of
Provident Savings Bank, F. A. ("BANK"), a federal savings association, with
reference to the following:
RECITALS
A. JMC desires to provide certain nondeposit savings and investment
products to existing and prospective customers of BANK ("Purchasers") through
Provest and to render certain services required in connection therewith through
JMC's employees and agents.
B. Provest desires that JMC provide such products and services to customers
of Provest and BANK.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and undertakings set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, JMC
and Provest agree as follows:
ARTICLE I:
LEASES AND SUBLEASES
1.1 Provest and JMC intend to enter into lease agreements in substantially
the form set forth in Appendix A hereto (hereafter each lease so entered into
shall be referred to as a "Lease") and sublease agreements substantially in the
form set forth in Appendix B hereto (hereafter each sublease so entered into
shall be referred to as a "Sublease"). Neither this Agreement nor any Lease or
Sublease is intended to represent or create a partnership or joint venture
between Provest and JMC. No sales activity hereunder shall take place at a
Branch (as defined in Section 1.2 hereof) unless or until a Lease or Sublease
for such Branch is fully executed by all necessary parties.
1.2 Each branch ("Branch") of BANK for which a Lease or Sublease is signed
shall, if and to the extent necessary for regulatory purposes only, be deemed a
branch of JMC and accordingly may be inspected, during normal business hours, by
governmental authorities with which JMC is registered or licensed to conduct
business and by any self-regulatory organizations of which JMC is a member.
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1.3 JMC, by virtue hereof, shall have the right to inspect each Branch
during normal business hours, to ensure that Provest is in compliance with the
terms of this Agreement. At each Branch, Provest shall provide an area with
reasonable office furnishings for use by one Sales Specialist (as hereinafter
defined). Each such area shall be in a segregated and distinct area of the
Branch. A sign on or near the desk, or on the office itself, will disclose that
JMC is a distinct and separate entity from and not affiliated in any way with
BANK or Provest. The nature, size and location of such signs shall be determined
by mutual agreement of JMC, Provest and BANK. The Sales Specialists will also
carry and distribute business cards to distinguish themselves from employees of
BANK and Provest.
1.4 Additional Branches may be added hereto from time to time by mutual
consent of the parties, provided that a Lease or Sublease for each additional
Branch is fully executed by all necessary parties.
ARTICLE II:
DUTIES OF JMC
2.1 JMC shall design and implement a program to market insurance, annuity,
mutual fund and other nondeposit investment products of the types set forth in
Schedule A hereto, which shall be specifically agreed upon by JMC and Provest,
in writing, from time to time (the "Nondeposit Products"), to potential
Purchasers through JMC's employees and agents (the "Program"). JMC agrees that
Provest shall have the right, for any reason or no reason, to refuse to allow
the offering of any specific Product type. The Program shall be approved in
advance of its implementation by Provest. JMC shall provide everything
necessary to implement the Program, including the following:
2.1.1 Design and implementation of a business plan for the promotion
of the Program. Schedule B hereto sets forth the parameters for the business
plan (the "Business Plan") for the Program. In connection with the Business
Plan, JMC and the Nondeposit Product providers shall provide all necessary
promotional materials for the Program and the Nondeposit Products, including,
without limitation, information manuals and brochures, materials for direct
mailing, counter display cards and other advertising and promotional materials
to be used in connection with the sale of the Nondeposit Products and the
implementation of the Program.
2.1.2 All necessary administrative forms required in connection with
the implementation of the Business Plan and the Program.
2.1.3 Initial and ongoing training to those of BANK and/or Provest's
personnel who will have contact with the public or who will supervise such
personnel. The training shall, in the judgment of JMC and Provest, be sufficient
to insure compliance by BANK and Provest with applicable laws and regulations
and to enable Provest to fulfill its obligations hereunder and shall familiarize
such personnel with appropriate procedures for referring Purchasers to JMC's
employees to obtain Program-related information and/or services. In addition,
such training shall familiarize BANK and/or Provest's personnel with the
administrative and back office support
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services provided by JMC hereunder. Provest shall make its personnel available
for such training at reasonable and mutually agreed upon times.
2.1.4 A reasonable number of appropriately trained, licensed and
insured Sales Specialists ("Sales Specialists") to promote the Program and to
sell the Nondeposit Products in accordance with the Business Plan, provided,
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however that, in the event Provest does not adequately support the Program in
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accordance with the Business Plan, JMC may, in its sole discretion, reduce the
number of Sales Specialists assigned to the Program to meet the actual
appointment referral levels of the Program at that time. Provest shall be deemed
to be adequately supporting the Program if Provest averages twenty (20)
Qualified Appointments (as such term is defined in Schedule B, Section IV. A.
attached hereto) per week for each Sales Specialist assigned to the Program
during any six (6) month period. In the event Provest fails to meet the average
Qualified Appointment levels, Provest shall not be in Default (as that term is
defined in Section X) under this agreement and JMC's sole recourse shall be the
reduction of the number of Sales Specialists assigned to the Program. Each Sales
Specialist and all supervisory sales personnel shall be employed by JMC on a
full time basis and shall be compensated by salary plus incentive payments.
Before designating the Sales Specialists who will be assigned to the Program,
JMC shall discuss with Provest the appropriateness of such Sales Specialists,
including their qualifications, experience and educational background for such
function and no Sales Specialist shall be assigned to, or continue in, the
Program without the written consent of Provest, which may be revoked at any
time. Without limiting the foregoing, no Sales Specialist shall be assigned to
the Program who has been investigated by any regulatory agency or by JMC for
regulatory violations, misrepresentation or fraudulent activity of any nature
pertaining to the business of JMC. The training provided by JMC to the
designated Sales Specialists and other sales personnel shall enable them
accurately to describe the Program and the Nondeposit Products and to provide
all necessary and advisable sales and administrative services in accordance with
applicable laws and regulation. In addition, such training shall provide the
designated Sales Specialists and other sales personnel with sufficient knowledge
of BANK's products and procedures to ensure effective cross-referrals.
2.1.5 Management and supervision of all Sales Specialists, including
the implementation of control activities for all sales personnel.
2.1.6 All necessary administrative and back office support services for
the Program, including, without limitation, accounting, record keeping services
and sales administrative services. JMC's records shall include records of
complaints and their resolution, reports of its regulatory agency, sales
practice reviews, and related correspondence provided to it by securities
regulatory authorities. JMC shall make any records it maintains in connection
with the Program available to Provest and BANK and its examining agency during
normal business hours upon reasonable notice. JMC may delegate to, or utilize
the record keeping facilities of, any Nondeposit Product provider where such
record keeping services are performed by such provider in the ordinary course of
its business, so long as such records shall be equally available to Provest and
BANK and its examining agency.
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2.1.7 Notwithstanding the foregoing, JMC consents to examination and
supervision by any and all federal banking agencies from time to time exercising
jurisdiction over BANK or Provest, including, among others, the Office of Thrift
Supervision (the "OTS), the Federal Deposit Insurance Corporation (the "FDIC")
and the Securities and Exchange Commission (the "SEC") (collectively, the
"Banking Agencies") during its normal business hours.
2.1.8 Except as set forth in this Agreement, all costs and expenses
incurred by JMC pursuant to this Agreement are not reimbursable by Provest,
directly or indirectly.
2.1.9 JMC shall conduct the Program in compliance with the written
policies and procedures of Provest, as amended from time to time, provided such
written policies and procedures have been previously made available to JMC and
JMC has not notified Provest and BANK in writing of its inability to comply with
specifically identified policy or procedure.
2.1.10 In order that Provest can perform its monitoring and
supervisory functions, JMC shall furnish to Provest on the tenth day of each
month reports with respect to the prior month, which shall include a list of all
new account openings and initial trades; a list of significant or unusual (for
the customer) individual sales; a list of all written and oral customer
complaints and a description of their resolutions; sales reports by product,
salesperson and location; internal compliance review of accounts originated at
Provest and copies of reports furnished JMC by its regulator.
2.2 Ongoing customer support services for the Program in accordance with
the Performance Standards set forth in Schedule C hereto.
2.3 Subject to Section 3.4 of this Agreement, JMC shall be responsible for
ensuring that the Program and the manner in which it is implemented comply with
all applicable state and federal securities, insurance and banking laws and
regulations and shall obtain all necessary licenses and regulatory approvals to
the extent such compliance is within JMC's control. Without limiting the
foregoing, JMC acknowledges that it possesses expertise in respect of such
compliance matters, and shall advise BANK and Provest regarding the requirements
for compliance with all such laws and regulations, including, among other
things, compliance with the Interagency Statement on Retail Sales of Nondeposit
Investment Products, dated February 15, 1994, as amended and interpreted from
time to time (the "Interagency Statement"). JMC acknowledges and understands
that BANK and Provest will cooperate with and act in reliance upon JMC's advice
and instructions regarding said compliance. Further, JMC shall comply, cause its
employees and agents to comply and shall use its best efforts to cause all
Nondeposit Product providers to comply, with all applicable state and federal
securities, insurance and banking laws and regulations to the extent such
compliance is within JMC's control. JMC shall perform all compliance procedures
required to be performed by it by applicable securities, insurance and banking
laws and regulations in connection with the Program and the promotion and sale
of the Nondeposit Products. Information regarding such procedures and
certification of compliance therewith shall be provided to BANK or Provest upon
reasonable request. JMC shall cooperate with BANK and Provest in implementing
any similar compliance procedures required by any Banking Agency and shall
furnish BANK or Provest with any data and all documentation
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which is requested by BANK or Provest in order for it to comply with applicable
state and federal securities, insurance and banking laws and regulations.
2.4 Upon the request of Provest or BANK, any Banking Agency or BANK's
external auditor, JMC, including its agents and representatives, shall provide
such entity access to all records, documentation or information maintained by
JMC in respect of this Agreement, the Business Plan and the sale of any of the
Nondeposit Products contemplated by this Agreement.
2.5 In addition to those duties and obligations set forth in this Article
II, JMC's duties and obligations under this Agreement shall include, without
limitation, the duties and obligations set forth in Section II of Schedule C
hereto. In performing its duties and obligations under this Agreement, JMC shall
use its best efforts to adhere to the performance standards set forth in Section
I of Schedule C hereto and to accomplish the objectives set forth in Section IV
of the Business Plan.
2.6 JMC may, but shall not be obligated to, advertise the Nondeposit
Products in such media and by such methods as the parties mutually determine to
be appropriate after consultation regarding the propriety, legality and
advisability of such advertising, including, among other things, an annual
advertising budget. To the extent advertising materials relate to the Nondeposit
Products, or the offering and sale thereof, their form and content shall be
determined solely by JMC, who shall comply with applicable law and assume all
liability for such advertising. In no event shall JMC conduct any advertising
relating to the Program, BANK and/or Provest in Rockland County, New York,
without prior written consent of BANK and/or Provest. In no event shall JMC use
BANK's and/or Provest's name, logo or other identification in any such material
without the prior written consent of BANK and/or Provest.
ARTICLE III:
DUTIES OF PROVEST
To the extent permitted by applicable law and the Banking Agencies, Provest
shall cooperate fully with JMC in the implementation of the Program in the
manner set forth herein and the Business Plan and shall cause its employees to
support the efficient day-to-day functioning of the Program without, however,
participating in the marketing and sale of the Nondeposit Products. Provest
shall use its best efforts to assure active participation by its employees in
the implementation of the Program and the Business Plan through appropriate
communication in a variety of existing internal media.
In addition to those duties set forth in this Article III, Provest's duties and
obligations under this Agreement shall include, without limitation, the duties
and obligations set forth in Section III of Schedule C hereto. In performing
its duties and obligations under this Agreement, Provest shall use its best
efforts, consistent with applicable law, to accomplish the objectives set forth
in Section IV of the Business Plan.
If requested by JMC, BANK and Provest shall, to the extent possible and at
reasonable times, make its premises available for seminars relating to the
Program and for meetings between
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JMC's personnel and potential Purchasers, so long as such may be done without
engendering confusion between nondeposit investment products and bank deposits.
BANK and Provest shall comply with all applicable rules and regulations of any
state organization or Banking Agency or any governmental agency with
jurisdiction over the Program and the Nondeposit Products. In addition, BANK
and Provest shall comply with all applicable rules and regulations of the
National Association of Securities Dealers, Inc., the SEC and any other
organization or governmental agency with jurisdiction over the sale of the
Nondeposit Products as such rules and regulations are interpreted by BANK and/or
Provest, and to the extent such rules and regulations apply to BANK and/or
Provest. To the best of JMC's knowledge and belief, at the date of this
Agreement, BANK and Provest are/were in compliance with any applicable NASD
rules. In regard to all such compliance matters, BANK and Provest will,
pursuant to paragraph 2.3 of this Agreement, cooperate with and may act in
reliance upon JMC's advice and instruction.
Prior to a Sales Event (as hereinafter defined), Provest shall establish
policies and procedures as required by the Interagency Statement. Such policies
and procedures shall be adopted and reviewed periodically by Provest's
personnel. The term "Sales Event" shall mean the first time that any Nondeposit
Product is "offered" or "sold" as those terms are used in any applicable law or
regulation.
ARTICLE IV:
REPRESENTATIONS AND WARRANTIES OF JMC
JMC represents and warrants as follows:
4.1 Each of James Mitchell & Co. and JMC Financial Corporation is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of California. JMC Insurance Agency of New York, Inc. is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of New York. Each of James Mitchell & Co. and each of the
Subsidiaries has all requisite corporate power and authority to enter into this
Agreement and any other agreement or document (including, without limitation,
the Leases and the Subleases) executed in connection herewith (the "Other
Agreements"), to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
4.2 The execution, delivery and performance of this Agreement and the Other
Agreements by James Mitchell & Co. and each Subsidiary and the consummation by
James Mitchell & Co. and each Subsidiary of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action. This
Agreement and the Other Agreements constitute legal, valid and binding
obligations of James Mitchell & Co. and each Subsidiary enforceable against
James Mitchell & Co. and each Subsidiary 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
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equitable principles of law in certain circumstances (whether such provisions
are considered in a proceeding at law or in equity).
4.3 The execution, delivery and performance of this Agreement and the Other
Agreements 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 James Mitchell & Co. or any Subsidiary is a party or
by which it is bound; (ii) the Articles of Incorporation and Bylaws of James
Mitchell & Co. or any Subsidiary; (iii) any judgment, decree, order or award of
any court, governmental body or arbitrator by which James Mitchell & Co. or any
Subsidiary is bound; or (iv) any law, rule or regulation applicable to James
Mitchell & Co. or any Subsidiary.
4.4 There are no actions, suits or proceedings ("Actions"), pending or
threatened against, affecting or related to, James Mitchell & Co. or any
Subsidiary, in equity or otherwise, arising out of any alleged or actual
agreement or contract to which James Mitchell & Co. or any Subsidiary is or was
a party which Action would materially and adversely affect the ability of James
Mitchell & Co. or any Subsidiary to perform its obligations hereunder or under
any of the Other Agreements. Except as previously disclosed in public releases,
none of James Mitchell & Co. nor its Subsidiaries are or have reason to believe
they may become, the subject of any investigation by any banking, securities or
insurance regulatory agency, or any criminal investigation. None of them have
been, whether or not upon its consent, the subject of any disciplinary action by
any such regulatory agency nor a civil order because of any crime or alleged
crime.
4.5 James Mitchell & Co. and each Subsidiary are qualified to do business
in the State of New York. James Mitchell & Co. or one of its Subsidiaries is a
duly licensed broker-dealer. James Mitchell & Co. owns 100% of the outstanding
capital stock of the Subsidiaries free and clear of any and all liens, claims,
charges and encumbrances. James Mitchell & Co. may, from time to time, form
additional wholly-owned subsidiaries. Upon delivery to Provest: (a) of a
certification by appropriate officers of James Mitchell & Co. that the
representations and warranties set forth in this Article IV are true and correct
with respect to such additional subsidiary as of the date of such certificate;
(b) a modification to this Agreement that such subsidiary agrees to be bound by
the terms hereof; and (c) financial information regarding the capitalization of
such subsidiary acceptable to Provest, said newly-formed subsidiary shall be
considered a Subsidiary hereunder.
4.6. James Mitchell & Co. and each Subsidiary has, or prior to the first
Sales Event will have, all licenses, permits and other governmental permission
and authority necessary to perform its obligations under this Agreement and the
Other Agreements, and shall provide Provest with evidence acceptable to Provest
of compliance with this requirement. Furthermore, James Mitchell & Co. and each
Subsidiary shall maintain said licenses, permits, permission and authority for
the duration of the Program.
4.7 JMC Financial Corporation shall maintain the minimum net capital
required to operate its business in accordance with all applicable rules and
regulations of any regulatory or
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self-regulatory agency with jurisdiction over it. JMC shall maintain adequate
liability insurance for its operations. JMC shall provide Provest with evidence
of compliance with these requirements upon BANK's or Provest's request. Among
other things, JMC agrees: (i) to cause American Home Assurance Company to name
Provest as an additional insured in respect of professional liability policy no.
2416826 (the "Policy"); and (ii) to maintain levels of coverage on the Policy
equal to or exceeding the levels of coverage existing as of the date of this
Agreement. JMC will provide a certificate from its carrier reflecting the above
coverage.
ARTICLE V:
REPRESENTATIONS AND WARRANTIES OF PROVEST
Provest represents and warrants as follows:
5.1 Provest is a wholly owned service corporation subsidiary of BANK, a
federally-chartered savings association duly organized and validly existing
under the laws of the United States. Provest has all requisite corporate power
and authority to enter into this Agreement and the Other Agreements, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby.
5.2 The execution, delivery and performance of this Agreement and the Other
Agreements by Provest and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action.
This Agreement and the Other Agreements have been or will be approved by
Provest's board of directors by a duly adopted resolution authorizing a
corporate officer to execute said agreements for Provest. This Agreement and the
Other Agreements constitute legal, valid and binding obligations of Provest
enforceable against Provest 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).
5.3 The execution, delivery and performance of this Agreement and the Other
Agreements 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 Provest is a party or by which it is bound; (ii) the
charter and bylaws of Provest; (iii) any judgment, decree, order or award of any
court, governmental body or arbitrator by which Provest is bound; or (iv) any
law, rule or regulation applicable to Provest.
ARTICLE VI:
COVENANTS OF JMC
JMC covenants and agrees as follows:
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6.1 The provider of any Nondeposit Product shall have a good reputation
for integrity and for providing full value to its customers. Each Nondeposit
Product offered by JMC shall be competitive in value with similar products
available to the public. Without limiting the generality of the foregoing, each
insurance provider of fixed annuities or life insurance policies shall, at all
times when its Nondeposit Product is being offered to potential Purchasers, have
an A.M. Best Rating of at least A (Excellent) or have one other rating of at
least AA-from Standard & Poor's or equivalent from Duff & Phelps or Moody's. JMC
shall provide Provest with due diligence materials on each annuity and insurance
Nondeposit Product provider. The due diligence materials on any annuity and
insurance Nondeposit Product provider shall be updated by JMC on a quarterly
basis so long as this Agreement remains in force.
6.2 The representations and warranties of JMC in Article IV of this
Agreement shall remain true and correct in all material respects at all times
during the term of this Agreement.
6.3 JMC shall perform its duties and obligations as set forth in this
Agreement, including, among other things, JMC's obligations as set forth in
Article II hereof.
6.4 Except as required by law, JMC shall not disclose any non-public
information concerning BANK or Provest or actual or potential Purchasers which
non-public information was acquired by it in connection with carrying out its
duties hereunder or under the Other Agreements, nor shall JMC utilize such
information in any aspect of its business other than as required to carry out
its duties hereunder or thereunder. Without limiting the foregoing, customer
lists of BANK and Provest, including demographic and other data relating to
their business, shall remain confidential and shall not be sold, transferred or
used for any purpose other than marketing efforts contemplated by this
Agreement. Upon the termination of this Agreement, any and all such proprietary
information shall be returned to Provest by JMC, except to the extent JMC is
required to retain such books and records should it continue to act in the
capacity of servicing agent for Provest or as otherwise required by law. This
paragraph shall not obligate BANK or Provest to provide to JMC any information
regarding BANK or Provest customers, and, in fact, BANK or Provest will not
share customer information with JMC except as specifically authorized by a
customer or as otherwise required by law.
6.5 Unless JMC first obtains the consent of BANK and Provest, JMC shall
not solicit BANK and Provest customers for any type of banking services which
BANK and Provest may currently or hereafter provide during the term of this
Agreement; provided, however that JMC will solicit Purchasers to purchase BANK's
or Provest's products from time to time as contemplated by the terms of this
Agreement.
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ARTICLE VII:
COVENANTS OF PROVEST
Provest covenants and agrees as follows:
7.1 BANK and Provest shall not, directly or indirectly, sell the
Nondeposit Products or establish a sales program which offers competing products
or services to its retail banking customers while this Agreement is in effect,
provided, however, that any deposit product that is eligible for insurance by
the Federal Deposit Insurance Corporation shall not be deemed to violate this
limitation. This Section 7.1 shall not prohibit BANK or Provest from investing
assets held by it as trustee in competing annuity or mutual fund products nor
shall it prohibit BANK or Provest from providing Asset Management Services and
financial advice.
7.2 BANK and Provest shall not disseminate to any of its customers any
information or make any representation specifically describing any Nondeposit
Product. No employee of BANK or Provest, acting within the scope of his/her
employment, shall solicit or assist in the preparation of applications for any
Nondeposit Product or provide any advice with respect to any Product. In
connection with any such inquiry, in accordance with procedures to be approved
by JMC, Provest's employees shall limit their activities to: (a) referring
Purchasers and potential Purchasers to JMC so that they may obtain information
and assistance from properly licensed employees of JMC; and (b) making available
to Purchasers and potential Purchasers generic materials concerning the Program.
7.3 In no event may Provest bind JMC to any annuity or other insurance
contract or vary the terms of any such contract.
7.4 The representations and warranties of Provest in Article V of this
Agreement shall remain true and correct in all material respects at all times
during the term of this Agreement, except that Provest may change Provest's
charter as long as Provest maintains corporate authority to engage in Program
activities.
7.5 Provest shall perform its duties and obligations as set forth in this
Agreement, including, among other things, Provest's duties under Article III
hereof.
ARTICLE VIII:
INDEMNIFICATION AND CUSTOMER COMPLAINTS
8.1 JMC hereby agrees to indemnify and hold harmless BANK (and its
subsidiaries, affiliates, officers, directors, agents or employees) and Provest
(and its subsidiaries, affiliates, officers, directors, agents or employees)
from and against any and all liabilities, claims, actions, proceedings, suits,
damages, losses, penalties, judgments, costs, expenses, fines, disbursements and
other obligations of any kind or nature whatsoever (including, among other
things, reasonable attorneys' fees and other expenses of investigation,
defense, litigation and settlement, whether or not a law suit or a request for
arbitration is filed) regardless of when the same shall be made or incurred by
Provest or BANK, whether prior to or after the termination of this Agreement (a
"Claim") which Claim is based upon, asserted in connection with, arises out of,
or in any way relates to, this Agreement or the Other Agreements, or to any
action taken or not taken by Provest or BANK hereunder; provided, however, that
this indemnification shall not
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apply to any Claim to the extent the associated damages were caused by the gross
negligence or willful misconduct of Provest or BANK, any of their employees or
agents in the failure of Provest or BANK to perform its duties and obligations
under this Agreement or the Other Agreements.
8.2 Provest agrees to indemnify and hold harmless JMC (and its
subsidiaries, affiliates, officers, directors, agents or employees) from and
against any and all Claims made or incurred by JMC, whether prior to or after
the termination of this Agreement which Claim is based upon, asserted in
connection with, arises out of, or in any way relates to this Agreement or the
Other Agreements and results, from the gross negligence or willful misconduct of
Provest or any of its employees or agents in the failure of Provest to perform
its duties and obligations under this Agreement or the Other Agreements;
provided, however, that this indemnification shall not apply to any Claim whose
associated damages were caused by the gross negligence or willful misconduct of
JMC, any of its employees or agents in the failure of JMC to perform its duties
and obligations under this Agreement or the Other Agreements.
8.3 Provest shall: (a) promptly provide JMC copies of written complaints by
Purchasers; (b) promptly notify JMC of oral complaints by Purchasers which come
to its attention; and (c) report to JMC, in writing, any alleged violation of
law, rule or regulation or any of JMC's standards of conduct by JMC's employees
which Provest gains knowledge of through a Customer Complaint (as hereinafter
defined) or otherwise. Provest shall transmit such notifications and reports to
JMC in a manner designed to give JMC prompt notice; provided, however, that the
failure of BANK to provide notice in accordance with this Section 8.3 shall not
constitute negligence, gross negligence or willful misconduct that will defeat a
claim for indemnification by Provest pursuant to Section 8.1 of this Agreement.
During the term of this Agreement, JMC shall be responsible for investigating
and resolving all complaints from Purchasers concerning the Program ("Customer
Complaints"). 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 Purchaser, any JMC
officer, director, employee or agent, or any provider company concerning the
Customer Complaint and the payment of all sums and other compensation which JMC
shall determine in its sole judgment is merited under the circumstances. As a
matter of policy, JMC will seek to resolve all Customer Complaints which in its
sole judgment it believes arose because:
8.3.1 JMC or its employees or agents affirmatively or negligently
misrepresented any material term of a Nondeposit Product at the time it was
sold;
8.3.2 JMC or its employees or agents failed to make any disclosures
required by law; or
8.3.3 Any Nondeposit Product sold to a Purchaser was not a suitable
investment for the Purchaser; or
8.3.4 JMC or its employees or agents violated a law, rule or
regulation for which a right of action has been recognized that entitles the
Customer to monetary damages or to equitable relief.
<PAGE>
8.4 Unless any of the above criteria are met, JMC is not obligated to make
any monetary payment to a complaining Purchaser. Provest agrees that JMC shall
not be obligated to indemnify it for a Customer Complaint pursuant to Section
8.3 of this Agreement should Provest agree to reimburse or make similar payments
to a Customer based solely upon customer relations and not upon any of the
factors set forth in Section 8.3 hereof.
ARTICLE IX:
PUBLICITY
JMC, Provest and BANK shall coordinate all publicity relating to this
Agreement or any matters contemplated hereby or related hereto, and, except as
required by law, neither shall issue any press release or publicity statement or
make any other public notice or statement relating hereto without the prior
consent of the other.
ARTICLE X:
DEFAULT
Any one of the following events shall constitute a default hereunder (a
"Default"):
10.1 A failure by any party to pay when due any amount required to be paid
under this Agreement, or under any of the Leases or Subleases entered into
pursuant to the terms of this Agreement; provided that such failure to pay
remains uncured for a period of thirty (30) days after written notice is given
by the other party hereto;
10.2 The representations or warranties made by any party herein or in any
statement or certificate at any time given in writing pursuant hereto shall be
or become false in any material respect which materially and adversely affects
such party's ability to perform its obligations hereunder or under any of the
Other Agreements;
10.3 Any party hereto shall fail to perform, or comply with, any other
covenant, term or condition or obligation contained in this Agreement or the
Other Agreements and such failure shall have not been remedied or waived within
thirty (30) days after written notice thereof is given by the other party
hereto.
10.4 The entry of a decree or order by a court of competent jurisdiction
for relief in respect of James Mitchell & Co. or any Subsidiary under Title 11
of the United States Code, 11 U.S.C. Section 101 et seq., or any other
applicable federal or state bankruptcy, insolvency or other similar law, and the
continuance of any such decree or order unstayed and in effect for a period of
30 consecutive days.
10.5 The appointment of a receiver, liquidator, assignee, trustee,
sequestrator or other similar official for 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.
<PAGE>
10.6 The filing by James Mitchell & Co. or any Subsidiary under Title 11 of
the United States Code, 11 U.S.C. Section 101 et.seq., 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 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;
10.7 The appointment of the FDIC as the receiver for BANK or Provest; or
10.8 The failure of JMC or any Subsidiary, agent or employee to maintain
all licenses, permits and other approvals required by this Agreement.
ARTICLE XI:
TERMINATION OF AGREEMENT
Notwithstanding any provision to the contrary herein, this Agreement may be
terminated:
11.1 At any time by mutual written consent of the parties;
11.2 After forty-eight (48) months following the date of this Agreement, by
any party upon ninety (90) days prior written notice;
11.3 In the event of a Default hereunder, by the non-defaulting party at
any time upon written notice;
11.4 At any time, by Provest or JMC, if a Banking Agency shall order BANK
or Provest to take any action which will result in a discontinuance of
performance by Provest under this Agreement or if there shall be a change in any
law, rule, regulation or guideline which is applicable to the Program or the
Nondeposit Products, or the interpretation or enforcement thereof, which
materially and adversely impacts Provest's ability to perform its obligations
under this Agreement; and
11.5 By Provest or JMC, upon 60 days prior written notice, in the event of
a merger or consolidation of BANK with or into another entity or the sale by
BANK of all or substantially all its assets to another entity.
11.6 By Provest or JMC, upon the sale or merger of JMC to a third party, or
upon the change of control of JMC.
11.7 At any time by Provest upon payment to JMC of an amount equal to the
amount calculated pursuant to Section 12.2.1 hereof.
<PAGE>
ARTICLE XII:
EFFECTS OF TERMINATION
Unless otherwise agreed at the time of termination, termination of this
Agreement shall have the following effects upon the parties, depending on the
circumstances:
12.1 Subject to Section 12.5 hereof, if this Agreement is terminated by
Provest as a result of a Default by JMC:
12.1.1 Provest may replace JMC in its capacity hereunder, by
delivering to JMC notice thereof in accordance with the provisions of Section
13.1 hereof. Such replacement shall take effect immediately upon delivery to
Provest of an instrument accepting appointment, executed by a successor agent
and the successor agent shall, without any further act, deed or conveyance,
become vested with all the rights, powers and duties of JMC hereunder.
Notwithstanding the foregoing, JMC shall execute and deliver to Provest any and
all documents and shall take any and all actions requested by Provest that JMC
considers to be necessary to ensure that all such rights, powers and duties are
duly assigned and transferred to the successor agent, and JMC hereby appoints
Provest as its attorney in fact to execute and deliver any such documents. At
its own expense, JMC shall deliver to such successor agent any property,
including any and all hard copy original Purchaser files and records and money
held by JMC hereunder, as well as all other materials, records and other data
currently maintained and available at JMC deemed necessary by Provest for the
successor to perform its obligations hereunder; and
12.1.2 To the extent assigned or assignable, Provest shall be entitled
to receive all future 12b-1 fees paid by mutual fund Nondeposit Product
providers after the effective date of such termination with respect to mutual
fund Nondeposit Products owned by Purchasers as of the effective date of
termination.
12.1.3 After termination, each party shall take such actions as are
necessary to effectuate the transfers set forth in this Article XII, including ,
among other things, the execution of such documents, the transfer of records and
customer contracts and the allocation of such personnel recourses as are
necessary and adequate to comply with their respective obligations. Thereafter,
neither party shall have any continuing obligation to the other.
12.2 If this Agreement is terminated by JMC as a result of a Default
by Provest:
12.2.1 If the termination occurs before October 30, 1997, then Provest
shall promptly pay to JMC liquidated damages of $100,000 as reimbursement for
JMC's loss of investment, start-up costs and lost revenues; if the termination
occurs on or after October 30, 1997, but before October 30, 1998, then Provest
shall promptly pay to JMC liquidated damages of $50,000; and if the termination
occurs on or after October 30, 1998, but before October 30, 1999, then Provest
shall promptly pay to JMC liquidated damages of $25,000; and if the termination
occurs on and after October 30, 1999, BANK shall not be obligated to pay
liquidated damages to JMC.
<PAGE>
12.2.2 JMC shall be entitled to receive all future 12b-1 fees paid by
mutual fund Nondeposit Product providers after the effective date of such
termination with respect to mutual fund Nondeposit Products owned by Purchasers
as of the effective date of termination.
12.2.3 After termination, neither party shall have any continuing
obligation to the other.
12.3 Subject to Section 12.5 hereof, if this Agreement is terminated for
any reason (other than upon the Default of a party), the following alternatives
shall apply.
12.3.1 If Provest elects to continue the Program and appoint a
successor agent, the provisions of Section 12.1.1 hereof shall apply. In
addition, Provest shall promptly pay to JMC, to the extent assigned or
assignable to Provest, 50% of the present value all future 12b-1 fees thereafter
payable by mutual fund Nondeposit Product providers with respect to mutual fund
Nondeposit Products owned by Purchasers as of the effective date of the
termination, using an estimated remaining life of 5 years for such assets, and
discounted at an annual rate equal to the yield on Treasury obligations adjusted
to a constant maturity of three (3) years as of the date of termination, plus
400 basis points, (the "Asset Purchase Fee"). For purposes of calculating the
Asset Purchase Fee, the parties shall agree on certain assumptions regarding
surrender rates and asset growth rates necessary for such calculation based on
the historical information and economic conditions available and existing at the
time of such calculation. If the parties cannot agree on such assumptions, they
shall be determined by an independent actuarial consultant to be chosen by
Provest and JMC with the cost of such consultant to be borne 50% by each.
Thereafter, Provest shall be entitled to receive all future 12b-1 fees paid by
mutual fund Nondeposit Product providers after the effective date of termination
with respect to mutual fund Nondeposit Products owned by Purchasers as of the
effective date of termination and neither party hereto shall have any continuing
obligation to the other. (Attached as an exhibit is a sample of said
calculation).
12.3.2 If Provest elects to retain JMC as servicing agent, then the
provisions of this Section 12.3.2 apply.
12.3.2.1 JMC shall continue servicing all customers existing on the
effective date of termination. Such customer service will be provided by a
centralized customer service group at JMC's corporate headquarters in San Diego,
California or at such other JMC location determined by JMC in its sole
discretion.
12.3.2.2 Provest shall pay JMC a monthly servicing fee of $2.08 per
month for each active account 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 which can be specifically identified as relating to the
servicing of such accounts. As used herein, the term "active account(s)" means:
(a) in respect of mutual funds, any unique account registration maintained under
a separate Social Security number by a mutual fund Nondeposit Product provider
which has a positive share balance at the end of any month; or (b) in respect of
annuities or insurance, any individual primary policies, excluding those
policies issued for the sole purpose
<PAGE>
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.
12.3.2.3 JMC shall be entitled to receive one-half of all future 12b-1
fees payable by mutual fund Nondeposit Product providers with respect to mutual
fund Nondeposit Products owned by Purchasers as of the effective date of the
termination (the "Current Block"). It is understood and agreed by Provest and
JMC that all such fees payable on the Current Block will be paid directly to JMC
and JMC will, in turn, promptly pay Provest one-half of all amounts so received;
provided, however, Provest may, at its option, purchase JMC's share of such fees
as provided in Section 12.3.1 hereof, in which case Provest shall be entitled to
receive all future 12b-1 fees paid by Nondeposit Product providers after the
effective date of termination on the Current Block and neither party hereto
shall have any continuing obligation to the other.
12.3.2.4 Provest shall be entitled to receive rental payments with
respect to subsequent additions to or purchases of existing Nondeposit Products
in accordance with the applicable provisions of the Lease and Sublease
Agreements.
12.4 Notwithstanding any provision of this Article XII to the contrary, in
the event any 12b-1 fees cannot be assigned to Provest and, as a result of such
circumstances, any provision of this Article XII regarding the allocation or
purchase of any 12b-1 fees cannot be effectuated, then JMC shall continue as
servicing agent and the provisions of Sections 12.3.2.1, 12.3.2.2 and 12.3.2.3
hereof shall apply in lieu of such provisions.
12.5 Notwithstanding any provision of this Article XII to the contrary, in
the event Provest terminates this Agreement because an event of default has
occurred as a result of any regulatory, legal or legislative action against JMC
that makes performance of JMC's obligations hereunder legally impossible or
economically impractical (including a change in any law, rule, regulation or
guideline which is applicable to the Program or the Nondeposit Products, or the
enforcement or interpretation thereof), then this Agreement shall be terminated
pursuant to the provisions of Section 12.3 hereof, provided that, should JMC be
unable to perform its obligations under this Agreement as a result of such event
of default, in such case, this Agreement shall be terminated pursuant to Section
12.1 hereof.
ARTICLE XIII:
MISCELLANEOUS
13.1 All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed given, if delivered personally or sent
by telecopy or facsimile 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:
<PAGE>
If to JMC: James Mitchell & Co.
Scranton Road, Suite 100
San Diego, CA 92121
Attn: Brian J. Finneran, President
Fax number: (619) 450-9102
If to BANK or Provest: Provest Services Corp. II
400 Rella Blvd.
Montebello, New York 10901
Attn: Daniel Rothstein
Executive Vice President
Fax number (914) 357-9428
13.2 No assignment (by operation of law or otherwise) of this Agreement by
any party hereto shall be valid, and any attempted assignment shall be void,
unless the other parties shall consent thereto in writing, which consent shall
not be unreasonably withheld. A merger, sale of substantially all of the assets
of JMC or BANK or any change in control of JMC or BANK shall not be considered
an assignment for purposes of this Section 13.2.
13.3 This Agreement shall be governed by, and construed and enforced in
accordance with the federal laws, rules and regulations governing federal
savings associations, and, to the extent state law applies, by the laws of the
State of New York. The parties agree that venue for any legal action or
proceeding hereunder shall be the State of New York.
13.4 This Agreement (including the Schedules, Appendices and Attachments
hereto and thereto) and the Other 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.
13.5 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.
13.6 Any provision of this Agreement which is invalid, illegal or
unenforceable in any jurisdiction shall, as to that jurisdiction, be deemed to
be severable and 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.
13.7 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.
<PAGE>
13.8 Notwithstanding any other provisions of this Agreement, the ability of
Provest 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.
13.9 JMC shall pay all expenses associated with the performance of its
obligations hereunder, including the expenses of providing facilities and of
providing materials (designed to be made available to the public) to enable
Provest to perform its obligations hereunder.
13.10 In accordance with the limitations set forth herein, this Agreement
does not create the relationship of a joint venture, partnership or agency
between JMC and Provest for the solicitation or sale of the Products. Among
other things, no third party beneficiary contract is intended or implied.
13.11 JMC and Provest agree that the obligations of the parties to this
Agreement are joint and several, including, among others, James Mitchell & Co.,
JMC Insurance Agency of New York, Inc., JMC Financial Corporation and such other
subsidiaries and affiliates of James Mitchell & Co. that provide services
pursuant to the terms of this Agreement.
13.12 Provest and JMC agree that this Agreement shall not become effective
until approval of this Agreement is received from the OTS if approval of this
Agreement is required. BANK and Provest agree that they will promptly and
diligently pursue any action necessary to obtain the approval or consent of the
OTS.
13.13 Provest is hereby granted an option to renew this Agreement and any
leases or subleases for an additional four-year period with all of the same
terms and conditions, except that the Insurance/Annuity Aggregate Net Premiums
and the Aggregate Mutual Fund Production as defined in Attachment A to the lease
or sublease shall be cumulative from the effective date of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered as of the date first written above.
JMC: PROVEST:
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
By:/s/ Brian J. Finneran By: /s/ Daniel Rothstein
------------------------- --------------------------
Its: President Its: President
------------------------- --------------------------
JMC INSURANCE AGENCY OF NEW
YORK, INC., A NEW YORK
CORPORATION
By:/s/ Brian J. Finneran
-------------------------
Its:President
-------------------------
<PAGE>
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By:/s/ Brian J. Finneran
--------------------------
Its:President
--------------------------
<PAGE>
SCHEDULE A:
THE PRODUCT TYPES
-----------------
Insurance/Annuity Products
- --------------------------
Immediate Fixed Annuities (Both Qualified and Non-Qualified)
Immediate Variable Annuities
Deferred Fixed Annuities (Both Qualified and Non-Qualified)
Deferred Variable Annuities
Mutual Fund Product
- -------------------
Growth Funds
Growth and Income Funds
Fixed Income Funds
Tax-Exempt Income Funds
International Funds
Asset Allocation Funds
Tax-Exempt and Taxable Money Market Funds
<PAGE>
SCHEDULE B:
BUSINESS PLAN
-------------
I. INTRODUCTION
The purpose of this Schedule B is to establish the business plan (the
"Business Plan") referred to in Section 2.1.1 of the Agreement and includes the
services to be rendered under the Agreement.
II. TERRITORY
The Business Plan shall be conducted within the State of New York, and
shall apply to existing and potential customers of Provest throughout New York
State who are or may become potential Purchasers as well as to other potential
Purchasers. If Provest elects to branch interstate, the Business Plan shall
apply to such interstate branches of Provest as shall be agreed to in writing by
JMC and Provest.
III. TIME FRAMES
The Business Plan shall be conducted for a term ending forty-eight (48)
months after the date of the Agreement. It is contemplated that of this forty-
eight (48) month period: ninety (90) days shall be required for start-up efforts
prior to the Sales Event; forty-two (42) months shall be allowed for sales
production; and ninety (90) days shall be allowed for unforeseen delays.
IV. OBJECTIVES
The following are the objectives anticipated to be accomplished during the
Business Plan. Notwithstanding anything in the Agreement to the contrary, the
numbers herein are anticipated results only and are not to be interpreted as
performance standards to which JMC or Provest are to be held, although each of
JMC and Provest shall use their best efforts to accomplish these objectives.
A. Referral Volume. Provest shall furnish JMC with referrals which result
---------------
in twenty (20) net Qualified Appointments per week per Sales Specialist. A
Qualified Appointment is an appointment with a Purchaser that: (i) meets with
JMC's Sales Specialist as scheduled; and (ii) has a minimum of $5,000 of
investable assets.
B. Closing Ratios. Each Sales Specialist shall close approximately twenty-
--------------
five percent (25%) of the qualified appointments set for the Sales Specialist.
C. Sales Volume. The aggregate projected dollar volume of Nondeposit
------------
Product sales during the first twelve (12) month period of the Business Plan
commencing with the first Sales Event, based on appointment levels used in the
pro forma projections provided by JMC to BANK, is approximately $8,630,000.
<PAGE>
V. DISINTERMEDIATION
It is estimated that at least forty percent (40%) of the funds used to
purchase Products will come from outside funds. "Outside funds" are funds used
by a Purchaser to purchase a Product which are received from a source other than
in a deposit account at BANK.
<PAGE>
SCHEDULE C:
PERFORMANCE STANDARDS
---------------------
I. JMC shall perform its duties under the Agreement and the Business Plan
according to the following standards:
A. SERVICE CENTER
1. Telephone Service
Telephone services shall be available between the hours of 9:00 a.m.
and 8:00 p.m. Eastern Time.
Telephone shall be answered within 3 rings - 95% of the time.
2. Service Requests
All service requests shall be completed or directed to the
appropriate provider company within 24 hours of receipt of all
necessary information and documentation. Twenty-four hours is
defined as the end of the business day following receipt.
B. ELAPSED SERVICE STANDARDS
JMC shall establish the necessary provider company performance
commitments such that the following elapsed service standards from time of
initiation to completion will be met 95% of the time:
<TABLE>
<CAPTION>
================================================================================
Fixed Variable Mutual
Annuity Annuity Funds Life Products
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Policy Issue 30 days 30 days N/A 60 days**
- --------------------------------------------------------------------------------
Contract Changes 21 21 7 21
- --------------------------------------------------------------------------------
Financial Confirmations 7 7 7 7
- --------------------------------------------------------------------------------
Surrenders 21 7 7 21
- --------------------------------------------------------------------------------
Annuitizations 60 60 N/A N/A
- --------------------------------------------------------------------------------
Death Claims 90 90 N/A 90
- --------------------------------------------------------------------------------
Statements of Account Annual Quarterly Monthly* Annual
================================================================================
</TABLE>
* Monthly statements for accounts with activity; quarterly for accounts
with no activity
** Service times will vary based upon underwriting considerations such as
medical examinations, attending physician statement requirements, etc.
<PAGE>
II. JMC's duties under the Agreement shall include the following:
A. JMC shall maintain records and files relating to product mix, servicing
and regulatory compliance.
B. JMC shall furnish to Provest detailed reports on a monthly basis
reflecting the mix of products sold and JMC's service performance as
measured against the standards set forth in Paragraphs I.A and I.B
above.
C. JMC shall at all times maintain a separate file relating to regulatory
compliance. This file shall be available at all reasonable times for
Provest's inspection and audit.
D. JMC and Provest shall together conduct a quarterly review to determine
the ongoing results of the Business Plan. As a part of the quarterly
review, JMC shall deliver to Provest a report detailing its experience
with referral volumes, net appointments, closing ratios, average size of
accounts, sales volumes, product mix, servicing issues and regulatory
compliance. In addition, JMC shall furnish to Provest monthly reports
disclosing the performance of JMC's Sales Specialists in adhering to
JMC's estimated disintermediation ratio criteria specified in Section VI
of the Business Plan. JMC and Provest shall, from time to time, review
such reports together, as appropriate. Upon request, JMC shall provide
Provest with the data and working papers from which Business Plan
results were derived.
III. Provest's duties under this Agreement and the Business Plan shall include
the following:
A. INTERNAL PROMOTION
1. Establishing that the promotion of and the accountability for the Program
and the Business Plan shall be the responsibility of a senior line officer of
Provest who will be committed to initiating and following through on the
Business Plan's progress.
2. Making Provest's fiscal year marketing plan available to JMC and discussing
strategy so that the Business Plan can be coordinated therewith and properly
executed.
3. Providing assigned referral goals to the Retail Banking Division of BANK.
4. Including the Program on all levels as a line item for goal setting and
emphasizing that an employee's participation in the implementation of the
Program is one of a number of factors in determining the employee's potential
for promotion and his or her compensation.
5. Mutually agreeing with JMC on the amount of Provest's production budget for
each fiscal year for the Program prior to the establishment thereof.
6. Providing that all Nondeposit Products shall be included for purposes of
determining branch deposit goals if, in the future, BANK utilizes a total
deposit goal for each branch. BANK will
<PAGE>
use this information to produce total balance reports reflecting deposit
balances plus Nondeposit Product balances.
7. Prominently placing an article describing, in overview, the Program in
BANK's employee newsletter or other similar employee communication.
8. Placing, semi-annually, a series of promotional articles in BANK's employee
newsletter highlighting each of the Nondeposit Products and their uses in
meeting customer's needs.
9. Mailing statement stuffers to retail customers as reasonably feasible and
providing JMC access to BANK's statement stuffer capabilities upon
reasonable notice.
10. Causing selected key BANK branches to sponsor one fall and spring seminar
promoting the Program per year, commencing March 1, 1997.
11. Making available an area at each branch for potential Purchasers to make
appointments with JMC's Sales Specialists. The Sales Specialists shall be
allowed reasonable access to non-secured areas in BANK facilities in a
similar manner to that allowed to a BANK employee.
12. Administering and implementing an individual appointment incentive Program
for all Provest employees. Monthly results shall be circulated. All fees
payable to employees as incentive for Qualified Appointments will be paid by
separate checks reflecting the gross fees paid. Such fees are not to be
includable within employees' regular payroll checks. Promotional contests
(prizes, trips) will be scheduled for personal bankers, branch support
personnel and management when needed if the parties shall mutually agree.
JMC shall reimburse Provest for all referral fees to the extent permitted by
applicable laws, rules and regulations.
13. Including JMC's Sales Specialists in selected special events for customers
and employees to build and enhance relationships. Provest shall identify the
dates thereof.
B. EXTERNAL PROMOTION
1. Subject to applicable laws and regulations, utilizing plexiglass display
units provided by JMC (3-5 per branch) appropriately placed in branch
customer locations (teller lines, new accounts, etc.). Additional displays
will be available for executive offices, loan administration, and the like.
2. Making available, in quantity for potential Purchasers, brochures and rate
cards supplied by JMC.
C. INTRODUCTORY TRAINING
1. Making available Senior Management, including Vice Presidents or other
officers to whom branch managers report, for training by JMC.
<PAGE>
2. Making available Branch Managers, in groups, for training by JMC.
3. Causing Branch Managers, in coordination with JMC's representatives, to set
dates for branch employee training. Two branch training sessions per day per
JMC region are suggested. Schedules should be confirmed in advance for
efficiency.
4. Implementing and supporting JMC's Branch Certification Training program.
5. Causing Branch Managers to use their best efforts in advance of their
training meetings to identify and list twenty top customers or prospects who
fit the Program's profile which shall be provided by JMC. Provest shall use
its best efforts to cause these customers or prospects to be scheduled for
appointments as the branch training commences.
D. POST-INTRODUCTION COMMUNICATION
1. Including JMC's Sales Specialists in branch level meetings to provide
motivation and updated information to employees.
2. Giving JMC's senior sales manager access to Provest's vice presidents,
including:
(a) Participation in branch manager meetings; and
(b) Communication between Provest's vice president to JMC's senior
sales manager on branch results and special situations.
3. Arranging monthly meetings between JMC's senior sales manager and an
appropriate officer of Provest to communicate progress and any remedial
actions.
4. Actively cooperating with JMC in monthly reporting of appointment and
production results.
<PAGE>
SUBLEASE
This Sublease Agreement ("Sublease") is entered into as of March 3, 1997,
by and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC INSURANCE
AGENCY OF NEW YORK, INC. (hereinafter collectively referred to as "Sublessee")
and PROVEST SERVICES CORP. II, a wholly owned subsidiary of PROVIDENT BANK, a
federal savings association ("Sublessor").
RECITALS
A. Pursuant to and by virtue of a certain agreement of lease, dated as of
March 1, 1997 (hereinafter the "Prime Lease") between PROVIDENT BANK
(hereinafter "Landlord") and Sublessor PROVEST SERVICES CORP, II, Landlord
leased to Sublessor that certain property situated at [address of bank branch],
(hereinafter the "Prime Lease Premises"), for a term which is currently in
effect and which is to expire on February 28, 1997; and
B. The parties hereto desire to enter into a sublease of certain of the space
leased under the Prime Lease.
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. Sublease.
--------
Sublessor hereby subleases to Sublessee on the following terms and
conditions those certain premises within the Prime Lease Premises of the
Sublessor hereinafter referred to as the "Branch" of Sublessor located at
[address of branch]. Such premises within said Branch shall be hereinafter known
as the "Subleased Area". The Subleased Area shall consist of a segregated and
distinct area of the Branch, with space sufficient for the furniture described
in Section 8 hereof and use of the common areas, including, without limitation,
public lobbies, conference rooms, restrooms, corridors and maintenance
facilities.
2. Term.
----
This Sublease shall be a year sublease commencing as of the date first
written above and shall continue from month-to-month thereafter so long as that
certain nondeposit investment sales agreement, dated as of November 6, 1996,
remains in effect (the "Agreement"). This Sublease will terminate automatically
upon the termination of the Agreement pursuant to the terms thereof. Capitalized
terms used but not otherwise defined herein have the meanings assigned to such
terms in the Agreement.
3. Rent.
----
Sublessee agrees to pay to Sublessor rent in accordance with Attachment A
hereto. Sublessee shall provide Sublessor with an accounting of all
transactions and payments that are considered as part of the computation of rent
hereunder, in a manner acceptable to Sublessor, within 15 days following
Sublessor's written request.
<PAGE>
4. Use of the Subleased Area.
-------------------------
The Subleased Area shall be used by Sublessee solely for the purpose of
providing the services set forth in the Agreement. Sublessee shall not use the
Subleased Area or any part thereof, or permit the Subleased Area or any part
thereof to be used, for any purpose or purposes other than the purpose or
purposes for which the Subleased Area are hereby subleased, without the prior
written agreement of Sublessor. Sublessor is bound by the terms and conditions
hereof and is not liable for any indebtedness or liability arising out of
Sublessee's use of the Subleased Area.
5. Assignment.
----------
Sublessee shall not assign this Sublease, or any interest therein, and
shall not sublet the Subleased Area or any part thereof, or any right or
privilege pertinent thereto, and any attempted assignment or sublease shall be
void. Sublessee shall not allow any other person (the agents, employees and
affiliates of Sublessee excepted) to occupy or use the Subleased Area, or any
portion thereof, without the prior written consent of the Sublessor.
6. Services and Hours of Operation.
-------------------------------
Sublessor shall furnish Sublessee heating and air conditioning service,
electricity, water, ceiling light fixtures, and janitorial services during all
normal operating hours of the Branch at which the Subleased Area is located. In
addition, Sublessor shall provide Sublessee with access to and use of telephone,
facsimile and photocopying equipment at Sublessor's expense. As of the date of
this Sublease, Sublessor's hours of operation at the Branch are from 9:00 a.m.
to 4:00 p.m., Mondays through Saturdays, holidays excepted. These hours may be
reasonably altered, by Sublessor giving Sublessee advance written notice of such
change. Sublessee shall have access during business hours of the Sublessor to
the Subleased Area, the buildings where the Subleased Area is located and to the
common areas of Sublessor's premises.
7. Destruction of the Subleased Area.
---------------------------------
If the Subleased Area shall be destroyed in whole or part by fire, the
elements, or other casualty so as to render the Branch or the Subleased Area
wholly unfit for occupancy and unrepairable within 90 days from the happening of
said casualty, this Sublease shall terminate on the expiration of said 90 days
without further liability of any of the parties hereto. In the event of any such
termination, Sublessee shall surrender immediately possession of the Subleased
Area and all rights therein to Sublessor and Sublessor shall have the right to
enter immediately into and take possession of the Subleased Area, without
liability for any loss, damage or injury to the property or person of Sublessee
or any occupant of the Subleased Area. If Sublessor shall repair the Subleased
Area within said 90 days, this Sublease shall continue in full force and effect.
Notwithstanding any other provision to the contrary, Sublessee shall have no
claim against Sublessor, or any policy of insurance purchase by Sublessor, for
any losses, damages or other claims arising out of damage, destruction or
condemnation of the premises of the Branch or the Subleased Area.
<PAGE>
8. Furniture.
---------
Sublessor and Sublessee agree that the following items of furniture and
other contents shall be provided for the Subleased Area: One desk, one credenza,
one executive chair and two side chairs. Sublessee waives any warranty, express
or implied, of fitness, or as to the use, merchantability or particular purpose
of such furniture or contents.
9. Maintenance of the Subleased Area.
---------------------------------
Sublessee shall not damage, demean, nor diminish the value of the Subleased
Area or any of Sublessor's adjoining premises and facilities. Sublessee shall
maintain the Subleased Area in a clean and attractive condition and in good
repair, except for those repairs to be performed by Sublessor as otherwise
herein provided.
10. Liability.
---------
Each party shall be liable to the other for acts or omissions occasioned by
negligence, wantonness, inadvertence or intention arising from, related to or
connected with this Sublease, except as provided to the contrary herein or in
the Agreement.
11. Notice.
------
Any notice or other communication, including rental payments, shall be
delivered or sent by mail to the Sublessor at Provident Bank, 400 Rella Blvd.,
Montebello, NY 10901, Attn: Daniel Rothstein and to Sublessee at James Mitchell
& Co., 9710 Scranton Road, Ste. 100, San Diego, CA 92121, Attn: Daniel M.
Harkins.
12. Landlord Approval.
-----------------
Sublessor represents and warrants that it has, or will have, prior to the
date of commencement of this Sublease, received all necessary consents, whether
written or oral, of the Landlord to this Sublease. Any required written consent
of the Landlord has been, or will be, obtained prior to the date for the
commencement of this Sublease, attached to this Sublease as an Exhibit hereto.
13. Prime Lease Incorporated.
------------------------
Except as herein otherwise provided (expressly or by other provision made),
all of the applicable terms covenants, provisions, conditions, rights and
limitations of the Prime Lease and all of the Exhibits thereto (a copy of which
is attached hereto) are hereby incorporated by reference and are hereby made and
shall be deemed to be terms, covenants, provisions, conditions, rights and
limitations applicable to the Sublease as fully and to the same extent as though
each and every one of said terms, covenants, provisions, rights and limitations
were set forth at length herein
<PAGE>
EXECUTED in two counterparts this 3rd day of March, 1997.
SUBLESSEE: SUBLESSOR:
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
By:/s/ Daniel M. Harkins By: /s/ Daniel Rothstein
------------------------ ------------------------
Its:SR. VP & Gen. Counsel Its:President
----------------------- -------------------
JMC INSURANCE AGENCY OF NEW
YORK, INC., A NEW YORK
CORPORATION
By:/s/ Daniel M. Harkins
------------------------
Its:SR. VP & Gen. Counsel
-----------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By:/s/ Daniel M. Harkins
------------------------
Its:SR. VP & Gen. Counsel
-----------------------
<PAGE>
ATTACHMENT A
DEFINITIONS AND DESCRIPTIONS OF RENT
This Attachment A to Sublease Agreement is entered into as of March 3, 1997
by and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC INSURANCE
AGENCY OF NEW YORK, INC. (hereinafter collectively referred to as "Sublessee")
and PROVEST SERVICES CORP. II, a wholly owned subsidiary of PROVIDENT BANK, a
federal savings association ("Sublessor").
Sublessee and Sublessor have entered into the Sublease Agreement dated as
of even date herewith (the "Sublease Agreement") which Sublease Agreement
provides for setting forth the rent payable to Sublessor for the premises it
provides. Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to those terms in the Sublease Agreement and the "Agreement",
as defined in the Sublease Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Sublessor and Sublessee hereby agree as follows:
I. RENT
Sublessee shall pay Sublessor rent on a monthly basis equal to the sum
of the "Premium Fees" and the "Mutual Fund Fees" (each as hereinafter defined).
A. Subject to the following paragraph, the "Premium Fees" for each
month shall be a percentage, as set forth below, of an amount equal to the
aggregate value of all Purchasers' premiums paid during said month. The
applicable percentage shall depend upon the "Aggregate Net Premiums" as of the
end of the immediately preceding month. For purposes of this Sublease Agreement,
the term "Aggregate Net Premiums" shall mean the total of all insurance and
annuity premiums paid by Purchasers from the inception of the Agreement to the
end of the most recent month, less all amounts (other than accumulated
investment yield) withdrawn by Purchasers to that date. The Premium Fee shall be
payable to Sublessor within 10 days following the end of the month in which said
payments in respect of premiums paid by Purchasers are received by Sublessee. In
the event that any Purchaser surrenders a Nondeposit Product during the
chargeback period, the Nondeposit Product provider will chargeback some or all
of the front-end sales commission paid at the time the Nondeposit Product was
sold (a "Chargeback"), and Sublessor agrees that it will be responsible for its
pro rata share of any Chargeback to the extent it received Premium Fees with
respect to the original premiums sold. The Premium Fees due hereunder shall be
reduced as provided herein for any such surrender. All reductions due to
Chargebacks shall be made in the same proportion and under the same
circumstances as such Chargebacks are applied to Sublessee's account by the
applicable Nondeposit Product provider.
<PAGE>
<TABLE>
<CAPTION>
==============================================================
Insurance/Annuity Aggregate Applicable Premium
Net Premiums Fee Percentage
(in millions)
-----------
--------------------------------------------------------------
<S> <C>
$0 - $29.9 2.00%
--------------------------------------------------------------
$30 - $99.9 2.25%
--------------------------------------------------------------
$100 - $149.9 2.50%
--------------------------------------------------------------
$150+ 2.75%
==============================================================
</TABLE>
B. The "Mutual Fund Fees" for each month shall be a percentage, as set
forth below, of the aggregate amount of all dealer's concessions and 12b-1 fees
paid to Sublessee during said month from mutual fund Nondeposit Product
providers in respect of the settled sales of mutual fund Nondeposit Products to
Purchasers in the Branch. For purposes of this Sublease Agreement, the dealer's
concessions and 12b-1 fees shall be as provided in the applicable dealer
agreements between Sublessee and the individual mutual fund Nondeposit Product
providers, as the same may be amended from time to time. The applicable
percentage will depend on the "Aggregate Mutual Fund Production" as of the end
of the immediately preceding month. For purposes of this Sublease Agreement, the
term "Aggregate Mutual Fund Production" shall mean the total gross sales of
mutual fund Nondeposit Products made by Sublessee pursuant to the terms of the
Agreement from the inception of the Agreement to the end of the most recent
month which have in fact settled.
<TABLE>
<CAPTION>
=====================================================================
Aggregate Mutual Fund Applicable
Production Mutual Fund
(in millions) Fee Percentage 12b-1 Fee Percentage
---------------------------------------------------------------------
<S> <C> <C>
$0 - $29.9 35% 35%
---------------------------------------------------------------------
$30 - $99.9 40% 40%
---------------------------------------------------------------------
$100+ 50% 50%
=====================================================================
</TABLE>
The Mutual Fund Fees shall be paid to Sublessor within 10 days following the end
of the month in which they are actually received by Sublessee.
II. Any amendment or modification of this Attachment A shall be evidenced
by the execution of a successor Attachment A.
III. All the terms and provisions of the Sublease Agreement are hereby
incorporated by reference herein to the same extent as if fully set forth herein
and are hereby ratified and reconfirmed.
<PAGE>
IN WITNESS WHEREOF, Sublessor and Sublessee have each caused this
Attachment A to be duly executed and delivered as of the date and year first
above written.
SUBLESSEE: SUBLESSOR:
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
By:/s/ Daniel M. Harkins By: /s/ Daniel Rothstein
---------------------- -------------------------
Its:SR. VP & Gen. Counsel Its:President
--------------------- ---------------------
JMC INSURANCE AGENCY OF NEW
YORK, INC., A NEW YORK
CORPORATION
By:/s/ Daniel M. Harkins
----------------------
Its:SR. VP & Gen. Counsel
---------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By:/s/ Daniel M. Harkins
----------------------
Its:SR. VP & Gen. Counsel
---------------------
<PAGE>
SUB-SUBLEASE
This Sub-Sublease Agreement ("Sub-Sublease") is entered into as of March 3,
1997, by and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC
INSURANCE AGENCY OF NEW YORK, INC. (hereinafter collectively referred to as
"Sub-Sublessee") and PROVEST SERVICES CORP. II, a wholly owned subsidiary of
PROVIDENT BANK, a federal savings association ("Sub-Sublessor").
RECITALS
A. Pursuant to and by virtue of a certain agreement of lease, dated as of
[date of main lease] (hereinafter the "Prime Lease") between [landlord's name]
(hereinafter "Landlord") and Sublessor, [name of Prime Lease Lessee], Landlord
leased to Sublessor that certain property situated at [address of branch]
(hereinafter the "Prime Lease Premises"), for a term which is currently in
effect and which is to expire on [expiration date of Prime Lease]; and
B. Pursuant to and by virtue of a certain Sublease Agreement dated as of March
1, 1997 (hereinafter the "Prime Sublease") between Provident Bank (hereinafter
"Sublessor") and Sublessee Provest Services Corp. II, (hereinafter "Sub-
Sublessor"), Sublessor leased to Sub-Sublessor that certain property situated at
[address of branch] (hereinafter the "Prime Subleased Premises"), for a term
which is currently in effect and which is to expire on February 28, 1998; and
C. The parties hereto desire to enter into a sub-sublease of certain of the
space subleased under the Prime Sublease.
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. Sub-Sublease.
------------
Sub-Sublessor hereby sub-subleases to Sub-Sublessee on the
following terms and conditions those certain premises within the Prime Sublease
Premises of the Sub-Sublessor hereinafter referred to as the "Branch" of Sub-
Sublessor located at [address of branch]. Such premises within said Branch shall
be hereinafter known as the "Sub-Subleased Area". The Sub-Subleased Area shall
consist of a segregated and distinct area of the Branch, with space sufficient
for the furniture described in Section 8 hereof and use of the common areas,
including, without limitation, public lobbies, conference rooms, restrooms,
corridors and maintenance facilities.
<PAGE>
2. Term.
----
This Sub-Sublease shall be a year sub-sublease commencing as of
the date first written above and shall continue from month-to-month thereafter
so long as that certain nondeposit investment sales agreement, dated as of
November 6, 1996, remains in effect (the "Agreement"). This Sub-Sublease will
terminate automatically upon the termination of the Agreement pursuant to the
terms thereof. Capitalized terms used but not otherwise defined herein have the
meanings assigned to such terms in the Agreement.
3. Rent.
----
Sub-Sublessee agrees to pay to Sub-Sublessor rent in accordance
with Attachment A hereto. Sub-Sublessee shall provide Sub-Sublessor with an
accounting of all transactions and payments that are considered as part of the
computation of rent hereunder, in a manner acceptable to Sub-Sublessor, within
15 days following Sub-Sublessor's written request.
4. Use of the Sub-Subleased Area.
-----------------------------
The Sub-Subleased Area shall be used by Sub-Sublessee solely for
the purpose of providing the services set forth in the Agreement. Sub-Sublessee
shall not use the Sub-Subleased Area or any part thereof, or permit the Sub-
Subleased Area or any part thereof to be used, for any purpose or purposes other
than the purpose or purposes for which the Sub-Subleased Area are hereby sub-
subleased, without the prior written agreement of Sub-Sublessor. Sub-Sublessor
is bound by the terms and conditions hereof and is not liable for any
indebtedness or liability arising out of Sub-Sublessee's use of the Sub-
Subleased Area.
5. Assignment.
----------
Sub-Sublessee shall not assign this Sub-Sublease, or any interest
therein, and shall not sublet the Sub-Subleased Area or any part thereof, or any
right or privilege pertinent thereto, and any attempted assignment or sublease
shall be void. Sub-Sublessee shall not allow any other person (the agents,
employees and affiliates of Sub-Sublessee excepted) to occupy or use the Sub-
Subleased Area, or any portion thereof, without the prior written consent of the
Sub-Sublessor.
6. Services and Hours of Operation.
-------------------------------
Sub-Sublessor shall furnish Sub-Sublessee heating and air
conditioning service, electricity, water, ceiling light fixtures, and janitorial
services during all normal operating hours of the Branch at which the Sub-
Subleased Area is located. In addition, Sub-Sublessor shall provide Sub-
Sublessee with access to and use of telephone, facsimile and photocopying
equipment at Sub-Sublessor's expense. As of the date of this Sub-Sublease, Sub-
Sublessor's hours of operation at the Branch are from 9:00 a.m. to 4:00 p.m.,
Mondays through Saturdays, holidays excepted. These hours may be reasonably
altered, by Sub-Sublessor giving Sub-Sublessee advance written notice of such
change. Sub-Sublessee shall have access during business hours of the Sub-
Sublessor to the Sub-Subleased Area, the buildings where the Sub-Subleased Area
is located and to the common areas of Sub-Sublessor's premises.
<PAGE>
7. Destruction of the Sub-Subleased Area.
-------------------------------------
If the Sub-Subleased Area shall be destroyed in whole or part by
fire, the elements, or other casualty so as to render the Branch or the Sub-
Subleased Area wholly unfit for occupancy and unrepairable within 90 days from
the happening of said casualty, this Sub-Sublease shall terminate on the
expiration of said 90 days without further liability of any of the parties
hereto. In the event of any such termination, Sub-Sublessee shall surrender
immediately possession of the Sub-Subleased Area and all rights therein to Sub-
Sublessor and Sub-Sublessor shall have the right to enter immediately into and
take possession of the Sub-Subleased Area, without liability for any loss,
damage or injury to the property or person of Sub-Sublessee or any occupant of
the Sub-Subleased Area. If Sub-Sublessor shall repair the Sub-Subleased Area
within said 90 days, this Sub-Sublease shall continue in full force and effect.
Notwithstanding any other provision to the contrary, Sub-Sublessee shall have no
claim against Sub-Sublessor, or any policy of insurance purchase by Sub-
Sublessor, for any losses, damages or other claims arising out of damage,
destruction or condemnation of the premises of the Branch or the Sub-Subleased
Area.
8. Furniture.
---------
Sub-Sublessor and Sub-Sublessee agree that the following items of
furniture and other contents shall be provided for the Sub-Subleased Area: One
desk, one credenza, one executive chair and two side chairs. Sub-Sublessee
waives any warranty, express or implied, of fitness, or as to the use,
merchantability or particular purpose of such furniture or contents.
9. Maintenance of the Sub-Subleased Area.
-------------------------------------
Sub-Sublessee shall not damage, demean, nor diminish the value of
the Sub-Subleased Area or any of Sub-Sublessor's adjoining premises and
facilities. Sub-Sublessee shall maintain the Sub-Subleased Area in a clean and
attractive condition and in good repair, except for those repairs to be
performed by Sub-Sublessor as otherwise herein provided.
10. Liability.
---------
Each party shall be liable to the other for acts or omissions
occasioned by negligence, wantonness, inadvertence or intention arising from,
related to or connected with this Sub-Sublease, except as provided to the
contrary herein or in the Agreement.
11. Notice.
------
Any notice or other communication, including rental payments, shall
be delivered or sent by mail to the Sub-Sublessor at Provident Bank, 400 Rella
Blvd., Montebello, NY 10901, Attn: Daniel Rothstein and to Sub-Sublessee at
James Mitchell & Co., 9710 Scranton Road, Ste. 100, San Diego, CA 92121, Attn:
Daniel M. Harkins.
12. Landlord Approval.
-----------------
Sub-Sublessor represents and warrants that it has, or will have,
prior to the date of commencement of this Sub-Sublease, received all necessary
consents, whether written or oral, of
<PAGE>
the Landlord to this Sub-Sublease. Any required written consent of the Landlord
has been, or will be, obtained prior to the date for the commencement of this
Sub-Sublease, attached to this Sub-Sublease as an Exhibit hereto.
13. Prime Lease and Prime Sublease Incorporated.
-------------------------------------------
Except as herein otherwise provided (expressly or by other provision
made), all of the applicable terms covenants, provisions, conditions, rights and
limitations of the Prime Lease and the Prime Sublease and all of the Exhibits
thereto (a copy of which is attached hereto) are hereby incorporated by
reference and are hereby made and shall be deemed to be terms, covenants,
provisions, conditions, rights and limitations applicable to the Sublease as
fully and to the same extent as though each and every one of said terms,
covenants, provisions, rights and limitations were set forth at length herein.
EXECUTED in two counterparts this 3rd day of March, 1997.
SUB-SUBLESSEE: SUB-SUBLESSOR:
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
By:/s/ Daniel M. Harkins By: /s/ Daniel Rothstein
----------------------- ------------------------
Its:SR. VP & Gen. Counsel Its:President
---------------------- -------------------
JMC INSURANCE AGENCY OF NEW
YORK, INC., A NEW YORK
CORPORATION
By:/s/ Daniel M. Harkins
-----------------------
Its:SR. VP & Gen. Counsel
----------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By:/s/ Daniel M. Harkins
-----------------------
Its:SR. VP & Gen. Counsel
----------------------
<PAGE>
ATTACHMENT A
DEFINITIONS AND DESCRIPTIONS OF RENT
This Attachment A to Sub-Sublease Agreement is entered into as of March 3,
1997 by and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC
INSURANCE AGENCY OF NEW YORK, INC. (hereinafter collectively referred to as
"Sub-Sublessee") and PROVEST SERVICES CORP. II, a wholly owned subsidiary of
PROVIDENT BANK, a federal savings association ("Sub-Sublessor").
Sub-Sublessee and Sub-Sublessor have entered into the Sub-Sublease
Agreement dated as of even date herewith (the "Sub-Sublease Agreement") which
Sub-Sublease Agreement provides for setting forth the rent payable to Sub-
Sublessor for the premises it provides. Capitalized terms used but not otherwise
defined herein shall have the meanings assigned to those terms in the Sub-
Sublease Agreement and the "Agreement", as defined in the Sub-Sublease
Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, Sub-
Sublessor and Sub-Sublessee hereby agree as follows:
I. RENT
Sub-Sublessee shall pay Sub-Sublessor rent on a monthly basis equal to
the sum of the "Premium Fees" and the "Mutual Fund Fees" (each as hereinafter
defined).
A. Subject to the following paragraph, the "Premium Fees" for each
month shall be a percentage, as set forth below, of an amount equal to the
aggregate value of all Purchasers' premiums paid during said month. The
applicable percentage shall depend upon the "Aggregate Net Premiums" as of the
end of the immediately preceding month. For purposes of this Sub-Sublease
Agreement, the term "Aggregate Net Premiums" shall mean the total of all
insurance and annuity premiums paid by Purchasers from the inception of the
Agreement to the end of the most recent month, less all amounts (other than
accumulated investment yield) withdrawn by Purchasers to that date. The Premium
Fee shall be payable to Sub-Sublessor within 10 days following the end of the
month in which said payments in respect of premiums paid by Purchasers are
received by Sub-Sublessee. In the event that any Purchaser surrenders a
Nondeposit Product during the chargeback period, the Nondeposit Product provider
will chargeback some or all of the front-end sales commission paid at the time
the Nondeposit Product was sold (a "Chargeback"), and Sub-Sublessor agrees that
it will be responsible for its pro rata share of any Chargeback to the extent it
received Premium Fees with respect to the original premiums sold. The Premium
Fees due hereunder shall be reduced as provided herein for any such surrender.
All reductions due to Chargebacks shall be made in the same proportion and under
the same circumstances as such Chargebacks are applied to Sub-Sublessee's
account by the applicable Nondeposit Product provider.
<PAGE>
<TABLE>
<CAPTION>
==============================================================
Insurance/Annuity Aggregate Applicable Premium
Net Premiums Fee Percentage
(in millions)
-----------
--------------------------------------------------------------
<S> <C>
$0 - $29.9 2.00%
--------------------------------------------------------------
$30 - $99.9 2.25%
--------------------------------------------------------------
$100 - $149.9 2.50%
--------------------------------------------------------------
$150+ 2.75%
==============================================================
</TABLE>
B. The "Mutual Fund Fees" for each month shall be a percentage, as set
forth below, of the aggregate amount of all dealer's concessions and 12b-1 fees
paid to Sub-Sublessee during said month from mutual fund Nondeposit Product
providers in respect of the settled sales of mutual fund Nondeposit Products to
Purchasers in the Branch. For purposes of this Sub-Sublease Agreement, the
dealer's concessions and 12b-1 fees shall be as provided in the applicable
dealer agreements between Sub-Sublessee and the individual mutual fund
Nondeposit Product providers, as the same may be amended from time to time. The
applicable percentage will depend on the "Aggregate Mutual Fund Production" as
of the end of the immediately preceding month. For purposes of this Sub-Sublease
Agreement, the term "Aggregate Mutual Fund Production" shall mean the total
gross sales of mutual fund Nondeposit Products made by Sub-Sublessee pursuant to
the terms of the Agreement from the inception of the Agreement to the end of the
most recent month which have in fact settled.
<TABLE>
<CAPTION>
=====================================================================
Aggregate Mutual Fund Applicable
Production Mutual Fund
(in millions) Fee Percentage 12b-1 Fee Percentage
-----------
---------------------------------------------------------------------
<S> <C> <C>
$0 - $29.9 35% 35%
---------------------------------------------------------------------
$30 - $99.9 40% 40%
---------------------------------------------------------------------
$100+ 50% 50%
=====================================================================
</TABLE>
The Mutual Fund Fees shall be paid to Sub-Sublessor within 10 days following the
end of the month in which they are actually received by Sub-Sublessee.
II. Any amendment or modification of this Attachment A shall be evidenced
by the execution of a successor Attachment A.
III. All the terms and provisions of the Sub-Sublease Agreement are hereby
incorporated by reference herein to the same extent as if fully set forth herein
and are hereby ratified and reconfirmed.
<PAGE>
IN WITNESS WHEREOF, Sub-Sublessor and Sub-Sublessee have each caused this
Attachment A to be duly executed and delivered as of the date and year first
above written.
SUB-SUBLESSEE: SUB-SUBLESSOR:
JAMES MITCHELL & CO., PROVEST SERVICES CORP. II,
A CALIFORNIA CORPORATION A SERVICE CORPORATION
By:/s/ Daniel M. Harkins By: /s/ Daniel Rothstein
--------------------- ------------------------
Its:SR. VP & Gen. Counsel Its:President
---------------------- -------------------
JMC INSURANCE AGENCY OF NEW
YORK, INC., A NEW YORK
CORPORATION
By:/s/ Daniel M. Harkins
----------------------
Its:SR. VP & Gen. Counsel
----------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By:/s/ Daniel M. Harkins
----------------------
Its:SR. VP & Gen. Counsel
---------------------
<PAGE>
EXHIBIT 10.18
JAMES MITCHELL & CO.
PROGRAM AGREEMENT
WITH
HORIZON BANCORP, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RECITALS.................................. 1
LEASES AND SUBLEASES...................... 1
DUTIES OF JMC............................. 2
DUTIES OF BANK............................ 4
REPRESENTATIONS AND WARRANTIES OF JMC..... 6
REPRESENTATIONS AND WARRANTIES OF BANK.... 7
COVENANTS OF JMC.......................... 8
COVENANTS OF BANK......................... 9
INDEMNIFICATION AND CUSTOMER COMPLAINTS... 10
PUBLICITY................................. 11
DEFAULT................................... 11
TERMINATION OF AGREEMENT.................. 12
EFFECTS OF TERMINATION.................... 12
MISCELLANEOUS............................. 15
SCHEDULE A................................ 18
SCHEDULE B................................ 19
SCHEDULE C................................ 21
</TABLE>
<PAGE>
PROGRAM AGREEMENT
This PROGRAM AGREEMENT (this "Agreement") is entered into as of August 30,
1996, by and among JAMES MITCHELL & CO., and its subsidiaries (the
"Subsidiaries"), JMC INSURANCE SERVICES CORPORATION and JMC FINANCIAL
CORPORATION, all California corporations (hereinafter collectively referred to
as "JMC"), and HORIZON BANCORP, INC. ("BANK"), a West Virginia chartered bank
holding company.
RECITALS
A. JMC desires to provide insurance and investment products and discount
brokerage services to existing and prospective customers of BANK ("Purchasers")
and to render certain services required in connection therewith through JMC's
employees and agents.
B. BANK desires that JMC provide such services.
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, JMC and BANK agree as
follows:
ARTICLE I
LEASES AND SUBLEASES
1.1 BANK and JMC intend to enter into lease agreements in substantially
the form set forth in Appendix A hereto (hereafter each lease so entered into
shall be referred to as a "Lease") and sublease agreements substantially in the
form set forth in Appendix B hereto (hereafter each sublease so entered into
shall be referred to as a "Sublease"). Neither this Agreement nor any Lease or
Sublease is intended to represent or create a partnership or joint venture
between BANK and JMC. No sales activity hereunder shall take place at a Branch
(as defined in Section 1.2 hereof) unless or until a Lease or Sublease for such
Branch is fully executed by all necessary parties.
1.2 Each branch ("Branch") of BANK for which a Lease or Sublease is signed
shall, if and to the extent necessary for regulatory purposes only, be deemed a
branch of JMC and accordingly may be inspected, during normal business hours, by
governmental authorities with which JMC is registered or licensed to conduct
business and by any self-regulatory organizations of which JMC is a member.
JMC, by virtue hereof, shall have the right to inspect each Branch during
normal business hours, to ensure that BANK is in compliance with the terms of
this Agreement. At each Branch, BANK shall provide an area with reasonable
office furnishings for use by one JMC Employee ("Sales Specialist"). Each such
area shall be in a segregated and distinct area of the Branch. A sign on or
near the desk, or on the office itself, will disclose that JMC is a distinct and
separate entity from and not affiliated in any way with BANK. The nature, size
and location of such signs shall be determined by mutual agreement of the
parties hereto. The Sales Specialists will also carry and distribute business
cards to distinguish themselves from employees of BANK.
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Additional Branches may be added hereto from time to time by mutual consent
of the parties provided that a Lease or Sublease for each additional Branch is
fully executed by all necessary parties.
ARTICLE II
DUTIES OF JMC
2.1 JMC shall design and implement a program to market insurance and
investment products and discount brokerage services of the types set forth in
Schedule A hereto as shall be agreed upon by the parties hereto from time to
time (the "Products") to potential Purchasers through JMC's employees and agents
(the "Program"). The Program shall be approved in advance of its implementation
by BANK. In connection with the Program, JMC shall provide the following:
2.1.1 Design and implementation of a business plan for the promotion
of the Program. Schedule B hereto sets forth the parameters for the business
plan (the "Business Plan") for the Program. In connection with the Business
Plan, JMC shall provide all necessary promotional materials for the Program and
the Products, including, without limitation, information manuals and brochures,
materials for direct mailing, counter display cards and other advertising and
promotional materials to be used in connection with the sale of the Products and
the implementation of the Program.
2.1.2 All necessary administrative forms required in connection with
the Business Plan and the Program.
2.1.3 Initial and ongoing training to those of BANK's personnel who
will have contact with the public or who will supervise such personnel. The
training shall, in the judgment of JMC and BANK, be sufficient to insure
compliance with applicable laws and regulations and to enable BANK to fulfill
its obligations hereunder and shall familiarize such personnel with appropriate
procedures for directing Purchasers to JMC's employees to obtain Program-related
services. In addition, such training shall familiarize BANK's personnel with
the administrative and back office support services provided by JMC hereunder.
BANK shall make its personnel available for such training at reasonable and
mutually agreed upon times.
2.1.4 A reasonable number of appropriately trained, licensed and
insured Sales Specialist ("Sales Specialists") to promote the Program and to
sell the Products in accordance with the Business Plan, provided, however that,
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in the event BANK does not adequately support the Program in accordance with the
Business Plan, JMC may, in its sole discretion, reduce the number of Sales
Specialists assigned to the Program to meet the actual appointment referral
levels of the Program at that time. Each Sales Specialist and all supervisory
sales personnel shall be employed by JMC on a full time basis and shall be
compensated by salary plus incentive payments. Before designating the Sales
Specialists who will be assigned to the Program, JMC shall discuss with BANK the
appropriateness of such Sales Specialists in light of their qualifications for
such function. The training provided by JMC to the designated Sales Specialists
and other sales personnel shall enable them accurately to describe the Program
and the Products and to provide all necessary and advisable sales and
administrative services. In addition, such training shall provide the
designated Sales Specialists and other sales personnel with sufficient knowledge
of BANK's products and procedures to ensure effective cross-referrals.
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2.1.5 Management and supervision of all Sales Specialists and other
sales personnel, including the implementation of control activities for all
sales personnel.
2.1.6 All necessary administrative and back office support services
for the Program, including, without limitation, accounting, and record keeping
services and sales administrative services. JMC shall make any records it
maintains in connection with the Program available to BANK during normal
business hours upon reasonable notice. JMC may delegate to, or utilize the
record keeping facilities of, any Product provider where such record keeping
services are performed by such provider in the ordinary course of its business.
2.1.7 Ongoing customer support services for the Program.
2.2 Subject to Section 3.4 hereof, JMC shall be responsible for ensuring
that the Program and the manner in which it is implemented comply with all
applicable state and federal securities and insurance laws and regulations and
shall obtain all necessary licenses and regulatory approvals. In addition, JMC
shall advise BANK regarding the requirements for compliance with all applicable
federal and state banking laws and regulations and shall ensure that the Program
complies with such laws and the Interagency Statement on Retail Sales of
Nondeposit Investment Products (February 15, 1994) (the "Interagency Statement")
to the extent such compliance is within JMC's exclusive control. Without
limiting the generality of the foregoing, JMC shall comply, cause its employees
and agents to comply and shall use its best efforts to cause all Product
providers to comply, with all applicable state and federal securities, insurance
and banking laws and regulations. JMC shall perform all compliance procedures
required by applicable securities and insurance laws and regulations in
connection with the Program and the promotion and sale of the Products.
Information regarding such procedures and certification of compliance therewith
shall be provided to BANK upon reasonable request. JMC shall cooperate with
BANK in implementing any similar compliance procedures required by any
governmental agency with jurisdiction over BANK or its affiliates (a "Bank
Regulator") and shall furnish BANK with any data and documentation which is
requested by BANK in order for it to comply with applicable state and federal
banking laws and regulations.
2.3 Upon the request of BANK, any Bank Regulator or BANK's external
auditor, JMC shall provide such entity access to all records, documentation or
information maintained by JMC hereunder.
2.4 In addition to those duties set forth in this Article II, JMC's duties
under this Agreement shall include, without limitation, the obligations set
forth in Section II of Schedule C hereto. In performing its duties under this
Agreement, JMC shall use its best efforts to adhere to the performance standards
set forth in Section I of Schedule C hereto and to accomplish the objectives set
forth in Section IV of the Business Plan.
2.5 JMC may, but shall not be obligated to, advertise the Products in such
media and by such methods as the parties mutually determine to be appropriate
after consultation regarding the propriety, legality and advisability of such
advertising. To the extent advertising materials relate to the Products, or the
offering and sale thereof, their form and content shall be determined solely by
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JMC. In no event shall JMC use BANK's name, logo or other identification in any
such material without the prior consent of BANK.
ARTICLE III
DUTIES OF BANK
3.1 To the extent permitted by applicable law and Bank Regulators, BANK
shall cooperate fully with JMC in the implementation of the Program and the
Business Plan and shall cause its employees to support the efficient day-to-day
functioning of the Program without, however, participating in the marketing and
sale of the Products. BANK shall use its best efforts to assure active
participation by its employees in the implementation of the Program and the
Business Plan through appropriate communication in a variety of existing
internal media.
3.2 In addition to those duties set forth in this Article III, BANK's
duties under this Agreement shall include, without limitation, the obligations
set forth in Section III of Schedule C hereto. In performing its duties under
this Agreement, BANK shall use its best efforts to accomplish the objectives set
forth in Section IV of the Business Plan.
3.3 If requested by JMC, BANK shall, to the extent possible and at
reasonable times, make its premises available for seminars relating to the
Program and for meetings between JMC's personnel and potential Purchasers.
3.4 BANK shall comply with all rules and regulations of any state
organization or Bank Regulator or any governmental agency with jurisdiction over
the Program and the Products. In addition, BANK shall comply with all
applicable rules and regulations of the National Association of Securities
Dealers, Inc., the Securities and Exchange Commission and any other organization
or governmental agency with jurisdiction over the sale of the Products as such
rules and regulations are interpreted by JMC.
3.5 Prior to the Sales Event (as hereinafter defined), BANK shall
establish policies and procedures as required by the Interagency Statement.
Such policies and procedures shall be adopted and reviewed periodically by
BANK's Board of Directors. The "Sales Event" shall mean the first time that any
Product is offered or sold as those terms are used in any applicable law or
regulation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF JMC
JMC represents and warrants as follows:
4.1 Each of James Mitchell & Co., JMC Insurance Services Corporation and
JMC Financial Corporation is a corporation, duly organized, validly existing and
in good standing under the laws of the State of California. James Mitchell &
Co. and each of the Subsidiaries has all requisite corporate power and authority
to enter into this Agreement and any other agreement or document (including,
without limitation, the Leases and the Subleases) executed in connection
herewith (the "Other Agreements"), to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
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4.2 The execution, delivery and performance of this Agreement and the
Other Agreements by James Mitchell & Co. and each Subsidiary and the
consummation by James Mitchell & Co. and each Subsidiary of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action. This Agreement and the Other Agreements constitute legal,
valid and binding obligations of James Mitchell & Co. and each Subsidiary
enforceable against James Mitchell & Co. and each Subsidiary 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).
4.3 The execution, delivery and performance of this Agreement and the
Other Agreements 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 James Mitchell & Co. or any Subsidiary is a party or
by which it is bound; (ii) the Articles of Incorporation or Bylaws of James
Mitchell & Co. or any Subsidiary; (iii) any judgment, decree, order or award of
any court, governmental body or arbitrator by which James Mitchell & Co. or any
Subsidiary is bound; or (iv) any law, rule or regulation applicable to James
Mitchell & Co. or any Subsidiary.
4.4 There are no actions, suits or proceedings ("Actions") pending or
threatened against, affecting or related to, James Mitchell & Co. or any
Subsidiary, in equity or otherwise, arising out of any alleged or actual
agreement or contract to which James Mitchell & Co. or any Subsidiary is or was
a party which Action would materially and adversely affect the ability of James
Mitchell & Co. or any Subsidiary to perform its obligations hereunder or under
any of the Other Agreements.
4.5 James Mitchell & Co., JMC Financial Corporation and JMC Insurance
Services Corporation are, or prior to the occurrence of a Sales Event will be,
qualified to do business in the state of West Virginia. James Mitchell & Co.
may, from time to time, form additional subsidiaries. Unless BANK shall object
in writing, upon delivery to BANK, of a certification by appropriate officers of
James Mitchell & Co. that the representations and warranties set forth in this
Article IV are true and correct with respect to such additional subsidiary as of
the date of such certificate, that newly-formed subsidiary shall be considered a
Subsidiary hereunder.
4.6 James Mitchell & Co. and each Subsidiary has, or prior to the Sales
Event will have, all licenses, permits and other governmental permission and
authority necessary to perform its obligations under this Agreement and the
Other Agreements.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BANK
BANK represents and warrants as follows:
5.1 BANK is a state-chartered bank holding company duly organized and
validly existing under the laws of West Virginia. The affiliate banks of BANK
are either banks chartered
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by the state of West Virginia or are national banking associations duly
organized under the laws of the United States. BANK has all requisite corporate
power and authority to enter into this Agreement and the Other Agreements, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
5.2 The execution, delivery and performance of this Agreement and the
Other Agreements by BANK and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action.
This Agreement and the Other Agreements have been or will be approved by BANK's
Board of Directors. This Agreement and the Other Agreements constitute legal,
valid and binding obligations of BANK enforceable against BANK 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).
5.3 The execution, delivery and performance of this Agreement and the
Other Agreements 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 BANK is a party or by which it is bound; (ii) the
charter or bylaws of BANK; (iii) any judgment, decree, order or award of any
court, governmental body or arbitrator by which BANK is bound; or (iv) any law,
rule or regulation applicable to BANK.
ARTICLE VI
COVENANTS OF JMC
JMC covenants and agrees as follows:
6.1 The provider of any Product shall have a good reputation for integrity
and for providing full value to its customers. Each Product offered by JMC
shall be competitive in value with similar products available to the public.
Without limiting the generality of the foregoing, each insurance provider of
fixed annuities or life insurance policies shall, at all times when its Product
is being offered to potential Purchasers, have an A.M. Best Rating of at least A
(Excellent) or have one of the two highest ratings from Standard & Poor's, Duff
& Phelps or Moody's and each provider of variable annuities shall, at all times
when its Product is being offered to potential Purchasers, have an A.M. Best
Rating of at least A (Excellent) or have one of the three highest ratings from
Standard & Poor's, Duff & Phelps or Moody's. JMC shall provide BANK with due
diligence materials on each Product provider. The due diligence materials on
any insurance Product provider shall be updated by JMC on a quarterly basis so
long as this Agreement remains in force.
6.2 JMC shall use its best efforts to ensure that the representations
and warranties of JMC in Article IV hereof shall remain true and correct in all
material respects at all times during the term of this Agreement.
6.3 JMC shall perform its duties as set forth in Article II hereof.
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6.4 Except as required by law, JMC shall not disclose any non-public
information concerning BANK or actual or potential Purchasers which non-public
information was acquired by it in connection with carrying out its duties
hereunder or under the Other Agreements, nor shall JMC utilize such information
in any aspect of its business other than as required to carry out its duties
hereunder or thereunder.
6.5 Unless JMC first obtains the consent of BANK, JMC shall not solicit
BANK customers for any type of banking services which BANK may currently or
hereafter provide during the term of this Agreement; provided, however that JMC
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will solicit Purchasers who have investable assets in excess of $125,000 to
utilize the trust services of BANK and JMC shall refer all such qualified
Purchasers to the Trust Department of BANK.
6.6 JMC shall use its best efforts to enforce the provisions of the
Employment Agreement with each Sales Specialist as it regards the confidential
treatment, during and subsequent to employment by JMC, of all trade secrets,
customer names, products and all information or data relating to JMC's
relationship with BANK. All such restrictive covenants contained in said
Employment Agreements, are subject to interpretation and limitation by a court
of competent jurisdiction. It is the intent of the parties to this Agreement
that BANK be deemed a third-party beneficiary of the restrictive covenants in
the Employment Agreement of each Sales Specialist assigned to and working within
the BANK's branch system.
ARTICLE VII
COVENANTS OF BANK
Bank covenants and agrees as follows:
7.1 BANK shall not, directly or indirectly, sell the Products or establish
a sales program which offers competing products or services to its retail
banking customers while this Agreement is in effect. This Section 7.1 shall not
prohibit BANK from investing assets held by it as trustee in competing annuity
or mutual fund products.
7.2 BANK shall not disseminate any information or make any representation
specifically describing any Product. No employee of BANK shall solicit or assist
in the preparation of applications for any Product nor provide any advice with
respect to any Product. In connection with any such inquiry, BANK's employees
shall limit their activities to: (a) referring Purchasers and potential
Purchasers to JMC so that they may obtain information and assistance from
properly licensed employees of JMC; and (b) making available to Purchasers and
potential Purchasers generic materials concerning the Program.
7.3 In no event may BANK bind JMC to any annuity or other insurance
contract or vary the terms of any such contract.
7.4 BANK shall use its best efforts to ensure that the representations
and warranties of BANK in Article V hereof shall remain true and correct in all
material respects at all times during the term of this Agreement.
<PAGE>
7.5 Except as otherwise provided elsewhere herein, BANK shall not,
prior to the fourth anniversary of this Agreement, terminate this Agreement
without the written consent of JMC, unless JMC is in default under this
Agreement or unless BANK is directed by any governmental agency or court of
competent jurisdiction to discontinue the Program.
7.6 BANK shall perform its duties as set forth in Article III hereof.
ARTICLE VIII
INDEMNIFICATION AND CUSTOMER COMPLAINTS
8.1 JMC hereby agrees to indemnify and hold harmless BANK (and its
subsidiaries, affiliates, officers, directors, agents or employees) from and
against any and all liabilities, claims, actions, proceedings, suits, damages,
losses, penalties, judgments, costs, expenses, fines, disbursements and other
obligations of any kind or nature whatsoever (including reasonable attorneys'
fees and other expenses of investigation, defense, litigation and settlement)
regardless of when the same shall be made or incurred by BANK, whether prior to
or after the termination of this Agreement (a "Claim") which Claim is based
upon, asserted in connection with, arises out of, or in any way relates to, this
Agreement or the Other Agreements, or to any action taken or not taken by BANK
hereunder; provided, however, that this indemnification shall not apply to any
Claim resulting, in whole or in part, from the gross negligence or willful
misconduct of BANK, any of its employees or agents or the failure of BANK to
perform its duties and obligations under this Agreement or the Other Agreements.
8.2 BANK agrees to indemnify and hold harmless JMC (and its subsidiaries,
affiliates, officers, directors, agents or employees) from and against any and
all Claims made or incurred by JMC, whether prior to or after the termination of
this Agreement which Claim is based upon, asserted in connection with, arises
out of, or in any way relates to this Agreement or the Other Agreements and
results, in whole or in part, from the negligence or willful misconduct of BANK
or any of its employees or agents or the failure of BANK to perform its duties
and obligations under this Agreement or the Other Agreements; provided, however,
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that this indemnification shall not apply to any Claim resulting, in whole or in
part, from the gross negligence or willful misconduct of JMC, any of its
employees or agents or the failure of JMC to perform its duties and obligations
under this Agreement or the Other Agreements.
8.3 BANK shall (1) promptly provide JMC copies of written complaints by
Purchasers; (2) promptly notify JMC of oral complaints by Purchasers, which come
to its attention; and (3) report to JMC, in writing, any alleged violation of
law, rule or regulation or any of JMC's standards of conduct by JMC's employees
which BANK gains knowledge of through a Customer Complaint (as hereinafter
defined) or otherwise. BANK shall transmit such notifications and reports to
JMC in a manner designed to give JMC prompt notice. During the term of this
Agreement, JMC shall be responsible for resolving all complaints from Purchasers
concerning the Program ("Customer Complaints"). 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 Purchaser, any JMC officer, director, employee or agent, or any
provider company concerning the Customer Complaint and the payment of all sums
and other compensation which JMC shall determine in its sole judgment
<PAGE>
is merited under the circumstances. As a matter of policy, JMC will seek to
resolve all Customer Complaints which in its sole judgment it believes arose
because:
8.3.1 JMC or its employees or agents affirmatively misrepresented any
material term of a Product at the time it was sold;
8.3.2 JMC or its employees or agents failed to make any disclosures
required by law; or
8.3.3 Any Product sold to a Purchaser was not a suitable investment
for the Purchaser.
Unless any of the above criteria is met, JMC is not obligated to make
any monetary payment to a Complaining Purchaser and, generally, resists making
payments solely for BANK customer relationship reasons.
ARTICLE IX
PUBLICITY
JMC and BANK shall coordinate all publicity relating to this Agreement or
any matters contemplated hereby or related hereto, and, except as required by
law, neither shall issue any press release or publicity statement or make any
other public notice or statement relating hereto without the prior consent of
the other.
ARTICLE X
DEFAULT
Any one of the following events shall constitute a default hereunder (a
"Default"):
10.1 A failure by any party to pay when due any amount required to be paid
under this Agreement, if such failure to pay remains uncured for a period of
thirty (30) days after written notice is given by the other party hereto;
10.2 The representations or warranties made by any party herein or in any
statement or certificate at any time given in writing pursuant hereto shall be
or become false in any material respect which materially and adversely affects
such party's ability to perform its obligations hereunder or under any of the
Other Agreements;
10.3 Any party hereto shall fail to perform, or comply with, any other
term or condition contained in this Agreement or the Other Agreements and such
failure shall have not been remedied or waived within thirty (30) days after
written notice thereof is given by the other party hereto;
10.4 The entry of a decree or order by a court of competent jurisdiction
for relief in respect of JMC or any Subsidiary under Title 11 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 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
<PAGE>
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;
10.5 The filing by JMC 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
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; or
10.6 The declaration by the FDIC or any other Bank Regulator of the
insolvency of BANK.
ARTICLE XI
TERMINATION OF AGREEMENT
Notwithstanding any provision to the contrary herein, this Agreement may
be terminated:
11.1 At any time by mutual written consent of the parties;
11.2 After the third anniversary date of this Agreement, by any party upon
ninety (90) days prior written notice;
11.3 In the event of a Default hereunder, by the non-defaulting party at
any time upon written notice;
11.4 At any time, by BANK, if a Bank Regulator shall order BANK to take
any action which will result in a discontinuance of performance by BANK under
this Agreement or if there shall be a change in any law, rule, regulation or
guideline which is applicable to the Program or the Products, or the
interpretation or enforcement thereof, which materially and adversely impacts
BANK's ability to perform its obligations under this Agreement;
11.5 After the second anniversary of this Agreement, and upon BANK's
conversion of this Fully-Managed Program to a Dual Employee Program under the
terms and conditions generally applicable to such programs at the time of
conversion; and
11.6 After the third anniversary of this Agreement, and upon BANK's
exercise of the Option Agreement dated the date hereof by and between JMC and
BANK (the "Option Agreement") in accordance with its terms.
ARTICLE XII
EFFECTS OF TERMINATION
Unless otherwise agreed at the time of termination, termination of this
Agreement shall have the following effects upon the parties, depending on the
circumstances:
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12.1 Subject to Section 12.5 hereof, if this Agreement is terminated by
BANK as a result of a Default by JMC:
12.1.1 BANK may replace JMC in its capacity hereunder, by delivering
to JMC notice thereof in accordance with the provisions of Section 13.1 hereof.
Such replacement shall take effect immediately upon delivery to BANK of an
instrument accepting appointment, executed by a successor agent ("Successor")
and the Successor shall, without any further act, deed or conveyance, become
vested with all the rights, powers and duties of JMC hereunder. Notwithstanding
the foregoing, JMC shall execute and deliver to BANK any and all documents and
shall take any and all actions requested by BANK that JMC considers to be
necessary to ensure that all such rights, powers and duties are duly assigned
and transferred to the Successor. JMC shall deliver to such Successor any
property, including any and all hard copy original Purchaser files and records
and money held by JMC hereunder; and
12.1.2 To the extent assigned or assignable, BANK or Successor shall
be entitled to receive all Premium fees payable by Product providers after the
termination date and all 12b-1 fees paid by mutual fund providers after the
effective date of such termination with respect to Products owned by Purchasers
as of the effective date of termination and BANK shall service all customers
accounts on the Current Block (as that term is defined in Section 11.3.2.3,
below).
12.1.3 After termination, neither party shall have any continuing
obligation to the other.
12.2 If this Agreement is terminated by JMC as a result of a Default by
BANK:
12.2.1 If the termination occurs before the first anniversary date
hereof, then BANK shall promptly pay to JMC liquidated damages of $75,000 as
reimbursement for JMC's loss of investment, start-up costs and lost revenues; if
the termination occurs on or after the first anniversary, and before the second
anniversary, then BANK shall promptly pay to JMC liquidated damages of $50,000.
12.2.2 JMC shall be entitled to receive all Premium fees payable by
Product providers after the termination date and all 12b-1 fees paid by mutual
fund providers after the effective date of such termination with respect to
Products owned by Purchasers as of the effective date of termination and JMC
shall service all customers accounts on the Current Block (defined in Section
12.3.2.3, below).
12.2.3 After termination, neither party shall have any continuing
obligation to the other.
12.3 Subject to Section 12.5 hereof, if this Agreement is terminated for
any reason (other than upon the Default of a party or pursuant to Section 12.5
hereof), the following alternatives shall apply:
12.3.1 If BANK elects to continue the Program and appoint a Successor
agent, the provisions of Section 12.1.1 hereof shall apply. In addition, BANK
shall promptly pay to JMC the sum of: (i), one hundred percent (100%) of the
present value, discounted at the rate of nine percent
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(9%) per annum, of all future trail commissions (including asset and renewal
fees) thereafter payable by annuity and insurance Product providers with respect
to annuity and insurance Products owned by Purchasers as of the effective date
of the termination using an estimated remaining life of 15 years for such
assets; and (ii) to the extent assigned or assignable to BANK or Successor,
sixty percent (60%) of the present value, discounted at a rate of nine percent
(9%) per annum, of all future trail commissions (including 12b-1 fees)
thereafter payable by mutual fund Product providers with respect to mutual fund
Products owned by Purchasers as of the effective date of the termination using
an estimated remaining life of 7 years for such assets (the "Asset Purchase
Fee"). For purposes of calculating the Asset Purchase Fee, the parties shall
agree on certain assumptions regarding surrender rates and asset growth rates
necessary for such calculation based on the historical information and economic
conditions available and existing at the time of such calculation. If the
parties cannot agree on such assumptions, they shall be determined by an
independent actuarial consultant to be chosen by BANK and JMC with the cost of
such consultant to be borne fifty percent (50%) by each. Thereafter, BANK shall
be entitled to receive all future trail commissions (including asset and renewal
fees and 12b-1 fees) paid by Product providers after the effective date of
termination with respect to Products owned by Purchasers as of the effective
date of termination and neither party hereto shall have any continuing
obligation to the other.
12.3.2 If BANK elects to retain JMC as servicing agent, then the
provisions of this Section 12.3.2 apply.
12.3.2.1 JMC shall continue servicing all customers existing
on the effective date of termination. Such customer service will be provided by
a centralized customer service group at JMC's corporate headquarters in San
Diego, California or at some other JMC location determined by JMC in its sole
discretion.
12.3.2.2 BANK shall pay JMC a monthly servicing fee of $2.00
per month for each active account 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 toll-free numbers exclusively dedicated to
servicing such accounts. An active account is an account with a positive share
balance (mutual funds) or an outstanding premium balance (annuities and
insurance) at the end of the month.
12.3.2.3 JMC shall be entitled to receive all future trail
commissions (including asset and renewal fees) payable by annuity and insurance
product provider companies with respect to annuity and insurance Products owned
by Purchasers as of the effective date of the termination and sixty percent
(60%) of all future trail commissions (including 12b-1 fees) payable by mutual
fund product provider companies with respect to mutual fund Products owned by
Purchaser as of the effective date of the termination (the "Current Mutual Fund
Block). It is understood and agreed by BANK and JMC that all such trail
commissions payable on the Current Mutual Fund Block will be paid directly to
JMC and JMC will, in turn, promptly pay BANK forty percent (40%) of all amounts
so received; provided, however, BANK may, at its option, purchase JMC's share of
-------- -------
such trail commissions as provided in Section 12.3.1 hereof, in which case BANK
shall be entitled to receive all future trail commissions (including 12b-1 fees)
paid by mutual fund Product providers on the Current Mutual Fund Block after the
effective date of termination and neither party hereto shall have any continuing
obligation to the other.
<PAGE>
12.3.2.4 BANK shall be entitled to receive rental payments
with respect to subsequent additions to or purchases of existing Products in
accordance with the applicable provisions of the Lease and Sublease Agreements.
12.4 Notwithstanding any provision of this Article XII to the contrary, in
the event any trail commissions (including asset and renewal fees and 12b-1
fees) cannot be assigned to BANK and, as a result of such circumstances, any
provision of this Article XII regarding the allocation or purchase of any future
trail commissions cannot be effectuated, then JMC shall continue as servicing
agent and the provisions of Sections 12.3.2.1, 12.3.2.2 and 12.3.2.3 hereof
shall apply in lieu of such provisions.
12.5 Notwithstanding any provision of this Article XII to the contrary, in
the event BANK terminates this Agreement because an event of default has
occurred as a result of any regulatory, legal or legislative action against JMC
(including a change in any law, rule, regulation or guideline which is
applicable to the Program or the Products, or the enforcement or interpretation
thereof), then this Agreement shall be terminated pursuant to the provisions of
Section 12.3 hereof unless as a result of such event JMC is unable to perform
its obligations under this Agreement. In such case, this Agreement may be
terminated pursuant to Section 12.1 hereof.
ARTICLE XIII
MISCELLANEOUS
13.1 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: JAMES MITCHELL & CO.
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attn: Brian J. Finneran,
President
Fax number: (619) 450-9102
If to BANK or: Horizon Bancorp, Inc.
One Park Avenue
Beckley, WV 25802-2803
Attn: Frank S. Harkins
Chairman
Fax number: (304) 255-7314
13.2 No assignment (by operation of law or otherwise) of this Agreement by
any party hereto shall be valid unless the other parties shall consent thereto
in writing which consent shall not be unreasonably withheld.
<PAGE>
13.3 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of West Virginia, except such laws that
would render this choice of laws ineffective and the forum for any legal action
or proceeding hereunder shall be the State of California; provided, however,
-------- -------
that each Product sale resulting from this Agreement, and the payment to BANK of
any compensation in respect thereof, shall be governed by the laws of the State
of West Virginia.
13.4 This Agreement (including the Schedules, Appendices and Attachments
hereto and thereto) and the Other 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.
13.5 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.
13.6 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.
13.7 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.
13.8 Notwithstanding any other provisions of this Agreement, the ability
of BANK 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.
If any of the parties hereto, after notice thereof, fails to be
present or represented at an arbitration hearing, or adjourned hearing, the
arbitrator(s) may, nevertheless, in their own discretion, proceed with the
adjudication of the Dispute. Regardless of the outcome of such arbitration,
each party shall bear its own costs, attorneys' fees and share of arbitration
fees.
13.9 JMC shall pay all expenses associated with the performance of its
obligations hereunder including the expenses of providing facilities and of
providing materials (designed to be made available to the public) to enable BANK
to perform its obligations hereunder.
13.10 In accordance with the limitations set forth herein, this Agreement
does not create the relationship of a joint venture, partnership or agency
between JMC and BANK for the solicitation or sale of the Products.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered as of the date first written above.
JMC: BANK:
James Mitchell & Co., Horizon Bancorp, Inc.
By: /s/ James K. Mitchell By: Frank S. Harkins, III.
--------------------- ----------------------
Its: Chairman and CEO Its: Chairman of the Board and
---------------- --------------------------
Chief Executive Officer
JMC Insurance Services Corporation,
By: /s/ James K. Mitchell
---------------------
Its: Chairman and CEO
----------------
JMC Financial Corporation,
By: /s/ James K. Mitchell
---------------------
Its: Chairman and CEO
----------------
<PAGE>
SCHEDULE A
THE PRODUCT TYPES
-----------------
Insurance/Annuity Products
- --------------------------
Immediate Fixed Annuities (Both Qualified and Non-Qualified)
Immediate Variable Annuities
Deferred Fixed Annuities (Both Qualified and Non-Qualified)
Deferred Variable Annuities
Single Premium Life Insurance Policies
Mutual Fund Product
- -------------------
Growth Funds
Growth and Income Funds
Fixed Income Funds
Tax-Exempt Income Funds
International Funds
Asset Allocation Funds
Tax-Exempt and Taxable Money Market Funds
Any changes to this Schedule A may be done by mutual written consent of both JMC
and BANK.
<PAGE>
SCHEDULE B
BUSINESS PLAN
-------------
I. INTRODUCTION
The purpose of this Schedule B is to establish the business plan (the
"Business Plan") referred to in Section 2.1.1 of the Program Agreement and
includes the services to be rendered under the Program Agreement.
II. TERRITORY
The Business Plan shall be conducted within the State of West Virginia and
shall apply to existing and potential customers of BANK branches throughout
the state who are or may become potential Purchasers as well as to other
potential Purchasers.
III. TIME FRAMES
The Business Plan shall be conducted for a term ending thirty-six (36)
months after the date of the Program Agreement. It is contemplated that of
this thirty-six (36) month period: two (2) months shall be required for
start-up efforts prior to the Sales Event; thirty-three (33) months shall
be allowed for sales production; and one (1) month shall be allowed for
unforeseen delays.
IV. OBJECTIVES
The following are the objectives anticipated to be accomplished during the
Business Plan. Notwithstanding anything in the Program Agreement to the
contrary, the numbers herein are anticipated results only and are not to be
interpreted as performance standards to which JMC or BANK are to be held,
although each of JMC and BANK shall use their best efforts to accomplish
these objectives.
A. Referral Volume. BANK shall furnish JMC with referrals which
----------------
result in fifteen (15) net qualified appointments per week per Sales
Specialist. A qualified appointment is an appointment with a
Purchaser that (i) meets with JMC's Sales Specialist as scheduled and
(ii) has a minimum of $5,000 of investable assets.
B. Closing Ratios. Each Sales Specialist shall close approximately
---------------
thirty percent (30%) of the qualified appointments set for the Sales
Specialist.
C. Sales Volume. The aggregate projected dollar volume of product
-------------
sales during the first twelve (12) month period of the Business Plan,
based on appointment levels used in the pro forma projections provided
by JMC to BANK, is approximately eleven million dollars ($11,000,000).
<PAGE>
V. OUTSIDE FUNDS
It is estimated that at least forty percent (40%) of the funds used to
purchase Products will come from outside funds. "Outside funds" are funds
used by a Purchaser to purchase a Product which are received from a source
other than in a deposit account at BANK.
<PAGE>
SCHEDULE C
PERFORMANCE STANDARDS
---------------------
I. JMC shall perform its duties under the Program Agreement and the Business
Plan according to the following standards:
A. SERVICE CENTER
1. Telephone Service
Telephone shall be answered within 3 rings - 95% of the time.
2. Service Requests
All service requests shall be completed or directed to the
appropriate provider company within 24 hours of receipt of all
necessary information and documentation. Twenty-four hours is
defined as the end of the business day following receipt.
B. ELAPSED SERVICE STANDARDS
JMC shall establish the necessary provider company performance
commitments such that the following elapsed service standards from
time of initiation to completion 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 Changes 21 21 7 21
Financial Confirmations 7 7 7 7
Surrenders 21 7 7 21
Annuitizations 60 60 N/A N/A
Death Claims 90 90 N/A 90
Statements of Account Annual Quarterly Monthly* Annual
=======================================================================
</TABLE>
* Monthly statements for accounts with activity; quarterly for
accounts with no activity
** Service times will vary based upon underwriting considerations
such as medical examinations, attending physician statement
requirements, etc.
<PAGE>
II. JMC's duties under the Program Agreement shall include the following:
A. JMC shall maintain records and files relating to product mix,
servicing and regulatory compliance.
B. JMC shall furnish to BANK detailed reports on a monthly basis
reflecting the mix of products sold and JMC's service performance as
measured against the standards set forth in Paragraphs I.A and I.B
above.
C. JMC shall at all times maintain a separate file relating to
regulatory compliance. This file shall be available at all reasonable
times for BANK's inspection and audit.
D. JMC and BANK shall together conduct a quarterly review to determine
the ongoing results of the Business Plan. As a part of the quarterly
review, JMC shall deliver to BANK a report detailing its experience
with referral volumes, net appointments, closing ratios, average size
of accounts, sales volumes, product mix, servicing issues and
regulatory compliance. In addition, JMC shall furnish to BANK monthly
reports disclosing the performance of JMC's Sales Specialists in
adhering to JMC's estimated disintermediation ratio criteria specified
in Section V of the Business Plan. JMC and BANK shall, from time to
time, review such reports together, as appropriate. Upon request, JMC
shall provide BANK with the data and working papers from which
Business Plan results were derived.
III. BANK's Retail Banking Division shall perform the duties of BANK under the
Program Agreement and the Business Plan which shall include the
following:
A. INTERNAL PROMOTION
1. Establishing that the promotion of and the accountability for the
Program and the Business Plan shall be the responsibility of a
senior line officer of BANK (e.g. Senior Vice President - Retail)
who will be committed to initiating and following through on the
Business Plan's progress.
2. Making BANK's fiscal year marketing plan available to JMC and
discussing strategy so that the Business Plan can be coordinated
therewith and properly executed.
3. Providing assigned referral goals to the Retail Banking Division.
4. Including the Program on all levels as a line item for goal setting
and emphasizing that an employee's participation in the
implementation of the Program is one of a number of significant
factors in determining the employee's potential for promotion and
his or her compensation.
5. Mutually agreeing with JMC on the amount of BANK's production
budget for each fiscal year for the Program prior to the
establishment thereof.
<PAGE>
6. Providing that all Products shall be included for purposes of
determining branch deposit goals if, in the future, BANK utilizes a
total deposit goal for each branch. To facilitate record keeping in
this regard, JMC will periodically provide Product balance input to
BANK for BANK's use in updating its Marketing Central Information
File. BANK will use this information to produce total balance
reports reflecting deposit balances plus Product balances.
7. Prominently placing an article describing, in overview, the Program
in BANK's employee newsletter or other similar employee
communication.
8. Placing, semi-annually, a series of promotional articles in BANK's
employee newsletter highlighting each of the Products and their
uses in meeting customer's needs.
9. Mailing statement stuffers to retail customers as reasonably
feasible and providing JMC access to BANK's statement stuffer
capabilities upon reasonable notice.
10. Causing selected key BANK branches to sponsor one fall and spring
seminar promoting the Program per year beginning October 1997.
11. Making available an area at each branch for potential Purchasers to
make appointments with JMC's Specialists. The Specialists shall be
allowed reasonable access to non-secured areas in BANK facilities
in a similar manner to that allowed to a BANK employee.
12. Administering and implementing an individual appointment incentive
program for all BANK employees. Monthly results shall be
circulated. All fees payable to employees as incentive for
qualified appointments will be paid by separate checks reflecting
the gross fees paid. Such fees are not to be includible within
employees' regular payroll checks. Promotional contests (prizes,
trips) will be scheduled for personal bankers, branch support
personnel and management when needed. A qualified appointment is an
appointment with a customer that (i) meets with JMC's Specialist as
scheduled and (ii) has a minimum of $5,000 of investable assets.
13. Including JMC's Specialists in selected special events for
customers and employees to build and enhance relationships. BANK
shall identify the dates thereof.
<PAGE>
B. EXTERNAL PROMOTION
1. Utilizing plexiglass display units provided by JMC (3-5 per branch)
appropriately placed in branch customer locations (teller lines,
new accounts, etc.). Additional displays will be available for
executive offices, loan administration, and the like.
2. Making available, in quantity for potential Purchasers, brochures
and rate cards supplied by JMC.
C. INTRODUCTORY TRAINING
1. Making available Senior Management, including regional Vice
Presidents or other officers to whom branch managers report, for
training by JMC.
2. Making available Branch Managers, in groups, for training by JMC.
3. Causing Branch Managers, in coordination with JMC's
representatives, to set dates for branch employee training. Two
branch training sessions per day per JMC region are suggested.
Schedules should be confirmed in advance for efficiency.
4. Implementing and supporting JMC's Branch Certification Training
program.
5. Causing Branch Managers to use their best efforts in advance of
their training meetings to identify and list twenty top customers
or prospects who fit the Program's profile which shall be provided
by JMC. These customers or prospects should be scheduled for
appointments as the branch training commences.
D. POST-INTRODUCTION COMMUNICATION
1. Including JMC's Specialists in branch level meetings to provide
motivation and updated information to employees.
2. Giving JMC's senior sales manager access to BANK's regional Vice
Presidents, including:
(a) Participation in regional branch manager meetings; and
(b) Communication between BANK's regional Vice President to JMC's
senior sales manager on branch results and special situations.
3. Arranging monthly meetings between JMC's senior sales manager and
an appropriate officer of BANK to communicate progress and any
remedial actions.
<PAGE>
4. Actively cooperating with JMC in monthly reporting of appointment
and production results.
<PAGE>
SAMPLE
LEASE AGREEMENT
This Lease Agreement ("Lease") is entered into as of October 21, 1996, by
and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC INSURANCE
SERVICES CORPORATION (hereinafter collectively referred to as "Lessee") and
[Bank Name and Address] and subsidiary of Horizon Bancorp, Inc. (hereinafter
referred to as "Lessor").
Lessee and Horizon Bancorp, Inc. have entered into that certain Program
Agreement dated August 30, 1996, the terms of which are incorporated herein by
reference. In consideration of the mutual covenants and understandings 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. Lease.
-----
Lessor hereby leases to Lessee on the following terms and conditions
those certain premises within the branch of the Lessor ("Branch"), located at
"address". Such premises within said Branch shall be hereinafter known as the
"Leased Area". The Leased Area shall consist of a segregated and distinct area
of the Branch, with space sufficient for the furniture described in Section 8
hereof and use of the common areas, including, without limitation, public
lobbies, conference rooms, restrooms, corridors and maintenance facilities.
2. Term.
----
This Lease shall be a three (3) year lease commencing as of the date
first written above and shall continue from month-to-month thereafter so long as
the Program Agreement between Lessee and Horizon Bancorp, Inc., dated August 30,
1996, remains in effect. This Lease will terminate automatically upon the
termination of the Program Agreement pursuant to the terms thereof. Capitalized
terms used but not otherwise defined herein have the meanings assigned to such
terms in the Program Agreement.
3. Rent.
----
Lessee agrees to pay to Lessor rent in accordance with Attachment A
hereto.
4. Use of the Leased Area.
----------------------
The Leased Area shall be used by Lessee solely for the purpose of
providing the services set forth in the Program Agreement. Lessee shall not use
the Leased Area or any part thereof, or permit the Leased Area or any part
thereof to be used, for any purpose or purposes other than the purpose or
purposes for which the Leased Area are hereby leased, without the prior written
agreement of Lessor. Lessor is bound by the terms and conditions hereof and is
not liable for any indebtedness or liability arising out of Lessee's use of the
Leased Area.
<PAGE>
5. Assignment.
----------
Lessee shall not assign this Lease, or any interest therein, and shall
not sublet the Leased Area or any part thereof, or any right or privilege
pertinent thereto, or allow any other person (the agents, employees and
affiliates of Lessee excepted) to occupy or use the Leased Area, or any portion
thereof, without the written consent of the Lessor first having been obtained.
6. Services and Hours of Operation.
-------------------------------
Lessor shall furnish Lessee heating and air conditioning service,
electricity, water, ceiling light fixtures, and janitorial services during all
normal operating hours of the Branch at which the Leased Area is located. In
addition, Lessor shall provide Lessee with access to and use of telephone,
facsimile and photocopying equipment at Lessor's expense. Lessor's hours of
operation shall be from ((hours)) and ((hours2)), holidays excepted. These hours
may be reasonably altered, by Lessor giving Lessee advance written notice of
such change. Lessee shall have access during business hours of the Lessor to the
Leased Area, the buildings where the Leased Area is located and to the common
areas of Lessor's premises.
7. Destruction of the Leased Area.
------------------------------
If the Leased Area shall be destroyed in whole or part by fire, the
elements, or other casualty so as to render the Branch or the Leased Area wholly
unfit for occupancy and unrepairable within 90 days from the happening of said
casualty, this Lease shall terminate on the expiration of said 90 days without
further liability of any of the parties hereto. In the event of any such
termination, Lessee shall surrender immediately possession of the Leased Area
and all rights therein to Lessor and Lessor shall have the right to enter
immediately into and take possession of the Leased Area, without liability for
any loss, damage or injury to the property or person of Lessee or any occupant
of the Leased Area. If Lessor shall repair the Leased Area within said 90 days,
this Lease shall continue in full force and effect.
8. Furniture.
---------
Lessor and Lessee agree that the following items of furniture and
other contents shall be provided for the Leased Area: One desk, one credenza,
one executive chair and two side chairs. Lessee waives any warranty, express or
implied, of fitness, or as to the use, merchantability or purpose of such
furniture or contents.
9. Maintenance of the Leased Area.
------------------------------
Lessee shall not damage, demean, nor diminish the value of the Leased
Area or any of Lessor's adjoining premises and facility. Lessee shall maintain
the Leased Area in a clean and attractive condition and in good repair, except
for those repairs to be performed by Lessor as otherwise herein provided.
<PAGE>
10. Liability.
---------
Each party shall be liable to the other for acts or omissions
occasioned by negligence, wantonness, inadvertence or intention arising from,
related to or connected with this Lease, except as provided to the contrary
herein or in the Program Agreement.
11. Notice.
------
Any notice or other communication, including rental payments, shall be
delivered or sent by mail to the Lessor at Horizon Bancorp, Inc., P.O. Box D.,
Beckley, WV 25802-2803, and to Lessee at James Mitchell & Co., 9710 Scranton
Road, Ste. 100, San Diego, CA 92121.
12. Governing Law.
-------------
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of West Virginia.
EXECUTED in two counterparts this 21st day of October, 1996.
<TABLE>
<CAPTION>
<S> <C>
JAMES MITCHELL & CO., [BANK NAME]
A CALIFORNIA CORPORATION [ORGANIZATION]
By: /s/ James K. Mitchell By: /s/ [Appropriate signatory for bank]
--------------------- -----------------------------------------
[Signatory's Name]
Its: Chairman and Chief Executive Officer Its: President
------------------------------------ ---------
JMC INSURANCE SERVICES CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ James K. Mitchell
---------------------
Its: Chairman and Chief Executive Officer
------------------------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ James K. Mitchell
----------------------
Its: Chairman and Chief Executive Officer
------------------------------------
</TABLE>
<PAGE>
ATTACHMENT A
DEFINITIONS AND DESCRIPTIONS OF RENT
This ATTACHMENT A TO LEASE AGREEMENT is entered into as of October 21,
1996, by and among JAMES MITCHELL & CO., JMC FINANCIAL CORPORATION and JMC
INSURANCE SERVICES CORPORATION (hereinafter collectively referred to as
"Lessee") and ((bank)) ((state)) and subsidiary of Horizon Bancorp, Inc.
(hereinafter referred to as "Lessor").
LESSEE and LESSOR have entered into the Lease Agreement dated as of
October 21, 1996 (the "Lease Agreement") which Lease Agreement provides for
setting forth the rent payable to LESSOR for the premises it provides.
Capitalized terms used but not otherwise defined herein shall have the meanings
assigned to those terms in the Lease Agreement.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
LESSOR and LESSEE hereby agree as follows:
I. RENT
LESSEE shall pay LESSOR rent on a monthly basis equal to the sum of
the Premium Fees and the Mutual Fund Fees (each as hereinafter defined).
A. Subject to the following paragraph, the "Premium Fees" shall be a
percentage, as set forth below, of the initial value of a Purchaser's premiums
paid for the initial purchase of an annuity or insurance Product. The Premium
Fee shall be payable within 10 days after the end of the month in which the
purchase of, or the addition to, the annuity or insurance Product took place.
The monthly payment shall be computed by multiplying the initial value of all
premiums paid for the purchase of annuity or insurance Products during the
preceding month (the "Total Initial Value") by the applicable percentage set
forth below. The applicable percentage will depend on the Aggregate Net
Premiums (as hereinafter defined) as the end of the preceding month. "Aggregate
Net Premiums" are defined as the total of all premiums paid by Purchasers from
the inception of the Program Agreement to the end of the most recent month less
all amounts (other than accumulated investment yield) withdrawn by Purchasers to
that date.
<TABLE>
<CAPTION>
Insurance/Annuity Applicable
Aggregate Net Premiums Premium Fee
(in millions) Percentage
------------- -----------
<S> <C>
$0 - $99.9 2.75%
$100 - $149.9 3.00%
$150+ 3.25%
</TABLE>
<PAGE>
In the event a Purchaser withdraws assets from his or her insurance,
fixed or variable annuity Product after the initial purchase of the Product or
any additional premium payment thereon, an adjustment will be made to the
Premium Fees payable in the subsequent month. For purposes of calculating such
adjustment, the Total Initial Value for the subsequent month shall be reduced by
the LESSOR's allocable portion of any premium charged back to the LESSEE by the
Product provider company.
B. The "Mutual Fund Fees" shall be a percentage, as set forth
below, of all dealer's concessions and 12b-1 fees actually paid to LESSEE from
mutual fund Product providers in respect of the sale of mutual fund Products to
Purchasers in the Branch. The dealer's concessions and 12b-1 fees shall be as
provided in the applicable dealer agreements between LESSEE and the individual
mutual fund Product providers, as the same may be amended from time to time.
The applicable percentage will depend on the Net Production (as hereinafter
defined) as of the end of the immediately preceding month. "Net Production" is
defined as the sum of gross sales of mutual fund Products by LESSEE and its
employees to Purchasers from the inception of the Program Agreement to the end
of the most recent month, which sales have in fact settled, less chargebacks or
refunds paid by LESSEE during that period on mutual fund Products tendered for
redemption or repurchase by the issuer or underwriter thereof within seven
business days after the date of the sale transaction.
<TABLE>
<CAPTION>
Mutual Fund Applicable
Net Production Mutual Fund
(in millions) Fee Percentage 12b-1 Fee Percentage
- ---------------------------- --------------- ---------------------
<S> <C> <C>
$0 - $99.9 37% 40%
$100+ 42% 40%
</TABLE>
The Mutual Fund Fees shall be paid to LESSOR on a monthly basis within 10 days
of the end of the month in which they are actually received by LESSEE.
C. Notwithstanding the foregoing, Mutual Fund Fees will be payable
to Lessor only with respect to the sale of front load and back-end load mutual
fund shares and only such sales will be included for purposes of calculating Net
Production.
II. Any amendment or modification of this Attachment A shall be evidenced
by the execution of a successor Attachment A.
III. All the terms and provisions of the Lease Agreement are hereby
incorporated by reference herein to the same extent as if fully set forth herein
and are hereby ratified and reconfirmed.
<PAGE>
IN WITNESS WHEREOF, LESSOR and LESSEE have each caused this
Attachment A to be duly executed and delivered as of the date and year first
above written.
<TABLE>
<S> <C>
JAMES MITCHELL & CO., [BANK NAME]
A CALIFORNIA CORPORATION [ORGANIZATION]
By: /s/ James K. Mitchell By: /s/ [Appropriate signatory for bank]
------------------------------------- ---------------------------------------
[Signatory's Name]
Its: Chairman and Chief Executive Officer Its: President
------------------------------------ ----------
JMC INSURANCE SERVICES CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ James K. Mitchell
-------------------------------------
Its: Chairman and Chief Executive Officer
------------------------------------
JMC FINANCIAL CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ James K. Mitchell
-------------------------------------
Its: Chairman and Chief Executive Officer
------------------------------------
</TABLE>
<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
. JMC Investment Services, Inc. (formerly Priority Investment Services, Inc.)
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in 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. and subsidiaries on
Forms S-8 of our report dated February 21, 1997 appearing in this Annual Report
on Form 10-K of JMC Group, Inc. and subsidiaries for the year ended December 31,
1996.
/s/ Deloitte & Touche LLP
March 28, 1997
San Diego, California
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JMC GROUP,
INC.'S 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-K
FILING.
</LEGEND>
<CIK> 0000746425
<NAME> JMC GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,930
<SECURITIES> 0
<RECEIVABLES> 1,424
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,792
<PP&E> 1,679
<DEPRECIATION> 1,466
<TOTAL-ASSETS> 8,766
<CURRENT-LIABILITIES> 2,248
<BONDS> 0
0
0
<COMMON> 62
<OTHER-SE> 6,456
<TOTAL-LIABILITY-AND-EQUITY> 8,766
<SALES> 0
<TOTAL-REVENUES> 11,845
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,591
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (746)
<INCOME-TAX> (243)
<INCOME-CONTINUING> (503)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (503)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
