-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N6gXWriV2kPwjxV96LTLLhxBav1yg0QBelWAqoh4UW1fjpD3bwgo6OPuj1TfLRql 8zWcgcZDqJ2PJB2A6/Gbrw== 0000319489-99-000023.txt : 19991229 0000319489-99-000023.hdr.sgml : 19991229 ACCESSION NUMBER: 0000319489-99-000023 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVEST GROUP INC CENTRAL INDEX KEY: 0000319489 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 060950444 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-08408 FILM NUMBER: 99781597 BUSINESS ADDRESS: STREET 1: 90 STATE HOUSE SQ STREET 2: 280 TRUMBULL ST CITY: HARTFORD STATE: CT ZIP: 06103 BUSINESS PHONE: 8605091000 MAIL ADDRESS: STREET 1: 90 STATE HOUSE SQUARE STREET 2: 280 TRUMBULL STREET CITY: HARTFORD STATE: CT ZIP: 06103 10-K/A 1 United States SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-K (X) Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended September 30, 1999 Or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from _________ to _________ Commission File Number 1-8408 THE ADVEST GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 06-0950444 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 90 State House Square, - Hartford, Connecticut 06103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (860) 509-1000 Securities registered pursuant to Section 12(b) of the Act: Yes Name of each exchange on Title of each class which registered Common Stock, $.01 Par Value New York Stock Exchange, Inc. Securities registered pursuant to Section 12(g) of the Act: None Indicate by an (X) whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by an (X) if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the Registrant was $147,575,711 as of December 3, 1999. On December 3, 1999 the Registrant has outstanding 8,929,124 shares of common stock of $.01 par value, which is the Registrant's only class of common stock. Part III incorporates information by reference from the Registrant's definitive proxy statement for the annual meeting to be held on January 27, 2000. Part I Item 1. Business General Development of Business The Advest Group, Inc. ("AGI"), a Delaware corporation, is a financial services holding company engaged, with its operating subsidiaries (collectively the "Company"), in securities brokerage, trading, investment banking, asset management, trust and other financial services. It is organized under the laws of Delaware and commenced operations on January 1, 1977. AGI is successor to a partnership which resulted from mergers of five New York Stock Exchange, Inc. ("NYSE") member firms organized between 1898 and 1919. The Company's broker/dealer subsidiary, Advest, Inc. ("Advest"), was organized to succeed the business of the partnership, effective January 1, 1977. Since that date, a number of other operating subsidiaries in the brokerage and financial services industries have been established or acquired. In addition to Advest, operating subsidiaries include Advest Bank and Trust Company (the "Bank"), a federal savings bank; Boston Advisors ("BA"), an investment advisor, and Billings & Company, Inc. ("Billings"), a real estate services company. Material acquisitions and dispositions by the Company during the past five years follow. During fiscal 1995, the Company sold the investment advisory business related to its proprietary mutual funds in three separate transactions. The total gain from all sales was $10.1 million. Additional consideration of $.1 and $.6 million was received in fiscal 1997 and 1996, respectively, under the terms of one of the sales agreements. In October 1996, the Company formed The Hannah Consulting Group ("HCG"), an investment management subsidiary, located in Boston, MA, that provided investment management services primarily to pension plans. Effective October 1, 1997, HCG was merged into Advest's Investment Management Services Department. In October 1997, Advest acquired Ironwood Capital Ltd. ("Ironwood"), a private investment bank that originates and distributes private placements of taxable fixed income securities. Ironwood and its twelve employees became the Corporate Fixed Income Group of Advest's Investment Banking Division. The Company issued 137,060 shares of its common stock in conjunction with the acquisition which was accounted for as a pooling of interests. Due to the immaterial effect on the Company's consolidated financial condition, results of operations and cash flows, operating results of Ironwood were included prospectively in the Company's consolidated financial statements. Under a separation agreement entered with the Company during the fourth quarter of fiscal 1999, the employees of the Corporate Fixed Income Group once again became an independent corporation, effective September 30, 1999. Expenses related to the separation agreement have been accrued as of September 30, and are not material to results of operations. In May 1999, the Company announced that it would enter into two agreements with Hudson United Bank ("Hudson"), a subsidiary of Hudson United Bancorp, a Mahwah, New Jersey-based bank holding company. Advest and Hudson entered into a strategic alliance whereby Hudson became the exclusive provider of banking products and services to Advest and its clients. The strategic alliance agreement became effective September 1, 1999 and, concurrently, the Bank ceased its mortgage origination operations. Under the terms of a separate purchase and sale agreement, Hudson acquired the loan and other financial assets and assumed the deposit liabilities of the Bank. The purchase and sale agreement was approved by the Office of Thrift Supervision ("OTS") and closed November 30,1999. The Bank retained its federal bank charter and will provide trust and custody services through referrals from Advest's retail sales force. Advest is engaged in a broad range of activities in the securities brokerage, investment banking and asset management businesses. Specific services include retail brokerage, institutional sales, origination of and participation in underwritings and distribution of corporate and municipal securities, 2 market making and trading activities in equities and fixed income securities, research, custody and asset management. Advest has been classified by the Securities and Exchange Commission ("SEC") and the Securities Industry Association as a "large regional" brokerage firm. "Regional" is a term commonly used in the securities industry to indicate that a firm's headquarters are located outside New York City. Advest has retail clients in all fifty states with the largest concentration in the Northeast and Midwest regions and also services institutional accounts throughout the country. At September 30, 1999, Advest had 91 sales locations, including satellite offices, and account executives, including trainees, in 16 states and the District of Columbia as follows: Number of Number of State Locations Investment Executives Connecticut 11 80 District of Columbia 1 9 Florida 8 57 Illinois 1 5 Kentucky 3 13 Maine 5 21 Maryland 1 4 Massachusetts 8 45 Missouri 1 8 New Hampshire 4 8 New Jersey 4 20 New York 15 113 Ohio 12 68 Pennsylvania 11 45 Rhode Island 1 13 Vermont 1 3 Virginia 4 14 -- --- 91 526 == === Advest is a member of all major securities exchanges in the United States, the National Association of Securities Dealers ("NASD") and the Securities Investor Protection Corporation ("SIPC"). In addition, Advest is registered with the Commodity Futures Trading Commission ("CFTC") as a commodity trading advisor and a futures commission merchant and clears all option transactions through an independent third party broker. The Bank commenced operations in 1984 as a state-chartered savings bank and converted to a federal savings bank during fiscal 1997. The Office of Thrift Supervision ("OTS") regulates the Bank and its federal charter enables the Bank to provide trust services in all 50 states. The Bank's headquarters are located at 90 State House Square, Hartford, Connecticut 06103 and maintains no retail branches. The Bank has trust representatives in Springfield, MA, Columbus, OH, Farmington, CT, Pittsburgh, PA and Boca Raton, FL, the last of which was opened in fiscal 1998. Trust representatives share office space with Advest retail offices. The Bank's principal business activities consist of soliciting and servicing fiduciary and retirement plan trust business, primarily to clients of Advest. In fiscal 1997, the OTS approved requests by AGI and the Bank for the Bank to be deemed a "savings association", by virtue of its meeting the test for a qualified thrift lender, and for AGI, as the sole shareholder of a "savings association", to be treated as a unitary thrift holding company. In order to retain its status as a "savings association" the Bank must continue to satisfy the "qualified thrift lender" test. This test generally requires that an 3 institution maintain a minimum of 65% of its assets in residential real estate and related investments. At September 30, 1999, 86.6% of the Bank's portfolio consisted of such assets. As previously discussed, the Company entered into two agreements with Hudson. In concurrence with the terms of the agreements, the Bank ceased its loan origination and deposit operations. The Bank's principal activities consisted of soliciting and servicing fiduciary and retirement plan trust business, primarily to clients of Advest. Financial Information about Industry Segments The information required by this item is disclosed in item 8 of this filing in Note 16 of Notes to Consolidated Financial Statements. Narrative Description of Business The principal sources of revenue for the last five years are disclosed in item 6 of this filing under the caption "Five Year Financial Summary." A discussion of the components of services provided and related compensation follows. Agency Commissions During the three years in the period ended September 30, 1999, agency commissions represented 42%, 40% and 42%, respectively, of the Company's total revenues. Agency commissions are substantially derived from sales of listed and over-the-counter securities, mutual funds and insurance products primarily to retail clients. For sales of listed securities, Advest acts as an agent for its customers in the purchase and sale of securities on the major securities exchanges. Advest executes purchases and redemptions of shares for its clients in many diverse mutual funds. Included in mutual fund revenues are 12b-1 distribution fees which Advest receives from mutual fund companies as reimbursement for distributing shares of their funds. In executing customers' orders in the NASDAQ market, Advest generally acts as agent with another firm which is a market maker in the securities being purchased or sold. The market price executed represents the best inter-dealer market price available. Advest acts as agent for several life insurance companies and sells life insurance and tax- advantaged annuities to its brokerage clients. A principal objective of Advest's insurance department is to assist account executives in protecting the assets of high net worth individuals and businesses. The insurance department provides customized advice and recommends appropriate products to meet unique individual, professional or business needs. Advest also effects for its customers the purchase and sale of put and call options traded on all major stock exchanges. Other commissions include commissions from commodity trading, international stocks and bonds, certificates of deposit and income from correspondent brokers. Principal Transactions Revenue from principal transactions includes realized and unrealized gains and losses on Advest's trading accounts and related sales credits. Advest's institutional corporate bond trading desk specializes in investment grade corporate bonds, while the market-making activities of its retail fixed income and NASDAQ trading desks primarily involve making product available to clients and supporting Advest's research and equity capital markets activities. During fiscal 1998, Advest established an institutional agency and mortgage-backed securities trading group in Boca Raton, Florida and a Community Reinvestment Act ("CRA") unit in New York City, which markets securitized and whole loans to banks and other financial institutions. Advest does not actively participate in the high yield securities market. Advest seeks to reduce the risk associated with its trading portfolio, which has grown substantially during the past three years, on an aggregate basis. Inventory policies reflect the level of aggregate short and long 4 positions that may be held for trading and are specified by product line. In addition, Advest manages the risk associated with its municipal bond trading securities by entering into derivative transactions, primarily exchange-traded financial futures contracts, when inventory levels exceed pre-determined levels as defined in its risk management policy. Derivative positions are generally not material and are marked-to-market daily. Hedging is limited to the underlying trading portfolios' interest rate risk and is not speculative in and of itself. Advest's NASDAQ desk actively engages in trading as principal in various phases of the over-the-counter securities business and acts as principal to facilitate the execution of customers' orders. Advest buys, sells and maintains an inventory of a security in order to "make a market" in that security and to support the activities of Advest's Equity Capital Markets Group. In recent years, certain rule changes implemented by the SEC have reduced the profit spreads of market makers. Primarily in response to the SEC changes, there is an ongoing transition in the mix of over-the-counter business from principal to agency transactions. During fiscal 1999, a comprehensive review was completed of Advest's NASDAQ trading activities and the decision was made to reduce overnight inventory and more aggressively manage the number of stocks it made a market in. As of September 30, 1999, Advest made dealer markets in the common stock or other equity securities of approximately 206 corporations. Investment Banking Advest manages and participates in underwritings of corporate and municipal securities and closed-end funds. Advest's Investment Banking Division also provides merger and acquisition, consulting and valuation services. Advest's Investment Banking Division concentrates its efforts on raising capital for mid- size companies, primarily in the banking, insurance, technology, consumer and commercial markets and health care industries. Public Finance services health care and educational institutions as well as state and local issuers primarily in New England and New York. The Syndicate Department is responsible for Advest's participation in underwritings managed by Advest and other firms and acts as co-manager of other offerings, principally closed-end funds. Generally, the Company does not engage in bridge financing activities. Underwriting involves both economic and regulatory risks. An underwriter may incur losses if it is unable to resell the securities it is committed to purchase or if it is forced to liquidate its commitments at less than the agreed purchase price. In addition, under the Securities Act of 1933, other laws and court decisions with respect to underwriters' liability and limitation on indemnification of underwriters by issuers, an underwriter is subject to substantial potential liability for material misstatements or omissions in prospectuses and other communications with respect to underwritten offerings. Furthermore, underwriting commitments constitute a charge against net capital and Advest's underwriting commitments may be limited by the requirement that it must at all times be in compliance with the net capital Rule 15c3-1 of the SEC. Asset Management and Administration Advest's Investment Management Services Department ("IMS"), provides various services for its fee-base accounts including client profiling, asset allocation, manager selection and performance measurement. The Bank's Trust Services Department provides personal trust and custody services primarily through Advest's retail sales force and Boston Advisors provides investment advisory services to private retail and institutional clients. Advest also receives service fees related to brokerage clients' investments in money market funds of a third party money manager. Asset management and administration revenues also include fees for money market services, retirement plan administration, Centennial Accounts and securities custody and safekeeping. The Advest Centennial Account enables brokerage clients to participate in an integrated financial services program. Centennial Account clients have access to their assets through unlimited checkwriting and a Mastercard debit 5 card issued by a major third party bank as well as on-request loans collateralized by margined securities. Automated Clearing House ("ACH") deposits and withdrawals are available to Centennial Accounts who can select among various automatic daily investment options for idle cash balances, including an FDIC-insured money market account with the Bank and eleven money market mutual funds in a single fund family. The Bank provides fiduciary, trust and custody services to individuals, corporate retirement plans, financial institutions and other entities. The Bank primarily acquires trust and custody accounts through Advest's retail sales force. Interest Income and Customer Financing Advest's customers' transactions in securities are effected on either a cash or margin basis. In a margin account, the customer pays less than the full cost of a security purchased and the broker/dealer makes a loan for the balance of the purchase price which is secured by the securities purchased, or other securities owned by the investor. The amount of the loan is subject to the margin regulations (Regulation T) of the Board of Governors of the Federal Reserve System, NYSE margin requirements, and the firm's internal policies which in some instances are more stringent than Regulation T or NYSE requirements. Currently, in most transactions, Regulation T requires that the amount loaned to a customer for a particular purchase not exceed 50% of the purchase price of a security, so that initially the customer's equity in the purchase exceeds the NYSE's rules. A member firm is required to have the customer deposit cash or additional securities so that the loan to the customer for which marginable equity securities are pledged as collateral is no greater than 75% of the value of the securities in the account. Interest is charged on the amount borrowed to finance customers' margin transactions. The rate of interest charged customers is based primarily on the brokers' call rate (the charge on bank loans to brokers secured by firm and customers' securities), to which an additional amount is added up to 2.75%. The amount of this interest surcharge is dependent on the average net margin balance and the dollar amount of commissions charged on account transactions during the month. Customer credit balances, retained earnings, cash received from collateralized financing transactions and short-term borrowings are the primary source for financing customer margin accounts. Research Through the combined resources of its in-house research staff and correspondent research provided by three leading outside research firms, Advest provides its brokerage clients with a full range of research services. These include corporate data, financial analysis, identification of emerging trends and objective recommendations. In-house analysts specialize in health care, regional banking, insurance, technology and specialty retailing and consumer products. Correspondent research provides information and recommendations on approximately 3,000 domestic and international equities in over 90 industries in 30 countries. Administration and Operations Administrative and operations personnel are responsible for the execution of orders, processing of securities transactions, receipt, identification and delivery of funds and securities, custody of clients' securities, extension of credit to clients, general accounting and office services functions, internal financial and management controls and regulatory compliance. Since 1993, Advest has used the services of a third party data processor for all back office brokerage operations technology including securities and money transactions, trade confirmations and statements. A new financial and management reporting system was installed in fiscal 1999. The Company believes its internal controls and safeguards are adequate, although fraud and misconduct by clients and employees are risks inherent in the securities business. As required by the NYSE and other regulators, the company 6 carries fidelity bonds covering loss or theft of securities as well as embezzlement or forgery. The Company believes the amounts of coverage provided by the bonds is adequate. Employees The Company employs approximately 1,772 persons primarily at Advest, its broker- dealer subsidiary. Advest has some 1,717 employees including 503 non-trainee retail sales professionals. The Company considers its compensation and employee benefits, which include medical, life and disability insurance, a 401(k) defined contribution plan and restricted stock and option programs, to be competitive with those offered by other securities firms. None of the Company's employees are covered by collective bargaining agreements. The Company considers its relations with its employees to be satisfactory. However, there is considerable competition for experienced financial services professionals, particularly investment executives, and periodically the Company may experience the loss of valued professionals. Competition All aspects of the business of the Company are highly competitive. Advest competes with numerous regional and national broker/dealers and other entities, many of which have greater financial resources than the Company. Because of the variety of financial services offered by the Company and the various types of entities that provide such services (including other brokers, banks, insurance companies and retail merchandise outlets), it is not possible to estimate the number of companies that compete with the Company for investor assets. Advest competes with other firms on the basis of transaction prices, quality of service, product availability and locations. It is impossible to predict the effect of the broader distribution locales offered by competing entities, or the lower costs which may be offered by certain discount and online brokers. In addition, there is competition for investment professionals among the large number of companies now in the financial services field. In soliciting trust business, the Bank encounters significant competition from trust companies, savings banks, savings and loans, insurance companies, broker/dealers, investment firms, mutual funds, and law firms in attracting trust accounts, particularly fiduciary relationships. Regulation The securities industry in the United States is subject to extensive regulation under both Federal and state laws. The SEC is the Federal agency charged with administration of the Federal securities laws. Much of the regulation of broker/dealers has been delegated to self-regulatory authorities, principally the NASD, the CFTC and the securities exchanges. These self-regulatory organizations conduct periodic examinations of member broker/dealers in accordance with the rules they have adopted and amended from time to time, subject to approval by the SEC. Securities firms are also subject to regulation by state securities commissions in those states in which they do business. Broker/dealers are subject to regulations which cover all aspects of the securities business, including sales methods, trading practices among broker/dealers, uses and safekeeping of customers' funds and securities, capital structure of securities firms, recordkeeping and the conduct of directors, officers and employees. Additional legislation, changes in rules promulgated by the SEC and self-regulatory authorities, or changes in the interpretation or enforcement of existing laws and rules, may directly affect the mode of operation and profitability of broker/dealers. The SEC, self-regulatory authorities and state securities commissions may conduct administrative proceedings which can result in censure, fine, suspension or expulsion of a broker/dealer, its officers or employees. Such administrative proceedings, whether or not resulting in adverse findings, can require substantial expenditures. The principal purpose of regulation and discipline of broker/dealers is the protection of customers and the securities markets, rather than protection of creditors and stockholders of broker/dealers. 7 The Company's investment advisory subsidiary, BA, is also subject to extensive Federal and state regulations by the SEC and state securities commissions. Advest is required by Federal law to belong to the SIPC. The SIPC fund provides protection for securities held in customer accounts up to $500,000 per customer, with a limitation of $100,000 on claims for cash balances. The Company purchases coverage which provides an additional $49.5 million of coverage per customer for securities held in customers' accounts. As a federal savings bank whose deposits are insured by the FDIC, subject to applicable limits, the Bank is subject to extensive regulation and supervision by both the OTS and the FDIC. The Bank is also subject to various regulatory requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") applicable to FDIC insured financial institutions. This governmental regulation is primarily intended to protect depositors, rather than shareholders, and concerns, among other matters, capital requirements, safety and soundness, permissible investments, community reinvestment and credit discrimination. AGI, for the purpose of ownership of the Bank, is a unitary savings and loan holding company, and is subject to limited regulation and certain reporting requirements by the OTS. Refer to item 7 of this filing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in item 8 of this filing in Notes 2 and 10 of the Notes to Consolidated Financial Statements for further information regarding capital and regulatory considerations of the Bank. Federal banking regulations define five categories of capital adequacy for all insured depository institutions, including categories that would prompt supervisory actions. These categories range from the highest capitalization designation which is "well capitalized" (with total risk based capital of greater than 10% of risk adjusted assets, Tier 1 capital of greater than 6% of risk adjusted assets and leverage capital of greater than 5% of assets) to the lowest level which is "critically undercapitalized" (tangible capital of less than 2% of total assets.) In addition, an institution may not be categorized as "well capitalized" if it is subject to a regulatory order. Holding Company guarantees apply if an insured institution is classified in one of three "undercapitalized" designations. The Bank meets the criteria to be classified a "well capitalized" bank as of September 30, 1999. Item 2. Properties The Company's principal executive offices are located at 90 State House Square, Hartford, Connecticut, 06103 (telephone number (860) 509-1000). The Company conducts all of its operations from leased premises, generally under non- cancelable leases with terms up to 15 years. Item 3. Legal Proceedings The Company has been named as defendant, or has been threatened with being named defendant in various actions, suits and proceedings before a court or arbitrator arising principally from its securities and investment banking business. Such matters involve alleged violations of federal and state securities laws and other laws. Certain of these actions claim substantial damages and, if determined adversely to the Company, could have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. The Estate of Gabriel Levine and his wife and various related entities have threatened a proceeding before the American Arbitration Association against Advest. They originally commenced related arbitration and court proceedings in 1993, which were stayed pending consideration of statute of limitations defenses. In 1998, the Connecticut Supreme Court ruled that arbitrators, and not a court, should decide whether those defenses apply. The claimants allege that the option trading in their accounts was unsuitable, and that there was a failure to disclose risks and to supervise their accounts. In court papers filed in 1993, the claimants asserted claims for principal losses of nearly $30,000,000, plus interest, since October 1987. Management believes that Advest has strong defenses to these claims and intends to defend them vigorously. While 8 the outcome of any litigation is uncertain, management, based in part upon consultation with legal counsel, believes that the resolution of all matters pending or threatened against the Company will not have a material adverse effect on the financial condition or future results of operations or cash flows of the Company. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The information required by this item is disclosed in item 8 of this filing in Note 7 of the Notes to Consolidated Financial Statements and under the caption "Quarterly Financial Information". Shareholder Information Annual Meeting The annual meeting of shareholders will be held at the Old State House, Hartford, CT on January 27, 2000 at 10:30 AM. Proxy statements and proxies are mailed to shareholders of record as of December 10, 1999. As of September 30, 1999 there were 610 common stockholders of record. Additional Information - Form 10K One copy of the Company's annual report on Form 10-K to the Securities and Exchange Commission will be provided at no charge upon written request to Corporate Marketing, The Advest Group, Inc. The Advest Group, Inc. is listed on the New York Stock Exchange under the symbol ADV. Registrar and Transfer Agent American Stock Transfer & Trust Company 40 Wall Street, 46th floor New York, NY 10005 (212) 936-5100 or (800) 937-5449 Independent Accountants PricewaterhouseCoopers LLP 100 Pearl Street Hartford, CT 06103 9 Five Year Financial Summary For the years ended September 30, - ---------------------------------------------------------------------------------------- In thousands, except per share amounts and percentages 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------- Total revenues 335,238 309,801 275,204 241,220 209,772 Interest expense 34,965 31,341 23,799 19,513 17,613 -------------------------------------------------------------- Net revenues 300,273 278,460 251,405 221,707 192,159 Total non-interest expenses 277,961 250,632 227,323 203,250 171,692 -------------------------------------------------------------- Income before taxes 22,312 27,828 24,082 18,457 20,467 Provision for income taxes 8,925 10,853 9,873 8,121 9,414 -------------------------------------------------------------- Income from continuing operations 13,387 16,975 14,209 10,336 11,053 Income (loss) from discontinued operations 877 977 723 924 (4,666) Loss on sale of discontinued operations (713) - - - - ---------------------------------------------------------------- $ 13,551 $ 17,952 $ 14,932 $ 11,260 $ 6,387 ================================================================ Per share data Basic earnings: Income from continuing operations $ 1.67 $ 2.08 $ 1.77 $ 1.26 $ 1.31 Income (loss) from discontinued operations $ 0.11 $ .12 $ 0.09 $ 0.11 $ 0.55 Net income $ (0.09) $ -- $ -- -- -- Diluted earnings: Income from continuing operations $ 1.46 $ 1.82 $ 1.54 $ 1.09 $ 1.17 Income (loss) from discontinued operations 0.10 0.10 0.08 0.09 (0.45) Loss on sale of discontinued operations (0.08) -- -- -- -- ---------------------------------------------------------- Net income $ 1.48 $ 1.92 $ 1.62 $ 1.18 $ 0.72 =========================================================== Book value $ 15.14 $ 13.82 $ 12.24 $ 10.66 $ 9.52 Dividends $ 0.19 $ 0.16 $ 0.09 -- -- Other data Total assets $1,462,621 $1,061,116 $ 908,040 $ 779,109 $ 595,125 Shareholders' equity $ 135,136 $ 123,667 $ 105,653 $ 89,590 $ 79,818 Subordinated borrowings -- -- -- 20,552 20,552 Long-term borrowings $ 30,526 $ 41,308 $ 41,321 $ 19,774 $ 17,240 Return on average equity 10.5% 15.6% 15.4% 13.2% 8.3% - ------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements In addition to presenting historical information, in this annual report and elsewhere, the Company may make or publish forward-looking statements about management expectations, strategic objectives, business prospects, anticipated financial performance and similar matters. The Company cautions readers that any forward-looking information presented is not a guarantee of future performance. Numerous factors, many beyond the Company's control, could cause actual results to differ materially from the expectations expressed. The Company conducts its businesses in financial markets that are influenced by economic conditions, monetary policies, interest and inflation rates, market liquidity, national and international political events, regulatory developments, changing tax laws, the competitive environment, investor sentiment and other risks and uncertainties. These factors can significantly affect the transaction volume, price levels and volatility of financial markets, as well as the competitiveness of the Company's products and services within its industry. As a result, the Company's revenues and net earnings may vary significantly from period to period and may diverge significantly from expectations. Any forward- looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise any forward- looking statements. Business Environment and Overview The Advest Group, Inc. ("AGI"), together with its subsidiaries (the "Company"), provides diversified financial services including securities brokerage, trading, investment banking, trust and asset management. Advest, Inc. ("Advest"), a regional broker/dealer and the Company's principal subsidiary, provides securities brokerage, investment banking, institutional sales and trading and asset management services to retail and institutional investors through 91 sales offices in 16 states and Washington, DC. Boston Advisors, an investment advisory firm, manages the financial assets of individuals, endowment funds and retirement plans. Advest Bank and Trust Company (the "Bank"), an FDIC-insured, federal savings bank, provides trust and custody services primarily through Advest's branch network. During fiscal 1999, the Company entered into a strategic alliance agreement concerning the sale of banking products with a third party financial institution and agreed to sell or transfer its loans and deposits to that third party. As required, the Company has recorded the net loss from the sale of the discontinued operations as a separate component of earnings and reclassified prior periods to conform to the 1999 presentation. Refer to discussion following and under the caption "Advest Bank and Trust Company." All aspects of the Company's business are highly competitive and impacted by regulatory and other factors outside of its control, including domestic and global economic and financial conditions, volume and price levels in securities markets, demand for investment banking services, interest rates, inflation and investor sentiment. Technological developments such as the Internet and events such as Year 2000 may also materially impact the Company's operating results. In addition to competition from other full-service securities firms, the Company faces competition from other sources including banks, insurance companies, mutual fund companies and online trading firms. Recently enacted legislation to eliminate or lessen the restrictions of the Glass-Steagall Act will likely further heighten competition among banking, insurance and securities firms. The Company closely monitors its operating environment to enable it to respond promptly to market cycles. In addition, the Company seeks to lessen earnings volatility by controlling expenses, increasing fee-based business and developing new revenue sources. Nonetheless, operating results of any individual period should not be considered representative of future performance. For the year ended September 30, 1999, the Company reported net income and diluted earnings per share of $13.6 million ($1.48 per share) compared with $18.0 million ($1.92 per share) in 1998 and $14.9 million ($1.62 per share) in 1997. Record revenue levels were achieved for a fifth consecutive year; however, increased expenses primarily related to compensation and technology 11 upgrades as well as nonrecurring charges related to the sale of the Bank's discontinued operations of $.7 million or $.08 per share, resulted in a year-to- year decline in net income. During the fourth quarter of fiscal 1998, AGI was paid $9.0 million representing the principal on first mortgage it held on property owned by a real estate limited partnership managed by a subsidiary of the Company. Given the significant financial obligations of the partnership, the Company had classified the mortgage as a nonperforming loan and, accordingly, no interest income had been accrued. AGI received approximately $3 million of interest at the time of the payoff, which was recognized in fiscal 1998. The impact of the payoff, after expenses and taxes, was to increase fiscal 1998 net income by $1.4 million or $.15 per diluted share. Advest, Inc. The major equity indices posted double-digit gains during the 12 months ended September 30, 1999 but closed down from their summer highs. The Dow Jones Industrial Average closed at 10337, a 32% one year gain, but off 9% from its August high. The S&P 500 and NASDAQ Composite closed up 26% and 62%, respectively, for the 12-month period. The gains were not broad-based; most stocks were off more than 20% from their highs, while the large blue chips have elevated the indices. The Federal Reserve raised the fed funds rate 25 basis points twice during the summer to curb inflationary threats but the anticipated increase did not have a significant impact on the equity markets. Financial news remains positive: no budget deficit, benign inflation and consistent profit growth. Underwriting activity, while slowing in the fourth quarter, continues at a record pace. Equity underwritings were heavily weighted to high-tech and Internet offerings at the expense of other industry sectors. Fixed income underwritings strongly favored investment-grade corporates as companies looked to raise capital amid Year 2000 concerns and investors favored high quality investments. During the year ended September 30, 1999, despite near record volume, merger and acquisition activity declined significantly in all but a handful of industry sectors. For fiscal 1999, Advest's pre-tax income declined 10% to $25.2 million. The broker/dealer earned record revenues of $331.7 million, up 9% from the prior year's record high. Record revenues were achieved across the board with the exception of investment banking revenues. Investment banking revenues were second to last year's high. Revenue declines in all investment banking categories were partly offset by a significant increase in the valuation of warrants held by Advest. Net interest income declined $1.0 million (4%) primarily as a result of lower spreads on margin debits and higher carrying costs of inventory. Total expenses increased 11% to $306.4 million primarily as a result of higher salesmen's compensation and firm payroll related to technology and capital markets departments. Communications costs increased $4.5 million (17%) primarily due to technology upgrades and volume-driven processing costs. For fiscal 1998, Advest's pre-tax profits were $28.1 million compared with $28.0 million in 1997, reflecting a second consecutive year of record revenues and profits. Total revenues increased 12% to $303.0 million with record levels attained for agency commissions, interest income, principal transactions, investment banking and asset management revenue. Total expenses increased 13% to $275.0 million primarily due to higher sales-volume-related compensation and increased staffing levels firm-wide, higher interest expense related to increased short-term borrowings and higher communication expenses related primarily to technology upgrades and volume-driven costs of Advest's third party data processor. Advest Bank and Trust Company During the third quarter, the Company announced that it would enter into two agreements with Hudson United Bank ("Hudson"), a subsidiary of Hudson United Bancorp, a Mahwah, New Jersey-based bank holding company. Under the terms of a purchase and sale agreement, Hudson will acquire the loan and other financial assets and assume the deposit liabilities of the Bank. Under the terms of a 12 separate agreement, Advest and Hudson entered into a strategic alliance whereby Hudson became the exclusive provider of banking products and services to Advest and its clients. The strategic alliance agreement became effective September 1, 1999 and, concurrently, the Bank ceased its mortgage origination operations. The purchase and sale agreement was approved by the Office of Thrift Supervision ("OTS") and is expected to close during the fall of 1999. The Bank has retained its bank charter and will provide trust and custody services through referrals from Advest's retail sales force. As a federal savings bank, the Bank is regulated by the OTS, and is able to offer trust and custody services in all 50 states. Under the terms of the purchase and sale agreement, Hudson will make a one-time payment of $2.0 million to the Bank. After deducting expenses related to the disposition, the Bank recognized a pre-tax profit of $.2 million on the transaction. The net loss of $.7 million on the sale of discontinued operations reflects a $.9 million tax expense related to the Bank's loan loss reserves. See also Notes 2 and 11. Income from discontinued operations reflects the after tax operating results of the Bank's lending and deposit operations. Operating revenues and expenses for the Bank's retained trust and custody operations are reflected in the Company's consolidated financial statements and are not material to consolidated results of operations, financial condition or cash flows for the three years in the period ended September 30, 1999. The Bank is deemed a "well capitalized" bank. Other In October 1997, Advest acquired Ironwood Capital Ltd. ("Ironwood"), a private investment bank involved in the origination and distribution of private placements of taxable fixed income securities. Ironwood's employees became the Corporate Fixed Income Group of Advest's Investment Banking Division. The Company issued 137,060 shares of its common stock in conjunction with the acquisition, which had been accounted for as a pooling of interests. Due to the immaterial effect on the Company's consolidated financial position and results of operations, Ironwood's operating results were included prospectively in the Company's consolidated financial statements. Under a separation agreement entered with the Company during the fourth quarter of fiscal 1999, the employees of the Corporate Fixed Income Group once again became an independent corporation, effective September 30, 1999. Expenses related to the separation agreement have been accrued as of September 30, and are not material to results of operations; however, for fiscal 1999, the operating losses, including severance costs related to the Corporate Fixed Income Group, resulted in an after-tax loss of $.7 million or $.08 per share. 13 Results of Operations Net income for the years ended September 30, 1999, 1998 and 1997 was $13.6 million, $18.0 million and $14.9 million, respectively. The following table summarizes results of operations and percentage changes for the three years in the period ended September 30, 1999. In millions, except percentages 1999 % 1998 % 1997 - ------------------------------------------------------------------------------ Revenues $335.2 8 $309.8 13 $275.2 Interest expense 34.9 11 31.4 32 23.8 ------ ---- ---------- ---------- Net revenues 300.3 8 278.4 11 251.4 Non-interest expenses 278.0 11 250.6 10 227.3 ------ ---- -------- -- --------- Pre-tax income 22.3 (20) 27.8 15 24.1 ====== ==== ========= == ========= Income from continuing operations 13.4 (21) 17.0 20 14.2 Income from discontinued operations, net of taxes .9 (10) 1.0 43 .7 Loss on sale of discontinued operations, net of taxes (.7) -- -- -- -- ------ ---- --------- -- --------- Net income $ 13.6 (24) $ 18.0 21 $ 14.9 Agency Commissions The number of investment executives has remained fairly constant over the past several years; however, the recruitment and retention of experienced professionals has contributed to substantial increases in average annual production per broker. Record broker productivity was achieved in each of the last four fiscal years and, together with record stock market volume and prices, contributed to the record revenue levels achieved during the same period. In millions, except percentages 1999 % 1998 % 1997 - ------------------------------------------------------------------------------- Listed $ 54.5 8 $ 50.5 2 $ 49.5 Mutual funds 42.1 2 41.2 12 36.7 Over-the-counter 27.6 14 24.2 4 23.3 Insurance 11.2 33 8.4 2 8.2 Options 4.4 5 4.2 (2) 4.3 Other 1.8 38 1.3 30 1.0 ------ -- ------- --- ------ $141.6 9 $129.8 6 $123.0 ====== == ====== === ====== Current year agency commissions achieved a record high with individual record levels attained across the board. Commissions on listed and over-the- counter securities increased primarily due to high share volume and prices. In addition, over-the-counter commissions reflect the impact of certain rule changes implemented by the SEC that have reduced the profit spreads of market makers over the past several years. Primarily in response to the SEC changes, there is an ongoing transition in the mix of over-the-counter business from principal to agency transactions as is evidenced by the sharp decline in principal business and a corresponding increase in agency business. Refer to the discussion of principal transactions as well. Insurance commissions increased 33% with sales of life insurance products increasing over 100%, primarily related to the cross-selling efforts of the insurance and trust departments and expanded education programs for investment executives. Total 14 client assets serviced in-house increased to $25.6 billion, up 19% from the prior year. Fiscal 1998 agency commissions surpassed the record set in the prior year as equity markets sustained their longest upward rally in history. Consistent with the record stock market volume and prices, agency commissions increased virtually across the board. The largest increase was for mutual fund commissions, including 12b-1 fees, which reflected the record infusions of cash primarily from 401(k) plans into mutual funds during the year. Principal Transactions Revenue from principal transactions includes realized and unrealized gains and losses on Advest's trading accounts and related sales credits. Advest's institutional corporate bond trading desk specializes in investment grade corporate bonds, while the market-making activities of its retail fixed income and Nasdaq trading desks primarily involve making product available to clients and supporting Advest's research and equity capital markets activities. During fiscal 1998, Advest established an institutional agency and mortgage-backed securities trading group in Boca Raton, Florida and a Community Reinvestment Act ("CRA") unit in New York City, which markets securitized and whole loans to banks and other financial institutions. Advest enters into derivative transactions to manage the interest rate risk associated with its municipal bond inventories. Derivatives are marked to market daily with unrealized gains and losses reflected in revenue from principal transactions. (Further discussion of derivatives is included under the caption "Derivative Financial Instruments" and in Notes 1 and 13 to the Consolidated Financial Statements.) Advest holds only nominal inventory positions of high yield securities. Realized gains and losses on the Bank's trading and available for sale securities are reflected in revenue from principal transactions and are not material to consolidated results. In millions, except percentages 1999 % 1998 % 1997 - ----------------------------------------------------------------------- Fixed income commissions $33.1 55 $21.4 8 $19.8 Equity commissions 14.4 (17) 17.4 (6) 18.6 Other 8.8 47 6.0 7 5.6 ----- -- ----- -- ----- $56.3 26 $44.8 2 $44.0 ===== == ===== == ===== Current year revenue from principal transactions attained a record high level for the third year in a row, as significant gains in taxable fixed income sales and trading offset declines in municipal and equity sales and trading. Commissions on fixed income securities increased 55%, led by investment grade corporate bonds, up $3.8 million (88%), government agency obligations, up $2.5 million (170%), and collateralized mortgage obligations ("CMOs"), up $2.0 million (108%). The increases in government agency and CMOs sales were due primarily to the two new fixed income sales units discussed above. Trading profits for corporate bonds increased $3.0 million (85%), despite interest rate uncertainty in the fixed income markets, primarily due to Advest's aggressive hedge policy related to its institutional taxable sectors as well as strong investor demand for investment grade issues. Advest's municipal inventories are not hedged and trading results declined 30% to $1.6 million largely as a result of a weak bond market in the second half of the Company's fiscal year, although related sales credits increased $2.5 million (34%). On the equity side, current year trading losses were 18% lower than fiscal 1998, as a $.8 million improvement in fourth quarter trading results offset declines through the first nine months. In April, a comprehensive review was completed of Advest's NASDAQ trading activities and the decision was made to reduce overnight inventory and more aggressively manage the number of stocks in which it made a market; this contributed to the fourth quarter improvement in trading results. Equity sales credits declined 17% primarily related to the transition from principal to agency business discussed previously. 15 During fiscal 1998, revenue from principal transactions achieved a record high for the second consecutive year. Equity market volatility in the fourth quarter negatively impacted revenues as over-the-counter trading losses and declines in equity commissions contributed to a 9% year-to-year decline in fourth quarter revenues. These fourth quarter results negated gains through the first nine months of the fiscal year with equity commissions declining and current year equity trading resulted in a loss compared with a profit in 1997. Commissions on fixed income securities increased year-to-year with fourth quarter gains offsetting declines through nine months as investors turned away from the equity markets. Corporate bond trading profits increased 114%, while the institutional agency and mortgage-backed trading desk posted a $.4 million loss in its first year. Investment Banking To generate investment banking revenue, Advest manages and participates in underwritings of corporate and municipal securities and closed-end funds. Advest's Investment Banking Division also provides merger and acquisition and consulting and valuation services. In general, the Company does not participate in bridge financing activities. Advest's Investment Banking Division concentrates its efforts on raising capital for mid-size companies, primarily in the banking, insurance, technology, consumer and commercial markets and health care industries. Warrants received in conjunction with investment banking activities are carried at market value, as prescribed by EITF 96-11. Public Finance services health care and educational institutions as well as state and local issuers primarily in New England and New York. In millions, except percentages 1999 % 1998 % 1997 - -------------------------------------------------------------------------- Valuation of warrants $ 4.0 300 $ 1.0 (33) $ 1.5 Underwriting commissions 15.6 (12) 17.7 20 14.7 Consulting and valuation fees 1.7 21 1.4 (36) 2.2 Merger and acquisition fees 4.2 (34) 6.4 14 5.6 Private placement fees 1.9 (42) 3.3 267 .9 Management fees 3.4 (8) 3.7 (5) 3.9 Other 2.2 (46) 4.1 64 2.5 ----- ---- ----- -- ------ $33.0 (12) $37.6 20 $31.3 ===== ==== ===== == ====== Investment banking revenues declined 12% from the record level attained in fiscal 1998, with declines posted in all business activities. The Investment Banking Division completed 25 transactions during the year valued at $738 million, including eight merger and acquisition transactions with a combined value of $244 million and 17 public and private placement transactions valued at over $494 million. The declines in merger and acquisition income, equity underwriting commissions and related underwriting fees reflect a dearth of activity in most industry sectors in Advest's target client size. Private placement fees in the Corporate Fixed Income Group declined 42%; as previously discussed, the professionals in this group left Advest at the close of fiscal 1999. These declines were partly offset by a $3.0 million increase in the valuation account for warrants, primarily related to a $3.7 million realized gain in the first quarter on an equity investment acquired in connection with Advest's investment banking activities. Fiscal 1998 investment banking revenues attained a record high for the second consecutive year primarily due to higher private placement revenues and commissions on equity underwritings and closed-end funds. The Investment Banking Division completed 33 transactions during the year valued at over $1.1 billion, including 11 merger and acquisition transactions with a combined value of $338 million and 22 public and private placement transactions valued at $850 million. The Syndicate Department co-managed four closed-end funds raising $3.5 16 billion compared with no deals during fiscal 1997. Commissions on equity underwritings increased $2.8 million (31%) reflecting the robust underwriting environment on Wall Street through most of the year. The increase in revenue from private placements, in part, related to deals completed by the Corporate Fixed Income Group. Asset Management and Administration Advest's Investment Management Services Department ("IMS"), provides various services for its fee-based accounts including client profiling, asset allocation, manager selection and performance measurement. The Bank's Trust Services Department provides personal trust and custody services primarily through Advest's retail sales force and Boston Advisors provides investment advisory services to private retail and institutional clients. Advest also receives service fees related to brokerage clients' investments in money market funds of a third party money manager. Other services include retirement plan administration, securities custody and safekeeping. In millions, except percentages 1999 % 1998 % 1997 - ------------------------------------------------------------------- Investment management services $24.8 18 $21.0 27 $16.5 Money market accounts 8.7 30 6.7 49 4.5 Advisory and other 5.7 (2) 5.8 23 4.7 ----- --- ----- -- ----- $39.2 17 $33.5 30 $25.7 ===== === ===== == ===== Current year revenues achieved a record high level primarily as a result of increased fee-based and money market accounts at Advest. At September 30, 1999, total assets serviced by IMS in its fee-based programs were $4.7 billion, up 25% from the prior year. More than 2,800 new accounts were opened during the year. The Bank's revenues increased 36% to $1.4 million as trust assets serviced increased 52% to $740 million during fiscal 1999. The increase in money market service fee income related to higher average money market balances and higher interest rates. Boston Advisors' revenues declined 21% year-to-year; however, fourth quarter revenues were on par with the prior year and, at September 30, 1999, its managed accounts had increased more than 100% from the prior year. Asset management revenues increased to a record $33.5 million in fiscal 1998, primarily due to an increase in fee-based assets serviced by Advest. Assets serviced by IMS totaled $3.7 billion with 1,800 new accounts opened during fiscal 1998. The increase in money market service fee income related to higher average money market balances. Other Income Other income includes fees from mutual funds marketing, exchange order flow and executions and postage at Advest and loan development and service fees at the Bank. During fiscal 1999, other income increased $1.0 million (14%) primarily due to higher fee income and proceeds from a legal settlement at Advest. Fiscal 1998 other income declined 1% to $6.7 million. A $.4 million increase in marketing fees was more than offset by a $.5 million decline in execution fees related to regulatory changes impacting over-the-counter trading and a $.3 million decline in income from the sale of residential mortgages. 17 Net Interest Income Net interest income is the excess of interest income over interest expense and is earned primarily by Advest. Advest derives interest income primarily from financing brokerage customers' margin transactions, its stock borrowing activities and securities inventory. Advest pays interest primarily on brokerage customer credits held for reinvestment, its stock lending activities and short and long-term borrowings. As a result of the pending sale of the Bank's loan and deposit businesses, previously discussed, all interest income and interest expense related to the discontinued operations are netted with all other revenue and expense items and separately reported, net of taxes, on the consolidated statement of earnings. See also Notes 2 and 11. In millions, except percentages 1999 % 1998 % 1997 - -------------------------------------------------------------------- Interest income: Brokerage customers $31.9 (5) $33.5 17 $28.7 Stock borrowed 18.2 16 15.7 48 10.6 Investments 1.2 3 .9 (31) 1.3 Security inventory 4.6 53 3.0 20 2.5 Other 1.5 (65) 4.3 231 1.3 ----- ---- ----- --- ----- 57.4 -- 57.4 29 44.4 ----- ---- ----- --- ----- Interest expense: Stock loaned 14.7 4 14.1 37 10.3 Brokerage customers 7.5 (19) 9.3 8 8.6 Borrowings 12.4 65 7.5 74 4.3 Other .3 40 .5 (17) .6 ----- ---- ----- --- ----- 34.9 11 31.4 32 23.8 ----- ---- ----- --- ----- Net interest income $22.5 (13) $26.0 26 $20.6 ===== ==== ===== == ===== Current year net interest income declined $3.5 million (13%) primarily due to approximately $3.0 million in interest revenue recognized in fiscal 1998 related to the early payoff of a nonperforming mortgage on AGI's books. Advest's net interest income declined $1.0 million (4%) primarily as a result of lower average margin interest rates and reduced spreads due to higher costs of financing the debits. Average margin debits increased 4% to $439.2 million, however, total interest revenue from margin debits declined $1.6 million (5%). Average free credit balances increased only 2% to $273.8 million requiring increased short-term borrowings and stock loan to meet financing requirements of margin debits and trading inventories. Interest revenue from stock borrowing activities increased $2.5 million (15%) primarily due to increased short trading positions. For fiscal 1998, net interest income increased $5.4 million (26%), primarily as a result of the payoff of a mortgage on AGI's books in the fourth quarter, as discussed in the Overview. AGI's net interest income increased $3.3 million as a result of the payoff. Advest's net interest income increased $2.1 million (9%) primarily as a result of higher average margin debits during 1998. Average margin debits during fiscal 1998 were $422.3 million, an increase of 16% from 1997. Average free credit balances during 1998 were $267.4 million, an increase of only 5%; consequently, Advest had to finance the balance of the increase in margin debits as well as increased trading inventories with additional short-term borrowings. 18 Non-Interest Expenses In millions, except percentages 1999 % 1998 % 1997 - ------------------------------------------------------------------------------ Compensation and benefits $198.4 10 $180.9 12 $161.5 Communications 32.1 17 27.5 19 23.1 Occupancy and equipment 20.8 11 18.7 7 17.5 Professional 5.6 19 4.7 (20) 5.9 Business development 7.7 7 7.2 11 6.5 Brokerage, clearing and exchange 5.1 13 4.5 (4) 4.7 Other 8.3 17 7.1 (12) 8.1 ------ ---- ------ ---- ------- $278.0 11 $250.6 10 $227.3 ====== ==== ===== ==== ======= Volume-driven salesmen's compensation and other retail compensation expenses account for 75% of the increase in compensation and benefits costs, with higher costs in the equity capital markets, technology and the fixed income departments comprising most of the balance. Communications costs increased $4.6 million primarily related to technology upgrades to provide enhanced desktop services and keep pace with the significant increases in securities trading volume, and higher volume-driven costs of Advest's third party data processor. Occupancy and equipment costs increased $2.1 million primarily due to a $1.0 million (12%) increase in rent expense of Advest's retail offices and increased expenses related to technology upgrades. Professional fees increased $.9 million due to higher consulting costs and personnel agency fees at Advest. Fiscal 1998 compensation and benefits costs increased primarily as a result of increased headcount firm-wide, particularly in the capital markets departments as well as higher volume-driven compensation and general salary increases. Advest's communications costs increased $4.4 million primarily related to ongoing technology upgrades, partly related to Year 2000, and higher volume-driven costs of Advest's third party data processor. Occupancy and equipment costs increased $1.2 million primarily due to increased depreciation related to new computer equipment and increased rent expense of Advest's retail sales offices as well as a home office expansion. Professional fees declined $1.2 million primarily as a result of lower legal and personnel agency expenses at Advest. Other expenses declined $1.0 million primarily due to lower settlement costs at Advest and a decrease in expenses at AGI related to a loss on the call of the Company's outstanding convertible debentures during fiscal 1997. Income Taxes The effective income tax rates were 40%, 39% and 41%, respectively, for 1999, 1998, and 1997. The effective rate for the year 2000 is expected to be no less than 41%. This higher rate recognizes a trend towards increased levels of income apportioned to various states with higher average tax rates. The effective rate for periods subsequent to 2000 is undetermined at this time. For further information on the Company's income taxes, refer to Notes 1 and 11 to the financial statements. Derivative Financial Instruments Advest, Inc. Advest enters into derivative transactions, primarily short-term exchange-traded futures, to manage the interest rate risk associated with its trading inventories, primarily municipal bonds, when inventory levels exceed pre- determined levels, as defined in its risk management policy. Hedging is limited to the underlying trading portfolio's interest rate risk and is not speculative in and of itself. Derivatives and the underlying inventory are marked to market daily. Positions are reviewed daily and, periodically, the strategy is re- 19 evaluated based on anticipated inventory levels and composition. The fair value of a derivative contract is the amount Advest would have to pay a third party to assume its obligation under the contract or the amount Advest would receive for its benefits under the contract in the reverse situation. At September 30, 1999, Advest's open derivative positions were nominal and, at September 30, 1998, Advest had no open positions. See Note 13. Liquidity and Capital Resources The Company's total assets were $1.5 billion at September 30, 1999, reflecting a $401.5 million (38%) increase from fiscal 1998 and a $554.6 million (61%) increase from fiscal 1997. The increases are attributable to asset growth at Advest during the past two years, primarily a $224.9 million (77%) increase in securities borrowed, a $208.8 million (214%) increase in trading inventories, principally fixed income securities, and a $114.0 million (29%) increase in receivables from brokerage customers. The Company's assets are highly liquid in nature. Liquid assets which include cash and cash equivalents, receivables from brokerage customers, securities borrowed, receivables from brokers and dealers, available for sale and trading securities, comprised 92%, 92% and 89% for the years ended September 30, 1999, 1998, and 1997, respectively. Shareholders' equity increased $29.5 million (28%) during the past two years, primarily from net earnings and increases to paid-in capital related to the sales of treasury stock to the Company's equity plans and the exercise of stock options. The Company paid quarterly dividends of $.04 per share for each of the four fiscal quarters of fiscal 1998 and the first quarter of fiscal 1999. In the second quarter of fiscal 1999, the Company's Board of Directors raised the quarterly dividend to $.05 per share. Total dividends declared and/or paid during the past two fiscal years were $3.1 million. At September 30, 1999, 3,055,146 shares of the Company's common stock (30% of outstanding shares) had been purchased, at an average price of $7.59 per share, under a buyback program begun in 1990 for which the repurchase of up to 4,000,000 shares is authorized. AGI's principal source of funding is the earnings distributions from its subsidiaries. As a result of the strategic alliance agreement and the previously discussed pending close of the purchase and sale transaction between the Bank and Hudson United Bancorp, the ongoing capital requirements of the Bank are expected to be significantly lower. Subject to regulatory approval, this will enable the Company to redeploy a significant portion of capital currently invested in the Bank. Most of the redeployed capital is expected to be invested in Advest for the purpose of reducing its short-term borrowings. In December 1997, the Company filed a Form S-3 shelf registration with the Securities and Exchange Commission. The registration enables the Company to issue debt and/or equity securities up to an aggregate of $50.0 million. Management believes that earnings distributions from subsidiaries, together with AGI's own assets and potential proceeds from a shelf registration offering, will be sufficient to meet AGI's current and foreseeable liquidity and capital requirements. Advest, Inc. In fiscal 1998, AGI issued a $10 million demand note to Advest at a rate of federal funds plus 70 basis points; $2.5 million of the loan was repaid prior to fiscal year end. During fiscal 1997, AGI loaned Advest $10.0 million at a rate of 8% per annum, utilizing a portion of the proceeds of its $35.0 million borrowing. The loan is unsecured and subordinated to certain other corporate obligations. The purpose of the unsecured loan was to increase Advest's regulatory net capital. Advest has arrangements with certain financial institutions whereby it can borrow amounts on a collateralized basis, principally to support securities settlements, trading inventories, margin debits and underwriting activities. Increases in average margin balances as well as firm trading positions, primarily fixed income securities, have resulted in higher short-term borrowing 20 levels for Advest during the past few years. Advest has uncommitted lines of credit with three financial institutions in the total amount of $430 million. With the exception of $40 million in unsecured lines of credit, all of Advest's lines of credit are for collateralized borrowing for which it has substantial levels of customer and firm securities that can be pledged. During the past few years, Advest has made substantial capital investments ($4.6 million in fiscal 1999 and $3.8 million in fiscal 1998) primarily to technology-related hardware and software upgrades. Technology enhancements include the upgrade of desktop computers firm-wide and expanded hardware and software capacity to provide enhanced services as well as handle the substantial current and anticipated increases in securities market volume. At the same time, Advest has increased the number and/or caliber of its employees firm-wide, particularly its retail sales, capital markets and technology professionals, which has substantially increased compensation and benefits costs during the past two years. These costs are anticipated to remain at similar or higher levels in the future. Management believes that operating cash flow together with available credit lines will provide sufficient resources for Advest to meet all present and reasonably foreseeable capital needs. The Securities and Exchange Commission ("SEC") requires Advest to maintain liquid net capital to meet its obligations to customers. At September 30, 1999, Advest had excess net capital of approximately $61.1 million and a net capital ratio of 12.9%. See Note 10. Advest Bank and Trust Company The Bank is a member of the FHLBB and, accordingly, has access to advances from the FHLBB to the extent the Bank possesses eligible collateral. At September 30, 1999, the Bank had uncommitted, eligible collateral of $38.4 million making available $7.4 million of additional credit. Subsequent to the pending close of the purchase and sale transaction with Hudson, it is expected that the Bank's capital requirements will be substantially reduced. Management believes that operating cash flow together with available credit lines will provide sufficient resources for the Bank to meet current and reasonably foreseeable capital needs. The Federal Deposit Insurance Corporation ("FDIC") requires "well capitalized" banks to maintain a minimum Tier 1 or leverage capital ratio of 5%. At September 30, 1999, the Bank's Tier 1 or leverage capital ratio was 9.94%. The Bank is also subject to the FDIC's risk-based capital regulations, which require the Bank, as "well capitalized," to maintain a total risk-based capital ratio of 10%, including at least 6% Tier 1 risk-based capital. At September 30, 1999, the Bank's total risk-based and Tier 1 risk-based capital ratios were 11.07% and 11.07%, respectively, which met all regulatory requirements. Pursuant to the FDIC Improvement Act ("FDICIA"), all banks are subject to rules limiting brokered deposits and interest rates. Under FDICIA, the Bank meets the conditions to be deemed a "well capitalized" bank, which means it may accept brokered deposits without restriction. At September 30, 1999, the Bank had $43.6 million of brokered deposits. After the close of the purchase and sale transaction with Hudson United Bancorp, the Bank will transfer all brokered deposits to Hudson and will substantially cease its deposit operations. Cash Flows Cash and cash equivalents decreased $6.1 million. Advest's cash and equivalents increased $2.3 million. Advest used $10.0 million of cash from investing activities primarily to finance capital expenditures and funding of recruitment bonuses. Advest generated cash from operating activities of $12.4 with increases in customer receivables ($69.1 million), stock borrowed ($245.0 million) and securities inventory ($65.0 million) and a decrease in customer free credits ($31.3 million). These uses of operating cash were financed by net income plus noncash income adjustments ($26.5 million), stock loan ($306.8 million), short sales ($81.3 million) and repurchase agreements ($18.4 million). 21 The Bank's cash and equivalents decreased $8.2 million. Net cash provided by operating activities was $32.6 million primarily due to proceeds from loans held for sale of $74.7 million, which were partly offset by loan originations and acquisitions. Net cash used for financing activities was $35.9 million with a $50.4 million decrease in deposits partly offset by a net increase in short- term borrowings. Net cash used for investing activities was $4.9 million primarily due to loan originations of $81.5 million offset by principal collections and a net decrease in investment securities. AGI's cash and equivalents increased $.7 million. Net cash from financing activities decreased $4.8 million primarily due to purchases by the employee and executive equity plans offset by treasury stock repurchases and cash dividends paid. Net cash provided by investing activities was $1.8 million primarily related to principal collections on loans and mortgages and net cash provided by operations was $3.7 million. Accounting Pronouncements The Company adopted Statement of Financial Accounting Standard ("SFAS") 130, "Reporting Comprehensive Income," SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," and SAFS 132, "Employers' Disclosures About Pensions and Other Postretirement Benefits" during the current fiscal year. The Company elected to use the statement of changes in equity approach in adopting SFAS 130 and its implementation did not have a material impact on the Company's financial condition, results of operations or cash flows. The implementation of SFAS 131 requires certain disclosures about identified operating segments of the Company and has no effect on the Company's financial condition, results of operations or cash flows. Refer to Note 16. SFAS 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable and requires additional information on changes in the benefit obligations and fair values of plan assets. Its adoption had no impact on the Company's financial condition, results of operations or cash flows. In October 1998, the FASB issued SFAS 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." The Company adopted SFAS 134 as of January 1, 1999, as required, and its adoption did not have a material impact on the Company's financial condition, results of operations or cash flows. In June 1999, the FASB issued SFAS 137, "Deferral of the Effective Date of SFAS 133. SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998. SFAS 137 defers the effective date for SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133, as amended by SFAS 137, during fiscal 2001, as required, and has not determined whether its implementation will have a material impact on the Company's financial condition, results of operations or cash flows. Year 2000 Many computer programs and equipment with embedded chips use two rather than four digits to represent the year and may be unable to accurately process dates after December 31, 1999. This, as well as other date-related programming issues, may result in miscalculations or system failures that can disrupt the businesses that rely on them. The term "Year 2000 issue" is used to refer to all difficulties the turn of the century may bring to computer users. Starting in 1996, the Company undertook a program to address the possible impact of the Year 2000 issue on its business. This effort has been led by a project team within the Company's Information Systems Group, with the assistance of a Year 2000 Steering Committee consisting of senior representatives from the Company's principal departments. This project team developed an action plan incorporating five general stages: awareness, assessment, remediation, validation and implementation. In carrying out this plan, the Company identified many internal computer programs and some items of equipment that were susceptible to potential Year 2000 failures or errors. All these programs and equipment have been modified or 22 replaced, using internal and external resources, and the modifications or replacements have been successfully tested. In this process, priority was given to those "mission critical" systems whose failure might have a material impact on the Company The Company relies heavily on vendors, correspondents and service providers in its operations. An important part of the Year 2000 program has been to determine the extent to which the Company may be vulnerable to failure by these third parties to address their own Year 2000 issues. The Company has communicated with them and received satisfactory assurances concerning their Year 2000 preparations. Where practical, the Company has verified these assurances with testing, particularly on mission critical relationships. The Company is not aware of any Year 2000 issue of any third party likely to materially interfere with the Company's business. The Company's brokerage subsidiary is highly dependent on a single third party service provider to maintain client account information, process transactions, and deliver client and operational reports. This service provider has advised the Company that it has addressed its Year 2000 issues. However, any failure by this third party could seriously disrupt the Company's operations. More generally, the financial services industry operates with a high degree of interdependence among firms. Unresolved Year 2000 issues in one firm potentially could disrupt the securities markets and materially impact other firms, including the Company. To address this concern, the Company, the service provider referred to above, and many other firms have participated in an industry-wide testing program. This testing program, which began in April 1998 and will continue through December 1999, has not identified any material deficiencies likely to adversely impact the Company or its industry. The Company has developed contingency plans to minimize any Year 2000 disruptions in the event that a mission critical system does not function properly. These contingency plans may include manual processing of transactions, use of alternative service providers, relocation to temporary facilities, programming fixes and other measures. The Company believes that it has taken appropriate steps to address the Year 2000 issue. However, if unanticipated Year 2000 problems arise, the consequences could include business interruption, exposure to monetary claims by clients and others, loss of business goodwill, and regulatory noncompliance and possible sanctions. The likelihood of these events and the possible financial impact if they occur cannot be predicted. Generally, the Company's insurance coverage will provide little or no recovery to the Company for losses of this nature. The Company estimates that the costs of its Year 2000 efforts will be about $2.5 million, of which approximately $2.2 million had been spent through September 30, 1999. These costs are being funded through operating cash flows and are being expensed as incurred. They do not include costs of replacing computer hardware or software with Year 2000 compliant systems on an expedited basis where that replacement was otherwise contemplated as part of an updating of the Company's systems. Such replacement costs are estimated to be approximately $3.0 million firm wide, substantially all of which will be capitalized or financed under operating leases. These estimates also do not include costs, which would be incurred if the Company is required to implement contingency plans. The estimates and conclusions set forth above contain forward-looking statements and are based on management's best estimate of future events. Risks include the availability of resources, our ability to discover and correct material Year 2000 issues and the ability of the vendors, correspondents and other third parties on which the Company relies to bring their systems into Year 2000 compliance. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Risk Management During its normal course of business, Advest engages in the trading of securities, primarily fixed income, in both a proprietary and market making capacity, and holds securities for trading, rather than investment, purposes. 23 Advest makes a market in certain investment-grade corporate bonds, mortgage- backed securities, municipal bonds and over-the-counter equities in order to facilitate order flow and accommodate its retail and institutional customers. During fiscal 1999 and 1998, Advest significantly increased its institutional corporate bond, government agency and mortgage-backed securities trading activities. The activities of these trading areas accounted for most of a $64.7 million (27%) and $144.1 million (148%) increase in trading inventories and a $81.3 million (54%) and $97.1 million (186%) increase in short security positions, for 1999 and 1998, respectively. Market Risk Market risk represents the potential change in the value of financial instruments due to fluctuations in interest rates, foreign currency exchange rates, equity and commodity prices. In the course of its trading and hedging activities, the Company is exposed to interest rate and equity price risk. The Company is exposed to market risk arising from changes in interest rates. Advest's management seeks to reduce the risk of its trading portfolio on an aggregate basis. Its risk management activities include inventory and hedging policies. Inventory policies reflect the level of aggregate short and long positions that may be held for trading and are specified by product line. Risk management strategies also include the use of derivatives, principally exchange-traded futures contracts. The Company is exposed to equity price risk as a result of making a market in over-the-counter equity securities. Equity price risk arises from changes in the price and volatility of equity securities. In April 1999, a comprehensive review was completed of Advest's NASDAQ trading activities and the decision was made to reduce overnight inventory and more aggressively manage the number of stocks in which it made a market. Trading Accounts (Value at Risk Analysis) For purposes of the Securities and Exchange Commission's market risk disclosure requirements, the Company has performed a value at risk analysis of its trading financial instruments and derivatives. The value at risk calculation uses standard statistical techniques to measure the potential loss in fair value based upon a one-day holding period and a 95% confidence level. For 1999, Advest has significantly upgraded its VaR capability. In 1997 and 1998, Advest's VaR values relied upon RiskMetrics VaR system. In 1999, Advest converted to the Bloomberg Value at Risk System. The Bloomberg System utilizes the RiskMetrics System as a basis, but then it takes advantage of a number of enhancements that allows for more accurate financial modeling for determining Advest's trading assets' value at risk. The field of Risk Management is constantly evolving, and it is our practice to continually update our abilities to more accurately and effectively utilize material advances in the quantification of Financial Risk Management when these improvements become accepted practice and available. Although value at risk models are sophisticated, they can be limited, as historical data is not always an accurate predictor of future conditions. Accordingly, Advest manages its market exposure through other measures, including predetermined trading authorization levels and the hedging requirement policy described previously. At September 30, 1999, 1998 and 1997, Advest's value at risk for each component of market risk and in total was as follows: In thousands 1999 1998 1997 ---- ---- ---- Interest rate risk $301 $480 $213 Equity price risk 56 77 64 Diversification benefit (10) (69) (16) ---- ---- ---- $347 $488 $261 ==== ==== ==== 24 The potential future loss represented by the total value at risk falls within predetermined levels of loss that are not material to the Company's results of operations, financial condition or cash flows. The changes in the value at risk amounts reported in 1998 from those reported in 1997 reflect changes in the size and composition of Advest's trading portfolio, in particular the increased concentration in corporate bonds and mortgage-backed securities discussed above. The value at risk estimate has limitations that should be considered in evaluating the Company's potential future losses based on the year-end portfolio positions. Recent market conditions may result in statistical relationships that result in a higher value at risk than would be estimated from the same portfolio under different market conditions. In addition, a critical risk management strategy is the active management of portfolio levels to mitigate market risk. The Company's, in particular Advest's, market risk exposure will continue to change with changes in the portfolio and market conditions. Non-trading Accounts (Tabular Presentation) The following table shows the interest sensitivity of non-trading assets, liabilities and financial instruments of Advest at September 30, 1999 and 1998, based on their estimated maturity/repricing structure: 25 September 30, 1999 - ------------------ Percent of After In thousands, except percentages Amount Total 2000 2001 2002 2003 2004 2004 - ---------------------------------------------------------------------------------------------------------------- Interest-sensitive assets Investment securities (a) $ 21,948 98.82% $ 16,965 $ 750 $ 250 $ - $ - $ 3,983 Average interest rate 5.80% 5.34% 6.37% 7.25% - - 5.93% Interest-bearing deposits 262 1.18% 262 - - - - - Average interest rate 5.04% 5.04% - - - - - -------------------------------------------------------------------------------- Total interest-sensitive assets $ 22,210 100.00% $ 17,227 $ 750 $ 250 $ - $ - $ 3,983 -------------------------------------------------------------------------------- Interest-sensitive liabilities FHLB advances $ 31,000 16.13% $ 28,500 $ 1,500 $ $ $ $ 1,000 Average interest rate 5.59% 5.55% 6.73% 4.99% Other borrowings 161,190 83.87% 133,164 7,026 7,000 7,000 7,000 - Average interest rate 5.80% 5.34% 7.94% 7.95% 7.95% 7.95% - -------------------------------------------------------------------------------- Total interest-sensitive liabilities $ 192,190 100.00% $ 161,664 $ 8,526 $ 7,000 $ 7,000 $ 7,000 $ 1,000 --------------------------------------------------------------------------------- Interest rate derivatives Interest rate swaps: Interest rate caps $ 5,000 Average interest rate 6.00%
September 30, 1998 - ------------------ Percent of After In thousands, except percentages Amount Total 1999 2000 2001 2002 2003 2003 - -------------------------------------------------------------------------------------------------------------------- Interest-sensitive assets Investment securities (a) $ 22,176 99.08% $ 21,676 $ 250 $ 250 $ - $ - $ - Interest-bearing deposits 206 0.92% 200 - - 6 - - Average interest rate 5.17% 5.27% 0.00% 0.00% 2.00% - - ----------------------------------------------------------------------------------- Total interest-sensitive assets $ 22,382 100.00% $ 21,876 $ 250 $ 250 $ 6 $ - $ - ----------------------------------------------------------------------------------- Interest-sensitive liabilities FHLB advances $ 16,500 9.34% $ 10,500 $ 3,500 $ 1,500 $ $ $ 1,000 Average interest rate 5.86% 5.62% 6.45% 6.73% 4.99% Other borrowings 160,103 90.66% 124,798 7,281 7,024 7,000 7,000 7,000 Average interest rate 6.32% 5.86% 7.88% 7.94% 7.95% 7.95% 7.95% ------------------------------------------------------------------------------------ Total interest-sensitive liabilities $ 176,603 100.00% $ 135,298 $ 10,781 $ 8,524 $ 7,000 $ 7,00 $ 8,000 ------------------------------------------------------------------------------------ Interest rate derivatives Interest rate swaps: Fixed to variable notional amount $ 5,000 Average pay rate 7.09% Average receive rate 5.69% Interest rate caps $ 5,000 Average interest rate 6.00% (a) Investment securities include investment securities available for sale and FHLB stock.
26 The Advest Group, Inc. Consolidated Statements of Earnings Fiscal year ended September 30, ------------------------------- In thousands, except per share amounts 1999 1998 1997 ------------------------------------------------------------------------- Revenues Commissions $ 141,603 $ 129,825 $ 123,032 Interest 57,431 57,439 44,391 Principal transactions 56,347 44,752 43,952 Asset management and administratio 39,188 33,473 25,702 Investment banking 33,006 37,607 31,290 Other 7,663 6,705 6,837 ---------- --------- --------- Total revenues 335,238 309,801 275,204 ---------- --------- --------- Expenses Compensation 198,322 180,886 161,546 Interest 34,965 31,341 23,799 Communications 32,136 27,530 23,062 Occupancy and equipment 20,813 18,744 17,479 Business development 7,728 7,197 6,517 Professional 5,610 4,686 5,950 Brokerage, clearing and exchange 5,085 4,542 4,675 Other 8,267 7,047 8,094 ---------- ---------- ---------- Total expenses 312,926 281,973 251,122 ---------- ---------- ---------- Income before taxes 22,312 27,828 24,082 Provision for income taxes 8,925 10,853 9,873 ---------- ---------- ---------- Income from continuing operations 13,387 16,975 14,209 Income from discontinued operations, net of taxes 877 977 723 Loss on sale of discontinued operations, net of taxes (713) - ----------- ----------- ----------- Net income $ 13,551 $ 17,952 $ 14,932 Per share data: Basic earnings: Continuing operations $ 1.67 $ 2.08 $ 1.77 Discontinued operations 0.11 0.12 0.09 Loss on sale of discontinued operations (0.09) - - ------------ ---------- ------------ Net income $ 1.69 $ 2.20 $ 1.86 ============ ========== ============ Diluted earnings: Continuing operations $ 1.46 $ 1.82 $ 1.54 Discontinued operations 0.10 0.10 0.08 Loss on sale of discontinued operations (0.08) - - ------------ ----------- ----------- Net income $ 1.48 $ 1.92 $ 1.62 ============ =========== =========== Dividends declared $ 0.19 $ 0.16 $ 0.09 ============ =========== =========== - --------------------------------------------------------------------------- See Notes to Consolidated Financial Statements - ---------------------------------------------------------------------------
27 The Advest Group, Inc. Consolidated Balance Sheets In thousands, except per share amounts September 30, 1999 September 30, 1998 - ---------------------------------------------------------------------------------------------------- Assets Cash and short-term investments Cash and cash equivalents $ 7,812 $ 13,882 Cash and securities segregated under federal and other regulations 253 248 Interest-earning deposits and investments - - -------------- ------------- 8,065 14,130 -------------- ------------- Receivables Securities borrowed 515,676 270,638 Brokerage customers, net 503,116 433,840 Brokers and dealers 6,447 5,310 Other 30,455 19,608 -------------- ------------ 1,055,694 729,396 -------------- ------------ Securities Trading, at market value 306,426 241,681 Available for sale, at market value 5,063 11,787 Held to maturity (market values of $16,886 and $18,911) 16,885 18,776 -------------- ----------- 328,374 272,244 -------------- ----------- Other assets Net assets of discontinued operations 30,972 8,267 Equipment and leasehold improvements, net 13,028 13,377 Other 26,488 23,702 -------------- ----------- 70,488 45,346 -------------- ----------- $ 1,462,621 $ 1,061,116 ============== =========== Liabilities and Shareholders' Equity Liabilities Securities loaned $ 523,095 $ 216,275 Brokerage customers 298,119 329,975 Securities sold, not yet purchased, at market value 230,486 149,189 Short-term borrowings 161,007 134,762 Long-term borrowings 30,526 41,308 Compensation and benefits 27,648 27,247 Repurchase agreements 18,406 - Brokers and dealers 10,839 13,984 Checks payable 4,971 2,973 Deposits - - Net liabilities of discontinued operations - - Other 22,388 21,736 Subordinated borrowings - - ------------ ----------- 1,327,485 937,449 ============ =========== Shareholders' equity Preferred Stock - - Common stock, par value $.01, authorized 25,000 shares, issued 10,914 and 10,893 shares 109 109 Paid-in capital 76,814 72,966 Retained earnings 77,644 65,785 Accumulated other comprehensive income, net - (12) Unamortized restricted stock compensation (2,081) (1,081) Treasury stock, at cost, 1,989 and 1,944 shares (17,350) (14,100) ------------ ------------ 135,136 123,667 ------------ ------------ $ 1,462,621 $ 1,061,116 ============ ============ See Notes to Consolidated Financial Statements.
28 The Advest Group, Inc. Consolidated Statements of Cash Flows Fiscal year ended September 30, In thousands 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income $ 13,551 $ 17,952 $ 14,932 Income from discontinued operations (877) (977) (723) Loss on sale of discontinued operations 713 - - ------------ ---------- ---------- Income from continuing operations 13,387 16,975 14,209 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Depreciation and amortization 11,071 9,425 8,295 Provision for credit losses and asset devaluation 306 159 237 Deferred income taxes (3,664) (347) (69) Loss on retirement of subordinated borrowings 607 Other (636) 10 (1,820) (Increase) decrease in operating assets: Securities borrowed (245,038) 20,106 (70,826) Receivables from brokerage customers, net (69,079) (44,791) (36,794) Trading securities (64,922) (138,472) (904) Receivables from brokers and dealers (1,137) (1,213) 1,298 Cash and securities segregated under federal and other regulatio (5) 17 - Other (17,606) (7,340) (3,873) Increase (decrease) in operating liabilities: Securities loaned 306,820 (42,020) 44,300 Securities sold, not yet purchased 81,297 97,076 4,675 Repurchase agreements 18,406 - - Checks payable 1,998 (15,394) 1,390 Short-term brokerage borrowings, net 1,227 92,000 (1,800) Brokerage customers (31,856) 10,875 36,482 Other 8,649 7,083 9,323 --------------- ----------- ---------- Net cash provided by operating activities of continuing operations 9,218 4,149 4,730 --------------- ----------- ---------- FINANCING ACTIVITIES Repayment of short-term borrowings (264) (248) (1,107) Proceeds from long-term borrowings - - 35,000 Retirement of subordinated debentures - - (20,545) Repayment of long-term borrowings - - (9,820) Other (4,515) (218) 270 ---------------- ----------- ---------- Net cash (used in) provided by financing activities of continuing operations (4,779) (466) 3,798 ---------------- ----------- ---------- INVESTING ACTIVITIES Proceeds from (payments for): Maturities of held to maturity securities 23,879 22,712 24,000 Maturities of available for sale securities 983 2,260 1,759 Sales of available for sale securities 19,607 42,853 4,872 Purchases of available for sale securities (13,110) (47,024) (1,598) Purchases of held to maturity securities (21,539) (20,500) (22,000) Principal collections on loans 1,661 13,185 254 Loans originated (619) (5,841) (335) Other (10,135) (8,950) (9,185) ---------------- ---------- ---------- Net cash provided by (used in) investing activities of continuing operat 727 (1,305) (2,233) Net cash used in discontinued operations (11,236) (955) (5,297) ---------------- ---------- ---------- (Decrease) increase in cash and cash equivalents (6,070) 1,423 998 Cash and cash equivalents at beginning of period 13,882 12,459 11,461 ---------------- ----------- ---------- Cash and cash equivalents at end of period $ 7,812 $ 13,882 $ 12,459 ================ =========== ========== Interest paid $ 34,824 $ 40,517 $ 31,817 Income taxes paid $ 12,386 $ 15,297 $ 7,987 Non-cash activities: Restricted stock awards, net of forfeitures $ 1,605 $ 811 $ 516 See Notes to Consolidated Financial Statements.
29 The Advest Group, Inc. Consolidated Statements of Changes in Shareholders' Equity $.01 par value Unamortized Accumulated Common stock Treasury stock restricted other Share- In thousands, except --------------- Paid-in Retained ----------------- stock comprehensive holders' per share amounts Shares Amount capital earnings Shares Amount compensation income, net equity Balance as of September 30, 1996 10,710 $ 107 $ 68,842 $ 35,102 (2,307) $ (14,182) $ (56) $ (223) $ 89,590 Comprehensive income: Net income 14,932 Unrealized holding gain on investment securities (net of taxes of $79) 160 Total comprehensive income 15,092 Exercise of stock options 83 1 839 61 26 866 Dividends declared ($.09 per share) (774) (774) Repurchase of common stock (183) (1,835) (1,835) Sale of treasury stock to equity plan 1,104 191 1,221 2,325 Conversion of subordinated debentures at $13.57 per share 19 254 254 Stock issued under restricted stock plans, less amortization of $95 255 54 355 (515) 95 Other 15 4 25 40 Balance as of ------ ------ ------ ------ ------- ------- ------ ------- ------- September 30, 1997 10,812 108 71,309 49,260 (2,180) (14,390) (571) (63) 105,653 Comprehensive income: Net income 17,952 Unrealized holding gain on investment securities (net of taxes of $24) 51 Total comprehensive income 18,003 Exercise of stock options 81 1 577 32 (224) 354 Dividends declared ($.16 per share) (1,427) (1,427) Repurchase of common stock (60) (1,167) (1,167) Sale of treasury stock to equity plan 1,421 90 521 1,942 Stock issued under restricted stock plans, less amortization of $301 601 31 210 (510) 301 Other (942) 143 950 8 Balance as of ------ ------ ------ ------ ------- -------- ------- -------- ------ September 30, 1998 10,893 109 72,966 65,785 (1,944) (14,100) (1,081) (12) 123,667 Comprehensive income: Net income 13,551 Unrealized holding gain on investment securities (net of taxes of $9) 12 Total comprehensive income 13,563 Exercise of stock options 21 - 104 2 34 138 Dividends declared ($.19 per share) (1,692) (1,692) Repurchase of common stock (298) (5,383) (5,383) Sale of treasury stock to equity plan 1,439 123 984 2,423 Stock issued under restricted stock plans, less amortization of $809 1,222 62 587 (1,000) 809 Other 1,083 66 528 1,611 Balance as of ------- ------- --------- --------- ------- ----------- ------------ --------- ----- September 30, 1999 10,914 $ 109 $ 76,814 $ 77,644 (1,989) $ (17,350) $ (2,081) $ - $ 135,136 ======= ======= ========= ========= ======= =========== ============ ========= ==== See Notes to Consolidated Financial Statements.
30 Notes to Consolidated Financial Statements Note 1: Summary of Significant Accounting Policies Basis of presentation The consolidated financial statements include the accounts of The Advest Group, Inc. ("AGI") and all subsidiaries (collectively the "Company"). The Company provides diversified financial services including securities brokerage, trading, investment banking, trust and asset management. Principal operating subsidiaries are Advest, Inc. ("Advest"), a broker/dealer and Advest Bank and Trust Company (the "Bank"), a federal savings bank. In May 1999, the Company announced that it was entering into two agreements with a third party financial institution, which include the sale of the Bank's loans and other financial assets and assumption of the Bank's deposit liabilities. See Note 2, "Discontinued Operations." 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. All material intercompany accounts and transactions are eliminated. Certain 1998 and 1997 amounts have been reclassified in the accompanying consolidated financial statements to provide comparability with the current year presentation. Cash equivalents are defined as short-term, highly liquid investments with an original maturity of three months or less including amounts due from banks, federal funds sold and overnight time deposits. At September 30, 1999 and 1998, federal funds sold were $500,000 and $6,050,000, respectively. Receivables from and payables to brokerage customers Receivables from and payables to brokerage customers arise from cash and margin transactions executed by Advest on their behalf. In virtually all instances, receivables are collateralized by securities with market values in excess of the amounts due. The collateral is not reflected in the accompanying financial statements. A reserve for doubtful accounts is established based upon reviews of individual credit risks, as well as prevailing and anticipated economic conditions. At September 30, 1999 and 1998, the reserve was $548,000 and $791,000, respectively. Included in payables to brokerage customers are free credit balances of $281,860,000 and $303,030,000 at September 30, 1999 and 1998, respectively. Advest pays interest on credit balances when the customer has indicated that the funds are for reinvestment purposes. Collateralized financing transactions Securities loaned and borrowed are accounted for as collateralized financing transactions and are recorded at the amount of cash collateral received or advanced. The fee received or paid by Advest is recorded as interest revenue or expense. The initial collateral advanced or received has a market value in excess of the market value of the underlying securities. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded, as necessary. The Company utilizes short-term repurchase agreements as supplementary short-term financing and delivers U.S. Treasury securities as collateral for cash received. These repurchase agreements are accounted for as collateralized financings. The fee paid by the Company is recorded as interest expense. The Company monitors the market value of securities transferred on a daily basis, and obtains or refunds collateral as necessary. Securities Advest records securities transactions on a settlement date basis, which does not differ materially from a trade date basis. Revenues and related expenses for transactions executed but not settled are accrued on a trade date basis. 31 Advest's trading securities and securities sold, not yet purchased are valued at market with unrealized gains and losses reflected in current period revenues from principal transactions or investment banking. Periodically, Advest receives stock warrants in connection with its investment banking activities. Warrants are carried at their fair value which is determined using the Black- Scholes model or another standard option valuation technique. Securities available for sale are carried at fair value with unrealized holding gains or losses, net of tax, reflected in shareholders' equity and comprehensive income. Realized gains and losses are recorded on trade date by the specific identification method and are included in revenue from principal transactions. Securities which the Company has the positive intent and ability to hold until maturity are carried at amortized cost and classified as held to maturity investments. Available for sale and held to maturity securities are reduced to fair value, through charges to income, for declines in value that are considered to be other than temporary. Investment banking Investment banking revenues are recorded, net of expenses, on the settlement date for management fees and sales concessions, and on the dates the underwriting syndications are closed for underwriting fees. Depreciation and amortization Equipment and leasehold improvements are carried at cost. Depreciation of equipment for financial accounting purposes is calculated primarily using the straight-line method and is based upon the estimated useful lives of the assets ranging from three to ten years. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated useful lives of the improvements. At September 30, 1999 and 1998, accumulated depreciation and amortization were $15,236,000 and $41,848,000, respectively. The excess cost over the fair value of net assets of acquired companies is recorded as goodwill and is amortized on a straight-line basis over 40 years. At September 30, 1999 and 1998, the amount of goodwill reported in other assets was $5,374,000 and $5,624,000, respectively. Income taxes Deferred income taxes are recognized for the future tax consequences of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year end based on enacted tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to an amount which is more likely than not realizable. Income tax expense is the sum of the taxes currently payable and the change during the period in deferred tax assets and liabilities. 32 Derivative financial instruments Advest uses derivatives (primarily financial futures contracts) solely to manage the risk associated with its municipal bond trading securities. Derivative transactions are entered into when inventory levels exceed pre-determined thresholds specified in Advest's hedging policy, which was developed and is reviewed at least annually by the chief executive officer of the Company. Derivatives are considered off-balance-sheet instruments because their notional amounts are not recorded on the balance sheet. However, the fair values of Advest's futures contracts, which are based on quoted market prices, are reflected in the consolidated balance sheets within trading securities and the changes therein are reflected in the operating activities section of the consolidated statements of cash flows. Futures contracts are marked to market daily. Unrealized and realized gains and losses from the termination or sale of the futures contracts are reflected in revenue from principal transactions. Recent accounting pronouncements In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") 137, "Deferral of the Effective Date of SFAS 133." SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998. SFAS 137 defers the effective date for SFAS 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133 as amended by SFAS 137 during fiscal 2001, as required, and has not yet determined whether its implementation will have a material impact on the Company's financial condition, results of operations or cash flows. Note 2: Discontinued Operations During the third quarter, the Company announced that it would enter into two agreements with Hudson United Bank ("Hudson"), a subsidiary of Hudson United Bancorp, a Mahwah, New Jersey-based bank holding company. Under the terms of a purchase and sale agreement, Hudson will acquire the loan and other financial assets and assume the deposit liabilities of the Bank. Under the terms of a separate agreement, Advest and Hudson entered into a strategic alliance whereby Hudson became the exclusive provider of banking products and services to Advest and its clients. The strategic alliance agreement became effective September 1, 1999 and, concurrently, the Bank ceased its mortgage origination operations. The purchase and sale agreement was approved by the Office of Thrift Supervision ("OTS") and is expected to close during the fall of 1999. Under the terms of the purchase and sale agreement, Hudson will make a one-time payment of $2.0 million to the Bank. After deducting expenses related to the disposition, the Bank recognized a pre-tax profit of $.2 million on the transaction. The net loss of $.7 million on the sale of discontinued operations reflects a $.9 million tax expense related to the Bank's loan loss reserves. See Note 11. Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the consolidated financial statements of the Company reflect the disposition of certain assets and liabilities of the Bank. Accordingly, the Company's revenues, costs and expenses, assets and liabilities, and cash flows have been restated to exclude the lending and deposit businesses of the Bank from the respective captions in the Consolidated Statement of Earnings, Consolidated Balance Sheets and Consolidated Statements of Cash Flows, and have been reported through their respective dates of disposition as "Income from discontinued operations, net of taxes," as "Net assets of discontinued operations," and as "Net cash used in discontinued operations." Financial information for discontinued operations for the three years ended September 30, 1999 is summarized below (See Note 11 for analysis of income taxes): 33 ------------------------------------------------------------- In thousands 1999 1998 1997 ------------------------------------------------------------- Statement of earnings data: Revenues $12,273 $15,427 $16,002 Expenses 10,811 13,826 14,776 ------- ------- ------- Income before taxes 1,462 1,601 1,226 Provision for income taxes 585 624 503 ------- ------- ------- Income from discontinued operations $ 877 $ 977 $ 723 ======= ======= ======= ------------------------------------------------------------- Balance sheet data: Loans $151,603 $178,072 Interest receivable 1,028 1,265 Other assets (389) 1,085 Deposits (120,660) (171,074) Interest payable (136) (309) Other payables (474) (772) ----------- ---------- Net assets of discontinued operations $ 30,972 $ 8,267 =========== ========== As of September 30, 1999 and 1998, loans to related parties, which will be included in the sale of the Bank's assets, totaled approximately $1,601,000 and $2,556,000, respectively. There were approximately $269,000 of new loans and advances and $1,224,000 of net repayments during 1999. Related parties include directors and executive officers of the Company, and their respective affiliates in which they have a 10% or more interest. Such loans were made in the ordinary course of business. As of September 30, 1999, all loans to related parties were performing. Note 3: Trading Securities At September 30, 1999 and 1998, trading securities consisted of: Securities sold, Trading securities not yet purchased ------------------ ------------------- In thousands 1999 1998 1999 1998 - ------------------------------------------------------------------- Corporate obligations $175,743 $196,029 $194,710 $ 89,641 State and municipal Obligations 42,912 23,323 314 526 U.S. government and agency Obligations 51,969 4,041 34,831 57,566 Mortgage-backed securities 31,605 11,562 2 408 Stocks and warrants 4,197 6,726 629 1,048 ---------- --------- --------- -------- $306,426 $241,681 $230,486 $149,189 ========== ======== ========= ======== 34 Note 4: Investment Securities As of September 30, 1999, the amortized cost and fair values of debt securities, by contractual maturity, were: - ---------------------------------------------------------- Held to maturity ---------------------------------- Amortized Fair In thousands cost value - ------------------------------------------------------------------- Due in one year or less $12,402 $12,402 Due after one year through five years 500 500 Due after ten years 3,983 3,984 - ------------------------------------------------------------------- $16,885 $16,886 ======= ======= For the three years ended September 30, 1999, 1998 and 1997, proceeds from the sale of securities available for sale were $19,607,000, $42,853,000 and $4,871,000, respectively, and gross gains realized were $0, $66,000 and $11,000, respectively. Gross losses realized were $537,000, $2,000 and $82,000 for 1999, 1998 and 1997, respectively. The amortized cost and fair values of the Company's available for sale securities at September 30, 1999 and 1998 were: Gross unrealized Amortized ---------------- Fair In thousands cost gains losses value - ----------------------------------------------------------------------- 1999 - ---- FHLB stock $ 2,270 $-- $ -- $ 2,270 Other 2,793 -- -- 2,793 ------- --- ---- ------- $ 5,063 $-- $ -- $ 5,063 ======= === ==== ======= 1998 - ---- FHLB stock $ 2,270 $-- $ -- $ 2,270 Mortgage-backed securities 1,990 -- -- 1,990 Other 7,542 9 (24) 7,527 ------- --- ---- ------- $11,802 $ 9 $(24) $11,787 ======= === ===== ======= There were no sales of held to maturity securities during the three years in the period ended September 30, 1999. The amortized cost and fair values of the Company's held to maturity securities at September 30, 1999 and 1998 were: 35 - --------------------------------------------------------------------------- Gross unrealized Amortized ---------------- Fair In thousands cost gains losses value 1999 - ---- Mortgage-backed securities $ 3,983 $1 $-- $ 3,984 U.S. government and agency obligations 12,402 -- -- 12,402 Other 500 -- -- 500 ------- --- ---- ------- $16,885 $1 $-- $16,886 ======= === ==== ======= 1998 - ---- Mortgage-backed securities $ 5,876 $135 $-- $ 6,011 U.S. government and agency obligations 12,400 -- -- 12,400 Other 500 -- -- 500 -------- --- ---- ------- $18,776 $135 $-- $18,911 ======= === ==== ======= Note 5: Short-term Borrowings In the ordinary course of business, primarily to facilitate securities settlements and finance margin debits and trading inventories, Advest obtains bank loans which are collateralized by its trading securities and customers' margin securities. The loans are payable on demand and bear interest based on the federal funds rate. At September 30, 1999 and 1998, Advest had $125,228,000 and $124,001,000, respectively, in bank loans all collateralized by firm trading securities. The weighted average interest rate on bank loans outstanding at September 30, 1999 and 1998, was 5.57% and 5.81%, respectively, and the weighted average interest rates during fiscal 1999 and 1998 were 5.21% and 5.87%, respectively. Short-term borrowings of the Bank consisted primarily of the current portion of advances from the FHLB. At September 30, 1999, borrowings totaled $28,500,000 at rates from 5.37% to 6.68%. At September 30, 1998, borrowings totaled $10,500,000 at rates from 5.53% to 6.58%. The Bank's borrowings with the FHLB are collateralized by its holdings of FHLB stock as well as otherwise unencumbered mortgage loans and investment securities. The advances are subject to prepayment penalties, which are intended to make the FHLB indifferent to the prepayment and are approximately equivalent to settlement of the obligations at their current fair value. AGI's short-term borrowings at September 30, 1999 and 1998, were $7,279,000 and $261,000, respectively, representing the current portion of notes due between 2000 and 2003. Refer to Note 6 for additional information. Note 6: Long-term Borrowings Long-term borrowings of the Bank were $2,500,000 and $6,000,000 as of September 30, 1999 and 1998, respectively, and represent the non-current portion of FHLB advances. The borrowings are collateralized in the same manner as short-term borrowings. As of September 30, 1999, the interest rates and maturities of outstanding borrowings were: In thousands Interest rates Amount ------------------------------------------------------- Year ending September 30, 2001 6.73% $1,500 Year ending September 30, 2008 4.99% 1,000 ------ $2,500 ====== 36 In fiscal 1997, AGI entered into a private placement transaction with three institutional investors, borrowing $35,000,000 on an unsecured basis. Under the terms of the note, the principal is payable in five equal installments with payments due on December 31, 1999 and on the last day of each December thereafter through and including December 31, 2003. The note is investment-grade rated and bears interest at the rate of 7.95% per annum payable semiannually on the last day of June and December. On November 1, 1995, AGI signed a promissory note with a third party lender for $1,250,000 due November 1, 2000. Under the terms of the note, the principal is payable in 60 equal monthly installments at an interest rate of 6.25%. At September 30, 1999 and 1998, total long-term borrowings of AGI were $28,026,000 and $35,308,000, respectively. Note 7: Common Stock Basic earnings per share is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing income available to common shareholders by the weighted-average shares of common stock and common stock equivalents outstanding during the period. Common stock equivalents are dilutive stock options that are assumed exercised for calculation purposes. Diluted earnings per share for fiscal 1997 assumes full conversion of the Company's outstanding subordinated debentures into common stock and elimination of the related interest expense, net of taxes, for the periods outstanding. The debentures were retired in January 1997. The following table provides the calculation of net income per common share for the years ended September 30, 1999, 1998 and 1997: In thousands, except per share amounts 1999 1998 1997 - --------------------------------------------------------------------------- Net income $13,551 $17,952 $14,932 ======= ======= ======= Average number of common shares outstanding during the period 8,888 8,877 8,512 Adjustments: Contingently issuable shares (892) (726) (469) Average number of common ------ ------ ------- shares outstanding 7,996 8,151 8,043 ------- ------- ------- Basic earnings per common share $ 1.69 $ 2.20 $ 1.86 ======= ======= ======= 37 In thousands, except per share amounts 1999 1998 1997 - --------------------------------------------------------------- Net income $13,551 $17,952 $14,932 Interest expense on debentures, net -- -- 249 ------- ------- ------- Net income applicable to common stock $13,551 $17,952 $15,181 ======= ======= ======= Average number of common shares outstanding during the period 8,888 8,877 8,512 Adjustments: Exercise of stock options 293 467 366 Conversion of debentures -- -- 466 ------- ------- ------- Average number of common shares outstanding 9,181 9,344 9,344 ======= ======= ======= Diluted earnings per common share $ 1.48 $ 1.92 $ 1.62 ======= ======= ======= Under a common stock repurchase program, the Company is authorized to purchase up to 4,000,000 shares. During the years ended September 30, 1999 and 1998, 298,369 and 60,500 shares, respectively, were acquired for a total of 3,055,146 shares repurchased since the start of the program. The payment of dividends on the Company's common stock is subject to (1) the availability of funds from Advest, which may be restricted under the net capital rule of the SEC and the New York Stock Exchange ("NYSE"), and from the Bank, which is subject to minimum bank regulatory requirements, and (2) a Note Purchase Agreement dated as of December 27, 1996 with three institutional investors. Such restrictions have never curtailed the Company's ability to declare dividends. In 1988, the Board of Directors of the Company adopted a shareholder rights plan. The plan provides for the distribution of one common stock purchase right for each outstanding share of common stock of the Company. In March 1998, the Board of Directors adopted an amendment to the plan extending the term of the rights, increasing their exercise price, and making other changes to the plan. After giving effect to this amendment, each right entitles the holder, following the occurrence of certain events, to purchase one share of common stock at a purchase price of $60 per share subject to adjustment. The rights will not be exercisable or transferable apart from the common stock except under certain circumstances in which either a person or group of affiliated persons acquires, or commences a tender offer to acquire 20% or more of the Company's common stock or a person or group of affiliated persons acquires 15% of the Company's common stock and is determined by the Board of Directors to be an "Adverse Person." Rights held by such an acquiring person or persons may thereafter become void. Under certain circumstances, a right may become a right to purchase common stock or assets of the Company or common stock of an acquiring company at a substantial discount. Under certain circumstances, the Company may redeem the rights at $.01 per right. The rights will expire in October 2008 unless earlier redeemed or exchanged by the Company. The Company has 2,000,000 shares, $.01 par value, preferred stock which was authorized by shareholders in 1988. The Board of Directors has full discretion with respect to designating and establishing the terms of each class or series of preferred stock prior to its issuance. No preferred stock has been issued to date. 38 Note 8: Stock Option Plans Employee stock option plans The Company's 1993 Stock Option Plan (the "1993 Plan") provides for grants of incentive stock options or nonqualified stock options for up to 500,000 shares of the Company's common stock. At September 30, 1999, options for 506,195 shares had been granted under the 1993 Plan, of which 427,363 options were outstanding. In September, 1999, the Board of Directors approved the 1999 Stock Option Plan (the "1999 Plan") subject to approval by the Company's Shareholders. If approved, the 1999 Plan will authorize grants of incentive stock options or nonqualified stock options for up to 300,000 shares. Option grants under the 1993 Plan and 1999 Plan are made at the discretion of the Human Resources Committee of the Board of Directors and become exercisable at such times (but not within six months of grant) and expire at such time (but not later than ten years after grant), as that committee determines. Non-employee director stock option plans The Company's 1994 Non-Employee Director Stock Option Plan (the "1994 Plan"), as amended, provided for annual grants of 2,500 nonqualified stock options to each non-employee director through January 1999 up to an aggregate of 100,000 for all directors. In September 1999, the Board of Directors approved the 2000 Non- Employee Director Stock Option Plan (the "2000 Plan"), subject to approval by the Company's Shareholders. If approved, the 2000 Plan will authorize continued annual grants at the same level of up to an additional 100,000 options. At September 30, 1999, 74,500 options had been granted under the 1994 Plan, of which 66,000 were outstanding, and no options had been granted under the 2000 Plan. Options granted under either Plan become exercisable in equal thirds 30, 42 and 54 months after grant and expire 60 months after grant. Advest equity plans Since 1995, the Company has offered the Advest Equity Plans (the "Equity Plan") to certain eligible employees. The Equity Plan is a salary deferral investment program and is described in more detail in Note 9. For deferrals during calendar 1999 through June 30, 1999, 57,650 options were granted and additional options will be granted based on deferrals from June 30, 1999 through December 31, 1999. For deferrals during calendar 1998 and 1997, respectively, 91,724 and 111,020 options were granted. Options granted under the equity plans are nonqualified stock options which will become exercisable five years after the end of the plan year and expire two years later. Exercise price of options All options granted by the Company to date, or which may be granted under all plans, have or will have exercise prices not less than 100% of the fair market value of the Company's common stock on the date of grant. Pro forma compensation expense The Company applies the intrinsic value method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for stock-based compensation and, accordingly, no compensation cost has been recognized in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS 123, the Company's net earnings would have been the pro forma amounts indicated below: 39 In thousands 1999 1998 1997 ------------------------------------------------------------------ Net earnings As reported $13,551 $17,952 $14,932 Pro forma 12,901 17,573 14,736 Basic earnings per share As reported $ 1.69 $ 2.20 $ 1.86 Pro forma 1.61 2.16 1.83 Diluted earnings per share As reported $ 1.48 $ 1.92 $ 1.62 Pro forma 1.41 1.88 1.60 Pro forma compensation expense associated with option grants is recognized over the vesting period. The impact of applying SFAS 123 on pro forma disclosure for the years shown is not fully representative of the potential impact on pro forma net earnings for future years, which will include compensation expense related to vesting of 1997, 1998, 1999 and subsequent grants. Stock option activity Transactions under the Company's stock option plans are summarized below: Number of Weighted-average shares exercise price ---------------------------------------------------------------------------- Options outstanding at September 30, 1996 902,069 $ 7.29 Granted 172,838 15.70 Forfeited (22,249) 8.42 Exercised (186,674) 5.38 --------- Options outstanding at September 30, 1997 865,984 9.35 Granted 127,533 26.13 Forfeited (14,031) 6.51 Exercised (144,506) 12.45 --------- Options outstanding at September 30, 1998 834,980 12.34 Granted 249,336 18.82 Forfeited (38,393) 12.28 Exercised (18,989) 8.11 --------- Options outstanding at September 30, 1999 1,026,934 $13.99 ========= At September 30, 1999, 1998 and 1997, options were exercisable, respectively, on 224,327, 151,348 and 145,987 shares and the weighted average exercise prices were $7.22, $6.84 and $5.87. The weighted-average fair value of options granted in 1999, 1998, and 1997 were $7.46, $10.16 and $6.67 per option, respectively. Fair value is estimated as of the grant date based on a Black-Scholes option pricing model using the following weighted-average assumptions: 40 1999 1998 1997 -------------------------------------------------- Risk-free interest rate 5.07% 5.59% 6.33% Expected life 5.64yrs 5.19 yrs 5.41 yrs Expected volatility 37.8% 36.0% 36.0% Dividend yield 1.10% 0.79% 0.46% The following table summarizes information related to outstanding and exercisable options at September 30, 1999: Options outstanding Options exercisable ------------------- ------------------- Weighted- Weighted- Weighted- Average average average Number of exercise remaining Number of exercise Exercise prices shares price life (in years) shares price $ 5.63-$ 6.00 137,000 $ 5.98 .5 137,000 $5.98 $ 8.50-$11.38 465,418 9.47 2.3 87,327 9.16 $15.44-$22.63 255,991 18.81 6.8 -- -- $23.75-$30.00 168,525 25.69 4.5 -- -- --------- ------ --- ------- ----- Total 1,026,934 $13.99 3.6 224,327 $7.22 ========= ====== === ======= ===== Note 9: Employee Compensation and Benefit Plans Advest Thrift Plan The Company maintains the Advest Thrift Plan (the "Thrift Plan") which is a qualified employee stock ownership plan ("ESOP") and 401(k) plan covering all employees who have completed one year of service. The Company matches 100% of participants' contributions to their Thrift Plan accounts up to 2% of compensation. In addition, the Company has made or will make discretionary contributions to participants' Thrift Plan accounts equal to 1.5%, 2.5% and 2.5% of their compensation for the calendar years ended December 31, 1999, 1998 and 1997, respectively. Contribution expense for fiscal 1999, 1998 and 1997 was $3,573,000, $4,324,000 and $3,901,000, respectively. No ESOP contributions have been made by the Company since 1993. Defined benefit plans The Company's Account Executive Nonqualified Defined Benefit Plan (the "AE Defined Benefit Plan"), effective October 1, 1992, as amended, offers certain high-performing investment executives retirement benefits based upon a formula reflecting their years of service, the gross commissions they generate and Company contributions to their Thrift Plan 401(k) accounts. The Company's Executive Nonqualified Post-Employment Income Plan (the "Executive Defined Benefit Plan"), effective October 1, 1993, as amended, provides certain senior executives with income for 10 years after retirement equal to a percentage of their final average earnings based upon a formula reflecting years of service, assumed social security benefits and Company contributions to certain other benefit plans on the executive's behalf. In June 1999, the Board of Directors adopted an amendment to the Executive Defined Benefit Plan which increased the amount of incentive compensation considered in determining final average earnings. Although the AE Defined Benefit Plan and the Executive Defined Benefit Plan are considered to be "unfunded," assets have been set aside in revocable trusts for each to fund future payments. These trusts are available to general creditors of the Company in the event of liquidation. The fair value of these 41 trusts, which are included in trading securities and other assets, at September 30, 1999 was $13,600,000, which was more than the projected benefit obligation by $2,930,000. The following table sets forth the status of the AE Defined Benefit Plan and Executive Defined Benefit Plan as well as amounts recognized in the Company's consolidated financial statements at September 30, 1999 and 1998: In thousands 1999 1998 ------------------------------------------------------------ Change in benefit obligations: Benefit obligation, beginning of year $ 9,686 $7,382 Service cost 1,302 1,167 Interest cost 625 558 Amendments 391 -- Actuarial (gain) loss (1,328) 698 Benefits paid (6) (119) -------- ------ Benefit obligation, end of year $10,670 $9,686 ======== ====== Change in plan assets: Fair value of plan assets at beginning of year $ -- $ -- Employer contribution 6 119 Benefits paid (6) (119) -------- ------- Fair value of plan assets at end of year $ -- $ -- ======== ======== Funded status $(10,670) $(9,686) Unrecognized actuarial (gain) loss (281) 1,044 Unrecognized prior service cost 742 424 -------- -------- Accrued benefit cost $(10,209) $(8,218) ======== ======== Pension expense for the plans for the three years in the period ended September 30, 1999 is included in the following components: In thousands 1999 1998 1997 ------------------------------------------------ Service cost $1,302 $1,167 $1,374 Interest cost 625 558 408 Recognized net actuarial (gain) loss (2) 6 (29) Amortization of prior service cost 72 53 53 ------ ------ ------ Net benefit costs $1,997 $1,784 $1,806 ====== ====== ====== The following table provides the assumptions used in determining the projected benefit obligation for the plans for the three years in the period ended September 30, 1999: 1999 1998 1997 - ------------------------------------------------------------- Weighted average discount rate 7.625% 6.50% 7.25% Rate of increase in future compensation levels 5.00% 5.00% 5.00% Advest Equity Plan The Company has offered the Advest Equity Plan (the "Equity Plan") to certain top performing investment executives and designated key employees since the 1995 calendar year. The Equity Plan allows those employees to defer a portion of their compensation on a calendar year basis, and invest it on a pre-tax basis in 42 units consisting of one share of the Company's common stock and one option to purchase an additional share of common stock. The share portion of the unit is issued monthly from treasury stock and will be restricted for three years after the year of deferral. The option portion is described under Note 8. Both the restricted stock and options will be subject to forfeiture under certain circumstances. The Company offers similar plans to executive officers. Under the Advest Equity Plan and other arrangements, restricted stock awards are made, and shares issued, to certain key employees without cash payment by the employee. The shares are restricted for a vesting period, generally five years from the award date. Certain key employees were awarded, net of forfeitures, 44,872 and 28,937 shares of restricted stock, with a fair value of $1,262,000 and $770,000, during 1999 and 1998, respectively. As of September 30, 1999, stock awards for 131,175 shares were outstanding, with restrictions expiring at various dates through 2003. The deferred cost of the restricted stock awards is amortized on a straight-line basis. Under employment agreements with certain key employees, a portion of their compensation is invested in restricted shares of the Company's stock on a discounted basis. Under these arrangements, during fiscal 1999 and 1998, 17,024 and 1,819 shares were issued with a fair value of $343,000 and $41,000, respectively, at discounts ranging from 75% to 80% of fair market value. These shares are subject to forfeiture if certain conditions are not met. Management Incentive Plan The Company has a Management Incentive Plan (the "MIP") which provides for incentive compensation to salaried employees. Compensation is presently based on the Company's pre-tax income. During fiscal 1999, 1998 and 1997, MIP compensation was $1,777,000, $2,812,000 and $2,462,000, respectively. Note 10: Capital and Regulatory Requirements Advest is subject to the net capital rule adopted and administered by the NYSE and the SEC. Advest has elected to compute its net capital under the alternative method of the rule which requires the maintenance of minimum net capital equal to 2% of aggregate debit balances arising from customer transactions, as defined. The NYSE also may require a member firm to reduce its business if net capital is less than 4% of aggregate debit balances and may prohibit a member firm from expanding its business and declaring cash dividends if net capital is less than 5% of aggregate debit balances. As of September 30, 1999, Advest's regulatory net capital of $72,386,000 was 12.86% of aggregate debit balances and exceeds required net capital by $61,130,000. Advest maintains separate accounts for the exclusive benefit of customers in accordance with Securities and Exchange Commission Rule 15c3-3, as determined by periodic computations. The rule allows Advest to maintain the required amounts in cash or qualified securities. Under bank regulatory restrictions, the Bank is required to maintain a minimum level of capital. With its conversion to a federal charter during fiscal 1997, the Bank is required to limit annual dividends to a percentage of retained net income of the most recent four-quarter period, as defined. No dividends were declared or paid by the Bank during the past three fiscal years. At September 30, 1999, the Bank's Tier 1 leverage capital, Tier 1 risk-based, and total risk-based capital ratios were 9.94%, 11.07% and 11.07%, respectively, which met all regulatory requirements for well capitalized banks. 43 Note 11: Income Taxes The provision for income taxes for the years ended September 30, 1999, 1998 and 1997 consisted of the following: In thousands 1999 1998 1997 ---------------------------------------------------- Current: Federal $7,559 $11,645 $7,142 State and local 2,006 3,666 2,321 ------ ------- ------ 9,565 15,311 9,463 ------ ------ ------ Deferred: Federal (743) (3,259) 833 State and local 103 (1,199) (423) ------ ------- ------ (640) (4,458) 410 ------ ------- ------ Provision for income taxes $8,925 $10,853 $9,873 ====== ======= ====== At September 30, 1999 and 1998, deferred tax assets and liabilities were comprised of: In thousands 1999 1998 ---------------------------------------------------- Deferred tax assets: Provision for credit losses and asset devaluation $3,006 $2,772 Employee benefits 6,629 5,503 SFAS115 losses -- 9 State NOL carryforwards -- 444 State tax credits 144 -- Other 91 67 ------ ----- Total deferred tax assets $9,870 $8,795 ------ ------ Deferred tax liabilities: Tax loan loss reserve in excess of base year $ 301 $ 414 Depreciation 964 813 Investment income -- 70 Partnership basis difference 1,743 1,500 Other 333 100 ------ ------ Total deferred tax liabilities $3,341 $2,897 ------ ------ Net deferred tax assets $6,529 $5,898 ====== ===== The Company will only recognize a deferred tax asset when, based on available evidence, realization is more likely than not. Accordingly, at September 30, 1999 and 1998, the Company has recorded no valuation allowance against federal and state deferred tax assets based on reversals of existing taxable amounts and anticipated future earnings. At September 30, 1999, it is anticipated that state net operating loss carryforwards will be fully utilized. Effective fiscal 1997, the Bank changed its tax bad debt method to the specific charge-off method in accordance with provisions of the Small Business Job Protection Act. The change in method resulted in taxable income of approximately $1,485,000 representing the excess of the Bank's tax bad debt 44 reserve at September 30, 1996 over the reserve that arose in tax years beginning before December 31, 1987 (base year reserve). Generally, the income is being recognized ratably over a six-year period. Accordingly, the deferred tax liability resulting from the change in method is approximately $301,000 and $414,000, at September 30, 1999 and 1998, respectively. As of September 30, 1998, the Bank did not record a deferred tax liability for its base year reserve of $2,155,000 (as it was not anticipated that a tax liability would be incurred in the foreseeable future.) A tax liability, relating to the base year reserve, would be incurred if certain excess distributions were made with respect to the bank's stock or if the bank failed to qualify as a bank for tax purposes. In May 1999, the Company announced the sale of the Bank's deposit and lending businesses. As a result of this sale, it is expected the Bank will make excess distributions with respect to its stock. Accordingly, a deferred tax liability has been established at September 30, 1999 in the amount of $862,000. The deferred tax has been charged to income from discontinued operations. See Note 2. A reconciliation of the difference between the statutory federal income tax rate and the effective income tax rate follows for the three years ended September 30, 1999: Percent of pre-tax income 1999 1998 1997 ----------------------------------------------------- Statutory income tax rate 35.0% 35.0% 35.0% State and local income taxes, net of federal tax effect 6.7 6.9 6.9 Recognition of state net operating losses -- (1.1) (1.5) Tax-exempt interest income (1.0) (1.1) (1.5) Intangible assets 0.3 0.3 0.4 Other (1.0) (1.0) 1.7 ----- ----- ----- Effective income tax rate 40.0% 39.0% 41.0% ===== ===== ===== Note 12: Commitments and Contingencies Leases The Company conducts all of its operations from leased premises, and leases data processing and communications equipment under noncancelable operating leases primarily varying from one to ten years, with certain renewal options for similar terms. Minimum rentals based upon the original terms (excluding taxes, insurance and maintenance expenses which also are obligations) at September 30, 1999 are (in thousands): Data processing Fiscal year ended Office & communications September 30, facilities equipment Total -------------------------------------------------------- 2000 $ 9,036 $ 4,976 $14,012 2001 8,593 4,354 12,947 2002 7,496 1,237 8,733 2003 6,639 -- 6,639 2004 5,235 -- 5,235 2005 and thereafter 9,315 -- 9,315 ------- ------- ------- $46,314 $10,567 $56,881 ======= ======= ======= Rental expense under these leases was $10,799,000, $9,637,000 and $9,338,000 for the years ended September 30, 1999, 1998 and 1997, respectively. 45 Loan guarantees and letters of credit At September 30, 1999 and 1998, Advest was contingently liable under bank letter of credit agreements in the amount of $5,335,000 and $3,335,000, respectively, which are collateralized by securities held in customer accounts. At September 30, 1999 and 1998, the Bank and AGI were contingently liable under standby letters of credit and commitments to extend credit to customers in the amount of $93,628,000 and $101,675,000, respectively. The value of collateral required to be held for letter of credit commitments as of September 30, 1999 ranges from 172% to 1781% of individual commitments with a weighted average of 165%. Litigation The Company has been named as defendant, or has been threatened with being named defendant in various actions, suits and proceedings before a court or arbitrator arising principally from its securities and investment banking business. Such matters involve alleged violations of federal and state securities laws and other laws. Certain of these actions claim substantial damages and, if determined adversely to the Company, could have a material adverse effect on the consolidated financial condition, results of operations or cash flows of the Company. The Estate of Gabriel Levine and his wife and various related entities have threatened a proceeding before the American Arbitration Association against Advest. They originally commenced related arbitration and court proceedings in 1993, which were stayed pending consideration of statute of limitations defenses. In 1998, the Connecticut Supreme Court ruled that arbitrators, and not a court, should decide whether those defenses apply. The claimants allege that the option trading in their accounts was unsuitable, and that there was a failure to disclose risks and to supervise their accounts. In court papers filed in 1993, the claimants asserted claims for principal losses of nearly $30,000,000, plus interest, since October 1987. Management believes that Advest has strong defenses to these claims and intends to defend them vigorously. While the outcome of any litigation is uncertain, management, based in part upon consultation with legal counsel, believes that the resolution of all matters pending or threatened against the Company will not have a material adverse effect on the financial condition or future results of operations or cash flows of the Company. Note 13: Financial Instruments With Off-Balance-Sheet Risk In the normal course of business, Advest executes, settles and finances customer and proprietary securities transactions. These activities may expose Advest to off-balance-sheet risk in the event that customers or other parties are unable to fulfill their contractual obligations. In accordance with industry practice, Advest records securities transactions executed on behalf of its customers on settlement date which is generally three business days after trade date. Should a customer or broker fail to deliver cash or securities as agreed, Advest may be required to purchase or sell securities at unfavorable market prices. Customer securities activities, including the sale of securities not yet purchased ("short sales"), are transacted on either a cash or margin basis. For margin transactions, in which Advest extends credit to customers, it seeks to control its risk by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. Advest monitors required margin levels daily and requests customers to deposit additional collateral or liquidate securities positions when necessary. Such transactions expose Advest to off-balance-sheet risk in the event margin requirements are not sufficient to cover customer losses. Advest's collateralized financing activities require it to pledge customer and firm securities as collateral for various secured financing sources such as bank loans, repurchase agreements and securities loaned. In the event the counterparty is unable to meet its contractual obligations, Advest may be exposed to the off-balance-sheet risk of acquiring securities at prevailing 46 market prices. The Company monitors the credit standing of counterparties with whom it conducts business. Risk is further controlled by monitoring the market value of securities pledged on a daily basis and by requiring adjustment of collateral levels as needed. Advest has sold securities that it does not currently own and will therefore be obligated to purchase such securities at prevailing market prices in the future. These obligations are recorded in the financial statements at the market values of the related securities and Advest will incur a loss if the market value of the securities increases. Advest seeks to manage the interest rate risk associated with its municipal bond inventories by entering into derivative transactions, principally short-term futures contracts. The average fair value of futures contracts during the years ended September 30, 1999 and 1998 were $680,725 and $797,325, respectively. Net trading profits (losses) of $56,000, $(162,000) and $(76,000) were realized in 1999, 1998 and 1997, respectively. At September 30, 1999, Advest had only nominal open positions. At September 30, 1998, Advest had no open positions. Advest hedges its taxable fixed income positions by taking short positions in like products with similar maturities as well as U.S. treasuries. The Bank enters into interest rate cap contracts as part of its interest rate risk management strategy. The notional values do not represent direct credit exposures. The Bank's credit exposure is limited to the net difference between the calculated pay and receive amounts on each transaction which is generally netted and paid quarterly. The following table illustrates the Bank's outstanding swap and cap contracts at September 30, 1999 and 1998: Maturities Balance Balance In thousands 2001 9/30/99 9/30/98 Interest rate caps: Notional value $5,000 $5,000 $ 5,000 Strike rate 6.000% 6.000% 6.000% Unamortized premium $88 $ 88 $ 128 Fixed pay interest rate swaps: Notional value -- -- $ 5,000 Weighted average receive rate -- -- 5.688% Weighted average pay rate -- -- 7.090% Total notional value $5,000 $5,000 $10,000 In the absence of these interest rate cap contracts, net interest income would have been higher by approximately $39,300, $39,300 and $75,000 in 1999, 1998 and 1997, respectively. Note 14: Concentrations of Credit Risk Advest generally conducts business with brokers and dealers located in the New York metropolitan area that are members of the major securities exchanges. Advest's clients are predominantly retail investors located throughout the United States but primarily in the Northeast and Florida. Advest's activities primarily involve collateralized arrangements and may result in credit exposure if the counterparties do not fulfill their obligations. Advest's exposure to 47 credit risk can be directly impacted by volatile securities markets which may impair the ability of counterparties to satisfy their contractual obligations. Note 15: Fair Value of Financial Instruments Fair values generally represent estimates of amounts at which a financial instrument could be exchanged between willing parties in a current transaction other than in forced liquidation. Where current exchange prices are not available, other valuation techniques are used, such as discounting the expected future cash flows. Fair value estimates are subjective and depend on a number of significant assumptions based on management's judgment regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. In addition, a wide range of valuation techniques are permitted, making comparisons difficult, even between similar entities. The fair value of other financial assets and liabilities (consisting primarily of receivables from and payables to brokers, and dealers and customers and securities borrowed and loaned) are considered to approximate the carrying value due to the short-term nature of the financial instruments. The fair value of advances from the FHLB, including the current portion, are estimated using rates which approximate those currently being offered by the FHLB for advances with similar remaining maturities. The fair value of interest rate cap agreements are obtained from quoted market prices and dealer quotes. These values represent the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates and the current credit worthiness of the counterparties. The fair values of the Company's financial instruments at September 30, 1999 and 1998 are: 1999 1998 - ------------------------------------------------------------------------ Carrying Fair Carrying Fair In thousands amount value amount value - ------------------------------------------------------------------------ Financial assets: Investment securities $ 21,948 $ 21,949 $ 30,563 $ 30,698 Financial liabilities: Short-term borrowings 161,007 161,080 134,762 134,804 Long-term borrowings 30,526 30,769 41,308 41,834 - ------------------------------------------------------------------------- Notional Fair Notional Fair In thousands amount value amount value - ------------------------------------------------------------------------- Unrecognized financial instruments: Interest rate caps $ 5,000 $ 49 $ 5,000 $ 14 Fixed pay interest rate swaps -- -- 5,000 (92) Commitments to extend credit (92,924) -- (100,814) (28) Standby letters of credit (6,039) (27) (4,196) (17) - -------------------------------------------------------------------------- Note 16: Segment Reporting In 1999, the Company adopted the provisions of SFAS 131, "Disclosures About Segments of an Enterprise and Related Information." The Company's reportable segments are Private Clients, Capital Markets, Interest and Other. The Private Clients segment includes securities brokerage and investment management services including the sale of equities, mutual funds, fixed income products and insurance to individual investors through Advest's 91 retail offices. The Capital Markets segment includes market-making activities on over-the-counter equities, institutional trading in both equities and fixed income products, trading in corporate bonds, government agency and mortgage-backed securities, corporate underwriting and merger and acquisition, public finance and syndicate 48 participations. Sales credits associated with underwritten offerings are reported in the Private Client segment when sold to individual investors and in the Capital Markets segment when sold to institutional investors. The Interest segment includes revenue from financing margin debits, stock borrowing activities and trading and investment securities. The Other segment includes all corporate expenses and miscellaneous revenues and expenses, which are not allocated to the reportable segments. The Company has not disclosed asset information by segment as the information is not produced internally. All of the Company's business is within the U.S.. The following table summarizes financial information by segment for the three years in the period ended September 30, 1999: In thousands 1999 1998 1997 ------------------------------------------------- Revenues: Private Clients $218,211 $202,205 $188,597 Capital Markets 52,275 41,719 35,639 Interest 57,431 57,439 44,391 Other 7,321 8,438 6,577 -------- --------- ---------- $335,238 $309,801 $ 275,204 ========= ======== ======== Income before taxes: Private Clients $ 53,501 $ 49,985 $ 47,315 Capital Markets (4,895) (4,525) (2,974) Interest 22,466 26,098 20,592 Other (48,760) (43,730) (40,851) -------- -------- -------- $ 22,312 $ 27,828 $ 24,082 ======== ======== ======== 49 Quarterly Financial Information (unaudited) - ------------------------------------------- In millions, except 1999 by fiscal quarters 1998 by fiscal quarters per share data -------------------------------- ------------------------------------ 1st 2nd 3rd 4th 1st 2nd 3rd 4th Revenues $82.6 $79.7 $86.7 $86.2 $73.8 $78.4 $79.2 $78.4 Income before $ 7.5 $ 4.8 $ 4.9 $ 5.1 $ 6.4 $ 7.5 $ 6.5 $ 7.4 taxes Income from continuing Operations $ 4.5 $ 2.9 $ 2.9 $ 3.1 $ 3.9 $ 4.5 $ 3.9 $ 4.7 Income from discontinued operations 0.2 0.1 0.3 0.3 0.2 0.3 0.2 0.3 Loss on sale of discontinued operations -- -- (0.7) -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Net income $ 4.7 $ 3.0 $ 2.5 $ 3.4 $ 4.1 $ 4.8 $ 4.1 $ 5.0 ===== ===== ===== ===== ===== ===== ===== ===== Per share data: Basic earnings: Continuing operations$0.57 $0.36 $0.36 $0.38 $0.47 $0.55 $0.48 $0.58 Discontinued operations 0.02 0.02 0.04 0.03 0.02 0.03 0.03 0.04 Loss on sale of discontinued operations -- -- (0.09) -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Net income $0.59 $0.38 $0.31 $0.41 $0.49 $0.58 $0.51 $0.62 ===== ===== ===== ===== ===== ===== ===== ===== Diluted earnings: Continuing operations $0.49 $0.32 $0.32 $0.33 $0.42 $0.48 $0.42 $0.50 Discontinued Operations 0.02 0.01 0.04 0.03 0.01 0.03 0.02 0.04 Loss on sale of discontinued operations -- -- (0.08) -- -- -- -- -- ----- ----- ----- ----- ----- ----- ----- ----- Net income $0.51 $0.33 $0.28 $0.36 $0.43 $0.51 $0.44 $0.54 ===== ===== ===== ===== ===== ===== ===== ===== Dividends $0.04 $0.05 $0.05 $0.05 $0.04 $0.04 $0.04 $0.04 Stock price range: High $23-7/16 $25-1/4 $22-3/16 $25-1/8 $26-15/16 $25-1/2$33-3/4 $32 Low $14-1/8 $18-3/8 $18-5/16 $17-1/2 $21-3/4 $21 $24-1/2 $16-1/2 Close $18-1/2 $18-1/2 $19-15/16$18-1/4 $24-11/16 $24-5/8$28-7/8 $20-3/8
50 Report of Independent Accountants To the Board of Directors and Shareholders of The Advest Group, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, changes in shareholders' equity and of cash flows present fairly, in all material respects, the financial position of The Advest Group, Inc. and its subsidiaries (the "Company") at September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with accounting principles generally accepted in the United States. 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 of these statements in accordance with auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in the notes to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," and SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits as of October 1, 1998 and SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise," as of January 1, 1999. /s/ PricewaterhouseCoopers LLP Hartford, CT October 27, 1999 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There were no disagreements with the Company's independent accountants on any accounting or financial disclosure matters. 51 Part III Item 10. Directors and Executive Officers of the Registrant The information required for "Directors" by this item is included under the caption "Election of Directors" in the Company's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's annual meeting to be held January 27, 2000. Such information is hereby incorporated by reference. The following table sets forth the executive officers of the Company at December 10, 1999. Executive officers of the Company are appointed annually by the Board of Directors to hold office until their successors are appointed and qualify. Executive Officer Name Age Office Since - ----------------------------------------------------------------------------- Grant W. Kurtz 57 President and Chief Executive Officer 1985 Allen G. Botwinick 56 Executive Vice President of Administration and Operations 1980 George A. Boujoukos 65 Senior Executive Vice President and Director Capital Markets of Advest, Inc. 1977 Harry H. Branning 48 Senior Executive Vice President and Director Private Client Group of Advest, Inc. 1994 John C. Giesea 55 Senior Executive Vice President and Director Capital Markets of Advest, Inc. 1999 Lee G. Kuckro 58 Executive Vice President, Secretary and General Counsel 1978 Martin M. Lilienthal 57 Executive Vice President, Treasurer and Chief Financial Officer 1977 Item 11. Executive Compensation The information required by this item is included und er the caption "Remuneration of Directors and Officers" and "Certain Transactions" of the Company's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's annual meeting to be held January 27, 2000. Such information is hereby incorporated by reference. Item 12. Security Ownership Of Certain Beneficial Owners And Management The information required by this item is contained under the caption "Election of Directors" in the Company's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's annual meeting to be held January 27, 2000. Such information is hereby incorporated by reference. Item 13. Certain Relationships and Related Transactions The information required by this item is included under the caption "Certain Transactions" of the Company's Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company's annual meeting to be held January 27, 2000. Such information is hereby incorporated by reference. 52 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - -------------------------------------------------------------------------- Page Reference -------------- (a) 1. Financial Statements The Consolidated Financial Statements and The Report of Independent Accountants contained herein: Consolidated Statement of Earnings 27 Consolidated Balance Sheets 28 Consolidated Statements of Cash Flows 29 Consolidated Statements of Changes in Shareholders' Equity 30 Notes to Consolidated Financial Statements 31-49 Report of Independent Accountants 51 2. Financial Statement Schedule Report of Independent Accountants on schedule 59 Schedule II - Valuation and Qualifying Accounts 60 3. Exhibits The following is a list of exhibits to this Report on Form 10-K filed herewith or incorporated by reference herein. Prior Filing(s) to which Reference is Exhibit Description made, if applicable - -------------------------------------------------------------------------- 3(a) Restated Certificate of Exhibit 3(a) to Registrant's Incorporation of Report on Form 10-Q for the quarter ended Registration March 31, 1989 3(b) By-laws of Registrant, as Exhibit 3(b) to Registrant's Report restated and amended on Form 10-Q for the quarter ended March 31, 1989 and Exhibit 3(a) to Registrant's Report on Form 10-Q for the quarter ended June 30, 1990 3(c) Second Amendment to Restated Exhibit 3(c) to Registrant's Report on By-laws of Registrant Form 10-K for its fiscal year ended September 30, 1997 4(a) Shareholder Rights Agreement Exhibit to Registrant's Report on Form dated as of October 31, 8-K dated November 1, 1988 and to 1988, as amended on March Exhibit 4 to Registrant's Report on 12, 1998 Form 8-K dated March 13, 1998 53 Prior Filing(s) to which Reference is Exhibit Description made, if applicable - ---------------------------------------------------------------------------- 10(a) Registrant's 1994 Non- Exhibit A to Registrant's Proxy Statement Employee Director Stock December 20, 1994; Exhibit 10(b) to Option Plan, as amended Registrant's Report on Form 10-K for its fiscal year ended September 30,1998 10(b) Registrant's 2000 Non- Exhibit B to Registrant's Proxy Statement Employee Director Stock for its Annual Meeting of Stockholders to Option Plan be held January 27, 2000 10(c) Registrant's 1993 Stock Exhibit A to Registrant's Proxy Statement Option Plan dated December 21, 1993 10(d) Registrant's 1999 Stock Exhibit B to Registrant's Proxy Statement Option Plan for its Annual Meeting of Stockholders to be held January 27, 2000 10(e) Registrant's Deferred Exhibit 10(f) to Registrant's Report on Compensation Savings and Form 10-K for the fiscal year ended Investment Plan, Amended and September 30, 1989, Exhibit 10(j) to Restated as of November 17, Registrant's Report on Form 10-K for its 1989, as amended fiscal year ended September 30, 1990 and Exhibit 10(b) of Registrant's Report on Form 10-Q for the quarter ended December 31, 1992 10(f) Non-Employee Director Exhibit 10(b) to Registrant's Report on Equity Plan Form 10-Q for the quarter ended June 30, 1996 10(g) Key Professionals Equity Exhibit 10(g) to Registrant's Report on Plan, as amended and Form 10-K for its fiscal year ended Restated as of October September 30, 1997 1, 1997 10(h) Forms of Executive Officer Exhibit 10 to Registrant's Report on Restricted Stock and Stock Form 10-Q for the quarter ended December Option Agreement for 1995, 31, 1994 and Exhibit 10(c) to Registrant's 1996 (as supplemented) Report on Form 10-Q for the quarter ended and 1997 and 1998 June 30, 1996 and Exhibit 4.4 to Registrant's Registration Statement on Form S-8, File No. 333-17711; Exhibit 4.5 to Registrant's Registration Statement on Form S-8, File No. 333-17711; and Exhibit 10(i) to Registrant's Report on Form 10-K for its fiscal year ended September 30, 1997 54 Prior Filing(s) to which Reference is Exhibit Description made, if applicable - ---------------------------------------------------------------------------- 10(i) Ninth Amendment to Advest Filed Herewith Thrift Plan, effective as of January 1, 1997 10(j) The Advest Thrift Plan, Filed Herewith amended and restated effective as of January 1, 1999 10(k) Registrant's Account Exhibit 10(m) to Registrant's Report on Executive Nonqualified Form 10-K for its fiscal year ended Defined Benefit September 30, 1993, Exhibit 10(p) to Plan, as amended Registrant's Report on Form 10-K for its fiscal year ended September 30, 1995 and Exhibit 10(f) to Registrant's Report on Form 10-Q for the quarter ended June 30, 1996 10(l) Registrant's Nonqualified Exhibit 10(n) to Registrant's Report on Executive Post-employment Form 10-K for its fiscal year ended Income Plan, as amended September 30, 1994and Exhibit 10(e) to Registrant's Report on Form 10-Q for the quarter ended June 30, 1996; Exhibit 10(b) to Registrant's Report on Form 10-Q for its fiscal quarter ended June 30, 1999 10(m) Registrant's 1995 through Exhibit 4.1 to Registrant's Registration 1998 Advest Equity Plans Statement on Form S-8, File No. 33-56275; Exhibit 4 to Registrant's Registration Statement on Form S-8, File No. 333-00797; Exhibit 4.3 to Registrant's Registration Statement on Form S-8, File No. 333-17711; and Exhibit 10(p) to Registrant's Report on Form10-K for its fiscal year ended September 30, 1997 10(n) Advest Equity Plan, amended Filed Herewith and restated as of June 3, 1999 10(o) Amended and Restated Exhibit 10(h) to Registrant's Report on Employment Agreement with Form 10-Q for the quarter ended June 30, former Chief Executive 1996; Exhibit 10(a) to Registrant's Report Officer, as amended on Form 10-Q for its fiscal quarter ended December 31, 1998 10(p) Employment Agreement with Exhibit 10(r) to Registrant's Report on Chief Executive Officer and Form 10-K for its fiscal year ended President, as amended September 30, 1997; Exhibit 10(a) Registrant's Report on Form 10-Q for its fiscal quarter ended June 30, 1999 55 Prior Filing(s) to which Reference is Exhibit Description made, if applicable 10(q) Form of Executive Agreement Exhibit 10(q) to Registrant's Report on dated September 24, 1998 Form 10-K for its fiscal year ended September 30, 1998 10(r) Note Purchase Agreement of Exhibit 10(a) to Registrant's Report on Registrant dated as of Form 10-Q for the quarter ended December December 27, 1996 with 31, 1996 respect to Registrant's 7.95% Senior Notes due December 31, 2003 10(s) Cash Subordination Agreement Exhibit 10(b) to Registrant's Report on of the Registrant dated as Form 10-Q for the quarter ended December of January 31, 1997 31, 1996 21 Subsidiaries Filed Herewith 23 Consent of Independent Filed Herewith Accountants 27 Financial Data Schedule Selected financial data - for EDGAR electronic filing only to SEC (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of the year ended September 30, 1999. 56 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. THE ADVEST GROUP, INC. By /s/ Grant W. Kurtz December 3, 1999 Grant W. Kurtz President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Allen Weintraub Chairman of the Board December 3, 1999 Allen Weintraub President, Chief Executive /s/ Grant W. Kurtz Officer and Director December 3, 1999 Grant W. Kurtz Executive Vice President and Treasurer (Chief Financial and Principal Accounting /s/ Martin M. Lilienthal Officer) December 3, 1999 Martin M. Lilienthal /s/ Sanford Cloud, Jr. Director December 3, 1999 Sanford Cloud, Jr. Director December , 1999 Ronald E. Compton Director December , 1999 Richard G. Dooley 57 SIGNATURES /s/ William B. Ellis Director December 3, 1999 William B. Ellis /s/ Robert W. Fiondella Director December 3, 1999 Robert W. Fiondella /s/ Marne Obernauer, Jr. Director December 3, 1999 Marne Obernauer, Jr. /s/ Barbara L. Pearce Director December 3, 1999 Barbara L. Pearce 58 Report of Independent Accountants on Financial Statement Schedule The Board of Directors and Shareholders of The Advest Group, Inc.: Our audits of the consolidated financial statements referred to in our report dated October 27, 1999, appearing in the Annual Report to Shareholders of The Advest Group, Inc. (which report and consolidated financial statements are included in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut October 27, 1999 59 Schedule II The Advest Group, Inc. and Subsidiaries Valuation and Qualifying Accounts Additions Balance at charged to Charge-offs Balance Beginning cost and and at end In thousands of period expenses recoveries of period - ------------------------------------------------------------------------ For the years ended September 30, - -------------------------------- 1999 - ---- Credit losses: Brokerage customers $ 791 $100 $(343) $548 Asset devaluation: Other investments/assets 1,371 503 (134) 1,740 ------ ---- ------ ----- $2,162 $603 $(477) $2,288 ====== ==== ====== ====== 1998 - ---- Credit losses: Brokerage customers $ 719 $ 88 $ (16) $ 791 Asset devaluation: Other investments/assets 1,507 (13) (123) 1,371 ------ ---- ------ ----- $2,226 $ 75 $(139) $2,162 ====== ==== ====== ====== 1997 - ---- Credit losses: Brokerage customers $ 791 $ 91 $(163) $ 719 Asset devaluation: Other investments/assets 1,708 153 (354) 1,507 ------ ---- ------ ----- $2,499 $244 $(517) $2,226 ====== ==== ====== ====== 60 Form 10-K Exhibit Index Exhibit Description 10(i) Ninth Amendment to The Advest Thrift Plan, effective as of January 1, 1997 10(j) The Advest Thrift Plan, amended and restated effective as of January 1, 1999 10(n) Advest Equity Plan, amended and restated as of June 3, 1999 21 Subsidiaries 23 Consent of PricewaterhouseCoopers LLP 27 Financial Data Schedule (Selected financial data - for EDGAR electronic filing only to SEC) 61 EX-10.I 2 EXHIBIT 10(i) NINTH AMENDMENT TO THE ADVEST THRIFT PLAN Effective as of January 1, 1997 (except as otherwise indicated) 1. Section 2.11 of The Advest Thrift Plan (the "Plan") is hereby amended by adding the following new paragraph to the end thereof, to read in its entirety as follows, effective as of January 1, 1998: "For Plan Years beginning after December 31, 1997, for purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions." 2. Section 2.14 of the Plan is hereby amended by deleting the last two sentences from the end thereof. 3. Section 2.20 of the Plan is hereby amended by deleting the last paragraph from the end thereof. 4. Article II is hereby further amended by deleting therefrom Section 2.21 and by renumbering subsequent sections accordingly. 5. Existing Section 2.24 of the Plan is hereby amended by deleting the last paragraph from the end thereof. 6. Existing Section 2.25 of the Plan is hereby amended to read in its entirety as follows: "2.25 "Highly Compensated Employee" shall mean an Employee who performed services for the Employer during the determination year and is in one or more of the following groups: (a) Employees who at any time during the determination year or look-back year were five-percent owners of the Employer. Five-percent owner means any person who owns (or is considered as owning within the meaning of Section 318 of the Code) more than five percent of the outstanding stock of the Employer or stock possessing more than five percent of the total combined voting power of all stock of 62 the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Sections 414(b), (c), (m) or (o) of the Code shall be treated as separate employers. (b) Employees who received Code Section 415 Compensation during the look-back year from the Employer in excess of $80,000 (as adjusted at the same time and in the same manner as provided under Section 415(d) of the Code). The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve-month period. For purposes of this Section, the determination of Code Section 415 Compensation for Plan Years beginning before January 1, 1998 shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Additionally, the dollar threshold amount specified in (b) above shall be adjusted at such time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996. In the case of such an adjustment, the dollar limit which shall be applied is the limit for the calendar year in which the "look-back year" begins." 7. Existing Section 2.30 of the Plan is hereby amended to read in its entirety as follows: "2.30 "Non-Highly Compensated Participant" shall mean any Participant who is not a Highly Compensated Employee." 8. Article II of the Plan is hereby further amended by adding the following new Section 2.39 and by renumbering existing Section 2.39 and subsequent sections accordingly: effective as of December 12, 1994: "2.39 "USERRA" shall mean the Uniform Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u)." 63 9. Section 5.3(b) of the Plan is hereby amended to read in its entirety as follows: "(b) For the purpose of this Section 5.3, "Actual Deferral Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios, (calculated separately for each Active Participant in such group) of: (1) The Employee contributions and Employer contributions designated as Employee contributions (if any) allocated to each Highly Compensated Participant's Account for such Plan Year (and contributed to the Plan within 12 months following the end of the Plan Year) and to each Non-Highly Compensated Participant's Elective Account for the preceding Plan Year (and contributed to the Plan within 12 months following the end of the Plan Year); to (2) The Active Participant's 414(s) Compensation for such Plan Year or preceding Plan Year respectively. The actual deferral ratio for each Active Participant and the Actual Deferral Percentage for each group shall be calculated to the nearest one-hundredth of one percent. Employee contributions allocated to each Non-Highly Compensated Employee's Account for the preceding Plan Year shall be reduced by excess Employee contributions for the preceding Plan Year to the extent such excess amounts arise under this Plan or any other plan maintained by the Employer." 10. Section 5.3(c) of the Plan is hereby deleted and subsequent subsections are relettered accordingly. 11. Section 5.4(a)(2) of the Plan is hereby amended to read in its entirety as follows: "(2) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the largest amount of Employee contributions and Employer contributions designated as Employee contributions (if any) shall have his portion of excess Employee contributions distributed to him until one of the tests set forth above is satisfied, or until his amount of Employee contributions and Employer contributions designated as Employee contributions (if any) equals the amount of Employee contributions and Employer contributions designated as 64 Employee contributions (if any) of the Highly Compensated Participant having the second largest amount. This process shall continue until one of the tests set forth above is satisfied. For each Highly Compensated Participant, the amount of excess contributions is equal to the Employee contributions and applicable Employer contributions (if any) used to satisfy the Actual Deferral Percentage tests on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his 414(s) Compensation. However, in determining the amount of excess Employee contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any excess Employee contributions previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year." 12. Section 5.4(b) of the Plan is hereby deleted. 13. Section 5.5(b) of the Plan is hereby amended to read in its entirety as follows: "(b) For the purpose of this Section 5.5, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the Employer matching contributions (if any) made pursuant to Section 5.1(b) on behalf of each such Highly Compensated Participant for such Plan Year and each Non-Highly Compensated Participant group for the preceding Plan Year; to (2) the Active Participant's 414(s) Compensation for such Plan Year or preceding Plan Year respectively. The actual contribution ratio must be rounded to the nearest one- hundredth of one percent." 65 14. Section 5.5(d) of the Plan is hereby deleted and subsequent subsections are hereby relettered accordingly. 15. Section 5.6(a) of the Plan is hereby amended to read in its entirety as follows: "(a) In the event that the Actual Contribution Percentage for the Highly Compensated Participant group exceeds the Actual Contribution Percentage for the Non-Highly Compensated Participant group pursuant to Section 5.5(a), the Committee (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the largest amount of Employer matching contributions, his vested portion of excess matching contributions (and income allocable to such contributions) and, if forfeitable, forfeit such non-vested Employer matching contributions (and income allocable to such forfeitures) until either one of the tests set forth in Section 5.5(a) is satisfied, or until his remaining amount equals the amount of Employer matching contributions of the Highly Compensated Participant having the second largest amount. This process shall continue until one of the tests set forth in Section 5.5(a) is satisfied. The distribution of excess matching contributions shall be made in the following order: (1) Employer matching contributions distributed pursuant to Section 5.4(a); (2) Remaining Employer matching contributions." 16. Section 5.6(f) of the Plan is hereby deleted. 17. Article IX of the Plan is hereby amended by adding the following new Section 9.5 to the end thereof, to read in its entirety as follows, effective as of December 12, 1994: "9.5 USERRA Compliance. Loan repayments will be suspended under this Plan, as permitted under Code Section 414(u). " 18. Section 10.2 of the Plan is hereby amended to read in its entirety as follows: 66 "10.2 Commencement of Benefit Payments. The payment of benefits under the Plan shall be made or begin on or after the date a Participant terminates his service with the Employer and not later than the 120th day after the Participant terminates his service with the Employer (or, in the event of a Participant's Total Disability, within 120 days after the determination of Total Disability). In addition, payment of a Participant's benefits may be made or begin, at the Participant's election, at any time on or after January 1 of the calendar year in which the Participant attains age 70-1/2. Notwithstanding the foregoing, payment of a Participant's benefits shall be made or begin not later than April 1 of the calendar year following the later of (i) the calendar year in which the Participant attains age 70-1/2, or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five (5) Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends." 19. Sections 10.8, 10.9, 10.11 and 10.13 of the Plan are hereby amended by changing all references to "$3,500" to "$5,000", effective as of January 1, 1998. 20. Section 17.7 of the Plan is hereby amended by adding the following new paragraph to the end thereof, to read in its entirety as follows: "Notwithstanding any provision of this Section to the contrary, an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D)." 67 EX-10.J 3 Exhibit 10(j) The Advest Thrift Plan Amended and Restated Effective as of January 1, 1999 68 Table of Contents Page ARTICLE I Establishment of the Plan 1 1.1 Establishment of the Plan 1 1.2 Applicability of the Plan 1 ARTICLE II Definitions 1 ARTICLE III Administration 5 3.1 Committee 5 3.2 Named Fiduciary 5 3.3 Powers of the Committee 5 3.4 Delegation of Duties 5 3.5 Administrator 5 3.6 Agent for Service 5 3.7 Action by Majority 5 3.8 Secretary; Action by Single Member 5 3.9 Member's Own Participation 5 3.10 Records 6 3.11 Compensation; Agents 6 3.12 Bonding; Liability of Committee 6 3.13 Fiduciary Responsibility 6 ARTICLE IV Participation and Enrollment 6 4.1 Service Requirement 6 4.2 Entry 6 4.3 Termination of Active Participation 6 4.4 Re-entry After Ceasing to be an Active Participant 6 ARTICLE V Contributions 7 5.1 Employer Contributions 7 5.2 Employee Contributions 7 5.3 Actual Deferral Percentage Test 7 5.4 Adjustment to Actual Deferral Percentage Tests 8 5.5 Actual Contribution Percentage Tests 9 5.6 Adjustment to Actual Contribution Percentage Tests 10 5.7 Crediting of 401(k) Account Contributions to Participants 11 5.8 Allocations of ESOP Contributions 11 5.9 Release of Shares for Allocation 11 5.10 Allocation of Dividends 11 5.11 Pass-Through of Dividends 12 5.12 Rollovers and Transfers 12 5.13 Allocation of Forfeitures 12 5.14 Limitation 12 5.15 Special Transfers 13 ARTICLE VI Vesting 13 6.1 Vesting 13 ARTICLE VII Investment Elections 13 7.1 Investment of Contributions 13 ARTICLE VIII Withdrawals 14 8.1 Hardship Withdrawals 14 ARTICLE IX Loans 14 9.1 Loans 14 9.2 Rate of Interest 15 9.3 Committee Approval 15 9.4 Loan Collateral 15 9.5 USERRA Compliance 15 ARTICLE X Payment of Benefits 15 10.1 Payment Options 15 10.2 Commencement of Benefit Payments 16 10.3 Form of Payment to Participants 16 10.4 Put Option 16 10.5 Protections and Rights 17 10.6 Protections and Rights Nonterminable 17 10.7 Fair Market Value 17 10.8 Special Distribution and Payment Requirements 17 10.9 Special Distributions to Qualified Participants 17 10.10 Change of Payment Method 18 10.11 Consent to Distributions 18 10.12 Direct Transfers 18 10.13 Forfeitures 18 ARTICLE XI Death Benefits 18 11.1 Distribution Upon Death 18 11.2 Designation of Beneficiary 19 ARTICLE XII Stock Rights of Participants 19 12.1 Voting Rights 19 12.2 Rights on Tender or Exchange Offer 19 12.3 Rights in Event of Default 20 ARTICLE XIII Termination of Plan 20 13.1 Termination 20 13.2 Distribution 20 13.3 Final Expenses 20 ARTICLE XIV Amendment of Plan 20 14.1 Amendment 20 14.2 Trustee 20 14.3 Change in Vesting 20 ARTICLE XV Claims Procedure 21 15.1 Claims 21 15.2 Notice of Denial 21 15.3 Review 21 ARTICLE XVI The Trustee 21 ARTICLE XVII Miscellaneous Provisions 22 ARTICLE XVIII Top-Heavy Plan Provisions 22 18.1 Compensation 22 18.2 Key Employee 22 18.3 Top-Heavy Plan 22 18.4 Top-Heavy Ratio 23 18.5 Permissive Aggregation Group 23 18.6 Required Aggregation Group 23 18.7 Determination Date 23 18.8 Determination Period 23 18.9 Valuation Date 23 18.10 Special Provisions 23 69 ARTICLE I Establishment of the Plan 1.1 Establishment of the Plan. The Advest Group, Inc. hereby amends and restates The Advest Thrift Plan (hereinafter referred to as the "Plan"), effective as of January 1, 1999. 1.2 Applicability of the Plan. The provisions set forth herein are applicable only to Employees in the employ of the Company on or after the Effective Date (except as otherwise indicated). ARTICLE II Definitions When used herein, each of the following terms shall have the corresponding meaning set forth below unless a different meaning is plainly required by the context in which a term is used: 2.1 "Account" shall mean the 401(k) Account and ESOP Account of a Participant whether or not such accounts have actually been combined into one account. 2.2 "Accrued Benefit" shall mean the balance of a Participant's Account. 2.3 "Act" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and all regulations issued pursuant thereto. 2.4 "Active Participant" shall mean an Employee who is eligible to participate in the Plan and has become and continues to be an Active Participant in the Plan under the terms of Article IV hereof; provided, however, that for purposes of Section 5.1, an "Active Participant" shall mean an Employee who is eligible to be allocated Employer contributions under Section 5.1. 2.5 "Administrator" shall mean the person or persons designated by the Committee, pursuant to Section 3.5 hereof, as the Administrator of the Plan, within the meaning of Section 3 (16)(a) of the Act. 2.6 "Affiliate" shall mean (i) a member of a controlled group of corporations, as defined in Section 1563(a) of the Code, determined without regard to Sections 1563(a)(4) and 1563(e)(3)(C), of which the Company is a member or (ii) an unincorporated trade or business which is under common control with the Company as determined in accordance with Section 414(c) of the Code. Notwithstanding the foregoing, for purposes of applying the contribution limitation set forth in Section 5.14 hereof, any determination under Section 1563 of the Code shall be made assuming the phrase "more than 50 percent" was substituted for the phrase "at least 80 percent" each place it appears in Section 1563(a)(1) of the Code. 2.7 "Beneficiary" shall mean a Participant's surviving spouse, if any, or any other person designated by a Participant who is entitled to receive any benefits payable hereunder upon the Participant's death pursuant to Section 11.2 hereof, or the executor or administrator of the Participant's estate if there is no surviving spouse and if no other Beneficiary shall have been effectively designated by the Participant. 2.8 "Board" shall mean the Board of Directors of the Company or its Executive Committee. 2.9 "1-Year Break in Service" shall mean the failure of an individual to complete more than 500 Hours of Service in a Plan Year; provided, however, that for the short Plan Year beginning October 1, 1992 and ending December 31, 1992, a 1-Year Break in Service shall mean the period from January 1, 1992 to December 31, 1992 during which an Employee fails to complete more than 500 Hours of Service. For purposes of this Section 2.9 only, an Employee who is absent from work will be credited with an Hour of Service either during the Plan Year in which such absence commences, or, if the Employee would not have incurred a 1- Year Break in Service in such Plan Year without regard to this sentence, during the following Plan Year, for each hour, based on the Employer's standard work week and work day as in effect from time to time, during which such Employee is absent from work by reason of (i) the pregnancy of the Employee, (ii) the birth of a child of the Employee, (iii) the placement of a child with the Employee in connection with the Employee's adoption of such child, or (iv) the need for caring for a child referred to in clause (ii) or (iii) immediately following such birth or placement, but only if the Participant has furnished to the Administrator such timely information as may be reasonably required to establish that the absence from work is for one or more of the reasons described in clauses (i) through (iv). 2.10 "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and all regulations issued pursuant thereto. 2.11 "Code Section 415 Compensation" shall mean the Participant's wages and salaries for personal services actually rendered in the course of employment with the Employer maintaining the Plan paid or accrued during the Plan Year. Code Section 415 Compensation shall exclude (a)(1) contributions made by the Employer to a plan of deferred compensation to the extent that, before the application of the Code Section 415 limitations to the Plan, the contributions are not includable in the gross income of the Employee for the taxable year in which contributed, (2) Employer contributions made on behalf of an Employee to a simplified employee pension plan described in Code Section 408(k) to the extent such contributions are excludable from the Employee's gross income, and (3) any distributions from a plan of deferred compensation regardless of whether such amounts are includable in the gross income of the Employee when distributed except any amounts received by an Employee pursuant to an unfunded non-qualified plan to the extent such amounts are includable in the gross 70 income of the Employee; (b) amounts realized from the exercise of a non- qualified stock option or when restricted stock (or property) held by an Employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; (c) amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and (d) other accounts which receive special tax benefits, such as premiums for group term life insurance (but only to the extent that the premiums are not includable in the gross income of the Employee), or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of any annuity contract described in Code Section 403(b) (whether or not the contributions are excludable from the gross income of the Employee). For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includable in the gross income of the Participant under Code Sections 125, 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 2.12 "Committee" shall mean the Administrative Committee established pursuant to Section 3.1 hereof. 2.13 "Company" shall mean The Advest Group, Inc. or any successor corporation or business organization that assumes the obligations of the Plan with respect to its employees. 2.14 "Compensation" shall mean the base pay, plus any premiums for overtime or night work, plus any additional compensation under any bonus or incentive plans paid to an Employee during the Plan Year, including any salary deferrals under a plan intended to meet the requirements of either Section 401(k) or Section 125 of the Code, but excluding any deferrals under nonqualified plans. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation and 414(s) Compensation is determined (a "determination period") beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. 2.15 "Effective Date" shall mean January 1, 1999. 2.16 "Employee" shall mean any person employed by the Employer, excluding any person hired or retained on a contract basis. 2.17 "Employer" shall mean the Company and each Affiliate that has adopted the Plan or otherwise agreed to participate in the Plan, provided that the Board has approved the participation of such Affiliate under the Plan. 2.18 "Entry Date" shall mean the first day of any month. 2.19 "ESOP Account" shall mean the account kept for a Participant, which reflects amounts attributable to contributions made to the Plan prior to December 31, 1992, amounts transferred to the Plan from The Advest Group, Inc. Employees' Retirement Plan attributable to amounts transferred to such plan from The Advest Group, Inc. Employee Stock Ownership Plan which was in effect on September 30, 1984, any amounts contributed to the Plan on or after December 31, 1992 pursuant to Section 5.1(a), and any forfeitures of any such amounts allocated pursuant to Section 5.13. 2.20 "ESOP Compensation" shall mean the total payments received by a Participant from the Employer during the Plan Year and reportable on his Internal Revenue Service Form W-2, including any amounts deferred by a Participant under a qualified cash or deferred arrangement maintained by the Employer pursuant to Section 401(k) of the Code and the amount of any reduction in a Participant's compensation under a cafeteria plan maintained by the Employer pursuant to Section 125 of the Code, and excluding amounts in excess of $60,000, multiplied by the sum of one (1) plus a fraction, the numerator of which is the Participant's Years of Service (not to exceed twenty (20)) and the denominator of which is forty (40). 2.21 "Fiduciary" shall mean any person (i) who exercises any discretionary authority or discretionary control respecting management of the Plan or any authority or control respecting management or disposition of assets held under the Plan but shall not include a Participant exercising such authority or control solely by reason of investment of his own Account under Article VII of this Plan; (ii) who renders investment advice, direct or indirect, as to assets held under the Plan or has any authority or responsibility to do so; or (iii) who has any discretionary authority or discretionary responsibility in the administration of the Plan, within the meaning of Section 4975(e)(3) of the Code. 2.22 "401(k) Account" shall mean the account kept for a Participant, which reflects the Participant's Account excluding the Participant's ESOP Account. 2.23 "414(s) Compensation" shall mean, with respect to any Employee, his deferred compensation plus Code Section 415 Compensation paid during a Plan 71 Year. The amount of 414(s) Compensation with respect to any Employee shall include 414(s) Compensation during the twelve (12) month period ending on the last day of the Plan Year, except that for Plan Years beginning prior to January 1, 1990, 414(s) Compensation shall only be recognized as of an Employee's effective date of participation in the Plan. In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the annual 414(s) Compensation of each Employee taken into account under the Plan shall not exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation limit is $150,000, as adjusted by the Commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which Compensation and 414(s) Compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA '93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. Any reference in this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA '93 annual compensation limit set forth in this provision. 2.24 "Highly Compensated Employee" shall mean an Employee who performed services for the Employer during the determination year and is in one or more of the following groups: (a) Employees who at any time during the determination year or look-back year were five-percent owners of the Employer. Five-percent owner means any person who owns (or is considered as owning within the meaning of Section 318 of the Code) more than five percent of the outstanding stock of the Employer or stock possessing more than five percent of the total combined voting power of all stock of the Employer. In determining percentage ownership hereunder, employers that would otherwise be aggregated under Sections 414(b), (c), (m) or (o) of the Code shall be treated as separate employers. (b) Employees who received Code Section 415 Compensation during the look-back year from the Employer in excess of $80,000 (as adjusted at the same time and in the same manner as provided under Section 415(d) of the Code). The "determination year" shall be the Plan Year for which testing is being performed, and the "look-back year" shall be the immediately preceding twelve- month period. The dollar threshold amount specified in (b) above shall be adjusted at such time and in the same manner as under Code Section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996. In the case of such an adjustment, the dollar limit which shall be applied is the limit for the calendar year in which the "look-back year" begins. 2.25 "Highly Compensated Participant" shall mean any Highly Compensated Employee who is eligible to participate in the Plan. 2.26 "Hour of Service" shall mean (i) each hour for which an individual is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate, for the performance of duties, such hours to be credited to the individual for the Plan Year in which the duties were performed, the foregoing not to include holiday, vacation, sickness or disability time; (ii) each hour for which an individual is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate for reasons (such as holidays, vacation, sickness or disability) other than the performance of duties (to be credited in accordance with Labor Department Regulation 2530.200b-2(c) or any successor regulation); (iii) each hour, for which the individual is not otherwise credited, for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Company or an Affiliate, such hours to be credited to the individual for the Plan Year to which the award or agreement pertains rather than the Plan Year in which the award, agreement or payment is made, and (iv) each hour, based on the Company's or an Affiliate's standard work week and work day as in effect from time to time, during which the individual is absent from work on account of: (a) a leave of absence granted by the Company or an Affiliate for sickness or disability, provided the individual returns to work with the Company or an Affiliate within one week after the expiration of such leave of absence; and (b) a leave of absence granted by the Company or an Affiliate for service in the Armed Forces, provided the individual returns to work with the Company or an Affiliate, under circumstances in which his rights to return are protected under the terms of applicable Federal law, within 90 days, either: (1) after having become entitled to release from active service in the Armed Forces; or (2) after release from hospitalization continuing for a period of not more than one year after discharge from active service in the Armed Forces. such hours to be credited to the individual for the Plan Year in which the absence occurred. In determining Hours of Service for the purpose of clause (ii) above, the provisions of Labor Department Regulation 2530.200b-2(b) or any successor regulation shall be applicable. 72 2.27 "Investment Date" shall mean the scheduled purchase dates determined by the Committee, occurring not less frequently than once per month. 2.28 "Investment Vehicle" shall mean one or more of the following: (a) "Equity Funds" which shall be invested in common stock and other equity securities. Equity funds can include funds generally viewed as conservative, growth oriented or aggressive. (b) "Balanced Funds" which shall be invested in a balanced mixture of equity and fixed income securities. Balanced Funds can include funds generally viewed as conservative or growth oriented. (c) "Fixed Funds" which shall be invested in fixed income securities. Fixed Funds can include funds generally viewed as conservative. (d) "Cash Funds" shall include money market funds and interest bearing accounts. (e) "GIC Funds" which shall be invested in guaranteed investment contracts (GICs) issued by insurance companies. (f) Any securities which the Committee may determine to be a permissible investment, subject to the conditions set forth in Section 7.1 hereof; provided, that until the Committee otherwise determines, the following shall be permissible investments: any investment in U.S. Treasury bills, notes and other obligations; certificates of deposit; and zero coupon instruments. 2.29 "Non-Highly Compensated Participant" shall mean any Participant who is not a Highly Compensated Employee. 2.30 "Normal Retirement Date" shall mean the date of a Participant's 65th birthday. 2.31 "Participant" shall mean an individual (i) who is an Active Participant or (ii) is a former Active Participant with an interest under the Plan. 2.32 "Plan Year" shall mean each twelve-month period ending on December 31. 2.33 "Shares" shall mean shares of common stock of the Company, which are "qualifying employer securities" within the meaning of Sections 409(l) and 4975(e)(8) of the Code, or any successor sections. 2.34 "Stock Obligation" shall mean indebtedness arising from any extension of credit to the Plan or the Trust obtained for the purpose of buying Shares. 2.35 "Total Disability" shall mean that disability which qualifies an Employee to be considered a total and permanently disabled Employee as determined by the Social Security Administration to be eligible to receive disability income benefits under Title II of the Social Security Act, as amended from time to time. 2.36 "Trust" shall mean the trust created by the trust agreement, as amended from time to time, entered into by the Company and the Trustee for the purpose of holding the Trust Fund. 2.37 "Trustee" shall mean the person or persons who may at any time be acting as trustee or trustees of the Trust. 2.38 "Trust Fund" shall mean all funds received by the Trustee from the Employer or any Participant or as a rollover amount as defined in Section 402(a)(5), 403(a)(4), 408(d)(3) or 409(b)(3)(C) of the Code, pursuant to the terms hereof, together with all income, profits and increments thereon, and less any expenses, losses and payments therefrom. 2.39 "USERRA" means the Uniformed Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Code Section 414(u). 2.40 "Unallocated Stock Account" shall mean the account maintained pursuant to Section 5.9 hereof. 2.41 "Valuation Date" shall mean the close of business on the last business day of each month, and such other date or dates determined by the Committee, in its discretion. The assets of the Plan shall be valued, and each Participant's Account shall be adjusted for income or loss on each Valuation Date. 2.42 "Year of Service" shall mean each Plan Year during which the Employee has completed not less than 1,000 Hours of Service, including any such Plan Year prior to the Effective Date. For the short Plan Year which commenced October 1, 1992, an individual shall be credited with a Year of Service upon completion of 1,000 Hours of Service during the 12-month period that began January 1, 1992 and ended December 31, 1992. Years of Service with Ironwood Capital Partners Ltd. and its affiliated corporations shall be recognized for purposes of eligibility and vesting. Years of Service with Newhard, Cook & Co. Incorporated shall be recognized for purposes of eligibility. In addition, the Committee may designate in writing other organizations for which Years of Service with will be recognized for purposes of eligibility and/or vesting. Except when otherwise indicated by the context, any masculine terminology herein shall also include the feminine, and the definition of any term herein in the singular shall also include the plural. 73 ARTICLE III Administration 3.1 Committee. The Board shall appoint the members of a Committee to be known as the Administrative Committee, which members shall hold office at the pleasure of the Board. Said Committee shall consist of not less than 3 nor more than 10 members, any one or more of whom may, but need not, be an officer of the Company or any Affiliate. If there is at any time a vacancy on the Committee for any reason, the Board or Chief Executive Officer of the Company shall fill such vacancy, but the Committee may act notwithstanding the existence of vacancies as long as there shall continue to be at least three members of the Committee. The Committee may select a Chairman from among its members. 3.2 Named Fiduciary. The Committee is hereby designated the Named Fiduciary of the Plan, within the meaning of Section 402(a) of the Act, and subject to the provisions hereof, shall have the authority to control and manage the operation and administration of the Plan. 3.3 Powers of the Committee. The Committee shall have all powers necessary to determine in its sole discretion all questions concerning the administration of the Plan, including without limitation questions of eligibility of Employees, funding policy and the amount of any benefits payable hereunder. In addition, the Committee shall have full authority to interpret and apply the provisions hereof, including without limitation authority to correct any defects or omissions or reconcile any inconsistencies herein, in such a manner and to such an extent as it shall deem necessary or desirable to effectuate the Plan. The Committee may make such rules and regulations for the administration of the Plan and the interpretation and application of the provisions hereof, as it deems necessary or desirable. Subject to the provisions of Article XIV hereof, any determination by the Committee within the scope of its authority and any action taken thereon in good faith shall be conclusive and binding on all persons. 3.4 Delegation of Duties. The Committee shall have authority in its sole discretion to designate or appoint, from time to time, in writing (i) persons to render advice to it with regard to any responsibility it has under the Plan, and (ii) persons to carry out specified fiduciary responsibilities for the operation and administration of the Plan, other than any responsibility concerning the assets of the Plan provided for in the trust agreement creating the Trust. Any such person shall serve at the pleasure of the Committee and may delegate any of its powers and duties to any person referred to in clause (ii) above, subject to the limitation contained therein. Any such delegation of powers and duties shall be made and acknowledged in writing. 3.5 Administrator. The Committee shall designate an Administrator of the Plan who may, but need not be, an officer of the Company or any Affiliate. In addition to carrying out any duties required of the Administrator by applicable provisions of the Act, the Administrator shall prepare and file, or cause to be prepared and filed, such reports, descriptions, summaries and statements (which may consist of copies of regularly issued broker-dealer statements with respect to the accounts) to Participants and Beneficiaries as may be necessary or desirable, within the time specified thereof. Any delegation of duties to the Administrator by the Committee shall be made and acknowledged in writing. The Administrator shall serve at the pleasure of the Committee and may resign by delivering written notice to the Committee. If at any time there shall be a vacancy in the position of the Administrator, the Chairman of the Committee shall serve as Administrator until said position has been filled as herein provided, (or, if no Chairman has been designated, the Director of Human Resources at Advest). 3.6 Agent for Service. The Administrator shall be the agent for service of legal process in connection with any claim or proceeding relating to the Plan. 3.7 Action by Majority. Any action which the Committee is authorized or required to take may be taken by a majority of the members of the Committee then holding office. The action of such majority of the members of the Committee, expressed by a vote at a meeting, or in writing without a meeting, shall constitute the action of the Committee, and shall have the same effect for all purpose as if assented to by all the members of the Committee then holding office. 3.8 Secretary; Action by Single Member. The Committee may from time to time appoint a Secretary, who may or may not be a member of the Committee and who shall serve at the pleasure of the Committee and may resign by delivering written notice to the Committee. The Committee may from time to time authorize any one or more of its members to execute any document on behalf of the Committee. The Committee shall certify to the Trustee the name of any such member authorized to act for it in its relationship with the Trustee and the extent and duration of such authorization. 3.9 Member's Own Participation. The member of the Committee who is also a Participant shall not vote on the exercise of any rights or options or any other matter with respect to his individual rights as a Participant; provided, however, that this prohibition shall not be construed as preventing such member from voting on matters which affect all or a broad category of Participants. 3.10 Records. The Committee shall keep such records of its proceedings and acts as may in its discretion be necessary or desirable for the proper administration of the Plan. The Committee shall make available to each Participant or Beneficiary, for examination at its principal office or such other place as the Committee may in its sole discretion decide is necessary or desirable to make available all pertinent records to such Participant or 74 Beneficiary, such of its records as may pertain to such Participant or Beneficiary, and such Participant or Beneficiary shall have the right to examine the same during normal business hours. The Company may at any time inspect the records of the Committee or have the same inspected by an agent or Employee and may at any time demand an accounting from the Committee. 3.11 Compensation; Agents. Any members of the Committee may be paid such reasonable compensation for attending meetings of the Committee as may be voted by the Board in its sole discretion. All expenses properly attributable to the operations and administration of the Plan, including fees paid to agents, advisors, counsel, investment managers and other persons designated or appointed by the Committee to assist it, shall be paid by the Employer. 3.12 Bonding; Liability of Committee. The Committee, or the Administrator, if so directed by the Committee, shall insure that each Fiduciary of the Plan, including each member of the Committee, is bonded in accordance with applicable laws, rules or regulations, including without limitation Section 412 of the Act. The Employer shall indemnify and hold harmless each member of the Committee, the Administrator, and any other Fiduciary with respect to the Plan, if he is, or was at the time of the acts or failure to act in question, a director, officer or Employee of the Employer, from any liability, claim, demand, suit or action of any type, including without limitation reasonable attorneys' fees, arising from any action or failure to act, provided that such persons acted in good faith, in a manner he reasonably believed to be in the best interests of the Plan and consistent with the provisions of the Plan and, with respect to any criminal action or proceeding, that he had no reasonable cause to believe his conduct was unlawful. 3.13 Fiduciary Responsibility. Any Fiduciary with respect to the Plan shall discharge his duties solely in the interest of the Participants and Beneficiaries for the exclusive purpose of providing benefits to Participants and Beneficiaries and defraying reasonable expenses of administering the Plan. In addition, any Fiduciary with respect to the Plan shall discharge his duties with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of any enterprise of a like character with like aims. ARTICLE IV Participation and Enrollment 4.1 Service Requirement. Effective April 1, 1999, every Employee of the Employer who is scheduled to work at least 20 hours per week and who is not classified by the Employer as a "temporary employee" shall be eligible to participate in the Plan as of the Entry Date coinciding with or next following the date the Employee first becomes an Employee. Notwithstanding the foregoing, an Employee shall not be eligible to be allocated Employer contributions under Section 5.1, and an Employee scheduled to work less than 20 hours per week or who is classified by the Employer as a "temporary employee" shall not be eligible to participate in the Plan at all, until the Entry Date coinciding with or next following the date one year following the date the Employee first completed an Hour of Service if he has completed 1,000 Hours of Service within that consecutive 12-month period, or if he has not completed 1,000 Hours of Service during that initial 12 consecutive months, the end of the first Plan Year in which he completes at least 1,000 Hours of Service. If an individual associated with an Affiliate that has not adopted the Plan meets the requirements of the preceding paragraph but is not an Employee of the Employer on the applicable Entry Date, he shall be eligible to participate in the Plan in accordance with the preceding paragraph as of the date he subsequently becomes an Employee of the Employer. 4.2 Entry. Every Employee on the Effective Date who met the requirement of Section 4.1 hereof shall be eligible to participate in the Plan as of that date. Each Employee who is eligible to participate in the Plan shall become an Active Participant as of the first Entry Date after he becomes eligible. The Committee shall notify each Employee of his eligibility to participate in the Plan as of the applicable Entry Date upon meeting the requirement of Section 4.1 hereof. 4.3 Termination of Active Participation. If an Employee who is an Active Participant in the Plan ceases to be an Employee he shall cease to be an Active Participant. 4.4 Re-entry After Ceasing to be an Active Participant. If an Active Participant ceases to be an Employee but thereafter again becomes an Employee, he shall again become an Active Participant as of the date on which he again becomes an Employee. ARTICLE V Contributions 5.1 Employer Contributions. (a) The Employer shall contribute to the Plan (for allocation to Participants' ESOP Accounts) for each Plan Year, within the time prescribed by law for filing of the income tax return for the Company's fiscal year, including any extensions thereof, in cash or Shares as determined by the Board, such amount as shall be determined by the Board; provided, however, that the Employer shall contribute in cash to the Plan hereunder amounts sufficient to pay, as they become due, all currently maturing obligations under any Stock Obligation and all amounts required under any contributions agreement between the Employer and the Trustee. (b) The Employer shall contribute to the Plan (for allocation to Participant's 401(k) Accounts) for each Plan Year, within the time prescribed by law for 75 filing of the income tax return for the Company's fiscal year, including extensions thereof, an amount on behalf of each Active Participant, as determined by the Board, subject to the limitations of Section 5.14 hereof, according to one or both of the following formulas: (1) The Employer Percentage Contribution Formula. The Employer shall contribute an amount determined by the Board, which shall be allocated among the 401(k) Accounts of each Active Participant in proportion to such Active Participant's Compensation earned while an Active Participant. Such contribution made for any month shall only be allocated to Participants who receive pay on the last pay day of such month and such contribution made for any year shall only be allocated to Participants who receive pay on the last pay day of such year. (2) The Employer Matching Contribution Formula. The Employer shall contribute to the Plan an amount to be allocated among the 401(k) Accounts of each Active Participant for each Active Participant equal to such Active Participant's Employee contributions, not in excess of 2% of such Active Participant's Compensation earned while an Active Participant, which are collected by payroll deduction. Such contribution shall only be allocated to Participants with respect to Employer contributions made for a month if such Participants receive pay on the last pay day of such month and with respect to Employer contributions made for a year if such Participants receive pay on the last pay day of such year. 5.2 Employee Contributions. Each Active Participant may contribute to the Plan in any Plan Year such amount as he may determine to be desirable; provided, however, that such contributions may not exceed $7,000 in a calendar year (as adjusted at the same time and in the same manner as provided under Section 415(d) of the Code in accordance with Treasury Regulations). Notwithstanding the above, the amount of each Active Participant's contribution for any Plan Year which is collected for the Plan by payroll deductions shall not exceed 15% of such Active Participant's Compensation or such other percentage as the Committee may from time to time determine. The minimum payroll deduction amount shall be determined by the Committee but shall in no event be less than $20.00 a month. Within the permissible limits, each Participant shall determine the amount of his payroll deduction by written direction to the Committee within 30 days after becoming a Participant. Thereafter, the Active Participant may change the amount of his payroll deduction contribution quarterly, or more frequently as permitted on a uniform basis by the Committee, by filing another written direction with the Committee within 30 days after the Plan's Entry Dates, or at such other times permitted by the Committee. Such contributions shall be paid by the Employer to the Active Participant's 401(k) Account not less frequently than once every 30 days. In addition to, or exclusive of, payroll deduction contributions, Active Participants may make lump-sum contributions from specific payroll periods to the Plan by written direction to the Committee at time periods as determined by the Committee and within the time prescribed by law for filing of the income tax return of the Company's fiscal year, including extensions. 5.3 Actual Deferral Percentage Test. (a) For this Article V to maintain its status as a qualified cash or deferred arrangement pursuant to Section 401(k) of the Code, the Actual Deferral Percentage for Highly Compensated Participants (as defined below) for each Plan Year must bear a relationship to the Actual Deferral Percentage for all other eligible employees for such Plan Year which meets one of the following tests: (1) The Actual Deferral Percentage of the Highly Compensated Participant group shall not be more than the Actual Deferral Percentage of the Non-Highly Compensated Participant group multiplied by 1.25, or (2) The excess of the Actual Deferral Percentage of the Highly Compensated Participant group over the Actual Deferral Percentage of the Non-Highly Compensated Participant group shall not be more than two percentage points. Additionally, the Actual Deferral Percentage of the Highly Compensated Participant group shall not exceed the Actual Deferral Percentage of the Non- Highly Compensated Participant group multiplied by 2. The provisions of Section 401(k)(3) of the Code and Treasury Regulations Section 1.401(k)-1(b) are incorporated herein by reference. In order to prevent the multiple use of the alternative method described in this paragraph and in Section 401(m)(9)(A) of the Code, any Highly Compensated Participant eligible to make Employee 76 contributions pursuant to this Plan or to receive Employer matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliate shall have his actual contribution ratio reduced pursuant to Treasury Regulations Section 1.401(m)-2, the provisions of which are incorporated herein by reference. (b) For the purpose of this Section 5.3, "Actual Deferral Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non- Highly Compensated Participant group, the average of the ratios, (calculated separately for each Active Participant in such group) of: (1) The Employee contributions and Employer contributions designated as Employee contributions (if any) allocated to each Highly Compensated Participant's Account for such Plan Year (and contributed to the Plan within 12 months following the end of the Plan Year) and to each Non-Highly Compensated Participant's Elective Account for the preceding Plan Year (and contributed to the Plan within 12 months following the end of the Plan Year); to (2) The Active Participant's 414(s) Compensation for such Plan Year or preceding Plan Year respectively. The actual deferral ratio for each Active Participant and the Actual Deferral Percentage for each group shall be calculated to the nearest one-hundredth of one percent. Employee contributions allocated to each Non-Highly Compensated Employee's Account for the preceding Plan Year shall be reduced by excess Employee contributions for the preceding Plan Year to the extent such excess amounts arise under this Plan or any other plan maintained by the Employer. (c) For the purpose of this Section, a Highly Compensated Participant and a Non- Highly Compensated Participant shall include any Employee eligible to make a payroll deduction pursuant to Section 5.2, whether or not such contribution was made or amended. (d) For purposes of this Section, if two or more plans of the Employer (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code), which include cash or deferred arrangements, are considered one plan for the purposes of Section 401(a)(4) or 410(b) of the Code (other than the average benefits test under Section 410(b)(2)(A)(ii) of the Code), the cash or deferred arrangements included in such plans shall be treated as one arrangement. (e) For the purposes of this Section, if a Highly Compensated Participant is an Active Participant under two or more cash or deferred arrangements of the Employer or an Affiliate (other than a cash or deferred arrangement which is part of an employee stock ownership plan), all such cash or deferred arrangements shall be treated as one cash or deferred arrangement for the purpose of determining the deferral percentage with respect to such Highly Compensated Participant. However, if the cash or deferred arrangements have different plan years, this paragraph shall be applied by treating all cash or deferred arrangements ending with or within the same calendar year as a single arrangement. 5.4 Adjustment to Actual Deferral Percentage Tests. (a) In the event that the initial allocations of the Employee contributions and Employer contributions designated as Employee contributions (if any) do not satisfy one of the tests set forth above, the Committee shall adjust excess contributions pursuant to the options set forth below: (1) Within 12 months after the end of the Plan Year, the Employer may make an additional Employer contribution, designated as an Employee contribution on behalf of Non-Highly Compensated Participants in an amount sufficient to satisfy one of the tests set forth in Section 5.3. Such contribution shall be allocated in proportion to each such Non-Highly Compensated Participant's Compensation, and shall be treated as an Employee contribution for purposes of Articles VI and VIII of the Plan; or (2) On or before the fifteenth day of the third month following the end of each Plan Year, the Highly Compensated Participant having the largest amount of Employee contributions and Employer contributions designated as Employee contributions (if any) shall have his portion of excess Employee contributions distributed to him until one of the tests set forth above is satisfied, or until his amount of Employee contributions and Employer contributions designated as Employee contributions (if any) equals the amount of Employee contributions and Employer contributions designated as Employee contributions 77 (if any) of the Highly Compensated Participant having the second largest amount. This process shall continue until one of the tests set forth above is satisfied. For each Highly Compensated Participant, the amount of excess contributions is equal to the Employee contributions and applicable Employer contributions (if any) used to satisfy the Actual Deferral Percentage tests on behalf of such Highly Compensated Participant (determined prior to the application of this paragraph) minus the amount determined by multiplying the Highly Compensated Participant's actual deferral ratio (determined after application of this paragraph) by his 414(s) Compensation. However, in determining the amount of excess Employee contributions to be distributed with respect to an affected Highly Compensated Participant as determined herein, such amount shall be reduced by any excess Employee contributions previously distributed to such affected Highly Compensated Participant for his taxable year ending with or within such Plan Year. With respect to the distribution of excess Employee contributions, such distribution: (A) may be postponed but not later than the close of the succeeding Plan Year; (B) shall be made first from unmatched Employee contributions and, thereafter, simultaneously from Employee contributions which are matched (if any) and Employer matching contributions (if any) which relate to such Employee contributions provided, however, that any Employer matching contributions that are not vested, shall be forfeited in lieu of distribution; (C) shall be adjusted for income; and (D) shall be designated by the Employer as a distribution of excess Employee contributions and income. Any distribution of less than the entire amount of excess Employee contributions shall be treated as a pro rata distribution of excess Employee contributions and income. For purposes of this Section 5.4, "income" means the income or losses allocable to excess contributions which shall equal the allocable gain or loss for the Plan Year. The income allocable to excess contributions for the Plan Year is determined by multiplying the income for the Plan Year by a fraction. The numerator of the fraction is the excess contribution for the Plan Year. The denominator of the fraction is the total Participant's 401(k) Account attributable to Employee contributions as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. 5.5 Actual Contribution Percentage Tests. (a) For this Plan to maintain its qualified status, the Actual Contribution Percentage for the Highly Compensated Participant group shall not exceed the greater of: (1) 125% of such percentage of the Non-Highly Compensated Participant group; or (2) the lesser of 200% of such percentage of the Non-Highly Compensated Participant group, or such percentage of the Non-Highly Compensated Participant group plus two percentage points. However, to prevent the multiple use of the alternative method described in this paragraph and Code Section 401(m)(9)(A), any Highly Compensated Participant eligible to make Employee contributions pursuant to Section 5.2 or any other cash or deferred arrangement maintained by the Employer or an Affiliate and to receive Employer matching contributions under this Plan or under any other plan maintained by the Employer or an Affiliate shall have his actual contribution ratio reduced pursuant to Treasury Regulations Section 1.401(m)-2. The provisions of Section 401(m) of the Code and Treasury Regulations Sections 1.401(m)-1(b) and 1.401(m)-2 are incorporated herein by reference. (b) For the purpose of this Section 5.5, "Actual Contribution Percentage" for a Plan Year means, with respect to the Highly Compensated Participant group and Non-Highly Compensated Participant group, the average of the ratios (calculated separately for each Participant in each group) of: (1) the Employer matching contributions (if any) made pursuant to Section 5.1(b) on behalf of each such Highly Compensated Participant for such Plan Year and each Non-Highly Compensated Participant group for the preceding Plan Year; to (2) the Active Participant's 414(s) Compensation for such Plan Year or preceding Plan Year respectively. 78 The actual contribution ratio must be rounded to the nearest one-hundredth of one percent. (c) For purposes of determining the Actual Contribution Percentage and the amount of excess matching contributions pursuant to Section 5.6, only Employer matching contributions (excluding Employer matching contributions forfeited pursuant to Section 3.4(a)(2)) contributed to the Plan prior to the end of the succeeding Plan Year shall be considered. (d) For purposes of this Section, if two or more plans of the Employer (other than an employee stock ownership plan as defined in Section 4975(e)(7) of the Code) to which matching contributions or elective deferrals are made are treated as one plan for purposes of Section 401(a)(4) or 410(b) of the Code (other than the average benefits test under Section 410(b)(2)(A)(ii) of the Code), such plans shall be treated as one plan for purposes of this Section 5.5. In addition, two or more plans of the Employer to which matching contributions or elective deferrals are made may be considered as a single plan for purposes of this Section. In such a case, the aggregated plans must satisfy Code Sections 401(a)(4) and 410(b) as though such aggregated plans were a single plan. Notwithstanding the above, contributions to an employee stock ownership plan as defined in Code Section 4975(e)(7) shall not be aggregated with this Plan. (e) If a Highly Compensated Participant participates in two or more plans (other than an employee stock ownership plan) which are maintained by the Employer or an affiliate to which matching contributions or elective deferrals are made, all such contributions on behalf of such Highly Compensated Participant shall be aggregated for purposes of this Section 5.5. (f) For purposes of Sections 5.5(a) and 5.6, the terms "Highly Compensated Participant" and "Non-Highly Compensated Participant" shall include any Employee eligible to have Employer matching contributions pursuant to Section 5.1(b) (whether or not a deferral election was made or suspended pursuant to Sections 5.2 and 8.2) allocated to his Account for the Plan Year. 5.6 Adjustment to Actual Contribution Percentage Tests. (a) In the event that the Actual Contribution Percentage for the Highly Compensated Participant group exceeds the Actual Contribution Percentage for the Non-Highly Compensated Participant group pursuant to Section 5.5(a), the Committee (on or before the fifteenth day of the third month following the end of the Plan Year, but in no event later than the close of the following Plan Year) shall direct the Trustee to distribute to the Highly Compensated Participant having the largest amount of Employer matching contributions, his vested portion of excess matching contributions (and income allocable to such contributions) and, if forfeitable, forfeit such non-vested Employer matching contributions (and income allocable to such forfeitures) until either one of the tests set forth in Section 5.5(a) is satisfied, or until his remaining amount equals the amount of Employer matching contributions of the Highly Compensated Participant having the second largest amount. This process shall continue until one of the tests set forth in Section 5.5(a) is satisfied. The distribution of excess matching contributions shall be made in the following order: (1) Employer matching contributions distributed pursuant to Section 5.4(a); (2) Remaining Employer matching contributions. (b) Any distribution of less than the entire amount of excess matching contributions and income shall be treated as a pro rata distribution of excess matching contributions and income. Distribution of excess matching contributions shall be designated by the Employer as a distribution of excess matching contributions and income. (c) Excess matching contributions including forfeited matching contributions shall be treated as Employer contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (d) For each Highly Compensated Participant, the amount of excess matching contributions is equal to the total Employer matching contributions made pursuant to Section 5.1(b) minus the amount determined by multiplying the Highly Compensated Participant's actual contribution ratio (determined after application of this paragraph) by his 414(s) Compensation. In no case shall the amount of excess matching contributions with respect to any Highly Compensated Participant exceed the amount of Employer matching contributions made pursuant to Section 5.1(b) on behalf of such Highly Compensated Participant for such Plan Year. (e) The determination of the amount of excess matching contributions with respect to any Plan Year shall be made after first determining the excess contributions, if any, to be treated as employee contributions due to recharacterization for the plan year of any other qualified cash or deferred arrangement (as defined in Code Section 401(k)) maintained by the Employer that ends with or within the Plan Year of this Plan. 79 For purposes of this Section 5.6, "income" means the income or losses allocable to excess matching contributions which shall equal the allocable gain or loss for the Plan Year. The income allocable to excess matching contributions for the Plan Year is determined by multiplying the income for the Plan Year by a fraction. The numerator of the fraction is the excess matching contribution for the Plan Year. The denominator of the fraction is the total Participant's 401(k) Account attributable to Employer matching contributions as of the end of the Plan Year, reduced by the gain allocable to such total amount for the Plan Year and increased by the loss allocable to such total amount for the Plan Year. 5.7 Crediting of 401(k) Account Contributions to Participants. The Employer contributions identified in Section 5.1(b) above and the Employee contributions identified in Section 5.2 above for each Plan Year shall be credited as of the date of receipt by the Trust Fund to the 401(k) Accounts of Participants on whose behalf or by whom they were made. 5.8 Allocations of ESOP Contributions. Subject to the limitations of Section 5.14, as of the last day of a Plan Year, the sum of (a) the Shares released from the Unallocated Stock Account for that year pursuant to Section 5.9 which have not been allocated pursuant to Section 5.10, plus (b) any Employer contributions under Section 5.1(a) for that year not applied against Stock Obligations or allocated pursuant to Section 5.10, shall be allocated among the ESOP Accounts of the Participants on the basis of the percentage that each Participant's ESOP Compensation during all or that part of the Plan Year in which he was a Participant is of the total ESOP Compensation of all Participants for all or that portion of the Plan Year in which they were Participants. Notwithstanding the foregoing, no allocation shall be made pursuant to this Section 5.8 to the ESOP Account of a Participant who was not a Participant on the last day of the Plan Year; provided that a Participant who retires, incurs a Total Disability or dies prior to the end of a Plan Year shall be included in the allocation made pursuant to this Section 5.8. 5.9 Release of Shares for Allocation. An Unallocated Stock Account shall be maintained in which the Plan's holdings of Shares which have been purchased on credit, whether or not the Shares are pledged as collateral, shall be segregated until payments on the corresponding Stock Obligations permit the release of the Shares for allocation to Participants in accordance with this Section 5.9. Any dividends with respect to such segregated Shares which are paid by the Company in the form of additional Shares shall also be segregated in the Unallocated Stock Account and thereafter treated in the same manner as the underlying segregated Shares. For each Plan Year for which Employer contributions or earnings on contributions are applied to satisfy a portion of a Stock Obligation, a certain number of Shares held in the Unallocated Stock Account shall be released for allocation among the Participants. The number of Shares released shall bear the same ratio to the number of Shares attributable to the Stock Obligation which are then in the Unallocated Stock Account (prior to the release) as (a) the principal and interest payments made on the Stock Obligation for the Plan Year bears to (b) the payments described in clause (a) plus the total remaining principal and interest payments required (or projected to be required on the basis of the interest rate in effect at the end of the Plan Year) to satisfy the Stock Obligation. For this purpose, each Stock Obligation, the Shares purchased in connection with it, and any stock dividends on such Shares, shall be considered separately. Notwithstanding the foregoing, if a Stock Obligation provides for equal annual principal payments, and has a term not in excess of ten years, the number of Shares to be released may be determined solely with reference to principal payments made for a Plan Year. In addition, if the Stock Obligation is not made by or guaranteed by a disqualified person (as defined in Section 4975(e)(2) of the Code), the number of Shares to be released shall be determined in accordance with the terms of any pledge agreement entered into in connection with the Stock Obligation. 5.10 Allocation of Dividends. Any cash dividends received on Shares allocated to Participants' ESOP Accounts, at the discretion of the Board, (a) shall be used to satisfy Stock Obligations, (b) shall be allocated to the Participants' respective ESOP Accounts or (c) shall be allocated to the Participants' respective 401(k) Accounts. In the event that the fair market value of all Shares released from the Unallocated Stock Account is less than the aggregate amount of cash dividends on Shares allocated to Participant's ESOP Accounts for a Plan Year used to satisfy Stock Obligations, then the Employer shall contribute an amount equal to the difference which shall be allocated among the ESOP Accounts of Participants so that the sum of the fair market value of shares released from the Unallocated Stock Account and such Employer contributions allocated to each Participant's ESOP Account equals the cash dividends on Shares allocated to such Participant's ESOP Account used to satisfy Stock Obligations. Any dividends in the form of additional Shares received on Shares allocated to Participants' ESOP Accounts shall be allocated to the same ESOP Accounts. Any cash dividends received on Shares held in the Unallocated Stock Account which are not used to satisfy Stock Obligations shall be included in the net income (or loss) of the Trust for the Plan Year. Notwithstanding the foregoing, any cash dividends received on Shares which are distributed to Participants pursuant to Section 5.11 shall not be allocated to their accounts. 5.11 Pass-Through of Dividends. Any cash dividends received by the Trust on Shares allocated to Participants' ESOP Accounts shall be paid in cash to such Participants, rather than being allocated to Participants' ESOP Accounts pursuant to Section 5.10, not later than 90 days after the close of the Plan Year in which such dividends are paid, if the Board so directs the Trustee. 80 5.12 Rollovers and Transfers. An Employee may, with the consent of the Committee, which shall be granted or withheld in a nondiscriminatory manner, roll over to the Employee's 401(k) Account within 60 days of his receipt thereof, all or any part of the amount distributed to him in cash or in kind within one taxable year of the Employee as a rollover amount, as defined in Section 402(a)(5), 403(a)(4), 408(d)(3) or 409(b)(3)(C) of the Code, or from a conduit individual retirement account under Sections 402 and 408 of the Code, to the extent permitted by the Code; provided, however, that no such rollover amount may include any amounts constituting the Employee's contributions. The Committee may require such information or documentation with respect to any such rollover contribution hereunder as it deems necessary or desirable. Any expenses related to such rollover account shall be allocated to such 401(k) Account. Amounts may be transferred by the Employer from other tax qualified plans under Section 401(a) of the Code maintained by the Employer provided that the trust from which such funds are transferred permits the transfer to be made and the transfer will not jeopardize the tax exempt status of the Plan or create adverse tax consequences for the Employer. The amounts transferred shall be placed in the Participant's 401(k) Account. This Plan shall not accept any direct or indirect transfers (as that term is defined and interpreted under Code Section 401(a)(11) and the regulations thereunder) from a defined benefit plan, money purchase plan (including a target benefit plan), stock bonus or profit sharing plan which would otherwise have provided for a life annuity form of payment to the Participant. Notwithstanding anything herein to the contrary, a transfer directly to this Plan from another qualified plan (or a transaction having the effect of such a transfer) shall only be permitted if it will not result in the violation of Code Section 411(d)(6). 5.13 Allocation of Forfeitures. As of the end of each Plan Year, the Administrator shall determine the value of forfeitures, pursuant to Section 10.13 hereof, during the Plan Year then ending. The Administrator shall use the portion of such forfeitures attributable to Employer contributions pursuant to Section 5.1(b) and earnings thereon to reduce the Employer contribution calculated pursuant to Section 5.1(b) for the Plan Year in which such forfeitures occur. The Administrator shall apply the portion of such forfeitures attributable to amounts held in Participants' ESOP Accounts to the payment of administration of the Trust Fund, with any remaining balance allocated among the ESOP Accounts of Active Participants in proportion to each Active Participant's ESOP Compensation for such Plan Year. 5.14 Limitation. Anything to the contrary herein notwithstanding, in no event shall the sum of annual additions to an Active Participant's Account in any Plan Year attributable to (1) Employer contributions (including contributions made by the Employer pursuant to Section 401(k) of the Code) and forfeitures and (2) Employee contributions, when combined with any annual additions to such Active Participant's account under any other defined contribution plan maintained by the Employer, be greater than the lesser of (1) $30,000 (as adjusted under Section 415(d) of the Code), or (2) 25% of all the Active Participant's Compensation from the Employer. For any Plan Year in which no more than one- third (1/3) of the Employer contributions are allocated to Participants who are highly compensated employees within the meaning of Section 414(q) of the Code, for purposes of this Section 5.14, "Annual Additions" shall not include forfeitures of Shares acquired with the proceeds of a Stock Obligation and contributions that are deductible under Section 404(a)(9)(B) of the Code and are charged against the Participant's ESOP Account. For purposes of this Section 5.14, Employer contributions used to repay principal and interest on a Stock Obligation shall be treated as a contribution of Shares to the Plan. Any excess amount hereunder (i) to the extent of Employee contributions in such Plan Year pursuant to Section 5.2 shall be returned to such Active Participant; and (ii) to the extent of Employer contributions pursuant to Section 5.1 shall be applied to reduce any further Employer contributions under this Plan. Amounts allocated to an individual medical account, as defined in Section 415(l)(1) of the Code, which is part of a defined benefit plan maintained by the Employer, are treated as annual additions to a defined contribution plan. Also, amounts derived from contributions paid or accrued in taxable years ending after such date, which are attributable to post- retirement medical benefits allocated to the separate account of a key employee, as defined in Section 419A(d)(3) of the Code, under a welfare benefit fund, as defined in Section 419(e) of the Code, maintained by the Employer, are treated as annual additions to a defined contribution plan. 5.15 Special Transfers. Except for purposes of Section 5.3 and 5.4 hereof, all amounts transferred to the Plan from the Ironwood Capital Partners Ltd. 401(k) Plan, and such other plans as may be designated in writing by the Committee, shall be treated as Employee contributions pursuant to Section 5.2 of the Plan. ARTICLE VI Vesting 6.1 Vesting. An Active Participant shall have a vested right to any Employer contributions and earnings thereon, in accordance with the following schedule: Years of Service Non-forfeitable Percentage 1 10% 2 25% 3 40% 4 55% 5 70% 6 85% 7 or more 100% 81 (b) Notwithstanding the foregoing, the following contributions shall at all times be fully vested and non-forfeitable: (1) All Employee contributions made by a Participant; (2) All amounts transferred to the Trust Fund representing a Participant's interest in The Advest Group, Inc. Employees' Retirement Plan; (3) All amounts transferred to the Trust Fund representing a Participant's interest in The Advest Group, Inc. Incentive Savings Plan; and (4) All Employer contributions made on behalf of an Active Participant who has attained his Normal Retirement Date, or in the event of his Total Disability or death. ARTICLE VII Investment Elections 7.1 Investment of Contributions. Each Participant shall elect with respect to amounts held in his 401(k) Account to have such funds invested in any one or more of the Investment Vehicles. Each Participant shall make such election by filing an investment selection form with the Committee upon becoming a Participant. Such investment selection for contributions may be changed effective as of any Investment Date, provided that a properly completed investment selection form is received by the Committee not less than 10 days prior to such Investment Date or otherwise as permitted by the Committee in a nondiscriminatory manner. In the event that a Participant wishes to liquidate his investment in any Investment Vehicle and reinvest in another, he must so indicate on a properly completed investment selection form or otherwise as permitted by the Committee in a nondiscriminatory manner. Such changed investment selection will be effective as of any Investment Date, provided that the properly completed investment selection form is received by the Committee not less than 10 days prior to such Investment Date or otherwise as permitted by the Committee in a nondiscriminatory manner. The liquidation of the previous Investment Vehicle will occur within 5 business days of receipt of the properly completed investment selection form by the Committee. Investments in the Investment Vehicles described in Section 2.27(f) hereof shall be subject to the following conditions: (a) All purchases and sales of securities must be executed by the Company as broker or must be principal transactions between the Plan and the Company, to the extent permitted by the Act, the Code and other applicable laws; (b) If brokerage commissions are charged by the Company, such commissions will be charged by the Company to the Account for which a securities transaction is executed, and such charges will comply with the recapture provisions of Department of Labor Prohibited Transaction Class Exemption 86-128 which permits the Company to execute securities transactions for the Plan provided that it credits to the Plan all charges relating to effecting or executing the securities transactions, less reasonable and necessary expenses, including reasonable and direct expenses (such as overhead costs) properly allocated to the performance of these transactions under generally accepted accounting principles, and further provided that the notice and record keeping requirements of PTCE 86-128 are complied with; and (c) Investments shall be made in accordance with such rules as may be established by the Committee from time to time. Pending the investment of contributions in, or the shifting of investments among, the Investment Vehicles, funds shall be invested in such short-term investment vehicle(s) as the Committee shall determine. ARTICLE VIII Withdrawals 8.1 Hardship Withdrawals. The Committee, at the election of an Active Participant, shall direct the Trustee to distribute to any Active Participant in any one Plan Year all or part of the vested portion of his 401(k) Account (excluding post-1988 earnings on Employee contributions to the Plan and to The Advest Group, Inc. Incentive Savings Plan that have been transferred to the Plan). For purposes of this Section 8.1, a withdrawal shall be authorized only if the distribution is on account of: (a) Expenses for medical care described in Code Section 213(d) previously incurred by the Active Participant, his spouse, or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain the medical care described in Section 213(d); (b) Costs directly related to the purchase of a principal residence for the Active Participant (excluding mortgage payments); (c) Funeral expenses for a member of the Active Participant's Family; 82 (d) Payment of tuition, related educational fees and room and board expenses for the next 12 months of post-secondary education for the Active Participant, his spouse, children or dependents; or (e) The need to prevent the eviction of the Active Participant from his principal residence or foreclosure on the mortgage of the Active Participant's principal residence. No distribution shall be made pursuant to this Section unless the Committee, based upon the Active Participant's representation and such other facts as are known to the Committee, determines that all of all of the following conditions are satisfied: (a) The distribution is not in excess of the amount of the immediate and heavy financial need of the Active Participant; and (b) The Active Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available under all plans maintained by the Employer, including the Plan; provided, however, that the Active Participant will not be required to obtain a nontaxable loan if the loan would disqualify the Active Participant from obtaining other necessary financing. 8.2 If an Active Participant receives a hardship withdrawal pursuant to Section 8.1, such Active Participant's Employee contributions will be suspended until January 1 of the second calendar year after receipt of the hardship withdrawal. Application for withdrawal shall be made on such forms as the Committee prescribes and shall contain the information required by such forms, including the Investment Vehicle(s) from which the withdrawal is to be made. Only one such withdrawal shall be permitted in any six month period. The withdrawal shall be paid to the Participant within 30 days after the Active Participant's application form is approved by the Committee. The Active Participant's 401(k) Account shall be charged accordingly as of such date. No make-up contributions will be permitted. ARTICLE IX Loans 9.1 Loans. The Committee may, upon receipt of a completed loan application form by an Active Participant or a Participant who is a "party in interest" as defined in Section 3(14) of the Act, direct the Trustee to make a loan to such Participant from the Investment Vehicle(s) credited to the 401(k) Account of such Participant as the Participant directs. Employees who are not Active Participants shall also be eligible to request loans, and all references to Participants in this Article IX shall include such Employees. Each Participant may have no more than 2 loans outstanding at one time, and no loan may be for less than $500. No Participant may receive more than 2 loans in any twelve- month period. In no event shall the total of any such loan or loans to any one Participant (when aggregated with other loans under this Plan or any other qualified plan of the Employer) exceed the lesser of: (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over the outstanding balance of loans from the Plan to the Participant on the date on which such loan was made, or (b) 50% of the present value of the nonforfeitable Accrued Benefit of the Employee attributable to his 401(k) Account. The balance of the Participant's 401(k) Account will be determined as of the date the application is approved by the Committee. Any loan, shall, by its terms, require that repayment (principal and interest) be amortized in level payments, not less frequently than monthly, over a period not extending beyond five years from the date of the loan, unless such loan is used to acquire a dwelling unit which, within a reasonable time (determined at the time the loan is made) will be used as the principal residence of the Participant. Any such loan shall provide for monthly payments of not less than $20 each and shall be immediately due and payable in full upon death, disability or separation from service. 9.2 Rate of Interest. Each loan shall bear a reasonable rate of interest, determined by the Committee. The Committee, in determining the interest rate, shall take into consideration the rates of interest currently being charged by lenders. Loans may bear different interest rates, if in the Committee's opinion, the difference is justified by different terms for repayment or changes in economic conditions. The rate of interest need not be fixed for the term of the loan. In no event shall the interest rate exceed the maximum legal rate that may be charged to individuals for loans of this nature. All interest and principal payments shall be credited to the 401(k) Account of the Participant to whom the loan is made. Every Participant with an outstanding loan from the Plan shall receive a clear statement (which may consist of copies of the periodic statements issued with respect to the Participant's Account) of the charges involved. 9.3 Committee Approval. The Committee shall approve loan applications and determine rate of interest in a uniform and nondiscriminatory manner. Loans shall be available to all such Participants on a reasonably equivalent basis as determined by the Committee, and, in approving such loans, the Committee shall 83 not discriminate in favor of Highly Compensated Employees or officers of the Company as to the amount of such loans in proportion to the Participant's 401(k) Account or the rate of interest. All loans shall comply with the requirements of Section 408(b)(1) of ERISA as amended. 9.4 Loan Collateral. Each loan shall be made against the collateral of the assignment of 50% of the Participant's entire right, title and interest in and to his 401(k) Account. In addition to the assignment of the Participant's 401(k) Account, the Committee may, in its discretion, require such additional collateral as it may deem necessary from time to time to adequately secure such loan. In the event of a default by a Participant in the repayment of any loan provided for hereunder and the Participant has not supplied other satisfactory collateral, the Participant's 401(k) Account under this Plan shall be charged with the full unpaid balance of the loan, together with any accrued but unpaid interest thereon (up to an amount equal to the collateral), at the time of the earlier of the Participant's termination of service with the Employer, his retirement or his disability. For purposes of this Section, a loan made to a Participant shall not be treated as an assignment or alienation of any benefit due to the fact that the loan will be secured by the Participant's 401(k) Account and will be exempt from the tax imposed on prohibited transactions according to Section 4975(d)(1) of the Code. No distribution under the Plan, other than withdrawals made pursuant to Article VIII, shall be made to any Participant or to the Beneficiary of any such Participant unless and until all unpaid loans, including accrued interest hereto, have been liquidated. The Committee shall have the right to apply to the repayment of any loan and the accrued interest thereon the amount of any distribution from the Trust Fund to which the Participant or his Beneficiary becomes entitled to satisfy the liquidation of such loan. 9.5 USERRA Compliance. Loan repayments will be suspended under this Plan, as permitted under Code Section 414(u). ARTICLE X Payment of Benefits 10.1 Payment Options. The Administrator, pursuant to the election of the Participant, shall direct the Trustee to distribute to the Participant or his Beneficiary the Participant's vested Accrued Benefit under the Plan in one or more of the following methods: (a) One lump-sum payment in cash or in kind to the extent the Participant so elects; or (b) For an amount in a Participant's Account equal to the balance of such Participant's Accounts under The Advest Group, Inc. Incentive Savings Plan and The Advest Group, Inc. Employees' Retirement Plan on September 30, 1989, payments over a period certain in monthly, quarterly, semiannual, or annual installments, in cash or in kind to the extent the Participant so elects, not extending beyond the Participant's life expectancy (or the life expectancy of the Participant and his designated Beneficiary). 10.2 Commencement of Benefit Payments. The payment of benefits under the Plan shall be made or begin on or after the date a Participant terminates his service with the Employer and not later than the 120th day after the Participant terminates his service with the Employer (or, in the event of a Participant's Total Disability, within 120 days after the determination of Total Disability). In addition, payment of a Participant's benefits may be made or begin, at the Participant's election, at any time on or after January 1 of the calendar year in which the Participant attains age 70-1/2. Notwithstanding the foregoing, payment of a Participant's benefits shall be made or begin not later than April 1 of the calendar year following the later of (i) the calendar year in which the Participant attains age 70-1/2, or (ii) the calendar year in which the Participant retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five percent owner" at any time during the five Plan Year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. 10.3 Form of Payment to Participants. A Participant's benefits held in a Participant's ESOP Account shall generally be paid in Shares. In connection with a distribution, the Administrator shall cause the portion of the Participant's interest in his ESOP Account not held in Shares to be used to purchase Shares on the stock exchange, if any, on which the Shares are primarily traded, or, if Shares are not primarily traded on a stock exchange, on the over- the-counter market, or, if neither of the above is applicable, at their current fair market value as determined pursuant to Section 10.7. Any fractional shares credited to a Participant's Accounts shall be converted into cash at the Shares' current fair market value as determined pursuant to Section 10.7. Notwithstanding the foregoing, a Participant may elect pursuant to rules adopted by the Committee to receive benefits held in his ESOP Account in the form of cash. In addition, if a Participant has less than 100 Shares credited to his ESOP Account, his benefits attributable to his ESOP Account shall be paid in the form of cash, unless the Participant elects to receive benefits in the form of Shares. If a Participant is to receive a distribution in cash, the Shares credited to the Participant's ESOP Account shall be sold on the stock exchange, if any, on which the Shares are primarily traded, or, if Shares are not primarily traded on a stock exchange, on the over-the-counter market, or, if neither of the above is applicable, shall be converted into cash at their current fair market value as determined pursuant to Section 10.7, and the Participant shall be paid the proceeds. 84 10.4 Put Option. (a) In the event that Shares are distributed pursuant to this Article X, such Shares shall be subject to a put option, if, when distributed, such Shares are (i) not listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934 or quoted on a system sponsored by a national securities association registered under section 15A(b) of the Securities Exchange Act ("Publicly Traded") or (ii) subject to a restriction ("Trading Restriction") under any Federal or state securities law or any regulation thereunder or under an agreement which makes such Shares not as freely tradable as Shares not subject to such restriction. (b) The put option shall be exercisable by the distributee of the Shares. (c) The put option shall permit the shares to be put to the Company at their fair market value as determined pursuant to Section 10.7. (d) The put option shall be exercisable at any time during the 60 day period commencing on the date of distribution of the Shares. If the distributee does not exercise the put option within such 60 day period, the option will temporarily lapse. After the close of the Company's taxable year in which such temporary lapse occurs and following a determination of the fair market value of the Shares as of the end of that taxable year, the Company shall notify each distributee who did not exercise the initial put option in the preceding year of the fair market value of the Shares. Each such distributee shall then have the right to exercise the put option at any time during the 60 day period following such notice. If the distributee does not then exercise this put option, the shares will cease to be subject to any put option. (e) Payment upon exercise of the put option shall be made or commence no later than 30 days after exercise and, in the discretion of the Company, shall be in a lump sum or in substantially equal periodic installments (not less frequently than annually) which shall extend over a period not to exceed five years from the date of exercise, with interest at a reasonable rate on the unpaid balance; provided, however, that if the Shares with respect to which the put option is exercised were not part of a distribution of the entire Accrued Benefit of the Participant attributable to the Participant's ESOP Account within one taxable year of the recipient, payment must be made in a lump sum. (f) If payment upon exercise of the put option is to be made by the Company in installments, the Company shall deliver to the distributee its promissory note which provides to the distributee the right to require full payment if the Company defaults in the payment of a scheduled installment. The Company shall also deliver to the distributee adequate security for the outstanding amount of the promissory note. 10.5 Protections and Rights. Except as provided in Section 10.4 or as otherwise required by law, no Shares acquired with the proceeds of a Stock Obligation may be subject to a put, call or other option, or buy-sell or similar arrangements, while held by or when distributed from the Plan. 10.6 Protections and Rights Nonterminable. The provisions of Sections 10.4 and 10.5 are nonterminable, and shall continue notwithstanding the repayment of any Stock Obligation the proceeds of which were used to acquire Shares and notwithstanding the fact that the Plan ceases to be an employee stock ownership plan. 10.7 Fair Market Value. The fair market value of Shares on a specified date shall mean the closing price for a Share on the stock exchange, if any, on which the Shares are primarily traded, but if no Shares were traded on such date, then on the last previous date on which a Share was so traded, or, if Shares are not primarily traded on a stock exchange, the average of the high and low sales prices at which one Share is traded on the over-the-counter market, as reported on the National Association of Securities Dealers Automated Quotation System, or, if none of the above is applicable, the value of a Share as established no less frequently than annually by an independent appraiser that does not otherwise provide service to the Company and that meets requirements similar to those contained in Treasury regulations under Section 170(a)(i) of the Code. 10.8 Special Distribution and Payment Requirements. Notwithstanding any other provisions of the Plan, other than such provisions as require the consent of the Participant to a distribution with a present value in excess of $5,000, a Participant may elect to have the portion of the Participant's ESOP Account attributable to Shares, distributed as follows: (a) If the Participant separates from service by reasons of retirement, death, or Total Disability, the distribution of such portion of the Participant's ESOP Account will be made not later than one year after the close of the Plan Year in which such event occurs. (b) If the Participant separates from service for any reason other than those enumerated in paragraph (a) above and is not reemployed by the Employer at the end of the fifth Plan Year following the Plan Year of such separation from service, distribution of such portion of the Participant's ESOP Account will begin not later than one year after the close of the fifth Plan Year following the Plan Year in which the participant separated from service. (c) If the Participant separates from service for a reason other than those 85 described in paragraph (a) above and is employed by the Employer as of the last day of the fifth Plan Year following the Plan Year of such separation from service, distribution to the Participant, prior to any subsequent separation from service, shall be in accordance with terms of the Plan other than this Section 10.8. For purposes of this Section 10.8, Shares shall not include any Shares acquired with the proceeds of a Stock Obligation until the close of the Plan Year in which such Stock Obligation is repaid in full. 10.9 Special Distributions to Qualified Participants. (a) Definitions. For the purposes of this Section 10.9, the following terms shall have the following meanings: (i) "Qualified participant" shall mean a Participant who has attained age 55 and who has completed at least 10 years of participation in the Plan. (ii) "Qualified Election Period" shall mean the six Plan Year period beginning with the Plan Year in which the Participant first becomes a Qualified Participant. (b) Election by Qualified Participant. Each Qualified Participant shall be permitted to direct the Plan to distribute up to 25% of the value of the Participant's ESOP Account balance as of the last day of a Plan Year attributable to Shares (to the extent such portion exceeds the amount to which a prior election or elections under this subsection (b) applies) by written notice delivered to the Committee within 90 days after the last day of each Plan Year during the Participant's Qualified Election Period. Within 90 days after the close of the last Plan Year in the Participant's Qualified Election Period, a Qualified Participant may direct the Plan to distribute up to 50% of the value of such ESOP Account balance (to the extent such portion exceeds the amount to which a prior election or elections under this subsection (b) applies). Such distribution shall be made by the Plan within 90 days after the last day of the period during which the election can be made. Such distribution shall be subject to the put option provisions of Section 10.4 hereof. This Section 10.9 shall apply notwithstanding any other provision of the Plan other than such provisions as require the consent of the Participant to a distribution in excess of $5,000. If the Participant does not consent, such amount shall be retained in the Plan. 10.10 Change of Payment Method. If benefits are being paid to a Participant or to a Beneficiary in installments, the Participant (or the Beneficiary, if the Participant is deceased) may, as of the end of any Plan Year, direct that the amount then credited to the Account of such Participant be paid in a lump sum. 10.11 Consent to Distributions. Notwithstanding anything to the contrary contained in this Plan, if the value of a Participant's Account exceeds $5,000, no distribution of such Account shall be made prior to the earlier of such Participant's attainment of age 65 or such Participant's death unless such Participant shall consent in writing to such distribution. 10.12 Direct Transfers. If a Participant (or Beneficiary) is to be a recipient of an eligible rollover distribution (as defined in Section 402(f)(2)(A) of the Code) from the Plan and elects to have such distribution paid directly to an eligible retirement plan and specifies the eligible retirement plan to which such distribution is to be paid (in such form and at such time as the Committee may prescribe), then such distribution shall be made in the form of a direct trustee-to-trustee transfer to the eligible retirement plan so specified. The above provision shall apply (a) only to the extent that the eligible rollover distribution would be includable in gross income if not transferred as provided above (determined without regard to Sections 402(c) and 403(a)(4) of the Code) and (b) only to the extent required by the Code. For purposes of this Section 10.12, "eligible retirement plan" shall have the meaning set forth in Section 402(c)(8)(b) of the Code, except that a qualified trust shall be considered an eligible retirement plan only if it is a defined contribution plan, the terms of which permit the acceptance of rollover distributions. 10.13 Forfeitures. Any portion of the Account of a Participant who incurs five consecutive 1-Year Breaks in Service other than by reason of death, retirement or Total Disability, which is not vested at the time of such 1-Year Breaks in Service, shall be forfeited and allocated pursuant to Section 5.13. In addition, if a Participant who terminates employment other than by reason of death, retirement or Total Disability receives a lump sum distribution of the entire vested portion of his Account no later than the close of the second Plan Year following the Plan Year in which termination of employment occurs, and before incurring five consecutive 1-Year Breaks in Service, he shall forfeit the unvested portion of his Account if either: (1) the amount of the distribution from his Account is not in excess of $5,000 (or such greater amount that may be established by Treasury Regulations under Section 411(a)(7)(B) of the Code), or (2) the Participant requests the lump sum distribution. Any amount forfeited pursuant to the preceding sentence shall be restored to the Account of the Participant if he returns to work with the Employer before incurring five consecutive 1-Year Breaks in Service and repays the entire amount of the distribution before the fifth anniversary of his date of reemployment. The amount restored shall be the exact amount forfeited without adjustment for gains or losses incurred subsequent to the distribution. 86 If restoration is no longer permissible under the foregoing rules, the forfeited amounts shall be allocated pursuant to Section 5.13. ARTICLE XI Death Benefits 11.1 Distribution Upon Death. In the event a Participant ceases to be an Employee through the death of the Participant, prior to his retirement, the Accrued Benefit credited to his Account shall be determined as of the Valuation Date coinciding with or next following the date of death. The Accrued Benefit and any amounts that are contributed, pursuant to Article V hereof, to the Participant's Account for the Plan Year in which the Participant's death occurs shall be paid to his Beneficiary. In the event of the death of a Participant after ceasing to be an Employee, but prior to the complete distribution to him of the balance of his Account, any unpaid amount at the time of his death shall be payable to his Beneficiary. The Participant's vested Accrued Benefit shall be paid to the Participant's Beneficiary by either of the following methods, as elected by the Participant (or if no election has been made prior to the Participant's death, by his Beneficiary): (a) One lump-sum payment; or (b) For an amount in a Participant's Account equal to the balance of such Participants account under The Advest Group, Inc. Incentive Savings Plan on September 30, 1989, payments over a period certain in monthly, quarterly, semiannual, or annual cash installments over a period to be determined by the Participant or his Beneficiary, and in installments as nearly equal as practicable. After periodic installments have commenced, the Beneficiary shall have the right to direct the Trustee to reduce the period over which such periodic installments shall be made, and the Trustee shall adjust the cash amount of such periodic installments accordingly. If a Beneficiary designation designating both a primary and an alternate Beneficiary is in effect at the time of a Participant's death and the Participant's vested Accrued Benefit is payable in installments, the installments shall be paid to the primary Beneficiary for his lifetime if said primary Beneficiary is living at the death of the Participant, and upon the death of the primary Beneficiary, or upon the death of the Participant if the primary Beneficiary is not then living, any unpaid installments shall be paid to the alternate Beneficiary. Notwithstanding anything herein to the contrary, if the distribution of a Participant's vested Accrued Benefit has begun in accordance with a method selected in Section 10.1 and the Participant dies before his entire interest has been distributed to him, the remaining portion of such interest shall be distributed at least as rapidly as under the method of distribution selected pursuant to Section 10.1 as of his date of death. If a Participant dies before he has begun to receive any distributions of his vested Accrued Benefit, his entire vested Accrued Benefit shall be distributed to his Beneficiaries within five years after his death. This five-year distribution requirement shall not apply to any portion of the deceased Participant's vested Accrued Benefit which is payable to or for the benefit of a designated Beneficiary. In such event, such portion may be distributed over a period not extending beyond the life expectancy of such designated Beneficiary, provided such distribution begins not later than one year after the date of the Participant's death, or such later date as may be prescribed by Treasury Regulations. However, in the event that the Participant's spouse is his Beneficiary, the requirement that distributions commence within one year of a Participant's death shall not apply. In lieu thereof, such distribution must commence no later than the date on which the deceased Participant would have attained age 70-1/2. If the surviving spouse dies before the distributions to such spouse begin, then the five-year distribution requirement shall apply as if the spouse were the Participant. Any amount paid to a child shall be treated as if paid to the surviving spouse of the Participant if such amount will become payable to the surviving spouse upon such child reaching majority (or other designated event permitted under Treasury Regulations). 11.2 Designation of Beneficiary. In the event of the death of a Participant or former Participant, any benefits payable hereunder shall be paid to the Participant's surviving spouse, if any, or to any other Beneficiary who may be designated by the Participant as hereinafter provided if such surviving spouse consents thereto or if there is no surviving spouse. For purposes of entitlement to receive benefits pursuant to the foregoing sentence, only a spouse who has been married to the Participant for the 1-year period ending on the date of the Participant's death shall be considered a surviving spouse unless otherwise specifically provided by a qualified domestic relations order pursuant to Section 414(p)(5) of the Code. The consent of a surviving spouse to the designation of any other Beneficiary shall be made in writing on a form provided by the Administrator, which form shall contain the surviving spouse's acknowledgment of the effect of such consent and shall be witnessed by the Administrator, his representative, or a notary public. Notwithstanding the foregoing, such written consent shall not be required if it is established to the satisfaction of the Administrator or his representative that such consent may not be obtained because there is no spouse, because the spouse cannot be located, or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. Subject to the foregoing paragraphs of this Section, each Participant shall have the right at any time to designate a primary and an alternate Beneficiary to receive any benefits payable hereunder on the death of the Participant, and from time to time to change any such designation. Each such designation shall be evidenced by a written instrument filed with the Committee, signed by the Participant. Such designation or change made pursuant to the first sentence of this paragraph shall take effect as of the date of execution of such written 87 instrument, whether or not the Participant is living at the time of such filing, but without prejudice to the Trust Fund on account of any payments made before receipt of such written instrument by the Committee. ARTICLE XII Stock Rights of Participants 12.1 Voting Rights. Each Participant (or, in the event of his death, his Beneficiary) shall have the right to direct the Trustee as to the manner in which Shares allocated to his ESOP Account are to be voted on each matter brought before an annual or special stockholders' meeting of the Company. Before each such meeting of stockholders, the Trustee shall cause to be furnished to each Participant (or Beneficiary) a copy of the proxy solicitation material, together with a form requesting confidential directions on how such Shares allocated to such Participant's ESOP Account shall be voted on each such matter; provided, however, that the Committee shall in a timely manner provide the Trustee with such proxy solicitation material and forms, and shall also provide the Trustee with the mailing address of each Participant (or Beneficiary). Upon timely receipt of such directions the Trustee shall on each such matter vote as directed the number of shares (including fractional Shares) allocated to such Participant's ESOP Account, and the Trustee shall have no discretion in such matter. The instructions received by the Trustee from Participants shall be held by the Trustee in confidence and shall not be divulged or released to any person, including officers or Employees of the Company or any Affiliate. The Trustee, to the extent consistent with the Act, shall vote both allocated Shares for which it has not received direction, as well as unallocated Shares, in the same proportion as directed Shares are voted, and the Trustee shall have no discretion in such matter. 12.2 Rights on Tender or Exchange Offer. Each Participant (or, in the event of his death, his Beneficiary) shall have the right, to the extent of the number of Shares allocated to his ESOP Account, to direct the Trustee in writing as to the manner in which to respond to a tender or exchange offer with respect to Shares. The Trustee shall use its best efforts to timely distribute or cause to be distributed to each Participant (or Beneficiary) such information as will be distributed to stockholders of the Company in connection with any such tender or exchange offer; provided, however, that the Committee shall in a timely manner provide the Trustee with all such information, and shall also provide the Trustee with the mailing address of each Participant (or Beneficiary). Upon timely receipt of such instructions, the Trustee shall respond as instructed with respect to Shares. The instructions received by the Trustee from Participants shall be held by the Trustee in confidence and shall not be divulged or released to any person, including officers or Employees of the Company or any Affiliate. If the Trustee shall not receive timely instruction from a Participant (or Beneficiary) as to the manner in which to respond to such a tender or exchange offer, the Trustee shall not tender or exchange any Shares with respect to which such Participant has the right of direction, and the Trustee shall have no discretion in such matter. Unallocated Shares shall be tendered or exchanged by the Trustee in the same proportion as Shares with respect to which Participants (or Beneficiaries) have the right of direction are tendered or exchanged, and the Trustee shall have no discretion in such matter. 12.3 Rights in Event of Default. Notwithstanding the provisions of Sections 12.1 and 12.2, the rights provided in those sections with respect to unallocated Shares may be exercised by the lender under any Stock Obligation, the proceeds of which were used to purchase such Shares, to the extent provided by the terms of such Stock Obligation in the event of any default thereunder. ARTICLE XIII Termination of Plan 13.1 Termination. Although the Company hopes to continue the Plan and its contributions to the Trust Fund indefinitely, the Company may, by action of the Board, for any reason, terminate the Plan, in whole or in part, and all further contributions to the Trust Fund at any time. Any liability of the Company hereunder shall automatically terminate upon its being legally dissolved, upon the filing of a petition in bankruptcy (either voluntarily or involuntarily) or upon its making any general assignment for the benefit of creditors. 13.2 Distribution. Upon (1) the termination, in whole or in part, of the Plan, (2) the complete discontinuance of contributions by the Employer to the Trust Fund, or (3) the termination of the liability of the Company, as provided for in Section 13.1 hereof, the Committee shall make a final allocation of Employer contributions, if any, and net earnings or losses in the manner prescribed herein to the Accounts of Participants who are Employees of the Employer. Thereafter, the funds in the Accounts of each Participant shall be paid and distributed to such person under any one or more of the options set forth in Article X hereof, upon the earliest of (1) a date that is not more than 60 days following the later of termination of the Plan or receipt of a favorable determination letter (if requested) from the Internal Revenue Service following such termination, but only if another defined contribution plan (other than an employee stock ownership plan) has not been established or is not maintained by the Employer, (2) the Participant's attainment of age 59 1/2, (3) the Participant's termination of employment with the Employer, (4) the Participant's Total Disability, or (5) the Participant's death. Any final payment or distribution to any Participant or Beneficiary in accordance with the provisions hereof shall be in full satisfaction of all claims against the Employer, the Trust Fund, the Trustee and the Committee. 13.3 Final Expenses. Notwithstanding anything to the contrary herein, all expenses of the administration of the Trust Fund, and other expenses incident to the termination and distribution of the Trust Fund, incurred prior to or 88 after the termination of the Plan, shall be paid from the Trust Fund, unless voluntarily paid by the Employer. ARTICLE XIV Amendment of Plan 14.1 Amendment. The Company shall have the right, by action of the Board, to modify or amend this Plan, in whole or in part, at any time and from time to time; provided, however, that no such action shall adversely affect Participants to the extent of their vested benefits, nor shall such action decrease a Participant's Accrued Benefit or eliminate an optional form of distribution. Any such modifications or amendments may be made retroactively. If the Plan shall at any time become a transferee of a plan which is subject to the requirements of Section 401(a)(11)(A) of the Code, the Plan will be amended to meet said requirements. 14.2 Trustee. The Committee shall deliver a copy of each amendment to the Plan, and the Board resolution adopting the same, to the Trustee promptly after its adoption. No amendment shall be made that would adversely affect the Trustee or impose additional duties on it without the Trustee's written consent thereto. 14.3 Change in Vesting. If an amendment or a change in the top-heavy status of the Plan changes the vesting schedule of the Plan, as set forth in Section 6.1 hereof, any Active Participant having three or more years of service, within the meaning of Section 1.411(a)-8(b)(3) of the Treasury Regulations, on the date which is 60 days after such amendment or change is adopted or becomes effective (or, if later, 60 days after written notice of the amendment or change is given) may, no later than the end of the election period, elect to remain subject to the vesting schedule in effect prior to such amendment or change. For purposes of the foregoing, the "election period" shall begin on the date the amendment changing the vesting schedule is adopted or the date on which the Plan's top- heavy status is changed and shall end no earlier than the latest of the following dates (provided that in the case of a change in the Plan's top-heavy status, only clause (ii) shall apply): (i) the date which is 60 days after the day the Plan amendment is adopted; (ii) the date which is 60 days after the day the Plan amendment becomes effective or the top-heavy status of the Plan changes; or (iii) the date which is 60 days after the day the Participant is issued written notice of the Plan amendment by the Employer or the Committee. ARTICLE XV Claims Procedure 15.1 Claims. Each Participant and Beneficiary of the Plan shall submit all claims for benefits, claims relating to the amount or manner of any distribution, and any other request relating to any Account, in writing, to the Administrator of the Plan. The Administrator shall within a reasonable period of time, but not later than 60 days after receipt thereof, either approve or deny such claim or request, either wholly or in part, and notify the claimant in writing of the action taken. 15.2 Notice of Denial. If such claim or request is wholly or partially denied, the written notice of the Administrator shall set forth in a manner calculated to be understood by the claimant: (a) specific reason for the denial; (b) specific reference to the pertinent Plan provisions on which the denial is based; (c) specific reference to any additional material or information necessary for the claimant to perfect review of the claim and explanation of why such material or information is necessary; and (d) an explanation of the Plan's claims review procedure. 15.3 Review. Upon denial of such a claim or request, the claimant shall be entitled within 60 days after the receipt of written notice of denial by the Administrator: (a) to request, in writing, a review by the Committee of the denial; (b) to review pertinent documents; and (c) to submit issues and comments in writing. This 60-day period may be extended in special circumstances. The Committee shall render a decision on its review of the denial promptly, but not later than 60 days after the receipt of the request for review, unless special circumstances require an extension of time, in which case a decision shall be rendered not later than 120 days after the receipt of a request for review. The decision of the Committee shall be in writing and shall set forth reasons therefore stated in a manner calculated to be understood by the claimant, including specific references to the pertinent Plan provisions on which the decision is based. All interpretations, determinations, decisions and other actions of the Committee, taken in accordance with the provisions hereof shall be final, conclusive and binding on all parties. 89 ARTICLE XVI The Trustee 16.1 All contributions hereunder to the Trust Fund shall be held, in trust, by such Trustee as may be selected by the Board, from time to time, under a trust agreement approved by the Board, with such powers in the Trustee as to investment, reinvestment, control and disbursement of all or part of the Trust Fund as the Board shall approve and as shall be in accordance with the provisions hereof. The Board may in its sole discretion remove any Trustee at any time, upon reasonable notice, and upon such removal or upon the resignation of any Trustee, the Board shall designate a successor Trustee. ARTICLE XVII Miscellaneous Provisions 17.1 The Plan and the Trust provided for hereunder are created for the exclusive benefit of the Participants and their Beneficiaries. Under no circumstances whatsoever shall any assets of the Trust Fund ever revert to, or be used or enjoyed by, the Employer, or any successor thereto, nor shall any such assets ever be used other than for the exclusive benefit of the Participants or their Beneficiaries. 17.2 No Participant or Beneficiary shall have any legal or equitable right or interest in the Trust Fund established hereunder, except as expressly provided for herein, and no Employee shall be deemed to possess a right to share in any moneys allocated by the Committee as hereinabove set forth, except as herein provided. 17.3 Participation in the Plan shall not give any Participant the right to continue as an Employee of the Employer or any right or claim to a retirement pension unless the right to such retirement pension is provided for herein. 17.4 All decisions of the Committee hereunder shall be made in a uniform, nondiscriminatory manner. 17.5 Whenever the Company or any Affiliate is permitted or required under the terms of this Plan to take any action, it shall be done by its Board of Directors or its Executive Committee and shall be evidenced by proper resolutions certified by the appropriate officers. 17.6 The Plan shall not be automatically terminated by the Company's acquisition by, or merger into, any other company. The Plan shall be continued after such merger if the successor company agrees to continue the Plan. All rights to amend or terminate the Plan shall be transferred to the successor company, effective as of the date of the merger. The merger or consolidation with, or transfer of assets and liabilities to, any other qualified retirement plan shall be permitted only if the benefit each Participant would receive if the Plan were terminated immediately after such merger or consolidation, or transfer of assets and liabilities, would be at least as great as the benefit he would have received had the Plan been terminated immediately before any such transaction. 17.7 To the extent permitted by law and with the exception of payments pursuant to a qualified domestic relations order within the meaning of Section 414(p) of the Code, no benefit payable hereunder shall be subject in any manner to anticipation, assignment, garnishment, or pledge. Any attempt to anticipate, assign, garnishee or pledge the same will be of no effect. No such benefits will be in any manner liable for or subject to the debts, liabilities, or torts of any Participants, and if any Participant is adjudicated bankrupt or attempts to anticipate, assign or pledge any such benefits, then such benefits will, in the discretion of the Committee, cease. In such event, the Committee will have the authority to cause the same or any part thereof to be held or applied to or for the benefit of such Participant, his spouse, his children or other dependents, or any of them, in such manner and in such proportion as the Committee may in its discretion deem proper. Notwithstanding any provision of this Section to the contrary, an offset to a Participant's accrued benefit against an amount that the Participant is ordered or required to pay the Plan with respect to a judgment, order, or decree issued, or a settlement entered into, on or after August 5, 1997, shall be permitted in accordance with Code Sections 401(a)(13)(C) and (D). 17.8 A Participant shall not, with or without cause, be divested of any Accrued Benefits under the terms of the Plan. 17.9 Notwithstanding any other provisions of the Plan, a former Participant shall not be entitled to payment of duplicate benefits upon again becoming a Participant. 17.10 The headings of the Sections herein are for reference only. In the event of a conflict between such a heading and the content of a Section, the content of the Section shall control. 17.11 The interpretation of the provisions hereof and the administration of the Plan shall be governed, to the extent applicable, by the Act and, to the extent the Act is not applicable, by the laws of Connecticut. ARTICLE XVIII Top-Heavy Plan Provisions (Sections 18.1 - 18.9 provide definitions for Article XVIII) 18.1 Compensation. Compensation of an Employee which is reportable on Form W-2 for the calendar year ending with or within the Plan year. 18.2 Key Employee. Any Employee or former Employee (and the Beneficiaries of such Employee) who at any time during the Determination Period was an officer 90 of the Employer with Compensation greater than 150% of the dollar limitation under Section 415(c)(1)(A) of the Code, an owner (or considered an owner under Section 318 of the Code) of one of the ten largest interests in the Employer if such individual's Compensation exceeds the dollar limitation under Section 415(c)(1)(A) of the Code and such individual's ownership interest exceeds 1/2%, a 5% owner of the Employer, or a 1% owner of the Employer who has Compensation of more than $150,000. The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code. 18.3 Top-Heavy Plan. This Plan is top-heavy if any of the following conditions exists: (a) If the Top-Heavy Ratio for this Plan exceeds 60% and this Plan is not part of any Required Aggregation Group or Permissive Aggregation Group of plans. (b) If this Plan is a part of a Required Aggregation Group of plans (but which is not part of a Permissive Aggregation Group) and the Top-Heavy Ratio for the Required Aggregation Group of plans exceeds 60%. (c) If this Plan is a part of a Required Aggregation Group of plans and part of a Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive Aggregation Group exceeds 60%. 18.4 Top-Heavy Ratio. (a) The Top-Heavy Ratio for this Plan alone or for the Required or Permissive Aggregation Group as appropriate is a fraction, the numerator of which is the sum of the account balances under the aggregated defined contribution plan or plans of all Key Employees as of the Determination Date(s) (including any part of any account balance distributed in the Determination Period(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the Determination Period(s)) under the aggregated defined contribution plan or plans for all participants, determined in accordance with Section 416 of the Code and the Regulations thereunder. (b) For purposes of (a) above, the value of account balances shall be determined as of the most recent Valuation Date that falls within or ends with the 12-month period ending on the Determination Date. The account balances of a participant (1) who is not a Key Employee but who was a Key Employee in a prior year, or (2) who has not received any Compensation from any Employer maintaining the plan at any time during the Determination Period shall be disregarded. The calculation of the Top-Heavy Ratio, and the extent to which distributions, rollovers, and transfers are taken into account shall be made in accordance with Section 416 of the Code and the Regulations thereunder. Deductible employee contributions shall not be taken into account for purposes of computing the Top-Heavy Ratio. When aggregating plans, the value of account balances shall be calculated with reference to the Determination Date(s) that falls within the same calendar year. 18.5 Permissive Aggregation Group. The Required Aggregation Group of plans plus any other plan or plans of the Employer which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code. 18.6 Required Aggregation Group. (a) Each qualified plan of the Employer, whether or not terminated, in which at least one Key Employee participated during the Determination Period, and (b) any other qualified plan of the Employer which enabled a plan described in (a) to meet the requirements of Section 401(a)(4) and 410 of the Code during the Determination Period. 18.7 Determination Date. For any Plan Year, the last day of the preceding Plan Year. 18.8 Determination Period. The Plan Year containing the Determination Date and the four (4) preceding Plan Years. 18.9 Valuation Date. For purposes of computing the Top- Heavy Ratio, the Valuation Date shall be the normal annual valuation date for the Plan. 18.10 Special Provisions. If the Plan is or becomes a Top-Heavy Plan, the following provisions shall supersede any conflicting provisions in the Plan: (a) Minimum Allocations (1) Except as otherwise provided in (2) and (3) below, for any Plan Year in which this Plan is a Top-Heavy Plan, the Employer contributions (including salary deferral contributions) and forfeitures allocated on behalf of any Participant who is not a Key Employee shall not be less than the lesser of 3% of such Participant's Compensation or the largest percentage of Employer contributions (including salary deferral contributions) and forfeitures, as a percentage of the first $200,000 of the Key Employee's Compensation, allocated on behalf of any Key Employee for that year. The minimum allocation is determined without regard to any Social Security contribution. This minimum allocation shall be made even though, under other Plan provisions, the Participant would not otherwise be entitled to receive an allocation, or would have received a lesser allocation for the year because of (i) the Participant's failure to complete 1,000 Hours of Service (or any equivalent provided in the Plan), or (ii) the Participant's failure to make mandatory employee 91 contributions to the Plan, or (iii) Compensation less than a stated amount. (2) The provision in (1) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year. (3) The provision in (1) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer which provide(s) for the minimum allocation or benefit applicable to Top-Heavy Plans. (b) Vesting Notwithstanding the provisions of Section 6.1(a), a Participant shall vest in his Account in accordance with the following table: Years of Service Non-forfeitable Percentage less than 1 0% 1 10% 2 25% 3 40% 4 55% 5 70% 6 100% Notwithstanding the foregoing, a Participant shall be fully vested in his Account to the extent provided in Section 6.1(b). * * * * * * * * * * * * * * * * 92 EX-10.N 4 EXHIBIT 10(n) THE ADVEST GROUP, INC. EQUITY PLAN The Advest Group, Inc. hereby amends and restates The Advest Group, Inc. Equity Plan, effective June 3, 1999 for a select group of top performing account executives and key employees. The purpose of the Plan is to further the long term growth in earnings of the Company by offering incentives to select Employees to compensate them for their contributions to the Company's growth and profits, to encourage their ownership of the Company's stock, and to encourage them to remain in the employ of the Company. ARTICLE I DEFINITIONS When used herein, each of the following terms shall have the corresponding meaning set forth below unless a different meaning is plainly required by the context in which a term is used. Section 1.1. "Affiliate" means the Company's present or future parent corporation, each of the present or future subsidiaries of the Company, and any subsidiaries of the present or future parent of the Company in which the parent holds a controlling interest. Section 1.2. "Beneficiary" means any person (including, but not limited to, a Participant's estate) designated by a Participant on a form provided or approved by the Committee to receive any Stock or Options to which such Participant shall be entitled upon such Participant's death in accordance with the terms of the Plan. No designation of Beneficiary shall be effective until filed with the Committee. If more than one Beneficiary shall be designated, the Beneficiaries shall share equally in any rights or interests of the Participant under the Plan. If a Participant shall fail to file a valid designation form, or if all persons designated on the designation form shall have predeceased the Participant, the Company shall distribute all of the Participant's Stock and Options to which he shall have been entitled upon his death to such Participant's estate. Section 1.3. "Board of Directors" means the Board of Directors of the Company or the Executive Committee of such Board. Section 1.4. "Cause" shall be deemed to include any act of dishonesty or fraud, gross negligence, gross insubordination or willful or reckless conduct detrimental to the business of the Company or an Affiliate. Section 1.5. "Change of Control" means a transfer or sale of substantially all of the assets of the Company or merger or consolidation of the Company into or with any other corporation or entity that occurs after the Effective Date, provided either (a) the other corporation or entity is engaged in the retail securities brokerage business at the date of the transaction and such transaction results in the Company not surviving such merger or 93 consolidation or (b) a substantial change in the senior management of the Company occurs within six months as a result of the transaction. Section 1.6. "Code" means the Internal Revenue Code of 1986, as amended. Section 1.7. "Committee" means an administrative committee designated to administer this Plan in accordance with Article XI. Section 1.8. "Company" means The Advest Group, Inc. and any successor thereto by merger, consolidation, purchase or otherwise. Section 1.9. "Compensation" means the amount of earnings due to the Participant for the Deferral Period as defined by the Company. Compensation shall include amounts contributed to a Participant's account established under the Company's or an Affiliate's 401(k) plan or The Advest Group, Inc.'s Deferred Compensation Savings and Investment Plan, or any successor plan(s). Section 1.10. "Deferral Period" means the period beginning on January 1, 1999 and ending on the earliest of: (a) the termination of a Participant's employment with the Company or an Affiliate, (b) the termination of the Plan in accordance with Article X, or (c) December 31, 1999. In the event that this Plan is extended for additional years under Section 9.3, "Deferral Period" for purposes of those additional years shall mean the period beginning on the first day of such year and ending on the earliest of: (a) the termination of a Participant's employment with the Company or an Affiliate, (b) the termination of the Plan in accordance with Article IX, or (c) the last day of such year. Section 1.11. "Deferred Amount" or "Amount Deferred" means that portion of a Participant's Compensation a Participant has elected to receive in the form of Units in accordance with Section 3.1. Section 1.12. "Employee" means any person who is a common-law employee of the Company or an Affiliate. Section 1.13. "Executive Officer" means any person who is an "executive officer" for purposes of Section 16 of the 1934 Act. Section 1.14. "Options" means non-qualified stock options to purchase shares of Stock that are not incentive stock options under Section 422 of the Code and that are received as a part of a Unit by Participants with Deferred Amounts. Section 1.15. "Participant" means an Employee participating in the Plan as provided in Articles II or VII. Section 1.16. "Permanent Disability" means a mental or physical condition which renders a Participant permanently unable or incompetent to engage in any substantial gainful activity. 94 Section 1.17. "Plan" means "The Advest Group, Inc. Equity Plan". The Plan offered during calendar 1999 may sometimes be referred to as "The Advest Group, Inc. 1999 Equity Plan," and, in the event that this Plan is extended for additional years under Section 10.3, the Plan offered during those additional years may be referred to in a corresponding manner. Section 1.18. "Restricted Stock" means shares of Stock subject to the restrictions set forth in Article IV that are received as part of a Unit by Participants with Deferred Amounts. Section 1.19. "Retirement" means the date a Participant retires after attaining the age of fifty-five. Section 1.20. "Stock" means the common stock of the Company. Section 1.21. "Unit" means a grouping consisting of one share of Restricted Stock and one Option. Section 1.22. "Unit Price" means the amount of Compensation a Participant must elect to forego receiving in cash in order to receive a Unit under the Plan. Such price shall be the closing price per share of the Stock portion of the Unit on the Composite Tape of the New York Stock Exchange on the day the Unit is acquired. ARTICLE II ELIGIBILITY Section 2.1. Participants. An Employee eligible to become a Participant in this Plan for the Deferral Period is any Employee who: (a) is an account executive, other than an account executive in the first 36 months of a recruitment loan program (measured as of the first day of the Deferral Period), who is a member of the Chairman's Council, the Advisory Council, the President's Council, or the Associates' Council by the standards the Company has set based upon levels of achievement with respect to the last complete fiscal year commencing prior to such Deferral Period; or (b) is a an Executive Officer or another key employee designated by the Chief Executive Officer of the Company on a list provided by the Chief Executive Officer to the Committee before the first day of the Deferral Period as eligible to participate in the Plan ("Key Employees"). Section 2.2. Duration of Participation. A Participant shall cease to be a Participant on the earliest of: (a) the date all restrictions with respect to Stock purchased hereunder lapse and all Options purchased hereunder have terminated, (b) the date such Stock and Options are forfeited in accordance 95 with Section 4.3, Section 5.5 or Article VII, or (c) the date the Plan is terminated in accordance with Article X. Section 2.3. Reemployment. Reemployment of a former Participant by the Company or an Affiliate shall not entitle such individual to become a Participant in the Plan unless the individual again becomes a Participant in accordance with Section 2.1, and reemployment of a former Participant by the Company or an Affiliate shall not result in the restoration of any Stock or Options previously forfeited by such Participant. ARTICLE III DEFERRAL Section 3.1. Amount Deferred. During the Deferral Period: (a) A Participant who is a member of the Chairman's Council may elect to receive a minimum of 2.5% and a maximum of 10% of his or her Compensation in the form of Units. (b) A Participant who is (I) a member of the Advisory Council, (ii) a member of the President's Council, or (iii) an Executive Officer or other Key Employee who had total compensation of $125,000 or more during the calendar year immediately preceding the Deferral Period, may elect to receive a minimum of 2.5% and a maximum of 7.5% of his or her Compensation in the form of Units. (c) A Participant who is (I) a member of the Associates' Council, or (ii) a Key Employee other than one described in paragraph (b) above, may elect to receive a minimum of 1.5% and a maximum of 5% of his or her Compensation in the form of Units. (d) In addition to the percentage elections set forth above in clause (b) or (c), whichever may be applicable, a salaried Key Employee who elects at least the minimum level of investment may also elect to receive a greater percentage, up to a maximum aggregate of 100%, of his or her Compensation above base salary in the form of Units, provided that at no time may the amount of Compensation received in the form of Units exceed the maximum permitted percentages of Compensation specified in clause (b) or (c) above, whichever may be applicable. Notwithstanding the foregoing, no Participant may elect to receive during the Deferral Period Units with an aggregate Unit Price in excess of $50,000, and no further Units shall be acquired for Participants under the Plan if such acquisition would cause the aggregate number of Units sold to exceed 400,000. If, based upon Participant elections, the Committee anticipates at the commencement of the Deferral Period that these aggregate limit is likely to be exceeded, the Committee may reduce the maximum percentage investments in a manner it determines to be equitable to all participants. Participants will be notified of any reduction applicable to them by the end of the first month of the Deferral Period. 96 Section 3.2. Receipt of Units. Amounts deferred hereunder shall be withheld from a Participant's paycheck in periodic installments. On the last business day of each month, the total of a Participant's Deferred Amounts under Section 3.1 shall be applied to acquire Units for such Participant at the then Unit Price. No interest or other earnings shall accrue on amounts deferred prior to acquisition of Units. Fractional units may be acquired by a Participant; provided, that the Committee may establish procedures to eliminate any fractional holdings of Units held on behalf of Participants as of the last day of the Deferral Period in a manner equitable to all Participants. Section 3.3. Stock Subject to Purchase. Shares of Stock subject to purchase hereunder shall be previously issued shares reacquired by the Company (including any shares forfeited under this Plan). ARTICLE IV RESTRICTED STOCK RECEIVED AS PART OF UNITS Section 4.1. Stock. All shares of Restricted Stock shall be held in the name of The Advest Group, Inc. as escrow agent for Participants. Shares of restricted stock purchased by executive officers under the 1995, 1996, 1997 and 1998 Executive Officer Restricted Stock and Stock Option Agreements shall be deemed granted pursuant to this Article IV, and such shares shall be subject to the terms and conditions of this Plan. Section 4.2. Restrictions. The shares of Restricted Stock purchased hereunder shall be subject to the following restrictions and conditions: (a) Subject to the provisions of the Plan and the Restricted Stock Agreements, during the period commencing on the date of the acquisition of any shares of Restricted Stock hereunder and terminating on the fourth anniversary of the first day of the Deferral Period (together with any extensions of such period approved as provided herein) (the "Restriction Period"), a Participant shall not be permitted to sell, transfer, pledge or assign shares of Restricted Stock acquired under the Plan. One year extensions of the Restriction Period for Restricted Stock purchased hereunder will be made at a Participant's election, which election must be in writing on a form provided by the Committee and must be made no later than one year before the Restriction Period would otherwise terminate; provided, however, that the Committee may at any time determine that no additional extensions of Restriction Periods will be effective. (b) A Participant shall have the right to direct the vote of such Participant's shares of Restricted Stock during the Restriction Period, in accordance with Section 4.4. A Participant shall have the right to receive any regular dividends on such shares of Restricted Stock. The Committee shall in its sole discretion determine a Participant's rights with respect to extraordinary dividends on the shares of Restricted Stock. 97 (c) Shares of Restricted Stock shall be transferred to a Participant's brokerage account with Advest, Inc. within a reasonable time after, and only after, the Restriction Period shall expire (or such earlier time as the restrictions may lapse in accordance with Section 4.2(a) or Section 4.3) without forfeiture in respect of such shares of Restricted Stock. Section 4.3. Termination of Employment. Subject to the provisions of Section 4.2(a), the following provisions shall apply to a Participant's shares of Restricted Stock prior to the end of the Restriction Period (including extensions): (a) Upon a Participant's death, Permanent Disability, Retirement with the written consent of the President or the Chief Executive Officer of the Company or the Affiliate by which the Participant is employed, voluntary termination of employment more than nine months after a Change of Control, or involuntary termination of employment (other than a termination for Cause), the restrictions on such Participant's Restricted Stock shall immediately lapse, and such shares shall be delivered to the Participant or the Participant's designated Beneficiary, as the case may be, within a reasonable time after the occurrence of any such event. (b) Upon a Participant's Retirement without the written consent of the President or the Chief Executive Officer of the Company or the Affiliate by which the Participant is employed or voluntary termination of employment within nine months of a Change of Control, the Participant shall forfeit all of such Participant's shares of Restricted Stock and receive in return, without interest, a cash payment equal to (I) the lesser of: (1) the aggregate Unit Price for such Restricted Stock, and (2) the closing price per share of Stock on the Composite Tape of the New York Stock Exchange on the Participant's date of termination or Retirement, multiplied by (ii) the number of shares of Restricted Stock owned by the Participant. (c) If a Participant voluntarily terminates employment (other than as set forth in subsections (a) or (b) of this Section 4.3), is involuntarily terminated for Cause, or retires prior to attaining the age of fifty-five, such Participant shall forfeit such Participant's Restricted Stock. Section 4.4. Voting Rights. During the Restriction Period the shares of Restricted Stock shall be voted by the Chairman of the Committee, and the Chairman shall vote such shares in accordance with instructions received from Participants. Shares as to which no instructions are received shall be voted by the Chairman proportionately in accordance with instructions received from Participants in the Plan. 98 ARTICLE V OPTIONS RECEIVED AS PART OF UNITS Section 5.1. Issuance. (a) Except with respect to Executive Officers, options received as part of a Unit shall be issued to the Participant (or the Participant's designated Beneficiary in accordance with Section 5.5(c) below) on the first July 1st and January 1st following commencement of the Deferral Period, in each case with an exercise price per share equal to the closing price per share on the Composite Tape of the New York Stock Exchange on the last business day prior to the issuance of the Options and covering the purchase of a number of shares of Stock equal to the number of shares of Restricted Stock acquired by the Participant during the period from January 1st to June 30 (in the case of the July 1st grant) or July 1st to December 31st (in the case of the January 1st grant). Options granted to Participants other than Executive Officers shall be subject to the terms and conditions specified in Section 5.2 to 5.5 below. (b) For Executive Officers, options received as part of a Unit shall be issued to the Participant (or the Participant's designated Beneficiary in accordance with Section 5.5(c) below) promptly following the end of the Deferral Period under The Advest Group, Inc. 1993 Stock Option Plan at an exercise price per share equal to the closing price per share on the Composite Tape of the New York Stock Exchange on the date of the issuance of the Options and covering the purchase of a number of shares of Stock equal to the number of shares of Restricted Stock acquired by the Participant during the Deferral Period. Options granted to Participants who are Executive Officers shall be subject to the terms and conditions of the 1993 Stock Option Plan and, to the extent consistent with the 1993 Stock Option Plan, to the terms and conditions specified in Section 5.2 to 5.5 below. Section 5.2. Stock Option Certificate. Recipients of Options shall receive a notification or certificate, in such form as the Committee shall determine, which shall set forth, among other things, the exercise price or prices of the Options (or the formula for determining such exercise price), the term of the Option and provisions regarding exercisability of the Options granted thereunder. Section 5.3. Transfer Restrictions. Options are not transferable other than by will or the laws of descent and distribution. During the lifetime of a Participant, the Options may be exercised only by the Participant. Section 5.4. Exercise of Options. Options acquired hereunder will vest and become exercisable on the sixth anniversary of the first day of the Deferral Period (unless earlier forfeited or terminated) and will remain exercisable for a period of twenty-four months, terminating on the last day of the second year. An Option shall not be exercisable unless payment in full is made for the shares being acquired thereunder at the time of exercise; such payment shall be made (a) in United States dollars by cash or check, or (b) in 99 lieu thereof, unless the Committee shall in its sole discretion determine otherwise, by tendering to the Company Stock owned by the person exercising the Option (or owned by the person exercising the Option and his or her spouse, jointly) and acquired more than six months prior to such tender, and having a fair market value equal to the cash exercise price applicable to such Option, such fair market value to be determined in such reasonable manner as may be provided for from time to time by the Committee or as may be required in order to comply with or to conform to the requirements of any applicable or relevant laws or regulations, or (c) by a combination of United States dollars and Stock as aforesaid. Section 5.5. Termination of Employment. An Option shall not be exercisable unless the person exercising the Option has been, at all times during the period beginning with the date of purchase of the Option and ending on the date of such exercise, an Employee of the Company, except that: (a) Upon a Participant's death, Permanent Disability, Retirement with the written consent of the President or the Chief Executive Officer of the Company or the Affiliate by which such Participant is employed, voluntary termination of employment more than nine months after a Change of Control, or involuntary termination of employment (other than a termination for Cause), the Options shall immediately vest and shall be exercisable for a period of three months after the Participant's termination of employment by the Participant or the Participant's designated Beneficiary, as the case may be. (b) Upon a Participant's voluntary termination of employment (other than as set forth in subsection (a) of this Section 5.5), involuntary termination for Cause, retirement prior to attaining the age of fifty-five, or Retirement without the written consent of the President or the Chief Executive Officer of the Company or the Affiliate by which such Participant is employed, the Participant shall forfeit such Participant's unvested Options. (c) If a Participant shall have terminated employment for any reason after the acquisition of Units hereunder but prior to the issuance of the Option portion of such Units, any Option acquired as part of the Unit shall be forfeited as provided in subsection (b) of this Section 5.5. ARTICLE VI ELECTION Section 6.1. Election. A Participant as defined in Section 2.1 shall elect the Amount Deferred as defined in Section 3.1 for the Deferral Period on such forms as the Committee may prescribe according to Section 11.2(h). Such election shall be made prior to the commencement of the Deferral Period. Section 6.2. Change of Election. Following an election by a Participant made pursuant to Section 6.1 to have an Amount Deferred, such Participant at 100 any time during the Deferral Period may choose to discontinue all (but not less than all) Amounts Deferred with respect to Compensation due to the Participant during subsequent calendar quarters of the Deferral Period. Such election shall be made on such form as the Committee may prescribe and shall become effective as of the first day of the calendar quarter following receipt of such form by the Committee. ARTICLE VII ADDITIONAL RESTRICTED STOCK AND OPTION GRANTS In addition to the Restricted Stock and Options granted as part of Units, the Chief Executive Officer of the Company, or any officer of the Company designated by the Chief Executive Officer, may grant restricted stock and/or options to newly hired or continuing employees of the Company or its subsidiaries as an incentive to such persons to accept employment with the Company or to remain in such employ. Such grants may be made on a discretionary basis, without any requirement of compensation deferral, and will be subject to the following terms. Section 7.1. Restricted Stock. Restricted Stock granted under this Article VII ("Article VII Restricted Stock") shall be issued pursuant to restricted stock agreements containing such terms and conditions as the Chief Executive Officer (or designee), in his or her sole discretion, may determine. Subject to Article VIII, no more than 300,000 shares of Article VII Restricted Stock shall be granted; provided, however, that if Article VII Restricted Stock is forfeited, then the Article VII Restricted Stock shall again be available for grant; and provided further, that the Board may raise the limit of grants under this Section 7.1. Any restricted stock granted by the Company on or after August 23, 1996 pursuant to the discretionary authority granted by the Board of Directors on November 21, 1996 and November 20, 1997 shall be deemed granted pursuant to this Article VII, and shall be counted against the foregoing limits. Section 7.2. Options. Options granted under this Article VII ("Article VII Options") shall be issued under such terms and conditions as the Chief Executive Officer (or designee), in his or her sole discretion, subject to the following sentence, may determine. Any Article VII Option shall be subject to the terms and conditions of the 1993 Stock Option Plan, and such other terms and conditions, to the extent consistent with the 1993 Stock Option Plan, contained in the certificate or notification of option grant; provided, that all Article VII Options shall be nonqualified options and, upon exercise, the holders will receive shares of Stock from treasury. Subject to Article VIII, no more than 200,000 shares of Stock shall be subject to Article VII Options; provided, however, that if Article VII Options expire unexercised, then such Article VII Options shall again be available for grant; and provided further, that the Board may raise the limit of grants under this Section 7.1. 101 ARTICLE VIII ADJUSTMENTS UPON A CHANGE IN COMMON STOCK In the event of any change in the outstanding Stock of the Company by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event if such change equitably requires an adjustment in the number or kind of shares that may be issued under the Plan, or in the number or kind of shares subject to, or the option price per share under, any outstanding Option which has been purchased by any Participant, such adjustment shall be made by the Committee and shall be conclusive and binding for all purposes of the Plan. In no event shall the excess of the aggregate fair market value of the Stock subject to the Options immediately after any substitution, exchange or adjustment over the aggregate option price for such Stock be more than the excess of the aggregate fair market value of all of the Stock subject to the Option immediately before any such substitution, exchange or adjustment over the aggregate option price of such Stock nor shall the adjusted Option give the holder thereof any additional benefits he did not have under the old Option. ARTICLE IX WITHHOLDING In the event that the Company determines that it or an Affiliate is required by law to withhold taxes at any time, including, but not limited to, upon the exercise of an Option or upon the vesting of shares of Restricted Stock, the Company shall have the right to require a Participant to pay to the Company the amount of taxes that the Company or Affiliate is required to withhold or, in lieu thereof, (a) to retain, or sell without notice, a sufficient number of shares of Restricted Stock held by it for the Participant to cover the amount to be withheld, or (b) to withhold the amount of such taxes from any other sums due or to become due from the Company or an Affiliate to the Participant upon such terms and conditions as the Committee shall prescribe. ARTICLE X AMENDMENT; TERMINATION; EXTENSION Section 10.1. Power to Amend. The Board of Directors may amend, modify, change, or revise the Plan by amendment at any time; provided, however, that (a) no amendment shall increase the duties or liabilities of the Board of Directors or the Committee without written consent of each member and (b) no amendment shall be made without the written consent of a Participant if the effect of such amendment would reduce the rights of a Participant with respect to Units, Restricted Stock, Options, Article VII Restricted Stock or Article VII Options acquired prior to the date of the amendment. Section 10.2. Plan Termination. The continuation of the Plan is not assumed as a contractual obligation of the Company and the right is reserved by the Company at any time to discontinue the Plan. The Plan may be terminated by the Board of Directors at any time, when in its judgment, business, financial 102 or other good causes make such termination necessary or appropriate; such termination to become effective upon the delivery of notice by the Board of Directors or the Committee to the Participants. Section 10.3. Plan Extension. The Board of Directors may elect to continue the provisions of this Plan respecting purchase of Units for additional years after calendar 1999, in which case the Plan shall apply to the successive Deferral Periods after calendar 1999 in the same manner as to the calendar 1999 Deferral Period. The provisions of Article VII will continue notwithstanding any continuation of provisions of this Plan respecting purchase of Units through May 31, 2009. ARTICLE XI ADMINISTRATION OF THE PLAN Section 11.1. Authority and Responsibility of the Committee. The Board of Directors shall appoint the members of a Committee, which members shall hold office at the pleasure of the Board of Directors. Said Committee shall consist of not less than three nor more than eight members, any one or more of whom may, but need not, be an officer of the Company. If there is at any time a vacancy on the Committee for any reason, the Board of Directors shall fill such vacancy, but the Committee may act notwithstanding the existence of vacancies as long as there shall continue to be at least two members of the Committee. The Committee shall select a Chairman from among its members. The Committee shall have overall responsibility for the administration and operation of the Plan. The Committee will have all powers as may be necessary to discharge its duties hereunder. Section 11.2. Committee Duties. The Committee, on behalf of the Participants and all other Beneficiaries of the Plan, will administer and operate the Plan in accordance with the terms of the Plan and will have all powers necessary to accomplish that purpose, including, but not limited to, the following: (a) To issue rules and regulations necessary for the proper conduct and administration of the Plan and to change, alter, or amend such rules and regulations; (b) To construe the Plan; (c) To determine all questions arising in the administration of the Plan, including those relating to the eligibility of persons to become Participants in accordance with Articles II or VII and the rights of Participants and their Beneficiaries, and its decisions thereon shall be final and binding upon all persons hereunder; (d) To oversee the retention of records relating to Participants and other matters applicable to the Plan; (e) To make available to Participants and Beneficiaries upon request, for examination during business hours, such records as pertain exclusively to the examining Participant (or Beneficiary); 103 (f) To prescribe procedures to be followed by Participants and Beneficiaries in making claims hereunder; (g) To make available for inspection and to provide upon request at such charge as may be permitted and determined by the Company, such documents and instruments, if any, as the Committee deems appropriate; (h) To prescribe and adopt the use of necessary forms; (I) To appoint such agents and other specialists to aid it in the administration of the Plan as it deems necessary; and (j) To make periodic reports on the operation and administration of the Plan to the Board of Directors as may be required in any articles of incorporation, charter, or by-laws pertaining to the Company. Section 11.3. Records. The regularly kept records of the Committee and the Company shall be conclusive evidence as to all matters contained therein applicable to this Plan. Section 11.4. Committee Decisions Final. The decisions of the Committee concerning matters within its jurisdiction shall be final, binding, and conclusive upon the Company and its Affiliates, the Participants, Beneficiaries and any other person or party interested or concerned. Section 11.5. Committee as Agent. The Committee shall act as agent for the Company in the administration of the Plan. Section 11.6. Plan Expenses. All clerical, legal and other expenses of the Plan shall be paid by the Company. Section 11.7. Allocations and Delegations of Responsibility. (a) Delegations. The Committee shall have the authority to delegate, from time to time, all or any part of its responsibilities under the Plan to such person or persons as it may deem advisable and in the same manner to revoke any such delegation of responsibility. Any action of the delegate in the exercise of such delegated responsibilities shall have the same force and effect for all purposes herein as if such action had been taken by the Committee. The Board of Directors or the Committee shall not be liable for any act or omission of any such delegate. The delegate shall report periodically to the Committee concerning the discharge of the delegated responsibilities. (b) Allocations. The Committee shall have the authority to allocate, from time to time, all or any part of its responsibilities under the Plan to one or more of its members as it may deem advisable, and in the same manner to revoke such allocation of responsibilities. Any action of the member to whom 104 responsibilities are allocated in the exercise of such allocated responsibilities shall have the same force and effect for all purposes hereunder as if such action had been taken by the Committee. The Board of Directors or the Committee shall not be liable for any acts or omissions of such member. The member to whom responsibilities have been allocated shall report periodically to the Committee concerning the discharge of the allocated responsibilities. (c) Limit on Liability. Duties and responsibilities which are carried out in good faith by the Committee hereunder or which have been allocated or delegated pursuant to the terms of the Plan or subsections (a) or (b) of this Section 11.7 shall not create any liability of the Company, Board of Directors, or Committee, or any member thereof. ARTICLE XII MISCELLANEOUS PROVISIONS Section 12.1. Merger. Any successor corporation to the Company, by merger, consolidation, purchase or otherwise, shall be substituted hereunder for the Company. This Plan shall be binding on all successors to and assigns of the Company; provided that such successors or assigns may terminate the Plan in accordance with the provisions hereof. Section 12.2. Securities Laws. The Committee may require each person purchasing shares pursuant to an Option or shares of Restricted Stock to represent and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof. The certificates for such shares may include any legend which the Committee deems appropriate to reflect any restriction on transfer. Furthermore, all certificates for shares of Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable Federal or state securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Section 12.3. Indemnification. The Company shall indemnify and hold harmless to the extent legally permitted each member of the Board of Directors, the Committee and each officer and Employee of the Company to whom are delegated duties, responsibilities, and authority with respect to the Plan against all claims, liabilities, fines and penalties, and all expenses reasonably incurred by or imposed upon such delegate or agent (including but not limited to reasonable attorney fees) which arise as a result of actions or failure to act in connection with the operation and administration of the Plan. Section 12.4. Contract of Employment. Nothing contained herein shall be construed to constitute a contract of employment between the Company or an Affiliate and any Employee or Participant. Nothing contained herein will confer upon any Participant the right to be retained in the service of the Company or an Affiliate or limit the right of the Company or an Affiliate to discharge or otherwise deal with any Participant without regard to the existence of the Plan. 105 Section 12.5. Disclosure. Each Participant shall receive a copy of the summary of the Plan and the Committee will make available for inspection by any Participant or Beneficiary a copy of the Plan and any written procedures used by the Committee in administering the Plan. Section 12.6. Headings. The headings of Articles and Sections are included solely for convenience of reference, and if there is any conflict between such headings and the text of the Plan, the text shall control. Section 12.7. Invalidity of Certain Provisions. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions, to the extent invalid or unenforceable, had not been included. Section 12.8. Law Governing. The Plan shall be construed and enforced according to the laws of the State of Connecticut (other than its laws respecting choice of law). Section 12.9. Limitation on Liability. Neither the Company nor any agent or representative of the Company who is an employee, officer, or director of the Company in any manner guarantees the payments to be made under the Plan against loss or depreciation, and to the extent not prohibited by federal law, none of them shall be liable (except for his own gross negligence or willful misconduct), for any act or failure to act, done or omitted in good faith, with respect to the Plan. The Company shall not be responsible for any act or failure to act of any agent appointed to administer the Plan. Section 12.10. Gender. Except when otherwise indicated by the context, any masculine terminology herein shall also include the feminine, and the definition of any term herein in the singular shall also include the plural. THE ADVEST GROUP, INC. By:_____________________________ Grant W. Kurtz Chief Executive Officer ATTEST: __________________________________ 106 EX-21 5 Exhibit 21 The Advest Group, Inc. List of Subsidiaries Present Jurisdiction Name Where Incorporated Ownership - ----------------------------------------------------------------------- Advest, Inc. Delaware 100% Advest Insurance Agency Massachusetts 100% Balanced Capital Services, Inc. Connecticut 100% Advest Bank and Trust Company Connecticut 100% Advest Capital, Inc. Connecticut 100% Advest Properties, Inc. Delaware 100% Advest Transfer Services, Inc. Delaware 100% A.B. Realty Corp. Connecticut 100% Bank Street Management Company Connecticut 100% Billings & Company, Inc. Connecticut 100% Billings Management Co. Connecticut 100% Boston Advisors, Inc. Massachusetts 100% Vercoe Insurance Agency, Inc. Ohio 100% 107 EX-23 6 Exhibit 23 CONSENT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Shareholders of The Advest Group, Inc.: We hereby consent to the incorporation by reference in the Registration Statements of The Advest Group, Inc. and Subsidiaries on Form S-8 (File No. 2- 92868) concerning its 1983 Incentive Stock Option Plan, Form S-8 (File No. 33- 17674) concerning its 1986 Incentive Stock Option Plan; Form S-8 (File No. 33- 72042) concerning its Advest Thrift Plan; Form S-8 (File No. 33-56275) concerning its 1995 Equity Plan, Form S-8 (File No. 333-00797) concerning its Executive Officer 1996 Restricted Stock and Stock Option Agreement; Form S-8 (File No. 33-60425) concerning its 1990, 1991 and 1992 Top Account Executive Stock Option Plans, its 1993 Stock Option Plan and its 1994 Non-Employee Director Stock Option Plan; Form S-8 (File No. 333-17711) concerning Key Professionals Equity Plan, 1996 Executive Equity Plan, 1997 Executive Equity Plan and 1997 Equity Plan; Form S-3 (File No. 333-43053) and Form S-8 (File No. 333-82235) concerning its 1994 Non-Employee Director Stock Option Plan, Equity Plan, Key Professionals Equity Plan, Non-Employee Director Equity Plan and Thrift Plan, of our reports dated October 27, 1999, relating to the consolidated financial statements and financial statement schedule, which appear in this Form 10-K. /s/ PricewaterhouseCoopers LLP Hartford, Connecticut December 15, 1999 108 EX-27 7
BD 1000 12-MOS SEP-30-1999 SEP-30-1999 8065 540018 0 515676 328374 13028 1462621 161007 38198 0 523095 230486 30526 0 0 109 135027 1462621 56347 57431 141603 33006 39188 34965 198322 22312 0 0 0 13551 1.69 1.48
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