<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-26868
Lexington Global Asset Managers, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 22-3395036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PARK 80 WEST PLAZA TWO
SADDLE BROOK, NJ 07663
(Address of principal executive offices) (Zip code)
(201) 845-7300
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The number of shares outstanding of the registrant's voting Common Stock
and the aggregate market value of such Common Stock held by non-affiliates on
March 17, 2000 was as follows:
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
4,505,038 Shares Outstanding
Aggregate Market Value $18,729,750
<PAGE>
PART I
The statements contained in the Annual Report on Form 10-K ("Annual
Report") which are not historical facts, including, but not limited to,
statements found in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements that involve
a number of risks and uncertainties. The actual results of the future events
described in such forward-looking statements in this Annual Report could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are risks and
uncertainties set forth below under the heading Risk Factors and other risks and
uncertainties discussed in this Annual Report and set forth from time to time in
the registrant's other public reports and filings and public statements.
Item 1. Business
HISTORY AND BUSINESS OF LEXINGTON GLOBAL ASSET MANAGERS, INC.
Lexington Global Asset Managers, Inc. (the "Company") was incorporated in
Delaware in September 1995 as a holding company that offers, through its
subsidiaries, a variety of asset management and related services to retail
investors, institutions and private clients.
Prior to the spin-off of the Company on December 13, 1995 (the
"Spin-off"), the Company was a wholly-owned subsidiary of Piedmont Management
Company Inc. ("Piedmont"), a Delaware corporation. Pursuant to the Spin-off,
Piedmont contributed to the Company all of its subsidiaries engaged in the asset
management business and distributed to each Piedmont stockholder one share of
Common Stock of the Company for each share of Piedmont common stock held by such
stockholder. The Spin-off resulted in 100% of the Common Stock of the Company
being distributed to Piedmont stockholders.
On February 29, 2000, the Company announced that it has signed a
definitive agreement for ReliaStar Financial Corp. ("ReliaStar") to acquire the
Company in a stock-and-cash transaction valued at $47.5 million. The definitive
agreement provides for the purchase price to be allocated in terms of one-third
cash and two-thirds in shares of ReliaStar common stock. Completion of the
acquisition is subject to normal closing conditions, including approval by the
Company's shareholders, fund directors and fund shareholders, and various
regulatory approvals. The transaction is expected to close in the third quarter
of 2000. Upon closing of the acquisition, Company shareholders will be entitled
to 0.231 shares of ReliaStar common stock and $3.306 in cash in exchange for
each share of Company common stock they hold, subject to adjustment based on
ReliaStar common stock price and the Company's assets under management. The
Company will become part of a ReliaStar subsidiary, Pilgrim Capital Corporation,
which manages, markets and distributes open- and closed-end mutual funds and
structured finance products.
The acquisition of the Company by ReliaStar will precipitate numerous
actions which will cause the Company to incur additional costs. These include:
1) Change in control provisions contained in the Company's Long Term
Incentive Plan which will accelerate vesting of incentive stock
options and restricted stock;
2) Change in control provisions contained in Employment Agreements with
key executives of the Company which provide for severance payments to
these employees;
3) Severance payment to employees who will be terminated;
4) Payments to third parties including investment bankers, attorneys,
and accountants.
In the aggregate, these costs will substantially reduce shareholders' net
equity as of December 31, 1999.
In addition, the merger agreement between ReliaStar and the Company imposes
numerous restrictions upon the Company including, but not limited to
restrictions on:
1) The declaration or payment any dividends;
2) The acquisition of any corporation, partnership, or other business
organization;
3) The sale or disposition of any of its assets that are material;
4) The incurrence of any indebtedness;
5) The entering into of any new material contract.
The Company can make no assurance that the merger will occur. In the event
the proposed transaction does not occur, the Company could be contingently
liable for termination fees payable to ReliaStar. Depending on the reason for
termination, the Company could be liable for payments to the Buyer of up to
$2.250 million.
The Company manages portfolios of equity, balanced, fixed income, mortgage-
backed and money market investments, which are designed to meet a broad range of
investment objectives.
At December 31, 1999 total assets under management amounted to $3.6
billion, with $1.7 billion in mutual funds, $1.2 billion in institutional
accounts and $0.7 billion in private client accounts. The Company's client base
consists of approximately 126,000 mutual fund shareholder accounts,
approximately 20 institutional accounts, and approximately 780 private client
accounts. The tables below set forth the Company's total assets under management
in each of its three major markets at the dates indicated and the Company's
total assets under management by type of investment.
1
<PAGE>
Asset Composition By Market (1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Mutual Funds $ 1,670,148 $ 1,460,303 $ 1,896,293 $ 1,797,238 $ 1,517,260
Institutional 1,185,021 1,115,762 1,109,339 1,047,244 1,134,080
Private Clients 718,106 594,913 467,072 360,226 428,434
---------------------------------------------------------------------------------
Total $ 3,573,275 $ 3,170,978 $ 3,472,704 $ 3,204,708 $ 3,079,774
=================================================================================
</TABLE>
Asset Composition By Type of Investment
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Domestic Equity $ 1,872,066 $ 1,807,759 $ 1,704,426 $ 1,330,398 $ 1,172,710
Foreign Equity 629,752 363,770 850,274 807,962 699,842
----------------------------------------------------------------------------
Subtotal (2) 2,501,818 2,171,529 2,554,700 2,138,360 1,872,552
Precious Metals (3) 97,998 94,033 118,416 201,295 273,411
Fixed Income 833,363 758,686 634,029 668,841 712,830
Money Market Funds 104,096 146,730 165,559 196,212 220,981
----------------------------------------------------------------------------
Total $ 3,573,275 $ 3,170,978 $ 3,472,704 $ 3,204,708 $ 3,079,774
============================================================================
</TABLE>
_________________________
(1) Included in the institutional assets under management are invested assets
of members of the Richardson Family (defined below, see "Risk Factors--
Substantial Stockholders"), principal stockholders of the Company, and
certain other related persons, which assets at December 31, 1999 were
valued at approximately $944 million. The fees charged for the management
of such assets are based upon standard fee schedules and are comparable
with the fees charged to unaffiliated accounts.
(2) Excludes precious metal equities.
(3) Precious Metals includes precious metals and precious metal equities.
The following chart illustrates the structure of the Company as of December 31,
1999.
<TABLE>
<CAPTION>
----------------------------------------
Lexington Global Asset
Managers, Inc.
----------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
100% 100% 65% 51% 55%
- ------------------- ------------------ ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Lexington Lexington Market Peidmont Lexington
Funds Management Systems Asset Advisors Global Asset
Distributor, Corporation Research L.L.C. Managers
Inc. (LMC) Advisors, Inc. (PAA) (BVI), Ltd.
(LFD) Saddle Brook, (MSR) New York, (LGAM (BVI))
Saddle Brook, New Jersey New York, New York Cayman Islands,
New Jersey New York BVI
- ------------------- ------------------ ------------------- ------------------- --------------------
100%
-------------------
Market
Systems
Research
Inc.
(MSRI)
New York,
New York
-------------------
</TABLE>
2
<PAGE>
Primary Markets and Strategy for Growth
Markets
The Company's business strategy is targeted at three large market segments:
Mutual Funds--The Company, through its subsidiaries, markets,
promotes, and distributes the Lexington family of 16 mutual funds (the
"Lexington Funds") providing a variety of investment choices for the
retail investor, financial planner and intermediary, and the defined
benefit and defined contribution marketplace, including the rapidly
growing 401(k) market.
Institutional Market--The institutional market for investment
management services includes corporate, government and multi-employee
(Taft Hartley) pension plans, charitable endowments and foundations,
insurance company general accounts and defined contribution and 401(k)
plans. Lexington has secured both domestic and international
assignments, utilizing investments in domestic and foreign equity
securities, precious metal equities, fixed income and its family of
mutual funds.
Private Clients--The Company offers equity, fixed income and
balanced fund alternatives, tailored to the individual investment
objectives of its private clients.
In each of these areas, management's overall objective is to execute
specific business strategies (see following discussions) to profitably maximize
assets under management and provide clients with investment performance that
meets their objectives.
The Company derives its revenues primarily from fees for its investment
advisory services provided to retail investors, institutions and private
clients.
Mutual Funds
Background. The mutual fund industry has expanded rapidly in the last
several years. According to the Investment Company Institute, the trade
association for investment companies, total assets of U.S. mutual funds have
increased from $982 billion at December 31, 1989 to $6.8 trillion at December
31, 1999, an average growth rate of approximately 21% per year.
In the mutual fund industry, mutual funds may be sold to investors with a
sales charge or a commission (a "load" fund) or without a sales charge or a
commission (a "no-load" fund). All of the sixteen Lexington Funds are no-load
funds. Mutual funds may also be either closed-end or open-end. Generally,
closed-end funds raise money from stockholders only once, unlike an open-end
fund which issues and redeems shares of the fund on a continuous basis. In
addition, unlike open-end mutual funds, closed-end funds do not stand ready to
redeem their shares at net asset value. Instead, stockholders wishing to sell
their shares must do so by trading them on a national securities exchange or in
the over-the-counter market, at a price determined by the market, which may be
higher or lower than the fund's net asset value. All of the Company's mutual
funds are open-end funds.
The mutual fund industry is highly competitive and is currently
characterized by a high degree of fragmentation and a large and rapidly
increasing number of product offerings. The Company believes that the mutual
fund industry is becoming similar to the consumer products business, where
marketing strategies, product development, business development, sales expertise
and servicing are increasingly important.
Investment Products and Services. The Company has developed the Lexington
family of 16 mutual funds which are managed, marketed and distributed under the
Lexington name through Lexington Management Corporation and Lexington Funds
Distributor, Inc. The Lexington Funds are designed to provide a variety of
investment options for retail investors, financial planners and intermediaries,
and for the defined benefit and defined contribution marketplace, including the
401(k) market. These funds have been selected for inclusion in various no fee
transaction broker programs, such as the Charles Schwab Mutual Fund OneSource(R)
program.
Each of the Company's global/international equity funds may invest their
assets in any country approved by the fund's Board of Directors provided such
assets are custodied with an eligible custodian under Rule 17f-5 of the
Investment Company Act of 1940, as amended. Currently, Chase Manhattan Bank is
acting as master custodian of assets for each of the Lexington Funds.
Except for the Lexington Goldfund, Inc., which has a significant portion of
its assets under management invested in Australia, Canada and South Africa, the
Lexington Small Cap Asia Growth Fund, which has a significant portion of its
assets under management invested in Asia, and the Lexington Troika Dialog Russia
Fund, which has a significant portion of its assets under management invested in
Russia, the Company believes that, in general, the assets under management in
its global/international and precious metal equities funds are invested in a
geographically diversified manner.
Strategy. The Company's current strategies in the mutual fund market are
to: (i) identify emerging trends in order to develop new investment products;
(ii) strengthen the "brand name" awareness of the Lexington Funds both at the
broker-dealer level and the retail investor level; (iii) broaden its efforts to
offer subadvisory and administration services to other mutual funds; and, (iv)
expand into other distribution channels.
3
<PAGE>
The Company believes that with focused market research efforts it can
identify demographic and industry trends relevant to the growth of the mutual
fund business and thereby develop products to meet emerging needs and
opportunities. For example, the Company launched the Lexington Global Technology
Fund, Inc. in December 1999 after the Company's research indicated that
international technology investing was an emerging investment trend.
Furthermore, the Company believes that its smaller relative size in the mutual
fund industry provides it with a competitive advantage by enabling the Company
to capitalize upon trends more quickly than its competitors. As another example,
in 1996, the Company launched the Lexington Troika Dialog Russia Fund, the first
open-end fund in the United States devoted to Russian equities.
To achieve greater "brand name" awareness, the Company has used media
relations consultants to assist in building relationships with the media. The
Company's portfolio managers, analysts and management have appeared in national
print publications as well as on television and radio. This program, combined
with the Company's internal promotion staff that communicates directly with
financial planners, is designed to enhance the "brand name" awareness of
Lexington and its investment products.
The Company continuously markets to insurance companies, financial
planners, consultants, bank trust departments and other financial intermediaries
to sell its subadvisory and fund administration services and secure new
distribution channels for its investment products.
Management believes that the integration of financial products with
targeted services will also allow it to better pursue opportunities in various
markets. For example, the Company has developed funds for the specific purpose
of funding variable annuity and variable life insurance policies issued by
insurance companies. Currently, two such funds are being sold by six insurance
companies.
Institutional Market
Background. The market for institutional clients includes corporate,
government and multi-employee (Taft Hartley) pension plans, charitable
endowments and foundations, insurance company general accounts, and defined
contribution and 401(k) plans. According to the 1999 Money Market Directory of
Pension Funds (including 401(k) plans), the institutional market represented
over $6.4 trillion in total assets under management, including defined benefit
plan assets, endowments and foundations.
The institutional market is extremely competitive with long lead times
between initial contact and acquisition of an account. Institutional investors
increasingly rely upon a competitive review process when selecting investment
advisory firms. The process often includes the assistance of independent
investment consultants, who analyze, rank and recommend advisors as well as
conduct searches for advisors on behalf of clients. Consultants typically
classify firms according to their investment style and place heavy emphasis upon
a demonstrated record of investment performance within a particular style. These
consultants often control access to prospective clients.
Investment Products and Services. The products the Company offers to the
institutional market include investments in domestic and foreign equity
securities, precious metal equities, fixed income securities and a family of
mutual funds to be utilized in a client's pension, defined contribution or
401(k) plan.
The Company, through its subsidiaries, acts as subadvisor under several
variable annuity contracts and variable life insurance policies, including
contracts and policies with London Pacific Life & Annuity Company. The Company
also makes certain of its mutual funds available to selected insurance companies
as funding vehicles for variable annuity contracts and variable life insurance
policies, including Aetna Insurance Company of America, SafeCo Life Insurance
Company, Kemper Investors Life Insurance Company, Transamerica Occidental Life
Insurance Company, Great-West Life & Annuity Insurance Company, and Fortis
Benefits Insurance Company.
Strategy. The Company's strategy in the institutional market is to target
specialized segments such as: (i) Taft Hartley and charitable foundations and
endowments, (ii) public retirement accounts, (iii) insurance company general
accounts and, (iv) broker wrap accounts. In addition, the Company has formed
joint management arrangements with other investment advisory companies which
offer specialized products or services.
By targeting specialized segments, management believes that it can market
directly to these segments and leverage upon the integrated financial products
and services that it offers. The Company believes the strategy will allow better
penetration of the institutional market.
The Company believes that the 401(k) market is of key interest. According
to Pensions and Investments, assets in the 401(k) market, where investment
decisions are made by the individual, will surpass the assets in the private
pension system. The Company is targeting the 401(k) market as a key growth
market by participating in administrative alliances and various discount broker
programs which target the defined contribution and 401(k) market.
The Company has formed joint management arrangements with investment
advisory firms to expand investment product offerings. The Company develops
investment products in consultation with these firms which usually have a
specialization in evaluating and investing in specific market segments such as
convertible securities, specific geographic regions and global fixed income.
These products are subsequently distributed utilizing Lexington's distribution
channels and are jointly managed by the Company and the investment advisory
firm. These joint management arrangements are subject to the approval of the
shareholders
4
<PAGE>
of the fund utilizing these services and the annual approval of the Board of
Directors of the fund. Firms with which the Company has developed joint
management arrangements include Crosby Asset Management (US), Inc. (Asia),
Stratos Advisors<184> Inc. (emerging markets), and, Troika Dialog Asset
Management, ZAO (Russia). Each of these firms is a registered investment
advisor.
The Lexington Small Cap Asia Growth Fund has a joint management arrangement
with Crosby Asset Management (US), Inc., a wholly-owned subsidiary of the Crosby
group. The Crosby group is an independent merchant bank in Asia founded in 1984
which provides a variety of financial services including investment management
and corporate finance.
The Lexington Worldwide Emerging Markets Fund, Inc., the Lexington Emerging
Markets Fund, Inc., and the Lexington Global Technology Fund, Inc. have a joint
management arrangement with Stratos Advisors, Inc., which is an affiliate of VZB
Partners, LLC. Stratos specializes in managing assets in emerging markets and
seeks to provide investment management services to institutional investors for
sophisticated individual investors with net worth in excess of $1 million.
The Lexington Troika Dialog Russia Fund, Inc. has a joint management
arrangement with Troika Dialog Asset Management, ZAO, a Russian Closed Joint
Stock Company, established in 1991. Troika Dialog Asset Management, a pioneer in
the development of Russia's securities markets, is a sister company of the
largest brokerage firm in Russia, Troika Dialog.
Private Clients
Background. With the changing demographics of the United States, the aging
of the "baby boomer" generation and the accumulation of assets in retirement
accounts, the private client sector is a growing segment of the investment
advisory industry. The Company believes that the principal needs for private
clients are investment advice and asset management services because these
clients, as they near retirement, have a large amount of accumulated assets and
require sophisticated estate planning advice.
Investment Products and Services. The Company offers equity, fixed income
and balanced fund investment options to its high net worth clients through
portfolios which are tailored to the client's individual investment objectives.
The average account size of the Company's private clients is $920,000. With
approximately 780 private clients, the Company's clients are generally heads of
households in their mid-40s to 60s with a high proportion of their wealth in
liquid assets.
Strategy. The Company's strategies in the private client sector are to: (i)
integrate the products and services offered to these clients by the Company's
various subsidiaries, (ii) design an integrated set of financial products and
services to meet the financial service needs of these individuals and (iii)
excel in customer service through utilization of the most current and
sophisticated investment planning, management and reporting techniques.
The Company offers products and services to its private clients through
LMC's private client group. Currently, marketing of investment products and
services to high net worth prospects is primarily conducted by LMC through
direct sales and referral sales by retail stockbrokers, CPAs and financial
planners.
LMC and LFD
LMC and LFD, both located in Saddle Brook, New Jersey, form the core
business of the Company generating approximately 93% of revenues in 1999. LMC
and its predecessors have been active in the investment management business
since 1938. LMC provides products and services for institutional clients
including corporate, government and Taft Hartley pension plans, charitable
endowments and foundations, insurance company general and separate accounts and
defined contribution and 401(k) plans. The Company's private client business is
also conducted primarily through LMC. LMC targets accounts in this market with
up to $5 million to invest, which accounts typically include wealthy individuals
and smaller institutional accounts, including foundations, not-for-profit
corporations, pension plans and employee benefit plans.
LMC and LFD are responsible for managing, servicing, marketing and
distributing the Lexington Funds to financial intermediaries and the retail
market. The Lexington Funds are designed to provide a variety of investment
options for retail investors, financial planners and intermediaries, and for the
defined benefit and defined contribution marketplace, including the 401(k)
market. The Lexington Funds include equity, balanced, fixed income,
mortgage-backed and money market funds. The geographical orientation of the
Lexington Funds range from domestic to international to global.
Certain funds specialize in specific industries or sectors, such as
precious metals and natural resources, but most are broadly diversified.
Currently, the Lexington Funds have approximately 126,000 shareholders. All of
the Company's funds are no-load funds. Investment advisory services, as well as
management research and statistical services, are provided to each fund by LMC
and LFD. As compensation for such services, the mutual funds pay a fee which is
based upon average net assets under management.
The following table sets forth the assets for each of the five years ended
December 31, 1999 of each of the Lexington Funds and for each fund to which LMC
and LFD provides subadvisory and/or administration services.
5
<PAGE>
Fund Assets (1)
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Domestic Equity*
Lexington Growth & Income Fund $ 255,665 $ 245,734 $ 228,058 $ 200,231 $ 138,840
Lexington Corporate Leaders Trust Fund 454,661 482,678 476,405 384,990 247,560
London Pacific Corporate Leaders 9,243 8,182 3,506 1,311 -
Lexington Natural Resources Trust 31,753 35,442 65,320 37,896 16,962
Lexington SmallCap Fund, Inc. 7,965 8,165 9,578 8,056 -
---------------------------------------------------------------------------------
Total Domestic Equity $ 759,287 $ 780,201 $ 782,876 $ 632,484 $ 403,362
---------------------------------------------------------------------------------
Fixed Income*
Lexington Money Market Trust $ 97,618 $ 86,494 $ 94,349 $ 97,680 $ 88,961
Lexington GNMA Income Fund, Inc. 376,657 273,063 157,608 133,660 130,735
Lexington Global Income Fund (3) 31,692 36,411 23,569 28,992 10,754
Lexington TaxFree Money Fund, Inc. (4) - - - 26,528 28,203
Lexington Convertible Securities Fund - 10,306 10,350 11,208 11,634
SBL Fund Series K (5) (6) (7) (11) - 13,066 14,445 11,755 5,684
Security Income Fund-Global Aggressive
Bond Series (5) (6) (7) (11) - 4,327 6,269 4,915 4,409
---------------------------------------------------------------------------------
Total Fixed Income $ 505,967 $ 423,667 $ 306,590 $ 314,738 $ 280,380
---------------------------------------------------------------------------------
Global/International Equity*
Lexington Worldwide Emerging Markets Fund,
Inc. (8) $ 153,318 $ 67,732 $ 137,988 $ 256,532 $ 260,423
Lexington Global Corporate Leaders
Fund, Inc. 19,608 17,846 35,088 37,216 53,635
Lexington Emerging Markets Fund, Inc. 38,775 15,357 24,061 21,581 7,840
Lexington International Funds, Inc. 25,291 24,000 19,950 18,891 17,855
Lexington Small Cap Asia Growth Fund, Inc. 13,988 18,209 13,986 25,246 8,900
SBL Fund Series D (5) (6) (7) (10) - - 285,864 246,908 177,935
Parkstone Advantage International Discovery
Fund (7) - - - - 11,649
Security Equity Fund-Global Series (5) (6)
(7) (10) - - 33,834 28,543 21,870
Lexington Global Technology Fund, Inc. (2) 100 - - - -
Lexington Troika Dialog Russia Fund (9) 55,817 19,258 137,649 13,804 -
---------------------------------------------------------------------------------
Total Global/International Equity $ 306,897 $ 162,402 $ 688,420 $ 648,721 $ 560,107
---------------------------------------------------------------------------------
Precious Metal Equity*
Lexington Goldfund, Inc. $ 72,559 $ 50,886 $ 53,945 $ 109,215 $ 136,361
Lexington Strategic Investments Fund,
Inc. (12) - 17,502 20,760 43,702 76,280
Lexington Silver Fund, Inc. 25,438 25,645 43,711 48,378 60,770
---------------------------------------------------------------------------------
Total Precious Metal Equity $ 97,997 $ 94,033 $ 118,416 $ 201,295 $ 273,411
---------------------------------------------------------------------------------
Total Funds $ 1,670,148 $1,460,303 $1,896,293 $1,797,238 $ 1,517,260
=================================================================================
</TABLE>
____________________________________________
(1) Each of the funds listed is an open-end fund. Unless otherwise indicated,
each of the funds is a no-load fund.
(2) Fund commenced operations in December 1999.
(3) Fund changed objective from tax-exempt bond fund to global income fund on
January 3, 1995.
(4) Fund liquidated in August 1997.
(5) Fund sponsored by Security Benefit Life Insurance Company.
(6) Fund to which the Company, through its subsidiaries, provides subadvisory
and administration services.
(7) Load fund.
(8) Fund changed objective from growth fund to emerging markets growth fund in
June 1991.
(9) Fund commenced operations in June 1996.
(10) Sub-advisory relationship terminated November 2, 1998.
(11) Sub-advisory relationship terminated January 1, 1999.
(12) Fund merged into Lexington Goldfund, Inc. in June 1999.
* Of each of the Company's four market segments, Domestic Equity, Fixed
Income, Global/International Equity and Precious Metal Equity, invested
assets held by the Richardson Family constituted 32.0%, 20.1%, 28.2% and
0%, respectively, of the total assets under management with respect to each
segment at December 31, 1999.
6
<PAGE>
Other Subsidiaries
At December 31, 1999, the Company had 3 subsidiaries in addition to LMC and LFD:
Market Systems Research Advisors, Inc. ("MSR"), Lexington Global Asset Managers
(BVI), Ltd. ("LGAM BVI"), and Piedmont Asset Advisors L.L.C. ("PAA").
MSR, MSRI--New York, New York.
MSR provides professional portfolio management services to investors
through the use of proprietary quantitative price momentum stock selectivity
models. MSR offers investment advisory services to accounts within the Lexington
organization and to other clients. MSR publishes a monthly research report
through a subsidiary company, Market Systems Research, Inc. ("MSRI"), which is
marketed to other investment advisory companies. MSR is owned 65% by the Company
and 35% by Frank A. Peluso, a principal employee who also serves as President
and a Director of the Company.
LGAM (BVI)--Cayman Islands, BVI
The Company owns 55% of LGAM (BVI), an entity formed in 1998. LGAM (BVI)
owns 50% of Troika Dialog Lexington Partners (BVI), Ltd. which is the investment
advisor to the Troika Dialog Lexington Russia Eurasia Opportunity Fund. The
remainder of LGAM (BVI) is owned by certain key employees of the Company.
PAA--New York, New York.
The Company owns 51% of PAA, an entity formed in 1994 which served as a
general partner of a limited investment partnership engaged in the asset
management business. (PAA's activities in the limited partnership were
terminated in the third quarter of 1996.) The remainder of PAA is owned by
R.V.Consultants, Inc. a company which is owned by Messrs. Stuart S. Richardson,
Robert M. DeMichele and Richard M. Hisey, all of whom are principal employees of
the Company. At this point in time, PAA is an inactive company.
Marketing and Distribution
Traditionally, load mutual funds were principally sold by registered
representatives of broker-dealers, who received sales commissions as
compensation for fund sales. No-load mutual funds were sold directly to the
investing public without the assistance of a registered representative and
therefore no sales commission was imposed on the purchase.
The Company's products and services are marketed and distributed through a
variety of captive and non-captive distribution channels which are listed below.
The approximate percentage of assets under management distributed through each
of the Company's distribution channels listed below is provided in the
parenthetical immediately prior to the description of such distribution channel.
(57%) The Lexington Family of No Load Mutual Funds are sold through
direct sales and marketing efforts utilizing print, radio and television
advertising.
(38%) The Company also has shareholder servicing arrangements with
discount brokers, including Charles Schwab Mutual Fund OneSource(R), Fidelity
Funds Network(R), DLJ Direct, Waterhouse Mutual Fund Connection and First Trust
Corporation. The Company also has a number of its funds included in strategic
alliances and "wrap" programs, which will offer greater distribution
opportunities in the future. At December 31, 1999, approximately $639 million,
or 38%, of LMC's total mutual fund assets have been generated through these
named shareholder servicing arrangements. Under these shareholder servicing
arrangements, the discount broker, which sells, markets and distributes many
mutual funds other than the Lexington Funds is paid a fee for recordkeeping,
shareholder communications and other services provided by the discount broker to
investors purchasing shares of the Lexington Funds through the discount broker's
programs. This fee is typically based on the average daily value of the
investments in each Lexington Fund made by the discount broker on behalf of
investors participating in the discount broker's program. While the Company has
no reason to believe that such shareholder servicing arrangements will be
terminated, no assurances can be given that these arrangements will continue or
that they will continue to generate a substantial portion of the Company's total
mutual fund assets after the proposed merger with ReliaStar. The loss of any one
or more of these shareholder servicing arrangements may materially adversely
affect the Company's results of operations. The Company's ability to gain and
maintain access to these distribution channels is largely dependent on the
investment performance of the Company's products, the development of new
investment products, marketing and pricing strategies that serve the needs of
investors and discount brokers and the level of service provided by the Company.
Although the Company historically has been successful in these aspects of its
business, there can be no assurance that the Company can continue to maintain
such access for its products.
(5%) The Lexington Funds are also sold through banks and insurance
companies.
Although the Company does not control all of its distribution channels, the
Company believes that the use of multiple distribution channels, including
competing non-captive distribution channels, stabilizes and increases the
distribution of its products.
7
<PAGE>
Regulation
LMC and MSR are registered as investment advisors under the Investment
Advisers Act of 1940, as amended (the "Advisory Act"), and all applicable state
securities laws. LFD is registered as a broker/dealer under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and all applicable state
securities laws, Accordingly, this company is subject to regulation by the
Securities and Exchange Commission (the "SEC") and state securities commissions
and is required to furnish periodic reports and to observe restrictions on
certain activities. LFD is also a member of the National Association of
Securities Dealers, Inc. ("NASD"), and is therefore subject to various NASD
regulations, including net capital requirements. Each Lexington Fund is
registered with the SEC under the Investment Company Act of 1940, as amended
(the "1940 Act"), and is qualified for sale throughout the United States. The
1940 Act imposes restrictions on certain transactions between the Lexington
Funds and LMC.
All aspects of the Company's business are subject to the laws and
regulations of the countries and states in which Lexington, its subsidiaries and
affiliates conduct business. These laws and regulations are primarily intended
to benefit clients and shareholders and, in some instances may impose minimum
capital requirements. These laws and regulations generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
Lexington's business and impose sanctions, to suspend individual employees, to
limit the Company from engaging in business for specific periods, to revoke
LMC's registration as an investment advisor and LFD's registration as a
broker-dealer and to censure and levy fines. Applicable United States Federal
laws also include the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Securities Act of 1933, as amended (the "Securities
Act").
Competition
The asset management business is highly competitive. The Company competes
with a large number of other domestic and foreign asset management firms,
commercial banks, insurance companies, broker-dealers and others, although as a
practical matter the Company typically competes with other firms offering
comparable investment services and objectives. According to The Money Market
Directory of Pension Funds and their Investment Managers, the Company ranked
among the top 425 largest investment counsel firms, as measured by total
tax-exempt assets under management at December 1999. As a result, some of the
financial services companies with which the Company competes have substantially
greater resources and assets under management than the Company and offer a wider
variety of products and services.
The Company believes factors which affect its competition for clients
include investment performance records, the range of products offered, the
abilities and reputations of its portfolio managers, management fees and the
development of new investment strategies and marketing, although the importance
of these factors can vary depending on the type of asset management service
involved. Client service is also an important competitive factor. The Company's
ability to increase or retain client assets could be adversely affected if
client accounts underperform the market or if portfolio managers leave the
Company. The ability of the Company to compete with other asset management firms
is also dependent, in part, on the relative attractiveness of its investment
philosophies and strategies under prevailing market conditions. There are
relatively few barriers to entry by new asset management firms which could
increase competitive pressure in the industry.
Selection of advisors by investors often is subject to a competitive review
process relying heavily upon historical performance.
A large number of mutual funds are sold to the public by asset management
firms, broker-dealers, insurance companies and banks in competition with the
Company's mutual funds. Many competitors apply substantial resources to
advertising and marketing their mutual funds which may adversely affect the
ability of the Company's mutual funds to attract new clients and to retain
assets under management.
Personnel
At December 31, 1999, the Company employed 82 people. Approximately 75, 2,
1, 1, and 3 were located in Saddle Brook, New Jersey; Gold River, California;
Dallas, Texas; Edwards, Colorado; and New York, New York, respectively. None of
the Company's employees are represented by a labor union.
8
<PAGE>
RISK FACTORS
Acquisition of Company
On February 29, 2000, the Company announced that it has signed a definitive
agreement for ReliaStar to acquire the Company in a stock-and-cash transaction
valued at $47.5 million. The definitive agreement provides for the purchase
price to be allocated in terms of one-third cash and two-thirds in shares of
ReliaStar common stock. Completion of the acquisition is subject to normal
closing conditions, including approval by the Company's shareholders, fund
directors and fund shareholders, and various regulatory approvals. The
transaction is expected to close in the third quarter of 2000. Upon closing of
the acquisition, Company shareholders will be entitled to 0.231 shares of
ReliaStar common stock and $3.306 in cash in exchange for each share of Company
common stock they hold, subject to adjustment based on ReliaStar common stock
price and the Company's assets under management. The Company will become part of
a ReliaStar subsidiary, Pilgrim Capital Corporation, which manages, markets and
distributes open- and closed-end mutual funds and structured finance products.
The acquisition of the Company by ReliaStar will precipitate numerous
actions which will cause the Company to incur additional costs. These include:
1) Change in control provisions contained in the Company's Long
Term Incentive Plan which will accelerate vesting of incentive
stock options and restricted stock;
2) Change in control provisions contained in Employment Agreements
with key executives of the Company which provide for severance
payments to these employees;
3) Severance payment to employees who will be terminated;
4) Payments to third parties including investment bankers,
attorneys, and accountants.
In the aggregate, these costs will substantially reduce shareholders' net
equity as of December 31, 1999.
In addition, the merger agreement between ReliaStar and the Company imposes
numerous restrictions upon the Company including, but not limited to
restrictions on:
1) The declaration or payment any dividends;
2) The acquisition of any corporation, partnership, or other
business organization;
3) The sale or disposition of any of its assets that are material;
4) The incurrence of any indebtedness;
5) The entering into of any new material contract.
The Company can make no assurance that the merger will occur. In the
event the proposed transaction does not occur, the Company could be contingently
liable for termination fees payable to ReliaStar. Depending on the reason for
termination, the Company could be liable for payments to the Buyer of up to
$2.250 million.
Dependence upon Performance Record
The market for providing investment management services is highly
competitive with investors generally favoring investment advisors with a
sustained successful investment performance record. The performance record of
the Company may be affected by factors over which the Company has little or no
control, including general economic conditions, other factors influencing the
capital markets, the net sales of mutual fund shares generally, and interest
rate fluctuations.
Concentration of Distribution Channels and Reliance on Certain Distributors
While the Company over time has used a variety of distribution channels,
currently a substantial percentage of the Company's investment product sales are
through non-captive distribution channels, including no transaction fee
programs. Such non-captive distribution channels generally offer competing
internally and externally sponsored or managed investment products and access to
these distribution channels is limited. The Company's ability to gain and
maintain access to these distribution channels is largely dependent on the
investment performance of the Company's products, the development of new
investment products, marketing and pricing strategies that serve the needs of
investors and the non-captive distribution channels and the level of service
provided by the Company. Although the Company historically has been successful
in these aspects of its business, there can be no assurance that the Company can
continue to maintain such access for its products.
As of December 31, 1999, approximately $639 million, or 38% , of the
Company's total mutual fund assets have been generated through shareholder
servicing arrangements with five discount brokers; Charles Schwab Mutual Fund
OneSource(R), Fidelity Funds Network(R), DLJ Direct, Waterhouse Mutual Fund
Connection, and First Trust Corporation. While the Company has no reason to
believe that such shareholder servicing arrangements will be terminated, no
assurances can be given that these arrangements will continue or that they will
continue to generate a substantial portion of the Company's total mutual fund
assets under management. The loss of any one or more of these arrangements could
materially adversely affect the Company's results of operations.
9
<PAGE>
Changes in Market Conditions; Retention of Assets Under Management
The Company derives the major portion of its revenues from asset management
contracts with clients. Under these contracts, the asset management fee paid to
the Company is typically based on the market value from time to time of assets
under management. Accordingly, fluctuations in securities prices could
materially adversely affect the Company's results of operations.
In addition, institutional asset management contracts are generally
terminable upon 30 days' notice. Mutual fund and unit trust investors may
generally withdraw their funds at any time without prior notice. Institutional
clients may elect to terminate their relationship with the Company, or reduce
the aggregate amount of assets under management, and individual clients may
elect to close their accounts or redeem their shares in the Company's mutual
funds or unit trusts, or shift their funds to other types of accounts with
different rate structures, for any of a number of reasons, including investment
conditions or changes in prevailing interest rates or financial market
conditions. Fees vary with the aggregate amount of assets under management by
the Company and with the type of asset being managed, with higher fees earned on
actively managed equity and balanced accounts and lower fees earned on fixed
income and stable return accounts.
Global/International and Precious Metal Equity Mutual Fund Holdings
At December 31, 1999, approximately $0.7 billion, or 20.4%, of the
Company's total assets under management were invested in global/international
and precious metal equities. Many foreign markets, especially emerging markets
and markets where precious metals are mined, may be characterized by volatile
economic, political and social conditions. Many of these countries have also
experienced significant exchange rate fluctuations between the local currencies
and the U.S. dollar which may subject the U.S. dollar value of the Company's
assets under management in global/international and precious metal equities to
currency translation risk, which could materially adversely affect the Company's
results of operations. The markets in such countries may also be less liquid and
less efficient than domestic markets. While the Company believes international
investing offers the potential for reduced risk and higher expected returns
through global diversification, fluctuations in foreign markets may have a
material adverse effect on the value of the assets under management in the
Company's global/international and precious metal equities.
Except for the Lexington Goldfund, Inc., which has a significant portion of
its assets under management invested in Australia, Canada and South Africa, the
Lexington Small Cap Asia Growth Fund, which has a significant portion of its
assets under management invested in Asia, and the Lexington Troika Dialog Russia
Fund, Inc., which has a significant portion of its assets under management
invested in Russia, the Company believes that in general, the assets under
management in its global/international and precious metal equities funds are
invested in a geographically diversified manner.
Competition
The asset management business is highly competitive. The Company competes
with a large number of other domestic and foreign asset management firms,
commercial banks, insurance companies, broker-dealers and others, although as a
practical matter the Company typically competes with other firms offering
comparable investment services and objectives. Many of the financial services
companies with which the Company competes have substantially greater resources
and assets under management than the Company and offer a wider variety of
products and services.
Reliance on Key Personnel
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. In the event that any
officers or directors of the Company cease to be associated with the Company,
the Company will seek to find a qualified person or persons to fill their
positions with the Company. There can, however, be no assurance that such
individuals could be engaged by the Company.
Dividends and Dividend Policy
The decision whether to apply legally available funds to the payment of
dividends on the Common Stock will be made by the Board of Directors from time
to time in the exercise of its business judgment, taking into account, among
other things, the Company's results of operations and financial condition and
any then existing or proposed commitments for the use by the Company of
available funds.
The Company may in the future issue debt securities or preferred stock or
enter into loan or other agreements that restrict the payment of dividends on
and repurchases of the Company's capital stock.
10
<PAGE>
Company Buy-Back Program
On March 7, 1997 and September 17, 1998 the Board of Directors of the
Company authorized share repurchase programs of up to 750,000 shares for a total
program of up to 1,500,000 shares. Repurchases have been made from time to time
in the open market or through privately negotiated transactions at market
prices. The stock repurchase plans have terms of three years. As part of the
pending transaction with ReliaStar, this program has been suspended. During
1999, the Company repurchased 307,500 shares of stock for an aggregate purchase
price of $1,078,900. Also during 1999, 8,000 treasury shares were awarded under
the Company's Restricted Stock Award Plan. Through December 31 1998, the Company
repurchased 845,350 shares of its common stock for an aggregate purchase price
of $4,634,232. Also through 1998, 244,000 treasury shares were awarded under the
Company's Restricted Stock Award Plan. To date, 252,000 shares have been awarded
and 159,001 shares have been issued under the plan.
Substantial Stockholders
Descendants of Lunsford Richardson, Sr., their spouses, trusts, a
corporation in which they have interests and charitable organizations
established by such descendants (the "Richardson Family") some of whom are
directors of the Company, beneficially own shares of Common Stock representing
over 51% of the voting power of all the Company's outstanding voting securities.
Accordingly, the Richardson Family has the ability to exert significant
influence over the outcome of any matters submitted to the Company's
stockholders for approval, including mergers, consolidations or the sale of all
or substantially all of the Company's assets, and to prevent or cause a change
in control of the Company.
On February 28, 2000 the Company entered into an Agreement and Plan of
Merger with ReliaStar, and Pilgrim Holdings Corporation, a Delaware corporation
and wholly owned subsidiary of ReliaStar ("Pilgrim"), pursuant to which the
Company will merge into Pilgrim, subject to satisfaction of certain conditions.
Pursuant to the merger agreement, certain members of the Richardson Family,
together with Robert DeMichele, President and Chief Executive Officer of the
Company, and one other shareholder, executed voting agreements and irrevocable
proxies in which they agreed to vote all of the Company's common stock as to
which they have voting power, both individually and as trustees for Richardson
family trusts, in favor of approving the merger agreement and the merger. The
voting agreements represent 2,504,498 shares or approximately 55.5% of the
outstanding shares.
At December 31, 1999 the Company also managed approximately $944 million in
invested assets of the Richardson Family and certain other related persons which
represent approximately 26.4% of the Company's total assets under management at
such date. The fees charged for the management of such assets are based upon
standard fee schedules and are comparable with the fees charged to unaffiliated
accounts. While the Company believes that it will continue to manage these
assets, no assurance can be given with respect to the continued management of
these assets. The loss of such assets would materially adversely affect the
Company's results of operations.
11
<PAGE>
Item 2. Properties
Neither the Company nor its subsidiaries and majority owned companies own
real estate. The principal offices of the Company and its subsidiaries are
leased from unaffiliated third parties, which leases expire at various dates up
until the year 2003. The Company and its subsidiaries LMC and LFD are located in
Saddle Brook, New Jersey, occupying approximately 28,000 square feet of office
space at an annual rental of approximately $578,000 under a lease expiring in
2003.
Substantially all of the leases referred to above provide for the payment
of tax, escalation, maintenance, insurance and certain other operating expenses
applicable to the leased premises.
In addition to the above leases, the Company leases equipment on a long-
term or month-to-month basis, which rental expense was approximately $117,000 in
1999.
Additional information concerning leases is provided in Note 8 of the Notes
to Consolidated Financial Statements, and such information is incorporated in
this item by reference.
Item 3. Legal Proceedings
As part of the normal course of its operations, the Company and certain of
its subsidiaries and majority owned companies are named as defendants in various
legal actions seeking monetary damages. Management does not expect any material
adverse judgments to be rendered against the Company or its subsidiaries as a
result of pending legal actions.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting: May 13, 1999 Annual Meeting of Stockholders
(b) Matters voted on and number of affirmative/negative votes:
1. Election of Directors:
Peter L. Richardson, Stuart S. Richardson, Carl H. Tiedemann
For All Directors: 4,520,032 Withheld Authority: 16,081
2. Ratification of the selection of KPMG LLP as the independent
auditors for the current calendar year.
Votes: For Against Abstain
4,531,145 1,330 3,638
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded in the NASDAQ National Market System
under the symbol LGAM. The quarterly range of prices of the Company's Common
Stock as reported by the NASDAQ National Market System were as follows:
1999 1998
---- ----
High Low High Low
---- --- ---- ---
First $ 3.875 $ 2.563 $ 9.500 $ 6.750
Second $ 3.750 $ 3.000 $ 8.500 $ 6.750
Third $ 3.875 $ 3.188 $ 7.250 $ 3.313
Fourth $ 3.188 $ 2.250 $ 5.250 $ 3.250
On March 7, 1997, and September 17, 1998 the Board of Directors of the Company
authorized share repurchase programs of up to 750,000 shares for a total program
of up to 1,500,000 shares. Repurchases have been and will be made from time to
time in the open market or through privately negotiated transactions at market
prices. The stock repurchase plans have terms of three years. As part of the
pending transaction with ReliaStar, the program has been suspended. During 1999,
the Company repurchased 307,500 shares of stock for an aggregate purchase price
of $1,078,900. Also during 1999, 8,000 treasury shares were awarded under the
Company's Restricted Stock Award Plan. During 1998, the Company repurchased
532,350 shares of stock for an aggregate purchase price of $2,353,857. Also
during 1998, 11,000 treasury shares were awarded under the Company's Restricted
Stock Award Plan. During 1997, the Company repurchased 313,000 shares of its
common stock for an aggregate purchase price of $2,280,375. Also during 1997,
233,000 treasury shares were awarded under the Company's Restricted Stock Award
Plan. To date, 252,000 shares have been awarded and 159,001 shares have been
issued under the plan.
As of December 31, 1999, there were 576 holders of record of Common Stock.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(000's omitted except per share data)
(Unaudited)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Total revenues $19,137 $19,166 $20,895 $21,694 $21,609
Total expenses 18,338 17,692 17,230 18,567 19,287
Provision for taxes 355 724 1,208 1,270 700
Net income 274 714 2,397 2,475 1,579
Per Share Data:
Basic earnings per share $0.06 $0.14 $0.45 $0.45 $0.29
Diluted earnings per share $0.06 $0.14 $0.45 $0.45 $0.29
Financial Position:
Total assets $18,038 $16,883 $17,433 $16,078 $14,774
Total liabilities 8,792 7,514 6,938 5,911 6,994
Total stockholders' equity 8,773 8,940 10,090 9,822 7,347
</TABLE>
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
1999 Compared with 1998
The consolidated net income in 1999 was $0.3 million, $0.06 per share, compared
to net income of $0.7 million, $0.14 per share in 1998.
Total assets under management at December 31, 1999 were $3.6 billion compared to
$3.2 billion at December 31, 1998. Mutual fund assets under management increased
approximately $0.2 billion to $1.7 billion from $1.5 billion in 1998. The
increase is mainly attributable to the strong performance or growth in several
products, most notably the Lexington GNMA Income Fund which increased in size by
$104 million; the Lexington Worldwide Emerging Markets Fund, which increased $86
million; the Lexington Troika Dialog Russia Fund, which increased $37 million;
and the Lexington Emerging Markets Fund, which increased $23 million from
December 1998. Private account assets increased $0.1 billion to $0.7 billion,
while institutional assets also showed a $0.1 billion increase to $1.2 billion.
Total revenues of $19.1 million were essentially even with last year. Mutual
fund revenues decreased $1.7 million to $9.2 million in 1999 compared to $10.9
million in 1998. Of this decline, $1.5 million is a result of the termination of
a sub-advisory relationship with one of the Company's larger accounts in the
fourth quarter of 1998. Also contributing to the decline are the Company's
emerging markets funds, which, compared to the prior year period, experienced a
decrease in average net assets in an environment of continuing strength in the
U.S. capital markets. Other management fees show a $1.2 million increase, due to
higher assets under management in the private account and institutional
segments.
Mutual fund commissions of $25 thousand were less than the $72 thousand recorded
in 1998 because the Company's two products with sales loads were changed to
no-load funds in July of 1999.
Other management fees of $9.0 million are up approximately $1.3 million from
$7.7 million in 1998. The Company's private account business accounted for
approximately $0.8 million of the increase due to continued increases in assets
under management associated with the continuing strength of the U.S. equity
markets. Institutional asset management fees contributed $0.4 million of the
increase, also due to an increase in assets under management associated with
strong U.S. markets.
Commission income of $87 thousand decreased $21 thousand from $108 thousand in
1998, due to client terminations. Other income of $0.8 million increased $0.5
million from $0.3 million in 1998. The increase is primarily a result of
unrealized appreciation of $0.4 million at December 31, 1999 versus unrealized
depreciation of $0.2 million at December 31, 1998. The unrealized
appreciation/depreciation stems from investments in a number of products managed
by the Company.
Total expenses of $18.3 million are $0.6 million above total expenses of $17.7
million in 1998. The increase is due to salaries and other compensation, which
increased approximately $1.2 million to $10.2 million. The increase reflects
severance package costs associated with the reorganization of the firm's
Executive Committee and the resulting restructuring of responsibility for the
mutual fund group. In addition, bonus expense increased, reflecting the
increasingly competitive environment for investment professionals.
Selling and promotional costs of $0.9 million are $0.1 million below the $1.0
million in the prior year, due to lower advertising expenditures.
Administrative and general costs of $7.3 million are $0.4 million below the
prior year's figure of $7.7 million. The decrease is primarily attributable to
lower subadvisory fees, relating to the termination of one of the Company's
largest sub-advisory accounts.
Pre-tax income of $0.8 million is $0.7 million less than the $1.5 million
recorded in 1998. The provision for state and federal taxes of $0.3 million
decreased $0.4 million from the $0.7 million in the prior year, due to lower
profits. The Company used approximately $0.2 million of net operating loss
carryforwards (NOLs) in 1999.
1998 Compared with 1997
The consolidated net income in 1998 was $0.7 million, $0.14 per share, compared
to net income of $2.4 million, $0.45 per share in 1997.
Total assets under management at December 31, 1998 were $3.2 billion compared to
$3.5 billion at December 31, 1997. Mutual fund assets under management decreased
$0.4 billion from the prior year, while private account assets increased $0.1
billion. The decrease in mutual fund assets is mainly attributable to the
termination of an advisory relationship with one of the Company's larger
accounts in the fourth quarter of 1998. Assets under management in this
relationship were approximately $300 million. In addition,
14
<PAGE>
the turmoil in emerging markets in 1998 adversely affected the Company's funds
with exposure to these markets. The Lexington Troika Dialog Russia Fund and the
Lexington Worldwide Emerging Markets Fund each declined by approximately $100
million from December 31, 1997. Partially offsetting these declines was strong
performance or growth in several other products, most notably the Lexington GNMA
Income Fund which increased in size by approximately $100 million from December
31, 1997. Both the private account and institutional segments, which are
primarily invested in the U.S. equity and bond markets, experienced growth in
assets through strong performance results associated with the robust U.S.
capital markets in 1998.
For the year ended December 31, 1998, total revenues of $19.4 million declined
by $1.8 million from $21.2 million in 1997. Net mutual fund revenues decreased
by approximately $2.6 million from $13.5 million to $10.9 million with the
decline in assets under management.
Mutual fund commissions of $72 thousand were more than the $63 thousand recorded
in 1997 because sales of the Company's two products with sales loads increased
as a result of investor interest in precious metals mutual funds.
Other management fees of $8.0 million are up approximately $1.0 million from
$7.0 million in 1997. The Company's private account business accounted for
approximately $0.9 million of the increase due to continued increases in assets
under management associated with the continuing strength of the U.S. equity
markets. Institutional asset management fees contributed $0.1 million of the
increase.
Commission income of $109 thousand decreased $42 thousand from $151 thousand in
1997. The decrease is due to client terminations.
Other income of $0.3 million decreased $0.2 million from $0.5 million in 1997.
The decrease is a result of unrealized depreciation of marketable securities.
The unrealized depreciation stems from the Company's investments in a number of
the funds managed by the Company.
Total expenses in 1998 increased by approximately $0.5 million to $18.0 million
from $17.5 million in 1997 due primarily to administrative and general expenses,
which increased $0.7 million. This increase is almost entirely attributable to
the Company's administrative contract with Select Advisors ("Select") for the
Company's private account business. This contract was part of the reorganization
of this business, which occurred in 1996. Under this contract the Company pays
fees to Select for administrative and support services for the Company's private
account clients. Because these clients are billed annually in advance, the
expenses incurred for the administrative contract are amortized evenly over a
twelve-month period. The 1998 expense includes amortization of the contract
expense across the entire client base. In 1997, the Company benefited from the
fact that no administrative fees were charged in 1997 for those accounts which
entered into or renewed advisory agreements in the first nine months of 1996;
i.e., prior to September 30, 1996, the date of the reorganization. Partially
offsetting the increase is a decrease of $0.3 million in selling and promotional
expense, mainly attributed to a reduction in advertising and sales literature
for the year. These expenses declined as the Company made greater use of public
relations in its promotional efforts. Total personnel costs of $9.0 million are
even with 1997. Although the costs are even, the Company recognized an increase
of $0.5 million of expense associated with the issuance of restricted stock to
certain key executive employees. In addition, salaries increased $0.2 million
due to annual salary increases. Offsetting the increase was a reduction in bonus
expense due to the Company's lower earnings.
Pre-tax income of $1.5 million is $2.2 million less than the $3.7 million
recorded in 1997. The provision for state and federal taxes decreased $0.5
million due to the decrease in taxable income. The Company used approximately
$1.8 million of net operating loss carryforwards (NOLs) in 1998 and has
remaining NOLs of approximately $0.2 million which are available to offset
future taxable income which expire over the period 2008 through 2013.
Effects of Inflation
The Company does not believe that inflation has had a significant impact on the
operations of the Company to date. The Company's assets consist primarily of
cash and investments which are monetary in nature. However, to the extent
inflation results in rising interest rates with the attendant adverse effects on
the securities markets and on the values of investments held in the Company's
accounts, inflation may adversely affect the Company's financial position and
results of operations. Inflation also may result in increased operating expenses
(primarily personnel-related costs) that may not be readily recoverable in the
fees charged by the Company.
Liquidity and Financial Condition
The Company's business typically does not require substantial capital
expenditures. The most significant investments are in technology, including
computer equipment and telephones.
15
<PAGE>
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between $2.4 million and $3.7 million over the past three
years primarily as a result of the Company's net income.
Net cash from investing activities have ranged between $59 thousand and $0.3
million of outflows over the past three years. The primary use of cash in 1999
was the purchase of computer equipment.
Cash flows from financing activities consistently have been negative over the
past three years. On March 7, 1997, and September 17, 1998 the Board of
Directors of the Company authorized share repurchase programs of up to 750,000
shares for a total program of up to 1,500,000 shares. Repurchases have been made
from time to time in the open market or through privately negotiated
transactions at market prices. The stock repurchase plans have terms of three
years. As part of the pending transaction with ReliaStar, the program has been
suspended. During 1999, the Company repurchased 307,500 shares of stock for an
aggregate purchase price of $1,078,900. During 1998, the Company repurchased
532,350 shares of stock for an aggregate purchase price of $2,353,857. During
1997, the Company repurchased 313,000 shares of its common stock for an
aggregate purchase price of $2,280,375. The Company may in the future issue debt
securities or preferred stock or enter into loan or other agreements that
restrict the payment of dividends on and repurchase of the Company's capital
stock.
Historically, the Company has maintained a substantial amount of liquidity for
purposes of meeting regulatory requirements and potential business demands. At
December 31, 1999 the Company has $9.9 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, are sufficient to meet the Company's foreseeable capital and
liquidity requirements. As a result of the holding company structure, the
Company's cash flows will depend primarily on dividends or other permissible
payments from its subsidiaries. The Company has no standby lines-of-credit or
other similar arrangements.
LFD, as a registered broker-dealer, has federal and state net capital
requirements at December 31, 1999 of $25,000. The aggregate net capital of LFD
was $0.3 million at December 31, 1999. LMC, MSR, and MSRI, as registered
investment advisors, must meet net capital requirements imposed at the Federal
and state levels.
Stockholders' equity on December 31, 1999 decreased to $8.8 million from $8.9
million a year earlier primarily as a result of the Company's purchase of
treasury shares.
16
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company employs a cash management strategy which seeks to optimize excess
liquid assets by preserving principal, maintaining liquidity to satisfy capital
requirements, minimizing risk and maximizing their after tax rate of return. For
working capital purposes, the Company invests only in money market instruments.
Cash which is not needed for normal operations is invested in a tax efficient
manner in instruments with appropriate maturities and levels of risk to
correspond to expected liquidity needs. The Company currently has money market
funds, equity mutual funds, and common stock. To the extent that the Company
invests in marketable equity securities, they ensure portfolio liquidity by
investing in marketable securities with active secondary or resale markets. The
Company does not use derivative financial instruments in their investment
portfolio. At December 31, 1999 our cash and cash equivalents and securities
owned were approximately $10.9 million.
The Company's exposure to interest rate risk relates primarily to the
interest-bearing portions of their investment portfolio. The Company's policy is
to invest in high quality credit issuers, limit the amount of credit exposure to
any one issuer and invest in tax efficient strategies. The Company's first
priority is to reduce the risk of principal loss. The Company seeks to preserve
their invested funds by limiting default risk, market risk, and re-investment
risk. The Company attempts to mitigate default risk by investing in high quality
credit securities that they believe to be low risk and by positioning their
portfolio to respond appropriately to reductions in the credit rating of any
investment issuer or guarantor that they believe is adverse to their investment
strategy.
The Company's interest-bearing investment portfolio primarily consists of
short-term, high-credit quality money market funds. These investments totaled
approximately $8.6 million at December 31, 1999. The Company's interest-bearing
investments are not insured and because of the short-term high quality nature of
the investments are not subject to credit risk, but are not likely to fluctuate
significantly in market value.
17
<PAGE>
Item 8. Financial Statements
The following are included and filed under this item:
<TABLE>
Page
----
<S> <C>
Independent Auditors' Report 19
LEXINGTON GLOBAL ASSET MANAGERS, INC.
Consolidated Statements of Financial Condition--December 31, 1999 and 1998 20
Consolidated Statements of Operations--Years Ended December 31, 1999, 1998 and 1997. 21
Consolidated Statements of Changes in Stockholders' Equity--Years Ended December 31, 1999,
1998 and 1997 22
Consolidated Statements of Cash Flows--Years Ended December 31, 1999, 1998 and 1997 23
Notes to Consolidated Financial Statements 24
</TABLE>
18
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of
Lexington Global Asset Managers, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Lexington Global Asset Managers, Inc. and Subsidiaries ("the Company") as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for the three-year
period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Lexington Global
Asset Managers, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
------------
KPMG LLP
New York, New York
March 1, 2000
19
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
1999 1998
---- ----
Assets:
Cash and cash equivalents:
Cash $ 1,262,379 $ 228,347
Money market accounts 8,616,274 8,209,827
------------- -------------
9,878,653 8,438,174
------------- -------------
Receivables:
Investment advisory and management fees 1,339,294 863,920
Due from funds and other 468,413 426,585
------------- -------------
1,807,707 1,290,505
------------- -------------
Trading securities, at market value 1,061,227 1,337,110
Prepaid expenses 1,411,688 1,859,517
Prepaid taxes 5,433 182,066
Fixed assets (net of accumulated depreciation
and amortization) 931,576 1,193,515
Intangible assets (net of accumulated
amortization) 162,276 178,476
Assets associated with deferred compensation 1,013,895 834,309
Deferred tax asset, net 1,756,238 1,560,686
Other assets 9,562 8,608
------------- -------------
Total assets $ 18,038,255 $ 16,882,966
============= =============
Liabilities:
Accounts payable and accrued expenses $ 920,713 $ 769,969
Accrued compensation 1,485,983 615,055
Accrued employee benefits 2,442,227 2,559,653
Deferred income 2,134,972 1,891,360
Deferred compensation 1,013,895 834,309
Federal income taxes payable 794,016 843,434
------------- -------------
Total liabilities 8,791,806 7,513,780
------------- -------------
Minority interest 473,156 428,821
Stockholders' Equity:
Preferred stock, $.01 par value; 5,000,000
authorized shares; 0 issued and outstanding - -
Common stock, $.01 par value; 15,000,000
authorized shares; 5,487,887 issued, 4,494,038
and 4,720,208, respectively, outstanding 54,879 54,879
Additional paid-in capital 21,533,392 21,573,392
Accumulated deficit (8,359,891) (8,633,541)
Deferred compensation (506,580) (1,118,758)
Treasury stock, at cost (3,948,507) (2,935,607)
------------- -------------
Total stockholders' equity 8,773,293 8,940,365
------------- -------------
Total liabilities and stockholders' equity $ 18,038,255 $ 16,882,966
============= =============
20
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
Investment advisory:
Mutual fund management fees (including
approximately $345,000, $318,000 and $521,000,
respectively, from related parties) $ 9,220,626 $ 10,907,452 $ 13,458,933
Mutual fund commissions 24,571 71,600 62,838
Other management fees (including approximately
$3,425,000, $2,954,000 and $2,695,000,
respectively, from related parties) 8,968,448 7,735,194 6,726,438
Commissions income 87,144 108,508 151,334
Other income 836,380 343,711 495,175
------------- ------------- -------------
Total revenues 19,137,169 19,166,465 20,894,718
------------- ------------- -------------
Expenses:
Salaries and other compensation 10,181,344 9,011,246 9,015,128
Selling and promotional 903,883 991,096 1,316,577
Administrative and general 7,252,746 7,689,604 6,898,251
------------- ------------- -------------
Total expenses 18,337,973 17,691,946 17,229,956
------------- ------------- -------------
Income before income taxes and minority interest 799,196 1,474,519 3,664,762
Provision (benefit) for income taxes:
Current 550,763 346,539 13,929
Deferred (195,552) 377,527 1,193,629
------------- ------------- -------------
Total provision 355,211 724,066 1,207,558
------------- ------------- -------------
Income before minority interest 443,985 750,453 2,457,204
Minority interest 170,335 36,013 60,149
------------- ------------- -------------
Net income $ 273,650 $ 714,440 $ 2,397,055
============= ============= =============
Earnings per share:
Basic earnings per share $0.06 $0.14 $0.45
============= ============= =============
Diluted earnings per share $0.06 $0.14 $0.45
============= ============= =============
Basic weighted average shares outstanding 4,551,129 4,994,048 5,322,172
============= ============= =============
Diluted weighted average shares and common
stock equivalents outstanding 4,687,117 5,056,166 5,281,785
============= ============= =============
</TABLE>
21
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Common Stock Total
------------
Shares Additional Accumulated Deferred Treasury Stockholders'
Issued Amounts Paid-In Capital Deficit Compensation Shares Equity
--------- ------- --------------- ------------ ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 5,487,887 54,879 21,501,517 (11,734,723) - - 9,821,673
Net income - - - 2,397,055 - - 2,397,055
Purchase of treasury shares at cost - - - (8,250) - (2,280,375) (2,288,625)
Issuance of restricted stock awards - - 206,625 - - 1,607,875 1,814,500
Deferred compensation amortization - - - - (1,654,342) - (1,654,342)
--------- ------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1997 5,487,887 54,879 21,708,142 (9,345,918) (1,654,342) (672,500) 10,090,261
Net income - - - 714,440 - - 714,440
Purchase of treasury shares at cost - - - - - (2,353,857) (2,353,857)
Issuance of restricted stock awards - - - (2,063) - 90,750 88,687
Deferred compensation amortization - - - - 535,584 - 535,584
Miscellaneous adjustment - - (134,750) - - - (134,750)
--------- ------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 5,487,887 54,879 $21,573,392 ($8,633,541) ($1,118,758) ($2,935,607) $ 8,940,365
Net income - - - 273,650 - - 273,650
Purchase of treasury shares at cost - - - - - (1,078,900) (1,078,900)
Issuance of restricted stock awards - - (40,000) - - 66,000 26,000
Deferred compensation amortization - - - - 612,178 - 612,178
--------- ------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 5,487,887 $54,879 $21,533,392 ($8,359,891) ($ 506,580) ($3,948,507) $ 8,773,293
========= ======= =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
22
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 273,650 $ 714,440 $ 2,397,055
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 337,354 337,706 319,267
Amortization of deferred costs - - 9,220
Deferred income taxes (195,552) 377,527 1,193,629
Minority interest 170,335 36,013 60,149
Compensation expense for restricted shares awarded 638,178 624,271 151,908
(Increase) decrease in operating assets:
Receivables (517,202) 539,205 200,412
Trading securities, at market value 275,883 187,678 (319,438)
Prepaid expenses 447,829 (251,395) (1,240,043)
Prepaid taxes 176,633 (75,863) (94,303)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 904,246 (492,908) 746,259
Federal income taxes payable (49,418) (20,233) (151,684)
Deferred income 243,612 254,658 432,445
Other (954) 132,883 41,534
------------- ------------- -------------
Net cash provided by operating activities 2,704,594 2,363,982 3,746,410
------------- ------------- -------------
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (59,215) (130,249) (340,515)
Net proceeds from sale of subsidiaries - - 49,954
------------- ------------- -------------
Net cash used in investing activities (59,215) (130,249) (290,561)
------------- ------------- -------------
Cash flows from financing activities:
Dividends and other (126,000) (147,000) -
Purchase of treasury stock (1,078,900) (2,353,857) (2,280,375)
------------- ------------- -------------
Net cash used in financing activities (1,204,900) (2,500,857) (2,280,375)
------------- ------------- -------------
Net increase/(decrease) in cash and cash equivalents 1,440,479 (267,124) 1,175,474
Cash and cash equivalents, beginning of year 8,438,174 8,705,298 7,529,824
------------- ------------- -------------
Cash and cash equivalents, end of year $ 9,878,653 $ 8,438,174 $ 8,705,298
============= ============= =============
Supplemental cash flow disclosure
Income taxes paid $ 461,650 $ 302,543 $ 472,910
============= ============= =============
</TABLE>
23
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999 and 1998
1. Organization and Business
Lexington Global Asset Managers, Inc. (the "Company") serves as a holding
company for the following asset management subsidiaries (collectively referred
to as the "Subsidiaries"): Lexington Management Corporation (100% owned),
Lexington Funds Distributor Inc. (100% owned), MSR Advisors Inc. (65% owned),
Lexington Global Asset Managers (BVI), Ltd. (55% owned), and Piedmont Asset
Advisors (51% owned). The Subsidiaries are engaged in the management,
distribution, and administrative services for the Lexington Family of Funds
("Funds") and for its institutional and private clients. Lexington Management
Corporation ("LMC") and MSR Advisors Inc., ("MSR") are registered investment
advisors under the Investment Advisers Act of 1940, as amended. Lexington Funds
Distributor, Inc. ("LFD") is a registered broker/dealer under the Securities
Exchange Act of 1934, is a member of the National Association of Securities
Dealers, Inc. ("NASD"), and is therefore subject to various NASD regulations,
including net capital requirements.
Subsequent Events
On February 29, 2000, the Company announced that it has signed a definitive
agreement for ReliaStar Financial Corp. ("ReliaStar") to acquire the Company in
a stock-and-cash transaction valued at $47.5 million. The definitive agreement
provides for the purchase price to be allocated in terms of one-third cash and
two-thirds in shares of ReliaStar common stock. Completion of the acquisition is
subject to normal closing conditions, including approval by the Company's
shareholders, fund directors and fund shareholders, and various regulatory
approvals. The transaction is expected to close in the third quarter of 2000.
Upon closing of the acquisition, Company shareholders will be entitled to 0.231
shares of ReliaStar common stock and $3.306 in cash in exchange for each share
of Company common stock they hold, subject to adjustment based on ReliaStar
common stock price and the Company's assets under management. The Company will
become part of a ReliaStar subsidiary, Pilgrim Capital Corporation, which
manages, markets and distributes open- and closed-end mutual funds and
structured finance products.
The acquisition of the Company by ReliaStar will precipitate numerous actions
which will cause the Company to incur additional costs. These include:
1) Change in control provisions contained in the Company's Long Term
Incentive Plan which will accelerate vesting of incentive stock options
and restricted stock;
2) Change in control provisions contained in Employment Agreements with
key executives of the Company which provide for severance payments to
these employees ;
3) Severance payment to employees who will be terminated;
4) Payments to third parties including investment bankers, attorneys, and
accountants.
In the aggregate, these costs will substantially reduce shareholders' net equity
as of December 31, 1999.
In addition, the merger agreement between ReliaStar and the Company imposes
numerous restrictions upon the Company including, but not limited to
restrictions on:
1) The declaration or payment any dividends;
2) The acquisition of any corporation, partnership, or other
business organization;
3) The sale or disposition of any of its assets that are material;
4) The incurrence of any indebtedness;
5) The entering into of any new material contract.
The Company can make no assurance that the merger will occur. In the event the
proposed transaction does not occur, the Company is contingently liable for
termination fees payable to ReliaStar. Depending on the reason for termination,
the Company could be liable for payments to the Buyer of up to $2.250 million.
2. Basis of Presentation and Summary of Significant Accounting Policies
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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and the Subsidiaries. All material intercompany transactions and
accounts have been eliminated in consolidation.
24
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Summary of Significant Accounting Policies
(continued)
Cash Equivalents
Cash equivalents consist of highly liquid investments. At December 31, 1999
and 1998 cash equivalents consist primarily of investments in Lexington Money
Market Trust, recorded at market value (which approximates cost).
Trading Securities
The Company designates all marketable equity securities as held for trading
purposes.
Marketable equity securities (including funds that are advised by the
Company) are carried at market value. The market value of marketable equity
securities (excluding funds that are advised by the Company) is generally based
on quoted market prices.
Realized gains and losses are calculated on the specific-identification
method and are included in other income. Unrealized appreciation (depreciation)
arises from the difference between the cost and market value of securities and
is recognized in other income.
Revenue Recognition
Investment management and advisory fees are recorded as income for the
period in which the services are performed. Commissions related to security
transactions are recorded on trade date.
Segment Reporting
The Company considers itself to principally operate in three business
segments: mutual funds, institutional, and private accounts.
Depreciation and Amortization
Furniture and equipment are depreciated on a straight-line basis over their
estimated useful lives. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or the estimated useful life.
Intangible Assets
The Company assesses the recoverability of its intangible assets whenever
significant events or changes occur which may impair recovery of recorded costs.
Based on its most recent analysis, the Company believes that no impairment of
its intangible assets exists at December 31, 1999.
Stock-Based Compensation
The Company accounts for its employee stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB No. 25) and has adopted the disclosure requirements of Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," (SFAS No. 123).
Income Taxes
The Company and its wholly owned subsidiaries are included in the
consolidated federal income tax return filed by the Company. Partially owned
subsidiaries file their own federal income tax returns.
The Company accounts for income taxes under the asset and liability
method. Deferred income tax assets and liabilities are computed for the
differences between the financial statement and tax bases of assets and
liabilities based on enacted tax laws and rates applicable to the periods in
which the differences are expected to reverse.
Financial Instruments
The fair value of cash and cash equivalents, receivables, accounts payable
and accrued expenses approximates cost because of the immediate or short-term
maturity of these financial instruments. The market value of trading securities
has been disclosed in the accompanying consolidated financial statements and
notes.
Securities Transactions
Purchases and sales of fund shares through the underwriting activities of
LFD are recorded on a trade-date basis. All customer funds and securities in
connection with its investment management and advisory services are maintained
by independent custodians.
Financial Statement Presentation
Certain prior year amounts have been reclassified to conform with the
current year presentation.
25
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Fixed Assets
Fixed assets at December 31, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Furniture, fixture and equipment $3,248,923 $3,191,678
Leasehold improvements 170,547 168,577
---------- ----------
Depreciable fixed assets 3,419,470 3,360,255
Less accumulated depreciation and amortization 2,487,894 2,166,740
---------- ----------
Fixed assets, net $ 931,576 $1,193,515
---------- ----------
Depreciation and amortization charged to operations were $337,354, $337,706, and
$319,267 for the years ended December 31, 1999, 1998 and 1997, respectively.
These amounts include amortization of goodwill of approximately $16,200 each
year.
Depreciation and amortization are provided using the straight-line method over
the following estimated lives:
Asset Estimated Life
----- --------------
Furniture and fixtures 5 - 12 years
Office equipment 3 - 5 years
Leasehold improvements term of lease
4. Trading Securities, at market value
At December 31, 1999 and 1998, trading securities consisted of the following:
1999 1998
---- ----
Funds advised by the Company $ 662,832 $1,036,211
Equity Securities 398,395 300,899
---------- ----------
Total trading securities, at market value $1,061,227 $1,337,110
========== ==========
5. Deferred Income and Prepaid Expenses
Certain clients pay investment advisory fees to LMC annually in advance. These
fees are recorded as deferred income and recognized as income over the periods
the services are performed. At December 31, 1999 and 1998, the balance in the
deferred income account was $2,116,064 and $1,879,969, respectively, and was
recorded as a liability in the accompanying consolidated statements of financial
condition.
LMC has an agreement with SAI Capital Holdings, Inc. ("Select"), whereby Select
provides back office and other administrative services for these clients in
return for an administration fee. The administration fee ranges from 25% to 77%
of the investment advisory fee received from these clients. The fee is paid to
Select annually in advance and is recorded as a prepaid expense and amortized as
services are received. At December 31, 1999 and 1998, the balance in prepaid
expense for administrative services was $985,359 and $1,259,097, respectively.
6. Regulatory Requirements
The broker/dealer subsidiary is subject to rules and regulations of the
Securities and Exchange Commission which require maintenance of minimum net
capital and reserve accounts. At December 31, 1999, the amount of net capital
required for the broker dealer subsidiary pursuant to such rules and regulations
was $25,000. The net capital of the broker/dealer subsidiary at December 31,
1999 amounted to $328,049.
7. Intangible Assets
Intangible assets represent the goodwill arising from the original acquisition
of the LMC business by Piedmont Management Company, Inc. ("Piedmont") in 1969.
The goodwill is the excess of the purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over forty years.
Accumulated amortization of goodwill amounted to approximately $501,000 and
$485,000 at December 31, 1999 and 1998, respectively.
26
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Commitments and Contingencies
The Subsidiaries lease administrative offices under noncancellable operating
leases that expire in 2003.
The future minimum lease payments as of December 31, 1999 are as follows:
2000............................................................ 586,000
2001............................................................ 578,000
2002............................................................ 578,000
2003............................................................ 386,000
----------
$2,128,000
==========
Rent expense was approximately $734,000, $736,000, and $626,000, for the years
ended December 31, 1999, 1998, and 1997, respectively.
9. Preferred Stock
The Company has 5,000,000 shares of preferred stock, $.01 par value authorized;
no shares are issued or outstanding.
10. Incentive Plan
The Company has reserved 750,000 shares of common stock for issuance to key
employees under the Long Term Incentive Plan (the "Plan") established in 1995.
The Plan provides for the granting of stock options, stock appreciation rights
and other stock-based performance awards to employees.
Restricted Award Plan
Under the Plan the Company established the Restricted Stock Award Plan, which
provides for awards of common stock to key employees, subject to forfeiture if
employment terminates prior to the end of the prescribed periods. The
restrictions on the shares will be released over a three-year period as the
employees provide service. The market value of shares awarded under the plan is
recorded as deferred compensation in stockholders' equity. The unearned amounts
are amortized to compensation expense over the periods the employees provide
services.
During the years ended December 31, 1999, 1998 and 1997, the Company awarded
restricted shares which will be issued out of Treasury Stock when the awards
vest. The restricted shares awarded and the respective market values at date of
grant were as follows:
Shares Market
Awarded Value
------- -----
February 3, 1997 33,000 $6.25
November 7, 1997 200,000 $8.00
April 1, 1998 11,000 $8.06
April 1, 1999 8,000 $3.25
For the years ended December 31, 1999, 1998 and 1997, the Company recognized
$638,178, $624,271 and $151,908, respectively, of compensation expense relating
to the Restricted Stock Award Plan.
Stock Option Plan
Under the Plan the Company also established a Stock Option Plan, which reserve
shares of common stock for issuance to key employees. In 1999, 86,600 stock
options were granted at an exercise price of $3.50, the market value at the date
of grant. In 1998, 81,500 stock options were granted at an exercise price of
$8.06 and 7,000 stock options were granted at an exercise price of $4.00, the
market values at the respective dates of grant. In 1997, 131,000 stock options
were granted at an exercise price of $6.25 and 10,000 stock options were granted
at an exercise price of $8.00, the market values at the respective dates of
grant. No options were exercised or expired in 1999, 1998, and 1997 although
272,625 options were exercisable at December 31, 1999.
27
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Incentive Plan (Continued)
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock options. Had compensation cost for the Company's
stock option plan been determined based on the fair value at the grant date for
awards in 1999, 1998, and 1997 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
(Dollars in thousands except for earnings per share information)
1999 1998 1997
---- ---- ----
Net earnings:
As reported $ 274 $ 714 $2,397
Pro forma $ 40 $ 513 $2,252
Basic earnings per share:
As reported $0.06 $0.14 $ 0.45
Pro forma $0.01 $0.10 $ 0.42
Diluted earnings per share:
As reported $0.06 $0.14 $ 0.45
Pro forma $0.01 $0.10 $ 0.42
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, 1997 and 1995: dividend yield of 0%;
expected volatility of 35.0%; risk-free interest rate of 5.23% to 6.64%; and
expected lives of 10 years.
The Stock Option Plan provides that shares granted come from the Company's
authorized but unissued or reacquired common stock. The price of the options
granted pursuant to the Stock Option Plan will not be less than 100 percent of
the fair market value of the shares on the date of grant. An option may not be
exercised within one year from the date of grant and no option will be
exercisable after ten years from the date of grant. Options vest over a four
year period. Participants may exercise approximately one-fourth of the stock
option shares after the end of each year of the cycle.
Information regarding the Stock Option Plan for 1999, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ----------- -----------
Weighted-
Average
Exercise
Shares
Shares Price Shares Shares
------ ----- ------ ------
<S> <C> <C> <C> <C>
Options outstanding, beginning of year 409,500 $5.9552 321,000 180,000
Options exercised - - - -
Options granted 86,600 $3.5000 88,500 141,000
--------- --------- ---------
Options outstanding, end of year 496,100 409,500 321,000
========= ========= =========
Option price range, end of year $ 3.50 $ 4.00 $ 6.25
$ 8.06 $ 8.06 $ 8.00
Weighted-average fair value of options, granted during the year $ 3.5000 $ 7.7389 $ 6.3741
Weighted-average grant-date fair value of options, granted
during the year $ 2.0317 $ 4.5480 $ 3.8720
</TABLE>
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Incentive Plan (Continued)
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ---------------------------
Weighted-
Average Weighted Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
------------------------ ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$3.50 86,600 10 $3.50
$4.00 7,000 9 $4.00 1,750 $4.00
$4.75 180,000 6 $4.75 180,000 $4.75
$6.25 131,000 7 $6.25 65,500 $6.25
$8.00 - $8.06 91,500 8 $8.50 25,375 $8.05
----------- ----------
496,100 272,625
=========== ==========
</TABLE>
Il. Common Stock Buy-Back Program
On March 7, 1997, and September 17, 1998 the Board of Directors of the Company
authorized share repurchase programs of up to 750,000 shares for a total program
of up to 1,500,000 shares. Repurchases have been made from time to time in the
open market or through privately negotiated transactions at market prices. The
stock repurchase plans have terms of three years. As part of the pending
transaction with ReliaStar, this program has been suspended. During 1999, the
Company repurchased 307,500 shares of stock for an aggregate purchase price of
$1,078,900. During 1999, 8,000 treasury shares were awarded under the restricted
stock award plan. During 1998, the Company repurchased 532,350 shares of stock
for an aggregate purchase price of $2,353,857. During 1998, 11,000 treasury
shares were awarded under the Company's Restricted Stock Award Plan. During
1997, the Company repurchased 3 13,000 shares of its common stock for an
aggregate purchase price of $2,280,375. During 1997, 233,000 treasury shares
were awarded under the Company's Restricted Stock Award Plan. To date, 252,000
shares have been awarded and 159,001 shares have been issued under the
Restricted Stock Award Plan. At December 3 1, 1999, 1998 and 1997, 993,849,
767,679 and 3 13,000 treasury shares were held, respectively.
12. Earnings Per Share
The Company follows SFAS No. 128, "Earnings Per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). Basic EPS
excludes dilution and is calculated by dividing income applicable to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS is computed by dividing income applicable to common
stockholders by the weighted average number of common shares outstanding and
assumed conversions.
Basic earnings per common share amounts were computed by dividing net income by
the weighted-average number of common shares outstanding during the year. The
average number of common shares outstanding was the average number of shares of
common stock outstanding adjusted for repurchased shares.
Diluted earnings per share amounts were calculated by dividing net income by the
weighted-average number of common shares and dilutive potential common share
equivalents outstanding during the year.
Diluted earnings per share assumes the conversion into common stock of
outstanding stock options as computed under the treasury stock method, if
dilutive. Under the treasury stock method, the number of incremental shares is
determined by assuming the issuance of the outstanding stock options, reduced by
the number of shares assumed to be repurchased from the issuance proceeds, using
the average market price for the year of the Company's common stock.
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Earnings Per Share (Continued)
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Net income $ 273,650 $ 714,440 $2,397,055
========== ========== ==========
Numerator for basic and diluted
earnings per share - income
available to common stockholders $ 273,650 $ 714,440 $2,397,055
========== ========== ==========
Denominator:
Denominator for basic earnings
per share-weighted-average
shares outstanding 4,551,129 4,994,048 5,322,172
Effect of dilutive securities:
Employee stock options 135,988 62,118 59,613
---------- ---------- ----------
Denominator for diluted earnings per
share- weighted-average shares
outstanding and assumed conversions 4,687,117 5,056,166 5,381,785
========== ========== ==========
Basic earnings per share $ 0.06 $ 0.14 $ 0.45
========== ========== ==========
Diluted earnings per share $ 0.06 $ 0.14 $ 0.45
========== ========== ==========
</TABLE>
13. Employee and Retiree Benefit Plans
Effective with the December 13, 1995 spin-off of 100% of the common stock of the
Company being distributed to Piedmont Management stockholders, LMC has assumed
the sponsorship of certain of Piedmont's employee benefit plans and their
related trusts and insurance contracts, and is solely responsible for all
liabilities and obligations under such plans. In addition, in exchange for
payment from Piedmont, LMC assumed certain of Piedmont's obligations to provide
continuing medical and dental coverage to certain of Piedmont's and The
Reinsurance Corporation of New York's ("RECO") employees, and retirement and
postretirement medical and life insurance to former RECO employees.
Savings Plan
LMC's and MSR's employees participate in the 401(k) savings plan sponsored
by LMC. Employees are eligible to participate upon attaining age twenty-one and
completing six months of service. The savings plan provides for voluntary
participant contributions which may not exceed 10% of each participant's annual
salary. Additionally, for each participant's voluntary contribution not
exceeding 6% of the participant's annual salary, LMC or MSR contribute an amount
equal to 50% of the individual participant's contribution.
Contributions fully vest to employees at the end of five years. The annual
savings plan expense by was $112,658, $117,498, and $122,760 for the years ended
December 31, 1999, 1998, and 1997, respectively.
Retirement Plan
LMC sponsors a defined benefit plan ("Retirement Plan") which is part of a
master trust. An employee becomes a participant in the Retirement Plan after
attaining age twenty-one and completing one year of service. Full vesting in the
accrued benefit occurs at the earlier of completing five years of service after
attaining age eighteen or reaching early retirement age. The funding policy for
the Retirement Plan is to annually contribute the statutory required minimum
amount as actuarially determined. Approximately 36% of the plan assets are
invested in the Lexington Group of Mutual Funds.
LMC also maintains non-qualified supplemental benefit plans ("SERP") for certain
employees. These plans replace the portion of benefits that exceed the
limitations established by the Internal Revenue Code for tax qualified benefit
plans. The amount charged to expense relating to these plans was approximately
$101,000, $85,000, and $87,000 for the years ended December 31, 1999, 1998, and
1997, respectively.
30
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee and Retiree Benefit Plans (Continued)
The following is selected actuarial information for the Retirement Plan and SERP
(the "Plans"):
The Plans' projected benefit obligation at December 31, 1999 and 1998 was
comprised of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Benefit obligation at beginning of year $ 7,974,469 $ 7,067,630
Service cost 387,261 338,530
Interest cost 527,460 487,785
Actuarial (gain) or loss (1,551,388) 390,032
Benefits paid (306,464) (309,508)
----------- -----------
Benefit obligation at end of year $ 7,031,338 $ 7,974,469
=========== ===========
</TABLE>
The plan assets at fair value for the years ended December 31, 1999 and 1998 was
comprised of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Fair value of plan assets at beginning of year $ 5,693,421 $ 5,158,165
Actual return on plan assets 1,221,547 706,108
Employer contributions 460,057 138,656
Benefits paid (306,464) (309,508)
----------- -----------
Fair value of plan assets at end of year $ 7,068,561 $ 5,693,421
----------- -----------
</TABLE>
The following table presents the Plans' funded status and amounts recorded in
the Company's accompanying consolidated statements of financial condition at
December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Funded status $ 37,223 ($2,281,048)
Unrecognized net actuarial (gain) or loss (1,522,108) 685,031
Unrecognized transition obligation 32,228 123,142
Unrecognized prior service cost 454,888 372,489
----------- -----------
Net amount recorded at end of year ($997,769) ($1,100,386)
=========== ===========
</TABLE>
Amounts recorded in the consolidated statements of financial condition at
December 31, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Accrued benefit liability ($1,069,882) ($1,343,147)
Intangible asset 72,113 242,761
----------- -----------
Net amount recorded at end of year ($997,769) ($1,100,386)
=========== ===========
</TABLE>
The following table compares year end information for the Plans' projected
benefit obligation, accumulated benefit obligation, and fair value of plan
assets at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Projected benefit obligation $ 7,031,338 $ 7,974,469
Accumulated benefit obligation 6,260,849 7,036,568
Fair value of plan assets 7,068,561 5,693,421
</TABLE>
31
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee and Retiree Benefit Plans (Continued)
Actuarial computations at December 31, 1999, 1998 and 1997 were made utilizing
the following assumptions:
1999 1998 1997
---- ---- ----
Discount rate 8.00% 6.75% 7.00%
Expected return on plan assets 10.00% 10.00% 10.00%
Rate of compensation increase 6.00% 6.00% 6.00%
Net expense under the Plans for the years ended December 31, 1999, 1998 and 1997
was comprised of:
1999 1998 1997
---- ---- ----
Service cost $ 387,261 $ 338,530 $ 267,931
Interest cost 527,460 487,785 436,804
Expected return on plan assets (565,796) (501,717) (469,064)
Amortization of prior service cost 34,711 26,188 18,674
Amortization of transitional asset (26,196) (17,673) (26,196)
---------- --------- ----------
Net periodic benefit cost $ 357,440 $ 333,113 $ 228,149
---------- --------- ----------
Postretirement Employee Benefits
In addition to providing pension benefits, the Company, along with certain
affiliates, provides the option of life and medical insurance benefits for
retirees. Pensioners whose employment was terminated by retirement (age 55 and
10 years of service) become eligible for these benefits. The medical insurance
benefits are partially contributory in nature. Postretirement benefit plans
other than pensions are not funded. The transaction obligation is being
amortized over a 20-year period under the SFAS No. 106 "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
The following is selected actuarial information for the Company's postretirement
employee benefits:
The postretirement employee benefits' accumulated benefit obligation at December
31, 1999 and 1998 was comprised of:
1999 1998
---- ----
Benefit obligation at beginning of year $1,238,079 $1,236,634
Service cost 71,209 57,181
Interest cost 79,912 75,775
Actuarial gain (219,886) (102,883)
Benefits paid (68,009) (28,628)
---------- ----------
Benefit obligation at end of year $1,101,305 $1,238,079
---------- ----------
The following table presents the postretirement employee benefits' funded status
and amounts recorded in the Company's accompanying consolidated statements of
financial condition at December 31, 1999 and 1998:
1999 1998
---- ----
Funded status ($1,101,305) ($1,238,079)
Unrecognized net actuarial gain (312,558) (94,122)
Unrecognized transition obligation 291,000 316,000
----------- -----------
Net amount recorded at end of year
(accrued benefit liability) ($1,122,863) ($1,016,201)
=========== ===========
32
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Employee and Retiree Benefit Plans (Continued)
Actuarial computation at December 31, 1999, 1998 and 1997 were made utilizing
the following assumptions:
1999 1998 1997
---- ---- ----
Discount rate 8.00% 6.75% 7.00%
For measurement purposes, a 9.8% (pre age 65 coverage) and 8.4% (post age 65
coverage) annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1999. The rate is assumed to decrease gradually to 5%
for 2007 and remain at that level thereafter.
Net expense under the postretirement employee benefits for the years ended
December 31, 1999, 1998 and 1997 was comprised of:
1999 1998 1997
---- ---- ----
Service cost $ 71,209 $ 57,181 $ 54,702
Interest cost 79,912 75,775 78,203
Expected return on plan assets (1,420) (3,260) (2,461)
Amortization of transitional obligation 25,000 25,000 25,000
-------- -------- --------
Net periodic benefit cost $174,701 $154,696 $155,444
======== ======== ========
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
One-percentage One-percentage
point increase point decrease
-------------- --------------
Effect on total of service and
interest cost components $ 32,775 ($32,775)
Effect on postretirement benefit
obligation 163,665 (163,665)
Deferred Compensation Program
The Company sponsors a supplemental retirement plan which is non-qualified
deferred compensation plan (the "Plan"). The Plan is maintained by the Company
for purposes of providing deferred compensation for a select group of key
employees. The Company established a trust for this Plan and consolidates the
trust assets with those of the Company in the accompanying consolidated
statements of financial condition and records an offsetting liability. The
investments held in the trust consist of various mutual fund holdings, including
funds in the Lexington Group of Mutual Funds (approximately 24% of the trust's
assets). The value of these investments were $1,013,895 and $834,309 at December
31, 1999 and 1998, respectively.
14. Income Taxes
A reconciliation of income tax expense computed at the U.S. statutory rate to
the effective rate reflected in the accompanying consolidated statements of
operations for the years ended December 31, 1999, 1998, and 1997 follows:
1999 1998 1997
---- ---- ----
Expected tax rate 34.00% 34.00% 34.00%
State and local taxes 12.11 9.92 6.81
Restricted Stock 25.49 8.02 -
Other (15.12) (1.61) (7.31)
------ ----- -----
Effective tax rate 56.48% 50.33% 33.50%
------ ----- -----
33
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Income Taxes (Continued)
The tax effects of temporary differences that give rise to the net deferred tax
asset at December 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 0 $ 63,213
Deferred compensation 1,095,610 651,300
Retirement and postretirement 847,023 800,068
Other 34,400 189,059
---------- ----------
Total deferred tax asset 1,977,033 1,703,640
---------- ----------
Deferred tax liabilities:
Deferred state taxes (137,781) (106,865)
Other (83,014) (36,089)
---------- ----------
Total deferred tax liabilities (220,795) (142,954)
---------- ----------
Net deferred tax asset $1,756,238 $1,560,686
========== ==========
Income tax expense attributable to income for the years ended December 31, 1999,
1998, and 1997 consist of:
Current Deferred Total
----------- ------------ -----------
Year ended December 31, 1999:
U.S. Federal $ 344,431 ($ 104,626) $ 239,805
State and local 206,332 (90,926) 115,406
----------- ------------ -----------
$ 550,763 ($ 195,552) $ 355,211
=========== ============ ===========
Current Deferred Total
----------- ------------ -----------
Year ended December 31, 1998:
U.S. Federal $ 71,794 $ 436,024 $ 507,818
State and local 274,745 (58,497) 216,248
----------- ------------ -----------
$ 346,539 $ 377,527 $ 724,066
=========== ============ ===========
Current Deferred Total
----------- ------------ -----------
Year ended December 31, 1997:
U.S. Federal ($339,801) $1,175,028 $ 835,227
State and local 353,730 18,601 372,331
---------- ------------ -----------
$ 13,929 $1,193,629 $1,207,558
----------- ------------ -----------
The Company believes it is more likely than not that it will generate future
taxable income to realize the benefits of the net deferred tax asset.
Accordingly, the Company has not provided a valuation allowance. The amount
ultimately realized, however, could be reduced if actual amounts of future
taxable income are reduced.
15. Disclosures about Segments of an Enterprise and Related Information
The Company and its subsidiaries are principally engaged in a variety of asset
management and related services to retail investors, institutions and private
accounts.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for the way a public enterprise reports
information about operating segments in its annual and interim financial
statements. Generally, financial information will be required to be reported on
the basis used by management for evaluation segment performance and for deciding
how to allocate resources to segments.
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Disclosures about Segments of an Enterprise and Related Information
(Continued)
The Company principally operates in three business segments: Mutual Funds,
Institutional, and Private Accounts. The mutual fund segment, through its
subsidiaries, markets, promotes, and distributes the Lexington family of 16
mutual funds providing a variety of investment choices. The institutional
segment for investment management services includes corporate, government and
multi-employee pension plans, charitable endowments and foundations, insurance
company general accounts and defined contribution and 401(k) plans. The private
account segment offers equity, fixed income and balanced fund alternatives,
tailored to the individual investment objectives of its private clients.
<TABLE>
<CAPTION>
Mutual Private
Year ended December 31, 1999 Funds Institutional Accounts Other Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 9,636,604 $ 4,177,750 $ 5,146,599 $ 176,216 $19,137,169
Salaries and other compensation $ 4,282,535 $ 4,308,645 $ 1,590,164 - $10,181,344
Selling and promotional $ 337,711 $ 387,967 $ 135,423 $ 42,782 $ 903,883
Administrative and general $ 2,782,051 $ 1,251,866 $ 2,830,695 $ 388,134 $ 7,252,746
Income before income taxes
and minority interest $ 2,234,307 ($1,770,728) $ 590,317 ($254,700) $ 799,196
- ----------------------------------------------------------------------------------------------------------------
Mutual Private
Year ended December 31, 1998 Funds Institutional Accounts Other Total
- ----------------------------------------------------------------------------------------------------------------
Revenue $11,055,576 $ 3,782,724 $ 4,287,002 $ 41,163 $19,166,465
Salaries and other compensation $ 3,941,343 $ 3,852,303 $ 1,217,600 - $ 9,011,246
Selling and promotional $ 581,897 $ 255,755 $ 99,983 $ 53,461 $ 991,096
Administrative and general $ 3,170,150 $ 1,271,214 $ 2,979,938 $ 268,302 $ 7,689,604
Income before income taxes
and minority interest $ 3,362,186 ($1,596,548) ($10,519) ($280,600) $ 1,474,519
- ----------------------------------------------------------------------------------------------------------------
Mutual Private
Year ended December 31, 1997 Funds Institutional Accounts Other Total
- ----------------------------------------------------------------------------------------------------------------
Revenue $13,829,223 $ 3,581,712 $ 3,448,775 $ 35,008 $20,894,718
Salaries and other compensation $ 3,982,392 $ 3,913,902 $ 1,118,834 - $ 9,015,128
Selling and promotional $ 826,947 $ 337,928 $ 87,932 $ 63,770 $ 1,316,577
Administrative and general $ 3,647,614 $ 1,379,779 $ 1,624,753 $ 246,105 $ 6,898,251
Income before income taxes
and minority interest $ 5,372,270 ($2,049,897) $ 617,256 ($274,867) $ 3,664,762
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Management does not evaluate assets as a means to allocate resources and assess
performance. The Company is domiciled in the United States and does not have any
international operations.
35
<PAGE>
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Quarterly Financial Data (Unaudited)
The unaudited quarterly financial data for the years ended December 31, 1999
and 1998 follows:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1999
- ----
Results of operations:
Total revenues $4,453,627 $4,755,140 $4,801,869 $5,126,533
Total expenses 4,068,732 4,306,843 5,348,639 4,613,759
Provision (benefit) for taxes 166,874 210,488 (318,583) 296,432
Net income (loss) 185,058 214,209 (299,043) 173,426
Basic earnings (loss) per share $ 0.04 $ 0.05 $ (0.07) $ 0.04
Diluted earnings (loss) per share $ 0.04 $ 0.05 $ (0.07) $ 0.04
Common stock price range:
High $ 3.875 $ 3.750 $ 3.875 $ 3.188
Low $ 2.563 $ 3.000 $ 3.188 $ 2.250
1998
- ----
Results of operations:
Total revenues $5,076,341 $4,932,335 $4,505,184 $4,652,605
Total expenses 4,662,025 4,592,478 4,291,191 4,146,252
Provision for taxes 181,100 157,968 116,274 268,724
Net income 232,587 174,447 89,017 218,389
Basic earnings per share $ 0.04 $ 0.03 $ 0.02 $ 0.05
Diluted earnings per share $ 0.04 $ 0.03 $ 0.02 $ 0.05
Common stock price range:
High $ 9.500 $ 8.500 $ 7.250 $ 5.250
Low $ 6.750 $ 6.750 $ 3.313 $ 3.250
</TABLE>
36
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Other Positions with the Company and Its Subsidiaries; Year Term
Principal Occupation for the Past Five Years; and Director of Office
Name Age All Other Directorships of Publicly Held Companies since to Expire
---------------------------------- --- ------------------------------------------------------ -------- ----------
<S> <C> <C> <C> <C>
Sion A. Boney, III (1)............ 44 Nelson Communications; Chairman of Diversified Sector;
Co-Chairman of MCI Network; formerly President of Myers 1995 2001
Products. (Class I)
Robert M. DeMichele............... 55 President, Chief Executive Officer and Director 1995 2001
Company; Chairman and Chief Executive Officer of (Class I)
Lexington Management Corporation; Director of The
Trenwick Group; Director of The Navigators Group,
Inc., an insurance company).
Haynes G. Griffin................. 53 Chairman and CEO of Prospect Partners. L.L.P.; 1995 2001
Chairman of Vanguard Cellular Systems. (Class I)
William R. Miller................. 69 Retired; Director of Chartwell; formerly 1995 2000
Chief Executive Officer of Winterthur U.S. (Class II)
L. Richardson Preyer (2).......... 81 Retired; formerly Professor, University of North 1995 2000
Carolina; formerly a Member of the U.S. House of (Class II)
Representatives from the State of North Carolina.
Lunsford Richardson, Jr. (1)(2)... 75 Vice Chairman of the Company; Chairman of 1995 2000
Richardson Corporation of Greensboro. (Class II)
Peter L. Richardson(3)............ 46 President of Smith Richardson Foundation, Inc.; 1995 2002
Managing Trustee of H. Smith Richardson Family (Class III)
Stuart S. Richardson(3)........... 53 Chairman of the Company; Director of Lexington 1995 2002
Management Corporation (investment counseling and (Class III)
mutual fund management subsidiary of the Company);
Carl H. Tiedemann................. 73 General Partner, Tiedemann Investment Group (an 1995 2002
investment management company). (Class III)
</TABLE>
(1) Mr. Sion A. Boney, III is a nephew of Mr. Lunsford Richardson, Jr.
(2) Messrs. L. Richardson Preyer and Lunsford Richardson, Jr. are first cousins.
(3) Messrs. Peter L. Richardson and Stuart S. Richardson are brothers
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 31, 1999 with
respect to the Company's executive officers.
<TABLE>
<CAPTION>
Principal Occupation or Employment Office(s)
Name Age Year Elected Executive Officer
- ---- --- ------------------------------
<S> <C> <C>
Stuart S. Richardson 53 Chairman (1995)
Robert M. DeMichele 55 President and Chief Executive Officer (1995)
Richard M. Hisey 41 Executive Vice President and Chief Financial Officer (1995)
Denis P. Jamison 52 Senior Vice President (1995)
Richard Saler 38 Senior Vice President (1995)
</TABLE>
37
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Other Positions with the Company and Its Subsidiaries; Year Term
Principal Occupation for the Past Five Years; and Director of Office
Name Age All Other Directorships of Publicly Held Companies since to Expire
---------------------------------- --- ------------------------------------------------------ -------- ----------
<S> <C> <C> <C> <C>
Sion A. Boney, III (1)............ 44 Nelson Communications; Chairman of Diversified Sector;
Co- 1995 2001
Chairman of MCI Network; formerly President of Myers (Class I)
Products.
Robert M. DeMichele............... 55 President, Chief Executive Officer and Director 1995 2001
Company; Chairman and Chief Executive Officer of (Class I)
Lexington Management Corporation; Director of The
Trenwick Group; Director of The Navigators Group,
Inc., an insurance company).
Haynes G. Griffin................. 53 Chairman and CEO of Prospect Partners. L.L.P.; 1995 2001
Chairman of Vanguard Cellular Systems. (Class I)
William R. Miller................. 69 Retired; Director of Chartwell; formerly 1995 2000
Chief Executive Officer of Winterthur U.S. (Class II)
L. Richardson Preyer (2).......... 81 Retired; formerly Professor, University of North 1995 2000
Carolina; formerly a Member of the U.S. House of (Class II)
Representatives from the State of North Carolina.
Lunsford Richardson, Jr. (1)(2)... 75 Vice Chairman of the Company; Chairman of 1995 2000
Richardson Corporation of Greensboro. (Class II)
Peter L. Richardson(3)............ 46 President of Smith Richardson Foundation, Inc.; 1995 2002
Managing Trustee of H. Smith Richardson Family (Class III)
Stuart S. Richardson(3)........... 53 Chairman of the Company; Director of Lexington 1995 2002
Management Corporation (investment counseling and (Class III)
mutual fund management subsidiary of the Company);
Carl H. Tiedemann................. 73 General Partner, Tiedemann Investment Group (an 1995 2002
investment management company). (Class III)
</TABLE>
(1) Mr. Sion A. Boney, III is a nephew of Mr. Lunsford Richardson, Jr.
(2) Messrs. L. Richardson Preyer and Lunsford Richardson, Jr. are first cousins.
(3) Messrs. Peter L. Richardson and Stuart S. Richardson are brothers
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 31, 1999 with
respect to the Company's executive officers.
<TABLE>
<CAPTION>
Principal Occupation or Employment Office(s)
Name Age Year Elected Executive Officer
- ---- --- ------------------------------
<S> <C> <C>
Stuart S. Richardson 53 Chairman (1995)
Robert M. DeMichele 55 President and Chief Executive Officer (1995)
Richard M. Hisey 41 Executive Vice President and Chief Financial Officer (1995)
Denis P. Jamison 52 Senior Vice President (1995)
Richard Saler 38 Senior Vice President (1995)
</TABLE>
38
<PAGE>
Item 11. Executive Compensation
Directors' Compensation
A Director who is also an employee of the Company or one of its
subsidiaries receives no compensation for service on the Board that is in
addition to that received as an employee. Non-employee Directors who do not
receive a fee for consulting and/or advisory services provided to the Company
are paid an annual Director's fee of $10,000 plus $500 for each Board or
committee meeting attended.
Executive Officers' Compensation
<TABLE>
<CAPTION>
Securities
Annual Compensation Underlying
---------------------------------------
Other Restricted Stock
Annual Stock Options All Other
Name/Position Year Salary Bonus Compensation Awards(1) Granted(2) Compensation(3)
---------------------------------- ------ ---------- ----------- -------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart S. Richardson.............. 1999 $267,000 $ 10,000 -- -- 8,000 $ 7,543
Chairman 1998 $264,850 0 -- -- 10,000 $ 7,433
1997 $255,900 $ 25,000 -- $ 37,500 20,000 $ 7,633
Robert M. DeMichele............... 1999 $535,000 $ 50,000 -- $ 6,500 8,000 $ 71,178
President & CEO 1998 $530,500 0 -- $ 24,188 10,000 $ 70,413
1997 $511,950 $ 75,000 -- $1,268,750 40,000 $ 68,327
Richard M. Hisey.................. 1999 $292,250 $100,000 -- -- 13,000 $ 8,257
Executive Vice President, CFO & 1998 $266,750 $ 40,000 -- $ 24,188 10,000 $ 7,506
General Manager-- Mutual 1997 $254,625 $140,000 -- $ 425,000 18,000 $ 7,575
Denis P. Jamison.................. 1999 $270,000 $ 85,000 -- $ 4,875 11,000 $ 7,625
Senior Vice President, Director 1998 $267,750 $ 40,000 -- $ 32,250 8,000 $ 7,553
Of Fixed Income Investment
Strategy 1997 $258,000 $ 95,000 -- $ 12,500 7,000 $ 7,094
Richard Saler..................... 1999 $264,000 $135,000 -- $ 3,250 7,000 $ 7,410
Senior Vice President,
Director of 1998 $261,750 $ 18,000 -- -- 8,000 $ 7,349
Internat'l Equity Investment
Strategy 1997 $250,750 $ 75,000 -- $ 12,500 7,000 $ 7,063
Lawrence Kantor................... 1999 $296,000 0 -- -- 6,000 $ 7,551
Formerly Executive Vice President 1998 $293,500 $ 10,000 -- -- 10,000 $ 8,339
1997 $283,250 $120,000 -- $ 25,000 18,000 $ 8,433
</TABLE>
_______________
(1) Represents grants of restricted stock under the Company's 1995 Long Term
Incentive Plan.
(2) Represents grants of options under the Company's 1995 Long Term Incentive
Plan.
(3) The amounts reported in this column represent, for each of the individuals
named, the employer portion of contributions to the Company's Pay Conversion
Plan, a defined contribution salary deferral plan which qualifies under
Section 401(k) of the Internal Revenue Code. In addition, amounts include
employer contributions to the Company's Executive and Supplemental Benefit
Plans, non-qualified plans replacing the portion of benefits which are in
excess of Internal Revenue Code (the "Code") limits for tax qualified plans.
For each of the last three calendar years, contributions to the Executive
Benefit Plan for Mr. DeMichele were $61,378, $60,613, and $58,577
respectively; and for each of the last three calendar years contributions to
the Supplemental Benefits Plan were as follows: for Mr. Hisey, $3,968,
$3,203, and $2,825; for Mr. Richardson, $3,210, $3,146, and $2,883; for Mr.
Jamison, $3,300, $3,233, and $2,932; for Mr. Saler, $3,120, $3,053, and
$2,714; and for Mr. Kantor, $3,230, $4,005, and $3.683.
38
<PAGE>
The following table contains information concerning the grants of stock
options under the Company's 1995 Long Term Incentive Plan with respect to the
Named Executive Officers during 1999.
Option Grants in Last Fiscal Year(1)
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Exercise Potential Realizable Value at
Underlying Granted to or Base Assumed Annual Rates of Stock
Options Employees in Price Expiration Appreciation for Option Term(2)
--------------------------------
Name Granted Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
----------------------- ---------- ------------ ---------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stuart S. Richardson... 8,000 9.2 3.50 03/31/09 0 17,600 44,600
Robert M. DeMichele.... 8,000 9.2 3.50 03/31/09 0 17,600 44,600
Richard M. Hisey....... 13,000 15.0 3.50 03/31/09 0 28,600 72,500
Denis P. Jamison....... 11,000 12.7 3.50 03/31/09 0 24,200 61,400
Richard Saler.......... 7,000 8.1 3.50 03/31/09 0 15,400 39,100
Lawrence Kantor........ 6,000 6.9 3.50 03/31/09 0 13,200 33,500
</TABLE>
(1) Reflects option grants on March 31, 1999, one fourth of which become
exercisable on each of the first four anniversaries of the date of grant.
Vested options may be exercised at any time prior to the tenth anniversary
of the date of grant, unless the optionee's employment with the Company is
sooner terminated, in which case the optionee shall have a specified period
in which to exercise vested options. All options vest upon a change of
control (as defined in the Plan) of the Company.
(2) As required by the Securities and Exchange Commission (the "SEC"), the
amounts shown assume a 5% and 10% annual rate of appreciation on the price
of the Company's Common Stock throughout a 10 year Option Term. There can be
no assurance that the rate of appreciation assumed for purposes of this
table will be achieved. The actual value of the stock options to the Named
Executive Officers will depend on the future price of the Company's Common
Stock. As reflected in the column which assumes a 0% rate of appreciation,
the options will have no value to the Named Executive Officers if the price
of the Company's Common Stock does not increase above the exercise price of
the options. If the price of the Company's Common Stock increases, all
stockholders will benefit commensurately with the Named Executive Officers.
On December 31, 1999, there were 4,494,038 shares of Common Stock
outstanding and the closing price of the Common Stock was $2.4375. Using the
same Assumed Annual Rates of Stock Price Appreciation for the Option Term to
arrive at Potential Realizable Value shown in the table above, the gain to
all stockholders as a group at the 5% and 10% rates would be $9,891,967 and
$25,068,187, respectively. The amount of the gain to all Named Executive
Officers as a percentage of the gain to all stockholders under these
scenarios would be approximately 1.18%.
Aggregated Option Exercises in 1999 and Year-End Option Values
The following table sets forth information with respect to the Named
Executive Officers, concerning unexercised options held as of December 31, 1999.
No options with respect to the Company's Common Stock were exercised in 1999.
<TABLE>
<CAPTION>
Number of
Shares Underlying Value of Unexercised
Shares Unexercised Options "In the Money" Options(1)
Acquired Value at Fiscal Year-End(#) at Fiscal Year-End($)
--------------------------- ----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---------------------- ----------- -------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stuart S. Richardson.. -- -- 42,500 25,500 $-- $--
Robert M. DeMichele... -- -- 80,000 35,500 $-- $--
Richard M. Hisey...... -- -- 36,500 29,500 $-- $--
Denis P. Jamison...... -- -- 15,500 20,500 $-- $--
Richard Saler......... -- -- 15,500 16,500 $-- $--
Lawrence Kantor....... -- -- 36,500 22,500 $-- $--
</TABLE>
__________
(1) These values are based upon the December 31, 1999 market price of the Common
Stock which was $2.4375 per share.
39
<PAGE>
Retirement Plan Benefits
The Company and its subsidiaries are the sponsors of a defined benefit
pension plan on behalf of their employees. In addition, the Company and its
subsidiaries are sponsors of an Executive Benefit Plan and a Supplemental
Benefits Plan on behalf of certain of their executives which are non-qualified
plans replacing the portion of benefits which are in excess of the Code limits
for tax qualified plans. Benefit formulas under the plans are explained below.
Benefits vest after five years of service.
An employee becomes a participant in the qualified plan after attaining age
21 and completing one year of service. The pension benefit is equal to the sum
of past service retirement income plus future service retirement income, and if
eligible, the non-qualified plans distributions. For a participant as of
December 31, 1988, the amount of normal retirement income standing to his credit
as of that date will not be less than 1 1/4% of the first $17,000 of his average
annual earnings for the calendar years 1984 through 1988 inclusive, plus 1 3/4%
of average earnings in excess of $17,000, multiplied by his credited service
through December 31, 1988. All participants' benefits for future service are
arrived at by calculating 1 1/2% of annual salary for each year of service. A
participant is eligible for this normal retirement pension on the first date of
the month coincident with or next following his 65th birthday.
The following table illustrates, as of December 31, 1999, for the Named
Executive Officers: (a) years of service credited under the retirement plans;
and (b) the estimated annual benefits payable under the plans, including Social
Security benefits, assuming the election of a single life annuity upon normal
retirement at the age of 65.
<TABLE>
<CAPTION>
Years of Service as of Estimated Annual
Name of Officer December 31, 1999 Benefit Payable
------------------------ -------------------- ----------------
<S> <C> <C>
Stuart S. Richardson.... 13 $ 120,132
Robert M. DeMichele..... 19 100,104
Richard M. Hisey........ 13 162,108
Denis P. Jamison........ 18 132,276
Richard Saler........... 13 153,552
</TABLE>
Employment and Change in Control Arrangements
Employment Agreements
The Company has entered into three year employment agreements with Messrs.
Richardson, DeMichele, and Hisey pursuant to which such executives serve as
Chairman, President and Chief Executive Officer, and Executive Vice President
and Chief Financial Officer, respectively. The agreements became effective on
December 13, 1995. Pursuant to such agreements, the initial base salaries of
Messrs. Richardson, DeMichele, and Hisey were $240,000, $480,000, and $225,000,
respectively. Their salaries are reviewed annually by the Executive Personnel
Committee and ratified by the Board of Directors. In the past, Messrs.
Richardson, DeMichele, and Hisey received salary increases resulting in the
following new base salaries: Mr. Richardson, $267,000; Mr. DeMichele, $535,000;
and, Mr. Hisey, $300,000. Following the initial term, the agreements continue
from year to year unless terminated by either party on six months notice. Each
agreement provides for continuation of salary and benefits for the remaining
term of the agreement if employment is terminated by the Company "other than for
cause" (as defined in the agreements). If employment is terminated "other than
for cause" following a "change in control" (as defined in the agreements) of the
Company or if an executive terminates his employment following a "change in
control" because his authority and/or responsibilities are substantially reduced
or he is required to relocate, he is entitled to receive a payment equal to his
average annual cash compensation for the immediately preceding five fiscal years
multiplied by 2.99. However, if necessary, such payment will be reduced to an
amount that would cause the payment not to be disqualified from deductibility
for Federal income tax purposes by reason of Section 280G of the Code as an
"excess parachute payment." Each employment agreement also provides that the
executive will not solicit clients or employees of the Company for the term of
the agreement and the one year period following a termination of employment.
40
<PAGE>
Severance Plan
On September 14, 1995, the Company adopted the Senior Management Severance
Plan (the "Severance Plan"). The Severance Plan is available to certain senior
management employees designated as participants by the Board of Directors or the
Executive Personnel Committee. The Severance Plan provides that if the
employment of a participant is terminated "other than for cause" (as defined in
the Severance Plan) following a "change in control" of the Company (as defined
in the Severance Plan) or if an executive terminates his employment following a
"change in control" because his authority and/or responsibilities are
substantially reduced or he is required to relocate, he is entitled to receive a
payment equal to his average annual cash compensation for the immediately
preceding five fiscal years multiplied by 2.99. However, if necessary, such
payment will be reduced to an amount that would cause the payment not to be
disqualified from deductibility for Federal income tax purposes by reason of
Section 280G of the Code as an "excess parachute payment." The Severance Plan
requires each participant, as a condition to participation, to agree not to
solicit clients or employees of the Company during such participant's employment
and for the one year period following a termination of employment. Messrs.
DeMichele, Richardson, and Hisey are designated participants in the Severance
Plan.
The Board of Directors of the Company unanimously approved the Severance
Plan because it believes the continued attention and dedication of the
particular employees to their duties under adverse circumstances is in the best
interests of the Company and its stockholders and ultimately outweighs the
potential cost of the benefit.
Deferred Compensation Program
The Company implemented a non-qualified deferred compensation program for
highly compensated employees in 1997. The program allows the employees to defer
a portion of their annual compensation.
Deferred Compensation Agreement
Pursuant to the Deferred Compensation Agreement dated as of February 2, 1981
with Mr. DeMichele, the Company will accrue $5,000 a year until Mr. DeMichele's
death or termination of employment and upon such death or termination of
employment (other than for cause), shall pay such accrued amounts in a lump sum
or, at the option of the Company, in five annual installments.
PERFORMANCE GRAPH
The following line graph compares the percentage change in the cumulative
total stockholder return on the Company's Common Stock with the NASDAQ Stock
Market Index and the NASDAQ Financial Stocks Index during the period from
December 13, 1995 through December 31, 1999. It assumes $100 invested on
December 13, 1995 (including dividends reinvested) in Common Stock of the
Company as against each index. There can be no assurance that the Company's
Common Stock performance will continue into the future with the same or similar
trends depicted in the graph.
[LINE GRAPH]
NASDAQ
LEXINGTON FINANCIAL
GLOBAL STOCKS SIC NASDAQ
ASSET 6000-6799 STOCK
MANAGERS, US & FOREIGN MARKET
Period ending INC. STOCKS (US COMPANIES)
Dec 13 95 $100.00 $100.00 $100.00
Dec 29 95 100.66 100.15 99.58
Dec 31 96 131.58 128.75 122.19
Dec 31 97 192.10 202.08 148.63
Dec 31 98 81.58 209.96 207.54
Dec 31 99 51.32 272.84 385.16
41
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Base
Period
Company/Index Name Dec 13, 95 Dec 95 Dec 96 Dec 97 Dec 98 Dec. 99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LEXINGTON GLOBAL $100.00 $100.06 $131.58 $192.10 $ 81.58 $ 51.32
ASSET MANAGERS, INC.
- ----------------------------------------------------------------------------------------------------------------------------
NASDAQ FINANCIAL STOCKS 100.00 100.15 128.75 202.08 209.96 272.84
SIC 6000-6799 US & FOREIGN
- ----------------------------------------------------------------------------------------------------------------------------
NASDAQ STOCK MARKET 100.00 99.58 122.19 148.63 207.54 385.16
(US COMPANIES)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
STOCK SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information as of March 17, 2000
concerning the beneficial ownership of the Company's Common Stock for: (i) each
of the Company's Directors and nominees who own Common Stock, (ii) each of the
Named Executive Officers and (iii) all Directors and Executive Officers of the
Company as a group. For purposes of this Proxy Statement, beneficial ownership
of securities is defined in accordance with the rules of the SEC and means
generally the power to vote or dispose of securities, regardless of any economic
interest therein.
<TABLE>
<CAPTION>
Number of Shares of Percent of
Name of Beneficial Owner Common Stock(1) Common Stock
--------------------------------------- ------------------- ------------
<S> <C> <C>
Sion A. Boney, III(2)(3)............... 323,807 7.2
Robert M. DeMichele(4)................. 212,654 4.7
Haynes G. Griffin(3)................... 421,464 9.4
Richard M. Hisey(5).................... 64,301 1.4
William R. Miller...................... 12,000 *
L. Richardson Preyer................... 1,165 *
Lunsford Richardson, Jr.(2)............ 172,478 3.8
Peter L. Richardson(2)(3).............. 550,378 12.2
Stuart S. Richardson(2)(3)............. 1,185,123 26.3
Carl H. Tiedemann...................... -- --
Directors and Executive Officers as a
Group.................................. 2,943,370 65.3
</TABLE>
______________
* Less than 1%.
(1) The amounts shown include shares which are beneficially owned by more than
one individual since many shares are held in trusts with more than one
trustee.
(2) The individuals named may be deemed to be control persons of the Company
(other than solely by reason of being Directors of the Company) according to
the rules of the SEC.
(3) These individuals share voting and/or investment power with respect to
certain of their share holdings. For a breakdown of the number of shares for
which control is sole or shared, see "Security Ownership of Certain
Beneficial Owners."
(4) This amount includes restricted share grants under the Company's 1995 Long
Term Incentive Plan of 166,000 shares of which 112,000 are vested as of
March 17, 2000.
(5) This amount includes restricted share grants under the Company's 1995 Long
Term Incentive Plan of 60,000 shares of which 38,333 are vested as of March
17, 2000.
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of March 17, 2000 with respect
to shares of the Common Stock which are held by certain persons and entities
known to the Company to be the beneficial owners of more than 5% of the
Company's outstanding Common Stock.
43
<PAGE>
<TABLE>
<CAPTION>
Number of Shares of Percent of
Name and Address of Beneficial Owner Common Stock(1) Common Stock
---------------------------------------------------- ------------------ ------------
<S> <C> <C>
Sion A. Boney, III(2)(3)............................ 323,827 7.2
777 Scudders Mill Road, Princeton, NJ 08543
Barbara R. Evans(2)(4).............................. 742,854 16.5
5 Fernwood Road, Summit, NJ 07901
Laurinda V. Lowenstein(2)(5)........................ 341,819 7.6
29 W. 15th Street, New York, NY 10011
Peter L. Richardson(2)(6)........................... 550,378 12.2
1285 Mill Hill Road, Southport, CT 06490
Stuart S. Richardson(2)(7).......................... 1,185,123 26.3
Park 80 West Plaza Two, Saddle Brook, NJ 07663
Richard G. Smith. III(2)(8)......................... 772,930 17.2
2325 Cob Tailway, Blacklick, OH 43004
Center for Creative Leadership(9)................... 421,464 8.9
P.O. Box P-1, Greensboro, NC 27402
Richardson Family(10)............................... 2,301,538 51.1
</TABLE>
__________________
(1) The amounts shown include shares which are beneficially owned by more
than one individual since many shares are held in trusts with more than
one trustee.
(2) These shares are included in those owned by the "Richardson Family", as
defined below.
(3) These shares include shares of various trusts of which Sion A. Boney,
III is a trustee and as to which he exercises shared voting and
investment power with respect to such shares. Sion A. Boney, III
exercises sole voting and investment power with respect to 25,432 shares
of Common Stock.
(4) These shares include shares of various trusts of which Barbara R. Evans
is a trustee and as to which she exercises shared voting and investment
power with respect to such shares. Barbara R. Evans exercises sole
voting and investment power with respect to 217,416 shares of Common
Stock.
(5) These shares include shares of various trusts of which Laurinda V.
Lowenstein is a trustee and as to which she exercises shared voting and
investment power with respect to such shares. Laurinda V. Lowenstein
exercises sole voting and investment power with respect to 4,580 shares
of Common Stock
(6) These shares include shares of various trusts of which Peter L.
Richardson is a trustee and as to which he exercises shared voting and
investment power with respect to such shares. Peter L. Richardson has
sole voting and investment power with respect to 400 shares of Common
Stock which shares are also included in those shares owned by the
"Richardson Family," as defined below.
(7) These shares include shares of various trusts of which Stuart S.
Richardson is a trustee and as to which he exercises shared voting and
investment power with respect to such shares. Stuart Smith Richardson
exercises sole voting and investment power with respect to 456,408
shares of Common Stock which shares are also included in those shares
owned by the "Richardson Family," as defined below.
(8) These shares include shares of various trusts of which Richard G. Smith,
III is a trustee and as to which he exercises shared voting and
investment power with respect to such shares. Richard G. Smith, III
exercises sole voting and investment power with respect to 59,236 shares
of Common Stock.
(9) The Members of the Center for Creative Leadership are: Messrs. Eric R.
Calhoun, Haynes G. Griffin, Thomas K. Hearn, Jr., Ph.D., Winburne King,
III, Esq., L. Richardson Preyer, Jr., John W. Red, Jr., Peter L.
Richardson, Stuart S. Richardson, Linda Koch Lorimer, and Ingar Skaug.
These individuals are deemed to be beneficial owners of all shares held
by the Center.
(10) See below for a description of the "Richardson Family."
44
<PAGE>
"Richardson Family," as used herein, means the descendants of Lunsford
Richardson, Sr., their spouses, trusts, a corporation in which they have
interests and charitable organizations established by such descendants. In
addition, several of the descendants of Mr. Richardson or their spouses
currently serve as directors of the Company (Messrs. Sion A. Boney, III; L.
Richardson Preyer; Lunsford Richardson, Jr.; Peter L. Richardson; and Stuart S.
Richardson). At March 17, 2000, such descendants and spouses (numbering
approximately 190 persons), trusts, a corporation in which they have interests
and charitable organizations established by them owned approximately 2,301,538
shares of Common Stock (or 51.1% of the outstanding Common Stock). Many of these
shares may be deemed to be beneficially owned by more than one person because of
multiple fiduciaries, but such shares have been counted only once for purposes
of the foregoing totals. These individuals and institutions have differing
interests and may not necessarily vote their shares in the same manner.
Furthermore, trustees and directors have fiduciary obligations (either
individually or jointly with other fiduciaries) under which they must act on the
basis of fiduciary requirements which may dictate positions which differ from
their personal interests.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than ten percent (10%) of a registered class of the
Company's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of Common Stock and other equity securities
of the Company. Reporting persons are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company, all reports required by Section 16(a) of the
Exchange Act were filed on a timely basis.
Item 13. Certain Relationships and Related Transactions
Transactions with Directors, Officers or Their Associates
Approximately $944 million of invested assets of principal stockholders of
the Company (several of whom are directors) and their related interests are
managed by Lexington Management Corporation and Market Systems Research
Advisors, Inc., subsidiaries of the Company. See "Security Ownership of Certain
Beneficial Owners." The fees charged by Lexington Management Corporation and
Market Systems Research Advisors, Inc. for the management of such assets are
based upon standard fee schedules which are competitive with the fees charged on
nonrelated accounts.
Except as stated above, no Director or officer of the Company, nominee for
Director, beneficial owner of more than 5% of any class of stock of the Company
or member of the immediate family of any of the foregoing persons had any
material interest in any material transaction of the Company or any of its
subsidiaries or affiliates during the period from January 1, 1999 through March
17, 2000 or any such proposed transaction.
45
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following information is filed under this item:
(a) (1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8:
Consolidated Statements of Financial Condition-December 31, 1999 and 1998;
Consolidated Statements of Operations-Years Ended December 31, 1999, 1998, 1997;
Consolidated Statements of Changes in Stockholders' Equity-Years Ended December
31, 1999, 1998, 1997; Consolidated Statements of Cash Flows-Years Ended December
31, 1999, 1998, 1997; Notes to Consolidated Financial Statements and Independent
Auditors' Report.
(a) (2) Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or are included in the financial
statements and, therefore, have been omitted.
(a)(3) Exhibits
2.1 Merger Agreement
13.1 Registrant's Annual Report to Stockholders for the year ended
December 31, 1999.
27.1 Financial Data Schedule
99.1 Amendment to Rights Agreement
99.2 Voting Agreement and Irrevocable Proxy, which has been signed by
the following: Stuart S. Richardson, Peter L. Richardson, James L.
Richardson, Laurinda Lowenstein Douglas, Margaret W. Gallagher,
Barbara Richardson Evans, Richard G. Smith, Lunsford Richardson,
Jr., Sion A. Boney, III, Robert and June DeMichele, and Center for
Creative Leadership (signed by John R. Alexander, President)
Exhibits specified by Item 601 of Regulation S-K, other than those listed
above, have been omitted since they are either not required or are not
applicable.
(b) Report on Form 8-K
None filed during the fourth quarter of 1999
(c) Schedules described in item 14A (2) are excluded from the Registrant's
Annual Report to Stockholders.
(d) Items Incorporated by Reference
None
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
LEXINGTON GLOBAL ASSET MANAGERS, INC.
By /s/ Richard M. Hisey
------------------------------------------
Richard M. Hisey, Executive Vice President
(Chief Financial Officer)
Date March 31, 2000
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/ Stuart Smith Richardson
- ----------------------------------------
Stuart Smith Richardson, Chairman Date March 31, 2000
of the Board of Directors
/s/ Robert M. DeMichele
- ----------------------------------------
Robert M. DeMichele, President & Director Date March 31, 2000
(Chief Executive Officer)
/s/ Richard M. Hisey
- ----------------------------------------
Richard M. Hisey, Executive Vice President Date March 31, 2000
(Principal Financial and Accounting Officer)
/s/ Sion A. Boney
- ----------------------------------------
Sion A. Boney, III, Director Date March 31, 2000
/s/ Haynes G. Griffin
- ----------------------------------------
Haynes G. Griffin, Director Date March 31, 2000
/s/ William R. Miller
- ----------------------------------------
William R. Miller, Director Date March 31, 2000
/s/ L. Richardson Preyer
- ----------------------------------------
L. Richardson Preyer, Director Date March 31, 2000
/s/ Lunsford Richardson, Jr.
- ----------------------------------------
Lunsford Richardson, Jr., Director Date March 31, 2000
/s/ Peter L. Richardson
- ----------------------------------------
Peter L. Richardson, Director Date March 31, 2000
/s/ Carl H. Tiedemann
- ----------------------------------------
Carl H. Tiedemann, Director Date March 31, 2000
46
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EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
Dated as of February 28, 2000
by and among
ReliaStar Financial Corp.,
Pilgrim Holdings Corporation
and Lexington Global Asset Managers, Inc.
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as of
February 28, 2000, is made among ReliaStar Financial Corp., a Delaware
corporation ("Buyer"), Pilgrim Holdings Corporation, a Delaware corporation and
a wholly owned subsidiary of Buyer ("Merger Sub"), and Lexington Global Asset
Managers, Inc., a Delaware corporation ("Lexington").
Recitals
Lexington (or one or more of its subsidiaries) acts as investment
adviser and/or principal underwriter for 16 open-end investment companies and as
sponsor for one registered unit investment trust (collectively, the "Lexington
Funds") registered under the Investment Company Act of 1940, as amended (the
"1940 Act").
Lexington (or one or more of its subsidiaries) is investment adviser
for various private accounts.
The Boards of Directors of Buyer, Merger Sub, and Lexington deem it
advisable and in the best interests of each corporation and its respective
stockholders that Merger Sub and Lexington combine in order to advance the
long-term business interests of Buyer, Merger Sub, Lexington, the Lexington
Funds and the Lexington investment advisory or subadvisory clients.
The strategic combination of Merger Sub and Lexington shall be effected
by the terms of this Agreement through a transaction in which Lexington will
merge with and into Merger Sub (the "Merger").
In the Merger each share of Lexington's common stock, $.0l par value
per share ("Lexington Common Stock"), issued and outstanding at the Effective
Time (as defined in Section 1.1), shall be converted into cash and/or a fraction
of a share of common stock, $.01 par value per share, of Buyer ("Buyer Common
Stock").
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For federal income tax purposes, it is intended that the Merger qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
Agreement
Now, therefore, intending to be legally bound hereby, the parties agree
as follows:
ARTICLE I
The Merger
1.1 Effective Time of the Merger. Subject to the terms of this
Agreement, a Certificate of Merger (the "Certificate of Merger") shall be duly
executed by Merger Sub and Lexington and delivered to the office of the Delaware
Secretary of State for filing, as provided in Section 251 of the Delaware
General Corporation Law (the "Delaware Law"), as soon as practicable on the
Closing Date (as defined in Section 1.2). The Merger shall become effective at
the time at which the Certificate of Merger shall have been filed with the
Delaware Secretary of State or at such time thereafter as is provided in the
Certificate of Merger (the "Effective Time").
1.2 Closing. Closing of the Merger (the "Closing") will take place at
11:00 a.m., New York time, on a date to be specified by Buyer and Lexington,
which shall be no later than the fifth business day after satisfaction or waiver
(to the extent waivable under Article VIII) of all conditions to the
consummation of the Merger set forth in Article VIII of this Agreement (other
than those conditions that by their nature are to be satisfied at the Closing,
but subject to the satisfaction or waiver of those conditions), at the offices
of Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania, unless
another date or place is agreed to by Buyer and Lexington. The date on which the
Closing occurs is referred to as the "Closing Date." All actions taken at the
Closing shall be deemed to have been taken simultaneously at the Effective Time.
1.3 Effects of the Merger.
(a) At the Effective Time, in accordance with this Agreement
and the Delaware Law, (1) Lexington shall be merged with and into
Merger Sub, (2) the separate corporate existence of Lexington shall
cease, and (3) Merger Sub shall be the surviving corporation and shall
continue to be governed by the Delaware Law (Merger Sub is sometimes
referred to in this Agreement as the "Surviving Corporation").
(b) The Merger shall have the other effects set forth in Sections
259 and 261 of the Delaware Law.
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1.4 Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(a) The Certificate of Incorporation of Merger Sub as in effect
immediately before the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, until duly amended in
accordance with the terms thereof and of the Delaware Law.
(b) The Bylaws of Merger Sub in effect immediately before the
Effective Time shall be the Bylaws of the Surviving Corporation, until
duly amended in accordance with their terms, the Certificate of
Incorporation of the Surviving Corporation, and the Delaware Law.
1.5 Directors and Officers of the Surviving Corporation.
(a) The directors of Merger Sub holding office at the Effective
Time shall, from and after the Effective Time, be the directors of the
Surviving Corporation, to serve until their successors have been duly
elected or appointed and qualified or until their earlier death,
resignation, or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
(b) In addition to such other officers as the Board of Directors
of the Surviving Corporation may appoint from time to time, the
officers of Merger Sub holding office at the Effective Time shall, from
and after the Effective Time, be the officers of the Surviving
Corporation, to serve until their successors have been duly appointed
and qualified or until their earlier death, resignation, or removal in
accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
ARTICLE II
Conversion of Securities
2.1 Effect on Capital Stock. Subject to the other provisions of this
Article II, at the Effective Time, by virtue of the Merger and without any
action on the part of Buyer, Lexington, Merger Sub, or the holder of any shares
of the following securities:
(a) Merger Consideration. Subject to adjustment as provided in
Sections 2.1(b), 2.1(c) and 2.1(l) and the election and allocation
provisions of Sections 2.1(i) and 2.1(j), each issued and outstanding
share of Lexington Common Stock (other than shares of Lexington Common
Stock held of record by Buyer, Merger Sub, or Lexington or any other
direct or indirect subsidiary of Buyer or Lexington immediately before
the Effective Time and other than shares of Lexington Common Stock as
to which dissenters' rights of appraisal have been exercised as
contemplated by Section 2.1(k)) shall be automatically converted into
and become the right to receive (i) 0.231 of a share of Buyer Common
Stock, (the "Share Consideration"), and (ii) cash in the amount of
$3.306 (the "Cash Consideration" and, together with the Share
Consideration, the "Merger Consideration"). At the Effective Time, each
share of Lexington Common Stock held of record by Buyer, Merger Sub, or
Lexington or any direct or indirect subsidiary of Buyer or Lexington
shall be canceled and cease to exist, and no payment shall be made with
respect to those shares.
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<PAGE>
(b) Adjustment of Merger Consideration Based on Buyer's Average
Share Price. The Share Consideration shall not be adjusted as a result
of changes in the market value of Buyer Common Stock unless the average
per share closing price of Buyer Common Stock on the New York Stock
Exchange (the "NYSE") for the five trading days immediately preceding
the date that is one business day before the Closing Date ("Buyer's
Average Share Price") is more than $31.625 or less than $25.625. If
Buyer's Average Share Price is more than $31.625, then the Share
Consideration shall be reduced to a fraction of a share of Buyer Common
Stock (expressed as a decimal, rounded to the nearest thousandth), the
numerator of which shall be the Share Consideration set forth in
Section 2.1(a)(i) multiplied by $31.625 and the denominator of which
shall be Buyer's Average Share Price. If Buyer's Average Share Price is
less than $25.652, then the Share Consideration shall be increased to a
fraction of a share of Buyer Common Stock (expressed as a decimal,
rounded to the nearest thousandth), the numerator of which shall be the
Share Consideration set forth in Section 2.1(a)(i) multiplied by
$25.625 and the denominator of which shall be Buyer's Average Share
Price; provided, however, that, in lieu of the foregoing adjustment,
Buyer may determine, by written notice to Lexington on or before the
Closing Date, to increase the Cash Consideration by an amount not to
exceed the product of the Share Consideration multiplied by the
difference between $25.625 and Buyer's Average Share Price and to
increase the Share Consideration by a decimal amount (rounded to the
nearest thousandth) equal to the quotient obtained by dividing (A) the
difference between (1) the product of the Share Consideration
multiplied by the difference between $25.625 and the Buyer's Average
Share Price minus (2) the amount of the increase in the Cash
Consideration made pursuant to Buyer's determination by (B) Buyer's
Average Share Price.
(c) Adjustment to Merger Consideration Based on Assets Under
Management. If any adjustment is required by the provisions of the
following subsections, the Merger Consideration payable by Buyer at the
Closing determined after giving effect to any adjustment required by
Section 2.1(b), will be reduced or increased by a percentage calculated
in the following manner:
(1) Attached hereto as Schedule 2.1(c) is a list prepared by
Lexington of the Lexington Funds and investment advisory or
subadvisory clients of Lexington as of December 31, 1999, showing
for each and as of that date, the client's or fund's name and
assets under management (the "Original Schedule"). The total assets
under management listed on the Original Schedule shall be referred
to as the "Base Net Assets."
(2) At the Closing, Lexington will deliver to Buyer a revised
Schedule 2.1(c) (the "Revised Schedule") as of the close of
business on the third business day before the Closing, prepared as
follows:
(A) all clients that have terminated their investment
advisory or subadvisory relationship with Lexington or that
have notified Lexington in writing of their intention to
terminate that relationship since the date of the Original
Schedule shall be deleted from the Revised Schedule;
4
<PAGE>
(B) clients that have engaged Lexington since the date
of the Original Schedule shall be added to the Revised
Schedule with their assets under management by Lexington
included in the Revised Schedule at the value of those assets
on the date Lexington's management commenced;
(C) for clients (other than Lexington Funds) that have
withdrawn assets from management by Lexington since the date
of the Original Schedule, assets under management for each
such client shall be reduced by the same percentage as is
calculated by dividing (A) the value of the assets withdrawn
as of the date of withdrawal, by (B) the aggregate value of
assets managed by Lexington for such client immediately prior
to the withdrawal;
(D) for clients (other than Lexington Funds and assets
managed by Lexington or its subsidiaries for the Richardson
family or any trust for the benefit of the Richardson family)
that have added to assets under management since the date of
the Original Schedule, assets under management shall be
increased by the same percentage as is calculated by dividing
(A) the value of the assets added as of the date of the
addition of the assets, by (B) the aggregate value of assets
managed by Lexington for such client immediately prior to the
date Lexington's management commenced;
(E) assets under management for each of the Lexington
Funds shall be increased or decreased, as appropriate, by the
total of the aggregate net sales or redemptions for such
Lexington Funds between December 31, 1999 and the third
business day before the Closing; and
(F) the Revised Schedule shall not reflect fluctuations
in the market value of assets under management since the date
of the Original Schedule.
Pro forma net assets under management shown on the Revised Schedule are referred
to as "Assigned Net Assets."
(3) Assigned Net Assets shall then be divided by Base Net
Assets, calculated as a percentage, and the resulting percentage
shall be determined to the nearest one-hundredth of one percent
(the "Adjustment Percentage").
(4) Any adjustment to the Merger Consideration shall adjust
the Share Consideration and Cash Consideration by the same
percentage, determined as follows:
(A) If the Adjustment Percentage is 90% or more but less
than or equal to 110%, there shall be no adjustment in the
Merger Consideration.
(B) If the Adjustment Percentage is less than 90%, then
the Merger Consideration payable at the Closing, determined
after giving effect to any adjustment required by Section
2.1(b), shall be reduced by one percent for each one percent
decrease in Adjustment Percentage in accordance with the
following
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<PAGE>
table, with interpolation as necessary between percentages
rounded to the nearest one-thousandth of one percent:
Percent by which Merger
Adjustment Percentage Consideration shall be reduced
- --------------------------------------------------------------------------
90 0%
89 1
88 2
87 3
86 4
85 5
84 6
83 7
82 8
81 9
80 10
and so forth
(C) If the Adjustment Percentage is greater than 110%,
then the Merger Consideration payable at the Closing,
determined after giving effect to any adjustment required by
Section 2.1(b), shall be increased by one percent for each one
percent increase in Adjustment Percentage in accordance with
the following table, with interpolation as necessary between
percentages rounded to the nearest one-thousandth of one
percent:
Percent by which Merger
Adjustment Percentage Consideration shall be increased
- ----------------------------------------------------------------------------
110% 0%
111 1
112 2
113 3
114 4
115 5
116 6
117 7
118 8
119 9
120 10
and so forth
(d) Lexington Stock. All shares of Lexington Common Stock, when
converted pursuant to Section 2.1(a), shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and
holders of certificates that immediately before the Effective Time
represented shares of Lexington Common Stock (the "Certificates") shall
cease to have any rights with respect thereto, except the right to
receive the Merger Consideration in
6
<PAGE>
consideration therefor upon the surrender of the Certificates in
accordance with Section 2.2, without interest.
(e) Lexington Incentive Plans. At the Effective Time, all
outstanding options (the "Lexington Options") to purchase Lexington
Common Stock granted under the Lexington 1995 Long Term Incentive Plan
(the "Lexington Incentive Plan") and all outstanding Lexington
Restricted Stock granted under the Lexington Incentive Plan (the
"Lexington Restricted Stock") will become options to purchase Buyer
Common Stock or Buyer Restricted Stock, respectively, in accordance
with Section 7.8.
(f) Capital Stock of Merger Sub. Each issued and outstanding
share of the capital stock of Merger Sub shall remain outstanding as
one share of capital stock of the Surviving Corporation and shall not
be converted into any other securities or cash in the Merger. The
certificates for such shares shall not be surrendered or in any way
modified by reason of the Merger. No stock of Merger Sub will be issued
in the Merger.
(g) Fractional Shares. No scrip or fractional shares of Buyer
Common Stock shall be issued in the Merger. Each fractional share of
Buyer Common Stock that a holder of Lexington Common Stock would
otherwise be entitled to receive (after aggregating all shares of Buyer
Common Stock to be received by that holder) shall be automatically
converted into the right to receive, at the Effective Time from Buyer,
an amount in cash in lieu of the fractional share of Buyer Common Stock
equal to the product of the fraction multiplied by Buyer's Average
Share Price (rounded up or down to the nearest $.01). Buyer will make
available to the Exchange Agent (as defined in Section 2.2) the cash
necessary for the purpose of paying for fractional shares.
(h) Buyer Stock. All shares of Buyer Common Stock into which
the shares of Lexington Common Stock are converted shall be validly
issued, fully paid and nonassessable and will have Buyer Rights
attached thereto in accordance with the Buyer Rights Agreement (as such
terms are defined in Section 5.2(b)).
(i) Election Procedures. Each record holder (as of the record
date determined by Lexington) of shares of Lexington Common Stock shall
have the right to elect in writing to have all of his shares of
Lexington Common Stock converted into cash or Buyer Common Stock, as
the case may be, subject to Section 2.1(j), in accordance with the
following procedures:
(1) At least thirty days prior to the Closing Date, a
letter of transmittal and election statement (an "Election
Statement") providing for the right to elect to receive cash
or Buyer Common Stock and for the tender to the Exchange Agent
of the Certificates representing Lexington Common Stock shall
be mailed to all record holders of Lexington Common Stock at
their respective addresses shown in Lexington's stock transfer
records.
(2) Any record holder of Lexington Common Stock may
specify, in an Election Statement meeting the requirements of
this Section 2.1(i), that, as to all shares of Lexington
Common Stock covered by such Election Statement:
7
<PAGE>
(A) all such shares shall be converted into
Cash Consideration and Share Consideration in the
proportions set forth in Section 2.1(a); provided,
however, that such election shall be subject to a
determination by Buyer in certain events under
Section 2.1(b) to convert to cash a portion of the
Merger Consideration that would otherwise be Buyer
Common Stock; or
(B) the Cash Consideration payable for all
such shares be converted to shares of Buyer Common
Stock, in which case such holder shall receive no
cash and shall receive additional shares of Buyer
Common Stock equal to .50 multiplied by the Share
Consideration for each issued and outstanding share
of Lexington Common Stock held; provided, however,
that such election shall be subject to a
determination by Buyer in certain events under
Section 2.1(b) to convert to cash a portion of the
Merger Consideration that would otherwise be Buyer
Common Stock; or
(C) the Share Consideration payable for all
such shares be converted into cash, in which case
such holder shall receive no Share Consideration and
shall receive additional cash equal to the Share
Consideration multiplied by Buyer's Average Share
Price.
(3) Notwithstanding anything to the contrary set
forth above:
(A) Any record holder of Lexington Common
Stock who is holding such shares for a beneficial
owner or as a nominee for one or more beneficial
owners may submit an Election Statement on behalf of
any such beneficial owner. Any beneficial owner of
Lexington Common Stock on whose behalf a record owner
of Lexington Common Stock has submitted an Election
Statement in accordance with this Section 2.1(i) will
be considered a separate holder of Lexington Common
Stock for purposes of this Agreement.
(B) Any holder of Lexington Common Stock who
may be considered, by reason of the ownership
attribution rules contained in Section 318 of the
Internal Revenue Code of 1986, as amended, to own
constructively shares of Lexington Common Stock in
addition to those actually owned by such holder may
submit an Election Statement jointly with one or more
of such persons whose shares of Lexington Common
Stock such holder may be considered to own
constructively, and any such joint Election Statement
shall for purposes of this Section 2.1(i) be
considered to be a single Election Statement.
(4) An Election Statement will be effective only if
a properly completed and signed copy thereof, accompanied by
Certificates for the shares of Lexington Common Stock which
such Election Statement covers, shall have been actually
received by the Exchange Agent no later than one business day
before the day of the meeting of the Lexington stockholders to
vote upon this agreement (such day being referred to herein as
the "Election Deadline"). Delivery shall be effected, and risk
of loss and title to the
8
<PAGE>
Certificate shall pass, only upon proper delivery of an
Election Statement which meets the requirements of this
Section 2.1(i) is hereinafter referred to as an "Effective
Election Statement."
(5) Any record holder of Lexington Common Stock who
has submitted an Effective Election Statement may at any time
until the Election Deadline amend such Election Statement if
the Exchange Agent actually receives, no later than the
Election Deadline, a later dated, properly completed and
signed amended Effective Election Statement.
(6) Any record holder of Lexington Common
Stock may at any time prior to the Election Deadline revoke
his Election Statement and withdraw certificates for shares of
Lexington Common Stock deposited therewith by written notice
actually received by the Exchange Agent no later than the
Election Deadline. Any Election Statement relating to shares
of Lexington Common Stock which are or become Dissenting
Shares (as defined in Section 2.1(k) hereof) shall be deemed
automatically revoked. Any notice of withdrawal shall be
effective only if it is properly executed and specifies the
record holder of the shares to be withdrawn and the
Certificate numbers shown on the Certificates representing the
shares to be withdrawn.
(7) Lexington and Buyer shall have the right to
make rules, not inconsistent with the terms of this Agreement,
governing the form, terms and conditions of the Election
Statements, the validity and effectiveness of Election
Statements and the manner and extent to which they are to be
taken into account in making the determinations prescribed by
Section 2.1(k) hereof. In the event this Agreement is
terminated, the Exchange Agent shall promptly return any
Certificates received to the respective record holders.
(j) Allocations. The allocation of cash and/or Buyer
Common Stock among holders of outstanding shares of Lexington Common
Stock shall be effected as hereinafter provided:
(1) Except as otherwise provided in Sections
2.1(i)(2)(A), 2.1(j)(4) and 2.1(j)(5), all of the shares of
Lexington Common Stock held by shareholders who elected to
receive cash and Buyer Common Stock in the proportions set
forth in Section 2.1(a) or who did not elect in any Effective
Election Statement to receive all cash or all Buyer Common
Stock shall be converted into cash and Buyer Common Stock at
the conversion rate specified in Section 2.1(a) hereof;
(2) Except as otherwise provided in Sections
2.1(i)(2)(B) and 2.1(j)(5), all of the shares of Lexington
Common Stock held by shareholders who elected in an Effective
Election Statement to receive all Buyer Common Stock shall be
converted into all Buyer Common Stock on the terms and
conditions set forth in Section 2.1(i);
(3) Subject to Section 2.1(j)(4) hereof, Lexington
Common Stock held by shareholders who elected in an Effective
Election Statement to receive all cash shall be
9
<PAGE>
converted into cash, on the terms and conditions set forth in
Section 2.1(i) hereof but only up to the percentage specified
below.
(4) If the aggregate amount of cash payable to
holders of Lexington Common Stock after giving effect to the
foregoing provisions of this Section 2.1(j), including cash
payable to holders of Dissenting Shares and cash payable due
to fractional shares, pursuant to the Merger exceeds one-third
(or, if Buyer has made a determination to increase the Cash
Consideration pursuant to Section 2.1(b), such higher
percentage as shall be equal to the percentage of the Total
Consideration payable in cash, after giving effect to such
determination) (the "Specified Cash Percentage") of the Merger
Consideration plus the cash payable to holders of Dissenting
Shares (the "Total Consideration"), the cash otherwise payable
to Lexington stockholders who would otherwise receive any
portion of the Merger Consideration in cash shall be reduced
pro rata so that the aggregate amount of cash does not exceed
the Specified Cash Percentage and such Lexington stockholders
shall receive Buyer Common Stock in lieu thereof.
(5) If the aggregate amount of Buyer Common Stock
issuable to holders of Lexington Common Stock pursuant to the
Merger after giving effect to the foregoing provisions of this
Section 2.1(j) exceeds two-thirds (or, if Buyer has made a
determination to increase the Cash Consideration pursuant to
Section 2.1(b), such lower percentage as shall be equal to the
percentage of the Total Consideration payable in Buyer Common
Stock, after giving effect to such determination) of the Total
Consideration (the "Specified Stock Percentage"), the Buyer
Common Stock otherwise issuable to Lexington stockholders who
would receive any portion of the Merger Consideration in Buyer
Common Stock shall be reduced pro rata so that the aggregate
amount of Buyer Common Stock does not exceed the Specified
Stock Percentage and such Lexington stockholders shall receive
cash in lieu thereof.
(6) If the foregoing election and allocation
procedures are found to be unlawful for federal regulatory
purposes, this Section 2.2(j) shall be amended to provide such
other procedure for reduction of the number of shares of
Lexington Common Stock converted to cash and/or Buyer Common
Stock as may be agreed upon by Buyer and Lexington and as is
consistent with such regulatory purposes.
(k) Dissenters' Rights.
(1) Notwithstanding any provision of this Agreement
to the contrary, any shares of Lexington Common Stock held by
a holder who has properly asserted his right, if any, for
appraisal of such shares in accordance with the Delaware Law
and who, as of the Effective Time, has not effectively lost
such right to appraisal (the "Dissenting Shares"), shall not
be converted into or represent a right to receive the Merger
Consideration pursuant to Section 2.1 (a), but the holder
thereof shall only be entitled to such rights as are granted
by the Delaware Law.
10
<PAGE>
(2) Notwithstanding the provision of Section
2.1(k)(1), if any holder of shares of Lexington Common Stock
who asserts his rights, if any, for appraisal or demands
payment for such shares under the Delaware Law shall
effectively lose his right to appraisal, then, as of the
later of the Effective Time or the occurrence of such event,
such holder's shares of Lexington Common Stock shall
automatically be converted into and represent only the right
to receive the Merger Consideration as provided in Section
2.1(a), upon surrender of the Certificates representing such
shares.
(l) Adjustments. The Merger Consideration shall be
appropriately adjusted to reflect any stock split, reverse stock
split, stock dividend, recapitalization, exchange, subdivision,
combination of, or other similar change (including the exercise
of any Buyer Rights under the Buyer Rights Agreement) in
Lexington Common Stock or Buyer Common Stock after the date of
this Agreement.
2.2 Exchange of Certificates.
(a) The transfer agent for Buyer Common Stock shall serve
as exchange agent hereunder (the "Exchange Agent"). Promptly
after the Effective Time, Buyer shall deposit in trust with the
Exchange Agent cash and certificates representing the aggregate
Merger Consideration to be paid to holders of Lexington Common
Stock and to pay for fractional shares then known to Buyer (such
Common Stock and cash amounts being referred to as the "Exchange
Fund"). The Exchange Agent shall, under irrevocable instructions
received from Buyer, pay the amounts of cash provided for in this
Article II out of the Exchange Fund. Additional amounts of cash,
if any, needed from time to time by the Exchange Agent shall be
provided by Buyer and shall become part of the Exchange Fund. The
Exchange Fund shall not be used for any other purpose, except as
provided in this Agreement, or as otherwise agreed to by Buyer
and Lexington before the Effective Time.
(b) As soon as practicable after the Effective Time, the
Exchange Agent shall mail to each record holder of Lexington Common
Stock who, as of the Effective Time was a holder of a Certificate, a
letter of transmittal (reasonably satisfactory in form and substance to
Lexington and Buyer) and instructions for its use in effecting the
surrender of the Certificate for payment therefor and conversion
thereof. Delivery shall be effected, and risk of loss and title to the
Certificate shall pass, only upon proper delivery of the Certificate to
the Exchange Agent and the letter of transmittal shall so reflect. Upon
surrender to the Exchange Agent of a Certificate, together with a
letter of transmittal duly executed and properly completed, the holder
of the Certificate shall be entitled to receive in exchange therefor
cash and shares of Buyer Common Stock to which that holder of Lexington
Common Stock is entitled pursuant to the terms of this Agreement (with
the cash amount being rounded up or down to the nearest $.0l) and the
Certificate so surrendered shall be marked "Canceled." No interest will
be paid or accrued on any Merger Consideration.
(c) If any portion of the consideration to be received
under this Article II upon exchange of a Certificate is to be issued or
paid to a person other than the person in whose name the Certificate
surrendered in exchange therefor is registered, it shall be a condition
of such payment that the Certificate so surrendered shall be properly
endorsed or otherwise in
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<PAGE>
proper form for transfer and that the person requesting such exchange
shall pay in advance any transfer or other taxes required by reason of
a check representing the Merger Consideration, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or that
no such tax is applicable. Buyer shall pay any transfer or other taxes
required by reason of the issuance of a certificate representing shares
of Buyer Common Stock if the certificate is issued in the name of the
person in whose name the certificate surrendered in exchange therefor
is registered; provided, however, that Buyer shall not pay any transfer
or other tax if payment of any such tax by Buyer otherwise would cause
the Merger to fail to qualify as a tax-free reorganization under the
Code.
(d) From the Effective Time until surrender in accordance with
this Section 2.2, each Certificate (other than Certificates
representing shares held by Buyer, Merger Sub, or Lexington or any
direct or indirect subsidiary of Buyer or Lexington) shall be deemed,
for all corporate purposes other than the payment of dividends or other
distributions, to evidence only the right to receive the cash and/or
Buyer Common Stock into which such shares of Lexington Common Stock
shall have been so converted or, in the case of Dissenting Shares, to
evidence only such rights as are granted by the Delaware Law. After
surrender, there shall be paid to the person in whose name the Buyer
Common Stock shall be issued any dividends on Buyer Common Stock that
shall have a record date and payment date on or after the Effective
Time and before surrender. All payments in respect of shares of
Lexington Common Stock that are made in accordance with the terms
hereof shall be deemed to have been made in full satisfaction of all
rights pertaining to those securities.
(e) In case of any lost, stolen, or destroyed Certificate, the
holder thereof may be required, as a condition precedent to the
delivery to the holder of the consideration described in Section 2.1,
and in accordance with Section 167 of the Delaware Law, to deliver to
Buyer a bond in such reasonable sum as Buyer may direct as indemnity
against any claim that may be made against the Exchange Agent, Buyer,
or the Surviving Corporation with respect to the Certificate alleged to
have been lost, stolen, or destroyed.
(f) After the Effective Time, there shall be no transfers on
the books of the Surviving Corporation of the shares of Lexington
Common Stock that were outstanding immediately before the Effective
Time. If, after the Effective Time, Certificates are presented to
Surviving Corporation for transfer, they shall be canceled and
exchanged for the consideration described in Section 2.1. After the
Effective Time, the shares of Lexington Common Stock shall be delisted
from the Nasdaq National Market System.
(g) Any portion of the Exchange Fund that remains unclaimed by
the stockholders of Lexington for one year after the Effective Time
shall be returned to Buyer, upon demand, and any holder of Lexington
Common Stock who has not theretofore complied with this Section 2.2
shall thereafter look only to Buyer for issuance of the Merger
Consideration to which the holder has become entitled under Section
2.1; provided, however, that neither the Exchange Agent nor any party
to this Agreement shall be liable to a holder of shares of Lexington
Common Stock for any amount required to be paid to a public official or
public entity under any applicable abandoned-property, escheat, or
similar law.
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ARTICLE III
Representations and Warranties of Lexington
3.1 General. Lexington represents and warrants to Buyer and Merger
Sub that the statements contained in this Article III are true and correct,
except as set forth in the disclosure schedule delivered by Lexington to Buyer
on the date of this Agreement (the "Lexington Disclosure Schedule").
Notwithstanding any other provision of this Agreement, each exception set forth
in the Lexington Disclosure Schedule shall be deemed to qualify each
representation and warranty set forth in this Agreement (i) that is specifically
identified (by cross-reference or otherwise) in the Lexington Disclosure
Schedule as being qualified by such exception, or (ii) with respect to which the
relevance of such exception is apparent on the face of the disclosure of such
exception set forth in the Lexington Disclosure Schedule. As used throughout
this agreement with respect to any person, the term "Material Adverse Effect"
means any change or effect that, individually or when taken together with all
changes or effects that have occurred before the determination of the occurrence
of the Material Adverse Effect, has had or is reasonably likely to have a
material adverse effect on the business, financial condition, or results of
operations of the person and its subsidiaries taken as a whole; provided,
however, that Material Adverse Effect with respect to any person shall not
include any change in or effect upon the business, financial condition, or
results of operations of such person or any of its subsidiaries directly or
indirectly arising out of or attributable to (a) conditions, events, or
circumstances generally affecting the U.S. economy as a whole, (b) conditions,
events, or circumstances generally affecting the mutual fund industry as a whole
(including regulatory and legal), or (c) any decreases in Lexington Mutual Fund
Assets Under Management. It is further understood that any decrease in the
market price of shares of Lexington Common Stock or Buyer Common Stock shall not
be relevant to a determination of whether a Material Adverse Effect has
occurred.
3.2 Representations and Warranties.
(a) Organization, Standing, Qualification.
(1) Each of Lexington and its subsidiaries (which, for
purposes of this Article includes Troika Dialog Lexington
Partners (BVI) Ltd. ("TDLPL")) is a corporation duly organized,
validly existing, and in good standing under the laws of the
jurisdiction of its organization and has the requisite power and
authority to own, lease, and operate its properties and assets
and to carry on its business as it is now being conducted. Each
of Lexington and its subsidiaries is duly qualified or licensed
as a foreign corporation to do business, and is in good standing,
in each jurisdiction where the character of the properties owned,
operated, or leased by it, or the nature of its business, makes
such qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or licensed or
in good standing would not have a Material Adverse Effect on
Lexington. The Lexington Disclosure Schedule sets forth a list of
all of Lexington's subsidiaries and their state of incorporation;
except as so set forth and except for securities held solely for
investment purposes, Lexington does not directly or indirectly
own any capital stock of, or other equity interest in, any
person. Copies of the charter and bylaws (or similar
organizational documents) of Lexington
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and each subsidiary of Lexington have been made available to
Buyer and are complete and correct as of the date hereof.
(2) Each of Lexington Management Corporation and Lexington
Market Systems Research Advisors, Inc. ("MSR") is and has been
duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), and under
Applicable Law (as defined in Section 4.2(f)). The Lexington
Disclosure Schedule lists the jurisdictions in which Lexington
Management Corporation or MSR is registered as an investment
adviser. Each such registration is in full force and effect.
Other than the jurisdictions set forth in the Lexington
Disclosure Schedule for Lexington Management Corporation or MSR,
neither Lexington nor its subsidiaries is required to be
registered as an investment adviser in any jurisdiction.
(3) Lexington Funds Distributor, Inc. ("Lexington
Distributor") is and has been duly registered as a broker-dealer
under the Securities Exchange Act of 1934 and under other
Applicable Law. The Lexington Disclosure Schedule lists the
jurisdictions in which Lexington Distributor is registered as a
broker-dealer. Each such registration is in full force and
effect. Other than the jurisdictions set forth in the Lexington
Disclosure Schedule, Lexington Distributor is not required to be
registered as a broker-dealer in any other jurisdiction.
Lexington Distributor is a member in good standing and has all
licenses and authorizations in self-regulatory or trade
organizations or registered clearing agencies, required to permit
the operation of its business as presently conducted, except
where such failure would not have a Material Adverse Effect on
Lexington.
(4) TDLPL has all requisite licenses and other
registrations necessary for it to manage the assets of the Troika
Dialog Lexington Eurasia Fund.
(b) Capitalization. The authorized capital stock of Lexington
consists of 15 million shares of Lexington Common Stock, of which, as
of the close of business on February 28, 2000, 4,505,038 shares were
issued and outstanding, and 5 million shares of preferred stock, $.01
par value, none of which are outstanding. The authorized capital stock
of MSR consists of 1,000 shares of common stock, $.01 par value. All of
the issued and outstanding shares of capital stock of Lexington and the
capital stock or other equity interests of each of its subsidiaries
have been duly authorized and validly issued, are fully paid and
nonassessable, and were not granted in violation of any statutory
preemptive rights. There are no outstanding subscriptions, options,
warrants, calls, or other agreements or commitments under which
Lexington or any subsidiary is or may become obligated to issue, sell,
transfer, or otherwise dispose of, or purchase, redeem, or otherwise
acquire, any shares of capital stock of, or other equity interests in,
Lexington or any subsidiary, and there are no outstanding securities
convertible into or exchangeable for any such capital stock or other
equity interests, except for options to purchase up to an aggregate of
437,100 shares of Lexington Common Stock, as of the close of business
on February 28, 2000 at an average exercise price of $5.51 and as set
forth in the Lexington Disclosure Schedule. There are no stock
appreciation rights, phantom stock rights, or, performance shares
outstanding issued by Lexington with respect to Lexington or any of its
subsidiaries. Lexington owns, directly or indirectly, all of the issued
and outstanding
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shares of each class of capital stock of each of its subsidiaries
which is wholly owned, and the number of shares of capital stock or
equity interests set forth on the Lexington Disclosure Schedule of
each subsidiary which is not wholly owned, in each case free and clear
of all liens, security interests, pledges, charges, and other
encumbrances. There are no agreements or understandings to which
Lexington or any of its subsidiaries is a party with respect to the
capital stock of Lexington or its subsidiaries.
(c) Authorization and Execution. Lexington has the corporate
power and authority to execute and deliver this Agreement and, subject
to approval by the stockholders of a majority of the outstanding
shares of Lexington Common Stock, to consummate the transactions
contemplated hereby. The execution, delivery, and performance of this
Agreement by Lexington have been duly authorized by the Board of
Directors of Lexington, and no further corporate action of Lexington,
other than the approval of its stockholders, is necessary to
consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by Lexington and, assuming the
accuracy of the representations and warranties of Buyer set forth in
Section 5.2(c), this Agreement constitutes the legal, valid, and
binding obligation of Lexington, enforceable against Lexington in
accordance with its terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally, and subject
to general principles of equity.
(d) No Conflicts. Neither the execution and delivery of this
Agreement by Lexington, nor the consummation by Lexington of the
transactions contemplated hereby will:
(1) conflict with or result in a breach of the charter,
bylaws, or similar organizational documents, as currently in
effect, of Lexington or any of its subsidiaries;
(2) require any filing with, or consent or approval of, any
government, state, or political subdivision thereof, entity
exercising executive, legislative, judicial, regulatory, or
administrative functions of or pertaining to government,
including the Securities and Exchange Commission (the "SEC") and
any other government authority, agency, department, board,
commission, or instrumentality of the United States, any State of
the United States, or any political subdivision thereof, any
court, tribunal, or arbitrator of competent jurisdiction, or any
governmental or nongovernmental self-regulatory organization,
agency, or authority (including the Nasdaq National Market and
the National Association of Securities Dealers, Inc. (the
"NASD")) (each, a "Governmental Authority") having jurisdiction
over any of the businesses or assets of Lexington or any of its
subsidiaries, except for (A) compliance with the requirements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"); (B) the filing of the Certificate of
Merger with the Delaware Secretary of State and appropriate
documents reflecting the occurrence of the Merger with the
relevant authorities of the other states in which Lexington is
licensed or qualified to do business; (C) the consents,
approvals, filings, and notices required under the 1940 Act and
the Advisers Act; (D) any consents, approvals, filings, or
notices required with the NASD or any industry self-regulatory
organizations; (E) the filing with the SEC of the Proxy
Statement/Prospectus (as defined in Section 5.2(e)) and
compliance with any
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other applicable requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"); and (F) such other
filings, consents, or approvals the failure of which to make or
obtain would not reasonably be expected to prevent consummation
of the Merger or to have a Material Adverse Effect on Lexington;
(3) subject to the exceptions contained in, and assuming
compliance with, clauses (A) through (F) of subsection (d)(2)
above, violate any Applicable Law applicable to Lexington or any
of its subsidiaries; or
(4) result in a material breach of, or constitute a
material default or an event that, with the passage of time or
the giving of notice, or both, would constitute a material
default, give rise to a right of termination, cancellation, or
acceleration, create any entitlement of any third party to any
material payment or benefit, require the consent of any third
party, or result in the creation of any material lien on the
assets of Lexington or any of its subsidiaries under, any
Material Contract (as defined in Section 3.2(j)).
(e) SEC Reports and Financial Statements.
(1) Since December 13, 1995, Lexington and its subsidiaries
have filed all material reports, registration statements, Forms
ADV, Forms BD and other filings, together with any material
amendments required to be made with respect thereto, that it has
been required to file with any relevant Governmental Authority
under federal and state securities laws, including the Securities
Act of 1933, as amended (the "Securities Act"), the Exchange Act.
All reports, registration statements, and other filings
(including all exhibits, notes, and schedules thereto and all
documents incorporated by reference therein) filed by Lexington
or its subsidiaries with the SEC on or after December 13, 1995,
together with any amendments thereto, are collectively referred
to as the "Lexington SEC Reports." As of: (A) with respect to all
of the Lexington SEC Reports other than registration statements
filed under the Securities Act, the respective dates of their
filing with the SEC; and (B) with respect to all registration
statements filed under the Securities Act, their respective
effective dates, the Lexington SEC Reports complied in all
material respects with the rules and regulations of the SEC and
did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements made therein not misleading.
Since its inception in June 1998, TDLPL has filed all reports,
registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has
been required to file with any relevant Governmental Authority
under U.S. federal and state securities laws and under foreign
law.
(2) The consolidated financial statements (including any
related notes or schedules) included in Lexington's 1998 Annual
Report on Form 10-K, as filed with the SEC, were prepared in
accordance with generally accepted accounting principles,
consistently applied ("GAAP"), except as may be noted therein or
in the notes or schedules thereto, and fairly present in all
material respects the consolidated financial position of
Lexington and its subsidiaries (except to the extent that TDLPL
is not
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consolidated) as of December 31, 1997 and 1998 and the
consolidated results of their operations and cash flows for each
of the three years in the three-year period ended December 31,
1998.
(3) The audited consolidated financial statements of
Lexington and its subsidiaries as of and for the year ended
December 31, 1999 when delivered will be consistent in all
material respects with the unaudited consolidated financial
statements of Lexington and its subsidiaries as of and for
December 31, 1999 that were previously delivered to Buyer.
(f) Proxy Statement. The information supplied by Lexington for
inclusion in the Proxy Statement (as defined in Section 5.2(e)), as of
the date of the Proxy Statement/Prospectus and as of the date of the
meeting of Lexington's stockholders to consider this Agreement and the
Merger, will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(g) Absence of Certain Changes or Events. Except as disclosed in
any Lexington SEC Report, from December 31, 1998 to the date of this
Agreement, Lexington and its subsidiaries have conducted their
respective businesses and operations in the ordinary course consistent
with past practices, and neither Lexington nor any of its subsidiaries
has:
(1) split, combined, or reclassified any shares of its
capital stock or made any other changes in its equity capital
structure;
(2) purchased, redeemed, or otherwise acquired, directly or
indirectly, any shares of its equity securities or any options,
rights, or warrants to purchase equity securities or any
securities convertible into equity securities;
(3) declared or paid any dividends on or made any other
distributions (whether in cash, stock, or property) in respect of
shares of its capital stock, or split, combined, or reclassified
any of its capital stock, or issued or authorized the issuance of
any other securities in respect of, in lieu of, or in
substitution for shares of capital stock of such entity;
(4) issued, delivered, or sold any shares of its capital
stock or securities convertible into shares of its capital stock,
or subscriptions, rights, warrants, or options to acquire, or
other agreements or commitments of any character obligating it to
issue, any such shares or other convertible securities (other
than the grant of options to employees in a manner consistent
with past practices under the Lexington Incentive Plan, and the
issuance of shares upon the exercise of such options);
(5) incurred, assumed, or guaranteed any indebtedness for
money borrowed, other than intercompany indebtedness, other than
that incurred under currently existing debt instruments;
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(6) changed or modified in any material respect any
existing accounting method, principle, or practice, other than as
required by GAAP;
(7) suffered any business interruption, damage to or
destruction of its properties, or other incident, occurrence, or
event (other than changes in general industry, economic, or
market conditions), which would have a Material Adverse Effect on
Lexington; or
(8) except for this Agreement, entered into any commitment
to do any of the foregoing.
(h) Tax Matters.
(1) Lexington and its subsidiaries have timely filed (or
received appropriate extensions for) all material federal, state,
local, and foreign tax returns ("Tax Returns") required to be
filed by them with respect to income, gross receipts,
withholding, social security, unemployment, payroll, franchise,
excise, use, premium, and other taxes of whatever kind ("Taxes"),
and have paid all Taxes shown on those Tax Returns to the extent
they have become due. Lexington's Tax Returns are accurate and
complete in all material respects.
(2) No Tax Returns filed by Lexington or any of its
subsidiaries are the subject of pending audits. Neither Lexington
nor any of its subsidiaries has received, before the date of this
Agreement, a notice of deficiency or assessment of additional
material Taxes that remains unresolved. Neither Lexington nor any
of its subsidiaries has extended the period for assessment or
payment of any Tax, which extension has not since expired.
(3) Lexington and its subsidiaries have withheld and paid
over to the appropriate Governmental Authorities all Taxes
required by law to have been withheld and paid in connection with
amounts paid or owing to any employee, except for any such Taxes
that are immaterial in amount.
(4) Neither Lexington nor any of its subsidiaries has been
a member of an affiliated group (as defined in Section 1504 of
the Code) filing a consolidated federal income tax return for any
tax year since January 1, 1992 other than a group the common
parent of which was Lexington (the "Lexington Consolidated
Group").
(5) Neither Lexington nor any of its subsidiaries has filed
a consent under Code Section 341(f) concerning collapsible
corporations.
(6) Lexington has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section
897(c)(1)(A)(ii).
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(7) Neither Lexington nor any of its subsidiaries is a
party to any Tax allocation or sharing agreement, except among
members of the Lexington Consolidated Group.
(8) Neither Lexington nor any of its subsidiaries is
subject to a Tax lien on any of its property or assets, except
for current liens for Taxes not yet due.
(9) Lexington has delivered or made available to Buyer true
and complete copies of all requested federal, state, local, and
foreign income tax returns with respect to Lexington and its
subsidiaries.
(10) Neither Lexington nor any of its Subsidiaries has made
any payments, is obligated to make any payments, or is a party to
any agreement that could obligate it to make any payment that is
not deductible under Code Section 280G.
(11) The reserve for Taxes set forth on the financial
statements of Lexington contained in Lexington's most recent
Annual Report on Form 10-K is adequate for the payment of all
material Taxes through the date thereof and no material Taxes
have been incurred after December 31, 1998 that were not incurred
in the ordinary course of business.
(12) The 1995 spin-off transaction involving Lexington
resulted in such federal tax consequences as are consistent with
the statements as to such matters set forth in the Information
Statement dated November 30, 1995 relating thereto.
(i) Properties.
(1) Lexington owns no real property. The Lexington
Disclosure Schedule sets forth a true and complete list of all
real property leased by Lexington or any of its subsidiaries and
the name of the lessor, the date of the lease, and each amendment
thereto and the aggregate annual rental or other fee payable
under the lease. All such leases are enforceable in accordance
with their respective terms, and there is not, under any such
lease, any existing material default or event of default by
Lexington (or event which with notice or lapse of time, or both,
would constitute a default and in respect of which Lexington has
not taken adequate steps to prevent the default from occurring).
(2) Lexington has good and valid title to, or, in the case
of leased properties and assets, valid leasehold interests in,
all of its tangible properties and assets, real, personal, and
mixed, used in its business, free and clear of any mortgages,
liens, pledges, charges, restrictions, encroachments, rights of
third parties, or other encumbrances of any kind, except for (A)
liens for current Taxes not yet due and payable, (B) inchoate
mechanic's, warehousemen's, materialmen's, or similar liens or
rights arising in the ordinary course of business, (C) liens,
encumbrances, restrictions, encroachments, and easements, all
with respect to tangible properties that were not incurred with
the borrowing of money or the obtaining of advances or credit and
that do not materially detract the value of or materially
interfere with the present use of the property subject thereto or
effected thereby, or otherwise materially impair present
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business operations at such properties, and (D) existing
mortgages, liens, and encumbrances disclosed in the Lexington SEC
Reports.
(j) Material Contracts. Except as disclosed in any
Lexington SEC Report, as of the date hereof, neither Lexington
nor any of its subsidiaries is a party to or bound by any written
or oral contract:
(1) with respect to the employment of any directors,
officers, or employees, other than noncompetition and
confidentiality agreements with such persons and contracts
terminable by Lexington upon no more than 60 days' notice without
penalty;
(2) that is a "material contract" (as is defined in Item
601(b)(10) of Regulation S-K of the SEC) to be performed after
the date of this Agreement;
(3) that, after the Effective Time, will materially
restrict the conduct of any line of business by Lexington or its
subsidiaries or upon consummation of the Merger will materially
restrict the ability of the Surviving Corporation to engage in
any line of business in which it may lawfully engage;
(4) with a labor union (including any collective bargaining
agreement); or
(5) except as required by the Lexington Incentive Plan
(including any stock option plan, stock appreciation rights plan,
restricted stock plan, or stock purchase plan) and the Lexington
Senior Management Severance Plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will
be accelerated, by the occurrence of any stockholder approval or
the consummation of any of the transactions contemplated by this
Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement.
All of the foregoing are collectively called "Material Contracts." To
the extent Material Contracts are evidenced by documents, true and complete
copies thereof have been delivered or made available to Buyer. The Lexington
Disclosure Schedule sets forth a true and complete description of the material
terms of each Material Contract that has not been reduced to writing. Each
Material Contract is in full force and effect. Neither Lexington nor any of its
subsidiaries nor, to the knowledge of Lexington, any other party is in material
breach of or in material default under any of the Material Contracts.
(k) Intellectual Property. Lexington and its subsidiaries own
or possess adequate licenses or other valid rights to use (without the
making of any payment to others, other than licenses for commercially
available software and payments under agreements disclosed in the
Lexington Disclosure Schedule, or the obligation to grant rights to
others in exchange) all of the material patents, trademarks, trade
names, service marks, domain names, and copyrights, and all
registrations and applications for any of the foregoing (collectively,
"Proprietary Rights") necessary to the conduct of its business in the
manner in which it is presently being conducted. As of the date of this
Agreement, neither Lexington nor any of its subsidiaries has received
any written notice that any Proprietary Rights have been declared
unenforceable or otherwise invalid by any court or Governmental
Authority. There is, to the knowledge of
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Lexington, no material existing infringement, misuse, or
misappropriation of any Proprietary Rights by others. From December
13, 1995 to the date of this Agreement, neither Lexington nor any of
its subsidiaries has received any written notice alleging that the
operation of the business of Lexington or any of its subsidiaries
infringes in any material respect upon the intellectual property
rights of others. The consummation of the Merger and the other
transactions contemplated by this Agreement will not result in the
loss by Lexington of any rights to use computer and telecommunications
software including source and object code and documentation and any
other media (including manuals, journals, and reference books) that is
material to the operation of its business substantially as currently
conducted.
(l) Litigation. No litigation, arbitration, or administrative
proceeding (1) is pending or, to the knowledge of Lexington,
threatened against Lexington or any of its subsidiaries as of the date
of this Agreement that, if decided adversely to Lexington or such
subsidiary, would have a Material Adverse Effect on Lexington, or (2)
is pending or, to the knowledge of Lexington, threatened against
Lexington or any of its subsidiaries as of the date of this Agreement
that seeks to enjoin or otherwise challenges the consummation of the
transactions contemplated by this Agreement. As of the date of this
Agreement, neither Lexington nor any of its subsidiaries is
specifically identified as a party subject to any material
restrictions or limitations under any injunction, writ, judgment,
order, or decree of any Governmental Authority.
(m) Permits; Compliance with Laws. Each of Lexington and its
subsidiaries has all material licenses, franchises, permits, and other
authorizations of Governmental Authorities necessary to conduct its
business, and neither Lexington nor any of its subsidiaries is in
violation of any such license, franchise, permit, or other
authorization of a Governmental Authority or any Applicable Law,
except where such failure or violation would not have a Material
Adverse Effect on Lexington.
(n) No Brokers or Finders. Except for Putnam, Lovell, de
Guardiola & Thornton Inc., Lexington has not engaged any investment
banker, broker, or finder in connection with the transactions
contemplated hereby.
(o) Retirement and Benefit Plans; Employees.
(1) Each employee pension benefit plan ("Pension Plan"), as
defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), each employee welfare benefit
plan ("Welfare Plan"), as defined in Section 3 of ERISA, and each
deferred compensation, bonus, incentive, stock incentive, option,
stock purchase, severance, or other employee benefit plan,
agreement, commitment, or arrangement ("Benefit Plan"), that is
currently maintained by Lexington or any of its ERISA Affiliates
(as defined in clause (9) below) or to which Lexington or any of
its ERISA Affiliates currently contributes or is under any
current obligation to contribute (collectively, the "Lexington
Employee Plans" and individually, an "Lexington Employee Plan")
is listed in the Lexington Disclosure Schedule and, to the extent
any Lexington Employee Plan is evidenced by documents, insurance
policies, or manuals, true and complete copies thereof have been
delivered to Buyer, including copies of any
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trust agreement or other funding contract with respect to any
Lexington Employee Plan. In addition, copies of the most recent
determination letter issued by the Internal Revenue Service with
respect to each Pension Plan, copies of the most recent actuarial
report for each Pension Plan, where applicable, and copies of the
annual report (Form 5500 Series) required to be filed with any
Governmental Authority with respect to each Pension Plan and each
Welfare Plan, for the three most recent plan years of such plan
for which reports have been filed, have been delivered to Buyer.
In addition, copies of all material employee communications
(including summary plan descriptions and employee manuals) with
respect to each Lexington Employee Plan have been delivered to
Buyer.
(2) Each of Lexington and its ERISA Affiliates has made on
a timely basis all contributions or payments required to be made
by it under the terms of the Lexington Employee Plans, ERISA, the
Code, or other applicable laws.
(3) No Lexington Employee Plan has an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or
Section 302 of ERISA). Each Lexington Employee Plan that is
intended to be qualified under Section 401(c) of the Code is the
subject of a currently effective favorable IRS determination
letter as to such Plan's qualification under Section 401(a) of
the Code.
(4) Neither Lexington nor any of its ERISA Affiliates has
maintained, contributed to or otherwise had any obligation with
respect to any "multiemployer plan" (as defined in Section 3 of
ERISA) within the past six years.
(5) To the best of Lexington's knowledge, each Lexington
Employee Plan (and any related trust or other funding instrument)
is being administered in all material respects in compliance with
its terms, and in both form and operation, is in compliance in
all material respects with the applicable provisions of ERISA,
the Code, and other laws and regulations (other than adoption of
any plan amendments for which the deadline has not yet expired),
and all reports required to be filed with any Governmental
Authority with respect to each Pension Plan and each Welfare Plan
required to be listed on the Lexington Disclosure Schedule have
in all material respects been timely filed.
(6) There is no litigation, arbitration, or administrative
proceeding pending or, to the knowledge of Lexington, threatened
against Lexington or any of its ERISA Affiliates or, to the
knowledge of Lexington, any plan fiduciary by the Internal
Revenue Service, the U.S. Department of Labor, the PBGC, or any
participant or beneficiary with respect to any Lexington Employee
Plan. To the best of Lexington's knowledge, neither Lexington nor
any of its ERISA Affiliates nor, to the knowledge of Lexington,
any plan fiduciary of any Pension Plan or Welfare Plan required
to be listed on the Disclosure Schedule has engaged in any
transaction in violation of Section 406(a) or (b) of ERISA for
which an exemption does not exist under Section 408 of ERISA or
any "prohibited transaction" (as defined in Section 4975(c)(1) of
the Code) for which an exemption does not exist under Section
4975(c)(2) or 4975(d) of the Code, or is subject
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to any material excise tax or penalty imposed by the Code or
ERISA with respect to any Lexington Employee Plan.
(7) Lexington or its ERISA Affiliates have the right to
terminate or amend any Lexington Employee Plan (including any
group health plan covering retirees or other former employees) or
discontinue contributions to any Lexington Employee Plan without
incurring any liability other than a benefit liability accrued
under such plan immediately before termination, amendment, or
discontinuance of contributions.
(8) No Lexington Employee Plan is maintained outside the
United States.
(9) For purposes of this Section 3.2(o), the term "ERISA
Affiliate" means any entity which is under "common control" with
Lexington (within the meaning of Section 4001(b) of ERISA).
(10) Neither the execution and delivery of this Agreement
nor the consummation of the Merger will by itself (A) result in
any payment (including severance, unemployment compensation,
excess parachute payment (within the meaning of Section 280G of
the Code), forgiveness of indebtedness, or otherwise) becoming
due to any director or any employee of Lexington or any ERISA
Affiliate from Lexington or any ERISA Affiliate under any
Lexington Employee Plans or otherwise, (B) increase any benefits
otherwise payable under any Lexington Employee Plan, or (C)
result in any acceleration of the time of payment or vesting of
any such benefits.
(p) Environmental Matters.
(1) For purposes of this Section 3.2(p):
(A) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 32
U.S.C. (S) 9601 et seq., the Resource Conservation and
Recovery Act, 32 U.S.C. (S) 6901 et seq., the Federal Water
Pollution Control Act, 33 U.S.C. (S) 1201 et seq., the Clean
Water Act, 33 U.S.C. (S) 1321 et seq., the Clean Air Act, 32
U.S.C. (S) 7301 et seq., and any other federal, state, local
or other governmental statute, regulation, law or ordinance
dealing with the protection of human health, natural
resources, or the environment; and
(B) "Hazardous Substance" means any pollutant,
contaminant, hazardous substance or waste, solid waste,
petroleum or any fraction thereof, or any other chemical,
substance, or material listed or identified in or regulated
by any Environmental Law.
(2) No Hazardous Substances have been spilled, discharged,
leaked, emitted, injected, disposed of, dumped, or released by
Lexington or any of its subsidiaries or, to the knowledge of
Lexington, any other person on, beneath, above, or into the
environment surrounding any of the real property currently or
formerly leased
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by Lexington or any of its subsidiaries in such a way as to
create any unpaid liability of Lexington or any of its
subsidiaries under any applicable Environmental Law, that would
have a Material Adverse Effect on Lexington.
(q) Labor Matters. Lexington has no knowledge, as of the date of
this Agreement, of any activities or proceedings of any labor union to
organize any of its or its subsidiaries' employees.
(r) Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Lexington Common Stock is the
only vote of the holders of any class or series of capital stock of
Lexington necessary to approve this Agreement and the Merger.
(s) Anti-Takeover Provisions. No restrictive provision of any
"fair price," "moratorium," "control share acquisition," "interested
stockholder," or other anti-takeover statute or regulation or any
restrictive effect of any applicable anti-takeover provision in
Lexington's Certificate of Incorporation or Bylaws is, or at the
Effective Time will be, applicable to the Merger or the other
transactions contemplated hereby.
(t) Insurance Coverage. Lexington and its subsidiaries have in
effect insurance coverage with reputable insurers or are self-insured,
which in respect of amounts, premiums, types, and risks insured,
constitutes reasonably adequate coverage against all risks customarily
insured by companies and their subsidiaries comparable in size and
industry to Lexington and its subsidiaries. All of the insurance
policies and bonds of Lexington and its subsidiaries are listed in the
Lexington Disclosure Schedule. Each such insurance policy or bond in
full force and effect and none of Lexington or any of its subsidiaries
has received notice or any other indication from any insurer or agent
of any intent to cancel any such insurance policy or bond.
(u) Management Agreements. The Lexington Disclosure Schedule
sets forth a true and complete list of each of the portfolio
management agreements and investment advisory or management agreements
(collectively, the "Management Agreements") related to Lexington's (or
a subsidiary's) rendering investment advisory services to any client
other than a U.S.-registered investment company for which Lexington or
a subsidiary serves as investment adviser (but not sub-adviser),
distributor or sponsor (but including investment companies for which
Lexington or a subsidiary serves solely as a sub-adviser and including
the Troika Dialog Lexington Eurasia Fund) ("Private Accounts"). Each
such Management Agreement is currently in full force and effect and
has been performed by Lexington (or its subsidiaries) in accordance
with all Applicable Laws. No material default or condition or event
that, after notice or lapse of time or both, would constitute a
material default on the part of Lexington or any of its subsidiaries
or, to the knowledge of Lexington, on the part of the other parties to
such Management Agreements, exists under any of those agreements, and
each Private Account has, during the term of the pertinent Management
Agreement, been managed in all material respects consistent with the
investment goals and restrictions specified in the Management
Agreement.
(v) Voting Agreements. The Board of Directors of Lexington has
approved a voting agreement (a "Voting Agreement"), in substantially
the form of Exhibit A, which voting agreement shall be executed by the
parties set forth on Schedule 3.2(v).
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ARTICLE IV
Representations and Warranties Relating to the Lexington Funds
4.1 General. Lexington represents and warrants to Buyer and Merger
Sub that the statements contained in this Article IV are true and correct,
except as set forth in the Lexington Disclosure Schedule.
4.2 Representations and Warranties.
(a) No Prohibitions. To the knowledge of Lexington, neither
Lexington or any of its subsidiaries nor any person associated (as
such term is construed under Section 3(18) of the Exchange Act or
Section 202(a)(17) of the Advisers Act) with those companies has
committed any act (1) enumerated in, or that may subject it to the
provisions of, Section 15(b)(4) of the Exchange Act, Section 203(e) of
the Advisers Act or Rule 206(4)-4(b) promulgated thereunder, or
Section 9 of the 1940 Act, or (2) that would result in a "yes" answer
to any question contained in Item 22 of Form U-4 (Uniform Application
for Securities Industry Registration or Transfer) or the equivalent
item of any successor form or of any non-uniform state form, to the
extent that such act would result in a Material Adverse Effect on
Lexington.
(b) Organization of the Funds. Each of the Lexington Funds
(sometimes collectively referred to as the "Lexington Fund Family") is
a registered investment company (a "Registrant"), or a series of a
Registrant, organized as a Maryland corporation, or a Massachusetts
business trust, or a New York grantor trust, duly formed and validly
existing, and with respect to Lexington Funds that are Maryland
corporations and Massachusetts business trusts, in good standing under
the law of its jurisdiction of organization. The Lexington Disclosure
Schedule sets forth a true, complete, and correct list, as of the date
hereof, of each of the Registrants and any series thereof, and whether
any of Lexington, Lexington Management Corporation, or any other
subsidiary of Lexington acts as investment adviser, broker-dealer, or
sponsor for the Registrant. Each Lexington Fund for which any
affiliate of Lexington will act in such capacities after the Effective
Time is so indicated in the Lexington Disclosure Schedule. Each
Lexington Fund has the requisite power and authority to carry on its
business as it is now being conducted.
(c) Capitalization of the Lexington Funds. All issued and
outstanding shares of common stock and shares or units of beneficial
interest of each Lexington Fund (collectively, "Fund Shares") are, and
at the Effective Time will be, and all of the authorized but unissued
Fund Shares of each Lexington Fund will be, when issued for the
consideration described in the current registration statement relating
to that Lexington Fund, duly and legally issued and outstanding, fully
paid, and non-assessable (or in the case of a Massachusetts business
trust, non-assessable by the Lexington Fund). All of the issued and
outstanding Fund Shares will, at the Effective Time, be held of record
by the persons and in the names and amounts set forth in the records
of State Street Bank and Trust Company, Inc., the transfer agent of
the Lexington Funds. No Lexington Fund has outstanding any options,
warrants, or other rights to subscribe
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for or purchase any of its shares, nor is there outstanding any
security convertible into Fund Shares.
(d) Financial Statements of the Lexington Funds. Lexington has
furnished to Buyer true and complete copies of the audited statements
of assets and liabilities (including the notes thereto) of each
Lexington Fund as of the two most recent fiscal/calendar years, the
related audited statements of operations and changes in net assets for
the three most recent fiscal/calendar years, and the related audited
schedules of portfolio investments for the two most recent
fiscal/calendar years. Lexington also has furnished to Buyer true and
complete copies of the unaudited statement of assets and liabilities
(including the notes thereto) of each Lexington Fund as of the most
recent semi-annual period (June 30, 1999 for the Lexington Funds using
a calendar year), and the related unaudited statements of operations
and changes in net assets for such semiannual period.
(e) Accuracy of Financial Statements. The audited and unaudited
financial statements of each Lexington Fund referred to in Section
4.2(d) present in all material respects the financial position and
results of operations of the Lexington Fund at the dates and for the
periods to which they relate and have been prepared in accordance with
GAAP subject, in the case of the unaudited financial statements, to
normal year-end audit adjustments and the absence of footnotes. The
audited financial statements of each Lexington Fund have been
certified by that Lexington Fund's independent accounting firm.
(f) Compliance With Applicable Law. Each Lexington Fund is an
open-end management investment company or a unit investment trust
registered under the 1940 Act. Each Lexington Fund is in compliance,
and at all times since a Lexington subsidiary has served as investment
adviser or sponsor has been in compliance, in all material respects
with each federal or state statute, law, ordinance, rule,
administrative interpretation, regulation, order, writ, injunction,
directive, judgment, decree, policy, guideline, or other requirement
(including those of the Nasdaq National Market or the NASD)
promulgated by a Governmental Authority (collectively, "Applicable
Law") applicable to any Lexington Fund, except, in each case, for any
failure to so comply that would have a Material Adverse Effect on the
applicable Lexington Fund. The shares of each Lexington Fund are
registered in each jurisdiction in the United States where such
registration is required due to the offer or sale of such shares in
the jurisdiction, and those registrations have not been revoked,
withdrawn, or suspended in any way. The sale of shares in each
Lexington Fund is currently authorized in each of the United States
and the District of Columbia. Lexington has furnished to Buyer copies
of each Registrant's current post-effective amendment to its
registration statement as most recently filed with the SEC together
with copies of each Registrant's charter, bylaws, and trust
instruments, as the case may be. The current prospectus and related
registration statement, including the current statement of additional
information, for each of the Registrants (copies of which have been
delivered to Buyer) conform in all material respects to the applicable
requirements of the Securities Act, the 1940 Act, and the rules and
regulations of the SEC thereunder, as well as the applicable
requirements of the various state securities laws, and do not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
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(g) No Conflicts. Neither the execution and delivery of this
Agreement by Lexington, nor the consummation by Lexington of the
transactions contemplated hereby will:
(1) conflict with or result in a breach of the charter,
bylaws, or similar organizational documents, as currently in
effect, of any of the Registrants;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the
businesses or assets of any of the Registrants, except for the
consents, approvals, filings, and notices required under the 1940
Act;
(3) violate any statute, law, ordinance, rule, or
regulation applicable to a Registrant or any injunction,
judgment, order, writ, or decree to which a Registrant has been
specifically identified as subject that would have a Material
Adverse Effect on such Lexington Fund; or
(4) result in a breach of, or constitute a default or an
event that, with the passage of time or the giving of notice, or
both, would constitute a default, give rise to a right of
termination, cancellation, or acceleration, create any
entitlement of any third party to any material payment or
benefit, require the consent of any third party, or result in the
creation of any lien on the assets of a Registrant under, any
contract of the type referred to in Section 4.2(l) other than
contracts subject to Section 12(b) or Section 15 of the 1940 Act,
except such breaches, defaults, terminations, cancellations,
accelerations, entitlements, absences of consents, or liens that
would not have a Material Adverse Effect on such Lexington Fund.
(h) Adherence to Investment Policies and Restrictions.
Investments held by each of the Lexington Funds that are open-end
management investment companies are, and for so long as each Lexington
Fund has been advised by a Lexington subsidiary have been, consistent
with the investment policies and restrictions applicable to the
applicable Lexington Fund. Investments held by each of the Lexington
Funds that are unit investment trusts are, for so long as a Lexington
subsidiary has served as sponsor to the unit trust, consistent with
the prospectus, as amended, for the unit trust. The value of each
Lexington Fund's net assets is determined using portfolio-valuation
methods that comply in all material respects with the 1940 Act.
(i) Litigation. There are no legal or governmental actions or
proceedings pending or, to the knowledge of Lexington, threatened
against any of the Lexington Funds; nor, to the knowledge of
Lexington, are there any legal or governmental investigations pending
or threatened against any of the Lexington Funds; nor is there any
judgment, decree, injunction, rule, order (or, to the knowledge of
Lexington, any investigation) of any Governmental Authority
outstanding against any of the Lexington Funds. Neither the SEC, the
NASD, nor any other regulatory agency has identified any material
issue in any deficiency letter or other similar inquiry relating to a
Lexington Fund or its operations, nor is there any unresolved
violation, criticism, or exception by any such regulatory agency or
authority therewith that would in any such case have a Material
Adverse Effect on any such Lexington Fund.
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(j) Required Reports. For so long as a Lexington subsidiary has
served as investment adviser, each of the Lexington Funds has filed
all material prospectuses, annual information forms, financial
statements, other forms, reports, sales literature, and advertising,
and any other material documents required to be filed with applicable
Governmental Authorities, and any material amendments thereto (the
"Reports"). The Reports have been prepared in accordance with the
requirements of Applicable Law in all material respects.
(k) Taxes. Each Lexington Fund that is registered as an open-end
management investment company has elected to qualify and, for all
taxable years that a Lexington subsidiary served as investment adviser
and with respect to which the applicable statute of limitations
(including any extensions) has not expired ("open taxable years"), has
continuously qualified to be treated as a "regulated investment
company" under Subchapter M of the Code and has continuously been
eligible to compute, and has for each such taxable year computed, its
federal income tax under Section 852 of the Code and has no earnings
and profits accumulated in any taxable year. Each Lexington Fund that
is a registered unit investment trust is, and has been for all taxable
years that a Lexington subsidiary has served as a sponsor, a "trust"
(as defined in Treas. Reg. 301.7701-4) that is subject to subpart E of
part I of subchapter J of chapter 1 of subtitle A of the Code. At the
Effective Time, all federal, state, local and foreign tax returns with
respect to Taxes for any taxable period for which the applicable
statute of limitations (including any extensions) has not expired and
during which a Lexington subsidiary has served as investment adviser
that were or are required to be filed on or before such date by or on
behalf of a Lexington Fund ("Fund Tax Returns") were or shall have
been timely filed and were or shall be complete and correct, and all
federal and other Taxes, including interest, penalties, and additions
to tax, shown or required to be shown as due on such returns, shall
have been paid or provided for. No such Fund Tax Return or other
filing is currently under audit, no assessment has been asserted with
respect to such Fund Tax Returns or other filings, and no requests for
waivers of the time to make any such assessment are pending. None of
the Lexington Funds is delinquent in the payment of any material Tax,
assessment, or governmental charge.
(l) Contracts. The Lexington Disclosure Schedule lists all
material contracts, including all agreements and arrangements for the
distribution of shares, to which a Lexington Fund is a party or by
which a Lexington Fund or its property is bound, other than contracts
for the purchase or sale of portfolio securities entered into in the
ordinary course of business. Each contract subject to Section 12(b) or
15 of the 1940 Act has been duly approved at all times in compliance
in all material respects with Section 12(b) or 15 of the 1940 Act and
all other Applicable Laws. Each such contract is currently in full
force and effect and has been performed by the relevant entity in
accordance with the 1940 Act and all other Applicable Laws. No
material default or condition or event that, after notice or lapse of
time or both, would constitute a material default on the part of
Lexington or any of its subsidiaries or, to the knowledge of
Lexington, on the part of the other parties to such advisory and sub-
advisory agreements, exists under any of those material contracts. Any
agreements between Lexington or any of its subsidiaries and the
Lexington Funds that are open-end management investment companies for
the provision of administrative services, including accounting and
shareholder services, are valid and enforceable, and the amounts paid
to Lexington and/or its subsidiaries under the agreements have been
properly determined in accordance with the terms of the agreements.
Copies of all such material contracts have been delivered or made
available for inspection by Buyer and are true and complete.
(m) No Material Adverse Changes. Since December 31, 1998 no
Material Adverse Effect has occurred with respect to any Lexington
Fund or the status of any Lexington Fund as a regulated investment
company under the Code.
(n) Books. The books and records of each Lexington Fund
reflecting, among other things, the investment transactions undertaken
on behalf of each Lexington Fund, the purchase and sale of shares of
that Lexington Fund by its holders of common stock or shares or units
of beneficial interests (collectively, "Fund Stockholders"), the
number of issued and outstanding Lexington Fund shares owned by each
Fund Stockholder, and the state or other jurisdiction in which those
shares were offered and sold, are, to the knowledge of Lexington,
complete and accurate in all material respects.
(o) Absence of Undisclosed Liabilities. Each Lexington Fund has,
to the knowledge of Lexington, no material debts, obligations, or
liabilities, whether due or to become due, absolute, contingent, or
otherwise, that are required to be reflected in that Lexington Fund's
financial statements in accordance with GAAP that are not so reflected
except for debts, obligations, or liabilities incurred in the ordinary
course of business since the date of the Lexington Fund's most recent
audited or unaudited financial statements or that would not be
material to the applicable Lexington Fund.
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(p) No Pending Transaction. No Lexington Fund is a party to or
bound by any agreement, undertaking, or commitment (1) to merge or
consolidate with, or acquire all or substantially all of the property
and assets of, any other person, (2) to sell, lease, or exchange all
or substantially all of its property and assets to any other person,
or (3) to enter into any investment advisory agreement or distribution
agreement.
(q) Proxy Statements. All proxy statements to be prepared for
use by the Lexington Funds in connection with the transactions
contemplated by this Agreement will, with respect to information
provided by Lexington, any of its subsidiaries, or a Lexington Fund,
not contain any untrue statement of a material fact, or omit to state
any material fact required to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(r) Code of Ethics. Lexington Management Corporation, MSR and
each of the Lexington Funds have adopted a formal code of ethics and a
written policy regarding personal trading. Such codes and policies
comply in all materials respects with Section 17(j) of the 1940 Act,
Rule 17j-1 thereunder, and Section 204A of the Advisers Act, as the
case may be. To the knowledge of Lexington, for so long as a Lexington
Fund has been advised or sponsored by a Lexington subsidiary, there
has been no violation of its code of ethics and personal trading
policy that would be material to any of the Lexington Funds.
(s) No Disqualification. To the knowledge of Lexington, no
person "associated" (as defined under the Advisers Act) with Lexington
Management Corporation or MSR has, for a period of five years before
the date hereof, been convicted of any crime or is or has been subject
to any disqualification that would be a basis for denial, suspension,
or revocation of registration of an investment adviser under Section
203(e) of the Advisers Act or Rule 206(4)-4(b) thereunder or of a
broker-dealer under Section 15 of the Exchange Act. To the knowledge
of Lexington, no "affiliated person" (as defined under the 1940 Act)
of Lexington Management Corporation or MSR has during a period of five
years before the date hereof been convicted of any crime or is or has
been subject to any disqualification that would be a basis for
disqualification as an investment adviser for any investment company
under Section 9(a) of the 1940 Act, and there is no basis for, or
proceeding or investigation that is reasonably likely to become the
basis for, any such disqualification, denial, suspension, or
revocation.
(t) Insurance. Each Registrant has in full force and effect such
insurance as is required by the 1940 Act and each Registrant that is
registered as an open-end management investment company has directors'
and officers' and errors and omissions insurance policies issued in
amounts reasonably believed to be adequate and appropriate by the
Registrant's Board. No Registrant is in default under any such
insurance policy. Complete and correct copies of all insurance
policies of the Registrants have been made available to Buyer. All
premiums that are due and payable under such policies have been paid.
ARTICLE V
Representations and Warranties of Buyer and Merger Sub
5.1 General. Buyer and Merger Sub jointly and severally
represent and warrant to Lexington that the statements contained in this Article
V are true and correct, except as set forth in the disclosure schedule delivered
by Buyer to Lexington on or before the date of this Agreement (the "Buyer
Disclosure Schedule"). Notwithstanding any other provision of this Agreement,
each exception set forth in the Buyer Disclosure Schedule shall be deemed to
qualify each representation and warranty set forth in this Agreement (i) that is
specifically identified (by cross-reference or otherwise) in the Buyer
Disclosure Schedule as being qualified by such exception, or (ii) with respect
to which the relevance of such exception is apparent on the face of the
disclosure of such exception set forth in the Buyer Disclosure Schedule.
5.2 Representations and Warranties.
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(a) Organization, Standing, Qualification. Each of Buyer
and Merger Sub is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and has the
requisite power and authority to own, lease, and operate its
properties and assets and to carry on its business as it is now being
conducted. Each of Buyer and Merger Sub is duly qualified or licensed
as a foreign entity to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, operated, or
leased by it, or the nature of its business, makes such qualification
or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or in good standing would not
have a Material Adverse Effect on Buyer. Copies of the certificate of
incorporation and bylaws of Buyer and Merger Sub have been made
available to Lexington and are complete and correct as of the date
hereof.
(b) Capitalization. The authorized capital stock of Buyer
consists of 200 million shares of Buyer Common Stock, of which, as of
the close of business on February 25, 2000, 88,344,229 shares were
issued and outstanding, and seven million shares of preferred stock,
none of which are outstanding. As of February 25, 2000, Buyer has
reserved for issuance six million shares of Series A Junior
Participating Preferred Stock issuable under the Amended and Restated
Rights Agreement, dated as of February 11, 1999, between Buyer and
Norwest Bank Minnesota, National Association (the "Buyer Rights
Agreement"). Under the Buyer Rights Agreement, each outstanding share
of Buyer Common Stock has attached to it certain rights ("Buyer
Right"), including rights to purchase, under certain circumstances,
one-twentieth of a share of Series A Junior Participating Preferred
Stock of Buyer for $100, subject to adjustment. The authorized capital
stock of Merger Sub consists of 5,166,667 shares of common stock and
1,750 shares of preferred stock, all of which are outstanding and held
by Buyer. All of the issued and outstanding shares of Buyer Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, and were not granted in violation of any statutory
preemptive rights. There are no outstanding subscriptions, options,
warrants, calls, or other agreements or commitments under which Buyer
is or may become obligated to issue, sell, transfer, or otherwise
dispose of or purchase, redeem, or otherwise acquire, any shares of
capital stock of, or other equity interests in, Buyer and there are no
outstanding securities issued by Buyer convertible into or
exchangeable for any Buyer Common Stock, except for options to
purchase up to an aggregate of 8,229,385 shares of Buyer Common Stock,
as of February 25, 2000. There are no stock appreciation rights,
phantom stock rights, or performance shares outstanding with respect
to Buyer. Buyer owns, directly or indirectly, all of the issued and
outstanding shares of each class of capital stock of each of its
subsidiaries, free and clear of all liens, security interests,
pledges, charges, and other encumbrances.
(c) Authorization and Execution Each of Buyer and Merger
Sub has the corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement by Buyer and
Merger Sub have been duly authorized by the Boards of Directors of
Buyer and Merger Sub, and no further corporate action of either Buyer
or Merger Sub is necessary to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Buyer
and Merger Sub and, assuming the accuracy of the representations and
warranties of Lexington set forth in Section 3.2(c), this Agreement
constitutes the legal, valid, and binding
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obligation of Buyer and Merger Sub, enforceable against them in
accordance with its terms, except to the extent that enforceability may
be limited by applicable bankruptcy, insolvency, or similar laws
affecting the enforcement of creditors' rights generally, and subject
to general principles of equity.
(d) No Conflicts. Neither the execution and delivery of this
Agreement by Buyer and Merger Sub, nor the consummation by them of the
transactions contemplated hereby will:
(1) conflict with or result in a breach of the certificate
of incorporation or bylaws, as currently in effect, of Buyer or
Merger Sub;
(2) require any filing with, or consent or approval of, any
Governmental Authority having jurisdiction over any of the
businesses or assets of Buyer, Merger Sub, or any of their
subsidiaries, except for (A) compliance with the filing
requirements under the HSR Act; (B) the filing of the Certificate
of Merger with the Delaware Secretary of State and appropriate
documents reflecting the occurrence of the Merger with the
relevant authorities of other states in which Buyer or Merger Sub
is licensed or qualified to do business; (C) the consents,
approvals, filings, and notices required under the 1940 Act and
the Advisers Act; (D) any consents, approvals, filings, or
notices required with the NASD or any industry self-regulatory
organizations; and (E) the filing of the Proxy
Statement/Prospectus and any other compliance with the applicable
requirements of the Exchange Act; (F) such filings and approvals
as are required to be made or obtained under the securities or
"blue sky" laws of various states; and (G) such other filings,
consents or, approvals the failure to make or obtain would not
reasonably be expected to prevent consummation of the Merger or
have a Material Adverse Effect on Buyer;
(3) subject to the exceptions of and assuming compliance
with clauses (A) through (G) of subsection (d)(2) above, violate
any Applicable Law applicable to Buyer or Merger Sub; or
(4) result in a material breach of, or constitute a
material default or an event that, with the passage of time or
the giving of notice, or both, would constitute a material
default, give rise to a right of termination, cancellation, or
acceleration, create any entitlement of any third party to any
material payment or benefit or require the consent of any third
party under, any contract that is a "material contract" (as is
defined in Item 601(b)(10) of Regulation S-K of the SEC) to be
performed after the date of this Agreement.
(e) Proxy Statement. The information supplied by Buyer and
Merger Sub for inclusion in (a) the Registration Statement on Form S-4
to be filed under the Securities Act with the SEC by Buyer in
connection with the Merger for the purpose of registering the shares of
Buyer Common Stock to be issued in connection with the Merger and the
resale thereof by persons who may be deemed to be underwriters under
Rule 145 of the Securities Act (the "Registration Statement") or (b)
the proxy statement to be distributed in connection with Lexington's
meeting of stockholders to vote upon this Agreement and the
transactions contemplated hereby (the "Proxy Statement" and, together
with the prospectus included in the
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Registration Statement, the "Proxy Statement/Prospectus") will, in the
case of the Proxy Statement, as of the date of the Proxy Statement and
as of the date of the meeting of Lexington's stockholders to consider
this Agreement and the Merger, or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective
and at the time of such meeting of the stockholders of Lexington, not
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Proxy Statement/Prospectus will, as
of its effective date, comply as to form in all material respects with
all applicable laws, including the provisions of the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder,
except that no representation is made by Buyer or Merger Sub with
respect to information supplied by Lexington for inclusion therein.
Buyer is qualified to use Form S-3 under the Securities Act.
(f) SEC Reports and Financial Statements.
(1) Since December 31, 1995, Buyer has filed all reports,
registration statements, and other filings, together with any
amendments required to be made with respect thereto, that it has
been required to file with the SEC under the Securities Act and
Exchange Act. All reports, registration statements, and other
filings (including all exhibits, notes, and schedules thereto and
documents incorporated by reference therein) filed by Buyer with
the SEC on or after January 1, 1996, together with any amendments
thereto are collectively referred to as the "Buyer SEC Reports."
As of: (A) with respect to all of the Buyer SEC Reports other
than registration statements filed under the Securities Act, the
respective dates of their filing with the SEC; and (B) with
respect to all registration statements filed under the Securities
Act, their respective effective dates, the Buyer SEC Reports
complied in all material respects with the rules and regulations
of the SEC and did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to made the statements made therein not
misleading.
(2) The consolidated financial statements (including any
related notes or schedules) included in Buyer's 1998 Annual
Report on Form 10-K, as filed with the SEC, were prepared in
accordance with GAAP (except as may be noted therein or in the
notes or schedules thereto) and fairly present in all material
respects the consolidated financial position of Buyer and its
subsidiaries as of December 31, 1997 and 1998 and the
consolidated results of their operations and cash flows for each
of the three years in the three-year period ended December 31,
1998.
(g) Litigation. No litigation, arbitration, or administrative
proceeding is (i) pending or, to the knowledge of Buyer, threatened
against Buyer, its subsidiaries or Merger Sub as of the date of this
Agreement that, if decided adversely to Buyer, its subsidiaries or
Merger Sub, would have a Material Adverse Effect on Buyer, or (ii)
pending or, to the knowledge of Buyer, threatened against Buyer, its
subsidiaries, or Merger Sub as of the date of this Agreement that seeks
to enjoin or otherwise challenges the consummation of the transactions
contemplated by this Agreement. As of the date of this Agreement,
neither Buyer, its subsidiaries, nor Merger
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Sub is specifically identified as a party subject to any material
restrictions or limitations under any injunction, writ, judgment,
order, or decree of any Governmental Authority that seeks to enjoin or
otherwise challenges or affects the ability of the Buyer to consummate
the transactions contemplated by this Agreement.
(h) Absence of Certain Changes or Events. Except as disclosed in
the Buyer SEC Reports, from December 31, 1998 to the date of this
Agreement, Buyer and its subsidiaries have conducted their respective
businesses and operations in the ordinary course consistent with past
practices.
(i) No Material Adverse Effect. From December 31, 1998 to the
date of this Agreement, there has been no business interruption, damage
to or destruction of its properties, or other incident, occurrence, or
event (other than changes in general industry, economic, or market
conditions), which would have a Material Adverse Effect on Buyer.
(j) Permits; Compliance with Laws. Each of Buyer and Merger Sub
has all material licenses, franchises, permits, and other
authorizations of Governmental Authorities necessary to conduct its
business, and neither Buyer nor Merger Sub is in violation of any such
license, franchise, permit, or other authorization of a Governmental
Authority, or any statute, law, ordinance, rule, or regulation
applicable to it or any of its properties, except where such failure
would not have a Material Adverse Effect on Buyer.
(k) No Brokers or Finders. Neither Buyer nor Merger Sub has
engaged any investment banker, broker, or finder in connection with the
transactions contemplated hereby.
(l) No Disqualification. To the knowledge of Buyer, no person
"associated" (as defined under the Advisers Act) with Merger Sub has,
for a period of five years before the date hereof, been convicted of
any crime or is or has been subject to any disqualification that would
be a basis for denial, suspension, or revocation of registration of an
investment adviser under Section 203(e) of the Advisers Act or Rule
206(4)-4(b) thereunder or of a broker-dealer under Section 15 of the
Exchange Act. To the knowledge of Buyer, no "affiliated person" (as
defined under the 1940 Act) of Merger Sub has during a period of five
years before the date hereof been convicted of any crime or is or has
been subject to any disqualification that would be a basis for
disqualification as an investment adviser for any investment company
under Section 9(a) of the 1940 Act, and there is no basis for, or
proceeding or investigation that is reasonably likely to become the
basis for, any such disqualification, denial, suspension, or
revocation.
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ARTICLE VI
Covenants Relating to the Lexington Funds
6.1 Requisite Approvals Concerning the Lexington Funds. With respect to
each Lexington Fund, and pursuant to the provisions of Section 15 of the 1940
Act, Section 12 of the 1940 Act and Rule 12b-1 thereunder, and each Registrant's
charter, bylaws, and/or trust instruments, each of Lexington and its
subsidiaries, Buyer, and Merger Sub will use its respective reasonable best
efforts in good faith to obtain (and cooperate with one another in obtaining),
as promptly as practicable, the approval of the Registrant's Board of Directors,
if the Registrant is a corporation, or Board of Trustees, if the Registrant is a
business trust (as used in this Agreement, the term "Board," when used with
respect to a Registrant, means the Board of Directors or the Board of Trustees,
as the case may be) of each Registrant in the Lexington Fund Family and of the
stockholders, as required by Section 15 or, to the extent necessary, Rule 12b-1,
of new investment advisory, sub-advisory, administrative, and distribution
agreements and agreements related to plans for each Lexington Fund identical in
all respects to those in effect immediately before the Effective Time which will
be effective immediately after the Effective Time, except for any changes
approved by Buyer and approved by the applicable Board. With respect to each
Lexington Fund that is registered as a unit investment trust, each of Lexington
and its subsidiaries, Buyer and Merger Sub will use its respective reasonable
best efforts in good faith to assign to a person designated by Buyer any
agreement under which Lexington or a subsidiary serve as sponsor, or for Buyer
or such designated person to replace Lexington or its subsidiary as such
sponsor, and to obtain the consent of the trustee of the unit trust to such
action.
6.2 Termination of Existing Advisory, Sub-Advisory, and Distribution
Arrangements. Each of Lexington and its subsidiaries and Buyer and Merger Sub
shall use its respective reasonable best efforts to cause the Board of each
Registrant to take, and Lexington and its subsidiaries will take, all necessary
and appropriate actions to provide written notice of termination in connection
with the change in control and resulting assignment, as of the Effective Time,
pursuant to the requirements of each existing advisory, sub-advisory,
administrative, and distribution agreement applicable to each such Fund, each
such termination to be effective as of the Effective Time, except for any
changes approved by Buyer and approved by the applicable Board.
6.3 Information Regarding the Lexington Funds. With respect to each
Registrant, Buyer shall provide as promptly as practicable to the Board of each
Registrant, with copies to Lexington, all information as the Board shall
reasonably request, in accordance with its responsibilities under Sections 15 of
the 1940 Act, to evaluate the terms of the proposed advisory and any
sub-advisory agreements relating to the Lexington Funds. Further, with respect
to each Registrant, Buyer also shall provide to the respective Board, with
copies to Lexington, all information requested to approve the terms of the
distribution agreement and to permit preparation of proxy materials or
prospectuses, as the case may be, to be sent to the stockholders of each
Registrant for the special meeting of stockholders referred in Section 7.6(b).
6.4 Access to Information Regarding the Lexington Funds. Upon reasonable
notice, Lexington shall (and shall cause its subsidiaries and the Lexington
Funds to) afford to the officers, employees, accountants, counsel, and other
representatives of Buyer, reasonable access, during normal
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business hours, to all its properties, books, contracts, commitments, and
records and will cause its, its subsidiaries', and the Lexington Funds'
employees, counsel, financial advisers, and auditors to cooperate with Buyer and
its representatives in its investigation of the business of the Lexington Funds.
Lexington shall (and shall cause its subsidiaries and the Lexington Funds to)
furnish promptly to Buyer a copy of each report, schedule, registration
statement, and other document filed or received by it during such period under
the requirements of securities laws and all other information concerning its
business, properties, and personnel as Buyer or its representatives may
reasonably request. Buyer's investigations shall be conducted in a manner as not
to unreasonably interfere with the operations of the Lexington Funds, and Buyer
will take reasonable precautions to protect the confidentiality of any
information of the Lexington Funds disclosed to such persons during the
investigation. No information or knowledge obtained in any investigation under
this Section 6.4 shall be deemed to modify a representation or warranty
contained in this Agreement or the conditions to the obligation of Buyer to
consummate the Merger.
6.5 The Registrants' Registration Statements. Lexington and Buyer will
cooperate with each other and each will endeavor in good faith to cause each
Registrant to file a revised prospectus or a post-effective amendment to that
Registrant's registration statement on Form N-1A or S-6, which revised
prospectus or amendment shall reflect changes as necessary in that Registrant's
affairs as a consequence of the transactions contemplated by this Agreement, and
shall cooperate with one another in causing each Registrant to make any other
filing necessary to satisfy disclosure requirements to enable the public
distribution of the shares of beneficial interest of that Registrant to continue
unabated after the Closing.
6.6 Operations of the Lexington Funds. Lexington shall, or shall cause
its applicable subsidiaries to, (a) inform Buyer weekly of purchases and sales
transactions of each Lexington Fund and provide weekly summaries of portfolio
positions (no earlier than five business days from those transactions); (b)
supply to Buyer unaudited financial statements of each Lexington Fund monthly;
(c) otherwise conduct its activities as investment adviser to each Lexington
Fund in the ordinary course of business consistent with past practice; and (d)
provide Buyer with weekly sales and redemption reports.
6.7 Undertakings Related to Section 15(f) of the 1940 Act. Buyer and
Lexington agree that neither of them nor any of their affiliates has any express
or implied understanding or arrangement that would impose an "unfair burden" (as
defined in Section 15(f)(2)(B) of the 1940 Act) on any of the Lexington Funds or
would in any way interfere with Lexington's reliance on Section 15(f) of the
1940 Act as a result of the transactions contemplated by this Agreement. The
parties agree to use their respective reasonable best efforts to comply and to
cause the respective Boards to comply with the provisions of Section 15(f) of
the 1940 Act. Compliance with Section 15(f) shall include the following
requirements for the minimum time periods specified in that section:
(a) for a period of three years after the Effective Time, at least
75% of the members of the Board of each Registrant involved, or any
successor Board by reorganization or otherwise, shall not be "interested
persons" (as defined in the 1940 Act) of the predecessor or new investment
adviser or sub-adviser;
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(b) for a period of two years after the Effective Time, no unfair
burden shall be imposed on a Lexington Fund (or any successor thereto by
any reorganization or otherwise) or its stockholders; provided that it is
understood that any payments or amounts received by Lexington or its
affiliates in connection with the transaction contemplated hereunder and
as specified hereunder shall not be deemed to violate Buyer's and its
affiliates' compliance with the unfair-burden provisions of Section 15(f);
and
(c) all vacancies on the Board of each Lexington Fund (other than
vacancies created by the death, disqualification, or resignation of any
Board member interested in Buyer, Lexington, or any of its affiliates or
otherwise to be filled by such a person) shall be filled by a person who
is not an interested person of the predecessor or new investment advisor
and who has been selected and proposed for election by a majority of the
Board members who are not interested persons of the predecessor or new
investment advisor.
6.8 Continued Qualification. Lexington shall use its reasonable best
efforts to ensure that no Registrant takes any action that (a) would prevent any
Lexington Fund from qualifying as a "regulated investment company" under Section
851 of the Code or (b) would be inconsistent with each Lexington Fund's
prospectus and other offering, advertising, and marketing materials.
ARTICLE VII
Covenants Relating to the Parties
7.1 Business Operations of Lexington. Lexington agrees as to itself and
its subsidiaries (except to the extent that Buyer otherwise consents (not to be
unreasonably withheld or delayed) in writing or as contemplated by this
Agreement), to carry on its business in the usual and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due subject to good faith disputes over those debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, to use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, to keep available
the services of its present officers and key employees and preserve its material
relationships with clients, customers, suppliers, distributors, licensors,
licensees, and others having business dealings with it, and generally to
preserve its goodwill and ongoing businesses. Except as expressly stated in this
Agreement, Lexington may not (and may not permit any of its subsidiaries to),
without the prior written consent of Buyer (not to be unreasonably withheld or
delayed):
(a) accelerate, amend, or change the period of exercisability of
options, performance shares, or restricted stock granted under any stock
plan or authorize cash payments in exchange for any awards granted under
any of those plans, except as required by the terms of those plans or any
related agreements or other arrangements in effect as of the date hereof,
(b) transfer or license to any person or entity or otherwise extend,
amend, or modify any of its Proprietary Rights;
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(c) declare or pay any dividends on or make any other
distributions (whether in cash, stock, or property) in respect of
shares of its capital stock, or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of, or in substitution for shares of capital stock, or
purchase, redeem, or otherwise acquire, or propose to purchase, redeem,
or otherwise acquire, directly or indirectly, any shares of its capital
stock or any options, rights, or warrants to purchase any capital stock
or any securities convertible into or exchangeable for capital stock;
(d) issue, deliver, or sell or authorize or propose the
issuance, delivery, or sale of any shares of its capital stock or
securities convertible into shares of its capital stock, or
subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating it to issue, any
such shares or other convertible securities (other than the grant of
options to employees in a manner consistent with past practices and
under the Lexington Incentive Plan, and the issuance of shares upon the
exercise of options that were either outstanding as of the date hereof
or were granted after the date hereof in compliance with this Section
7.1(d));
(e) acquire (whether by merger, consolidation, acquisition of
stock or assets, or otherwise) any corporation, partnership, or other
business organization or division thereof, or otherwise acquire or
agree to acquire any assets that are material, individually or in the
aggregate, to the business of Lexington and its subsidiaries, taken as
a whole, other than the joint venture described on Schedule 7.1(e);
(f) sell, lease, license, or otherwise dispose of any of its
properties or assets that are material, individually or in the
aggregate, to the business of Lexington and its subsidiaries, taken as
a whole;
(g) (1) other than as described on Schedule 7.1(g), increase the
compensation or benefits payable or to become payable to its directors,
officers, or employees, except for increases for non-executive-level
employees in the ordinary course of business; (2) enter into any
employment or severance agreements with any person; (3) grant any
severance or termination pay to, except under agreements or policies
disclosed in the Lexington Disclosure Schedule, or enter into any
employment or severance agreement with, any employee, except severance
agreements in accordance with the policies disclosed in the Lexington
Disclosure Schedule; (4) enter into any collective bargaining
agreement; (5) establish or, except as required by applicable law,
amend any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation,
employment, termination, severance, or other plan, trust, fund, policy,
or arrangement for the benefit of any directors, officers, employees,
or consultants; or (6) establish any new executive-officer employee
position;
(h) (1) revalue any of its assets, other than revaluations that
are required in accordance with GAAP or in the ordinary course of
business; or (2) change or modify in any material respect any existing
accounting method, principle, or practice, other than as required by
GAAP;
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(i) incur any indebtedness for borrowed money or guarantee or
assume any such indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of Lexington or any
of its subsidiaries or guarantee any debt securities of others, or
voluntary prepay any outstanding indebtedness (provided that this
Section 7.1(i) does not preclude intercompany indebtedness, guaranties,
or assumptions);
(j) amend or propose to amend its charter, bylaws, or similar
organizational documents;
(k) make any capital expenditure or commitment other than as
described on Schedule 7.1(k) or for which it is not contractually bound
at the date hereof, except for capital expenditures and commitments not
to exceed $300,000 in total;
(l) enter into any new Material Contract (other than in the
ordinary course of business), or modify in any respect materially
adverse to Lexington or any of its subsidiaries any existing Material
Contract;
(m) other than as described on Schedule 7.1(m), engage in the
business of selling any products or services materially different from
existing products and services, or enter into new lines of business;
(n) enter into, terminate, or amend (1) any agreement under
which it agrees to indemnify any party on behalf of its business or
under which it agrees to refrain from competing with any party with
respect to its business or (2) any investment advisory, sub-advisory,
management, distribution, marketing, custody, or other service
agreements relating to the Lexington Funds, except for selling
agreements; or
(o) agree to take any of the actions described in subsections
(a) through (n) above, or take or agree to take any action that is
reasonably likely to make any of Lexington's representations or
warranties contained in this Agreement untrue or incorrect in any
material respect as of the Effective Time.
7.2 Cooperation. Subject to compliance with applicable law, from the
date hereof until the Effective Time, Buyer, Merger Sub, and Lexington shall
confer on a regular and frequent basis with one or more representatives of the
other parties to report operational matters of materiality and the general
status of ongoing operations and shall promptly provide the other parties and
their counsel with copies of all filings made by the party with any Governmental
Authority in connection with this Agreement, the Merger, and the transactions
contemplated hereby.
7.3 Access to Information. Upon reasonable notice, Lexington shall
(and shall cause its subsidiaries to) afford to the officers, employees,
accountants, counsel, and other representatives of Buyer, reasonable access,
during normal business hours, to all its properties, books, contracts,
commitments, and records and will instruct its, and its subsidiaries',
employees, counsel, financial advisers, and auditors to cooperate with Buyer and
its representatives in its investigation of the business of Lexington and its
subsidiaries. Lexington shall (and shall cause its subsidiaries to) furnish
promptly to Buyer (a) a copy of each report, schedule, registration statement,
and other document filed or received by it during such period under the
requirements of securities laws and (b) all other
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information concerning its business, properties, and personnel as Buyer or its
representatives may reasonably request. Buyer's investigations shall be
conducted in a manner as not to unreasonably interfere with the operations of
Lexington and its subsidiaries, and Buyer will take reasonable precautions to
protect the confidentiality of any information of Lexington and its subsidiaries
disclosed to such persons during the investigation. No information or knowledge
obtained in any investigation under this Section 7.3 shall be deemed to modify a
representation or warranty contained in this Agreement or the conditions to the
obligation of Buyer to consummate the Merger.
7.4 No Solicitation.
(a) Lexington may not, directly or indirectly, through any officer,
director, employee, representative, or agent of Lexington or any of its
subsidiaries:
(1) seek, encourage, initiate, or solicit any inquiries,
proposals, or offers from any person or group to acquire any shares of
capital stock (including by way of a tender offer, but nothing shall
prohibit customary calls with analysts consistent with past practice
in respect of Lexington results) of it, any of its subsidiaries, or
any of the Lexington Funds, to merge or consolidate with it, any of
its subsidiaries, or any Lexington Fund, or to otherwise acquire any
significant portion of the assets of it, any of its subsidiaries, or
the Lexington Funds, or similar transaction involving Lexington, any
of its subsidiaries, or the Lexington Funds, other than the
transactions contemplated by this Agreement (any of the foregoing
inquiries, proposals, or offers being an "Acquisition Proposal");
(2) engage in negotiations or discussions concerning an
Acquisition Proposal with any person or group or disclose or provide
any non-public information relating to the business of Lexington, any
of its subsidiaries, or any Lexington Fund, or afford access to the
properties, books, or records of Lexington, any of its subsidiaries,
or any Lexington Fund to any person or group that the party has reason
to believe may be considering an Acquisition Proposal; or
(3) agree to, approve, or recommend any Acquisition Proposal.
(b) Any violation of the restrictions set forth in Section 7.4(a) by
any director or officer of Lexington or any of its subsidiaries or any of
Lexington or its subsidiaries' financial advisers, attorneys, accountants,
or other representatives, acting on behalf of Lexington or its
subsidiaries, shall be deemed a violation of Section 7.4(a) by Lexington.
(c) Nothing contained in Section 7.4(a), however, prevents Lexington
from (1) authorizing any of its officers, financial advisers, attorneys,
accountants, or other representatives to furnish non-public information or
access to, or to enter into discussions or negotiations with, any person in
connection with a bona fide Acquisition Proposal by such person that has
not been solicited after the date hereof, or recommending to its
stockholders a bona fide written Acquisition Proposal that has not been
solicited after the date hereof, if, and only to the extent that, (A) the
Board of Directors of Lexington determines in good faith that such action
is necessary for it to comply with its fiduciary duties to stockholders
under Delaware law, (B) before furnishing such non-public information to,
or entering into
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discussions or negotiations with, such person, the Board of Directors
receives from such person an executed confidentiality agreement on terms no
less favorable to Lexington than those contained in the Confidentiality
Agreement discussed in Section 7.14, (C) the Board of Directors determines
in good faith that such Acquisition Proposal is reasonably likely to lead
to a Superior Proposal (as defined in Section 7.4(d)), and (D) the
Acquisition Proposal did not result from a breach of Section 7.4(a), or (2)
complying with Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act
with regard to an Acquisition Proposal; provided, however, that the
foregoing clause (2) shall not alter the covenants of Lexington set forth
in clause (3) of Section 7.4(a).
(d) For purposes of this Agreement, "Superior Proposal" means an
Acquisition Proposal that the Board of Directors of Lexington determines in
its good faith judgment to be more favorable to its stockholders than the
Merger and for which financing, to the extent required, is committed or, in
the good faith judgment of the Board of Directors, is reasonably capable of
being obtained by the third party.
(e) Lexington shall immediately cease and cause to be terminated any
activities, discussions, or negotiations, existing on the date hereof, with
any person with respect to any Acquisition Proposal, and will promptly
request that each such person return or destroy all confidential
information previously produced to that person by Lexington or its
subsidiaries.
(f) Lexington shall immediately notify Buyer upon receipt by it or
its advisers of any Acquisition Proposal or any request for non-public
information in connection with an Acquisition Proposal or for access to the
properties, books, or records thereof by any person that informs Lexington
that it is considering making, or has made, an Acquisition Proposal. Such
notice shall be made orally and in writing and shall indicate in reasonable
detail the terms and conditions of the proposal, inquiry, or contact, but
need not disclose the identity of the person making the Acquisition
Proposal or the request. If Buyer is notified by Lexington of a Superior
Proposal, then Buyer shall have five business days to make a counter
proposal; provided, however, that neither the submission nor the failure to
submit such a counter proposal shall affect Buyer's right to be paid a
termination fee under Section 10.3.
7.5 Proxy Statement; Board Recommendation. As promptly as practicable
after the execution hereof, Buyer and Lexington shall jointly prepare the Proxy
Statement, and Buyer shall prepare and file with the SEC as soon as practicable
after the execution hereof the Registration Statement, in which the Proxy
Statement will be included. Buyer shall use its best efforts to have the
Registration Statement declared effective by the SEC as promptly as practicable
after such filing. If at any time any event shall occur which should be set
forth in an amendment of or supplement to the Registration Statement, Buyer
shall prepare and file with the SEC such amendment or supplement as soon
thereafter as is reasonably practicable. The Proxy Statement shall include the
recommendation of the Board of Directors of Lexington in favor of this Agreement
and the Merger; provided that the Board of Directors of Lexington may withdraw
such recommendation if it determines that there exists a Superior Proposal and
its Board of Directors determines that the withdrawal of the recommendation is
necessary for the Board of Directors to comply with its fiduciary duties under
the Delaware law.
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7.6 Stockholders' Meetings of Lexington and the Lexington Funds; Consents
for Private Accounts.
(a) Lexington shall call a meeting of its stockholders to be held as
promptly as practicable for the purpose of voting upon the approval of this
Agreement and the Merger. The meeting of Lexington's stockholders shall be
held to vote on this Agreement and the Merger regardless of whether the
Board of Directors of Lexington determines at any time after the date
hereof that this Agreement and the Merger are no longer advisable and
recommends that the stockholders vote against this Agreement and the
Merger. Subject to Section 7.5, Lexington shall use its reasonable best
efforts to solicit from its stockholders proxies in favor of approval of
this Agreement and the Merger.
(b) Lexington will use and will cause its subsidiaries to use their
reasonable best efforts to obtain, as promptly as reasonably practicable,
the agreement of the Board of each Registrant to call a special meeting of
stockholders to be held as promptly as reasonably practicable for the
purpose of voting upon the approval of the advisory agreements to the
extent consistent with its fiduciary duties under the 1940 Act, to
recommend that shareholders approve such proposed advisory agreements.
(c) With respect to each Private Account, Lexington and its
subsidiaries, with the assistance of Buyer and Merger Sub, will each use
its reasonable best efforts in good faith to obtain (and cooperate with one
another in obtaining), as promptly as practicable, any consent required of
each other party or of other required persons under any Management
Agreement to the assignment of such Management Agreements before the
Closing, including written consent where required under a Management
Agreement.
7.7 Legal Conditions to Merger. Each of Buyer, Merger Sub, and Lexington
shall take all reasonable actions necessary to comply promptly with all legal
requirements that may be imposed on it with respect to the Merger (including
furnishing all information required under the HSR Act and in connection with
approvals of or filings with any other Governmental Authorities) and will
promptly cooperate with and furnish information to each other in connection with
any such requirements imposed upon any of them or any of their subsidiaries in
connection with the Merger. Each of Buyer and Lexington shall, and shall cause
its subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order, or
approval of, or any exemption by, any Governmental Authority or other public
third party, required to be obtained or made by Buyer, Lexington, or any of
their subsidiaries in connection with the Merger or the taking of any action
contemplated thereby or by this Agreement. Nothing in this Section 7.7, however,
shall require Buyer or any of its subsidiaries, in connection with the receipt
of any regulatory approval, to agree (a) to sell, discontinue, or limit, before
or after the Effective Time, any assets, businesses, or interest in any assets
or businesses of it or any of its affiliates, or (b) to any conditions relating
to, or changes or restriction in, the operations of any such assets or
businesses that is reasonably likely to materially and adversely impact the
economic or business benefits to Buyer and Merger Sub of transactions
contemplated hereby.
7.8 Stock Plans and Options.
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(a) At the Effective Time, the Lexington Options shall be assumed by
Buyer. Each Lexington Option so assumed by Buyer under this Agreement shall
continue to have, and be subject to, substantially the same terms and
conditions as were applicable under the Lexington Incentive Plan and the
documents governing such Lexington Option immediately before the Effective
Time, except that (i) such Lexington Option will vest and become
immediately exercisable to the extent set forth in the Lexington Incentive
Plan and the documents governing such Lexington Option and (ii) each
Lexington Option will be exercisable for that number of whole shares of
Buyer Common Stock equal to the product of the number of shares of
Lexington Common Stock that were issuable upon exercise of the option
immediately before the Effective Time multiplied by the Option Ratio (as
defined in Section 7.8(d)) and rounded down to the nearest whole number of
shares of Buyer Common Stock, and the per-share exercise price for the
shares of Buyer Common Stock issuable upon exercise of such assumed
Lexington Option will be equal to the quotient determined by dividing the
exercise price per share of Lexington Common Stock at which the option was
exercisable immediately before the Effective Time by the Option Ratio,
rounded up to the nearest whole cent. It is the intention of the parties
that the Lexington Options so assumed by Buyer qualify following the
Effective Time as "incentive stock options," as defined in Section 422 of
the Code, to the extent such options qualified as incentive stock options
immediately before the Effective Time.
(b) At the Effective Time, each share of Lexington Restricted Stock
as to which restrictions have not lapsed pursuant to the terms of the
Lexington Incentive Plan and the documents governing the Lexington
Restricted Stock shall continue to have, and be subject to, substantially
the same terms and conditions as were applicable under the Lexington
Incentive Plan and the documents governing such shares of Lexington
Restricted Stock immediately before the Effective Time, except that there
shall be substituted for the shares of Lexington Common Stock a number of
shares of Buyer Common Stock equal to the product obtained by multiplying
the number of shares of Lexington Restricted Stock by the Option Ratio, and
rounding the result to the nearest whole number of shares of Buyer Common
Stock. The resulting number will equal the number of shares of Buyer
Restricted Stock, so that each share of Buyer Restricted Stock will
represent the right to receive one share of Buyer Common Stock.
(c) Buyer shall take all corporate actions necessary to reserve for
issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of all Lexington Options and the vesting of all Lexington
Restricted Stock assumed in accordance with this Section 7.8. As soon as
practicable after the Effective Time, Buyer shall file a registration
statement on Form S-8 (or other applicable form) with respect to the shares
of Buyer Common Stock subject to those options and restricted stock and
shall use its best efforts to maintain the effectiveness of the
registration statement for so long as those options and shares of
restricted stock remain outstanding.
(d) For purposes of this Agreement, the "Option Ratio" shall equal
the quotient obtained by dividing (i) the Merger Consideration by (ii) the
Buyer's Average Share Price.
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7.9 Consents. Lexington shall use all reasonable efforts to obtain all
necessary third-party consents, waivers, and approvals under any of Lexington's
material agreements, contracts, licenses, or leases to consummate the Merger and
the transactions contemplated thereby.
7.10 Tax-Free Reorganization. Buyer and Lexington shall each use all
reasonable best efforts to cause the Merger to be treated as a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(D) of the Code
(a "Reorganization"), including any mutually agreeable re-allocation of the
Merger Consideration between the Share Consideration and the Cash Consideration
that is reasonably necessary to obtain such treatment. To the extent permitted
under applicable tax laws, the Merger shall be reported as a Reorganization in
all federal, state and local Tax Returns filed after the Effective Time. If
Buyer exercises its right to pay additional cash pursuant to the last sentence
of Section 2.1(b) and solely as a result thereof Lexington and Buyer, based on
the advice of tax counsel reasonably believe that the Merger will not be treated
as a Reorganization, the Merger Consideration shall be increased by $3.5
million.
7.11 NYSE Listing. Buyer shall cause the shares of Buyer Common Stock to be
issued in the Merger to be approved for listing on the NYSE, subject to official
notice of issuance, before the Closing Date.
7.12 Payment of Transaction Expenses. Prior to the Closing Date, Lexington
shall pay all of its fees and expenses incurred in, or arising from, the
preparation and negotiation of this Agreement and the combination of the parties
through consummation of the Merger and other transactions contemplated hereby,
including termination of employment agreements, change-of-control and severance
payments and fees and expenses of legal counsel, accountants, and financial
advisers.
7.13 Additional Agreements; Reasonable Efforts. Subject to the terms
hereof, including Section 7.5, each of the parties shall use its reasonable best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all things necessary, proper, or advisable under Applicable Law to
consummate and make effective the transactions contemplated by this Agreement.
7.14 Confidentiality Agreement. The Confidentiality Agreement between Buyer
and Lexington dated January 24, 2000 shall remain in full force and effect until
the Effective Time. Until the Effective Time, the parties shall comply with the
terms of the Confidentiality Agreement.
7.15 Amendment to Rights Agreement. Prior to the date hereof, the Board of
Directors of Lexington has authorized an amendment to the Rights Agreement dated
as of December 13, 1995 between Lexington and First Chicago Trust Company of New
York (the "Lexington Rights Agreement") to provide that (a) Buyer will not
become an "Acquiring Person" as a result of the consummation of the Merger or
the execution of the Voting Agreement and related proxies, (b) no "Stock
Acquisition Date" or "Distribution Date" (as such terms are defined in the
Lexington Rights Agreement) will occur as a result of the consummation of the
Merger or the execution of the Voting Agreement and related proxies, and (c) all
outstanding rights issued and outstanding under the Lexington Rights Agreement
will expire immediately before the Effective Time.
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ARTICLE VIII
Conditions Precedent
8.1 Conditions to the Parties' Obligation to Effect the Merger. The
respective obligations of the parties to effect the Merger are subject to the
satisfaction before the Closing of the following conditions, any of which may be
waived, to the extent legally allowed, in writing, by mutual written consent of
the parties:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved by the requisite vote of the stockholders of Lexington, as
required by the Delaware Law and by any applicable provisions of
Lexington's Certificate of Incorporation and Bylaws. The proposals to be
acted upon at the special meetings of stockholders of the Lexington Funds
discussed in Section 7.6(b) shall have received affirmative votes
sufficient for their adoption by (i) Lexington Funds holding 90% of the net
assets held by all Lexington Funds as reflected on the Revised Schedule
2.1(c) and (ii) all Lexington Funds except those Lexington Funds set forth
on Schedule 8.1(a). The consents required under Section 7.6(c), if any,
shall have been obtained from Private Accounts of institutional clients
holding 90% of the net assets held by all such Private Accounts and from
Private Accounts of all other clients holding 80% of the net assets held by
all such Private Accounts, in each case as reflected on the Revised
Schedule 2.1(c).
(b) HSR Act. The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated.
(c) Approvals. There shall have been obtained all permits, consents,
and approvals of all Governmental Authorities of the type referred to in
clauses (A), (B), (D), (E), and (F) of Section 3.2(d)(2).
(d) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction, or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall
have been issued, nor shall any proceeding brought by a Governmental
Authority seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation, or order enacted, entered,
enforced, or deemed applicable to the Merger which makes the consummation
of the Merger illegal.
(e) The shares of Buyer Common Stock issuable in the Merger shall
have been authorized for listing on the NYSE upon official notice of
issuance.
(f) The Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC or
any state regulatory authorities.
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8.2 Additional Conditions to the Obligations of Buyer and Merger Sub. The
obligations of Buyer and Merger Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing by Buyer and Merger Sub:
(a) Representations and Warranties. The representations and
warranties of Lexington contained in Articles III and IV hereof shall be
true and correct in all material respects (provided that solely for the
purposes of this Section 8.2(a), the term "in all material respects" shall
not be deemed to further qualify any representation or warranty that by its
terms is qualified by any materiality qualification) as of the date hereof
and immediately before the Effective Time, with the same force and effect
as if made as of the Effective Time, except that the accuracy of
representations and warranties that by their terms speak as of the date of
this Agreement or some other date will be determined as of that date.
(b) Performance of Obligations of Lexington. Lexington shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or before the Closing Date.
(c) No Material Adverse Change. Since the date hereof, no Material
Adverse Effect with respect to Lexington or any of the Lexington Funds
shall have occurred.
(d) Officers' Certificate. Buyer shall have received a certificate
signed on behalf of Lexington by the Chief Executive and Chief Financial
Officers of Lexington confirming the satisfaction of subsections (a), (b),
and (c) of this Section 8.2.
(e) Legal Opinions. Buyer shall have received an opinion of Ballard
Spahr Andrews & Ingersoll, LLP and Kramer Levin Naftallis and Frankel (or
such other outside legal counsel selected by Lexington or the Registrants
and reasonably acceptable to Buyer), each, special legal counsel to
Lexington and/or the Lexington Funds, dated the Closing Date reasonably
acceptable in form and substance to Buyer.
(f) Dissenters' Rights. The number of Dissenting Shares shall not
equal more than 5% of the total of the outstanding shares of Lexington
Common Stock.
(g) Certain Consents. Lexington shall have obtained in writing all
consents, waivers, or approvals, necessary to provide that consummation of
the Merger does not constitute a default under, or effect or give rise to a
right of termination of, each of the Material Contracts identified by an
asterisk in Part 3.2(d)(4) of the Lexington Disclosure Schedule.
(h) Comfort Letter. Buyer shall have received "comfort" letters in
customary form and substance reasonably satisfactory to Buyer from KPMG
LLP, certified public accountants for Lexington, dated the date of the
Proxy Statement, the effective date of the Registration Statement, and the
Closing Date (or such other dates reasonably acceptable to Buyer) with
respect to certain financial statements and other financial information
included in the Registration Statement and any subsequent changes in
specified balance sheet and income statement items, including total assets,
working capital, total stockholders' equity, total revenues, and per-share
amounts of net income.
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(i) Lexington Assets Under Management. The Adjustment Percentage
shall be no less than 55%.
(j) Closing Date Balance Sheet. Lexington shall have delivered to
Buyer an unaudited pro forma balance sheet, dated the Closing Date, which
shall present a positive book value for Lexington.
(k) 1999 Financials. Lexington shall have delivered to Buyer its
audited consolidated financial statements (including any related notes or
schedules) as of and for the one-year period ended December 31, 1999.
(l) Spin-off Tax Opinion. Lexington shall have delivered to Buyer an
accurate copy of the opinion of Davis Polk & Wardwell regarding the tax-
free status of the 1995 Lexington spin-off transaction.
8.3 Additional Conditions to the Obligation of Lexington. The obligation
of Lexington to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived in writing by Lexington:
(a) Representations and Warranties. The representations and
warranties of Buyer and Merger Sub contained in Article V hereof shall be
true and correct in all material respects (provided that solely for the
purposes of this Section 8.3(a), the term "in all material respects" shall
not be deemed to further qualify any representation or warranty that by its
terms is qualified by any materiality qualification) as of the date hereof,
and immediately before the Effective Time, with the same force and effect
as if made as of the Effective Time, except that the accuracy of
representations and warranties that by their terms speak as of the date of
this Agreement or some other date will be determined as of that date.
(b) Performance of Obligations of Buyer and Merger Sub. Buyer and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or before the
Closing Date.
(c) Officers' Certificate. Lexington shall have received a
certificate signed on behalf of Buyer by a Senior Vice President of Buyer,
and on behalf of Merger Sub by the President or any Vice President of
Merger Sub, confirming the satisfaction of subsections (a) and (b) of this
Section 8.3.
(d) Legal Opinion. Lexington shall have received an opinion of Faegre
& Benson LLP, legal counsel to Buyer, dated the Closing Date reasonably
acceptable in form and substance to Lexington.
(e) Tax Opinion. Lexington shall have received from Ballard Spahr
Andrews & Ingersoll, LLP an opinion substantially to the effect that, on
the basis of facts, representations and assumptions referenced in such
opinion that are reasonably consistent with the state of facts existing at
the Effective Time, the Merger will be treated for United States federal
income tax purposes as a reorganization within the meaning of Sections
368(a)(1)(A) and 368 (a)(2)(D) of the Code, and that no gain or loss should
be required to be recognized by a shareholder of
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Lexington to the extent such shareholder receives Buyer Common Stock in
exchange for shares of Lexington Common Stock. In rendering such opinion,
counsel may request and rely upon representations contained in certificates
of officers of Lexington, Buyer and Merger Sub and the parties shall use
their reasonable best efforts to make available such truthful certificates.
(f) Comfort Letter. Lexington shall have received "comfort" letters
in customary form and substance reasonably satisfactory to Lexington from
Deloitte & Touche LLP, certified public accountants for Buyer and Merger
Sub, dated the date of the Proxy Statement, the effective date of the
Registration Statement and the Closing Date (or such other dates reasonably
acceptable to Lexington) with respect to certain financial statements and
other financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income.
(g) Employment Agreements. Merger Sub shall have executed employment
agreements with terms set forth on Exhibit B-1 and B-2 and such other terms
as agreed by the parties thereto with each of Richard Hisey (Exhibit B-1),
Alfredo Viegas, Mustafa Zaidi, and Dennis Jamison (for all but Mr. Hisey,
Exhibit B-2).
ARTICLE IX
Conduct and Transactions After the Effective Time
9.1 Employee Matters.
(a) From and after the Effective Time, the employee pension benefit
plans, as defined in Section 3(2) of ERISA, and welfare and other benefit
plans, programs, and arrangements in effect and sponsored by Lexington
and/or all or any of its subsidiaries as of the Effective Time shall,
subject to applicable law, the terms of this Agreement, and the terms of
such plans, programs, and arrangements, remain in effect with respect to
those individuals who are employees of Lexington and its subsidiaries until
such time as the Surviving Corporation shall adopt new employee benefit
plans and arrangements with respect to employees of the Surviving
Corporation and its subsidiaries; provided, however, that for employees on
Lexington's or its subsidiaries' payroll as of the Closing Date, such
benefit plans and arrangements shall (1) contain no waiting period or pre-
existing condition exclusions and (2) not be less favorable, in the
aggregate, than the benefit plans and arrangements provided to similarly
situated employees of Buyer. Buyer shall be responsible for perpetuating
the group health plan continuation coverages pursuant to Section 4980B of
the Code and Sections 601 through 609 of ERISA for all employees of
Lexington as of the Closing Date and their eligible dependents.
(b) From and after the Effective Time, for purposes of determining
eligibility, vesting, any length of service requirements, waiting periods,
or benefits based on length of service, and entitlement to vacation and
severance benefits for employees employed by Lexington or any of its
subsidiaries immediately before the Effective Time under any compensation,
severance, welfare, pension, benefit, or savings plan of the Surviving
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Corporation or any of its affiliates in which such employees of Lexington
and its subsidiaries were, or could reasonably expect to become, eligible
to participate, service with Lexington or any of its subsidiaries shall be
credited as if such service had been rendered to the Surviving Corporation
or such affiliate; provided, however, that such service credit shall not
operate to duplicate any benefit or the funding thereof.
9.2 Indemnification. All rights to indemnification, expense advancement,
and exculpation existing in favor of any present or former director, officer,
employee, or agent of Lexington or any of its subsidiaries as provided in the
charter, bylaws, or similar organizational documents of Lexington or any of its
subsidiaries or by law as in effect on the date hereof shall survive the Merger
and continue in full force and effect without amendment thereto for a period of
at least six years after the Effective Time (or, if any relevant claim is
asserted or made within that six-year period, until final disposition of the
claim) with respect to matters occurring at or before the Effective Time, and no
action taken during that period shall be deemed to diminish the obligations set
forth in this Section 9.2. Further, the Surviving Corporation, by virtue of the
Merger and without further action, shall assume as of the Effective Time all
indemnification agreements of Lexington in effect as of the date hereof. Buyer
hereby guarantees the performance of the covenants set forth in this Section
9.2. The provisions of this Section 9.2 are intended for the benefit of, and
shall be enforceable by, directors, officers, and others entitled to
indemnification hereunder and their respective heirs and personal
representatives.
9.3 Directors and Officers Liability Insurance. For a period of at least
six years after the Effective Time, Buyer shall maintain in effect either (a)
policies of directors' and officers' liability insurance providing at least the
same coverage and amounts and containing terms and conditions that are no less
advantageous in any material respect to the insured parties under such policies
maintained by Lexington as of the date hereof with respect to claims arising
from facts or events that occurred at or before the Effective Time (including
consummation of the transactions contemplated by this Agreement), or (b) a run-
off (that is, a "tail") policy or endorsement with respect to the current policy
of directors' and officers' liability insurance covering claims asserted within
six years after the Effective Time arising from facts or events that occurred at
or before the Effective Time (including consummation of the transactions
contemplated by this Agreement); and such policies or endorsements shall name as
insureds thereunder all present and former directors and officers of Lexington
or any of its subsidiaries.
9.4 Tax-Free Reorganization Covenants.
(a) Following the Merger, the Surviving Corporation will, and Buyer
will cause the Surviving Corporation to, continue the historic business of
Lexington or use a significant portion of Lexington's business assets in a
business.
(b) Following the Merger, the Surviving Corporation will not issue,
and Buyer will not cause the Surviving Corporation to issue, additional
shares of stock of the Surviving Corporation that would result in Buyer
losing "control" (within the meaning of Section 368(c) of the Code) of the
Surviving Corporation.
(c) Buyer has no plan or intention to reacquire any of its Common
Stock issued in the Merger.
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(d) Buyer has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with and into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation or to cause the Surviving Corporation to sell or otherwise
dispose of any of the assets of Lexington acquired in the Merger, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
ARTICLE X
Termination
10.1 Generally. This Agreement may be terminated at any time before the
Effective Time, whether before or after approval by the stockholders of
Lexington:
(a) by mutual written consent of Buyer, Merger Sub, and Lexington;
(b) by Buyer and Merger Sub or by Lexington if the transactions
contemplated hereby have not been consummated on or before December 31,
2000 (which date may be extended by mutual agreement of Buyer, Merger Sub,
and Lexington), provided that such failure is not due to the failure of the
party seeking to terminate this Agreement to comply in all material
respects with its obligations under this Agreement;
(c) by Buyer and Merger Sub, if (1) any of the conditions set forth
in Sections 8.1 or 8.2 shall become impossible to fulfill other than for
reasons within the control of Buyer or Merger Sub, and such conditions
shall not have been waived under Article VIII, or (2) the stockholders of
Lexington fail to approve this Agreement and the Merger by the vote
required by the Delaware Law and Lexington's Certificate of Incorporation
and Bylaws at the first stockholders' meeting called for that purpose,
including any adjournments thereof;
(d) by Lexington, if (1) any of the conditions set forth in Sections
8.1 or 8.3 shall become impossible to fulfill other than for reasons within
the control of Lexington, and such conditions shall not have been waived
under Article VIII, or (2) the stockholders of Lexington fail to approve
this Agreement and the Merger by the vote required by the Delaware Law and
Lexington's Certificate of Incorporation and Bylaws at the first
stockholders' meeting called for that purpose, including any adjournments
thereof;
(e) by Buyer and Merger Sub, if the Lexington Board of Directors
withdraws or adversely modifies its recommendation to its stockholders of
this Agreement and the Merger;
(f) by Buyer and Merger Sub, if Lexington shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to Lexington of such failure or, (2) breached
a representation or warranty contained in Article III or IV hereof, and
such breach cannot be or has not been cured within 30 days of the giving of
written notice to Lexington of such breach, and the condition set forth in
Section 8.2(a) cannot be satisfied;
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(g) by Lexington, if Buyer or Merger Sub shall have (1) failed to
observe or perform in any material respect any of its covenants set forth
in this Agreement that cannot be or has not been cured within 30 days of
the giving of written notice to Buyer of such failure or, (2) breached a
representation or warranty contained in Article V hereof, and such breach
cannot be or has not been cured within 30 days of the giving of written
notice to Buyer of such breach, and the condition set forth in Section
8.3(a) cannot be satisfied.
10.2 Procedure and Effect of Termination. Upon termination of this
Agreement by Lexington or by Buyer and Merger Sub under Section 10.1, written
notice thereof shall forthwith be given to the other parties and this Agreement
shall terminate and the Merger shall be abandoned without further action by any
of the parties. If this Agreement is terminated as provided herein, no party
shall have any liability or further obligation to any other party to this
Agreement, except as provided in Section 10.3 or to the extent the termination
is the direct result of a willful and material breach by the party of a
representation, warranty, or covenant contained in this Agreement.
10.3 Expenses; Termination Fee.
(a) All expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by the
party incurring the expenses.
(b) If this Agreement is terminated by Buyer under Sections
10.1(c)(2) or (f), or by Lexington under Section 10.1(d)(2);
(1) then Lexington shall, within five business days of
termination, pay to Buyer an amount, not to exceed $450,000, equal to
all reasonable out-of-pocket expenses (including fees and costs of
attorneys and accountants) incurred by Buyer or Merger Sub in
connection with the transactions contemplated by this Agreement; and
(2) if, on or before the date that is one year after the date of
termination, a Third-Party Transaction (as defined in subsection (e)
below) is consummated, then Lexington shall, within five business days
after the consummation of such Third-Party Transaction, pay to Buyer
an additional $1.8 million.
(c) If this Agreement is terminated by Buyer under Section 10.1(e),
(1) then Lexington shall, within five business days of
termination, pay to Buyer $1.125 million; and
(2) if, on or before the date that is one year after the date of
termination, a Third-Party Transaction is consummated, then Lexington
shall, within five business days after the consummation of such Third-
Party Transaction, pay to Buyer an additional $1 million.
(d) If this Agreement is terminated by Lexington under Section
10.1(g), then Buyer shall, within five business days of termination, pay to
Lexington an amount, not to exceed $450,000, equal to all reasonable out-
of-pocket expenses (including fees and costs of attorneys
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and accountants) incurred by Lexington in connection with the transactions
contemplated by this Agreement.
(e) As used in Sections 10.3(b) and (c), "Third-Party Transaction"
means the occurrence of any of the following events: (1) the acquisition of
Lexington by merger, consolidation, statutory share exchange, or other
business combination transaction by any person other than Buyer, Merger
Sub, or any affiliate thereof (a "Third Party"), in which the holders of
shares of Lexington Common Stock do not, immediately after the transaction,
directly or indirectly own more than 50% of the voting power of the capital
stock of Lexington or the surviving corporation in substantially the same
proportion as before the transaction; (2) the acquisition by any Third
Party of 50% or more (in book value or market value) of the total assets of
Lexington and its subsidiaries, taken as a whole; or (3) the acquisition by
a Third Party of 50% or more of the outstanding shares of Lexington Common
Stock, whether by tender offer, exchange offer, or otherwise.
(f) This Section 10.3 shall survive termination of this Agreement for
any reason for a period of 13 months thereafter.
ARTICLE XI
Miscellaneous Provisions
11.1 Termination of Representations and Warranties. The representations and
warranties set forth in this Agreement (including those set forth in the
Lexington Disclosure Schedule and the Buyer Disclosure Schedule) or in any
certificate furnished under this Agreement shall not survive the Effective Time.
The covenant of Buyer and Surviving Corporation contained in Section 9.4 shall
survive until the fifth anniversary of the Effective Time. This Section 11.1
shall not limit any other covenant or agreement of the parties that, by its
terms contemplates performance after the Effective Time.
11.2 Amendment and Modification. To the extent permitted by applicable law,
this Agreement may be amended, modified, or supplemented only by written
agreement of the parties at any time before the Effective Time with respect to
any of the terms contained herein, except that after the special meeting of
Lexington's stockholders to approve this Agreement and the Merger, the amount
and form of the consideration payable in the Merger may not be altered without
the approval of the stockholders of Lexington.
11.3 Waiver of Compliance; Consents. Any failure of a party to comply with
any obligation, covenant, agreement, or condition herein, to the extent legally
allowed, may be waived in writing by the other, but any such waiver or failure
to insist upon strict compliance with the obligation, covenant, agreement, or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, the consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 11.3.
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11.4 Press Releases and Public Announcements. No party may issue any press
release or make any public announcement relating to the subject matter hereof
without the prior written approval of the other parties, which may not be
unreasonably withheld; provided, however, that each party may make any public
disclosure it believes in good faith is required by applicable law, SEC
regulations, or any listing or trading agreement concerning its publicly traded
securities (in which case the disclosing party will use its reasonable best
efforts to consult with and advise the other parties regarding the form and
content of the disclosure before making the disclosure).
11.5 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, effective when
delivered, or if delivered by express delivery service or facsimile, effective
when delivered, or if mailed by registered or certified mail (return receipt
requested), effective three business days after mailing, to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to Buyer:
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, MN 55401
Attn: General Counsel
Facsimile: (612) 342-3160
With a copy to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Attn: Thomas G. Morgan
Facsimile: (612) 336-3026
If to Merger Sub:
Pilgrim Holdings Corporation
Two Renaissance Square
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
Attn: Robert W. Stallings
Facsimile: (602) 417-8301
If to Lexington:
Lexington Global Asset Manager, Inc.
Park 80 West
Plaza Two
Saddle Brook, NJ 07663
Attn: Robert M. DeMichele
With a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attn: William H. Rheiner, Esquire
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11.6 Assignment. This Agreement and all of its provisions shall be binding
upon and shall inure to the benefit of the parties and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder may be assigned or delegated by any
party without the prior written consent of the other parties. This Agreement is
not intended to confer upon any other person except the parties any rights or
remedies hereunder.
11.7 Interpretation. As used in this Agreement, unless otherwise defined
herein:
(a) "including" means "including without limitation";
(b) "person" means an individual, a partnership, a limited liability
company, a joint venture, a corporation, a trust, an incorporated
organization, or a government or any department or agency thereof;
(c) "affiliate" has the meaning set forth in Rule 12b-2 under the
Exchange Act;
(d) "business day" means any day other than a Saturday, Sunday, or a
day that is a statutory holiday under the laws of the United States or the
States of Minnesota or New Jersey;
(e) all dollar amounts are expressed in United States funds;
(f) "to the knowledge of a party" or any similar phrase means the
actual knowledge of one or more of the executive officers of the party; and
(g) "subsidiary" of any specified corporation means, unless
otherwise provided herein, any corporation of which the outstanding
securities having ordinary voting power to elect a majority of the board of
directors are directly or indirectly owned by the corporation, including
MSR with respect to Lexington.
11.8 Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, without giving effect to choice-of-law principles.
11.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.10 Headings; Internal References. The Article and Section headings
contained in this Agreement are solely for the purpose of reference, are not
part of the agreement of the parties, and shall not affect the interpretation
hereof.
11.11 Entire Agreement. This Agreement, including the schedules and
exhibits hereto, the Lexington Disclosure Schedule, the Buyer Disclosure
Schedule, and the Confidentiality Agreement, embody the entire agreement and
understanding of the parties in respect of the subject matter contained herein
and supersede all prior agreements and understandings among the parties with
respect to that subject matter. There are no restrictions, promises,
representations, warranties (express or implied), covenants, or undertakings of
the parties, other than those expressly set forth or referred to in this
Agreement.
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11.12 Severability. If any provision hereof is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remainder of the
provisions hereof shall continue in full force and effect and will in no way be
affected or invalidated.
11.13 Equitable Remedies. The parties agree that money damages or other
remedy at law would not be a sufficient or adequate remedy for any breach or
violation of, or default under, this Agreement by them and that in addition to
all other remedies available to them, each of them shall be entitled, to the
fullest extent permitted by law, to an injunction restraining such breach,
violation, or default or threatened breach, violation, or default and to any
other equitable relief, including specific performance, without bond or other
security being required.
54
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In witness whereof, Buyer, Merger Sub and Lexington have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
ReliaStar Financial Corp.
By:
Title:
Pilgrim Holdings Corporation
By:
Title:
Lexington Global Asset Managers, Inc.
By:
Title:
55
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Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I The Merger......................................................................................... 12
1.1 Effective Time of the Merger......................................................................... 12
1.2 Closing.............................................................................................. 12
1.3 Effects of the Merger................................................................................ 12
1.4 Certificate of Incorporation and Bylaws of the Surviving Corporation................................. 13
1.5 Directors and Officers of the Surviving Corporation.................................................. 13
ARTICLE II Conversion of Securities.......................................................................... 13
2.1 Effect on Capital Stock.............................................................................. 13
(a) Merger Consideration.............................................................................. 13
(b) Adjustment of Merger Consideration Based on Buyer's Average Share Price........................... 14
(c) Adjustment to Merger Consideration Based on Assets Under Management............................... 14
(d) Lexington Stock................................................................................... 16
(e) Lexington Incentive Plans......................................................................... 17
(f) Capital Stock of Merger Sub....................................................................... 17
(g) Fractional Shares................................................................................. 17
(h) Buyer Stock....................................................................................... 17
(i) Election Procedures............................................................................... 17
2.2 Exchange of Certificates............................................................................. 21
ARTICLE III Representations and Warranties of Lexington...................................................... 23
3.1 General.............................................................................................. 23
3.2 Representations and Warranties....................................................................... 23
(a) Organization, Standing, Qualification............................................................. 23
(b) Capitalization.................................................................................... 24
(c) Authorization and Execution....................................................................... 25
(d) No Conflicts...................................................................................... 25
(e) SEC Reports and Financial Statements.............................................................. 26
(f) Proxy Statement................................................................................... 27
(g) Absence of Certain Changes or Events.............................................................. 27
(h) Tax Matters....................................................................................... 28
(i) Properties........................................................................................ 29
(j) Material Contracts................................................................................ 30
(k) Intellectual Property............................................................................. 30
(l) Litigation........................................................................................ 31
(m) Permits; Compliance with Laws..................................................................... 31
(n) No Brokers or Finders............................................................................. 31
(o) Retirement and Benefit Plans; Employees........................................................... 31
(p) Environmental Matters............................................................................. 33
(q) Labor Matters..................................................................................... 34
(r) Vote Required..................................................................................... 34
(s) Anti-Takeover Provisions.......................................................................... 34
(u) Management Agreements............................................................................. 34
(v) Voting Agreements................................................................................. 34
ARTICLE IV Representations and Warranties Relating to the Lexington Funds.................................... 35
4.1 General.............................................................................................. 35
4.2 Representations and Warranties....................................................................... 35
(d) Financial Statements of the Lexington Funds....................................................... 36
</TABLE>
56
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<TABLE>
<S> <C>
(e) Accuracy of Financial Statements.................................................................. 36
(f) Compliance With Applicable Law.................................................................... 36
(g) No Conflicts...................................................................................... 37
(h) Adherence to Investment Policies and Restrictions................................................. 37
(i) Litigation........................................................................................ 37
(j) Required Reports.................................................................................. 38
(k) Taxes............................................................................................. 38
(l) Contracts......................................................................................... 38
(m) No Material Adverse Changes....................................................................... 38
(n) Books............................................................................................. 38
(o) Absence of Undisclosed Liabilities................................................................ 38
(p) No Pending Transaction............................................................................ 39
(q) Proxy Statements.................................................................................. 39
(r) Code of Ethics.................................................................................... 39
(s) No Disqualification............................................................................... 39
(t) Insurance......................................................................................... 39
ARTICLE V Representations and Warranties of Buyer and Merger Sub............................................. 39
5.1 General.............................................................................................. 39
5.2 Representations and Warranties....................................................................... 39
(a) Organization, Standing, Qualification............................................................. 40
(b) Capitalization.................................................................................... 40
(c) Authorization and Execution....................................................................... 40
(d) No Conflicts...................................................................................... 41
(e) Proxy Statement................................................................................... 41
(f) SEC Reports and Financial Statements.............................................................. 42
(g) Litigation........................................................................................ 42
(h) Absence of Certain Changes or Events.............................................................. 43
(i) No Material Adverse Effect........................................................................ 43
(j) Permits; Compliance with Laws..................................................................... 43
(k) No Brokers or Finders............................................................................. 43
(l) No Disqualification............................................................................... 43
ARTICLE VI Covenants Relating to the Lexington Funds......................................................... 44
6.1 Requisite Approvals Concerning the Lexington Funds................................................... 44
6.2 Termination of Existing Advisory, Sub-Advisory, and Distribution Arrangements........................ 44
6.3 Information Regarding the Lexington Funds............................................................ 44
6.4 Access to Information Regarding the Lexington Funds.................................................. 44
6.5 The Registrants' Registration Statements............................................................. 45
6.6 Operations of the Lexington Funds.................................................................... 45
6.7 Undertakings Related to Section 15(f) of the 1940 Act................................................ 45
6.8 Continued Qualification.............................................................................. 46
ARTICLE VII Covenants Relating to the Parties................................................................ 46
7.1 Business Operations of Lexington..................................................................... 46
7.2 Cooperation.......................................................................................... 48
7.3 Access to Information................................................................................ 48
7.4 No Solicitation...................................................................................... 49
7.5 Proxy Statement; Board Recommendation................................................................ 50
7.6 Stockholders' Meetings of Lexington and the Lexington Funds; Consents for Private
Accounts............................................................................................. 51
7.7 Legal Conditions to Merger........................................................................... 51
7.8 Stock Plans and Options.................................................................................51
</TABLE>
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<TABLE>
<S> <C>
7.9 Consents............................................................................................. 53
7.10 Tax-Free Reorganization........................................................................... 53
7.11 NYSE Listing...................................................................................... 53
7.12 Payment of Transaction Expenses................................................................... 53
7.14 Confidentiality Agreement......................................................................... 53
7.15 Amendment to Rights Agreement..................................................................... 53
ARTICLE VIII Conditions Precedent............................................................................ 54
8.1 Conditions to the Parties' Obligation to Effect the Merger........................................... 54
(a) Stockholder Approval.............................................................................. 54
(b) HSR Act........................................................................................... 54
(c) Approvals......................................................................................... 54
(d) No Injunctions or Restraints; Illegality.......................................................... 54
8.2 Additional Conditions to the Obligations of Buyer and Merger Sub..................................... 55
(a) Representations and Warranties.................................................................... 55
(b) Performance of Obligations of Lexington........................................................... 55
(c) No Material Adverse Change........................................................................ 55
(d) Officers' Certificate............................................................................. 55
(e) Legal Opinions.................................................................................... 55
(f) Dissenters' Rights................................................................................ 55
(g) Certain Consents.................................................................................. 55
(h) Comfort Letter.................................................................................... 55
(i) Lexington Assets Under Management................................................................. 56
(j) Closing Date Balance Sheet........................................................................ 56
(k) 1999 Financials................................................................................... 56
(l) Spin-off Tax Opinion.............................................................................. 56
8.3 Additional Conditions to the Obligation of Lexington................................................. 56
(a) Representations and Warranties.................................................................... 56
(b) Performance of Obligations of Buyer and Merger Sub................................................ 56
(c) Officers' Certificate............................................................................. 56
(d) Legal Opinion..................................................................................... 56
(e) Tax Opinion....................................................................................... 56
(f) Comfort Letter.................................................................................... 57
(g) Employment Agreements............................................................................. 57
ARTICLE IX Conduct and Transactions After the Effective Time................................................. 57
9.1 Employee Matters..................................................................................... 57
9.2 Indemnification...................................................................................... 58
9.4 Tax-Free Reorganization Covenants.................................................................... 58
ARTICLE X Termination........................................................................................ 59
10.1 Generally......................................................................................... 59
10.2 Procedure and Effect of Termination............................................................... 60
10.3 Expenses; Termination Fee......................................................................... 60
ARTICLE XI Miscellaneous Provisions.......................................................................... 61
11.1 Termination of Representations and Warranties..................................................... 61
11.2 Amendment and Modification........................................................................ 61
11.3 Waiver of Compliance; Consents.................................................................... 61
11.4 Press Releases and Public Announcements........................................................... 62
11.6 Assignment........................................................................................ 63
11.7 Interpretation.................................................................................... 63
11.8 Governing Law..................................................................................... 63
11.9 Counterparts...................................................................................... 63
</TABLE>
58
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<TABLE>
<S> <C>
11.10 Headings; Internal References................................. 63
11.11 Entire Agreement.............................................. 63
11.12 Severability.................................................. 64
11.13 Equitable Remedies............................................ 64
</TABLE>
Index of Defined Terms
Term Location
1940 Act..................................................... Recitals
Acquisition Proposal......................................... (S) 7.4(a)(1)
Adjustment Percentage........................................ (S) 2.1(c)(3)
Advisers Act................................................. (S) 3.2(a)(2)
Affiliate.................................................... (S) 11.7(c)
Agreement.................................................... Preamble
Applicable Law............................................... (S) 4.2(f)
Assigned Net Assets.......................................... (S) 2.1(c)(2)
Base Net Assets.............................................. (S) 2.1 (c)(1)
Benefit Plan................................................. (S) 3.2(o)(1)
Board........................................................ (S) 6.1
Business Day................................................. (S) 11.7(d)
Buyer........................................................ Preamble
Buyer's Average Share Price.................................. (S) 2.1(b)
Buyer Common Stock........................................... Recitals
Buyer Disclosure Schedule.................................... (S) 5.1
Buyer SEC Reports............................................ (S) 5.2(f)(1)
Cash Consideration .......................................... (S) 2.1(a)
Certificate of Merger........................................ (S) 1.1
Certificates................................................. (S) 2.1(d)
Closing...................................................... (S) 1.2
Closing Date................................................. (S) 1.2
Code......................................................... Recitals
Delaware Law................................................. (S) 1.1
Dissenting Shares............................................ (S) 2.1(k)(1)
Effective Time............................................... (S) 1.1
Election Statement........................................... (S) 2.1(i)(1)
Environmental Law............................................ (S) 3.2(p)(1)(A)
ERISA........................................................ (S) 3.2(o)(1)
ERISA Affiliates............................................. (S) 3.2(o)(9)
Exchange Act................................................. (S) 3.2(d)(2)
Exchange Agent............................................... (S) 2.2(a)
Exchange Fund................................................ (S) 2.2(a)
Fund Shares.................................................. (S) 4.2(c)
Fund Stockholders............................................ (S) 4.2(n)
Fund Tax Returns............................................. (S) 4.2(k)
GAAP......................................................... (S) 3.2(e)(2)
Governmental Authority....................................... (S) 3.2(d)(2)
Hazardous Substance.......................................... (S) 3.2(p)(1)(B)
HSR Act...................................................... (S) 3.2(d)(2)
Including.................................................... (S) 11.7(a)
Lexington.................................................... Preamble
Lexington Common Stock....................................... Recitals
Lexington Consolidated Group................................. (S) 3.2(h)(4)
Lexington Disclosure Schedule................................ (S) 3.1
Lexington Distributor........................................ (S) 3.2(a)(3)
Lexington Employee Plan(s)................................... (S) 3.2(o)(1)
Lexington Fund Family........................................ (S) 4.2(b)
Lexington Funds.............................................. Recitals
Lexington Incentive Plans.................................... (S) 2.1(d)
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Lexington Options............................................ (S) 2.1(d)
Lexington Restricted Stock................................... (S) 2.1(e)
Lexington Rights Agreement................................... (S) 7.15
Lexington SEC Reports........................................ (S) 3.2(e)(1)
Management Agreements........................................ (S) 3.2(u)
Material Adverse Effect...................................... (S) 3.1
Material Contracts........................................... (S) 3.2(j)
Merger....................................................... Recitals
Merger Consideration......................................... (S) 2.1(a)
Merger Sub................................................... Preamble
MSR.......................................................... (S) 3.2(a)(2)
Multiemployer Plan........................................... (S) 3.2(o)(4)
NASD......................................................... (S) 3.2(d)(2)
NYSE......................................................... (S) 2.1(b)
Option Ratio................................................. (S) 7.8(d)
Original Schedule............................................ (S) 2.1(c)(1)
Pension Plan................................................. (S) 3.2(o)(1)
Person....................................................... (S) 11.7(b)
Private Accounts............................................. (S) 3.2(u)
Prohibited Transaction....................................... (S) 3.2(o)(6)
Proprietary Rights........................................... (S) 3.2(k)
Proxy Statement/Prospectus................................... (S) 5.2(e)
Registrant................................................... (S) 4.2(b)
Registration Statement....................................... (S) 5.2(e)
Reorganization............................................... (S) 7.10
Reports...................................................... (S) 4.2(j)
Revised Schedule............................................. (S) 2.1(c)(2)
SEC.......................................................... (S) 3.2(d)(2)
Securities Act............................................... (S) 3.2(e)(1)
Share Consideration.......................................... (S) 2.1(a)
Specified Cash Percentage.................................... (S) 2.1(j)(4)
Specified Stock Percentage................................... (S) 2.1(j)(5)
Subsidiary................................................... (S) 11.7(g)
Superior Proposal............................................ (S) 7.4(d)
Surviving Corporation........................................ (S) 1.3(a)
Tax Returns.................................................. (S) 3.2(h)(1)
Taxes........................................................ (S) 3.2(h)(1)
TDLPL........................................................ (S) 3.2(a)(1)
Third Party.................................................. (S) 10.3(e)
To the knowledge of a party.................................. (S) 11.7(f)
Total Consideration.......................................... (S) 2.1(j)(4)
Voting Agreement............................................. (S) 3.2(v)
Welfare Plan................................................. (S) 3.2(o)(1)
Index of Exhibits
Exhibit A - Form of Voting Agreement
Exhibit B-1 - Employment Agreement - Portfolio of Managers
Exhibit B-2 - Employment Agreement - Hisey
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EXHIBIT 99.1
AMENDMENT NO. 1
This Amendment made as of the 28/th/ day of February, 2000 between
Lexington Global Asset Manager, Inc., a Delaware corporation (the "Company"),
and First Chicago Trust Company of New York, as Rights Agent under the Rights
Agreement between the parties, dated as of December 31, 1995.
WHEREAS, the Company entered into a Rights Agreement with First Chicago
Trust Company of New York, as Rights Agent, dated as of December 13, 1995 (the
"Rights Agreement"); and
1
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WHEREAS, the Company and First Chicago Trust Company of New York, as Rights
Agent, desire to amend the Rights Agreement as hereinafter provided.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and intending to be legally bound, the parties hereby agree as
follows:
1. Section 1 of the Rights Agreement is amended to add the following
definitions:
"Merger Agreement" means the Merger Agreement by and among ReliaStar
Financial Corp., Pilgrim Holdings Corporation and Lexington Global Asset
Managers, Inc. dated as of February 28, 2000, as amended.
"Voting Agreements" means the Voting Agreements, as defined in Section
3.2(v) of the Merger Agreement.
2. Section 1 of the Rights Agreement is hereby amended to add the
following language at the end of the definition of "Acquiring Person":
"provided, however, that neither ReliaStar Financial Corp. nor Pilgrim
Holdings Corporation will become an "Acquiring Person" as a result of the
execution of the Voting Agreements or the Merger Agreement or the
consummation of the transactions contemplated therein."
3. Section 1 of the Rights Agreement is hereby amended to add the
following language at the end of the definition of "Distribution
Date":
"provided, however, that no "Distribution Date" will occur as a result of
the execution of the Voting Agreements or the Merger Agreement or the
consummation of the transactions contemplated therein."
4. Section 1 of the Rights Agreement is hereby amended to add the
following language at the end of the definition of "Stock Acquisition
Date":
"provided, however, that no "Stock Acquisition Date" will occur as a result
of the execution of the Voting Agreements or the Merger Agreement or the
consummation of the transactions contemplated therein."
5. Section 1 of the Rights Agreement is hereby amended to replace the
definition of "Final Expiration Date" with the following:
"Final Expiration Date" means the earlier of (a) the close of business on
December 12, 2005 or (b) immediately prior to the Effective Time (as
defined in Section 1.1 of the Merger Agreement).
6. Except as expressly amended herein, all other terms and conditions of
the Rights Agreement shall remain in full force and effect.
7. This Amendment No. 1 may be executed in any number of counterparts,
each of which shall be an original and all of which shall constitute
one in the same document.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1
as of the day and year first above written.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
By:_____________________________________
FIRST CHICAGO TRUST COMPANY OF NEW YORK
By:_____________________________________
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EXHIBIT 99.2
VOTING AGREEMENT
This Voting Agreement is dated as of February 28, 2000, between ReliaStar
Financial Corp., a Delaware corporation ("Buyer"), and the stockholder named on
the signature page hereof (the "Stockholder") of Lexington Global Asset
Managers, Inc., a Delaware corporation ("Lexington").
Recitals
Buyer, Pilgrim Holdings Corporation, a wholly owned subsidiary of Buyer ("Merger
Sub"), and Lexington are entering into an Agreement and Plan of Merger dated as
of the date hereof (the "Merger Agreement"), pursuant to which Lexington shall
merge with and into Merger Sub (as set forth in the Merger Agreement) and the
existing stockholders of Lexington shall exchange their shares of capital stock
of Lexington for Common Stock of Buyer and/or cash.
The Stockholder is a significant stockholder of Lexington.
The execution and delivery of this Agreement is a condition precedent to Buyer
and Merger Sub consummating the Merger Agreement.
Agreement
Now, therefore, the parties hereby agree as follows:
Voting Proxy.
At each meeting of Lexington's stockholders convened to consider and vote upon
the adoption of the Merger Agreement and the merger contemplated thereby (the
"Merger"), the Stockholder shall vote all shares of Common Stock of Lexington
owned of record by him at the record date for the vote (including, except for
any shares for which the Stockholder's sole voting power results from his having
been named as proxy pursuant to the proxy solicitation conducted by Lexington in
connection with the meeting, any shares of Lexington Common Stock over which the
Stockholder has voting power, by contract or otherwise and excluding any shares
which Stockholder owns of record but does not have voting power) in favor of the
approval and adoption of the Merger Agreement and the Merger.
Notwithstanding anything to the contrary herein, Stockholder shall not be
obligated to vote, and Stockholders irrevocable proxy in the form of Annex A
shall not be deemed to give authority to vote, in favor of the Merger in the
event that any of the terms and conditions of the Merger Agreement are amended
or modified in any respect that has a material adverse effect on the rights or
remedies of such Stockholder.
Concurrently herewith, the Stockholder has executed and delivered to Buyer an
irrevocable proxy in the form of Annex A.
No Solicitation.
The Stockholder may not, directly or indirectly, take any action to seek,
initiate, or solicit any offer from any person, entity, or group regarding an
Acquisition Proposal.
No Transfer. The Stockholder may not sell, pledge, assign, or otherwise
transfer, or authorize, propose, or agree to the sale, pledge, assignment, or
other transfer of, any of his shares of Lexington Common Stock. Notwithstanding
the preceding sentence, the Stockholder may sell, pledge, assign, or otherwise
transfer any of his shares of Lexington Common Stock, if (1) at least five
business days' written notice thereof (stating the identity of the intended
recipient and the number of shares Lexington Common Stock subject thereto) is
provided to Buyer, and (2) the intended transferee agrees in writing to be bound
by this Agreement.
Representations and Warranties. The Stockholder represents and warrants to Buyer
and Merger Sub as follows:
Authority. He has the requisite power and authority to enter into this
Agreement, to perform his obligations hereunder, and to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Stockholder and constitutes his valid and binding obligation,
enforceable in accordance with its terms, except as the enforceability hereof
may be limited by bankruptcy, insolvency, moratorium, reorganization or similar
laws affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific performance
and other equitable remedies.
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Title; Authority to Vote Shares. The Stockholder owns of record and has voting
power over the number of shares of Lexington Common Stock as set forth with
respect to him in the stock transfer books of Lexington.
Noncontravention. To the knowledge of Stockholder, neither the execution and
delivery of this Agreement, nor the consummation of any of the transactions
contemplated hereby, nor compliance with any of the provisions hereof by the
Stockholder, will violate, conflict with, or result in a breach of, or
constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under any agreement or instrument to which he is a
party or any statute, rule, regulation, judgment, order, decree, or other legal
requirement applicable to the Stockholder.
Litigation. There is no claim, action, proceeding, or investigation pending or,
to the knowledge of the Stockholder, threatened against or relating to the
Stockholder before any court or governmental or regulatory authority or body
(including the National Association of Securities Dealers, Inc.) and the
Stockholder is not subject to any outstanding order, writ, injunction, or decree
that, if determined adversely, would prohibit the Stockholder from performing
his obligations hereunder.
Section 7. Termination. This Agreement shall terminate upon the earlier of
(i) the mutual agreement of the parties hereto or (ii) without further action of
either party hereto, upon termination of the Merger Agreement. In the event of a
termination of this Agreement pursuant to this Section 7, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of any party; provided, however, that nothing herein shall release any party
from any liability for any breach of this Agreement. If this Agreement
terminates, the proxy of the Stockholder delivered under Section 1(b) shall also
terminate and be of no further force or effect, and Buyer shall promptly return
the proxy to the Stockholder.
Section 8. Miscellaneous.
Notices. All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered in person or by messenger, cable, telegram,
facsimile transmission, or by a reputable overnight delivery service that
provides for evidence or receipt, to the parties as follows (or at such other
address as a party may specify by like notice);
If to the Stockholder to the address on the signature page of this Agreement.
If to the Buyer:
ReliaStar Financial Corp.
20 Washington Avenue South
Minneapolis, MN 55401
Interpretation. The headings contained in this Agreement are for reference
purposes only and do not affect the interpretation of this Agreement.
Counterparts. This Agreement may be executed in one or more counterparts, all of
which shall be considered the same agreement.
Entire Agreement. This Agreement (including the documents and instruments
referred to herein, and the Merger Agreement), constitutes the entire agreement
and supersedes all prior and contemporaneous agreements and understandings, both
written and oral, between the parties with respect to the Subject matter hereof.
Severability. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law.
Governing Law. This Agreement shall be governed by Delaware law, without regard
to the principles of conflicts of law.
Assignment. Neither this Agreement nor any of the rights, interest, or
obligations hereunder may be assigned by any party, whether by operation of law
or otherwise, without the express written consent of the other party, other than
upon a transfer of Lexington Common Stock as provided under Section 3 hereof.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of, and be enforceable by the parties and their respective
successors, heirs, legal representatives, and permitted assigns. The
representations, agreements and obligations of the Stockholder contained herein
shall survive the death or incapacity of the Stockholder and shall be binding
upon the heirs, personal representatives, successors, and assigns of the
Stockholder.
Remedies. In addition to all other remedies available, the parties agree that,
in the event of a breach by a party of an of its obligations hereunder, the
non-breaching party shall be entitled to specific performance or injunctive
relief.
2
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Defined Terms. All capitalized terms used but not defined herein have the
meanings given them in the Merger Agreement.
IN WITNESS WHEREOF, each of the parties have signed this Agreement as of the
date first above written.
BUYER STOCKHOLDER
ReliaStar Financial Corp.
By_____________________________ __________________________________________
[Signature]
_______________________________ on behalf of himself/herself individually
Title and as Trustee on behalf of the trusts
listed on Exhibit A.
__________________________________________
Print Name
Address: c/o Piedmont Financial Co.
P.O. Box 20124
Greensboro, NC 27420
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Annex A
IRREVOCABLE PROXY
The undersigned, revoking any proxy heretofore given, hereby constitutes and
appoints ____________________ and ____________________ , and each of them, the
true and lawful attorney, with full power of substitution, for and in the name
of the undersigned to vote any and all shares of Common Stock of Lexington
Global Asset Managers, Inc., a Delaware corporation (the "Company"), or other
shares of capital stock of the Company entitled to vote on the business to be
transacted, (1)registered in the name of the undersigned at the record date for
such vote, except for shares which Stockholder owns of record but does not have
voting power, or (2) except as set forth below, over which the undersigned has
voting power by power of attorney or other contractual arrangements with owner
of record, at any meeting of the stockholders of the Company, and at all
adjournments thereof, and pursuant to any consent of the stockholders in lieu of
a meeting or otherwise.
This Proxy is given only with respect to the approval of, and any other matters
related to or in connection with, (a) the merger and other transactions
contemplated by the Agreement and Plan of Merger among ReliaStar Financial
Corp., a Delaware corporation ("Buyer"), Pilgrim Holdings Corporation, a
Delaware corporation, and the Company dated February 28, 2000 (the "Merger
Agreement") and (b) the Merger Agreement. This Proxy is given to induce Buyer to
enter into the Agreement, is coupled with an interest, and is irrevocable.
Notwithstanding clause (2) of the first paragraph above, this Proxy shall not
include any shares of capital stock of the Company that are not subject to
clause (1) of the first paragraph above for which the undersigned's only voting
power results from him having been named as proxy pursuant to the proxy
solicitation conducted by the Company's Board of Directors in connection with a
special or annual meeting of the stockholders of the Company to be held to
consider the Agreement and over which the undersigned does not otherwise have
voting power with respect thereto.
The undersigned hereby ratifies and confirms all that the proxies named herein
may lawfully do or cause to be done by virtue hereof. This Proxy shall terminate
as provided in Section 7 of the Voting Agreement.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as of this ___ day
of ________, 2000.
______________________________
[Signature]
on behalf of himself/herself individually and as Trustee on behalf of the trusts
listed on Exhibit A.
______________________________
Print Name
Address: c/o Piedmont Financial Co.
P.O. Box 20124
Greensboro, NC 27420
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> LEXINGTON GLOBAL ASSET MANAGERS, INC.
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