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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the securities exchange
act of 1934 [fee required] For the fiscal year ended December 31, 1996
or -----------------------
[_] Transition report pursuant to section 13 or 15(d) of the securities
exchange act of 1934 [no fee required] For the transition period from
___________ to ___________
COMMISSION FILE NUMBER 33-35889
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Financial Service Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-1842822
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2300 Windy Ridge Parkway, 30339
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Suite 1100, Atlanta, GA (Zip Code)
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(Address of principal executive offices)
Registrant's telephone number, including area code (770) 916-6500
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
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None None
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Securities registered pursuant to Section 12 (g) of the Act:
None
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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 ___
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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]
There is no established trading market for the common stock of the registrant.
As of December 31, 1996, the aggregate market value of the common stock of the
registrant held by persons other than executive officers, directors and 10%
shareholders of the registrant was $4,544,580. The above calculation is based
upon a value of $12 per share which was the last price, prior to December 31,
1996, at which management believes the Company's stock was sold. Management
believes that sales of Company stock ranged from $6.84 to $12.00 per share
during 1996. This calculation does not constitute a determination by the
registrant that all of its executive officers, directors and 10% shareholders
are affiliates as defined in Rule 405 of the Securities Act of 1933.
As of December 31, 1996, there were 891,241 shares of the registrant's common
stock outstanding.
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PART I
ITEM 1. BUSINESS.
General
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Financial Service Corporation (the "Company" or "FSC") was incorporated as a
Georgia Corporation under the name of FSC Acquisition Corp. in 1989 for the
purpose of acquiring FSC Corporation, then known as Financial Service
Corporation, and certain of its subsidiaries. The Company is a holding company,
and conducts business primarily through FSC Corporation, a wholly-owned
subsidiary. FSC Corporation, headquartered in Atlanta, Georgia, is a financial
planning support organization. Its home office staff, including a management
team of experienced executives, supports a network of independent registered
representatives and insurance agents engaged in business throughout the United
States.
FSC Corporation is also the parent of a family of companies which provide a
variety of financial services. FSC Corporation's major subsidiaries are FSC
Securities Corporation ("FSC Securities"), a securities brokerage firm and FSC
Agency, Inc. ("FSC Agency"), which markets insurance and insurance-related
products. Another subsidiary of FSC Corporation is FSC Advisory Corporation, an
investment advisory firm registered with the Securities and Exchange Commission
under the Investment Advisers Act of 1940, as amended.
Stock Offering.
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In January 1991, the Company commenced an offering (the "Stock Offering") of
1,000,000 shares of its common stock to certain of its employees (including its
executive officers) and associated registered representatives to effect a
transfer of a significant ownership interest in the Company to its employee and
registered representative base. The Stock Offering concluded on June 30, 1991,
with the Company issuing 924,180 shares of its common stock.
The Stock Offering had two segments - a Benefit Enhancement Segment and a Sale
Segment. Under the Benefit Enhancement Segment, the Company issued for no cash
consideration 349,940 shares of common stock to its employees and 233,333 shares
of its common stock to registered representatives, and the Company issued for
cash consideration of $.01 per share pursuant to share purchase rights an
additional 116,667 shares of common stock to registered representatives. Under
the Sale Segment of the Stock Offering, the Company issued for cash
consideration of $2.00 per share 112,620 shares of common stock to employees and
111,620 shares to registered representatives.
If at any time an employee or registered representative receives a bona fide
offer to purchase shares issued in either the Benefit Enhancement Segment or the
Sale Segment, the Company has the right to repurchase such shares on the same
terms and conditions offered by the third party.
Present Structure.
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The corporate structure of the Company as of December 31, 1996, is set forth in
the following chart:
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[ORGANIZATIONAL CHART APPEARS HERE]
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Major Subsidiaries
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Set forth below is a description of each of the major subsidiaries of FSC
Corporation.
FSC Securities Corporation
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FSC Securities is a registered broker-dealer which was organized under the laws
of the State of Delaware in 1977. Commissions earned by FSC Securities accounted
for 79.7%, 77.0%, and 78.5% of consolidated revenues of the Company in 1996,
1995 and 1994, respectively. Insurance products of a variable nature for
regulatory and compliance purposes are classified as equity transactions and
accordingly, are included in commissions earned by FSC Securities. As of
December 31, 1996, FSC Securities had 1,333 registered representatives engaged
in business throughout the United States. FSC Securities is qualified to offer
investment advisory services throughout the United States. Thirty-four states
require investment advisors to register at the state level in accordance with
state law requirements. FSC Securities is registered as an investment advisor in
all such states requiring this type of registration. The average annual gross
commission production per selling registered representative was approximately
$97,000 in 1996.
FSC Securities offers an extensive selection of mutual funds; a full service
trading desk for stocks, bonds, and unit investment trusts; advisory services,
and limited partnership programs (real estate, equipment leasing, cable
television, oil and gas). All representatives registered with FSC Securities are
required to obtain and maintain comprehensive errors and omissions coverage.
Each securities representative associated with FSC Securities that has not been
designated a Managing Field Associate ("MFA") is affiliated with an MFA. Each
MFA has access to the full complement of FSC Corporation resources. Generally,
each MFA is registered as a principal of FSC Securities with the National
Association of Securities Dealers, Inc. ("NASD") and FSC Securities designates
an MFA office as an Office of Supervisory Jurisdiction.
FSC Agency, Inc.
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FSC Agency was formed in 1972 under the laws of the State of Georgia. FSC Agency
offers multiple insurance products and services through its licensed
representatives. Products include life, annuity, and disability products from
leading national insurance carriers. FSC Agency does not develop, generate or
underwrite any of the insurance products offered, but offers through its
licensed representatives, insurance products developed by third parties to
individuals interested in life, disability and annuity products. Services
include due diligence and screening of insurance products; competitive analysis;
serving as a liaison between representatives and insurance product sponsors;
experienced underwriting support; and conceptual sales development.
Unlike their treatment for regulatory and compliance purposes, commissions on
variable insurance products for financial reporting purposes are reported as
insurance commissions. Commissions on variable insurance products accounted for
29.3%, 24.8%, and 23.3% of consolidated revenues of the Company for 1996, 1995,
and 1994, respectively.
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FSC Agency seeks to sell a volume of products from selected quality insurance
companies. Commissions earned by FSC Agency, which excludes commissions earned
on variable insurance products, accounted for 4.2%, 7.5%, and 7.2% of total
consolidated revenues of the Company in fiscal 1996, 1995, and 1994,
respectively.
For the year ended December 31, 1996, 2.9% of consolidated total revenues was
derived from traditional life, long-term disability, and long-term care
insurance products and 1.3% of consolidated total revenues was derived from
fixed annuity products.
FSC Agency has 15 subsidiaries, all of which were formed for the purpose of
satisfying state regulatory requirements.
Other Subsidiaries
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FSC Advisory Corporation
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FSC Advisory Corporation is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended. FSC Advisory Corporation was formed
in 1970 under the laws of the State of Georgia.
FSC Realty, Inc.
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FSC Realty, Inc. was formed in 1973 under the laws of the State of Georgia as a
real estate brokerage firm. It is currently inactive.
FSC Realty Advisors Corp.
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FSC Realty Advisors Corp. serves as corporate general partner for limited
partnerships which invest in real estate. As of December 31, 1996, FSC Realty
Advisors Corp. served in this capacity for two partnerships. FSC Realty Advisors
Corp. was formed in 1982 under the laws of the State of Georgia.
FSC Resources Corporation
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FSC Resources Corporation was formed in 1979 under the laws of the State of
Georgia. It is currently inactive.
Financial Service Corporation of America
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Financial Service Corporation of America was formed in 1965 under the laws of
the State of Georgia. It is currently inactive.
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Consolidated Revenues by Source
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No single customer constitutes a material percentage of the Company's
consolidated revenues. The following table sets forth the amount and percentage
of revenues from each source for the years ended December 31, 1996, 1995, and
1994:
<TABLE>
<CAPTION>
Year Ended December 31
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1996 1995 1994
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Amount Percent Amount Percent Amount Percent
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<S> <C> <C> <C> <C> <C> <C>
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Securities Commissions:
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Mutual Funds $ 50,603,351 40.9% $34,137,290 41.1% $29,831,786 43.7%
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Partnerships 3,045,887 2.5% 3,088,872 3.7% 2,956,827 4.3%
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General Securities 8,675,465 7.0% 6,165,031 7.4% 4,876,243 7.1%
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Total Securities Commissions 62,324,703 50.3% 43,391,193 52.2% 37,664,856 55.1%
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Insurance Commissions 41,569,597 33.6% 26,805,649 32.2% 20,877,663 30.6%
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Fees Revenues 19,552,708 15.8% 12,579,663 15.1% 9,637,186 14.1%
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Investment Income 429,665 0.3% 344,140 0.4% 144,243 0.2%
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TOTAL REVENUES $123,876,673 100.0% $83,120,645 100.0% $68,323,948 100.0%
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</TABLE>
Securities Business
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During the fiscal years ended December 31, 1996, 1995, and 1994, approximately
50.3%, 52.2%, and 55.1% respectively, of the Company's total consolidated
revenues were derived from securities transactions.
Sales of mutual funds accounted for 40.9% of the Company's total consolidated
revenues in 1996, 41.1% in 1995, and 43.7% in 1994.
Sales representatives associated with FSC Securities also have access to
interests in a variety of limited partnerships, including those involved in real
estate, oil and gas, and equipment leasing. Limited partnership sales accounted
for 2.5%, 3.7%, and 4.3% of the Company's total consolidated revenues in 1996,
1995, and 1994, respectively.
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FSC Securities has a trading desk and its representatives have access to common
and preferred stocks, both listed and over-the-counter; taxable and tax-exempt
bonds; equity and index options; brokered negotiable certificates of deposit;
and unit investment trusts.
General Securities sales represented approximately 7.0%, 7.4%, and 7.1% of total
consolidated revenues for the years ended December 31, 1996, 1995, and 1994.
FSC Securities acts as agent in effecting transactions in both listed and over-
the-counter corporate debt and equity securities. However, its revenues are
primarily derived from transactions in listed mutual funds.
Although FSC Securities does not purchase securities for its own account or
offer to buy and sell for its own account as a principal (i.e., act as a "market
maker") in equity securities, this type of business could develop in the future.
Retail commissions are charged on both exchange and over-the-counter
transactions in accordance with guidelines promulgated by the NASD. In certain
cases, discounts are granted to retail customers generally on large trades or to
active customers. FSC Securities is not a member of any stock exchange. It
effectuates exchange transactions for its customers through its arrangements
with the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing"). See "Business -- Administration and Operations."
Transactions in securities may be effected on either a cash or margin basis.
Margin accounts allow customers to pay less than the full cost of a security
purchased, the balance of the purchase price being provided by Pershing as a
loan secured by securities and cash for the customer's account. The annual
dollar volume of margin transactions is an insignificant part of the Company's
business.
Administration and Operations
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Trading, operations and finance personnel are responsible for the execution of
orders; receipt, identification and delivery of funds and securities; internal
financial control; accounting functions; office services; and compliance with
regulatory requirements.
The back-office operations of FSC Securities use an electronic data processing
service to process orders, transmit execution reports and record all data
pertinent to trades. In-house clearing is available for mutual funds,
partnerships, variable annuities, contractual plans, money market funds and
custodial accounts. FSC Securities clears its transactions in exchange-listed
securities through Pershing pursuant to a Fully Disclosed Correspondent
Agreement.
Generally, FSC Securities executes transactions in exchange-listed securities
and Pershing processes such transactions for FSC Securities' account and the
accounts of its customers. Services provided by Pershing include billing and
credit control, and receipt, custody and delivery of securities, for which FSC
Securities pays a fee. In addition, Pershing extends credit to FSC Securities'
customers to enable them to purchase securities on margin. By engaging the
processing services of Pershing, the Company is exempt from certain reserve
requirements imposed by Rule 15c3-3 under the Securities Exchange Act of 1934.
See "Business -- Regulation, FSC Securities Corporation".
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The Company believes that its internal control structure and safeguards against
securities theft, including use of depositories and periodic securities counts,
are adequate. As required by the NASD and certain other authorities, the
Company carries a fidelity bond covering any loss or theft of securities, as
well as embezzlement and forgery. The Company believes the amount of such bond
meets NASD requirements.
FSC Securities posts its books and records daily. Periodic reviews of certain
controls are conducted, and administrative and operations personnel meet
periodically with management to review FSC Securities' operational conditions.
Operations personnel along with compliance personnel review and monitor day-to-
day operations in an effort to assure compliance with applicable laws, rules and
regulations.
FSC Corporation has installed and continues to upgrade a modern, comprehensive
data management system. The Company continues to enhance the effectiveness and
efficiency of its information and record keeping functions. Management believes
this system can accommodate future growth within the Company.
Investment Advisory Services
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By offering investment advisory services ("Advisory Services") the Company is
able to offer the services of third party and professional investment managers
to registered representatives to recommend to their clients. Advisory Services
also enable clients to participate in the stock and bond markets with
professional guidance and individual management through an advisory account that
is managed by the registered representative and the client on a fee basis.
Recruiting and Marketing
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The Recruiting Department has the responsibility for recruiting new
representatives to FSC Securities. The Department is managed and directed by a
member of senior management, who is assisted by eight professionals having
specific territory and project assignments, including transition assistance for
the new representatives.
The Recruiting Department interviews experienced registered representatives to
determine their interest in joining FSC Securities and its affiliates.
Specifically, the Department selects individuals who are or could qualify as
registered sales principals and be designated as an Office of Supervisory
Jurisdiction ("OSJ") with the NASD. In addition, numerous registered
representatives are interviewed, qualified and referred to FSC Securities'
existing OSJs for potential affiliation. Also, the Recruiting Department
recruits qualified registered representatives to serve as representatives in
various financial institutions throughout the country.
The Department develops, qualifies and maintains a national referral base of
interested representatives by being responsive to national advertising,
professional referral sources and through membership in various national
industry groups.
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The Company's Marketing Department has responsibility for product sponsor
relations and communications with registered representatives. The Department
organizes strategic alliances and cooperative marketing programs with various
product sponsors. These programs can include product education, sales and
marketing strategies, and target marketing. Field communications include a
national education and business conference, periodic educational materials, an
electronic field office system and training meetings. In addition, the
Department is responsible for practice management and practice marketing
programs which assist representatives in increasing their productivity and
knowledge. The Marketing Department also assists the home office staff in
providing enhanced service to registered representatives.
Financial Institution Services - Specialized Investments Division
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Third party marketing of products and services through financial institutions is
an additional channel of distribution for the Company. This program provides
community banks, thrifts, and credit unions a method of offering full financial
services and access to alternative investment products for their customers.
Specialized Investments Division offers a full menu of services to its financial
institution clients making it possible for the financial institution to offer
their own local financial services program in a very short period of time.
Specialized Investments Division provides business planning, site analysis,
representative recruiting, training both for the representative and the
financial institution employee, marketing support programs and material,
technological support through on line software systems, product selection and
compliance, complete operating and sales systems, all sales material and
business supplies, reporting and complete sales management support.
Specialized Investments Division offers three distinct programs. Under the
managed program, registered representatives, who are employees of FSC
Securities, offer brokerage and advisory services to customers at the financial
institution. Under the dual employee program, the registered representative is
an independent contractor with FSC Securities but an employee of the financial
institution whose primary responsibility is to deliver alternative investments
to the customers of the financial institution. The third method of offering
products through the financial institution is through the platform program.
Under the platform program, the representative is an employee of the financial
institution who offers a more limited range of products which is secondary to
their primary duties at the financial institution.
Management of FSC believes that it is in a unique position to become a primary
provider of third party services to financial institutions because of its
ability to leverage off existing programs and services offered by FSC without
spending resources and time to develop operating and support systems on its own.
Using the existing and new technology and systems developed by FSC, the Company
is able to be highly competitive in a field of providers that is already
shrinking. It is the belief of management that regulatory changes, lower
product margins, technology advancements, and a demand for increased services by
the consumer will make it harder for smaller and less capitalized firms to
continue to compete in the marketplace.
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It is also the opinion of management that the development of a distribution
channel through financial institutions is a logical move since an increasing
number of consumers are purchasing alternative products and services from
financial institutions. It is also the belief of management that this trend
will continue in the future. The primary market for Specialized Investments
Division is smaller community financial institutions which do not have the
resources or the experience to become their own broker-dealer. There is a trend
among smaller financial institutions to outsource many of these services in
order to be competitive with the larger national and regional financial
institutions.
Competition
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The Company continues to face substantial competition from many competitors,
some of which, as subsidiaries of major financial institutions, are larger and
have substantially greater financial and marketing resources than the Company.
The Company competes directly with many other securities firms. A number of
these firms offer discount brokerage services to individual retail customers and
generally effect transactions at lower commission rates on an "execution only"
basis without offering other services such as investment recommendations and
research. The further expansion of discount brokerage firms could adversely
affect the Company's retail business. Moreover, there is substantial commission
discounting by full-service broker-dealers. The possible increase of this
discounting could adversely affect the Company. Other financial institutions,
notably banks and savings and loan associations, offer customers some of the
services and products provided by securities firms. In addition, certain large
corporations have entered the securities industry by acquiring securities firms.
While it is not possible to predict the type and extent of competitive services
which banks and other institutions ultimately may offer to customers, the
Company may be adversely affected to the extent those services are offered on a
large scale. Management believes that the Company's ability to offer both
insurance and securities products as part of the financial services it offers
and the quality of its services are valuable assets in this competitive
environment.
In addition, there is intense competition among securities brokerage firms and
insurance companies for sales representatives with good sales production
records. The Company believes that the broad ownership of the Company by its
employees and representatives has facilitated it in retaining qualified
personnel and representatives.
Employees and Registered Representatives
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At December 31, 1996, 1995, and 1994 the Company or its affiliates employed 171,
116, and 99 full- time employees, respectively, including field associates of
Specialized Investments Division who are employees of FSC Securities under the
financial institution managed program.
At December 31, 1996, FSC Securities had 1,333 registered representatives who
are licensed by the NASD, and who through FSC Agency are also licensed to sell
insurance products. 270 of the active registered representatives are Managing
Field Associates.
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In addition, FSC Agency has 91 agents who are solely insurance agents and who
are not registered representatives of FSC Securities. In addition to its
traditional recruiting, FSC Securities seeks smaller broker-dealers who are
willing to transfer their securities representatives and related accounts.
Since 1990, FSC Securities has entered into agreements with principals of
sixteen such broker-dealers. The majority of customer accounts handled by these
individuals have been transferred to FSC Securities. The Company intends to
continue its recruiting efforts to expand the number of representatives
associated with FSC Securities. Registered representatives and insurance agents
who are associated with FSC Securities or FSC Agency, as applicable, are
independent contractors and not employees except for registered representatives
assigned to the Company's managed financial institution services program (see
Financial Institution Services -- Specialized Investments Division above) who
are employees of FSC Securities and are not independent contractors.
Management believes that the Company's relations with its employees and sales
representatives are good. The Company's labor force is not subject to any
collective bargaining agreement.
Regulation
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FSC Securities Corporation
--------------------------
The securities industry is subject to extensive regulation under federal and
state laws. The Securities and Exchange Commission (the "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. The
self- regulatory organizations adopt rules (which are subject to approval by the
SEC) which govern the industry and conduct periodic examinations of member
broker-dealers. Securities firms are also subject to regulation by state
securities commissions in the states in which they are registered. FSC
Securities currently is qualified to conduct business as a broker-dealer in all
50 states, the District of Columbia and Puerto Rico.
The regulations to which broker-dealers are subject cover all aspects of the
securities business, including sales methods, trading practices, capital
structure of securities firms, uses and safekeeping of customers' funds and
securities, record keeping, the conduct of directors, officers and employees and
supervision of Offices of Supervisory Jurisdiction, branches and registered
representatives. Additional legislation, changes in rules promulgated by the
SEC and by self-regulatory organizations, or changes in the interpretation 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 or
employees. The principal purpose of regulation and discipline of broker-dealers
is the protection of customers and the securities markets rather than the
protection of creditors and stockholders of broker-dealers.
In order to comply with applicable regulatory requirements, FSC Securities
representatives are required to be licensed in their state of residence as well
as in the state of residence of the customer.
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As a broker-dealer, and as a member firm of the NASD, FSC Securities is subject
to the Uniform Net Capital Rule ("Rule 15c3-1") promulgated by the SEC which
provides that a broker-dealer doing business with the public must maintain
certain net minimum capital and shall not permit its aggregate indebtedness to
exceed certain specified limitations. Rule 15c3-1 is designed to measure a
firm's financial integrity and liquidity. A broker-dealer may be required to
reduce its business and restrict the withdrawal of subordinated capital if its
net capital, as defined by Rule 15c3-1, drops below specified levels, and also
may be prohibited from expanding its business or declaring cash dividends. In
addition, failure to maintain the required net capital may subject a broker-
dealer to disciplinary actions by the SEC, the NASD and state securities
administrators, including censure, fines, suspension or expulsion. Rule 15c3-1
may limit FSC Securities' use of its capital.
Rule 15c3-1 requires that the ratio of aggregate indebtedness, as defined, to
net capital not exceed 15 to 1 or, alternatively that the net capital shall not
be less than 2% of aggregate debit items, as defined (which are generally
receivables from customers and broker-dealers) as computed according to Exhibit
A to Rule 15c3-3, and imposes certain restrictions on operations. As of
December 31, 1996, FSC Securities qualified for an exemption from Rule 15c3-3
and, thus, computes its net capital under the first method.
In computing net capital, various adjustments to net worth are made with a view
to excluding assets which are not readily convertible into cash and with a view
to a conservative statement of other assets, such as a firm's position in
securities. FSC Securities may not allow withdrawal of subordinated capital if
minimum net capital would thereafter be less than 5% of aggregate debit items as
defined under the SEC Uniform Net Capital Rule. Further, FSC Securities may not
permit equity capital to be withdrawn whether by payment of dividends,
repurchase of stock or other means, if its net capital would thereafter be less
than 5% of aggregate debit items as defined under the SEC Uniform Net Capital
Rule. Compliance with the Uniform Net Capital Rule may limit those operations
of a firm which may require the use of its capital, such as "firm commitment"
underwriting and maintaining the inventory required for a firm making a market
in securities.
At December 31, 1996, FSC Securities had aggregate net capital of $2,742,411,
which was $2,007,616 in excess of required minimum net capital of $734,795.
FSC Agency, Inc.
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The insurance industry in the United States is subject to regulation under state
laws. Each state has licensing requirements for all insurance agencies which
transact business in that state. In order to become licensed in some states, it
is necessary for the agency which transacts business within that state to be
domiciled in that state. FSC Agency has 15 subsidiaries, all of which were
formed for the purpose of satisfying regulatory requirements in states requiring
insurance agencies to be domiciled in that state. In addition, each state
requires that individual insurance agents who transact business in that state be
licensed by that state. It is the policy of FSC Agency to require its insurance
agents to be licensed not only in the state of residence of the customer, but
also in the state of residence of the insurance agent and states in which the
insurance agent works.
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ITEM 2. PROPERTIES.
The Company's office is located at 2300 Windy Ridge Parkway, Suite 1100,
Atlanta, Georgia 30339. The Company office space increased an additional 30,372
square feet at this facility during 1996 to a total of 54,048 square feet under
the terms of a lease which expires on December 31, 2006 with a five year renewal
option. The Company leases an additional 1,556 square feet in the same building
for its administrative office area under the terms of a lease which expires
December 31, 2001.
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ITEM 3. LEGAL PROCEEDINGS.
The Company and certain of its subsidiaries are parties to various legal
proceedings, including civil actions, administrative proceedings and arbitration
proceedings, that are incidental to the business conducted by such parties. In
recent years, there has been an increased incidence of litigation involving the
securities industry, particularly with respect to retail firms such as FSC
Securities. Such litigation may be attributable in part to the nature of the
business in which FSC Securities is engaged, which involves the execution of a
substantial number of financial transactions on behalf of thousands of customers
involving substantial financial investments. FSC Securities Corporation has
been named as a defendant or a respondent in a variety of pending litigation,
including civil actions and arbitration proceedings, concerning matters arising
in connection with its business. While the ultimate resolution of these actions
against the Company cannot be predicted with certainty, after considering all
relevant facts, including insurance coverages and financial statement reserves,
management does not believe that these actions, if adversely determined, will
have a material adverse effect on the Company's financial condition or results
of operation.
In addition to routine litigation incidental to its business and various other
legal proceedings which management does not consider to be material, there are
four pending lawsuits which involve claim amounts of sufficient size that, in a
worst case scenario, the lawsuits could have a materially adverse effect on the
Company's financial condition. These suits are described below.
On August 23, 1990, W. Simmons Sandoz as Trustee for Henry McLemore, II,
together with others filed suit against FSC Securities, et al. in the 19th
Judicial District Court, Parish of East Baton Rouge, Louisiana for an
unspecified amount of damages. The claims in this case arise out of the
plaintiffs' purchases of partnership interests in seven partnerships. The
complaint alleges that FSC Securities failed to establish, maintain and
reasonably enforce supervisory procedures in violation of Article III, Sections
1 and 27 of the NASD's Rules of Fair Practice, and claims that FSC Securities is
jointly and severally liable for all damages which have resulted to the
plaintiffs from the actions of a former registered representative associated
with FSC Securities. Plaintiffs had previously filed their claims in federal
court. These claims were dismissed by the judge and a subsequent appeal was
denied. This prompted plaintiffs to file in state court. The defendants have
vigorously denied all of plaintiffs' claims, and are defending the action.
Management believes that FSC Securities has meritorious defenses to plaintiffs'
claims. Additionally, the Company has filed a proof of claim under its fidelity
bond. On April 13, 1992 an Order of Dismissal was entered dismissing six
plaintiffs from this litigation due to the fact that the plaintiffs' attorney
had no authority to file the lawsuit in their name.
On October 26, 1994, FSC Securities Corporation was served the civil lawsuit of
Wesley Marquart; Lawrence Marquart; Truman Adams; Donald Clark; LaVerne Ferraro;
Ronald Gibb; and Susan Gibb, v. FSC Securities Corporation, et al. in Superior
Court of California, County of Orange for, among other things, class damages in
excess of $10 million plus interest. The claims in this case arose from the
Plaintiffs' purchases of promissory notes issued by various business trusts.
-13-
<PAGE>
The complaint alleged that FSC Securities sold securities by means of
misrepresentations, fraudulent concealment and omissions of material facts thus
violating California securities laws and breaching its fiduciary duties. The
defendants vigorously denied all plaintiffs' claims. On or about November 5,
1996, this complaint was settled with the settlement amount covered by the
Company's error and omissions liability policy.
On September 14, 1995, FSC Securities Corporation and several other broker
dealers were served with a complaint in a civil lawsuit filed by Louise E.
Marks, George L. Aames, Jenny Amezcua, Donald C. Nanney, Barbara H. Nanney, Dr.
Vernoy A. Reihmer as Trustee for the Vernoy A. Reihmer MD Defined Benefit Plan,
and Greer Tank, Inc. as Trustee for the Greer Tank & Welding Profit Sharing
Plan, on behalf of themselves and all others similarly situated. The lawsuit was
filed against FSC Securities Corporation and numerous other defendants in the
United States District Court, Central District of California, Southern Division
for, among other things, class damages in excess of $15 million. The claims in
this case arise from the Plaintiffs' purchase of certain Notes through
registered representatives of FSC Securities and other broker dealers. The
complaint basically alleges that FSC Securities and other broker dealers failed
to adequately perform its due diligence of the Notes thus violating California
securities laws and breaching certain fiduciary duties. FSC Securities
vigorously denies all plaintiffs' claims, and is defending the action.
Management believes that FSC Securities has meritorious defenses to plaintiffs'
claims. Additionally, FSC Securities has filed a proof of claim under its errors
and omissions insurance liability policy.
On July 18, 1995, FSC Securities Corporation was served with a complaint in a
civil lawsuit filed by William A. and Barbara K. Blakemore, James G. and Irene
H. Close, Francis E. Courain, Theodora L. Rink, William J. and Mary G. Waters,
and Paul R. West. The lawsuit was filed against FSC Securities Corporation and
numerous other defendants in the Circuit Court of the City of Norfolk, Virginia
for, among other things, actual damages in the amount of $1,000,000 plus
interest. The claims in this case arise from the Plaintiffs' purchase of various
limited partnership interests through a registered representative of FSC
Securities. The complaint alleges, among other things, that FSC Securities
failed to supervise the activities of its registered representative. On March
27, 1996 the Court concluded that the case should be directed to arbitration
before the NASD. The NASD arbitration claim was received December 2, 1996. FSC
Securities vigorously denies all plaintiffs' claims, and is defending the
action. Management believes that FSC Securities Corporation has meritorious
defenses to plaintiffs' claims. Additionally, FSC Securities has filed a proof
of claim under its errors and omissions insurance liability policy.
On March 1, 1995, the Securities and Exchange Commission ("SEC") issued a formal
order of investigation of certain activities of the Company. Although issues
have been raised during the course of the investigation, the SEC has not
communicated any formal position regarding these issues. Management believes
that the ultimate outcome of the issues raised will not have a materially
adverse affect on the Company's financial statements.
-14-
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-15-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Market Information
- ------------------
There is no established public trading market for the Company's common stock.
During the year ended December 31, 1996, the Company believes that sales of
Company common stock occurred at prices ranging from $6.84 to $12.00 per share.
The Company is not necessarily aware of every sale of Company stock that takes
place or of the price at which such sales take place.
Holders
- -------
As of December 31, 1996, there were 311 holders of the Company's common stock.
Dividends
- ---------
The Company has no history of paying dividends. Management intends to reinvest
the Company's earnings in its business to support operations and growth and,
thus, has no present intention of paying cash dividends.
-16-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL SERVICE CORPORATION
Selected Financial Data
-----------------------
The selected financial data set forth below is derived from the consolidated
financial statements of FSC for the years ended December 31, 1996, 1995, 1994,
1993, and 1992.
The data should be read in conjunction with the financial statements, related
notes and other financial information included herein.
-17-
<PAGE>
FINANCIAL SERVICE CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Statement of Income Data:
Year Ended Year Ended Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $123,876,673 $83,120,645 $68,323,948 $63,287,547 $52,505,050
Net income $6,961,974 $1,918,712 $716,725 $865,305 $834,490
Net income per common share $7.87 $2.18 $0.81 $0.98 $0.93
Weighted average number of common and
common equivalent shares outstanding 884,192 881,241 885,681 887,049 895,748
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
- -----------------------------------------------------------------------------------------------------------------
Total assets $30,866,672 $16,782,761 $12,744,885 $15,554,252 $12,709,677
Excess of acquired net assets over cost,
net of accumulated amortization $0 $0 $0 $149,355 $547,635
Stockholders' equity $13,831,292 $6,822,918 $4,903,538 $4,194,195 $3,248,274
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Note : For the periods above, the company had no long-term debt obligations,
nor did it declare cash dividends.
- 18 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Historical Background
- ---------------------
The business operations of FSC and its subsidiaries for the periods discussed
have been affected significantly by the following events:
New recruiting and marketing programs have been implemented during the past
several years, thus causing higher producing representatives to join the
Company.
Favorable market conditions in 1992 and 1993 resulted in a substantial increase
in revenues through 1993. A generally poor investment environment in 1994
served as an offset to the additional revenues produced by additional
representatives. The Company exceeded its expected revenue in 1995 and 1996
with increased productivity of existing representatives and the support of
additional representatives as well as favorable market conditions. Management
expects increasing revenues and continued profitability in 1997.
Results of Operations Expressed as a Percentage of Revenues
- -----------------------------------------------------------
The following table specifies, for the periods indicated, the percentage of
revenues represented by certain revenue and expense items.
-19-
<PAGE>
FINANCIAL SERVICE CORPORATION
RESULTS OF OPERATIONS EXPRESSED AS A PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
STATEMENT OF INCOME DATA: 12/31/96 12/31/95 12/31/94
- ------------------------- --------- -------- --------
<S> <C> <C> <C>
REVENUES:
Securities commissions/(1)/ 50.3% 52.2% 55.1%
Insurance commissions/(1)/ 33.6% 32.2% 30.6%
Advisory services and other fees 15.8% 15.1% 14.1%
Investment income 0.3% 0.4% 0.2%
--------- -------- --------
TOTAL REVENUES 100.0% 100.0% 100.0%
--------- -------- --------
EXPENSES:
Securities commissions/(1)/ 42.4% 43.5% 46.4%
Insurance commissions/(1)/ 29.6% 28.4% 27.0%
Advisory services and other fees 11.2% 10.3% 9.2%
Employee compensation and benefits 7.2% 8.0% 8.3%
General and administrative 6.1% 6.6% 6.5%
Depreciation and amortization 1.2% 1.4% 1.5%
Interest 0.1% 0.1% 0.1%
--------- -------- --------
TOTAL EXPENSES 97.8% 98.3% 99.0%
--------- -------- --------
INCOME BEFORE INCOME TAX BENEFIT 2.2% 1.7% 1.0%
INCOME TAX BENEFIT 3.4% 0.6% --
--------- -------- --------
NET INCOME 5.6% 2.3% 1.0%
========= ======== ========
</TABLE>
/(1)/ For purposes of this table, commissions and expenses related to the sale
of variable insurance products are included in insurance.
-20-
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------
1995
- ----
General
- -------
The Company's net income for the year ended December 31, 1996 was $6,961,974 as
compared to $1,918,712 for the year ended December 31, 1995. Total Revenues
increased approximately 49.0% to $123,876,673, while Total Expenses rose
approximately 48.3% to $121,150,499 for the year ended December 31, 1996. The
increase in revenues is primarily attributable to increased sales of variable
insurance, mutual fund, and general securities as well as increases in the fee
based revenue line of business. The increase in Total Expenses is primarily
related to increased volume and to increased operating expenses, most notably,
marketing expenses, and compensation and benefits.
The Company intends to continue its program of investing in and improving its
operations and information systems in order to provide enhanced and more
effective support services to field associates, as well as to increase the
efficiency of back-office operations. Additionally, the Company is also
investing funds in marketing and distributing existing products and services
through financial institutions. In order to improve its revenue growth, the
Company plans to continue its strategy of recruiting high quality
representatives and licensing and transferring field forces of existing broker-
dealers if such opportunities arise on an economically feasible basis. These
investments are expected to be funded from current cash flow and working
capital.
Results of Operations
- ---------------------
Commission revenues increased 48.0% to $103,894,300 in 1996. The growth of
commission revenues resulted from increased productivity of existing
representatives, favorable market conditions, an increased number of registered
representatives associated with the Company, as well as growth in marketing of
products through financial institutions. The number of representatives was
1,333 as of December 31, 1996, an increase of 184 representatives, or 16.0%
during 1996.
Commission expenses increased 49.3% to $89,217,818 in 1996. The increase is
attributable to an increase in the volume of commission revenues as discussed
above. Commission expenses represented 85.1% of gross commission revenue in
1995, increasing to 85.9% of gross commission revenue in 1996. The increase in
commission expenses as a percentage of gross commission revenues is primarily
related to increased productivity of existing and newly recruited registered
representatives with the Company.
The result of these factors was an increase in net commission revenue (gross
commission revenues less commission expenses) of $4,234,915 or 40.6% to
$14,676,482 from 1995 to 1996.
-21-
<PAGE>
Advisory Services and Other Fees
- --------------------------------
Fees for advisory services and other fee revenues increased 55.4% to $19,552,708
for the year ended December 31, 1996. The increase reflects greater emphasis on
the fee based line of business, as discussed in the preceding paragraph, and was
the result of an increase of 46.7% to $8,848,866 in advisory services revenues
provided by representatives in 1996. Fee based business reflects Company
offered fee based services and training, industry trends, and an increase in
client assets under management.
There was an increase of 41.4% to $4,075,241 in revenues from existing product
sponsors as well as sponsors added during 1996. These monies are paid to the
Company by product sponsors for distribution and marketing support, and for
access to the growing number of registered representatives affiliated with the
Company.
In addition, an increase of $1,568,332 in other fee revenues is attributable to
the implementation of the Company's supervision policy required by NASD Notice
to Members 94-44 ("NTM 94-44") issued in 1994.
Advisory service expense and expenses related to the generation of other fees
increased 62.0% to $13,967,691 for the year ended December 31, 1996. This is
primarily related to the increase in volume related to advisory services and
other fee revenues discussed above.
Investment Income and Interest Expense
- --------------------------------------
Investment income increased 24.9% to $429,665 for the year ended December 31,
1996. The increase in investment income is attributable to the increase in
funds available for investment in 1996.
The Company has no debt. Interest expense is related solely to clearing
activity with the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation ("Pershing"). Interest expense increased 52.1% to $63,618 for the
year ended December 31, 1996.
Employee Compensation and Benefits
- ----------------------------------
The number of full-time personnel employed by FSC increased 47.4% from 116 as of
December 31, 1995 to 171 as of December 31, 1996. The increase in the number of
employees is attributable to the growth in business and the financial
institution marketing program. Total employee compensation and benefits
increased 33.3% to $8,887,856 in 1996. This increase was the result of several
factors including expenses associated with additional personnel, incentive
compensation and merit increases in base salaries.
-22-
<PAGE>
Approximately $206,000 and $151,000 was recognized as expense for the Company's
401(k) program in 1996 and 1995, respectively, which represents matching by the
Company of a portion of each participating employee's contributions. The
increase is primarily due to additional employees participating in the 401(k)
plan.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased 38.1% to $7,617,256 in 1996. The
increase is related to the growth in Company operations associated with
increases in business volume, the expanded marketing of products through
financial institutions, increases in recruiting costs and legal costs, and
expenses associated with the Company's first annual National Education and
Business Conference.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense increased 27.3% to $1,459,878 in 1996.
The increase is the result of continuing investments in information systems and
equipment and the resulting increase in depreciation and in amortization. Total
capitalized investment costs during 1996 were approximately $4,976,000 compared
to $1,449,000 for 1995. Also, refer to the discussion of capital investments in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources".
Income Tax Benefit
- ------------------
See Note 7 in "Notes to Consolidated Financial Statements" in the Company's
audited financial statements, "Item 8. Financial Statements and Supplementary
Data".
-23-
<PAGE>
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------
1994.
- -----
General
- -------
The Company's net income for the year ended December 31, 1995 was $1,918,712 as
compared to $716,725 for the year ended December 31, 1994. Total Revenues
increased approximately 21.7% to $83,120,645, while Total Expenses rose
approximately 20.8% to $81,708,523 for the year ended December 31, 1995. The
increase in revenues was primarily attributable to increased sales of general
securities, variable insurance and traditional insurance products, and increases
in the fee based revenue line of business. The increase in Total Expenses was
primarily related to increased volume and to increased operating expenses, most
notably, compensation and benefits, and depreciation and amortization expenses.
Results of Operations
- ---------------------
Commission revenues increased 19.9% to $70,196,842 in 1995. The increase
resulted from improved cyclical market conditions and an increased number of
representatives associated with FSC Securities. The number of representatives
was 1,149 as of December 31, 1995, an increase of 186 representatives, or 19.3%
during 1995.
Commission expenses increased 19.2% to $59,755,274 in 1995. The increase was
attributable to an increase in the volume of commission revenues as discussed
above. Commission expenses represented 85.7% of gross commission revenue in
1994, decreasing to 85.1% of gross commission revenue in 1995. Contributing
factors affecting the reduction in commission expense as a percentage of gross
commission revenue included a shift to fee based commissions and increased
general securities sales, which generally had a lower payout percentage to
registered representatives and the impact of the lower payout to the registered
representative on products sold through financial institutions.
The result of these factors was an increase in net commission revenue (gross
commission revenues less commission expenses) of $2,050,344 or 24.4% to
$10,441,568 from 1994 to 1995.
Advisory Services and Other Fees
- --------------------------------
Fees for advisory services and other fee revenues increased 32.6% to $12,579,663
for the year ended December 31, 1995. The increase reflected greater emphasis
on the fee based line of business, as discussed in the preceding paragraph, and
was the result of an increase of 39.0% to $6,034,160 in advisory services
revenues provided by representatives in 1995. The increase in fee based
business was driven primarily by an expanded range of fee based services,
industry trends, and an increase in client assets under management.
Advisory service expense and expenses related to the generation of other fees
increased 35.7% to $8,623,584 for the year ended December 31, 1995. This was
primarily related to the increase in volume related to advisory services and
other fee revenues discussed above.
-24-
<PAGE>
Investment Income and Interest Expense
- --------------------------------------
Investment income increased 138.6% to $344,140 for the year ended December 31,
1995. The increase in investment income was attributable to the increase in
funds available for investment in 1995 and rising rates of return due to
increased market rates on invested funds over the previous year.
The Company had no debt. Interest expense was related solely to clearing
activity with Pershing. Interest expense decreased to $41,833 for the year ended
December 31, 1995.
Employee Compensation and Benefits
- ----------------------------------
The number of full-time personnel employed by FSC increased 17.1% from 99 as of
December 31, 1994 to 116 as of December 31, 1995. The increase in the number of
employees was attributable to the growth in business and the financial
institution marketing program. Total employee compensation and benefits
increased 17.9% to $6,667,240 in 1995. This increase was the result of several
factors including the expense associated with additional personnel, incentive
compensation, and merit increases in base salaries.
Approximately $151,000 and $147,000 was recognized as expense for the Company's
401(k) program in 1995 and 1994, respectively, which represented matching by the
Company of a portion of each participating employee's contributions. The
increase was primarily due to additional employees participating in the 401(k)
plan.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased 24.7% to $5,515,352 in 1995. The
increase was related to the growth in company operations including increased
recruiting costs of approximately $257,000. In addition, an increase of
approximately $614,000 was attributed to increased legal costs as the result of
increased litigation and related costs.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense increased to $1,146,404 in 1995. The
increase was the result of continuing investments in information systems and
equipment and the resulting increase in depreciation and in amortization. Total
capitalized investment costs during 1995 were approximately $1,449,000 compared
to $1,027,000 for 1994.
-25-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company remains in a relatively strong cash and working capital position
with cash and cash equivalents comprising approximately 17% of total assets at
December 31, 1996, and 26% of total assets at December 31, 1995. Total
liabilities have increased approximately $7,076,000. The primary determinants
for the increase were attributable to increased commissions and fees payable of
approximately $2,339,000 related to volume and timing of the payment of
commissions and to increased accounts payable and accrued expenses of
approximately $2,947,000 also related to volume and timing of payments.
Operating cash, which excludes cash required to be segregated under provisions
of the Securities Exchange Act of 1934, increased approximately $834,000 from
December 31, 1995 to December 31, 1996. The Company has made capital
investments of approximately $4,976,000 during 1996. This consisted primarily of
hardware and software enhancements to its information system and capitalized
expenses related to home office expansion (See "Item 2. Properties").
Offsetting cash flow from operations, were payments for litigation expenses of
approximately $420,000 as of December 31, 1996.
The segregated cash balance increased approximately $1,908,000 from December 31,
1995 to December 31, 1996. The increase is entirely due to the timing of
receipts. The segregated cash balance of $3,632,102 represents amounts received
on behalf of customers for mutual fund purchases on or before December 31, 1996
which settled subsequent to December 31, 1996. This cash was transferred to
appropriate mutual fund companies upon settlement of the transactions. The
related liability of approximately $4,272,000 is recorded as accounts payable to
dealers.
As of December 31, 1996, FSC Securities had net capital of $2,742,411 which is
$2,007,616 in excess of the required net capital. As of December 31, 1995, FSC
Securities had net capital of $2,455,681, which was an excess of $2,034,626 over
the required net capital.
In 1993, the Company obtained a $1,000,000 committed line of credit with a major
commercial bank which is guaranteed by certain of its subsidiaries. The rate of
interest is the prime rate. Per annum fees in the amount of 0.375% of the total
line of credit are payable quarterly. No amount was outstanding as of December
31, 1996 or 1995.
Based on current operations, the Company believes its cash and working capital
position is adequate for planned future growth and cash needs.
Financial Condition
- -------------------
The Company's financial condition continues to improve, as evidenced by
continued increases in net income, revenues, liquidity and net worth. The
increasing productivity of existing field associates coupled with the recruiting
of additional qualified professional representatives contributes to the
Company's growth and management believes this provides an improved basis for
future growth.
-26-
<PAGE>
Litigation
- ----------
Reference is made to Footnote No. 6 to the Consolidated Financial Statements
"Litigation and Other Contingencies" under Item 8 and to Item 3 "Legal
Proceedings". The Company has reserves established of approximately $2,748,000
at December 31, 1996 to cover the estimated cost of litigation matters. Total
cash payments for settlements for years ended December 31, 1996 and 1995 were $0
and approximately $196,000, respectively. Management believes the reserves
established are adequate to cover the estimated probable liability for the
matters known at December 31, 1996.
Effects Of Inflation
- --------------------
The Company's assets are primarily liquid in nature (cash, cash equivalents and
current receivables) and, therefore, are not significantly affected by
inflation.
-27-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
-----------------------------
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Audited Financial Statements:
- ----------------------------
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Income for the years ended December 31,
1996, 1995, and 1994 F-3
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1995, and 1994 F-4
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995, and 1994 F-5
Notes to Consolidated Financial Statements F-6 - F-14
</TABLE>
-28-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Financial Service Corporation
We have audited the accompanying consolidated balance sheets of Financial
Service Corporation and Subsidiaries as of December 31, 1996 and 1995 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Financial
Service Corporation and Subsidiaries as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in accordance with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Atlanta, Georgia
February 26, 1997
<PAGE>
Financial Service Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 5,215,711 $ 4,382,050
Cash segregated under federal regulations 3,632,102 1,723,908
Commissions and other receivables, net 9,072,044 5,501,698
Information systems and equipment,
($12,039,118 and $7,063,598, less accumulated
depreciation of $5,439,381 and $3,979,503 as of
December 31, 1996 and 1995, respectively) 6,599,737 3,084,095
Deferred tax benefit, net 4,840,315 532,000
Prepaid expenses and other assets 1,506,763 1,559,010
------------ ------------
TOTAL ASSETS $30,866,672 $16,782,760
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Commissions payable $ 6,345,783 $4,006,942
Accounts payable to dealers 4,272,180 2,482,023
Accounts payable and accrued expenses 6,417,417 3,470,878
------------ ------------
TOTAL LIABILITIES 17,035,380 9,959,843
------------ ------------
Commitments and contingencies
(Notes 6 and 8)
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares
authorized; 924,680 shares issued and
outstanding 9,247 9,247
Additional paid-in capital 1,474,113 1,447,713
Retained earnings 12,414,705 5,452,731
------------ ------------
13,898,065 6,909,691
Less:
Treasury stock (33,439 and 43,439 shares as of
December 31, 1996 and 1995, respectively,
at cost) (66,773) (86,773)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 13,831,292 6,822,918
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,866,672 $16,782,761
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-2
<PAGE>
Financial Service Corporation and Subsidiaries
Consolidated Statements of Income
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Securities commissions $ 62,324,703 $43,391,193 $37,664,856
Insurance commissions 41,569,597 26,805,649 20,877,663
Advisory services and other fees 19,552,708 12,579,663 9,637,186
Investment income 429,665 344,140 144,243
------------ ----------- -----------
123,876,673 83,120,645 68,323,948
------------ ----------- -----------
Expenses:
Securities commissions 52,558,093 36,138,190 31,689,420
Insurance commissions 36,659,725 23,617,085 18,461,876
Advisory services and other fees 13,904,073 8,581,751 6,309,663
Employee compensation and benefits 8,887,856 6,667,908 5,655,902
General and administrative 7,617,256 5,515,352 4,423,666
Depreciation and amortization 1,459,878 1,146,404 1,020,431
Interest expense 63,618 41,833 46,265
------------ ----------- -----------
121,150,498 81,708,522 67,607,223
------------ ----------- -----------
Income before income tax benefit 2,726,174 1,412,122 716,725
Income tax benefit 4,235,800 506,590 --
------------ ----------- -----------
Net income $ 6,961,974 $ 1,918,712 $ 716,725
============ =========== ===========
Net income per common share $ 7.87 $ 2.18 $ 0.81
============ =========== ===========
Weighted average number of common and
common equivalent shares outstanding 884,192 881,241 885,681
============ =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
Financial Service Corporation and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
Additional Deferred
Common Stock Paid-In Retained Compensation Treasury Stock Stockholders' Equity
Shares Amount Capital Earnings Expense Shares Amount Total Per Share
------ ------ ---------- ------------ ------------ ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993 924,680 $ 9,247 $ 1,447,713 $ 2,817,294 $ (2,731) 38,718 $ (77,328) $ 4,194,195 $4.73
Amortization of deferred
compensation expense -- -- -- -- 2,731 -- -- 2,731 --
Repurchase of common stock -- -- -- -- -- 5,056 (10,113 (10,113) --
Net income -- -- -- 716,725 -- -- -- 716,725 --
------- -------- ----------- ------------ ------------ ------ ---------- ----------- -------
Balance, December 31, 1994 924,680 9,247 1,447,713 3,534,019 0 43,774 (87,441) 4,903,538 5.57
Reclassification -- -- -- -- -- (335) 668 668 --
Net income -- -- -- 1,918,712 -- -- -- 1,918,712 --
------- -------- ----------- ------------ ------------ ------ ---------- ----------- -------
Balance, December 31, 1995 924,680 9,247 1,447,713 5,452,730 0 43,439 (86,773) 6,822,918 7.74
Exercise of stock option -- -- 26,400 -- -- (10,000) 20,000 46,400 --
Net income -- -- -- 6,961,974 -- -- -- 6,961,974 --
------- -------- ----------- ------------ ------------ ------ ---------- ----------- -------
Balance, December 31, 1996 924,680 $ 9,247 $ 1,474,113 $ 12,414,705 $ 0 33,439 $ (66,773) $13,831,292 $ 15.52
======= ======== =========== ============ ============ ====== ========== =========== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
Financial Service Corporation and Subsidiaries
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,961,974 $ 1,918,712 $ 716,725
Adjustments to reconcile net income to net cash
provided by operating activities :
Compensation expense associated with
stock issuance, net - - - - 2,731
Depreciation and amortization 1,459,878 1,146,404 1,020,431
Amortization of excess fair value of acquired
net assets over cost - - - - (149,355)
------------- ------------- -------------
8,421,852 3,065,116 1,590,532
------------- ------------- -------------
Changes in assets and liabilities:
(Increase) decrease in cash segregated
under federal regulations (1,908,194) (1,661,755) 1,956,185
(Increase) decrease in commissions and other receivables (3,570,346) 341,697 809,484
Increase in deferred tax benefit (4,308,315) (532,000) 0
(Increase) decrease in prepaid expenses and other 52,247 (806,141) (65,947)
Increase (decrease) in commissions payable 2,338,840 1,081,244 (93,484)
Increase (decrease) in accounts payable to dealers 1,790,158 186,805 (2,808,384)
Increase (decrease) in accounts payable and
accrued expenses 2,946,539 850,446 (467,486)
------------- ------------- -------------
(2,659,071) (539,704) (669,632)
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,762,781 2,525,412 920,900
------------- ------------- -------------
Cash flows from investing activities:
Investment in information systems and equipment (4,975,520) (1,448,487) (1,026,913)
------------- ------------- -------------
Net cash used in investing activities (4,975,520) (1,448,487) (1,026,913)
------------- ------------- -------------
Cash flows from financing activities:
Purchase of treasury stock - - - - (10,113)
Reclassification - - 668 - -
Proceeds from exercise of stock option 46,400 - - - -
------------- ------------- -------------
Net cash provided by (used in) financing activities 46,400 668 (10,113)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 833,661 1,077,593 (116,126)
Cash and cash equivalents at the beginning of the year 4,382,050 3,304,457 3,420,583
------------- ------------- -------------
Cash and cash equivalents at the end of the year $ 5,215,711 $ 4,382,050 $ 3,304,457
============= ============= =============
Supplemental disclosures of cash flow information :
Cash paid for interest $ 63,618 $ 41,833 $ 46,265
============= ============= =============
Income taxes paid $ 75,000 $ 25,410 $ 0
============= ============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
FINANCIAL SERVICE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION
The consolidated financial statements of Financial Service Corporation and
Subsidiaries include the accounts of FSC Corporation and its subsidiaries
(collectively know as the "Company"). All significant intercompany
transactions and accounts have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Following is a description of the more significant accounting and financial
reporting policies followed by the Company in preparing and presenting its
consolidated financial statements.
Business
--------
The Company is a holding company, and conducts business primarily through FSC
Corporation, a wholly-owned subsidiary. FSC Corporation, headquartered in
Atlanta, Georgia, is a financial planning support organization. Its home
office staff, including a management team of experienced executives, supports
a network of independent registered representatives and insurance agents
engaged in business throughout the United States.
FSC Corporation is also the parent of a family of companies which provide a
variety of financial services. FSC Corporation's major subsidiaries are FSC
Securities Corporation ("FSC Securities"), a securities brokerage firm and
FSC Agency, Inc. ("FSC Agency"), which markets insurance and insurance-
related products. Another subsidiary of FSC Corporation is FSC Advisory
Corporation, an investment advisory firm registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940, as amended.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investment-grade securities purchased
with a maturity of three months or less to be cash equivalents. These
investments are carried at the lower of cost or market. Cash segregated
under federal regulations is not considered a cash equivalent in the
consolidated statements of cash flows.
F-6
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Information Systems and Equipment
---------------------------------
Information systems and equipment are carried at cost, less accumulated
depreciation and amortization. Depreciation and amortization are computed
using the straight-line method over the estimated useful lives of the assets
(generally five to ten years). Certain costs relating to software development
and enhancement are also capitalized and amortized over five years.
Excess of Acquired Net Assets Over Cost
----------------------------------------
As a result of a change in ownership in 1989, a deferred credit was
established for the excess of assigned value of identifiable assets over
cost. This deferred credit was amortized to operations over 5 years using
the straight-line method. In 1994, $149,355 was amortized and is included in
Consolidated Statements of Income - Advisory Services and Other Fees
Revenues.
Revenue Recognition
-------------------
Commissions revenues and related expenses on the sale of securities, mutual
funds, bonds and insurance products are recorded as of the trade date, except
for transactions cleared through an outside clearing organization which are
recorded as of the settlement date, which is not significantly different from
trade date. Other fees and revenues are recorded when earned together with
related expenses.
Income Taxes
------------
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are reported at currently enacted tax rates applicable to the
period, in which assets and liabilities are expected to be realized or
settled. The Company and its subsidiaries file a consolidated federal income
tax return; however, income taxes are computed by each subsidiary on a
separate company basis and taxes currently payable are remitted to FSC
Corporation.
F-7
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share
------------------
Earnings per share is computed by dividing net income by the weighted average
number of shares of common stock outstanding during the year.
Estimates
---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to prior years' financial statements
to conform to the 1996 presentation.
3. CASH SEGREGATED UNDER FEDERAL REGULATIONS
Cash of $3,632,102 and $1,723,908 is segregated at December 31, 1996 and
1995, respectively, under provisions of the Securities Exchange Act of 1934
and represents funds deposited by customers as a result of mutual fund
trades.
4. COMMISSIONS AND OTHER RECEIVABLES
Commissions and other receivables principally represent receivables from
clearing organizations, customers for certain wire order transactions and
sponsors of products sold by the Company. Receivables are stated net of
allowances for doubtful accounts of approximately $606,000 and $408,000 as of
December 31, 1996 and 1995, respectively.
F-8
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
5. INFORMATION SYSTEMS AND EQUIPMENT
Information systems and equipment consists of the following at December 31, :
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Software and licenses $ 6,761,625 $ 4,259,440 $ 3,323,185
Computer equipment 2,927,679 2,169,792 1,757,503
Equipment and furniture 855,051 500,955 419,813
Leasehold improvements 1,416,868 68,733 60,609
Telephone equipment 77,895 64,678 54,001
-----------------------------------------
12,039,118 7,063,598 5,615,111
-----------------------------------------
Less: Accumulated amortization
of software and licenses (3,227,839) (2,269,941) (1,554,440)
Accumulated depreciation,
other (2,211,542) (1,709,562) (1,278,659)
-----------------------------------------
$6,599,737 $3,084,095 $2,782,012
-------------------------------------------------------------------------------
</TABLE>
Depreciation expense related to software and licenses was approximately
$958,000, $715,000 and $599,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
6. LITIGATION AND OTHER CONTINGENCIES
The Company, together with other parties, has been named as a defendant in a
number of lawsuits, some of which are for substantial amounts, arising in the
normal course of selling securities and conducting other business activities.
Certain of these lawsuits seek substantial damages from the Company for
alleged misconduct on the part of certain of its independent sales
representatives. Aggregate accrued liabilities in the amount of approximately
$2,748,000 and $1,524,000 as of December 31, 1996 and 1995, respectively,
have been recorded to cover estimated costs associated with the ultimate
resolution of these matters and are included in accounts payable and accrued
expenses on the balance sheet. While the ultimate resolution of these
lawsuits against the Company cannot be predicted with certainty, after
considering all relevant facts, including insurance which covers certain of
these suits, management of the Company believes that the amount provided is
adequate to cover any liability resulting from these matters. Total net cash
payments for settlements for the years ended December 31, 1996 and 1995 were
$0 and approximately $196,000, respectively. Reserves established have been
adequate to cover the cost of lawsuits settled through December 31, 1996.
F-9
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
6. LITIGATION AND OTHER CONTINGENCIES (CONTINUED)
In connection with the formation of certain limited partnerships, the Company
and Commodore Realty Investments, Inc. and its subsidiaries ("CRI"), its real
estate investment and syndication subsidiary which was disposed of in May of
1989, made joint and several guarantees to investors in these partnerships.
The Company remains contingently liable on one of these guarantees after the
sale of CRI and, accordingly, established a reserve to reflect its estimated
liability which is included in the accrued liability amount discussed in the
preceding paragraph.
On March 1, 1995, the Securities and Exchange Commission ("SEC") issued a
formal order of investigation of certain activities of the Company. Although
issues have been raised during the course of the investigation, the SEC has
not communicated any formal position regarding these issues. Management
believes that the ultimate outcome of the issues raised will not have a
materially adverse affect on the Company's financial statements.
7. INCOME TAXES
The provision for income taxes is summarized as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $62,515 $15,410 $0
Deferred, net (3,891,207) (448,000) 0
-------------------------------------------
(3,828,692) (432,590) 0
-------------------------------------------
State:
Current 10,000 10,000 0
Deferred, net (417,108) (84,000) 0
-------------------------------------------
(407,108) (74,000) 0
-------------------------------------------
Income tax benefit ($4,235,800) ($506,590) $0
--------------------------------------------------------------------
</TABLE>
Actual income taxes differ from income taxes computed at the federal
corporate statutory rate of 34% as shown below for the years ended December
31:
F-10
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
7. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
1996 1995 1994
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxes at statutory federal income tax rate $ 913,869 $ 471,928 $ 243,687
Nontaxable items 0 23,585 (18,745)
Release of valuation allowance (federal & (5,736,671) 0 0
state benefit)
IRS settlement true-up 0 0 (867,347)
Other, net 31,096 3,271 18,359
State tax (benefit) expense net of federal 555,906 (48,840) (110,937)
effect
Temporary differences subject to valuation
allowance 0 (956,534) 734,983
--------------------------------------------------------------------------------------------
Income tax benefit ($4,235,800) ($506,590) $ 0
--------------------------------------------------------------------------------------------
</TABLE>
Under the liability method of accounting for income taxes, deferred income
taxes arise from the temporary differences between the tax basis of assets
and liabilities and their reported amounts in the financial statements. The
tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1996 1995
------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 2,193,786 $ 3,524,310
Managing field associates amortization 3,757,972 4,173,275
Accrued expenses (litigation reserve & allowance) 1,274,518 772,709
Other temporary differences 117,780 84,765
----------------------------
7,344,056 8,555,059
----------------------------
Deferred tax liabilities:
Depreciation (403,741) (186,388)
Valuation allowance (2,100,000) (7,836,671)
------------------------------------------------------------------------------------
Net deferred tax asset $4,840,315 $532,000
------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
7. INCOME TAXES (CONTINUED)
The Company has provided a partial valuation allowance for its net deferred
tax assets since, based on available evidence, it is more likely than not
that some portion of the net deferred tax assets will not be realized.
The Company has available net operating loss carryforwards for federal income
tax purposes of approximately $5,773,000 at December 31, 1996 which expire in
varying amounts beginning in 2005 through 2009. The ultimate use of these
net operating loss carryforwards may be restricted by certain limitations in
the Internal Revenue Code.
In 1994, the Company's former parent, the Mutual Life Insurance Company of
New York (the "Former Parent"), concluded an audit by the Internal Revenue
Service for the years in which the Company was included in the consolidated
federal income tax return of the Former Parent. As a result of the closing
agreement signed between the Former Parent and the Internal Revenue Service,
the Company's net operating loss carryforwards for federal income tax
purposes were reduced by approximately $6,100,000.
8. COMMITMENTS
In 1992, the Company obtained a $1,000,000 committed line of credit with a
major commercial bank which is guaranteed by certain of its subsidiaries.
The rate of interest is the prime rate. Per annum fees in the amount of
0.375% of the total line of credit are payable quarterly. No amount was
outstanding as of December 31, 1996.
The Company leases office facilities and equipment under certain operating
leases. Rental expense related to the leases was approximately $722,000,
$550,000, and $498,000 for the years ended December 31, 1996, 1995, and 1994,
respectively. Rent expense includes additional amounts for storage,
utilities, and operating expenses.
At December 31, 1996, the Company's future minimum rental commitments under
the operating leases are as follows:
<TABLE>
<S> <C>
1997 $1,230,484
1998 1,244,836
1999 1,259,745
2000 1,237,508
2001 1,321,645
Thereafter 6,851,665
------------
$13,145,883
============
</TABLE>
F-12
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
9. EMPLOYEE BENEFIT PLANS
The Company initiated a 401(k) plan effective July 1, 1991. The plan is
offered to employees with one or more years of service, and employees become
100% vested after five years of continuous service. The Company currently
matches employee contributions up to 5% of their gross annual salary or
$1,000, whichever is greater. Contributions to the plan by the Company were
approximately $206,000, $151,000, and $147,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
The Company also has a management incentive bonus plan. At December 31, 1996
and 1995, the amounts accrued relating to this bonus plan and included in
accounts payable and accrued expenses were approximately $851,000 and
$715,000, respectively. Amounts relating to this bonus plan included in
employee compensation and benefits expense for 1996, 1995, and 1994 were
$1,775,000, $1,485,000, and $924,000, respectively.
10. REGULATORY REQUIREMENTS
The Company's broker-dealer subsidiary is subject to the Securities and
Exchange Commission's Uniform Net Capital Rule ("Rule 15c3-1") which
requires that "Aggregate Indebtedness" shall not exceed 15 times "Net
Capital" as these terms are defined by Rule 15c3-1. As of December 31, 1996,
the broker-dealer subsidiary's net capital was $2,742,411 which exceeded the
net capital requirements of $734,795 by $2,007,616, and its net capital
ratio to aggregate indebtedness was 4.02 to 1. Since the broker-dealer
subsidiary does not hold customer funds, it qualified for exemption from
Rule 15c3-3 of the Securities Exchange Act of 1934 as provided in
subparagraphs (k)(2)(i) and (k)(2)(ii) of that Rule at December 31, 1996 and
1995.
11. PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, the Board of Directors
has authorized the issuance of 1,000,000 shares of preferred stock. At
December 31, 1996 and 1995 no shares of preferred stock were issued or
outstanding. The Board of Directors may fix the designations, powers,
preferences and rights (including voting rights) of the preferred stock and
any qualifications, limitations or restrictions thereon.
F-13
<PAGE>
Notes to Consolidated
Financial Statements
(continued)
---------
12. CONCENTRATIONS
The Company conducts its business with many clients through a large network
of producers spread across the United States with approximately 15% of the
Company's revenues produced in the State of California in 1996 and 1995.
The Company utilizes the services of an independent clearing organization
for its general securities clearing operations, which handled approximately
11% of the Company's total revenue in 1996 and 1995. Additionally,
approximately 8% of the revenues for the year ended December 31, 1996 and
1995 was from one family of mutual funds.
The Company had approximately $5,641,000 and $4,346,000 held in a large
commercial bank in excess of the federally insured amount as of December
31, 1996 and 1995, respectively.
13. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1996, the Company had an unsecured
outstanding loan totaling $168,000 to its chief executive officer. This is
payable in full on July 15, 2002, and accrues interest at prime plus 0.5%
(8.75% at December 31, 1996). The Company recognized $14,571 in interest
income from this loan in 1996.
The Company has a Stock Purchase Agreement with its chief executive officer
providing that upon his death the Company will repurchase from his estate
all beneficial shares owned by him on the date of the Agreement. The
repurchase obligation is funded by two term life insurance policies
totaling $4,800,000 maintained by the Company on the life of its chief
executive officer.
In addition, the Company has standard agreements with two Managing Field
Associates serving on the Board of Directors. Commission and fee expenses
paid to these individual organizations were approximately $10,439,000,
$9,382,000, and $8,159,000 in 1996, 1995, and 1994, respectively.
14. STOCK OPTION AGREEMENT
On August 1, 1993, the Company granted to an employee an option to purchase
10,000 shares of fully vested common stock at a price per share of $4.64,
the estimated book value as of the grant date. The stock option was
exercised during 1996.
F-14
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-29-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information concerning the executive
officers and directors of the Company:
Identification of Directors and Executive Officers
--------------------------------------------------
<TABLE>
<CAPTION>
Name Age Positions Held
---- --- --------------
<S> <C> <C>
E. James Wisner 55 Chairman of the Board, President (since 1988),
Chief Executive Officer and Director (since April
1989)
Thomas W. Hutchins 48 Senior Vice President (since January 1991),
Secretary (since May 1989) and Director (since
July 1991)
James W. Herrington 56 Director (since July 1991)
Joseph B. Foltz 43 Director (since July 1991)
David J. Heinsma 57 Director (since July 1991)
C. Alexandra Armstrong 57 Director (since September 1994)
Barry F. Kane 57 Treasurer (since June 1990) and Senior Vice
President and Chief Financial Officer (since
January 1991)
Gerald A. Geiger 55 Senior Vice President (since January 1991)
C. Roger Allen 49 Senior Vice President (since July 1993)
Joseph B. Gruber 37 Senior Vice President (since March 1994)
</TABLE>
Except in the case of death, resignation, disqualification or removal, the term
of each director expires at the next succeeding annual meeting of the Company's
shareholders. The Company's Executive Officers serve terms designated by the
Board of Directors.
-30-
<PAGE>
E. JAMES WISNER has served as Chairman of the Board of Directors, President and
- ---------------
Chief Executive Officer of the Company since its incorporation in April 1989,
and Treasurer of the Company until June 1990. Since March 1988, Mr. Wisner has
also served as President, Chief Executive Officer and Chairman of the Board of
Directors of FSC Corporation, a wholly owned subsidiary of the Company. Mr.
Wisner served as Executive Vice President/Marketing and Chairman of the
Investment Committee of FSC Corporation from April 1985 to March 1988. He has
served as President of FSC Securities Corporation, a registered broker-dealer
and subsidiary of FSC Corporation, from 1985 to 1995. Mr. Wisner received a
Bachelor of Arts degree in Government and Law from Lafayette College in June
1964, and holds registered principal and registered representative licenses with
FSC Securities Corporation. He is a past Chairman of the Broker/Dealer Advisory
Committee and is a member of the International Association for Financial
Planning, past Vice Chairman of the NASD District Seven Business Conduct
Committee, and past Treasurer of Board of Governors of the CFP Board of
Standards. Mr. Wisner served as Chairman of the Board of Trustees of the
National Endowment for Financial Education (College for Financial Planning) and
is a Director of the Foundation for Financial Planning. Mr. Wisner is a member
of the Board of Directors of Banyan Mortgage Investors LP and LPII.
THOMAS W. HUTCHINS has served as Secretary of the Company since 1989 and was
- ------------------
elected Senior Vice President and Chief Operations Officer and Director in 1991.
Since 1983 and 1988, respectively, Mr. Hutchins has also served as Senior Vice-
President and Secretary of FSC Corporation, a wholly owned subsidiary of the
Company. He also serves as President (since 1995) and a director (since 1981) of
FSC Securities, a registered broker-dealer and subsidiary of FSC Corporation.
Mr. Hutchins has also served as President and Chief Executive of FSC Advisory
Corporation a registered investment adviser since 1989 and a director of FSC
Advisory Corporation since 1988. Mr. Hutchins has been president and a director
of FSC Realty Advisors Corporation, a corporate general partner for real estate
limited partnerships and a subsidiary of FSC Corporation, since 1982. He has
served in other capacities with subsidiaries of the Company. His professional
memberships include the Georgia Society of Certified Public Accountants, the
American Institute of Certified Public Accountants and the International
Association for Financial Planning. Mr. Hutchins is past chairman of the
International Association of Financial Planners' Due Diligence Advisory
Committee and also a past member of the Investment Partnership Association's
Blue Ribbon Committee. He is currently a member of the IAFP's Broker-Dealer
Advisory Council. His professional designations include Certified Public
Accountant, registered representative, registered principal and financial
principal. He holds a Bachelor of Arts degree in Business Administration and
Quantitative Analysis and a Masters in Business Administration degree in
Accounting from the University of Florida.
-31-
<PAGE>
JAMES W. HERRINGTON has been, since 1984, President and Chief Executive Officer
- -------------------
of Menlo Financial Services Group, Inc., a financial planning firm specializing
in wealth management for high net worth clients. In 1985, Mr. Herrington
founded the Financial Service Network, a professional cluster of financial
planners and insurance advisors which has grown to over one hundred offices in
some sixty communities. He continues to serve as the Managing Field Associate
and Office of Supervisory Jurisdiction for this network of registered
representatives of FSC Securities Corporation. Mr. Herrington served on the
Company's MFA Advisory Board from 1985 to 1994. Mr. Herrington received a
Bachelor of Arts degree in Psychology from Stanford University in June of 1962
and his Masters in Business Administration for the Stanford Graduate School of
Business in June of 1964. He received his CLU (Chartered Life Underwriter)
designation in 1968 and a CFP (Certified Financial Planner) in June of 1983.
Mr. Herrington is a member of the American Society of Chartered Life
Underwriters, International Association of Financial Planners, Life Underwriters
Association, Estate Planning Council, and the Financial Planning Forum.
JOSEPH B. FOLTZ has been a principal and shareholder of Rowe, Foltz & Martin,
- ---------------
P.C. a commercial law firm in Atlanta, Georgia since its formation in 1984. Mr.
Foltz has represented pension funds, institutional investors, private owners and
developers in commercial real estate transactions throughout the United States.
Mr. Foltz also performs corporate work for public and privately held companies
in the financial, securities, high technology, manufacturing and entertainment
industries. Mr. Foltz obtained his Bachelor of Arts degree from Yale University
in 1975 and his law degree from Vanderbilt Law School in 1980. He is a member
of the Georgia and Atlanta Bar Associations and their respective corporate
counsel sections. He is a Director of the Executive Committee of the Real
Estate Section of the State Bar of Georgia and a member of the Board of
Governors of the Association of Yale Alumni.
DAVID J. HEINSMA is Vice President - Finance of Employease, Inc., a company
- ----------------
which uses the Internet and web-based technologies to permit employers to create
and utilize an online human resources and employee benefits information
management service. Mr. Heinsma accepted this position in 1996 after serving as
financial advisor to Employease during its startup period and assisting in
structuring its business and financial operations. After practicing law in the
corporate area and serving as an officer in a mutual fund management company,
Mr. Heinsma in 1975 formed two businesses that he continues to own, Heinsma
Corporation, a financial consulting and business development firm, and LHC
Petroleum Corporation, an oil and natural gas exploration and production
company. Mr. Heinsma is President and Chief Executive Officer of both of these
companies. For the past twenty-two years, Mr. Heinsma has at various times,
participated as a principal in the purchase of businesses, served as a member of
management of those enterprises and negotiated the sale of the entities. Mr.
Heinsma received a Bachelor of Arts degree from Harvard College in 1962 and his
law degree from the University of Virginia Law School in 1965.
-32-
<PAGE>
C. ALEXANDRA ARMSTRONG has served as Chairman of Armstrong, Welch & MacIntyre,
- ----------------------
Inc., a Registered Investment Advisory firm based in Washington D.C., since its
incorporation in April 1991. She has also been Registered Principal with the
NASD since 1977, affiliated with FSC Corporation as a MFA since April 1991. Ms.
Armstrong was Chairman of Alexandra Armstrong Advisors, Inc., a Registered
Investment Advisory firm based in Washington D.C. and was Chairman of Alexandra
Armstrong Associates, Inc., a NASD broker-dealer firm from 1983 to 1991. She
was a principal with Julia Walsh & Sons, Inc., a New York Stock Exchange (NYSE)
firm based in Washington D.C. from 1977 to 1983, and was a NYSE Registered
Representative with Ferris & Company, a NYSE firm based in Washington D.C. from
1966 to 1977. Ms. Armstrong received her Bachelor of Arts degree from Newton
College of the Sacred Heart, Newton, Massachusetts in 1960 and became a
Certified Financial Planner in 1977. She is the past Chairman of the
International Association for Financial Planning from fall of 1986 to fall of
1987 and served on its board from 1980 to 1987. She was also Chairman of the
Broker/Dealer Advisory Committee for the IAFP in 1988, as well as past Vice
Chairman of the NASD District 10 Business Conduct Committee in 1989. She served
on the board of the Certified Financial Planner Board of Standards from 1994 to
1995. She is a member of the Washington D.C. Estate Planning Council, the
Institute of Certified Financial Planners, and the Economic Club of Washington
D.C. She has been a monthly columnist for Better Investing, the magazine for
the National Association of Investment Clubs since 1978. She serves on the
Panel of Experts for two national publications: Boardroom Reports and Bottom
Line Personal. She is the author of On Your Own: A Widow's Passage to Emotional
and Financial Well-Being, which was published by Dearborn Publishing in 1993.
She also serves on the volunteer boards of the Boy Scouts National Capital Area
Council, Reading is Fundamental, the International Women's Forum Foundation, and
the Foundation for Financial Planning.
BARRY F. KANE has served as Senior Vice President, Treasurer and Chief Financial
- -------------
Officer of FSC Corporation since he joined FSC in May 1988. He is also Senior
Vice President, Treasurer and Financial Principal of FSC Securities Corporation.
Mr. Kane served as Chief Financial Officer of Boss Manufacturing Company, an
international manufacturer and importer of gloves and clothing, from 1979 to
1984, becoming President and Chief Executive Officer in 1984 and serving in that
capacity until 1988. Prior to 1979, Mr. Kane was the Treasurer and Financial
Officer of a broker/dealer and financial services corporation for ten years.
Mr. Kane received his Bachelor of Science Degree in Accounting from Loyola
University in Chicago in 1963, and a Masters in Business Administration in
Finance from the University of Wisconsin in 1970. He is a Certified Public
Accountant. His professional memberships include the American Institute of
Certified Public Accountants, the Wisconsin Society of Certified Public
Accountants, the Georgia Society of Certified Public Accountants, the Financial
Executives Institute, and the International Association for Financial Planning.
-33-
<PAGE>
GERALD A. GEIGER has been with FSC since 1987, a Senior Vice President since
- ----------------
1989, and in the securities industry since 1967. He is responsible for managing
all the functions of the recruiting and transition departments. These
departments recruit and transition over 300 field associates and managers
annually into FSC's national sales network of over 1,400 financial services
professionals. Mr. Geiger also serves as the senior management liaison to over
50 managing field associates assisting them with their practice development.
Previously, he has served as the President and CEO of Woolsey & Company, a
regional investment banking firm based in Oklahoma City; as a Regional Vice
President with Integrated Resources; and as a Regional Manager, Vice
President/Branch Manager, Sales Manager, and Registered Representative of
various New York Stock Exchange member firms. From 1981-85, Mr. Geiger served as
a member and Vice Chairman of District #4 NASD District Business Conduct
Committee, representing all the securities broker-dealers in the states of
Oklahoma, Kansas, Missouri, and Nebraska. This committee serves as the primary
enforcement entity for the NASD's By-Laws, Rules of Fair Practice, and Policy
Interpretations. He has also served as a NASD arbitrator. Mr. Geiger holds a
Juris Doctor degree in corporate and securities law from Oklahoma City
University (1983), a Master of Business Administration from Arizona State
University (1976), a Master of Science in Engineering Mechanics from the
University of Arizona (1965), and a Bachelor of Engineering from Youngstown
State University (1964). He is registered as a Professional Engineer in Ohio,
and is certified as a Vocational Instructor for the Maricopa Junior College
System (Arizona), where he taught and lectured on business mathematics and
finance for five years. Mr. Geiger holds the rank of Navy Captain and recently
retired from active service in the Naval Reserve Cryptology Program.
C. ROGER ALLEN became affiliated with Financial Service Corporation in 1991 as a
- --------------
Managing Field Associate and President of Specialized Investments Division. He
has been a Senior Vice President of Financial Service Corporation since July
1993. From 1985 to 1990, he served as President of Planned Management Company, a
broker-dealer and investment advisory services company which offered third party
marketing services to financial institutions on a regional basis. Mr. Allen
started his career in banking over 25 years ago with First Citizens Bank and
Trust where he held several management positions beginning in 1969. From 1972 to
1985, he also served on the board of directors of Heritage Bank in North
Carolina. From 1974 to 1984, Mr. Allen was President of Allen and Associates,
Inc. a financial services company that included several franchise operations,
grew to 135 associates and operated in several states. Mr. Allen became a
pioneer in financial institution marketing where he began offering financial
planning services to financial institutions in 1983. His accounts included such
banks as the North Carolina based Nations Bank. Mr. Allen received his B.A.
degree from Wake Forest University in 1969. He is a graduate of the Realtors
Institute at the University of North Carolina at Chapel Hill and holds the
C.R.S. designation from the National Realtors Institute. He holds the NASD
series 7, 63, and 24 licenses, a real estate brokers license and various life
licenses, an A&H license, a P&C license and was licensed as a Registered
Investment Advisor with the SEC in 1982.
-34-
<PAGE>
JOSEPH B. GRUBER is a Senior Vice President and Chief Marketing Officer at
- ----------------
Financial Service Corporation. He has fourteen years of experience in the
financial services industry. He has held both staff and management positions at
FSC since 1984 with responsibilities for strategic planning, financial
management, marketing strategies and operations management. Mr. Gruber brings a
strong background to the marketing of Advisory Services, General Securities and
Packaged Products. He maintains active contacts and consulting relationships
with many of the country's prominent asset and portfolio managers. His current
assignments include strategic alliance development, field automation and the
integration of target marketing within the FSC distribution system. Mr. Gruber
earned a B.B.A. in Finance from the University of Georgia and a M.B.A. in
Finance from Georgia State University. He also holds registered principal and
registered representative licenses with FSC Securities Corporation.
-35-
<PAGE>
Item 11. Executive Compensation
Summary Compensation Table
- --------------------------
The following table sets forth the compensation earned by the Company's Chief
Executive Officer and the Company's five other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries during the years indicated.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER COMPENSATION
-------------------------- -------------------------------------------------
EXERCISE OF
BASE EMPLOYER 401(9K) INSURANCE STOCK
Name and Principal Position Year SALARY (1) Bonus MATCHING CONTRIBUTION PREMIUMS (2) OPTIONS (3)
- --------------------------- ---- ---------- ----- --------------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
E. James Wisner 1996 337,250 180,000 9,500 9,578 0
- ---------------
Chairman of the Board, President, 1995 259,300 236,500 9,240 8,386 0
Chief Executive Officer 1994 264,688 179,984 9,240 7,509 0
Thomas W. Hutchins 1996 146,862 60,000 9,500 0 0
- ------------------
Senior Vice President, 1995 140,850 60,000 9,240 0 0
President - FSC Securities 1994 137,912 33,169 9,240 0 0
Barry F. Kane 1996 141,506 75,000 9,500 0 0
- -------------
Senior Vice President, 1995 135,700 55,000 9,240 0 0
Chief Operations & Financial Officer 1994 133,113 30,154 9,240 0 0
Gerald A. Geiger 1996 113,877 149,019 9,500 0 0
- ----------------
Senior Vice President, 1995 109,134 102,888 9,240 0 0
National Recruiting Director 1994 109,338 101,811 9,240 0 0
C. Roger Allen 1996 169,357 150,538 9,500 0 38,600
- --------------
Senior Vice President 1995 174,980 108,956 9,240 0 0
President, Specialized Investments Div. 1994 163,860 35,051 3,563 0 0
Joseph B. Gruber 1996 104,798 109,017 9,500 0 0
- ----------------
Senior Vice President 1995 96,550 97,165 4,738 0 0
Chief Marketing Officer 1994 86,350 55,051 5,477 0 0
</TABLE>
(1) Includes amounts deferred by the employee under the Company's 401-K profit
sharing plan.
(2) Includes premiums for a $750,000 term life insurance policy on the life of
Mr. Wisner for the benefit of a beneficiary designated by Mr. Wisner.
(3) Represents excess of fair market value (fmv) of stock over option price
based on exercise of options for 10,000 shares during 1996. FMV of $8.50
per share was based on last transaction price at time of exercise. Option
price was $4.64 per share.
-36-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
Compensation of Directors
- -------------------------
The Directors of the Company who are officers or employees of the Company or its
subsidiaries do not receive fees for their services as Directors. During 1996,
the Directors of the Company who were not employees or officers of the Company,
received an annual retainer of $10,000 paid on a quarterly basis and $500 for
each meeting of a committee of the Board of Directors attended.
Termination of Employment Arrangements
- --------------------------------------
Other than the Stock Purchase Agreement and Salary Continuation Agreement
discussed below, the Company has no plan, arrangement or agreement with any of
the executive officers of the Company named in the Summary Compensation Table
that would provide for payments upon termination of such persons' employment for
any reason or upon a change in control of the Company.
Effective October 2, 1991, the Company entered into a Stock Purchase Agreement
with E. James Wisner providing that upon Mr. Wisner's death the Company will
repurchase from Mr. Wisner's estate all 248,098 shares of the Company's Common
Stock owned by Mr. Wisner on the date of the Agreement (and any securities
issued with respect to those shares by way of stock dividend or other enumerated
events). The repurchase obligation applies only to those shares owned
beneficially by Mr. Wisner on the date of his death and does not apply to any
shares purchased by Mr. Wisner after the date of the Agreement. The repurchase
obligation is funded by two term life insurance policies totaling $4,800,000
maintained by the Company on the life of Mr. Wisner. If the repurchase price
exceeds this total or if the repurchase occurs after the policy terminates, the
Agreement provides for the payment of a portion of the purchase price over a
period of five to ten years.
Effective October 14, 1996, the Company and Mr. Wisner entered into an amendment
to the Stock Purchase Agreement that has the effect of, among other things,
potentially increasing the price to be paid by the Company for Mr. Wisner's
shares upon his death. The original Stock Purchase Agreement provided that the
shares would be repurchased at the greater of $2.00 or book value per share. The
amendment to the Stock Purchase Agreement now provides that the purchase price
will equal the sum of (i) book value per share and (ii) a specified purchase
price adjustment. The purchase price adjustment provides that if a sale of the
Company occurs during the two-year period following Mr. Wisner's death at a
price per share that is in excess of an amount equal to two times the book value
per share at the time of Wisner's death, then the purchase price will be
increased by a maximum amount equal to the difference between (i) the value of
the per share consideration received by shareholders in connection with the sale
of the Company and (ii) an amount equal to two times the book value per share at
the time of Wisner's death. The amount of the purchase price adjustment declines
over the two-year period following Mr. Wisner's death such that the amount of
the purchase price adjustment becomes zero if a sale of the Company occurs more
than two years following the month in which Wisner dies.
-37-
<PAGE>
The purchase price adjustment, if any, is payable in immediately available funds
to Wisner's estate immediately following consummation of a sale of the Company.
The purchase price, excluding the purchase price adjustment, is payable
following Wisner's death in the manner, described above, provided for in the
Stock Purchase Agreement prior to its amendment.
Effective October 2, 1991, the Company entered into a related Death Benefit
Agreement with Mr. Wisner which provided that if Mr. Wisner died before his 65th
birthday and while still an employee of the Company, the Company would pay to
Mr. Wisner's estate a death benefit equal to the excess, if any, of $4,800,000
over the repurchase price to be paid under the Stock Purchase Agreement.
Effective October 14, 1996, the Company and Mr. Wisner agreed to terminate the
Death Benefit Agreement. Also effective October 14, 1996, the Company and Mr.
Wisner entered into a Salary Continuation Agreement. The Salary Continuation
Agreement provides that, upon Wisner's death, the Company shall pay a specified
death benefit to a beneficiary designated by Wisner. The amount of the death
benefit is equal to (i) the book value per share of Company stock at the time of
Wisner's death multiplied by (ii) the number of shares of stock that are subject
to the Company's repurchase obligation under the Stock Purchase Agreement. One-
half of the proceeds of any life insurance which are not used to pay the
purchase price under the Stock Purchase Agreement may be applied to payment of
up to one-half of the death benefit. The amount of the death benefit that is not
paid with life insurance proceeds is to be paid by the Company over six years.
The initial term of the Salary Continuation Agreement expires January 31, 1998,
but the Agreement automatically renews for successive one-year terms unless the
Company gives Wisner notice of non-renewal not less than thirty days prior to
the end of the term then in effect.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Company's Board of Directors has established a compensation committee to
advise it with respect to all matters relating to executive compensation.
During 1996, the compensation committee was comprised of all non-management
directors; James W. Herrington, Joseph B. Foltz, C. Alexandra Armstrong and
David J. Heinsma.
Mr. Herrington has never served as an officer or employee of FSC or any of its
subsidiaries. Mr. Herrington is, however, a Managing Field Associate for FSC
Securities and, in such capacity, had 178 registered representatives of FSC
Securities affiliated with his office at December 31, 1996. In his capacity as a
Managing Field Associate, Mr. Herrington and his affiliated registered
representatives were paid commissions in 1996 totaling approximately $9,090,000.
Mr. Foltz is a member of the Rowe, Foltz & Martin, P.C. law firm. Rowe, Foltz &
Martin, P.C. provides legal services to the Company and its subsidiaries. He
has never served as an officer or employee of FSC or any of its subsidiaries.
-38-
<PAGE>
Ms. Armstrong is a Managing Field Associate for FSC Securities and had 12
registered representatives of FSC Securities affiliated with her office at
December 31, 1996. In her capacity as a Managing Field Associate, Ms. Armstrong
and her affiliated registered representatives were paid commissions in 1996
totaling approximately $1,349,000. She has never served as an officer or
employee of FSC or any of its subsidiaries.
Mr. Heinsma was neither an officer nor an employee of FSC or any of its
subsidiaries during 1996. From 1984 through 1986, Mr. Heinsma served as
Executive Vice President of the Company's predecessor and as President of
Commodore Realty, Inc., which was then a wholly-owned subsidiary of the
Company's predecessor.
-39-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Security Ownership of Certain Beneficial Owners.
- ------------------------------------------------
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock, its only class of stock outstanding and
entitled to vote, as of December 31, 1996, by each of the Company's directors
and executive officers, by each person known by the Company to own beneficially
more than 5 percent of the Company's common stock and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner/1/ Beneficial Ownership/2/ Class
- ------------------- ----------------------- -----
<S> <C> <C>
E. James Wisner 248,098 27.8%
1339 Beechwood Hills Court
Atlanta, Georgia 30327
Thomas W. Hutchins 75,728 8.5%
86 Gatewood Drive
Marietta, Georgia 30068
Barry F. Kane 85,130 9.6%
4481 Jett Road, N.W.
Atlanta, Georgia 30327
James W. Herrington 48,346 5.4%
411 Borel Avenue, Suite 620
San Mateo, CA 94402
Joseph B. Foltz 0 0.0%
David J. Heinsma 17,482 2.0%
C. Alexandra Armstrong 2,484 0.3%
Gerald A. Geiger 7,121 0.8%
C. Roger Allen 25,000 2.8%
Joseph B. Gruber 3,137 0.3%
All directors and executive 512,526 57.5%
officers (10 persons)
</TABLE>
__________________
/1/ Addresses are furnished only for persons known to beneficially own more
than 5% of the Company's outstanding common stock.
/2/ Unless otherwise indicated, the Company believes the beneficial owner
has sole voting and investment power over such shares.
-40-
<PAGE>
Changes in Control
- ------------------
As described under "Item 11. Executive Compensation -- Termination of Employment
Arrangements," the Company and E. James Wisner are parties to an agreement which
provides for the purchase by the Company of Mr. Wisner's stock upon his death.
Additionally, a total of 162,598 shares held by Mr. Wisner are subject to the
Stock Distribution Agreement governing the Company's 1991 stock offering
providing the Company with the right to repurchase stock under certain
circumstances including termination of employment with the Company. The
operation of such agreements could result in a change in control of the Company.
-41-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During 1996, the firm Rowe, Foltz & Martin, P.C. provided certain legal services
to the Company and its subsidiaries. Joseph B. Foltz, a Director of the Company,
is a member of that law firm.
FSC Securities has standard agreements with James W. Herrington and C. Alexandra
Armstrong for their services as Managing Field Associates. Their offices were
affiliated with 178 and 12 representatives, respectively, as of December 31,
1996. In their capacity as MFAs, they and their affiliated representatives were
paid commissions and fees in 1996 totalling approximately $9,090,000 and
$1,349,000 respectively.
On March 20, 1992, the Board of Directors approved an unsecured extension of
credit to E. James Wisner for an amount not to exceed $200,000. As of December
31, 1996, $168,000 had been drawn pursuant to this extension of credit. The
credit facility contemplates that outstanding amounts bear interest at a rate of
prime plus one-half percent, floating, and requires payment of interest only on
a quarterly basis, with the principal due in its entirety in July 2002.
On August 3, 1993 the Company acquired substantially all of the assets of
Specialized Investments Division for $75,000 from C. Roger Allen. Mr. Allen is a
Senior Vice President of the Company.
-42-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. Financial Statements.
The following consolidated audited financial statements of Financial
Service Corporation and Subsidiaries are included in Item 8:
- Report of Independent Accountants.
- Consolidated Balance Sheets as of December 31, 1996, and 1995.
- Consolidated Statements of Income for the years ended December 31,
1996, 1995, and 1994.
- Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994.
- Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995, and 1994.
- Notes to Consolidated Financial Statements.
2. Financial Statement Schedules.
The following financial statement schedule of Financial Service
Corporation and Subsidiaries is included in Item 14(a)3(d):
Schedule VIII - Valuation and Qualifying Accounts and Reserves.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
-43-
<PAGE>
3. Exhibits.
(a) The following exhibits are filed as part of, or incorporated by
reference in this report:
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 No. 33-35889 and incorporated herein by
reference)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 No. 33-
35889 and incorporated herein by reference)
3.3 Articles of Amendment and Restatement of Articles of
Incorporation of the Registrant (filed as Exhibit 3.1 to
Registrant's Quarterly Report on From 10-Q for the period
ended September 30, 1991, and incorporated herein by
reference)
3.4 Amended and Restated Bylaws of Registrant (filed as
Exhibit 3.2 to Registrant's Quarterly Report on From 10-Q
for the period ended September 30, 1991, and incorporated
herein by reference)
4.1 Form of Stock Distribution Agreement (filed as Exhibit
10.5 to the Registrant's Registration Statement on Form
S-1 No. 33-35889 and incorporated herein by reference)
10.1 Death Benefit Agreement dated October 22, 1991, by and
between Registrant and E. James Wisner (filed as Exhibit
10.1 to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1991, and incorporated
herein by reference)
10.2 Stock Purchase Agreement dated October 2, 1991, by and
between Registrant and E. James Wisner (filed as Exhibit
10.2 to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1991, and incorporated
herein by reference)
10.3 Guaranty Agreement executed February 9, 1988, by and
between Registrant and Commodore Realty Investments, Inc.
for the benefit of Preferred Partners + Plus, Ltd. (filed
as Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991, and
incorporated herein by reference)
-44-
<PAGE>
10.4 Lease Agreement dated March 29, 1990, by and between
Registrant and Wildwood Associates (filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1 No.
33-35889 and incorporated herein by reference)
10.5 First Amendment to Lease Agreement dated October 12, 1990,
by and between Registrant and Wildwood Associates (filed
as Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991, and
incorporated herein by reference)
10.6 Second Amendment to Lease Agreement dated June 1, 1991, by
and between Registrant and Wildwood Associates (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991, and
incorporated herein by reference)
10.7 Employment Agreement With An Executive Officer dated
August 1, 1993,by and between Registrant and, C. Roger
Allen (filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K for the period ended December 31,
1993, and incorporated herein by reference)
10.8 Option To Purchase Common Stock of Financial Service
Corporation dated August 1, 1993, by and between
Registrant and C. Roger Allen (filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the period
ended December 31,1993, and incorporated herein by
reference)
10.9 Deferred Compensation Plan (filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 1993, and incorporated herein by
reference)
10.10 Management Bonus Program (filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 1993, and incorporated herein by
reference)
10.11 Third Amendment to Lease Agreement dated September 30,
1993, by and between Wildwood Associates and Registrant
(filed as Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K for the period ended December 31, 1993, and
incorporated herein by reference)
10.12 Fourth Amendment to Lease Agreement dated December 22,
1993, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the period ended December 31, 1993, and
incorporated herein by reference)
-45-
<PAGE>
10.13 Fifth Amendment to the Lease Agreement dated May 31, 1996,
by and between Registrant and Wildwood Associates (filed
as Exhibit 10.13 to this report)
10.14 Sixth Amendment to the Lease Agreement dated July 15,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.14 to this report)
10.15 Seventh Amendment to the Lease Agreement dated August 19,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.15 to this report)
10.16 Eighth Amendment to the Lease Agreement dated September
30, 1996, by and between Registrant and Wildwood
Associates (filed as Exhibit 10.16 to this report)
10.17 Ninth Amendment to the Lease Agreement dated October 29,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.17 to this report)
10.18 First Amendment to Stock Purchase Agreement dated October
14, 1996, by and between Registrant and E. James Wisner
(filed as Exhibit 10.18 to this report)
10.19 Salary Continuation Agreement dated October 14, 1996, by
and between Registrant and E. James Wisner (filed as
Exhibit 10.19 to this report)
10.20 Termination of Death Benefit Agreement dated October 14,
1996, by and between Registrant and E. James Wisner (filed
as Exhibit 10.20 to this report)
21 Subsidiaries of the Registrant (filed as Exhibit 21 to
this report)
(b) No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) See Item 14 (a)(3) above
(d) See Item 14 (a)(2) above
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FINANCIAL SERVICE CORPORATION
-----------------------------
(Registrant)
By /s/ Barry F. Kane
---------------------
Barry F. Kane
Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
March 21, 1997
---------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ E. James Wisner President, Principal Executive March 21, 1997
- ---------------------------- Officer and Director --------------
E. James Wisner
/s/ Barry F. Kane Treasurer, Principal Financial March 21, 1997
- ---------------------------- Officer and Principal --------------
Barry F. Kane Accounting Officer
/s/ Thomas W. Hutchins Secretary and Director March 21, 1997
- ---------------------------- --------------
Thomas W. Hutchins
/s/ Joseph B. Foltz Director March 21, 1997
- ---------------------------- --------------
Joseph B. Foltz
/s/ James W. Herrington Director March 21, 1997
- ---------------------------- --------------
James W. Herrington
/s/ David J. Heinsma Director March 21, 1997
- ---------------------------- --------------
David J. Heinsma
/s/ C. Alexandra Armstrong Director March 21, 1997
- ---------------------------- --------------
C. Alexandra Armstrong.
<PAGE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
The Company's proxy material will be furnished to security holders subsequent to
the filing of the annual report on Form 10-K. When the proxy material is sent to
security holders, copies of such material will be furnished to the Commission.
The Company is not required to furnish an annual report to security holders.
-48-
<PAGE>
FINANCIAL SERVICE CORPORATION
Index to Financial Statement Schedules
_________________________
<TABLE>
<CAPTION>
Financial Statement Schedule Page
---------------------------- ----
<S> <C>
Report of Independent Accountants 50
Schedule VIII - Valuation and Qualifying Accounts and Reserves. 51
</TABLE>
-49-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Stockholders and Board of Directors of
Financial Service Corporation:
Our report on the consolidated financial statements of Financial Service
Corporation is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page 49 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
Atlanta, Georgia /s/ Coopers & Lybrand LLP
February 26, 1997
-50-
<PAGE>
Schedule VIII
FINANCIAL SERVICE CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- -----------------------------------------------------------------------------------------------------------------------------
Balance at Charged to Charged to Balance at
beginning costs and other end
Description of period expenses accounts Deductions of period
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1994
Allowance for doubtful accounts $239,017 $26,221/(1)/ $5,433 ($39,111/(2)/ $231,560
Legal reserve $1,612,696 $300,000 ($608,940/(3)/ $1,303,756
For the year ended December 31, 1995
Allowance for doubtful accounts $231,560 $76,000/(1)/ $136797 ($36,242/(2)/ $408,115
Legal reserve $1,303,756 $918,035 ($698,134/(3)/ $1,523,657
For the year ended December 31, 1996
Allowance for doubtful accounts $408,115 $268,000/(1)/ ($70154/(2)/ $605,961
Legal reserve $1,523,657 $1,644,841/(4)/ ($420,465/(3)/ $2,748,033
</TABLE>
(1) Net increase in reserve for allowance for doubtful accounts.
(2) Asset writeoffs and other adjustments of previously reserved doubtful
assets.
(3) Includes payments for settlements and litigation expenses
(4) Includes reimbursement from insurance carrier
51
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Articles of Incorporation of the Registrant (filed as
Exhibit 3.1 to the Registrant's Registration Statement on
Form S-1 No. 33-35889 and incorporated herein by
reference)
3.2 Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1 No. 33-
35889 and incorporated herein by reference)
3.3 Articles of Amendment and Restatement of Articles of
Incorporation of the Registrant (filed as Exhibit 3.1 to
Registrant's Quarterly Report on From 10-Q for the period
ended September 30, 1991, and incorporated herein by
reference)
3.4 Amended and Restated Bylaws of Registrant (filed as
Exhibit 3.2 to Registrant's Quarterly Report on From 10-Q
for the period ended September 30, 1991, and incorporated
herein by reference)
4.1 Form of Stock Distribution Agreement (filed as Exhibit
10.5 to the Registrant's Registration Statement on Form
S-1 No. 33-35889 and incorporated herein by reference)
10.1 Death Benefit Agreement dated October 22, 1991, by and
between Registrant and, E. James Wisner (filed as Exhibit
10.1 to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1991, and incorporated
herein by reference)
10.2 Stock Purchase Agreement dated October 2, 1991, by and
between Registrant and E. James Wisner (filed as Exhibit
10.2 to the Registrant's Annual Report on Form 10-K for
the period ended December 31, 1991, and incorporated
herein by reference)
10.3 Guaranty Agreement executed February 9, 1988, by and
between Registrant and Commodore Realty Investments, Inc.
for the benefit of Preferred Partners + Plus, Ltd. (filed
as Exhibit 10.3 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991, and
incorporated herein by reference)
10.4 Lease Agreement dated March 29, 1990, by and between
Registrant and Wildwood Associates (filed as Exhibit 10.7
to the Registrant's Registration Statement on Form S-1 No.
33-35889 and incorporated herein by reference)
-52-
<PAGE>
10.5 First Amendment to Lease Agreement dated October 12, 1990,
by and between Registrant and Wildwood Associates (filed
as Exhibit 10.5 to the Registrant's Annual Report on Form
10-K for the period ended December 31, 1991, and
incorporated herein by reference)
10.6 Second Amendment to Lease Agreement dated June 1, 1991, by
and between Registrant and Wildwood Associates (filed as
Exhibit 10.6 to the Registrant's Annual Report on Form
10-K for the period ending December 31, 1991, and
incorporated herein by reference)
10.7 Employment Agreement With An Executive Officer dated
August 1, 1993, by and between Registrant and C. Roger
Allen (filed as Exhibit 10.7 to the Registrant's Annual
Report on Form 10-K for the period ended December 31,
1993, and incorporated herein by reference)
10.8 Option To Purchase Common Stock of Financial Service
Corporation dated August 1, 1993, by and between
Registrant and C. Roger Allen (filed as Exhibit 10.8 to
the Registrant's Annual Report on Form 10-K for the period
ended December 31, 1993, and incorporated herein by
reference)
10.9 Deferred compensation Plan (filed as Exhibit 10.9 to the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 1993, and incorporated herein by
reference)
10.10 Management Bonus Program (filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the period
ended December 31, 1993, and incorporated herein by
reference)
10.11 Third Amendment to the Lease Agreement dated September 30,
1993, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.11 to the Registrant's Annual Report
on Form 10-K for the period ended December 31, 1993, and
incorporated herein by reference)
10.12 Fourth Amendment to the Lease Agreement dated December 22,
1993, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.12 to the Registrant's Annual Report
on Form 10-K for the period ended December 31, 1993, and
incorporated herein by reference)
10.13 Fifth Amendment to the Lease Agreement dated May 31, 1996,
by and between Registrant and Wildwood Associates (filed
as Exhibit 10.13 to this report)
-53-
<PAGE>
10.14 Sixth Amendment to the Lease Agreement dated July 15,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.14 to this report)
10.15 Seventh Amendment to the Lease Agreement dated August 19,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.15 to this report)
10.16 Eighth Amendment to the Lease Agreement dated September
30, 1996, by and between Registrant and Wildwood
Associates (filed as Exhibit 10.16 to this report)
10.17 Ninth Amendment to the Lease Agreement dated October 29,
1996, by and between Registrant and Wildwood Associates
(filed as Exhibit 10.17 to this report)
10.18 First Amendment to Stock Purchase Agreement dated October
14, 1996, by and between Registrant and E. James Wisner
(filed as Exhibit 10.18 to this report)
10.19 Salary Continuation Agreement dated October 14, 1996, by
and between Registrant and E. James Wisner (filed as
Exhibit 10.19 to this report)
10.20 Termination of Death Benefit Agreement dated October 14,
1996, by and between Registrant and E. James Wisner (filed
as Exhibit 10.20 to this report)
21 Subsidiaries of the Registrant (filed as Exhibit 21 to
this report)
-54-
<PAGE>
EXHIBIT 10.13
WILDWOOD OFFICE PARK
FINANCIAL SERVICE CORPORATION
FIFTH AMENDMENT TO LEASE
THIS FIFTH AMENDMENT TO LEASE ("Amendment"), is made the 31st day of
----
May, 1996, between Wildwood Associates, a Georgia General Partnership comprised
of International Business Machines Corporation, a New York Corporation, and
Cousins Properties Incorporated, a Georgia Corporation, having an office at
Suite 1600, 2500 Windy Ridge Parkway, Atlanta, Georgia 30339-5683, hereinafter
called "Lessor", and Financial Service Corporation having its principal office
at Suite 1100, 2300 Windy Ridge Parkway, Atlanta, Georgia 30339, hereinafter
called "Lessee".
W I T N E S S E T H:
--------------------
WHEREAS Lessor and Lessee entered into that certain Lease dated March 29,
1990, as amended October 12, 1990, June 1, 1991, September 30, 1993 and December
22, 1993 (herein called the "Lease") with respect to the Demised Premises (as
defined in the Lease) located in Suite 1100 of the Building at 2300 Windy Ridge
Parkway, Atlanta, Georgia; and
WHEREAS Lessee and Lessor have mutually agreed to expand the Demised
Premises and extend the Lease Term of the Lease.
NOW, THEREFORE, for and in consideration of the Demised Premises, the
mutual promises contained in this Amendment, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties hereto, Lessor and Lessee do hereby agree as
follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. Certain Definitions. Article 1 is hereby amended as follows:
-------------------
(g) Rentable Floor Area of Demised Premises: shall be amended as of the
---------------------------------------
Second Expansion Area Rental Commencement Date by deleting "23,676 square
feet" and inserting "35,249 square feet".
(i) Term: shall be amended by deleting "126 months" and inserting "198 months
----
(ending December 31, 2006)".
<PAGE>
(j) Base Rent Rate: shall be amended by adding the following new
--------------
subparagraphs at the end thereof:
"As of the Second Expansion Area Rental Commencement Date, the initial
Base Rent Rate through December 31, 1996 for the Second Expansion Area
(as hereinafter defined) shall be $15.00 per square foot of Rentable
Floor Area of Second Expansion Area per year; as of the Second Expansion
Area Rental Commencement Date the initial monthly Base Rent for the
entire Demised Premises shall be $37,649.00.
As to the entire Demised Premises; including the Second Expansion Area,
from January 1, 1997 through December 31, 2006 the Base Rent Rate shall
be as follows:
<TABLE>
<CAPTION>
<S> <C>
BASE RENT RATE
PER SQUARE FOOT
OF RENTABLE FLOOR
CALENDAR AREA OF DEMISED
YEAR PREMISES PER YEAR
---- -----------------
1997 $ 14.33
1998 $ 14.48
1999 $ 14.63
2000 $ 14.78
2001 $ 16.88
2002 $ 17.39
2003 $ 17.91
2004 $ 18.45
2005 $ 19.00
2006 $ 19.57"
</TABLE>
(k) Rental Commencement Date: A new subparagraph shall be added at the end
------------------------
thereof as follows:
"As to the Second Expansion Area, the Second Expansion Area Rental
Commencement Date shall be the earlier of (i) September 1, 1996, or (ii)
the date Lessee takes occupancy of the Second Expansion Area for business
purposes ("Second Expansion Area Rental Commencement Date"), provided
that if the Second Expansion Area is not ready for occupancy on the date
set forth in (i) above due to delays not caused by Lessee or its
employees, agents or contractors, then the date set forth in (i) above
shall be postponed to the date on which the Second Expansion Area is
ready for occupancy.."
(l) Construction Allowance: A new subparagraph shall be added:
----------------------
"Lessee, at its sole expense, will cause Rabaut Associates to prepare the
Second Expansion Area plans and plans modifying the original Demised
Premises dated ___________ (the "Plans"), which must be approved by
Lessor and Lessee (such approval not to be unreasonably withheld,
conditioned or delayed) prior to the
2
<PAGE>
commencement of any alterations or improvements. Lessor's contractor
shall cause the improvements called for by the Plans to be constructed
within sixty (60) days after such Plans are approved by Lessor and Lessee
(such date extended for delays caused by Lessee or its employees, agents
or contractors). Lessor and Lessee shall bear the cost of the
improvements for the Second Expansion Area and any modification to the
original Demised Premises as follows:
A. Lessor shall provide a construction allowance of $227,212.00 to be
funded by Lessor to Lessor's contractor within fifteen (15) days of
receipt from Contractor of copies of all bills or statements for
expenses incurred with respect to such improvements and alterations.
B. Lessee shall pay for all costs in excess of the above allowance.
C. Lessee shall pay Lessor's designated agent a construction
coordination fee of five percent (5%) of the cost of improvements in
the Second Expansion Area and Demised Premises. Such fee will be
deducted from the allowance provided by Lessor."
(p)A new subparagraph entitled (p) Second Expansion Area shall be added as
---------------------
follows:
"The Second Expansion Area shall be defined as the additional 11,573
square feet of Rentable Floor Area being leased by Lessee on the
(eleventh) 11th floor of the Building, as more fully set forth in green
on Exhibit "B-5" attached hereto (the initial Demised Premises as set
forth in yellow). The Second Expansion Area shall be included in the
definition of Demised Premises for all purposes of this Lease including
the requirement to paid Additional Rental."
3. Lease of Premises, Page 2 of the Lease. The original Exhibit "B" shall be
-----------------
deleted and a new Exhibit "B-5" shall be inserted in lieu thereof, a copy of
which is attached hereto and made a part hereof, indicating the Demised
Premises of Lessee. The initial Demised Premises is outlined in yellow.
4. Exhibit "G", Special Stipulations, Paragraph 1 "Base Rent Rate" and
-------------------------------------------------------------------
Paragraph 6, "Expansion Options", shall be deleted in their entirety
-------------------------------
commencing with the Second Expansion Area Rental Commencement Date.
5. Exhibit "G", Special Stipulations, Paragraph 7, "Right of First Offer",
----------------------------------------------------------------------
shall be deleted in it entirety and replaced by the following:
"Right of First Offer. Subject to the rights of existing lessees located on
-----------------------
the eleventh (11th) floor of the building, Lessee shall have an ongoing
right of first offer on any space on the eleventh (11th) floor of the
Building which may become available from time to time. Lessor shall give
Lessee written notice of the availability of such space and its intent to
lease any of such space prior to entering into negotiations with a third
(3rd) party for a lease thereof and
3
<PAGE>
Lessee shall elect to lease or decline such space within ten (10)
business days after receipt of such notice from Lessor. Failure of Lessee
to respond to such notice shall be deemed a declination of such space. In
the event Lessee elects to exercise its option and lease such space on
the eleventh (11th) floor, Lessor and Lessee shall amend the Lease to
provide that such space on the eleventh (11th) floor shall be added to
the Demised Premises at the then applicable Base Rental Rate and
Additional Rental under this Lease and otherwise on the same terms and
conditions of this Lease. In the event Lessee declines such space, Lessor
shall be free to lease all or any portion of such space to a third party
at any time within six (6) months following delivery of such letter;
provided, however, that if such space or any portion thereof remains
unleased following such period or subsequently becomes again available
for lease, Lessee's right of first offer for the unleased space shall
continue in full force and effect. The lease of such space by Lessee (if
Lessee exercises its right) shall commence (and rentals shall be payable
on the date Lessee first occupies the space so taken for business
purposes (but in any event no later than sixty (60) days after Lessee
exercises its right hereunder to lease such space and Lessor tenders
possession thereof to Lessee) and shall otherwise be co-terminus herewith
and Lessee's right to extend or renew the term of this Lease shall apply
to the Demised Premises initially leased by Lessee and to all space added
through exercise of Lessee's first right of offer set forth hereinabove.
The exercise of the right of first offer shall be subject to the
following provision: Lessee may not exercise its right of first offer (if
Lessee exercises its right) if Lessee has received a notice of default in
the performance of Lessee's covenants under this Lease Agreement and has
not then cured such default.
Any space leased by Lessee under the right of first offer by Lessee (if
Lessee exercises its right) shall be known as "Expansion Space". The
Rentable Floor Area of the Expansion Space shall be based upon the Usable
Area of the Expansion Space plus 16.5% thereof as a common area factor.
Lessee hereby acknowledges and agrees that any Expansion Space which is
leased by Lessee under the right of first offer (as hereinafter defined)
and which was improved to at least building standard condition prior to
the commencement of Lessee's leasing of such Expansion Space shall be
delivered to Lessee for occupancy hereunder in an "as is" condition (but
free of all Lessees and occupants) and shall be accepted as such by
Lessee' provided that Lessor shall furnish Lessee an allowance in an
amount equal to $7.50 per square foot of Rentable Floor Area of such
Expansion space, if such option is exercised prior to December 31, 2000
and otherwise Lessor shall furnish Lessee an allowance of an amount equal
to $0.0625 per square foot of Rentable Floor Area of such Expansion Space
times the full calendar months remaining on the Lease Term as measured
from the Rental Commencement Date of such Expansion Space through
December 31, 2006. All costs and expenses in constructing and installing
the improvements desired by Lessee in the Expansion Space not covered by
Lessor's allowance set forth herein shall be the sole responsibility of
Lessee.
4
<PAGE>
Lessor shall not be liable for failure to deliver possession to Lessee of
any space covered by the right of first offer by reason of the unlawful
holding over or unlawful retention of possession by any previous lessees
or occupants of same, nor shall such failure impair the validity of this
Lease, nor extend the term hereof. However, Lessor does covenant that it
will use reasonable diligence, including filing dispossessory complaints
as soon as practicable after the date of expiration of the Lease, to
deliver possession to Lessee of all space with respect to which Lessee
has exercised the right of first offer as soon as practicable after
Lessor's receipt of an exercise notice.
Lessee may not assign its right of first offer, except to a permitted
assignee of all of Lessee's rights under this Lease Agreement, but Lessee
may sublease the space covered thereby if and to the extent permitted in
Article 19.
6. Exhibit "G" Special Stipulations, Paragraph 8, entitled "Cancellation
---------------------------------------------------------------------
Options" shall be deleted in its entirety.
--------
7. Exhibit "G", Special Stipulations, Paragraph 9, "Extension Option",
------------------------------------------------------------------
shall be deleted in its entirety and replaced by the following:
"9. Extension Option.
-------
(a) Provided this Lease is then in full force and effect without any
existing uncured default of Lessee hereunder, Lessor hereby grants
unto Lessee the right and option to extend the Lease Term for one
(1) term of five (5) years, with such term to commence on the day
following the expiration date of the initial Lease Term. In order to
exercise such extension option, Lessee shall notify Lessor in
writing no later than January 1, 2006, of Lessee's desire to so
extend the Lease Term. If Lessee exercises its option to extend this
Lease for five (5) years, the Base Rent Rate for the first year for
the five (5) year extension period shall be no less than $21.50 per
square foot of Rentable Floor Area per annum, and no greater than
$24.50 per square foot of Rentable Floor Area per annum and such
Base Rent Rate shall be escalated annually at three percent (3%) per
year during the extension term. If Lessor and Lessee cannot
reasonably agree in good faith on or before April 1, 2006 on the
amount of Base Rent Rate between $21.50 and $24.50 for the Extension
Term, the Extension Option shall be deemed terminated.
(b) During such extension term, all of the terms, conditions and
provisions of this Lease shall remain in effect; provided, however,
there shall be no allowances granted during any such extension
period. In addition to the Base Rent Rate, Lessee shall continue to
pay Additional Rental during the extension term."
8. Exhibit "G", Special Stipulations, Paragraph 11 "Rental Concession", the
-------------------------------------------------------------------
following new subparagraph shall be added at the end thereof as follows:
"For the Second Expansion Area there will be no Rental Concession."
5
<PAGE>
9. Exhibit "G", Special Stipulations, Paragraph 15, "Temporary Storage
-------------------------------------------------------------------
Area", the following new paragraph shall be added at the end thereof as
-----
follows:
"15. Temporary Storage Area. Lessee will vacate and remove all files,
----------------------
equipment and items stored in the Temporary Storage Area, as outlined in
red on Exhibit "B-5", within fifteen (15) days notice from Lessor that
construction will commence for the Second Expansion Area."
10. Except as expressly modified herein, the Lease Agreement shall remain in
full force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their
representatives, permitted legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed
and their respective seals to be affixed as of the date and year first above
written.
"LESSOR"
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Jack A. LaHue
----------------------------
Its: Vice President
----------------------------
[CORPORATE SEAL]
"LESSEE"
FINANCIAL SERVICE CORPORATION
By: /s/ Barry F. Kane
----------------------------
Its: Chief Financial Officer
---------------------------
[CORPORATE SEAL]
6
<PAGE>
[FLOOR PLAN APPEARS HERE]
Exhibit B-5 (Attachment to the Fifth Amendment to the Lease Agreement)
- ----------------------------------------------------------------------
Floor plan drawing for additional 11,573 square feet of Rentable Floor Area
being leased by Lessee on the (eleventh) 11th floor of the Building.
<PAGE>
EXHIBIT 10.14
WILDWOOD OFFICE PARK
FINANCIAL SERVICE CORPORATION
SIXTH AMENDMENT TO LEASE
THIS SIXTH AMENDMENT TO LEASE ("Amendment"), is made the 15th day of July,
----
1996, between Wildwood Associates, a Georgia General Partnership comprised of
International Business Machines Corporation, a New York Corporation, and Cousins
Properties Incorporated, a Georgia Corporation, having an office at Suite 1600,
2500 Windy Ridge Parkway, Atlanta, Georgia 30339-5683, hereinafter called
"Lessor", and Financial Service Corporation having its principal office at Suite
1100, 2300 Windy Ridge Parkway, Atlanta, Georgia 30339, hereinafter called
"Lessee".
W I T N E S S E T H:
--------------------
WHEREAS Lessor and Lessee entered into that certain Lease dated March 29,
1990, as amended October 12, 1990, June 1, 1991, September 30, 1993, December
22, 1993 and May 31, 1996 (herein called the "Lease") with respect to the
Demised Premises (as defined in the Lease) located in Suite 1100 of the Building
at 2300 Windy Ridge Parkway, Atlanta, Georgia; and
WHEREAS Lessee and Lessor have mutually agreed to expand the Demised
Premises.
NOW, THEREFORE, for and in consideration of the Demised Premises, the
mutual promises contained in this Amendment, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties hereto, Lessor and Lessee do hereby agree as
follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. Certain Definitions. Article 1 is hereby amended as follows:
-------------------
(g) Rentable Floor Area of Demised Premises: shall be amended as of the Third
---------------------------------------
Expansion Area Rental Commencement Date by deleting "35,249 square feet"
and inserting "48,440 square feet".
(j) Base Rent Rate: shall be amended by adding the following new
--------------
subparagraphs at the end thereof:
"As of the Third Expansion Area Rental Commencement Date, the initial Base
Rent Rate through December 31, 1996 for the Third Expansion Area (as
hereinafter defined) shall be $15.00 per square foot of Rentable Floor
Area of Third Expansion Area per
1
<PAGE>
year; as of the Third Expansion Area Rental Commencement Date the initial
monthly Base Rent for the entire Demised Premises shall be $54,137.75.
As to the entire Demised Premises; including the Third Expansion Area,
from January 1, 1997 through December 31, 1997 the Base Rent Rate shall be
$14.51 per square foot of Rentable Floor Area per annum subject to
adjustment commencing January 1, 1998 and annually thereafter as
hereinafter set forth:
(a) As used in this Article 1(j), the term "Lease Year" shall mean the
twelve month period commencing on January 1, 1997 and each successive
twelve month period thereafter during the Lease Term. The term
"Subsequent Year" shall mean each Lease Year of the Lease Term
following calendar year 1997. The term "Prior Year" shall mean the
Lease Year prior to each Subsequent Year. The term "Index" shall mean
the Consumer Price Index for all Urban Consumers (U.S. City Average;
Base 1982-84=100), published by the Bureau of Labor Statistics of the
United States Department of Labor. The term "Base Month" shall mean
the calendar month which is two (2) months prior to January, 1997.
The term "Comparison Month" shall mean the calendar month which is two
(2) months prior to the first full month of each Subsequent Year in
question.
(b) On the first day of each Subsequent Year, the Base Rental Rate shall
be increased to an amount equal to $15.00, plus an amount equal to the
product of fifteen (15) times the percentage increase in the Index for
the Comparison Month as compared to the Index for the Base Month,
multiplied by the Base Rental Rate for the first Lease Year ($14.51);
provided, however, in no event shall the Base Rental Rate for a
Subsequent Year be greater than the following amounts for the Lease
Years shown:
<TABLE>
<S> <C>
Second Lease Year (1998) $14.74
Third Lease Year (1999) $14.98
Fourth Lease Year (2000) $15.22
Fifth Lease Year (2001) $16.88
Sixth Lease Year (2002) $17.39
Seventh Lease Year (2003) $17.91
Eighth Lease Year (2004) $18.45
Ninth Lease Year (2005) $19.00
Tenth Lease Year (2006) $19.57
</TABLE>
(c) If the Bureau of Labor Statistics should discontinue the publication
of the Index, or publish the same less frequently, or alter the same
in some manner, then Landlord shall adopt a substitute Index or
substitute procedure which reasonably reflects.
2
<PAGE>
(k) Rental Commencement Date: A new subparagraph shall be added at the end
------------------------
thereof as follows:
"As to the Third Expansion Area, the Third Expansion Area Rental
Commencement Date shall be the earlier of (i) October 1, 1996, or (ii) the
date Lessee takes occupancy of the Third Expansion Area for business
purposes ("Third Expansion Area Rental Commencement Date"), provided that
if the Third Expansion Area is not ready for occupancy on the date set
forth in (i) above due to delays not caused by Lessee or its employees,
agents or contractors, then the date set forth in (i) above shall be
postponed to the date on which the Third Expansion Area is ready for
occupancy."
(l) Construction Allowance: A new subparagraph shall be added:
----------------------
"Lessee, at its sole expense, will cause Rabaut Associates to prepare the
Third Expansion Area plans dated ___________ (the "Plans"), which must be
approved by Lessor and Lessee (such approval not to be unreasonably
withheld, conditioned or delayed) prior to the commencement of any
alterations or improvements. The Third Expansion Area shall be turned
over to Lessee in its "as is" condition on August 1, 1996 for the start of
construction. Lessor's contractor shall cause the improvements called for
by the Plans to be constructed within sixty (60) days after such Plans are
approved by Lessor and Lessee (such date extended for delays caused by
Lessee or its employees, agents or contractors). Lessor and Lessee shall
bear the cost of the improvements for the Third Expansion Area and any
modification to the original Demised Premises as follows:
A. Lessor shall provide a construction allowance of $7.50 per square foot
of Rentable Floor Area of Third Expansion Area ($98,932.50) to be
funded by Lessor to Lessor's contractor within fifteen (15) days of
receipt from Contractor of copies of all bills or statements for
expenses incurred with respect to such improvements and alterations.
B. Lessee shall pay for all costs in excess of the above allowance.
C. Lessee shall pay Lessor's designated agent a construction coordination
fee of five percent (5%) of the cost of improvements in the Third
Expansion Area and Demised Premises. Such fee will be deducted from
the allowance provided by Lessor."
(q) A new subparagraph entitled (q) Third Expansion Area shall be added as
--------------------
follows:
"The Third Expansion Area shall be defined as the additional 13,191 square
feet of Rentable Floor Area being leased by Lessee on the (eleventh) 11th
floor of the Building, as more fully set forth in green on Exhibit "B-6"
attached hereto (the existing Demised Premises as set forth in yellow).
The Third Expansion Area shall be included
3
<PAGE>
in the definition of Demised Premises for all purposes of this Lease
including the requirement to pay Additional Rental."
3. Lease of Premises, Page 2 of the Lease. The Exhibit "B-5 shall be deleted
-----------------
and a new Exhibit "B-6" shall be inserted in lieu thereof, a copy of which is
attached hereto and made a part hereof, indicating the Demised Premises of
Lessee. The initial and previously expanded Demised Premises is outlined in
yellow.
4. Exhibit "G", Special Stipulations, Paragraph 11 "Rental Concession", the
-------------------------------------------------------------------
following new subparagraph shall be added at the end thereof as follows:
"For the Third Expansion Area there will be no Rental Concession."
5. The Third Expansion Area is currently under lease to Tampella Power
Corporation. The execution of this Amendment and the leasing of the Third
Expansion Area by Lessee is contingent upon Lessor successfully deleting the
Third Expansion Area from the Tampella Power Corporation lease.
6. Except as expressly modified herein, the Lease Agreement shall remain in full
force and effect and, as hereby modified, is expressly ratified and confirmed
by the parties hereto. This Amendment shall be binding upon and shall inure
to the benefit of Lessor and Lessee and their representatives, permitted
legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed
and their respective seals to be affixed as of the date and year first above
written.
"LESSOR"
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Jack A. LaHue
-----------------
Its: Vice President
------------------
[CORPORATE SEAL]
[Signatures continued on next page]
4
<PAGE>
[Signatures continued from previous page]
"LESSEE"
FINANCIAL SERVICE CORPORATION
By: /s/ Barry F. Kane
-----------------
Its: Senior Vice President
-------------------------
[CORPORATE SEAL]
5
<PAGE>
[FLOOR PLAN APPEARS HERE]
Exhibit B-6 (Attachment to the Sixth Amendment to the Lease Agreement)
- ----------------------------------------------------------------------
Floor plan drawing for additional 13,191 square feet of Rentable Floor Area
being leased by Lessee on the (eleventh) 11th floor of the Building.
6
<PAGE>
EXHIBIT 10.15
WILDWOOD OFFICE PARK
FINANCIAL SERVICE CORPORATION
SEVENTH AMENDMENT TO LEASE
THIS SEVENTH AMENDMENT TO LEASE ("Amendment"), is made the 19th day of
----
August, 1996, between Wildwood Associates, a Georgia General Partnership
comprised of International Business Machines Corporation, a New York
Corporation, and Cousins Properties Incorporated, a Georgia Corporation, having
an office at Suite 1600, 2500 Windy Ridge Parkway, Atlanta, Georgia 30339-5683,
hereinafter called "Lessor", and Financial Service Corporation having its
principal office at Suite 1100, 2300 Windy Ridge Parkway, Atlanta, Georgia
30339, hereinafter called "Lessee".
W I T N E S S E T H:
--------------------
WHEREAS Lessor and Lessee entered into that certain Lease dated March 29,
1990, as amended October 12, 1990, June 1, 1991, September 30, 1993, December
22, 1993, May 31, 1996 and July 15, 1996 (herein called the "Lease") with
respect to the Demised Premises (as defined in the Lease) located in Suite 1100
of the Building at 2300 Windy Ridge Parkway, Atlanta, Georgia; and
WHEREAS Lessee and Lessor have mutually agreed to expand the Demised
Premises.
NOW, THEREFORE, for and in consideration of the Demised Premises, the
mutual promises contained in this Amendment, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties hereto, Lessor and Lessee do hereby agree as
follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. Certain Definitions. Article 1 is hereby amended as follows:
-------------------
(g) Rentable Floor Area of Demised Premises: shall be amended as of the
---------------------------------------
Fourth Expansion Area Rental Commencement Date by deleting "48,440 square
feet" and inserting "49,567 square feet".
(j) Base Rent Rate: shall be amended by adding the following new
--------------
subparagraphs at the end thereof:
"As of the Fourth Expansion Area Rental Commencement Date, the initial
Base Rent Rate through December 31, 1996 for the Fourth Expansion Area (as
hereinafter defined) shall be $15.00 per square foot of Rentable Floor
Area of Fourth Expansion
1
<PAGE>
Area per year; as of the Fourth Expansion Area Rental Commencement Date
the initial monthly Base Rent for the entire Demised Premises shall be
$55,546.50.
As to the entire Demised Premises; including the Fourth Expansion Area,
from January 1, 1997 through December 31, 1997 the Base Rent Rate shall be
$14.52 per square foot of Rentable Floor Area per annum subject to
adjustment commencing January 1, 1998 and annually thereafter as
hereinafter set forth:
(a) As used in this Article 1(j), the term "Lease Year" shall mean the
twelve month period commencing on January 1, 1997 and each successive
twelve month period thereafter during the Lease Term. The term
"Subsequent Year" shall mean each Lease Year of the Lease Term
following calendar year 1997. The term "Prior Year" shall mean the
Lease Year prior to each Subsequent Year. The term "Index" shall mean
the Consumer Price Index for all Urban Consumers (U.S. City Average;
Base 1982-84=100), published by the Bureau of Labor Statistics of the
United States Department of Labor. The term "Base Month" shall mean
the calendar month which is two (2) months prior to January, 1997.
The term "Comparison Month" shall mean the calendar month which is two
(2) months prior to the first full month of each Subsequent Year in
question.
(b) On the first day of each Subsequent Year, the Base Rental Rate shall
be increased to an amount equal to $15.00, plus an amount equal to the
----
product of fifteen (15) times the percentage increase in the Index for
the Comparison Month as compared to the Index for the Base Month,
multiplied by $15.00 provided, however, that notwithstanding anything
contained herein to the contrary, in no event shall the Base Rental
Rate for a Subsequent Year after adjustment in accordance with this
provision be greater than the following amounts for the Lease Years
shown:
Second Lease Year (1998) $14.76
Third Lease Year (1999) $15.00
Fourth Lease Year (2000) $15.25
Fifth Lease Year (2001) $16.88
Seventh Lease Year (2002) $17.39
Seventh Lease Year (2003) $17.91
Eighth Lease Year (2004) $18.45
Ninth Lease Year (2005) $19.00
Tenth Lease Year (2006) $19.57
(c) If the Bureau of Labor Statistics should discontinue the publication
of the Index, or publish the same less frequently, or alter the same
in some manner, then Landlord shall adopt a substitute Index or
substitute procedure which reasonably reflects.
2
<PAGE>
(k) Rental Commencement Date: A new subparagraph shall be added at the end
------------------------
thereof as follows:
"As to the Fourth Expansion Area, the Fourth Expansion Area Rental
Commencement Date shall be the earlier of (i) October 1, 1996, or (ii) the
date Lessee takes occupancy of the Fourth Expansion Area for business
purposes ("Fourth Expansion Area Rental Commencement Date"), provided that
if the Fourth Expansion Area is not ready for occupancy on the date set
forth in (i) above due to delays not caused by Lessee or its employees,
agents or contractors, then the date set forth in (i) above shall be
postponed to the date on which the Fourth Expansion Area is ready for
occupancy.."
(l) Construction Allowance: A new subparagraph shall be added:
----------------------
"Lessee, at its sole expense, will cause Rabaut Associates to prepare the
Fourth Expansion Area plans dated ___________ (the "Plans"), which must be
approved by Lessor and Lessee (such approval not to be unreasonably
withheld, conditioned or delayed) prior to the commencement of any
alterations or improvements. The Fourth Expansion Area shall be turned
over to Lessee in its "as is" condition on August 6, 1996 for the start of
construction. Lessor's contractor shall cause the improvements called for
by the Plans to be constructed within sixty (60) days after such Plans are
approved by Lessor and Lessee (such date extended for delays caused by
Lessee or its employees, agents or contractors). Lessor and Lessee shall
bear the cost of the improvements for the Fourth Expansion Area and any
modification to the original Demised Premises as follows:
A. Lessor shall provide a construction allowance of $7.50 per square foot
of Rentable Floor Area of Fourth Expansion Area ($8,452.50) to be
funded by Lessor to Lessor's contractor within fifteen (15) days of
receipt from Contractor of copies of all bills or statements for
expenses incurred with respect to such improvements and alterations.
B. Lessee shall pay for all costs in excess of the above allowance.
C. Lessee shall pay Lessor's designated agent a construction coordination
fee of five percent (5%) of the cost of improvements in the Fourth
Expansion Area and Demised Premises. Such fee will be deducted from
the allowance provided by Lessor."
(q) A new subparagraph entitled (q) Fourth Expansion Area shall be added as
---------------------
follows:
"The Fourth Expansion Area shall be defined as the additional 1,127 square
feet of Rentable Floor Area being leased by Lessee on the (eleventh) 11th
floor of the Building, as more fully set forth in green on Exhibit "B-7"
attached hereto (the existing Demised Premises as set forth in yellow).
The Fourth Expansion Area shall be
3
<PAGE>
included in the definition of Demised Premises for all purposes of this
Lease including the requirement to pay Additional Rental."
3. Lease of Premises, Page 2 of the Lease. The Exhibit "B-5 shall be deleted
-----------------
and a new Exhibit "B-7" shall be inserted in lieu thereof, a copy of which
is attached hereto and made a part hereof, indicating the Demised Premises
of Lessee. The initial and previously expanded Demised Premises is outlined
in yellow.
4. Exhibit "G", Special Stipulations, Paragraph 11 "Rental Concession", the
-------------------------------------------------------------------
following new subparagraph shall be added at the end thereof as follows:
"For the Fourth Expansion Area there will be no Rental Concession."
5. The Fourth Expansion Area is currently under lease to Tampella Power
Corporation. The execution of this Amendment and the leasing of the Fourth
Expansion Area by Lessee is contingent upon Lessor successfully deleting
the Fourth Expansion Area from the Tampella Power Corporation lease.
6. Except as expressly modified herein, the Lease Agreement shall remain in
full force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their representatives,
permitted legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed
and their respective seals to be affixed as of the date and year first above
written.
"LESSOR"
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Jack A. LaHue
------------------------------------
Its: Vice President
------------------------------------
[CORPORATE SEAL]
[Signatures continued on next page]
4
<PAGE>
[Signatures continued from previous page]
"LESSEE"
FINANCIAL SERVICE CORPORATION
By: /s/ Barry F. Kane
------------------------------
Its: Senior Vice President
------------------------------
[CORPORATE SEAL]
5
<PAGE>
[FLOOR PLAN APPEARS HERE]
Exhibit B-7 (Attachment to the Seventh Amendment to the Lease Agreement)
- ------------------------------------------------------------------------
Floor plan drawing for additional 1,127 square feet of Rentable Floor Area being
leased by Lessee on the (eleventh) 11th floor of the Building.
<PAGE>
EXHIBIT 10.16
WILDWOOD OFFICE PARK
FINANCIAL SERVICE CORPORATION
EIGHTH AMENDMENT TO LEASE
THIS EIGHTH AMENDMENT TO LEASE ("Amendment"), is made the 30th day of
----
September, 1996, between Wildwood Associates, a Georgia General Partnership
comprised of International Business Machines Corporation, a New York
Corporation, and Cousins Properties Incorporated, a Georgia Corporation, having
an office at Suite 1600, 2500 Windy Ridge Parkway, Atlanta, Georgia 30339-5683,
hereinafter called "Lessor", and Financial Service Corporation having its
principal office at Suite 1100, 2300 Windy Ridge Parkway, Atlanta, Georgia
30339, hereinafter called "Lessee".
W I T N E S S E T H:
--------------------
WHEREAS Lessor and Lessee entered into that certain Lease dated March 29,
1990, as amended October 12, 1990, June 1, 1991, September 30, 1993, December
22, 1993, May 31, 1996, July 15, 1996 and August 19, 1996 (herein called the
"Lease") with respect to the Administrative Office Area (as defined in the
Lease) located in Suite 1100 of the Building at 2300 Windy Ridge Parkway,
Atlanta, Georgia; and
WHEREAS, Lessee wishes to lease an administrative office area
("Administrative Office Area") located on the first (1st) floor - South of the
Building;
WHEREAS, Lessor and Lessee desire to modify and amend the Lease to
accommodate such need as herein provided.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises contained in this Amendment, and other good and valuable consideration,
the receipt, adequacy and sufficiency of which are hereby acknowledged by the
parties hereto, Lessor and Lessee do hereby agree as follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning
designated for such terms and words of art in this Lease.
2. Certain Definitions, Pages 1 and 2 of the Lease, shall be modified as
-------------------
follows:
(k) Rental Commencement Date: a new subparagraph shall be added at
------------------------
the end thereof as follows:
"As to the Administrative Office Area (as hereinafter defined)
the Rental Commencement Date shall be December 1, 1996."
-1-
<PAGE>
(i) Term: a new subparagraph shall be added at the end thereof as
----
follows, "As to the Administrative Office Area, the term shall be
60 months commencing December 1, 1996 and ending November 30,
2001."
(j) Base Rent Rate: shall be amended by adding the following new
--------------
subparagraph at the end thereof:
"As of the Rental Commencement Date of the Administrative Office
Area, the Full Service Base Rent Rate shall be as follows:
<TABLE>
<CAPTION>
FULL SERVICE
PERIOD COVERED BASE RENT RATE MONTHLY PAYMENT
-------------- -------------- ---------------
<S> <C> <C>
12/1/96 - 11/30/97 $21.50 $2,787.83
12/1/97 - 11/30/98 $22.04 $2,857.85
12/1/98 - 11/30/99 $22.59 $2,929.17
12/1/99 - 11/30/00 $23.15 $3,001.78
12/1/00 - 11/30/01 $23.73 $3,076.99
</TABLE>
The Administrative Office Area will not be subject to any
escalations except as set forth above in this subparagraph."
(l) Construction Allowance: a new subparagraph shall be added at the
----------------------
end thereof as follows:
"As to the Administrative Office Area, Lessor shall provide an
allowance of $7.50 per square foot of Rentable Floor Area of
Administrative Office Area ($11,670.00). Any costs in excess of
Lessor's allowance shall be at the sole cost and expense of
Lessee."
(r) A new subparagraph (r), Administrative Office Area, shall be
added as follows:
"(r) Administrative Office Area: The Administrative Office Area
--------------------------
shall be defined as the additional 1,556 Rentable Square Feet
being rented by Lessee on the 1st Floor - South of the Building,
as more fully set forth in red on Exhibit "B-6" attached hereto.
The Administrative Office Area shall not be included in the
definition of the Demised Premises for purposes of Additional
Renal calculations."
3. Lease of Premises, page 2 of the Lease. The following sentence shall
-----------------
be added at the end thereof:
"In addition to the Demised Premises, Lessee shall also lease from
Lessor the Administrative Office Area upon the terms and conditions
herein provided.
-2-
<PAGE>
4. Exhibit "G", Special Stipulations. The following shall be added at
---------------------------------
the end thereof:
"As to the Administrative Office Area
(a) Lessor acknowledges that Lessee will use the Administrative
Office Area as a print shop and mail room.
(b) Lessee to lease the Administrative Office Area in its current "as
is" condition except that Lessor at its cost will relocate the
existing entry door to the common area corridor serving the
floor. The new door to be 8'10" x 3'0" wide. Lessee, at its
sole expense, will prepare the plans, which must be approved by
Lessor and Lessee (such approval not to be unreasonably withheld,
conditioned or delayed) prior to the commencement of any
alterations or improvements. Lessee shall pay Lessor's
designated agent a construction coordination fee of five percent
(5%) of the cost of improvements in the Administrative Office
Area. Such fee will be deducted from the allowance provided by
Lessor.
(c) Lessor to have the right to terminate this Lease Agreement at any
time during the Lease Term with ninety (90) days prior written
notice to Tenant. Notwithstanding the above, if Lessor elects to
terminate the Lease Agreement on the Administrative Office Area
during the first three (3) years of the Lease Term as measured
from the Administrative Office Area Rental Commencement Date,
Lessor will reimburse Lessee the unamortized leasehold
improvements incurred by Lessee. Lessee will provide Lessor
with the total cost incurred by Lessee within thirty (30) days of
the Administrative Office Area Rental Commencement Date. The
amortization period shall be sixty (60) months.
(d) Lessee agrees to have the Administrative Office Area engineered
so that there shall be no objectionable noise or odors emitted
therefrom.
(e) Lessee to have access to the Administrative Office Area for the
start of Lessee's renovation on October 1, 1996.
(f) Any of Lessee's printing equipment that requires electricity
above Lessor's Building Standard shall be separately metered and
paid for by Lessee.
Except as expressly modified herein, the Lease shall remain in full
force and effect and, as hereby modified, is expressly ratified and confirmed by
the parties hereto. This Amendment shall be binding upon and shall inure to the
benefit of Lessor and Lessee and their respective, permitted legal
representatives, successors and assigns.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed and their respective seals to be affixed as of the date and year first
above written.
"LESSOR"
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Jack A. LaHue
----------------------------
Its: Vice President
----------------------------
[CORPORATE SEAL]
"LESSEE"
FINANCIAL SERVICE CORPORATION
By: /s/ Barry F. Kane
----------------------------
Its: Senior Vice President
----------------------------
[CORPORATE SEAL]
-4-
<PAGE>
Exhibit B-6 (Attachment to the Eighth Amendment to the Lease Agreement
- ---------------------------------------------------------------------
Floor plan drawing for additional 1,556 Rentable Square Feet being rented by
Lessee on the 1st Floor-South of the Building (Administrative Office Area).
-5-
<PAGE>
EXHIBIT 10.17
WILDWOOD OFFICE PARK
FINANCIAL SERVICE CORPORATION
NINTH AMENDMENT TO LEASE
THIS NINTH AMENDMENT TO LEASE ("Amendment"), is made the 29th day of
----
October, 1996, between Wildwood Associates, a Georgia General Partnership
comprised of International Business Machines Corporation, a New York
Corporation, and Cousins Properties Incorporated, a Georgia Corporation, having
an office at Suite 1600, 2500 Windy Ridge Parkway, Atlanta, Georgia 30339-5683,
hereinafter called "Lessor", and Financial Service Corporation having its
principal office at Suite 1100, 2300 Windy Ridge Parkway, Atlanta, Georgia
30339, hereinafter called "Lessee".
W I T N E S S E T H:
--------------------
WHEREAS Lessor and Lessee entered into that certain Lease dated March 29,
1990, as amended October 12, 1990, June 1, 1991, September 30, 1993, December
22, 1993, May 31, 1996, July 15, 1996, August 19, 1996 and September 30, 1996
(herein called the "Lease") with respect to the Demised Premises (as defined in
the Lease) located in Suite 1100 of the Building at 2300 Windy Ridge Parkway,
Atlanta, Georgia; and
WHEREAS Lessee and Lessor have mutually agreed to expand the Demised
Premises.
NOW, THEREFORE, for and in consideration of the Demised Premises, the
mutual promises contained in this Amendment, and other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged by the parties hereto, Lessor and Lessee do hereby agree as
follows:
1. All terms and words of art used herein, as indicated by the initial
capitalization thereof, shall have the same respective meaning designated
for such terms and words of art in the Lease.
2. Certain Definitions. Article 1 is hereby amended as follows:
-------------------
(g) Rentable Floor Area of Demised Premises: shall be amended as of the Fifth
---------------------------------------
Expansion Area Rental Commencement Date by deleting "49,567 square feet"
and inserting "54,048 square feet (which excludes the Administrative
Office Area of 1,556 square feet)".
(j) Base Rent Rate: shall be amended by adding the following new
--------------
subparagraphs at the end thereof:
"As of the Fifth Expansion Area Rental Commencement Date, the initial Base
Rent Rate for the Fifth Expansion Area (as hereinafter defined) shall be
$14.56 per square
1
<PAGE>
foot of Rentable Floor Area of Fifth Expansion Area per year; as of the
Fifth Expansion Area Rental Commencement Date the initial monthly Base
Rent for the entire Demised Premises, excluding the Administrative Office
Area, shall be $65,578.24.
As to the entire Demised Premises, excluding the Administrative Office
Area; including the Fifth Expansion Area, from January 1, 1997 through
December 31, 1997 the Base Rent Rate shall be $14.56 per square foot of
Rentable Floor Area per annum subject to adjustment commencing January 1,
1998 and annually thereafter as hereinafter set forth:
(a) As used in this Article 1(j), the term "Lease Year" shall mean the
twelve month period commencing on January 1, 1997 and each successive
twelve month period thereafter during the Lease Term. The term
"Subsequent Year" shall mean each Lease Year of the Lease Term
following calendar year 1997. The term "Prior Year" shall mean the
Lease Year prior to each Subsequent Year. The term "Index" shall mean
the Consumer Price Index for all Urban Consumers (U.S. City Average;
Base 1982-84=100), published by the Bureau of Labor Statistics of the
United States Department of Labor. The term "Base Month" shall mean
the calendar month which is two (2) months prior to January, 1997.
The term "Comparison Month" shall mean the calendar month which is two
(2) months prior to the first full month of each Subsequent Year in
question.
(b) On the first day of each Subsequent Year, the Base Rental Rate shall
be increased to an amount equal to $15.00, plus an amount equal to the
----
product of fifteen (15) times the percentage increase in the Index for
the Comparison Month as compared to the Index for the Base Month,
multiplied by $15.00 provided, however, that notwithstanding anything
contained herein to the contrary, in no event shall the Base Rental
Rate for a Subsequent Year after adjustment in accordance with this
provision be greater than the following amounts for the Lease Years
shown:
<TABLE>
<S> <C>
Second Lease Year (1998) $14.81
Third Lease Year (1999) $15.07
Fourth Lease Year (2000) $15.34
Fifth Lease Year (2001) $16.88
Ninth Lease Year (2002) $17.39
Ninth Lease Year (2003) $17.91
Eighth Lease Year (2004) $18.45
Ninth Lease Year (2005) $19.00
Tenth Lease Year (2006) $19.57
</TABLE>
(c) If the Bureau of Labor Statistics should discontinue the publication
of the Index, or publish the same less frequently, or alter the same
in some manner, then Landlord shall adopt a substitute Index or
substitute procedure which reasonably reflects.
2
<PAGE>
(k) Rental Commencement Date: A new subparagraph shall be added at the end
------------------------
thereof as follows:
"As to the Fifth Expansion Area, the Fifth Expansion Area Rental
Commencement Date shall be January 1, 1997."
(l) Construction Allowance: A new subparagraph shall be added:
----------------------
"Lessee, at its sole expense, will cause Rabaut Associates to prepare the
Fifth Expansion Area plans dated ___________ (the "Plans"), which must be
approved by Lessor and Lessee (such approval not to be unreasonably
withheld, conditioned or delayed) prior to the commencement of any
alterations or improvements. The Fifth Expansion Area shall be turned
over to Lessee in its "as is" condition on the date of execution of the
Tampella Lease Termination Agreement. Lessor and Lessee shall bear the
cost of the improvements for the Fifth Expansion Area and any modification
to the original Demised Premises as follows:
A. Lessor shall provide a construction allowance of $7.50 per square foot
of Rentable Floor Area of Fifth Expansion Area ($33,607.50) to be
funded by Lessor to Lessor's contractor within fifteen (15) days of
receipt from Contractor of copies of all bills or statements for
expenses incurred with respect to such improvements and alterations.
B. Lessee shall pay for all costs in excess of the above allowance.
C. Lessee shall pay Lessor's designated agent a construction coordination
fee of five percent (5%) of the cost of improvements in the Fifth
Expansion Area and Demised Premises. Such fee will be deducted from
the allowance provided by Lessor."
(q) A new subparagraph entitled (q) Fifth Expansion Area shall be added as
--------------------
follows:
"The Fifth Expansion Area shall be defined as the additional 4,481 square
feet of Rentable Floor Area being leased by Lessee on the (eleventh) 11th
floor of the Building, as more fully set forth in green on Exhibit "B-8"
attached hereto (the existing Demised Premises as set forth in yellow).
The Fifth Expansion Area shall be included in the definition of Demised
Premises for all purposes of this Lease including the requirement to pay
Additional Rental."
3
<PAGE>
3. Lease of Premises, Page 2 of the Lease. The Exhibit "B-7 shall be deleted
-----------------
and a new Exhibit "B-8" shall be inserted in lieu thereof, a copy of which
is attached hereto and made a part hereof, indicating the Demised Premises
of Lessee. The initial and previously expanded Demised Premises is outlined
in yellow.
4. Exhibit "G", Special Stipulations, Paragraph 11 "Rental Concession", the
-------------------------------------------------------------------
following new subparagraph shall be added at the end thereof as follows:
"For the Fifth Expansion Area there will be no Rental Concession."
5. The Fifth Expansion Area is currently under lease to Tampella Power
Corporation. The execution of this Amendment and the leasing of the Fifth
Expansion Area by Lessee is contingent upon Lessor successfully deleting the
Fifth Expansion Area from the Tampella Power Corporation lease.
6. Except as expressly modified herein, the Lease Agreement shall remain in
full force and effect and, as hereby modified, is expressly ratified and
confirmed by the parties hereto. This Amendment shall be binding upon and
shall inure to the benefit of Lessor and Lessee and their representatives,
permitted legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be signed
and their respective seals to be affixed as of the date and year first above
written.
"LESSOR"
WILDWOOD ASSOCIATES,
a Georgia general partnership
By: Cousins Properties Incorporated
Managing General Partner
By: /s/ Jack A. Lahue
----------------------------
Its: Vice President
---------------------------
[CORPORATE SEAL]
[Signatures continued on next page]
4
<PAGE>
[Signatures continued from previous page]
"LESSEE"
FINANCIAL SERVICE CORPORATION
By: /s/ Barry F. Kane
----------------------------
Its: Senior Vice President
---------------------------
[CORPORATE SEAL]
5
<PAGE>
[FLOOR PLAN APPEARS HERE]
Exhibit B-8 (Attachment to the Ninth Amendment to the Lease Agreement)
- ----------------------------------------------------------------------
Floor plan drawing for additional 4,481 square feet of Rentable Floor Area being
leased by Lessee on the (eleventh) 11th floor of the Building.
6
<PAGE>
EXHIBIT 10.18
FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT
-------------------------------------------
THIS FIRST AMENDMENT TO STOCK PURCHASE AGREEMENT (this "First Amendment")
is made and entered into this 14th day of October, 1996, by and between
FINANCIAL SERVICE CORPORATION, a Georgia corporation with its principal
executive offices in Cobb County, Georgia (the "Company"), and E. JAMES WISNER,
a resident of Fulton County, Georgia ("Wisner").
W I T N E S E T H:
WHEREAS, on October 2, 1991, the Company and Wisner entered into that
certain Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to
which the Company and Wisner agreed that, upon Wisner's death, the Company would
purchase certain shares of Common Stock of the Company then owned by Wisner on
terms, and subject to conditions, set forth in said Stock Purchase Agreement;
and
WHEREAS, the Company and Wisner have each determined that it is in their
respective best interests to amend the Stock Purchase Agreement to, among other
things, (i) provide for a different method of calculating the purchase price to
be paid by the Company for certain shares of Company Common Stock held by Wisner
at his death, (ii) reflect that the Company has obtained additional life
insurance with which to fund a portion of the purchase price and (iii) provide
that life insurance proceeds in excess of those required to fund a portion of
the purchase price will be paid to the Company and not to Wisner's estate;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the sum of Ten and No/100
Dollars ($10.00), the premises, the covenants hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
1. General. Capitalized terms not otherwise defined herein shall
-------
have the respective meanings given to such terms in the Stock Purchase
Agreement. The Stock Purchase Agreement, as hereby amended, shall
remain in full force and effect in accordance with its terms as
amended hereby. From and after the date of this First Amendment,
references to the Stock Purchase Agreement shall be deemed to be
references to the Stock Purchase Agreement as amended by this First
Amendment.
2. Definitions. Section 1 of the Stock Purchase Agreement is hereby
-----------
amended as follows:
(a) The definition of "Book Value" that is set forth in Section 1 of
the Stock Purchase Agreement is deleted in its entirety and the
following definition is inserted in lieu thereof:
<PAGE>
"Book Value" shall mean the book value per share of Common Stock
of the Company as reflected on the consolidated financial
statements of the Company prepared as of the last day of the
month immediately preceding the month in which Wisner dies and
determined in accordance with generally accepted accounting
principles consistently applied, which statements shall be
certified by the Company's principal financial officer (who for
purposes of this Agreement must be someone other than Wisner) as
presenting fairly the financial condition of the Company.
(b) The definition of "Policy" that is set forth in Section 1 of the
Stock Purchase Agreement is deleted in its entirety and the following
definition is inserted in lieu thereof:
"Policy" shall mean (i) the term life insurance policy (policy
number 79622023) issued by The Prudential Insurance Company of
America in the amount of $1,300,000 on the life of Wisner, a copy
of which is attached as Exhibit I to the First Amendment to Stock
Purchase Agreement and (ii) the term life insurance policy
(policy number 2609892) issued by First Colony Life Insurance Co.
in the amount of $3,500,000 on the life of Wisner, a copy of
which is attached as Exhibit II to the First Amendment to Stock
Purchase Agreement.
(c) The definition of "Purchase Price" that is set forth in Section 1
of the Stock Purchase Agreement is deleted in its entirety and the
following definition is inserted in lieu thereof:
"Purchase Price" of a share of Wisner Stock shall mean an amount
equal to the sum of (i) the per share Book Value (as adjusted for
stock splits, stock dividends, recapitalizations and other
similar events occurring between the date of the financial
statements from which Book Value is determined and the initial
purchase date and (ii) the Purchase Price Adjustment (hereinafter
defined), if any.
(d) Immediately following the definition of "Purchase Price" there is
hereby added the following definition:
"Purchase Price Adjustment" shall mean an amount per share of
Wisner Stock determined as follows. If no Sale (hereinafter
defined) occurs prior to the end of the twenty-fourth month
following the month in which Wisner dies, the amount of the
Purchase Price Adjustment shall be zero. If a Sale does occur
prior to the end of the twenty-fourth month following the month
in which Wisner dies, the
<PAGE>
Purchase Price Adjustment shall be equal to (i) the "Adjustment
Factor" (calculated as set forth below) multiplied by (ii) a
fraction, the denominator of which is 24 and the numerator of
which is the number of whole and partial months remaining between
the month in which the Sale occurs and the end of the twenty-four
month period; provided, however, that in no event shall the
numerator be greater than 24. The numerator shall include the
month in which the Sale occurs.
For purposes of this definition of Purchase Price Adjustment, the
Adjustment Factor shall be calculated as follows. If the fair
market value of the consideration per share of Company Common
Stock received by holders thereof in connection with any Sale
(which fair market value per share shall be calculated for this
purpose as though the same number of shares of Company Common
Stock are outstanding on the date of the Sale as were outstanding
on the date as of which Book Value was calculated) is not greater
than two (2) times Book Value, the Adjustment Factor shall be
zero. If the fair market value of the consideration per share of
Company Common Stock received by holders thereof in connection
with any Sale (which fair market value per share shall be
calculated for this purpose as though the same number of shares
of Company Common Stock are outstanding on the date of the Sale
as were outstanding on the date as of which Book Value was
calculated) is greater than two (2) times Book Value, the
Adjustment Factor shall equal the difference between two (2)
times Book Value and the fair market value of the consideration
per share of Company Common Stock received by holders thereof in
connection with the Sale (which fair market value per share shall
be calculated for this purpose as though the same number of
shares of Company Common Stock are outstanding on the date of the
Sale as were outstanding on the date as of which Book Value was
calculated).
(e) Immediately following the definition of "Purchase Price Adjustment"
there is hereby added the following definition:
"Sale" shall mean the consummation, following the date of
Wisner's death, of any of the following: (i) a sale of
substantially all of the assets of the Company, or of any
subsidiary or subsidiaries of the Company, that results in
consideration being distributed to holders of Company Common
Stock; (ii) a sale of then previously issued and outstanding
shares of the Company, or of any subsidiary or subsidiaries of
the Company, which sale (a) results in a change in beneficial
ownership of 50% or more of the issued and outstanding Common
Stock to the Company, or 50% or
<PAGE>
more of the issued and outstanding voting stock of such
subsidiary or subsidiaries and (b) results in consideration being
distributed to holders of Company Common Stock; or (iii) a merger
or share exchange involving the Company, or any subsidiary or
subsidiaries of the Company, which merger or share exchange
results in consideration being distributed to holders of Company
Common Stock.
(f) The definition of "Wisner Stock" that is set forth in Section 1 of the
Stock Purchase Agreement is deleted in its entirety and the following
definition is inserted in lieu thereof:
"Wisner Stock" shall mean (i) the 248,098 shares of Company
Common Stock beneficially owned by Wisner on the date hereof and
(ii) any securities issued or issuable with respect to such
shares of Common Stock by way of stock dividend or stock split or
in connection with a combination of shares, recapitalization,
merger, consolidation, or other reorganization or otherwise, but
the shares referred to in the foregoing clauses (i) and (ii)
shall be "Wisner Stock" only so long as they are beneficially
owned by Wisner or, after Wisner's death, by Wisner's estate.
Other than as provided above, "Wisner Stock" shall not include
any shares of Common Stock acquired by Wisner after the date
hereof (including any shares beneficially owned on the date
hereof, transferred to a third party (unless Wisner retains
beneficial ownership), and subsequently reacquired by Wisner).
Wisner shall be deemed to "beneficially own" any shares of Common
Stock which he owns of record, which are held in trust for his
benefit, or from which he otherwise derives a direct pecuniary
benefit. Wisner also shall be deemed to "beneficially own" any
shares of Common Stock held in trust for the benefit of his
spouse or children, or other relatives that are his dependents,
or any shares of Common Stock owned beneficially and of record by
such persons, in either case to the extent that such shares were
acquired from Wisner, whether by gift or purchase. "Wisner
Stock" shall not include any options, warrants, or other
contractual rights to acquire shares of Common Stock.
3. Payment. Section 2(b) of the Stock Purchase Agreement is hereby
-------
amended by deleting said Section 2(b) in its entirety and inserting, in lieu
thereof, the following:
(b) Payment.
-------
(i) Purchase Price Excluding Purchase Price Adjustment. The
--------------------------------------------------
Company shall pay the aggregate Purchase Price (excluding the
Purchase Price Adjustment) by wire transfer of immediately
<PAGE>
available funds to an account designated by the Representative in
writing at least two days prior to the date of such payment,
except that:
(a) If (I) Wisner dies on or before March 2, 2007 (Wisner's
65th birthday), or (II) Wisner dies after March 2, 2007, but
the Company has continued to maintain the Policy after such
date, then to the extent that the aggregate Purchase Price
(excluding the Purchase Price Adjustment) exceeds
$4,800,000, the Company, at its option, may issue and
deliver to or at the direction of the Representative a
promissory note substantially in the form attached as
Exhibit A to this Stock Purchase Agreement (the "Note") in
payment of the amount of the aggregate Purchase Price
(excluding the Purchase Price Adjustment) in excess of
$4,800,000; and
(b) If Wisner dies after March 2, 2007, and the Company has
not continued to maintain the Policy, then the Company shall
pay at least one-fourth of the aggregate Purchase Price
(excluding the Purchase Price Adjustment) in immediately
available funds but, at its option, may issue and deliver to
or at the direction of the Representative the Note in
payment of the remainder of the aggregate Purchase Price
(excluding the Purchase Price Adjustment).
If the Note is delivered under Section 2(b)(i)(a), it shall
have a term of 60 months, and if the Note is delivered under
Section 2(b)(i)(b), it shall have a term of 120 months.
(ii) Purchase Price Adjustment. The aggregate amount of the
-------------------------
Purchase Price Adjustment shall be paid immediately following the
consummation of the Sale that is the cause of the Purchase Price
Adjustment. No less than ten (10) days prior to the consummation
of such Sale, the Company shall notify the Representative in
writing of the date on which the Sale will be consummated.
Representative shall then notify the Company in writing, at least
two days prior to the proposed consummation date, of the account
into which the Purchase Price Adjustment is to be deposited. The
Company shall cause the Purchase Price Adjustment to be wired, in
immediately available funds, to the account designated by the
Representative.
<PAGE>
4. Closing. Section 2(c) of the Stock Purchase Agreement is hereby
-------
amended by deleting the last sentence of said Section in its entirety and
inserting, in lieu thereof, the following:
Except as provided otherwise in Section 3 below, on the date
fixed for the purchase, the Representative shall surrender the
certificates representing the Wisner Stock, free and clear of all
liens and encumbrances and properly endorsed for transfer, at the
principal office of the Company, against payment of the aggregate
Purchase Price (excluding the Purchase Price Adjustment) for the
Wisner Stock.
5. Limitation of Purchase Obligation. Section 3(a) of the Stock
---------------------------------
Purchase Agreement is hereby amended by deleting the reference to "Section 2(b)"
that is contained in said Section and inserting, in lieu thereof, a reference to
"Section 2(b)(i)."
6. Security Interest. Section 4 of the Stock Purchase Agreement is
-----------------
hereby amended by deleting said Section 4 in its entirety and inserting, in lieu
thereof, the following:
SECTION 4. Security Interest.
(a) Grant of Security Interest. As security for the payment of the
Purchase Price (excluding the Purchase Price Adjustment), the Company
hereby assigns, transfers and pledges to Wisner a continuing first
priority security interest in all of the Company's right, title and
interest in the Policy and any proceeds thereof (the "Collateral") and
hereby delivers the Policy and a collateral assignment thereof (the
"Assignment") to Wisner, receipt of which is hereby acknowledged by
Wisner.
(b) Representations and Warranties. The Company represents and
warrants to Wisner that except for the security interest granted
hereunder and any interests or liens that may have been created before
Wisner transferred the Policy to the Company, the Company is the legal
and equitable owner of the Collateral and holds the Collateral free
and clear of any liens, and the Company will not make any sale,
assignment, pledge, mortgage, or transfer of the Collateral except
pursuant to this Agreement. The Company covenants that it shall pay
the premiums and otherwise maintain the Policy as provided in Section
5.
(c) Further Assistance. The Company agrees, at its expense, promptly
to execute, acknowledge, deliver and cause to be duly filed all such
further instruments and documents and take all such actions as Wisner
may from time to time reasonably request to better assure and preserve
the security interest and the rights and remedies created hereby,
including the payment of any fees and taxes required in connection
with the execution
<PAGE>
and delivery of this Agreement, the granting of the security interest
created hereby, and the filing of any financing statements or other
documents in connection herewith. Without limiting the foregoing,
Wisner is hereby authorized to file one or more financing statements,
continuation statements, or other documents for the purpose of
perfecting, confirming, continuing, enforcing or protecting the
security interest granted by the Company hereunder, without the
signature of the Company, naming the Company as debtor and Wisner as
secured party.
(d) Enforcement. If the Company fails to pay the Purchase Price
(excluding the Purchase Price Adjustment) in accordance with the terms
of this Agreement, the Representative may, on Wisner's behalf, proceed
to protect and enforce the rights vested in Wisner by this Agreement,
including the right to cause the proceeds of the Policy (up to the
amount of the Purchase Price excluding the Purchase Price Adjustment)
to be paid directly to Wisner's estate or to another seller of Wisner
Stock hereunder, and to enforce Wisner's rights hereunder to such
proceeds and all other rights hereunder by such appropriate judicial
proceedings as it shall deem most effective to protect and enforce any
of such rights, either at law or in equity or in bankruptcy or
otherwise, and it may exercise any other or additional rights or
remedies granted to a secured party under applicable law.
(e) Termination of Security Interest. The security interest granted
by the Company hereunder shall terminate on the earlier to occur of:
(i) the termination of this Agreement or (ii) the transfer of the
Policy to Wisner or at the direction of Wisner pursuant to Section
5(d).
7. Payment of Premiums; Maintenance of Policy and Payment of Excess
----------------------------------------------------------------
Proceeds. Section 5 of the Stock Purchase Agreement is hereby amended by
- --------
deleting said Section 5 in its entirety and inserting, in lieu thereof, the
following:
SECTION 5 Payment of Premiums; Maintenance of Policy and Payment of
Excess Proceeds.
(a) Company's Payment Obligation. For so long as the security
interest described in Section 4 is in effect, the Company shall pay
all premiums and other expenses on the Policy as they become due
through March 2, 2007 (the date of Wisner's 65th birthday). The
Company may, but is not required to, continue to pay such premiums and
expenses after such date.
(b) Wisner's Right to Cure Nonpayment. So long as the Company is
obligated to pay the premiums and expenses of the Policy, if at any
time a premium or expense is not paid within twenty days after its due
date, Wisner shall be entitled to pay such premium or expense as agent
of the Company, and the Company shall reimburse him promptly
<PAGE>
(in cash or by delivery of a demand promissory note of the Company
substantially in the form attached hereto as Exhibit B) for any such
payment. The Company shall notify Wisner of any nonpayment of any such
premium or expense within twenty days after its due date and shall
authorize and direct The Prudential Insurance Company of America and
First Colony Life Insurance Co. to give Wisner, upon his written
request, any information about the status of the Policy.
(c) Wisner's Obligation to Cooperate. Wisner agrees to take any
physical examinations and sign any applications as shall be necessary
from time to time to maintain the Policy or to enable the Company to
obtain any additional insurance.
(d) Transfer of Policy upon Termination of Company's Payment
Obligation. When the Company is no longer obligated, and has not
elected, to maintain the Policy as provided in Section 5(a), the
Company shall transfer the Policy to or at the direction of Wisner and
shall change or assist in the changing of the beneficiary under the
Policy at Wisner's direction.
(e) Payment of Excess Proceeds. If, pursuant to the terms of this
Agreement, the Policy continues to be maintained by the Company at the
time of Wisner's death, the Company shall be entitled to any and all
proceeds of the Policy which exceed the aggregate amount of the
Purchase Price (excluding the Purchase Price Adjustment).
8. Termination. Section 9 of the Stock Purchase Agreement is
-----------
hereby amended by deleting said Section 9 in its entirety and inserting, in lieu
thereof, the following:
SECTION 9. Termination of this Agreement. This Agreement shall
terminate upon the first to occur of the following:
(a) The mutual written agreement of the Company and Wisner to
terminate this Agreement;
(b) The merger of the Company with another corporation or entity, or
the sale of all or substantially all of the assets of the Company to
another corporation or entity, in which a majority of the voting
equity interest of the surviving or successor corporation or entity is
not owned by the persons who immediately before the transaction were
shareholders of the Company; provided, however, that notwithstanding
anything in this Agreement to the contrary, the obligation of the
Company to pay, or cause to be paid, the Purchase Price Adjustment
shall survive any termination of this Agreement pursuant to this
Section 9(b); or
<PAGE>
(c) The date of which either of the following exists: (i) Wisner
shall be alive and shall not beneficially own any shares of Wisner
Stock or (ii) Wisner shall have died and the full amount of the
Purchase Price (including the Purchase Price Adjustment) shall been
paid by the Company.
Upon the termination of this Agreement, the security interest granted
hereby shall be terminated and the Company shall promptly assign the
Policy to Wisner, if he is then living. Once terminated, neither this
Agreement nor the security interest created hereby shall be reinstated
by any subsequent acquisition of shares of Common Stock by Wisner.
9. Governing Law. This First Amendment shall be governed by, and
-------------
construed in accordance with, the internal laws of the State of Georgia
applicable to agreements made and to be performed entirely within such state.
10. Counterparts. This First Amendment may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have affixed their respective hands
and seals, or have caused this First Amendment to be executed by their duly
authorized officers, this 14th day of October, 1996.
FINANCIAL SERVICE CORPORATION
By: /s/Thomas W. Hutchins
---------------------------
Title: Senior Vice President
/s/E. James Wisner (SEAL)
-------------------------
E. James Wisner
<PAGE>
"Exhibits"
Exhibit I.
Prudential Insurance Company Of America;
Policy No. #79622023
---------
Policy Amount: $1,300,000
Exhibit II.
First Colony Life Insurance Company;
Policy No. #2609892
--------
Policy Amount: $3,500,000
<PAGE>
SALARY CONTINUATION AGREEMENT
-----------------------------
THIS SALARY CONTINUATION AGREEMENT (the "Agreement") is made and entered
into this 14th day of October, 1996, by and between FINANCIAL SERVICE
CORPORATION, a Georgia corporation with its principal executive offices in Cobb
County, Georgia (the "Company") and E. JAMES WISNER, a resident of Fulton
County, Georgia ("Wisner").
W I T N E S S E T H:
WHEREAS, Wisner is the President and Chief Executive Officer and a valued
employee of the Company whose continued services are important to the Company's
business; and
WHEREAS, the Company desires to encourage Wisner to continue to provide his
services to the Company by providing the death benefit contemplated by this
Agreement;
NOW, THEREFORE, FOR AND IN CONSIDERATION of the sum of Ten and No/100
Dollars ($10.00), the premises, the covenants hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as follows:
ARTICLE I
---------
Payment of Benefit
------------------
1.1 Amount of Benefit. The Company hereby agrees that upon Wisner's
--- -----------------
death the Company shall be obligated to pay to a beneficiary, as contemplated by
Sections 1.2 and 1.3 hereof, the following death benefit (the "Benefit"). The
aggregate amount of the Benefit shall be an amount equal to the product obtained
by multiplying (i) "Book Value" (hereinafter defined) by (ii) the number of
shares of "Wisner Stock" (hereinafter defined). Except as specifically noted to
the contrary in Section 2.4 hereof, the aggregate amount of the Benefit shall be
paid over a period of seven (7) years commencing on the date of Wisner's death
and ending on the day immediately preceding the seventh anniversary of Wisner's
death. Except as specifically noted to the contrary in Section 2.4 hereof, the
amount of the Benefit that is payable in any one year of this seven (7) year
period shall be one-seventh of the aggregate amount of the Benefit and is
referred to herein as the "Annual Benefit". Except as specifically noted to the
contrary in Section 2.4 hereof, the Annual Benefit contemplated by this Section
1.1 shall be paid by the Company in equal installments at such times as are
consistent with the Company's standard payroll practices as then in effect. The
parties acknowledge and agree that, as of the date of this Agreement, the
Company's standard payroll practices would result in an amount equal to one
twenty-fourth (1/24th) (or pro rata portion thereof for any period that is less
than one full pay period) of the Annual Benefit payable hereunder being paid to
the appropriate beneficiary on the 15th and the 30th of each month.
<PAGE>
For purposes of this Section 1.1, "Book Value" shall mean the book value
per share of Common Stock of the Company as reflected on the consolidated
financial statements of the Company prepared as of the last day of the month
immediately preceding the month in which Wisner dies and determined in
accordance with generally accepted accounting principles consistently applied,
which statements shall be certified by the Company's principal financial officer
(who for purposes of this Agreement must be someone other than Wisner) as
presenting fairly the financial condition of the Company.
For purposes of this Section 1.1, "Wisner Stock" shall mean (i) the 248,098
shares of Company Common Stock beneficially owned by Wisner on the date hereof
and (ii) any securities issued or issuable with respect to such shares of Common
Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation, or other
reorganization or otherwise, but the shares referred to in the foregoing clauses
(i) and (ii) shall be "Wisner Stock" only so long as they are beneficially owned
by Wisner or, after Wisner's death, by Wisner's estate. Other than as provided
above, "Wisner Stock" shall not include any shares of Common Stock acquired by
Wisner after the date hereof (including any shares beneficially owned on the
date hereof, transferred to a third party (unless Wisner retains beneficial
ownership), and subsequently reacquired by Wisner). Wisner shall be deemed to
"beneficially own" any shares of Common Stock which he owns of record, which are
held in trust for his benefit, or from which he otherwise derives a direct
pecuniary benefit. Wisner also shall be deemed to "beneficially own" any shares
of Common Stock held in trust for the benefit of his spouse or children, or
other relatives that are his dependents, or any shares of Common Stock owned
beneficially and of record by such persons, in either case to the extent that
such shares were acquired from Wisner, whether by gift or purchase. "Wisner
Stock" shall not include any options, warrants, or other contractual rights to
acquire shares of Common Stock.
1.2 Beneficiary Designation. Wisner shall file with the Company's Human
-----------------------
Resources Department a written designation of the beneficiary who shall be
entitled to receive the amount of any Benefit payable upon his death under
Section 1.1 hereof. Wisner may from time to time revoke or change his
beneficiary designation without the consent of any prior beneficiary by filing a
new designation with the Company's Human Resources Department. The last such
designation received by the Company's Human Resources Department shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Company's Human Resources
Department prior to Wisner's death, and in no event shall it be effective prior
to such receipt by the Company's Human Resources Department in writing.
1.3 Lack of Beneficiary Designation. If no beneficiary designation is in
-------------------------------
effect at the time of Wisner's death, the amount
2
<PAGE>
of any Benefit payable under this Agreement shall be paid to Wisner's Estate.
1.4 Tax Treatment of Death Benefits. The amount of any Benefit payable
-------------------------------
under this Agreement is intended to constitute an employee death benefit
qualifying for the maximum exclusion provided by Section 101(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). The amount of any Benefit payable
under this Agreement in excess of the maximum exclusion provided by Section
101(b) is understood by the parties hereto to represent compensation for past
services performed by Wisner and to be taxable to the beneficiary as income in
respect of a decedent under Section 691 of the Code.
ARTICLE II
----------
Limitations and Exclusions
--------------------------
2.1 Nonassignability. The right of Wisner or his designated beneficiaries
--- ----------------
to the payment of the Benefit provided under this Agreement shall not be
commuted, sold, assigned, transferred, pledged, encumbered, or otherwise
conveyed, nor shall any interest of Wisner or his designated beneficiaries be
subject to any claim of any creditor of Wisner or any beneficiary or subject to
any judicial process involving Wisner or any beneficiary.
2.2 Application for Insurance. In the event that the Company should elect
-------------------------
to apply for insurance on the life of Wisner, it may apply to an insurance
company selected by the Company (the "Insurer") for a life insurance policy or
policies on the life of Wisner. Wisner hereby agrees to do everything reasonably
necessary to cause the policy or policies to be issued, as requested by the
Company or the Insurer.
2.3 Ownership of Insurance. In the event that the Company should elect
----------------------
to apply for insurance on the life of Wisner, the Company will be the sole owner
and beneficiary of the policy or policies on Wisner's life acquired pursuant to
the terms of this Agreement and only the Company may exercise all rights and
incidents of ownership with respect to the policy or policies. Wisner shall have
no incidents of ownership or rights with respect to such policy or policies.
2.4 Payment of Insurance Proceeds. For purposes of this Section 2.4, the
-----------------------------
term "Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated October 2, 1991, by and between the Company and Wisner, as said Stock
Purchase Agreement may be amended from time to time, including (but not limited
to) the amendment contemplated by that certain First Amendment to Stock Purchase
Agreement dated October 14, 1996 by and between the Company and Wisner, which
Stock Purchase Agreement, as so amended, is incorporated herein by this
reference.
In the event that the Company should elect to maintain insurance on the
life of Wisner for the purpose of using the
3
<PAGE>
proceeds thereof to pay all or part of (i) the "Purchase Price (excluding the
Purchase Price Adjustment)" (as said terms are defined in the Stock Purchase
Agreement) pursuant to the Stock Purchase Agreement and/or (ii) the Benefit
hereunder, the proceeds of any such insurance shall be applied, and the Benefit
shall be paid, as hereinafter described. The parties hereto acknowledge and
agree that the insurance policies listed on Exhibit "A" attached hereto and
incorporated herein by this reference are not for the purpose of paying all or
---
part of (i) the "Purchase Price (excluding the Purchase Price Adjustment)"
pursuant to the Stock Purchase Agreement or (ii) the Benefit hereunder. The
parties hereto hereby acknowledge and agree further that the Company may add
policies to, or delete policies from, said Exhibit "A" at any time in its
discretion. Any such changes to Exhibit "A" shall be communicated to Wisner by
the Company by transmitting a copy of the revised Exhibit "A" to Wisner in
accordance with Section 4.8 hereof.
Proceeds from insurance described in the immediately preceding paragraph
shall be used first to pay the "Purchase Price (excluding the Purchase Price
Adjustment)" pursuant to the Stock Purchase Agreement. Any proceeds from such
insurance that are in excess of those required to pay the "Purchase Price
(excluding the Purchase Price Adjustment)" pursuant to the Stock Purchase
Agreement are referred to herein as the "Remaining Proceeds".
To the extent that the Remaining Proceeds exceed the aggregate amount of
the Benefit, (i) an amount equal to one-half of the aggregate amount of the
Benefit shall be paid to the beneficiary contemplated by Sections 1.2 and 1.3
hereof within sixty (60) days following the Company's receipt of such life
insurance proceeds and (ii) the remaining one-half of the aggregate amount of
the Benefit shall be paid to the beneficiary contemplated by Sections 1.2 and
1.3 hereof in six (6) equal annual installments, each of which payments shall be
due on the anniversary of Wisner's death, commencing on the first anniversary of
Wisner's death and ending on the sixth anniversary of Wisner's death.
To the extent that the Remaining Proceeds do not exceed the aggregate
amount of the Benefit, (i) an amount equal to one-half of such Remaining
Proceeds shall be paid to the beneficiary contemplated by Sections 1.2 and 1.3
hereof within sixty (60) days following the Company's receipt of such life
insurance proceeds, and (ii) an amount equal to the aggregate amount of the
Benefit minus the payment made under the foregoing clause (i) shall be paid to
the beneficiary contemplated by Sections 1.2 and 1.3 hereof in six (6) equal
annual installments, each of which payments shall be due on the anniversary of
Wisner's death commencing on the first anniversary of Wisner's death and ending
on the sixth anniversary of Wisner's death.
Notwithstanding anything in this Section 2.4 to the contrary, the Company
shall be under no obligation to segregate the Remaining Proceeds from its other
funds and the Company shall be entitled to the use of the Remaining Proceeds for
any purpose, in its sole discretion.
4
<PAGE>
ARTICLE III
Term of Agreement; Termination and Renewal
The initial term of this Agreement (the "Initial Term") shall expire on
January 31, 1998. If notice of non-renewal is not given to Wisner in accordance
with this Article III, this Agreement shall automatically renew for successive
one-year terms commencing on February 1st and ending on January 31st. Each
successive one-year term is referred to herein as a "Renewal Term".
The Company may terminate this Agreement effective as of January 31 of the
Initial Term or any Renewal Term by giving notice to Wisner, in accordance with
Section 4.8 hereof, that this Agreement will not renew at the end of the Initial
Term or Renewal Term then in effect. In order to be effective, such notice must
be given to Wisner no less than thirty (30) days prior to the end of the Initial
Term or Renewal Term then in effect.
ARTICLE IV
----------
Miscellaneous
-------------
4.1 No Right to Employment. Nothing contained in this Agreement shall give
--- ----------------------
Wisner the right to be retained in the employment of the Company (including any
of its subsidiaries or affiliated entities) or affect the right of any such
employer to dismiss Wisner.
4.2 Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the Company, its successors and assigns, and Wisner, his designated
beneficiaries, heirs, executors, administrators, and legal representatives.
4.3 Governing Law. This Agreement shall be construed in accordance with
-------------
with and governed by the laws of the State of Georgia.
4.4 Paragraph Headings. The paragraph headings contained in this Agreement
------------------
are for convenience only and shall in no manner be construed as a part of this
Agreement.
4.5 Entire Agreement. This Agreement constitutes the sole and entire
----------------
agreement with respect to the matters contained herein and any representation,
inducement, promise, or agreement, whether oral or written, which is not
embodied herein shall be of no force or effect.
4.6 Counterparts. For the convenience of the parties hereto, any number
------------
of counterparts may be executed, and each such executed counterpart shall be
deemed to be an original instrument.
4.7 Gender. Where the context so requires, the masculine gender shall be
------
construed to include the feminine, the singular
5
<PAGE>
shall be construed to include the plural, and the plural the singular.
4.8 Notices. Any notice or other communication required or provided for
-------
under this Agreement shall be in writing and shall be deemed to have been given
when delivered by hand or when deposited in the United States mail, certified or
registered mail, return receipt requested, postage prepaid, properly addressed
to the party to whom such notice or other communication is intended to be given.
The proper address of the Company shall be:
Financial Service Corporation
2300 Windy Ridge Parkway
Suite 1100
Atlanta, Georgia 30339
Attention: Barry F. Kane
The proper address of Wisner shall be:
1339 Beechwood Hills Court
Atlanta, Georgia 30327
Either party hereto may change his or its address upon advance written notice to
the other party hereto.
4.9 Severability. If any term, covenant, or condition of this Agreement
------------
or the application thereof to any person or circumstance shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement or the application
of such terms, covenants, and conditions to persons or circumstances other than
those as to which it has been held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and be enforced to the fullest extent permitted by law.
4.10 Unfunded Plan. This Agreement is intended to implement an
-------------
unfunded deferred compensation plan maintained by the Company primarily for the
purpose of providing deferred compensation for a select group of management
employees.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and its seal to be hereunto affixed, and Wisner has
hereunto set his hand and seal, all being done in multiple originals with one
original being delivered to each party on the day and year first above written.
6
<PAGE>
(CORPORATE SEAL) FINANCIAL SERVICE CORPORATION
Attest:
/s/ Thomas M. Wells By: /s/Thomas W. Hutchins
------------------------------- ---------------------------
Title: Thomas M. Wells Title: Thomas W. Hutchins
Vice President Senior Vice President
Signed, sealed and delivered
in the presence of:
/s/ Sheri L. Hines
- ------------------------------
Unofficial Witness
/s/ Michele Makiya /s/E. James Wisner (SEAL)
- ------------------------------ ------------------------
Notary Public E. James Wisner
7
<PAGE>
Exhibit "A"
-----------
Insurance Policies
- ------------------
1. Prudential Insurance Company of America;
Policy No. #79622023
---------
Policy Amount: $1,300,000
2. First Colony Life Insurance Company;
Policy No. #2609892
--------
Policy Amount: $3,500,000
<PAGE>
10.20
TERMINATION OF DEATH BENEFIT AGREEMENT
--------------------------------------
THIS TERMINATION OF DEATH BENEFIT AGREEMENT (this "Termination
Agreement") is made and entered into this 14th day of October, 1996, by and
between FINANCIAL SERVICE CORPORATION, a Georgia corporation with its principal
executive offices in Cobb County, Georgia (the "Company"), and E. JAMES WISNER,
a resident of Fulton County, Georgia ("Wisner").
W I T N E S S E T H:
WHEREAS, on October 2, 1991, the Company and Wisner entered into that
certain Death Benefit Agreement (the "Death Benefit Agreement") pursuant to
which the Company agreed that, upon Wisner's death, the Company would pay a
death benefit on terms, and subject to conditions, set forth in said Death
Benefit Agreement; and
WHEREAS, on October 2, 1991, the Company and Wisner entered into that
certain Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to
which the Company and Wisner agreed that, upon Wisner's death, the Company would
purchase certain shares of Common Stock of the Company then owned by Wisner on
terms, and subject to conditions, set forth in said Stock Purchase Agreement;
and
WHEREAS, the Company and Wisner have amended the Stock Purchase Agreement
to, among other things, (i) provide for a different method of calculating the
purchase price to be paid by the Company for certain shares of Company Common
Stock held by Wisner at his death, (ii) reflect that the Company has obtained
additional life insurance with which to fund a portion of the purchase price and
(iii) provide that life insurance proceeds in excess of those required to fund a
portion of the purchase price will be paid to the Company and not to Wisner's
estate;
WHEREAS, the Company and Wisner have entered into a Salary Continuation
Agreement of even date herewith with the understanding that the Death Benefit
Agreement would be terminated; and
WHEREAS, as a result of having amended the Stock Purchase Agreement and
having entered into the Salary Continuation Agreement, the Company and Wisner
have each determined that it is in their respective best interests to terminate
the Death Benefit Agreement.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the sum of Ten and No/100
Dollars ($10.00), the premises, the covenants hereinafter set forth and other
good and valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
(i) that the Death Benefit Agreement is hereby terminated, (ii) that the
insurance policy or policies that were the subject of the Death Benefit
Agreement shall, from and after the date hereof, be held
<PAGE>
pursuant to the terms of the Stock Purchase Agreement, as amended, and (iii)
that from and after the date hereof the Death Benefit Agreement shall be of no
force or effect.
IN WITNESS WHEREOF, the parties hereto have affixed their respective hands
and seals, or have caused this Termination of Death Benefit Agreement to be
executed by their duly authorized officers, this 14th day of October, 1996.
FINANCIAL SERVICE CORPORATION
By: /s/Thomas W. Hutchins
--------------------------
Title: Senior Vice President
/s/E. James Wisner (SEAL)
------------------------
E. James Wisner
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
STATE OF
COMPANY NAME INCORPORATION
- ------------ -------------
FSC Corporation Georgia
FSC Advisory Corporation Georgia
FSC Realty Advisors Corporation Georgia
FSC Resources Corporation Georgia
Financial Service Corporation of America Georgia
FSC Realty, Inc. Georgia
FSC Securities Corporation Georgia
FSC Agency, Inc. Georgia
Forthright Agency of Nevada, Inc. Georgia
Forthright Agency of Ohio, Inc. Ohio
Forthright Agency of Oklahoma, Inc. Georgia
Forthright Insurance Agency of Massachusetts, Inc. Georgia
Forthright Agency of Alabama, Inc. Alabama
FSC Agency of Hawaii, Inc. Hawaii
FSC Agency of Louisiana, Inc. Louisiana
Forthright Agency of Arizona, Inc. Arizona
FSC Agency of Arkansas, Inc. Arkansas
Forthright Service Corporation Indiana
FSC Insurance Agency of Indiana, Inc. Indiana
Forthright Agency of Pennsylvania, Inc. Pennsylvania
Forthright Agency of North Dakota, Inc. North Dakota
Forthright Agency of Montana, Inc. Montana
FSC Agency of Puerto Rico, Inc. Puerto Rico
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION FOR THE YEARS ENDED DECEMBER
31, 1996, 1995 AND 1994 WITH REPORT OF INDEPENDENT ACCOUNTANTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,215,711
<SECURITIES> 0
<RECEIVABLES> 9,072,044
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,266,935
<PP&E> 6,599,737
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,866,672
<CURRENT-LIABILITIES> 17,035,380
<BONDS> 0
0
0
<COMMON> 9,247
<OTHER-SE> 13,822,045
<TOTAL-LIABILITY-AND-EQUITY> 30,866,672
<SALES> 0
<TOTAL-REVENUES> 123,876,673
<CGS> 0
<TOTAL-COSTS> 121,150,499
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,726,174
<INCOME-TAX> (4,235,800)
<INCOME-CONTINUING> 6,961,974
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,961,974
<EPS-PRIMARY> 7.87
<EPS-DILUTED> 0
</TABLE>
