<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION STATEMENT NO. 333-34679
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AFFILIATED MANAGERS GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 04-32-18510
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
TWO INTERNATIONAL PLACE, 23RD FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 747-3300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
------------------------
WILLIAM J. NUTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
AFFILIATED MANAGERS GROUP, INC.
TWO INTERNATIONAL PLACE, 23RD FLOOR
BOSTON, MASSACHUSETTS 02110
(617) 747-3300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------
COPIES TO:
<TABLE>
<S> <C>
MARTIN CARMICHAEL III, P.C. DAVID B. HARMS, ESQ.
GOODWIN, PROCTER & HOAR LLP SULLIVAN & CROMWELL
Exchange Place 125 Broad Street
Boston, Massachusetts 02109 New York, New York 10004
(617) 570-1000 (212) 558-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [ ] ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Proposed Maximum Amount of
Securities to Be Registered(1) Aggregate Offering Price(2) Registration Fee(3)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value $185,150,000 $56,107
==================================================================================================================
</TABLE>
(1) The shares of Common Stock are not being registered for the purpose of
offers or sales outside the United States.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
(3) $3,031 of the fee has been previously paid by the Company.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
7,000,000 SHARES
[LOGO] AFFILIATED MANAGERS GROUP, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
Of the 7,000,000 shares of Common Stock offered, 5,600,000 shares are being
offered hereby in the United States and 1,400,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting".
Prior to these Offerings, there has been no public market for the Common
Stock of the Company, and there can be no assurance that an active trading
market will develop or be sustained to support future transactions in the shares
of Common Stock sold in the Offerings. It is currently estimated that the
initial public offering price per share will be between $20 and $23. For factors
to be considered in determining the initial public offering price, see
"Underwriting".
PURCHASERS OF SHARES OF COMMON STOCK SOLD IN THE OFFERINGS WILL EXPERIENCE
IMMEDIATE AND SUBSTANTIAL NET TANGIBLE BOOK VALUE DILUTION OF $33.01 PER SHARE.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing, subject to notice of
issuance, on the New York Stock Exchange under the symbol "AMG".
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
--------------- ------------- ------------
<S> <C> <C> <C>
Per Share................................ $ $ $
Total(3)................................. $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting".
(2) Before deducting estimated expenses of $1,717,500 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 840,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 210,000 shares
as part of the concurrent International Offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting".
------------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein,
subject to receipt and acceptance by them and subject to their right to reject
any order in whole or in part. It is expected that certificates for the shares
will be ready for delivery in New York, New York, on or about , 1997,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[GRAPHS--ASSETS UNDER MANAGEMENT & EBITDA CONTRIBUTION]
[Graphical depiction of growth in assets under management from June 30,
1994 to June 30, 1997; vertical axis of assets under management (in billions)
ranging from $0 to $45 billion; horizontal axis is chronology of June 1994
through June 1997; graph includes indication of approximate date the Company
completed each of its ten investments; line graph begins at approximately $1
billion in June 1994 and rises to approximately $41 billion in June 1997.]
[Pie chart display of EBITDA Contribution(1) pro forma six months ended
June 30, 1997 by client type, asset class and distribution channel; first pie
chart depicting EBITDA Contribution by client type showing institutional, mutual
funds, high net worth and other asset types representing 50%, 29%, 15% and 6% of
EBITDA Contribution, respectively; second pie chart depicting asset class EBITDA
Contribution with equities, tactical asset allocation/currencies and fixed
income at 83%, 12% and 5%, respectively; third pie chart depicting EBITDA
Contribution by geography with domestic investments and global investments(2)
representing 64% and 36%, respectively.]
(1) THE COMPANY HOLDS INTERESTS IN TEN INVESTMENT MANAGEMENT FIRMS (THE
"AFFILIATES"). THE COMPANY HOLDS A MAJORITY INTEREST IN ALL BUT ONE OF THE
AFFILIATES. EBITDA CONTRIBUTION REPRESENTS THE PORTION OF AN AFFILIATE'S
REVENUES THAT IS ALLOCATED TO THE COMPANY, AFTER AMOUNTS RETAINED BY THE
AFFILIATE FOR COMPENSATION AND DAY-TO-DAY OPERATING AND OVERHEAD EXPENSES,
BUT BEFORE THE INTEREST, TAX, DEPRECIATION AND AMORTIZATION EXPENSES OF THE
AFFILIATE. EBITDA CONTRIBUTION DOES NOT INCLUDE HOLDING COMPANY EXPENSES.
THE COMPANY BELIEVES THAT EBITDA CONTRIBUTION MAY BE USEFUL TO INVESTORS AS
AN INDICATOR OF EACH AFFILIATE'S CONTRIBUTION TO THE COMPANY'S ABILITY TO
SERVICE DEBT, TO MAKE NEW INVESTMENTS AND TO MEET WORKING CAPITAL
REQUIREMENTS. EBITDA CONTRIBUTION IS NOT A MEASURE OF FINANCIAL PERFORMANCE
UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND SHOULD NOT BE CONSIDERED
AN ALTERNATIVE TO NET INCOME AS A MEASURE OF OPERATING PERFORMANCE OR TO
CASH FLOWS FROM OPERATING ACTIVITIES AS A MEASURE OF LIQUIDITY. EBITDA
CONTRIBUTION AND EBITDA, AS CALCULATED BY THE COMPANY, MAY NOT BE CONSISTENT
WITH COMPARABLE COMPUTATIONS BY OTHER COMPANIES. EBITDA CONTRIBUTION ACROSS
ALL AFFILIATES BY ASSET CLASS, CLIENT TYPE, AND GEOGRAPHY OF INVESTMENT IS
DETERMINED BY EMPLOYING THE FOLLOWING CONVENTION: EACH AFFILIATE'S EBITDA
CONTRIBUTION FOR THAT PERIOD IS MULTIPLIED BY THE PERCENTAGE OF ITS PERIOD
END ASSETS UNDER MANAGEMENT IN THE RELEVANT CATEGORY. THE SUM OF THE EBITDA
CONTRIBUTION BY CATEGORY FOR ALL AFFILIATES CONSTITUTES THE EBITDA
CONTRIBUTION TO THE COMPANY IN THAT CATEGORY FOR THE PERIOD.
(2) GLOBAL INVESTMENTS CONSIST OF ACCOUNTS INVESTED PRIMARILY IN NON-U.S.
MARKETABLE SECURITIES.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE MARKET PRICE OF THE COMMON
STOCK, INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN
SUCH SECURITIES AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
notes thereto appearing elsewhere in this Prospectus. In this Prospectus, unless
otherwise indicated, the financial information for Affiliated Managers Group,
Inc. ("AMG" or the "Company") as of any date or for any period gives pro forma
effect to each of the investments the Company has made to date and the related
financings as if each such transaction had been completed as of such date or the
beginning of such period. Except as otherwise indicated, all references in this
Prospectus to "assets under management" include assets directly managed as well
as assets underlying overlay strategies which employ futures, options or other
derivative securities to achieve a particular investment objective.
THE COMPANY
AMG is an asset management holding company which acquires majority
interests in mid-sized investment management firms. The Company's strategy is to
generate growth through investments in new affiliates, as well as through the
internal growth of existing affiliated firms. With the completion of its
investment in Tweedy, Browne Company LLC ("Tweedy, Browne"), the Company's most
recent and largest investment to date, AMG has grown since its founding in
December 1993 to ten investment management firms (the "Affiliates") with over
$40 billion in assets under management.
AMG has developed an innovative transaction structure (the "AMG Structure")
which it believes is a superior succession planning alternative for growing
mid-sized investment management firms. The Company believes that the AMG
Structure appeals to target firms for both financial and operational reasons:
- The AMG Structure allows owners of mid-sized investment management firms
to sell a portion of their interest, while ongoing management retains a
significant ownership interest, with the opportunity to realize value for
that interest in the future.
- The AMG Structure provides management of each Affiliate with autonomy
over the day-to-day operations of their firm, and includes a revenue
sharing arrangement which provides that a specified percentage of
revenues are retained to pay operating expenses at the discretion of the
Affiliate's management.
The Company believes that the AMG Structure distinguishes AMG from other
acquirors of investment management firms which generally seek to own 100% of
their target firms and, in many cases, seek to participate in the day-to-day
management of such firms. AMG believes that the opportunity for managers of each
Affiliate to realize the value of their retained equity interest makes the AMG
Structure particularly appealing to managers of firms who anticipate strong
future growth and provides those managers with an ongoing incentive to continue
to grow their firm.
AMG's Affiliates have achieved substantial internal growth in assets under
management. For the nine months ended September 30, 1997 the Affiliates
increased their assets under management 55%. Tweedy, Browne, AMG's largest
Affiliate, based on EBITDA Contribution*, achieved growth of 49% in assets under
management for the same period. The Affiliates manage assets across a diverse
range of investment styles, asset classes and client types, with significant
participation in fast-growing segments such as equities, global investments and
mutual funds. For the six months ended June 30, 1997 investments in equity
securities represented 83% of EBITDA Contribution, while global investments
represented 36% of EBITDA Contribution. For the same period, mutual fund assets
represented 29% of EBITDA Contribution. Other asset classes, including fixed
income, represented 17% of EBITDA Contribution; domestic investments represented
64% of EBITDA Contribution; and institutional, high net worth and other client
types represented 71% of EBITDA Contribution for the same period. The three
largest Affiliate mutual funds, Tweedy, Browne American
- ---------------
* EBITDA Contribution represents the portion of an Affiliate's revenues that is
allocated to the Company, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate. EBITDA
Contribution does not include holding company expenses. The Company believes
that EBITDA Contribution may be useful to investors as an indicator of each
Affiliate's contribution to the Company's ability to service debt, to make new
investments and to meet working capital requirements. EBITDA Contribution is
not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of operating performance or to cash flows from operating activities as
a measure of liquidity. EBITDA Contribution and EBITDA, as calculated by the
Company, may not be consistent with comparable computations by other
companies.
3
<PAGE> 5
Value, Tweedy, Browne Global Value and Skyline Special Equities, which
represented approximately 95% of the Company's total mutual fund assets under
management at September 30, 1997, are each rated "five stars", by Morningstar,
Inc., and these funds' assets increased 122%, 60% and 111%, respectively, for
the nine months ended September 30, 1997.
On an historical basis, the Company had net income of $706,000 and net loss
after extraordinary item of $256,000 for the six months ended June 30, 1997 and
1996, respectively, a net loss after extraordinary item of $2.4 million for the
year ended December 31, 1996 and a net loss of $2.9 million for the year ended
December 31, 1995. See "Recent Developments" for a discussion of certain
unaudited operations data and other financial data for the nine months ended
September 30, 1997.
AMG believes that significant opportunities exist for future growth through
acquisitions of equity interests in additional mid-sized investment management
firms. The Company estimates that there are approximately 1,200 firms in the
United States, Canada, and the United Kingdom in this category (which the
Company generally defines as firms with assets under management of between $500
million and $10 billion). AMG believes that, in the coming years, a substantial
number of investment opportunities will arise as founders of such firms approach
retirement age and begin to plan for succession. The Company also anticipates
that there will be significant additional investment opportunities among firms
which are currently wholly-owned by larger entities. AMG believes that it is
well positioned to take advantage of these investment opportunities because it
has a management team with substantial industry experience and expertise in
structuring and negotiating transactions, as well as a highly organized process
for identifying and contacting investment prospects.
AMG AFFILIATES
<TABLE>
<CAPTION>
AMG'S ASSETS UNDER
EQUITY OWNERSHIP MANAGEMENT AS
PRINCIPAL DATE OF PERCENTAGE AS OF SEPTEMBER 30,
AFFILIATE LOCATION(S) INVESTMENT OF SEPTEMBER 30, 1997 1997
- -------------------------------- -------------------- --------------- --------------------- ------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
The Burridge Group LLC
("Burridge").................. Chicago December 1996 55.0% $ 1,514
First Quadrant, L.P.; First
Quadrant Limited
(collectively, "First
Quadrant").................... Pasadena, CA; March 1996 66.2 24,559(1)
London
GeoCapital, LLC ("GeoCapital")... New York September 1997 60.0 2,375
Gofen and Glossberg, L.L.C.
("Gofen and Glossberg")....... Chicago May 1997 55.0 3,626
J.M. Hartwell Limited
Partnership ("Hartwell")...... New York May 1994 75.8 344
Paradigm Asset Management
Company, L.L.C. ("Paradigm")... New York May 1995 30.0 1,871
Renaissance Investment
Management ("Renaissance").... Cincinnati November 1995 66.7 1,463
Skyline Asset Management, L.P.
("Skyline")................... Chicago August 1995 64.0 1,238
Systematic Financial Management,
L.P. ("Systematic")........... Fort Lee, NJ May 1995 90.7 1,003
Tweedy, Browne Company LLC
("Tweedy, Browne")............ New York; October 1997 71.2 5,113
--------
London
Total....................... $ 43,106
========
</TABLE>
- ---------------
(1) Includes directly managed assets of $8.0 billion and $16.6 billion of assets
indirectly managed using overlay strategies ("overlay strategies") which
employ futures, options or other derivative securities to achieve a
particular investment objective. These overlay strategies are intended to
add incremental value to the underlying portfolios, which may or may not be
directly managed by First Quadrant, and generate advisory fees which are
generally at the lower end of the range of those generated by First
Quadrant's directly managed portfolios.
4
<PAGE> 6
THE OFFERINGS
<TABLE>
<S> <C>
Common Stock offered(1):
United States Offering............. 5,600,000 shares
International Offering............. 1,400,000 shares
Total......................... 7,000,000 shares
Common Stock to be outstanding after the
Offerings(1)(2)....................... 16,085,950 shares
Use of proceeds......................... The net proceeds to the Company from the offering
made in the United States (the "U.S. Offering") and
the concurrent international offering (the
"International Offering" and, together with the
U.S. Offering, the "Offerings") are estimated to be
$139.0 million, all of which are expected to be
used to reduce indebtedness of the Company. See
"Use of Proceeds".
New York Stock Exchange symbol.......... AMG
</TABLE>
- ---------------
(1) Does not include shares of Common Stock that may be sold by the Company
pursuant to the Underwriters' over-allotment options. See "Underwriting".
(2) Excludes 682,500 shares of Common Stock reserved for issuance upon the
exercise of outstanding options pursuant to the Company's 1995 Incentive
Stock Plan (the "1995 Plan") and the Company's 1997 Stock Option and
Incentive Plan (the "1997 Stock Plan"). See "Management -- Compensation,
Benefit and Retirement Plans".
SUMMARY RISK FACTORS
Before purchasing shares of the Common Stock offered by this Prospectus,
prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the matters set forth under the
caption "Risk Factors". Such risks include, among others:
- - The Company's growth strategy and investments may not be successful, and the
Company may not be able to locate suitable investments in the future
- - The Company may continue to have future operating losses
- - Future debt and equity financings could adversely affect the Company and its
stockholders
- - The Company's existing indebtedness and its plans to use debt to finance
future acquisitions could adversely affect the Company's financial condition
- - The Company could be adversely affected by additional write-offs of intangible
assets from current and future investments
- - The performance of the Company and its Affiliates may be adversely affected by
changes in economic and market conditions, and there can be no assurance that
future market performance will be favorable or that growth in assets under
management by Affiliates may be sustained
- - Poor performance by Tweedy, Browne would adversely affect the Company's
results of operations and financial condition
- - The Affiliates' investment management contracts are subject to termination on
short notice, and since the Company's revenues are related to the Affiliates'
assets under management, changes in clients' accounts and fluctuations in
securities prices could adversely affect the Company's revenues
- - The Company and its Affiliates rely on key management personnel whose
continued service is not guaranteed, and the loss of senior management at
either level would adversely affect client relationships and the Company's
business
5
<PAGE> 7
- - The Company could be adversely affected by liens on interests in Affiliates,
limitations on payment of distributions by Affiliates, and contingent
repurchase obligations
- - The Company's ability to alter the management practices and policies of its
Affiliates is limited in certain respects
- - The Company may be exposed to liabilities incurred by the Affiliates, and
there can be no assurance that existing insurance coverage will be sufficient
to offset such liabilities
- - The businesses of the Company and its Affiliates are highly competitive, and
certain competitors have greater resources than the Company, which may affect
the Company's ability to compete for future investments, and the ability of
the Affiliate to compete for client assets, all of which could adversely
affect the Company's business
- - Risks inherent in international operations could adversely affect the Company
- - The business of each of the Affiliates is highly regulated, and the failure of
the Company or an Affiliate to comply with such regulation could result in
fines and other sanctions
- - The ability to effect a change of control of the Company could be limited by
certain provisions of the Company's charter and by-laws and Delaware law, even
if such a change would be beneficial to the stockholders, which could limit
the market price of the Common Stock
- - Certain stockholders may have the ability to exert significant influence over
the board of directors of the Company and thus influence the outcome of
certain corporate transactions requiring stockholder approval
- - Purchasers of Common Stock in the Offerings will experience immediate and
substantial dilution in the net tangible book value per share of Common Stock
purchased in the Offerings
- - The Company does not plan to pay dividends, and its agreement with its senior
lenders prohibits dividends and other distributions to stockholders
- - The lack of a prior public market, variations in equity market conditions, and
the shares eligible for future sale could adversely affect the market price of
the Common Stock
BENEFITS TO RELATED PARTIES
Chase Equity Associates, L.P. ("Chase Equity Associates"), which will be
the beneficial owner of approximately 10.4% of the Common Stock after giving
effect to the Offerings, and The Chase Manhattan Bank, which is an affiliate of
Chase Equity Associates, will realize material benefits from the Offerings, in
that the Company will use the net proceeds from the Offerings, estimated to be
$139.0 million, to repay approximately $60.0 million of subordinated debt owed
to Chase Equity Associates and approximately $79.0 million of borrowings under a
senior credit facility (the "Credit Facility") with a syndicate of banks managed
by The Chase Manhattan Bank. See "Use of Proceeds". Chase Equity Associates is a
limited partnership whose sole limited partner is an affiliate of Chase
Manhattan Corporation (the parent company of The Chase Manhattan Bank) and whose
sole general partner has as its partners certain employees of The Chase
Manhattan Bank (including John M. B. O'Connor, a director of the Company) and an
affiliate of Chase Manhattan Corporation.
------------------------
Unless otherwise indicated, information in this Prospectus assumes no
exercise of the Underwriters' over-allotment options and has been adjusted to
reflect: (i) exercise of all warrants to purchase shares of the Company's
convertible preferred stock (the "Convertible Preferred Stock"), the conversion
of all outstanding shares of Convertible Preferred Stock into shares of Common
Stock and the issuance of shares of Common Stock to the shareholders of an
Affiliate, in each case upon consummation of the Offerings; and (ii) a 50-for-1
stock split of the Common Stock, effected retroactively for all periods
presented in the form of a stock dividend (collectively, the
"Recapitalization"). Except as otherwise indicated, all references in this
Prospectus to "Common Stock" include the Class B Non-Voting Common Stock, par
value $.01 per share (the "Class B Common Stock"), which is not being offered in
the Offerings, and the Common Stock.
6
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical consolidated statement of operations data and
balance sheet data set forth below are derived in the relevant periods from the
consolidated financial statements and the notes thereto of the Company. The
Company's consolidated financial statements have been audited by Coopers &
Lybrand L.L.P., independent accountants, as of December 31, 1995 and 1996, and
for each of the three years in the period ended December 31, 1996, and are
included elsewhere in this Prospectus, together with the report of Coopers &
Lybrand L.L.P. thereon. The summary historical consolidated income statement
data for the six months ended June 30, 1996 and 1997 and balance sheet data at
June 30, 1997, presented below, were derived from the Company's unaudited
consolidated financial statements that are included elsewhere in this Prospectus
and include, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the financial
information for such periods. The results of operations for the six months ended
June 30, 1996 and 1997 are not necessarily indicative of the results of
operations to be expected for the full year. The unaudited pro forma
consolidated financial information is not necessarily indicative of the results
that might have occurred had such transactions actually taken place at the
beginning of the period specified and is not intended to be a projection of
future results. This summary historical and pro forma financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the Company's consolidated financial
statements and the notes thereto, the Company's Unaudited Pro Forma Consolidated
Financial Information and the notes thereto, and the other financial information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------------------- PRO FORMA
PRO FORMA AS ADJUSTED
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED SIX MONTHS SIX MONTHS
JUNE 30, ENDED ENDED
------------------------------ -------------------- JUNE 30, JUNE 30,
1994 1995 1996 1996 1997 1997(1) 1997(1)(2)
------ ------- ------- ------- -------- ---------- -------------
(IN THOUSANDS, EXCEPT AS INDICATED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues................................ $5,374 $14,182 $50,384 $19,495 $ 32,870 $ 65,562 $ 65,562
Operating expenses:
Compensation and related expenses...... 3,591 6,018 21,113 7,945 11,222 19,307 19,307
Amortization of intangible assets...... 774 4,174 8,053 1,674 2,043 7,377 7,477
Depreciation and other amortization.... 19 133 932 270 671 1,390 1,204
Other operating expenses............... 1,000 2,567 13,115 5,693 13,232 16,861 16,861
------ ------- ------- ------- -------- ---------- -------------
Total operating expenses............. 5,384 12,892 43,213 15,582 27,168 44,935 44,849
------ ------- ------- ------- -------- ---------- -------------
Operating income (loss)................. (10) 1,290 7,171 3,913 5,702 20,627 20,713
Non-operating (income) and expenses:
Investment and other income............ (966) (265) (337) (408) (438) (442) (442)
Interest expense....................... 158 1,244 2,747 1,311 1,707 15,647 8,070
------ ------- ------- ------- -------- ---------- -------------
(808) 979 2,410 903 1,269 15,205 7,628
------ ------- ------- ------- -------- ---------- -------------
Income before minority interest, income
taxes and extraordinary item........... 798 311 4,761 3,010 4,433 5,422 13,085
Minority interest(3).................... (305) (2,541) (5,969) (2,305) (3,632) (9,345) (9,345)
------ ------- ------- ------- -------- ---------- -------------
Income (loss) before income taxes....... 493 (2,230) (1,208) 705 801 (3,923) 3,740
Income taxes (benefit).................. 699 706 181 (22) 95 694 1,571
------ ------- ------- ------- -------- ---------- -------------
Income (loss) before extraordinary
item................................... (206) (2,936) (1,389) 727 706 (4,617) 2,169
Extraordinary item...................... -- -- (983) (983) -- -- --
------ ------- ------- ------- -------- ---------- -------------
Net income (loss)....................... $ (206) $(2,936) $(2,372) $ (256) $ 706 $ (4,617) $ 2,169
====== ======= ======= ======= ======== ========== ==============
Net income (loss) per share(4).......... $(0.05) $ (0.58) $ (0.36) $ (0.04) $ 0.10 $ (0.51) $ 0.13
====== ======= ======= ======= ======== ========== ==============
OTHER FINANCIAL DATA
Assets under management (at period end,
in millions)........................... $ 755 $ 4,615 $19,051 $16,048 $ 34,468 $ 41,172 $ 41,172
EBITDA(5)............................... 1,444 3,321 10,524 3,960 5,222 20,491 20,491
Cash net income(6)...................... 587 1,371 7,596 2,671 3,420 4,150 10,850
Cash flow from operating activities..... 818 1,292 6,185 912 8,711 12,047 18,747
Cash flow used in investing
activities............................. (6,156) (37,781) (29,210) (28,565) (11,797) (326,892) (326,892)
Cash flow from financing activities..... 9,509 46,414 15,650 19,443 9,632 327,107 327,107
</TABLE>
7
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<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
JUNE 30, JUNE 30, JUNE 30,
1997 1997(1) 1997(2)
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA
Current assets................................................................. $ 26,027 $ 33,687 $ 33,687
Acquired client relationships.................................................. 35,785 143,716 144,456
Goodwill....................................................................... 43,034 254,372 255,481
Total assets................................................................... 113,769 452,824 449,885
Current liabilities............................................................ 13,108 20,888 16,598
Senior debt.................................................................... 48,900 285,275 206,275
Subordinated debt.............................................................. -- 59,600 800
Total liabilities.............................................................. 66,035 364,290 226,490
Minority interest(3)........................................................... 8,545 8,545 8,545
Preferred stock................................................................ 43,976 84,776 --
Stockholders' equity........................................................... 39,189 79,989 214,850
</TABLE>
(1) Pro forma data give effect to: (i) the investments made during the year
ended December 31, 1996 and the six months ended June 30, 1997 (the "Prior
Investments"); (ii) the recent investments in Tweedy, Browne and GeoCapital
which occurred subsequent to June 30, 1997, including the issuance of $9.6
million of Class D Convertible Preferred Stock in connection with the
investment in GeoCapital (the "Subsequent Investments"); and (iii) cash
received from borrowings under the Company's new $300 million senior credit
facility, from the issuance of $60 million face amount of subordinated debt
and from the issuance of $30 million of Class C Convertible Preferred Stock
and warrants to purchase Class C Convertible Preferred Stock in connection
with the Subsequent Investments (the "Recent Financing"). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Unaudited Pro Forma Consolidated Financial Information and the notes
thereto included elsewhere in this Prospectus.
(2) Pro forma as adjusted data give effect to: (i) the Recapitalization; and
(ii) the sale of 7,000,000 shares of Common Stock in the Offerings (at an
assumed initial public offering price of $21.50 per share) and the receipt
and application of the estimated net proceeds therefrom. The Company will
record, in the quarter in which the Offerings are consummated, an
extraordinary loss on early retirement of debt. As of June 30, 1997, the
amount of such loss was estimated to be $6.0 million. See "Use of Proceeds"
and "Capitalization".
(3) All but one of the Company's Affiliates are majority-owned subsidiaries (the
Company owns less than a 50% interest in Paradigm which is accounted for
under the equity method of accounting). The portion of each Affiliate's
operating results and net assets that are owned by minority owners of each
Affiliate is accounted for as minority interest.
(4) Net income (loss) per share is calculated using the weighted average number
of common and common equivalent shares outstanding for the periods
indicated. Using Securities and Exchange Commission (the "Commission")
directives for companies contemplating an initial public offering, stock
options and restricted stock issued within one year of an initial public
offering have been included as outstanding shares using the treasury stock
method for all periods presented. In addition, the Company's shares of
Convertible Preferred Stock are considered common equivalent shares, since
their respective dates of issuance, as they convert to shares of Common
Stock immediately prior to the consummation of the Offerings. Pro forma net
income (loss) per share has been calculated using the weighted average
shares outstanding calculated as described above after giving effect to the
Recapitalization and to issuances related to the investments made subsequent
to January 1, 1996, including the Subsequent Investments, from January 1,
1996. All proceeds received from shares sold in the Offerings will be used
to retire debt. Pro forma net income (loss) per share as adjusted is
computed using the pro forma weighted average shares outstanding plus the
shares from the Offerings, all of which will be used to retire debt, as if
such shares were issued at the beginning of the periods presented.
(5) EBITDA represents earnings before interest, income taxes, depreciation,
amortization and extraordinary items. The Company believes EBITDA may be
useful to investors as an indicator of the Company's ability to service
debt, to make new investments and to meet working capital requirements.
EBITDA, as calculated by the Company, may not be consistent with
computations of EBITDA by other companies. EBITDA is not a measure of
financial performance under generally accepted accounting principles and
should not be considered an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a
measure of liquidity.
(6) Cash net income represents earnings after income taxes but before
depreciation and amortization and extraordinary items. The Company believes
cash net income may be useful to investors as another indicator of funds
available to the Company, which may be used to make new investments, repay
debt obligations, repurchase shares of Common Stock or pay dividends on
Common Stock. Cash net income, as calculated by the Company, may not be
consistent with computations of cash net income by other companies. Cash net
income is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
8
<PAGE> 10
RISK FACTORS
This Prospectus contains certain forward-looking statements. The Company's
actual results could differ materially from those set forth in the
forward-looking statements as a result of matters discussed in the risk factors
set forth below and elsewhere in this Prospectus. In addition to the other
information contained in this Prospectus, prospective investors should consider
carefully the risk factors listed below in evaluating an investment in the
shares of Common Stock offered by this Prospectus.
THE COMPANY'S GROWTH STRATEGY AND INVESTMENTS MAY NOT BE SUCCESSFUL
The Company's growth strategy includes acquiring ownership interests in
investment management firms. To date, AMG has invested in ten such firms and
intends to continue this investment program in the future, subject to its
ability to locate suitable investment management firms in which to invest and
its ability to negotiate agreements with such firms on acceptable terms. There
can be no assurance that AMG will be successful in locating or investing in such
firms or that any of such firms will have favorable operating results.
THE COMPANY HAS A LIMITED OPERATING HISTORY AND HAS EXPERIENCED NET LOSSES
The Company has an operating history of fewer than four years and has
experienced net losses in each of its first three years of operations. Since
inception, the Company's growth has largely been attributable to new investments
and such growth may not be sustainable. There can be no assurance that as the
Company continues its investment strategy it will not experience net losses in
the future, which could have an adverse effect on the Company's results of
operations, financial condition and prospects.
FUTURE FINANCINGS COULD ADVERSELY AFFECT THE COMPANY AND ITS STOCKHOLDERS
The Company's acquisitions of interests in investment management firms
require substantial capital investments. Although the Company believes that its
existing cash resources and cash flow from operations will be sufficient to meet
the Company's working capital needs for normal operations for the foreseeable
future, these sources of capital are not expected to be sufficient to fund
anticipated investments. Therefore, the Company will need to raise capital
through the incurrence of additional long-term or short-term indebtedness or the
issuance of additional equity securities in private or public transactions in
order to complete further investments. This could result in dilution of existing
equity positions, increased interest expense or decreased net income. In
addition, significant capital requirements associated with such investments may
impair the Company's ability to pay dividends (although the Company does not
anticipate paying any dividends on its Common Stock in the foreseeable future).
There can be no assurance that acceptable financing for future investments can
be obtained on suitable terms, if at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".
THE COMPANY'S USE OF DEBT TO FINANCE ACQUISITIONS COULD ADVERSELY AFFECT THE
COMPANY
Upon completion of the Offerings and assuming the application of net
proceeds of the Offerings of approximately $139.0 million to repay certain
indebtedness, the Company expects to have approximately $206.3 million of
indebtedness outstanding under the Credit Facility, with approximately $15.7
million available under the Credit Facility for future investments and working
capital needs (assuming the Company maintains compliance with certain financial
ratios). The Company anticipates that it will incur additional indebtedness in
the future in connection with investments in investment management firms. The
Company plans to seek additional borrowing capacity through the replacement of
the existing Credit Facility with a new credit facility. There can be no
assurance, however, that the Company will succeed in obtaining all or any
portion of such replacement financing, and the Company cannot predict at this
time the terms of such financing, if obtained. The Company will be subject to
risks normally associated with debt financing. Accordingly, the Company will be
subject to the risk that a substantial portion of the Company's cash flow may be
required to
9
<PAGE> 11
be dedicated to the payment of the Company's debt service obligations or even
that its cash flow will be insufficient to meet required payments of principal
and interest. The failure to make any required debt service payments or to
comply with any restrictive or financial covenants contained in any debt
instrument could give rise to a default permitting acceleration of the debt
under such instrument as well as debt under other instruments that contain
cross-acceleration or cross-default provisions, which could have an adverse
effect on the Company's financial condition and prospects. The Company's
borrowings under the Credit Facility are collateralized by pledges of all of its
interests in the Affiliates (including all interests in the Affiliates which are
directly held by the Company, as well as all interests in the Affiliates which
are indirectly held by the Company through wholly-owned subsidiaries),
representing in excess of 97% of the Company's assets at June 30, 1997 on a pro
forma basis. The Credit Facility contains, and future debt instruments may
contain, restrictive covenants that could limit the Company's ability to obtain
additional debt financing and could adversely affect the Company's ability to
make future investments in investment management firms. The Company's Credit
Facility prohibits the payment of dividends and other distributions to
stockholders of the Company and restricts the Company, the Affiliates and the
Company's other subsidiaries from incurring indebtedness, incurring liens,
disposing of assets and engaging in extraordinary transactions. The Company is
also required to comply with certain financial covenants on an ongoing basis,
with which the Company is currently in compliance. The Company's ability to
borrow under the Credit Facility is conditioned upon its compliance with the
requirements of the Credit Facility, and any non-compliance with those
requirements could give rise to a default entitling the lenders to accelerate
all outstanding borrowings under the Credit Facility. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources". In addition, the Credit Facility
bears interest at variable rates and future indebtedness may also bear interest
at variable rates. An increase in interest rates on such indebtedness would
increase the Company's interest expense, which could adversely affect the
Company's cash flow and ability to meet its debt service obligations. Although
the Company has entered into interest rate hedging contracts designed to offset
a portion of the Company's exposure to interest rate fluctuations above certain
levels, there can be no assurance that this objective will be achieved, and, if
prevailing interest rates drop below a given point, the Company may be obligated
to pay a higher interest rate under the hedging contract than would otherwise
apply under the actual indebtedness. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Interest Rate Sensitivity"
and "-- Interest Rate Hedging Contracts".
THE COMPANY COULD BE ADVERSELY AFFECTED BY WRITE-OFFS OF ACQUIRED CLIENT
RELATIONSHIPS AND GOODWILL
On a pro forma basis at June 30, 1997, the Company's total assets were
approximately $452.8 million, of which approximately $398.1 million were
intangible assets consisting of acquired client relationships and goodwill.
There can be no assurance that the value of such intangible assets will ever be
realized by the Company. These intangible assets are being amortized on a
straight-line basis over periods ranging from nine to 26 years in the case of
acquired client relationships and 15 to 35 years in the case of goodwill. Pro
forma for all investments in Affiliates to date, amortization of intangible
assets, including goodwill, would have resulted in a charge to operations of
$7.4 million for the six months ended June 30, 1997. The Company evaluates each
investment and establishes appropriate amortization periods based on the
underlying facts and circumstances. Subsequent to each investment, the Company
reevaluates, on a regular basis, such facts and circumstances to determine if
the related intangible assets continue to be realizable and if the amortization
period continues to be appropriate. In 1995 and 1996, such a reevaluation
resulted in the write-off of approximately $2.5 million and $4.6 million of
unamortized goodwill, respectively. Although at June 30, 1997, the net
unamortized balance of intangible assets is not considered to be impaired, any
such future determination requiring the write-off of a significant portion of
unamortized intangible assets could adversely affect the Company's results of
operations and financial position. In addition, the Company intends to invest in
additional investment management firms in the future. While these firms will
contribute additional revenue to the Company, such investments will also
10
<PAGE> 12
result in the recognition of additional intangible assets which will cause
further increases in amortization expense.
THE PERFORMANCE OF THE COMPANY AND ITS AFFILIATES MAY BE ADVERSELY AFFECTED BY
CHANGES IN ECONOMIC AND MARKET CONDITIONS
The Company's Affiliates offer a broad range of investment management
services and styles to institutional and retail investors. Across all the
Affiliates, the Company operates in a number of sectors within the investment
management industry, both with respect to products and distribution channels.
Consequently, the Company's performance is directly affected by conditions in
the financial and securities markets.
The financial markets and the investment management industry in general
have experienced record performance and record growth in recent years. For
example, between December 31, 1994 and June 30, 1997, the S&P 500 Index
appreciated at a compound annual rate in excess of 30% while, according to the
Federal Reserve Board and the Investment Company Institute, aggregate assets
under management of mutual and pension funds grew at a compound annual rate
approaching 20%. The financial markets and businesses operating in the
securities industry, however, are highly volatile and are directly affected by,
among other factors, domestic and foreign economic conditions and general trends
in business and finance, all of which are beyond the control of the Company.
There can be no assurance that broader market performance will be favorable in
the future. Any decline in the financial markets or a lack of sustained growth
may result in a corresponding decline in performance by the Affiliates and may
adversely affect assets under management and/or fees at the Affiliate level,
which would reduce cash flow distributable to the Company.
POOR PERFORMANCE BY TWEEDY, BROWNE WOULD ADVERSELY AFFECT THE COMPANY
The Company has recently completed its investment in Tweedy, Browne (the
"Tweedy, Browne Investment"). The Tweedy, Browne Investment represents the
Company's single largest investment to date, with an aggregate purchase price of
approximately $300 million. The addition of Tweedy, Browne significantly
increases the aggregate size of AMG's revenue base, representing 36% of the
Company's pro forma revenues for the first six months of 1997. Poor financial
performance by Tweedy, Browne would have an adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
THE AFFILIATES' INVESTMENT MANAGEMENT CONTRACTS ARE SUBJECT TO TERMINATION ON
SHORT NOTICE
Substantially all of the Affiliates' revenues are derived from investment
management contracts which are typically terminable, without the payment of a
penalty, in the case of contracts with mutual fund clients, upon 60 days'
notice, and, in the case of institutional contracts, upon 30 days' notice.
Because of this, clients of the Affiliates may withdraw funds from accounts
under management by the Affiliates generally in their sole discretion. In
addition, the Affiliates' contracts generally provide for fees payable for
investment management services based on the market value of assets under
management, although a portion also provide for the payment of fees based on
investment performance. Because most contracts provide for a fee based on market
values of securities, fluctuations in securities prices may have an adverse
effect on the Company's consolidated results of operations and financial
condition. Changes in the investment patterns of clients will also affect the
total assets under management. In addition, in the case of contracts which
provide for the payment of performance-based fees, the investment performance of
the Affiliates will affect the Company's consolidated results of operations and
financial condition.
Some of the Affiliates' fees are higher than those of other investment
managers for similar types of investment services. Each Affiliate's ability to
maintain its fee structure in a competitive environment is dependent on the
ability of the Affiliate to provide clients with investment returns and service
that will cause clients to be willing to pay those fees. There can be no
assurance that any
11
<PAGE> 13
given Affiliate will be able to retain its fee structure or, with such fee
structure, retain its clients in the future.
THE COMPANY AND ITS AFFILIATES RELY ON KEY MANAGEMENT PERSONNEL WHOSE CONTINUED
SERVICE IS NOT GUARANTEED
The Company is dependent on the efforts of Mr. Nutt, its President, Chief
Executive Officer and Chairman of the Board of Directors, and Sean M. Healey,
its Executive Vice President, and other senior management personnel. Messrs.
Nutt and Healey in particular play an important role in identifying suitable
investment opportunities for the Company and in structuring and negotiating the
terms of the Company's investments in investment management firms. Messrs. Nutt
and Healey do not have employment agreements with the Company. The Company also
believes that the business of Tweedy, Browne, its largest Affiliate based on
EBITDA Contribution, is highly dependent on the services of Christopher H.
Browne, William H. Browne and John D. Spears, who have been involved in the
management of Tweedy, Browne for over 20 years and who continue to be primarily
responsible for all of that firm's investment decisions. Although each of these
individuals has entered into a 10-year employment agreement with Tweedy, Browne
pursuant to which he has agreed to devote substantially all of his working time
to the business and affairs of the firm, this can serve as no guarantee that he
will remain with the Company for the specified term of the Agreement. The loss
of key management personnel or an inability to attract, retain and motivate
sufficient numbers of qualified management personnel on the part of the Company
or any of its Affiliates would adversely affect the Company's business. The
market for investment managers is extremely competitive and is increasingly
characterized by frequent movement by investment managers among different firms.
In addition, individual investment managers at the Affiliates often have regular
direct contact with particular clients, which can lead to a strong client
relationship based on the client's trust in that individual manager. The loss of
a key investment manager of an Affiliate could jeopardize the Affiliate's
relationships with its clients and lead to the loss of client accounts at such
Affiliate. Losses of such accounts could have a material adverse effect on the
results of operations and financial condition of the Affiliate and the Company.
Although the Company uses a combination of economic incentives, vesting
provisions, and, in some instances, non-solicitation agreements and employment
agreements as a means of seeking to retain key management personnel at the
Company and each of the Affiliates, there can be no assurance that key
management personnel will remain with their respective firms.
THE COMPANY COULD BE ADVERSELY AFFECTED BY LIENS ON INTERESTS IN AFFILIATES,
LIMITATIONS ON PAYMENT OF DISTRIBUTIONS BY AFFILIATES, AND CONTINGENT REPURCHASE
OBLIGATIONS
LIENS ON INTERESTS IN AFFILIATES
Because AMG is structured as a holding company, all of the cash flow at the
parent company level consists of distributions received from the Affiliates.
Borrowings under the Credit Facility, of which approximately $206.3 million will
be outstanding upon completion of the Offerings (assuming net proceeds of $139.0
million from the Offerings) and the receipt and application of the proceeds
therefrom, are secured by AMG's interests in the Affiliates.
LIMITATION ON PAYMENT OF DISTRIBUTIONS BY AFFILIATES
While AMG's agreements with the Affiliates contain provisions pursuant to
which each Affiliate has agreed to pay to AMG a specified percentage of such
Affiliate's gross revenues, there can be no assurance that distributions will
always be made by the Affiliates to AMG or as to the amounts of any
distributions. See "Business -- AMG Structure and Relationship with
Affiliates -- Revenue Sharing Arrangements". In the organizational documents of
each Affiliate, the distributions to AMG represent only a portion of the
revenues of the Affiliate, with the remainder being retained by the Affiliate or
distributed to its management team. In addition, the payment of distributions to
AMG may be subject to limitations under the laws of the jurisdiction of
organization of each of the Affiliates, regulatory requirements, claims of
creditors of each such Affiliate and applicable bankruptcy and insolvency laws.
12
<PAGE> 14
CONTINGENT REPURCHASE OBLIGATIONS
In connection with its investments in each of its Affiliates, AMG has
agreed to purchase ownership interests retained by the Affiliate's management
team in certain amounts, at certain times and at certain prices. Consequently,
AMG may be required to pay cash or issue new shares of Common Stock to its
Affiliates' managers, and its ownership interests in its Affiliates may change
from time to time, which may have an adverse affect on the Company's cash flow
and liquidity. See "Business -- AMG Structure and Relationship with Affiliates
- -- Capitalization of Retained Interest".
THE COMPANY'S ABILITY TO ALTER THE MANAGEMENT PRACTICES AND POLICIES OF ITS
AFFILIATES IS LIMITED
Although AMG retains both the authority to prevent and cause certain types
of activities by the Affiliates and has voting and veto rights regarding
significant decisions pursuant to its agreements with the Affiliates, the
Affiliates are authorized to manage and conduct their own day-to-day operations,
including matters relating to employees who are not also owners, investment
management policies and fee structures, product development, client
relationships, compensation programs and compliance activities. Accordingly,
under these agreements, AMG generally does not alter Affiliate day-to-day
decisions, policies and strategies. Similarly, an Affiliate's non-compliance
with regulatory requirements that AMG might detect if it operated the business
of the Affiliates itself may not be detected by AMG as quickly, if at all, which
may adversely affect the Company's financial condition and results of
operations. See "Risk Factors -- Regulation". In addition, because each
Affiliate is responsible for its own marketing and client relations, Affiliates
may, from time to time, compete with each other for clients. See "Business --
AMG Structure and Relationship with Affiliates".
THE COMPANY MAY BE EXPOSED TO LIABILITIES INCURRED BY ITS AFFILIATES
Certain of the Company's existing Affiliates are organized as partnerships
that include the Company as a general partner. Consequently, to the extent any
such Affiliate incurs liabilities or expenses which exceed its ability to pay or
fulfill such liabilities or expenses, the Company would be liable for their
payment.
In addition, in the context of certain liabilities, the Company could be
held liable, as a control person, for acts of Affiliates or their employees. The
Company and each of its Affiliates maintains errors and omissions and general
liability insurance in amounts which the Company and its Affiliates' management
consider appropriate. There can be no assurance, however, that a claim or claims
will not exceed the limits of available insurance coverage, that any insurer
will remain solvent and will meet its obligations to provide coverage, or that
such coverage will continue to be available with sufficient limits or at a
reasonable cost. A judgment against any of the Affiliates or the Company in
excess of available coverage could have a material adverse effect on the
Company. See "Business -- Corporate Liability and Insurance".
THE BUSINESSES OF THE COMPANY AND ITS AFFILIATES ARE HIGHLY COMPETITIVE
The Company operates as an asset management holding company organized to
invest in mid-sized investment management firms. The market for partial or total
acquisitions of interests in investment management firms is highly competitive.
The Company is aware of several other holding companies which have been
organized to invest in or acquire investment management firms, and the Company
views these firms as among its competitors. In addition, numerous other
companies, both privately and publicly held, including commercial and investment
banks, insurance companies, and investment management firms, most of which have
longer established operating histories and significantly greater resources than
the Company, make investments in and acquire investment management firms.
Certain of the Company's principal stockholders also pursue investments in, and
acquisitions of, investment management firms and the Company may, from time to
time, encounter competition from such principal stockholders with respect to
certain investments. There can be no assurance that the Company will be able to
compete effectively with such competitors, that additional competitors will not
enter the market or that such competition will not make it more
13
<PAGE> 15
difficult or impracticable for the Company to make investments in investment
management firms. See "Business -- Competition".
The investment management business is also highly competitive. Each of the
Affiliates competes with a broad range of investment managers, including public
and private investment advisers as well as affiliates of securities
broker-dealers, banks, insurance companies and other entities. From time to
time, Affiliates may also compete with each other for clients. Many of the
Affiliates' competitors have greater resources than any of the Affiliates and
than the Company and the Affiliates on a consolidated basis. In addition to
competing directly for clients, competition can impact the Affiliates' fee
structures. The Company believes that each Affiliate's ability to compete
effectively with other firms is dependent upon the Affiliate's products, level
of investment performance and client service, as well as the marketing and
distribution of its investment products. There can be no assurance that the
Affiliates will be able to achieve favorable investment performance and retain
their existing clients. See "Business -- Competition".
RISKS INHERENT IN INTERNATIONAL OPERATIONS COULD ADVERSELY AFFECT THE COMPANY
First Quadrant Limited is organized and headquartered in London, England.
In addition, Tweedy, Browne and other Affiliates are investment advisers to
certain funds which are organized under non-U.S. jurisdictions, including
Luxembourg and Bermuda. In the future, the Company may seek to invest in other
investment management firms which are located and/or conduct a significant part
of their operations outside of the United States. There are certain risks
inherent in doing business internationally, such as changes in applicable laws
and regulatory requirements, difficulties in staffing and managing foreign
operations, longer payment cycles, difficulties in collecting investment
advisory fees receivable, political instability, fluctuations in currency
exchange rates, expatriation controls and potential adverse tax consequences.
There can be no assurance that one or more of such factors will not have an
adverse effect on First Quadrant Limited or other non-U.S. investment management
firms in which the Company may invest in the future and, consequently, on the
Company's business, financial condition and results of operations.
THE BUSINESS OF EACH OF THE AFFILIATES IS HIGHLY REGULATED
The business of each of the Affiliates is highly regulated primarily at the
federal level, and the business of certain of the Affiliates is subject to the
authority of non-U.S. regulators. The failure of an Affiliate to comply with
applicable laws or regulations could result in fines, suspensions of individual
employees or other sanctions, including revocation of an Affiliate's
registration as an investment adviser, commodity trading advisor or
broker-dealer. Each Affiliate (other than First Quadrant Limited) is registered
with the Commission as an investment adviser under the Investment Advisers Act
of 1940, as amended (the "Investment Advisers Act") and is subject to the
provisions of the Investment Advisers Act and the Commission's regulations
promulgated thereunder. The Investment Advisers Act imposes numerous obligations
on registered investment advisers, including fiduciary, record keeping,
operational, and disclosure obligations. Each of the Affiliates (other than
First Quadrant Limited) is, as an investment adviser, also subject to regulation
under the securities laws and fiduciary laws of certain states. Certain of the
Affiliates, including Tweedy, Browne, act as advisers or subadvisers to mutual
funds which are registered with the Commission under the Investment Company Act
of 1940, as amended (the "1940 Act"). As an adviser or subadviser to a
registered investment company, each such Affiliate is subject to requirements
under the 1940 Act and the Commission's regulations promulgated thereunder. Each
Affiliate is subject to the Employee Retirement Income Security Act of 1974
("ERISA"), and to regulations promulgated thereunder, insofar as they are
"fiduciaries" under ERISA with respect to certain of their clients. ERISA and
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), impose certain duties on persons who are fiduciaries under ERISA, and
prohibit certain transactions involving the assets of each ERISA plan which is a
client of an Affiliate, as well as certain transactions by the fiduciaries (and
certain other related parties) to such plans. Each of First Quadrant and
Renaissance is also registered with the Commodity Futures Trading Commission as
a Commodity Trading Advisor and each is a member of the National Futures
Association. Tweedy,
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Browne is registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as a broker-dealer and thus is subject to extensive regulation
with respect to sales methods, trading practices, the use and safekeeping of
customers' funds and securities, capital structure, record keeping and the
conduct of directors, officers and employees.
In addition, applicable law provides that the investment management
contracts under which Affiliates manage assets for other parties either
terminate automatically if assigned, or are not assignable unless the applicable
client consents to the assignment. Assignment, as generally defined, includes
direct assignments as well as assignments which may be deemed to occur, under
certain circumstances, upon the direct or indirect transfer of a "controlling
block" of the voting securities of an Affiliate. Moreover, applicable law
provides that all investment contracts with mutual fund clients may be
terminated by such clients, without penalty, upon no later than 60 days' notice.
Investment contracts with institutional and other clients are typically
terminable by the client, also without penalty, upon 30 days' notice.
A number of the Affiliates are subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies or bodies. For example, First
Quadrant Limited, located in London, is a member of the Investment Management
Regulatory Organisation of the United Kingdom, and Tweedy, Browne and other
Affiliates are investment advisers to certain funds which are organized under
non-U.S. jurisdictions, including Luxembourg (where they are regulated by the
Institute Monetaire Luxembourgeois) and Bermuda (where they are regulated by the
Bermuda Monetary Authority).
AMG itself does not manage investments for clients, does not provide any
investment management services and, therefore, is not registered as an
investment adviser under federal or state law.
THE ABILITY TO EFFECT A CHANGE OF CONTROL OF THE COMPANY COULD BE LIMITED BY
PROVISIONS OF THE COMPANY'S CHARTER AND BY-LAWS, AND DELAWARE LAW
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") and Amended and Restated By-laws (the
"By-laws") and Delaware law could, together or separately, discourage potential
acquisition proposals, delay or prevent a change in control of the Company,
hinder the removal of incumbent directors, and limit the price that certain
investors might be willing to pay in the future for shares of the Common Stock,
all of which may be beneficial to the interests of the stockholders under
certain circumstances. These provisions include the issuance, without further
stockholder approval, of preferred stock with rights and privileges which could
be senior to the Common Stock. The Company also is subject to Section 203 of the
Delaware General Corporation Law which, subject to certain exceptions, prohibits
a Delaware corporation from engaging in any of a broad range of business
combinations with any "interested stockholder" for a period of three years
following the date that such stockholder became an interested stockholder. See
"Description of Capital Stock -- Certain Provisions of the Company's Certificate
of Incorporation and By-laws" and "-- Statutory Business Combination Provision".
CERTAIN STOCKHOLDERS MAY HAVE THE ABILITY TO EXERT SIGNIFICANT INFLUENCE OVER
THE BUSINESS, POLICIES AND AFFAIRS OF THE COMPANY
After giving effect to the sale of the shares of Common Stock sold in the
Offerings, investors including investment funds associated with TA Associates,
Inc. ("TA Associates"), Hartford Accident and Indemnity Company ("The
Hartford"), members of senior management and key employees of the Company, and
managers of Affiliates will beneficially own in the aggregate approximately
24.2%, 2.3%, 6.1% and 5.5%, respectively, of the outstanding Common Stock,
including approximately 29.0%, 2.8%, 7.3% and 6.5% of the voting Common Stock.
In addition, NationsBanc Investment Corporation ("NationsBank") and Chase Equity
Associates will beneficially own in the aggregate 6.0% and 10.4% of the
outstanding Common Stock after the Offerings, respectively, in the form of
non-voting Class B Common Stock. To the knowledge of the Company, upon
consummation of the Offerings, there will be no agreements among such persons
relating to the voting of the Common Stock or otherwise relating to corporate
governance issues (except that the holders of shares of non-voting Class B
Common Stock have agreed that, to the extent such
15
<PAGE> 17
shares are entitled to vote as a class on any matter, they will vote such shares
in the same proportion as the votes of the holders of the shares of voting
Common Stock on such matter). If such persons were to vote their shares
together, these persons would have the ability to exert significant influence
over the Company's Board of Directors, and, therefore, the business, policies
and affairs of the Company. In addition, by reason of such holdings, these
stockholders may have the ability to exert significant influence over the
outcome of certain fundamental corporate transactions requiring stockholder
approval, including mergers and sales of assets, and the election of the members
of the Company's Board of Directors. This influence could preclude any
unsolicited acquisition of the Company and, consequently, adversely affect the
market price of the Common Stock. See "Certain Transactions", "Principal
Stockholders" and "Shares Eligible for Future Sale".
PURCHASERS OF COMMON STOCK IN THE OFFERINGS WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the net
tangible book value (deficit) per share of the Company which, as of June 30,
1997, was $(35.01). Purchasers of the shares of Common Stock sold in the
Offerings will experience immediate and substantial net tangible book value
dilution of $33.01 per share, assuming an initial public offering price of
$21.50 per share. See "Dilution".
THE COMPANY DOES NOT PLAN TO PAY DIVIDENDS
Following the consummation of the Offerings, the Company intends to retain
earnings to repay debt and to finance the growth and development of its business
and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. Any declaration of dividends in the future will depend upon,
among other things, the Company's results of operations, financial condition and
capital requirements as well as general business conditions. The Credit Facility
also prohibits the Company from making dividend payments to its stockholders.
See "Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources".
LACK OF A PRIOR MARKET, EQUITY MARKET CONDITIONS, AND SHARES AVAILABLE FOR
FUTURE SALE COULD ADVERSELY AFFECT THE TRADING PRICE OF THE COMMON STOCK
NO PRIOR MARKET FOR THE COMMON STOCK
Prior to the Offerings, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained in the future or that the market price of the Common Stock will
not decline below the initial public offering price. The initial public offering
price of the Common Stock will be determined by negotiations between the Company
and the representatives of the U.S. Underwriters and the International
Underwriters and may not be indicative of the market price of the Common Stock
after the Offerings. See "Underwriting". From time to time after the Offerings,
there may be significant volatility in the market price for the Common Stock.
Quarterly operating results of the Company, changes in general conditions in the
economy or the financial markets, or other developments affecting the Company or
its competitors, could cause the market price of the Common Stock to fluctuate
substantially. In addition, in recent years, the stock market has experienced
significant price and volume fluctuations. This volatility has affected the
market prices of securities issued by many companies for reasons unrelated to
their operating performance and may adversely affect the price of the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offerings could adversely affect the market price of the Common Stock. In
addition to the 7,000,000 shares of Common Stock offered in the Offerings, up to
6,656,196 shares of Common Stock owned by the current stockholders will be
eligible for sale in accordance with Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), beginning 90 days after the consummation of
the Offerings, and an additional 2,364,129 shares of Common Stock will become
eligible for sale in the public market under Rule 144 at various dates through
November 1998. The remaining 65,625
16
<PAGE> 18
shares of Common Stock owned by the current stockholders are subject to vesting
provisions and will become eligible for sale in the public market under Rule 144
at various times as they become vested. If such stockholders should sell or
otherwise dispose of a substantial amount of Common Stock in the public market,
the prevailing market price could be adversely affected. However, subject to
certain exceptions, the Company and holders of 9,085,950 shares of Common Stock
outstanding before the Offerings have agreed not to offer, sell, or otherwise
dispose of any shares of Common Stock for a period of 180 days after the date of
this Prospectus without the prior written consent of the representatives of the
Underwriters. See "Shares Eligible For Future Sale".
REGISTRATION RIGHTS
The holders of 8,076,696 shares of Common Stock have the right in certain
circumstances to require the Company to register their shares under the
Securities Act for resale to the public, and the holders of 8,773,550 shares
have the right to include their shares in a registration statement filed by the
Company. In addition, certain of the managers of the Affiliates have the right
under certain circumstances to exchange portions of their interests in the
Affiliate of which they are a manager for shares of Common Stock. See
"Business -- AMG Structure and Relationship with Affiliates -- Capitalization of
Retained Interest". Certain of the managers who have these exchange rights have
the right to include the shares of Common Stock received by them in such
exchange in a registration statement filed by the Company under the Securities
Act. These registration rights may enable such holders to publicly sell shares
which would otherwise be ineligible for sale in the public market. The Company
also intends to register all of the shares of Common Stock issuable under the
Company's stock plans as soon as practicable following the consummation of the
Offerings. See "Management -- Compensation, Benefit and Retirement Plans". The
sale of a substantial number of shares of Common Stock into the public market
following the Offerings, or the availability of such shares for future sale,
could adversely affect the market price for the Common Stock and could impair
the Company's ability to obtain additional capital in the future through an
offering of equity securities should it desire to do so. See "Shares Eligible
for Future Sale" and "Underwriting".
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 7,000,000 shares of
Common Stock in the Offerings, after deducting the underwriting discount and
expenses payable by the Company in connection with the Offerings, are estimated
to be approximately $139.0 million ($160.1 million if the Underwriters'
over-allotment options are exercised in full). The Company intends to use such
net proceeds to repay outstanding indebtedness, all of which was incurred to
finance portions of the Company's investments in certain Affiliates, as follows:
(i) approximately $60.0 million will be used to repay certain subordinated debt
which bears interest initially at LIBOR plus 7.25% and matures on April 7, 1998,
and (ii) approximately $79.0 million will be used to repay a portion of the
outstanding borrowings under the Credit Facility, which bear interest at
variable rates based on the prime rate or LIBOR as selected by the Company, and
mature on October 9, 2004 and October 9, 2005. The interest rate on indebtedness
under the Credit Facility at October 15, 1997 was 8.125% with respect to $118.3
million, 8.25% with respect to $117.0 million and 8.75% with respect to $50.0
million. Upon repayment of such indebtedness, and assuming the Company maintains
compliance with certain financial ratios, approximately $15.7 million will be
available for future borrowings under the Credit Facility.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain earnings to finance the growth and
development of its business, including possible investments, and does not
anticipate paying cash dividends for the foreseeable future. Any payment of cash
dividends in the future will depend upon the financial condition, capital
requirements and earnings of the Company, as well as other factors the Company's
Board of Directors may deem relevant. In addition, the Credit Facility prohibits
the Company from making dividend payments to its stockholders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
18
<PAGE> 20
DILUTION
The pro forma net tangible book value (deficit) of the Common Stock at June
30, 1997 before adjustment for the Offerings was $(318.1) million, or $(35.01)
per share after giving effect to the Recapitalization. After giving effect to
the sale of the 7,000,000 shares of Common Stock in the Offerings at an assumed
initial public offering price of $21.50 per share (before deducting the
estimated underwriting discounts and commissions and estimated offering
expenses), and applying the estimated net proceeds therefrom as set forth in
"Use of Proceeds" (with the associated write-off of $6.0 million in debt
issuance costs and debt discount), the pro forma net tangible book value
(deficit) of the Company at June 30, 1997 would have been $(185.1) million, or
$(11.51) per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share (1).............. $ 21.50
-------
Pro forma net tangible book value (deficit) per share before
the Offerings............................................. $(35.01)
-------
Increase in pro forma net tangible book value per share
attributable to the Offerings............................. 23.50
-------
As adjusted pro forma net tangible book value (deficit) per share
after the Offerings............................................ (11.51)
-------
Dilution in pro forma net tangible book value (deficit) per share
to new investors (2)(3)........................................ $ 33.01
=======
</TABLE>
- ---------------
(1) Assumed initial public offering price before deduction of underwriting
discounts and commissions and estimated expenses of the Offerings to be paid
by the Company.
(2) Dilution is determined by subtracting the pro forma net tangible book value
per share of Common Stock after the Offerings from the assumed initial
public offering price paid by purchasers in the Offerings for a share of
Common Stock.
(3) Assumes no exercise of outstanding stock options. As of the date of this
Prospectus, there are options outstanding to purchase a total of 92,500
shares of Common Stock at an exercise price of $9.10 per share. See
"Management -- Compensation, Benefit and Retirement Plans" and Note 13 of
the Notes to the Company's Consolidated Financial Statements. If any of
these options were exercised, there would be further dilution to purchasers
of Common Stock in the Offerings.
Assuming the Underwriters' over-allotment options are exercised in full,
the pro forma net tangible book value (deficit) at June 30, 1997 would be
$(164.0) million or $(9.57) per share, the immediate increase in pro forma net
tangible book value of shares owned by existing stockholders would be $25.44 per
share, and the immediate dilution to purchasers of shares of Common Stock in the
Offerings would be $31.07 per share.
The following table summarizes, at June 30, 1997, after giving effect to
the sale of the shares of Common Stock in the Offerings at an assumed initial
public offering price of $21.50 per share, (i) the number and percentage of
shares of Common Stock purchased from the Company, (ii) the total cash
consideration paid for the Common Stock, and (iii) the average price per share
of Common Stock paid by existing stockholders and by purchasers of the Common
Stock in the Offerings:
<TABLE>
<CAPTION>
TOTAL
SHARES OWNED CONSIDERATION
------------------------ -------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders........ 9,085,950 56.5% $ 86,640,000 36.5% $ 9.54
New investors......... 7,000,000 43.5 150,500,000 63.5 21.50
------- --- -------- ---
Total............ 16,085,950 100.0% $237,140,000 100.0%
======= === ======== ===
</TABLE>
19
<PAGE> 21
CAPITALIZATION
The following table sets forth at June 30, 1997: (i) the historical
capitalization of the Company; (ii) the pro forma capitalization reflecting the
Subsequent Investments and the Recent Financing; and (iii) the pro forma
capitalization described in clause (ii) as adjusted to give effect to the
Recapitalization and sale of the shares of Common Stock in the Offerings (at an
assumed initial public offering price of $21.50 per share) and the application
of the net proceeds therefrom as described under "Use of Proceeds".
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------------
PRO FORMA
HISTORICAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Senior debt, current portion....................... $ -- $ 5,500 $ 1,210
Senior debt, long-term portion..................... 48,900 279,775 205,065
Subordinated debt.................................. -- 59,600 800
----------- ----------- -----------
Total debt....................................... 48,900 344,875 207,075
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; none issued and outstanding
historical, pro forma and pro forma as
adjusted...................................... -- -- --
Convertible preferred stock, $.01 par value;
137,396 shares authorized and 115,249 shares
issued and outstanding historical; 213,935
shares authorized and 159,249(1) shares issued
and outstanding pro forma; and none
authorized, issued or outstanding pro forma as
adjusted...................................... 43,976 84,776 --
Common Stock, $.01 par value; 17,160,050 shares
authorized and 1,037,500 shares issued and
outstanding historical; 10,961,000 shares
authorized and 1,037,500(2) shares issued and
outstanding pro forma; and 40,000,000 shares
authorized and 13,449,150(3) shares issued and
outstanding pro forma as adjusted............. -- -- 134
Class B Common Stock, $.01 par value, non-voting;
970,150 shares authorized and none issued and
outstanding historical; 3,342,250 shares
authorized and none issued and outstanding pro
forma; and 3,000,000 shares authorized and
2,636,800 shares issued and outstanding pro
forma as adjusted............................. -- -- 26
Additional paid-in capital on common stock....... 15 15 225,480
Foreign translation adjustment................... 6 6 6
Accumulated deficit.............................. (4,808) (4,808) (10,796)
----------- ----------- -----------
Total stockholders' equity............... 39,189 79,989 214,850
----------- ----------- -----------
Total capitalization..................... $88,089 $ 424,864 $ 421,925
=========== =========== ===========
</TABLE>
- ---------------
(1) Includes (i) the issuance of 5,333 shares of Series C-2 Non-Voting
Convertible Preferred Stock and assumes the exercise of warrants to purchase
28,000 shares of Series C-2 Non-Voting Convertible Preferred Stock
subsequent to June 30, 1997, and (ii) the issuance of 10,667 shares of Class
D Convertible Preferred Stock subsequent to June 30, 1997.
(2) Excludes 92,500 shares of Common Stock reserved for issuance under options
outstanding under the 1995 Plan, of which 15,400 shares were issuable at
June 30, 1997 upon the exercise of outstanding stock options at $9.10 per
share. See "Management--Compensation, Benefit and Retirement Plans".
(3) Includes 7,962,450 shares of Common Stock issuable upon conversion of the
Convertible Preferred Stock effective immediately upon consummation of the
Offerings.
20
<PAGE> 22
SELECTED PRO FORMA FINANCIAL DATA
The selected pro forma statement of operations data and balance sheet data
set forth below are derived from the unaudited pro forma consolidated statement
of operations and balance sheet for the Company as of and for the six months
ended June 30, 1997, and the related notes thereto, as set forth in the
Unaudited Pro Forma Consolidated Financial Statements included elsewhere in this
Prospectus. The selected pro forma data are adjusted to reflect: (i) the Prior
Investments (in the case of the selected pro forma statement of operations data)
and the Subsequent Investments; (ii) the Recent Financing (as defined below),
which was entered into in connection with the Subsequent Investments; and (iii)
the Offerings (including the application of the net proceeds therefrom) and the
Recapitalization in connection with the Offerings. The selected pro forma
statement of operations data for the six months ended June 30, 1997 assume that
each of these transactions occurred on January 1, 1996. The selected pro forma
balance sheet data assume that each of these transactions occurred on June 30,
1997.
The pro forma adjustments are based on available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Prior Investments and the Subsequent Investments are
accounted for under the purchase method of accounting. Under this method of
accounting, the purchase price has been allocated to the assets and liabilities
acquired based upon estimates of fair value. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations". The Prior
Investments were primarily funded with cash received from borrowings under the
Company's revolving credit facility and from issuances of the Company's
Convertible Preferred Stock. The Subsequent Investments have been funded by: (i)
cash received from borrowings ("Senior Debt") under the Company's new $300
million senior credit facility (the "Credit Facility"), (ii) cash received from
the issuance of $60 million face amount of subordinated debt (the "Subordinated
Debt"), (iii) cash received from the issuance of $30 million of Class C
Convertible Preferred Stock and warrants to purchase Class C Convertible
Preferred Stock (clauses (i) - (iii) collectively, the "Recent Financing") and
(iv) the issuance of 10,667 shares of Class D Convertible Preferred Stock valued
at $9.6 million as partial consideration for the investment in GeoCapital (which
is reflected as part of the Subsequent Investments). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources".
The selected pro forma financial data should be read in conjunction with
the Unaudited Pro Forma Consolidated Financial Information and the related notes
thereto, and the Consolidated Financial Statements of the Company (including the
unaudited information as of and for the six months ended June 30, 1997) and the
related notes thereto, included elsewhere in this Prospectus. The pro forma
information is based on the historical data with respect to the Company and the
acquired businesses comprising the Prior Investments and the Subsequent
Investments, is not necessarily indicative of the results that might have
occurred had the transactions reflected actually taken place at the beginning of
the period specified and is not intended to be a projection of future results.
21
<PAGE> 23
SELECTED PRO FORMA FINANCIAL DATA
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
FINANCING OFFERING PRO FORMA
HISTORICAL INVESTMENTS(1) ADJUSTMENTS(2) PRO FORMA ADJUSTMENTS(3) AS ADJUSTED
----------- -------------- --------------- ---------- -------------- ------------
(IN THOUSANDS, EXCEPT WHERE INDICATED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenues.................. $ 32,870 $ 32,692 $ -- $ 65,562 $ -- $ 65,562
Operating expenses:
Compensation and
related expenses.... 11,222 8,085 -- 19,307 -- 19,307
Amortization of
intangible assets... 2,043 5,334 -- 7,377 100 7,477
Depreciation and other
amortization........ 671 190 529 1,390 (186) 1,204
Other operating
expenses............ 13,232 3,629 -- 16,861 -- 16,861
-------- -------- -------- -------- ------- -------
Total operating
expenses........ 27,168 17,238 529 44,935 (86) 44,849
-------- -------- -------- -------- ------- -------
Operating income (loss)... 5,702 15,454 (529) 20,627 86 20,713
Non-operating (income) and
expenses:
Investment and other
income.............. (438) (4) -- (442) -- (442)
Interest expense...... 1,707 24 13,916 15,647 (7,577) 8,070
-------- -------- -------- -------- ------- -------
1,269 20 13,916 15,205 (7,577) 7,628
-------- -------- -------- -------- ------- -------
Income (loss) before
minority interest and
income taxes............ 4,433 15,434 (14,445) 5,422 7,663 13,085
Minority interest......... (3,632) (5,713) -- (9,345) -- (9,345)
-------- -------- -------- -------- ------- -------
Income (loss) before
income taxes............ 801 9,721 (14,445) (3,923) 7,663 3,740
Income taxes.............. 95 599 -- 694 877 1,571
-------- -------- -------- -------- ------- -------
Net income (loss)......... $ 706 $ 9,122 $ (14,445) $ (4,617) $ 6,786 $ 2,169
======== ======== ======== ======== ======= =======
Net income (loss) per
share (4)............... $ 0.10 $ (0.51) $ 0.13
======== ======== =======
Number of shares used in
net income (loss) per
share................... 6,852 9,139 16,139
======== ======== =======
OTHER FINANCIAL DATA
Assets under management
(at period end, in
millions)............... $ 34,468 $ 6,704 $ -- $ 41,172 $ -- $ 41,172
EBITDA (5)................ 5,222 15,269 -- 20,491 -- 20,491
Cash net income (5)....... 3,420 14,646 (13,916) 4,150 6,700 10,850
Cash flow from (used in)
operating activities.... 8,711 17,326 (13,990) 12,047 6,700 18,747
Cash flow used in
investing activities.... (11,797) (370) (314,725) (326,892) -- (326,892)
Cash flow from financing
activities.............. 9,632 -- 317,475 327,107 -- 327,107
BALANCE SHEET DATA
Current assets............ $ 26,027 $ 5,185 $ 2,475 $ 33,687 $ -- $ 33,687
Acquired client
relationships........... 35,785 107,931 -- 143,716 740 144,456
Goodwill.................. 43,034 211,338 -- 254,372 1,109 255,481
Total assets.............. 113,769 327,680 11,375 452,824 (2,939) 449,885
Current liabilities....... 13,108 7,780 -- 20,888 (4,290) 16,598
Senior debt............... 48,900 225,000 11,375 285,275 (79,000) 206,275
Subordinated debt......... -- 59,600 -- 59,600 (58,800) 800
Total liabilities......... 66,035 286,880 11,375 364,290 (137,800) 226,490
Minority interest......... 8,545 -- -- 8,545 -- 8,545
Preferred stock........... 43,976 40,800 -- 84,776 (84,776) --
Stockholders' equity...... 39,189 40,800 -- 79,989 134,861 214,850
</TABLE>
- ---------------
(1) Gives effect to the recent investments in Tweedy, Browne and GeoCapital,
including the issuance of $9.6 million of Class D Convertible Preferred
Stock in connection with the investment in GeoCapital (the "Subsequent
Investments"), which occurred subsequent to June 30, 1997, and, in the case
of the selected statement of operations data, to the investments made during
the year ended December 31, 1996 and the six months ended June 30, 1997 (the
"Prior Investments"). See notes (B), (C) and (H)-(L) to the Unaudited Pro
Forma Consolidated Financial Information included elsewhere in this
Prospectus.
(2) To adjust for the Recent Financing, which was entered into in connection
with the Subsequent Investments. See notes (B), (D) and (M) to the Unaudited
Pro Forma Consolidated Financial Information included elsewhere in this
Prospectus.
(3) To adjust for (i) the sale of Common Stock offered by the Offerings and the
application of the net proceeds therefrom, and (ii) the related
Recapitalization, consisting of a 50-for-1 stock split of the Common Stock
effected in the form of a stock dividend and the issuance of 86,023 shares
of Common Stock to shareholders of an Affiliate upon consummation of the
Offerings, in each case as of the date of this Prospectus, the exercise of
all warrants to purchase shares of the Company's convertible preferred stock
(the "Convertible Preferred Stock") and the conversion of all outstanding
shares of the Convertible Preferred Stock into shares of Common Stock, in
each case upon consummation of the Offerings. See notes (E)-(G) and (N)-(Q)
to the Unaudited Pro Forma Consolidated Financial Information included
elsewhere in this Prospectus.
(4) See note (4) to the Summary Historical and Pro Forma Financial Data included
elsewhere in this Prospectus.
(5) See notes (5) and (6) to the Summary Historical and Pro Forma Financial Data
included elsewhere in this Prospectus.
22
<PAGE> 24
SELECTED HISTORICAL FINANCIAL DATA
The selected consolidated statement of operations data and balance sheet
data set forth below are derived in the relevant periods from the consolidated
financial statements and the notes thereto of the Company. The Company's
consolidated financial statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as of December 31, 1995 and 1996, and for each of the
three years in the period ended December 31, 1996, and are included elsewhere in
this Prospectus, together with the report of Coopers & Lybrand L.L.P. thereon.
The selected consolidated statement of operations data for the six months ended
June 30, 1996 and 1997 and balance sheet data at June 30, 1997, presented below,
were derived from the Company's unaudited consolidated financial statements that
are included elsewhere in this Prospectus and include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial information for such periods.
The results of operations for the six months ended June 30, 1996 and 1997 are
not necessarily indicative of the results of operations to be expected for the
full year. This selected historical financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations", the Company's consolidated financial statements and the notes
thereto, and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT AS INDICATED AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.................................................... $5,374 $14,182 $50,384 $19,495 $32,870
Operating expenses:
Compensation and related expenses....................... 3,591 6,018 21,113 7,945 11,222
Amortization of intangible assets....................... 774 4,174 8,053 1,674 2,043
Depreciation and other amortization..................... 19 133 932 270 671
Other operating expenses................................ 1,000 2,567 13,115 5,693 13,232
------ ------- ------- ------- -------
Total operating expenses............................ 5,384 12,892 43,213 15,582 27,168
Operating income............................................ (10) 1,290 7,171 3,913 5,702
Non-operating (income) and expenses:
Investment and other income............................. (966) (265) (337) (408) (438)
Interest expense........................................ 158 1,244 2,747 1,311 1,707
------ ------- ------- ------- -------
(808) 979 2,410 903 1,269
------ ------- ------- ------- -------
Income before minority interest, income taxes and
extraordinary item........................................ 798 311 4,761 3,010 4,433
Minority interest (3)....................................... (305) (2,541) (5,969) (2,305) (3,632)
------ ------- ------- ------- -------
Income (loss) before income taxes........................... 493 (2,230) (1,208) 705 801
Income taxes (benefit)...................................... 699 706 181 (22) 95
------ ------- ------- ------- -------
Income (loss) before extraordinary item..................... (206) (2,936) (1,389) 727 706
Extraordinary item.......................................... -- -- (983) (983) --
------ ------- ------- ------- -------
Net income (loss)........................................... $ (206) $(2,936) $(2,372) $ (256) $ 706
====== ======= ======= ======= =======
Net income (loss) per share (1)............................. $(0.05) $ (0.58) $ (0.36) $ (0.04) $ 0.10
====== ======= ======= ======= =======
OTHER FINANCIAL DATA
Assets under management (at period end, in millions)........ $ 755 $ 4,615 $19,051 $16,048 $34,468
EBITDA (2).................................................. 1,444 3,321 10,524 3,960 5,222
Cash net income (2)......................................... 587 1,371 7,596 2,671 3,420
Cash flow from operating activities......................... 818 1,292 6,185 912 8,711
Cash flow used in investing activities...................... (6,156) (37,781) (29,210) (28,565) (11,797)
Cash flow from financing activities......................... 9,509 46,414 15,650 19,443 9,632
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------- JUNE 30,
1994 1995 1996 1997
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Current assets..................................................... $ 4,791 $16,847 $ 23,064 $ 26,027
Acquired client relationships...................................... 3,482 18,192 30,663 35,785
Goodwill........................................................... 5,417 26,293 40,809 43,034
Total assets....................................................... 13,808 64,699 101,335 113,769
Current liabilities................................................ 2,021 4,111 23,591 13,108
Senior debt........................................................ -- 18,400 33,400 48,900
Total liabilities.................................................. 3,925 26,620 60,856 66,035
Minority interest (3).............................................. 80 1,212 3,490 8,545
Preferred stock.................................................... 10,004 40,008 42,476 43,976
Stockholders' equity............................................... 9,803 36,867 36,989 39,189
</TABLE>
- ---------------
(1) See note (4) to the Summary Historical and Pro Forma Financial Data included
elsewhere in this Prospectus.
(2) See notes (5) and (6) to the Summary Historical and Pro Forma Financial Data
included elsewhere in this Prospectus.
(3) See note (3) to the Summary Historical and Pro Forma Financial Data included
elsewhere in this Prospectus.
24
<PAGE> 26
RECENT DEVELOPMENTS
Set forth below is certain unaudited operations and other financial data
for the periods indicated. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements contained elsewhere in
this Prospectus. This data is not necessarily indicative of operating results
that may be expected for a full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
PRO FORMA
HISTORICAL AS ADJUSTED
----------------------- -----------
1996 1997 1997(1)
-------- -------- -----------
(IN THOUSANDS, EXCEPT AS INDICATED AND
PER SHARE DATA)
<S> <C> <C> <C>
OPERATIONS DATA
Revenues................................................................ $ 32,170 $ 53,280 $ 103,859
Operating income........................................................ 6,000 8,972 32,853
Net income (loss)....................................................... (281) 833 3,970
Net income (loss) per share(1).......................................... (0.04) 0.12 0.25
OTHER FINANCIAL DATA
Assets under management (at period end, in millions).................... $ 16,074 $ 37,992 $ 43,106
EBITDA(2)............................................................... 6,202 7,941 32,242
Cash net income(2)...................................................... 3,470 5,013 17,261
Cash flow from operating activities..................................... 5,121 6,749 24,442
Cash flow used in investing activities.................................. (28,513) (27,007) (327,702)
Cash flow from financing activities..................................... 18,419 24,032 327,107
</TABLE>
- ---------------
(1) See notes (1), (2) and (4) to the Summary Historical and Pro Forma Financial
Data included elsewhere in this Prospectus.
(2) See notes (5) and (6) to the Summary Historical and Pro Forma Financial Data
included elsewhere in this Prospectus.
Net income increased to $833,000 for the nine months ended September 30,
1997 compared to a net loss of $281,000 for the nine months ended September 30,
1996. The net loss for the nine months ended September 30, 1996 resulted from an
extraordinary loss of $580,000, net of related tax benefit, from the early
extinguishment of debt. The increase in net income for the nine months ended
September 30, 1997 compared to the nine months ended September 30, 1996 resulted
from increased operating income offset in part by higher interest expense
incurred to finance the Prior and Subsequent Investments, higher minority
interest and the absence of the extraordinary item. On a pro forma basis, as
adjusted for the Offerings and the application of the net proceeds therefrom,
net income for the nine months ended September 30, 1997 was $4.0 million. The
increase in net income on a pro forma as adjusted basis compared to historical
net income results from the contributions to operating results from the Prior
and Subsequent Investments, particularly the Tweedy, Browne Investment, and from
lower interest expense resulting from the retirement of debt.
Assets under management increased by $21.9 billion, to $38.0 billion at
September 30, 1997 from $16.1 billion at September 30, 1996, in part due to the
investments made in Burridge and Gofen and Glossberg, which were completed in
December 1996 and May 1997, respectively. On a pro forma basis, assets under
management at September 30, 1997 were $43.1 billion, a 55% increase from
December 31, 1996. Tweedy, Browne's assets under management were $5.1 billion at
September 30, 1997, a 49% increase from December 31, 1996.
Revenues increased by $21.1 million to $53.3 million for the nine months
ended September 30, 1997 compared to $32.2 million for the nine months ended
September 30, 1996. Since September 30, 1996, the Company invested in Burridge
in December 1996 and Gofen and Glossberg in May 1997 and included their results
from their respective purchase dates. In addition, the Company invested in First
Quadrant in March 1996 and its results were included in the results for the nine
months ended September 30, 1996 from its purchase date. On a pro forma basis,
including the results of the Prior and Subsequent Investments as if all such
transactions occurred on January 1, 1996, revenues for the nine months ended
September 30, 1997 were $103.9 million.
Operating income increased by $3.0 million to $9.0 million for the nine
months ended September 30, 1997 compared to $6.0 million for the nine months
ended September 30, 1996. On a pro forma basis, operating income was
approximately $32.9 million for the nine months ended September 30, 1997 and
increased from historical operating income of $9.0 million, primarily from the
inclusion of Tweedy, Browne.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.
OVERVIEW
The Company acquires equity positions in mid-sized investment management
firms, and derives its revenues from such firms. AMG has a revenue sharing
arrangement with each Affiliate which is contained in the organizational
documents of that Affiliate. Each such arrangement allocates a specified
percentage of revenues (typically 50-70%) for use by management of that
Affiliate in paying operating expenses of the Affiliate, including salaries and
bonuses (the "Operating Allocation"). The remaining portion of revenues of the
Affiliate, typically 30-50% (the "Owners' Allocation"), is allocated to the
owners of that Affiliate (including the Company), generally in proportion to
their ownership of the Affiliate.
One of the purposes of the revenue sharing arrangements is to provide
ongoing incentives for the managers of the Affiliates. The revenue sharing
arrangements are designed to allow each Affiliate's managers to participate in
that firm's growth (through their compensation paid out of the Operating
Allocation and their ownership of a portion of the Owners' Allocation) and to
make operating expenditures freely within the limits of the Operating
Allocation. The portion of the Operating Allocation that is not used to pay
salaries and other operating expenses (the "Excess Operating Allocation") is
available for payment to the managers and other key employees of such Affiliate
in the form of bonuses. The managers of each Affiliate thus have an incentive to
increase revenues (thereby increasing the Operating Allocation) and control
expenses (thereby increasing the Excess Operating Allocation). The ownership by
an Affiliate's management of a portion of the Affiliate, which entitles them to
a portion of the Owners' Allocation, provides a further incentive to managers of
each Affiliate to increase revenues.
The revenue sharing arrangements allow AMG to participate in the growth of
revenues of each Affiliate, because as revenues increase, the Owners' Allocation
also increases. However, the Company participates in that growth to a lesser
extent than the managers of the Affiliate, because AMG does not participate in
the growth of the Operating Allocation.
The portion of each Affiliate's revenues which is included in its Operating
Allocation and retained by it to pay salaries, bonuses and other operating
expenses, as well as the portion of each Affiliate's revenues which is included
in its Owners' Allocation and distributed to AMG and the other owners of the
Affiliate, are both included as "revenues" on the Company's Consolidated
Statements of Operations. The expenses of each Affiliate which are paid out of
the Operating Allocation, as well as the holding company expenses of AMG which
are paid by the Company out of the amounts of the Owners' Allocation which AMG
receives from the Affiliates, are both included in Operating Expenses on the
Company's Consolidated Statements of Operations. The portion of each Affiliate's
Owners' Allocation which is allocated to owners of the Affiliates other than the
Company is included in "minority interest" on the Company's Consolidated
Statements of Operations.
26
<PAGE> 28
The following diagram depicts the allocation of the Affiliates' revenues.
[Description of Flow Diagram:]
[Diagram demonstrating the flow of revenues from an Affiliate to the
Company, to management owners of the Affiliate, and to pay operating expenses of
the Affiliate.]
[Diagram begins on the left side of the page with a square with "Affiliate"
written inside; an arrow moves from left to right, beginning on the right side
of the square, and connects to a rectangle entitled "Revenue Sharing
Agreement".]
[Two arrows originate from the right side of the "Revenue Sharing
Agreement" rectangle; one arrow begins at the top right corner and moves
diagonally upwards to the right to an oval shape with "Operating Allocation"
written inside; the bottom arrow moves diagonally downwards to the right from
the lower right corner of the rectangle and connects to an oval shape with
"Owners' Allocation" written inside.]
[Two arrows originate from the right side of the oval titled "Operating
Allocation"; one arrow moves diagonally upwards and to the right and connects
with another oval shape entitled "Salary and Bonuses to Employees; Other
Operating Expenses"; the second arrow, with the words "Excess Operating
Allocation" written on the arrow, moves diagonally downwards and to the right to
a rectangle entitled "Affiliate Management Equity Holders".]
[The "Owners' Allocation" oval has two arrows originating on the right
side; one arrow, with the words "Owners' Allocation" written on it, moves
diagonally upwards and to the right and connects to the rectangle called
"Affiliate Management Equity Holders" described above; the second arrow, with
the words "Owners' Allocation" written on it, moves diagonally downwards and to
the right and connects to a pennant-shaped symbol with "AMG" written inside.]
The EBITDA Contribution of an Affiliate represents the Owners' Allocation
of that Affiliate allocated to AMG before interest, taxes, depreciation and
amortization of that Affiliate. EBITDA Contribution does not include holding
company expenses of AMG.
The Affiliates' revenues are derived from the provision of investment
management services for fees. Investment management fees are usually determined
as a percentage fee charged on periodic values of a client's assets under
management. Certain of the Affiliates, including Tweedy, Browne, bill advisory
fees for all or a portion of their clients based upon assets under management
valued at the beginning of a billing period ("in advance"). Other Affiliates
bill advisory fees for all or a portion of their clients based upon assets under
management valued at the end of the billing period ("in arrears"). Advisory fees
billed in advance will not reflect subsequent changes in the market value of
assets under management for that period. Conversely, advisory fees billed in
arrears will reflect changes in the market value of assets under management for
that period. In addition, several of the Affiliates charge performance-based
fees to certain of their clients; these performance-based fees result in
payments to the applicable Affiliate if specified levels of investment
performance are achieved. All references to "assets under management" include
assets directly managed as well as assets underlying overlay strategies which
employ futures, options or other derivative securities to achieve a particular
investment objective.
The Company's level of profitability will depend on a variety of factors
including principally: (i) the level of Affiliate revenues, which is dependent
on the ability of the Affiliates and future affiliates to maintain or increase
assets under management by maintaining their existing investment advisory
relationships and fee structures, marketing their services successfully to new
clients, and obtaining favorable investment results; (ii) the receipt of Owners'
Allocation, which is dependent on the ability of the Affiliates and future
affiliates to maintain certain levels of operating profit margins; (iii) the
availability and cost of the capital with which AMG finances its investments;
(iv) the Company's success in attracting new investments and the terms upon
which such transactions are completed; (v) the level of intangible assets and
the associated amortization resulting from the Company's
27
<PAGE> 29
investments; (vi) the level of expenses incurred by AMG for holding company
operations, including compensation for its employees; and (vii) the level of
taxation to which the Company is subject, all of which are, to some extent,
dependent on factors which are not in the Company's control, such as general
securities market conditions.
Since its founding in December 1993, the Company has completed ten
investments in Affiliates. In September and October 1997, the Company completed
investments in GeoCapital and Tweedy, Browne, respectively. The Company also
made investments during 1996 and 1997 in First Quadrant (March 1996), Burridge
(December 1996) and Gofen and Glossberg (May 1997). The Tweedy, Browne
Investment is the Company's largest to date, representing 52% of the Affiliates'
pro forma EBITDA Contribution for the six months ended June 30, 1997.
In the Tweedy, Browne Investment, AMG paid $300 million in cash for a 71.2%
interest in Tweedy, Browne's Owners' Allocation. In August 1997, when the
Tweedy, Browne purchase agreement was executed, AMG's interest represented an
estimated $30 million of annualized EBITDA Contribution based on Tweedy,
Browne's assets under management as of such date. There can be no assurance that
the actual EBITDA Contribution of Tweedy, Browne will equal this estimate. On a
pro forma basis for the year ended December 31, 1996 and the six months ended
June 30, 1997, Tweedy, Browne's EBITDA Contribution was approximately $21.4
million and $12.8 million, respectively.
The remaining portion of the firm's Owners' Allocation is owned by the
senior management of Tweedy, Browne, including Christopher H. Browne, William H.
Browne, and John D. Spears (collectively, the "Original Partners"). In
connection with the transaction, the Original Partners signed ten year
employment agreements with Tweedy, Browne. In addition, the Original Partners
agreed to invest $100 million of the sale proceeds in accounts under Tweedy,
Browne's management for a ten year period, bringing the total assets of the
Original Partners, former partners and employees of Tweedy, Browne and their
respective families under management by the firm to over $300 million (although
no fees are paid with respect to most of these assets under management and,
other than the $100 million described above, there is no requirement that such
funds remain under the management of the firm).
Pursuant to the Tweedy, Browne Company LLC Limited Liability Company
Agreement (the "Tweedy, Browne LLC Agreement"), the management members have
certain rights to require the Company to purchase their retained interests in
the firm (the "Tweedy, Browne Puts") and AMG has certain rights to require
management members to sell their retained interest in the firm (the "Tweedy,
Browne Calls"). For the Original Partners, the Tweedy, Browne Puts are
exercisable beginning in 2003, with the maximum aggregate percentage of the
retained interest which may be sold in any year limited to 2.5% of the firm
until 2008, when all of the Original Partners' remaining interests are eligible
to be put to AMG. The Tweedy, Browne Calls are exercisable with respect to each
management member after they reach a certain defined age, and are limited in any
one year to 20% of the maximum interests held by each person. The Tweedy, Browne
LLC Agreement provides that, except in limited circumstances (e.g., death or
disability), if an Original Partner (or other management member) terminates his
employment prior to the agreed upon retirement eligibility date, his interest
will be repurchased at a substantial discount to the Fair Value Purchase Price.
See "Business -- AMG Structure and Relationship with
Affiliates -- Capitalization of Retained Interest". In a separate provision of
the Tweedy, Browne LLC Agreement, the Original Partners agreed to provide for an
8% interest in the firm to be sold to key employees over the five years
following AMG's investment (in addition to 2% which was sold to such employees).
These employees will be granted Tweedy, Browne Puts with respect to one half of
their interest which will be exercisable beginning five years after their
issuance subject to annual limitations.
The Company's investments, including the Tweedy, Browne Investment, have
been accounted for under the purchase method of accounting under which goodwill
is recorded for the excess of the
28
<PAGE> 30
purchase price for the acquisition of interests in Affiliates over the fair
value of the net assets acquired, including acquired client relationships.
As a result of the series of investments made by the Company, intangible
assets (goodwill and acquired client relationships) constitute a substantial
percentage of the assets of the Company and the Company's results of operations
have included increased charges for amortization of those intangible assets. As
of June 30, 1997, the Company's total assets, on a pro forma basis for the
inclusion of the Subsequent Investments, were approximately $452.8 million, of
which approximately $143.7 million consisted of "acquired client relationships"
and $254.4 million consisted of "goodwill" (acquired client relationships and
goodwill are collectively referred to as "intangible assets"). The amortization
period for intangible assets from each investment is assessed individually, with
amortization periods for the Company's investments to date, including the
Subsequent Investments occurring after June 30, 1997, ranging from 9 to 26 years
in the case of acquired client relationships and 15 to 35 years in the case of
goodwill. In determining the amortization period for intangible assets acquired,
the Company considers a number of factors including: the firm's historical and
potential future operating performance; the firm's historical and potential
future rates of attrition among clients; the stability and longevity of existing
client relationships; the firm's recent, as well as long-term, investment
performance; the characteristics of the firm's products and investment styles;
the stability and depth of the firm's management team and the firm's history and
perceived franchise or brand value. The Company continuously evaluates all
components of intangible assets to determine whether there has been any
impairment in its carrying value or its useful life. The Company makes such
evaluations quarterly on an Affiliate-by-Affiliate basis to assess if facts and
circumstances exist which suggest an impairment has occurred in the value of the
intangible assets or if the amortization period needs to be shortened. If such a
condition exists, the Company will evaluate the recoverability of the intangible
asset by preparing a projection of the undiscounted future cash flows of the
Affiliate. If impairment is indicated, then the carrying amount of intangible
assets, including goodwill, will be reduced to their fair values. See "Risk
Factors -- Risks Related to Write-Offs of Acquired Client Relationships and
Goodwill".
While amortization of intangible assets has been charged to the results of
operations and is expected to be a continuing material component of the
Company's operating expenses, management believes it is important to distinguish
this expense from other operating expenses since such amortization does not
require the use of cash. Because of this, and because the Company's
distributions from its Affiliates are based on their Owners' Allocation,
management has provided additional supplemental information in this Prospectus
for "cash" related earnings, as an addition to, but not as a substitute for,
measures related to net income. Such measures are (i) EBITDA, which the Company
believes is useful to investors as an indicator of the Company's ability to
service debt, make new investments and meet working capital requirements, and
(ii) cash net income, which the Company believes is useful to investors as
another indicator of funds available to the Company, which may be used to make
new investments, repay debt obligations, repurchase shares of Common Stock or
pay dividends on Common Stock.
RESULTS OF OPERATIONS
SUPPLEMENTAL PRO FORMA INFORMATION
Affiliate operations are included in the Company's historical financial
statements from their respective dates of acquisition. The Company consolidates
Affiliates when it owns a controlling interest and includes in minority interest
the portion of capital and Owners' Allocation owned by persons other than the
Company. One of the Company's Affiliates, Paradigm, is not controlled by the
Company and is accounted for under the equity method.
Because the Company has made investments in each of the periods for which
financial statements are presented, the Company believes that the operating
results for these periods are not directly comparable. Substantially all of the
changes in the Company's income, expense and balance sheet categories result
from the inclusion of the acquired businesses from the dates of their
acquisition.
29
<PAGE> 31
The Unaudited Pro Forma Consolidated Statements of Operations appearing
elsewhere in this Prospectus present the results of operations of the Company
for the year ended December 31, 1996 and the six months ended June 30, 1997, as
if the Prior Investments, the Subsequent Investments, the Recent Financing, the
Recapitalization and the sale of Common Stock offered in the Offerings and the
application of the net proceeds therefrom had occurred on January 1, 1996
(without any cumulative effect). The Unaudited Pro Forma Consolidated Balance
Sheet reflects the Subsequent Investments and the Recent Financing as if they
had occurred on June 30, 1997. Such Pro Forma Consolidated Financial Statements
are based on the historical financial information of the Subsequent Investments
and have been adjusted to reflect the new cost basis of net assets acquired and
such other adjustments as further described in the Notes to the Unaudited Pro
Forma Consolidated Financial Statements. The Unaudited Pro Forma Consolidated
Financial Statements are not necessarily indicative of the results that would
have occurred had the transactions occurred on the dates indicated or which may
be realized in the future.
The following table presents supplemental unaudited pro forma information
prepared on the same basis as the pro forma information appearing in the
Unaudited Pro Forma Consolidated Financial Statements described above. Such
information is provided to enhance the reader's understanding and evaluation of
the effects to the Company of the Tweedy, Browne Investment, the Company's
largest investment to date.
UNAUDITED PRO FORMA SUPPLEMENTAL INFORMATION(1)
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C>
Assets under Management -- at period end:
Tweedy, Browne....................................... $ 3,422 $ 4,564
Other Affiliates..................................... 24,325 36,608
--------- ---------
Total............................................. $ 27,747 $ 41,172
========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, 1996 ENDED JUNE 30, 1997
----------------- -------------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Revenues:
Tweedy, Browne....................................... $ 39,905 $ 23,681
Other Affiliates..................................... 81,094 41,881
--------- ---------
Total............................................. $ 120,999 $ 65,562
========= =========
Owners' Allocation(2):
Tweedy, Browne....................................... $ 26,623 $ 15,958
Other Affiliates(3).................................. 33,078 16,363
--------- ---------
Total............................................. $ 59,701 $ 32,321
========= =========
EBITDA Contribution(4):
Tweedy, Browne....................................... $ 21,374 $ 12,770
Other Affiliates(5).................................. 24,036 11,855
--------- ---------
Total............................................. $ 45,410 $ 24,625
========= =========
OTHER FINANCIAL DATA
Reconciliation of EBITDA Contribution to EBITDA:
Total EBITDA Contribution (as above)................. $ 45,410 $ 24,625
Less holding company expenses........................ (5,602) (4,134)
--------- ---------
EBITDA............................................... 39,808 20,491
--------- ---------
Cash net income(6)..................................... 7,395 4,150
Cash flow from operating activities.................... 8,736 12,047
Cash flow used in investing activities................. (358,844) (326,892)
Cash flow from financing activities.................... 350,624 327,107
</TABLE>
30
<PAGE> 32
- ---------------
(1) All amounts are pro forma for the inclusion of the Prior Investments and the
Subsequent Investments as if such transactions occurred on January 1, 1996.
See Notes to Unaudited Pro Forma Consolidated Financial Statements.
(2) Owners' Allocation represents the portion of an Affiliate's revenues which
is allocated to the owners of that Affiliate, including AMG, generally in
proportion to their ownership interest, pursuant to the revenue sharing
agreement with such Affiliate. The Company believes that the Owners'
Allocation may be useful to investors as an indicator of the revenues an
Affiliate has available for distribution to the Company. Owners' Allocation,
as calculated by the Company, may not be consistent with comparable
computations of Owners' Allocation by other companies with revenue sharing
agreements.
(3) No Affiliate other than Tweedy, Browne accounted for more than 11% and 12%
of Owners' Allocation for the periods ended December 31, 1996 and June 30,
1997, respectively. No single client relationship accounted for more than 3%
of Owners' Allocation for the six months ended June 30, 1997.
(4) EBITDA Contribution represents the portion of an Affiliate's revenues that
is allocated to the Company, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate.
EBITDA Contribution does not include holding company expenses. The Company
believes EBITDA Contribution may be useful to investors as an indicator of
each Affiliate's contribution to the Company's ability to service debt, to
make new investments and to meet working capital requirements. EBITDA
Contribution is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. EBITDA Contribution and
EBITDA, as calculated by the Company, may not be consistent with comparable
computations by other companies.
(5) No Affiliate other than Tweedy, Browne accounted for more than 16% and 18%
of EBITDA Contribution for the periods ended December 31, 1996 and June 30,
1997, respectively. No single client relationship accounted for more than 3%
of EBITDA Contribution for the six months ended June 30, 1997.
(6) Cash net income represents earnings after income taxes but before
depreciation and amortization and extraordinary items. The Company believes
cash net income may be useful to investors as another indicator of funds
available to the Company, which may be used to make new investments, repay
debt obligations, repurchase shares of Common Stock or pay dividends on
Common Stock. Cash net income, as calculated by the Company, may not be
consistent with computations of cash net income by other companies. Cash net
income is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
On a pro forma basis for the six months ended June 30, 1997 assets under
management increased $13.4 billion, or 48%, to $41.2 billion from $27.7 billion
at December 31, 1996.
Pro forma consolidated revenues were $65.6 million for the six months ended
June 30, 1997 while pro forma Owners' Allocation and pro forma EBITDA
Contribution were $32.3 million and $24.6 million for the same period,
respectively. Of the $24.6 million of EBITDA Contribution, $12.8 million was
related to Tweedy, Browne, while the remaining $11.9 million was related to the
other Affiliates.
Tweedy, Browne's EBITDA Contribution was based on revenues of $23.7 million
for the six months ended June 30, 1997 which were partially based upon advisory
fees billed in advance. For the other Affiliates, the $11.9 million of EBITDA
Contribution was based on revenues of $41.9 million for the six months ended
June 30, 1997. The consolidated pro forma EBITDA Contribution did not increase
proportionately to the increase in assets under management for the same period,
in part because the fees for Tweedy, Browne and certain other Affiliates were
billed in advance rather than in arrears.
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HISTORICAL
SIX MONTHS ENDED JUNE 30, 1997 AS COMPARED TO JUNE 30, 1996
As a result of the factors described below, the Company had net income of
$706,000 for the six months ended June 30, 1997 compared to a net loss of
$256,000 for the six months ended June 30, 1996. The Company's net loss for the
six months ended June 30, 1996 was due to a $983,000 extraordinary item related
to a write-off of debt issuance costs resulting from the early retirement of
debt.
Assets under management increased by $18.5 billion to $34.5 billion at June
30, 1997 from $16.0 billion at June 30, 1996 in part due to the investments made
in Burridge and Gofen and Glossberg which were completed in December 1996 and
May 1997, respectively. Excluding the initial assets under management of these
Affiliates at their dates of investment, assets under management increased by
$13.8 billion, as a result of $3.6 billion in market appreciation and $10.2
billion from net new sales.
Consolidated revenues increased by $13.4 million to $32.9 million for the
six months ended June 30, 1997 from $19.5 million for the six months ended June
30, 1996. Since June 30, 1996 the Company invested in Burridge in December 1996
and Gofen and Glossberg in May 1997 and included their results from their
respective purchase dates. In addition, the Company invested in First Quadrant
in March 1996 and its results were included in the results for the six months
ended June 30, 1996 from its purchase date. Revenues from these investments
accounted for $15.1 million of the increase in revenues from 1996 to 1997 and
were partially offset by a $2.0 million decline in revenues at Systematic
following a period during 1996 of net client asset withdrawals. Performance-
based fees, primarily earned by First Quadrant, increased by $4.5 million to
$7.5 million for the six months ended June 30, 1997 compared to the six months
ended June 30, 1996.
Compensation and related expenses increased by $3.3 million to $11.2
million for the six months ended June 30, 1997 from $7.9 million for the six
months ended June 30, 1996, primarily as a result of the inclusion of the First
Quadrant and Burridge investments.
Amortization of intangible assets increased by $369,000 to $2.0 million for
the six months ended June 30, 1997 from $1.7 million for the six months ended
June 30, 1996 as a result of the inclusion of the First Quadrant and Burridge
investments.
Selling, general and administrative expenses increased by $6.2 million to
$11.1 million for the six months ended June 30, 1997 from $4.9 million for the
six months ended June 30, 1996. The First Quadrant and Burridge investments
accounted for $5.7 million of this increase and the remainder was primarily due
to increases in other Affiliates' selling, general and administrative expense.
Other operating expenses increased by approximately $1.3 million to $2.1
million for the six months ended June 30, 1997 from $827,000 for the six months
ended June 30, 1996. The First Quadrant investment accounted for approximately
$700,000 of this increase and the remainder was primarily due to increases in
other Affiliates' operating expenses.
Minority interest increased by $1.3 million to $3.6 million for the six
months ended June 30, 1997 from $2.3 million for the six months ended June 30,
1996 as a result of the addition of new Affiliates as described above and the
Owners' Allocation growth at the Company's Affiliates.
EBITDA increased by $1.2 million to $5.2 million for the six months ended
June 30, 1997 from $4.0 million for the six months ended June 30, 1996 as a
result of the inclusion of new Affiliates as described above and revenue growth.
Interest expense increased $400,000 to $1.7 million for the six months
ended June 30, 1997 from $1.3 million for the six months ended June 30, 1996 as
a result of the increased indebtedness incurred in connection with the
investments described above.
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Income tax expense of $95,000 for the six months ended June 30, 1997
consisted of current provisions for state and local income taxes. For the six
months ended June 30, 1997, the Company did not accrue a current provision for
federal income taxes as a result of its utilization of historical net operating
loss carryforwards. The Company has significant remaining tax net operating loss
carryforwards resulting from prior periods of net losses from operations and
from accelerated amortization for tax purposes of certain intangible assets. The
Company has established a valuation allowance against its net deferred tax asset
resulting from historical net operating losses. As a result of the above, the
effective tax rate for the six months ended June 30, 1997 was 12%. For the six
months ended June 30, 1996, the Company recorded a net tax benefit of $22,000
related to the reversal of $216,000 of net deferred tax liabilities partially
offset by $194,000 of current state and local taxes.
Cash net income increased by $700,000 to $3.4 million for the six months
ended June 30, 1997 from $2.7 million for the six months ended June 30, 1996 as
a result of the factors affecting net income as described above, before non-cash
expenses such as amortization of intangible assets, depreciation and
extraordinary items of $2.7 million for the six months ended June 30, 1997 and
$2.9 million for the six months ended June 30, 1996.
YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net loss was $2.4 million for the year ended December 31, 1996 compared to
$2.9 million for the year ended December 31, 1995. The change was a result of
the higher operating income from Affiliates in 1996 which was offset by an
extraordinary item of $983,000 and higher depreciation and amortization,
interest and minority interest expenses resulting from the inclusion of certain
Affiliate results for a full year in 1996 compared to a partial period in 1995
and from the inclusion of First Quadrant's results from its acquisition date in
March 1996.
Assets under management increased by $14.5 billion to $19.1 billion at
December 31, 1996 from $4.6 billion at December 31, 1995, primarily as a result
of the investments made in First Quadrant and Burridge which were completed in
March 1996 and December 1996, respectively. Excluding the initial assets under
management of these Affiliates at their date of investment, assets under
management increased by $2.0 billion as a result of new sales of $495.0 million
and $1.5 billion in market appreciation.
Consolidated revenues increased $36.2 million to $50.4 million for the year
ended December 31, 1996 from $14.2 million for the year ended December 31, 1995.
Of this increase, $25.5 million was attributable to the investment in First
Quadrant in March 1996. In addition, for the year ended December 31, 1996, the
results of Systematic, Paradigm, Skyline and Renaissance were included for the
full period. Each of those Affiliates was only included for a portion of the
year ended December 31, 1995. Performance-based fees increased by $11.8 million
to $13.2 million for the year ended December 31, 1996 primarily due to the
inclusion of First Quadrant which earned performance fees of $11.5 million for
the period ended December 31, 1996. The Company completed its investment in
Burridge on December 31, 1996.
Compensation and related expenses increased $15.1 million to $21.1 million
for the year ended December 31, 1996 from $6.0 million for the year ended
December 31, 1995. Of this increase, $8.1 million was attributable to the
inclusion of First Quadrant. As noted above, for the year ended December 31,
1996, the expenses of each of Systematic, Skyline and Renaissance were included
for the full period. In addition, $1.1 million was attributable to the increased
compensation costs of AMG personnel, including the cost of new hires to support
the Company's growth.
The amortization of intangible assets increased by $3.9 million to $8.1
million for the year ended December 31, 1996 from $4.2 million for the year
ended December 31, 1995. Of this increase, approximately $700,000 was
attributable to the First Quadrant investment and $1.2 million was due to the
inclusion of the other recently acquired Affiliates for the full period. In the
year ended December 31, 1996, the Company also recognized an impairment loss of
$4.6 million in connection
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with its investment in Systematic which is included in amortization of
intangible assets. The loss reflects the write down of the Company's intangible
assets to its net realizable value following a period of net client asset
withdrawals. In the year ended December 31, 1995, AMG also recognized $2.5
million of impairment loss amortization in connection with its Hartwell
investment following a loss of client assets.
Selling, general and administrative expenses increased from $2.2 million
for the year ended December 31, 1995 to $10.9 million for the year ended
December 31, 1996 for the reasons stated above related to the periods of
inclusion in the results of operations of the new Affiliates and due to $1.8
million of higher selling, general and administrative expenses incurred by AMG
relating to its investment activities.
Other operating expenses increased from $330,000 for the year ended
December 31, 1995 to $2.3 million for the year ended December 31, 1996. This
$2.0 million increase was primarily due to the inclusion of operations for the
First Quadrant investment for nine months and the Renaissance investment for a
full year in 1996.
Minority interest increased by $3.5 million to $6.0 million for the year
ended December 31, 1996 from $2.5 million for the year ended December 31, 1995,
as a result of the addition of new Affiliates during the year and revenue growth
at the Company's Affiliates.
EBITDA increased $7.2 million to $10.5 million for the year ended December
31, 1996 from $3.3 million for the year ended December 31, 1995 as a result of
the inclusion of new Affiliates as described above and revenue growth.
Interest expense increased from $1.2 million for the year ended December
31, 1995 to $2.7 million for the year ended December 31, 1996. The increase in
the interest expense was due to the incurrence of $16.1 million of average bank
borrowings by the Company in connection with the Systematic, Paradigm, Skyline
and Renaissance transactions and $16.0 million of average bank borrowings
incurred in connection with the 1996 investment in First Quadrant for the nine
months ended December 31, 1996.
Income tax expense was $181,000 for the year ended December 31, 1996
compared to $706,000 for the year ended December 31, 1995. The Company did not
accrue a current provision for federal income taxes in 1996 as a result of its
utilization of net operating loss carryforwards. The net operating loss
carryforwards resulted from prior periods of net losses from operations. The
Company has established a valuation allowance against the resulting net deferred
tax asset. The effective tax rate for the year ended December 31, 1996 was 15%
compared to 32% for the year ended December 31, 1995. The 1995 provision for
taxes included $445,000 for state and local income taxes and $261,000 of federal
income taxes. The federal income tax provision included $201,000 of deferred
taxes for the effects of timing differences between the recognition of
deductions for book and tax purposes primarily related to the accelerated
amortization of certain intangible assets.
Cash net income increased by $6.2 million to $7.6 million for the year
ended December 31, 1996 from $1.4 million for the year ended December 31, 1995,
as a result of factors affecting net income as described above before non-cash
charges such as amortization of intangible assets, depreciation and
extraordinary items of $10.0 million for the year ended December 31, 1996 and
$4.3 million for the year ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 AS COMPARED TO DECEMBER 31, 1994
Net loss was $2.9 million for the year ended December 31, 1995 compared to
$206,000 for the year ended December 31, 1994. The change occurred as a result
of higher amortization of intangible assets and interest expense and was
partially offset by higher operating income from Affiliates.
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Assets under management increased by $3.8 billion to $4.6 billion at
December 31, 1995 from $755.0 million at December 31, 1994, primarily as a
result of the investments made in Systematic, Paradigm, Skyline and Renaissance
which were completed in May 1995, May 1995, August 1995 and November 1995,
respectively. Excluding the assets under management of these Affiliates at the
dates of investment, assets under management decreased by $21.6 million as a
result of net client out flows of $320.6 million and was partially offset by
$299.0 million of market appreciation.
Consolidated revenues increased $8.8 million to $14.2 million for the year
ended December 31, 1995 from $5.4 million for the year ended December 31, 1994.
Substantially all of this increase was attributable to investments in Affiliates
after December 31, 1994. In addition, for the year ended December 31, 1995, the
results of Hartwell were included for the full year. Hartwell, the only
Affiliate included in the results of operations for the year ended December 31,
1994, was acquired in a series of transactions in 1994. Performance fees were
$1.4 million for the year ended December 31, 1995. There were no performance
fees for the year ended December 31, 1994.
Compensation and related benefits expenses increased $2.4 million to $6.0
million for the year ended December 31, 1995 from $3.6 million for the year
ended December 31, 1994 due to the inclusion of the new Affiliates. In addition,
for the year ended December 31, 1995, the results of Hartwell were included for
the full year.
The amortization of intangible assets increased by $3.4 million to $4.2
million for the year ended December 31, 1995 from $774,000 for the year ended
December 31, 1994. Of this increase, $900,000, or 26%, was attributable to the
investments in Affiliates during the year ended December 31, 1995 and $2.5
million was attributable to an accelerated write-off of intangible assets for
the Hartwell investment following a loss of client assets.
Minority interest increased $2.2 million to $2.5 million for the year ended
December 31, 1995 from $305,000 for the year ended December 31, 1994, as a
result of the addition of new Affiliates during the year and revenue growth at
the Company's Affiliates.
EBITDA increased by $1.9 million to $3.3 million for the year ended
December 31, 1995 from $1.4 million for the year ended December 31, 1994 as a
result of the inclusion of new Affiliates as described above and revenue growth.
Interest expense increased $1.0 million to $1.2 million for the year ended
December 31, 1995 from $158,000 for the year ended December 31, 1994. The
increase in interest expense was due to the incurrence of additional
indebtedness by the Company in connection with the investments consummated
during 1995.
Income tax expense was $706,000 for the year ended December 31, 1995
compared to $699,000 for the year ended December 31, 1994. The tax provision for
1994 included $335,000 of federal income taxes primarily relating to Hartwell
prior to its inclusion in the Company's consolidated federal income tax return.
The remaining $364,000 of income taxes in 1994 related to state and local taxes,
primarily relating to Hartwell. The 1995 provision for taxes included $261,000
in federal income taxes including $201,000 in federal deferred taxes relating to
timing differences in connection with the recognition of deductions for
intangible assets.
Cash net income increased by approximately $800,000 to $1.4 million for the
year ended December 31, 1995 from $587,000 for the year ended December 31, 1994
as a result of factors affecting net income as described above before non-cash
charges such as amortization of intangible assets, depreciation and
extraordinary items of $4.3 million for the year ended December 31, 1995 and
$793,000 for the year ended December 31, 1994 and from the inclusion of
Affiliates for the whole period which were acquired during the previous year.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has met its cash requirements primarily through cash generated
by its operating activities, bank borrowings, and the issuance by the Company of
equity and debt securities in private placement transactions. See "Certain
Transactions". The Company anticipates that it will use cash flow from its
operating activities to repay debt and to finance its working capital needs and
will use bank borrowings and issue equity securities to finance future affiliate
investments. The Company's principal uses of cash have been to make investments
in Affiliates, to retire indebtedness, and to support the Company's and its
Affiliates' operating activities. The Company expects that its principal use of
funds for the foreseeable future will be for investments in additional
affiliates, repayments of debt, including interest payments on outstanding debt,
distributions of the Owners' Allocation to owners of Affiliates other than AMG,
additional investments in existing Affiliates including upon the exercise of
Puts (as defined herein) and for working capital purposes. The Company does not
expect to make commitments for material capital expenditures.
Net cash flow from operating activities was $6.2 million, $1.3 million and
$818,000 for the years ended December 31, 1996, 1995 and 1994, respectively, and
$8.7 million and $912,000 for the six months ended June 30, 1997 and 1996,
respectively.
Net cash flow used in investing activities was $29.2 million, $37.8 million
and $6.2 million for the years ended December 31, 1996, 1995 and 1994,
respectively. Of these amounts, $25.6 million, $38.0 million and $6.5 million,
respectively, were used to make investments in Affiliates. Net cash flow used in
investing activities was $11.8 million and $28.6 million for the six months
ended June 30, 1997 and 1996, respectively. Of these amounts, $10.9 million and
$25.5 million, respectively, were used to make investments in Affiliates.
At June 30, 1997 the Company had outstanding borrowings under its then
existing lines of credit of $48.9 million, all of which were subsequently repaid
in October 1997 with proceeds from the Credit Facility described below.
The Company completed its investments in Tweedy, Browne and GeoCapital
which required approximately $314.7 million in cash, of which approximately
$300.3 million (including transaction costs) was related to the Tweedy, Browne
Investment. See "Unaudited Pro Forma Consolidated Financial Statements".
The Company obtained the financing for the Subsequent Investments pursuant
to (i) borrowings under the Credit Facility (the "Senior Debt"), (ii) $60.0
million face amount of Subordinated Bridge Notes (the "Subordinated Debt") and
(iii) $30.0 million from the issuance of Class C Convertible Preferred Stock and
warrants to purchase Class C Convertible Preferred Stock (clauses (i) - (iii)
collectively, the "Recent Financing"). The Credit Facility includes $200.0
million in revolving credit with a 7-year maturity, $50.0 million of 7-year
Tranche A and $50.0 million of 8-year Tranche B term loans. Interest on the
$200.0 million revolving credit and the Tranche A term loan is based on LIBOR
plus up to 2.5% based upon the Company's ratio of Senior Debt to EBITDA
(adjusted for certain items). Interest on the Tranche B term loan is based upon
LIBOR plus a margin of 3%. The Subordinated Debt bears interest initially at
LIBOR plus 7.25% which margin increases by 1/2 of 1% every quarter to a maximum
cash paying rate of 15% and a maximum total interest rate of 17%. Interest
accruing above 15% will be added to the face amount of the Subordinated Debt.
The Tranche A and Tranche B term loans can be prepaid without penalty at
any time and the Subordinated Debt can be prepaid without penalty within six
months of its issuance out of proceeds from an initial public offering.
Principal repayments, if not otherwise retired from the proceeds of the
Offerings, are required on the term loans in aggregate semi-annual amounts of
$2.75 million during the first four years of the loans, $5.25 million during the
fifth and sixth years, $16.75 million during the seventh year and $11.75 million
during the eighth year.
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The Company intends to retire the Subordinated Debt and to repay
approximately $78.0 million of the $100.0 million of term loans under the Credit
Facility and to repay approximately $1.0 million of the revolving credit portion
of the Credit Facility with the net proceeds of the Offerings. As a result, upon
completion of the Offerings and the application of the net proceeds therefrom
and assuming the Company maintains compliance with certain financial ratios, the
Company will have approximately $206.3 million of indebtedness outstanding under
the Credit Facility, with approximately $15.7 million available under the Credit
Facility for future investments and working capital needs. The Company plans to
seek additional borrowing capacity to fund such needs through the replacement of
the existing Credit Facility with a new credit facility. There can be no
assurance, however, that the Company will succeed in obtaining all or any
portion of such replacement financing, and the Company cannot predict at this
time the terms of such financing, if obtained.
The Company's borrowings under the Credit Facility are collateralized by
pledges of all of its interests in Affiliates (including all interests in
Affiliates which are directly held by the Company, as well as all interests in
Affiliates which are indirectly held by the Company through wholly-owned
subsidiaries), representing in excess of 97% of the Company's assets at June 30,
1997 on a pro forma basis. The credit agreement (the "Credit Agreement")
evidencing the Credit Facility contains a number of negative covenants,
including those which prevent the Company and its Affiliates from: (i) incurring
additional indebtedness (with certain enumerated exceptions, including
additional borrowings under the Credit Facility and borrowings which constitute
Subordinated Indebtedness (as that term is defined in the Credit Agreement)),
(ii) creating any liens or encumbrances on any of their assets (with certain
enumerated exceptions), (iii) selling assets outside the ordinary course of
business or making certain fundamental changes with respect to the Company or
any of its subsidiaries, including a restriction on the Company's ability to
transfer interests in its subsidiaries if, as a result of such transfer, the
Company would own less than 51% of such subsidiary, and (iv) declaring or paying
dividends on the Common Stock of the Company. The Credit Agreement also requires
the Company to comply with certain financial covenants on an ongoing basis.
These include a covenant requiring minimum stockholders' equity of $36.0 million
(plus 85% of net proceeds from offerings of equity and Subordinated Indebtedness
(as such term is defined in the Credit Agreement) and 50% of quarterly net
income after the date of the Credit Agreement (subject to certain adjustments in
the case of any net losses)); a covenant requiring that Consolidated EBITDA (as
such term is defined in the Credit Agreement) exceed interest expense by 1.75 to
1.0 (rising to 2.25 in 1999 and 3.0 thereafter); and a covenant requiring that
senior debt not exceed Adjusted EBITDA (as such term is defined in the Credit
Agreement) during any trailing twelve-month period by more than 6.5 to 1.0
(declining to 4.5 on October 1, 1998 and 3.5 on June 30, 1999). As of the date
of this Prospectus, the Company remains in compliance with each of the foregoing
financial covenants. The Company's ability to borrow under the Credit Agreement
is conditioned upon its compliance with the requirements of that agreement, and
any non-compliance with those requirements could give rise to a default
entitling the lenders to accelerate all outstanding borrowings under that
agreement.
As part of the Recent Financing, the Company also issued to Chase Equity
Associates 5,333 shares of Series C-2 Non-Voting Convertible Preferred Stock and
warrants to purchase at nominal cost 28,000 shares of Series C-2 Non-Voting
Convertible Preferred Stock for aggregate cash consideration of $30.0 million.
As partial consideration in the GeoCapital investment, the Company issued 10,667
shares of Class D Convertible Preferred Stock valued at $9.6 million. See
"Certain Transactions".
Net cash flow from financing activities was $15.7 million, $46.4 million,
and $9.5 million for the years ended December 31, 1996, 1995 and 1994,
respectively, and was $9.6 million and $19.4 million for the six months ended
June 30, 1997 and 1996, respectively. The principal sources of cash from
financing activities has been from borrowings under senior credit facilities and
private placements of the Company's equity securities.
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The uses of cash from financing activities were for the repayment of bank
debt, repayment of notes issued as purchase price consideration and for payment
of debt issuance costs.
The Company's cash flows from equity issuances were $2.5 million, $30.0
million and $10.0 million for the years ended December 31, 1996, 1995 and 1994,
respectively, and $2.5 million for the six months ended June 30, 1996. The 1996
cash flows from equity issuances were from the issuance and sale of 3,703 shares
of Series B-1 Voting Convertible Preferred Stock in an exempt offering under
Rule 701(c) of the Securities Act of 1933, as amended (the "Securities Act"), to
officers, employees and consultants of Affiliates. The 1995 cash flows from
equity issuances were from 19,403 shares of Series B-2 Non-Voting Convertible
Preferred Stock sold to NationsBank for $13.0 million, 10,448 shares of Series
B-1 Voting Convertible Preferred Stock sold primarily to The Hartford and TA
Associates for an aggregate of $7.0 million, and 40,000 shares of Class A
Convertible Preferred Stock sold primarily to TA Associates for $10.0 million.
The 1994 cash flows from equity issuances were from 40,000 shares of Class A
Convertible Preferred Stock sold primarily to TA Associates.
In March 1996, the Company replaced its then-existing $50.0 million credit
facility with a $125.0 million credit facility (the "1996 Credit Facility"). The
1996 Credit Facility provided for borrowings to finance the Company's investment
activities and for limited amounts of working capital. The indebtedness under
the 1996 Credit Facility had a stated maturity of March 6, 2001, and accrued
interest at fluctuating rates based on the prime rate or LIBOR, plus a margin
ranging from 1.00% to 2.25% depending on the Company's Senior Debt to EBITDA
(adjusted for certain items), as selected by the Company in connection with each
borrowing under the 1996 Credit Facility. The 1996 Credit Facility was replaced
by the Credit Facility as part of the Recent Financing described above.
The Company estimates that it will have approximately $206.3 million in
outstanding indebtedness under the Credit Facility following the completion of
the Offerings and the application of the net proceeds therefrom. See
"Capitalization" and "Use of Proceeds".
In order to provide the funds necessary for the Company to continue to
acquire interests in investment management firms including its Affiliates upon
the exercise of Puts, it will be necessary for the Company to incur, from time
to time, additional long-term bank debt and/or issue equity or debt securities,
depending on market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
INTEREST RATE SENSITIVITY
The Company's revenues are derived almost exclusively from fees which are
based on the values of assets managed. Such values are affected by changes in
the broader financial markets which are, in part, affected by changing interest
rates. The Company cannot predict the effects that interest rates or changes in
interest rates may have on either the broader financial markets or its assets
under management and associated fees.
With respect to its debt financings, the Company is exposed to potential
fluctuations in the amount of interest expense resulting from changing interest
rates. The Company seeks to offset such exposure in part by entering into
interest rate hedging contracts. See "-- Interest Rate Hedging Contracts".
Assuming outstanding Senior Debt of $206.3 million after application of
proceeds of the Offerings, the Company's interest expense would increase or
decrease by $258,000 for each 1/8 of 1% change in interest rates assuming LIBOR
is between 5% and 6.67%.
INTEREST RATE HEDGING CONTRACTS
The Company seeks to offset its exposure under its debt financing
arrangements to changing interest rates by entering into interest rate hedging
contracts. As of October 15, 1997, the Company
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is a party, with two major commercial banks as counterparties, to $185.0 million
notional amount of swap contracts which are designed to limit interest rate
increases on the Company's borrowings and are linked to the three-month LIBOR.
The swap contracts, upon quarterly reset dates, cap interest rates on the
notional amounts at rates ranging between 6.67% and 6.78%. When LIBOR is at or
below 5%, the Company's floating interest rate debt is swapped for fixed rate
debt at rates ranging between 6.67% and 6.78%. The Company generally borrows at
LIBOR and pays an additional interest margin as described above. The hedging
contracts limit the effects of the Company's payment of interest at equivalent
LIBOR rates of 6.78% or less on up to $185.0 million of indebtedness. However,
there can be no assurance that the Company will continue to maintain such
hedging contracts at their existing levels of coverage or that the amount of
coverage maintained will cover all of the Company's indebtedness outstanding at
any such time. In addition, as noted above, the Company's existing hedging
contracts subject the Company to the risk of payments of higher interest rates
when prevailing LIBOR rates are at 5% or less. Therefore, there can be no
assurance that the hedging contracts will meet their overall objective of
reducing the Company's interest expense. In addition, there can be no assurance
that the Company will be successful in obtaining hedging contracts in the future
on any new indebtedness.
RECENT ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings Per Share
("FAS 128"). FAS 128 specifies the computation, presentation and disclosure
requirements for earnings per share. In June 1997, the FASB issued Statement of
Financial Standards No. 130, Reporting Comprehensive Income ("FAS 130"). FAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of
general-purpose financial statements. FAS 128 and FAS 130 are effective for
fiscal years beginning after December 15, 1997. Early application is permitted
for FAS 130 but not for FAS 128. If comparative financial statements are
presented for earlier periods, those statements must be restated to reflect the
application of FAS 128 and FAS 130. The Company intends to comply with the
disclosure requirements of these pronouncements in 1998.
ECONOMIC AND MARKET CONDITIONS
The financial markets and the investment management industry in general
have experienced record performance and record growth in recent years. For
example, between December 31, 1994 and June 30, 1997, the S&P 500 Index
appreciated at a compound annual rate in excess of 30% while, according to the
Federal Reserve Board and the Investment Company Institute, aggregate assets
under management of mutual and pension funds grew at a compound annual rate
approaching 20%. The financial markets and businesses operating in the
securities industry, however, are highly volatile and are directly affected by,
among other factors, domestic and foreign economic conditions and general trends
in business and finance, all of which are beyond the control of the Company.
There can be no assurance that broader market performance will be favorable in
the future. Any decline in the financial markets or a lack of sustained growth
may result in a corresponding decline in performance by the Affiliates and may
adversely affect assets under management and/or fees at the Affiliate level,
which would reduce cash flow distributions to the Company.
INTERNATIONAL OPERATIONS
First Quadrant Limited is organized and headquartered in London, England.
In the future, the Company may seek to invest in other investment management
firms which are located and/or conduct a significant part of their operations
outside of the United States. There are certain risks inherent in doing business
internationally, such as changes in applicable laws and regulatory requirements,
difficulties in staffing and managing foreign operations, longer payment cycles,
39
<PAGE> 41
difficulties in collecting investment advisory fees receivable, political
instability, fluctuations in currency exchange rates, expatriation controls and
potential adverse tax consequences. There can be no assurance that one or more
of such factors will not have a material adverse effect on First Quadrant
Limited or other non-U.S. investment management firms in which the Company may
invest in the future and, consequently, on the Company's business, financial
condition and results of operations.
INFLATION
The Company does not believe that inflation or changing prices have had a
material impact on its results of operations.
40
<PAGE> 42
BUSINESS
OVERVIEW
AMG is an asset management holding company which acquires majority
interests in mid-sized investment management firms. The Company's strategy is to
generate growth through investments in new affiliates, as well as through the
internal growth of existing affiliated firms. With the completion of its
investment in Tweedy, Browne, the Company's most recent and largest investment
to date, AMG has grown since its founding in December 1993 to ten investment
management firms with over $40 billion in assets under management.
The Company was founded in December 1993 by William J. Nutt, the Company's
President, Chief Executive Officer and Chairman of the Board of Directors, and
TA Associates, a Boston-based private equity investment firm. Mr. Nutt has
extensive previous experience in the money management industry, including as
President of The Boston Company, a leading institutional asset manager,
administrator and adviser of mutual funds, and private banking institution.
AMG was established to address the succession and transition issues facing
the founders and principal owners of many mid-sized investment management firms.
Before AMG, succession planning alternatives for mid-sized firms were typically
limited to (i) internal transfers to firm employees (at prices generally below
fair market value), or (ii) the sale of 100% of the firm's equity, which often
failed to provide adequate incentives for succeeding management to grow the
firm.
AMG has developed an innovative transaction structure which it believes
addresses the succession planning needs of growing mid-sized investment
management firms. The Company believes that the AMG Structure appeals to target
firms for both financial and operational reasons:
- The AMG Structure allows owners of mid-sized investment management firms
to sell a portion of their interest, while ongoing management retains a
significant ownership interest, with the opportunity to realize value for
that interest in the future.
- The AMG Structure provides management of each Affiliate with autonomy
over the day-to-day operations of their firm, and includes a revenue
sharing arrangement which provides that a specified percentage of
revenues are retained to pay operating expenses at the discretion of the
Affiliate's management.
The Company believes that the AMG Structure distinguishes AMG from other
acquirors of investment management firms which generally seek to own 100% of
their target firms and, in many cases, seek to participate in the day-to-day
management of such firms. AMG believes that the opportunity for managers of each
Affiliate to realize the value of their retained equity interest makes the AMG
Structure particularly appealing to managers of firms who anticipate strong
future growth and provides those managers with an ongoing incentive to continue
to grow their firm.
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<PAGE> 43
AMG's Affiliates have achieved substantial internal growth in assets under
management. For the nine months ended September 30, 1997, the Affiliates
increased their assets under management 55%. Tweedy, Browne, AMG's largest
Affiliate, based on EBITDA Contribution*, achieved growth of 49% in assets under
management for the same period.
The table below depicts the pro forma change in the Company's assets under
management (assuming all Affiliates were included for the entire periods
presented).
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
------------ ----------------
(IN MILLIONS)
<S> <C> <C>
Assets under management -- beginning........................... $ 24,549 $ 27,747
Net new sales.................................................. 666 10,355
Market appreciation............................................ 2,532 3,070
------------ ----------------
Assets under management -- ending.............................. $ 27,747 $ 41,172
=========== =============
</TABLE>
The Affiliates manage assets across a diverse range of investment styles,
asset classes and client types, with significant participation in fast-growing
segments such as equities, global investments and mutual funds. For the six
months ended June 30, 1997, investments in equity securities represented 83% of
EBITDA Contribution, while global investments represented 36% of EBITDA
Contribution. For the same period, mutual fund assets represented 29% of EBITDA
Contribution. Other asset classes, including fixed income, represented 17% of
EBITDA Contribution; domestic investments represented 64% of EBITDA
Contribution; and institutional, high net worth and other client types
represented 71% of EBITDA Contribution for the same period. The three largest
Affiliate mutual funds, Tweedy, Browne American Value, Tweedy, Browne Global
Value and Skyline Special Equities, which represented approximately 95% of the
Company's total mutual fund assets under management at September 30, 1997, are
each rated "five stars", by Morningstar, Inc., and these funds' assets increased
122%, 60% and 111%, respectively, for the nine months ended September 30, 1997.
- ---------------
* EBITDA Contribution represents the portion of an Affiliate's revenues that is
allocated to the Company, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate. EBITDA
Contribution does not include holding company expenses. The Company believes
that EBITDA Contribution may be useful to investors as an indicator of each
Affiliate's contribution to the Company's ability to service debt, to make new
investments and to meet working capital requirements. EBITDA Contribution is
not a measure of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of operating performance or to cash flows from operating activities as
a measure of liquidity. EBITDA Contribution and EBITDA, as calculated by the
Company, may not be consistent with comparable computations by other
companies.
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<PAGE> 44
The following table provides the pro forma composition of the Company's
assets under management and relative EBITDA Contribution of the Affiliates for
the six months ended June 30, 1997.
PRO FORMA ASSETS UNDER MANAGEMENT AND EBITDA CONTRIBUTION(1)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
---------------------------------------------------------------
PERCENTAGE PERCENTAGE
OF TOTAL OF TOTAL
ASSETS UNDER ---------- EBITDA ----------
MANAGEMENT CONTRIBUTION
------------ --------------
(IN (IN THOUSANDS)
MILLIONS)
<S> <C> <C> <C> <C>
CLIENT TYPE:
Institutional........................ $ 33,136 80% $ 12,289 50%
Mutual fund.......................... 2,802 7 7,097 29
High net worth....................... 4,667 12 3,652 15
Other................................ 567 1 1,587 6
-------- --- -------- ---
Total........................... $ 41,172 100% $ 24,625 100%
======== === ======== ===
ASSET CLASS:
Equity............................... $ 21,262 52% $ 20,395 83%
Fixed income......................... 2,741 7 1,172 5
Tactical asset allocation............ 17,169 41 3,058 12
-------- --- -------- ---
Total........................... $ 41,172 100% $ 24,625 100%
======== === ======== ===
GEOGRAPHY:
Domestic investments................. $ 22,684 55% $ 15,726 64%
Global investments................... 18,488 45 8,899 36
-------- --- -------- ---
Total........................... $ 41,172 100% $ 24,625 100%
======== === ======== ===
OTHER FINANCIAL DATA:
Reconciliation of EBITDA Contribution to EBITDA:
Total EBITDA Contribution (as above)......................... $ 24,625
Less holding company expenses................................ (4,134)
--------
EBITDA....................................................... 20,491
--------
Cash net income(2)............................................. 4,150
Pro forma cash flow from operating activities.................. 12,047
Pro forma cash flow used in investing activities............... (326,892)
Pro forma cash flow from financing activities.................. 327,107
</TABLE>
- ---------------
(1) EBITDA Contribution represents the portion of an Affiliate's revenues that
is allocated to the Company, after amounts retained by the Affiliate for
compensation and day-to-day operating and overhead expenses, but before the
interest, tax, depreciation and amortization expenses of the Affiliate.
EBITDA Contribution does not include holding company expenses. The Company
believes that EBITDA Contribution may be useful to investors as an indicator
of each Affiliate's contribution to the Company's ability to service debt,
to make new investments and to meet working capital requirements. EBITDA
Contribution is not a measure of financial performance under generally
accepted accounting principles and should not be considered an alternative
to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. EBITDA Contribution and
EBITDA, as calculated by the Company, may not be consistent with comparable
computations by other companies.
(2) Cash net income represents earnings after income taxes but before
depreciation and amortization and extraordinary items. The Company believes
cash net income may be useful to investors as another indicator of funds
available to the Company, which may be used to make new investments, repay
debt obligations, repurchase shares of Common Stock or pay dividends on
Common Stock. Cash net income, as calculated by the Company, may not be
consistent with computations of cash net income by other companies. Cash net
income is not a measure of financial performance under generally accepted
accounting principles and should not be considered an alternative to net
income as a measure of operating performance or to cash flows from operating
activities as a measure of liquidity.
43
<PAGE> 45
On an historical basis, the Company had net income of $706,000 and net loss
after extraordinary item of $256,000 for the six months ended June 30, 1997 and
1996, respectively, a net loss after extraordinary item of $2.4 million for the
year ended December 31, 1996 and a net loss of $2.9 million for the year ended
December 31, 1995.
THE INDUSTRY
ASSETS UNDER MANAGEMENT
The investment management sector is one of the fastest growing sectors in
the financial services industry. According to U.S. Federal Reserve "Flow of
Funds Account" data, from 1986-1996, mutual fund assets under management grew at
a compound annual growth rate of approximately 25.3%, while the aggregate assets
managed on behalf of pension funds increased at a compound annual growth rate of
approximately 11.9%. These assets, which totaled over $8.6 trillion in 1996,
represent only a portion of the funds available for investment management. In
addition, substantial assets are managed on behalf of individuals in separate
accounts, for foundations and endowments, as a portion of certain insurance
contracts such as variable annuity plans and on behalf of corporations and other
financial intermediaries. The Company believes that demographic trends and the
ongoing disintermediation of bank deposits and life insurance reserves will
result in continued growth of the investment management industry.
INVESTMENT ADVISERS
The growth in industry assets under management has resulted in a
significant increase in the number of investment management firms within AMG's
principal targeted size range of $500 million to $10.0 billion of assets under
management. Within this size range, the Company has identified over 1,000
investment management firms in the United States, and over 200 additional
investment management firms in Canada, the United Kingdom and in other European
and Asian countries. AMG believes that, in the coming years, a substantial
number of investment opportunities will arise as founders of such firms approach
retirement age and begin to plan for succession. The Company also anticipates
that there will be significant additional investment opportunities among firms
which are currently wholly-owned by larger entities. AMG believes that it is
well positioned to take advantage of these investment opportunities because it
has a management team with substantial industry experience and expertise in
structuring and negotiating transactions, as well as a highly organized process
for identifying and contacting investment prospects.
HOLDING COMPANY OPERATIONS
AMG's management performs two primary functions: (i) implementing the
Company's strategy of growth through acquisitions of interests in prospective
affiliates; and (ii) supporting, enhancing, and monitoring the activities of the
existing Affiliates.
ACQUISITION OF INTERESTS IN PROSPECTIVE AFFILIATES
The acquisition of interests in new affiliates is a primary element of
AMG's growth strategy. AMG management is responsible for each step in the new
investment process, including identification and contact of potential
affiliates, and the valuation, structuring and negotiation of transactions. In
general, the Company seeks to initiate its contacts with potential affiliates on
an exclusive basis and does not actively seek to participate in competitive
auction processes or employ investment bankers or finders. Of the Company's ten
Affiliates, three were represented by investment bankers while the remaining
seven were transactions initiated by AMG management.
AMG's management identifies and develops relationships with promising
potential affiliates based on a thorough understanding of its principal target
universe, mid-sized investment management firms. Using its proprietary database
- -- comprised of data from third party vendors, public and industry sources, and
AMG research -- AMG screens and prioritizes prospects within its target
universe. AMG also utilizes the database to monitor the level and frequency of
interaction with
44
<PAGE> 46
potential affiliates. AMG's database and contact management system enhances the
Company's ability to identify promising potential affiliates and to develop and
maintain relationships with these firms.
AMG's management seeks to increase awareness of AMG's approach to investing
by sending periodic mailings to 5,000 individuals involved in the industry and
by actively participating in conferences and seminars related to succession
planning for investment management firms. Such activities lead to a substantial
number of unsolicited calls to AMG by firms which are considering succession
planning issues. In addition, AMG management maintains an active calling program
in order to develop relationships with prospective affiliates. In the past two
years, AMG management has had discussions with over 400 firms, including visits
to over 300 of these firms. The Company believes that it has established ongoing
relationships with a substantial number of firms which will be considering
succession planning alternatives in the future.
Once discussions with a target firm lead to transaction negotiations, AMG's
management team performs all of the functions related to the valuation,
structuring, and negotiation of the transaction. The Company's management team
includes professionals with substantial experience in mergers and acquisitions
of investment management firms.
Upon the negotiation and execution of definitive agreements, the firm
contacts its clients to notify them and seek their consent to the transaction
(which constitutes an assignment of the firm's investment advisory contracts) as
required by the Investment Advisers Act and, with respect to mutual fund
clients, seeks new contracts (as required by the Investment Company Act) through
a proxy process.
AFFILIATE SUPPORT
In addition to its new investment efforts, AMG seeks to support and enhance
the growth and operations of its Affiliates. AMG believes that the management of
each Affiliate is in the best position to assess its firm's needs and
opportunities, and that the autonomy and culture of each Affiliate should be
preserved. However, when requested by Affiliate management, AMG provides
strategic, marketing, and operational assistance. The Company believes that
these support services are attractive to the Affiliates because such services
otherwise may not be as accessible or as affordable to mid-sized investment
management firms.
In addition to the diverse industry experience and knowledge of AMG's
senior management, AMG maintains relationships with numerous consultants whose
specific expertise enhances AMG's ability to offer a wide range of assistance.
Specific Affiliate support initiatives have included: new product development,
marketing material development, institutional sales assistance, recruiting,
compensation evaluation, regulatory compliance audits, client satisfaction
surveys, and evaluation of acquisitions of other firms by Affiliates. The
Company also endeavors to negotiate discounted pricing on products and services
useful to the operations of the Affiliates. For example, AMG has arranged
discounts on services such as sales training seminars, sponsored conferences,
public relations services, audit and tax services, insurance, and retirement
benefits.
Where appropriate, AMG may assist Affiliates by facilitating access to the
various resources and distribution channels of AMG's institutional investors, TA
Associates, NationsBank, The Hartford, and Chase Equity Associates. For example,
one of Skyline's mutual funds is made available through the NationsBanc
Investments, Inc. no-load mutual fund program. Similarly, The Hartford has
provided initial "seed capital" for new products at Systematic and Skyline, as
well as made certain fund products available for sale to clients of its
retirement planning programs. In addition, TA Associates, which in the past has
introduced opportunities for new affiliate investments to the Company, has also
introduced certain of the Affiliates to a number of large pension plans and
endowments which are limited partners of various private equity funds sponsored
by TA Associates.
45
<PAGE> 47
AMG STRUCTURE AND RELATIONSHIP WITH AFFILIATES
As part of AMG's investment structure, each of the Affiliates is (and the
Company believes that each future affiliate will be) organized as a separate and
largely autonomous limited liability company or partnership. Each Affiliate
operates under its own limited liability company agreement or partnership
agreement (such Affiliate's "organizational document"), which includes
provisions regarding the use of the Affiliate's revenues and the management of
the Affiliate. The organizational document of each Affiliate also gives
management owners the ability to realize the value of their retained equity
interests in the future.
OPERATIONAL AUTONOMY OF AFFILIATES
The management provisions in each organizational document are jointly
developed by AMG and the Affiliate's senior management at the time AMG makes its
investment. These provisions, while varying among Affiliates, provide for
delegation to the Affiliate's management team of the power and authority to
carry on the day-to-day operation and management of the Affiliate, including
matters relating to personnel, investment management policies and fee
structures, product development, client relationships and employee compensation
programs. AMG does, however, retain the authority to prevent certain specified
types of actions which AMG believes could adversely affect cash distributions to
AMG. For instance, none of the Affiliates may incur material indebtedness
without the consent of AMG. AMG itself does not manage investments for clients,
does not provide any investment management services and is not registered as an
investment adviser under federal or state law.
REVENUE SHARING ARRANGEMENTS
AMG has a revenue sharing arrangement with each Affiliate which is
contained in the organizational documents of that Affiliate. Each such
arrangement allocates a specified percentage of revenues (typically 50-70%) for
use by management of that Affiliate in paying operating expenses of the
Affiliate, including salaries and bonuses (the "Operating Allocation"). The
remaining portion of revenues of the Affiliate (typically 30-50%) is allocated
to the owners of that Affiliate (including AMG), generally in proportion to
their ownership of the Affiliate. The Company defines the portion of revenues
that is allocated to the owners of each Affiliate as the "Owners' Allocation"
because it is the portion of both revenues and cash flow which the Affiliate's
management is prohibited from spending on operating expenses (under the
Affiliate's organizational document) without the prior consent of AMG.
One of the purposes of the revenue sharing arrangements is to provide
ongoing incentives for the managers of the Affiliates. The revenue sharing
arrangements are designed to allow each Affiliate's managers to participate in
their firm's growth (through their compensation from the Operating Allocation
and their ownership of a portion of the Owners' Allocation) and to make
operating expenditures freely within the limits of the Operating Allocation. The
portion of the Operating Allocation that is not used to pay salaries and other
operating expenses (the "Excess Operating Allocation") is available for payment
to the managers and other key employees of such Affiliate in the form of
bonuses. The managers of each Affiliate thus have an incentive to both increase
revenues (thereby increasing the Operating Allocation) and to control expenses
(thereby increasing the Excess Operating Allocation). The ownership by an
Affiliate's management of a portion of the Affiliate, which entitles them to a
portion of the Owners' Allocation, provides a further incentive to managers of
each Affiliate to increase revenues.
The revenue sharing arrangements allow AMG to participate in the growth of
revenues of each Affiliate, because as revenues increase, the Owners' Allocation
also increases. However, the Company participates in that growth to a lesser
extent than the managers of the Affiliate, because AMG does not participate in
the growth of the Operating Allocation. In addition, according to the
organizational documents of the Affiliates, the allocations and distributions to
AMG generally take priority over the allocations and distributions to the
management owners of the Affiliates, to further
46
<PAGE> 48
protect the Company if there are any expenses in excess of the Operating
Allocation of the Affiliate. Thus, if an Affiliate's expenses exceed its
Operating Allocation, the excess expenses first reduce the portion of the
Owners' Allocation allocated to the Affiliate's management owners, until that
portion is eliminated, and then reduce the portion allocated to AMG.
The following diagram depicts the allocation of the Affiliates' revenues.
[Description of Flow Diagram:]
[Diagram demonstrating the flow of revenues from an Affiliate to the
Company, to management owners of the Affiliate, and to pay operating expenses of
the Affiliate.]
[Diagram begins on the left side of the page with a square with "Affiliate"
written inside; an arrow moves from left to right, beginning on the right side
of the square, and connects to a rectangle entitled "Revenue Sharing
Agreement".]
[Two arrows originate from the right side of the "Revenue Sharing
Agreement" rectangle; one arrow begins at the top right corner and moves
diagonally upwards to the right to an oval shape with "Operating Allocation"
written inside; the bottom arrow moves diagonally downwards to the right from
the lower right corner of the rectangle and connects to an oval shape with
"Owners' Allocation" written inside.]
[Two arrows originate from the right side of the oval titled "Operating
Allocation"; one arrow moves diagonally upwards and to the right and connects
with another oval shape entitled "Salary and Bonuses to Employees; Other
Operating Expenses"; the second arrow, with the words "Excess Operating
Allocation" written on the arrow, moves diagonally downwards and to the right to
a rectangle entitled "Affiliate Management Equity Holders".]
[The "Owners' Allocation" oval has two arrows originating on the right
side; one arrow, with the words "Owners' Allocation" written on it, moves
diagonally upwards and to the right and connects to the rectangle called
"Affiliate Management Equity Holders" described above; the second arrow, with
the words "Owners' Allocation" written on it, moves diagonally downwards and to
the right and connects to a pennant-shaped symbol with "AMG" written inside.]
When AMG makes an investment in an Affiliate, the organizational document
of the Affiliate includes provisions which divide revenues of the firm into the
Owners' Allocation and the Operating Allocation by allocating a certain
percentage to the Operating Allocation and allocating a certain percentage to
the Owners' Allocation. Before agreeing to these allocations, AMG examines the
revenue and expense base of the firm and only agrees to a division of revenues
if AMG believes that the allocation to the Operating Allocation both (i) is
sufficient to provide for the payment of all operating expenses of the
Affiliate, including salaries and bonuses, and (ii) includes some Excess
Operating Allocation to provide a cushion against an increase in expenses, or a
decrease in revenues which is not accompanied by a corresponding decrease in
operating expenses. While the Company and its management have significant
experience in the asset management industry, there can be no assurance that the
Company will successfully anticipate changes in the revenue and expense base of
any firm and, therefore, no assurance that the agreed-upon allocation of
revenues to the Operating Allocation will be sufficient to pay for all operating
expenses, including salaries and bonuses of the Affiliate.
CAPITALIZATION OF RETAINED INTEREST
The incentive effect of retained equity is an integral part of the AMG
Structure. In order to maximize this incentive effect, the organizational
documents of each Affiliate (other than Paradigm) include various provisions for
the management owners of that Affiliate to periodically realize the equity value
they have created, by requiring the Company to purchase portions of their
interests in the Affiliate ("Puts"). In addition, the organizational documents
of certain of the Affiliates provide AMG with the ability to require the
management owners to sell portions of their interests in the Affiliate to AMG
("Calls"). Finally, the organizational documents of each Affiliate include
provisions
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<PAGE> 49
obligating each management owner to sell his or her remaining interests after
the termination of his or her employment with the Affiliate. Underlying all of
these provisions is AMG's basic philosophy that the Company should maintain an
ownership level in each Affiliate (and, conversely, the ownership level of
management of that Affiliate) within a range that the Company believes offers
the management of that Affiliate sufficient incentives to grow and improve their
business to create equity value for themselves.
The Puts are designed to let the management owners of an Affiliate realize
portions of the equity value they have created prior to their retirement. In
addition, as an alternative to simply purchasing all of a management owner's
interest in the Affiliate following the termination of his or her employment,
the Puts enable AMG to purchase additional interests in the Affiliates at a more
gradual rate. The Company believes that a more gradual purchase of interests in
Affiliates will make it easier for AMG to keep its ownership of each Affiliate
within a desired range, by transferring purchased interests in the Affiliate to
more junior members of that Affiliate's management. In most cases, the Puts do
not become exercisable for a period of several years from the date of AMG's
investment in an Affiliate, and once exercisable, are generally limited in the
aggregate to a percentage of a given management owner's ownership interests. The
most common formulation among all the Affiliates is that a management owner's
Puts (i) do not commence for five years from the date of AMG's investment (or,
if later, the date he or she purchased his or her interest in the Affiliate),
(ii) are limited, in the aggregate, to fifty percent of the interests he or she
holds in the Affiliate, and (iii) are limited, in any twelve-month period, to
ten percent of the greatest interest he or she held in the Affiliate. In
addition, the organizational documents of most Affiliates contain a limitation
on the maximum aggregate amount that management of any Affiliate may require AMG
to purchase pursuant to their Puts in any given twelve-month period. The
purchase price for Puts is based on a multiple of the Owners' Allocation of the
Affiliate at the time the Put is exercised, with the multiple having been
determined at the time AMG made its initial investment (the "Fair Value Purchase
Price").
The Calls are designed to provide the Company and management members of the
Affiliates with the assurance that a mechanism exists for AMG to facilitate a
certain degree of transition within the senior management team after an
agreed-upon period of time. While the Calls vary in each specific instance, in
all cases, the timing, mechanism and price are agreed upon when AMG makes its
investment, with the price generally being the Fair Value Purchase Price.
The organizational documents of each Affiliate provide that the management
owners will realize the remaining equity value they have created upon the
termination of their employment with the Affiliate. In general, upon a
management owner's retirement after an agreed-upon number of years, or upon his
or her earlier death, permanent incapacity or termination without cause (but
with AMG's consent), that management owner is required to sell to AMG (and AMG
is required to purchase from the management owner) his or her remaining
interests for the Fair Value Purchase Price. In general, if a management owner
quits early or is terminated for cause, his or her interests will be purchased
by AMG at a reduced multiple which represents a substantial discount to the Fair
Value Purchase Price, and if he or she quits or is terminated for cause within
the first several years following AMG's investment (or, if later, the date he or
she purchased his or her interest in the Affiliate) he or she generally receives
nothing for his or her retained interest.
To the extent of the proceeds of any key-man life insurance or lump-sum
disability insurance which are collected by an Affiliate upon the death or
permanent incapacity of a management owner, the Affiliate, rather than AMG,
would purchase that management owner's interests. A purchase by an Affiliate
would have the effect of ratably increasing the ownership percentage of AMG and
each of the remaining management owners, whereas the purchase by AMG only
increases AMG's ownership percentage. The organizational documents of most of
the Affiliates provide for the purchase of such insurance, to the extent
requested by AMG, with the premiums to be paid by all owners (including AMG and
management) as a deduction to the Owners' Allocation of the Affiliate.
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<PAGE> 50
In general, the organizational documents of each Affiliate provide the
management owners with the opportunity to receive the purchase price for Puts,
or sales upon termination of employment, in cash or in shares of Common Stock of
AMG. The most common formulation of the right to receive the purchase price in
shares of Common Stock of AMG is as follows: AMG will exchange a number of
shares of Common Stock as is equal in value to seventy-five percent of the
Owners' Allocation purchased in the transaction, multiplied by the multiple of
EBITDA at which AMG Common Stock is then trading in the public market.
The Company believes that its investment structure, which permits
management of each Affiliate to receive ownership interests in the Affiliate and
to have AMG purchase such interests in accordance with a predetermined pricing
formula, provides each Affiliate with an important incentive and recruiting
tool. The Company also believes that the AMG Structure, which allows individuals
to determine, within agreed upon limits, when to sell their interests and which
permits additional issuances to future generations of management of each
Affiliate, will enable the Affiliates to continue to grow as successive
generations of management assume control of their firm.
THE AFFILIATES
In general, the Affiliates derive revenues by charging fees to their
clients which are typically based on the market value of assets under
management. In some instances, however, the Affiliates may derive revenues from
fees based on investment performance.
AMG's Affiliates are listed below in alphabetical order. Unless otherwise
indicated, AMG holds a majority ownership interest in each such Affiliate.
<TABLE>
<CAPTION>
AMG'S
EQUITY OWNERSHIP ASSETS UNDER
PRINCIPAL DATE OF PERCENTAGE AS OF MANAGEMENT AS OF
AFFILIATE LOCATION(S) INVESTMENT SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
- ------------------ -------------- --------------- --------------------- ---------------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Burridge.......... Chicago December 1996 55.0% $ 1,514
First Quadrant.... Pasadena, CA; March 1996 66.2 24,559(1)
London
GeoCapital........ New York September 1997 60.0 2,375
Gofen and
Glossberg....... Chicago May 1997 55.0 3,626
Hartwell.......... New York May 1994 75.8 344
Paradigm.......... New York May 1995 30.0 1,871
Renaissance....... Cincinnati November 1995 66.7 1,463
Skyline........... Chicago August 1995 64.0 1,238
Systematic........ Fort Lee, NJ May 1995 90.7 1,003
Tweedy, Browne.... New York; October 1997 71.2 5,113
London
-------
Total........ $43,106
=======
</TABLE>
- ---------------
(1) Includes directly managed assets of $8.0 billion and $16.6 billion of assets
indirectly managed using overlay strategies ("overlay strategies") which
employ futures, options or other derivative securities to achieve a
particular investment objective. These overlay strategies are intended to
add incremental value to the underlying portfolios, which may or may not be
directly managed by First Quadrant, and generate advisory fees which are
generally at the lower end of the range of those generated by First
Quadrant's directly managed portfolios.
BURRIDGE
Burridge, founded in 1986, is a Chicago-based firm which specializes in the
management of mid-capitalization growth equity portfolios. Burridge's clients
include corporate, Taft-Hartley, and public pension plans, as well as
foundations, endowments and individuals. The firm applies its investment
strategy through a combination of separate accounts, regional and national
wrap-fee programs, and a recently introduced mutual fund. Burridge's management
team is led by Chairman, Richard M. Burridge, President and Chief Executive
Officer, John H. Streur, Jr., and Vice-Chairman, Kenneth M. Arenberg.
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<PAGE> 51
Burridge utilizes proven valuation disciplines to invest in
mid-capitalization stocks with superior projected earnings growth based upon
fundamental company analysis. Burridge concentrates its analysis on companies
which fit the following criteria: (i) a focus on one business line; (ii) an
increasing market share; (iii) a strong balance sheet; (iv) superior projected
earnings growth; and (v) a proven, shareholder-oriented management team.
Burridge constructs a fully invested portfolio of the 35 most attractive of such
companies prioritized on anticipated earnings growth relative to their
price/earnings ratios. On average, these securities are held for approximately
three years, resulting in a low turnover ratio.
FIRST QUADRANT
First Quadrant, one of the largest quantitative investment managers in the
world, specializes in asset allocation and style management on a global basis.
First Quadrant, L.P. is headed by Robert D. Arnott, its Chief Executive Officer,
a recognized leader in the field of quantitative investing, and its sister
company, First Quadrant Limited, is led by William A. R. Goodsall. First
Quadrant employs a highly disciplined quantitative methodology to guide its
investment strategy. First Quadrant seeks to add value by assessing relative
valuations across major segments of the portfolio: among asset classes, across
global markets, between equity styles, and in currency allocation.
First Quadrant's management pioneered the application of style management
strategies to the U.S. and major international equity markets. The firm has also
pioneered a global approach to tactical asset allocation, and the Company
believes it maintains a leading market share in these two products. First
Quadrant offers various tailored approaches in each of the following product
areas: U.S. tactical asset allocation; global tactical asset allocation
(developed and/or emerging markets); U.S. equity style management; global equity
style management (multi- or specific country strategies); currency management
strategies; and policy allocation control strategies.
With an emphasis on research and publishing, the firm applies advanced
information technology and artificial intelligence techniques to leverage
traditional econometric methods in building quantitative investment systems.
First Quadrant is also committed to continued innovation and product development
in applying these techniques to new markets and products. Coupled with First
Quadrant's management's focus on providing superior service to their large
institutional clients, this innovation and performance has led to significant
growth in First Quadrant's business. First Quadrant provides its services to
large domestic and international corporate and public entities and pension
plans. First Quadrant, L.P. has offices in Pasadena and Boston, while First
Quadrant Limited is based in London. First Quadrant also maintains joint
ventures with firms in Toronto, Tokyo and Paris.
GEOCAPITAL
Founded in 1979, GeoCapital invests in domestic small-capitalization
equities on behalf of corporations, retirement programs, foundations, high net
worth individuals and private partnerships. With principal offices in New York,
the firm is led by its Chairman and Chief Investment Officer, Irwin Lieber, and
its President, Barry K. Fingerhut.
GeoCapital's investment approach is to manage fully invested portfolios
which blend two kinds of stocks: "growth companies" that create, commercialize,
and market new technologies and services, and "special situation" companies with
undervalued or unrecognized assets or earnings. GeoCapital believes that the
combination of these two types of investments in a single portfolio can lessen
the market risks, while providing the superior returns of investing in small
companies. Utilizing their own independent fundamental analysis, GeoCapital's
management studies a company from the bottom up beginning with its strategic,
financial, and management strengths. Above all, GeoCapital evaluates and
monitors a company's management, both before and after an investment is made. A
typical investment is held for three to five years, to give either the growth or
special situation stock time to realize its inherent value.
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<PAGE> 52
GOFEN AND GLOSSBERG
Gofen and Glossberg is one of the oldest and most respected investment
counseling firms in the United States. Founded in 1932, the firm has a long
history of managing assets for prominent individuals, families, retirement
plans, foundations and endowments. Based in Chicago, the firm is led by its
President, William H. Gofen, and its Executive Vice President, Joseph B.
Glossberg.
Gofen and Glossberg custom tailors portfolios to meet the specific
financial goals of each client. With the perspective that comes from managing
client portfolios through numerous market cycles, Gofen and Glossberg takes a
longer term approach to portfolio management (typically three to five year
growth targets) in order to preserve capital while encouraging growth. Portfolio
managers at Gofen and Glossberg build investment portfolios around a solid
nucleus of common stocks and/or fixed income securities. The firm invests in
quality companies that have strong management, a dominant market share or
proprietary products and services, and growing income or cash flow.
HARTWELL
Founded in 1961, Hartwell is a New York-based growth stock manager, whose
clients include high net worth individuals, an offshore hedge fund and several
large private foundations. The management team is led by William C. Miller, IV.
Hartwell applies a fundamental, bottom-up approach to investing in stocks
of growth companies. The firm uses a disciplined stock selection process to
identify stocks of companies with strong fundamental characteristics and
exposure to longer term secular trends, which the portfolio managers believe can
lead to sales and earnings growth in excess of 20% per year.
Hartwell's investment professionals tailor portfolio construction to meet
specific client needs. On a standardized basis, Hartwell offers three products:
small-capitalization growth, medium-to large-capitalization growth and balanced
accounts.
PARADIGM
Paradigm is a leader in equity style management, with an investment
approach that combines passive management technology with active management
insights. Paradigm's sophisticated investment process typically begins by
identifying several portfolio management styles from a prototypical set of
active managers who exemplify certain risk and return characteristics of the
chosen styles. The process then takes the aggregate portfolios and, using a
sophisticated optimization model, arrives at a smaller portfolio of stocks with
risk and return characteristics that match the larger group. Paradigm offers six
styles which employ this investment process: large-capitalization growth;
large-capitalization value; mid-capitalization growth; mid-capitalization value;
small-capitalization growth; and small-capitalization value.
Based in New York, Paradigm is led by James E. Francis, President and Chief
Executive Officer. Paradigm has a diversified client list of public and private
endowments and Taft-Hartley plans. AMG holds less than a 50% ownership interest
in Paradigm, which is a minority-owned business.
RENAISSANCE
Based in Cincinnati, Ohio, Renaissance provides quantitatively-based
investment management strategies to a variety of institutional and individual
clients. The firm is led by managing directors Michael A. Schroer, Donald W.
Kennedy and Paul A. Radomski.
Renaissance employs a quantitative approach to its equity, fixed income,
and tactical allocation decisions. The stock selection decision is characterized
by companies that have a demonstrated ability in sustaining above-average levels
of profitability and below-average levels of debt. Valuation standards are
further applied to determine stock-price momentum and trends in a company's
earnings. Balanced and tactical asset allocation begins with a series of asset
allocation models which measure and consistently monitor the relative
attractiveness of cash, bonds, and equities.
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<PAGE> 53
The models then assign an expected capital return period for each asset class
which is the final measure of investment value.
Renaissance offers large-capitalization and small-capitalization growth and
American depositary receipt equity products in addition to balanced, tactical
asset allocation and fixed income strategies. The firm's dynamic and flexible
process allows the investment manager to customize portfolios to include
client-specific needs.
SKYLINE
Skyline is a Chicago-based firm which specializes in small-capitalization
and mid-capitalization value equities. Skyline manages assets for institutional
clients, as well as two no-load mutual funds, Skyline Special Equities and
Skyline Special Equities II. The firm is led by its President, William Dutton,
who was named Morningstar Portfolio Manager of the Year in 1992.
Skyline manages equities in three value-driven portfolio styles: Small Cap
Value, Small Cap Value II, and Skyline Select. The Small Cap Value approach
holds stocks of small-capitalization companies ($100 million to $700 million in
market capitalization). The Small Cap Value II approach holds stocks of
small-capitalization to mid-capitalization companies ($400 million to $2 billion
in market capitalization). The Skyline Select portfolios combines select
holdings of both the Small Cap Value and Small Cap Value II series ($100 million
to $2 billion in market capitalization). Each of these three strategies leads to
selections of stocks which have a low price to trailing earnings multiple
relative to the market, attractive earnings prospects (typically in the 10% to
20% per year range) as estimated by fundamental, in-house research, and are
under-followed by the broader marketplace.
SYSTEMATIC
Located in Fort Lee, New Jersey, Systematic manages assets on behalf of a
variety of corporations, jointly-trusteed and public pension funds as well as
for high net worth individuals, principally through wrap programs. Systematic is
led by its President, Charles J. Mohr, and its Chief Investment Officer
Gyanendra (Joe) Joshi. Systematic offers three products: core value equity,
small-capitalization value equity, and free cash flow value equity.
Systematic's core value equity investment approach begins with a
disciplined strategy of selecting large-capitalization, low price/earnings
stocks that have reported earnings in excess of consensus expectations. A
quantitative screen is applied and overlayed with intensive fundamental analysis
to create an equally weighted portfolio of approximately 50 to 60 stocks.
Systematic's small-capitalization value and free cash flow value equity
products quantify a firm's true free cash flow and then identify stocks that are
trading at a discount to the median market multiple of free cash flow.
Fundamental analysis is applied to a focused list of approximately 125 stocks
for the free cash flow product and 100 stocks for the small-capitalization value
product from which the portfolio managers select a portfolio of approximately 40
to 50 stocks.
TWEEDY, BROWNE
Tweedy, Browne is recognized as a leading practitioner of the
value-oriented investment approach first advocated by Benjamin Graham. Tweedy,
Browne manages domestic, international and global equity portfolios for
institutions, individuals, partnerships, and mutual funds. The firm, which is
the successor to Tweedy & Co., a brokerage firm founded in 1920, is led by
Christopher H. Browne, William H. Browne and John D. Spears. Based in New York,
the firm also maintains a research office in London.
Tweedy, Browne's investment philosophy is to invest in companies at a
substantial discount to their true business value. The firm does not attempt to
time markets or focus on particular market sectors, but rather emphasizes a
long-term, low turnover strategy grounded in individual stock selection.
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<PAGE> 54
Tweedy, Browne applies its value-oriented investment strategy to
international, as well as domestic equities, with global assets representing
approximately 43% of total assets under management at September 30, 1997. The
firm established its two no-load mutual funds, Tweedy, Browne American Value,
and Tweedy, Browne Global Value, in 1993. The funds, which are each rated "five
stars" by Morningstar, Inc., represent approximately 50% of Tweedy, Browne's
total assets under management at September 30, 1997.
COMPETITION
The Company operates as an asset management holding company organized to
invest in mid-sized investment management firms. The Company is aware of several
other holding companies which have been organized to invest in or acquire
investment management firms, and the Company views these firms as among its
competitors. The Company believes that the market for investments in asset
management companies is and will continue to remain highly competitive. The
Company competes with many purchasers of investment management firms, including
other investment management holding companies, insurance companies,
broker-dealers, banks and private equity firms. Many of these companies, both
privately and publicly held, have longer operating histories and greater
resources than the Company, which may make them more attractive to the owners of
firms in which AMG is considering an investment and may enable them to offer
greater consideration to such owners. Certain of the Company's principal
stockholders also pursue investments in, and acquisitions of, investment
management firms, and the Company may, from time to time, encounter competition
from such principal stockholders with respect to certain investments. The
Company believes that important factors affecting its ability to compete for
future investments are (i) the degree to which target firms view the AMG
Structure as preferable, financially and operationally, to acquisition or
investment arrangements offered by other potential purchasers, (ii) the market
value of AMG's Common Stock, which may be a form of consideration in
acquisitions, and (iii) the reputation and performance of the existing
Affiliates and future affiliates, by which target firms will judge AMG and its
future prospects.
The Affiliates compete with a large number of domestic and foreign
investment management firms, including public companies, subsidiaries of
commercial banks, and insurance companies. Many of these firms have greater
resources and assets under management than any of the Affiliates, and offer a
broader array of investment products and services than any of the Affiliates.
From time to time, Affiliates may also compete with the other Affiliates for
clients. In addition, there are relatively few barriers to entry by new
investment management firms, especially in the institutional managed accounts
business. AMG believes that the most important factors affecting its Affiliates'
ability to compete for clients are (i) the products offered, (ii) the abilities,
performance records and reputation of its Affiliates and their management teams,
(iii) the management fees charged, (iv) the level of client service offered, and
(v) the development of new investment strategies and marketing. The importance
of these factors can vary depending on the type of investment management service
involved. Each Affiliate's ability to retain and increase assets under
management would be adversely affected if client accounts underperform in
comparison to relevant benchmarks, or if key management or employees leave the
Affiliate. The ability of each Affiliate to compete with other investment
management firms is also dependent, in part, on the relative attractiveness of
their respective investment philosophies and methods under then prevailing
market conditions.
GOVERNMENT REGULATION
Virtually all aspects of the Affiliates' businesses are subject to
extensive regulation. Each Affiliate (other than First Quadrant Limited) is
registered with the Commission as an investment adviser under the Investment
Advisers Act. As an investment adviser, each such Affiliate is subject to the
provisions of the Investment Advisers Act and the Commission's regulations
promulgated thereunder. The Investment Advisers Act imposes numerous obligations
on registered investment advisers, including fiduciary, recordkeeping,
operational, and disclosure obligations. Each of the
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<PAGE> 55
Affiliates (other than First Quadrant Limited) is, as an investment adviser,
also subject to regulation under the securities laws and fiduciary laws of
certain states. Each of the mutual funds for which Tweedy, Browne, Skyline, and
Burridge are advisors, and Renaissance and Systematic are subadvisors, is
registered with the Commission under the Investment Company Act, shares of each
such fund are registered with the Commission under the Securities Act, and the
shares of each such fund are qualified for sale (or exempt from such
qualification) under the laws of each state and the District of Columbia to the
extent such shares are sold in any of such jurisdictions. As an adviser or
subadviser to a registered investment company, each such Affiliate is subject to
requirements under the 1940 Act and the Commission's regulations promulgated
thereunder. Each Affiliate is also subject to ERISA, and to regulations
promulgated thereunder, insofar as they are "fiduciaries" under ERISA with
respect to certain of their clients. ERISA and the applicable provisions of the
Code impose certain duties on persons who are fiduciaries under ERISA, and
prohibit certain transactions involving the assets of each ERISA plan which is a
client of an Affiliate, as well as certain transactions by the fiduciaries (and
certain other related parties) to such plans. Each of First Quadrant, L.P. and
Renaissance are also registered with the Commodity Futures Trading Commission as
a Commodity Trading Advisor and each is a member of the National Futures
Association. Tweedy, Browne is registered as a broker-dealer under the Exchange
Act and is subject to regulation by the Commission, the National Association of
Securities Dealers, Inc. and other federal and state agencies. As a registered
broker-dealer, Tweedy, Browne is subject to the Commission's net capital rules.
Under certain circumstances, these rules may limit the ability of Tweedy, Browne
to make distributions to the Company.
A number of the Affiliates are subject to the laws of non-U.S.
jurisdictions and non-U.S. regulatory agencies or bodies. For example, First
Quadrant Limited, located in London, is a member of the Investment Management
Regulatory Organisation of the United Kingdom, and Tweedy, Browne and other
Affiliates are investment advisers to certain funds which are organized under
non-U.S. jurisdictions, including Luxembourg (where they are regulated by the
Institute Monetaire Luxembourgeois) and Bermuda (where they are regulated by the
Bermuda Monetary Authority).
Under the Investment Advisers Act, every investment advisory contract
between a registered investment adviser and its clients must provide that it may
not be assigned by the investment adviser without the consent of the client. In
addition, under the Investment Company Act, each contract with a registered
investment company must provide that it terminates upon its assignment. Under
both the Investment Advisers Act and the Investment Company Act, an investment
advisory contract is deemed to have been assigned in the case of a direct
"assignment" of the contract as well as in the case of a sale, directly or
indirectly, of a "controlling block" of the adviser's voting securities. Such an
assignment may be deemed to take place when a firm is acquired by AMG. Prior to
AMG's investment, each Affiliate sought to obtain the consent of its clients to
the assignment of the advisory contracts which results from the acquisition
(and, in the case of mutual fund clients, sought to obtain new advisory
contracts on substantially the same terms). Each investment consummated thus far
has been, and the Company expects that each future investment will be,
conditioned on the obtaining of such consents (and, to the extent applicable,
new contracts) from substantially all of the clients of the acquired firm. The
change of control provisions may limit the ability of AMG to issue Common Stock
or to be acquired by a third party.
The foregoing laws and regulations generally grant supervisory agencies and
bodies broad administrative powers, including the power to limit or restrict any
of the Affiliates from conducting their business in the event that they fail to
comply with such laws and regulations. Possible sanctions that may be imposed in
the event of such noncompliance include the suspension of individual employees,
limitations on the Affiliate's business activities for specified periods of
time, revocation of the Affiliate's registration as an investment adviser,
commodity trading adviser and/or other registrations, and other censures and
fines. Changes in these laws or regulations could have a material adverse impact
on the profitability and mode of operations of the Company and each of its
Affiliates.
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The officers, directors and employees of AMG and each of the Affiliates
may, from time to time, own securities which are also owned by one or more of
the Affiliates' clients. Each Affiliate and AMG has internal policies with
respect to individual investments and requires reports of securities
transactions and restricts certain transactions so as to minimize possible
conflicts of interest.
EMPLOYEES
As of June 30, 1997, the Company and its Affiliates employed approximately
307 persons, approximately 290 of which are full-time employees. The Company and
its Affiliates are not subject to any collective bargaining agreements and the
Company believes that its labor relations are good.
PROPERTIES
AMG's executive offices are located at Two International Place, 23rd Floor,
Boston, Massachusetts 02110. In Boston, AMG occupies 4,413 square feet under a
lease which expires in July 2000. Each of the Affiliates also leases office
space in the cities in which they conduct business.
LEGAL PROCEEDINGS
From time to time, the Company and its Affiliates may be parties to various
claims, suits and complaints. Currently, there are no such claims, suits or
complaints which, in the opinion of management, would have a material adverse
effect on the Company's financial position, liquidity or results of operations.
CORPORATE LIABILITY AND INSURANCE
The businesses of the Affiliates entail the inherent risk of liability
related to litigation from clients and actions taken by regulatory agencies. In
addition, the Company faces liability both directly as a control person, and
indirectly as a direct or indirect general partner of certain of the Affiliates.
To protect its overall operations from such potential liabilities, the Company
and each of its Affiliates, other than Hartwell, maintains errors and omissions
and general liability insurance in amounts which the Company and its Affiliates'
management consider appropriate. There can be no assurance, however, that a
claim or claims will not exceed the limits of available insurance coverage, that
any insurer will remain solvent and will meet its obligations to provide
coverage, or that such coverage will continue to be available with sufficient
limits or at a reasonable cost. A judgment against one of the Affiliates or the
Company in excess of available coverage could have a material adverse effect on
the Company. See "Risk Factors -- Exposure to Liability".
TRADEMARKS
"Affiliated Managers Group" is a registered trademark of the Company, with
registration expiring October 2007. "Skyline Fund", the Skyline logo, Skyline
Special Equities Portfolio and Skyline Special Equities II are all registered
marks of the Company, with registrations expiring between November 2002 and
April 2009.
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<PAGE> 57
MANAGEMENT
EXECUTIVE OFFICERS
The names, ages and positions of each of the executive officers of the
Company, as well as a description of their business experience and past
employment are as set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- -----------------------------------------------
<S> <C> <C>
William J. Nutt............... 52 President, Chief Executive Officer and Chairman
of the Board of Directors
Sean M. Healey................ 36 Executive Vice President
Levon Chertavian, Jr. ........ 38 Senior Vice President, Affiliate Support
Nathaniel Dalton.............. 31 Senior Vice President, General Counsel and
Secretary
Brian J. Girvan............... 42 Senior Vice President, Chief Financial Officer
and Treasurer
Seth W. Brennan............... 27 Vice President
Jeffrey S. Murphy............. 31 Vice President
</TABLE>
William J. Nutt founded the Company in December 1993 and has served as its
Chairman, President and Chief Executive Officer since that time. Mr. Nutt began
his career at the law firm of Ballard, Spahr, Andrews & Ingersoll in
Philadelphia, where he was a Partner until he joined The Boston Company in 1982.
As Senior Executive Vice President of that firm, Mr. Nutt built The Boston
Company's mutual fund administration, distribution and custody business serving
over 45 fund sponsors with assets of $119.0 billion. In 1989, he became
President, assuming overall responsibility for The Boston Company's $36.0
billion institutional money management business, its $190.0 billion master
trustee and custodian business, and the personal banking and trust business of
the Boston Safe Deposit and Trust Company. Mr. Nutt received a J.D. from the
University of Pennsylvania and a B.A. from Grove City College. From 1991 to
1994, Mr. Nutt served on the Executive Committee of the Board of Governors of
the Investment Company Institute.
Sean M. Healey joined the Company as its Executive Vice President in 1995.
Prior to joining AMG, Mr. Healey was a Vice President in the Mergers and
Acquisitions Department at Goldman, Sachs & Co. focusing on financial
institutions. In eight years at Goldman Sachs, Mr. Healey had substantial
experience advising clients and executing transactions in the investment
management and related industries. Mr. Healey received a J.D. from Harvard Law
School, an M.A. from University College, Dublin and an A.B. from Harvard
College.
Levon Chertavian, Jr. joined the Company as a Senior Vice President of
Affiliate Support in 1995. Mr. Chertavian was formerly President of USAffinity
Advisers, the mutual fund operation of TransNational Group. Prior to Trans
National Group, Mr. Chertavian held positions with Bain & Company, Fidelity
Investments, Bankers Trust Company and Equitable Life. Mr. Chertavian received
an M.B.A. from the Harvard Business School and a B.A. from Bowdoin College.
Nathaniel Dalton joined the Company as a Senior Vice President and General
Counsel in 1996. Prior to joining AMG, Mr. Dalton was an attorney at Goodwin,
Procter & Hoar LLP, focusing on mergers and acquisitions, including those in the
asset management industry. Mr. Dalton received a J.D. from Boston University
School of Law and a B.A. from the University of Pennsylvania.
Brian J. Girvan joined the Company as a Senior Vice President and Chief
Financial Officer in 1997. Mr. Girvan possesses twenty years of experience in
senior roles primarily within leading asset management firms. Most recently he
was Chief Financial Officer of Fidelity Investments Institutional Services.
Prior to that, Mr. Girvan served in various roles including Chief Financial
Officer at PIMCO Advisors L.P. and Thomson Advisory Group L.P. Before joining
Thomson Advisory Group, Mr. Girvan was a Vice President at Thomson McKinnon
Securities and was an auditor with Coopers
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<PAGE> 58
& Lybrand. Mr. Girvan received a B.S. (B.B.A.) from Manhattan College and is a
member of the American Institute of Certified Public Accountants.
Seth W. Brennan joined the Company as an Assistant Vice President in 1995,
and became a Vice President in 1996. Prior to joining AMG, Mr. Brennan was a
Financial Analyst in the Global Insurance Investment Banking Group at Morgan
Stanley & Co. Incorporated. Before joining Morgan Stanley, Mr. Brennan was a
Financial Analyst in the Financial Institutions Group at Wasserstein, Perella &
Co. Mr. Brennan received a B.A. from Hamilton College.
Jeffrey S. Murphy joined the Company as an Assistant Vice President in
1995, and became a Vice President in 1996. Prior to joining AMG, Mr. Murphy was
a Financial Analyst at United Asset Management Corporation, and prior to that,
Mr. Murphy was the Assistant Controller of TA Associates, Inc. Mr. Murphy
received a B.S. in Business Administration from Northeastern University.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the cash compensation
awarded to the Company's Chief Executive Officer and the Company's four (4)
other most highly compensated executive officers whose total salary and bonus
exceeded $100,000 during the fiscal year ended December 31, 1996 (collectively,
the "Named Executive Officers").
1996 SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL
COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
- ------------------------------------------------------ -------- -------- ----------------
<S> <C> <C> <C>
William J. Nutt, Chairman, President and Chief
Executive Officer................................... $354,350 $315,000 $ 26,750
Sean M. Healey, Executive Vice President.............. 270,460 277,500 26,750
Levon Chertavian, Jr., Senior Vice President.......... 159,227 116,667 24,813
Nathaniel Dalton, Senior Vice President (2)........... 98,498 100,000 17,068
Seth W. Brennan, Vice President....................... 56,277 55,000 15,806
</TABLE>
- ---------------
(1) Includes (i) contributions by the Company under its 401(k) Profit Sharing
Plan in the amount of $22,500 on behalf of each of Messrs. Nutt, Healey and
Chertavian, $14,755 on behalf of Mr. Dalton and $14,375 on behalf of Mr.
Brennan; and (ii) the dollar value of insurance premiums paid by the Company
with respect to term life and long term disability insurance policies for
the benefit of the Named Executive Officers in the amount of $4,250 on
behalf of Messrs. Nutt and Healey, $2,313 on behalf of Messrs. Chertavian
and Dalton and $1,431 on behalf of Mr. Brennan.
(2) Mr. Dalton's employment with the Company commenced in May 1996.
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DIRECTORS
The names, ages and a description of the business experience, principal
occupation and past employment during at least the last five years of each of
the directors of the Company are set forth below.
<TABLE>
<CAPTION>
NAME AGE
---------------------------------------------------------------------- ---
<S> <C>
William J. Nutt(1).................................................... 52
Richard E. Floor(2)................................................... 57
Roger B. Kafker(2)(3)................................................. 35
P. Andrews McLane(1)(3)............................................... 50
John M. B. O'Connor(1)(3)............................................. 43
W. W. Walker, Jr.(2)(3)............................................... 50
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Messrs. McLane, Kafker, Walker and O'Connor were elected as directors in
accordance with the terms of a certain Amended and Restated Stockholders'
Agreement dated as of October 9, 1997 (the "Stockholders' Agreement") among
the Company and certain of the Company's stockholders, including TA
Associates, NationsBank, The Hartford and Chase Equity Associates, which was
entered into in connection with the recent equity investment by Chase Equity
Associates in the Company. These provisions of the Stockholders' Agreement
will be terminated upon consummation of the Offerings.
For Mr. Nutt's biographical information, see information under "--Executive
Officers".
Richard E. Floor has been a director of the Company since its formation. A
professional corporation of which Mr. Floor is the sole stockholder is and has
been a partner at the law firm of Goodwin, Procter & Hoar LLP or its predecessor
since 1975. Mr. Floor is also a director of Town & Country Corporation, a
jewelry manufacturer, and New America High Income Fund, a closed-end investment
company.
Roger B. Kafker has been a director of the Company since its formation. Mr.
Kafker has been associated with TA Associates, Inc. or its predecessor since
1989 and became a Principal of that firm in 1994 and a Managing Director in
1995. Mr. Kafker is also a director of ANSYS Inc., a software company, Boron,
LePore & Associates, Inc., a service provider to the pharmaceutical industry,
and Monarch Dental Corporation, a dental practice management company.
P. Andrews McLane has been a director of the Company since its formation.
He has been at TA Associates, Inc. or its predecessors since 1979, where he is a
Managing Director and a member of the firm's Executive Committee. Mr. McLane
leads TA Associates' investment activities in the asset management industry. Mr.
McLane is also a director of Altamira Management Ltd, an investment management
firm based in Toronto, Canada, and Allegis Realty Investors, LLC, a real estate
investment management firm.
John M. B. O'Connor has been a director of the Company since October 9,
1997. Mr. O'Connor is a General Partner of Chase Capital Partners which he
joined in May 1995. Mr. O'Connor has been employed by Chase Manhattan
Corporation or its predecessors since 1987 in a variety of senior investment
banking positions including management of Corporate Securities Sales, Trading
and Research. Mr. O'Connor is also a director of United States Corrections
Corporation, a correctional services company, and Hamilton Services Limited, a
technology and insurance services provider to insurance and reinsurance
companies.
W. W. Walker, Jr. has been a director of the Company since April 1997.
Since 1972, Mr. Walker has been employed by NationsBank, N.A. or its
predecessor, where he has held positions in various departments including
corporate banking, private placements, syndications and project finance.
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Mr. Walker founded NationsBank Capital Investors in 1993 and is presently a
Managing Director of that group.
The number of members of the Board of Directors of the Company is currently
fixed at six. Within 90 days after the completion of the Offerings, the Company
intends to expand the Board of Directors and elect at least two additional
Directors who will not be officers or employees of the Company.
The Company's Board of Directors has established an Audit Committee (the
"Audit Committee") and a Compensation Committee (the "Compensation Committee").
The Audit Committee recommends the firm to be appointed as independent
accountants to audit financial statements and to perform services related to the
audit, reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants the
Company's year-end operating results, considers the adequacy of internal
accounting procedures and considers the effect of such procedures on the
accountants' independence. The Audit Committee will consist, upon consummation
of the Offerings, of Messrs. Floor, Kafker and Walker. The Compensation
Committee, which will consist, upon consummation of the Offerings, of Messrs.
Nutt, McLane and O'Connor, reviews and recommends the compensation arrangements
for all directors and officers, except that Mr. Nutt does not participate in the
recommendation of his compensation arrangements.
COMPENSATION OF DIRECTORS
Directors of the Company who are also employees receive no additional
compensation for their services as a director. Non-employee directors
("Independent Directors") do not currently receive a fee for their service as
directors, although the Board of Directors may determine to pay such a fee in
the future. Also, Independent Directors may be entitled to receive options to
purchase shares of Common Stock. See "-- The 1997 Stock Plan".
All directors of the Company are reimbursed for travel expenses incurred in
attending meetings of the Board of Directors and its committees.
COMPENSATION, BENEFIT AND RETIREMENT PLANS
The Company currently has in place the following stock plans: The
Affiliated Managers Group, Inc. 1994 Incentive Stock Plan, The Affiliated
Managers Group, Inc. 1995 Incentive Stock Plan, The Affiliated Managers Group,
Inc. 1995 Stock Purchase Plan, and The Affiliated Managers Group, Inc. 1997
Stock Option and Incentive Plan (collectively, the "Plans"). Upon consummation
of the Offerings and after giving effect to the grants made in connection with
the Offerings, under the Plans, the Company will have (i) awarded options to
purchase up to 672,500 shares of Common Stock, or approximately 4.2% of the
outstanding Common Stock of the Company, to members of senior management, (ii)
issued 337,500 shares of restricted Common Stock, or approximately 2.1% of the
outstanding Common Stock of the Company, to members of senior management, (iii)
issued for sale 184,150 shares of Common Stock, or approximately 1.1% of the
outstanding Common Stock of the Company, to certain officers, managers of
Affiliates and consultants and advisors of the Company, and (iv) reserved
2,523,850 shares, or approximately 13.6% of the outstanding Common Stock of the
Company (including shares reserved under the Plans), for issuance under the
Plans. Overall, members of the Company's senior management own an aggregate
1,657,048 shares of Common Stock (on a fully diluted basis and giving effect to
the Recapitalization and including shares of stock purchased outside of the
Plans), or approximately 9.9% of the outstanding Common Stock of the Company.
The following is a brief summary of each of the Plans.
THE 1994 PLAN
On March 31, 1994, the Board of Directors adopted, and the stockholders of
the Company subsequently approved, the Affiliated Managers Group, Inc. 1994
Incentive Stock Plan. On November 7, 1995, the Board of Directors adopted, and
the stockholders of the Company approved, an
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amendment and restatement of the 1994 Incentive Stock Plan (as so amended and
restated, the "1994 Plan") pursuant to which the number of shares of Common
Stock reserved under the 1994 Plan was reduced to 125,000.
The 1994 Plan permits (i) the grant of options to purchase shares of Common
Stock intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended, (the "Code") ("Incentive Options"),
(ii) the grant of options that do not so qualify ("Non-Qualified Options"), and
(iii) the issuance of stock which may be subject to certain restrictions
("Restricted Stock"). The 1994 Plan was designed and intended as a performance
incentive for officers, employees, consultants and other key persons performing
services for the Company to encourage such persons to acquire or increase a
proprietary interest in the success and progress of the Company. As of June 30,
1997, no options had been awarded under the 1994 Plan, and the Company had
issued an aggregate of 125,000 shares of Restricted Stock under the 1994 Plan.
The Company does not intend to make any grants under the 1994 Plan after the
consummation of the Offerings.
THE 1995 PLAN
On November 7, 1995, the Board of Directors adopted, and the stockholders
of the Company subsequently approved, the Affiliated Managers Group, Inc. 1995
Incentive Stock Plan, under which 425,000 shares of Common Stock were authorized
and reserved for issuance. In May 1997, the Board of Directors voted to amend
and restate, and the stockholders of the Company subsequently approved the
amendment and restatement of, the 1995 Incentive Stock Plan (as so amended and
restated, the "1995 Plan"). Under the 1995 Plan, a total of 425,000 shares of
Common Stock are authorized and reserved for issuance.
The 1995 Plan permits (i) the grant of Incentive Options, (ii) the grant of
Non-Qualified Options, and (iii) the issuance of Restricted Stock. Like the 1994
Plan, the 1995 Plan was designed and intended as a performance incentive for
officers, employees, consultants and other key persons performing services for
the Company to encourage such persons to acquire or increase a proprietary
interest in the success and progress of the Company. In May 1997, the Company
granted options to purchase an aggregate of 1,850 shares of Class A Convertible
Preferred Stock (carrying a $250 per share liquidation preference and
convertible into an aggregate of 92,500 shares of Common Stock) at an exercise
price of $455 per share (or $9.10 per underlying share of Common Stock),
consisting of options to purchase 500, 500, 200, 300, 250 and 100 shares of
Class A Convertible Preferred Stock granted to Messrs. Nutt, Healey, Chertavian,
Dalton, Brennan and Murphy, respectively. As of June 30, 1997, the Company had
issued an aggregate 212,500 shares of Restricted Stock under the 1995 Plan. The
Company does not intend to make any grants under the 1995 Plan after the
consummation of the Offerings.
THE 1997 STOCK PLAN
The 1997 Stock Option and Incentive Plan (the "1997 Stock Plan") was
adopted by the Board of Directors in October 1997 and was subsequently approved
by the Company's stockholders. The 1997 Stock Plan permits (i) the grant of
Incentive Options, (ii) the grant of Non-Qualified Options, (iii) the grant of
stock appreciation rights, (iv) the issuance or sale of Common Stock with
vesting or other restrictions, (v) the issuance or sale of Common Stock without
restrictions ("Unrestricted Stock"), (vi) the grant of the right to receive
Common Stock in the future with or without vesting or other restrictions
("Deferred Stock Awards"), (vii) the grant of Common Stock upon the attainment
of specified performance goals ("Performance Share Awards"), and (viii) the
grant of the right to receive cash dividends with the holders of the Common
Stock as if the recipient held a specified number of shares of the Common Stock
("Dividend Equivalent Rights"). These grants may be made to officers and other
employees, directors, advisors, consultants and other key persons of the Company
and its subsidiaries. The 1997 Stock Plan provides for the issuance of 1,750,000
shares of Common Stock. Certain Incentive Options and Non-Qualified Options will
be granted to employees in connection with the Offerings. See "-- New Plan
Benefits". On and after
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the date the 1997 Stock Plan becomes subject to Section 162(m) of the Code,
options or stock appreciation rights with respect to no more than 700,000 shares
of Common Stock may be granted to any one individual in any calendar year.
The following summary description is qualified in its entirety by the 1997
Stock Plan, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus is a part.
PLAN ADMINISTRATION; ELIGIBILITY. The 1997 Stock Plan is administered by
the Board of Directors or the Compensation Committee (the "Administrator"). If
the 1997 Stock Plan is administered by the Compensation Committee, then all
members of the Compensation Committee must be "disinterested persons" as that
term is defined under the rules promulgated by the Commission. On and after the
date the 1997 Stock Plan becomes subject to Section 162(m) of the Code, all
members of the Compensation Committee must be "outside directors" as defined in
Section 162(m) of the Code and the regulations promulgated thereunder.
The Administrator has full power to select, from among the employees and
other persons eligible for awards, the individuals to whom awards will be
granted, to make any combination of awards to participants, and to determine the
specific terms and conditions of each award, subject to the provisions of the
1997 Stock Plan.
Persons eligible to participate in the 1997 Stock Plan will be those
officers, employees and other key persons, such as consultants, of the Company
and its subsidiaries who are responsible for or contribute to the management,
growth or profitability of the Company and its subsidiaries, as selected from
time to time by the Administrator. Independent Directors will also be eligible
for certain awards under the 1997 Stock Plan.
STOCK OPTIONS. The 1997 Stock Plan permits the granting of (i) Incentive
Options and (ii) Non-Qualified Options. Only employees of the Company and its
subsidiaries may be granted Incentive Options. The option exercise price of each
option will be determined by the Administrator but may not be less than 100% of
the fair market value of the Common Stock on the date of grant in the case of
Incentive Options, and may not be less than 85% of the fair market value of the
Common Stock on the date of grant in the case of Non-Qualified Options.
Employees participating in the 1997 Stock Plan may, however, elect, with the
consent of the Administrator, to receive discounted Non-Qualified Options in
lieu of cash bonuses. In the case of such grants, the option exercise price may
be less than 85% of the fair market value of the Common Stock on the date of
grant.
STOCK OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The 1997 Stock Plan
contemplates the grant to each additional Independent Director of a
Non-Qualified Option upon his or her initial election to the Board of Directors.
The exercise price of each such Non-Qualified Option would be the fair market
value of the Common Stock on the date of grant, and each such grant would be
subject to vesting requirements as determined by the Administrator. The
Administrator may also grant additional Non-Qualified Options to Independent
Directors.
STOCK APPRECIATION RIGHTS. The Administrator may award a stock
appreciation right ("SAR") either as a freestanding award or in tandem with a
stock option. Upon exercise of the SAR, the holder will be entitled to receive
an amount equal to the excess of the fair market value on the date of exercise
of one share of Common Stock over the exercise price per share specified in the
related stock option (or, in the case of a freestanding SAR, the price per share
specified in such right, which price may not be less than 85% of the fair market
value of the Common Stock on the date of grant) times the number of shares of
Common Stock with respect to which the SAR is exercised. This amount may be paid
in cash, Common Stock, or a combination thereof, as determined by the
Administrator.
RESTRICTED STOCK. The Administrator may also award shares of Restricted
Stock to officers, other employees and key persons of the Company. The
conditions and restrictions applicable to the Restricted Stock may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. These conditions and restric-
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tions, as well as the purchase price of shares of Restricted Stock, will be
determined by the Administrator. If the performance goals and other restrictions
are not attained, the employees will forfeit their awards of Restricted Stock.
UNRESTRICTED STOCK. The Administrator may also grant shares (at no cost or
for a purchase price determined by the Administrator) of Unrestricted Stock to
employees and key persons in recognition of past services or other valid
consideration, and shares of Unrestricted Stock may be issued in lieu of cash
compensation to be paid to such employees and key persons.
DEFERRED STOCK AWARDS. The Administrator may also award Deferred Stock
Awards which are ultimately payable in the form of shares of Unrestricted Stock.
The Deferred Stock Awards may be subject to such conditions and restrictions as
the Administrator may determine, including the achievement of certain
performance goals and/or continued employment with the Company through a
specified restricted period. If the performance goals and other restrictions are
not attained, the participants will forfeit their Deferred Stock Awards.
Subject to the consent of the Administrator, an Independent Director, an
employee or key person of the Company may make an irrevocable election to
receive a portion of his fees or compensation in Deferred Stock Awards (valued
at fair market value on the date the cash compensation would otherwise be paid).
PERFORMANCE SHARE AWARDS. The Administrator may also grant Performance
Share Awards to employees or other key persons of the Company entitling the
recipient to receive shares of Common Stock upon the achievement of individual
or Company performance goals and such other conditions as the Administrator
shall determine.
DIVIDEND EQUIVALENT RIGHTS. The Administrator may grant Dividend
Equivalent Rights, which give the recipient the right to receive credits for
dividends that would be paid if the grantee had held specified shares of Common
Stock. Dividend Equivalent Rights may be settled in cash, shares, or a
combination thereof.
AMENDMENTS AND TERMINATION. The Board of Directors may at any time amend
or discontinue the 1997 Stock Plan and the Administrator may at any time amend
or cancel outstanding awards for the purpose of satisfying changes in the law or
for any other lawful purpose. No such action may be taken, however, which
adversely affects any rights under outstanding awards without the holder's
consent. Further, amendments to the 1997 Stock Plan shall be subject to approval
by the Company's stockholders if and to the extent required by the Code to
preserve the qualified status of Incentive Options or to preserve tax
deductibility of compensation earned under stock options and stock appreciation
rights.
CHANGE IN CONTROL PROVISIONS. The 1997 Stock Plan provides that in the
event of a sale of all or substantially all of the assets or Common Stock of the
Company, a merger or consolidation which results in a change in control of the
Company or the liquidation or dissolution of the Company (a "Change in
Control"), all stock options and stock appreciation rights shall automatically
become fully exercisable. In addition, at any time prior to or after a Change of
Control, the Administrator may accelerate awards and waive conditions and
restrictions on any awards to the extent it may determine appropriate.
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NEW PLAN BENEFITS. Approximately 307 employees and 5 non-employee
directors are currently eligible to participate in the 1997 Stock Plan. The
table below shows the options that will be granted to employees in connection
with the Offerings.
1997 STOCK PLAN
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING STOCK OPTIONS(1)
- -------------------------------------------------------------------- ---------------------------
<S> <C>
William J. Nutt, Chairman, President and Chief Executive Officer.... 180,000
Sean M. Healey, Executive Vice President............................ 170,000
Levon Chertavian, Jr., Senior Vice President........................ 30,000
Nathaniel Dalton, Senior Vice President............................. 57,500
Brian J. Girvan, Senior Vice President.............................. 57,500
Seth W. Brennan, Vice President..................................... 50,000
Jeffrey S. Murphy, Vice President................................... 35,000
Executive Group (7 persons)......................................... 580,000
Non-Executive Officer Employee Group (2 persons).................... 10,000
</TABLE>
- ---------------
(1) All options will be granted to the employees with an exercise price equal to
the initial public offering price per share. In general, the options will be
exercisable over seven years, with 15% exercisable at the end of each of the
first six anniversaries of the date of grant and 10% exercisable on the
seventh anniversary. The exercisability of these options will be accelerated
upon a change in control (as defined in the 1997 Stock Plan) and upon the
achievement with respect to any future calendar quarter of a level of pro
forma cash net income per share which, on a comparable basis, equals or
exceeds 2.44 times the pro forma cash net income per share for the quarter
ended September 30, 1997.
TAX ASPECTS UNDER THE CODE. The following is a summary of the principal
Federal income tax consequences of option grants under the 1997 Stock Plan. It
does not describe all Federal tax consequences under the 1997 Stock Plan, nor
does it describe state or local tax consequences.
Incentive Options. Under the Code, an employee will not realize taxable
income by reason of the grant or the exercise of an Incentive Option. If an
employee exercises an Incentive Option and does not dispose of the shares until
the later of (a) two years from the date the option was granted or (b) one year
from the date the shares were transferred to the employee, the entire gain, if
any, realized upon disposition of such shares will be taxable to the employee as
long-term capital gain, and the Company will not be entitled to any deduction.
If an employee disposes of the shares within such one-year or two-year period in
a manner so as to violate the holding period requirements (a "disqualifying
disposition"), the employee generally will realize ordinary income in the year
of disposition, and, provided the Company complies with applicable withholding
requirements, the Company will receive a corresponding deduction, in an amount
equal to the excess of (i) the lesser of (x) the amount, if any, realized on the
disposition and (y) the fair market value of the shares on the date the option
was exercised over (ii) the option price. Any additional gain realized on the
disposition of the shares acquired upon exercise of the option will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss depending upon the holding period for such shares. The employee will be
considered to have disposed of his shares if he sells, exchanges, makes a gift
of or transfers legal title to the shares (except by pledge or by transfer on
death). If the disposition of shares is by gift and violates the holding period
requirement, the amount of the employee's ordinary income (and the Company's
deductions) is equal to the fair market value of the shares on the date of
exercise less the option price. If the disposition is by sale or exchange, the
employee' tax basis will equal the amount paid for the shares plus any ordinary
income realized as a
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result of the disqualifying distribution. The exercise of an Incentive Option
may subject the employee to the alternative minimum tax.
Special rules apply if an employee surrenders shares of Common Stock in
payment of the exercise price of an Incentive Option.
An Incentive Option that is exercised by an employee more than three months
after an employee's employment terminates will be treated as a Non-Qualified
Option for Federal income tax purposes. In the case of an employee who is
disabled, the three-month period is extended to one year and in the case of an
employee who dies, the three-month employment rule does not apply.
Non-Qualified Options. There are no Federal income tax consequences to
either the optionee or the Company on the grant of a Non-Qualified Option. On
the exercise of a Non-Qualified Option, the optionee has taxable ordinary income
equal to the excess of the fair market value of the Common Stock received on the
exercise date over the option price of the shares. The optionee's tax basis for
the shares acquired upon exercise of a Non-Qualified Option is increased by the
amount of such taxable income. The Company will be entitled to a Federal income
tax deduction in an amount equal to such excess. Upon the sale of the shares
acquired by exercise of a Non-Qualified Option, the optionee will realize
long-term or short-term capital gain or loss depending upon his or her holding
period for such shares.
Special rules apply if an optionee surrenders shares of Common Stock in
payment of the exercise price of a Non-Qualified Option.
1995 STOCK PURCHASE PLAN
On November 28, 1995, the Board of Directors adopted the Affiliated
Managers Group, Inc. 1995 Stock Purchase Plan (the "1995 Purchase Plan"), under
which 4,477 shares of Series B-1 Voting Convertible Preferred Stock of the
Company (convertible into 223,850 shares of Common Stock) were authorized for
issuance. The 1995 Purchase Plan was designed to provide certain employees,
directors, general partners, officers, consultants and advisors with the
opportunity to purchase shares of capital stock of the Company. In June 1996,
the Company issued an aggregate 3,703 shares of Series B-1 Voting Convertible
Preferred Stock (which are convertible, in the aggregate, into 185,150 shares of
Common Stock immediately prior to the Offerings), to certain members of
management and advisors of the Company, including 150 and 38 shares of Series
B-1 Voting Convertible Preferred Stock (convertible into 7,500 and 1,900 shares
of Common Stock, respectively) to Mr. Chertavian and Mr. Murphy, respectively,
as well as managers of certain Affiliates, for an aggregate consideration of
approximately $2.5 million (the "1996 Offering"). In connection with the 1996
Offering, each of the purchasers executed a stock purchase and restriction
agreement pursuant to which the shares purchased by each such purchaser are
subject to certain restrictions on transfer. There are currently 774 shares of
Series B-1 Voting Convertible Preferred Stock (convertible into 38,700 shares of
Common Stock) available for issuance and sale under the 1995 Purchase Plan. The
Company does not intend to issue any additional shares of stock under the 1995
Purchase Plan.
KEY EXECUTIVE LIFE INSURANCE
The Company currently maintains, and is the sole beneficiary of,
$10,000,000 in life insurance policies on William J. Nutt and a $2,000,000 life
insurance policy on Sean M. Healey. In addition, the Company and the Affiliates
carry life insurance policies on the lives of certain key members of management
of the Affiliates who have interests in that Affiliate in amounts which the
Company considers sufficient to repurchase such individuals' direct or indirect
interest in such Affiliate. The Company also currently maintains, and is the
sole beneficiary of, additional life insurance policies on the lives of certain
key members of management of the Affiliates. These key executive life insurance
policies range from $100,000 to $10,000,000. See "Business -- AMG Structure and
Relationship with Affiliates -- Capitalization of Retained Interest" and "Risk
Factors -- Reliance on Key Management".
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PENSION AND PROFIT SHARING PLANS
The Company currently maintains the Affiliated Managers Group, Inc. 401(k)
Profit Sharing Plan (the "Profit Sharing Plan"). Under the Profit Sharing Plan,
qualifying employees of the Company and the participating Affiliates are able to
both accumulate savings by means of a salary reduction, as well as participate
in the profits of their participating employer (either the Company or the
applicable Affiliate). Any contributions by the Company under the Profit Sharing
Plan are determined annually by the Compensation Committee, while contributions
by participating Affiliates are determined by their respective management teams
and funded out of such respective Affiliate's Operating Allocation. Certain of
the Affiliates maintain their own 401(k) and profit sharing plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since January 1, 1996, the Company's executive compensation decisions have
been made by the Compensation Committee of the Board of Directors, consisting of
Messrs. McLane and Floor, neither of whom is an employee of the Company. Upon
consummation of the Offerings, the Company's Compensation Committee will consist
of Messrs. McLane, Nutt and O'Connor. After the Offerings, the Compensation
Committee will review and recommend executive compensation arrangements for all
officers and employees other than Mr. Nutt, and the members of the Compensation
Committee other than Mr. Nutt will review and recommend all executive
compensation arrangements with respect to Mr. Nutt.
CERTAIN TRANSACTIONS
In August 1997, the Company entered into a series of transactions in
connection with the Tweedy, Browne Investment, including:
(i) entering into a Preferred Stock and Warrant Purchase Agreement
(the "Preferred Stock Purchase Agreement") with Chase Equity Associates,
whereby on October 9, 1997, Chase Equity Associates invested $30 million in
the Company and acquired 5,333 shares of Series C-2 Non-Voting Convertible
Preferred Stock of the Company and warrants to purchase up to an additional
28,000 shares of Series C-2 Non-Voting Convertible Preferred Stock of the
Company (convertible into 266,650 and 1,400,000 shares of Common Stock,
respectively); and
(ii) entering into a Securities Purchase Agreement (the "Securities
Purchase Agreement") with Chase Equity Associates, whereby on October 9,
1997, Chase Equity Associates invested $60 million and acquired senior
subordinated notes (the "Subordinated Notes"). In addition, warrants to
purchase Class B Common Stock (the "Class B Warrants") of the Company were
issued into an escrow, to be issued to the holders of the Subordinated
Notes, if such Subordinated Notes were not paid on or prior to April 7,
1998.
In connection with these transactions, on October 9, 1997, the Company
entered into an Amended and Restated Stockholders' Agreement (the "Stockholders'
Agreement") with TA Associates, NationsBank, The Hartford, Chase Equity
Associates and certain members of senior management and their transferees
(collectively, the "Investors").
Pursuant to the terms of the Stockholders' Agreement, (i) each Investor and
the holders of shares of Class B Common Stock after exercise of the Class B
Warrants (the "Warrant Shareholders") received from the Investors holding shares
of Class A Convertible Preferred Stock of the Company (the "Class A Investors"),
and the Class A Investors granted to the other Investors and the Warrant
Shareholders, rights (the "Class A Co-Sale Rights") to participate on a pro rata
basis in certain resales of shares of Class A Convertible Preferred Stock (or
Common Stock issuable upon conversion thereof), (ii) the Investors holding
shares of Class B Preferred Stock of the Company (the "Class B Investors") and
the Investors holding shares of Class C Preferred Stock of the Company (the
"Class C Investors") agreed to certain restrictions on transfers of shares,
(iii) each Class B Investor and each Class C Investor granted to the Warrant
Shareholders rights
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(the "Warrant Shareholder Co-Sale Rights") to participate on a pro-rata basis in
certain resales of shares of capital stock, (iv) each Investor agreed to sell
such Investor's shares of capital stock in the Company in certain circumstances
if a majority-in-interest of the stockholders negotiated such a sale with an
unaffiliated third party, (v) Chase Equity Associates granted to NationsBank a
right (the "Right of First Offer") to purchase its shares of capital stock and
Class B Warrants in certain circumstances, (vi) each Investor and Warrant
Shareholder received "piggy-back" registration rights, (vii) each Investor and
Warrant Shareholder received demand registration rights, (viii) each Investor
and Warrant Shareholder was granted participation rights with respect to certain
future issuances of securities by the Company, and (ix) each Investor agreed to
elect one individual nominated by the Class C Investors, one individual
nominated by NationsBank and The Hartford, and two individuals nominated by TA
Associates to the Board of Directors. Messrs. O'Connor, Walker, Kafker and
McLane have been elected as directors of the Company pursuant to the
Stockholders' Agreement. Each of the rights of the Warrant Shareholders under
the Stockholders' Agreement are of no force or effect unless or until the Class
B Warrants become eligible to be released from escrow. The Class B Warrants will
terminate unexercised in connection with the repayment of the Subordinated Debt.
Effective upon and subject to the consummation of the Offerings, provisions
of the Stockholders' Agreement relating to the participation rights, the Class A
Co-Sale Rights, the Warrant Shareholder Co-Sale Rights, the Right of First
Offer, the restrictions on transfer of shares, and the election of the directors
will terminate in accordance with their terms.
In connection with these transactions, the Company has paid certain fees to
Chase Equity Associates, including (i) a facility fee of $1.2 million, (ii) a
commitment fee of approximately $45,000 and (iii) a take down fee of $1.2
million. Chase Equity Associates is a limited partnership whose sole limited
partner is an affiliate of Chase Manhattan Corporation (the parent company of
The Chase Manhattan Bank) and whose sole general partner has as its partners
certain employees of The Chase Manhattan Bank (including John M. B. O'Connor, a
director of the Company) and an affiliate of Chase Manhattan Corporation.
In October 1997, the Company entered into the Credit Facility. In
connection with entering into the Credit Facility, the Company has paid The
Chase Manhattan Bank an underwriting fee of $6 million. In addition, in
connection with the Credit Facility, the Company agreed to pay Chase Securities,
Inc. an annual administrative agency fee of $75,000. The Company also paid The
Chase Manhattan Bank a commitment fee of approximately $437,500 for the period
June 26, 1997 through October 1997.
In September 1997, the Company paid $14.4 million in cash and issued an
aggregate of approximately 10,667 shares of Class D Convertible Preferred Stock
(convertible into 533,331 shares of Common Stock) with a value of approximately
$9.6 million in connection with the merger of GeoCapital Corporation with and
into a wholly owned subsidiary of the Company. The stockholders of GeoCapital
Corporation were Irwin Lieber and Barry K. Fingerhut and members of their
immediate families. Before giving effect to the Offerings, Messrs. Lieber and
Fingerhut and their families are the sole holders of the Class D Convertible
Preferred Stock.
In June 1996, a retirement plan for the benefit of Mr. Chertavian, an
executive officer of the Company, invested $100,500 to purchase 150 shares of
the Company's Series B-1 Voting Convertible Preferred Stock (convertible into
7,500 shares of Common Stock) pursuant to an offering under the Company's 1995
Stock Purchase Plan.
In August 1995, the Skyline Funds, for which Skyline provides investment
advisory services, retained Funds Distributor, Inc., as a distributor of shares
in the Skyline Funds. Mr. Nutt is Chairman of Funds Distributor, Inc., and the
Chairman and Chief Executive Officer and majority stockholder of its parent,
Boston Institutional Group, Inc. Since January 1996, the Skyline Funds have paid
Funds Distributor, Inc. approximately $162,000.
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In December 1996, the Burridge Capital Development Fund, for which Burridge
provides investment advisory services, retained Funds Distributor, Inc., as a
distributor of shares in the Burridge Capital Development Fund. Since this time,
the Burridge Capital Development Fund has paid Funds Distributor, Inc.
approximately $76,000.
Since January 1996, the Company has retained Goodwin, Procter & Hoar LLP
(and its predecessor Goodwin, Procter & Hoar) for certain legal services.
Richard E. Floor, a director of the Company, is the sole shareholder of Richard
E. Floor, P.C., which is a partner in Goodwin, Procter & Hoar LLP and was a
partner in its predecessor.
The Company believes that all of the transactions identified above were
conducted on terms no less favorable to the Company than could have been
obtained from unaffiliated third parties.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth as of October 15, 1997 and as adjusted to
reflect the sale of the shares of Common Stock in the Offerings certain
information regarding the beneficial ownership of Common Stock by (i) each
person or "group" (as that term is defined in Section 13(d)(3) of the Exchange
Act) known by the Company to beneficially own more than 5% of the Common Stock,
(ii) each Named Executive Officer, (iii) each director of the Company and (iv)
all directors and executive officers as a group (12 persons). Except as
otherwise indicated, the Company believes, based on information furnished by
such persons, that each person listed below has sole voting and investment power
over the shares of Common Stock shown as beneficially owned, subject to
community property laws, where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
NUMBER OF -----------------------
SHARES BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNED(2) OFFERINGS OFFERINGS
- ------------------------------------------------------ ------------------- --------- ---------
<S> <C> <C> <C>
TA Associates Group (3)............................... 3,895,106 42.9% 24.2%
Chase Equity Associates, L.P. (4) .................... 1,666,650 18.3 10.4
NationsBanc Investment Corporation (4)................ 970,150 10.7 6.0
William J. Nutt (5)................................... 540,795 5.9 3.4
Hartford Accident and Indemnity Company............... 373,150 4.1 2.3
Sean M. Healey (6).................................... 248,519 2.7 1.5
Levon Chertavian, Jr. (7)............................. 85,833 1.0 *
Nathaniel Dalton (8).................................. 55,000 * *
Brian J. Girvan (9)................................... 50,000 * *
Seth W. Brennan (10).................................. 21,667 * *
Jeffrey S. Murphy (11)................................ 13,567 * *
Richard E. Floor...................................... 41,492 * *
Roger B. Kafker (12).................................. 5,972 * *
P. Andrews McLane (13)................................ 5,972 * *
John M. B. O'Connor (14).............................. 1,666,650 18.3 10.4
W. W. Walker, Jr. .................................... -- -- --
All directors and executive officers
as a group (12 persons) (15)........................ 2,735,467 30.0% 17.0%
</TABLE>
- ---------------
* Less than 1%
(1) The address of the TA Associates Group and Messrs. Kafker and McLane is c/o
TA Associates, Inc., High Street Tower, Suite 2500, 125 High Street,
Boston, Massachusetts 02110-2720. The address of Chase Equity Associates,
L.P. and Mr. O'Connor is 380 Madison Avenue, 12th Floor, New York, New York
10017. The address of NationsBanc Investment Corporation and Mr. Walker is
c/o NationsBank Capital Investors, NationsBank Corporate Center, 10th
Floor, 100 North Tryon Street, Charlotte, North Carolina 28255. The address
of Hartford Accident and Indemnity Company is 200 Hopmeadow Street, P.O.
Box 2999, Simsbury, Connecticut 06104. The address of Mr. Floor is c/o
Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109.
The address of all other listed stockholders is c/o Affiliated Managers
Group, Inc., Two International Place, 23rd Floor, Boston, Massachusetts
02110.
(2) In computing the number of shares of Common Stock beneficially owned by a
person, shares of Common Stock subject to options and warrants held by that
person that are currently exercisable or that become exercisable within 60
days of October 15, 1997 are deemed outstanding. For purposes of computing
the percentage of outstanding shares of Common Stock beneficially owned by
such person, such shares of stock subject to options or warrants that are
currently exercisable or that become exercisable within 60 days are deemed
to be outstanding for such person but are not deemed to be outstanding for
purposes of computing the ownership percentage of any other person. As of
October 15, 1997 a total of 9,116,783
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<PAGE> 70
shares of Common Stock were either outstanding or subject to options,
warrants or other convertible securities that are exercisable or that will
become exercisable within 60 days.
(3) Includes (i) 2,596,756 shares of Common Stock owned by Advent VII L.P.,
(ii) 533,956 shares of Common Stock owned by Advent Atlantic and Pacific II
L.P., (iii) 192,525 shares of Common Stock owned by Advent Industrial II
L.P., (iv) 259,691 shares of Common Stock owned by Advent New York L.P. and
(v) 42,841 shares of Common Stock owned by TA Venture Investors Limited
Partnership. The foregoing partnerships are part of an affiliated group of
investment partnerships referred to, collectively, as the TA Associates
Group. The general partner of Advent VII L.P. is TA Associates VII L.P. The
general partner of each of Advent Industrial II L.P. and Advent New York
L.P. is TA Associates VI L.P. The general partner of Advent Atlantic and
Pacific II L.P. is TA Associates AAP II Partners L.P. The general partner
of each of TA Associates VII L.P., TA Associates VI L.P. and TA Associates
AAP II Partners L.P. is TA Associates, Inc. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all the shares of Common Stock held of record by the named investment
partnerships, with the exception of those shares held by TA Venture
Investors Limited Partnership; individually no stockholder, director or
officer of TA Associates, Inc. is deemed to have or share such voting or
investment power. Principals and employees of TA Associates, Inc.
(including Messrs. Kafker and McLane, directors of the Company) comprise
the general partners of TA Venture Investors Limited Partnership. In such
capacity, Messrs. Kafker and McLane may be deemed to share voting and
investment power with respect to the 42,841 shares of Common Stock held of
record by TA Venture Investors Limited Partnership. Messrs. Kafker and
McLane disclaim beneficial ownership of such shares, except in the case of
Mr. Kafker to the extent of 5,972 shares as to which he holds a pecuniary
interest and in the case of Mr. McLane to the extent of 5,972 shares as to
which he holds a pecuniary interest. Also includes (i) 201,964 shares of
Common Stock held by Chestnut III Limited Partnership and (ii) 67,373
shares of Common Stock held by Chestnut Capital International III L.P. TA
Associates, Inc. has voting and investment power with respect to these
shares pursuant to a proxy.
(4) The 1,666,650 shares beneficially owned by Chase Equity Associates, L.P.
and the 970,150 shares beneficially owned by NationsBanc Investment
Corporation are shares of non-voting Class B Common Stock. See "Description
of Capital Stock -- Class B Common Stock".
(5) Includes (i) 381,986 shares of restricted Common Stock, 354,701 of which
have vested, 12,500 of which will vest in annual installments through March
1999, and 14,785 of which will vest on January 1, 1998, and (ii) 8,333
shares of Common Stock subject to options exercisable within 60 days.
Excludes (i) 196,667 shares subject to unvested options and (ii) 200,000
shares held by irrevocable trusts for the benefit of members of Mr. Nutt's
immediate family of which Mr. Nutt is not a trustee, as to which shares Mr.
Nutt disclaims beneficial ownership.
(6) Includes (i) 235,000 shares of restricted Common Stock, 217,500 of which
have vested and 17,500 of which will vest in annual installments through
March 1999, and (ii) 8,333 shares of Common Stock subject to options
exercisable within 60 days. Excludes 186,667 shares subject to unvested
options.
(7) Includes (i) 75,000 shares of restricted Common Stock, 50,000 of which have
vested, 12,500 of which will vest in annual installments through March
1999, and 12,500 of which will vest in August 1998, and (ii) 3,333 shares
of Common Stock subject to options exercisable within 60 days. Excludes
36,667 shares subject to unvested options.
(8) Includes (i) 50,000 shares of restricted Common Stock, 25,000 of which have
vested and 25,000 of which will vest in equal annual installments through
May 1999, and (ii) 5,000 shares of Common Stock subject to options
exercisable within 60 days. Excludes 67,500 shares subject to unvested
options.
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<PAGE> 71
(9) Includes 50,000 shares of restricted Common Stock, 12,500 of which have
vested and 37,500 of which will vest in equal annual installments through
February 2000. Excludes 57,500 shares subject to unvested options.
(10) Includes (i) 17,500 shares of restricted Common Stock, 8,750 of which have
vested and 8,750 of which will vest in equal annual installments through
March 1999, and (ii) 4,167 shares of Common Stock subject to options
exercisable within 60 days. Excludes 58,333 shares subject to unvested
options.
(11) Includes (i) 10,000 shares of restricted Common Stock, 5,000 of which have
vested and 5,000 of which will vest in equal annual installments through
March 1999, and (ii) 1,667 shares of Common Stock subject to options
exercisable within 60 days. Excludes 38,333 shares subject to unvested
options.
(12) Includes 5,972 shares beneficially owned by Mr. Kafker through TA Venture
Investors Limited Partnership, all of which shares are included in the
3,895,106 shares described in footnote (3) above. Does not include any
shares owned by Advent VII L.P., Advent Atlantic and Pacific II L.P.,
Advent Industrial II L.P., Advent New York L.P., Chestnut III Limited
Partnership or Chestnut Capital International III L.P., of which shares Mr.
Kafker disclaims beneficial ownership.
(13) Includes 5,972 shares of Common Stock beneficially owned by Mr. McLane
through TA Venture Investors Limited Partnership, all of which shares are
included in the 3,895,106 shares described in footnote (3) above. Does not
include any shares owned by Advent VII L.P., Advent Atlantic and Pacific II
L.P., Advent Industrial II L.P., Advent New York L.P., Chestnut III Limited
Partnership or Chestnut Capital International III L.P., of which shares Mr.
McLane disclaims beneficial ownership.
(14) Includes 1,666,650 shares of Class B Common Stock beneficially owned by
Chase Equity Associates, L.P., of which Mr. O'Connor disclaims beneficial
ownership.
(15) Includes 819,486 shares of Common Stock held by executive officers and
directors which are subject to vesting and repurchase in certain
circumstances.
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<PAGE> 72
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Immediately upon consummation of the Offerings, the Company will file and
cause to become effective an Amended and Restated Certificate of Incorporation
(the "Certificate"), which has previously been adopted by the Board of Directors
and approved by the stockholders of the Company. Pursuant to the Certificate,
the Company is authorized to issue (i) 40,000,000 shares of Common Stock, (ii)
3,000,000 shares of Class B Common Stock, and (iii) 5,000,000 shares of
undesignated preferred stock, par value $.01 per share (the "Preferred Stock").
Immediately upon consummation of the Offerings, approximately 13,449,150 shares
of Common Stock will be issued and outstanding, 2,636,800 shares of Class B
Common Stock will be issued and outstanding and no shares of Preferred Stock
will be issued and outstanding. The following summary description of the capital
stock of the Company is qualified in its entirety by reference to the
Certificate and the Company's Amended and Restated By-laws (the "By-laws"),
copies of which are filed as exhibits to the Registration Statement of which
this Prospectus is a part.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by stockholders. Holders of Common Stock are not entitled to
cumulative voting rights. Therefore, the holders of a majority of the shares
voted in the election of directors can elect all of the directors then standing
for election, subject to the rights of the holders of Preferred Stock, if and
when issued. The holders of Common Stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to the Common Stock.
The holders of Common Stock and Class B Common Stock are entitled to
receive such dividends, if any, as may be declared from time to time by the
Board of Directors from funds legally available therefor, with each share of
Common Stock and each share of Class B Common Stock sharing equally in such
dividends. If dividends are declared which are payable in shares of Common Stock
or shares of Class B Common Stock, dividends shall be declared which are payable
at the same rate in both classes of stock and the dividends payable in shares of
Common Stock shall be payable to the holders of shares of Common Stock, and the
dividends payable in shares of Class B Common Stock shall be payable to the
holders of shares of Class B Common Stock. See "Dividend Policy". The possible
issuance of Preferred Stock with a preference over Common Stock and Class B
Common Stock as to dividends could impact the dividend rights of holders of
Common Stock and Class B Common Stock. All outstanding shares of Common Stock
and Class B Common Stock, including the shares offered by this Prospectus, are,
or will be upon consummation of the Offerings, fully paid and non-assessable.
The By-laws provide, subject to the rights of the holders of the Preferred
Stock, if and when issued, that the number of directors shall be fixed by the
Board of Directors. Subject to any rights of the holders of Preferred Stock, if
and when issued, to elect directors, and to remove any director whom the holders
of any such Preferred Stock had the right to elect, any director of the Company
may be removed from office only with cause and by the affirmative vote of at
least two-thirds of the total votes which would be eligible to be cast by
stockholders in the election of such director.
CLASS B COMMON STOCK
Holders of Class B Common Stock generally have the same rights and
privileges as holders of Common Stock, except that holders of Class B Common
Stock do not have any voting rights other than those which may be provided by
applicable law. Each share of Class B Common Stock is convertible, at the option
of the holder thereof, into one share of Common Stock (subject to adjustment to
reflect any dividend in Common Stock or Class B Common Stock) if such share of
Class B Common Stock is to be distributed, disposed of or sold by the holder
thereof in connection
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<PAGE> 73
with any sale; provided, that such conversion is not inconsistent with any
regulation, rule or other requirement of any governmental authority applicable
to such holder at such time.
UNDESIGNATED PREFERRED STOCK
The Board of Directors of the Company is authorized, without further action
of the stockholders of the Company, to issue up to 5,000,000 shares of Preferred
Stock in classes or series and to fix the designations, powers, preferences and
the relative, participating, optional or other special rights of the shares of
each series and any qualifications, limitations and restrictions thereon as set
forth in the Certificate. Any such Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. The purpose of authorizing the Board of Directors to issue
Preferred Stock is, in part, to eliminate delays associated with a stockholder
vote on specific issuances. The issuance of Preferred Stock could have the
effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring or seeking to acquire, a significant
portion of the outstanding stock of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BY-LAWS
GENERAL
A number of provisions of the Company's Certificate and By-laws concern
matters of corporate governance and the rights of stockholders. Certain of these
provisions, including those which grant the Board of Directors the ability to
issue shares of Preferred Stock and to set the voting rights, preferences and
other terms thereof, may be deemed to have an anti-takeover effect and may
discourage takeover attempts not first approved by the Board of Directors
(including takeovers which certain stockholders may deem to be in their best
interests). To the extent takeover attempts are discouraged, temporary
fluctuations in the market price of the Common Stock, which may result from
actual or rumored takeover attempts, may be inhibited. Certain of these
provisions also could delay or frustrate the removal of incumbent directors or
the assumption of control by stockholders, even if such removal or assumption
would be beneficial to stockholders of the Company. These provisions also could
discourage or make more difficult a merger, tender offer or proxy contest, even
if they could be favorable to the interests of stockholders, and could
potentially depress the market price of the Common Stock. The Board of Directors
of the Company believes that these provisions are appropriate to protect the
interests of the Company and all of its stockholders. The Board of Directors has
no present plans to adopt any other measures or devices which may be deemed to
have an "anti-takeover effect".
MEETINGS OF STOCKHOLDERS
The By-laws provide that a special meeting of stockholders may be called
only by the Board of Directors unless otherwise required by law. The By-laws
provide that only those matters set forth in the notice of the special meeting
may be considered or acted upon at that special meeting, unless otherwise
provided by law. In addition, the By-laws set forth certain advance notice and
informational requirements and time limitations on any director nomination or
any new business which a stockholder wishes to propose for consideration at an
annual meeting of stockholders.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
The Certificate provides that any action required or permitted to be taken
by the stockholders of the Company at an annual or special meeting of
stockholders must be effected at a duly called meeting and may not be taken or
effected by a written consent of stockholders in lieu thereof.
INDEMNIFICATION AND LIMITATION OF LIABILITY
The By-laws of the Company provide that directors and officers of the
Company shall be, and in the discretion of the Board of Directors non-officer
employees may be, indemnified by the Company to the fullest extent authorized by
Delaware law, as it now exists or may in the future be amended,
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<PAGE> 74
against all expenses and liabilities reasonably incurred in connection with
service for or on behalf of the Company. The By-laws of the Company also provide
that the right of directors and officers to indemnification shall be a contract
right and shall not be exclusive of any other right now possessed or hereafter
acquired under any by-law, agreement, vote of stockholders or otherwise. The
Certificate contains a provision permitted by Delaware law that generally
eliminates the personal liability of directors for monetary damages for breaches
of their fiduciary duty, including breaches involving negligence or gross
negligence in business combinations, unless the director has breached his or her
duty of loyalty, failed to act in good faith, engaged in intentional misconduct
or a knowing violation of law, paid a dividend or approved a stock repurchase in
violation of the Delaware General Corporation Law or obtained an improper
personal benefit. This provision does not alter a director's liability under the
federal securities laws. In addition, this provision does not affect the
availability of equitable remedies, such as an injunction or rescission, for
breach of fiduciary duty.
AMENDMENT OF THE CERTIFICATE
The Certificate provides that an amendment thereof must first be approved
by a majority of the Board of Directors and (with certain exceptions) thereafter
must be approved by the holders of a majority of the total votes eligible to be
cast by holders of Common Stock with respect to such amendment or repeal.
AMENDMENT OF BY-LAWS
The Certificate provides that the By-laws may be amended or repealed by the
Board of Directors or by the stockholders. Such action by the Board of Directors
requires the affirmative vote of a majority of the directors then in office.
Such action by the stockholders requires the affirmative vote of the holders of
at least two-thirds of the total votes eligible to be cast by holders of Common
Stock with respect to such amendment or repeal at an annual meeting of
stockholders or a special meeting called for such purpose, unless the Board of
Directors recommends that the stockholders approve such amendment or repeal at
such meeting, in which case such amendment or repeal shall only require the
affirmative vote of a majority of the total votes eligible to be cast by holders
of Common Stock with respect to such amendment or repeal.
STATUTORY BUSINESS COMBINATION PROVISION
Upon completion of the Offerings, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person, or an affiliate or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in the person
becoming an interested stockholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested stockholder; (ii) the interested stockholder acquired 85% or more of
the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined (with certain limited exceptions) as any
person that is (A) the owner of 15% or more of the outstanding voting stock of
the corporation or (B) an affiliate or associate of the corporation and was the
owner of 15% or more of the outstanding voting stock of the corporation at any
time within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
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A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that, with certain
limited exceptions, such by-law or charter amendment shall not become effective
until 12 months after the date it is adopted. Neither the Certificate nor the
By-laws contains any such exclusion.
REGISTRATION RIGHTS
Pursuant to the terms of the Stockholders' Agreement, holders of 8,076,696
shares of Common Stock, including TA Associates, NationsBank, The Hartford,
Chase Equity Associates and certain members of senior management of the Company,
have the right in certain circumstances to require the Company to register
shares of Common Stock under the Securities Act for resale to the public. The
Stockholders' Agreement also provides that holders of 8,076,696 shares of Common
Stock have the right to include their shares of Common Stock in a registration
statement filed by the Company. See "Certain Transactions". The holders of an
additional 696,854 shares of Common Stock also have the right to include their
shares of Common Stock in a registration statement filed by the Company. In
addition, a number of managers of the Affiliates have registration rights under
the transaction documents pursuant to which AMG made its investment in each such
Affiliate. These registration rights relate to shares of Common Stock which such
managers acquire upon the exchange of certain of their interests in the
respective Affiliates. See "Business -- AMG Structure and Relationship with
Affiliates -- Capitalization of Retained Interest". Each of such manager's
rights are subject to the right of an underwriter participating in the offering
to limit the number of shares included in the registration. All expenses
relating to the filing of such registration statements, excluding underwriting
discounts and selling expenses, will be paid by the Company. The foregoing
rights will be waived in connection with the Offerings but will remain in effect
following the Offerings.
TRANSFER AGENT AND REGISTRAR
The Company has selected ChaseMellon Shareholder Services L.L.C. as the
transfer agent and registrar for the Common Stock.
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<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have a total of
16,085,950 shares of Common Stock outstanding. Of these shares, the 7,000,000
shares sold in the Offerings will be freely transferable without restriction or
registration under the Securities Act, except for any shares held by
"affiliates" of the Company, as that term is used under the Securities Act and
the regulations promulgated thereunder, and except to the extent such shares are
subject to the agreements with the Underwriters described below. The remaining
9,085,950 shares, held by officers, directors, employees and other stockholders
of the Company and its Affiliates, were sold by the Company in private
transactions in reliance on exemptions from the registration requirements of the
Securities Act and will be "restricted securities" within the meaning of Rule
144 ("Rule 144") adopted under the Securities Act (the "Restricted Shares"). Of
these Restricted Shares, 8,773,550 shares of Common Stock will be subject to the
registration rights of certain stockholders. See "Description of Capital Stock
- -- Registration Rights".
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned Restricted Shares for at least one year (as computed under
Rule 144) is entitled to sell within any three-month period a number of shares
that does not exceed the greater of (i) 1% of the number of shares of Common
Stock then outstanding (approximately 160,859 shares after giving effect to the
Offerings), or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks immediately preceding the filing of a Form 144 with
respect to such sale. Sales under Rule 144 are also subject to certain
provisions relating to the manner of sale and notice requirements, and to the
availability of current public information about the Company. In addition, under
Rule 144(k), a person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the 90 days
immediately preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years (as computed under Rule 144), will be entitled
to sell such shares under Rule 144(k) without regard to the volume requirements
described above. Rule 144 also provides that affiliates that are selling shares
of Common Stock that are not Restricted Shares must nonetheless comply with the
provisions of Rule 144 other than the holding period requirement.
Beginning 180 days after the date of this Prospectus, upon the expiration
of certain agreements entered into between the Underwriters and certain of the
Company's officers, directors, stockholders and holders of outstanding options
or warrants (the "Lock-up Agreements"), the Company believes that 75,000 of the
Restricted Shares will be eligible for sale in the public market pursuant to
Rule 144(k) and 6,646,571 additional Restricted Shares will be eligible for sale
in the public market subject to the provisions of Rule 144 referred to above. Of
the remaining 2,364,379 Restricted Shares, the Company estimates that 2,298,754
shares will become eligible for sale pursuant to Rule 144 at various dates
through November 1998. The remaining 65,625 Restricted Shares will become
eligible for sale in the public market under Rule 144 (including paragraph (k)
thereof) at various times as they become vested.
Under the 1995 Plan and the 1997 Stock Plan, there are an aggregate of
2,175,000 shares of Common Stock reserved for issuance. As of the Effective
Date, options to purchase 682,500 shares have been granted pursuant to the 1995
Plan and the 1997 Stock Plan, and all of such options remain outstanding.
Beginning 180 days after the date of this Prospectus, upon the expiration of the
Lock-up Agreements, 43,681 of these option shares, if exercised, will be
eligible for sale in the public market in accordance with the requirements of
Rule 701, to the extent the options are exercised. Rule 701 promulgated under
the Securities Act provides that shares of Common Stock acquired pursuant to the
exercise of options outstanding prior to the Offerings or the grant of Common
Stock prior to the Offerings pursuant to written compensation plans or contracts
may be resold by persons other than affiliates beginning 90 days after the date
of the Offerings, subject only to the manner of sale provisions of Rule 144, and
by affiliates, beginning 90 days after the date of the Offerings, subject to all
provisions of Rule 144 except its one-year minimum holding period
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requirement. Of the option shares of Common Stock described above, all of such
shares of Common Stock are held by affiliates of the Company.
As soon as practicable following the Offerings, the Company intends to file
one or more registration statements on Form S-8 under the Securities Act to
register all shares of Common Stock reserved for issuance under the 1995 Plan
and the 1997 Stock Plan. If the Company files one or more registration
statements on Form S-8, non-affiliate holders of shares registered under the
Form S-8 that are issuable upon exercise of stock options granted pursuant to
the 1995 Plan and the 1997 Stock Plan will be eligible to sell such shares in
the public market without regard to the restrictions of Rule 144, subject to the
Lock-Up Agreements, as applicable. Affiliates will continue to be subject to
certain limitations on sale, including the volume restrictions described above,
as well as the Lock-up Agreements.
The Lock-up Agreements provide that the holders of all of the outstanding
shares of Common Stock prior to the Offerings will not, without the prior
written consent of the Underwriters, offer, sell, pledge, contract to sell,
grant any option to purchase or otherwise dispose of any shares of Common Stock
beneficially owned or otherwise held or any securities convertible into,
derivative of or exercisable or exchangeable for such Common Stock during the
180-day period commencing on the Effective Date. In addition, the Company has
also agreed that the Company will not, without the prior written consent of the
Underwriters, offer, sell, pledge, contract to sell, grant any option to
purchase or otherwise dispose of any Common Stock (other than pursuant to
employee stock option or purchase plans existing, or on the conversion or
exchange of convertible or exchangeable securities or the exercise of warrants
outstanding, on the date of this Prospectus) or any securities of the Company
which are substantially similar to the shares of Common Stock, or which are
convertible into or exercisable or exchangeable for Common Stock or any such
other securities during the 180-day period commencing on the date of this
Prospectus, except for (i) shares of Common Stock offered in connection with the
Offerings and (ii) shares of Common Stock or such other securities issued as
consideration in future investments, provided that such securities are made
subject to such 180-day restriction.
Prior to the Offerings, there has been no public market for the Company's
Common Stock. No prediction can be made as to the effect, if any, that sales of
shares of Common Stock into the public market or the availability of such shares
for sale will have on the market price prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock into the public
market after the restrictions described above lapse could adversely affect the
prevailing market price and the ability of the Company to obtain equity capital
in the future. See "Risk Factors -- Shares Eligible for Future Sale".
76
<PAGE> 78
VALIDITY OF SECURITIES
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Goodwin, Procter & Hoar LLP, Boston, Massachusetts, and
for the Underwriters by Sullivan & Cromwell, New York, New York. Partners (or,
in the case of partners which are professional corporations, the sole
stockholders of such corporations) of Goodwin, Procter & Hoar LLP own an
aggregate of 43,392 shares of Common Stock.
EXPERTS
The financial statements included in this Prospectus listed on page F-1 for
Affiliated Managers Group, Inc., Gofen and Glossberg, Inc., The Burridge Group
Inc., GeoCapital Corporation and Tweedy, Browne Company L.P. have been included
herein in reliance on the reports of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The combined statements of income of First Quadrant Institutional and First
Quadrant Limited for the period from January 1, 1996 to March 25, 1996 and for
the year ended December 31, 1995 have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments thereto, the "Registration Statement") under the
Securities Act with respect to the Common Stock offered by this Prospectus. As
permitted by the rules and regulations of the Commission, this Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any agreement or other document referred to are not necessarily complete. With
respect to each such agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in all respects by such reference.
The Registration Statement, including the exhibits and schedules thereto,
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC
20549 and at the following regional offices of the Commission: Seven World Trade
Center, New York, New York 10048, and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials may be obtained from the
public referrals section of the Commission at its Washington address upon
payment of the prescribed fees. The Company is required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") System. The
electronically filed documents, which also include reports, proxy statements and
other information, are maintained by the Commission and may be found at the
World Wide Web site http://www.sec.gov. The Common Stock has been approved for
listing, subject to notice of issuance, on the NYSE. Certain reports, proxy
statements and other information of listed companies can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements for each fiscal year.
77
<PAGE> 79
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 80
AFFILIATED MANAGERS GROUP, INC. AND AFFILIATES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY
AFFILIATED MANAGERS GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1997................. F-3
Unaudited Pro Forma Consolidated Statements of Operations for the Year Ended December 31,
1996 and for the Six Months Ended June 30, 1997............................................ F-4
Notes to Unaudited Pro Forma Consolidated Financial Statements............................... F-6
Report of Independent Accountants............................................................ F-11
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997 (Unaudited)... F-12
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996
and for the Six Months Ended June 30, 1996 and 1997 (Unaudited)............................ F-13
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996
and for the Six Months Ended June 30, 1996 and 1997 (Unaudited)............................ F-14
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Six Months Ended June 30, 1997 (Unaudited)................. F-15
Notes to Consolidated Financial Statements................................................... F-16
PRIOR INVESTMENTS
GOFEN AND GLOSSBERG, INC.
Report of Independent Accountants............................................................ F-31
Statements of Financial Condition as of December 31, 1996 and 1995........................... F-32
Statements of Operations for the Years Ended December 31, 1996 and 1995...................... F-33
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1996 and
1995....................................................................................... F-34
Statements of Cash Flows for the Years Ended December 31, 1996 and 1995...................... F-35
Notes to Financial Statements................................................................ F-36
THE BURRIDGE GROUP INC.
Report of Independent Accountants............................................................ F-39
Statements of Operations for the Period January 1, 1996 to December 30, 1996 and for the
Years Ended December 31, 1995 and 1994..................................................... F-40
Statements of Changes in Shareholders' Equity for the Period January 1, 1996 to December 30,
1996 and for the Years Ended December 31, 1995 and 1994.................................... F-41
Statements of Cash Flows for the Period January 1, 1996 to December 30, 1996 and for the
Years Ended December 31, 1995 and 1994..................................................... F-42
Notes to Financial Statements................................................................ F-43
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
Independent Auditors' Report................................................................. F-46
Combined Statements of Income for the Period January 1, 1996 to March 25, 1996 and for the
Year Ended December 31, 1995............................................................... F-47
Notes to Combined Statements of Income....................................................... F-48
SUBSEQUENT INVESTMENTS
GEOCAPITAL CORPORATION
Report of Independent Accountants............................................................ F-52
Balance Sheets as of September 30, 1996 and 1995............................................. F-53
Statements of Income and Retained Earnings for the Years Ended September 30, 1996, 1995 and
1994....................................................................................... F-54
Statements of Cash Flow for the Years Ended September 30, 1996, 1995 and 1994................ F-55
Notes to Financial Statements................................................................ F-56
TWEEDY, BROWNE COMPANY L.P.
Report of Independent Accountants............................................................ F-60
Balance Sheets as of December 31, 1996 and September 30, 1996 and 1995....................... F-61
Statements of Operations for the period October 1, 1996 through December 31, 1996 and the
Years Ended September 30, 1996, 1995 and 1994.............................................. F-62
Statements of Changes in Partners' Capital for the period October 1, 1996 through December
31, 1996 and the Years Ended September 30, 1996 and 1995................................... F-63
Statements of Cash Flows for the period October 1, 1996 through December 31, 1996 and the
Years Ended September 30, 1996, 1995 and 1994.............................................. F-64
Notes to Financial Statements................................................................ F-65
</TABLE>
F-1
<PAGE> 81
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth the unaudited pro forma consolidated
statements of operations for the Company for the year ended December 31, 1996
and the six months ended June 30, 1997, and the unaudited pro forma consolidated
balance sheet of the Company as of June 30, 1997, after giving effect to: (i)
the investments made during the year ended December 31, 1996 and the six months
ended June 30, 1997 (the "Prior Investments"); (ii) the recent investments in
Tweedy, Browne and GeoCapital, including the issuance of $9.6 million of Class D
Convertible Preferred Stock in connection with the investment in GeoCapital (the
"Subsequent Investments"), which occurred subsequent to June 30, 1997; (iii) the
Company's Recent Financing (as defined below), which was entered into in
connection with the Subsequent Investments; (iv) a 50-for-1 stock split of the
Common Stock effected in the form of a stock dividend as of the date of this
Prospectus, the exercise of all warrants to purchase Shares of the Company's
convertible preferred stock (the "Convertible Preferred Stock") and the
conversion of all outstanding shares of the Convertible Preferred Stock into
shares of Common Stock upon consummation of the Offerings and the issuance of
86,023 shares of Common Stock to shareholders of an Affiliate (the
"Recapitalization"); and (v) the sale of Common Stock offered in the Offerings
and the application of the net proceeds therefrom. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 1996 and
the six months ended June 30, 1997 assume that each of the transactions occurred
on January 1, 1996. The unaudited pro forma consolidated balance sheet assumes
that each of these transactions occurred on June 30, 1997.
The pro forma adjustments are based on available information and upon
certain assumptions that management believes are reasonable under the
circumstances. The Prior Investments and the Subsequent Investments are
accounted for under the purchase method of accounting. Under this method of
accounting, the purchase price has been allocated to the fair value of net
assets acquired, primarily acquired client relationships, and any remaining
excess purchase price over net assets acquired is categorized as goodwill. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Prior Investments were primarily funded with cash received from
borrowings under the Company's revolving credit facility and from issuances of
the Company's Convertible Preferred Stock. The Subsequent Investments have been
funded by: (i) cash received from borrowings ("Senior Debt") under the Credit
Facility, (ii) cash received from the issuance of $60 million face amount of
subordinated debt (the "Subordinated Debt"), (iii) cash received from the
issuance of $30 million of Class C Convertible Preferred Stock and warrants to
purchase Class C Convertible Preferred Stock (clauses (i) - (iii) collectively,
the "Recent Financing") and (iv) the issuance of 10,667 shares of Class D
Convertible Preferred Stock valued at $9.6 million as partial consideration for
the investment in GeoCapital (which is reflected as part of the Subsequent
Investments). See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources".
The unaudited pro forma consolidated financial information should be read
in conjunction with the Consolidated Financial Statements of the Company
(including the unaudited information as of and for the six months ended June 30,
1997) and the related notes thereto included elsewhere in this Prospectus. The
unaudited pro forma consolidated financial information is based on the
historical data with respect to the Company and the acquired businesses
comprising the Prior Investments and the Subsequent Investments, and is not
necessarily indicative of the results that might have occurred had such
transactions actually taken place at the beginning of the period specified and
is not intended to be a projection of future results.
F-2
<PAGE> 82
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUBSEQUENT PRO FORMA
HISTORICAL INVESTMENTS FINANCING PRO FORMA OFFERING AS ADJUSTED
(A) (B) ADJUSTMENTS COMBINED ADJUSTMENTS JUNE 30, 1997
---------- ----------- ----------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents... $ 13,297 $ 275 $ 2,400(D) $ 15,972 $ -- $ 15,972
Investment advisory fees
receivable................ 12,158 4,550 -- 16,708 -- 16,708
Prepaid expenses and other
current assets............ 572 360 75(D) 1,007 -- 1,007
-------- -------- -------- -------- -------- --------
Total current
assets.............. 26,027 5,185 2,475 33,687 -- 33,687
Fixed assets, net........... 3,856 1,009 -- 4,865 -- 4,865
Secured demand notes
receivable................ -- 800 -- 800 -- 800
Equity investment in
Affiliate................. 1,170 -- -- 1,170 -- 1,170
Acquired client
relationships, net of
accumulated
amortization.............. 35,785 107,931(C) -- 143,716 740(E) 144,456
Goodwill, net of accumulated
amortization.............. 43,034 211,338(C) -- 254,372 1,109(E) 255,481
Receivable from related
parties................... -- 1,200 -- 1,200 -- 1,200
Other assets................ 3,897 217 8,900(D) 13,014 (4,788)(F) 8,226
-------- -------- -------- -------- -------- --------
Total assets.......... $113,769 $ 327,680 $11,375 $452,824 $ (2,939) $ 449,885
======== ======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Accounts payable and accrued
liabilities............... $ 13,108 $ 2,280 -- $ 15,388 $ -- $ 15,388
Senior debt -- current
portion................... -- 5,500 -- 5,500 (4,290)(G) 1,210
-------- -------- -------- -------- -------- --------
Total current
liabilities......... 13,108 7,780 -- 20,888 (4,290) 16,598
Senior debt................. 48,900 219,500 $11,375(D) 279,775 (74,710)(G) 205,065
Other long-term
liabilities............... 4,027 -- -- 4,027 -- 4,027
Subordinated debt........... -- 59,600 -- 59,600 (58,800)(G)(F) 800
-------- -------- -------- -------- -------- --------
Total liabilities..... 66,035 286,880 11,375 364,290 (137,800) 226,490
-------- -------- -------- --------
Minority interest........... 8,545 -- -- 8,545 -- 8,545
Stockholders' equity:
Preferred stock........... 43,976 40,800 -- 84,776 (84,776)(G)
Common stock.............. 15 -- -- 15 225,625(G)(E) 225,640
Foreign translation
adjustment.............. 6 -- -- 6 -- 6
Accumulated deficit....... (4,808) -- -- (4,808) (5,988)(F) (10,796)
-------- -------- -------- -------- -------- --------
Total stockholders'
equity.............. 39,189 40,800 -- 79,989 134,861 214,850
-------- -------- -------- -------- -------- --------
Total liabilities and
stockholders'
equity.............. $113,769 $ 327,680 $11,375 $452,824 $ (2,939) $ 449,885
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
F-3
<PAGE> 83
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBSEQUENT
INVESTMENTS
-------------------
PRIOR TWEEDY, ADJUSTMENTS PRO FORMA
INVESTMENTS GEOCAPITAL BROWNE FOR FINANCING OFFERING AS
HISTORICAL (H) (I) (I) INVESTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ----------- ---------- ------- ----------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues..... $ 50,384 $17,793 $ 12,204 $36,942 $ 3,676(J) $ -- $120,999 $ -- $120,999
Operating
expenses:
Compensation
and
related
expenses... 21,113 12,194 9,300 5,402 (9,917)(J) -- 38,092 -- 38,092
Amortization
of
intangible
assets.... 8,053 -- -- -- 11,277(K) -- 19,330 200(N) 19,530
Depreciation
and other
amortization... 932 280 28 328 -- 1,078(M) 2,646 (370)(O) 2,276
Other
operating
expenses.. 13,115 4,741 2,512 5,623 -- 25,991 -- 25,991
------- ------- ------- ------- -------- -------- -------- ------- -------
Total
operating
expenses... 43,213 17,215 11,840 11,353 1,360 1,078 86,059 (170) 85,889
------- ------- ------- ------- -------- -------- -------- ------- -------
Operating
income
(loss)...... 7,171 578 364 25,589 2,316 (1,078) 34,940 170 35,110
Non-operating
(income) and
expenses:
Investment
and other
income.... (337) (88) (5) (1) -- -- (431) -- (431)
Interest
expense... 2,747 -- -- 48 -- 28,499(M) 31,294 (15,153)(O) 16,141
------- ------- ------- ------- -------- -------- -------- ------- -------
2,410 (88) (5) 47 -- 28,499 30,863 (15,153) 15,710
------- ------- ------- ------- -------- -------- -------- ------- -------
Income (loss)
before
minority
interest and
income
taxes....... 4,761 666 369 25,542 2,316 (29,577) 4,077 15,323 19,400
Minority
interest.... (5,969) -- -- -- (11,570)(J) (17,539) -- (17,539)
------- ------- ------- ------- -------- -------- -------- ------- -------
Income (loss)
before
income
taxes....... (1,208) 666 369 25,542 (9,254) (29,577) (13,462) 15,323 1,861
Income
taxes....... 181 345 259 938 (604)(L) 1,119 (337)(P) 782
------- ------- ------- ------- -------- -------- -------- ------- -------
Net income
(loss)...... $ (1,389) $ 321 $ 110 $24,604 $ (8,650) $(29,577) $(14,581) $ 15,660 $ 1,079
======= ======= ======= ======= ======== ======== ======== ======= =======
Net income
(loss) per
share....... $ (0.21)(R) $ (1.62 (Q) $ 0.07 (Q)
======= ======== =======
Number of
shares used
in net
income
(loss) per
share....... 6,631 9,002 (Q) 16,002 (Q)
======= ======== =======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
F-4
<PAGE> 84
AFFILIATED MANAGERS GROUP, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SUBSEQUENT
INVESTMENTS
---------------------
PRIOR TWEEDY, ADJUSTMENTS PRO FORMA
INVESTMENTS GEOCAPITAL BROWNE FOR FINANCING OFFERING AS
HISTORICAL (H) (I) (I) INVESTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
---------- ----------- ---------- ------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues...... $ 32,870 $ 2,972 $5,456 $22,051 $ 2,213(J) $ -- $65,562 $ -- $65,562
Operating
expenses:
Compensation
and related
expenses... 11,222 2,972 3,613 2,863 (1,363)(J) -- 19,307 -- 19,307
Amortization
of
intangible
assets..... 2,043 -- -- -- 5,334(K) -- 7,377 100(N) 7,477
Depreciation
and other
amortization... 671 -- 18 172 -- 529(M) 1,390 (186)(O) 1,204
Other
operating
expenses... 13,232 -- 708 2,921 -- -- 16,861 16,861
-------- ------- ------ ------- ------- --------- ------- ------- -------
Total
operating
expenses... 27,168 2,972 4,339 5,956 3,971 529 44,935 (86) 44,849
-------- ------- ------ ------- ------- --------- ------- ------- -------
Operating
income
(loss)....... 5,702 -- 1,117 16,095 (1,758) (529) 20,627 86 20,713
Non-operating
(income) and
expenses:
Investment
and other
income..... (438) -- (4) -- -- -- (442) -- (442)
Interest
expense.... 1,707 -- -- 24 -- 13,916(M) 15,647 (7,577)(O) 8,070
-------- ------- ------ ------- ------- --------- ------- ------- -------
1,269 -- (4) 24 -- 13,916 15,205 (7,577) 7,628
-------- ------- ------ ------- ------- --------- ------- ------- -------
Income (loss)
before
minority
interest and
income
taxes........ 4,433 -- 1,121 16,071 (1,758) (14,445) 5,422 7,663 13,085
Minority
interest..... (3,632) -- -- -- (5,713)(J) -- (9,345) -- (9,345)
-------- ------- ------ ------- ------- --------- ------- ------- -------
Income (loss)
before income
taxes........ 801 -- 1,121 16,071 (7,471) (14,445) (3,923) 7,663 3,740
Income
taxes........ 95 -- 4 599 (4)(L) -- 694 877(P) 1,571
-------- ------- ------ ------- ------- --------- ------- ------- -------
Net income
(loss)....... $ 706 $ -- $1,117 $15,472 $(7,467) $ (14,445) $(4,617) 6,786 2,169
======== ======= ====== ======= ======= ========= ======= ======= =======
Net income
(loss) per
share........ $ 0.10 $ (0.51)(Q) $ 0.13(Q)
======== ======= =======
Number of
shares used
in net income
(loss) per
share........ 6,852 9,139(Q) 16,139(Q)
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
F-5
<PAGE> 85
AFFILIATED MANAGERS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA CONSOLIDATED BALANCE SHEET
The accompanying pro forma consolidated balance sheet as of June 30, 1997
gives effect to the Subsequent Investments and the adjustments as a result of
the Offerings. The estimated fair market values reflected below are based on the
assumption that the Subsequent Investments had occurred on June 30, 1997 after
giving effect to the new cost basis, including intangible assets, in the net
assets acquired and to the minimum amounts of cash, net working capital and net
worth contractually required to remain in the businesses acquired. The estimated
fair market values reflected below use estimates and make assumptions about
purchase price allocation for the Subsequent Investments and are subject to
revision but, in management's opinion, such revisions are not expected to be
material.
(A) Represents the historical unaudited consolidated condensed balance
sheet of the Company at June 30, 1997.
(B) Reflects the Subsequent Investments as if such investments had occurred
on June 30, 1997. The consideration paid for the Subsequent Investments, net of
cash acquired and including transaction costs, consisted of $314.7 million in
cash, and 10,667 shares of Class D Convertible Preferred Stock valued at $9.6
million. In conjunction with each of the Subsequent Investments, certain senior
employees have entered into long-term employment and non-competition agreements
with the respective Affiliate and the Company.
The estimated fair market value of the assets and liabilities of the
Subsequent Investments is as follows:
NET ASSETS ACQUIRED
<TABLE>
<CAPTION>
DESCRIPTION TWEEDY, BROWNE GEOCAPITAL TOTAL
- ------------------------------------------------------- -------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable.................................... $ 1,550 $ 3,000 $ 4,550
Other current assets................................... 132 228 360
Fixed assets, net...................................... 880 129 1,009
Secured demand note receivables........................ 800 -- 800
Acquired client relationships.......................... 98,300 9,631 107,931
Goodwill............................................... 200,478 10,860 211,338
Receivable from related parties........................ -- 1,200 1,200
Other assets........................................... -- 217 217
Accounts payable and accrued liabilities............... (1,015) (1,265) (2,280)
Subordinated debt...................................... (800) -- (800)
-------- ------- --------
Total............................................. $300,325 $ 24,000 $324,325
======== ======= ========
</TABLE>
Net assets acquired are as shown net of $275,000 of cash acquired and
includes capitalized transaction costs (see note C below).
In determining the carrying value and associated amortization periods of
intangible assets, the Company considers the attributes of each of the
businesses in which it invests. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 -- "Acquired Client
Relationships and Goodwill" to the Company's consolidated financial statements.
F-6
<PAGE> 86
AFFILIATED MANAGERS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consideration paid for the Subsequent Investments net of cash acquired
and including estimated transaction costs was as follows:
CONSIDERATION PAID
<TABLE>
<CAPTION>
DESCRIPTION TWEEDY, BROWNE GEOCAPITAL TOTAL
- ------------------------------------------------------- -------------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash................................................... $300,325 $ 14,400 $314,725
Class D Convertible Preferred Stock.................... -- 9,600 9,600
-------- ------- --------
Total............................................. $300,325 $ 24,000 $324,325
======== ======= ========
</TABLE>
The Company financed the cash portion of the purchase price of the
Subsequent Investments as follows (see "Management's Discussion and Analysis of
Financial Condition and Results of Operations Liquidity and Capital Resources").
FINANCING FOR CASH CONSIDERATION PAID
<TABLE>
<CAPTION>
DESCRIPTION TOTAL
- ------------------------------------------------------------------------------ --------------
(IN THOUSANDS)
<S> <C>
Senior debt................................................................... $225,000
Subordinated debt............................................................. 58,800
Class C Convertible Preferred Stock and warrants.............................. 31,200
Cash acquired................................................................. (275)
--------
Total.................................................................... $314,725
========
</TABLE>
(C) The purchase price of the Company's investments have been allocated to
acquired client relationships based on the net present value of client
relationships existing at the acquisition date. The excess of purchase price for
the acquisition of Affiliates over the fair value of the net assets acquired,
including acquired client relationships, was classified as goodwill. (See Note
(K) to the Unaudited Pro Forma Consolidated Financial Statements and Note 1
- --"Acquired Client Relationships and Goodwill" to the Company's consolidated
financial statements.) The purchase price of the Company's investments also
includes $600,000 of estimated capitalized transaction costs in connection with
the Subsequent Investments.
(D) Includes $8.9 million of estimated capitalized debt issuance costs and
$75,000 of prepaid Senior Debt fees borrowed in connection with the Senior Debt
and the Subordinated Debt and $2.4 million borrowed for working capital
purposes. Does not include $2.6 million under a letter of credit which the
Company has caused to be issued and upon which the Company is contingently
liable. The $2.6 million contingent liability is canceled, upon the achievement
before July 1999 of (i) a Qualified Public Offering (as such term is defined in
the Subordinated Debt agreement) having an initial sales price to the public of
$22.50 per share, or (ii) a Qualified Public Float (as defined in the
Subordinated Debt agreement) of at least $22.50 per share for 20 consecutive
trading days. The contingent liability is canceled in part upon the achievement
of a Qualified Public Offering at a price above $20.70. Assuming an initial
public offering price of $21.50 per share in the Offerings, the Company's
remaining contingent liability under this agreement would be $1.3 million plus
accrued interest from October 1997.
(E) Reflects the issuance of 86,023 shares of Common Stock issued to
shareholders of an Affiliate upon consummation of the Offerings in exchange for
an additional purchased interest in the Affiliate. (See Note (N) below.)
F-7
<PAGE> 87
AFFILIATED MANAGERS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(F) Reflects the amortization of $1.2 million in debt discount in
connection with the retired Subordinated Debt, the write-off of $500,000 of
capitalized debt issuance costs related to the Company's outstanding Senior
Debt, which was retired with the proceeds from the Recent Financing, and the
write-off of $4.3 million of capitalized debt issuance costs related to the
repayment of Senior Debt and the retirement of Subordinated Debt incurred in
connection with the Subsequent Investments with the application of the net
proceeds of the Offerings.
(G) Reflects the issuance of 7,000,000 shares of the Company's Common
Stock, par value $.01 per share, at an estimated price of $21.50 per share in
the Offerings, resulting in a combined net increase of $139.0 million to Common
Stock and Additional Paid-In Capital on Common Stock. Gross proceeds to the
Company are expected to be $150.5 million and transaction costs, including the
underwriting discount, are expected to be $11.5 million. Also reflects the
application of the net proceeds of the proposed Offerings to retire $4.3 million
of current portion of Senior Debt, $74.7 million of long-term portion of Senior
Debt and $60.0 million face amount of Subordinated Debt after amortization of
$1.2 million of debt discount.
Also reflects the conversion of the Company's Convertible Preferred Stock
and warrants to purchase Class C Convertible Preferred Stock into Common Stock
immediately prior to the Offerings. Upon the closing of the Offerings, $84.8
million of Convertible Preferred Stock will be converted at the specified
conversion prices into Common Stock which would represent an increase of $80,000
to Common Stock and $84.7 million to Additional Paid-In Capital on Common Stock.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying unaudited pro forma consolidated statements of operations
for the year ended December 31, 1996 and the six months ended June 30, 1997 are
presented as if each of the following transactions and events had occurred on
January 1, 1996: (i) the Prior Investments and the Subsequent Investments, (ii)
the Recent Financing and (iii) the proposed Offerings and application of
proceeds therefrom. The Unaudited Pro Forma Consolidated Statements of
Operations reflect the historical operations of each acquired entity, as
adjusted to reflect certain pro forma adjustments primarily relating to: (i)
increases in revenues from significant investment advisory contracts with
managed funds, previously managed directly by certain key employees, which were
entered into in connection with the Subsequent Investments, (ii) reductions in
expenses from discretionary compensation plans and arrangements to give effect
to the contractually agreed upon cash flow distribution obligations of the
Affiliate, (iii) amortization of intangible assets arising in connection with
the acquisitions, (iv) interest expense related to debt incurred to finance such
acquisitions and (v) tax effects of the above.
(H) Reflects the combined historical results of the Prior Investments
beginning January 1, 1996 and ending on the date of investment.
(I) Reflects the historical results of operations of the Subsequent
Investments as if such investments occurred on January 1, 1996.
(J) Reflects the pro forma increase in revenues from significant investment
advisory contracts entered into by the acquired businesses on assets managed
directly by certain key employees of the acquired businesses prior to AMG's
investment, and the reduction in compensation expense from discretionary
compensation plans and arrangements, and increases in minority interest expense
to give effect to accrued cash flow distributions as determined under the
organizational documents of the businesses comprising the Prior Investments and
the Subsequent Investments.
(K) Reflects adjustments for increased amortization expense of the
Company's intangible assets for each of the Prior Investments and Subsequent
Investments as if they had been acquired
F-8
<PAGE> 88
AFFILIATED MANAGERS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
on January 1, 1996. The amortization period for intangible assets from each
investment is assessed individually, with amortization periods for the Company's
investments to date, including the Subsequent Investments occurring after June
30, 1997, ranging from nine to 26 years in the case of acquired client
relationships and 15 to 35 years for goodwill. The expected useful lives of
acquired client relationships is analyzed separately for each acquired Affiliate
and determined based on an analysis of the historical and potential future
attrition rates of each Affiliate's existing clients, as well as a consideration
of the specific attributes of the business of each Affiliate. In determining the
amortization period for goodwill acquired, the Company considers a number of
factors for each investment including: the firm's historical and potential
future operating performance; the firm's historical and potential future rates
of attrition among clients; the stability and longevity of existing client
relationships; the firm's recent, as well as long-term, investment performance;
the characteristics of the firm's products and investment styles; the stability
and depth of the firm's management team and the firm's history and perceived
franchise or brand value. (See Note (C) to the Unaudited Pro Forma Consolidated
Financial Statements and Note 1 -- "Acquired Client Relationships and Goodwill"
to the Company's consolidated financial statements.)
(L) Reflects, upon AMG's investment, the elimination of income taxes based
upon the pre-acquisition conversion into a limited partnership or limited
liability company form from corporate form.
(M) Reflects the additional interest expense and amortization of debt
issuance costs of $28.5 million and $1.1 million, respectively, for the year
ended December 31, 1996 and $13.9 million and $529,000, respectively, for the
six months ended June 30, 1997, which would have been incurred by the Company
assuming (i) the Prior Investments and the Subsequent Investments had occurred
on January 1, 1996, (ii) the Recent Financing occurred as of January 1, 1996 and
(iii) such Recent Financing amounts and the associated interest rates had
remained unchanged for the year ended December 31, 1996 and for the six months
ended June 30, 1997. The borrowings made as part of the Recent Financing contain
interest rate terms which vary. For each 1/8 of 1% change in interest rates,
interest expense related to the Recent Financing after application of the net
proceeds from the Offerings, would increase or decrease by $258,000.
(N) Reflects the increased amortization of intangible assets associated
with the additional purchased interest in an Affiliate acquired in exchange for
Common Stock issued to shareholders of the Affiliate in connection with the
Offerings. (See Note (E) above.)
(O) Reflects the elimination of interest expense of $15.1 million for the
year ended December 31, 1996 and $7.6 million for the six months ended June 30,
1997 related to the application of the estimated net proceeds of the Offerings
to the retirement of $4.3 million current portion of Senior Debt, $74.7 million
long-term portion of Senior Debt and $60.0 million face amount of Subordinated
Debt (after amortization of $1.2 million of debt discount). Also reflects the
reduction of $370,000 and $186,000 for the year ended December 31, 1996 and six
months ended June 30, 1997, respectively, in amortization of capitalized
issuance costs upon the retirement of debt.
(P) Reflects the provision for federal and state income taxes at an
effective statutory rate of 42%.
(Q) Net income (loss) per share is computed on the weighted average number
of shares of Common Stock and common equivalent shares for the respective
period. Using Securities and Exchange Commission directives for companies
contemplating an initial public offering, stock options and restricted stock
issued within one year of an initial public offering have been included as
outstanding shares using the treasury stock method for all periods presented. In
addition, the Company's shares of Convertible Preferred Stock are considered
common equivalent shares, since
F-9
<PAGE> 89
AFFILIATED MANAGERS GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
their respective dates of issuance, as they convert to shares of Common Stock
immediately prior to the consummation of the Offerings.
Pro forma net income (loss) per share has been calculated using the
weighted average shares outstanding calculated as described above after giving
effect to the Recapitalization and to issuances related to the investments made
subsequent to January 1, 1996, including the Subsequent Investments, from
January 1, 1996. All proceeds received from shares sold in the Offerings will be
used to retire debt. Pro forma net income (loss) per share as adjusted is
computed using the pro forma weighted average shares outstanding plus the shares
from the Offerings, all of which will be used to retire debt, as if such shares
were issued at the beginning of the periods presented.
(R) Before extraordinary items.
F-10
<PAGE> 90
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Affiliated Managers Group, Inc.:
We have audited the accompanying consolidated balance sheets of Affiliated
Managers Group, Inc. and Affiliates as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Affiliated
Managers Group, Inc. and Affiliates as of December 31, 1996 and 1995 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
April 26, 1997, except for
Note 16 for which the
date is October 27, 1997
F-11
<PAGE> 91
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $14,096 $ 6,767 $ 13,297
Investment advisory fees receivable.......................... 2,545 15,491 12,158
Other current assets......................................... 206 806 572
--------- ---------- ----------
-- -- --
Total current assets.................................. 16,847 23,064 26,027
Fixed assets, net.............................................. 1,086 2,999 3,856
Equity investment in Affiliate................................. 976 1,032 1,170
Acquired client relationships, net of accumulated amortization
of $1,242 in 1995, $2,979 in 1996 and $4,016 in 1997......... 18,192 30,663 35,785
Goodwill, net of accumulated amortization of $3,706 in 1995,
$10,022 in 1996 and $11,028 in 1997.......................... 26,293 40,809 43,034
Other assets................................................... 1,305 2,768 3,897
--------- ---------- ----------
-- -- --
Total assets.......................................... $64,699 $101,335 $113,769
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................. $ 316 $ 396 $ 2,006
Notes payable to related parties............................. 1,212 7,379 --
Accrued liabilities.......................................... 2,583 15,816 11,102
--------- ---------- ----------
-- -- --
Total current liabilities............................. 4,111 23,591 13,108
Senior bank debt............................................... 18,400 33,400 48,900
Deferred income tax liabilities................................ 216 -- --
Accrued affiliate liability.................................... 3,200 3,200 3,200
Notes payable to related party................................. 693 -- --
Other long-term liabilities.................................... -- 665 827
--------- ---------- ----------
-- -- --
Total liabilities..................................... 26,620 60,856 66,035
Minority interest.............................................. 1,212 3,490 8,545
Commitments and contingencies.................................. -- -- --
Stockholders' equity:
Class A Preferred Stock...................................... 20,008 20,008 20,008
Class B Preferred Stock:
Series B-1 Voting Preferred stock.......................... 7,000 9,468 10,968
Series B-2 Non-voting Preferred stock...................... 13,000 13,000 13,000
Common stock................................................. -- -- --
Additional paid-in capital on common stock................... 1 5 15
Foreign translation adjustment............................... -- 22 6
Accumulated deficit.......................................... (3,142) (5,514) (4,808)
--------- ---------- ----------
-- -- --
Total stockholders' equity............................ 36,867 36,989 39,189
--------- ---------- ----------
-- -- --
Total liabilities and stockholders' equity............ $64,699 $101,335 $113,769
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 92
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................... $ 5,374 $ 14,182 $ 50,384 $ 19,495 $ 32,870
Operating expenses:
Compensation and related
expenses.................... 3,591 6,018 21,113 7,945 11,222
Amortization of intangible
assets...................... 774 4,174 8,053 1,674 2,043
Depreciation and other
amortization................ 19 133 932 270 671
Selling, general and
administrative.............. 743 2,237 10,854 4,866 11,086
Other operating expenses....... 257 330 2,261 827 2,146
------ ------- ------- ------- -------
5,384 12,892 43,213 15,582 27,168
------ ------- ------- ------- -------
Operating income
(loss)............... (10) 1,290 7,171 3,913 5,702
Non-operating (income) and
expenses:
Investment and other income.... (966) (265) (337) (408) (438)
Interest expense............... 158 1,244 2,747 1,311 1,707
------ ------- ------- ------- -------
(808) 979 2,410 903 1,269
------ ------- ------- ------- -------
Income before minority interest,
income taxes and extraordinary
item........................... 798 311 4,761 3,010 4,433
Minority interest................ (305) (2,541) (5,969) (2,305) (3,632)
------ ------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item........................ 493 (2,230) (1,208) 705 801
Income taxes (benefit)........... 699 706 181 (22) 95
------ ------- ------- ------- -------
Income (loss) before
extraordinary item............. (206) (2,936) (1,389) 727 706
------ ------- ------- ------- -------
Extraordinary item............... -- -- (983) (983) --
------ ------- ------- ------- -------
Net income (loss)................ $ (206) $ (2,936) $ (2,372) $ (256) $ 706
====== ======= ======= ======= =======
Net income (loss) per share:
Income (loss) per common and
common equivalent share
before extraordinary item... $ (0.05) $ (0.58) $ (0.21) $ 0.11 $ 0.10
Extraordinary item............. -- -- (0.15) (0.15) --
------ ------- ------- ------- -------
Net income (loss) per common
and common equivalent
share....................... $ (0.05) $ (0.58) $ (0.36) $ (0.04) $ 0.10
====== ======= ======= ======= =======
Weighted average number of
common and common equivalent
shares outstanding.......... 4,478,089 5,054,638 6,630,594 6,491,843 6,852,360
====== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 93
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
----------------------------- -------------------
1994 1995 1996 1996 1997
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flow from operating activities:
Net income (loss)..................... $ (206) $ (2,936) $ (2,372) $ (256) $ 706
Adjustments to reconcile net income
(loss) to net cash flow from
operating activities:
Amortization of intangible assets... 774 4,174 8,053 1,674 2,043
Equity-based compensation costs..... -- -- 665 291 162
Extraordinary item.................. -- -- 983 983 --
Minority interest................... 80 631 2,309 7 2,131
Depreciation and other
amortization...................... 19 133 932 270 671
Realized gain....................... (865) -- -- -- --
Changes in assets and liabilities:
(Increase) decrease in investment
advisory fees receivable............ 170 (186) (8,473) (2,355) 3,821
(Increase) decrease in other current
assets.............................. 2,747 (397) (1,881) (500) (422)
Increase (decrease) in accounts
payable and accrued expenses........ (426) (268) 6,184 798 (401)
Increase (decrease) in deferred income
taxes............................... (1,475) 141 (215) -- --
------- -------- -------- -------- --------
Cash flow from operating
activities.................... 818 1,292 6,185 912 8,711
------- -------- -------- -------- --------
Cash flow used in investing activities:
Purchase of fixed assets.............. (87) (287) (922) (626) (1,024)
Costs of investments, net of cash
acquired............................ (6,477) (38,031) (25,646) (25,514) (10,867)
Sale of investment.................... -- -- 642 -- --
Distribution received................. -- -- 275 -- --
Increase (decrease) in other assets... (55) 216 (3,639) (2,505) 94
Proceeds from sale of business........ 463 -- -- -- --
Repayment on notes recorded in sale of
business............................ -- 321 80 80 --
------- -------- -------- -------- --------
Cash flow used in investing
activities.................... (6,156) (37,781) (29,210) (28,565) (11,797)
------- -------- -------- -------- --------
Cash flow from financing activities:
Borrowings of senior bank debt........ -- 28,400 21,000 21,000 17,500
Repayments of senior bank debt........ -- (10,000) (6,000) (3,000) (2,000)
Repayments of notes payable........... (500) (962) (1,212) (462) (5,878)
Issuances of equity securities........ 10,009 20,001 2,484 2,484 10
Repayment of subscription
receivable.......................... -- 10,000 -- -- --
Repurchase of preferred stock......... -- -- (13) -- --
Debt issuance costs................... -- (1,025) (609) (579) --
------- -------- -------- -------- --------
Cash flow from financing
activities.................... 9,509 46,414 15,650 19,443 9,632
Effect of foreign exchange rate changes
on cash flow.......................... -- -- 46 (62) (16)
Net increase (decrease) in cash and cash
equivalents........................... 4,171 9,925 (7,329) (8,272) 6,530
Cash and cash equivalents at beginning
of year............................... -- 4,171 14,096 14,096 6,767
------- -------- -------- -------- --------
Cash and cash equivalents at end of
year.................................. $ 4,171 $ 14,096 $ 6,767 $ 5,824 $ 13,297
======= ======== ======== ======== ========
Supplemental disclosure of cash flow
information:
Interest paid......................... $ 104 $ 1,005 $ 2,905 $ 1,576 $ 1,246
Income taxes paid..................... 192 696 436 481 114
Supplemental disclosure of non-cash
investing activities:
Notes received in sale of business.... 401 -- -- -- --
Increase in long-term liabilities
related to acquisitions............. -- 3,200 -- -- --
Supplemental disclosure of non-cash
financing activities:
Preferred stock issued in repayment of
notes payable....................... -- -- -- -- 1,501
Notes issued in acquisitions.......... 3,367 -- 6,686 -- --
Equity securities subscribed.......... 10,000 -- -- -- --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-14
<PAGE> 94
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL FOREIGN TOTAL
PREFERRED COMMON PREFERRED COMMON PAID-IN TRANSLATION ACCUMULATED STOCKHOLDERS'
SHARES SHARES STOCK STOCK CAPITAL ADJUSTMENTS DEFICIT EQUITY
--------- ---------- --------- ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994.... -- -- $ -- $ -- $ -- $ -- $ -- $ --
Issuance of common stock.... -- 4,550,000 -- -- 20,009 -- -- 20,009
Subscription receivable..... -- -- -- -- (10,000) -- -- (10,000)
Exchange of common stock for
preferred stock........... 40,000 (2,000,000) 10,004 -- (10,004) -- -- --
Net loss.................... -- -- -- -- -- -- (173) (173)
------- ------- ------- ----- -------- ---- ------- --------
Balance, December 31, 1994.. 40,000 2,550,000 10,004 -- 5 -- (173) 9,836
Issuance of common stock.... -- 275,000 -- -- -- -- -- --
Payment of subscription
receivable................ -- -- -- -- 10,000 -- -- 10,000
Exchange of common stock for
preferred stock........... 40,000 (2,000,000) 10,004 -- (10,004) -- -- --
Issuance of preferred
stock..................... 29,851 -- 20,000 -- -- -- -- 20,000
Net loss.................... -- -- -- -- -- -- (2,969) (2,969)
------- ------- ------- ----- -------- ---- ------- --------
Balance, December 31, 1995.. 109,851 825,000 40,008 -- 1 -- (3,142) 36,867
Issuance of common stock.... -- 162,500 -- -- 4 -- -- 4
Issuance of preferred
stock..................... 3,703 -- 2,481 -- -- -- -- 2,481
Repurchase of preferred
stock..................... (20) -- (13) -- -- -- -- (13)
Net loss.................... -- -- -- -- -- -- (2,372) (2,372)
Foreign translation
adjustment................ -- -- -- -- -- 22 -- 22
------- ------- ------- ----- -------- ---- ------- --------
Balance, December 31, 1996.. 113,534 987,500 42,476 -- 5 22 (5,514) 36,989
Issuance of common stock.... -- 50,000 -- -- 10 -- -- 10
Issuance of preferred
stock..................... 1,715 -- 1,500 -- -- -- -- 1,500
Net income.................. -- -- -- -- -- -- 706 706
Foreign translation
adjustment................ -- -- -- -- -- (16) -- (16)
------- ------- ------- ----- -------- ---- ------- --------
Balance, June 30, 1997
(unaudited)............... 115,249 1,037,500 $43,976 $ -- $ 15 $ 6 $(4,808) $ 39,189
======= ======= ======= ===== ======== ==== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-15
<PAGE> 95
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Nature of Operations
The principal business activity of Affiliated Managers Group, Inc. ("AMG"
or the "Company") is the acquisition of equity interests in investment
management firms ("Affiliates"). AMG's Affiliates operate in one industry
segment, that of providing investment management services, primarily in the
United States and Europe, to mutual funds, partnerships and institutional and
individual clients.
Affiliates are either organized as limited partnerships, general
partnerships or limited liability companies. AMG has contractual arrangements
with each Affiliate whereby a percentage of revenues is allocable to fund
Affiliate operating expenses, including compensation, while the remaining
portion of revenues (the Owners' Allocation) is allocable to AMG and the other
partners or members with a priority to AMG. Affiliate operations are
consolidated in these financial statements. The portion of the Owners'
Allocation allocated to owners other than AMG is included in minority interest
in the statement of operations. Minority interest on the consolidated balance
sheets includes undistributed Owners' Allocation and capital owned by owners
other than AMG.
Unaudited Interim Financial Statements
The unaudited interim financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission (the
"Commission"). Certain information and note disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to make the information presented not misleading. In the opinion of
management, all adjustments necessary for a fair presentation of interim results
of operations (consisting only of normal recurring accruals and adjustments)
have been made to the interim financial statements. Results of operations for
interim periods are not necessarily indicative of results of operations for the
respective full year.
Consolidation
These consolidated financial statements include the accounts of AMG and
each Affiliate in which AMG has a controlling interest. In each such instance,
AMG is, directly or indirectly, the sole general partner (in the case of
Affiliates which are limited partnerships), sole managing general partner (in
the case of the Affiliate which is a general partnership) or sole manager member
(in the case of Affiliates which are limited liability companies). Investments
where AMG does not hold a controlling interest are accounted for under the
equity method and AMG's portion of net income is included in investment and
other income. All intercompany balances and transactions have been eliminated.
Revenue Recognition
The Company's consolidated revenues represent advisory fees billed
quarterly and annually by Affiliates for managing the assets of clients.
Asset-based advisory fees are recognized monthly as services are rendered and
are based upon a percentage of the market value of client assets managed. Any
fees collected in advance are deferred and recognized as income over the period
earned. Performance-based advisory fees are recognized when earned based upon
either the positive difference between the investment returns on a client's
portfolio compared to a benchmark index or indices, or an absolute percentage of
gain in the client's account, and are accrued in amounts expected to be
realized.
F-16
<PAGE> 96
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents are
stated at cost which approximates market value due to the short-term maturity of
these investments.
Fixed Assets
Equipment and other fixed assets are recorded at cost and depreciated using
the straight-line method over their estimated useful lives ranging from three to
five years. Leasehold improvements are amortized over the shorter of their
estimated useful lives or the term of the lease.
Acquired Client Relationships and Goodwill
The purchase price for the acquisition of interests in Affiliates is
allocated based on the fair value of assets acquired, primarily acquired client
relationships. In determining the allocation of purchase price to acquired
client relationships, the Company analyzes the net present value of each
acquired Affiliate's existing client relationships based on a number of factors
including: the Affiliate's historical and potential future operating
performance; the Affiliate's historical and potential future rates of attrition
among existing clients; the stability and longevity of existing client
relationships; the Affiliate's recent, as well as long-term investment
performance; the characteristics of the firm's products and investment styles;
the stability and depth of the Affiliate's management team and the Affiliate's
history and perceived franchise or brand value. The cost assigned to acquired
client relationships is amortized using the straight line method over periods
ranging from nine to 25 years. The expected useful lives of acquired client
relationships is analyzed separately for each acquired Affiliate and determined
based on an analysis of the historical and potential future attrition rates of
each Affiliate's existing clients, as well as a consideration of the specific
attributes of the business of each Affiliate.
The excess of purchase price for the acquisition of interests in Affiliates
over the fair value of net assets acquired, including acquired client
relationships is classified as goodwill. Goodwill is amortized using the
straight-line method over periods ranging from 15 to 30 years. In determining
the amortization period for goodwill, the Company considers a number of factors
including: the firm's historical and potential future operating performance; the
characteristics of the firm's clients, products and investment styles; as well
as the firm's history and perceived franchise or brand value. Unamortized
intangible assets, including acquired client relationships and goodwill, are
periodically re-evaluated and if experience subsequent to the acquisition
indicates that there has been an impairment in value, other than temporary
fluctuations, an impairment loss is recognized. Management evaluates the
recoverability of unamortized intangible assets quarterly for each acquisition
using estimates of undiscounted cash flows factoring in known or expected
trends, future prospects and other relevant information. If impairment is
indicated, the Company measures its loss as the excess of the carrying value of
the intangible assets for each Affiliate over its fair value determined using
valuation models such as discounted cash flows and market comparables. Included
in amortization expense for 1996 and 1995 are impairment losses of $4,628 and
$2,500, respectively, relating to two of AMG's affiliates following periods of
significant client asset withdrawals. Fair value in such cases was determined
using market comparables based on revenues, cash flow and assets under
management. No impairment loss was recorded in 1994 or for the six months ended
June 30, 1997.
Debt Issuance Costs
Debt issuance costs incurred in securing credit facility financing are
capitalized and subsequently amortized over the term of the credit facility.
Debt issuance costs of $983 were written off as
F-17
<PAGE> 97
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
an extraordinary item in 1996 as part of the Company's replacement of its
previous credit facility with a new facility.
Interest-Rate Hedging Agreements
The Company periodically enters into interest-rate hedging agreements to
hedge against potential increases in interest rates on the Company's outstanding
borrowings. The Company's policy is to accrue amounts receivable or payable
under such agreements as reductions or increases in interest expense,
respectively.
Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109
("FAS 109") which requires the use of the asset and liability approach for
accounting for income taxes. Under FAS 109, the Company recognizes deferred tax
assets and liabilities for the expected consequences of temporary differences
between the financial statement amount and tax basis of the Company's assets and
liabilities. A deferred tax valuation allowance is established if, in
management's opinion, it is more likely than not that all or a portion of the
Company's deferred tax assets will not be realized.
Foreign Currency Translation
The assets and liabilities of non-U.S. based Affiliates are translated into
U.S. dollars at the exchange rates in effect as of the balance sheet date.
Revenues and expenses are translated at the average monthly exchange rates then
in effect.
Puts and Calls
As further described in Note 12, the Company periodically purchases
additional equity interests in Affiliates from minority interest owners (prior
shareholders of acquired Affiliates). Resulting payments made to such owners are
considered purchase price for such acquired interests. The estimated cost of
purchases from equity holders who have been awarded equity interests in
connection with their employment is accrued, net of estimated forfeitures, over
the service period as equity-based compensation.
Equity-Based Compensation Plans
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This standard became effective January 1, 1996. The
standard encourages, but does not require, adoption of a fair value-based
accounting method for stock-based compensation arrangements which includes stock
option grants, sales of restricted stock and grants of equity based interests in
Affiliates to certain limited partners or members. An entity may continue to
apply Accounting Principles Board Opinion No. 25 ("APB 25") and related
interpretations, provided the entity discloses its proforma net income and
earnings per share as if the fair value based method had been applied in
measuring compensation cost. The Company continues to apply APB 25.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts included in the financial
statements and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those estimates.
F-18
<PAGE> 98
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and
accounts receivable. The Company maintains cash and cash equivalents, short-term
investments and certain off-balance-sheet financial instruments with various
financial institutions. These financial institutions are located in places where
AMG and its Affiliates operate. For certain Affiliates, cash deposits at a
financial institution may exceed FDIC insurance limits.
Substantially all of the Company's revenues are derived from the investment
management operations of its Affiliates. For the year ended December 31, 1996,
one of those Affiliates accounted for approximately 34% of AMG's share of the
Owners' Allocation.
3. FIXED ASSETS AND LEASE COMMITMENTS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1996
------ -------
<S> <C> <C>
Office equipment........................ $ 683 $ 2,614
Furniture and fixtures.................. 313 1,677
Leasehold improvements.................. 59 538
Computer software....................... 156 184
------ -------
Total fixed assets............ 1,211 5,013
------ -------
Accumulated depreciation................ (125) (2,014)
------ -------
Fixed assets, net............. $1,086 $ 2,999
====== =======
</TABLE>
The Company and its Affiliates lease computer equipment and office space
for their operations. At December 31, 1996, the Company's aggregate future
minimal rentals for operating leases having initial or noncancelable lease terms
greater than one year are payable as follows:
<TABLE>
<CAPTION>
REQUIRED
MINIMUM
YEAR ENDING DECEMBER 31, PAYMENTS
-------------------------------------------------- --------
<S> <C>
1997.............................................. $1,040
1998.............................................. 744
1999.............................................. 550
2000.............................................. 488
2001.............................................. 343
Thereafter........................................ --
</TABLE>
Consolidated rent expense for 1994, 1995 and 1996 was $260, $493 and
$2,359, respectively.
F-19
<PAGE> 99
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACCRUED LIABILITIES:
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Accrued compensation.................... $1,283 $ 9,264
Accrued rent............................ 27 3,509
Accrued interest........................ 304 121
Accrued taxes........................... 298 4
Deferred revenue........................ 9 796
Accrued commissions..................... 201 236
Accrued professional services........... 66 1,350
Other................................... 395 536
------ ---------
$2,583 $ 15,816
====== =========
</TABLE>
5. RETIREMENT PLANS:
At December 31, 1996, AMG had a defined contribution retirement plan (the
"Plan") covering substantially all of its full-time employees and four of its
Affiliates. Three of AMG's other Affiliates had separate defined contribution
retirement plans. Under each of the plans, AMG and each Affiliate is able to
make discretionary contributions to qualified plan participants up to IRS
limits. Consolidated expenses related to these plans in 1996 and 1995 were $656
and $222, respectively. The Company did not make any discretionary contributions
to the Plan in 1994.
6. SENIOR BANK DEBT PAYABLE:
In 1995, the Company negotiated a Senior Revolving Credit Agreement (the
"Credit Agreement") with a syndicate of banks enabling the Company to borrow, on
a revolving credit basis, up to $50 million. The Credit Agreement had a
five-year term and reduced the amount available for borrowing during its term. A
commitment fee of 1/2 of 1% was payable on the daily average unused portion of
the $50 million commitment. Interest rates on borrowings varied according to a
sliding scale with a maximum interest rate of either 1.75% over the Prime Rate
or 2.75% over the London Interbank Offered Rates ("LIBOR").
In March 1996, the Company replaced the Credit Agreement with a $125
million senior revolving credit facility, with principal repayment due on March
6, 2001. The Company pays a commitment fee of 1/2 of 1% on the daily unused
portion of the facility. Interest is payable at rates up to 1.25% over the Prime
Rate or 2.25% over LIBOR on amounts borrowed.
The effective interest rates on the outstanding borrowings were 6.5% and
8.5% at December 31, 1996 and 1995, respectively. All borrowings under the
agreements are collateralized by pledges of all capital stock or other equity
interests in each AMG Affiliate owned or to be acquired. The agreement contains
certain financial covenants which require the Company to maintain specified
minimum levels of net worth and interest coverage ratios and maximum levels of
indebtedness, all as defined in the agreement. The agreement also limits the
Company's ability to pay dividends and incur additional indebtedness.
At December 31, 1996, the Company was a party to two interest rate swap
agreements with a commercial bank linked to the three month LIBOR for a notional
principal amount of debt of $35 million. The swap agreements, which expire on
March 6, 2001, consisted of caps and floors that, upon quarterly reset dates,
will cap the cost of associated floating rate debt at 6.78% if floating rates
exceed 6.78% and exchange floating rate debt for fixed rate debt at 6.78% if
floating rates decline to 5% or below. The agreements are designed to limit
interest rate increases on the Company's borrowings. Under the swap agreements,
no amounts are exchanged between the Company and its counterparty unless the
three
F-20
<PAGE> 100
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
month LIBOR exceeds the cap of 6.78% or declines to or below the floor of 5%.
Amounts paid under these agreements will be accounted for as increases or
decreases to interest expense. No amounts have been exchanged under these
agreements.
7. INCOME TAXES:
A summary of the provision for income taxes is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- JUNE 30,
1994 1995 1996 1997
---- ---- ----- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal: Current.............................. $379 $ 60 $ -- $--
Deferred............................ (44) 201 (233) --
State: Current.............................. 357 514 397 95
Deferred............................ 7 (69) 17 --
---- ---- ----- ---
Provision for income taxes.................... $699 $706 $ 181 $95
==== ==== ===== ===
</TABLE>
The effective income tax rate differs from the amount computed on income
(loss) before income tax and extraordinary item by applying the U.S. federal
income tax rate because of the effect of the following items:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER SIX MONTHS
31, ENDED
----------------------- JUNE 30,
1994 1995 1996 1997
--- --- --- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at U.S. federal income tax rate.................. 35% (35)% (35)% 35%
Nondeductible expenses, primarily amortization of
intangibles........................................ 59 54 21 19
State income taxes, net of federal benefit........... 48 13 23 8
Valuation allowance.................................. -- -- 6 --
Recognition of benefit of net operating loss
carryforwards...................................... -- -- -- (50)
--- --- --- ---
142% 32% 15% 12%
=== === === ===
</TABLE>
The components of deferred tax assets and liabilities follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
----- -------
<S> <C> <C>
Deferred assets (liabilities):
Net operating loss carryforward................................ $ 431 $ 3,481
Intangible amortization........................................ (708) (4,950)
Accrued compensation........................................... -- 2,004
Other, net..................................................... 61 (58)
----- ------
(216) 477
----- ------
Valuation allowance.............................................. -- (477)
----- ------
Net deferred income taxes........................................ $(216) $ --
===== ======
</TABLE>
F-21
<PAGE> 101
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
At December 31, 1996, the Company had tax net operating loss ("NOL")
carryforwards of $8,400 which expire beginning in the year 2010. Realization is
dependent on generating sufficient taxable income prior to expiration of the
loss carryforwards. At December 31, 1996, management believed it was more likely
than not that the Company's deferred tax asset of $477, arising from NOL
carryforwards, would not be realized and accordingly established a full
valuation allowance against the asset. As a result of the Company's initial
public offering, there may be a limitation placed on the Company's utilization
of its NOL's by Section 382 of the Internal Revenue Code. The Company will
review the valuation allowance at the end of each quarter and will make
adjustments if it is determined that it is more likely than not that the NOL's
will be realized.
8. CONTINGENCIES:
The Company and its Affiliates are subject to claims, legal proceedings and
other contingencies in the ordinary course of their business activities. Each of
these matters are subject to various uncertainties, and it is possible that some
of these matters may be resolved unfavorably to the Company or its Affiliates.
The Company and its Affiliates establish accruals for matters that are probable
and can be reasonably estimated. Management believes that any liability in
excess of these accruals upon the ultimate resolution of these matters will not
have a material adverse effect on the consolidated financial condition or
results of operations of the Company.
9. ACQUISITIONS AND COMMITMENTS:
1996
During 1996, the Company acquired in purchase transactions majority
interests in First Quadrant and The Burridge Group ("Burridge"). In addition,
the Company acquired additional partnership interests from limited partners of
two of its existing Affiliates.
The Company issued notes in the amount of $6,686 to Burridge selling
shareholders who remained as employees on December 31, 1996 as partial
consideration in the purchase. On January 3, 1997, the notes were settled in
cash for $5,185 and the issuance of 1,715 shares of Series B-1 Voting
Convertible Preferred Stock.
The results of operations of First Quadrant and Burridge are included in
the consolidated results of operations of the Company from their respective
dates of acquisition, March 28, 1996 and December 31, 1996.
1995
During 1995, the Company acquired in purchase transactions majority
interests in Systematic Financial Management ("Systematic"), Skyline Asset
Management ("Skyline") and Renaissance Investment Management ("Renaissance").
The Company also made a minority investment in Paradigm Asset Management Company
("Paradigm"). In connection with the Skyline acquisition, the Company assumed an
unconditional $3,200 purchase obligation on the equity interests of limited
partners which will be settled in either cash or the Company's stock.
The results of operations of Systematic, Skyline and Renaissance are
included in the consolidated results of operations of the Company from their
respective dates of investment, May 16, 1995, August 31, 1995, and November 9,
1995. The net income associated with the Company's minority interest in Paradigm
is included in the consolidated results of operations of the Company using the
equity method from May 22, 1995, the date of investment.
F-22
<PAGE> 102
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1994
In 1994, the Company acquired in a series of purchase transactions an 80%
interest in JMH Management Corporation ("JMH") for $6,320 in cash and the
issuance by JMH of promissory notes for $3,367. The promissory notes accrued
interest at 6% per annum and were paid in installments through January 31, 1997.
JMH is the general partner of J.M. Hartwell Limited Partnership ("Hartwell") and
owned 68% of Hartwell from 1994 through 1996. On January 1, 1996, the Company
acquired an additional 8.78% of Hartwell directly from a former limited partner.
The results of operations of JMH and Hartwell are included in the
consolidated results of operations of the Company beginning January 1, 1994.
The total purchase price, including cash, notes and capitalized transaction
costs, associated with these investments, is allocated as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Allocation of Purchase Price:
Net tangible assets................................ $ 350 $ 1,720 $ 2,198
Intangible assets.................................. 9,633 39,800 35,040
Minority investment................................ -- 888 --
------ ------- -------
Total purchase price....................... $9,983 $42,408 $37,238
====== ======= =======
</TABLE>
Unaudited pro forma data for the years ended December 31, 1995 and 1996 are
set forth below, giving consideration to the acquisitions occurring in the
respective two-year period, as if such transactions occurred as of the beginning
of 1995, assuming revenue sharing arrangements had been in effect for the entire
period and after making certain other pro forma adjustments.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
------- -------
<S> <C> <C>
Revenues............................................ $49,760 $60,392
Income before extraordinary item.................... 2,646 7
Net income (loss)................................... 2,646 (976)
Primary income (loss) per share..................... 0.52 (0.15)
</TABLE>
In conjunction with certain acquisitions, the Company has entered into
agreements and is contingently liable, upon achievement of specified revenue
targets over a five-year period, to make additional purchase payments of up to
$15,160 plus interest as applicable. These contingent payments, if achieved,
will be settled for cash with most coming due beginning January 1, 2001 and
January 1, 2002 and will be accounted for as an adjustment to the purchase price
of the Affiliate. In addition, subject to achievement of performance goals,
certain key Affiliate employees have options to receive additional equity
interests in their Affiliates.
Related to the JMH investment, a former institutional shareholder is
entitled to redeem a cash value warrant on April 30, 1999. Using the actual
results of operations to date, the cash value warrant had no value and,
therefore, no amounts have been accrued in these financial statements.
10. EQUITY INVESTMENTS:
In 1995, the Company purchased a 30% equity interest in Paradigm Asset
Management Company, L.L.C. ("Paradigm"), which is accounted for under the equity
method of accounting.
F-23
<PAGE> 103
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Summarized financial information for Paradigm at December 31, 1996 and 1995 and
for the year ended December 31, 1996 and for the period from May 22, 1995 (the
date of acquisition) to December 31, 1995 is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------
1995 1996
----------------- --------------------
<S> <C> <C>
Balance Sheet Data:
Current assets........................ $ 563 $ 756
Non current assets.................... 530 492
------ ------
Total assets................ $ 1,093 $1,248
====== ======
Current liabilities................... $ 427 $ 493
Non current liabilities............... -- --
------ ------
Total liabilities........... $ 427 $ 493
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 22, 1995
(DATE OF FOR THE
ACQUISITION) YEAR ENDED
TO DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------- -----------------
<S> <C> <C>
Statement of Earnings Data:
Total revenues........................ $ 894 $ 2,051
Operating and other expenses.......... 840 1,488
------- ----
Net Income............................ $ 54 $ 563
======= ====
</TABLE>
11. SALE OF BUSINESS:
Hartwell, the successor to Hartwell Management Company, Inc. ("HMC"), acts
as Investment Advisor to Hartwell Growth Fund, Inc. and Hartwell Emerging Growth
Fund, Inc. (the "Funds"). Under the terms of an agreement dated November 15,
1990, HMC and Hartwell Distributors, Inc., sold the goodwill, business and
assets relating to the provision of investment advice, management and
underwriting services to the Funds to Hartwell Keystone Advisors, Inc. ("HKAI")
in exchange for 100 Class B common shares (nonvoting) of HKAI. The shares were
recorded at a value of $1.00. Keystone Custodian Funds, Inc. ("Keystone") owns
all of HKAI's Class A common shares.
Concurrent with the sale, HMC entered into a sub-advisory agreement with
HKAI under which HMC would provide investment advisory services to the Funds.
These investment advisory services are now provided by Hartwell. The investment
advisory agreement is renewable annually by the Funds' board of directors. As
compensation for its services, JMH receives a sub-advisory fee. Three years
after the agreement's closing date, Keystone had the option to acquire the 100
Class B shares from HMC at a price based on the value of the Funds' shares which
existed at the closing date. On March 27, 1994, Keystone exercised this option.
Of the purchase price of approximately $865 (which is included in interest and
other income in the 1994 statement of operations), $401 remained unpaid at
December 31, 1994. This balance (which includes related accrued interest) was
paid in five quarterly installments through March 1996.
12. PUTS AND CALLS:
To ensure the availability of continued ownership participation to future
key employees, the Company has options to repurchase ("Calls") certain equity
interests in Affiliates owned by partners or members. The options are
exercisable beginning in 1997 and continue through the year
F-24
<PAGE> 104
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2004. In addition, Affiliate management owners have options ("Puts") to require
the Company to purchase certain portions of their equity interests at staged
intervals. The Company is also obligated to purchase ("Purchase") such equity
interests in Affiliates upon death, disability or termination of employment. The
Put obligations begin in 1998 and continue through 2017. All of the Puts and
Purchases would take place based on a multiple of the respective Affiliate's
Owners' Allocation but using reduced multiples for terminations for cause or for
voluntary terminations occurring prior to agreed upon dates, all as defined in
the limited partnership or limited liability company agreements of the
Affiliates. Resulting payments made to former owners of acquired Affiliates are
accounted for as adjustments to the purchase price for such Affiliates. Payments
made to equity holders who have been awarded equity interests in connection with
their employment are accrued, net of estimated forfeitures, over the service
period as equity-based compensation.
The Company's contingent obligations under the Put and Purchase
arrangements at June 30, 1997 ranged from $7.8 million on the one hand, assuming
all such obligations occur due to early terminations or terminations for cause,
and $39.6 million on the other hand, assuming all such obligations occur due to
death, disability or terminations without cause. The Company would receive
approximately $7.1 million in additional Owners' Allocation annually upon
satisfaction of the above.
13. STOCKHOLDERS' EQUITY:
Common Stock
The Company has 18,314,450 authorized shares of common stock with a par
value of $.01 per share of which 987,500 and 825,000 shares were issued and
outstanding at December 31, 1996 and 1995, respectively.
Preferred Stock
The Company has two classes of convertible Preferred Stock. The Company has
80,000 shares of Class A Preferred Stock authorized with a par value of $.01 per
share, all of which were issued and outstanding at December 31, 1996 and 1995.
The Company also has two series of Class B Preferred Stock. There are 34,328
authorized shares of Series B-1 Voting Preferred Stock with a par value of $.01
per share of which 14,131 and 10,448 shares were issued and outstanding as of
December 31, 1996 and 1995, respectively. There are 19,403 authorized shares of
Series B-2 Non-Voting Preferred Stock with a par value of $.01 per share, all of
which were issued and outstanding at December 31, 1996 and 1995.
Each share of Class A and Class B Convertible Preferred Stock is
convertible into 50 shares of common stock at the option of the holder, or upon
certain automatic conversion events, primarily related to an initial public
offering. Except for Series B-2 Convertible Preferred Stock which is non-voting,
each share of preferred stock is entitled to voting rights equal to the
equivalent number of common shares issuable upon conversion. Class A Convertible
Preferred Stock is entitled to a liquidation preference of $250 per share and
Class B Convertible Preferred Stock is entitled to a liquidation preference of
$670 per share. Preferred Stock is shown on the consolidated balance sheets at
face value.
Stock Incentive Plans
The Company has established incentive stock plans, primarily to incent key
employees, under which it is authorized to grant incentive and non-qualified
stock options and to grant or sell shares of restricted stock. A total of
550,000 shares of common stock have been reserved for issuance under
F-25
<PAGE> 105
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
these plans. Through December 31, 1996, 287,500 shares of restricted stock have
been sold under these plans and no option grants have been made. The plans are
administered by a committee of the board of directors. Restricted stock sales
were made at their then fair market value, as approved by the Board of Directors
of the Company, and generally vest over three years and are subject to
significant forfeiture provisions and other restrictions.
Supplemental Disclosure for Equity-Based Compensation
The Company continues to apply APB 25 and related interpretations in
accounting for its sales of restricted stock, grants of options on preferred
stock and grants of equity based interests in Affiliates. FAS 123 defines a fair
value method of accounting for the above arrangements whose impact requires
disclosure. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
expected service period. The required disclosures under FAS 123 as if the
Company had applied the new method of accounting are made below. The fair value
of equity based interests at the date of grant was estimated using the minimum
value method using a risk free rate of return of 6.5% and weighted-average
expected lives of between 10 and 15 years.
Had compensation cost for the Company's equity based compensation
arrangements been determined based on the fair value at grant date for awards
subsequent to January 1, 1995, consistent with the requirements of FAS 123, the
Company's net income (loss) and net income (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------- 1997
1995 1996 (UNAUDITED)
------- ------- --------------
<S> <C> <C> <C>
Net income (loss) -- as reported......................... $(2,936) $(2,372) $ 706
Net income (loss) -- FAS 123 pro forma................... (3,091) (2,141) 666
Net income (loss) -- per share -- as reported............ (0.58) (0.36) 0.10
Net income (loss) per share -- FAS 123 pro forma......... (0.61) (0.32) 0.10
</TABLE>
14. LOSS PER SHARE:
Loss per share is calculated based on the weighted average number of common
and common equivalent shares outstanding during the period using guidance
provided by the SEC for companies contemplating an initial public offering. Loss
per common and common equivalent share for the years ended December 31, 1994,
1995, and 1996 was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Net (loss) attributable to common stock.............. $ (206) $(2,936) $(2,372)
====== ======= =======
Weighted average common shares outstanding........... 3,044 1,439 942
Common equivalent shares:
Incremental shares treasury stock method........... 103 103 103
Assumed conversion of preferred stock.............. 1,331 3,513 5,586
------ ------- -------
Total weighted average common and common equivalent
shares outstanding................................. 4,478 5,055 6,631
====== ======= =======
Net (loss) per common share.......................... $(0.05) $ (0.58) $ (0.36)
====== ======= =======
</TABLE>
F-26
<PAGE> 106
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In accordance with the Commission's Staff Accounting Bulletin 83, the loss
per share has been calculated assuming that all stock options granted by the
Company within one year of the Company's initial public offering have been
outstanding for all periods presented. The effect of such stock options has been
calculated using the "treasury stock" method assuming an estimated initial
public offering price and has been included in the calculation of common
equivalent shares outstanding despite the fact that the effect of the assumed
exercise of such options is anti-dilutive.
If loss per share had been calculated based on the actual common and common
equivalent shares outstanding, rather than utilizing the Commission's guidance
for companies contemplating an initial public offering, the resulting loss per
share would have been $(0.05), $(0.59) and $(0.36) for the years ended December
31, 1994, 1995 and 1996, respectively.
15. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
FASB Statement No. 107, "Disclosures about Fair Value of Financial
Instruments" ("FAS 107"), requires the Company to disclose the estimated fair
values for certain of its financial instruments. Financial instruments include
items such as loans, interest rate contracts, notes payable, and other items as
defined in FAS 107.
Fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale.
Quoted market prices are used when available, otherwise, management
estimates fair value based on prices of financial instruments with similar
characteristics or using valuation techniques such as discounted cash flow
models. Valuation techniques involve uncertainties and require assumptions and
judgments regarding prepayments, credit risk and discount rates. Changes in
these assumptions will result in different valuation estimates. The fair value
presented would not necessarily be realized in an immediate sale; nor are there
plans to settle liabilities prior to contractual maturity. Additionally, FAS 107
allows companies to use a wide range of valuation techniques, therefore, it may
be difficult to compare the Company's fair value information to other companies'
fair value information.
The following table presents a comparison of the carrying value and
estimated fair value of the Company's financial instruments at December 31,
1996:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- --------
<S> <C> <C>
Financial assets:
Cash and cash equivalents.......................... $ 6,767 $ 6,767
Financial liabilities:
Notes payable to related parties................... (7,379) (7,374)
Senior bank debt................................... (33,400) (33,400)
Off-balance sheet financial instruments:
Interest-rate protection agreements................ -- (763)
</TABLE>
F-27
<PAGE> 107
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents a comparison of the carrying value and
estimated fair value of the Company's financial instruments at December 31,
1995:
<TABLE>
<CAPTION>
ESTIMATED
CARRYING FAIR
VALUE VALUE
-------- --------
<S> <C> <C>
Financial assets:
Cash and cash equivalents.......................... $ 14,096 $ 14,096
Financial liabilities:
Notes payable to related parties................... (1,905) (1,878)
Senior bank debt................................... (18,400) (18,400)
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
Cash and cash equivalents: The carrying amount approximates fair value
because of the short term nature of these instruments.
Notes payable to related parties: The fair value was calculated with a
discounted cash flow model using existing payment terms and the prime rate.
Senior Bank Debt: The carrying value approximates fair value because the
debt is a revolving credit facility with variable interest based on three month
LIBOR rates.
Interest rate protection agreements: The fair value of interest rate
protection agreements are quoted market prices based on the estimated amount
necessary to terminate the agreements.
16. EVENTS SUBSEQUENT TO DECEMBER 31, 1996:
New Investments
On March 5, 1997, the Company announced the signing of a definitive
agreement to purchase an interest in Gofen and Glossberg, LLC, which will
succeed to the business of Gofen and Glossberg, Inc., an investment management
firm based in Chicago, Illinois. The Company completed this investment in May
1997.
The total purchase price of Gofen and Glossberg, LLC, including capitalized
transaction costs is allocated as follows:
<TABLE>
<S> <C>
Allocation of Purchase Price:
Net tangible assets............................................. $ 264
Intangible assets............................................... 10,808
-------
Total purchase price.................................... $11,072
========
</TABLE>
The amortization period used for intangible assets related to the Gofen and
Glossberg transaction was 25 years for acquired client relationships and 30
years for goodwill.
Unaudited pro forma data for the year ended December 31, 1996 and for the
six month period ended June 30, 1997 are set forth below, giving consideration
to the Gofen and Glossberg transaction, as if it occurred as of the beginning of
1996, assuming revenue sharing arrangements had been in effect for the entire
period and after making certain other pro forma adjustments.
F-28
<PAGE> 108
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Revenues................................. $68,177 $ 35,842
Income before extraordinary item......... 196 971
Net income (loss)........................ (787) 971
Primary income (loss) per share.......... (0.12) 0.14
</TABLE>
In October 1997, the Company completed its investment in Tweedy, Browne
Company LLC, an investment adviser and broker dealer in New York, New York. On
September 30, 1997, the Company completed its investment in GeoCapital, LLC, an
investment management firm based in New York, New York. In connection with this
investment, the Company issued an aggregate 10,667 shares of Class D Convertible
Preferred Stock valued at $9.6 million. Each share of Class D Convertible
Preferred Stock is convertible into 50 shares of Common Stock.
New Financing
In August and October 1997, the Company entered into agreements to raise,
in a series of transactions, financing totaling up to $390 million in the
aggregate. The financing contains $300 million from a senior credit facility
("Senior Debt") to replace the existing $125 million credit facility, $60
million from subordinated debt ("Subordinated Debt") and $30 million from the
issuance of Class C Convertible Preferred Stock and warrants to purchase Class C
Convertible Preferred Stock. The Senior Debt comprises up to $200 million of
7-year revolving credit loans, $50 million of 7-year Tranche A term loans and
$50 million of 8-year Tranche B term loans. The proceeds of the Senior Debt has
been used primarily for the repayment of existing indebtedness, for new
investments and for general corporate purposes. The Senior Debt contains
financial covenants similar to the Company's existing Credit Agreement and bears
interest at the Prime Rate or LIBOR in each case plus a margin which will vary
depending on the Company's periodic Senior Debt ratio. The Subordinated Debt
accrues interest initially at LIBOR plus 7.25%. The interest rate on the
Subordinated Debt will increase by 1/2 of 1% each quarter to a maximum interest
rate of 17%, of which 15% is required to be paid in cash and 2% is to be added
to the face amount of the notes. The Company intends to redeem the Subordinated
Debt and repay a portion of the Senior Debt out of the proceeds from the
Offerings.
The Company issued 5,333 shares of Class C Convertible Preferred Stock and
warrants to purchase 28,000 shares of Class C Convertible Preferred Stock
exercisable at $.01 per share for $30 million in total consideration to Chase
Equity Associates, L.P. in connection with the recent financing described above.
Each share of Class C Convertible Preferred Stock is convertible into 50 shares
of common stock and has a liquidation preference of $900 per share.
Stock Incentive Plans
In May 1997, the Company granted options to purchase up to 1,850 shares of
Class A Convertible Preferred Stock under the 1995 Plan to management at an
exercise price of $455 per share representing 110% of the estimated fair value
of the underlying stock on the date of grant as approved by the Company's Board
of Directors. These options vest over a three year period. At June 30, 1997,
options to purchase 308 shares of Class A Convertible Preferred Stock
(convertible into 15,400 shares of Common Stock) were exercisable.
The Company intends to grant 590,000 options to employees with an exercise
price equal to the initial public offering price under its 1997 Stock Plan. The
options would be exercisable in 15% increments at the end of each of the first
six anniversaries of the date of grant and 10% on the
F-29
<PAGE> 109
AFFILIATED MANAGERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
seventh anniversary. All these options would become exercisable upon a change in
control and upon the achievement of certain financial goals.
Stock Split
On October 27, 1997, the Company's Board of Directors authorized a 50-for-1
stock split effected in the form of a stock dividend on the Company's authorized
and outstanding Common Stock, effective on the date the Commission declares the
Company's initial Registration Statement effective. Where applicable, these
Consolidated Financial Statements and Notes thereto reflect the common stock
split on a retroactive basis.
F-30
<PAGE> 110
REPORT OF INDEPENDENT ACCOUNTANTS
The Shareholders and Board of Directors
Gofen and Glossberg, Inc.
We have audited the accompanying statements of financial condition of Gofen
and Glossberg, Inc. as of December 31, 1996 and 1995, and the related statements
of operations, changes in shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our 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 presentation of the financial
statements. We believe that our audits of the financial statements provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Gofen and Glossberg, Inc. as
of December 31, 1996 and 1995 and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 15, 1997
F-31
<PAGE> 111
GOFEN AND GLOSSBERG, INC.
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 263 $ 166
Accounts receivable.................................................... 525 395
Prepaid expenses....................................................... 33 31
Employee note receivable............................................... 1 2
------ ------
Total current assets........................................... 822 594
Property, equipment and leasehold improvements (net of accumulated
depreciation and amortization of $1,145 and $989, respectively)........ 529 565
------ ------
Total assets................................................... $1,351 $1,159
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................... $ 50 $ 45
------ ------
Total current liabilities...................................... 50 45
Deferred revenue....................................................... 645 529
Deferred rent abatement................................................ 150 --
------ ------
Total liabilities.............................................. 845 574
Commitments and Contingencies (Note 4)
Shareholders' equity:
Common stock, no par or stated value; authorized 100,000 shares; issued
and outstanding 15,200 shares....................................... 69 69
Retained earnings...................................................... 437 516
------ ------
Total shareholders' equity..................................... 506 585
------ ------
Total liabilities and shareholders' equity..................... $1,351 $1,159
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 112
GOFEN AND GLOSSBERG, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Revenue:
Asset-based management fees............................................ $7,785 $6,844
Other.................................................................. 50 46
------ ------
Total revenue.................................................. 7,835 6,890
Expenses:
Salaries and benefits.................................................. 6,128 4,489
Incentive compensation and benefits.................................... 257 240
Investment and other purchased services................................ 109 90
Occupancy.............................................................. 495 678
Depreciation and amortization.......................................... 155 134
Marketing.............................................................. 89 73
Professional fees...................................................... 400 407
Telephone and postage.................................................. 81 69
Office supplies........................................................ 146 111
Settlement of litigation............................................... -- 560
Other.................................................................. 54 120
------ ------
Total expenses................................................. 7,914 6,971
------ ------
Net loss....................................................... $ (79) $ (81)
====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE> 113
GOFEN AND GLOSSBERG, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------ --- ------------ ----
<S> <C> <C> <C> <C>
Balances, January 1, 1995........................... 15,200 $69 $597 $666
Net loss............................................ -- -- (81) (81)
------ --- ---- ----
Balances, December 31, 1995......................... 15,200 69 516 585
Net loss............................................ -- -- (79) (79)
------ --- ---- ----
Balances, December 31, 1996......................... 15,200 $69 $437 $506
====== === ==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE> 114
GOFEN AND GLOSSBERG, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $ (79) $ (81)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization........................................ 155 134
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable......................... (130) 93
Decrease in employee note receivable............................... 1 4
(Increase) in prepaid expenses..................................... (2) --
Increase (decrease) in accounts payable and accrued liabilities.... 5 (26)
Increase in deferred liabilities................................... 266 70
------- -------
-- --
Net cash provided by operating activities....................... 216 194
------- -------
-- --
Cash flows from investing activities:
Purchases of property and equipment..................................... (119) (138)
------- -------
-- --
Net cash used in investing activities........................... (119) (138)
------- -------
-- --
Net increase in cash and cash equivalents................................. 97 56
Cash and cash equivalents at beginning of year............................ 166 110
------- -------
-- --
Cash and cash equivalents at end of year.................................. $ 263 $ 166
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE> 115
GOFEN AND GLOSSBERG, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BUSINESS:
Gofen and Glossberg, Inc., an Illinois corporation (the "Company"),
provides asset management and investment advisory services to institutional
investors and high net worth individuals located throughout the United States.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
For financial statement purposes, the Company considers interest-bearing
cash and all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. Cash equivalents are stated at cost which
approximates market value due to the short-term maturity of these investments.
Property and Equipment, Depreciation and Amortization
Property and equipment are recorded at cost and depreciated principally on
accelerated methods over the estimated useful lives of the related assets,
generally five to seven years. Amortization on leasehold improvements is
computed on a straight-line basis over the shorter of their estimated useful
lives or the term of the lease. Maintenance and repairs are charged to expense
when incurred.
Revenue Recognition
The Company's revenues are derived primarily from asset-based investment
advisory fees. These fees are generally billed in advance and on a quarterly
basis based on the amount of assets under management at the beginning of each
quarter. The revenue is deferred and the income is recognized as earned during
the quarter.
Income Taxes
No Provision for income taxes is made in the accompanying financial
statements since the Company, as a Subchapter S Corporation, is treated as a
partnership for income tax purposes whereby the Shareholders are responsible for
recording their proportionate share of the Company's income in their tax
returns.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-36
<PAGE> 116
GOFEN AND GLOSSBERG, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
3. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Office equipment........................................ $ 787 $ 672
Furniture and fixtures.................................. 493 489
Leasehold improvements.................................. 394 393
------- ------
1,674 1,554
Accumulated depreciation and amortization............... (1,145) (989)
------- ------
$ 529 $ 565
======= ======
</TABLE>
4. COMMITMENTS AND CONTINGENCIES:
The Company leases its office facilities under an operating lease that
expires in 2009. During 1996, the Company extended the lease term by ten years
to the 2009 date. In return for this extension rent payments were abated for the
period June 1, 1996 through December 31, 1996. In addition, lease terms during
the ten-year extension are more favorable than the current lease. The Company
accounts for this lease and rent abatement under Statement of Financial
Accounting Standards No. 13, Accounting for Leases whereby total minimum rental
payments are recognized as rent expense on a straight-line basis over the term
of the lease. Amounts charged to rent expense that are in excess of amounts
required to be paid under the lease and rent abatement are carried on the
statement of financial condition as a deferred credit.
The lease also provides the Company with space improvement and redecorating
credits. The Company's maximum available credits for space improvement and for
redecorating are approximately $27 and $136, respectively, of which
approximately $16 and $82, respectively, may be applied against the Company's
future rental commitments. No credits have been utilized by the Company.
Additional terms of the lease provide the Company with the option of
extending the lease term for a five-year period commencing October 1, 2009 and
the option of adding approximately 4,000 square feet to the lease effective
October 1, 2000. Neither of these options have been exercised by the Company.
Rent expense for the years ended December 31, 1996 and 1995 was $428 and $623,
including real estate taxes and maintenance.
At December 31, 1996, future minimum rentals for the above operating lease,
which is subject to an escalation clause, are payable as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, AMOUNT
-------------------------------------------------- ------
<S> <C>
1997......................................... $ 363
1998......................................... 364
1999......................................... 322
2000......................................... 190
2001......................................... 194
Thereafter...................................... 1,637
</TABLE>
F-37
<PAGE> 117
GOFEN AND GLOSSBERG, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. BENEFIT PLANS:
The Company had a 401(k) retirement plan covering all eligible employees.
Company contributions are made for each eligible participant based upon a
percentage of wages subject to certain minimum and maximum limitations, as
defined. The contributions for the years ended December 31, 1996 and 1995 were
$257 and $244, respectively.
The Company had an unfunded deferred compensation plan for key employees.
In the event of death, disability or retirement, it is payable in 60 monthly
installments of $4. The Company paid $38 and $50 under the plan during 1996 and
1995, respectively. Current obligations existing under this program were $0 and
$38 as of December 31, 1996 and 1995, respectively.
6. SHAREHOLDERS' EQUITY:
A shareholders' agreement provides that the Company will purchase for book
value, as defined, the outstanding shares of any shareholder in the event of
death, disability or termination of service from the Company.
7. SUBSEQUENT EVENT:
On March 5, 1997, the Company transferred substantially all its assets and
liabilities to Gofen and Glossberg, L.L.C., a newly established Delaware limited
liability company (the "LLC"), which will succeed to the business of the
Company. This transfer was performed in conjunction with a definitive purchase
agreement with an independent third-party, Affiliated Managers Group, Inc.
("AMG"), whereby AMG has purchased a majority interest in the LLC.
F-38
<PAGE> 118
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Burridge Group Inc.
We have audited the accompanying statements of operations, changes in
shareholders' equity, and cash flows of The Burridge Group Inc. for the period
January 1, 1996 to December 30, 1996 and the years ended December 31, 1995 and
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 presentation of the financial
statements. We believe that our audits of the financial statements provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of The Burridge Group Inc.
and its cash flows for the period January 1, 1996 to December 30, 1996 and the
years ended December 31, 1995 and 1994, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
August 8, 1997
F-39
<PAGE> 119
THE BURRIDGE GROUP INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 30, 1996
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ --------
<S> <C> <C> <C>
Revenue:
Asset-based management fees.................................... $6,117 $5,002 $ 3,033
Other.......................................................... 38 21 6
------ ------ ------
Total revenue.......................................... 6,155 5,023 3,039
Expenses:
Salaries and benefits.......................................... 2,076 1,767 1,344
Incentive compensation and bonuses............................. 2,049 1,760 695
Investment and other purchased services........................ 258 225 110
Occupancy...................................................... 295 201 161
Depreciation and amortization.................................. 125 97 70
Marketing...................................................... 293 232 166
Professional fees.............................................. 455 57 70
Telephone and postage.......................................... 72 61 56
Office supplies................................................ 56 64 30
Other.......................................................... 441 456 252
------ ------ ------
Total expenses......................................... 6,120 4,920 2,954
------ ------ ------
Income before income taxes....................................... 35 103 85
Income tax expense............................................... 17 46 32
------ ------ ------
Net income............................................. $ 18 $ 57 $ 53
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 120
THE BURRIDGE GROUP INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 30, 1996
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED PREFERRED COMMON COMMON PAID-IN RETAINED
SHARES STOCK SHARES STOCK CAPITAL EARNINGS TOTAL
--------- --------- ------ ------ ---------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994...... -- $-- 5,500 $ 64 $ -- $154 $218
Net income..................... -- -- -- -- -- 53 53
--
---- ----- --- ---- ---- ----
Balances, December 31, 1994.... -- -- 5,500 64 -- 207 271
Net income..................... -- -- -- -- -- 57 57
--
---- ----- --- ---- ---- ----
Balances, December 31, 1995.... -- -- 5,500 64 -- 264 328
Contributed Capital............ -- -- -- -- 47 -- 47
Net income..................... -- -- -- -- -- 18 18
--
---- ----- --- ---- ---- ----
Balances, December 30, 1996.... 0 $ 0 5,500 $ 64 $ 47 $282 $393
== ==== ===== === ==== ==== ====
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 121
THE BURRIDGE GROUP INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1996 TO DECEMBER 30, 1996
AND THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income..................................................... $ 18 $ 57 $ 53
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 125 97 70
Deferred income taxes....................................... 30 (9) (2)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable.................. 604 (313) (242)
Increase in other assets.................................... (98) (4) --
Increase in refundable income taxes......................... (56) -- --
Increase in prepaid expense................................. (35) (5) (4)
Increase (decrease) in accounts payable..................... 2 3 (3)
Increase in accrued expenses................................ 263 13 20
Increase in due to TBG LLC.................................. 275 -- --
Increase (decrease) in income taxes payable................. (23) 5 18
Increase (decrease) in deferred revenue..................... (746) 232 182
----- ----- -----
Net cash provided by operating activities.............. 359 76 92
----- ----- -----
Cash flows from investing activities:
Purchases of property and equipment............................ (146) (107) (173)
----- ----- -----
Net cash used in investing activities.................. (146) (107) (173)
----- ----- -----
Cash flows from financing activities:
Proceeds from notes payable.................................... -- 250 --
Principal payments on notes payable............................ (250) (100) --
----- ----- -----
Net cash provided by (used in) financing activities.... (250) 150 --
----- ----- -----
Net increase (decrease) in cash and cash equivalents............. (37) 119 (81)
Cash and cash equivalents at beginning of period................. 170 51 132
----- ----- -----
Cash and cash equivalents at end of period....................... $ 133 $ 170 $ 51
===== ===== =====
Supplemental disclosures of cash flow information -- cash paid
during the year for:
Interest....................................................... $ 7 $ 8 $ 3
Income taxes................................................... 66 51 17
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Stock options were exercised during the period January 1, 1996 to December 30,
1996 which generated a capital contribution of $47.
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE> 122
THE BURRIDGE GROUP INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION:
The Burridge Group Inc., an Illinois corporation (the "Company"), provides
investment advisory services to endowments, foundations, pension plans,
profit-sharing trusts, public funds, unions, bank trust departments and
individuals located throughout the United States. On October 11, 1996,
Affiliated Managers Group, Inc., a Delaware corporation ("AMG"), entered into a
Stock Purchase Agreement with the Company and the holders of the Company's
capital stock to purchase all the capital stock of the Company. In conjunction
with the completion of the purchase at the close of business on December 30,
1996, the Company transferred substantially all of its assets and substantially
all of its liabilities to The Burridge Group LLC, a newly established Delaware
limited liability company (the "LLC"), for which the Company serves as the
manager member and owns a majority interest. Effective at the close of business
on December 30, 1996, the Company became a wholly-owned subsidiary of AMG.
2. SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
For financial statement purposes, the Company considers interest-bearing
cash and all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents. Cash equivalents are stated at cost which
approximates market value due to the short-term maturity of these investments.
Depreciation and Amortization
Depreciation is computed for financial reporting purposes principally on
the straight-line method over the estimated useful lives of the related assets,
generally five to seven years. Amortization on leasehold improvements is
computed on a straight-line basis over the shorter of their estimated useful
lives or the term of the lease. Maintenance and repairs are charged to expense
when incurred.
Revenue Recognition
The Company's revenues are derived primarily from investment advisory fees.
These fees are generally billed in advance and on a quarterly basis based on the
amount of assets under management at the beginning of each quarter. The revenue
is deferred and the income is recognized as earned during the quarter.
Income Taxes
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end based on enacted tax laws and
statutory rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be ultimately realized in
the federal income tax return. The income tax provision is the current tax
liability plus the change during the period in deferred tax assets and
liabilities.
Use of Estimates
The preparation of these statements of operations, changes in shareholders'
equity and cash flows in conformity with generally accepted accounting
principles requires management to make
F-43
<PAGE> 123
THE BURRIDGE GROUP INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
certain estimates and assumptions that affect disclosures and amounts reported
in these statements of operations, changes in shareholders' equity and cash
flows. Actual results could differ from those estimates.
3. CONCENTRATION OF CREDIT AND OTHER RISK:
The Company maintains its cash accounts with a major Chicago-based
commercial bank. Accounts at this bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC") up to $100. At December 30, 1996 and at
December 31, 1995 and 1994, the Company had $339, $252 and $61, respectively,
which was in excess of the FDIC insurance limit.
During the period January 1, 1996 to December 30, 1996 and during the years
ended December 31, 1995 and 1994, the Company derived approximately 10%, 11% and
13% of its revenue, respectively, from a managed account program sponsored by
one national brokerage firm.
4. LEASE COMMITMENTS:
The Company entered into a lease agreement for office facilities in
January, 1994. Leased office facilities are under a sublease agreement with an
unrelated third party and this sublease is subordinate to a master lease
agreement dated July 15, 1983 which expires on January 15, 2001. The Company's
lease expires on August 31, 1998 and provides for certain base rental charges
and escalation charges for real estate taxes and building maintenance costs. The
Company has an option to terminate its lease after January 1, 1997. Termination
can be effected upon giving eight months written notice and making a termination
payment based on the unamortized balance of construction allowances, concessions
or costs previously incurred. As of December 30, 1996, the termination fee was
approximately $24.
Minimum annual rental commitments are as follows:
<TABLE>
<S> <C>
1997................................................. $272
1998................................................. 182
</TABLE>
Rental expense was $263, $181 and $144 for the period January 1, 1996 to
December 30, 1996 and for the years ended December 31, 1995 and 1994,
respectively.
5. STOCK OPTION PLAN:
On September 1, 1994, the Company and certain of its shareholders entered
into an employment and stock option agreement (the "Agreement") with an
employee. Pursuant to this Agreement, the employee was granted an option, which
expired on September 1, 1997, to acquire 250 shares of the Company's stock from
existing shareholders at $518 per share. The exercise date could be accelerated
if 50% or more of the shareholders agreed to a sale of the Company. The
Agreement contained a "Buy/Sell" clause which required the employee to sell
acquired shares to the Company or other shareholders at $518 per share upon
separation of employment or death.
Due to the sale of the Company to AMG (see Note 1), the exercise date for
the option was accelerated and the shares were acquired by the employee from the
existing shareholders prior to their sale to AMG. The "Buy/Sell" clause was also
suspended for purposes of the AMG transaction.
The compensatory value inherent in the option (the difference between the
stock's sale price and $518 per share) was triggered upon the Company's sale to
AMG. The Company was then deemed to have received capital contributions from its
shareholders in an amount equal to the tax
F-44
<PAGE> 124
THE BURRIDGE GROUP INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
benefit derived by the Company from this difference. This difference amounted to
$139 and, based upon the Company's effective tax rate, it received tax benefits
and a capital contribution of $47.
6. PROFIT SHARING PLAN:
The Company had a 401(k) profit sharing plan that covered all employees who
met the minimum service requirements, as defined. Under the terms of the plan,
participants may contribute \on a tax-deferred basis up to 15% of their
compensation or the maximum amount allowable by the current tax law. The
Company, under the terms of the plan, may make discretionary contributions at a
rate determined on a quarterly basis. The Company matching was $26, $19 and $15
for the period January 1, 1996 to December 30, 1996 and for the years ended
December 31, 1995 and 1994, respectively.
7. INCOME TAXES:
As a corporation registered in the State of Illinois, the Company pays
taxes as a stand-alone corporation at the state and federal level. A summary of
the income tax expense is as follows:
<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
TO DECEMBER 31,
DECEMBER 30, -------------
1996 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Federal:
Current............................................... $ 27 $ 43 $ 26
Deferred.............................................. (14) (8) (2)
State:
Current............................................... 7 13 9
Deferred.............................................. (3) (2) (1)
---- ---- ----
Income tax expense...................................... $ 17 $ 46 $ 32
==== ==== ====
</TABLE>
The effective income tax rate differs from the amount computed on income
before income taxes by applying the U.S. federal income tax rate because of the
effect of the following items:
<TABLE>
<CAPTION>
JANUARY 1, YEAR ENDED
TO DECEMBER 31,
DECEMBER 30, -------------
1996 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Tax provision at U.S. federal income tax rate........... 34% 34% 34%
Nondeductible expenses, principally business meals and
entertainment......................................... 42 14 10
State income taxes, net of federal income tax expense... 9 7 7
Rate differential for surtax exemption.................. (22) (8) (13)
Depreciation deferral adjustment........................ (14) -- --
Other................................................... -- (2) --
--- --- ---
49% 45% 38%
=== === ===
</TABLE>
F-45
<PAGE> 125
INDEPENDENT AUDITORS' REPORT
The Board of Directors
First Quadrant Corp.:
We have audited the accompanying combined statements of income of First
Quadrant Institutional and First Quadrant Limited (a division and subsidiary,
respectively, of First Quadrant Corp.) for the period from January 1, 1996 to
March 25, 1996 and the year ended December 31, 1995. These combined statements
of income are the responsibility of the Company's management. Our responsibility
is to express an opinion on these combined statements of income 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 statements of income are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statements of income. 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 combined statements of income referred to above present
fairly, in all material respects, the combined results of operations of First
Quadrant Institutional and First Quadrant Limited in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Los Angeles, California
July 24, 1997
F-46
<PAGE> 126
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
COMBINED STATEMENTS OF INCOME
FOR THE PERIOD JANUARY 1, 1996 THROUGH MARCH 25, 1996 AND THE
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------ -------
<S> <C> <C>
Revenue:
Asset based management fees........................................... $3,891 $15,472
Performance based management fees..................................... -- 5,210
Other................................................................. -- 93
------ -------
Total revenue................................................. 3,891 20,775
------ -------
Expenses:
Salaries and benefits................................................. 853 4,451
Incentive compensation and bonuses.................................... 832 7,061
Investment and other purchased services............................... 443 1,955
Marketing............................................................. 312 1,505
Professional fees..................................................... 237 401
Occupancy............................................................. 201 1,173
Depreciation and amortization......................................... 130 607
Telephone and postage................................................. 61 351
Office supplies....................................................... 19 122
Other................................................................. 93 744
------ -------
Total expenses................................................ 3,181 18,370
------ -------
Income before income taxes.................................... 710 2,405
Income taxes............................................................ 328 1,091
------ -------
Net income.................................................... $ 382 $ 1,314
====== =======
</TABLE>
See accompanying Notes to Combined Statements of Income.
F-47
<PAGE> 127
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
NOTES TO COMBINED STATEMENTS OF INCOME
FOR THE PERIOD JANUARY 1, 1996 THROUGH MARCH 25, 1996 AND THE
YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
1. GENERAL INFORMATION:
First Quadrant Institutional and First Quadrant Limited (collectively known
as the "Company") were a division and wholly owned subsidiary, respectively, of
First Quadrant Corp. ("FQC"). FQC was a wholly owned subsidiary of Talegen
Holdings, Inc. ("Talegen"), which is wholly owned by Xerox Financial Services,
Inc., a wholly owned subsidiary of Xerox Corporation ("Xerox"). On January 17,
1996 Affiliated Managers Group, Inc. ("AMG") entered into a Stock Purchase
Agreement with Talegen to have First Quadrant Holdings, Inc. ("FQ Holdings") (a
wholly owned subsidiary of AMG) purchase all of the capital stock of FQC from
Talegen. At the close of business on March 25, 1996, FQC transferred certain
investment advisory contracts and substantially all of its assets, excluding the
investment in First Quadrant Limited, and substantially all liabilities to the
newly established First Quadrant, L.P., for which FQC serves as the general
partner. On March 28, 1996, AMG completed the purchase from Talegen.
In conjunction with the purchase of First Quadrant Institutional described
above, 100% of the stock of First Quadrant Limited previously owned by FQC was
contributed to a newly formed partnership, First Quadrant U.K. L.P., for which
FQC serves as the general partner. First Quadrant Institutional and First
Quadrant Limited constitute the continuing operations of FQC which are now
majority owned by AMG.
FQC, which commenced operations in 1985, is a registered investment advisor
under the Investment Advisers Act of 1940 (the "Act"). The primary business of
First Quadrant Institutional was to provide advisory, evaluation, and research
services relating to the acquisition and disposition of marketable securities,
including derivative financial instruments. First Quadrant Limited (formerly
Barbican Capital Management, Ltd.), which was wholly owned by FQC, is a foreign
investment advisory concern whose primary business is similar to that of First
Quadrant Institutional.
On August 31, 1995 FQC sold its division, First Quadrant Insurance, and its
25% ownership in Seneca, Inc., a registered investment advisor under the Act, to
American Re Asset Management, Inc. All activity relating to the operations of
First Quadrant Insurance and Seneca, Inc., including the gain recognized on the
sale, are not reflected in the accompanying financial statements.
An integral part of managing the Company's domestic and global tactical
asset allocation and tactical currency allocation strategies for client's
investment accounts involves the use of derivative financial instruments. These
instruments are securities that provide an economic payoff contingent upon the
value of other assets such as stock and bond prices or market index values. The
Company directs the purchase of these instruments only on behalf of client
accounts and in accordance with written guidelines established in the individual
investment contracts with each client. The instruments purchased are exchange
traded futures, options, and foreign currency contracts, all of which are valued
at market.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying statements of income have been presented on a combined
basis of accounting. All transactions between First Quadrant Institutional and
First Quadrant Limited have been eliminated in the combined statements of
income.
F-48
<PAGE> 128
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
NOTES TO COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Depreciation and Amortization
Depreciation and amortization on property is computed on a straight-line
basis over the estimated useful lives of the assets (generally one to eight
years). Depreciation and amortization on leasehold improvements is computed on a
straight-line basis over the shorter of their useful lives or the term of the
lease.
Revenue Recognition
Asset based management fee income represents fees for managing the
underlying assets of customers. Performance based management fees are earned
based upon the Company's investment management returns related to a client's
portfolio relative to the passive returns of a benchmark index, or composite of
indices generally computed on an annual basis.
Income Taxes
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to temporary differences between the financial
statement carrying amount of existing assets and liabilities and their
respective tax bases and are measured using enacted tax rates. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance
against deferred tax assets is recorded if it is more likely than not that all
or some portion of the benefits related to deferred tax assets would not be
realized.
Postretirement Benefits
The cost of postretirement benefits is recognized in the financial
statements during the employee's active working career.
Foreign Currency Translation
First Quadrant Limited was responsible for 21% and 8% of the total revenues
and 10% and 8% of the total expenses generated by the Company in the period from
January 1, 1996 through March 25, 1996 and the year ended December 31, 1995.
In accordance with SFAS No. 52, "Accounting for Foreign Currency
Translation," First Quadrant Limited's assets and liabilities are translated to
U.S. dollars at year-end exchange rates, revenues and expenses at average
exchange rates during the year and shareholder's equity at historical exchange
rates. Gains and losses resulting from translation of the financial statements
are excluded from the combined statement of income and are recorded directly to
a separate component of shareholder's equity.
Use of Estimates
Management of the Company has made certain estimates and assumptions in the
preparation of these consolidated statements of income in conformity with
generally accepted accounting principles. Actual results could differ from these
estimates.
3. INCENTIVE COMPENSATION AND BONUSES:
Through December 31, 1995 the Company had an incentive compensation plan
that provided incentive compensation to certain employees. A portion of the
incentive compensation pool was
F-49
<PAGE> 129
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
NOTES TO COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(DOLLARS IN THOUSANDS)
based on revenues from unaffiliated companies. The remaining amount was
discretionary, although it could not exceed certain compensation levels. The
incentive compensation plan was amended effective December 31, 1995 to provide
for no further incentive compensation awards. All bonuses accrued during the
period from January 1, 1996 through March 25, 1996 were based on earnings of
First Quadrant Institutional during that period and were allocated at the
discretion of management.
4. INCOME TAXES:
Xerox and Talegen and in turn, Talegen and FQC, entered into a tax
allocation agreement effective in 1983 which provided that Talegen and its
subsidiaries, including FQC, would pay or be reimbursed by Xerox for the tax
liabilities or benefits generated due to the inclusion of Talegen and its
subsidiaries in the Xerox consolidated Federal income tax return. The right to
reimbursement from Xerox for any tax benefits did not expire due to any
statutory period of limitation under the Internal Revenue Code. The agreement
generally provided that Talegen subsidiaries, including FQC, would compute their
income tax liability on a separate return basis.
The actual tax provision differs from the statutory Federal tax rate of 35%
due to the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
U.S. Federal statutory income tax rate........................ 35.0% 35.0%
State income taxes, net of Federal income tax benefit......... 6.6 6.0
Meals and entertainment....................................... 1.2 1.5
Other......................................................... 3.4 2.9
---- ----
Effective income tax rate................................ 46.2% 45.4%
==== ====
</TABLE>
The treatment of incentive and deferred compensation gives rise to the
significant portion of the Company's deferred tax assets. The provision
(benefit) for income taxes for the period ended March 25, 1996 and the year
ended December 31, 1995, consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1996:
Federal.................................................. $ 93 $ 163 $ 256
State.................................................... 1 71 72
------ ----- ------
$ 94 $ 234 $ 328
====== ===== ======
1995:
Federal.................................................. $ 1,178 $ (310) $ 868
State.................................................... 311 (88) 223
------ ----- ------
$ 1,489 $ (398) $1,091
====== ===== ======
</TABLE>
5. PENSIONS:
Talegen had a principal noncontributory defined benefit pension plan
("Plan") that covered substantially all employees of the Company who met
eligibility requirements. The Plan provided benefits that were based on total
years of service and compensation during an employee's last five years of
employment. Contributions were made to the Plan in an amount deductible and in
accordance with funding standards established under the Internal Revenue Code as
amended by the Employee Retirement Income Security Act of 1974. Effective July
1, 1993, Talegen amended the Plan with the effect of limiting the accrual of
further benefits to its participants under the terms of the
F-50
<PAGE> 130
FIRST QUADRANT INSTITUTIONAL AND FIRST QUADRANT LIMITED
NOTES TO COMBINED STATEMENTS OF INCOME -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Plan. Total pension costs allocated to the Company approximated $4 and $41 in
1996 and 1995, respectively.
6. OTHER POSTEMPLOYMENT BENEFITS ("OPEB"):
Talegen provided certain health care and life insurance benefits for
retired employees. Prior to 1993, substantially all employees, including those
employees of the Company, became eligible for these benefits if they reached
normal retirement age (or age 55 under certain circumstances), with a defined
minimum period of service, while still working for the Company. In 1993, Talegen
announced its intention to limit the retiree medical benefits to those employees
who had reached age 50 on January 1, 1994 and who ultimately retired with at
least 15 years of service. The total OPEB costs allocated to the Company
approximated $4 and $6 in 1996 and 1995, respectively.
7. LEASES:
The Company is obligated under operating leases which expire in 2003 and
2008 for the Company's Pasadena and London offices respectively. The total rent
expense under these operating leases for 1996 and 1995 amounted to approximately
$153 and $646, respectively.
8. RELATED PARTY TRANSACTIONS:
In 1993, the Company entered into agreements with Apprise Corp., an
affiliated entity of Talegen, pursuant to which Apprise Corp. provided data
processing services (including payroll). The service fee for 1996 and 1995
amounted to approximately $53 and $164, respectively, and is included in
investment and other purchased services.
F-51
<PAGE> 131
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
GeoCapital Corporation
We have audited the balance sheets of GeoCapital Corporation (the
"Corporation") as of September 30, 1996 and 1995, and the related statements of
income and retained earnings and cash flows for the years ended September 30,
1996, 1995 and 1994. These financial statements are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Corporation as of
September 30, 1996 and 1995, and the results of its operations and its cash
flows for the years ended September 30, 1996, 1995 and 1994 in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
August 15, 1997, except
for Note 9 for which
the date is September 30, 1997
F-52
<PAGE> 132
GEOCAPITAL CORPORATION
BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.............................................. $ 144 $ 176
Investment advisory fees receivable.................................... 3,221 3,553
Prepaid expenses....................................................... 192 153
Other.................................................................. 85 50
------ ------
Total current assets........................................... 3,642 3,932
Fixed assets, net........................................................ 56 49
------ ------
Total assets................................................... $3,698 $3,981
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Current liabilities:
Accounts payable and accrued expenses............................... $ 40 $ 35
Investment advisory fee payable..................................... 327 201
------ ------
Total current liabilities...................................... 367 236
Deferred taxes payable................................................. 130 219
Investment advisory fee payable........................................ 683 482
------ ------
Total other liabilities........................................ 813 701
------ ------
Total liabilities.............................................. 1,180 937
------ ------
Commitments (Note 4)
Stockholders' equity:
Common stock -- par value $1 per share, 100 shares authorized, issued
and outstanding..................................................... -- --
Retained earnings...................................................... 2,585 3,111
------ ------
2,585 3,111
Less:
Treasury stock, at cost, 20 shares.................................. (67) (67)
------ ------
Total stockholders' equity.......................................... 2,518 3,044
------ ------
Total liabilities and stockholders' equity..................... $3,698 $3,981
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-53
<PAGE> 133
GEOCAPITAL CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenue:
Asset based management fee................................ $10,568 $ 9,384 $ 9,606
Performance based management fee.......................... 1,446 1,658 2,431
Other..................................................... 6 6 6
------- ------- -------
Total revenue..................................... 12,020 11,048 12,043
------- ------- -------
Expenses:
Salaries and benefits..................................... 9,450 9,202 11,041
Occupancy................................................. 288 284 262
Marketing................................................. 948 870 1,043
Payroll and other taxes................................... 226 221 205
Travel and entertainment.................................. 93 123 112
Pension expense........................................... -- (155) 324
Telephone, postage and office expense..................... 89 90 73
Performance fee expense................................... 714 304 378
Other..................................................... 497 465 364
------- ------- -------
Total expenses.................................... 12,305 11,404 13,802
------- ------- -------
Net loss before provision for income taxes........ (285) (356) (1,759)
------- ------- -------
Income tax provision:
Current................................................... 240 217 269
Deferred.................................................. (89) (33) (86)
------- ------- -------
151 184 183
------- ------- -------
Net loss.......................................... (436) (540) (1,942)
Retained earnings:
Beginning of year......................................... 3,111 3,651 5,593
Distribution to shareholder............................... (90) -- --
------- ------- -------
End of year....................................... $ 2,585 $ 3,111 $ 3,651
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-54
<PAGE> 134
GEOCAPITAL CORPORATION
STATEMENTS OF CASH FLOW
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss..................................................... $(436) $(540) $(1,942)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation.............................................. 20 20 19
Deferred taxes............................................ (89) (33) (86)
Changes in assets and liabilities:
Decrease in accounts receivable........................... 332 681 1,409
(Increase)/decrease in prepaid expenses................... (39) (69) 45
(Decrease)/increase in accounts payable and accrued
expenses................................................ 5 (6) 19
(Increase)/decrease in other assets....................... (36) (34) 8
(Decrease) in pension payable............................. -- (238) (49)
(Decrease) in corporate taxes payable..................... -- -- (79)
Increase in performance fee payable....................... 328 303 379
----- ----- -------
Net cash provided by (used in) operating
activities......................................... 85 84 (277)
----- ----- -------
Cash flows from investing activities:
Purchase of equipment........................................ (26) (7) (20)
Section 444 deposit.......................................... -- -- 34
----- ----- -------
Net cash provided by (used in) investing
activities......................................... (26) (7) 14
----- ----- -------
Cash flows from financing activities:
Distribution to shareholder.................................. (90) -- --
----- ----- -------
Net cash used in financing activities................ (90) -- --
----- ----- -------
Net increase (decrease) in cash and cash
equivalents........................................ (31) 77 (263)
Cash and cash equivalents:
Beginning................................................. 176 99 362
----- ----- -------
Ending.................................................... $ 145 $ 176 $ 99
===== ===== =======
Supplemental disclosure of cash flow information:
Income taxes paid............................................ $ 269 $ 281 $ 298
===== ===== =======
Interest paid................................................ $ -- $ 14 $ --
===== ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-55
<PAGE> 135
GEOCAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
GeoCapital Corporation (the "Corporation") is a Subchapter S Corporation
incorporated under the laws of the State of Delaware and commenced operations on
July 23, 1979.
The Corporation's business is to provide investment advisory services to
individuals, corporations, pension plans and non-profit organizations which are
located nationwide. Advisory fees are based on a percentage of assets managed
for all but two major clients for the year ended September 30, 1996 and three
major clients for the years ended September 30, 1995 and 1994. For these major
clients, the advisory fee is a performance based contract.
A summary of the Corporation's significant accounting policies follows:
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Corporation considers
cash in banks, on hand and invested in money market funds to be cash
equivalents.
Revenue Recognition
The Corporation's revenue consists primarily of asset-based and
performance-based investment advisory fees. Investment advisory fees from
managed accounts are billed on a quarterly basis at the beginning of the quarter
and recorded on a monthly basis over the quarter. Any fees collected in advance
are deferred and recognized as income over the period earned.
Property and Equipment
Property and equipment is stated at cost. Property and equipment are being
depreciated over its estimated useful life of 5 years using the straight-line
method. Maintenance, repairs and minor renewals are expensed as incurred.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax basis. Deferred tax liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. The principal
source of deferred taxes relates to the cash basis of accounting used for tax
purposes.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-56
<PAGE> 136
GEOCAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
2. PROPERTY AND EQUIPMENT:
Property and equipment for the years ended September 30, 1996 and 1995 is
summarized as follows:
<TABLE>
<S> <C> <C>
Furniture and fixtures....................................... $149 $123
Accumulated depreciation..................................... (93) (74)
---- ----
$ 56 $ 49
==== ====
</TABLE>
3. PENSION PLAN:
For the period beginning October 1, 1983 through April 30, 1995, the
Corporation had a defined benefit pension plan (the "Plan") covering
substantially all of its employees. The benefits were based on years of service
and the employee's compensation during the last year of employment. The
Corporation's funding policy was to contribute annually the maximum amount that
could be deducted for federal income tax purposes. Contributions were intended
to provide not only for benefits attributed to service to date, but also for
those expected to be earned in the future. The amount contributed by the
Corporation for the year ended September 30, 1994 was $238. Due to an over
accrual of pension expense for the year ended September 30, 1994, the
Corporation reduced pension expense by the amount of $155 for the year ended
September 30, 1995. Effective April 30, 1995, the Corporation terminated its
defined benefit pension plan for all employees. Upon termination of the Plan,
all vested amounts were transferred into an IRA or 401(k) plan at the direction
of the employees.
In addition, all Corporation employees are eligible to participate in the
401(k) plan, effective May 1, 1996. The Corporation, at its discretion, can
match a portion of the employee contributions. The Corporation did not make a
401(k) contribution for the year ended September 30, 1996.
4. COMMITMENTS AND CONTINGENCIES:
The Corporation currently leases office space from Sandler Capital
Management under a lease that provides for an annual expense of $220 plus
additional rent for escalation charges and after hours heating and air
conditioning. The lease expires on November 29, 2000. For the years ended
September 30, 1994 and 1995, the Corporation had a similar lease agreement where
the Corporation leased office space from Sandler Capital Management for an
annual expense of $200. The lease expired on November 29, 1995. The following is
a schedule of future minimum lease payments required under this lease:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1996
-------------
<S> <C>
1997........................................... $ 220
1998........................................... 220
1999........................................... 220
2000........................................... 220
2001........................................... 37
----
Total................................ $ 917
====
</TABLE>
5. PROVISION FOR CORPORATE INCOME TAXES:
No provision for Federal income taxes has been accrued due to the
shareholders' election to be treated as an "S" Corporation for income tax
purposes as of September 28, 1979. As an "S"
F-57
<PAGE> 137
GEOCAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Corporation, income or loss and credits are passed to the shareholders to be
reported on their individual personal income tax returns. Provision has been
made for State and local taxes as follows for the years ended:
<TABLE>
<CAPTION>
NET
CURRENT DEFERRED TAXES
---- ---- ----
<S> <C> <C> <C>
SEPTEMBER 30, 1996
New York State tax and surcharge............................ $ 5 $(39) $(34)
Minnesota State tax......................................... 7 -- 7
California State tax........................................ 4 -- 4
New York City general corporation tax....................... 224 (50) 174
----- ----- -----
--- --- ---
Total............................................. $240 $(89) $151
======== ======== ========
SEPTEMBER 30, 1995
New York State tax and surcharge............................ $ 1 $(11) $(10)
California State tax........................................ 1 -- 1
New York City general corporation tax....................... 215 (22) 193
----- ----- -----
--- --- ---
Total............................................. $217 $(33) $184
======== ======== ========
SEPTEMBER 30, 1994
New York State tax and surcharge............................ $ 1 $(20) $(19)
California State tax........................................ 1 -- 1
Minnesota State tax......................................... 1 -- 1
New York City general corporation tax....................... 266 (66) 200
----- ----- -----
--- --- ---
Total............................................. $269 $(86) $183
======== ======== ========
</TABLE>
6. PERFORMANCE FEE PAYABLE:
The Corporation has entered into a "performance-based" investment fee
contract with the State of Minnesota through June 30, 2001. As of September 30,
1996, the account's performance did not meet the "benchmark" contracted amount.
As such a payable has been recorded. It is the opinion of management that the
performance fee will be recovered in future years. Based on the performance,
under the contract to date, the future performance fee payable is as follows:
<TABLE>
<S> <C>
Current portion..................................... $ 327
Non-current portion................................. 682
-------
---
$1,009
==========
</TABLE>
7. CONCENTRATION OF CREDIT RISK:
The Corporation maintains its cash balances in one major New York City
bank. The balance in this account usually exceeds the insurance limit of the
Federal Deposit Insurance Corporation. Two clients comprise a significant
portion of the investment advisory fee receivable balance. The receivables from
these two clients for the years ended September 30, 1996 and 1995 are $676,
$844, respectively.
F-58
<PAGE> 138
GEOCAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
8. TREASURY STOCK:
In 1982, the Corporation repurchased 20 shares of common stock from an
employee in conjunction with the termination of his employment with the
Corporation.
9. SUBSEQUENT EVENTS:
On August 15, 1997, Affiliated Managers Group, Inc. ("AMG"), AMG Merger
Sub, Inc. (a wholly-owned subsidiary of AMG) ("Merger-Sub"), the Corporation,
the stockholders of the Corporation and GeoCapital, LLC (the "LLC") entered into
a definitive agreement whereby the Corporation will merge with and into
Merger-Sub after the Corporation has contributed all of its assets and
liabilities to the LLC, of which the Corporation is the manager member. On
September 30, 1997 this transaction was completed.
F-59
<PAGE> 139
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Tweedy, Browne Company L.P.
We have audited the balance sheets of Tweedy, Browne Company L.P. (the
"Partnership") as of December 31, 1996, September 30, 1996 and 1995, and the
related statements of operations, and cash flows for the period October 1, 1996
through December 31, 1996 and the years ended September 30, 1996, 1995 and 1994
and changes in partners' capital for the period October 1, 1996 through December
31, 1996 and the years ended September 30, 1996 and 1995. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1996, September 30, 1996 and 1995, and the results of its
operations and its cash flows for the period October 1, 1996 through December
31, 1996 and the years ended September 30, 1996, 1995 and 1994, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
September 23, 1997, except for
Note 9 for which
the date is October 9, 1997
F-60
<PAGE> 140
TWEEDY, BROWNE COMPANY L.P.
BALANCE SHEETS
AS OF DECEMBER 31, 1996, SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -----------------
1996 1996 1995
------------ ------ ------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 4,504 $1,863 $1,357
Investment advisory fees receivable...................... 2,656 1,960 1,302
Receivable from clearing broker.......................... 408 153 92
Other current assets..................................... 37 43 120
------- ------ ------
Total current assets............................. $ 7,605 4,019 2,871
------- ------ ------
Fixed assets, net.......................................... 787 964 672
Deposit with Internal Revenue Service...................... 1,538 1,538 982
Secured demand notes receivable............................ 800 800 800
------- ------ ------
Total assets..................................... $ 10,730 $7,321 $5,325
======= ====== ======
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Current liabilities:
Accrued compensation.................................. $ 728 $ 914 $ 746
Accounts payable and accrued liabilities.............. 482 325 358
Investment advisory fee payable....................... 80 160 34
------- ------ ------
Total current liabilities........................ 1,290 1,399 1,138
------- ------ ------
Subordinated indebtedness.................................. 800 800 800
------- ------ ------
Total liabilities................................ 2,090 2,199 1,938
------- ------ ------
Commitments (Note 5)
Partners' capital:
Limited partners......................................... 4,747 2,824 1,866
General partners......................................... 3,893 2,298 1,521
------- ------ ------
Total partners' capital.......................... 8,640 5,122 3,387
------- ------ ------
Total liabilities and partners' capital.......... $ 10,730 $7,321 $5,325
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE> 141
TWEEDY, BROWNE COMPANY L.P.
STATEMENTS OF OPERATIONS
FOR THE PERIOD OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996 AND THE YEARS ENDED
SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -------------------------------
1996 1996 1995 1994
------------ ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Asset based management fees................ $8,227 $28,478 $21,195 $14,272
Commissions................................ 1,554 5,129 3,392 4,515
Other...................................... -- 3 508 3
------ ------- ------- -------
Total revenue...................... 9,781 33,610 25,095 18,790
------ ------- ------- -------
Expense:
Salaries and benefits...................... 540 2,321 2,393 2,146
Commissions and clearing charges........... 417 1,587 1,059 1,351
Occupancy.................................. 134 535 532 506
Incentive compensation and bonuses......... 1,100 3,290 2,574 1,839
NYC unincorporated business tax............ 161 829 546 407
Mutual fund expenses....................... 42 419 470 324
Computer expenses.......................... 256 530 351 270
Investment and other purchased services.... 145 485 520 546
Insurance.................................. 31 261 268 274
Professional fees.......................... 60 284 237 643
Office supplies............................ 30 206 194 163
Depreciation and amortization.............. 219 331 155 115
Marketing.................................. 71 176 151 104
Telephone and postage...................... 43 170 166 143
Other...................................... 116 415 386 298
------ ------- ------- -------
Total expenses..................... 3,365 11,839 10,002 9,129
------ ------- ------- -------
Net income......................... $6,416 $21,771 $15,093 $ 9,661
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 142
TWEEDY, BROWNE COMPANY L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996 AND THE YEARS ENDED
SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
-------- ------- --------
<S> <C> <C> <C>
Balance, September 30, 1994............................... $ 1,420 $ 1,420 $ 2,840
Transfer general partner to limited partner............... 174 (174) --
Net income for the year ended September 30, 1995.......... 8,339 6,754 15,093
Partners' drawings........................................ (8,067) (6,479) (14,546)
-------- ------- --------
Balance, September 30, 1995............................... 1,866 1,521 3,387
Net income for the year ended September 30, 1996.......... 11,977 9,794 21,771
Partners' drawings........................................ (11,019) (9,017) (20,036)
-------- ------- --------
Balance, September 30, 1996............................... $ 2,824 $ 2,298 $ 5,122
-------- ------- --------
Net income for the period ended December 31, 1996......... 3,530 2,886 6,416
Partners' drawings........................................ (1,607) (1,291) (2,898)
-------- ------- --------
Balance, December 31, 1996................................ $ 4,747 $ 3,893 $ 8,640
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE> 143
TWEEDY, BROWNE COMPANY L.P.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD OCTOBER 1, 1996 THROUGH DECEMBER 31, 1996
AND THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, ----------------------------------
1996 1996 1995 1994
------------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Commissions received.............................. $ 1,299 $ 5,049 $ 3,493 $ 4,659
Asset based management fees received.............. 7,451 27,946 20,851 14,092
Other income received............................. 17 1 508 4
Salaries, benefits, incentive compensation and
bonuses paid.................................... (1,826) (5,443) (4,913) (3,444)
Commissions and clearing charges paid............. (435) (1,567) (1,118) (1,445)
Occupancy tax paid................................ (134) (535) (532) (506)
NYC unincorporated business taxes paid............ -- (874) (448) (454)
Professional fees paid............................ (131) (265) (254) (652)
Other operating expenses paid..................... (666) (2,668) (2,394) (2,112)
------- -------- -------- --------
Net cash provided by operating
activities............................... 5,575 21,644 15,193 10,142
------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures.............................. (42) (622) (277) (109)
Deposit with the IRS.............................. -- (557) (326) (214)
Decrease (increase) in other current assets....... 6 77 (79) 8
(Decrease) increase in other current
liabilities..................................... -- -- (15) 9
------- -------- -------- --------
Net cash used in investing activities...... (36) (1,102) (697) (306)
------- -------- -------- --------
Cash flows from financing activities:
Cash withdrawn by partners during the year........ (2,898) (20,036) (14,546) (10,152)
------- -------- -------- --------
Increase (decrease) in cash and cash equivalents.... 2,641 506 (50) (316)
Cash and cash equivalents, beginning of year........ 1,863 1,357 1,407 1,723
------- -------- -------- --------
Cash and cash equivalents, end of year..... $ 4,504 $ 1,863 $ 1,357 $ 1,407
======= ======== ======== ========
Reconciliation of net income to net cash provided by
operating activities:
Net income........................................ $ 6,416 $ 21,771 $ 15,093 $ 9,661
------- -------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 219 331 155 115
Changes in assets and liabilities:
Increase in investment advisory fees receivable... (696) (658) (349) (178)
(Increase) decrease in receivable from clearing
broker.......................................... (255) (61) 41 49
Increase in other current assets.................. -- -- -- (6)
Increase in accounts payable, accrued liabilities
and other current liabilities................... (109) 261 253 501
------- -------- -------- --------
Total adjustments.......................... (841) (127) 100 481
------- -------- -------- --------
Net cash provided by operating activities........... $ 5,575 $ 21,644 $ 15,193 $ 10,142
======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE> 144
TWEEDY, BROWNE COMPANY L.P.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business
Tweedy, Browne Company L.P. (the "Partnership") is a limited partnership
organized in the state of Delaware, registered with the Securities and Exchange
Commission as a broker-dealer and an investment advisor, and is a member of the
National Association of Securities Dealers. The partnership consists of three
general partners who are also limited partners and a limited partner who retired
as a general partner in 1995. The Limited Partnership Agreement (the
"Agreement") provides for allocation of net profits and net losses as of the end
of each fiscal period, as defined, to the General Partners and the Limited
Partners in proportion to their respective interests, as defined in the
Agreement.
The Partnership shall continue until July 1, 2038 unless terminated sooner
as provided in the Agreement.
In September of 1993, the Partnership opened a branch office in London,
England to conduct securities research in connection with foreign investments.
All accounts are maintained in U.S. dollars.
A summary of the Partnership's significant accounting policies follows:
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership considers
cash in banks, on hand and invested in money market funds to be cash
equivalents.
Revenue Recognition
The Partnership's revenue consists primarily of investment advisory fees
and brokerage commissions. Investment advisory fees from managed accounts are
billed on a quarterly basis at the beginning of the quarter and recorded on a
monthly basis over the quarter. Investment advisory fees from domestic regulated
investment companies are billed and recorded on a monthly basis. Brokerage
commissions are recorded on a trade date basis and are remitted by the clearing
broker on a monthly basis after necessary offsets for clearing charges and
execution costs.
Property and Equipment
Property and equipment is stated at cost. Property and equipment are being
depreciated over its estimated useful life ranging from 5 to 7 years using the
straight-line method or an accelerated method beginning in the year it is placed
in service. Leasehold improvements are amortized on a straight-line basis over
their estimated useful lives or the term of the lease.
Income Taxes
Only New York City Unincorporated Business taxes have been provided since
the Partnership is not subject to Federal or State income taxes. The Partnership
maintains a deposit with the Internal Revenue Service required of partnership
entities under Section 444 of the Internal Revenue Code as a condition of
electing a fiscal year other than December 31.
F-65
<PAGE> 145
TWEEDY, BROWNE COMPANY L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Receivable From Clearing Broker
The Partnership is an introducing broker that clears its customer security
transactions through Fleet Clearing Corporation on a fully disclosed basis. The
Partnership pays its clearing broker a fixed ticket charge for clearing its
transactions. For the period October 1, 1996 through December 31, 1996 and the
years ended September 30, 1996 and 1995, amounts of $408, $153 and $92,
respectively, are due from Fleet Clearing Corporation consisting principally of
commissions due on transactions after deductions for clearing and other
execution charges.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1996 and September 30, 1996 and 1995
is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, -----------------
1996 1996 1995
------------ ------ ------
<S> <C> <C> <C>
Office equipment................................... $ 965 $ 931 $ 410
Furniture and fixtures............................. 542 534 548
Leasehold improvements............................. 491 491 491
-------- ------- -------
1,998 1,956 1,449
Accumulated depreciation......................... (1,211) (992) (777)
-------- ------- -------
$ 787 $ 964 $ 672
======== ======= =======
</TABLE>
3. SUBORDINATED INDEBTEDNESS:
On July 1, 1989, the Partnership entered into a subordinated loan agreement
with two of its general partners. In 1995, one of the general partners retired
but continues as a limited partner and remains a party to the subordination
agreement. The individuals each provided collateralized demand notes of $400 to
the Partnership which call for interest at the rate of 6% per annum. These notes
become due on September 30, 2006.
The resulting liability for repayment of such notes is subordinated to all
other claims of general creditors. The loan agreement conforms to all the
requirements of Appendix D to Rule 15c3-1 and is designed to qualify the
borrowings as "net capital." The subordinated notes are collateralized by
marketable securities of the general partners having a market value at December
31, 1996, September 30, 1996 and 1995 in excess of $5,000, $5,000 and $7,000,
respectively. Interest paid on the above subordinated indebtedness amounted to
$12 for the period October 1, 1996 through December 31, 1996 and $48 for each of
the years ended September 30, 1996 and 1995.
F-66
<PAGE> 146
TWEEDY, BROWNE COMPANY L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
4. PROFIT SHARING PLAN:
Effective September 30, 1976, the Partnership's predecessor corporation
established a non-contributory profit sharing plan which covers all eligible
employees of the corporation. This plan complies with the Employee Retirement
Income Security Act of 1974 and the Internal Revenue code of 1985. The
Partnership has adopted this plan. This plan was most recently amended on
November 15, 1994 retroactive to September 30, 1989. The amounts contributed by
the Partnership during the period October 1, 1996 through December 31, 1996 and
for the years ended September 30, 1996, 1995 and 1994 were $171, $405, $385 and
$403, respectively, of which $99, $20 and $25 were due as of December 31, 1996
and September 30, 1996 and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES:
The Partnership currently leases office space in New York, New York and
London, U.K. under lease agreements expiring April 30, 1999 and April 17, 2005,
respectively. With respect to the latter either party has the right to terminate
by six months written notice as of April 17, 2000. Rent expense under these
leases was approximately $157, $725, $728 and $642 for the period October 1,
1996 through December 31, 1996 and the years ended September 30, 1996, 1995 and
1994, respectively. Future minimum rentals under these leases are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED SEPTEMBER 30 NEW YORK CITY LONDON, U.K.
---------------------------------------------- ------------- ---------------
<S> <C> <C>
1997.......................................... $ 528 $14
1998.......................................... 528 14
1999.......................................... 176 14
2000.......................................... -- 4
------ ---
$ 1,232 $46
====== ===
</TABLE>
These minimum rentals are subject to escalation or reduction based upon
certain costs incurred by the landlord and, with respect to London, by real
estate tax of approximately $11 per year for each year that the premise is
actually occupied by the Partnership.
The Partnership has entered into a sublease agreement wherein it leases
approximately 40% of the 7th floor area to a subtenant who pays rent to the
Partnership based upon the percentage of square footage occupied to the total of
the 7th floor square footage. Rent under this sublease will continue through
April 30, 1999. For the period October 1, 1996 through December 31, 1996 and the
years ended September 30, 1996, 1995 and 1994, rental income amounted to $43,
$173, $171 and $163, respectively, and is included as a reduction of the
aggregate rent paid. The Partnership is also subleasing a portion of its London
office.
6. RELATED PARTY TRANSACTIONS:
In addition to commissions and investment advisory fees from unrelated
customers, Tweedy, Browne Company L.P. receives commission income for securities
brokerage services performed for two domestic investment partnerships wherein
the general partners of the Partnership are general partners and for four
Passive Foreign Investment Companies wherein the general partners of the
Partnership are stockholders and the Partnership is the investment advisor. For
the period October 1, 1996 through December 31, 1996 and the years ended
September 30, 1996, 1995 and 1994, such commissions and investment advisory fees
amounted to $179, $656, $421 and $657, respectively, of which $5 and $50 was
owing as of December 31, 1996 and September 30, 1996, respectively. There were
no amounts owed as of September 30, 1995. These commissions are
F-67
<PAGE> 147
TWEEDY, BROWNE COMPANY L.P.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
charged on a basis which is common in the industry and which include a discount
from the previously regulated rates.
Effective June 16, 1993, and December 8, 1993, respectively, the
Partnership entered into distribution agreements with Tweedy, Browne Fund Inc.
as the exclusive sales agent for Tweedy, Browne Global Value Fund and Tweedy,
Browne American Value Fund (the "Funds"), respectively. The Partnership is also
the investment advisor for the Funds. The general partners of the Partnership
are officers and/or directors of Tweedy, Browne Fund Inc. For the period October
1, 1996 through December 31, 1996 and the years ended September 30, 1996, 1995
and 1994, the Partnership earned investment advisory fees from the Funds of
$4,423, $13,893, $9,046 and $3,801, respectively, of which $1,534, $1,325 and
$926 were owing as of December 31, 1996 and September 30, 1996 and 1995,
respectively.
7. NET CAPITAL REQUIREMENT:
As a registered broker/dealer, the Partnership is subject to the Uniform
Net Capital Rule 15c3-1 of the Securities and Exchange Commission. This rule
prohibits a broker-dealer from engaging in securities transactions when its
aggregate indebtedness exceeds 15 times its net capital as those terms are
defined in the net capital rule. Rule 15c3-1 also provides that equity capital
may not be withdrawn or cash dividends paid if the resulting net capital ratio
would exceed 10 to 1. The Partnership computes its net capital under the
aggregate indebtedness method permitted by the rule which requires the
Partnership to maintain minimum net capital, as defined, equal to the greater of
6 2/3% of aggregate indebtedness, as defined, or $5. At December 31, 1996,
September 30, 1996 and 1995, the Partnership had net capital of $6,643, $2,701
and $1,996 which was $6,605, $2,608 and $1,920 in excess of its required net
capital of $37, $93 and $76, respectively. The Partnership's net capital ratio
was .1942 to 1, .5178 to 1 and .5701 to 1 at December 31, 1996, September 30,
1996 and 1995, respectively.
The Partnership is exempt from the provisions of SEC Rule 15c3-3 because it
does not receive any Funds or securities in connection with its activities as a
broker or dealer, and does not otherwise hold funds or securities for, or owe
money or securities to customers.
8. CONCENTRATION OF CREDIT RISK:
The Partnership maintains its cash balances in two major New York City
banks. The balances in these accounts usually exceed the insurance limits of the
Federal Deposit Insurance Corporation.
The majority of the Partnership's brokerage transactions, and consequently
the concentration of its credit exposure, is with broker-dealers, and other
financial institutions. In the event counterparties do not fulfill their
obligations, the Partnership may be exposed to credit risk. The risk of default
depends on the creditworthiness of the counterparty or issuer of the instrument.
The Partnership seeks to control credit risk by following an established credit
approval process, monitoring credit limits, and by requiring collateral where
appropriate.
9. SUBSEQUENT EVENTS:
On August 15, 1997, Affiliated Managers Group, Inc. ("AMG"), the
Partnership and the partners of the Partnership entered into a definitive
agreement whereby AMG will purchase a majority interest in Tweedy, Browne
Company LLC which will succeed to the business of the Partnership. On October 9,
1997 this transaction was completed.
F-68
<PAGE> 148
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., BT Alex. Brown
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Schroder &
Co. Inc. are acting as representatives, has severally agreed to purchase from
the Company, the respective number of shares of Common Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
---------------------------------------------------------------------- ------------
<S> <C>
Goldman, Sachs & Co. .................................................
BT Alex. Brown Incorporated...........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
Schroder & Co. Inc....................................................
------------
Total............................................................ 5,600,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters" and, together with the U.S. Underwriters, the
"Underwriters") providing for the concurrent offer and sale of 1,400,000 shares
of Common Stock in the International Offering outside the United States. The
offering price and aggregate underwriting discounts and commissions per share
for the two Offerings are identical. The closing of the Offering made hereby is
a condition to the closing of the International Offering, and vice versa. The
representative of the International Underwriters is Goldman Sachs International.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
U-1
<PAGE> 149
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 840,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
5,600,000 shares of Common Stock offered hereby. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
210,000 additional shares of Common Stock.
The Company has agreed, subject to certain exceptions, that during the
period beginning from the date of this Prospectus and continuing to and
including the date 180 days after the date of this Prospectus, it will not
offer, sell, contract to sell or otherwise dispose of any Common Stock (other
than pursuant to employee stock option or purchase plans existing, or on the
conversion or exchange of convertible or exchangeable securities or the exercise
of warrants outstanding, on the date of this Prospectus) or any securities of
the Company which are substantially similar to the Common Stock, or which are
convertible into or exchangeable or exercisable for Common Stock or any such
other securities, without the prior written consent of the representatives,
except for (i) shares of Common Stock offered in connection with the Offerings
and (ii) shares of Common Stock or such other securities issued as consideration
in future investments, provided that such securities are made subject to such
180-day restrictions.
In connection with the Offerings, the Underwriters may purchase and sell
the Common Stock in the open market. These transactions may include
over-allotment and stabilizing transactions and purchases to cover syndicate
short positions created in connection with the Offerings. Stabilizing
transactions consist of certain bids or purchases for the purpose of preventing
or retarding a decline in the market price of the Common Stock; and syndicate
short positions involve the sale by the Underwriters of a greater number of
shares of Common Stock than they are required to purchase from the Company in
the Offerings. The Underwriters also may impose a penalty bid, whereby selling
concessions allowed to syndicate members or other broker-dealers in respect of
the Common Stock sold in the Offerings for their account may be reclaimed by the
syndicate if such Common Stock is repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Common Stock, which may be higher than the price
that might otherwise prevail in the open market, and these activities, if
commenced, may be discontinued at any time. These transactions may be effected
on the NYSE, in the over-the-counter market or otherwise.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to the Offerings, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
or be sustained to support future transactions in the shares of Common Stock
sold in the Offerings. The initial public offering price will be negotiated
among the Company and the representatives of the U.S. Underwriters and the
International Underwriters. Among the factors to be considered in determining
the initial public offering price of the Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in relation
to market valuation of companies in related businesses.
U-2
<PAGE> 150
In connection with the Offerings, the U.S. Underwriters have reserved up to
350,000 shares of Common Stock for sale at the initial public offering price to
persons associated with the Company. The number of shares available for sale to
the general public will be reduced to the extent any reserved shares are
purchased. Any reserved shares not so purchased will be offered by the U.S.
Underwriters on the same basis as the other shares offered hereby.
The Common Stock has been approved for listing, subject to notice of
issuance, on the NYSE under the symbol "AMG". In order to meet one of the
requirements for listing the Common Stock on the NYSE, the Underwriters have
undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial
holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933.
The representatives of the Underwriters have in the past provided, and may
in the future from time to time provide, investment banking services to AMG or
one or more of the Affiliates, for which they may receive customary fees. Among
other things, Goldman, Sachs & Co. recently acted as financial advisor to, and
received a customary fee from, the partners of Tweedy, Browne in connection with
the Tweedy, Browne Investment.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
U-3
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<PAGE> 152
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<PAGE> 153
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 154
==========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES
IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 9
Use of Proceeds....................... 18
Dividend Policy....................... 18
Dilution.............................. 19
Capitalization........................ 20
Selected Pro Forma Financial Data..... 21
Selected Historical Financial Data.... 23
Recent Developments................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 41
Management............................ 56
Certain Transactions.................. 65
Principal Stockholders................ 68
Description of Capital Stock.......... 71
Shares Eligible for Future Sale....... 75
Validity of Securities................ 77
Experts............................... 77
Additional Information................ 77
Index to Financial Statements......... F-1
Underwriting.......................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997
(THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
7,000,000 SHARES
AFFILIATED
MANAGERS GROUP, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
LOGO
------------------------
GOLDMAN, SACHS & CO.
BT ALEX. BROWN
MERRILL LYNCH & CO.
SCHRODER & CO. INC.
REPRESENTATIVES OF THE UNDERWRITERS
================================================================
<PAGE> 155
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (1)
The following table sets forth the estimated expenses payable by the
Company in connection with this offering (excluding underwriting discounts and
commissions):
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee................................................... $ 56,107
NYSE Filing Fee........................................................ $ 95,100
NASD Filing Fee........................................................ $ 19,015
Accounting Fees and Expenses........................................... *
Legal Fees and Expenses................................................ *
Printing Expenses...................................................... *
Blue Sky Qualifications Fees and Expenses.............................. *
Transfer Agent's Fee................................................... *
Miscellaneous.......................................................... *
----------
TOTAL............................................................. $1,717,500
</TABLE>
- ---------------
(1) The amounts set forth above, except for the SEC, NYSE and NASD fees, are in
each case estimated.
* To be completed by Amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
In accordance with Section 145 of the General Corporation Law of the State
of Delaware, Article VII of the Company's Third Amended and Restated Certificate
of Incorporation provides that no director of the Company shall be personally
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. In addition, the Certificate
provides that if the Delaware General Corporation Law is amended to authorize
the further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Article V of the Company's Amended and Restated By-laws provides for
indemnification by the Company of its directors, officers and certain
non-officer employees under certain circumstances against expenses (including
attorneys fees, judgments, fines and amounts paid in settlement) reasonably
incurred in connection with the defense or settlement of any threatened, pending
or completed legal proceeding in which any such person is involved by reason of
the fact that such person is or was an officer or employee of the Company if
such person acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interests of the Company, and, with respect to
criminal actions or proceedings, if such person had no reasonable cause to
believe his or her conduct was unlawful.
Under Section 8(b) of each of the Underwriting Agreements filed as Exhibit
1.1 and Exhibit 1.2 hereto, the U.S. Underwriters and the International
Underwriters have agreed to indemnify, under certain conditions, the Company,
its directors, certain officers and persons who control the Company within the
meaning of the Securities Act of 1933 against certain liabilities.
II-1
<PAGE> 156
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each transaction
was exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"), by reason of Section 4(2) thereof, based on the
private nature of the transactions and the financial sophistication of the
purchasers, all of whom had access to complete information concerning the
Company and acquired the securities for investment and not with a view to the
distribution thereof. In addition, the Company believes that the transactions
described in paragraphs (4), (5) and (7) below were exempt from the registration
requirements of the Securities Act, by reason of Rule 701 thereunder.
(1) On May 11, 1995, the Company issued an aggregate of 40,000 shares
of the Company's Class A Convertible Preferred Stock (convertible into
2,000,000 shares of Common Stock) for an aggregate purchase price of
2,000,000 shares of the Company's Common Stock and $10 million to Advent
VII L.P., Advent Atlantic and Pacific II L.P., Chestnut III Limited
Partnership, Chestnut Capital International III Limited Partnership, Advent
New York L.P., Advent Industrial II L.P. and TA Venture Investors Limited
Partnership, William J. Nutt, Sean M. Healey and Richard E. Floor.
(2) On November 7, 1995, the Company issued an aggregate of 10,448
shares of the Company's Series B-1 Voting Convertible Preferred Stock
(convertible into 522,400 shares of Common Stock) for an aggregate purchase
price of $7 million to Hartford Accident and Indemnity Company, Advent VII
L.P., Advent Atlantic and Pacific II L.P., Chestnut III Limited
Partnership, Chestnut Capital International III Limited Partnership, Advent
New York L.P., Advent Industrial II L.P. and TA Venture Investors Limited
Partnership, William J. Nutt, Sean M. Healey and Richard E. Floor.
(3) On November 7, 1995, the Company issued an aggregate of 19,403
shares of the Company's Series B-2 Non-Voting Convertible Preferred Stock
(convertible into 970,150 shares of Common Stock) for an aggregate purchase
price of $13 million to NationsBanc Investment Corporation.
(4) On June 27, 1996, the Company issued an aggregate of 3,703 shares
of the Company's Series B-1 Voting Convertible Preferred Stock (convertible
into 185,150 shares of Common Stock) for an aggregate purchase price of
approximately $2.48 million to certain employees and advisers of the
Company and its majority-owned subsidiaries, pursuant to the Company's 1995
Stock Purchase Plans.
(5) In April 1995, the Company sold 200,000 shares of Restricted
Common Stock to Mr. Healey for aggregate consideration of $400, and 25,000
shares of Restricted Common Stock to Mr. Michael A. Wilson for an aggregate
consideration of $50, in each case, being the fair market value of such
number of shares of Restricted Common Stock, as approved by the Board of
Directors of the Company at that time. In August 1995, the Company sold
50,000 shares of Restricted Common Stock under the 1995 Plan to Mr.
Chertavian for aggregate consideration of $100, being the fair market value
of such number of shares of Restricted Common Stock as approved by the
Board of Directors of the Company at that time. In March 1996, the Company
sold 112,500 shares of Restricted Common Stock under the 1995 Plan,
including sales of 25,000, 35,000, 25,000, 17,500 and 10,000 shares to
Messrs. Nutt, Healey, Chertavian, Brennan and Murphy, respectively, for
aggregate consideration of $500, $700, $500, $350 and $200, respectively,
being the fair market value of such numbers of shares of Restricted Common
Stock as approved by the Board of Directors of the Company at that time. In
May 1996, the Company sold 50,000 shares of Restricted Common Stock under
the 1995 Plan to Mr. Dalton for aggregate consideration of $1,000, being
the fair market value of such number of shares of Restricted Common Stock
as approved by the Board of Directors of the
II-2
<PAGE> 157
Company at that time. In February 1997, the Company sold 50,000 shares of
Restricted Common Stock under the 1995 Plan to Mr. Girvan for aggregate
consideration of $10,000, being the fair market value of such number of
shares of Common Stock as approved by the Board of Directors of the Company
at that time.
(6) On January 2, 1997, the Company issued an aggregate 1,715 shares
of Series B-1 Voting Convertible Preferred Stock (convertible into 85,750
shares of Common Stock) with a value of approximately $1.5 million as
consideration for shares of capital stock of The Burridge Group Inc. in
connection with the Company's investment in Burridge.
(7) In May 1997, the Company granted options to purchase an aggregate
of 1,850 shares of Class A Convertible Preferred Stock (convertible into an
aggregate of 92,500 shares of Common Stock) having an exercise price of
$455 per share (or $9.10 per underlying share of Common Stock), including
options to purchase 500, 500, 200, 300, 250 and 100 shares of Class A
Convertible Preferred Stock to Messrs. Nutt, Healey, Chertavian, Dalton,
Brennan and Murphy, respectively.
(8) On September 30, 1997, the Company issued an aggregate of 10,667
shares of Class D Convertible Preferred Stock (convertible into 533,331
shares of Common Stock) with a value of approximately $9.6 million in
connection with the Company's investment in GeoCapital.
(9) On October 9, 1997, the Company issued an aggregate of 5,333
shares of Series C-2 Non-Voting Convertible Preferred Stock and warrants to
purchase 28,000 shares of Series C-2 Non-Voting Convertible Preferred Stock
(convertible into 266,650 and 1,400,000 shares of Common Stock,
respectively) for an aggregate purchase price of $30 million.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of International Underwriting Agreement
**+2.1 Purchase Agreement dated August 15, 1997 by and among the Registrant, Tweedy,
Browne Company L.P. and the partners of Tweedy, Browne Company L.P. (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
**+2.2 Agreement and Plan of Reorganization dated August 15, 1997 by and among the
Registrant, AMG Merger Sub, Inc., GeoCapital Corporation, GeoCapital, LLC and
the stockholders of GeoCapital Corporation (excluding schedules and exhibits,
which the Registrant agrees to furnish supplementally to the Commission upon
request)
**+2.3 Stock Purchase Agreement dated as of January 17, 1996 by and among the
Registrant, First Quadrant Holdings, Inc., Talegen Holdings, Inc., certain
employees of First Quadrant Corp. and the other parties identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
**2.4 Amendment to Stock Purchase Agreement by and among the Registrant, First
Quadrant Holdings, Inc., Talegen Holdings, Inc., certain managers of First
Quadrant Corp. and the Management Corporations identified therein, effective as
of March 28, 1996
**+2.5 Partnership Interest Purchase Agreement dated as of June 6, 1995 by and among
the Registrant, Mesirow Asset Management, Inc., Mesirow Financial Holdings,
Inc., Skyline Asset Management, L.P., certain managers of Mesirow Asset
Management, Inc. and the Management Corporations identified therein (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
</TABLE>
II-3
<PAGE> 158
<TABLE>
<C> <S>
*2.6 Amendment, made by and among Mesirow Financial Holdings, Inc. and the
Registrant, to Partnership Interest Purchase Agreement by and among the
Registrant, Mesirow Asset Management, Inc., Mesirow Financial Holdings, Inc.,
Skyline Asset Management, L.P., certain managers of Mesirow Asset Management,
Inc. and the Management Corporations identified therein, effective as of August
30, 1995
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated By-laws
*4.1 Specimen certificate for shares of Common Stock of the registrant
**+4.2 Credit Agreement dated as of September 30, 1997 by and among Chase Manhattan
Bank and the other lenders identified therein and the Registrant (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
*4.3 Stock Purchase Agreement dated November 7, 1995 by and among the Registrant, TA
Associates, NationsBank, The Hartford, and the additional parties listed on the
signature pages thereto (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*4.4 Preferred Stock and Warrant Purchase Agreement dated August 15, 1997 between the
Registrant and Chase Equity Associates (excluding schedules and exhibits, which
the Registrant agrees to furnish supplementally to the Commission upon request)
*4.5 Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement dated as of
October 9, 1997 between the Registrant and Chase Equity Associates
*4.6 Securities Purchase Agreement dated August 15, 1997 between the Registrant and
Chase Equity Associates (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*4.7 Securities Purchase Agreement Amendment No. 1 dated as of October 9, 1997
between the Registrant and Chase Equity Associates
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities
being offered
*10.1 Amended and Restated Stockholders' Agreement dated October 9, 1997 by and among
the Registrant and TA Associates, NationsBank, The Hartford, Chase Equity
Associates and the additional parties listed on the signature pages thereto
**+10.2 Tweedy, Browne Company LLC Limited Liability Company Agreement dated October 9,
1997 by and among the Registrant and the other members identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
**+10.3 GeoCapital, LLC Amended and Restated Limited Liability Company Agreement dated
September 30, 1997 by and among the Registrant and the members identified
therein (excluding schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request)
**+10.4 First Quadrant, L.P. Amended and Restated Limited Partnership Agreement dated
March 28, 1996 by and among the Registrant and the partners identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
*10.5 Amendment to First Quadrant, L.P. Amended and Restated Limited Partnership
Agreement by and among the Registrant and the partners identified therein,
effective as of October 1, 1996
*10.6 Second Amendment to First Quadrant, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of December 31, 1996
**+10.7 First Quadrant U.K., L.P. Limited Partnership Agreement dated March 28, 1996 by
and among the Registrant and the partners identified therein (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
</TABLE>
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<PAGE> 159
<TABLE>
<C> <S>
**+10.8 Skyline Asset Management, L.P. Amended and Restated Limited Partnership
Agreement dated August 31, 1995 by and among the Registrant and the partners
identified therein (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*10.9 Amendment to Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of August 1, 1996
*10.10 Second Amendment to Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of December 31, 1996
*10.11 Form of Affiliated Managers Group, Inc. 1997 Stock Option and Incentive Plan
*10.12 Form of Incentive Stock Option Agreement
10.13 Affiliated Managers Group, Inc. 1995 Incentive Stock Plan
*10.14 Form of Tweedy, Browne Employment Agreement
*11.1 Statement regarding computation of per share earnings
21.1 Schedule of Subsidiaries
*23.1 Consent of Counsel (to be included in Exhibit 5.1 hereto)
23.2 Consent of Coopers & Lybrand L.L.P. (Boston)
23.3 Consent of Coopers & Lybrand L.L.P. (Chicago)
23.4 Consent of Coopers & Lybrand L.L.P. (New York)
23.5 Consent of KPMG Peat Marwick LLP
**24.1 Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by subsequent amendment.
** Previously filed.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
(b) Financial Statement Schedules filed as part of this Registration
Statement are as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Accountants on Schedule.......................... S-1
Report of Independent Certified Accountants on Schedule.......................... S-2
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 160
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of the Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 161
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Boston, Commonwealth of Massachusetts, on October 29, 1997.
AFFILIATED MANAGERS GROUP, INC.
By: /s/ SEAN M. HEALEY
----------------------------------
SEAN M. HEALEY
EXECUTIVE VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
----------------------------------- ------------------------------------ ----------------
<C> <S> <C>
* President, Chief Executive Officer October 29, 1997
----------------------------------- and Chairman of the Board of
WILLIAM J. NUTT Directors (Principal Executive
Officer)
* Senior Vice President (Principal October 29, 1997
----------------------------------- Financial Officer and Principal
BRIAN J. GIRVAN Accounting Officer)
* Director October 29, 1997
-----------------------------------
RICHARD E. FLOOR
* Director October 29, 1997
-----------------------------------
ROGER B. KAFKER
* Director October 29, 1997
-----------------------------------
P. ANDREWS MCLANE
* Director October 29, 1997
-----------------------------------
W.W. WALKER, JR.
Director October 29, 1997
-----------------------------------
JOHN M.B. O'CONNOR
</TABLE>
*By: /s/ NATHANIEL DALTON
--------------------------------------------
NATHANIEL DALTON, ATTORNEY-IN-FACT
II-7
<PAGE> 162
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of International Underwriting Agreement
**+2.1 Purchase Agreement dated August 15, 1997 by and among the Registrant, Tweedy,
Browne Company L.P. and the partners of Tweedy, Browne Company L.P. (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
**+2.2 Agreement and Plan of Reorganization dated August 15, 1997 by and among the
Registrant, AMG Merger Sub, Inc., GeoCapital Corporation, GeoCapital, LLC and
the stockholders of GeoCapital Corporation (excluding schedules and exhibits,
which the Registrant agrees to furnish supplementally to the Commission upon
request)
**+2.3 Stock Purchase Agreement dated as of January 17, 1996 by and among the
Registrant, First Quadrant Holdings, Inc., Talegen Holdings, Inc., certain
employees of First Quadrant Corp. and the other parties identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
**2.4 Amendment to Stock Purchase Agreement by and among the Registrant, First
Quadrant Holdings, Inc., Talegen Holdings, Inc., certain managers of First
Quadrant Corp. and the Management Corporations identified therein, effective as
of March 28, 1996
**+2.5 Partnership Interest Purchase Agreement dated as of June 6, 1995 by and among
the Registrant, Mesirow Asset Management, Inc., Mesirow Financial Holdings,
Inc., Skyline Asset Management, L.P., certain managers of Mesirow Asset
Management, Inc. and the Management Corporations identified therein (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
*2.6 Amendment, made by and among Mesirow Financial Holdings, Inc. and the
Registrant, to Partnership Interest Purchase Agreement by and among the
Registrant, Mesirow Asset Management, Inc., Mesirow Financial Holdings, Inc.,
Skyline Asset Management, L.P., certain managers of Mesirow Asset Management,
Inc. and the Management Corporations identified therein, effective as of August
30, 1995
3.1 Form of Amended and Restated Certificate of Incorporation
3.2 Form of Amended and Restated By-laws
*4.1 Specimen certificate for shares of Common Stock of the registrant
**+4.2 Credit Agreement dated as of September 30, 1997 by and among Chase Manhattan
Bank and the other lenders identified therein and the Registrant (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
*4.3 Stock Purchase Agreement dated November 7, 1995 by and among the Registrant, TA
Associates, NationsBank, The Hartford, and the additional parties listed on the
signature pages thereto (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*4.4 Preferred Stock and Warrant Purchase Agreement dated August 15, 1997 between the
Registrant and Chase Equity Associates (excluding schedules and exhibits, which
the Registrant agrees to furnish supplementally to the Commission upon request)
*4.5 Amendment No. 1 to Preferred Stock and Warrant Purchase Agreement dated as of
October 9, 1997 between the Registrant and Chase Equity Associates
*4.6 Securities Purchase Agreement dated August 15, 1997 between the registrant and
Chase Equity Associates (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*4.7 Securities Purchase Agreement Amendment No. 1 dated as of October 9, 1997
between the Registrant and Chase Equity Associates
*5.1 Opinion of Goodwin, Procter & Hoar LLP as to the legality of the securities
being offered
</TABLE>
<PAGE> 163
<TABLE>
<C> <S>
*10.1 Amended and Restated Stockholders' Agreement dated October 9, 1997 by and among
the Registrant and TA Associates, NationsBank, The Hartford, Chase Capital and
the additional parties listed on the signature pages thereto
**+10.2 Tweedy, Browne Company LLC Limited Liability Company Agreement dated October 9,
1997 by and among the Registrant and the other members identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
**+10.3 GeoCapital, LLC Amended and Restated Limited Liability Company Agreement dated
September 30, 1997 by and among the Registrant and the members identified
therein (excluding schedules and exhibits, which the Registrant agrees to
furnish supplementally to the Commission upon request)
**+10.4 First Quadrant, L.P. Amended and Restated Limited Partnership Agreement dated
March 28, 1996 by and among the Registrant and the partners identified therein
(excluding schedules and exhibits, which the Registrant agrees to furnish
supplementally to the Commission upon request)
*10.5 Amendment to First Quadrant, L.P. Amended and Restated Limited Partnership
Agreement by and among the Registrant and the partners identified therein,
effective as of October 1, 1996
*10.6 Second Amendment to First Quadrant, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of December 31, 1996
**+10.7 First Quadrant U.K., L.P. Limited Partnership Agreement dated March 28, 1996 by
and among the Registrant and the partners identified therein (excluding
schedules and exhibits, which the Registrant agrees to furnish supplementally to
the Commission upon request)
**+10.8 Skyline Asset Management, L.P. Amended and Restated Limited Partnership
Agreement dated August 31, 1995 by and among the Registrant and the partners
identified therein (excluding schedules and exhibits, which the Registrant
agrees to furnish supplementally to the Commission upon request)
*10.9 Amendment to Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of August 1, 1996
*10.10 Second Amendment to Skyline Asset Management, L.P. Amended and Restated Limited
Partnership Agreement by and among the Registrant and the partners identified
therein, effective as of December 31, 1996
*10.11 Form of Affiliated Managers Group, Inc. 1997 Stock Option and Incentive Plan
*10.12 Form of Incentive Stock Option Agreement
10.13 Affiliated Managers Group. Inc. 1995 Incentive Stock Plan
*10.14 Form of Tweedy, Browne Employment Agreement
*11.1 Statement regarding computation of per share earnings
21.1 Schedule of Subsidiaries
*23.1 Consent of Counsel (to be included in Exhibit 5.1 hereto)
23.2 Consent of Coopers & Lybrand L.L.P. (Boston)
23.3 Consent of Coopers & Lybrand L.L.P. (Chicago)
23.4 Consent of Coopers & Lybrand L.L.P. (New York)
23.5 Consent of KPMG Peat Marwick LLP
**24.1 Powers of Attorney
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by subsequent amendment.
** Previously filed.
+ Certain portions of this Exhibit have been omitted pursuant to a confidential
treatment request filed with the Commission. The omitted portions have been
filed separately with the Commission.
<PAGE> 1
EXHIBIT 1.1
AFFILIATED MANAGERS GROUP, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
(U.S. VERSION)
, 1997
Goldman, Sachs & Co.,
BT Alex. Brown Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Schroder & Co. Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Affiliated Managers Group, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 5,600,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 840,000 additional shares (the "Optional Shares") of Common
Stock, par value $.01 per share ("Stock"), of the Company (the Firm Shares and
the Optional Shares that the Underwriters elect to purchase pursuant to Section
2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of 1,400,000
shares of Stock (the "International Shares"), including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
BT Alex. Brown International (a division of Bankers Trust International PLC),
Merrill Lynch International and J. Henry Schroder & Co. Limited are acting as
lead managers. Anything herein or therein to the contrary notwithstanding, the
respective closings under this Agreement and the International Underwriting
Agreement are hereby expressly made conditional on one another. The Underwriters
hereunder and the International Underwriters are simultaneously entering into an
Agreement between U.S. and International Underwriting Syndicates (the "Agreement
between Syndicates") which provides, among other things, for the transfer of
shares of Stock between the two syndicates. Two forms of prospectus are to be
used in connection with the offering and sale of shares of Stock contemplated by
the foregoing, one relating to the Shares hereunder and the other relating to
the International Shares. The latter form of prospectus will be identical to the
former except for certain substitute
<PAGE> 2
pages or other differences that you have approved, in the case of any
preliminary prospectus used before this Agreement is executed, or that you
hereafter approve, in the case of any prospectus, or any supplement or amendment
thereto used after the execution of this Agreement. Except as used in Sections
2, 3, 4, 9 and 11 herein, and except as the context may otherwise require,
references hereinafter to the Shares shall include all the shares of Stock which
may be sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form (including the Preliminary Prospectus and Prospectus as defined
below), and whether as amended or supplemented, shall include both the U.S. and
the international versions thereof. As used in this Agreement and the
International Underwriting Agreement, the term "subsidiaries" of any person
shall mean each entity, whether in corporate, partnership or other form, that is
controlled, directly or indirectly, by such person or in which such person,
directly or indirectly, holds at least a 30% equity interest, including, in the
case of subsidiaries of the Company, each of the investment advisory and other
entities (together with their respective subsidiaries) referred to as
"Affiliates" in the Registration Statement (as defined below and as it may be
amended).
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-34679) (the
"Initial Registration Statement") in respect of the Shares has been filed with
the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you for
each of the other Underwriters, have been declared effective by the Commission
in such form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed pursuant to Rule
462(b) under the Securities Act of 1933, as amended (the "Act"), which became
effective upon filing, no other document with respect to the Initial
Registration Statement has heretofore been filed with the Commission; and no
stop order suspending the effectiveness of the Initial Registration Statement,
any post-effective amendment thereto or the Rule 462(b) Registration Statement,
if any, has been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the Initial
Registration Statement or filed with the Commission pursuant to Rule 424(a) of
the rules and regulations of the Commission under the Act is hereinafter called
a "Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of final
prospectus filed with the Commission pursuant to Rule 424(b) under the Act in
accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the
Act to be part of the Initial Registration Statement at the time it was declared
effective or such part of the Rule 462(b) Registration Statement, if any, became
or hereafter becomes effective, each as amended at the time such part of the
registration statement became effective, is hereinafter collectively called the
"Registration Statement"; such final prospectus, in the form first filed
pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary Prospectus,
at the time of filing thereof, conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
thereunder, and did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that
2
<PAGE> 3
this representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in writing to
the Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(c) The Registration Statement conforms, and the Prospectus (excluding the
international version thereof) and any further amendments or supplements to the
Registration Statement or the Prospectus (excluding the international version
thereof) will conform, in all material respects to the requirements of the Act
and the rules and regulations of the Commission thereunder and the Registration
Statement, the Prospectus and any further amendments or supplements to the
Registration Statement or the Prospectus and do not and will not, as of the
applicable effective date as to the Registration Statement and any amendment
thereto, and as of the applicable filing date as to the Prospectus and any
amendment or supplement thereto, contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its subsidiaries has sustained since
the date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion, flood
or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, in each case affecting
its properties, assets or operations, otherwise than as set forth or
contemplated in the Prospectus; and, since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there has
not been any change in the capital stock (other than changes resulting from the
exercise of stock options or warrants or conversion of preferred stock after
June 30, 1997 and prior to the Time of Delivery) or any increase in the
long-term debt of the Company or any of its subsidiaries or any material adverse
change, or any development involving a prospective material adverse change, in
or affecting the business affairs, management, financial position, stockholders'
equity or results of operations of the Company and its subsidiaries, taken as a
whole, otherwise than as set forth or contemplated in the Prospectus;
(e) Neither the Company nor any of its subsidiaries owns any real
property; the Company and its subsidiaries have good title to all personal
property owned by them, in each case free and clear of all liens, encumbrances
and defects except such as are described in the Prospectus or such as do not
materially affect the value of the property of the Company or subsidiary, as
applicable, and do not interfere with the use made and proposed to be made of
such property by the Company and its subsidiaries; and any real property and
buildings held under lease by the Company and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware, with power and
authority (corporate and other) to own its properties and conduct its business
as described in the Prospectus, and has been duly qualified as a foreign
corporation to do business and is in good standing as a foreign corporation in
each jurisdiction in which it owns or leases properties or conducts any business
so as to require such qualification, with such exceptions individually or in the
aggregate as would not have a material adverse effect on the business affairs,
management, financial position, stockholders' equity or
3
<PAGE> 4
results of operation of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect"); and each subsidiary of the Company has been duly
organized or formed and is validly existing as a corporation, limited
partnership, limited liability company or general partnership, as the case may
be, under the laws of its jurisdiction of organization and each such subsidiary
that is a corporation, limited partnership or limited liability company is in
good standing under the laws of its jurisdiction of organization;
(g) The Company has an authorized capitalization as set forth in the
Prospectus; upon consummation of the transactions contemplated by this Agreement
and the International Underwriting Agreement, the Company will have the
authorized capitalization as set forth in the Prospectus; all of the issued
shares of capital stock of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and conform to the description of the
Stock contained in the Prospectus; and all of the issued shares of capital stock
of each subsidiary of the Company which is a corporation have been duly
authorized and validly issued, and are fully paid and non-assessable, and
(except for directors' qualifying shares and as described generally in the
Registration Statement) are owned directly or indirectly by the Company, free
and clear of all liens, encumbrances, equities or claims. All of the partnership
interests, membership interests and shares of beneficial interest of each
subsidiary of the Company which is a partnership, limited liability company or
Massachusetts business trust have been validly issued in accordance with
applicable law and the partnership agreement, limited liability agreement or
declaration of trust, as applicable, of such subsidiary, and (except for
directors' qualifying shares and as described generally in the Registration
Statement) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims;
(h) The Shares to be sold by the Company to the Underwriters hereunder
will be newly issued, have been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein, will be duly and validly
issued and fully paid and non-assessable and will conform to the description of
the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company hereunder and under
the International Underwriting Agreement and the compliance by the Company with
all of the provisions of this Agreement and the International Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of any of
the terms or provisions of, constitute a default or termination under, or
require any consent (except such consents as will have been obtained at or prior
to the time of such issue and sale) under or with respect to, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries is bound or to which any of the property or assets of
the Company or any of its subsidiaries is subject, with such exceptions
individually or in the aggregate as would not have a Material Adverse Effect or
a material adverse effect on such compliance or consummation, nor will such
action result in any violation of the provisions of the Certificate of
Incorporation or By-laws of the Company in effect as of the time immediately
preceding the relevant Time of Delivery or any statute or any order, rule or
regulation of any court or governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, with such
exceptions individually or in the aggregate as would not have a Material Adverse
Effect or a material adverse effect on such compliance or consummation; and no
consent, approval, authorization, order, registration or qualification of or
with any such court or governmental agency or body is required for the issue and
sale of the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting Agreement,
4
<PAGE> 5
except the registration under the Act and the Securities Exchange Act of 1934,
as amended, of the Shares, such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities or
Blue Sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the public offering of the Shares by the
Underwriters with the National Association of Securities Dealers, Inc. (the
"NASD");
(j) Neither the Company nor any of its subsidiaries is in violation of its
Certificate of Incorporation or By-laws or other constituting or organizational
instrument as in effect on the date hereof or in default in the performance or
observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument to which it is a party or by which it or any of
its properties may be bound;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a summary
of the terms of the Stock, are accurate, complete and fair;
(l) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its subsidiaries
is a party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would be reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect; and, to the best of the Company's knowledge, no
such proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) To the extent such registration is required, each of the Company's
subsidiaries has been duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended (the "Advisers Act"), and each such
registration is in full force and effects; the Company is not required to
register as an "investment adviser" within the Advisers Act and the rules and
regulations of the Commission promulgated thereunder; and neither the Company
nor any of its subsidiaries is and, after giving effect to the offering and sale
of the Shares, neither will be, an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(n) Each of the Company's subsidiaries is duly registered, licensed or
qualified as an investment adviser under state and local laws and is in
compliance with all such laws requiring any such registration, licensing or
qualification; the Company is not required to be registered, licensed or
qualified as an investment adviser under the laws requiring any such
registration, licensing or qualification in any jurisdiction in which it or its
subsidiaries conduct business.
(o) The Company is not party to any investment advisory agreement or
distribution agreement and is not serving or acting as an investment adviser to
any person; each of the investment advisory agreements and distribution
agreements to which any of the Company's subsidiaries is a party is a legal and
valid obligation of such subsidiary and, to the extent subject thereto, complies
with the applicable requirements of the Advisers Act, the Investment Company Act
and the rules and regulations of the Commission thereunder, and no such
agreement that was either in effect on December 31, 1996 or entered into by a
subsidiary since December 31, 1996 has been terminated or expired, except where
the failure to so comply or any such termination or expiration would not,
individually or in the aggregate, have a Material Adverse Effect; none of such
subsidiaries is in breach or violation of or in default under any such agreement
with such
5
<PAGE> 6
exceptions individually or in the aggregate as would not have a Material Adverse
Effect; and no subsidiary of the Company is serving or acting as an investment
adviser to any person except pursuant to an agreement to which such subsidiary
is a party and which is in full force and effect, other than any agreements the
non-existence of which would not, individually or in the aggregate, have a
material adverse effect on the consolidated financial position, stockholders'
equity or results of operations of the Company and its subsidiaries;
(p) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within the
meaning of Section 517.075, Florida Statutes; and
(q) Coopers & Lybrand L.L.P., who have certified certain financial
statements of the Company and its subsidiaries, and KPMG Peat Marwick LLP, who
have certified certain financial statements of First Quadrant Institutional and
First Quadrant Limited, are each independent public accountants as required by
the Act and the rules and regulations of the Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $................, the number of Firm Shares set
forth opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and sell
to each of the Underwriters, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company, at the purchase price per share set
forth in clause (a) of this Section 2, that portion of the number of Optional
Shares as to which such election shall have been exercised (to be adjusted by
you so as to eliminate fractional shares) determined by multiplying such number
of Optional Shares by a fraction, the numerator of which is the maximum number
of Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 840,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by certified or
official
6
<PAGE> 7
bank check or checks, payable to the order of the Company in immediately
available (same day) funds. The Company will cause the certificates representing
the Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
(the "Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1997 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York time, on the date specified by Goldman, Sachs & Co. in the
written notice given by Goldman, Sachs & Co. of the Underwriters' election to
purchase such Optional Shares, or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing. Such time and date for delivery
of the Firm Shares is herein called the "First Time of Delivery", such time and
date for delivery of the Optional Shares, if not the First Time of Delivery, is
herein called the "Second Time of Delivery", and each such time and date for
delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(k) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 2:00 p.m., New York
City time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus (excluding the international version thereof) pursuant to Rule 424(b)
under the Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under the
Act; to make no further amendment or any supplement to the Registration
Statement or Prospectus which shall be disapproved by you promptly after
reasonable notice thereof; to advise you, promptly after it receives notice
thereof, of the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise you,
promptly after it receives notice thereof, of the issuance by the Commission of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the qualification of
the Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by the
Commission for the amending or supplementing of the Registration Statement or
Prospectus or for additional information; and, in the event of the issuance of
any stop order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such qualification,
promptly to use its commercially reasonable best efforts to obtain the
withdrawal of such order;
7
<PAGE> 8
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such jurisdictions for
as long as may be necessary to complete the distribution of the Shares, provided
that in connection therewith the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
in order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter or dealer is
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
your request but at the expense of such Underwriter or dealer, to prepare and
deliver to such Underwriter or dealer as many copies as you may request of an
amended or supplemented Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
thereunder (including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder and
under the International Underwriting Agreement, any Stock or securities of the
Company that are substantially similar to the Stock, or which are convertible
into or exchangeable or exercisable for, or that represent the right to receive,
Stock or any such substantially similar securities (other than pursuant to
employee stock option or stock purchase plans existing on, or upon the
conversion or exchange of convertible or exchangeable securities, or the
exercise of warrants, outstanding as of, the date of this Agreement, and other
than shares of Stock or such other securities issued as consideration in
investments or acquisitions made by the Company or any of its subsidiaries,
provided that such securities are made subject to the same 180-day restriction),
without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration
8
<PAGE> 9
Statement), consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to deliver to
you (i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any national securities
exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its commercially reasonable best efforts to list, subject to
notice of issuance, the Shares on the New York Stock Exchange (the "Exchange");
(j) To file with the Commission such reports on Form SR as may be required
by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall file
a Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 P.M., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the International Underwriting Agreement, the
Agreement between Syndicates, the Selling Agreements, the Blue Sky Memorandum,
closing documents (including any compilations thereof) and any other documents
printed or produced by or on behalf of the Company in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey (iv) all fees and
expenses in connection with listing the Shares on the New York Stock Exchange;
(v) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the NASD of
the terms of the sale of the Shares; (vi) the cost of preparing stock
certificates; (vii) the cost and charges of any transfer agent or registrar; and
(viii) all other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically provided for in this
Section. It is understood, however, that, except as provided in this Section,
and Sections 8 and 11 hereof, the Underwriters will pay all of their own costs
and expenses, including the fees of their
9
<PAGE> 10
counsel, stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed, in all material respects,
all of its obligations hereunder theretofore to be performed, and the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
no stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction; if the Company has elected to rely upon
Rule 462(b), the Rule 462(b) Registration Statement shall have become effective
by 10:00 P.M., Washington, D.C. time, on the date of this Agreement;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions, dated such Time of Delivery, with
respect to the incorporation and good standing of the Company, the Shares being
delivered at such Time of Delivery, this Agreement, the Registration Statement
and the Prospectus as well as such other related matters as you may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters;
(c) Goodwin, Procter & Hoar LLP, counsel for the Company, shall have
furnished to you their written opinion and letter in substantially the form of
Annex II-A and II-B hereto;
(d) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, Coopers & Lybrand
L.L.P. and KPMG Peat Marwick, LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and substance
reasonably satisfactory to you, to the effect set forth in Annex I-1 and l-2
hereto (the executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) -1 and l(a)-2 hereto and a draft of the form
of letter to be delivered on the effective date of any post-effective amendment
to the Registration Statement and as of each Time of Delivery is attached as
Annex I(b)-1 and 1(b)-2 hereto);
(e)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, in each case affecting
its properties, assets or operations, otherwise than as set forth or
contemplated in the Prospectus, and (ii) since the respective dates as of which
information is given in the Prospectus there shall not have been any change in
the capital stock (other than changes resulting from the exercise of stock
options or warrants or conversion of preferred stock after June 30, 1997 and
prior to the Time of Delivery) or any increase in the long-term debt of the
Company or any of its subsidiaries or any
10
<PAGE> 11
change, or any development involving a prospective change, in or affecting the
business affairs, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a whole,
otherwise than as set forth or contemplated in the Prospectus, the effect of
which, in any such case described in Clause (i) or (ii), is in the judgment of
the Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(f) On or after the date hereof (i) no downgrading shall have occurred in
the rating accorded the Company's debt securities or preferred stock by any
"nationally recognized statistical rating organization", as that term is defined
by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such
organization shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the Company's
debt securities or preferred stock;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or NASDAQ; (ii) a suspension or
material limitation in trading in the Company's securities on the New York Stock
Exchange; (iii) a general moratorium on commercial banking activities declared
by either Federal or New York State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed, subject to notice of issuance, on the Exchange;
(i) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from all of its stockholders substantially to the effect
set forth in Subsection 5(e) hereof in form and substance satisfactory to you;
(j) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company satisfactory to
you as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its obligations hereunder to be performed at or prior to such Time of
Delivery, as to the matters set forth in subsections (a) and (e) of this Section
and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the
11
<PAGE> 12
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating or defending any
such action or claim as such expenses are incurred; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
12
<PAGE> 13
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in this
subsection (d) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this subsection (d),
no Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company and to each
person, if any, who controls the Company within the meaning of the Act.
13
<PAGE> 14
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligations of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
14
<PAGE> 15
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter except as provided in Sections 6
and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives at 85 Broad Street, New
York, New York 10004, Attention: Registration Department; and if to the Company
shall be delivered or sent by mail to the address of the Company set forth in
the Registration Statement, Attention: Secretary; provided, however, that any
notice to an Underwriter pursuant to Section 8(c) hereof shall be delivered or
sent by mail, telex or facsimile transmission to such Underwriter at its address
set forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
15
<PAGE> 16
If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Affiliated Managers Group, Inc.
By: __________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
BT Alex. Brown Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Schroder & Co. Inc.
By: Goldman, Sachs & Co.
_____________________________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
16
<PAGE> 17
SCHEDULE I
Total Number Number of Optional
of Shares to be
Firm Shares Purchased if
to be Maximum Option
Underwriter Purchased Exercised
----------- --------- ---------
Goldman, Sachs & Co.
BT Alex. Brown Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Schroder & Co. Inc.
[NAMES OF OTHER UNDERWRITERS]
Total
17
<PAGE> 18
ANNEX I-1
Pursuant to Section 7(d) of the Underwriting Agreement, Coopers & Lybrand
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply
as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related
published rules and regulations, nothing came to their attention that
cause them to believe that the unaudited condensed consolidated financial
statements do not comply as to form in all material respects with the
applicable accounting requirements of the Act and the related published
rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the five most recent fiscal years included in the Prospectus
agrees with the corresponding amounts (after restatements where
applicable) in the audited consolidated financial statements for such five
fiscal years which were included or incorporated by reference in the
Company's Annual Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and
on the basis of limited procedures specified in such letter nothing came
to their attention as a result of the foregoing procedures that caused
them to believe that this information does not conform in all material
respects with the disclosure requirements of Items 301, 302, 402 and
503(d), respectively, of Regulation S-K;
<PAGE> 19
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of
the minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding
items in the unaudited consolidated financial statements from which
such data and items were derived, and any such unaudited data and items
were not determined on a basis substantially consistent with the basis
for the corresponding amounts in the audited consolidated financial
statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in Clause (A) and any unaudited income
statement data and balance sheet items included in the Prospectus and
referred to in Clause (B) were not determined on a basis substantially
consistent with the basis for the audited consolidated financial
statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options
and stock appreciation rights, upon earn-outs of performance shares and
upon conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included in
the Prospectus) or any increase in the consolidated long-term debt of
the Company and its subsidiaries, or any decreases in consolidated net
current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases
2
<PAGE> 20
which the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause
(E) there were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except in
each case for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
3
<PAGE> 21
ANNEX I-2
Pursuant to Section 7(d) of the Underwriting Agreement, KPMG Peat Marwick,
LLP shall furnish Letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
First Quadrant Institutional and First Quadrant Limited within the meaning of
the Act and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements of First Quadrant
Institutional and First Quadrant Limited examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder.
<PAGE> 22
ANNEX II-A
- ----------
[Form of Goodwin, Procter & Hoar LLP opinion to Underwriters]
_________ __, 1997
Goldman, Sachs & Co.,
BT Alex. Brown Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Schroder & Co., Inc.
As Representatives ("U.S. Representatives")
of the Several U.S. Underwriters
("U.S. Underwriters"),
c/o Goldman, Sachs & Co.,
85 Broad Street
New York, NY 10004
Goldman Sachs International,
BT Alex. Brown International,
a division of Bankers Trust International PLC
Merrill Lynch International,
J. Henry Schroder & Co. Limited,
As Representatives ("International Representatives")
of the Several International Underwriters
("International Underwriters"),
c/o Goldman Sachs International,
Peterborough Court
133 Fleet Street
London EC4A 2BB
England
Ladies and Gentlemen:
In connection with the several purchases by the U.S. Underwriters named in
Schedule 1 to the Underwriting Agreement dated _______, 1997 (the "U.S.
Underwriting Agreement"), among Affiliated Managers Group, Inc., a Delaware
corporation (the "Company"), and the U.S. Representatives, as representatives of
the several U.S. Underwriters named therein (the "U.S. Underwriters"), and the
related several purchases by the International Underwriters named in Schedule 1
to the International Underwriting Agreement dated _______, 1997 (the
"International Underwriting Agreement"), among the Company and the International
Representatives, as
<PAGE> 23
representatives of the several International Underwriters (the
"International Underwriters") named therein, of _______ shares (the "Shares") of
the Company's Common Stock, par value $.01 per share (the "Common Stock"), we,
as counsel for the Company, have examined such corporate records, certificates
and other documents, and such questions of law, as we have considered necessary
or appropriate for the purposes of this opinion. (The U.S. Underwriting
Agreement and the International Underwriting Agreements are together herein
referred to as the "Underwriting Agreements," and the U.S. Underwriters and the
International Underwriters are collectively herein referred to as the
"Underwriters.")
With your approval, we have relied as to certain matters on information
obtained from public officials, officers of the Company and other sources
believed by us to be responsible. Also with your approval, we have assumed that
the certificates for the Shares conform to the specimen thereof examined by us
and have been duly countersigned by the transfer agent and duly registered by
the registrar of the Common Stock, and have further assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies, the authenticity of the originals of such
latter documents, and the legal capacity of natural persons, assumptions which
we have not independently verified. In addition, in giving our opinion in
paragraph (iv) below, (a) insofar as it relates to the shares of capital stock
of First Quadrant Corp., we have relied with your permission upon the opinion
of ____________________________________, and (b) insofar as it relates to the
shares of capital stock of The Burridge Group Inc., we have relied with your
permission upon the opinion of Sonnenschein, Nath & Rosenthal, copies of which
opinions have been provided to you.
In rendering the opinions expressed below, we express no opinion other than
as to the Federal laws of the United States, the laws of the Commonwealth of
Massachusetts, the General Corporation Law of Delaware, the Limited Liability
Company Act of Delaware, the Delaware Revised Uniform Limited Partnership Act
and the Delaware Uniform Partnership Law.
Based on and subject to the foregoing, we are of the opinion that:
(i) The Company has been duly incorporated and is an existing corporation
in good standing under the laws of Delaware, with corporate power to own its
properties and conduct its business as described in the Registration Statement
filed by the Company with the Securities and Exchange Commission (No. 333-34679)
(the "Registration Statement").
(ii) The authorized capital stock of the Company is as set forth in the
Registration Statement under the first paragraph of "Description of Capital
Stock--Authorized and Outstanding Capital Stock;" all of the issued shares of
capital stock of the Company (including the Shares) have been duly authorized
and, when the Shares are paid for by the Underwriters in accordance with the
Underwriting Agreements, will be validly issued, fully paid and non-assessable.
(iii) The Company has been duly qualified as a foreign corporation to do
business and is in good standing in Massachusetts, Ohio, Missouri and North
Dakota.
<PAGE> 24
(iv) Each subsidiary of the Company identified on Exhibit A hereto
("Subsidiary") is an existing corporation, limited liability company, limited
partnership, general partnership or association with transferable shares
(commonly known as a "Massachusetts business trust"), as the case may be; each
such Subsidiary which is a corporation, limited liability company, limited
partnership or Massachusetts business trust is in good standing under the laws
of its jurisdiction of organization; all of the issued and outstanding shares of
capital stock of each Subsidiary which is a corporation held by the Company or a
Subsidiary have been duly authorized and validly issued, and are fully paid and
non-assessable; and the Company or a Subsidiary is the record owner of all of
the issued and outstanding shares of capital stock of each Subsidiary which is a
corporation. All of the partnership interests, membership interests and shares
of beneficial interest of each Subsidiary which is a partnership, limited
liability company or Massachusetts business trust have been validly issued in
accordance with applicable law and the partnership agreement, limited liability
agreement or declaration of trust, as applicable, of such Subsidiary; and the
Company or a Subsidiary is the record owner of the partnership interest,
membership interest or shares of beneficial interest indicated on Exhibit A
attached hereto of each such Subsidiary.
(v) Each of the Underwriting Agreements has been duly authorized,
executed and delivered by the Company;
(vi) The Registration Statement has become effective under the Securities
Act of 1933, as amended (the "Act"); and, to the best of our knowledge, no stop
order suspending the effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been initiated.
(vii) To the best of our knowledge, no authorization, approval or consent
of any court or governmental agency or body is required to be obtained by the
Company in connection with the execution and delivery of the Underwriting
Agreements by the Company or the issuance, sale and delivery of the Shares to
the Underwriters, except the registration of the Shares under the Act and the
rules and regulations of the Securities and Exchange Commission thereunder and
except as may be required by the National Association of Securities Dealers,
Inc. (as to which we do not express an opinion) or under the securities or Blue
Sky laws of any jurisdiction (as to which we do not express an opinion).
(viii) The issuance, sale and delivery of the Shares to the Underwriters
pursuant to the Underwriting Agreements will not (a) result in any violation of
the provisions of the Certificate of Incorporation or by-laws of the Company,
(b) conflict with or result in a breach or violation on the part of the Company
of any of the terms or provisions of, or constitute a default under, any of the
agreements identified on Exhibit B hereto, or (c) to the best of our knowledge,
result in a violation on the part of the Company of any applicable statute or
regulation.
(ix) Each Subsidiary identified on Exhibit C hereto is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended (the
"Advisers Act"), and none of such Subsidiaries is required to be registered,
licensed or qualified as an investment adviser under state
<PAGE> 25
or local laws in the United States. The Company is not required to register as
an investment adviser within the meaning of the Advisers Act and the rules and
regulations of the Commission promulgated thereunder. Neither the Company nor
any Subsidiary is an "investment company" or an entity "controlled" by an
"investment company," as such terms are defined in the Investment Company Act of
1940, as amended.
The opinions set forth herein are based upon currently existing statutes,
rules and regulations and judicial decisions and is rendered as of the date
hereof, and we disclaim any obligation to advise you of any change in any of the
foregoing sources of law or subsequent developments in law or changes in facts
or circumstances which might affect any matters or opinions set forth herein.
The opinions set forth herein are furnished by us as counsel for the
Company to you as Representatives of the several Underwriters and is solely for
the benefit of the several Underwriters.
Very truly yours,
Goodwin, Procter & Hoar LLP
<PAGE> 26
ANNEX II-B
- ----------
[Form of Goodwin, Procter & Hoar LLP letter to Underwriters]
___________ __, 1997
Goldman, Sachs & Co.,
BT Alex. Brown Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Schroder & Co., Inc.
As Representatives ("U.S. Representatives")
of the Several U.S. Underwriters
("U.S. Underwriters"),
c/o Goldman, Sachs & Co.,
85 Broad Street
New York, NY 10004
Goldman Sachs International,
BT Alex. Brown International,
a division of Bankers Trust International PLC
Merrill Lynch International,
J. Henry Schroder & Co. Limited,
As Representatives ("International Representatives")
of the Several International Underwriters
("International Underwriters"),
c/o Goldman Sachs International,
Peterborough Court
133 Fleet Street
London EC4A 2BB
England
Ladies and Gentlemen:
This is with reference to the registration under the Securities Act of 1933
(the "Act") of_______shares of the Common Stock, par value $.01 per share, of
Affiliated Managers Group, Inc. (the "Company"). When the Company's Registration
Statement (No. 333-34679) (the "Registration Statement") was declared effective
by the Securities and Exchange Commission, the form of prospectus included
therein omitted certain information in reliance upon Rule 430A under the Act.
Such information is contained in the Prospectus dated _______ __, 1997 relating
to the initial offering of the Securities (the "Prospectus") and, as provided in
Rule 430A, is deemed to be a part of the Registration Statement as of the time
it was declared effective. [The Prospectus also updates or supplements certain
information contained in the Registration Statement.]
<PAGE> 27
As counsel to the Company, we reviewed the Registration Statement and the
Prospectus, participated in discussions with your representatives, those of
counsel for the several U.S. Underwriters and International Underwriters
(collectively, the "Underwriters"), and those of the Company and its
accountants, and advised the Company as to the requirements of the Act and the
applicable rules and regulations thereunder. Between the effectiveness of the
Registration Statement and the time of the delivery of this letter, we
participated in further discussions with your representatives, those of counsel
for the several U.S. Underwriters and International Underwriters, and those of
the Company and its accountants, and we reviewed certain certificates of
officers of the Company and public officials and letters from the Company's
independent accountants delivered to you today.
On the basis of the information that we gained in the course of the
performance of the services referred to above, considered in the light of our
understanding of the applicable law and the experience we have gained through
our practice under the Act, we confirm to you that, in our opinion, the
Registration Statement, as of its effective date, and the Prospectus, as of the
date of the Prospectus, appeared on their face to be appropriately responsive in
all material respects to the requirements of the Act and the applicable rules
and regulations of the Securities and Exchange Commission thereunder. Further,
nothing that came to our attention in the course of such review has caused us to
believe that the Registration Statement, as of its effective date, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Prospectus, as of the date of the Prospectus, contained
any untrue statement of a material fact or omitted to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Also, nothing that has come to our
attention in the course of the procedures described in the second sentence of
the preceding paragraph has caused us to believe that the Prospectus, as of the
date and time of delivery of this letter, contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements therein, in light of circumstances under which they were made,
not misleading.
In addition, we do not know of any litigation or any governmental
proceeding instituted or threatened against the Company or its subsidiaries that
would be required to be disclosed in the Prospectus and is not so disclosed.
Also, we do not know of any documents that are required to be filed as exhibits
to the Registration Statement and are not so filed or of any documents that are
required to be summarized in the Prospectus and are not so summarized.
The limitations inherent in the independent verification of factual matters
and the character of determinations involved in the registration process are
such, however, that we do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus except for those made under the captions
"Description of Capital Stock," and "Business -- Government Regulation" in the
Prospectus insofar as they describe provisions, therein described, of documents
governed by the Delaware General Corporation Law, of the Investment Advisers Act
of 1940, as amended, or the Investment Company Act of 1940, as amended. Also, we
do not express any opinion or belief as to the financial statements or other
financial data contained in the Registration Statement or the Prospectus.
<PAGE> 28
This letter is furnished by us as counsel for the Company to you as U.S.
Representatives of the several U.S. Underwriters and as International
Representatives of the International Underwriters, respectively, and is solely
for the benefit of the several U.S. Underwriters and International Underwriters.
Very truly yours,
Goodwin, Procter & Hoar LLP
<PAGE> 1
EXHIBIT 1.2
AFFILIATED MANAGERS GROUP, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
Underwriting Agreement
(International Version)
-----------------
, 1997
Goldman Sachs International,
BT Alex. Brown International, a
division of Bankers Trust International PLC,
Merrill Lynch International,
J. Henry Schroder & Co. Limited,
As representatives of the several Underwriters
named in Schedule I hereto,
Peterborough Court,
133 Fleet Street,
London EC4A 2BB, England.
Ladies and Gentlemen:
Affiliated Managers Group, Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and sell
to the Underwriters named in Schedule I hereto (the "Underwriters") an aggregate
of 1,400,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 210,000 additional shares (the "Optional Shares") of Common
Stock, par value $.01 per share, (the "Stock") of the Company (the Firm Shares
and the Optional Shares which the Underwriters elect to purchase pursuant to
Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement, a copy of which is attached hereto (the
"U.S. Underwriting Agreement"), providing for the offering by the Company of up
to a total of 5,600,000 shares of Stock (the "U.S. Shares") including the
overallotment option thereunder through arrangements with certain underwriters
in the United States (the "U.S. Underwriters"), for whom Goldman, Sachs & Co.,
BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Schroder & Co. Inc. are acting as representatives. Anything herein and
therein to the contrary notwithstanding, the respective closings under this
Agreement and the U.S. Underwriting Agreement are hereby expressly made
conditional on one another. The Underwriters hereunder and the U.S. Underwriters
are
<PAGE> 2
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates and for consultation by the Lead Managers hereunder with Goldman,
Sachs & Co. prior to exercising the rights of the Underwriters under Section 7
hereof. Two forms of prospectus are to be used in connection with the offering
and sale of shares of Stock contemplated by the foregoing, one relating to the
Shares hereunder and the other relating to the U.S. Shares. The latter form of
prospectus will be identical to the former except for certain substitute pages
or other differences that you have approved, in the case of any preliminary
prospectus used before this Agreement is executed, or that you hereafter
approve, in the case of any amendment or supplement thereto used after the
execution of this Agreement. Except as used in Sections 2, 3, 4, 9 and 11
herein, and except as the context may otherwise require, references hereinafter
to the Shares shall include all of the shares of Stock which may be sold
pursuant to either this Agreement or the U.S. Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both of the U.S. and the
international versions thereof.
In addition, this Agreement incorporates by reference certain provisions
from the U.S. Underwriting Agreement (including the related definitions of
terms, which are also used elsewhere herein) and, for purposes of applying the
same, references (whether in these precise words or their equivalent) in the
incorporated provisions to the "Underwriters" shall be to the Underwriters
hereunder, to the "Shares" shall be to the Shares hereunder as just defined, to
"this Agreement" (meaning therein the U.S. Underwriting Agreement) shall be to
this Agreement (except where this Agreement is already referred to or as the
context may otherwise require) and to the representatives of the Underwriters or
to Goldman, Sachs & Co. shall be to the addressees of this Agreement and to
Goldman Sachs International ("GSI"), and, in general, all such provisions and
defined terms shall be applied mutatis mutandis as if the incorporated
provisions were set forth in full herein having regard to their context in this
Agreement as opposed to the U.S. Underwriting Agreement.
1. The Company hereby makes with the Underwriters the same representations,
warranties and agreements as are set forth in Section 1 of the U.S. Underwriting
Agreement, which Section is incorporated herein by this reference.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $......, the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the event
and to the extent that the Underwriters shall exercise the election to purchase
Optional Shares as provided below, the Company agrees to issue and sell to each
of the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from the Company, at the purchase price per share set forth
in clause (a) of this Section 2, that portion of the number of Optional Shares
as to which such election shall have been exercised (to be adjusted by you so as
to eliminate fractional shares) determined by multiplying such number of
Optional Shares by a fraction the numerator of which is the maximum number of
Optional Shares which such Underwriter is entitled to purchase as set forth
opposite the name of such Underwriter in Schedule I hereto and the denominator
of which is the maximum number of Optional Shares that all of the Underwriters
are entitled to purchase hereunder.
2
<PAGE> 3
The Company hereby grants to the Underwriters the right to purchase at
their election up to 210,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by GSI of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus and in the forms of Agreement among
Underwriters (International Version) and Selling Agreements, which have been
previously submitted to the Company by you. Each Underwriter hereby makes to and
with the Company the representations and agreements of such Underwriter as a
member of the selling group contained in Sections 3(d) and 3(e) of the form of
Selling Agreements.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as GSI may request upon at least forty-eight hours' prior notice to the
Company shall be delivered by or on behalf of the Company to GSI, for the
account of such Underwriter, against payment by or on behalf of such Underwriter
of the purchase price therefor by certified or official bank check or checks,
payable to the order of the Company in New York Clearing House (next day) funds.
The Company will cause the certificates representing the Shares to be made
available for checking and packaging at least twenty-four hours prior to the
Time of Delivery (as defined below) with respect thereto at the office of GSI,
85 Broad Street, New York, New York 10004 (the "Designated Office"). The time
and date of such delivery and payment shall be, with respect to the Firm Shares,
9:30 a.m., New York City time, on ............., 1997 or such other time and
date as GSI and the Company may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York City time, on the date specified by GSI in
the written notice given by GSI of the Underwriters' election to purchase such
Optional Shares, or such other time and date as GSI and the Company may agree
upon in writing. Such time and date for delivery of the Firm Shares is herein
called the "First Time of Delivery", such time and date for delivery of the
Optional Shares, if not the First Time of Delivery, is herein called the "Second
Time of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 of the U.S. Underwriting Agreement,
including the cross receipt for the Shares and any additional documents
requested by the Underwriters pursuant to Section 7(k) of the U.S. Underwriting
Agreement hereof, will be delivered at the offices of Sullivan & Cromwell, 125
Broad Street, New York, New York 10004 (the "Closing Location"), and the Shares
will be delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at 2:00 p.m., New York City time,
on the New York Business Day next preceding such Time of Delivery, at which
meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday,
3
<PAGE> 4
Thursday and Friday which is not a day on which banking institutions in New York
are generally authorized or obligated by law or executive order to close.
5. The Company hereby makes to the Underwriters the same agreements as are
set forth in Section 5 of the U.S. Underwriting Agreement, which Section is
incorporated herein by this reference.
6. The Company and the Underwriters hereby agree with respect to certain
expenses on the same terms as are set forth in Section 6 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
7. Subject to the provisions of the Agreement between Syndicates, the
obligations of the Underwriters hereunder shall be subject, in their discretion,
at each Time of Delivery, to the condition that all representations and
warranties and other statements of the Company herein are, at and as of such
Time of Delivery, true and correct, the condition that the Company shall have
performed all of its obligations hereunder theretofore to be performed, and
additional conditions identical to those set forth in Section 7 of the U.S.
Underwriting Agreement, which Section is incorporated herein by this reference.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through GSI expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through
4
<PAGE> 5
GSI expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (who shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus relating to such Shares. The relative fault
shall be determined by reference to, among other things, whether
5
<PAGE> 6
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Underwriters agree that
it would not be just and equitable if contributions pursuant to this subsection
(d) were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this subsection (d) shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the respective Underwriters may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of the Company (including any
person who, with his or her consent, is named in the Registration Statement as
about to become a director of the Company) and to each person, if any, who
controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
6
<PAGE> 7
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
the Shares to be purchased at such Time of Delivery, then the Company shall have
the right to require each non-defaulting Underwriter to purchase the number of
shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or Underwriters,
then this Agreement (or, with respect to the Second Time of Delivery, the
obligation of the Underwriters to purchase and of the Company to sell the
Optional Shares) shall thereupon terminate, without liability on the part of any
non-defaulting Underwriter or the Company, except for the expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof; but nothing herein
shall relieve a defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Section 6 and Section 8 hereof, but, if for any other reason any
Shares are not delivered by or on behalf of the Company as provided herein, the
Company will reimburse the Underwriters through GSI for all out-of-pocket
expenses approved in writing by GSI, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company
shall then be under no further liability to any Underwriter in respect of the
Shares not so delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by GSI on your behalf.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to the Underwriters
7
<PAGE> 8
in care of GSI, Peterborough Court, 133 Fleet Street, London EC4A 2BB, England,
Attention: Equity Capital Markets, Telex No. 94012165, facsimile transmission
No. (071) 774-1550; and if to the Company shall be delivered or sent by
registered mail, telex or facsimile transmission to the address of the Company
set forth in the Registration Statement, Attention: Secretary; provided,
however, that any notice to an Underwriter pursuant to Section 8(c) hereof shall
be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by GSI upon request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, UNITED STATES OF AMERICA.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
8
<PAGE> 9
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (International Version), the form of which shall be furnished to
the Company for examination upon request, but without warranty on your part as
to the authority of the signers thereof.
Very truly yours,
Affiliated Managers Group, Inc.
By: __________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman Sachs International
BT Alex. Brown International, a
division of Bankers Trust International PLC,
Merrill Lynch International
J. Henry Schroder & Co. Limited
By: ____________________________________
(Attorney-in-fact)
On behalf of each of the Underwriters
9
<PAGE> 10
SCHEDULE I
<TABLE>
<CAPTION>
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
- ----------- --------------- ---------
<S> <C> <C>
Goldman Sachs International...................
BT Alex. Brown International, a division
of Bankers Trust International PLC..........
Merrill Lynch International..................
J. Henry Schroder & Co. Limited...............
[Other Underwriters]
</TABLE>
Total
10
<PAGE> 1
EXHIBIT 3.1
FORM OF
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AFFILIATED MANAGERS GROUP, INC.
AFFILIATED MANAGERS GROUP, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
1. The name of the Corporation is Affiliated Managers Group, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was December 29, 1993.
2. This Amended and Restated Certificate of Incorporation amends,
restates and integrates the provisions of the Amended and Restated Certificate
of Incorporation of the Corporation filed with the Secretary of State of the
State of Delaware on November __, 1997 (as heretofore amended, the "Amended and
Restated Certificate of Incorporation") and was duly adopted by the written
consent of the stockholders of the Corporation, with written notice thereof
having been given to all stockholders of the Corporation who have not given
their written consent, if any, all in accordance with the applicable provisions
of Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware (the "DGCL").
3. The text of the Amended and Restated Certificate of Incorporation is
hereby restated in its entirety to provide as herein set forth in full.
ARTICLE I
NAME
The name of the Corporation is Affiliated Managers Group, Inc.
<PAGE> 2
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted by
the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the DGCL.
ARTICLE IV
CAPITAL STOCK
The total number of shares of capital stock which the Corporation shall
have the authority to issue is Forty Eight Million (48,000,000) shares, of which
(a) Five Million (5,000,000) shares shall be undesignated preferred stock, par
value $.01 per share (the "Undesignated Preferred Stock"), and (b) Forty Three
Million (43,000,000) shares shall be common stock, par value $.01 per share (the
"Common Shares"), of which (i) Forty Million (40,000,000) shares shall be
designated Voting Common Stock ("Common Stock") and (ii) Three Million
(3,000,000) shares shall be designated Class B Non-Voting Common Stock ("Class B
Common Stock"). As set forth in this Article IV, the Board of Directors or any
authorized committee thereof is authorized from time to time to establish and
designate one or more series of Undesignated Preferred Stock, to fix and
determine the variations in the relative rights, preferences and powers as
between the different series of Undesignated Preferred Stock in the manner
hereinafter set forth in this Article IV, and to fix or alter the number of
shares comprising any such series and the designation thereof to the fullest
extent permitted by law.
The number of authorized shares of the class of Undesignated Preferred
Stock may from time to time be increased or decreased (but not below the number
of shares outstanding) by the affirmative vote of the holders of a majority of
the Common Shares entitled to vote, without a vote of the holders of the
Undesignated Preferred Stock.
2
<PAGE> 3
The designations, powers, preferences and rights of, and the
qualifications, limitations and restrictions upon, each class or series of stock
shall be determined in accordance with, or as set forth below in, this Article
IV.
A. UNDESIGNATED PREFERRED STOCK
Subject to any limitations prescribed by law, the Board of Directors or
any authorized committee thereof is expressly authorized to provide for the
issuance of the shares of Undesignated Preferred Stock in one or more series of
such stock, and by filing a certificate pursuant to applicable law of the State
of Delaware, to establish or change from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and the relative, participating, optional or other special rights of the shares
of each series and any qualifications, limitations and restrictions thereof. Any
action by the Board of Directors or any authorized committee thereof under this
Part A shall require the affirmative vote of a majority of the directors then in
office or a majority of the members of such committee. The Board of Directors or
any authorized committee thereof shall have the right to determine or fix one or
more of the following with respect to each series of Undesignated Preferred
Stock to the fullest extent permitted by law:
(a) The distinctive serial designation and the number of
shares constituting such series;
(b) The dividend rates or the amount of dividends to be paid
on the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating and other rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares
of such series;
(d) Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount or amounts payable upon the shares of such
series and any preferences applicable thereto in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund and the
manner of its application, including the price or prices at which such shares
may be redeemed or purchased through the application of such fund;
3
<PAGE> 4
(g) Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or of any other
series of the same or any other class or classes of stock of the Corporation
and, if so convertible or exchangeable, the conversion price or prices, or the
rate or rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of
such series shall be issued;
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
Undesignated Preferred Stock (or series thereof) and whether such shares may be
reissued as shares of the same or any other class or series of stock; and
(j) Such other powers, preferences, rights, qualifications,
limitations and restrictions thereof as the Board of Directors or any authorized
committee thereof may deem advisable.
B. COMMON SHARES
Section 1. General. Except as otherwise expressly provided herein, all
shares of Common Stock and Class B Common Stock shall be identical and shall
entitle the holders thereof to the same rights and privileges.
Section 2. Voting. Each holder of record shall be entitled to one vote
for each share of Common Stock standing in his name on the books of the
Corporation. The holders of Class B Common Stock shall not have any right to
vote, except as required under applicable law and, except as required by law,
the holders of Common Stock and Class B Common Stock shall vote together as a
single class on all matters as to which holders of Class B Common Stock are
entitled to vote as set forth herein. Except as required by law or as set forth
herein, the holders of Common Shares (to the extent permitted by this Section 2)
and Undesignated Preferred Stock (to the extent permitted by Part A hereof)
shall vote together as a single class on all matters submitted to the
stockholders for a vote.
Section 3. Dividends. Subject to applicable law, the holders of Common
Shares shall be entitled to receive dividends out of funds legally available
therefor at such times and in such amounts as the Board of Directors may
determine in its sole discretion, with each share of Common Stock and each share
of Class B Common Stock sharing share-for-share in such dividends (with each
share of Class B Common Stock being equal to the number of shares of Common
Stock into which it would then be convertible on the record date for such
dividend)
4
<PAGE> 5
except that if dividends are declared which are payable in shares of Common
Stock or Class B Common Stock, dividends shall be declared which are payable at
the equivalent rate in both classes of stock and the dividends payable in shares
of Common Stock shall be payable to the holders of that class of stock and the
dividends payable in shares of Class B Common Stock shall be payable to the
holders of that class of stock.
Section 4. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary (a "Liquidation Event"), after the payment or provision for payment
of all debts and liabilities of the Corporation and all preferential amounts to
which the holders of Undesignated Preferred Stock are entitled with respect to
the distribution of assets in liquidation, the holders of Common Shares shall be
entitled to share ratably (with each share of Class B Common Stock being equal
to the number of shares of Common Stock into which it would then be convertible
on the effective date of such Liquidation Event) in the remaining assets of the
Corporation available for distribution.
Section 5. Conversion of Class B Common Stock.
(a) Right to Convert. Subject to and upon compliance with the
provisions of this Section 5, each share of Class B Common Stock shall be
convertible, at the option of the holder thereof, into fully paid and
non-assessable shares of Common Stock at the rate of one share of Common Stock
for each share of Class B Common Stock so converted (the "Class B Common
Conversion Rate"); provided, that such conversion is not inconsistent with any
regulation, rule or other requirement of any governmental authority applicable
to such holder at the time of such conversion, as evidenced by a certificate of
such holder upon which the Corporation shall be entitled to rely absolutely, and
which holder will indemnify the Corporation for any losses, costs or expenses
arising from the Corporation's reliance on such certificate.
(b) Notice of Conversion. Each holder of Class B Common Stock
shall be entitled to convert shares of Class B Common Stock if such holder
provides a written request for conversion to the Corporation at least ten (10)
business days prior to the date on which such holder desires to convert his
Class B Common Stock stating the date on which such holder desires to convert
his Class B Common Stock, which notice shall be binding and irrevocable on the
holder and, to the extent the holder otherwise complies with the provision of
this Section 5, the Corporation. No share or shares of the Class B Common Stock
acquired by the Corporation by reason of conversion or otherwise shall be
reissued, and all such shares shall be canceled, retired and eliminated from the
shares which the Corporation shall be authorized to issue. The Corporation may
from time to time take such appropriate corporate action as may be necessary to
reduce the authorized number of shares of the Class B Common Stock accordingly.
(c) Surrender of Certificates. Each conversion of shares of
Class B Common Stock into shares of Common Stock shall be effected by the
surrender of the certificate or certificates representing the shares of Class B
Common Stock to be converted, duly assigned or
5
<PAGE> 6
endorsed for transfer to the Corporation (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the Corporation
or the offices of the transfer agent for the Common Shares or such office or
offices in the continental United States of an agent for conversion as may from
time to time be designated by notice to the holders of the Class B Common Stock
by the Corporation together with written notice by the holder of such Class B
Common Stock stating that such holder desires to convert the shares, or a stated
number of the shares, of Class B Common Stock represented by such certificate,
into Common Stock, which notice shall also state the name or names (with
addresses) and denominations in which the certificate or certificates for Common
Stock shall be issued and shall include instructions for delivery thereof. Upon
surrender of a certificate representing Class B Common Stock for conversion, the
Corporation shall issue and send by hand delivery, by courier or by first class
mail (postage prepaid) to the holder thereof or to such holder's designee, at
the address designated by such holder, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a certificate or
certificates representing Class B Common Stock, only part of which are to be
converted, the Corporation shall issue and send to such holder or such holder's
designee, in the manner set forth in the preceding sentence, a new certificate
or certificates representing the number of shares of Class B Common Stock which
shall not have been converted. If the certificate or certificates for Common
Stock are to be issued in a name other than the name of the registered holder of
the stock surrendered for conversion, the Corporation shall not be obligated to
issue or deliver any certificate unless and until the holder of the stock
surrendered has paid to the Corporation the amount of any tax that may be
payable in respect of any transfer involved in such issuance or has established
to the satisfaction of the Corporation that such tax has been paid.
(d) Effective Date of Conversion. Such conversion shall be
deemed to have been effected as of the later of (i) the close of business on the
date on which such certificate or certificates shall have been surrendered or
(ii) the date on which the holder shall have fully complied with the provisions
of this Section 5, and at such time the rights of the holder of such Class B
Common Stock (or specified portion thereof) as to such converted shares shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock are to be issued upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(e) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance upon the conversion of the
Class B Common Stock, such number of shares of Common Stock as are issuable upon
the conversion of all outstanding shares of Class B Common Stock.
6
<PAGE> 7
Section 6. Adjustments.
(a) Changes in Common Stock. In the event the Corporation
shall (i) pay a dividend in or make a distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of the
Corporation, the Class B Common Conversion Rate in effect immediately prior
thereto shall be adjusted so that the holder of a share of Class B Common Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares of Common Stock which it would have owned or have been entitled to
receive after the happening of any of the events described above had such share
of Class B Common Stock been converted on or immediately prior to the record
date for such dividend or the effective date of such subdivision, combination or
reclassification, as the case may be.
(b) Changes in Class B Common Stock. In the event that the
Corporation shall (i) pay a dividend in or make a distribution in shares of its
Class B Common Stock, (ii) subdivide its outstanding shares of Class B Common
Stock, (iii) combine its outstanding shares of Class B Common Stock into a
smaller number of shares, or (iv) issue by reclassification of its shares of
Class B Common Stock any shares of the Corporation, the Class B Common
Conversion Rate in effect immediately prior thereto shall be adjusted so that
the holder of a share of Class B Common Stock thereafter surrendered for
conversion shall be entitled to receive the number of shares of Common Stock
which it would have owned or have been entitled to receive after the happening
of any of the events described above had such share of Class B Common Stock been
converted on or immediately prior to the record date for such dividend or the
effective date of such subdivision, combination or reclassification, as the case
may be.
(c) General. An adjustment made pursuant to this Section 6
shall become effective immediately after the record date (in the case of a
dividend or distribution in shares of capital stock) and shall become effective
immediately after the effective date (in the case of a subdivision, combination
or reclassification). No adjustment in accordance with this Section 6 shall be
required unless such adjustment would require an increase or decrease in any
conversion rate of at least 0.1%; provided, however, that any adjustments which
by reason of this clause are not required to be made shall be carried forward
and taken into account in any subsequent adjustment.
Section 7. Notices. In the event that the Corporation provides any
notice, report or statement to the holders of Common Stock or Class B Common
Stock (in their capacity as such), the Corporation shall at the same time
provide a copy of any such notice, report or statement to each record holder of
outstanding Class B Common Stock and each record holder of Common Stock.
7
<PAGE> 8
ARTICLE V
STOCKHOLDER ACTION
Any action required or permitted to be taken by the stockholders of the
Corporation at any annual or special meeting of stockholders of the Corporation
must be effected at a duly called annual or special meeting of stockholders and
may not be taken or effected by a written consent of stockholders in lieu
thereof.
ARTICLE VI
DIRECTORS
Section 1. General.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors except as otherwise provided
herein or required by law.
Section 2. Election of Directors.
Election of Directors need not be by written ballot unless the By-laws
of the Corporation shall so provide.
Section 3. Terms of Directors.
The number of Directors of the Corporation shall be fixed by resolution
duly adopted from time to time by the Board of Directors. At each annual meeting
of stockholders, Directors shall be elected by a plurality of the votes cast at
such meeting and shall hold office for a term expiring at the next annual
meeting of stockholders held. The Directors so elected shall hold office until
their successors are duly elected and qualified or until their earlier
resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Restated Certificate of Incorporation, the holders of any one
or more series of Undesignated Preferred Stock shall have the right, voting
separately as a series or together with holders of other such series, to elect
Directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of Incorporation and any
certificate of designations applicable thereto.
During any period when the holders of any series of Undesignated
Preferred Stock have the right to elect additional Directors as provided for or
fixed pursuant to the provisions of Article
8
<PAGE> 9
IV hereof, then upon commencement and for the duration of the period during
which such right continues: (i) the then otherwise total authorized number of
Directors of the Corporation shall automatically be increased by such specified
number of Directors, and the holders of such Undesignated Preferred Stock shall
be entitled to elect the additional Directors so provided for or fixed pursuant
to said provisions, and (ii) each such additional Director shall serve until
such Director's successor shall have been duly elected and qualified, or until
such Director's right to hold such office terminates pursuant to said
provisions, whichever occurs earlier, subject to such Director's earlier death,
disqualification, resignation or removal. Except as otherwise provided by the
Board in the resolution or resolutions establishing such series, whenever the
holders of any series of Undesignated Preferred Stock having such right to elect
additional Directors are divested of such right pursuant to the provisions of
such stock, the terms of office of all such additional Directors elected by the
holders of such stock, or elected to fill any vacancies resulting from the
death, resignation, disqualification or removal of such additional Directors,
shall forthwith terminate and the total and authorized number of Directors of
the Corporation shall be reduced accordingly.
Section 4. Vacancies.
Subject to the rights, if any, of the holders of any series of
Undesignated Preferred Stock to elect Directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a Director, shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
if less than a quorum of the Board of Directors. Any Director appointed in
accordance with the preceding sentence shall hold office until the next annual
meeting of stockholders and until such Director's successor shall have been duly
elected and qualified or until his or her earlier resignation or removal. No
decrease in the number of Directors shall shorten the term of any incumbent
Director. In the event of a vacancy in the Board of Directors, the remaining
Directors, except as otherwise provided by law, may exercise the powers of the
full Board of Directors until the vacancy is filled.
Section 5. Removal.
Subject to the rights, if any, of any series of Undesignated Preferred
Stock to elect Directors and to remove any Director whom the holders of any such
stock have the right to elect, any Director (including persons elected by
Directors to fill vacancies in the Board of Directors) may be removed from
office (i) only with cause and (ii) only by the affirmative vote of at least
two-thirds of the total votes which would be eligible to be cast by stockholders
in the election of such Director. At least thirty (30) days prior to any meeting
of stockholders at which it is proposed that any Director be removed from
office, written notice of such proposed removal shall be sent to the Director
whose removal will be considered at the meeting.
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ARTICLE VII
LIMITATION OF LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (a) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (b) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the DGCL or (d) for any transaction
from which the director derived an improper personal benefit. If the DGCL is
amended after the effective date of this Restated Certificate of Incorporation
to authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the DGCL, as
so amended.
Any repeal or modification of this Article VII by either of (i) the
stockholders of the Corporation or (ii) an amendment to the DGCL, shall not
adversely affect any right or protection existing at the time of such repeal or
modification with respect to any acts or omissions occurring before such repeal
or modification of a person serving as a director at the time of such repeal or
modification.
ARTICLE VIII
AMENDMENT OF BY-LAWS
Section 1. Amendment by Directors
Except as otherwise provided by law, the By-laws of the Corporation may
be amended or repealed by the Board of Directors by the affirmative vote of a
majority of the directors then in office.
Section 2. Amendment by Stockholders
The By-laws of the Corporation may be amended or repealed at any annual
meeting of stockholders, or special meeting of stockholders called for such
purpose, by the affirmative vote of at least two-thirds of the total votes
eligible to be cast on such amendment or repeal by holders of voting stock,
voting together as a single class; provided, however, that if the Board of
Directors recommends that stockholders approve such amendment or repeal at such
meeting of stockholders, such amendment or repeal shall only require the
affirmative vote of the majority of the total votes eligible to be cast on such
amendment or repeal by the holders of voting stock, voting together as a single
class.
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ARTICLE IX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to amend or repeal this Restated
Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Restated Certificate of Incorporation, and all rights conferred
upon stockholders herein are granted subject to this reservation. No amendment
or repeal of this Restated Certificate of Incorporation shall be made unless the
same is first approved by the Board of Directors pursuant to a resolution
adopted by the Board of Directors in accordance with Section 242 of the DGCL,
and, except as otherwise provided by law, thereafter approved by the
stockholders. Whenever any vote of the holders of voting stock is required, and
in addition to any other vote of holders of voting stock that is required by
this Restated Certificate of Incorporation or by law, the affirmative vote of a
majority of the total votes eligible to be cast by holders of voting stock with
respect to such amendment or repeal, voting together as a single class, at a
duly constituted meeting of stockholders called expressly for such purpose shall
be required to amend or repeal any provisions of this Restated Certificate of
Incorporation; provided, however, that the affirmative vote of not less than 80%
of the total votes eligible to be cast by holders of voting stock, voting
together as a single class, shall be required to amend or repeal any of the
provisions of Article V, Article VI, Article VII or Article IX of this Restated
Certificate of Incorporation.
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I, William J. Nutt, President and Chief Executive Officer of the
Corporation, for the purpose of restating the Corporation's Amended and Restated
Certificate of Incorporation pursuant to the General Corporation Law of the
state of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed on behalf of the Corporation this ___ day of
November, 1997.
------------------------------
William J. Nutt
President and Chief Executive Officer
ATTEST:
- ------------------------------
Name: Nathaniel Dalton
Title: Secretary
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EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED
BY-LAWS
OF
AFFILIATED MANAGERS GROUP, INC.
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of stockholders shall be
held at the hour, date and place within or without the United States which is
fixed by the majority of the Board of Directors, the Chairman of the Board, if
one is elected, or the Chief Executive Officer, which time, date and place may
subsequently be changed at any time by vote of the Board of Directors. If no
annual meeting has been held for a period of thirteen months after the
Corporation's last annual meeting of stockholders, a special meeting in lieu
thereof may be held, and such special meeting shall have, for the purposes of
these By-laws or otherwise, all the force and effect of an annual meeting. Any
and all references hereafter in these By-laws to an annual meeting or annual
meetings also shall be deemed to refer to any special meeting(s) in lieu
thereof.
SECTION 2. Matters to be Considered at Annual Meetings. At any annual
meeting of stockholders or any special meeting in lieu of annual meeting of
stockholders (the "Annual Meeting"), only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before such Annual Meeting. To be considered as properly brought before an
Annual Meeting, business must be: (a) specified in the notice of meeting, (b)
otherwise properly brought before the meeting by, or at the direction of, the
Board of Directors, or (c) otherwise properly brought before the meeting by any
holder of record (both as of the time notice of such proposal is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of capital stock of the Corporation entitled to vote
at such Annual Meeting who complies with the requirements set forth in this
Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an Annual Meeting by a stockholder of record of any
shares of capital stock entitled to vote at such Annual Meeting, such
stockholder shall: (i) give timely notice as required by this Section 2 to the
<PAGE> 2
Secretary of the Corporation and (ii) be present at such meeting, either in
person or by a representative. For the first Annual Meeting following the
initial public offering of common stock of the Corporation, a stockholder's
notice shall be timely if delivered to, or mailed to and received by, the
Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation. For all subsequent Annual Meetings, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the anniversary date of the immediately preceding Annual Meeting (the
"Anniversary Date"); provided, however, that in the event the Annual Meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(1) the 75th day prior to the scheduled date of such Annual Meeting or (2) the
15th day following the day on which public announcement of the date of such
Annual Meeting is first made by the Corporation.
For purposes of these By-laws, "public announcement" shall mean: (a)
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service, (b) a report or other document filed
publicly with the Securities and Exchange Commission (including, without
limitation, a Form 8-K), or (c) a letter or report sent to stockholders of
record of the Corporation at the time of the mailing of such letter or report.
A stockholder's notice to the Secretary shall set forth as to each
matter proposed to be brought before an Annual Meeting: (i) a brief description
of the business the stockholder desires to bring before such Annual Meeting and
the reasons for conducting such business at such Annual Meeting, (ii) the name
and address, as they appear on the Corporation's stock transfer books, of the
stockholder proposing such business, (iii) the class and number of shares of the
Corporation's capital stock beneficially owned by the stockholder proposing such
business, (iv) the names and addresses of the beneficial owners, if any, of any
capital stock of the Corporation registered in such stockholder's name on such
books, and the class and number of shares of the Corporation's capital stock
beneficially owned by such beneficial owners, (v) the names and addresses of
other stockholders known by the stockholder proposing such business to support
such proposal, and the class and number of shares of the Corporation's capital
stock beneficially owned by such other stockholders, and (vi) any material
interest of the stockholder proposing to bring such business before such meeting
(or any other stockholders known to be supporting such proposal) in such
proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2 in any material respect, such proposal shall not be presented for
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action at the Annual Meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the Annual
Meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2 or that the information provided in a stockholder's
notice does not satisfy the information requirements of this Section 2 in any
material respect, such proposal shall not be presented for action at the Annual
Meeting in question. If the Board of Directors, a designated committee thereof
or the presiding officer determines that a stockholder proposal was made in
accordance with the requirements of this Section 2, the presiding officer shall
so declare at the Annual Meeting and ballots shall be provided for use at the
meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this By-Law, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder with respect to the matters set forth in this Section 2, and nothing
in this Section 2 shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
SECTION 3. Special Meetings. Except as otherwise required by law and
subject to the rights, if any, of the holders of any series of preferred stock,
special meetings of the stockholders of the Corporation may be called only by
the Board of Directors pursuant to a resolution approved by the affirmative vote
of a majority of the directors then in office.
SECTION 4. Matters to be Considered at Special Meetings. Only those
matters set forth in the notice of the special meeting may be considered or
acted upon at a special meeting of stockholders of the Corporation, unless
otherwise provided by law.
SECTION 5. Notice of Meetings; Adjournments. A written notice of each
Annual Meeting stating the hour, date and place of such Annual Meeting shall be
given by the Secretary or an Assistant Secretary (or other person authorized by
these By-laws or by law) not less than 10 days nor more than 60 days before the
Annual Meeting, to each stockholder entitled to vote thereat and to each
stockholder who, by law or under the Certificate of Incorporation of the
Corporation (as the same may hereafter be amended and/or restated, the
"Certificate") or under these By-laws, is entitled to such notice, by delivering
such notice to him or by mailing it, postage prepaid, addressed to such
stockholder at the address of such stockholder as it appears on the
Corporation's stock transfer books. Such notice shall be deemed to be given when
hand delivered to such address or deposited in the mail so addressed, with
postage prepaid.
Notice of all special meetings of stockholders shall be given in the
same manner as provided for Annual Meetings, except that the written notice of
all special meetings shall state the purpose or purposes for which the meeting
has been called.
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Notice of an Annual Meeting or special meeting of stockholders need not
be given to a stockholder if a written waiver of notice is signed before or
after such meeting by such stockholder or if such stockholder attends such
meeting, unless such attendance was for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the meeting
was not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any Annual Meeting or special meeting of stockholders need
be specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled Annual Meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to Section 2 of this
Article I or Section 3 of Article II hereof or otherwise. In no event shall the
public announcement of an adjournment, postponement or rescheduling of any
previously scheduled meeting of stockholders commence a new time period for the
giving of a stockholder's notice under Section 2 of Article I and Section 3 of
Article II of these By-laws.
When any meeting is convened, the presiding officer may adjourn the
meeting if (a) no quorum is present for the transaction of business, (b) the
Board of Directors determines that adjournment is necessary or appropriate to
enable the stockholders to consider fully information which the Board of
Directors determines has not been made sufficiently or timely available to
stockholders, or (c) the Board of Directors determines that adjournment is
otherwise in the best interests of the Corporation. When any Annual Meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting other than an announcement at
the meeting at which the adjournment is taken of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Certificate or these By-laws, is entitled to such notice.
SECTION 6. Quorum. A majority of the shares entitled to vote, present
in person or represented by proxy, shall constitute a quorum at any meeting of
stockholders. If less than a quorum is present at a meeting, the holders of
voting stock representing a majority of the voting power present at the meeting
or the presiding officer may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 5 of this Article I. At such adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally noticed. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 7. Voting and Proxies. Stockholders shall have one vote for
each share of stock entitled to vote owned by them of record according to the
books of the Corporation, unless otherwise provided by law or by the
Certificate. Stockholders may vote either in person or by
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written proxy, but no proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period. Proxies shall be filed
with the Secretary of the meeting before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies shall entitle the
persons authorized thereby to vote at any adjournment of such meeting, but they
shall not be valid after final adjournment of such meeting. A proxy with respect
to stock held in the name of two or more persons shall be valid if executed by
or on behalf of any one of them unless at or prior to the exercise of the proxy
the Corporation receives a specific written notice to the contrary from any one
of them.
SECTION 8. Action at Meeting. When a quorum is present, any matter
before any meeting of stockholders shall be decided by the affirmative vote of
the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Certificate or by these By-laws. Any election by stockholders shall
be determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors, except where a larger vote is required by law, by the Certificate or
by these By-laws. The Corporation shall not directly or indirectly vote any
shares of its own stock; provided, however, that the Corporation may vote shares
which it holds in a fiduciary capacity to the extent permitted by law.
SECTION 9. Stockholder Lists. The Secretary or an Assistant Secretary
(or the Corporation's transfer agent or other person authorized by these By-laws
or by law) shall prepare and make, at least 10 days before every Annual Meeting
or special meeting of stockholders, a complete list of the stockholders entitled
to vote at the meeting, arranged in alphabetical order, and showing the address
of each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the hour, date and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 10. Presiding Officer. The Chairman of the Board, if one is
elected, or if not elected or in his or her absence, the Chief Executive
Officer, shall preside at all Annual Meetings or special meetings of
stockholders and shall have the power, among other things, to adjourn such
meeting at any time and from time to time, subject to Sections 5 and 6 of this
Article I. The order of business and all other matters of procedure at any
meeting of the stockholders shall be determined by the presiding officer.
SECTION 11. Voting Procedures and Inspectors of Elections. The
Corporation shall, in advance of any meeting of stockholders, appoint one or
more inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is able to act at
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a meeting of stockholders, the presiding officer shall appoint one or more
inspectors to act at the meeting. Any inspector may, but need not, be an
officer, employee or agent of the Corporation. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath faithfully
to execute the duties of inspector with strict impartiality and according to the
best of his or her ability. The inspectors shall perform such duties as are
required by the General Corporation Law of the State of Delaware, as amended
from time to time (the "DGCL"), including the counting of all votes and ballots.
The inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors. The presiding
officer may review all determinations made by the inspectors, and in so doing
the presiding officer shall be entitled to exercise his or her sole judgment and
discretion and he or she shall not be bound by any determinations made by the
inspectors. All determinations by the inspectors and, if applicable, the
presiding officer, shall be subject to further review by any court of competent
jurisdiction.
ARTICLE II
Directors
SECTION 1. Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors except as otherwise
provided by the Certificate or required by law.
SECTION 2. Number and Terms. The number of directors of the Corporation
shall be fixed by resolution duly adopted from time to time by the Board of
Directors. The directors shall hold office in the manner provided in the
Certificate.
SECTION 3. Director Nominations. Nominations of candidates for election
as directors of the Corporation at any Annual Meeting may be made only (a) by,
or at the direction of, a majority of the Board of Directors or (b) by any
holder of record (both as of the time notice of such nomination is given by the
stockholder as set forth below and as of the record date for the Annual Meeting
in question) of any shares of the capital stock of the Corporation entitled to
vote at such Annual Meeting who complies with the timing, informational and
other requirements set forth in this Section 3. Any stockholder who has complied
with the timing, informational and other requirements set forth in this Section
3 and who seeks to make such a nomination, or his, her or its representative,
must be present in person at the Annual Meeting. Only persons nominated in
accordance with the procedures set forth in this Section 3 shall be eligible for
election as directors at an Annual Meeting.
Nominations, other than those made by, or at the direction of, the
Board of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation as set forth in this Section 3. For the first
Annual Meeting following the initial public offering of common stock of
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the Corporation, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the later of (i) the 75th day prior to the
scheduled date of such Annual Meeting or (ii) the 15th day following the day on
which public announcement of the date of such Annual Meeting is first made by
the Corporation. For all subsequent Annual Meetings, a stockholder's notice
shall be timely if delivered to, or mailed to and received by, the Corporation
at its principal executive office not less than 75 days nor more than 120 days
prior to the Anniversary Date; provided, however, that in the event the Annual
Meeting is scheduled to be held on a date more than 30 days before the
Anniversary Date or more than 60 days after the Anniversary Date, a
stockholder's notice shall be timely if delivered to, or mailed and received by,
the Corporation at its principal executive office not later than the close of
business on the later of (x) the 75th day prior to the scheduled date of such
Annual Meeting or (y) the 15th day following the day on which public
announcement of the date of such Annual Meeting is first made by the
Corporation.
A stockholder's notice to the Secretary shall set forth as to each
person whom the stockholder proposes to nominate for election or re-election as
a director: (1) the name, age, business address and residence address of such
person, (2) the principal occupation or employment of such person, (3) the class
and number of shares of the Corporation's capital stock which are beneficially
owned by such person on the date of such stockholder notice, and (4) the consent
of each nominee to serve as a director if elected. A stockholder's notice to the
Secretary shall further set forth as to the stockholder giving such notice: (a)
the name and address, as they appear on the Corporation's stock transfer books,
of such stockholder and of the beneficial owners (if any) of the Corporation's
capital stock registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s),
(b) the class and number of shares of the Corporation's capital stock which are
held of record, beneficially owned or represented by proxy by such stockholder
and by any other stockholders known by such stockholder to be supporting such
nominee(s) on the record date for the Annual Meeting in question (if such date
shall then have been made publicly available) and on the date of such
stockholder's notice, and (c) a description of all arrangements or
understandings between such stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3 in any material
respect, then such nomination shall not be considered at the Annual Meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3, the presiding officer of the Annual Meeting shall
determine whether a nomination was made in accordance with such provisions. If
the presiding officer determines that any stockholder nomination was not made in
accordance with the terms of this Section 3 or that the information provided in
a stockholder's notice does not satisfy the informational requirements of this
Section 3 in any material respect,
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then such nomination shall not be considered at the Annual Meeting in question.
If the Board of Directors, a designated committee thereof or the presiding
officer determines that a nomination was made in accordance with the terms of
this Section 3, the presiding officer shall so declare at the Annual Meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of
this Section 3, in the event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 75 days prior
to the Anniversary Date, a stockholder's notice required by this Section 3 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if such notice shall be delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the 15th day following the day on which such
public announcement is first made by the Corporation.
No person shall be elected by the stockholders as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section. Election of directors at an Annual Meeting need not be by written
ballot, unless otherwise provided by the Board of Directors or presiding officer
at such Annual Meeting. If written ballots are to be used, ballots bearing the
names of all the persons who have been nominated for election as directors at
the Annual Meeting in accordance with the procedures set forth in this Section
shall be provided for use at the Annual Meeting.
SECTION 4. Qualification. No director need be a stockholder of the
Corporation.
SECTION 5. Vacancies. Subject to the rights, if any, of the holders of
any series of preferred stock to elect directors and to fill vacancies in the
Board of Directors relating thereto, any and all vacancies in the Board of
Directors, however occurring, including, without limitation, by reason of an
increase in size of the Board of Directors, or the death, resignation,
disqualification or removal of a director, shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office, even
if less than a quorum of the Board of Directors. Any director appointed in
accordance with the preceding sentence shall hold office until the next annual
meeting of stockholders and until such director's successor shall have been duly
elected and qualified or until his or her earlier resignation or removal. No
decrease in the number of directors shall shorten the term of any incumbent
director. In the event of a vacancy in the Board of Directors, the remaining
directors, except as otherwise provided by law, may exercise the powers of the
full Board of Directors until the vacancy is filled.
SECTION 6. Removal. Directors may be removed from office in the manner
provided in the Certificate.
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SECTION 7. Resignation. A director may resign at any time by giving
written notice to the Chairman of the Board, if one is elected, the Chief
Executive Officer or the Secretary. A resignation shall be effective upon
receipt, unless the resignation otherwise provides.
SECTION 8. Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 8, on the same
date and at the same place as the Annual Meeting following the close of such
meeting of stockholders. Other regular meetings of the Board of Directors may be
held at such hour, date and place as the Board of Directors may by resolution
from time to time determine without notice other than such resolution.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called, orally or in writing, by or at the request of a majority of the
directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer. The person calling any such special meeting of the Board of Directors
may fix the hour, date and place thereof.
SECTION 10. Notice of Meetings. Notice of the hour, date and place of
all special meetings of the Board of Directors shall be given to each director
by the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one is
elected, or the Chief Executive Officer or such other officer designated by the
Chairman of the Board, if one is elected, or the Chief Executive Officer. Notice
of any special meeting of the Board of Directors shall be given to each director
in person, by telephone, or by facsimile, telex, telecopy, telegram, or other
written form of electronic communication, sent to his or her business or home
address, at least 24 hours in advance of the meeting, or by written notice
mailed to his or her business or home address, at least 48 hours in advance of
the meeting. Such notice shall be deemed to be delivered when hand delivered to
such address, read to such director by telephone, deposited in the mail so
addressed, with postage thereon prepaid if mailed, dispatched or transmitted if
faxed, telexed or telecopied, or when delivered to the telegraph company if sent
by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting adjourned for less than 30 days or of
the business to be transacted thereat, other than an announcement at the meeting
at which such adjournment is taken of the hour, date and place to which the
meeting is adjourned.
A written waiver of notice signed before or after a meeting by a
director and filed with the records of the meeting shall be deemed to be
equivalent to notice of the meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director
attends a meeting for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because such meeting is not lawfully
called or convened. Except as otherwise required by law, by the Certificate or
by these By-laws, neither the business to be
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transacted at, nor the purpose of, any meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
SECTION 11. Quorum. At any meeting of the Board of Directors, a
majority of the directors then in office shall constitute a quorum for the
transaction of business, but if less than a quorum is present at a meeting, a
majority of the directors present may adjourn the meeting from time to time, and
the meeting may be held as adjourned without further notice, except as provided
in Section 10 of this Article II. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
SECTION 12. Action at Meeting. At any meeting of the Board of Directors
at which a quorum is present, a majority of the directors present may take any
action on behalf of the Board of Directors, unless otherwise required by law, by
the Certificate or by these By-laws.
SECTION 13. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting if
all members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
SECTION 14. Manner of Participation. Directors may participate in
meetings of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these By-laws.
SECTION 15. Committees. The Board of Directors, by vote of a majority
of the directors then in office, may elect from its number one or more
committees, including, without limitation, an Executive Committee, a
Compensation Committee, a Stock Option Committee and an Audit Committee, and may
delegate thereto some or all of its powers except those which by law, by the
Certificate or by these By-laws may not be delegated. Except as the Board of
Directors may otherwise determine, any such committee may make rules for the
conduct of its business, but unless otherwise provided by the Board of Directors
or in such rules, its business shall be conducted so far as possible in the same
manner as is provided by these By-laws for the Board of Directors. All members
of such committees shall hold such offices at the pleasure of the Board of
Directors. The Board of Directors may abolish any such committee at any time.
Any committee to which the Board of Directors delegates any of its powers or
duties shall keep records of its meetings and shall report its action to the
Board of Directors. The Board of Directors shall have power to rescind any
action of any committee, to the extent permitted by law, but no such rescission
shall have retroactive effect.
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SECTION 16. Compensation of Directors. Directors shall receive such
compensation for their services as shall be determined by a majority of the
Board of Directors provided that directors who are serving the Corporation as
employees and who receive compensation for their services as such, shall not
receive any salary or other compensation for their services as directors of the
Corporation.
ARTICLE III
Officers
SECTION 1. Enumeration. The officers of the Corporation shall consist
of a Chief Executive Officer, a Treasurer, a Secretary and such other officers,
including, without limitation, a Chairman of the Board of Directors, a
President, a Chief Financial Officer, a Chief Operating Officer, a General
Counsel and one or more Vice Presidents (including Executive Vice Presidents or
Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and
Assistant Secretaries, as the Board of Directors may determine.
SECTION 2. Election. At the regular annual meeting of the Board
following the Annual Meeting of stockholders, the Board of Directors shall elect
the Chief Executive Officer, the Treasurer and the Secretary. Other officers may
be elected by the Board of Directors at such regular annual meeting of the Board
of Directors or at any other regular or special meeting.
SECTION 3. Qualification. No officer need be a stockholder or a
director. Any person may occupy more than one office of the Corporation at any
time. Any officer may be required by the Board of Directors to give bond for the
faithful performance of his or her duties in such amount and with such sureties
as the Board of Directors may determine.
SECTION 4. Tenure. Except as otherwise provided by the Certificate or
by these Bylaws, each of the officers of the Corporation shall hold office until
the regular annual meeting of the Board of Directors following the next Annual
Meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
SECTION 5. Resignation. Any officer may resign by delivering his or her
written resignation to the Corporation addressed to the Chief Executive Officer
or the Secretary, and such resignation shall be effective upon receipt unless it
is specified to be effective at some other time or upon the happening of some
other event.
SECTION 6. Removal. Except as otherwise provided by law, the Board of
Directors may remove any officer with or without cause by the affirmative vote
of a majority of the directors then in office.
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SECTION 7. Absence or Disability. In the event of the absence or
disability of any officer, the Board of Directors may designate another officer
to act temporarily in place of such absent or disabled officer.
SECTION 8. Vacancies. Any vacancy in any office may be filled for the
unexpired portion of the term by the Board of Directors.
SECTION 9. Chief Executive Officer. The Chief Executive Officer shall,
subject to the direction of the Board of Directors, have general supervision and
control of the Corporation's business. If there is no Chairman of the Board or
if he or she is absent, the Chief Executive Officer shall preside, when present,
at all meetings of stockholders and of the Board of Directors. The Chief
Executive Officer shall have such other powers and perform such other duties as
the Board of Directors may from time to time designate.
SECTION 10. Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and of
the Board of Directors. The Chairman of the Board shall have such other powers
and shall perform such other duties as the Board of Directors may from time to
time designate.
SECTION 11. President. The President, if one is elected, shall have
such powers and shall perform such duties as the Board of Directors may from
time to time designate.
SECTION 12. Vice Presidents and Assistant Vice Presidents. Any Vice
President (including any Executive Vice President or Senior Vice President) and
any Assistant Vice President shall have such powers and shall perform such
duties as the Board of Directors or the Chief Executive Officer may from time to
time designate.
SECTION 13. Treasurer and Assistant Treasurers. The Treasurer shall,
subject to the direction of the Board of Directors and except as the Board of
Directors or the Chief Executive Officer may otherwise provide, have general
charge of the financial affairs of the Corporation and shall cause to be kept
accurate books of account. The Treasurer shall have custody of all funds,
securities, and valuable documents of the Corporation. He or she shall have such
other duties and powers as may be designated from time to time by the Board of
Directors or the Chief Executive Officer.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 14. Secretary and Assistant Secretaries. The Secretary shall
record all the proceedings of the meetings of the stockholders and the Board of
Directors (including committees of the Board) in books kept for that purpose. In
his or her absence from any such meeting, a temporary secretary chosen at the
meeting shall record the proceedings thereof. The Secretary
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shall have charge of the stock ledger (which may, however, be kept by any
transfer or other agent of the Corporation). The Secretary shall have custody of
the seal of the Corporation, and the Secretary, or an Assistant Secretary, shall
have authority to affix it to any instrument requiring it, and, when so affixed,
the seal may be attested by his or her signature or that of an Assistant
Secretary. The Secretary shall have such other duties and powers as may be
designated from time to time by the Board of Directors or the Chief Executive
Officer. In the absence of the Secretary, any Assistant Secretary may perform
his or her duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties
as the Board of Directors or the Chief Executive Officer may from time to time
designate.
SECTION 15. Other Powers and Duties. Subject to these By-laws and to
such limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such powers and duties as from
time to time may be conferred by the Board of Directors or the Chief Executive
Officer.
ARTICLE IV
Capital Stock
SECTION 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate of the capital stock of the Corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the Chairman of the Board of Directors, the Chief Executive Officer or
a Vice President and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. The Corporation seal and the signatures by
the Corporation's officers, the transfer agent or the registrar may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on such certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he or she
were such officer, transfer agent or registrar at the time of its issue. Every
certificate for shares of stock which are subject to any restriction on transfer
and every certificate issued when the Corporation is authorized to issue more
than one class or series of stock shall contain such legend with respect thereto
as is required by law.
SECTION 2. Transfers. Subject to any restrictions on transfer and
unless otherwise provided by the Board of Directors, shares of stock may be
transferred only on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or accompanied by a written assignment or power of attorney properly
executed, with transfer stamps (if necessary) affixed, and with such proof of
the authenticity of signature as the Corporation or its transfer agent may
reasonably require.
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SECTION 3. Record Holders. Except as may otherwise be required by law,
by the Certificate or by these By-laws, the Corporation shall be entitled to
treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
Corporation in accordance with the requirements of these By-laws.
It shall be the duty of each stockholder to notify the Corporation of
his or her post office address and any changes thereto.
SECTION 4. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than sixty nor less than
ten days before the date of such meeting and (b) in the case of any other
action, shall not be more than sixty days prior to such other action. If no
record date is fixed: (i) the record date for determining stockholders entitled
to notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (ii) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
ARTICLE V
Indemnification
SECTION 1. Definitions. For purposes of this Article:
(a) "Director" means any person who serves or has served the
Corporation as a director on the Board of Directors of the Corporation;
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(b) "Officer" means any person who serves or has served the Corporation
as an officer appointed by the Board of Directors of the Corporation;
(c) "Non-Officer Employee" means any person who serves or has served as
an employee of the Corporation, but who is not or was not a Director or Officer;
(d) "Proceeding" means any threatened, pending or completed action,
suit, arbitration, alternate dispute resolution mechanism, inquiry,
investigation, administrative hearing or other proceeding, whether civil,
criminal, administrative, arbitrative or investigative;
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of expert witnesses, private investigators and
professional advisors (including, without limitation, accountants and investment
bankers), travel expenses, duplicating costs, printing and binding costs, costs
of preparation of demonstrative evidence and other courtroom presentation aids
and devices, costs incurred in connection with document review, organization,
imaging and computerization, telephone charges, postage, delivery service fees,
and all other disbursements, costs or expenses of the type customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, being or preparing to be a witness in, settling or otherwise
participating in, a Proceeding;
(f) "Corporate Status" describes the status of a person who (i) in the
case of a Director, is or was a director of the Corporation and is or was acting
in such capacity, (ii) in the case of an Officer, is or was an officer, employee
or agent of the Corporation or is or was a director, officer, employee, trustee
or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such Officer is or was serving at the
request of the Corporation, and (iii) in the case of a Non-Officer Employee, is
or was an employee of the Corporation or is or was a director, officer,
employee, trustee or agent of any other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise which such Non-Officer Employee
is or was serving at the request of the Corporation; and
(g) "Disinterested Director" means, with respect to each Proceeding in
respect of which indemnification is sought hereunder, a Director of the
Corporation who is not and was not a party to such Proceeding.
SECTION 2. Indemnification of Directors and Officers. Subject to the
operation of Section 4 of this Article V, each Director and Officer shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than such law
permitted the Corporation to provide prior to such amendment) against any and
all Expenses, judgments, penalties, fines and amounts reasonably paid in
settlement that are incurred by such Director or Officer or on such Director or
Officer's behalf in connection with any threatened, pending or
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completed Proceeding or any claim, issue or matter therein, which such Director
or Officer is, or is threatened to be made, a party to or participant in by
reason of such Director or Officer's Corporate Status, if such Director or
Officer acted in good faith and in a manner such Director or Officer reasonably
believed to be in or not opposed to the best interests of the Corporation and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The rights of indemnification provided by this
Section 2 shall continue as to a Director or Officer after he or she has ceased
to be a Director or Officer and shall inure to the benefit of his or her heirs,
executors, administrators and personal representatives. Notwithstanding the
foregoing, the Corporation shall indemnify any Director or Officer seeking
indemnification in connection with a Proceeding initiated by such Director or
Officer only if such Proceeding was authorized by the Board of Directors of the
Corporation.
SECTION 3. Indemnification of Non-Officer Employees. Subject to the
operation of Section 4 of this Article V, each Non-Officer Employee may, in the
discretion of the Board of Directors of the Corporation, be indemnified by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against any or all Expenses, judgments, penalties,
fines and amounts reasonably paid in settlement that are incurred by such
Non-Officer Employee or on such Non-Officer Employee's behalf in connection with
any threatened, pending or completed Proceeding or any claim, issue or matter
therein, which such Non-Officer Employee is, or is threatened to be made, a
party to or participant in by reason of such Non-Officer Employee's Corporate
Status, if such Non-Officer Employee acted in good faith and in a manner such
Non-Officer Employee reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The rights of
indemnification provided by this Section 3 shall continue as to a Non-Officer
Employee after he or she has ceased to be a Non-Officer Employee and shall inure
to the benefit of his or her heirs, personal representatives, executors and
administrators. Notwithstanding the foregoing, the Corporation may indemnify any
Non-Officer Employee seeking indemnification in connection with a Proceeding
initiated by such Non-Officer Employee only if such Proceeding was authorized by
the Board of Directors of the Corporation.
SECTION 4. Good Faith. No indemnification shall be provided pursuant to
this Article V to a Director, to an Officer or to a Non-Officer Employee with
respect to a matter as to which such person shall have been finally adjudicated
in any Proceeding (i) not to have acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation and (ii) with respect to any criminal Proceeding, to have had
reasonable cause to believe his or her conduct was unlawful. In the event that a
Proceeding is compromised or settled prior to final adjudication so as to impose
any liability or obligation upon a Director, an Officer or a Non-Officer
Employee, no indemnification shall be provided pursuant to this Article V to
said Director, Officer or Non-Officer Employee with respect to a matter if there
be a reasonable good faith determination that with respect to such matter such
person did not act in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best
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interests of the Corporation, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his or her conduct was unlawful. The
determination contemplated by the preceding sentence shall be made (a) by a
majority vote of the Disinterested Directors, even though less than a quorum of
the Board of Directors, (b) by a committee of Disinterested Directors designated
by a majority vote of Disinterested Directors, even though less than a quorum of
the Board of Directors, (c) if there are no such Disinterested Directors, or if
a majority of Disinterested Directors so direct, by independent counsel in a
written opinion, or (d) by the stockholders of the Corporation.
SECTION 5. Advancement of Expenses to Directors and Officers Prior to
Final Disposition. The Corporation shall advance all Expenses incurred by or on
behalf of any Director or Officer in connection with any Proceeding in which
such Director or Officer is involved by reason of such Director or Officer's
Corporate Status within ten days after the receipt by the Corporation of a
written statement from such Director or Officer requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Director or Officer and shall be preceded or accompanied by an
undertaking by or on behalf of such Director or Officer to repay any Expenses so
advanced if it shall ultimately be determined that such Director or Officer is
not entitled to be indemnified against such Expenses.
SECTION 6. Advancement of Expenses to Non-Officer Employees Prior to
Final Disposition. The Corporation may, in the discretion of the Board of
Directors of the Corporation, advance any or all Expenses incurred by or on
behalf of any Non-Officer Employee in connection with any Proceeding in which
such Non-Officer Employee is involved by reason of such Non-Officer Employee's
Corporate Status upon the receipt by the Corporation of a statement or
statements from such Non-Officer Employee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by such Non-Officer Employee and shall be preceded or accompanied by an
undertaking by or on behalf of such Non-Officer Employee to repay any Expenses
so advanced if it shall ultimately be determined that such Non-Officer Employee
is not entitled to be indemnified against such Expenses.
SECTION 7. Contractual Nature of Rights. The foregoing provisions of
this Article V shall be deemed to be a contract between the Corporation and each
Director and Officer who serves in such capacity at any time while this Article
V is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any Proceeding theretofore or thereafter brought based
in whole or in part upon any such state of facts. If a claim for indemnification
or advancement of Expenses hereunder by a Director or Officer is not paid in
full by the Corporation within (a) 60 days after the Corporation's receipt of a
written claim for indemnification, or (b) 10 days after the Corporation's
receipt of documentation of Expenses and the required undertaking, such Director
or Officer may at any time thereafter bring suit against the Corporation to
recover the unpaid
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amount of the claim, and if successful in whole or in part, such Director or
Officer shall also be entitled to be paid the expenses of prosecuting such
claim. The failure of the Corporation (including its Board of Directors or any
committee thereof, independent legal counsel, or stockholders) to make a
determination concerning the permissibility of such indemnification or
advancement of Expenses under this Article V shall not be a defense to the
action and shall not create a presumption that such indemnification or
advancement is not permissible.
SECTION 8. Non-Exclusivity of Rights. The rights to indemnification and
advancement of Expenses set forth in this Article V shall not be exclusive of
any other right which any Director, Officer or Non-Officer Employee may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
or these By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
SECTION 9. Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, Officer or Non-Officer Employee
against any liability of any character asserted against or incurred by the
Corporation or any such Director, Officer or Non-Officer Employee, or arising
out of any such person's Corporate Status, whether or not the Corporation would
have the power to indemnify such person against such liability under the DGCL or
the provisions of this Article V.
ARTICLE VI
Miscellaneous Provisions
SECTION 1. Fiscal Year. Except as otherwise determined by the Board of
Directors, the fiscal year of the Corporation shall end on the last day of
December of each year.
SECTION 2. Seal. The Board of Directors shall have power to adopt and
alter the seal of the Corporation.
SECTION 3. Execution of Instruments. All deeds, leases, transfers,
contracts, bonds, notes and other obligations to be entered into by the
Corporation in the ordinary course of its business without director action may
be executed on behalf of the Corporation by the Chairman of the Board, if one is
elected, the Chief Executive Officer or the Treasurer or any other officer,
employee or agent of the Corporation as the Board of Directors or Executive
Committee may authorize.
SECTION 4. Voting of Securities. Unless the Board of Directors
otherwise provides, the Chairman of the Board, if one is elected, the Chief
Executive Officer or the Treasurer may waive notice of and act on behalf of this
Corporation, or appoint another person or persons to act as
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proxy or attorney in fact for this Corporation with or without discretionary
power and/or power of substitution, at any meeting of stockholders or
shareholders of any other corporation or organization, any of whose securities
are held by this Corporation.
SECTION 5. Resident Agent. The Board of Directors may appoint a
resident agent upon whom legal process may be served in any action or proceeding
against the Corporation.
SECTION 6. Corporate Records. The original or attested copies of the
Certificate, Bylaws and records of all meetings of the incorporators,
stockholders and the Board of Directors and the stock transfer books, which
shall contain the names of all stockholders, their record addresses and the
amount of stock held by each, may be kept outside the State of Delaware and
shall be kept at the principal office of the Corporation, at the office of its
counsel or at an office of its transfer agent or at such other place or places
as may be designated from time to time by the Board of Directors.
SECTION 7. Amendment of By-laws.
(a) Amendment by Directors. Except as provided otherwise by law, these
By-laws may be amended or repealed by the Board of Directors by the affirmative
vote of a majority of the directors then in office.
(b) Amendment by Stockholders. These By-laws may be amended or repealed
at any Annual Meeting of stockholders, or special meeting of stockholders called
for such purpose, by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Adopted October __, 1997 and effective as of November __, 1997.
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EXHIBIT 10.13
AFFILIATED MANAGERS GROUP, INC.
1995 INCENTIVE STOCK PLAN
AS AMENDED MAY __, 1997
1. PURPOSE
This Stock Option and Grant Plan (the "Plan") is intended as a performance
incentive for officers, employees, consultants and other key persons of
Affiliated Managers Group, Inc. (the "Company") or its Subsidiaries (as
hereinafter defined) to enable the persons to whom options are granted (the
"Optionees") or to whom shares of Company Stock (as defined in Section 3(a)) are
granted or sold (the "Grantees") to acquire or increase a proprietary interest
in the success of the Company. The Company intends that this purpose will be
effected by the granting of "incentive stock options" ("Incentive Options") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), nonqualified stock options ("Nonqualified Options") and outright
issuances of Company Stock under the Plan. The term "Subsidiaries" includes any
corporations in which stock possessing fifty percent or more of the total
combined voting power of all classes of stock is owned directly or indirectly by
the Company.
2. OPTIONS AND STOCK TO BE ISSUED AND ADMINISTRATION
(a) Options granted under the Plan may be either Incentive Options
or Nonqualified Options, and shall be designated as such at the time of grant.
To the extent that any option intended to be an Incentive Option shall fail to
qualify as an "incentive stock option" under the Code, such option shall be
deemed to be a Nonqualified Option. Outright issuances of Company Stock under
the Plan and/or Company Stock issued upon exercise of options may be subject to
the terms and conditions of stock restriction provisions, including vesting and
repurchase provisions, which provisions may be part of the Optionee's option
agreement or may be part of a separate agreement. Stock restriction provisions
shall be in such form as the Committee (as such term is defined below) shall
from time to time deem appropriate. Stock restriction provisions need not be
identical.
(b) The Plan shall be administered by a committee (the "Committee")
of not less than two directors of the Company appointed by the Board of
Directors of the Company (the "Board of Directors") or, if no such committee is
then in existence, by the Board of Directors which shall then be included in the
defined term "Committee" for all purposes of the Plan. It is the intention of
the Company that each member of the Committee shall be a "non-employee director"
as that term is defined and interpreted pursuant to Rule 16b-3 or any successor
rule thereto promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Action by the Committee shall require the affirmative vote
of a majority of all its members.
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(c) Subject to the terms and conditions of the Plan, the Committee
shall have the power:
(i) To determine from time to time the options or stock to be
issued to eligible persons under the Plan and to prescribe the terms and
provisions (which need not be identical) of options or stock issued under
the Plan to such persons;
(ii) To construe and interpret the Plan and issuances
thereunder and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, in any option agreement or stock restriction agreement, or in any
related agreements, in the manner and to the extent it shall deem
necessary or expedient to make the Plan fully effective with all decisions
and determinations by the Committee in the exercise of this power to be
final and binding upon the Company, Optionees and Grantees; and
(iii) Generally, to exercise such powers and to perform such
acts as are deemed necessary or expedient to promote the best interests of
the Company with respect to the Plan.
3. STOCK
(a) The stock issued under the Plan, or subject to the options
granted under the Plan, shall be shares of the Company's authorized but unissued
Common Stock, par value $.01 per share (the "Common Stock") or shares of the
Company's authorized but unissued Class A Voting Convertible Preferred Stock,
par value $.01 per share (the "Class A Stock" and, together with the Common
Stock the "Company Stock"), as determined in the discretion of the Board of
Directors or the Committee, as applicable. The total number of shares that may
be issued under the Plan (whether pursuant to outright issuances or options)
shall not exceed an aggregate of that number of shares of Company Stock as is
equal to or convertible into 8,500 shares of Common Stock, which may include up
to 1,950 shares of Class A Stock. Such numbers shall be subject to adjustment as
provided in Section 9 hereof.
(b) Shares purchased upon the exercise of options granted under the
Plan or upon outright issuances of Company Stock may be subject to limitations,
such as limitations on transfer, repurchase provisions, and the like, as set
forth in the relevant option agreement, stock restriction agreement or in any
other agreement to which the Optionee or Grantee is subject.
(c) Whenever any outstanding option under the Plan expires, is
canceled or is otherwise terminated (other than by exercise), or whenever any
shares of Company Stock issued under the Plan are repurchased, the shares of
Company Stock allocable to the unexercised portion of such Option or the
repurchased shares of Company Stock, as the case may be, may again be the
subject of options or issuances under the Plan.
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4. ELIGIBILITY
(a) Incentive Options may be granted only to officers or other
full-time employees of the Company or its Subsidiaries, including members of the
Board of Directors who are also full-time employees of the Company or its
Subsidiaries. Nonqualified Options and shares of Company Stock may be granted or
issued to officers or other employees of the Company or its Subsidiaries,
including members of the Board of Directors who are also employees of the
Company or its Subsidiaries, and to consultants and other key persons who
provide services to the Company or its Subsidiaries (regardless of whether they
are also employees).
(b) No person shall be eligible to receive any Incentive Option
under the Plan if, at the date of grant, such person beneficially owns stock
representing in excess of ten percent of the voting power of all outstanding
capital stock of the Company or its parent or a Subsidiary, unless
notwithstanding anything in this Plan to the contrary (i) the purchase price for
stock subject to such option is at least 110% of the fair market value of such
stock at the time of the grant determined as provided below and (ii) the option
by its terms is not exercisable more than five years from the date of grant
thereof.
(c) Notwithstanding any other provision of the Plan, the aggregate
fair market value (determined as of the time the option is granted) of the stock
with respect to which Incentive Options are exercisable for the first time by
any individual during any calendar year (under all plans of the Company and its
parent and Subsidiaries) shall not exceed $100,000. Any option granted under the
Plan in excess of the foregoing limitation shall be deemed a Nonqualified
Option.
5. TERMS OF THE OPTION AGREEMENTS
Subject to the terms and conditions of the Plan, each option agreement
shall contain such provisions as the Committee shall from time to time deem
appropriate. Option agreements need not be identical, but each option agreement
by appropriate language shall include the substance of all of the following
provisions:
(a) Expiration; Termination of Employment. Notwithstanding any other
provision of the Plan or of any option agreement, each option shall expire on
the date specified in the option agreement, which date in the case of any
Incentive Option shall not be later than the tenth anniversary of the date on
which the option was granted (subject to Section 4(b)). The Committee may in its
discretion specify, at the time an option is granted under the Plan and subject
to the agreement of the applicable Optionee thereafter, a period or periods
within which such option may be exercised following retirement of the Optionee
or termination of the Optionee's employment with the Company or Subsidiaries; if
any, for any reason, or upon the happening of any other event.
3
<PAGE> 4
(b) Minimum Shares Exercisable. Option agreements may in the
discretion of the Committee set forth shares with respect to which an option may
be exercised at any one time.
(c) Options may be exercisable in such installments (which need not
be equal) and at such time or times (including upon the occurrence of such event
or events) as may be designated by the Committee. To the extent not exercised,
installments shall accumulate and be exercisable, in whole or in part, at any
time after becoming exercisable, but not later than the date the option expires.
(d) Purchase Price. The purchase price per share of Company Stock
subject to each option shall be determined by the Committee; provided, however,
that the purchase price per share subject to each Incentive Option shall be not
less than the fair market value of the relevant stock on the date such Incentive
Option is granted. For the purposes of the Plan, the fair market value of the
shares subject to options granted hereunder shall be determined in good faith by
the Committee; provided, however, that (i) if the Common Stock is admitted to
quotation on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") on the date the option is granted, the fair market value of
each share of Common Stock subject to such Incentive Option shall not be less
than the average of the highest bid and lowest asked prices of the Common Stock
on NASDAQ reported for such date, or (ii) if the Common Stock is admitted to
trading on a national securities exchange or the NASDAQ National Market System
on the date the option is granted, the fair market value of each share of Common
Stock subject to such Incentive Options shall not be less than the closing price
reported for the Common Stock on such exchange or system for such date or, if no
sales were reported for such date, for the last date preceding such date for
which a sale was reported and provided, further that in the case of (i) or (ii)
above, the fair market value of each share of Class A Stock shall be determined
on an "as converted basis" by reference to the fair market value (as determined
pursuant to clause (i) or (ii), as applicable) of the Common Stock into which it
is convertible, with appropriate adjustments reflect the differences between
Class A Stock and Common Stock, as determined by the Committee.
(e) Rights of Optionees. No Optionee shall be deemed for any purpose
to be the owner of any shares of Company Stock subject to any option unless and
until (i) the option shall have been exercised pursuant to the terms thereof,
(ii) all requirements under applicable law and regulations shall have been
complied with to the satisfaction of the Company, (iii) the Company shall have
issued and delivered the shares to the Optionee, and (iv) the Optionee's name
shall have been entered as a stockholder of record on the books of the Company.
Thereupon, the Optionee shall have full voting (if applicable), dividend and
other ownership rights with respect to such shares of Company Stock.
(f) Transfer. No option granted hereunder shall be transferable by
the Optionee other than by will or by the laws of descent and distribution, and
such option may be exercised during the Optionee's lifetime only by the
Optionee, or his or her guardian or legal representative.
4
<PAGE> 5
6. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
(a) Any option granted under the Plan may be exercised by the
Optionee in whole or, subject to Section 5(b) hereof, in part by delivering to
the Company on any business day a written notice specifying the number of shares
of Company Stock the Optionee then desires to purchase (the "Notice").
(b) Payment for the shares of Company Stock purchased pursuant to
the exercise of an option shall be made either: (i) in cash, or by certified or
bank check or other payment acceptable to the Company, equal to the option
exercise price for the number of shares specified in the Notice (the "Total
Option Price"); (ii) if authorized by the applicable option agreement and if
permitted by law, by delivery of shares of Company Stock that the optionee has
held for at least six months and that are free of any transfer restrictions
having a fair market value, determined by reference to the provisions of Section
5(d) hereof, equal to or less than the Total Option Price, plus cash in an
amount equal to the excess, if any, of the Total Option Price over the fair
market value of such shares of Company Stock; (iii) if authorized by the
applicable option agreement, by delivery of a promissory note, in form and
substance acceptable to the Committee, in a principal amount equal to the Total
Option Price; or (iv) if any event contemplated in Section 5(a)(i) or (ii) has
occurred, by the Optionee delivering the Notice to the Company together with
irrevocable instructions to a broker to promptly deliver the Total Option Price
to the Company in cash or by other method of payment acceptable to the Company;
provided, however, that the Optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity or other agreements as
the Company shall prescribe as a condition of payment under this clause (iv).
(c) The delivery of certificates representing shares of Company
Stock to be purchased pursuant to the exercise of an option will be contingent
upon the Company's receipt of the Total Option Price and of any written
representations from the Optionee required by the Committee, and the fulfillment
of any other requirements contained in the option agreement or applicable
provisions of law.
7. STOCK AWARDS
(a) The Committee may grant stock to any employee or consultant of
the Company or a Subsidiary. A grant of restricted stock is a grant entitling
the Grantee to acquire, at a purchase price determined by the Committee, shares
of Company Stock subject to such restrictions and conditions as the Committee
may determine at the time of grant ("Restricted Stock").
(b) A Grantee shall have no rights with respect to a grant of
Restricted Stock unless such Grantee shall have accepted the grant by making
payment to the Company, in a form acceptable to the Committee, in an amount
equal to the specified purchase price of the Restricted Stock covered by the
Grant, and by executing and delivery to the Company a written instrument that
sets forth the terms and conditions of the Restricted Stock covered by the
grant, in such form
5
<PAGE> 6
as the Committee shall determine with respect to such grant. Unless the
Committee shall otherwise determine, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company until such shares
are no longer subject to restrictions.
(c) Upon complying with Section 7(b) above, a Grantee who received
Restricted Stock shall have all the rights of a shareholder with respect to the
Restricted Stock including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described herein and subject to such other conditions contained in the written
instrument evidencing the Restricted Stock grant.
(d) Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the written instrument evidencing the Restricted Stock
grant. Except as otherwise specifically provided in the written instrument
evidencing the Restricted Stock grant, in the event of termination of employment
by the Company and its Subsidiaries for any reason (including death, disability,
normal retirement and with or without cause), the Company shall have the right,
at the discretion of the Committee, to repurchase shares of Restricted Stock
with respect to which conditions have not lapsed, at their purchase price, or to
require forfeiture of such shares to the Company if acquired at no cost, from
the participant or the participant's legal representative.
(e) The Committee at the time of grant shall specify the date or
dates and/or the attainment of pre-established performance goals, objectives and
other conditions on which the non-transferability of the Restricted Stock and
the Company's right of repurchase or forfeiture thereof shall lapse. Subsequent
to such date or dates and/or the attainment of such pre-established performance
goals, objectives and other conditions, the share on which all restrictions have
lapsed shall no longer be Restricted Stock and shall be deemed "vested."
(f) The Committee may, in its sole discretion, grant (or sell at a
purchase price determined by the Committee) to any employees of the Company or
any Subsidiary shares of Stock free of any restrictions under the Plan
("Unrestricted Stock"). Subject to applicable laws, shares of Unrestricted Stock
may be granted or sold as described in the preceding sentence in respect of any
valid consideration. The right to receive either Restricted Stock or
Unrestricted Stock may not be sold, assigned, transferred, pledged or otherwise
encumbered, other than by will or the laws of descent and distribution.
8. NON-TERMINATION EVENTS
For the purpose of the plan, an approved leave of absence for military
service or sickness, or for any other purpose approved by the Company, shall not
be deemed a termination of the Optionee's employment with the Company or its
Subsidiaries if the employee's right to re-employment is guaranteed either by a
statute or by contract or under the policy pursuant to which the leave of
absence was granted or if the Committee otherwise so provides.
6
<PAGE> 7
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
(a) If the shares of the Company's Common Stock and/or Class A Stock
as a whole are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company, whether through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kind of shares subject to the Plan, and in the
number, kind, and per share exercise price of shares subject to unexercised
options or portions thereof granted prior to any such change. In the event of
any such adjustment in an outstanding option, the Optionee thereafter shall have
the right to purchase the number of shares under such option at the per share
price, as so adjusted, which the Optionee could purchase at the total purchase
price applicable to the option immediately prior to such adjustment.
(b) Adjustments under this Section 9 shall be determined by the
Committee and such determinations shall be conclusive. The Committee shall have
the discretion and power in any such event to determine and to make effective
provision for acceleration of the time or times at which any option or portion
thereof shall become exercisable.
10. EFFECT OF CERTAIN TRANSACTIONS
In the case of (i) the dissolution or liquidation of the Company, (ii) a
merger, reorganization or consolidation in which the Company is acquired by
another person or entity (other than a holding company formed by the Company),
(iii) the sale of all or substantially all of the assets of the Company to
another person or entity, or (iv) the sale of all of the stock of the Company to
an unrelated person or entity, the Plan and the options issued hereunder shall
terminate upon the effectiveness of any such transaction or event, unless
provision is made in connection with such transaction for the assumption of
options theretofore granted, or the substitution for such options of new options
of the successor entity or parent thereof, with appropriate adjustment as to the
number and kind of shares and the per share exercise prices, as provided in
Section 9. In the event of such termination, each Optionee shall be permitted to
exercise for a period of at least fifteen days prior to the date of such
termination (i) all options held by such Optionee which are then exercisable,
and (ii) such number of additional options held by such Optionee, to the extent
such options are not then exercisable, as may be specified in the relevant
option agreement, if any.
11. TAX WITHHOLDING
Each Optionee and Grantee shall, no later than the date as of which the
value of any option or stock issued hereunder or of any Company Stock issued
upon the exercise or such option first becomes includible in the gross income of
the Optionee or Grantee for federal income tax purposes (the "Tax Date"), pay to
the Company, or make arrangements satisfactory to the Company regarding payment
of any federal, state, or local taxes of any kind required by law to be withheld
with respect to such income.
7
<PAGE> 8
12. AMENDMENT OF THE PLAN
The Board of Directors may discontinue the Plan or amend the Plan at any
time, and from time to time, subject to any required regulatory approval and the
limitation that, except as provided in the second sentence of Section 5(a) and
in Sections 9 and 10 hereof, no amendment shall be effective unless approved by
the stockholders of the Company in accordance with applicable law and
regulations at an annual or special meeting held before or after the date of
adoption of such amendment, where such amendment will:
(a) increase the number of shares of Company Stock which may be
issued, or as to which Options may be granted, under the Plan; or
(b) change in substance Section 4 hereof relating to eligibility to
participate in the Plan.
Except as provided in the second sentence of Section 5(a) and in Sections
9 and 10 hereof, rights and obligations under any option or stock issued before
any amendment of the Plan shall not be altered or impaired by such amendment,
except with the consent of the Optionee or Grantee, as the case may be.
13. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock or stock options otherwise than under
the Plan, and such arrangements may be either applicable generally or only in
specific cases. Neither the Plan nor any grant of stock or any option hereunder
shall be deemed to confer upon any Grantee, Optionee or other employee any right
to continued employment with the Company or its Subsidiaries or interfere in any
way with any right of the Company or any of its Subsidiaries to terminate the
employment of an Optionee, Grantee or other employee at any time.
14. GOVERNMENT AND OTHER REGULATIONS; GOVERNING LAW
(a) The obligation of the Company to deliver shares of Company Stock
issued, and sell and deliver shares of Company Stock with respect to options
granted, under the Plan shall be subject to all applicable laws, rules and
regulations, including all applicable federal and state securities laws, and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Committee.
(b) The Plan shall be governed by Delaware law, except to the extent
that such law is preempted by federal law.
8
<PAGE> 9
15. EFFECTIVE DATE OF PLAN; STOCKHOLDER APPROVAL
The Plan shall become effective upon the date that it is approved by the
Board of Directors of the Company; provided, however, that the Plan shall be
subject to the approval of the Company's stockholders in accordance with
applicable laws and regulations at an annual or special meeting held within
twelve months of such effective date. No options granted under the Plan prior to
such stockholder approval may be exercised until such approval has been
obtained. No options may be granted under the Plan after the tenth anniversary
of the effective date of the Plan.
Adopted as of November 28, 1995
Amended as of May __, 1997
9
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
(in alphabetical order)
WHOLLY OWNED SUBSIDIARIES OF THE REGISTRANT
AMG/TBC Holdings, Inc., a Delaware corporation
AMG Service Corp., a Delaware corporation
AMG Finance Trust, a Massachusetts business trust (through AMG Service Corp.)
The Burridge Group Inc., an Illinois corporation
First Quadrant Corp., a New Jersey corporation (through First Quadrant
Holdings, Inc.)
First Quadrant Holdings, Inc., a Delaware corporation
GeoCapital Corporation, a Delaware corporation
J M H Management Corporation, a Delaware corporation
Suite 3000 Holdings, Inc., a Delaware corporation
ENTITIES IN WHICH THE REGISTRANT HAS A MAJORITY INTEREST (DIRECT AND INDIRECT)
First Quadrant, L.P., a Delaware limited partnership (through First Quadrant
Corp.)
First Quadrant U.K., L.P., a Delaware limited partnership (through First
Quadrant Corp.)
First Quadrant Limited, a U.K. corporation (through First Quadrant U.K., L.P.)
GeoCapital, LLC, a Delaware limited liability company (through GeoCapital
Corporation)
Gofen and Glossberg, L.L.C., a Delaware limited liability company
J.M. Hartwell Limited Partnership, a Delaware limited partnership
Renaissance Investment Management, a Delaware partnership
<PAGE> 2
Skyline Asset Management, L.P., a Delaware limited partnership
Systematic Financial Management, L.P., a Delaware limited partnership
The Burridge Group LLC, a Delaware limited liability company (through The
Burridge Group Inc.)
Tweedy, Browne Company LLC, a Delaware limited liability company
ENTITIES IN WHICH THE REGISTRANT HAS A MINORITY INTEREST
Paradigm Asset Management Company, L.L.C., a Delaware limited liability company
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 4 to the registration
statement on Form S-1 (File No. 333-34679) of our report dated April 26, 1997,
except for Note 16 for which the date is October 27, 1997, on our audits of the
financial statements of Affiliated Managers Group, Inc. We also consent to the
references to our firm under the captions "Experts", "Summary Historical and Pro
Forma and Financial Data" and "Selected Historical Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
October 29, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 4 to the
registration statement on Form S-1 (File No. 333-34679) of our reports dated
August 8, 1997 and August 15, 1997, on our audits of the financial statements of
The Burridge Group Inc. and Gofen and Glossberg, Inc., respectively. We also
consent to the references to our firm under the captions "Experts", "Summary
Historical and Pro Forma and Financial Data" and "Selected Historical Financial
Data".
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
Chicago, Illinois
October 29, 1997
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Pre-Effective Amendment No. 4 to the
registration statement on Form S-1 (File No. 333-34679) of our reports dated
September 23, 1997, except for Note 9 for which the date is October 9, 1997, and
August 15, 1997, except for Note 9 for which the date is September 30, 1997, on
our audits of the financial statements of Tweedy, Browne Company L.P. and
GeoCapital Corp. We also consent to the references to our Firm under the
captions "Experts", "Summary Historical and Pro Forma and Financial Data" and
"Selected Historical Financial Data".
/s/ COOPERS & LYBRAND L.L.P.
--------------------------------------
Coopers & Lybrand L.L.P.
New York, New York
October 29, 1997
<PAGE> 1
EXHIBIT 23.5
ACCOUNTANTS' CONSENT
The Board of Directors
First Quadrant:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
--------------------------------------
KPMG Peat Marwick LLP
Los Angeles, California
October 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND ITS UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 6,767 13,297
<SECURITIES> 0 0
<RECEIVABLES> 15,491 12,158
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 23,064 26,027
<PP&E> 5,013 6,037
<DEPRECIATION> (2,014) (2,181)
<TOTAL-ASSETS> 101,335 113,769
<CURRENT-LIABILITIES> 23,591 13,108
<BONDS> 33,400 48,900
0 0
42,476 46,976
<COMMON> 5 15
<OTHER-SE> (5,514) (4,808)
<TOTAL-LIABILITY-AND-EQUITY> 36,989 39,189
<SALES> 50,384 32,870
<TOTAL-REVENUES> 50,384 32,870
<CGS> 0 0
<TOTAL-COSTS> 43,213 27,168
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,747 1,707
<INCOME-PRETAX> (1,208) 801
<INCOME-TAX> 181 95
<INCOME-CONTINUING> (1,389) 706
<DISCONTINUED> 0 0
<EXTRAORDINARY> (983) 0
<CHANGES> 0 0
<NET-INCOME> (2,372) 706
<EPS-PRIMARY> (0.21) 0.10
<EPS-DILUTED> (0.21) 0.10
</TABLE>
