U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _______________________
Commission File Number: 33-89966
TREMONT ADVISERS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 06-1210532
State or other jurisdiction (I.R.S. Employer Identification No)
or incorporation or organization)
555 Theodore Fremd Avenue, Rye, New York 10580
(Address of principal executive offices) (Zip Code)
(914) 925-1140
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period) that the issuer was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Check whether the issuer filed all documents and reports required to be
filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the Registrant's Class A Common Stock,
$0.01 par value, as of the close of business on November 3, 1998 was 1,284,718,
and the number of shares outstanding of the Registrant's Class B Common Stock,
$0.01 par value, was 2,934,604 as of the same date.
<PAGE>
INDEX
Tremont Advisers, Inc.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets - September 30, 1998 (unaudited)
and December 31, 1997 (audited) 1
Condensed Consolidated Statements of Income -
nine and three months ended September 30, 1998 and 1997 2
Condensed Consolidated Statement of Shareholders' Equity - 3
nine months ended September 30, 1998
Condensed Consolidated Statements of Comprehensive Income -
nine and three months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
Exhibit 10.53 - Tremont Advisers, Inc. 1998 Stock Option Plan 16
Exhibit 27 - Financial Data Schedule 25
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Tremont Advisers, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
<S> <C> <C>
September 30 December 31
1998 1997
(Unaudited) (Audited)
Assets
Current Assets
Cash and cash equivalents $1,322,228 $ 820,801
Accounts receivable, less allowances for bad debts of
$35,000 and $25,000, respectively 2,668,509 2,011,445
Receivable from officer --- 200,000
Income taxes receivable 101,454 ---
Prepaid expenses and other 103,518 123,103
-------- --------
Total current assets 4,195,709 3,155,349
Investments in limited partnerships (cost - $1,513,467 and $803,467) 2,043,056 1,221,487
Investments in joint ventures (cost - $625,867 and $371,667) 152,004 99,345
Other investments (cost - $86,000) 63,286 75,420
Fixed assets, net 370,657 401,153
Other assets 30,075 28,958
--------- -------
Total assets $6,854,787 $4,981,712
========== ==========
Liabilities and shareholders' equity
Current liabilities
Accounts payable $ 54,991 $ 50,490
Accrued expenses 1,329,096 1,112,734
Income taxes payable --- 1,143
Deferred income taxes payable 5,600 171,500
-------- --------
Total current liabilities 1,389,687 1,335,867
Deferred income taxes payable 503,073 160,600
Shareholders' equity
Preferred Stock $1 par value, 350,000 shares authorized, issued
and outstanding - none --- ---
Class A Common Stock, $0.01 par value, 5,000,000 shares
authorized, 1,284,718 shares issued and outstanding 12,847 12,847
Class B Common Stock, $0.01 par value, 10,000,000 shares
authorized, 2,934,604 and 2,802,104 shares issued and outstanding 29,346 28,021
Additional paid in capital 5,088,229 4,725,293
Accumulated deficit (163,132) (1,280,916)
Cumulative foreign currency translation adjustment (5,263) ---
------------ ----------
Total shareholders' equity 4,962,027 3,485,245
---------- ----------
Total liabilities and shareholders' equity $6,854,787 $4,981,712
========== ==========
</TABLE>
See accompanying notes.
Note: The Condensed Consolidated Balance Sheet at December 31, 1997 has been
derived from the audited financial statements as of that date.
1
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<S> <C> <C>
Nine months ended Three months ended
September 30 September 30
1998 1997 1998 1997
--------------------- ---------------------
Revenues
Consulting fees $6,982,921 $3,802,441 $2,646,792 $1,486,172
Performance fees 324,344 246,260 7,856 68,319
Commissions 316,203 253,359 97,994 131,115
---------- ---------- ---------- ---------
Total revenues 7,623,468 4,302,060 2,752,642 1,685,606
Expenses
Compensation 2,784,124 2,230,974 990,767 810,705
General and administrative 1,895,107 1,019,008 739,498 449,290
Consulting 993,728 492,486 332,787 214,573
Depreciation and amortization 133,623 88,850 51,164 34,358
---------- ---------- --------- ---------
Total expenses 5,806,582 3,831,318 2,114,216 1,508,926
---------- --------- ---------- ---------
1,816,886 470,742 638,426 176,680
Equity earnings of limited partnerships, net 111,569 183,698 (39,899) 92,023
Loss from operations of joint ventures, net (201,541) (59,871) (66,381) (19,823)
Other income, net 28,964 21,768 13,223 5,218
Minority interest 17,500 --- 17,500 ---
---------- --------- ---------- ---------
Income before taxes 1,773,378 616,337 562,869 254,098
Provision for income taxes 655,594 139,677 246,412 70,077
----------- --------- ---------- ---------
Net income $1,117,784 $ 476,660 $ 316,457 $ 184,021
========== ============ ============ ==========
Basic earnings per Common Share $ 0.27 $ 0.12 $ 0.08 $ 0.05
========== ============ ============ ==========
Diluted earnings per Common Share $ 0.26 $ 0.12 $ 0.07 $ 0.04
========== ============ ============ ==========
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
Tremont Advisers, Inc.
Consolidated Statement of Shareholders' Equity
<S> <C> <C> <C> <C>
Common Stock Additional Currency Total
Shares Outstanding Par Value Paid In Accumulated Translation Shareholders'
Class A Class B Class A Class B Capital Deficit Adjustment Equity
----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 1,284,718 2,802,104 $12,847 $ 28,021 $4,725,293 ($1,280,916) $-- $3,485,245
Issuance of Class B
Common Stock - exercise
of Director Options -- 2,500 -- 25 9,350 -- -- 9,375
Issuance of Class B
Common Stock - exercise
Of Officers Options -- 130,000 -- 1,300 227,450 -- -- 228,750
Income tax benefits
related to exercise of
Officers Options -- -- -- -- 126,136 -- -- 126,136
Foreign currency
translation adjustment -- -- -- -- -- -- ( 5,263) (5,263)
Net income -- -- -- -- -- 1,117,784 -- 1,117,784
-----------------------------------------------------------------------------------------------------------------
1,284,718 2,934,604 $12,847 $ 29,346 $5,088,229 ($ 163,132) ($5,263) $4,962,027
=================================================================================================================
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
<S> <C> <C>
Nine months ended Three months ended
September 30 September 30
1998 1997 1998 1997
----------------------------- -------------------
Net income $1,117,784 $ 476,660 $ 316,457 $ 184,021
Other comprehensive income
Foreign currency translation adjustment (5,263) --- (5,263) ---
------------ ----------- ----------- ------------
Comprehensive income $1,112,521 $ 476,660 $ 311,194 $ 184,021
========== =========== ============ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
Tremont Advisers, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C>
Nine months ended
September 30
1998 1997
---------------------------
Operating activities
Net income $1,117,784 $ 476,660
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 133,623 88,850
Equity earnings of limited partnerships (111,569) (183,698)
Loss from operations of joint ventures 201,541 59,871
Loss from other investments 12,134 2,909
Deferred income taxes 176,573 ---
Foreign currency translation adjustment (5,263) ---
Minority interest (17,500) ---
Changes in operating assets and liabilities:
Accounts receivable, net (657,064) 3,870
Receivable from officer 200,000 ---
Prepaid expenses and other 19,585 (99,005)
Accounts payable 4,501 30,185
Accrued expenses 216,362 (239,678)
Deferred revenue --- 12,500
Income taxes, net (102,597) 25,950
Other assets (1,117) ---
----------- ----------
Net cash provided by operating activities 1,186,993 178,414
Investing activities
Purchase of fixed assets (103,127) (264,663)
Investments in limited partnerships (710,000) (685,000)
Investments in joint ventures (254,200) (37,683)
Proceeds from sale of joint ventures --- 9,638
Proceeds from sale of other investments --- 84,000
----------- ----------
Net cash used by investing activities (1,067,327) (893,708)
Financing Activities
Net proceeds from the issuance of Class B Common Stock -- 723,254
Exercise of stock options 238,125 ---
Income tax benefits related to stock options exercised 126,136 ---
Issuance of equity to minority interest holder 17,500 ---
----------- -----------
Net cash provided by financing activities 381,761 723,254
Net increase in cash 501,427 7,960
Cash and cash equivalents at beginning of period 820,801 551,710
----------- -----------
Cash and cash equivalents at end of period $1,322,228 $ 559,670
========== =========
</TABLE>
See accompanying notes.
5
<PAGE>
Tremont Advisers, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation have
been included. Operating results for the nine and three months ended September
30, 1998 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Tremont
Advisers, Inc. (the "Company") Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1997.
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 disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from such estimates.
On July 13, 1998, the Company formed Tremont Investment Management, Inc.
("TIMI"), an investment adviser and portfolio manager located in Canada. TIMI,
which is 65% owned by the Company, has applied for registration with the Ontario
Securities Commission as investment counsel and portfolio manager and as a
limited market dealer under the Securities Act (Ontario). At September 30, 1998,
the Company had invested $132,500 in TIMI.
On July 14, 1998, the Company formed Tremont Futures, Inc. ("TFI"). TFI is
currently in the process of applying for registration with the Commodity Futures
Trading Commission and the National Futures Association as a commodity pool
operator and commodity trading advisor.
Principles of Consolidation: The condensed consolidated financial
statements include the accounts of the Company and its majority owned
subsidiaries. The Company's investment in affiliates, in which it owns between
20% and 50%, are accounted for in accordance with the equity method. All
material intercompany transactions and accounts have been eliminated in
consolidation.
Net Income per Common Share: Basic earnings per share is based on the
weighted average number of shares of Common Stock outstanding during the period.
Diluted earnings per share is based on the weighted average number of shares
outstanding during the period adjusted for the effects of dilutive securities.
Minority Interest: The Company presently owns 65% of TIMI. For financial
reporting purposes, the assets, liabilities and earnings of TIMI have been
included in the Company's condensed consolidated financial statements. Tremont's
joint venture partner's 35% interest in TIMI has been recorded as a minority
interest for which it paid $17,500.
6
<PAGE>
Foreign Currency Translation: The Company accounts for translation of
foreign currency in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation." The assets and liabilities of the
Company's Canadian subsidiary are translated at the current exchange rate as of
the balance sheet date, while capital accounts are translated at historical
rates. The revenues and expenses are translated using an average exchange rate
during the period. Adjustments resulting from these translations are reflected
in a separate component of shareholders' equity titled "Cumulative foreign
currency translation adjustment."
Concentrations of Credit Risk: The Company's accounts receivable are not
concentrated in any specific geographic region, but are concentrated in the
investment industry. Although the Company's exposure to credit risk associated
with nonpayment by customers is affected by conditions within the investment
industry, no customer exceeded 10% of the Company's net receivables at September
30, 1998.
Income Taxes: The provision for income taxes includes federal and state
taxes currently payable and those deferred because of temporary differences
between the financial statement and the tax basis of assets and liabilities. The
income tax provision also gives effect to permanent differences between
financial and taxable income, resulting in a lower effective tax rate than the
statutory income tax rate.
Deferred income taxes were not provided on certain undistributed foreign
earnings ($200,000 at September 30, 1998) of Tremont (Bermuda) Limited ("TBL"),
one of the Company's wholly-owned subsidiaries, because such undistributed
earnings are expected to be reinvested indefinitely overseas. A valuation
allowance is recorded, based on available evidence, when it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
NOTE B - Investments in Limited Partnerships
At September 30, 1998 and December 31, 1997, Tremont Partners, Inc.'s
("TPI") investment in The Broad Market Fund, L.P. was $776,798 and $688,592,
representing .42% and .51% of the fund's net assets, respectively. Summarized
financial unaudited information of The Broad Market Fund, L.P. is as follows:
<TABLE>
<S> <C>
September 30, 1998 December 31, 1997
------------------ -----------------
Total assets $184,574,394 $162,511,390
Total liabilities 1,113,399 28,567,596
Nine months ended September 30
1998 1997
-------------------------------------------
Net investment income $ 2,414,595 $ 1,755,910
Net realized and unrealized
gain on investments 16,544,253 12,524,845
------------ -----------
Net income $18,958,848 $14,280,755
=========== ===========
</TABLE>
7
<PAGE>
NOTE B - Investments in Limited Partnerships (continued)
At September 30, 1998, TPI's investments in the Meridian Horizon Fund,
L.P., GamTree, L.P., The F.W. Thompson Fund, L.P. and The Broad Market Prime
Fund, L.P. were $350,981, $180,650, $82,106 and $54,293, respectively. At
December 31, 1997, TPI's investments in the Meridian Horizon Fund, L.P.,
GamTree, L.P., The F.W. Thompson Fund, L.P. and The Broad Market Prime Fund,
L.P. were $299,483, $186,717, $46,695 and zero, respectively. Effective July 1,
1998, TPI resigned as a co-general partner to Meridian Horizon Fund, L.P. The
aggregated summarized unaudited financial information of these entities, as
reported by the Funds' underlying investment managers, is as follows:
<TABLE>
<S> <C> <C>
September 30, 1998 December 31, 1997
----------------- -----------------
Total assets $450,289,129 $249,504,158
Total liabilities 80,637,905 60,805,159
Nine months ended September 30
1998 1997
--------------------------------
Net investment loss ($ 3,046,274) ($ 992,966)
Net realized and unrealized gain
on investments 31,616,406 14,449,520
----------- ------------
Net income $28,570,131 $13,456,554
=========== ===========
</TABLE>
Effective September 1, 1998, American Masters Market Neutral Fund, L.P.
("AMF") became the newest addition to the Company's line of proprietary
products. This domestic multi-manager limited partnership was formed for the
purpose of achieving long term capital appreciation irrespective of stock market
volatility. TFI is the general partner of the limited partnership and, as such,
is involved in the day-to-day management of the partnership. AMF will pay TFI a
monthly management fee based on the net asset value of the partnership as of the
end of each month. At September 30, 1998, TFI had an investment of $598,228 in
AMF representing 54.7% of the funds' net assets.
September 30, 1998
----------------------
Total Assets $1,126,772
Total Liabilities 32,890
Period ended
September 30, 1998
------------------
Net investment loss ($11,118)
Net realized and unrealized gain on investments ---
------------
Net loss ($11,118)
============
NOTE C - Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<S> <C> <C>
September 30, 1998 December 31, 1997
------------------- -----------------
Professional and consulting fees $ 844,527 $ 741,105
Compensation 346,499 200,000
Note payable 51,852 87,840
Employee benefit plan 37,400 46,566
Printing and graphics 34,263 18,000
Other 14,555 19,223
--------- ----------
$1,329,096 $1,112,734
========== ==========
</TABLE>
The note payable consists of a 30-month note payable, maturing October 1999,
relating to the purchase of certain insurance policies.
8
<PAGE>
NOTE D - Shareholders' Equity
On August 7, 1998, the Company amended its Certificate of Incorporation
increasing the authorized number of shares of Class B Common Stock, $.01 par
value per share, from five million (5,000,000) shares to ten million
(10,000,000) shares. The amendment also provided that all or any shares of Class
A Common Stock, $.01 par value per share, be convertible, at the option of the
holder thereof, into an equivalent number of shares of Class B Common Stock.
NOTE E - Stock Options
During May 1998, a director exercised options to purchase 2,500 shares of
Class B Common Stock at $3.75 per share. During August 1998, two executive
officers exercised options and purchased 125,000 and 5,000 shares of Class B
Common Stock at $1.75 and $2.00 per share, respectively. A summary of the
Company's stock option activity for the nine months ended September 30, 1998 is
as follows:
Outstanding-beginning of period: 416,666
Granted ---
Exercised (132,500)
Lapsed ---
----------
Outstanding-end of period 284,166
==========
Exerciseable at end of period 221,666
On September 17, 1998, the Company's Board of Directors adopted, subject to
shareholder approval, the Tremont Advisers, Inc. 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for the issuance of up to 200,000 shares of
Class B Common Stock in connection with stock options and other awards granted
under such plan. The 1998 Plan authorizes the grant of incentive stock options
and non-qualified stock options and stock rights. The exercise price for
incentive stock options shall not be less than the fair market value of the
underlying shares on the date of grant. The exercise price for non-statutory
stock options and stock rights shall not be less than the minimum legal
consideration required therefore under the laws of any jurisdiction in which the
Company, or its successors in interest, may be organized. The 1998 Plan is
administered by a committee of the Board of Directors. The committee has the
authority to determine the employees to whom awards will be made, the amount of
awards, and the other terms and conditions of the awards. As of September 30,
1998, no options have been granted under the 1998 Plan.
9
<PAGE>
NOTE F - Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<S> <C> <C>
Nine months ended Three months ended
September 30 September 30
1998 1997 1998 1997
---------------------------- -------------------------
Numerator:
Net Income - numerator for
basic and dilutive earnings
per share (income available
to common shareholders) $1,117,784 $ 476,660 $ 316,457 $ 184,021
Denominator:
Denominator for basic
earnings per share - weighted
average shares 4,111,941 3,951,912 4,159,974 4,086,822
Effect of dilutive securities:
Stock options 135,407 122,866 199,028 141,786
Denominator for diluted
earnings per share; adjusted
weighted-average shares and
assumed conversions 4,247,348 4,074,778 4,359,003 4,228,608
Basic earnings per share $ 0.27 $ 0.12 $ 0.08 $ 0.05
Diluted earnings per share $ 0.26 $ 0.12 $ 0.07 $ 0.04
</TABLE>
NOTE G - Contingencies
The Company is being sued by a former employee for alleged breach of
contract and defamation. The Company believes that the suit is without merit;
however, should the plaintiff prevail the Company believes that it is likely
that the damages will not be material to the Company's financial condition or
operations.
NOTE H - Employee Benefit Plan
On September 17, 1998, the Board of Directors amended the Tremont Advisers,
Inc. 401(k) Savings Plan, effective January 1, 1998, to allow employer matching
contributions and to allocate the Company's employer discretionary contributions
based upon the Company's fiscal year profitability, as related to
pre-established financial objectives. The Company's matching contribution for
the year ending December 31, 1998 will be 25 cents for each $1 a participant
contributes as an employee salary deferral up to a limit of 6.25% of eligible
compensation ($160,000 maximum for 1998). Contributions will be made annually,
subsequent to year end, based upon the previous year's salary deferrals.
NOTE I - Subsequent Events
The Company has agreed to acquire TASS Management Limited ("TASS"), a
London based company specializing in alternative investment and research
services. The Company will merge TASS's extensive database with the Company's
proprietary database to create a global database of 2,200 managers and hedge
funds. TASS will primarily sell research and data, as well as new products and
services. The acquisition is expected to be completed during the first quarter
of 1999.
10
<PAGE>
Item 2. Management's Discussion and Analysis
Tremont Advisers, Inc.'s (the "Company") revenues are derived from
consulting and specialized investment services provided to institutional and
other clients, as well as management fees from certain funds under management.
Consulting fees are generally a function of the amount of assets under
management and the percentage fees charged to clients. Management fees are based
on a percentage of the assets of the managed fund and are usually paid on a
monthly or quarterly basis. The Company also receives asset-based fees for
investments placed by its wholly owned foreign subsidiary, Tremont (Bermuda)
Limited ("TBL"), in certain offshore mutual funds. The Company provides other
consulting services generally on a fixed-fee basis, whether as annual retainer
fees or single project fees. The Company's principal operating expenses consist
of its costs of personnel and independent consultants. It is management's
intention to continue the Company's focus on launching new products and taking
advantage of its growing world-wide relationships in order to expand its
operations.
Consulting fees increased $3,180,480, or approximately 83.6%, from
$3,802,441 for the nine months ended September 30, 1997, to $6,982,921 for the
nine months ended September 30, 1998. At the Company's wholly owned significant
domestic subsidiary, Tremont Partners, Inc. ("TPI"), consulting fees increased
from $2,275,454 for the nine months ended September 30, 1997 to $4,665,750 for
the nine months ended September 30, 1998. The increase at TPI is primarily due
to increases in revenues from its proprietary products, The Broad Market Prime
Fund, L.P. ($1,107,413) and The Broad Market Fund, L.P. ($330,998),
respectively. In addition, revenues from the Meridian Horizon Fund, L.P.
increased by $375,038 over the similar period in 1997. Consulting fees also
increased domestically as a result of Tremont Securities, Inc. ("TSI"), the
Company's wholly-owned broker dealer subsidiary ,realized consulting fees from
the sale of limited partnerships. These fees amounted to $71,506 for the nine
months ended September 30, 1998 and did not occur in the nine months ended
September 30, 1997. TBL's consulting fees increased from $1,526,987 for the nine
months ended September 30, 1997 to $2,245,665 for the nine months ended
September 30, 1998. The increase at TBL is primarily due to increases in
revenues from its proprietary products, the Class B Shares of the Kingate Global
Fund, Ltd. ($401,875) and Tremont Broad Market, LDC ($100,946), as well as
several new clients. The increase in revenue was primarily as a result of
increases or decreases in the value of the assets within the respective
investment vehicles, as well as a larger client base.
Consulting fees increased $1,160,620, or approximately 78.1%, from
$1,486,172 for the three months ended September 30, 1997, to $2,646,792 for the
three months ended September 30, 1998. TPI's consulting fees increased from
$825,633 for the three months ended September 30, 1997 to $1,733,126 for the
three months ended September 30, 1998. The increase at TPI is primarily due to
increases in revenues from its proprietary products The Broad Market Prime Fund,
L.P. ($441,266) and The Broad Market Fund, L.P. ($116,304), respectively. In
addition, revenue from the Chrysler Minority Equity Trust increased by $199,523
over the similar period in 1997. Consulting fees also increased domestically as
TSI realized consulting fees from the sale of limited partnership interest.
These fees amounted to $19,231 for the three months ended September 30, 1998 and
did not occur during the three months ended September 30, 1997. TBL's consulting
fees increased from $660,539 for the three months ended September 30, 1997 to
$894,435 for the three months ended September 30, 1998. The increase at TBL is
primarily due to increases in revenues from its proprietary products, the Class
B Shares of the Kingate Global Fund, Ltd. ($196,956), as well as several new
clients. The increases in revenues was primarily as a result of increases or
decreases in the value of the assets within the respective investment vehicles,
as well as a larger client base.
Performance fees for the nine months ended September 30, 1998 increased
$78,084, or 31.7%, compared to the nine months ended September 30, 1997,
primarily as a result of underlying investment vehicles outperforming their
established benchmarks. Performance fees for the three months ended September
30, 1998 decreased $60,463 or 88.5% compared to the three months ended September
30, 1997, primarily as a result of unfavorable changes in market conditions in
1998.
11
<PAGE>
Commissions received by TSI increased by $62,844 or 24.8% for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997, primarily as a result of increased trading activities by TSI's clients.
For the three months ended September 30, 1998, commissions decreased by $33,121
or 25.3% compared to the three months ended September 30, 1997, primarily as a
result of decreased trading activities by TSI's clients.
The three months ended September 30, 1998 have been difficult ones for
hedge funds. In particular the markets were roiled by a global flight to quality
caused by Russia's implicit default on their sovereign debt. The flight to
quality has dried up liquidity, particularly in the bond markets. The well
publicized debacles of recent months were products of leverage combined with
illiquidity. Until liquidity returns, the financial markets can be expected to
be choppy. Despite this environment, the Compan s proprietary products are
expected to perform relatively favorably in these markets because the products
have limited credit exposure and limited or no leverage. In addition, management
expects performance fee revenue to increase during periods of positive market
conditions, but management cannot predict with any accuracy whether such income
from performance fees will continue in the future due to changing market
conditions and other outside factors.
Compensation expense increased $553,150 or 24.8% and $180,062 or 22.2%,
respectively, for the nine and three months ended September 30, 1998, over the
similar periods in 1997, as a result of the Company's continued efforts to
attract and retain qualified employees. Such efforts resulted in an increase in
the number of employees to 36 at September 30, 1998 from 31 at September 30,
1997. In addition to the increase in the number of employees, compensation
expense also increased due to an increase in bonuses to be granted by the
Company to its employees, as well as salary increases for certain employees that
became effective January 1, 1998. In addition, health care costs increased due
to the increase in the number of employees.
General and administrative expenses increased $876,099 or 86.0% and
$290,208 or 64.6%, respectively, for the nine and three months ended September
30, 1998, as compared to similar periods in 1997. These increases consist
primarily of increases in rent, professional fees, travel and entertainment and
other related expenses. The increases were partially offset by decreases in
telecommunications due to an upgrade of service and equipment. The increase in
general and administrative expenses was primarily due to costs related to the
Company's continued expansion to service its business growth.
Consulting expenses increased $501,242 or 101.8% and $118,214 or 55.1%,
respectively for the nine and three months ended September 30, 1998, as compared
to the similar periods of 1997, primarily as a result of the increase in
revenues from the clients that participate in revenue sharing arrangements. For
example, TSI has an arrangement for securities clearance services with a
clearing broker dealer whereby a certain percentage of the commissions earned is
shared. Also, TPI and TBL have revenue sharing arrangements which relate to
certain clients.
Depreciation and amortization increased $44,773 or 50.4% and $16,806 or
48.9%, respectively, for the nine and three months ended September 30, 1998 as
compared to similar periods in 1997. The increase results from purchases of
fixed assets after September 30, 1997. These purchases included computer
upgrades, new software, the expansion of the computer network, as well as
furniture and fixtures for the Company's new executive offices. The Company made
capital expenditures of $103,127 during the nine months ended September 30,
1998, and wrote-off fully depreciated capital improvements ($13,636) of TSI due
to the closing of its Vermont branch office.
Equity earnings of limited partnerships decreased $72,129 or 39.3% and
$131,922 or 143.4%, respectively, for the nine and three months ended September
30, 1998, compared to similar periods in 1997. These decreases are primarily due
to decreased performance compared to similar periods in 1997, as a result of
unfavorable market conditions in 1998.
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Cash provided by operations was $1,186,993 for the nine months ended
September 30, 1998, as compared to $178,414 in the comparable period of 1997.
The $641,124 increase in net income for the period was offset by changes in
working capital accounts. These changes include increases in accounts receivable
and income taxes offset by decreases in a receivable from officer and accrued
expenses. The positive cash flow provided by operating activities was offset by
cash used in investing activities of $1,067,327 for the nine months ended
September 30, 1998.
The Company believes it has adequate apital resources and working capital
to bring to market those products currently in the developmental stage, and that
the revenue stream from these, as well as from existing products, will be
sufficient to support future growth. The Company has no material short-term or
long-term debt obligations.
The Company owns options to purchase 8,000 shares of a non-publicly
registered investment adviser specializing in 401(k) investment allocation
advice over the Internet. The options were granted at $10 per share and have
vested or will vest 25% on January 1, 1996; 25% in equal installments at the end
of each month between January 1, 1997 and December 31, 1997; and 50% in equal
installments at the end of each month between January 1, 1998 and December 31,
1998. The options have a five year term and were valued at zero by the Company
at September 30, 1998.
The Company owns 30,000 shares of common stock of a non-public financial
services company formed in 1996. The shares were received by the Company as a
result of an employee's participation as a board member of such company. At
September 30, 1998 the shares of common stock were valued at zero.
The Company, with a joint venture partner, formed Tremont Investment
Management, Inc. ("TIMI"). TIMI, 65% owned by the Company, has applied for
registration with the Ontario Securities Commission as investment counsel and
portfolio manager and as a limited market dealer under the Securities Act
(Ontario).
On July 14, 1998, the Company formed Tremont Futures, Inc. ("TFI"). TFI is
currently in the process of applying for registration with the Commodity Futures
Trading Commission and the National Futures Association as a commodity pool
operator and commodity trading advisor.
On August 7, 1998, the Company amended its Certificate of Incorporation
increasing the authorized number of shares of Class B Common Stock, $.01 par
value per share, from five million (5,000,000) shares to ten million
(10,000,000) shares. The amendment also provided that Class A Common Stock, $.01
par value per share, be convertible, at the option of the holder thereof, into
an equivalent number of Class B Common Stock, $.01 par value per share.
On September 17, 1998, the Company's Board of Directors adopted, subject to
shareholder approval, the Tremont Advisers, Inc. 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for the issuance of up to 200,000 shares of
Class B Common Stock in connection with stock options and other awards granted
under such plan. The 1998 Plan authorizes the grant of incentive stock options,
non-qualified stock options and stock rights. The exercise price for incentive
stock options shall not be less than the fair market value of the underlying
shares on the date of grant. The exercise price for non-statutory stock options
and stock rights shall not be less than the minimum legal consideration required
therefor under the laws of any jurisdiction in which the Company, or its
successors in interest, may be organized. The 1998 Plan is administered by a
committee of the Board of Directors. The committee has the authority to
determine the employees to whom awards will be made, the amount of awards, and
the other terms and conditions of the awards. As of September 30, 1998, no
options have been granted under the 1998 Plan.
During May 1998, a director exercised options and purchased 2,500 shares of
Class B Common Stock at $3.75 per share. During August 1998, two executive
officers exercised options and purchased 125,000 and 5,000 shares of Class B
Common Stock at $1.75 and $2.00 per share, respectively.
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The Company is being sued by a former employee for alleged breach of
contract and defamation. The Company believes that the suit is without merit;
however, should the plaintiff prevail the Company believes that it is likely
that the damages will not be material to the Company's financial condition or
operations.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to determine the applicable year. Any computer programs
that have time sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing significant disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities. Based on a recent assessment, the Company determined
that all but one of its computer systems are currently enabled for year 2000
entries, and the Company believes such system will be compliant within the
second quarter of 1999. The cost of such assessment was immaterial to the
Company. However, the Company could be adversely affected if the computer
systems used by the Company's service providers do not properly process and
calculate date-related information and data from and after January 1, 2000. The
Company is currently in communication with these other companies to determine if
there is reasonable cause for concern.
Certain statements in this Management's Discussion and Analysis constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward looking statements. These forward looking statements were based on
various factors and were derived utilizing numerous important assumptions and
other factors that could cause actual results to differ materially from those in
the forward looking statements, including, but not limited to: uncertainty as to
the Company's future profitability and the Company's ability to develop and
implement operational and financial systems to manage rapidly growing
operations, competition in the Company's existing and potential future lines of
business, and other factors. Other factors and assumptions not identified above
were also involved in the derivation of these forward looking statements, and
the failure of such other assumptions to be realized, as well as other factors,
may also cause actual results to differ materially from those projected. The
Company assumes no obligation to update these forward looking statements to
reflect actual results, changes in assumptions or changes in other factors
affecting such forward looking statements.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is being sued by a former employee for alleged breach of
contract and defamation. The Company believes that the suit is without merit;
however, should the plaintiff prevail the Company believes that it is likely
that the damages will not be material to the Company's financial condition or
operations.
Item 4. Submission of Matters to a Vote of Security Holers
On August 7, 1998, a majority of the shareholders granted their written consent
in accordance with Delaware law to a proposed amendment to the Company's
Certificate of Incorporation, initiated by the Company's Board of Directors,
which increased the authorized number of shares of Class B Common Stock, $.01
par value per share, from five million (5,000,000) shares to ten million
(10,000,000) shares and amended the terms of the Class A Common Stock, $.01 par
value per share, to provide that all or any of such shares of Class A Common
Stock be convertible, at the option of the holders thereof, into a like number
of shares of Class B Common Stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are included herein;
Exhibit 10.53 - Tremont Advisers, Inc. 1998 Stock Option Plan
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended September
30, 1998.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tremont Advisers, Inc.
Date: November 4, 1998 /s/ Stephen T. Clayton
Stephen T. Clayton
Chief Financial Officer
(Duly authorized Officer and
Principal Financial and Accounting
Officer)
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TREMONT ADVISERS, INC.
1998 STOCK PLAN
1. Purpose. The purpose of the Tremont Advisers, Inc. 1998 Stock Plan
(the "Plan") is to encourage key employees of Tremont Advisers, Inc. (the
"Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
(a) Board or Committee Administration. The Plan shall be
administered by a committee (the "Committee") of the Board of Directors of the
Company (the "Board"). The Committee, to the extent required by applicable
regulations under Section 162(m) of the Code, shall be comprised of two or more
"outside directors" (as defined in applicable regulations thereunder) who, to
the extent required by Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended, or any successor provision ("Rule 16b-3"), shall be
disinterested administrators within the meaning of Rule 16b-3. All references in
this Plan to the "Committee" shall mean the Board if no Committee has been
appointed. Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable state law), and subject to the
terms of the Plan, the Committee shall have the authority to (i) determine to
whom (from among the class of employees eligible under paragraph 3 to receive
ISOs) ISOs shall be granted, and to whom (from among the class of individuals
and entities eligible under paragraph 3 to receive Non-Qualified Options and
Awards and to make Purchases) Non-Qualified Options, Awards and authorizations
to make Purchases may be granted; (ii) determine the time or times at which
Options or Awards shall be granted or Purchases made; (iii) determine the
purchase price of shares subject to each Option or Purchase, which prices shall
not be less than the Minimum Price specified in paragraph 6; (iv) determine
whether each Option granted shall be an ISO or a Non-Qualified Option; (v)
determine (subject to paragraph 7) the time or times when each Option shall
become exercisable and the duration of the exercise period; (vi) extend the
period during which outstanding Options may be exercised; (vii) determine
whether restrictions are to be imposed on shares subject to Options, Awards and
Purchases and the nature of such restrictions, if any, and (viii) interpret the
Plan and prescribe and rescind rules and regulations relating to it. If the
Committee determines to issue a Non-Qualified Option, it shall take whatever
actions it deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem advisable. No member of
the Board or the Committee shall be liable for any action or determination made
in good faith with respect to the Plan or any Stock Right granted under it.
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(b) Committee Actions. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
(c) Grant of Stock Rights to Board Members. Subject to the
provisions of paragraph 3 below, if applicable, Stock Rights may be granted to
members of the Board. All grants of Stock Rights to members of the Board shall
in all other respects be made in accordance with the provisions of this Plan
applicable to other eligible persons. Consistent with the provisions of
paragraph 3 below, members of the Board who either (i) are eligible to receive
grants of Stock Rights pursuant to the Plan or (ii) have been granted Stock
Rights may vote on any matters affecting the administration of the Plan or the
grant of any Stock Rights pursuant to the Plan, except that no such member shall
act upon the granting to himself or herself of Stock Rights, but any such member
may be counted in determining the existence of a quorum at any meeting of the
Board during which action is taken with respect to the granting to such member
of Stock Rights.
(d) Exculpation. No member of the Board shall be personally
liable for monetary damages for any action taken or any failure to take any
action in connection with the administration of the Plan or the granting of
Stock Rights under the Plan, provided that this subparagraph 2(d) shall not
apply to (i) any breach of such member's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) acts or omissions that would
result in liability under Section 174 of the General Corporation Law of the
State of Delaware, as amended, and (iv) any transaction from which the member
derived an improper personal benefit.
(e) Indemnification. Service on the Committee shall constitute
service as a member of the Board. Each member of the Committee shall be entitled
without further act on his or her part to indemnity from the Company to the
fullest extent provided by applicable law and the Company's Certificate of
Incorporation and/or By-laws in connection with or arising out of any action,
suit or proceeding with respect to the administration of the Plan or the
granting of Stock Rights thereunder in which he or she may be involved by reason
of his or her being or having been a member of the Committee, whether or not he
or she continues to be a member of the Committee at the time of the action, suit
or proceeding.
3. Eligible Employees and Others. ISOs may be granted only to employees of
the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
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4. Stock Rights.
(a) Number of Shares Subject to Rights. The stock subject
to Stock Rights shall be authorized but unissued shares of Class B Common Stock
of the Company, par value $.01 per share (the "Common Stock"), or shares of
Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 500,000, subject to
adjustment as provided in paragraph 13. If any Stock Right granted under the
Plan shall expire or terminate for any reason without having bee exercised in
full or shall cease for any reason to be exercisable in whole or in part, the
shares of Common Stock subject to such Stock Right shall again be available for
grants of Stock Rights under the Plan.
(b) Nature of Awards. In addition to ISOs and Non-Qualified
Options, the Committee may grant or award other Stock Rights, as follows: (i)
Purchases. Participants may be granted the right to purchase Common Stock,
subject to such restrictions as may be specified by the Committee ("Restricted
Shares"). Such restrictions may include, but are not limited to, the requirement
of continued employment with the Company or a Related Corporation and
achievement of performance objectives. The Committee shall determine the
purchase price of the Restricted Shares, the nature of the restrictions and the
performance objectives, all of which shall be set forth in the agreement
relating to each right awarded to purchase Restricted Shares. The performance
objectives shall consist of (A) one or more in business criteria and (B) a
target level or levels of performance with respect to such criteria. The
performance objectives shall be objective and shall otherwise meet the
requirements of Section 162(m)(4)(C) of the Code. (ii) Awards. Awards of Common
Stock may be made to participants as a bonus or as additional compensation, as
may be determined by the Committee.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
at any time on or after October 1, 1998 and prior to September 30, 2007. The
date of grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. Options granted under the Plan are intended to qualify as performance
based compensation to the extent required under proposed Treasury Regulation
Section 1.162-27.
6. Minimum Option Price; ISO Limitations.
(a) Price for Non-Qualified Options, Awards and Purchases.
The exercise price per share specified in the agreement relating to each Non-
Qualified Option granted, and the purchase price per share of stock granted
in any Award or authorized as a Purchase, under the Plan shall in no event
be less than the minimum legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors iinterest may be
organized. Non-Qualified Options granted under the Plan, with an exercise price
less than the fair market value per share of Common Stock on the date of grant,
are intended to qualify as performance-based compensation under Section 162(m)of
the Code and any applicable regulations thereunder. Any such Non-Qualified
Options granted under the Plan shall be exercisable only upon the attainment of
a pre-established, objective performance goal established by the Committee.
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<PAGE>
(b) Price for ISOs. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant. For purposes of determining stock ownership under this paragraph, the
rules of Section 424(d) of the Code shall apply.
(c) $100,000 Annual Limitation on ISO Vesting. Each eligible
employee may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the company
and any related Corporation, ISOs do not become exercisable for the first time
by such employee during any calendar year with respect to stock having a fair
market value (determined at the time the ISOs were granted) in excess of
$100,000. The Company intends to designate any Options granted in excess of such
limitation as Non-Qualified Options.
(d) Determination of Fair Market Value. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on The American Stock Exchange, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on The American Stock Exchange. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall mean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(b). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO.
8. Exercise of Option. Subject to the provisions of paragraphs 9 through
12, each Option granted under the Plan shall be exercisable as follows:
(a) Vesting. The Option shall either be fully exercisable on
the date of grant or shall become exercisable thereafter in such installments as
the Committee may specify.
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(b) Full Vesting of Installments. Once an installment becomes
exercisable, it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
(c) Partial Exercise. Each Option or installment may be
exercised at any time or from time to time, in whole or in part, for up to the
total number of shares with respect to which it is then exercisable.
(d) Acceleration of Vesting. The Committee shall have the
right to accelerate the date that any installment of any Option becomes
exercisable; provided that the Committee shall not, without the consent of
an optionee, accelerate the permitted exercise date of any installment of any
Option granted to any employee as an ISO if such acceleration would violate the
annual vesting limitation contained in Section 422(d) of the Code, as described
in paragraph 6(c).
9. Termination of Employment. Unless otherwise specified in the
agreements relating to such ISOs, if an ISO optionee ceases to be employed by
the Company and all Related Corporations other than by reason of death or
disability or as otherwise specified in paragraph 10, no further installments of
his or her ISOs shall become exercisable, and his or her ISOs shall terminate on
the earlier of (a) ninety (90) days after the date of termination of his or her
employment, or (b) their specified expiration dates. For purposes of this
paragraph 9, employment shall be considered as continuing uninterrupted during
any bona fide leave of absence (such as those attributable to illness, military
obligations or governmental service) provided that the period of such leave does
no exceed 90 days or, if longer, any period during which such optionee's right
to reemployment is guaranteed by statute. A bona fide leave of absence with the
written approval of the Committee shall not be considered an interruption of
employment under this paragraph 9, provided that such written approval
contractually obligates the Company or any Related Corporation to continue the
employment of the optionee after the approved period of absence. ISOs granted
under the Plan shall not be affected by an change of employment within or among
the Company and Related Corporations, so long as the optionee continues to be an
employee of the Company or any Related Corporation. Nothing in the Plan shall be
deemed to give any grantee of any Stock Right the right to be retained in
employment or other service by the Company or any Related Corporation for any
period of time.
10. Death; Disability; Voluntary Termination; Breach.
(a) Death. If an ISO optionee ceases to be employed by the
Company and all Related Corporations by reason of his or her death, any ISO
owned by such optionee may be exercised, to the extent otherwise exercisable
on the date of death, by the estate, personal representative r beneficiary who
has acquired the ISO by will or by the laws of descent and distribution, until
the earlier of (i) the specified expiration date of the ISO or (ii) one (1) year
from the date of the optionee's death.
(b) Disability. If an ISO optionee ceases to be employed by
the Company and all Related Corporations by reason of his or her disability,
such optionee shall have the right to exercise any ISO held by him or her on the
date of termination of employment, for the number of shares for which he or she
could have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) one (1) year from the date of the termination
of the optionee's employment. For the purposes of the Plan, the term
"disability" shall mean "permanent and total disability" as defined in Section
22(e)(3) of the Code or any successor statute.
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(c) Voluntary Termination; Breach. If an ISO optionee
voluntarily leaves the employ of the Company and all Related Corporations or
ceases to be employed by the Company and all Related Corporations by reason of a
finding by the Committee, after full consideration of the facts presented on
behalf of both the Company and the Optionee, that the ISO optionee has breached
his or her employment or service contract with the Company or any Related
Corporation, or has been engaged in disloyalty to the Company or any Relate
Corporation, then, in either such event, in addition to immediate termination of
the Option, the ISO optionee shall automatically forfeit all shares for which
the Company has not yet delivered share certificates upon refund by the Company
of the exercise price of such Option. Notwithstanding anything herein to the
contrary, the Company may withhold delivery of share certificates pending the
resolution of any inquiry that could lead to a finding resulting in a
forfeiture.
11. Assignability. No Stock Right shall be assignable or transferable by
the grantee except by will, by the laws of descent and distribution or, in the
case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company related
to such Option:
(a) Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of
shares or if the Company shall issue any shares of Common Stock as a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
(b) Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding
Options, either (i) make appropriate provision for the continuation of such
Options by substituting on a
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equitable basis for the shares then subject to such Options either (A) the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition, (B) shares of stock of the surviving
corporation or (C) such other securities as the Successor Board deems
appropriate, the fair market value of which shall approximate the fair market
value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such notice, at the end of which period
the Options shall terminate; or (iii) terminate all Options in exchange for a
cash payment equal to the excess of the fair market value of the shares subject
to such Options (to the extent then exercisable) over the exercise price
thereof.
(c) Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph (b) above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
(d) Modification of ISO's. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs (a), (b) or (c) with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a "modification"
of such ISOs (as that term is defined in Section 424 of the Code) or would cause
any adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may refrain from making such adjustments.
(e) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
(f) Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class,or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to Options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(g) Fractional Shares. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional
shares.
(h) Adjustments. Upon the happening of any of the events
described in subparagraphs (a), (b) or (c) above, the class and aggregate
number of shares set forth in paragraph 4 hereof that are subject to Stock
Rights which previously have been or subsequently may be granted under the Plan
shall also be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 13 and, subject to
paragraph 2, its determination shall be conclusive.
22
<PAGE>
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised, accompanied by full
payment of the purchase price thereof either (a) in United States dollars in
cash or by check, (b) at the discretion of the Committee, through delivery of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Option, (c) at the discretion of the
Committee, by delivery of the grantee's personal recourse note bearing interest
payable not less than annually at no less than 100% of the lowest applicable
Federal rate, as define din Section 1274(d) of the Code, (d) at the discretion
of the Committee and consistent with applicable law, through the delivery of an
assignment to the Company of a sufficient amount of the proceeds from the sale
of the Common Stock acquired upon exercise of the Option and an authorization to
the broker or selling agent to pay that amount to the Company, which sale shall
be at the participant's direction at the time of exercise, or (e) at the
discretion of the Committee, by any combination of (a), (b), (c) and (d) above.
If the Committee exercises its discretion to permit payment of the exercise
price of an ISO by means of the methods set forth in clauses (b), (c), (d) or
(e) of the preceding sentence, such discretion shall be exercised in writing at
the time of the grant of the ISO in question. The holder of an Option shall not
have the rights of a shareholder with respect to the shares covered by such
Option until the date of issuance of a stock certificate to such holder for such
shares. Except as expressly provided above in paragraph 13 with respect to
changes in capitalization and stock dividends, no adjustment shall be made for
dividends or similar rights for which the record date is before the date such
stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
September 17, 1998, subject, with respect to the validation of ISOs granted
under the Plan, to approval of the Plan by the stockholders of the Company at
the next Meeting of Stockholders, or in lieu thereof, by written consent. If the
approval of stockholders is not obtained on or prior to August 31, 1999, any
grants of ISOs under the Plan made prior to that date will be rescinded. The
Plan shall expire at the end of the day on September 30, 2007, (except as to
Options outstanding on that date). Subject to the provisions of paragraph 5
above, Options may be granted under the Plan prior to the date of stockholder
approval of the Plan. The Board may terminate or amend the Plain in any respect
at any time, except that, without the approval of the stockholders obtained
within 12 months before or after the Board adopts a resolution authorizing any
of the following actions: (a) the total number of shares that may be issued
under the Plan may not be increased (except by adjustment pursuant to paragraph
13); (b) the benefits accruing to participants under the Plan may not be
materially increased; (c) the requirements as to eligibility for participation
in the Plan may not be materially modified; (d) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
of paragraph 6(b) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); (f) the expiration date of the Plan may not be extended; and (g) the Board
may not take any action which would cause the Plan to fail to comply with Rule
16b-3. Except as otherwise provided in this paragraph 15, in no event may action
of the Board or stockholders alter or impair the rights of a grantee, without
such grantee's consent, under any Option previously granted to such grantee.
16. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Options granted and Purchases authorized under the
Plan shall be used for general corporate purposes.
23
<PAGE>
17. Notice to Company of Disqualifying Disposition. By accepting an ISO
granted under the Plan, each optionee agrees to notify the Company in writing
immediately after such optionee makes a Disqualifying Disposition (as described
in Sections 421, 422 and 424 of the Code and regulations thereunder) of any
stock acquired pursuant to the exercise of ISOs granted under the Plan. A
Disqualifying Disposition is generally any disposition occurring on or before
the later of (a) the date two years following the date the ISO was granted or
(b) the date one year following the date the ISO was exercised.
18. Withholding of Additional Income Taxes. Upon the exercise of a
Non-Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 17), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includible in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash or
by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
19. Governmental Regulation. The Company's obligation to sell and deliver
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
Government regulations may impose reporting or other obligations on the
Company with respect to the Plan. For example, the Company may be required to
send tax information statements to employees and former employees that exercise
ISOs under the Plan, and the Company may be required to file tax information
returns reporting the income received by grantees of Options in connection with
the Plan.
20. Governing Law. The validity and construction of the Plan and the
instruments evidencing Stock Rights shall be governed by the laws of Delaware.
24
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
TREMONT ADVISERS, INC.
SEPTEMBER 30, 1998
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS UNAUDITED SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1998 AND FOR PERIOD
THEN ENDED. THIS INFORMATION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONDENSED FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000880320
<NAME> Tremont Advisers, Inc.
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-30-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,322,228
<SECURITIES> 0
<RECEIVABLES> 2,703,509
<ALLOWANCES> (35,000)
<INVENTORY> 0
<CURRENT-ASSETS> 4,195,709
<PP&E> 849,796
<DEPRECIATION> (479,139)
<TOTAL-ASSETS> 6,854,787
<CURRENT-LIABILITIES> 1,389,687
<BONDS> 0
0
0
<COMMON> 42,193
<OTHER-SE> 4,919,834
<TOTAL-LIABILITY-AND-EQUITY> 6,854,787
<SALES> 0
<TOTAL-REVENUES> 7,623,468
<CGS> 0
<TOTAL-COSTS> 5,806,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,773,378
<INCOME-TAX> 655,594
<INCOME-CONTINUING> 1,117,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,117,784
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.26
</TABLE>
