<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-12926
FECHTOR, DETWILER, MITCHELL & CO.
(Exact name of registrant as specified in its charter)
Delaware 95-2627415
----------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Franklin Street
Boston, MA 02110
----------------------------- -----------------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (617) 451-0100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which it is registered
Common Stock NASDAQ
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 8, 2000 was approximately $9,701,926 representing
approximately 6,605,342 common shares.
APPLICABLE ONLY TO CORPORATE REGISTRANTS:
On March 29, 2000, the registrant had 12,916,451 shares of common stock,
$0.01 par value, issued and 12,781,251 shares of common stock outstanding.
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<PAGE>
PART I
Item 1. Description of Business
General
On August 30, 1999, Fechtor, Detwiler & Co. combined with JMC Group, Inc. to
form Fechtor, Detwiler, Mitchell & Co. (the "Company"). The consolidated
financial statements of Fechtor, Detwiler, Mitchell & Co. include its two
operating subsidiaries: Fechtor, Detwiler & Co., Inc., an investment banking
and brokerage company headquartered in Boston, MA, and James Mitchell & Co., a
financial services company located in San Diego, CA. For accounting purposes,
JMC Group, Inc. is the acquired firm and is included in the 1999 financial
statements beginning September 1, 1999. Financial data for periods prior to
1999 represent that of Fechtor, Detwiler & Co., Inc.
Fechtor, Detwiler & Co., Inc.
Fechtor, Detwiler & Co., Inc. ("Fechtor Detwiler" or the "Firm") is a New
England regional securities brokerage and investment banking firm
headquartered in Boston, Massachusetts. The Firm was founded in 1962 as a sole
proprietorship and was incorporated in 1971. Fechtor Detwiler currently has
one office in Massachusetts and three offices in Connecticut. The Firm's
business activities include institutional and retail securities brokerage,
trading in equity securities as a market maker, focused equity research,
participation in the underwriting of corporate equity securities (including
primary public offerings and underwritten secondary offerings), private
placements, merger and acquisition activities and corporate advisory services.
Fechtor Detwiler's principal emphasis for research, market-making activities
and investment banking is on companies with capitalizations of less than $1
billion, which are usually, but not always, traded in the NASDAQ market
system. Institutional sales are conducted from the Boston office and retail
sales are conducted through registered private client representatives in all
four offices. Investment banking and trading activities are conducted from the
Boston office.
Retail Brokerage
Revenues from retail brokerage activities are generated primarily through
customer purchases and sales of equity securities. The Firm also executes
orders for bonds, the purchase of mutual funds and other securities.
Commissions are charged on both listed and over-the-counter agency
transactions. When Fechtor Detwiler executes over-the-counter transactions as
a dealer, it charges a markup or markdown in lieu of commissions.
Retail commissions are charged in accordance with a commission schedule
comparable to full-service retail brokerage firms. Commission discounts may be
granted on certain transactions. The Firm does not attempt to compete with the
commission rates charged by brokerage firms generally referred to as "discount
brokers." The largest portion of Fechtor Detwiler's retail clients are
individuals who reside in the northeastern United States. The Firm is not
dependent on any single client for its revenues.
Fechtor Detwiler provides margin accounts which allow the customer to pay
less than the full cost of securities purchased, with the balance provided by
the Firm as a loan secured by the securities purchased. Margin loans are
subject to the requirements of the Board of Governors of the Federal Reserve
System and Fechtor Detwiler's internal policies. In permitting customers to
purchase securities on margin, Fechtor Detwiler bears the risk of a market
decline which could reduce the value of its collateral below customers'
indebtedness.
In addition to securities brokerage and margin lending services, the Firm
also provides its retail clients specialized financial services including
equity research, individual retirement accounts and money market products.
Institutional Brokerage
Fechtor Detwiler executes securities transactions for institutional
investors such as investment partnerships, mutual funds, insurance companies,
and pension and profit sharing plans. Institutional investors normally
2
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purchase and sell securities in large quantities which require special
marketing and trading expertise. Fechtor Detwiler believes that a significant
portion of its institutional brokerage commissions are received as a
consequence of providing such institutions with research it develops from
industry channels as well as research on specific equity issuers. The Firm
provides its institutional brokerage services to a nationwide client base.
Transactions for institutional investors are executed with the Firm acting
as agent or as principal with commissions negotiated with its institutional
customers.
Market-Making and Principal Transactions
Fechtor Detwiler actively engages in trading as principal in various phases
of the over-the-counter securities business. To facilitate trading by its
customers, the Firm buys, sells and maintains inventories of certain common
stocks in order to "make markets" in those securities. Revenues from principal
transactions, which include trading profits or losses and sales credits,
depend upon the general trend of prices, the level of activity in the
securities markets, the skill of employees engaged in market-making and the
size of the inventories. Trading as principal requires the commitment of
capital and creates an opportunity for profit and the risk of loss due to
market fluctuations.
In executing customers' orders to buy or sell NASDAQ stocks in which the
Firm makes a market, a security may be sold to, or purchased from, its
customers at a competitive price, plus or minus a mark-up or mark-down.
Alternatively, Fechtor Detwiler may act as an agent and execute a customer's
purchase or sell order with another broker-dealer which acts as a market-
maker, at the best inter-dealer market price, in which case a commission is
charged.
Investment Banking
Fechtor Detwiler participates in both public offerings and private corporate
placements as a manager or as a member of an underwriting syndicate or selling
group. Corporate offerings principally involve common stock or other equity
securities issued by corporations. Fechtor Detwiler markets private offerings
of corporate securities and provides valuation and financial consulting
services for mergers, acquisitions, stock option issuances and other corporate
purposes.
Underwriting activities, together with its selling group participation, are
an important source of securities for distribution to its clients because of
the availability of a large amount of securities for distribution and fees
earned in connection with such offerings.
Participation in an underwriting syndicate or selling group involves both
economic and regulatory risks. An underwriting participant may incur losses if
it is unable to resell the securities it is committed to purchase, or if it is
forced to liquidate its commitment at less than the agreed purchase price. In
addition, under federal securities laws, other statutes and court decisions,
an underwriting participant or selling group member may be subject to
substantial liability for material misstatements or omissions in prospectuses
and other communications with respect to such offerings.
Merchant Banking
The Company has recently engaged in merchant banking activities to include
equity investments in private placements as well as direct equity investments.
Investment considerations will include those perceived to be strategic for the
firm or where a sound investment opportunity exists. All merchant banking
investments presented for consideration are reviewed and approved for funding
by the operating committee of the Company.
Research Services
Fechtor Detwiler's research activities are focused on industry channels of
distribution and on individual companies with particular emphasis on companies
with capitalization of less than $1 billion. The Firm conducts research on
many companies which may not be covered by research analysts at other firms.
Fechtor Detwiler believes these companies may have potential for significant
growth. Research services are very important to the revenue-generating
activities of the Firm, including institutional and retail brokerage, market
making, and investment banking activities.
3
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Operations
Fechtor Detwiler clears its own securities transactions utilizing a
brokerage accounting system provided by a third-party service bureau. Customer
transactions are recorded daily on a settlement date basis; generally three
business days after the trade date for equity and debt transactions and one
business day after the trade date for option transactions. The Firm's
compliance department monitors customer transactions to ensure they are
conducted in accordance with applicable laws, rules, regulations and internal
policies. Periodic reviews of internal controls are conducted and
administrative and operations personnel meet frequently to review operational
conditions.
James Mitchell & Co.
James Mitchell & Co. ("JMC") was founded in 1983 and is located in San
Diego, California. Historically, JMC provided annuity, insurance and mutual
fund sales and support services through financial institutions and the related
servicing of products previously sold through its subsidiaries which were
structured marketing organizations that sold tax-advantaged annuities,
insurance products and mutual funds to customers of financial institutions.
JMC earns fees based on the accumulated asset value of the client accounts
being serviced. JMC also solicits existing customers to replace older products
having lower rates of return with sales of new products having more
competitive returns. During 1999, the average monthly accumulated value of
assets serviced by JMC was approximately $225 million.
Competition
The Company is engaged in the highly competitive securities brokerage and
financial services businesses competing with regional securities brokerage
firms, large national and international securities firms, and discount
brokerage firms. To an increasing degree, the Company also competes for
various segments of the financial service business or with other institutions
such as commercial banks, mutual fund companies and investment advisory and
financial planning firms. Legal and regulatory changes may allow commercial
banks and their holding companies to compete more directly in the brokerage
and investment banking businesses which will increase competition for all
brokerage firms. In addition to the competition for retail investment
business, there is substantial competition among firms in the securities
industry to attract and retain experienced and productive client
representatives.
Large competitors are able to advertise their products and services on a
national or regional basis and have a far greater number and variety of
distribution outlets for their products. Discount brokerage firms market their
services through aggressive pricing and promotional efforts. Most competitors
have much more extensive investment banking activities and, therefore, possess
a securities distribution advantage.
Recent rapid advancements in computing and communications technology are
substantially changing the means by which financial services are delivered.
These changes are providing consumers with more direct access to a wide
variety of financial and investment services, including market information and
on-line trading and account information. Advancements in technology also
create demand for more sophisticated levels of client services which may
entail considerable cost without an offsetting source of revenue. Although the
Company is committed to utilizing technological advancements to provide a high
level of client service, many of its competitors have far greater
technological resources at their disposal.
Regulation
The securities industry in the United States is subject to extensive
regulation under Federal and state laws. The Securities and Exchange
Commission ("SEC") is the Federal agency charged with administration of the
Federal securities laws. Much of the regulation of broker-dealers, however,
has been delegated to self-regulatory organizations, principally the NASD and
the national securities exchanges. These self-regulatory organizations adopt
rules (which are subject to approval by the SEC) which govern the industry.
4
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Additional legislation, changes in rules promulgated by the SEC and by self-
regulatory organizations, or changes in interpretations or enforcement of
existing laws and rules, often affect directly the method of operation and
profitability of broker-dealers. The SEC and the self-regulatory organizations
may conduct administrative proceedings which can result in censure, fines,
suspension or expulsion of a broker-dealer, its officers and employees. The
principal purpose of regulation and discipline of broker-dealers is the
protection of clients and the securities markets rather than the protection of
creditors or stockholders of broker-dealers.
One of the most important regulations with which Fechtor Detwiler must
continually comply is SEC Rule 15c3-1, which requires all broker-dealers to
maintain a minimum amount of net capital. These rules, under the alternative
method, prohibit a broker or dealer from engaging in any securities
transactions at a time when its net capital is less than 2% of aggregate debit
items arising from customer transactions. In addition, restrictions may be
imposed on the operations of a broker or dealer if its net capital is less
than 5% of aggregate debit items. At December 31, 1999, Fechtor Detwiler's net
capital exceeded its reserve requirement.
The laws, rules and regulations of the various federal, state and other
regulatory bodies to which the businesses of the Company are subject to are
constantly changing. While the management believes that it is currently in
compliance in all material respects with the laws, rules and regulations
applicable to its businesses, it cannot predict what effect any changes of
such laws or regulations might have.
Employees
As of March 21, 2000, the Company had 68 employees; none of whom are covered
by, or parties to, a collective bargaining agreement. The success of Fechtor,
Detwiler, Mitchell & Co. is highly dependent upon its continuing ability to
hire, train and retain qualified staff. Management considers relations with
its employees to be good.
Item 2. Properties
Fechtor, Detwiler, Mitchell & Co. and Fechtor, Detwiler & Co., Inc. use
office space at 225 Franklin Street, Boston, Massachusetts. The lease for this
space, which contains approximately 15,000 square feet, expires in 2007. The
three branch operations for Fechtor Detwiler located in Connecticut are also
leased.
James Mitchell & Co. uses office space at 9710 Scranton Road, Suite 100, San
Diego, California. The lease for this space, which contains approximately
2,500 square feet, expires in 2002.
Management believes its existing facilities are adequate for near-term
needs.
Item 3. Legal Proceedings
The Company's subsidiary, JMC Investment Services, Inc., a broker-dealer,
("JMCI"), is a defendant in an NASD arbitration regarding the sale of a real
estate limited partnership to a client in 1992 by Spear Rees & Co.
(predecessor to JMCI). Management does not believe that such proceeding will
have a material adverse effect on the Company's financial condition or results
of operations.
The Company from time to time is subject to legal proceedings and claims
which arise in the ordinary course of its business. Management believes that
resolution of these matters will not have a material adverse effect on the
Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
5
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Common Stock of Fechtor, Detwiler, Mitchell & Co. (the "Company") is
principally traded in the NASDAQ SmallCap Market ("SCM") under the symbol
FEDM. At March 8, 2000, there were approximately 267 shareholders of record
with approximately 868 beneficial owners. Thirteen broker-dealers are
presently market makers in the Company's common stock on the NASDAQ SCM. The
Company is also listed on the Pacific Exchange ("PCX") under the symbol FDM,
but the trading volume in the Company's common stock on the PCX is not
material.
The following table reflects the high and low sales prices of the Company's
common stock in the NASDAQ markets:
<TABLE>
<CAPTION>
Sales Price
-------------
High Low
------ ------
<S> <C> <C>
1999
----
First Quarter............................................... $1.375 $0.750
Second Quarter.............................................. $2.063 $0.844
Third Quarter............................................... $2.000 $0.813
Fourth Quarter.............................................. $1.625 $0.438
1998
----
First Quarter............................................... $1.875 $0.656
Second Quarter.............................................. $1.438 $0.906
Third Quarter............................................... $1.219 $0.500
Fourth Quarter.............................................. $1.250 $0.500
</TABLE>
No dividends were paid by the Company during 1999. Future dividends, if any,
will be determined by the Board of Directors based upon profitability, cash
availability and other considerations as deemed appropriate.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
Years Ended December 31: ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues......... $15,154,363 $12,079,027 $12,118,371 $ 9,820,236 $ 9,612,492
Total expenses before
settlement and merger
costs................. 14,254,240 12,045,254 12,092,641 9,782,427 9,526,845
Settlement and merger
costs.................. 2,136,931 -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes.......... (1,236,808) 33,773 25,730 37,809 85,647
Income tax (expense)
benefit................ 387,582 (25,792) (21,183) (17,150) (21,230)
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ (849,226) $ 7,981 $ 4,547 $ 20,659 $ 64,417
=========== =========== =========== =========== ===========
Net income (loss) per
share:
Basic................. $ (0.10) $ 0.00 $ 0.00 $ 0.00 $ 0.01
=========== =========== =========== =========== ===========
Diluted............... $ (0.10) $ 0.00 $ 0.00 $ 0.00 $ 0.01
=========== =========== =========== =========== ===========
Weighted average shares
outstanding........... 8,696,355 6,600,000 6,600,000 6,600,000 6,600,000
=========== =========== =========== =========== ===========
<CAPTION>
At December 31:
<S> <C> <C> <C> <C> <C>
Total assets........... $17,842,355 $10,546,820 $11,371,688 $15,151,057 $14,391,318
Total liabilities...... 9,497,442 8,382,053 9,214,902 12,998,820 12,259,740
Stockholders' equity... 8,344,913 2,164,767 2,156,786 2,152,237 2,131,578
</TABLE>
6
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
On August 30, 1999, effective September 1, 1999 for accounting purposes,
Fechtor, Detwiler & Co., Inc. (Fechtor Detwiler) sold its operations to JMC
Group, Inc. ("JMCG") and JMCG became the surviving corporation (the "Merger").
Subsequently, JMCG was renamed Fechtor, Detwiler, Mitchell & Co. (the
"Company") and its NASDAQ trading symbol was changed to FEDM. The former
shareholders of Fechtor Detwiler received 6,600,000 common shares of JMCG
representing 52% of the then outstanding common shares at the Merger date. The
shareholder's of JMCG converted 6,166,451 shares to an equal number of shares
of the Company.
The Merger was accounted as a purchase of JMCG by Fechtor Detwiler in a
reverse acquisition. The assets and liabilities of JMCG at the Merger date
were adjusted to their estimated fair values based upon purchase price
allocations. The assets and liabilities of Fechtor Detwiler are reported at
their historical cost basis. In a reverse acquisition, the accounting
treatment differs from the legal form of the transaction, as the continuing
legal parent company (JMCG) is not the acquiror and the historical financial
statements of JMCG become those of Fechtor Detwiler, the accounting acquiror.
Consequently, the presentation of the Company's consolidated financial
statements prior to September 1, 1999 reflects the financial statements of
Fechtor Detwiler. In addition, for periods prior to September 1, 1999,
stockholders' equity of Fechtor Detwiler has been restated retroactively to
reflect the par value of the 6,600,000 common shares received by Fechtor
Detwiler.
Fechtor, Detwiler, Mitchell & Co. is the holding company for its two
operating subsidiaries; Fechtor, Detwiler & Co., Inc., an investment banking
and brokerage firm headquartered in Boston, Massachusetts and James Mitchell &
Co., ("JMC") a financial services company located in San Diego, California.
Statement of Operations for 1999 Compared to 1998
For the year ended December 31, 1999, Fechtor, Detwiler, Mitchell & Co.
reported a net loss of $849,000, or $0.10 per share--basic and diluted,
compared to net income of $8,000 for the year ended December 31, 1998. Results
for 1999 include settlement and merger costs of $2,137,000 and merger related
non-cash compensation expense of $850,000.
Pro forma net income without the settlement and merger costs and non-cash
compensation expense was $1,015,000, or $0.08 per share--diluted, for 1999
compared to $588,000, or $0.05 per share--diluted, for 1998, assuming JMCG was
acquired effective January 1, 1998. Revenues on the same pro forma basis for
1999 were $15,892,000 compared to $14,102,000 for 1998.
Revenues of $15,154,000 for 1999 increased $3,075,000 from revenues of
$12,079,000 for 1998 primarily reflecting increased commission and principal
transaction revenues and revenues from JMCG partially offset by lower
investment banking revenues.
Compensation and benefits of $9,543,000 for 1999 increased $2,044,000
compared to 1998 due to higher variable compensation from the increase in
revenues for 1999, $850,000 of merger related non-cash compensation expense
and to a lesser degree compensation and benefits expense of JMCG for the four-
month period ended December 1999.
General and administrative expenses of $1,641,000 for 1999 increased
$209,000 compared to 1998 from higher professional fees and expenses of JMCG
for the four month period ended December 31, 1999.
Occupancy, communications and systems expense of $1,154,000 for 1999
decreased $195,000 from 1998 due to reduced rent expense for branch offices.
7
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Interest expense of $390,000 for 1999 increased $104,000 from 1998 due to
higher average notes payable balances and interest rates associated with
customer margin accounts.
Settlement and merger costs of $2,137,000 for 1999 include costs associated
with the resolution of several pending claims, professional fees and other
costs incurred to complete the Merger.
Income tax benefit of $388,000 for 1999 results from tax benefits associated
with the loss before income taxes after consideration of non-deductible merger
related costs.
Statement of Operations for 1998 Compared to 1997
For the year ended December 31, 1998, the Company reported net income of
$8,000 compared to net income of $5,000 for 1997.
Revenues of $12,079,000 for 1998 decreased slightly from $12,118,000 for
1997 due primarily to lower investment banking revenues.
Compensation and benefits of $7,499,000 for 1998 decreased $142,000 compared
to 1997 due to reduced commission expense on lower 1998 revenues and lower
variable compensation expense.
Occupancy, communications and systems of $1,349,000 for 1998 increased
$69,000 from 1997 due to higher rent expense.
Interest expense of $286,000 for 1998 decreased $117,000 from 1997
reflecting lower average notes payable balances.
Capital Resources and Liquidity
The Company finances its activities primarily from cash generated by
operations and borrowings from its lines of credit. At December 31, 1999, the
Company had assets of $18 million which primarily consisted of cash or assets
readily convertible into cash, principally receivables due from customers.
Cash and cash equivalents at December 31, 1999 of $1,273,000 increased
$699,000 from December 31, 1998. Cash received from the Merger on September 1,
1999 was $4,600,000. On November 17, 1999, notes payable were reduced by
$4,000,000 using the acquired cash.
Fechtor Detwiler has two available lines of credit totaling $10,000,000 with
$3,000,000 outstanding at December 31, 1999. In February 2000, each line of
credit was increased from $5,000,000 to $10,000,000.
On November 16, 1999, the Board of Directors approved a plan to repurchase
up to one million shares of common stock in either open market or privately
negotiated transactions. The timing and number of share repurchases are
determined at management's discretion. At December 31, 1999, 135,200 shares
had been repurchased at a cost of $137,079.
Year 2000 Compliance
The Company did not experience any difficulties related to the Year 2000
problem on December 31, 1999 and management is not aware of any such
difficulties since that date. Operations have not, to date, been adversely
affected by any difficulties experienced by any of our suppliers or customers
in connection with the Year 2000 problem. The Company's Year 2000 Compliance
Plan also addressed issues related to the date February 29, 2000 and
management will continue to monitor our systems for potential difficulties for
the remainder of calendar year 2000. Costs to implement the Year 2000 plan
were not material to the Company.
8
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Item 7a. Quantitative and Qualitative Disclosures about Market Risk.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act
Any statements in this report that are not historical facts are intended to
fall within the safe harbor for forward-looking statements provided by the
Private Securities Litigation Reform Act of 1995. These statements may be
identified by such forward-looking terminology as "expect", "look", "believe",
"anticipate", "may", "will" or similar statements or variations of such terms.
Any forward-looking statements should be considered in light of the risks and
uncertainties associated with Fechtor, Detwiler, Mitchell & Co. and its
businesses, economic and market conditions prevailing from time to time, and
the application and interpretation of Federal and state tax laws and
regulations, all of which are subject to material changes and which may cause
actual results to vary materially from what had been anticipated.
Certain factors that affect Fechtor, Detwiler, Mitchell & Co. and include
conditions affecting revenues, reliance on key personnel, competition, and
regulatory and legal matters.
Conditions Affecting Revenues. Revenues, cash flows and earnings of the
Company may be adversely affected by volatility in the financial markets and
fluctuating economic and political conditions which could produce lower
commissions, and lower trading or investment banking revenues, or by a decline
in client account balances resulting from changing industry or economic
conditions or the performance of the capital markets.
Reliance on Key Personnel. The departure of key personnel, such as skilled
institutional and retail brokers, traders, research analysts or employees
responsible for significant client relationships, could have a material
adverse effect on the results of operations of the Company.
Competition. The Company may experience losses in client account balances
due to the highly competitive nature of its business, the performance of
client accounts compared to the performance of the market generally, the
abilities and reputations of the Company and its ability to attract new client
accounts and retain existing client relationships and changes in the brokerage
business such as the growth of internet security trading and information
availability.
Regulatory and Legal Factors. The Company's business may be affected by
developments or changes in the regulation, legal proceedings and claims
arising from the conduct of its businesses.
9
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Item 8. Financial Statements and Supplementary Data
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
At December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 1,272,826 $ 573,633
Deposits with clearing organizations.................. 352,831 304,459
Receivables from brokers, dealers and clearing
organizations........................................ 1,019,614 3,884
Due from customers.................................... 11,958,104 8,079,811
Securities borrowed................................... 71,200 815,650
Non-marketable securities, at cost.................... 1,000,000 --
Intangible assets, net................................ 129,385 --
Fixed assets, net..................................... 461,467 262,278
Other................................................. 1,576,928 507,105
----------- -----------
Total Assets...................................... $17,842,355 $10,546,820
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable........................................ $ 3,000,000 $ 3,800,000
Due to customers..................................... 4,218,969 3,312,857
Accounts payable and accrued liabilities............. 2,278,473 1,269,196
----------- -----------
Total Liabilities................................. 9,497,442 8,382,053
----------- -----------
Committments and Contingencies (note 8)
Stockholders' Equity:
Preferred stock, no par value; 5,000,000 shares au-
thorized, none issued............................... -- --
Common stock, $0.01 par value; 20,000,000 shares au-
thorized;
12,916,451 shares in 1999 and 6,600,000 shares in
1998................................................ 129,165 66,000
Paid-in-capital...................................... 7,103,286 --
Retained earnings.................................... 1,249,541 2,098,767
Less treasury stock, at cost; 135,200 shares held in
treasury............................................ (137,079) --
----------- -----------
Total Stockholders' Equity........................ 8,344,913 2,164,767
----------- -----------
Total Liabilities and Stockholders' Equity........ $17,842,355 $10,546,820
=========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
10
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FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF OPERATIONS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Commissions.......................... $ 8,078,222 $ 5,689,697 $ 5,540,987
Principal transactions............... 5,501,075 4,531,095 4,264,943
Investment banking................... 246,497 918,999 1,155,265
Interest............................. 930,701 579,343 765,262
Other................................ 397,868 359,893 391,914
----------- ----------- -----------
Total revenues..................... 15,154,363 12,079,027 12,118,371
----------- ----------- -----------
Expenses:
Compensation and benefits............ 9,542,983 7,499,403 7,641,575
General and administrative........... 1,641,036 1,431,920 1,654,287
Floor brokerage, clearing and
commissions......................... 1,516,604 1,479,173 1,114,111
Occupancy, communications and
systems............................. 1,153,904 1,348,541 1,279,303
Interest............................. 390,088 286,217 403,365
Amortization of intangibles.......... 9,625 -- --
Settlement and merger ............... 2,136,931 -- --
----------- ----------- -----------
Total expenses..................... 16,391,171 12,045,254 12,092,641
----------- ----------- -----------
Income (loss) before income taxes.. (1,236,808) 33,773 25,730
Income tax (expense) benefit......... 387,582 (25,792) (21,183)
----------- ----------- -----------
Net income (loss) ................. $ (849,226) $ 7,981 $ 4,547
=========== =========== ===========
Net income (loss) per share--basic and
diluted............................... $ (0.10) $ 0.00 $ 0.00
=========== =========== ===========
Weighted average shares outstanding.... 8,696,355 6,600,000 6,600,000
=========== =========== ===========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
11
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Common Stock
-------------------- Paid-in Retained Treasury
Shares Amount Capital Earnings Stock Total
---------- -------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... 6,600,000 $ 66,000 $ -- $2,086,239 $ -- $2,152,239
Net income............. -- -- -- 4,547 -- 4,547
---------- -------- ---------- ---------- --------- ----------
Balance at December 31,
1997................... 6,600,000 66,000 -- 2,090,786 -- 2,156,786
Net income............. -- -- -- 7,981 -- 7,981
---------- -------- ---------- ---------- --------- ----------
Balance at December 31,
1998................... 6,600,000 66,000 -- 2,098,767 -- 2,164,767
Common stock from
acquisition........... 6,166,451 61,665 6,104,786 -- -- 6,166,451
Issuance of common
stock--other.......... 150,000 1,500 148,500 -- -- 150,000
Capital contribution... -- -- 850,000 -- -- 850,000
Purchase of treasury
stock................. (135,200) -- -- -- (137,079) (137,079)
Net loss............... -- -- -- (849,226) -- (849,226)
---------- -------- ---------- ---------- --------- ----------
Balance at December 31,
1999................... 12,781,251 $129,165 $7,103,286 $1,249,541 $(137,079) $8,344,913
========== ======== ========== ========== ========= ==========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
12
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)..................... $ (849,226) $ 7,981 $ 4,547
Adjustments to reconcile net income
(loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization....... 116,676 124,491 147,790
Amortization of intangibles......... 9,625 -- --
Non-cash compensation expense....... 850,000 -- --
Changes in:
Deposits with clearing
organizations.................... (48,372) (6,637) 43,536
Receivables from brokers, dealers
and clearing organizations....... (936,375) 8,826 1,800,599
Due from customers................ (3,878,293) 921,486 1,153,501
Securities owned.................. -- -- 118,146
Securities borrowed............... 744,450 (234,820) 1,149,570
Other assets...................... (370,962) 127,595 (330,448)
Due to customers.................. 906,112 1,950,414 (2,486,222)
Accounts payable and accrued
liabilities...................... 780,654 394,775 (181,702)
----------- ----------- -----------
Net cash provided by (used in)
operating activities........... (2,675,711) 3,294,111 1,419,317
----------- ----------- -----------
Cash Flows from Investing Activities:
Cash acquired from merger.............. 4,613,147 -- --
Loans to employees..................... -- -- (159,714)
Capital expenditures................... (301,164) (94,941) (225,081)
----------- ----------- -----------
Net cash provided by (used in)
investing activities........... 4,311,983 (94,941) (384,795)
----------- ----------- -----------
Cash Flows from Financing Activities:
Decrease in notes payable.............. (800,000) (3,200,000) (1,116,000)
Purchase of treasury stock............. (137,079) -- --
----------- ----------- -----------
Net cash used in financing
activities..................... (937,079) (3,200,000) (1,116,000)
----------- ----------- -----------
Net increase (decrease) in
cash........................... 699,193 (830) (81,478)
Cash at beginning of year............... 573,633 574,463 655,941
----------- ----------- -----------
Cash at end of year..................... $ 1,272,826 $ 573,633 $ 574,463
=========== =========== ===========
Interest expense....................... $ 384,522 $ 286,215 $ 348,213
=========== =========== ===========
Income taxes........................... $ 21,019 $ 35,620 $ 10,283
=========== =========== ===========
Cash Payments:
Increase in intangible assets.......... $ 139,010 $ -- $ --
=========== =========== ===========
Increase in common stock............... $ 63,165 $ -- $ --
=========== =========== ===========
Increase in paid-in-capital............ $ 7,103,286 $ -- $ --
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Non-cash Transactions:
See Accompanying Notes to Consolidated Financial Statements.
13
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
On August 30, 1999, effective September 1, 1999 for accounting purposes,
Fechtor, Detwiler & Co., Inc. (Fechtor Detwiler) sold its operations to JMC
Group, Inc. ("JMCG") and JMCG became the surviving corporation (the "Merger").
Subsequently, JMCG was renamed Fechtor, Detwiler, Mitchell & Co. (the
"Company") and its NASDAQ trading symbol was changed to FEDM. The former
shareholders of Fechtor Detwiler received 6,600,000 common shares of JMCG
representing 52% of the then outstanding common shares at the Merger date. The
shareholder's of JMCG converted 6,166,451 shares to an equal number of shares
of the Company.
The Merger was accounted as a purchase of JMCG by Fechtor Detwiler in a
reverse acquisition. The assets and liabilities of JMCG at the Merger date
were adjusted to their estimated fair values based upon purchase price
allocations. The assets and liabilities of Fechtor Detwiler are reported at
their historical cost basis. In a reverse acquisition, the accounting
treatment differs from the legal form of the transaction, as the continuing
legal parent company (JMCG) is not the acquiror and the historical financial
statements of JMCG become those of Fechtor Detwiler; the accounting acquiror.
Consequently, the presentation of the Company's consolidated financial
statements prior to September 1, 1999 reflects the financial statements of
Fechtor Detwiler. In addition, for periods prior to September 1, 1999,
stockholders' equity of Fechtor Detwiler has been restated retroactively to
reflect the par value of the 6,600,000 common shares received by Fechtor
Detwiler.
Fechtor, Detwiler, Mitchell & Co. is the holding company for its two
operating subsidiaries; Fechtor, Detwiler & Co., Inc., an investment banking
and brokerage firm headquartered in Boston, Massachusetts and James Mitchell &
Co., ("JMC") a financial services company located in San Diego, California.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation--The consolidated financial statements of Fechtor,
Detwiler, Mitchell & Co. have been prepared in accordance with generally
accepted accounting principles and the rules and regulations of the Securities
and Exchange Commission.
Principles of Consolidation--The consolidated financial statements of
Fechtor, Detwiler, Mitchell & Co. include the accounts of its wholly-owned
subsidiaries. All material intercompany transactions have been eliminated in
consolidation.
Commissions--Commission revenue relates to institutional and retail
brokerage activities for the purchase and sale of securities. Commissions are
charged on both listed and over-the-counter agency transactions.
Principal Transactions--Principal transaction revenue primarily represents
amounts earned from executing transactions on behalf of customers, or for its
own account, in securities for which Fechtor Detwiler acts as a market maker.
Investment Banking--Investment banking revenue includes fees, net of
expenses, arising from securities offerings in which Fechtor Detwiler acts as
an underwriter, agent or financial advisor.
Annuity and Insurance Sales--Annuity and insurance sales commission revenue
is reported as a component of other revenues, net of chargebacks. Asset-based
fee revenues are based upon the average accumulated value of assets in force.
14
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Securities Transactions--Proprietary securities transactions in regular way
trades are recorded on the settlement date (normally the third business day
following the trade date) which is not materially different from trade date.
Securities transactions for customers are reported on the settlement date.
Commission revenues and expenses are recorded on the trade date.
Securities--Securities owned, or securities sold, not yet purchased, are
stated at market value. Non- marketable securities are stated at cost.
Fixed Assets--Fixed assets are stated at cost with depreciation and
amortization expense recorded using the straight line method over three to
seven years.
Income Taxes--Income tax liabilities or assets are recorded through charges
or credits to the current tax provision for the estimated taxes payable or
refundable for the current year. Deferred tax assets and liabilities are
recorded for future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates. A deferred tax valuation allowance is established if it is
more likely than not that all or a portion of the deferred tax assets will not
be realized.
Cash Equivalents--Cash equivalents include instruments with an original
maturity of three months or less.
Interest--Interest revenue represents earnings on client margin accounts.
Fair Value of Financial Instruments--The carrying amount of receivables,
payables, and securities owned and securities sold, not yet purchased are
reported in the statement of financial condition at fair value.
Net Capital Requirements--Certain subsidiaries of the Company are subject to
broker-dealer net capital requirements. At December 31, 1999, each broker-
dealer subsidiary was in compliance with its net capital requirement.
Recent Accounting Pronouncements--In June 1999, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") 137, "Deferral of the Effective Date of SFAS 133." SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" was issued in
June 1998. SFAS 137 defers the effective date for SFAS 133 for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The Company will
adopt SFAS 133 as amended by SFAS 137 during 2000 as required, and has not yet
determined whether its implementation will have a material impact on the
Company's financial condition, results of operations or cash flows.
During 1999, the Company adopted SFAS No. 131, "Disclosures About Segments
of An Enterprise and Related Information." SFAS No. 131 requires the Company
to use the "management approach" in disclosing segment information. The
Company conducts its business predominantly within one industry segment,
retail and institutional brokerage, which includes the Company's retail and
institutional brokerage activities and investment banking services, for all
periods presented. Management assesses performance and measures the results on
a single segment basis. The single segment generated revenue predominantly
from the United States for all periods presented.
Reclassifications--Certain amounts in prior year financial statements have
been reclassified to conform with the 1999 presentation.
Use of Estimates--The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect amounts reported in the
accompanying financial statements. Actual results could vary from the
estimates that were used.
15
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 3. Acquisition of JMC Group, Inc.
The acquisition of JMCG was accounted for as a purchase and, accordingly,
the purchase price and related acquisition costs have been allocated to the
acquired assets and liabilities based upon their fair market values. The
excess of the purchase price over the fair value of the tangible assets
acquired and the liabilities assumed was allocated to intangible assets. The
consolidated financial statements include the results of operations of JMCG
since September 1, 1999; the date of the acquisition.
Pro forma consolidated financial data shown below, for the years ended
December 31, 1999 and 1998, respectively, gives effect to the Merger as if it
had occurred on January 1, 1998. Pro forma adjustments include settlement and
merger costs, compensation expense and amortization of intangible assets. The
pro forma data does not necessarily reflect the results of operations that
would have been obtained had the Merger occurred on the assumed date, nor is
the data necessarily indicative of the results of the combined entities that
may be achieved for any future period.
<TABLE>
<CAPTION>
1999 1998
Pro Forma Pro Forma
------------ -----------
(unaudited)
<S> <C> <C>
Revenues (1)....................................... $ 15,892,000 $14,102,000
============ ===========
Net income (2)(3).................................. $ 1,015,000 $ 588,000
============ ===========
Net income per share--diluted...................... $ 0.08 $ 0.05
============ ===========
</TABLE>
Notes:
--------
(1) Includes JMCG revenues of $988,000 and $1,669,000 for 1999 and 1998,
respectively.
(2) Excludes settlement and merger costs, net of tax benefit, of $1,389,000
for 1999.
(3) Excludes non-cash compensation expense, net of tax benefit, of $510,000
for 1999.
Effective September 1, 1999, Fechtor Detwiler became a wholly-owned
subsidiary of the Company from the issuance of 6,600,000 shares of common
stock to the former owners of Fechtor Detwiler. Additionally, options granted
prior to the Merger by the principals of Fechtor, Detwiler & Co., Inc., that
became effective upon completion of the Merger, increased paid-in capital by
$850,000.
Note 4. Earnings Per Share
Basic and diluted net income (loss) per share and weighted average shares
outstanding at December 31 follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss)................................. $(849,226) $ 7,981 $ 4,547
========= ========= =========
Net income (loss) per share:
Basic............................................ $ (0.10) $ 0.00 $ 0.00
========= ========= =========
Diluted.......................................... $ (0.10) $ 0.00 $ 0.00
========= ========= =========
Weighted average shares outstanding:
Basic............................................ 8,696,355 6,600,000 6,600,000
Incremental shares assumed outstanding from
exercise of stock options...................... -- -- --
--------- --------- ---------
Diluted.......................................... 8,696,355 6,600,000 6,600,000
========= ========= =========
</TABLE>
16
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5. Fixed Assets
Fixed assets consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Furniture and equipment................................. $ 1,712,080 $ 912,133
Leasehold improvements.................................. 29,247 28,246
----------- ---------
1,741,327 940,379
Less accumulated depreciation and amortization.......... (1,279,860) (678,101)
----------- ---------
$ 461,467 $ 262,278
=========== =========
</TABLE>
The Company leases office space under noncancelable leases expiring through
2007. Future minimum annual lease payments at December 31, 1999 follow:
<TABLE>
<S> <C> <C>
2000....................................................... $ 566,000
2001....................................................... 553,000
2002....................................................... 532,500
2003....................................................... 555,000
2004....................................................... 555,000
Thereafter................................................. 1,387,500
----------
$4,149,000
==========
</TABLE>
Rent expense was $660,000, $801,000 and $672,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
Note 6. Notes Payable
Fechtor Detwiler has two revolving line-of-credit facilities each with a
$5,000,000 facility which are due on demand. Total borrowings were $3,000,000
at December 31, 1999. Interest on the first facility is based on the federal
funds rate plus 1.10%, and interest on the second facility is based on the
federal funds rate plus 1.25%. Advances are collateralized by $4,400,000 of
securities held in customer margin accounts.
Note 7. Income Taxes
The provision (benefit) for income taxes is allocated as follows:
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Benefit--Deferred............................................. $(387,582)
=========
Actual income tax benefit differs from the amount "expected" computed using
the statutory federal tax rate of 34% as follows:
<CAPTION>
1999
---------
<S> <C>
Expected income tax benefit using statutory rate.............. $(420,515)
Effects of:
State income taxes, net of Federal tax benefit.............. (74,000)
Merger related expenses..................................... 95,000
Other....................................................... 11,933
---------
$(387,582)
=========
</TABLE>
17
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
At December 31, 1999, the components of the deferred tax asset are as
follows:
<TABLE>
<CAPTION>
1999
--------
<S> <C>
Compensation..................................................... $404,000
Net operating loss............................................... 73,000
Fixed assets..................................................... 38,000
Accrued liabilities.............................................. 14,000
--------
$529,000
========
</TABLE>
Income tax expense for the years ended December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Current:
Federal.................................................. $14,780 $12,081
State.................................................... 11,012 9,102
------- -------
$25,792 $21,183
======= =======
</TABLE>
For 1998 and 1997, the difference between the provision for taxes on income
and expected taxes on income at statutory rates results primarily from
nondeductible expenses. Further, deferred taxes resulting from temporary
differences between the financial statement and the tax basis of assets and
liabilities are not material.
Note 8. Commitments and Contingencies
The Company from time to time is subject to legal proceedings and claims
which arise in the ordinary course of its business. Management believes that
resolution of these matters will not have a material adverse effect on the
Company's results of operations or financial condition.
Included in other assets is a $272,000 treasury security pledged as
collateral for a letter of credit.
Note 9. Stockholders' Equity
A summary of stock options outstanding at December 31, 1999 follows:
<TABLE>
<CAPTION>
1999
-------------------
Weighted
Average
Exercise
Shares Price
--------- --------
<S> <C> <C>
Options assumed in business combination at September 1,
1999..................................................... 367,400 $1.26
Granted.................................................. 712,000 1.00
Forfeited................................................ (27,000) 3.84
--------- -----
Outstanding at December 31, 1999.......................... 1,052,400 $1.59
========= =====
Options exercisable at December 31, 1999.................. 316,400 $1.20
========= =====
Weighted average fair value of options granted per share
during the period........................................ $0.82
=====
</TABLE>
18
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Of the 712,000 options granted in 1999, options granted under the Executive
Plan were 337,000 and options granted under the Employee Plan were 375,000.
Options outstanding at December 31, 1999 are exercisable as follows: 316,400
options in 1999, 246,838 in 2000, 231,833 in 2001, 244,829 in 2002 and 12,500
in 2003. At December 31, 1999, 63,000 and 222,500 options were available for
future grants under the 1993 Executive and Employee Plans, respectively.
A summary of stock options outstanding and exercisable at December 31, 1999
follows:
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
---------------------------- ----------------
Weighted
Average Weighted Weighted
Remaining Average Average
Life In Exercise Exercise
Range of Exercise Prices Shares Years Price Shares Price
- ------------------------ --------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.50-$0.74...................... 27,600 5.65 $0.66 19,600 $ 0.65
$0.75-$0.99...................... 540,800 6.88 $0.95 32,800 $ 0.83
$1.00-$1.24...................... 306,000 8.37 $1.06 106,000 $ 1.12
$1.25-$1.49...................... 142,000 6.06 $1.36 142,000 $ 1.36
$1.50-$1.74...................... 24,000 5.00 $1.66 12,000 $ 1.69
$1.75-$2.00...................... 12,000 5.00 $1.88 4,000 $ 1.88
--------- -------
1,052,400 316,400
========= =======
</TABLE>
The Company has adopted the disclosure-only provisions for the accounting
for stock-based compensation. Accordingly, no compensation cost has been
recognized for its stock option plans. 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 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 (collectively, the "1993 Plans"). Under the 1993 Plans, incentive or
non-qualified stock options may be granted. Had compensation for the Company's
stock option plans been determined based on the fair market value at the grant
date for awards in 1999, net loss and net loss per share would be as follows:
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
Net loss:
As reported .............................................. $ (849,000)
Pro forma................................................. $(1,198,000)
Net loss per share:
As reported .............................................. $ (0.10)
Pro forma................................................. $ (0.14)
</TABLE>
The fair value of options granted during 1999 are estimated to be
approximately $582,000, on the date of grant using the Black-Scholes option-
pricing model. Fair value was determined using the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Dividend yield rate................................................ 0%
Volatility rate.................................................... 71%
Risk free interest rate............................................ 5.69%
Expected lives..................................................... 3 years
</TABLE>
The Company adopted a stock option plan of Fechtor Detwiler in connection
with the Merger. The plan provided for the issuance of 600,000 options,
granted to certain employees by the founding partners of Fechtor
19
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Detwiler, to acquire common shares of Fechtor Detwiler prior to the Merger. In
September 1999, the Company recorded compensation expense of $850,000, and a
$340,000 tax benefit, reflecting the recognition of the value of the options
granted between the exercise price of $0.10 per share and the value of the
common stock of the Company at the Merger date. At December 31, 1999, 600,000
common shares of the Company have been placed in a trust, by the former
shareholders of Fechtor Detwiler. The founding partners of Fechtor Detwiler
will reimburse the Company with an equivalent number of shares from the trust,
based on the number of options exercised.
The Company adopted the former JMCG 401 (k) retirement savings plan in the
fourth quarter of 1999 covering substantially all employees. Matching Company
contributions of up to 3%, subject to the maximum allowed annual employee
contribution, are made in the form of Company stock purchased on the open
market. Company contributions for 1999 were not material.
Note 10. Shareholder Rights Plan
The Company has a Shareholder Rights Plan (the "Plan") which provides for a
dividend of one common stock purchase right (one "Right") for each outstanding
share of common stock of the Company. Each Right entitles the stockholder to
purchase one share of common stock at $30.00 per share, subject to adjustment.
The Plan was amended on February 20, 2000 extending the expiration date to
February 21, 2010.
Generally, Rights may be exercised ten days after any person or group
("Acquirer") obtains beneficial ownership of 20% of the outstanding common
shares, or ten days after an Acquirer announces a tender offer or other
business combination, unless such tender offer or acquisition is made with the
approval of the Board of Directors. 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.
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.
Note 11. Stock Repurchase Plan
On November 16, 1999, the Board of Directors approved a plan to repurchase
up to one million shares of common stock of the Company in either open market
or privately negotiated transactions. The timing and number of the share
purchases are determined at management's discretion. At December 31, 1999,
135,200 shares had been repurchased, at a cost of $137,079, and are held in
treasury.
Note 12. Concentrations of Credit Risk and Off-balance Sheet Credit Risk
The Company borrows securities from other brokers and provides cash to the
other brokers representing approximately 105% of the market value of
securities borrowed. Deposits for securities borrowed are held in escrow at a
national brokerage firm at December 31, 1999.
Certain customer transactions involve the sale of securities not yet
purchased. Such transactions may expose the Company to off-balance sheet risk
in the event that collateral provided is not sufficient to cover losses that
customers may incur upon market fluctuations. In the event that the customer
fails to satisfy its obligations, the Company may be required to purchase or
sell such securities at prevailing market prices in order to fulfill the
customer's obligations.
Unpaid customer securities are pledged as collateral for bank borrowings and
to satisfy margin deposits of clearing organizations under contracts with
these organizations. In the event that such party is unable to return customer
securities pledged as collateral, the Company may be exposed to the risk of
acquiring the securities at prevailing market prices.
20
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Customer transactions are recorded on a settlement-date basis, which is
generally three business days after the trade date. The Company is therefore
exposed to risk of loss on these transactions in the event of the customer's
or broker's inability to meet the terms of their contracts, in which case the
Company may have to purchase or sell securities at prevailing market prices.
Settlement of these transactions in the unlikely event the customer or other
brokers are unable to meet the terms of their contracts is not expected to
have a significant effect on the financial condition of the Company.
Securities not received or delivered at the settlement date result in failed
trades. Should the other party to these transactions be unable to fulfill its
obligations, the Company may be required to purchase or sell these securities
at prevailing market prices. Securities sold, not yet purchased are subject to
the risk that the market value of such securities will increase, and may not
be able to cover the position.
Note 13. Selected Quarterly Financial Data (unaudited)
<TABLE>
<CAPTION>
1999
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $3,766,885 $4,099,989 $ 3,014,396 $ 4,273,093
---------- ---------- ----------- -----------
Expenses:
Compensation and benefits... 2,405,303 2,109,632 2,514,149 2,513,899
Other expenses.............. 1,065,546 1,287,389 1,102,526 1,255,796
Settlement and merger
costs...................... -- 393,815 1,495,199 247,917
---------- ---------- ----------- -----------
3,470,849 3,790,836 5,111,874 4,017,612
---------- ---------- ----------- -----------
Income (loss) before income
taxes...................... 296,036 309,153 (2,097,478) 255,481
Income tax (expense)
benefit.................... (133,216) (131,783) 708,126 (55,545)
---------- ---------- ----------- -----------
Net income (loss)........... $ 162,820 $ 177,370 $(1,389,352) $ 199,936
========== ========== =========== ===========
Net income (loss) per
share--diluted............. $ 0.02 $ 0.02 $ (0.16) $ 0.02
========== ========== =========== ===========
Weighted average shares
outstanding--diluted....... 6,600,000 6,600,000 8,705,484 12,879,938
========== ========== =========== ===========
Note (1)--Results for the quarter ended September 30, 1999 have been
restated to reflect non-cash compensation expense, net of tax benefit, of
$510,000 accompanied by an $850,000 increase in paid-in-capital. These
adjustments result from stock options granted prior to the Merger by the
principals of Fechtor, Detwiler & Co., Inc. that became effective upon
completion of the Merger.
<CAPTION>
1998
------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.................... $2,921,948 $2,809,641 $ 2,836,958 $ 3,510,480
---------- ---------- ----------- -----------
Expenses:
Compensation and benefits... 1,827,168 1,507,224 1,743,127 2,421,884
Other expenses.............. 1,146,923 1,249,362 1,076,416 1,073,150
---------- ---------- ----------- -----------
2,974,091 2,756,586 2,819,543 3,495,034
---------- ---------- ----------- -----------
Income (loss) before income
taxes...................... (52,143) 53,055 17,415 15,446
Income tax (expense)
benefit.................... 16,105 (16,515) (7,837) (17,545)
---------- ---------- ----------- -----------
Net income (loss)........... $ (36,038) $ 36,540 $ 9,578 $ (2,099)
========== ========== =========== ===========
Net income (loss) per
share--diluted............. $ 0.00 $ 0.00 $ 0.00 $ 0.00
========== ========== =========== ===========
Weighted average shares
outstanding--diluted....... 6,600,000 6,600,000 6,600,000 6,600,000
========== ========== =========== ===========
</TABLE>
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated statement of financial
condition of Fechtor, Detwiler, Mitchell & Co. and subsidiaries as of December
31, 1999, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fechtor, Detwiler,
Mitchell & Co. and subsidiaries at December 31, 1999, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
March 9, 2000
22
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited the statements of financial condition of Fechtor, Detwiler &
Co., Inc. as of December 31, 1998 and 1997, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements, not separately presented herein, 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 amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fechtor, Detwiler & Co.,
Inc. at December 31, 1998 and 1997, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Boston, Massachusetts
February 10, 1999
23
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
24
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors and Executive Officers of the Company
can be found under the heading captioned "Board of Directors and Officers of
Fechtor, Detwiler, Mitchell & Co." and "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" appearing in the Company's 2000 proxy
statement and is incorporated herein by reference.
Item 11. Executive Compensation
Information with respect to Executive Compensation can be found under the
heading captioned "Executive Compensation" appearing in the Company's 2000
proxy statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information with respect to security ownership may be found under the
heading captioned "Security Ownership of Certain Beneficial Owners and
Management" appearing in the Company's 2000 proxy statement and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information with respect to this item may be found under the heading
"Compensation Committee and Insider Participation and Certain Relationships
and Related Transactions" appearing in the Company's 2000 proxy statement and
is incorporated herein by reference.
25
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules, and Reports on Form 8-K
(a)(3) The following exhibits are filed herewith:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Registrant.(1)
3.2 Certificate of Amendment of Certificate of Incorporation of the
Registrant.(1)
3.3 By-laws of the Registrant.(1)
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.(1)
4.11 Amendment No. 2 to Shareholder Rights Agreement, dated February 20,
2000, extending the expiration date of the Shareholder Rights
Agreement to February 21, 2010.(5)
10.1 JMC Group, Inc. 1993 Employee Stock Option Plan.(2)(7)
10.2 JMC Group, Inc. 1993 Employee Stock Option Plan.(3)(7)
10.3 Employment Agreement with James K. Mitchell dated as of January 1,
1998.(4)(7)
10.4 Agreement and Plan of Merger dated June 30, 1999 among Fechtor,
Detwiler & Co., Inc., JMC Merger, Inc. and JMC Group, Inc.(6)
10.5 1999 Special Stock Option Plan for Fechtor, Detwiler & Co., Inc. dated
August 30, 1999 which was assumed by Fechtor, Detwiler, Mitchell & Co.
after the Merger.(7)
10.6 2000 Omnibus Equity Incentive Plan adopted by the Board of Directors
on February 28, 2000 to be voted on at the Annual Meeting of
Stockholders on or about May 22, 2000.(7)
22 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Arthur Andersen LLP.
27 Financial Data Schedule.
</TABLE>
(b) No current reports on Form 8-K were filed by the Company during the
fourth quarter for the fiscal year ended December 31, 1999.
- --------
(1) Filed as an Exhibit to the Registrant's Form 10-K for the fiscal year
ended December 31, 1993.
(2) Filed as an Exhibit to the Registrant's Form S-8 Registration
Statement No. 33-74842 filed with the SEC on February 7, 1994.
(3) Filed as an Exhibit to the Registrant's Form S-8 Registration
Statement No. 33-74840 filed with the SEC on February 7, 1994.
(4) Filed as an Exhibit to the Registrant's Form 10-K for the fiscal year
ended December 31, 1997.
(5) Filed as an Exhibit to the Registrant's Form 8-K dated March 24, 2000.
(6) Filed as an Exhibit to Registrant's Definitive Proxy Statement dated
August 5, 1999.
(7) Management contract or compensatory plan or arrangement.
26
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Mitchell Chairman, President and March 30, 2000
______________________________________ Director
James Mitchell
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities on March 30, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James Mitchell Chairman, President and March 30, 2000
______________________________________ Director
James Mitchell
/s/ Stephen Martino Chief Financial Officer March 30, 2000
______________________________________ and Principal Accounting
Stephen Martino Officer
/s/ Edward Baran Director March 30, 2000
______________________________________
Edward Baran
/s/ Barton Beek Director March 30, 2000
______________________________________
Barton Beek
/s/ Andrew Detwiler Director March 30, 2000
______________________________________
Andrew Detwiler
/s/ Richard Fechtor Chief Executive Officer March 30, 2000
______________________________________ and Director
Richard Fechtor
</TABLE>
<TABLE>
<S> <C> <C>
/s/ Edward Hughes Chief Operating Officer March 30, 2000
______________________________________ and Director
Edward Hughes
/s/ Frank Jenkins Director March 30, 2000
______________________________________
Frank Jenkins
/s/ Robert Sharp Director March 30, 2000
______________________________________
</TABLE> Robert Sharp
27
<PAGE>
EXHIBIT 10.5
FECHTOR, DETWILER & CO., INC.
1999 SPECIAL STOCK OPTION PLAN
------------------------------
<PAGE>
FECHTOR, DETWILER & CO., INC.
-----------------------------
1999 SPECIAL STOCK OPTION PLAN
------------------------------
TABLE OF CONTENTS
-----------------
1. PURPOSE OF THE PLAN................................................. -1-
2. ADMINISTRATION...................................................... -1-
3. OPTION SHARES....................................................... -2-
4. AUTHORITY TO GRANT OPTIONS.......................................... -3-
5. ELIGIBILITY......................................................... -3-
6. OPTION PRICE........................................................ -3-
7. DURATION OF OPTIONS................................................. -3-
8. AMOUNT EXERCISABLE.................................................. -3-
9. EXERCISE OF OPTIONS................................................. -3-
a. Method of Exercise.......................................... -3-
------------------
b. Payment of Purchase Price................................... -4-
-------------------------
c. Fair Market Value........................................... -5-
-----------------
10. TRANSFERABILITY OF OPTIONS.......................................... -5-
11. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE...................... -5-
a. Temporary Leave............................................. -6-
---------------
b. Death or Disability......................................... -6-
-------------------
c. Retirement.................................................. -7-
----------
12. EMPLOYMENT RELATIONSHIP............................................. -7-
13. GENERAL RESTRICTIONS................................................ -7-
a. Investment Representations.................................. -7-
--------------------------
b. Compliance with Securities Laws............................. -7-
-------------------------------
14. NO RIGHTS AS STOCKHOLDER............................................ -8-
15. EMPLOYMENT OBLIGATION............................................... -9-
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE.......................... -9-
a. Rights of the Company....................................... -9-
---------------------
b. Recapitalization, Stock Splits, and Dividends............... -9-
---------------------------------------------
c. Merger of Company With No Change of Control................. -10-
-------------------------------------------
d. Sale or Merger of Company Where Company Does Not Survive.... -11-
--------------------------------------------------------
e. Changes to Common Stock Subject to Options.................. -11-
------------------------------------------
17. WITHHOLDING TAXES................................................... -12-
a. Rights of Company........................................... -12-
-----------------
b. Payment in Shares........................................... -12-
-----------------
18. AMENDMENT OR TERMINATION OF THE PLAN................................ -13-
19. WRITTEN AGREEMENT................................................... -13-
20. EFFECTIVE DATE AND DURATION OF PLAN................................. -13-
<PAGE>
FECHTOR, DETWILER & CO., INC.
1999 SPECIAL STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 1999 Special Stock Option Plan (the "Plan") of Fechtor, Detwiler &
Co., Inc., a Massachusetts corporation (the "Company"), is designed to provide
rewards for past service and additional incentive to certain employees of the
Company. The Company intends that this purpose will be effected by the granting
of nonqualified stock options (collectively, the "Options", and individually, an
"Option") under the Plan which afford such employees an opportunity to acquire
or increase their proprietary interest in the Company through the acquisition of
shares of its Common Stock. By encouraging stock ownership by such employees,
the Company wishes to provide rewards for past services, and seeks to retain on
a continuing basis the services of persons of exceptional competence and to
furnish an added incentive for them to increase their efforts on behalf of the
Company.
2. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"). The Board shall have full and final authority to operate, manage
and administer the Plan on behalf of the Company. This authority includes, but
is not limited to:
-1-
<PAGE>
(i) the power to grant Options conditionally or unconditionally; (ii) the power
to prescribe the form or forms of the instruments evidencing Options granted
under the Plan; (iii) the power to interpret the Plan; (iv) the power to provide
regulations for the operation of the incentive features of the Plan, and
otherwise to prescribe regulations for interpretation, management and
administration of the Plan; (v) the power to delegate responsibility for Plan
operation, management and administration on such terms, consistent with the
Plan, as the Board may establish; (vi) the power to delegate to other persons
the responsibility for performing ministerial acts in furtherance of the Plan's
purpose; and (vii) the power to engage the services of persons or organizations
in furtherance of the Plan's purpose, including but not limited to banks,
insurance companies, brokerage firms and consultants.
In addition, as to each Option, the Board shall have full and final
authority in its discretion to determine: (i) the number of shares subject to
each Option; (ii) the time or times at which Options will be granted; (iii) the
option price for the shares subject to each Option; and (iv) the time or times
when each Option shall become exercisable, the conditions under which exercise
may be accelerated and the duration of the exercise period.
The Board shall not be liable for any action or determination
made in good faith with respect to the Plan or any Option granted hereunder.
-2-
<PAGE>
3. OPTION SHARES.
The stock subject to the Options and other provisions of the Plan shall be
shares of the Company's Common Stock, no par value (the "Common Stock"). The
total amount of the Common Stock with respect to which Options may be granted
shall not exceed in the aggregate 81.82 shares; provided, however, that the
class and aggregate number of shares which may be subject to Options granted
hereunder shall be subject to adjustment in accordance with the provisions of
Paragraph 16 hereof. Shares subject to Options granted hereunder may be
treasury shares or authorized but unissued shares.
4. AUTHORITY TO GRANT OPTIONS.
The Board may grant Options from time to time to such eligible employees of
the Company as he shall determine. Subject to any applicable limitations set
forth in the Plan or established from time to time by the Board, the number of
shares of Common Stock to be covered by any Option shall be as determined by the
Board.
5. ELIGIBILITY.
Options may be granted to employees of the Company.
6. OPTION PRICE.
The price at which shares may be purchased pursuant to Options
shall be specified by the Board at the time the Option is granted.
-3-
<PAGE>
7. DURATION OF OPTIONS.
The Board in its discretion may provide that an Option shall be exercisable
during any specified period of time from the date such Option is granted.
8. AMOUNT EXERCISABLE.
Each Option may be exercised, so long as it is valid and outstanding, from
time to time in part or as a whole, subject to any limitations with respect to
the number of shares for which the Option may be exercised at a particular time
and to such other conditions as the Board in its discretion may specify upon
granting the Option.
9. EXERCISE OF OPTIONS.
Subject to the provisions of Paragraph 13 hereof,
1. Method of Exercise. Any option granted under the Plan may be exercised
------------------
by the optionee by delivering to the Company on any business day a written
notice specifying the number of shares of Common Stock the optionee then
desires to purchase and specifying the address to which the certificates
for such shares are to be mailed (the "Notice"), accompanied by payment for
such shares.
2. Payment of Purchase Price. Payment for the shares of Common Stock
-------------------------
purchased pursuant to the exercise of an option shall be made by:
-4-
<PAGE>
1. cash in an amount, or a check, bank draft or postal or express money
order payable in an amount, equal to the aggregate exercise price for
the number of shares specified in the Notice;
2. with the consent of the Board, shares of Common Stock of the Company
having a fair market value (as defined below) equal to such aggregate
exercise price;
3. with the consent of the Board, a personal recourse note issued by the
optionee to the Company in a principal amount equal to such aggregate
exercise price and with such other terms, including interest rate and
maturity, as the Board may determine in its discretion; provided that
the interest rate borne by such note shall not be less than the lowest
applicable federal rate, as defined in Section 1274(d) of the Code;
4. with the consent of the Board, such other consideration that is
acceptable to the Board and that has a fair market value, as determined
by the Board, equal to such aggregate exercise price, including any
broker-directed cashless exercise/resale procedure adopted by the Board;
or
-5-
<PAGE>
5. with the consent of the Board, any combination of the foregoing.As
promptly as practicable after receipt of the Notice and accompanying
payment, the Company shall deliver to the optionee certificates for the
number of shares with respect to which such option has been so
exercised, issued in the optionee's name; provided, however, that such
delivery shall be deemed effected for all purposes when the Company or a
stock transfer agent of the Company shall have deposited such
certificates in the United States mail, addressed to the optionee, at
the address specified in the Notice.
3. Fair Market Value. For the purpose of the Plan, the fair market value of
the Common Stock shall be the closing price per share on the date of
exercise of the option as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as
reported by the National Association of Securities Dealers Automated
Quotation System, Inc. ("NASDAQ"), or, if the Common Stock is not quoted on
NASDAQ, the fair market value as determined by the Board.
10. TRANSFERABILITY OF OPTIONS.
Options shall not be transferable by the optionee otherwise than by will or
under the laws of descent and distribution, and shall be exercisable, during his
lifetime, only by him.
11. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE.
Except as may be otherwise expressly provided herein or as may be otherwise
expressly provided in the terms and conditions of the
-6-
<PAGE>
Option granted to an optionee, Options may not be exercised after the earlier
of:
1. the date of expiration thereof; or
2. the date of termination of the optionee's employment with the
Company if the termination is by the Company for cause (as determined
by the Company), or if voluntarily by the optionee; or
3. thirty (30) days after termination of the optionee's employment
with the Company by it without cause.
2. Temporary Leave. Whether an authorized temporary leave of
---------------
absence, or absence on military or government service, shall constitute
termination of the employment relationship between the Company and the
optionee shall be determined by the Board at the time thereof.
3. Death or Disability. In the event the optionee's employment with the
-------------------
Company is terminated while the optionee is an employee in good standing
for reasons of permanent disability under the then established rules of the
Company or due to the death of the optionee and before the date of
expiration of such Option, such Option may be exercised until the earlier
of such date of expiration or one (1) year following the date of such
termination for reason of permanent disability or death. Should such
termination for reason of
-7-
<PAGE>
permanent disability or death occur after the first anniversary of the date
on which the optionee was first employed by the Company, the Option may be
exercised for up to the greater of (i) 50% of all Option shares (and such
shares shall be deemed vested) or (ii) the number of shares that had vested
as of the date of such death or termination due to disability. After the
death of the optionee, his executors, administrators or any person or
persons to whom his Option may be transferred by will or by the laws of
descent and distribution, shall have the right to exercise the Option.
4. Retirement. If, before the date of expiration of the Option, the
----------
optionee as an employee shall be retired in good standing from the employ
of the Company for reasons of age under the then established rules of the
Company, the Option may be exercised until the earlier of such date of
expiration or thirty (30) days after the date of such retirement, to the
extent to which the optionee was entitled to exercise such Option
immediately prior to such retirement.
12. EMPLOYMENT RELATIONSHIP.
An employment relationship between the Company and the optionee shall be
deemed to exist during any period in which the optionee is employed by the
Company or by the parent of the Company or by another subsidiary of the parent.
-8-
<PAGE>
13. GENERAL RESTRICTIONS.
1. Investment Representations. The Company may require any individual to
--------------------------
whom an Option is granted, as a condition of exercising such Option, to
give written assurances in substance and form satisfactory to the Company
to the effect that such individual is acquiring the shares subject to the
Option for his or her own account for investment and not with a view to the
resale or distribution thereof, and to such other effects as the Company
deems necessary or advisable in order to comply with the Securities Act of
1933, as now in effect or hereafter amended (the "Act") and applicable
state securities laws.
2. Compliance with Securities Laws. The Company shall not be required to
-------------------------------
sell or issue any shares under any Option if the issuance of such shares
shall constitute a violation by the optionee or by the Company of any
provision of any law, regulation or order of any governmental authority.
Without limiting the generality of the foregoing, upon exercise of any
Option, the Company shall not be required to issue such shares unless the
Company has received evidence satisfactory to it to the effect that the
holder of such Option will not transfer such shares except pursuant to a
registration statement in effect under the Act, and under the applicable
securities laws
-9-
<PAGE>
of any State, unless the Company has received an opinion of counsel
satisfactory to the Company to the effect that such registration is not
required. Any determination in this connection by the Company shall be
final, binding and conclusive. In the event the shares issuable on exercise
of an Option are not registered under the Act, the Company may imprint the
following legend or any other legend which counsel for the Company
considers necessary or advisable to comply with the Act or other applicable
laws:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except upon such
registration or upon receipt by the Corporation of an opinion of
counsel satisfactory to the Corporation, in form and substance
satisfactory to the Corporation, that registration is not required for
such sale or transfer."
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an Option or the issuance of shares
pursuant thereto to comply with any other law, regulation or order of any
governmental authority.
-10-
<PAGE>
14. NO RIGHTS AS STOCKHOLDER.
No optionee shall have rights as a stockholder with respect to shares
covered by his Option until the date of issuance of a stock certificate for such
shares; and, except as otherwise provided in Paragraph 16 hereof, no adjustment
for dividends, or otherwise, shall be made if the record date therefor is prior
to the date of issuance of such certificate.
15. EMPLOYMENT OBLIGATION.
The granting of any Option shall not impose upon the Company any obligation
to employ or continue to employ any optionee; and the right of the Company to
terminate the employment of any employee shall not be diminished or affected by
reason of the fact that an Option has been granted to him.
16. CHANGES IN THE COMPANY'S CAPITAL STRUCTURE'.
1. Rights of the Company. The existence of outstanding Options shall not
---------------------
affect in any way the right or power of the Company or its stockholders to
make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of
bonds, debentures, preferred or prior preference stock ahead of or
affecting the Common Stock or the rights thereof, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of
its assets or business, or any
-11-
<PAGE>
other corporate act or proceeding, whether of a similar character or
otherwise.
2. Recapitalization, Stock Splits, and Dividends. If the Company shall
---------------------------------------------
effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend, or other increase or
reduction of the number of shares of the Common Stock outstanding, without
receiving compensation therefor in money, services or property, then (i)
the number, class, and per share price of shares of stock subject to
outstanding Options hereunder shall be appropriately adjusted in such a
manner as to entitle an optionee to receive upon exercise of an Option, for
the same aggregate cash consideration, the same total number and class of
shares as he would have received as a result of the event requiring the
adjustment had he exercised his Option in full immediately prior to such
event; and (ii) the number and class of shares with respect to which
Options may be granted under the Plan shall be adjusted by substituting for
the total number of shares of Common Stock then reserved that number and
class of shares of stock that would have been received by the owner of an
equal number of outstanding shares of Common Stock as the result of the
event requiring the adjustment.
-12-
<PAGE>
3. Merger of Company With No Change of Control. After a
-------------------------------------------
merger of one or more corporations into the Company, or after a
consolidation of the Company with one or more corporations in which (i) the
Company shall be the surviving corporation and (ii) the stockholders of the
Company prior to such merger of consolidation hold at least fifty percent
(50%) of the voting shares of the Company after such merger or
consolidation, each holder of an outstanding Option shall, at no additional
cost, be entitled upon exercise of such Option to receive (subject to any
required action by stockholders) in lieu of the number of shares as to
which such Option shall then be so exercisable, the number and class of
shares of stock or other securities to which such holder would have been
entitled pursuant to the terms of the agreement of merger or consolidation
if, immediately prior to such merger or consolidation, such holder had been
the holder of record of a number of shares of Common Stock equal to the
number of shares as to which such Option shall be so exercised.
4. Sale or Merger of Company Where Company Does Not Survive. If the Company
--------------------------------------------------------
is merged into or consolidated with another corporation under circumstances
where the Company is not the surviving corporation, or if there is a merger
or consolidation where the Company is the surviving corporation and the
stockholders of the Company prior to such merger or
-13-
<PAGE>
consolidation do not hold at least fifty percent (50%) of the voting shares
of the Company after such merger or consolidation occurs, including,
without limitation, the proposed merger with JMC Group, Inc., or if the
Company is liquidated, or sells or otherwise disposes of substantially all
its assets to another corporation while unexercised Options remain
outstanding under the Plan, (i) subject to the provisions of clause (ii)
below, after the effective date of such merger, consolidation or sale, as
the case may be, each holder of an outstanding Option shall be entitled,
upon exercise of such Option, to receive, in lieu of shares of Common
Stock, shares of such stock or other securities, cash or property as the
holders of shares of Common Stock received pursuant to the terms of the
merger, consolidation or sale; or (ii) all outstanding Options may be
canceled by the Board as of the effective date of any such merger,
consolidation, liquidation or sale, provided that (x) notice of such
cancellation shall be given to each holder of an Option and (y) each holder
of an Option shall have the right to exercise such Option to the extent
that the same is then exercisable during the thirty (30) day period
preceding the effective date of such merger, consolidation, liquidation,
sale or acquisition.
-14-
<PAGE>
5. Changes to Common Stock Subject to Options. Except as herein before
------------------------------------------
expressly provided, the issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, for
cash or property, or for labor or services either upon direct sale or upon
the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such
shares or other securities, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of
Common Stock then subject to outstanding Options.
17. WITHHOLDING TAXES.
1. Rights of Company. The Company may require an employee exercising an
-----------------
Option to reimburse the Company for any taxes required by any government to
be withheld or otherwise deducted and paid by the Company in respect of the
issuance or disposition of such shares. In lieu thereof, the Company shall
have the right to withhold the amount of such taxes from any other sums due
or to become due from the Company to the employee upon such terms and
conditions as the Company may prescribe. The Company may, in its
discretion, hold the stock certificate to which such employee is otherwise
entitled upon the exercise of an Option as security for the payment of any
-15-
<PAGE>
such withholding tax liability, until cash sufficient to pay that liability
has been received or accumulated.
2. Payment in Shares. An employee may elect to have such tax withholding
-----------------
obligation satisfied, in whole or in part, by (1) authorizing the Company
to withhold from shares of Common Stock to be issued pursuant to the
exercise of an Option a number of shares with an aggregate fair market
value (as defined in Section 9(c) hereof determined as of the date the
withholding is effected) that would satisfy the withholding amount due with
respect to such exercise, or (2) transferring to the Company shares of
Common Stock owned by the employee with an aggregate fair market value (as
defined in Section 9(c) hereof determined as of the date the withholding is
effected) that would satisfy the withholding amount due.
18. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may terminate the Plan at any time, and may amend the Plan at any
time and from time to time, subject to the limitation that, except as provided
in Paragraph 16 hereof, rights and obligations under any Option granted before
termination or amendment of the Plan shall not be altered or impaired by such
termination or amendment except with the consent of the optionee.
-16-
<PAGE>
19. WRITTEN AGREEMENT.
Each Option granted hereunder shall be embodied in a written option
agreement which shall be subject to the terms and conditions prescribed above
and shall be signed by the Board, any Vice Board or the Treasurer of the Company
for and in the name and on behalf of the Company. Such option agreement shall
contain such other provisions as the Board in its discretion shall deem
available.
20. EFFECTIVE DATE AND DURATION OF PLAN.
The effective date of the Plan is August 30, 1999, the date of its adoption
by the Board of Directors of the Company. Options may not be granted under the
Plan more than ten (10) years after said effective date. The Plan shall
terminate (i) when the total amount of the Common Stock with respect to which
Options may be granted shall have been issued upon the exercise of Options or
(ii) by action of the Board pursuant to Paragraph 18 hereof, whichever shall
first occur.***
-17-
<PAGE>
EXHIBIT 1 TO OPTION PLAN
SHARE REIMBURSEMENT AGREEMENT
June 10, 1999
JMC Group, Inc.
9710 Scranton Road, Suite 100
San Diego, CA 92121
Dear Sirs:
Contemporaneously with the delivery of this Agreement (the "Agreement"),
Fechtor, Detwiler & Co., Inc. ("FEDE") has entered into an Agreement and Plan of
Merger under which FEDE will merge with JMC Merger Inc., a subsidiary of JMC
Group, Inc. (the "Merger"). As a consequence of the Merger, JMC Group, Inc.,
which will change its name to Fechtor, Detwiler, Mitchell & Co. ("FDM"), will,
among other matters, assume the obligation to issue shares of FDM Common Stock,
par value $.01 per share ("FDM Shares") upon exercise of options to purchase
81.82 shares of FEDE's Common Stock, without par value ("FEDE Shares"), granted
to FEDE employees pursuant to FEDE's 1999 Special Stock Option Plan (each, an
"Option"). Under the terms of the Merger, FDM will be obligated to issue
600,000 FDM Shares, as constituted on the date of the Merger, if the Options are
exercised in full. A list of Optionholders, the number of FEDE Shares each is
entitled to purchase upon proper exercise of an Option, and the number of FDM
Shares each Optionholder would receive upon exercise of their respective Options
following the Merger is attached hereto as Exhibit A.
---------
The undersigned, each of whom is a principal stockholder of FEDE
(individually, a "Stockholder" and collectively, the "Stockholders"), jointly
and severally agree with FDM that in the event any Option is properly exercised
by an Optionholder and FDM is required by the terms of the Option to issue FDM
Shares to the Optionholder, the Stockholders, collectively, shall promptly
transfer and deliver to FDM that number of FDM Shares equal to the number of FDM
Shares to be issued to the Optionholder by FDM.
1-1
<PAGE>
To facilitate the delivery of FDM Shares to FDM pursuant to this Agreement,
the Stockholders have delivered, or will deliver prior to the Effective Time of
the Merger, certificates representing a total of 84 FEDE Shares to a custodian
appointed by the Stockholders and satisfactory to JMC Group, Inc. (the
"Custodian"), pursuant to a Custody Agreement substantially in the form attached
hereto as Exhibit B, with such changes as the Custodian may request or require
---------
for its protection. You agree to look solely and exclusively to the shares held
by the Custodian to satisfy the obligations of the Stockholders under this
Agreement.
We and you hereby agree that any request to the Custodian for the delivery
of FDM Shares shall be made by delivery of a Demand in the form attached hereto
as Exhibit C. We also agree that the Stockholders' obligation pursuant to this
---------
Agreement shall apply only to Options that are exercised on or prior to the
original expiration dates of the respective Options, and shall not be affected
by any amendment or modification of the Option that increases the number of
shares purchasable upon exercise of the Option or extends the date for
exercising the Option. You shall promptly notify the undersigned and the
Custodian of the termination or expiration of any Option, and authorize the
release by the Custodian of the underlying FDM Shares to us.
Until the delivery by the Custodian of FDM Shares to FDM pursuant to a
valid Demand pursuant to this Agreement, the Stockholders shall have the right
to direct the voting of the FDM Shares and all other shares, if any, represented
by the certificates deposited with the Custodian and to receive all dividends
and distributions thereon, except securities or other property received as a
result of any stock split, stock dividend, recapitalization, reorganization,
merger, consolidation or like capital adjustment or reorganization, which shall
be retained by the Custodian in substitution for and in replacement of or, as
the case may be, in addition to the shares originally deposited hereunder.
Please acknowledge your agreement to the foregoing by signing and returning
a copy of this letter to each of us.
1-2
<PAGE>
Very truly yours,
-----------------------------
Sheldon Fechtor
-----------------------------
Richard Fechtor
-----------------------------
Robert Detwiler
Agreed:
JMC Group, Inc.
by:
------------------
James Mitchell
1-3
<PAGE>
EXHIBIT A
LIST OF OPTIONHOLDERS
Name of Optionholder No. of FEDE Shares No. of FDM Shares
- -------------------------------------------------------------------------------
Andrew F. Detwiler 27.27 200,000
- -------------------------------------------------------------------------------
Douglas W. Jones 20.45 150,000
- -------------------------------------------------------------------------------
Brian Kritzer 12.27 90,000
- -------------------------------------------------------------------------------
Edward J. Hughes 6.82 50,000
- -------------------------------------------------------------------------------
Peter Fenton 5.59 41,000
- -------------------------------------------------------------------------------
Karen Fechtor Kritzer 2.73 20,000
- -------------------------------------------------------------------------------
A. Scott Pringle 2.05 15,000
- -------------------------------------------------------------------------------
Diane Mickel 0.68 5,000
- -------------------------------------------------------------------------------
Anne O'Hanlon 0.68 5,000
- -------------------------------------------------------------------------------
Thomas Generazio 0.95 7,000
- -------------------------------------------------------------------------------
Gerald Battista 0.95 7,000
- -------------------------------------------------------------------------------
Joseph Valenzuela 0.68 5,000
- -------------------------------------------------------------------------------
James Coleman 0.68 5,000
- -------------------------------------------------------------------------------
Total 81.82 600,000
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT B
CUSTODY AGREEMENT
August ., 1999
Custodian
(Address)
Dear Sirs:
Each of us (individually, a "Stockholder" and collectively, the
"Stockholders") is delivering to you as Custodian (the "Custodian") certificates
in negotiable form (with signatures guaranteed) representing 28 issued and
outstanding shares of Common Stock, without par value ("FEDE Common Stock"), of
Fechtor, Detwiler & Co., Inc. ("FEDE"), or a total of 84 shares of FEDE Common
Stock (the "FEDE Shares"). The FEDE Shares are to be held by you as Custodian
and are to be disposed of by you solely in accordance with this Custody
Agreement (the "Custody Agreement").
FEDE has granted certain of its employees stock options (each, an "Option")
to purchase a total of 81.82 shares of FEDE Common Stock pursuant to its 1999
Special Stock Option Plan. FEDE also contemplates completing a merger with JMC
Group, Inc., a Delaware Corporation, pursuant to an Agreement and Plan of Merger
by and among FEDE, JMC Group, Inc. and JMC Merger Inc. dated as of June ., 1999
(the "Merger Agreement") in which each share of FEDE Common Stock, including the
FEDE Shares, will be changed into 7,333.333 shares of Common Stock, par value
$.01 per share, of JMC Group, Inc. ("FDM Common Stock"), which will then change
its name to Fechtor, Detwiler, Mitchell & Co. ("FDM"). Pursuant to the Merger,
the 84 FEDE Shares that have been delivered to you hereunder will be changed
into 616,000 shares of FDM Common Stock (the "FDM Shares"). A list of
Optionholders, the number of shares of FEDE Common Stock each is entitled to
purchase upon proper exercise of the Option and the number of shares of FDM
Common Stock each Optionholder would receive upon exercise of the Option
following the Merger is attached hereto as Exhibit A.
---------
B-1
<PAGE>
We have agreed that in the event FDM issues any shares of FDM Common Stock
to any Optionholder upon proper exercise of an Option, FDM shall be entitled to
cause you, as Custodian, to transfer to FDM an equal number of shares of FDM
Common Stock from the FDM Shares you are holding under this Custody Agreement.
In connection with the foregoing, you are authorized and directed (i) to
hold the certificates representing the FEDE Shares deposited into your custody
until the Effective Time of the Merger; (ii) following the Effective Time of the
Merger, to exchange the certificates representing the FEDE Shares for
certificates representing FDM Shares as provided in the Merger Agreement; (iii)
to cause the certificates representing the FDM Shares to be registered in your
name (or the name of your nominee) as Custodian under this Custody Agreement and
(iv) if requested by FDM from time to time by delivery of a Demand (as
hereinafter defined) on or before the date set forth in the following paragraph,
to deliver certificates representing the FDM Shares to FDM for cancellation
pursuant to the terms of a Share Reimbursement Agreement between FDM and the
Stockholders, a copy of which is attached hereto as Exhibit B.
---------
Promptly following the exercise or expiration of all of the Options in
accordance with their original terms you shall cause the FDM Shares represented
by certificates that are then in your custody to be divided equally among us and
certificates representing our respective interests in the FDM Shares, registered
in our respective names, to be delivered to each of us.
For purposes of this Agreement, "Demand" shall mean a request from FDM in
the form attached hereto as Exhibit C executed for FDM by its principal
---------
executive officer and certified by its chief financial officer.
Until the delivery by the Custodian of FDM Shares to FDM pursuant to a
valid Demand pursuant to this Agreement, the Stockholders shall have the right
to direct the voting of the FDM Shares and all other shares, if any, represented
by the certificates deposited with the Custodian and to receive all dividends
and distributions thereon, except securities or other property received as a
result of any stock split, stock dividend, recapitalization, reorganization,
merger, consolidation or like capital adjustment or reorganization, which shall
be retained by the Custodian in substitution for and in replacement of or, as
the case may be, in addition to the shares originally deposited hereunder.
B-2
<PAGE>
Each Stockholder, for himself, hereby authorizes the Custodian to deliver
all contracts, orders, receipts, notices, requests, instructions, certificates,
letters and other writings, and in general to do all things and to take all
actions which in the Custodian's sole discretion the Custodian may consider
necessary or proper in connection with, or to carry out and comply with, all
terms and conditions of the Share Reimbursement Agreement and the delivery of
the FDM Shares to FDM, but not inconsistent herewith or with the Share
Reimbursement Agreement, as fully as could the Stockholder if personally present
and acting, including, without limitation, with full power and authority, in the
name of and on behalf of the undersigned, as Custodian:
(a) To endorse, transfer and deliver certificates representing FDM
Shares to FDM or its transfer agent and to give such orders and instructions to
the transfer agent as you in your sole discretion determine to be necessary or
appropriate with respect to the transfer on the books of the Company of the FDM
Shares to be delivered by the undersigned to FDM.
(b) To make, execute, acknowledge and deliver all such other
agreements, contracts, orders, receipts, notices, requests, instructions,
certificates, letters and other writings, including, without limitation,
communications to the Securities and Exchange Commission, the Nasdaq Stock
Market, Inc., and the National Association of Securities Dealers, Inc., and in
general to do all things and to take all actions which the Custodian in its sole
discretion may consider necessary or appropriate in connection with or to carry
out the aforesaid delivery of the FDM Shares to FDM, as fully as the undersigned
could do if the undersigned were present and acting.
This Custody Agreement and your authority hereunder are, to the extent
legally enforceable, irrevocable and shall not be subject to termination by any
Stockholder or by operation of law, whether by the death or incapacity of any
Stockholder or by the occurrence of any other event. If any Stockholder should
die or become incapacitated, or if any other such event should occur, before the
delivery of the FDM Shares to be delivered by the Stockholder in accordance with
the Share Reimbursement Agreement, certificates for such shares shall be
delivered by or on behalf of such Stockholder in accordance with the terms and
conditions of this Custody Agreement, and actions taken by you hereunder shall
be valid as if such death or incapacitation or other event had not occurred,
regardless of whether or not you shall have received notice of such death or
incapacitation or other event.
B-3
<PAGE>
The Custodian shall have full power to make and substitute any bank or
trust company having capital and surplus in excess of $50,000,000 or any person
approved by the Board of Directors of FDM in his or her place and stead, and the
undersigned hereby ratifies and confirms all that the Custodian or substitute or
substitutes shall do by virtue of these presents. All actions hereunder may be
taken by the person named herein as Custodian or his or her substitute. In the
event of the death, disability or incapacity of any Custodian, the Board of
Directors of FDM shall appoint a substitute therefor. The term "Custodian" as
used herein shall include any substitutes.
If any provision of this Custody Agreement is found to be unenforceable as
applied in any particular case or circumstance in any applicable jurisdiction
because it conflicts with any constitution, statute or rule of public policy, or
for any other reason, such finding shall not render any other provision of this
Custody Agreement unenforceable to any extent whatsoever.
This Custody Agreement is executed under seal and shall be binding upon the
undersigned and the legal representatives, successors and assigns of the
undersigned. This Custody Agreement shall be governed by, and construed and
enforced in accordance with, the laws of The Commonwealth of Massachusetts
without regard to its principles of conflicts of laws.
The FDM Shares are to be held by you as Custodian for the benefit of FDM
and the Stockholders in accordance with their respective interests as provided
herein. The FDM Shares are not a part of the estate of any Stockholder and each
Stockholder's interest in such FDM Shares shall be only the right to receive any
portion thereof, and dividends or distributions with respect thereto, that are
not delivered to FDM for cancellation as herein provided.
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificates representing the FEDE Shares and
the FDM Shares in accordance with the provisions of this Agreement, and the
Stockholders, jointly and severally, agree to indemnify and hold you harmless
with respect to anything done by you in good faith and in accordance with the
foregoing instructions.
B-4
<PAGE>
Each Stockholder, for himself, represents and warrants that he has full
right, power and authority to execute and deliver this Agreement and that good
and valid title to the FEDE Shares, free and clear of all liens, encumbrances,
equities or claims will be transferred to FDM upon delivery of the FDM Shares to
FDM pursuant to this Agreement.
Your fee for services hereunder shall be $ per annum, payable by FDM.
------
FDM shall promptly reimburse your expenses in connection with your services
hereunder.
Please acknowledge your acceptance hereof as Custodian and receipt of the
certificates representing the FEDE Shares as set forth on Exhibit A by executing
---------
and returning a copy of this letter to each Stockholder and FDM.
Very truly yours,
Stockholders:
--------------------------------------
Richard Fechtor
--------------------------------------
Robert Detwiler
--------------------------------------
Sheldon Fechtor
Agreed:
CUSTODIAN
- ----------------------------
FECHTOR, DETWILER & CO., INC.
- -----------------------------
JMC GROUP, INC.
- -----------------------------
B-5
<PAGE>
ACKNOWLEDGEMENT AND RECEIPT
. , as Custodian, acknowledges acceptance of the duties of
Custodian under the foregoing Custody Agreement and receipt of the certificates
described below representing the FEDE Shares.
Dated: August . , 1999
(Name of Company)
by:
---------------------------------------
Stockholder Cert. No. FEDE Shares
- ----------- --------- -----------
Sheldon Fechtor . 28
Richard Fechtor . 28
Robert Detwiler . 28
B-6
<PAGE>
EXHIBIT C
[Fechtor, Detwiler, Mitchell & Co.]
DEMAND
Date:
[Custodian]
.
.
Dear Sirs:
Pursuant to the Custody Agreement dated August ., 1999 between you as
Custodian; Messrs. Sheldon Fechtor, Richard Fechtor and Robert Detwiler; and
Fechtor, Detwiler, Mitchell & Co. ("FDM"), FDM hereby:
(a) Notifies you that:
(1) each of the persons identified below has properly exercised
rights to purchase shares of FDM Common Stock, par value $.01 per
share, as set forth below pursuant to the exercise of a 1999
Special Stock Option originally issued by Fechtor, Detwiler &
Co., Inc. pursuant to its 1999 Special Stock Option Plan;
FDM shares to be issued
------------------------
Optionholder on exercise of Option
------------ ---------------------
(2) The total number of shares of Common Stock to be issued by FDM in
connection with these Option exercises is .; and
(b) Demands that you promptly deliver certificates representing FDM Shares
equal in amount to the FDM Shares that FDM is obligated to issue as set forth in
clause (a)(2) above as a result of such exercise of 1999 Special Stock Options.
C-1
<PAGE>
FDM will promptly redeliver to you certificates representing the balance of
any FDM shares represented by the certificates you deliver to FDM that are not
required to satisfy this Demand.
Very truly yours,
Fechtor, Detwiler, Mitchell & Co.
by:
-------------------------------
President
Certification:
The undersigned represents that he is the duly elected Chief Financial
Officer of Fechtor, Detwiler, Mitchell & Co. and that the facts stated above are
true and correct.
-----------------------------------
Chief Financial Officer
C-2
<PAGE>
EXHIBIT 10.6
FECHTOR, DETWILER, MITCHELL & CO.
2000 OMNIBUS EQUITY INCENTIVE PLAN
(Effective February 28, 2000)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE....................................... 1
SECTION 2. DEFINITIONS..................................................... 1
(a) "Affiliate"..................................................... 1
(b) "Award"......................................................... 1
(c) "Board of Directors"............................................ 1
(d) "Change in Control"............................................. 1
(e) "Code".......................................................... 2
(f) "Committee"..................................................... 2
(g) "Company"....................................................... 2
(h) "Consultant".................................................... 2
(i) "Employee"...................................................... 2
(j) "Exchange Act".................................................. 2
(k) "Exercise Price"................................................ 2
(l) "Fair Market Value"............................................. 2
(m) "ISO"........................................................... 3
(n) "Nonstatutory Option"........................................... 3
(o) "Offeree"....................................................... 3
(p) "Option"........................................................ 3
(q) "Optionee"...................................................... 3
(r) "Outside Director".............................................. 3
(s) "Parent"........................................................ 3
(t) "Participant"................................................... 3
(u) "Plan".......................................................... 3
(v) "Purchase Price"................................................ 3
(w) "Restricted Share".............................................. 3
(x) "Restricted Share Agreement "................................... 3
(y) "SAR"........................................................... 3
(z) "SAR Agreement"................................................. 4
(aa) "Service"....................................................... 4
(bb) "Share"......................................................... 4
(cc) "Stock"......................................................... 4
(dd) "Stock Option Agreement"........................................ 4
(ee) "Stock Purchase Agreement"...................................... 4
(ff) "Stock Unit".................................................... 4
(gg) "Stock Unit Agreement".......................................... 4
(hh) "Subsidiary".................................................... 4
(ii) "Total and Permanent Disability"................................ 4
SECTION 3. ADMINISTRATION.................................................. 4
(a) Committee....................................................... 4
(b) Committee Responsibilities...................................... 5
(c) Committee for Non-Officer Grants................................ 6
(d) Financial Reports............................................... 6
SECTION 4. ELIGIBILITY..................................................... 6
(a) General Rule.................................................... 6
(b) Limitation On Grants............................................ 6
(c) Ten-Percent Stockholders........................................ 6
(d) Attribution Rules............................................... 7
(e) Outstanding Stock............................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5. STOCK SUBJECT TO PLAN........................................... 7
(a) Basic Limitation................................................ 7
(b) Annual Increase in Shares....................................... 7
(c) Additional Shares............................................... 7
(d) Dividend Equivalents............................................ 8
SECTION 6. RESTRICTED SHARES............................................... 8
(a) Restricted Stock Agreement...................................... 8
(b) Payment for Awards.............................................. 8
(c) Vesting......................................................... 8
(d) Voting and Dividend Rights...................................... 8
SECTION 7. TERMS AND CONDITIONS OF OPTIONS................................. 8
(a) Stock Option Agreement.......................................... 8
(b) Number of Shares................................................ 9
(c) Exercise Price.................................................. 9
(d) Exercisability and Term......................................... 9
(e) Nontransferability.............................................. 9
(f) Exercise of Options Upon Termination of Service................. 10
(g) Effect of Change in Control..................................... 10
(h) Leaves of Absence............................................... 10
(i) No Rights as a Stockholder...................................... 10
(j) Modification, Extension and Renewal of Options.................. 10
(k) Restrictions on Transfer of Shares.............................. 10
(l) Buyout Provisions............................................... 11
SECTION 8. PAYMENT FOR SHARES.............................................. 11
(a) General Rule.................................................... 11
(b) Surrender of Stock.............................................. 11
(c) Services Rendered............................................... 11
(d) Exercise/Sale................................................... 11
(e) Exercise/Pledge................................................. 11
(f) Promissory Note................................................. 11
(g) Combination of Forms of Payment................................. 12
(h) Other Forms of Payment.......................................... 12
SECTION 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS........................... 12
(a) Initial Grants.................................................. 12
(b) Other Grants.................................................... 12
(c) Exercise Price.................................................. 12
(d) Term............................................................ 12
(e) Modification.................................................... 12
(f) Accelerated Exercisability...................................... 12
(g) Affiliates of Outside Directors................................. 12
(h) Supersedes Other Grants......................................... 13
SECTION 10. STOCK APPRECIATION RIGHTS...................................... 13
(a) SAR Agreement................................................... 13
(b) Number of Shares................................................ 13
(c) Exercise Price.................................................. 13
(d) Exercisability and Term......................................... 13
(e) Effect of Change in Control..................................... 13
(f) Exercise of SARs................................................ 13
(g) Modification or Assumption of SARs.............................. 14
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 11. STOCK UNITS.................................................... 14
(a) Stock Unit Agreement............................................ 14
(b) Payment for Awards.............................................. 14
(c) Vesting Conditions.............................................. 14
(d) Voting and Dividend Rights...................................... 14
(e) Form and Time of Settlement of Stock Units...................... 14
(f) Death of Recipient.............................................. 15
(g) Creditors' Rights............................................... 15
SECTION 12. PROTECTION AGAINST DILUTION.................................... 15
(a) Adjustments..................................................... 15
(b) Dissolution or Liquidation...................................... 16
(c) Reorganizations................................................. 16
(d) Reservation of Rights........................................... 16
(e) Notice of Adjustment............................................ 16
SECTION 13. DEFERRAL OF AWARDS............................................. 16
SECTION 14. AWARDS UNDER OTHER PLANS....................................... 17
SECTION 15. LEGAL AND REGULATORY REQUIREMENTS.............................. 17
SECTION 16. WITHHOLDING TAXES.............................................. 17
(a) General......................................................... 17
(b) Share Withholding............................................... 18
SECTION 17. LIMITATION ON PARACHUTE PAYMENTS............................... 18
(a) Scope of Limitation............................................. 18
(b) Basic Rule...................................................... 18
(c) Reduction of Payments........................................... 18
(d) Overpayments and Underpayments.................................. 18
(e) Related Corporations............................................ 19
SECTION 18. NO EMPLOYMENT RIGHTS........................................... 19
SECTION 19. DURATION AND AMENDMENTS........................................ 19
(a) Term of the Plan................................................ 19
(b) Right to Amend or Terminate the Plan............................ 19
(c) Effect of Amendment or Termination.............................. 19
SECTION 20. NOTICE......................................................... 20
SECTION 21. EXECUTION...................................................... 20
</TABLE>
iii
<PAGE>
FECHTOR, DETWILER, MITCHELL & CO.
----------------------------------
2000 Omnibus Equity Incentive Plan
----------------------------------
(Effective February 27, 2000)
SECTION 1. ESTABLISHMENT AND PURPOSE.
-------------------------
The Plan was adopted by the Board of Directors effective February 27, 2000.
The purpose of the Plan is to promote the long-term success of the Company and
the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) or stock appreciation
rights.
SECTION 2. DEFINITIONS.
-----------
(a) "Affiliate" shall mean any entity other than a Subsidiary, if the
---------
Company and/or one or more Subsidiaries own not less than fifty percent (50%) of
such entity.
(b) "Award" shall mean any award of an Option, a SAR, a Restricted Share
-----
or a Stock Unit under the Plan.
(c) "Board of Directors" shall mean the Board of Directors of the
------------------
Company, as constituted from time to time.
(d) "Change in Control" shall mean the occurrence of either of the
-----------------
following events:
(i) A change in the composition of the Board of Directors, as a
result of which fewer than one-half of the incumbent directors are
directors who either:
(A) Had been directors of the Company twenty-four (24) months
prior to such change; or
(B) Were elected, or nominated for election, to the Board of
Directors with the affirmative votes of at least a majority of the
directors who had been directors of the Company twenty-four (24)
months prior to such change and who were still in office at the time
of the election or nomination; or
(ii) Any "person" (as such term is used in sections 13(d) and 14(d)
of the Exchange Act) who, by the acquisition or aggregation of securities,
is or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing forty percent (40%) or more of the combined
voting power of the Company's then outstanding securities ordinarily (and
apart from rights accruing under special circumstances) having
-1-
<PAGE>
the right to vote at elections of directors (the "Base Capital Stock");
except that any change in the relative beneficial ownership of the
Company's securities by any person resulting solely from a reduction in the
aggregate number of outstanding shares of Base Capital Stock, and any
decrease thereafter in such person's ownership of securities, shall be
disregarded until such person increases in any manner, directly or
indirectly, such person's beneficial ownership of any securities of the
Company. For purposes of this Subsection (ii), the term "person" shall not
include an employee benefit plan maintained by the Company or any person
who is the direct or indirect owner of securities of the Company
representing forty percent (40%) of the Base Capital Stock on the Effective
Date of this Plan.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" shall mean the committee designated by the Board of
---------
Directors, which is authorized to administer the Plan under Section 3 hereof.
The Committee shall have membership composition which enables the Options or
other rights granted under the Plan to qualify for exemption under Rule 16b-3
with respect to persons who are subject to Section 16 of the Exchange Act.
(g) "Company" shall mean Fechtor, Detwiler, Mitchell & Co., a Delaware
-------
corporation.
(h) "Consultant" shall mean a consultant or advisor who provides bona fide
---------- ---- ----
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in the second sentence of
Section 4(a).
(i) "Employee" shall mean (i) any individual who is a common-law employee
--------
of the Company or of a Subsidiary, (ii) a member of the Board of Directors,
including (without limitation) an Outside Director, or an affiliate of member of
the Board of Directors; (iii) a member of the board of directors of a
Subsidiary; or (iv) an independent contractor or advisor who performs services
for the Company or a Subsidiary. Service as a member of the Board of Directors,
a member of the board of directors of a Subsidiary or as an independent
contractor or advisor shall be considered employment for all purposes of the
Plan except the second sentence of Section 4(a).
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Exercise Price" shall mean, in the case of an Option, the amount for
--------------
which one Share may be purchased upon exercise of such Option, as specified in
the applicable Stock Option Agreement. "Exercise Price," in the case of a SAR,
shall mean an amount, as specified in the applicable SAR Agreement, which is
subtracted from the Fair Market Value of one Share in determining the amount
payable upon exercise of such SAR.
(l) "Fair Market Value" shall mean (i) the closing price of a Share on the
-----------------
principal exchange which the Shares are trading, on the date on which the Fair
Market Value is determined (if Fair Market Value is determined on a date which
the principal exchange is closed, Fair Market Value shall be determined on the
last immediately preceding trading day), or (ii) if
-2-
<PAGE>
the Shares are not traded on an exchange but are quoted on the Nasdaq Smallcap
market or a successor quotation system, the closing price on the date on which
the Fair Market Value is determined, or (iii) if the Shares are not traded on an
exchange or quoted on the Nasdaq Smallcap market or a successor quotation
system, the fair market value of a Share, as determined by the Committee in good
faith. Such determination shall be conclusive and binding on all persons.
(m) "ISO" shall mean an employee incentive stock option described in Code
---
section 422.
(n) "Nonstatutory Option" shall mean an employee stock option that is not
-------------------
an ISO.
(o) "Offeree" shall mean an individual to whom the Committee has offered
-------
the right to acquire Shares under the Plan (other than upon exercise of an
Option).
(p) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(q) "Optionee" shall mean an individual or estate who holds an Option or
SAR.
(r) "Outside Director" shall mean a member of the Board of Directors who
----------------
is not a common-law employee of the Company or of a Subsidiary. Service as an
Outside Director shall be considered employment for all purposes of the Plan,
except as provided in the second sentence of Section 4(a).
(s) "Parent" shall mean any corporation (other than the Company) in an
------
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be a parent commencing as
of such date.
(t) "Participant" shall mean an individual or estate who holds an Award.
-----------
(u) "Plan" shall mean this 2000 Omnibus Equity Incentive Plan of Fechtor,
----
Detwiler, Mitchell & Co., as amended from time to time.
(v) "Purchase Price" shall mean the consideration for which one Share may
--------------
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Committee.
(w) "Restricted Share" shall mean a Share awarded under the Plan.
----------------
(x) "Restricted Share Agreement" shall mean the agreement between the
---------------------------
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Shares.
(y) "SAR" shall mean a stock appreciation right granted under the Plan.
---
-3-
<PAGE>
(z) "SAR Agreement" shall mean the agreement between the Company and an
-------------
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.
(aa) "Service" shall mean service as an Employee.
-------
(bb) "Share" shall mean one share of common stock, as adjusted in
-----
accordance with Section 12 (if applicable).
(cc) "Stock" shall mean the common stock of the Company.
-----
(dd) "Stock Option Agreement" shall mean the agreement between the Company
----------------------
and an Optionee which contains the terms, conditions and restrictions pertaining
to his Option.
(ee) "Stock Purchase Agreement" shall mean the agreement between the
------------------------
Company and an Offeree who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(ff) "Stock Unit" shall mean a bookkeeping entry representing the
----------
equivalent of one Share, as awarded under the Plan.
(gg) "Stock Unit Agreement" shall mean the agreement between the Company
--------------------
and the recipient of a Stock Unit which contains the terms, conditions and
restrictions pertaining to such Stock Unit.
(hh) "Subsidiary" shall mean any corporation, if the Company and/or one or
----------
more other Subsidiaries own not less than fifty percent (50%) of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.
(ii) "Total and Permanent Disability" shall mean that the Optionee is
------------------------------
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment.
SECTION 3. ADMINISTRATION.
--------------
(a) Committee. The Plan shall be administered by the Board of Directors or
---------
the Committee which shall consist of two or more Outside Directors (although
Committee functions may be delegated to officers to the extent the Awards relate
to persons who are not subject to the reporting requirements of Section 16 of
the Exchange Act). If no Committee has been appointed, the entire Board of
Directors shall constitute the Committee. The Committee shall select one of its
members as Chairman and shall appoint a Secretary, who need not be a member of
the Committee. The Committee shall hold meetings at such times and places as it
may determine and minutes of such meetings shall be recorded. Acts by a majority
of the Committee in a meeting at which a quorum is present and acts approved in
writing by a majority of the members of the Committee shall be valid acts of the
Committee.
-4-
<PAGE>
(b) Committee Responsibilities. Subject to the provisions of the Plan, the
--------------------------
Committee shall have full authority and discretion to take the following
actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating
to the Plan;
(iii) To authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale
and when Options are to be granted under the Plan;
(v) To select the Offerees and Optionees;
(vi) To determine the number of Shares to be offered to each Offeree
or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or sale of
Shares, including (without limitation) the Purchase Price, the vesting of
the award (including accelerating the vesting of awards) and to specify the
provisions of the Stock Purchase Agreement relating to such award or sale;
(viii) To prescribe the terms and conditions of each Option, including
(without limitation) the Exercise Price, the vesting or duration of the
Option (including accelerating the vesting of the Option), to determine
whether such Option is to be classified as an ISO or as a Nonstatutory
Option, and to specify the provisions of the Stock Option Agreement
relating to such Option;
(ix) To amend any outstanding Stock Purchase Agreement or Stock
Option Agreement, subject to applicable legal restrictions and to the
consent of the Offeree or Optionee who entered into such agreement;
(x) To prescribe the consideration for the grant of each Option or
other right under the Plan and to determine the sufficiency of such
consideration;
(xi) To determine the disposition of each Option or other right under
the Plan in the event of an Optionee's or Offeree's divorce or dissolution
of marriage;
(xii) To determine whether Options or other rights under the Plan will
be granted in replacement of other grants under an incentive or other
compensation plan of an acquired business;
(xiii) To correct any defect, supply any omission, or reconcile any
inconsistency in the Plan, any Stock Option Agreement or any Stock Purchase
Agreement; and
-5-
<PAGE>
(xiv) To take any other actions deemed necessary or advisable for the
administration of the Plan.
Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority with regard to the
selection for participation of or the granting of Options or other rights under
the Plan to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Offerees, all Optionees, and all persons deriving their rights from an
Offeree or Optionee. No member of the Committee shall be liable for any action
that he has taken or has failed to take in good faith with respect to the Plan,
any Option, or any right to acquire Shares under the Plan.
(c) Committee for Non-Officer Grants. The Board of Directors may also
--------------------------------
appoint a secondary committee of the Board of Directors, which shall be composed
of one or more directors of the Company who need not satisfy the requirements of
Section 3(a). Such secondary committee may administer the Plan with respect to
Employees and Consultants who are not considered officers or directors of the
Company under Section 16 of the Exchange Act, may grant Awards under the Plan to
such Employees and Consultants and may determine all features and conditions of
such Awards within the limitations of this Section 3(c), any reference in the
Plan to the Committee shall include such secondary committee.
(d) Financial Reports. To the extent required by applicable law, and not
-----------------
less often than annually, the Company shall furnish to Offerees, Optionees and
Shareholders who have received Stock under the Plan its financial statements
including a balance sheet regarding the Company's financial condition and
results of operations, unless such Offerees, Optionees or Shareholders have
duties with the Company that assure them access to equivalent information. Such
financial statements need not be audited.
SECTION 4. ELIGIBILITY.
-----------
(a) General Rule. Only Employees shall be eligible for the grant of
------------
Restricted Shares, Stock Units, NSOs or SARs. In addition, only individuals who
are employed as common-law employees by the Company, a Parent or a Subsidiary
shall be eligible for the grant of ISOs.__
(b) Limitation On Grants. No Employee shall be granted Options to purchase
--------------------
more than two hundred fifty thousand (250,000) Shares in any fiscal year of the
Company.
(c) Ten-Percent Stockholders. An Employee who owns more than ten percent
------------------------
(10%) of the total combined voting power of all classes of outstanding stock of
the Company or any of its Subsidiaries shall not be eligible for designation as
an Offeree or Optionee unless (i) the Exercise Price for an ISO (and a NSO to
the extent required by applicable law) is at least one hundred ten percent
(110%) of the Fair Market Value of a Share on the date of grant, (ii) the
Purchase Price of Shares is at least one hundred percent (100%) of the Fair
Market Value of a Share on the date of grant, and (iii) in the case of an ISO,
such ISO by its terms is not exercisable after the expiration of five years from
the date of grant. Notwithstanding the preceding sentence
-6-
<PAGE>
in this Section 4(c), if the Shares are exercised prior to vesting pursuant to
the Stock Purchase Agreement, and the Fair Market Value of the Shares at such
time equals the Exercise Price, the limit of 100% provided in Section
260.140.42(b)(2) in Title 10 of the California Code of Regulations shall apply
to the Exercise Price for an NSO.
(d) Attribution Rules. For purposes of Subsection (c) above, in
-----------------
determining stock ownership, an Employee shall be deemed to own the stock owned,
directly or indirectly, by or for his brothers, sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be deemed to be owned
proportionately by or for its shareholders, partners or beneficiaries.
(e) Outstanding Stock. For purposes of Subsection (c) above, "outstanding
-----------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.
SECTION 5. STOCK SUBJECT TO PLAN.
---------------------
(a) Basic Limitation. Shares offered under the Plan shall be authorized
----------------
but unissued Shares or treasury Shares. The maximum aggregate number of Options,
SARs, Stock Units and Restricted Shares awarded under the Plan shall not exceed
(a) one million five hundred thousand (1,500,000) Shares, plus the additional
Shares described in Sections (b) and (c). The limitation of this Section 5(a)
shall be subject to adjustment pursuant to Section 12.
(b) Annual Increase in Shares. As of January 1 of each year, commencing
-------------------------
with the year 2001, the aggregate number of Options, SARs, Stock Units and
Restricted Shares that may be awarded under the Plan shall automatically
increase by a number equal to the lesser of (i) one hundred fifty thousand
(150,000) shares, (ii) ten percent (10%) of the outstanding shares on such date
or (iii) a lesser amount determined by the Board. The aggregate number of Shares
which may be issued under the Plan shall at all times be subject to adjustment
pursuant to Section 12. The number of Shares which are subject to Options or
other rights outstanding at any time under the Plan shall not exceed the number
of Shares which then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(c) Additional Shares. If Restricted Shares or Shares issued upon the
-----------------
exercise of Options are forfeited, then such Shares shall again become available
for Awards under the Plan. If Stock Units, Options or SARs are forfeited or
terminate for any other reason before being exercised, then the corresponding
Shares shall again become available for Awards under the Plan. If Stock Units
are settled, then only the number of Shares (if any) actually issued in
settlement of such Stock Units shall reduce the number available under Section
5(a) and the balance shall again become available for Awards under the Plan. If
SARs are exercised, then only the number of Shares (if any) actually issued in
settlement of such SARs shall reduce the number available in Section 5(a) and
the balance shall again become available for Awards under the Plan. The
foregoing notwithstanding, the aggregate number of Shares that may be issued
under the Plan upon the exercise of ISOs shall not be increased when Restricted
Shares or other Shares are forfeited.
-7-
<PAGE>
(d) Dividend Equivalents. Any dividend equivalents paid or credited under
--------------------
the Plan shall not be applied against the number of Restricted Shares, Stock
Units, Options or SARs available for Awards, whether or not such dividend
equivalents are converted into Stock Units.
SECTION 6. RESTRICTED SHARES.
-----------------
(a) Restricted Stock Agreement. Each grant of Restricted Shares under the
--------------------------
Plan shall be evidenced by a Restricted Stock Agreement between the recipient
and the Company. Such Restricted Shares shall be subject to all applicable terms
of the Plan and may be subject to any other terms that are not inconsistent with
the Plan. The provisions of the various Restricted Stock Agreements entered into
under the Plan need not be identical.
(b) Payment for Awards. Subject to the following provisions in this
------------------
Section 6(b), Restricted Shares may be sold or awarded under the Plan for such
consideration as the Committee may determine, including (without limitation)
such forms of payment as set forth in Section 8 as well as past services and
future services. Unless otherwise permitted by applicable law, the Purchase
Price of Shares to be offered under the Plan shall not be less than eighty-five
percent (85%) of the Fair Market Value of a Restricted Share on the date of
grant (100% for 10% shareholders), except as otherwise provided in Section 4(c).
In addition, to the extent that an Award consists of newly issued Restricted
Shares, the Award recipient shall furnish consideration with a value not less
than the par value of such Restricted Shares in the form of cash, cash
equivalents, or past services rendered to the Company (or a Parent or
Subsidiary), as the Committee may determine.
(c) Vesting. Each Award of Restricted Shares may or may not be subject to
-------
vesting. Vesting shall occur, in full or in installments, upon satisfaction of
the conditions specified in the Restricted Stock Agreement. To the extent
required by applicable law, each Award of Restricted Shares shall become
exercisable no less rapidly than the rate of 20% per year for each of the first
five (5) years from the date of grant. Subject to the preceding sentence, the
exercisability of any Award of Restricted Shares shall be determined by the
Committee in its sole discretion. In addition, a Restricted Stock Agreement may
provide for accelerated vesting in the event of the Participant's death,
disability or retirement or other events. The Committee may determine, at the
time of granting Restricted Shares of thereafter, that all or part of such
Restricted Shares shall become vested in the event that a Change in Control
occurs with respect to the Company.
(d) Voting and Dividend Rights. The holders of Restricted Shares awarded
--------------------------
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
SECTION 7. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
----------------------
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other
-8-
<PAGE>
terms and conditions which are not inconsistent with the Plan and which the
Committee deems appropriate for inclusion in a Stock Option Agreement. The Stock
Option Agreement shall specify whether the Option is an ISO or an NSO. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. Options may be granted in consideration of a reduction in
the Optionee's other compensation. A Stock Option Agreement may provide that a
new Option will be granted automatically to the Optionee when he or she
exercises a prior Option and pays the Exercise Price in a form described in
Section 8.
(b) Number of Shares. Each Stock Option Agreement shall specify the
----------------
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 12. Options granted to an
Optionee in a single fiscal year of the Company shall not cover more than two
hundred fifty thousand (250,000) Shares. The limitations set forth in the
preceding sentence shall be subject to adjustment in accordance with Section 12.
(c) Exercise Price. Each Stock Option Agreement shall specify the
--------------
Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent
(100%) of the Fair Market Value of a Share on the date of grant, except as
otherwise provided in Section 4(d) and the Exercise Price of an NSO shall not be
less than 85% of the Fair Market Value of a Share on the date of grant. In the
case of an NSO, a Stock Option Agreement may specify an Exercise Price that
varies in accordance with a predetermined formula while the NSO is outstanding.
Subject to the foregoing in this Section 7(c), the Exercise Price under any
Option shall be determined by the Committee at its sole discretion. The Exercise
Price shall be payable in one of the forms described in Section 8.
(d) Exercisability and Term. Each Stock Option Agreement shall specify
-----------------------
the date when all or any installment of the Option is to become exercisable. To
the extent required by applicable law, an Option shall become exercisable no
less rapidly than the rate of 20% per year for each of the first five (5) years
from the date of grant. Subject to the preceding sentence, the exercisability of
any Option shall be determined by the Committee in its sole discretion.
The Stock Option Agreement shall also specify the term of the Option;
provided that the term of an ISO shall in no event exceed ten (10) years from
the date of grant (five (5) years for Employees described in Section 4(d)). A
Stock Option Agreement may provide for accelerated exercisability in the event
of the Optionee's death, disability, or retirement or other events and may
provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. Subject to the foregoing in
this Section 7(e), the Committee in its sole discretion shall determine when all
or any installment of an Option is to become exercisable and when an Option is
to expire.
(e) Nontransferability. During an Optionee's lifetime, his Option(s)
------------------
shall be exercisable only by him and shall not be transferable. In the event of
an Optionee's death, his Option(s) shall not be transferable other than by will
or by the laws of descent and distribution, or by instrument to an inter vivos
or testamentary trust in which the Options are to be passed on to beneficiaries
upon the death of an Optionee.
-9-
<PAGE>
(f) Exercise of Options Upon Termination of Service. Each Stock Option
-----------------------------------------------
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with the
Company and its Subsidiaries, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Such provisions shall be determined in the sole discretion of the Committee,
need not be uniform among all Options issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of Service.
(g) Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company, provided, however, that in
the case of an ISO, the acceleration of exercisability shall not occur without
the Optionee's written consent.
(h) Leaves of Absence. An Employee's Service shall cease when such
-----------------
Employee ceases to be actively employed by, or a consultant or adviser to, the
Company (or any subsidiary) as determined in the sole discretion of the Board of
Directors. For purposes of Options, Service does not terminate when an Employee
goes on a bona fide leave of absence, that was approved by the Company in
---- ----
writing, if the terms of the leave provide for continued service crediting, or
when continued service crediting is required by applicable law. However, for
purposes of determining whether an Option is entitled to ISO status, an
Employee's Service will be treated as terminating ninety (90) days after such
Employee went on leave, unless such Employee's right to return to active work is
guaranteed by law or by a contract. Service terminates in any event when the
approved leave ends, unless such Employee immediately returns to active work.
The Company determines which leaves count toward Service, and when Service
terminates for all purposes under the Plan.
(i) No Rights as a Stockholder. An Optionee, or a transferee of an
--------------------------
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made, except as provided in Section 12.
(j) Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
options or may accept the cancellation of outstanding options (whether granted
by the Company or by another issuer) in return for the grant of new Options for
the same or a different number of Shares and at the same or a different exercise
price. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair his rights or increase his
or her rights or obligations under such Option.
(k) Restrictions on Transfer of Shares. Any Shares issued upon exercise
----------------------------------
of an Option shall be subject to such special forfeiture conditions, rights of
repurchase, and other transfer restrictions as the Committee may determine. Such
restrictions shall be set forth in the applicable Stock Option Agreement and
shall apply in addition to any general restrictions that may apply to all
holders of Shares. Notwithstanding the foregoing in this Section 7(k) and to the
extent that a Stock Option Agreement so provides, an Optionee shall have the
right to transfer all
-10-
<PAGE>
or any portion of Optionee's interest in the Shares to a trust established by
Optionee for the benefit of Optionee, Optionee's spouse, or Optionee's children,
provided that the trustee on behalf of the trust shall agree in writing to be
bound by the terms and conditions of the Stock Option Agreement under which the
Options are granted.
(l) Buyout Provisions. The Committee may at any time (a) offer to buy out
-----------------
for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
SECTION 8. PAYMENT FOR SHARES.
------------------
(a) General Rule. The entire Exercise Price of Shares issued under the
------------
Plan shall be payable in cash or cash equivalents at the time when such Shares
are purchased, except as provided in Subsections (b) through (g) below.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
------------------
provides, payment may be made all or in part by surrendering, or attesting to
the ownership of, Shares which have already been owned by the Optionee or his
representative for more than twelve (12) months. Such Shares shall be valued at
their Fair Market Value on the date when the new Shares are purchased under the
Plan. The Optionee shall not surrender, or attest to the ownership of, Shares in
payment of the Exercise Price if such action would cause the Company to
recognize compensation expense (or additional compensation expense) with respect
to the Option for financial reporting purposes.
(c) Services Rendered. At the discretion of the Committee, Shares may be
-----------------
awarded under the Plan in consideration of services rendered to the Company or a
Subsidiary prior to the award. If Shares are awarded without the payment of a
Purchase Price in cash, the Committee shall make a determination (at the time of
the Award) of the value of the services rendered by the Offeree and the
sufficiency of the consideration to meet the requirements of Section 6(c).
(d) Exercise/Sale. To the extent that a Stock Option Agreement so
-------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.
(e) Exercise/Pledge. To the extent that a Stock Option Agreement so
---------------
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker or lender
to pledge Shares, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of the aggregate Exercise Price.
(f) Promissory Note. To the extent that a Stock Option Agreement so
---------------
provides, payment may be made all or in part by delivering (on a form prescribed
by the Company) a full-recourse promissory note. However, the par value of the
Shares being purchased under the Plan, if newly issued, shall be paid in cash or
cash equivalents.
-11-
<PAGE>
(g) Combination of Forms of Payment. To the extent that a Stock Option
-------------------------------
Agreement so provides, payment may be made by a combination of considerations
set forth in subsections (a) through (f) above.
(h) Other Forms of Payment. To the extent that a Stock Option Agreement
----------------------
so provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.
SECTION 9. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS.
-------------------------------------
(a) Initial Grants. Each Outside Director shall automatically be granted
--------------
a Nonstatutory Option to purchase twenty-four thousand (24,000) Shares (subject
to adjustment under Section 12) as a result of his or her election or
appointment as an Outside Director. Such NSO shall be granted on the date when
such Outside Director first joins the Board of Directors and shall become
exercisable in three (3) equal installments at one-year intervals commencing one
year from the date of grant.
(b) Other Grants. Each third anniversary of the date that an Outside
------------
Director takes office as a member of the Board of Directors, each Outside
Director who will continue serving as a member of the Board of Directors
thereafter shall receive a Nonstatutory Option to purchase twenty-four thousand
(24,000) Shares (subject to adjustment under Section 12). All such Nonstatutory
Options shall vest and become exercisable pursuant to the terms and conditions
set forth in the Stock Option Agreement.
(c) Exercise Price. The Exercise Price of all Nonstatutory Options
--------------
granted to an Outside Director under this Section 9 shall be equal to one
hundred percent (100%) of the Fair Market Value of a Share on the date of grant,
payable in one of the forms described in Section 8.
(d) Term. All Nonstatutory Options granted to an Outside Director under
----
this Section 9 shall terminate on the earliest of (A) the tenth (10th)
anniversary of the date of grant of such Options or (B) the date twelve (12)
months after the termination of such Outside Director's service for any reason.
(e) Modification. This Section 9 shall not be modified more often than
------------
once every six (6) months, except as may be necessary or advisable to comport
with the requirements of any applicable law or regulation.
(f) Accelerated Exercisability. All NSOs granted to an Outside Director
--------------------------
under this Section 4 shall also become exercisable in full in the event of:
(i) The Termination of such Director's service because of death,
total and permanent disability or retirement at or after age 65; or
(ii) A Change in Control with respect to the Company.
(g) Affiliates of Outside Directors. The Committee may provide that NSOs
-------------------------------
that otherwise would be granted to an Outside Director under this Section 9
shall instead be granted to an affiliate of such Outside Director. Such
affiliate shall then be deemed to be an Outside
-12-
<PAGE>
Director for purposes of the Plan, provided that the service-related vesting and
termination provisions pertaining to the NSOs shall be applied with regard to
the service of the Outside Director.
(h) Supersedes Other Grants. This Section 9 is intended to incorporate
-----------------------
and thereby supersede any other formula-based granting of Options to Outside
Directors of the Company and, accordingly, (i) such other formula-based grant
provisions (including those set forth in Section 2.2 of the JMC Group, Inc.
Executive Stock Option Plan) are hereby supplanted by this Section 9, and
(ii) Outside Directors of the Company shall be given credit for periods of
service prior to the date of this Plan with respect to calculations made under
Section 9(b) and in respect of which options have not yet been awarded.
SECTION 10. STOCK APPRECIATION RIGHTS.
-------------------------
(a) SAR Agreement. Each grant of a SAR under the Plan shall be evidenced
-------------
by a SAR Agreement between the Optionee and the Company. Such SAR shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are not inconsistent with the Plan. The provisions of the various SAR
Agreements entered into under the Plan need not be identical. SARs may be
granted in consideration of a reduction in the Optionee's other compensation.
(b) Number of Shares. Each SAR Agreement shall specify the number of
----------------
Shares to which the SAR pertains and shall provide for the adjustment of such
number in accordance with Section 12. SARs granted to any Optionee in a single
calendar year shall in no event pertain to more than two hundred fifty (250,000)
Shares. The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Section 12.
(c) Exercise Price. Each SAR Agreement shall specify the Exercise Price.
--------------
A SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.
(d) Exercisability and Term. Each SAR Agreement shall specify the date
-----------------------
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. A SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.
(e) Effect of Change in Control. The Committee may determine, at the time
---------------------------
of granting a SAR or thereafter, that such SAR shall become fully exercisable as
to all Shares subject to such SAR in the event that a Change in Control occurs
with respect to the Company.
(f) Exercise of SARs. Upon exercise of a SAR, the Optionee (or any person
----------------
having the right to exercise the SAR after his or her death) shall receive from
the Company (a) Shares,
-13-
<PAGE>
(b) cash or (c) a combination of Shares and cash, as the Committee shall
determine. The amount of cash and/or the Fair Market Value of Shares received
upon exercise of SARs shall, in the aggregate, be equal to the amount by which
the Fair Market Value (on the date of surrender) of the Shares subject to the
SARs exceeds the Exercise Price. If, on the date when a SAR expires, the
Exercise Price under such SAR is less than the Fair Market Value on such date
but any portion of such SAR has not been exercised or surrendered, then such SAR
shall automatically be deemed to be exercised as of such date with respect to
such portion.
(g) Modification or Assumption of SARs. Within the limitations of the
----------------------------------
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise price. The foregoing
notwithstanding, no modification of a SAR shall, without the consent of the
Optionee, alter or impair his or her rights or obligations under such SAR.
SECTION 11. STOCK UNITS.
-----------
(a) Stock Unit Agreement. Each grant of Stock Units under the Plan shall
--------------------
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.
(b) Payment for Awards. To the extent that an Award is granted in the
------------------
form of Stock Units, no cash consideration shall be required of the Award
recipients.
(c) Vesting Conditions. Each Award of Stock Units may or may not be
------------------
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company.
(d) Voting and Dividend Rights. The holders of Stock Units shall have no
--------------------------
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Share while the Stock Unit is outstanding.
Dividend equivalents may be converted into additional Stock Units. Settlement of
dividend equivalents may be made in the form of cash, in the form of Shares, or
in a combination of both. Prior to distribution, any dividend equivalents which
are not paid shall be subject to the same conditions and restrictions as the
Stock Units to which they attach.
(e) Form and Time of Settlement of Stock Units. Settlement of vested
------------------------------------------
Stock Units may be made in the form of (a) cash, (b) Shares or (c) any
combination of both, as determined by the Committee. The actual number of Stock
Units eligible for settlement may be larger or
-14-
<PAGE>
smaller than the number included in the original Award, based on predetermined
performance factors. Methods of converting Stock Units into cash may include
(without limitation) a method based on the average Fair Market Value of Shares
over a series of trading days. Vested Stock Units may be settled in a lump sum
or in installments. The distribution may occur or commence when all vesting
conditions applicable to the Stock Units have been satisfied or have lapsed, or
it may be deferred to any later date. The amount of a deferred distribution may
be increased by an interest factor or by dividend equivalents. Until an Award of
Stock Units is settled, the number of such Stock Units shall be subject to
adjustment pursuant to Section 12.
(f) Death of Recipient. Any Stock Units Award that becomes payable after
------------------
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each recipient of a Stock Units Award under the Plan shall
designate one or more beneficiaries for this purpose by filing the prescribed
form with the Company. A beneficiary designation may be changed by filing the
prescribed form with the Company at any time before the Award recipient's death.
If no beneficiary was designated or if no designated beneficiary survives the
Award recipient, then any Stock Units Award that becomes payable after the
recipient's death shall be distributed to the recipient's estate.
(g) Creditors' Rights. A holder of Stock Units shall have no rights other
-----------------
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.
SECTION 12. PROTECTION AGAINST DILUTION.
---------------------------
(a) Adjustments. In the event of a subdivision of the outstanding Shares,
-----------
a declaration of a dividend payable in Shares, a declaration of a dividend
payable in a form other than Shares in an amount that has a material effect on
the price of Shares, a combination or consolidation of the outstanding Shares
(by reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:
(i) The number of Options, SARs, Restricted Shares and Stock Units
available for future Awards under Section 5;
(ii) The limitations set forth in Sections 7(b) and 10(b);
(iii) The number of NSOs to be granted to Outside Directors under
Section 9;
(iv) The number of Shares covered by each outstanding Option and SAR;
(v) The Exercise Price under each outstanding Option and SAR; or
(vi) The number of Stock Units included in any prior Award which has
not yet been settled.
Except as provided in this Section 12, a Participant shall have no rights by
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any
-15-
<PAGE>
subdivision or consolidation of shares of stock of any class, the payment of any
stock dividend or any other increase or decrease in the number of shares of
stock of any class.
(b) Dissolution or Liquidation. To the extent not previously exercised or
--------------------------
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company.
(c) Reorganizations. In the event that the Company is a party to a merger
---------------
or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for:
(i) The continuation of the outstanding Awards by the Company, if
the Company is a surviving corporation;
(ii) The assumption of the outstanding Awards by the surviving
corporation or its parent or subsidiary;
(iii) The substitution by the surviving corporation or its parent or
subsidiary of its own awards for the outstanding Awards;
(iv) Full exercisability or vesting and accelerated expiration of the
outstanding Awards; or
(v) Settlement of the full value of the outstanding Awards in cash
or cash equivalents followed by cancellation of such Awards.
(d) Reservation of Rights. Except as provided in this Section 12, an
---------------------
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
(e) Notice of Adjustment. Whenever the Company shall take any action
--------------------
resulting in any adjustment provided for in this Section 12, the Company shall
forthwith deliver notice of such action to each Optionee, which notice shall set
forth the number of Shares subject to the Option and the Exercise Price thereof
resulting from such adjustment.
SECTION 13. DEFERRAL OF AWARDS.
------------------
The Committee (in its sole discretion) may permit or require a Participant
to:
-16-
<PAGE>
(a) Have cash that otherwise would be paid to such Participant as a result
of the exercise of a SAR or the settlement of Stock Units credited to a deferred
compensation account established for such Participant by the Committee as an
entry on the Company's books;
(b) Have Shares that otherwise would be delivered to such Participant as a
result of the exercise of an Option or SAR converted into an equal number of
Stock Units; or
(c) Have Shares that otherwise would be delivered to such Participant as a
result of the exercise of an Option or SAR or the settlement of Stock Units
converted into amounts credited to a deferred compensation account established
for such Participant by the Committee as an entry on the Company's books. Such
amounts shall be determined by reference to the Fair Market Value of such Shares
as of the date when they otherwise would have been delivered to such
Participant.
A deferred compensation account established under this Section 13 may be
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the Company. Such an account
shall represent an unfunded and unsecured obligation of the Company and shall be
subject to the terms and conditions of the applicable agreement between such
Participant and the Company. If the deferral or conversion of Awards is
permitted or required, the Committee (in its sole discretion) may establish
rules, procedures and forms pertaining to such Awards, including (without
limitation) the settlement of deferred compensation accounts established under
this Section 13.
SECTION 14. AWARDS UNDER OTHER PLANS.
------------------------
The Company may grant awards under other plans or programs. Such awards
may be settled in the form of Shares issued under this Plan. Such Shares shall
be treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Section 5.
SECTION 15. LEGAL AND REGULATORY REQUIREMENTS.
---------------------------------
Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, and the regulations of any stock
exchange on which the Company's securities may then be listed, and the Company
has obtained the approval or favorable ruling from any governmental agency which
the Company determines is necessary or advisable.
SECTION 16. WITHHOLDING TAXES.
-----------------
(a) General. To the extent required by applicable federal, state, local
-------
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Shares or make any cash payment under the Plan until such
obligations are satisfied.
-17-
<PAGE>
(b) Share Withholding. The Committee may permit a Participant to satisfy
-----------------
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired. Such Shares shall be valued at their Fair Market Value on
the date when taxes otherwise would be withheld in cash.
SECTION 17. LIMITATION ON PARACHUTE PAYMENTS.
--------------------------------
(a) Scope of Limitation. This Section 17 shall apply to an Award unless
-------------------
the Committee, at the time of making an Award under the Plan or at any time
thereafter, specifies in writing that such Award shall not be subject to this
Section 18. If this Section 17 applies to an Award, it shall supersede any
contrary provision of the Plan or of any Award granted under the Plan.
(b) Basic Rule. In the event that the independent auditors most recently
----------
selected by the Board (the "Auditors") determine that any payment or transfer by
the Company under the Plan to or for the benefit of a Participant (a "Payment")
would be nondeductible by the Company for federal income tax purposes because of
the provisions concerning "excess parachute payments" in Section 280G of the
Code, then the aggregate present value of all Payments shall be reduced (but not
below zero) to the Reduced Amount. For purposes of this Section 17, the "Reduced
Amount" shall be the amount, expressed as a present value, which maximizes the
aggregate present value of the Payments without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code.
(c) Reduction of Payments. If the Auditors determine that any Payment
---------------------
would be nondeductible by the Company because of Section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Section 17, present
value shall be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Section 17 shall be binding upon
the Company and the Participant and shall be made within sixty (60) days of the
date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
(d) Overpayments and Underpayments. As a result of uncertainty in the
------------------------------
application of Section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company that should not have been made
-18-
<PAGE>
(an "Overpayment") or that additional Payments that will not have been made by
the Company could have been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Company or the Participant that the Auditors believe has a
high probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Participant which
he or she shall repay to the Company, together with interest at the applicable
federal rate provided in Section 7872(f)(2) of the Code; provided, however, that
no amount shall be payable by the Participant to the Company if and to the
extent that such payment would not reduce the amount subject to taxation under
Section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or
transferred by the Company to or for the benefit of the Participant, together
with interest at the applicable federal rate provided in Section 7872(f)(2) of
the Code.
(e) Related Corporations. For purposes of this Section 17, the term
--------------------
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with Section 280G(d)(5) of the Code.
SECTION 18. NO EMPLOYMENT RIGHTS.
--------------------
No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company and its Subsidiaries reserve the right to
terminate any person's Service at any time and for any reason, with or without
notice.
SECTION 19. DURATION AND AMENDMENTS.
-----------------------
(a) Term of the Plan. The Plan, as set forth herein, shall become
----------------
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within twelve (12) months after its adoption by the Board of
Directors, any grants already made shall be null and void, and no additional
grants shall be made after such date. The Plan shall terminate automatically ten
(10) years after its adoption by the Board of Directors and may be terminated on
any earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
------------------------------------
amend the Plan at any time and from time to time. An amendment of the Plan shall
be subject to the approval of the Company's stockholders only to the extent
required by applicable laws, regulations or rules.
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
----------------------------------
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan, except
with consent of the person to whom the Award was granted.
-19-
<PAGE>
SECTION 20. NOTICE.
------
Any notice to be given under the terms of the Plan shall be addressed to
the Company in care of its Secretary at its principal office, and any notice to
be given to a Participant shall be addressed to such Participant at the address
maintained by the Company for such person or at such other address as the
Participant may specify in writing to the Company.
SECTION 21. EXECUTION.
---------
To record the adoption of the Plan by the Board of Directors effective as
of February 27, 2000, the Company has caused its authorized officer to execute
the same.
FECHTOR, DETWILER, MITCHELL & CO.
By: /s/ James K. Mitchell
-------------------------------------
James K. Mitchell
Chairman
-20-
<PAGE>
EXHIBIT 22
SUBSIDIARIES OF THE REGISTRANT
. Fechtor, Detwiler & Co., Inc.
. James Mitchell & Co.
. JMC Insurance Services Corporation
. JMC Financial Corporation
. JMC Insurance Agency of New York, Inc.
. JMC Insurance Services Corporation of Texas
. JMC Investment Services, Inc.
<PAGE>
EXHIBIT 23.1
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 Fechtor, Detwiler, Mitchell
& Co. and subsidiaries on Form S-8 of our report dated March 9, 2000 appearing
in the Annual Report on Form 10-K of Fechtor, Detwiler, Mitchell & Co. and
subsidiaries for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
- -------------------------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 29, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on Fechtor, Detwiler & Co., Inc. dated February 10, 1999 included in or made a
part of the Annual Report on Form 10-K of Fechtor, Detwiler, Mitchell & Co.
for the year ended December 31, 1999.
/s/ Arthur Andersen LLP
-------------------------------------
Arthur Andersen LLP
Boston, Massachusetts
March 27, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FECHTOR,
DETWILER, MITCHELL & CO. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMETNS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 1,000,000
<INVESTMENTS-AT-VALUE> 1,000,000
<RECEIVABLES> 11,958,104
<ASSETS-OTHER> 5,317,800
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,275,904
<PAYABLE-FOR-SECURITIES> 4,218,969
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,278,969
<TOTAL-LIABILITIES> 9,497,442
<SENIOR-EQUITY> 129,165
<PAID-IN-CAPITAL-COMMON> 7,532,500
<SHARES-COMMON-STOCK> 12,619,451
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> (849,226)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,778,462
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 930,701
<OTHER-INCOME> 397,868
<EXPENSES-NET> 16,391,171
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,613,695
<ACCUMULATED-NII-PRIOR> 2,164,767
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 295,027
<GROSS-EXPENSE> 16,391,171
<AVERAGE-NET-ASSETS> 5,471,615
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
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<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> .69
<EXPENSE-RATIO> 0
</TABLE>
