<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-13459
Affiliated Managers Group, Inc.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3218510
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Two International Place, Boston, Massachusetts 02110
----------------------------------------------------
(Address of principal executive offices)
(617) 747-3300
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of the registrant's Common Stock outstanding at November
13, 1998: 17,531,617, including 1,886,800 shares of Class B Non-Voting Common
Stock. Unless otherwise specified, the term Common Stock includes both Common
Stock and Class B Non-Voting Common Stock. In addition, unless otherwise
specified, the term Common Stock excludes the 1,750,942 outstanding shares of
the registrant's Series C Convertible Non-Voting Stock.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 29,877 $ 22,766
Investment advisory fees receivable ............. 35,384 27,061
Other current assets ............................ 3,532 2,231
--------- ---------
Total current assets ........................... 68,793 52,058
Fixed assets, net .................................. 6,829 4,724
Equity investment in Affiliate ..................... 1,277 1,237
Acquired client relationships, net of accumulated
amortization of $11,888 in 1998 and $6,142 in 1997 163,225 142,875
Goodwill, net of accumulated amortization of $20,633
in 1998 and $13,502 in 1997 ...................... 310,430 249,698
Other assets ....................................... 7,226 6,398
--------- ---------
Total assets ................................... $ 557,780 $ 456,990
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities ........... $ 20,379 $ 18,815
--------- ---------
Total current liabilities ...................... 20,379 18,815
Senior bank debt ................................... 200,300 159,500
Other long-term liabilities ........................ 9,614 1,656
Subordinated debt .................................. 800 800
--------- ---------
Total liabilities .............................. 231,093 180,771
Minority interest .................................. 21,264 16,479
Stockholders' equity:
Convertible stock .................................. 30,992 --
Common stock ....................................... 177 177
Additional paid-in capital on common stock ......... 273,414 273,475
Accumulated other comprehensive income ............. 15 (30)
Retained earnings (deficit) ........................ 2,359 (13,882)
--------- ---------
306,957 259,740
Less treasury shares ............................... (1,534) --
--------- ---------
Total stockholders' equity ..................... 305,423 259,740
--------- ---------
Total liabilities and stockholders' equity ..... $ 557,780 $ 456,990
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues ............................. $ 55,892 $ 20,410 $ 158,201 $ 53,280
Operating expenses:
Compensation and related expenses . 19,281 9,947 55,359 25,610
Amortization of intangible assets . 4,530 1,078 12,877 3,121
Depreciation and other amortization 736 388 1,849 1,059
Selling, general and administrative 8,190 4,412 22,830 11,057
Other operating expenses .......... 1,806 1,315 5,011 3,461
------------ ----------- ------------ -----------
34,543 17,140 97,926 44,308
------------ ----------- ------------ -----------
Operating income ........... 21,349 3,270 60,275 8,972
Non-operating (income) and expenses:
Investment and other income ....... (500) (376) (1,341) (814)
Interest expense .................. 3,564 1,000 10,567 2,707
------------ ----------- ------------ -----------
3,064 624 9,226 1,893
------------ ----------- ------------ -----------
Income before minority interest and
income taxes ...................... 18,285 2,646 51,049 7,079
Minority interest .................... (8,512) (2,393) (23,981) (6,025)
------------ ----------- ------------ -----------
Income before income taxes ........... 9,773 253 27,068 1,054
Income taxes ......................... 3,909 126 10,827 221
------------ ----------- ------------ -----------
Net income ........................... $ 5,864 $ 127 $ 16,241 $ 833
============ =========== ============ ===========
Net income per share - basic ......... $ 0.33 $ 0.21 $ 0.92 $ 1.48
Net income per share - diluted ....... $ 0.30 $ 0.02 $ 0.85 $ 0.12
Average shares outstanding - basic ... 17,627,839 602,038 17,613,291 564,082
Average shares outstanding - diluted . 19,546,983 6,862,428 19,146,658 6,850,761
</TABLE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net income ........................... $ 5,864 $ 127 $ 16,241 $ 833
Foreign currency translation
adjustment, net of taxes .......... 7 (92) 45 (99)
------------ ----------- ------------ -----------
Comprehensive income ................. $ 5,871 $ 35 $ 16,286 $ 734
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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AFFILIATED MANAGERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income ......................................................... $ 16,241 $ 833
Adjustments to reconcile net income to net cash flow from operating
activities:
Amortization of intangible assets .................................. 12,877 3,121
Depreciation and other amortization ................................ 1,849 1,059
Changes in assets and liabilities:
Increase in investment advisory fees receivable .................... (8,323) (212)
Increase in other current assets ................................... (1,301) (2,304)
Increase in accounts payable, accrued expenses and other liabilities 9,522 3,476
Minority interest .................................................. 4,785 776
-------- --------
Cash flow from operating activities ......................... 35,650 6,749
-------- --------
Cash flow used in investing activities:
Purchase of fixed assets ........................................... (2,658) (1,545)
Costs of investments, net of cash acquired ......................... (65,389) (25,315)
Distribution received from Affiliate equity investment ............. 495 135
Increase in other assets ........................................... (293) (282)
-------- --------
Cash flow used in investing activities ....................... (67,845) (27,007)
-------- --------
Cash flow from financing activities:
Borrowings of senior bank debt ..................................... 74,300 31,900
Repayments of senior bank debt ..................................... (33,500) (2,000)
Repayments of notes payable ........................................ -- (5,878)
Issuance (repurchase) of equity securities ......................... (1,539) 10
-------- --------
Cash flow from financing activities .......................... 39,261 24,032
Effect of foreign exchange rate changes on cash flow .................. 45 (99)
Net increase in cash and cash equivalents ............................. 7,111 3,675
Cash and cash equivalents at beginning of period ...................... 22,766 6,767
-------- --------
Cash and cash equivalents at end of period ............................ $ 29,877 $ 10,442
======== ========
Supplemental disclosure of non-cash financing activities:
Stock issued in acquisitions ....................................... $ 30,992 $ 11,101
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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1. Basis of Presentation
The consolidated financial statements of Affiliated Managers Group, Inc.
(the "Company" or "AMG") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The year end condensed
balance sheet data was derived from audited financial statements, but does not
include all of the disclosures required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Certain prior year amounts have been reclassified to conform with the
current year's presentation. Operating results for interim periods are not
necessarily indicative of the results that may be expected for the full year.
The Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 includes additional information about AMG, its operations, and its
financial position, and should be read in conjunction with this quarterly report
on Form 10-Q.
2. Income Taxes
A summary of the provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1998 1997
------ ----
<S> <C> <C>
Federal: Current ......................... $ -- $ --
Deferred ........................ 3,103 69
State: Current ......................... 367 57
Deferred ........................ 439 --
------ ----
Provision for income taxes ............... $3,909 $126
====== ====
</TABLE>
The Company has determined that because it is more likely than not that
a majority of its tax net operating loss carryforwards will be utilized
during 1998, the deferred tax valuation allowance which existed at December
31, 1997 was no longer necessary. Accordingly, the Company expects that the
benefit of the reversal of the allowance will be realized ratably over the
year.
3. Earnings Per Share
The calculation for the basic earnings per share is based on the weighted
average of common shares outstanding during the period. The calculation for the
diluted earnings per share is based on the weighted average of common and common
equivalent shares outstanding during the period. The following is a
reconciliation of the numerators and denominators of the basic and diluted EPS
computations.
5
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Numerator:
Net income .................................... $ 5,864,000 $ 127,000
Denominator:
Average shares outstanding - basic ............ 17,627,839 602,038
Convertible stock ............................. 1,750,942 5,768,247
Stock options and unvested restricted stock ... 168,202 492,143
----------- ----------
Average shares outstanding - diluted .......... 19,546,983 6,862,428
=========== ==========
Net income per share:
Basic ......................................... $ 0.33 $ 0.21
Diluted ....................................... $ 0.30 $ 0.02
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, which are
based on management's current views and assumptions regarding future events
and financial performance. Words or phrases such as "will likely result,"
"are expected to," "will continue," "is anticipated," "believes,"
"estimates," "projects" and other similar expressions are intended to
identify such forward-looking statements. Such statements are subject to
certain risks and uncertainties, including those discussed herein and in the
"Business - Cautionary Statements" section of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, that could cause
actual results to differ materially from those discussed in the
forward-looking statements. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, which speak only
as of the date made, and the Company will not undertake to release publicly
the result of any revisions which may be made to any forward-looking
statements to reflect the occurrence of events or changes in circumstances
after the date of such statements. In addition, the discussion and analysis
below with respect to the Year 2000 Issue including i) our expectations of
when Year 2000 compliance will actually be achieved, ii) estimates of the
costs involved in achieving Year 2000 readiness and iii) our belief that the
costs will not be material to operating results, are based on management's
estimates which, in turn, are based upon a number of assumptions regarding
future events, including third party modification plans and the availability
of certain resources. There can be no guarantee that these estimates will be
achieved, and actual results may differ materially from management's
estimates. Specific factors which might cause such material differences with
respect to the Year 2000 Issue include, but are not limited to, the failure
of third party providers to achieve represented or stated levels of Year 2000
compliance, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
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 investment management firm in which it has an
investment (each, an "Affiliate") which is contained in the organizational
document 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 AMG), generally in proportion to
their ownership of the Affiliate. Since its founding in December 1993, the
Company has completed 11 investments in Affiliates and has announced the
signing of definitive agreements for investments in two additional
Affiliates, Davis Hamilton Jackson & Associates, L.P. and Rorer Asset
Management, LLC.
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. 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 in this report 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.
Assets under management were $50.1 billion at September 30, 1998 versus
$54.9 billion at June 30, 1998 and $45.7 billion at December 31, 1997. The
decline in assets in the third quarter resulted from adverse conditions in the
equity markets during the quarter, partially offset by positive net client cash
flows of $445 million for the
6
<PAGE>
quarter. Year to date growth was driven by the addition of an Affiliate and
positive net client cash flows of $1.6 billion, offsetting negative investment
performance due primarily to the adverse conditions in the equity markets during
the third quarter.
Each of the Company's investments is accounted for under the purchase
method of accounting, under which goodwill is recorded for the excess of the
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
(collectively, acquired client relationships and goodwill are referred to as
"intangible assets") constitute a substantial percentage of the assets of the
Company. At September 30, 1998, the Company's total assets were $557.8 million,
of which $163.2 million consisted of acquired client relationships and $310.4
million consisted of goodwill.
The amortization period for intangible assets for each investment is
assessed individually, with amortization periods for the Company's investments
to date ranging from nine to 28 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 performs a quarterly evaluation of
intangible assets on an Affiliate-by-Affiliate basis to determine whether there
has been any impairment in their carrying value or their useful lives. If
impairment is indicated, then the carrying amount of intangible assets,
including goodwill, will be reduced to their fair values.
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 that it is important to
distinguish this expense from other operating expenses since such amortization
does not require the use of cash. Also, because the Company's distributions from
its Affiliates are based on its share of Owners' Allocation, management has
provided additional supplemental information for "cash" related earnings, as an
addition to, but not as a substitute for, measures related to net income. Such
measures are (i) EBITDA (earnings before interest expense, income taxes,
depreciation and amortization), 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) EBITDA as adjusted
(earnings after interest expense and income taxes but before depreciation and
amortization), which the Company believes is useful to investors as another
indicator of funds available to the Company to make new investments,
repurchase shares or repay debt obligations.
Three Months Ended September 30, 1998 as Compared to Three Months Ended
September 30, 1997
The Company had net income of $5.9 million for the quarter ended September
30, 1998 compared to net income of $127,000 for the quarter ended September 30,
1997. The increase in net income resulted primarily from net income from new
investments. The Company invested in GeoCapital, LLC ("GeoCapital") in September
1997, Tweedy, Browne Company LLC ("Tweedy, Browne") in October 1997, and Essex
Investment Management Company, LLC ("Essex") in March 1998 and included their
results from their respective dates of investment.
Revenues for the quarter ended September 30, 1998 were $55.9 million, an
increase of $35.5 million over the quarter ended September 30, 1997, primarily
as a result of the addition of the new Affiliates as described above.
Operating expenses increased by $17.4 million to $34.5 million for the
quarter ended September 30, 1998 over the quarter ended September 30, 1997.
Compensation and related expenses increased by $9.3 million, amortization of
intangible assets increased by $3.5 million, and selling, general and
administrative expenses increased by $3.8 million. The increases in operating
expenses were primarily a result of the addition of the new Affiliates.
Minority interest increased by $6.1 million to $8.5 million for the
quarter ended September 30, 1998 over the quarter ended September 30, 1997,
primarily as a result of the increase in revenues from the addition of the new
Affiliates.
7
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Interest expense increased by $2.6 million to $3.6 million for the quarter
ended September 30, 1998 over the quarter ended September 30, 1997 as a result
of the increased indebtedness incurred in connection with the investments in the
new Affiliates.
Income tax expense was $3.9 million for the quarter ended September 30,
1998 compared to $126,000 for the quarter ended September 30, 1997. The change
in income tax expense is related to an increase in income before taxes in the
quarter ended September 30, 1998.
EBITDA increased by $15.9 million to $18.6 million for the quarter ended
September 30, 1998 over the quarter ended September 30, 1997, primarily as a
result of the inclusion of the new Affiliates.
EBITDA as adjusted increased by $9.5 million to $11.1 million for the
quarter ended September 30, 1998 over the quarter ended September 30, 1997 as a
result of the factors affecting net income as described above, before non-cash
expenses such as amortization of intangible assets and depreciation of $5.3
million for the quarter ended September 30, 1998.
Nine Months Ended September 30, 1998 as Compared to Nine Months Ended
September 30, 1997
The Company had net income of $16.2 million for the nine months ended
September 30, 1998 compared to net income of $833,000 for the nine months
ended September 30, 1997. The increase in net income resulted primarily from
net income from new investments. The Company invested in Gofen and Glossberg,
L.L.C. ("Gofen and Glossberg") in May 1997, GeoCapital in September 1997,
Tweedy, Browne in October 1997, and Essex in March 1998 (collectively, the
"New Affiliates") and included their results from their respective dates of
investment.
Revenues for the nine months ended September 30, 1998 were $158.2 million,
an increase of $104.9 million over the nine months ended September 30, 1997,
primarily as a result of the addition of the New Affiliates.
Operating expenses increased by $53.6 million to $97.9 million for the
nine months ended September 30, 1998 over the nine months ended September 30,
1997. Compensation and related expenses increased by $29.7 million, amortization
of intangible assets increased by $9.8 million, selling, general and
administrative expenses increased by $11.8 million, and other operating expenses
increased by $1.6 million. The growth in operating expenses was primarily a
result of the addition of the New Affiliates.
Minority interest increased by $18.0 million to $24.0 million for the nine
months ended September 30, 1998 over the nine months ended September 30, 1997,
primarily as a result of the addition of New Affiliates.
Interest expense increased by $7.9 million to $10.6 million for the
nine months ended September 30, 1998 over the nine months ended September 30,
1997, as a result of the increased indebtedness incurred in connection with
the investments in the New Affiliates.
Income tax expense was $10.8 million for the nine months ended
September 30, 1998 compared to $221,000 for the nine months ended September
30, 1997. The change in income tax expense is related to an increase in
income before taxes in the nine months ended September 30, 1998 and the
recognition of the benefit of the reversal of the Company's tax valuation
allowance at December 31, 1996 in the nine months ended September 30, 1997.
EBITDA increased by $44.4 million to $52.4 million for the nine months
ended September 30, 1998 over the nine months ended September 30, 1997,
primarily as a result of the inclusion of the New Affiliates.
EBITDA as adjusted increased by $26.0 million to $31.0 million for the
nine months ended September 30, 1998 over the nine months ended September 30,
1997 as a result of the factors affecting net income as described above, before
non-cash expenses such as amortization of intangible assets and depreciation of
$14.7 million for the nine months ended September 30, 1998.
8
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Liquidity and Capital Resources
At September 30, 1998, the Company had cash and cash equivalents of $29.9
million and outstanding borrowings under its revolving credit facility ("Credit
Facility") of $200.3 million. The Credit Facility allows for borrowings up to
$300 million (which may be increased to $400 million upon the approval of the
lenders) and matures in December 2002. The Company pays interest at either LIBOR
plus a margin or the Prime Rate plus a margin, as well as a commitment fee on
the daily unused portion of the facility.
On September 11, 1998, the Company's Board of Directors authorized a share
repurchase program pursuant to which AMG could repurchase up to five percent of
AMG's issued and outstanding shares of Common Stock. During the quarter ended
September 30, 1998, the Company repurchased 84,400 shares for $1.5 million.
Subsequent to September 30, 1998 the Company has repurchased an additional
62,600 shares for $1.1 million.
On October 22, 1998, AMG announced an agreement to acquire a 65%
interest in Davis Hamilton Jackson & Associates, L.P., which will hold the
business presently operated by Davis Hamilton Jackson & Associates, Inc.
("DHJA"). DHJA is a Houston based asset management firm with approximately
$3.0 billion of assets under management at September 30, 1998. On November 9,
1998, the Company announced an agreement to acquire an approximately 65%
interest in Rorer Asset Management, LLC, which will hold the business
presently operated by Edward C. Rorer & Co., Inc. ("Rorer"). Rorer is a
Philadelphia based investment advisor with approximately $3.6 billion of
assets under management at September 30, 1998. AMG will pay approximately $65
million in cash for its investment in Rorer. AMG will finance these two
investments with borrowings under its Credit Facility.
In order to provide the funds necessary for the Company to continue to
acquire interests in investment management firms, including additional
investments in existing Affiliates, it will be necessary for the Company to
incur, from time to time, additional long-term 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 or become available on terms
acceptable to the Company.
Recent Accounting Developments
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("FAS 131"). FAS 131 requires
disclosure of financial and descriptive information about an entity's reportable
operating segments. This standard is effective for financial statements for
periods beginning after December 15, 1997, with restatement of comparative
information for prior periods. The standard is not required to be applied to
interim financial statements in the initial year of its application.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS
133"). FAS 133 standardizes the accounting for derivative instruments by
requiring that all derivatives be recognized as assets and liabilities and
measured at fair value. FAS 133 is effective for financial statements for fiscal
years beginning after June 15, 1999.
The Company does not believe that the implementation of FAS 131 or FAS 133
will have a material impact on the Company's financial statements.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
or its Affiliates' computer programs that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
Such disruptions could affect the Company's Affiliates' ability to provide
advisory services.
The Company has identified all of the significant computers, software
applications and related equipment at the holding company that need to be
modified, upgraded or replaced to minimize the possibility of a material
disruption to its business.
9
<PAGE>
In addition, the Company has established with each Affiliate a timeline
for compliance and has received estimates of compliance costs. As part of the
general compliance program, each of the Affiliates has assigned
responsibility for the Year 2000 Issue to a member of senior management to
ensure both proprietary and third party vendor systems will be Year 2000
compliant.
All Affiliates have completed their assessment and plans are in place for
the renovation or replacement of non-compliant systems. The completion of
renovation or replacement and the subsequent testing and implementation are
scheduled for the fourth quarter of 1998 and early 1999, while industry wide
testing will take place in 1999. If the Affiliates fail to resolve their Year
2000 issues, the Affiliates' and, accordingly, the Company's business would
be materially disrupted.
Outside service providers perform certain processes which are critical
for the Company's Affiliates, including transfer agency and custody
functions. The progress of these parties is being monitored by the Company's
Affiliates. However, the Affiliates have limited or no control over the
actions of these outside parties and in certain cases no alternative vendors
are available. If these parties fail to resolve Year 2000 issues, the
Affiliates and, accordingly, the Company's business would be materially
disrupted.
The Company and its Affiliates estimate that its compliance activities
will be completed no later than the second quarter of 1999. Because most of
the Year 2000 costs are being covered by the Affiliates' Operating
Allocation, the total costs of this effort to the Company (as opposed to the
affiliates) are estimated to be less than $800,000 for the four year period
ending December 31, 1999.
European Monetary Unit
On January 1, 1999, a single currency for the European Economic and
Monetary Union (the "Euro") is scheduled to replace the national currency for
participating member countries which include countries in which several of
the Company's Affiliates do business. The managed funds and financial
products of these Affiliates have investments in countries whose currencies
will be replaced by the Euro. Many aspects of these Affiliates' investment
process, including trading, foreign exchange, payments, settlements, cash
accounts, custodial accounts and accounting will be affected by the
implementation of the Euro (the "Euro Issue").
The Affiliates impacted have created teams to determine changes that will
be required in connection with the Euro Issue in order to process
transactions accurately with minimal disruption to business activities. These
Affiliates are also communicating with its external partners and vendors to
assess their readiness to manage the Euro Issue without disruption to their
business or operations. If these Affiliates fail to resolve their Euro Issue,
the Affiliates and, accordingly, the Company's business would be materially
disrupted.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.9 Stock Purchase Agreement dated November 9, 1998, by and among the
Company, Edward C. Rorer & Co., Inc. and the stockholders of
Edward C. Rorer & Co., Inc. (excluding schedules and exhibits,
which the Registrant agrees to furnish supplementally to the
Commission upon request)
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
There have been no reports on Form 8-K filed by the Company during the
quarter ended September 30, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFILIATED MANAGERS GROUP, INC.
-------------------------------
(Registrant)
/s/ Darrell W. Crate on behalf of the Registrant as November 16, 1998
- - ---------------------- Senior Vice President,
(Darrell W. Crate) Chief Financial Officer and Treasurer
(and also as Principal Financial and
Principal Accounting Officer)
10
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EXHIBIT 2.9
STOCK PURCHASE AGREEMENT
by and among
AFFILIATED MANAGERS GROUP, INC.
EDWARD C. RORER & CO., INC.
and
THE STOCKHOLDERS OF EDWARD C. RORER & CO., INC.
DATED NOVEMBER 9, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
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SECTION 1. PURCHASE OF COMPANY SHARES ...................................... 1
1.1 General ......................................................... 1
1.2 Purchase Price .................................................. 1
1.3 Directors and Officers .......................................... 3
1.4 Time and Place of Closing ....................................... 3
1.5 Further Assurances .............................................. 3
1.6 Transfer Taxes .................................................. 3
SECTION 2. CONTRIBUTION OF ASSETS AND RESTATEMENT OF LLC AGREEMENT ......... 3
2.1 Asset Transfer .................................................. 3
2.2 LLC Agreement ................................................... 4
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS .. 4
3.1 Making of Representations and Warranties ........................ 4
3.2 Organization and Qualification of the Company and the LLC ....... 4
3.3 Capital Stock of the Company; Beneficial Ownership .............. 5
3.4 Subsidiaries .................................................... 5
3.5 Authority of the Company ........................................ 6
3.6 Real and Personal Property ...................................... 8
3.7 Assets Under Management ......................................... 8
3.8 Financial Statements ............................................ 11
3.9 Taxes ........................................................... 12
3.10 Collectibility of Accounts Receivable ........................... 13
3.11 Absence of Certain Changes ...................................... 13
3.12 Ordinary Course ................................................. 14
3.13 Banking Relations ............................................... 14
3.14 Intellectual Property ........................................... 14
3.15 Contracts ....................................................... 15
3.16 Litigation ...................................................... 17
3.17 Compliance with Laws ............................................ 17
3.18 Business; Registrations ......................................... 18
3.19 Insurance ....................................................... 19
3.20 Powers of Attorney .............................................. 19
3.21 Finder's Fee .................................................... 19
3.22 Corporate Records; Copies of Documents .......................... 20
3.23 Transactions with Interested Persons ............................ 20
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3.24 Employee Benefit Programs ....................................... 20
3.25 Directors, Officers and Employees ............................... 22
3.26 Non-Foreign Status .............................................. 23
3.27 Transfer of Shares .............................................. 23
3.28 Stock Repurchase ................................................ 23
3.29 Code of Ethics .................................................. 23
3.30 Disclosure ...................................................... 24
SECTION 4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS .................. 24
4.1 Company Shares .................................................. 24
4.2 Authority ....................................................... 24
4.3 Finder's Fee .................................................... 25
4.4 Investment Advisory Representation .............................. 25
4.5 Agreements ...................................................... 25
4.6 Employment Data ................................................. 26
4.7 Good Health ..................................................... 26
SECTION 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS ................... 26
5.1 Making of Covenants and Agreements .............................. 26
5.2 Client Consents ................................................. 26
5.3 Authorizations .................................................. 27
5.4 Authorization from Others ....................................... 27
5.5 Conduct of Business ............................................. 28
5.6 Financial Statements ............................................ 29
5.7 Preservation of Business and Assets ............................. 30
5.8 Observer Rights and Access ...................................... 30
5.9 Notice of Default ............................................... 30
5.10 Consummation of Agreement ....................................... 31
5.11 Cooperation of the Company and Stockholders ..................... 31
5.12 No Solicitation of Other Offers ................................. 31
5.13 Confidentiality ................................................. 31
5.14 Policies and Procedures ......................................... 32
5.15 Subsidiaries; Investments in Other Persons ...................... 32
5.16 LLC Interests and Company Shares ................................ 32
5.17 Employee Programs ............................................... 32
5.18 Foreign Qualifications .......................................... 32
5.19 Termination of Certain Agreements ............................... 32
SECTION 6. COVENANTS OF THE COMPANY, THE STOCKHOLDERS
AND AMG WITH RESPECT TO CERTAIN TAX MATTERS ..................... 33
6.1 Section 338(h)(10) Election ..................................... 33
6.2 Tax Periods Ending on or Before the Date of the Closing ......... 33
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6.3 Cooperation on Tax Matters ...................................... 34
6.4 Tax Status ...................................................... 34
SECTION 7. REPRESENTATIONS AND WARRANTIES OF AMG ........................... 34
7.1 Making of Representations and Warranties ........................ 34
7.2 Organization of AMG ............................................. 35
7.3 Authority of AMG ................................................ 35
7.4 Litigation ...................................................... 35
7.5 Acquisition of Shares for Investment ............................ 35
7.6 Disclosure ...................................................... 36
7.7 Finder's Fee .................................................... 36
7.8 Compliance With Law ............................................. 36
7.9 Filings with the SEC ............................................ 36
SECTION 8. COVENANTS OF AMG ................................................ 36
8.1 Making of Covenants and Agreement ............................... 36
8.2 Confidentiality ................................................. 36
8.3 Cooperation of AMG .............................................. 37
8.4 HSR Act ......................................................... 37
8.5 Notice of Default ............................................... 37
8.6 Consummation of Agreement ....................................... 37
SECTION 9. CONDITIONS TO THE OBLIGATIONS OF AMG ............................ 37
9.1 Litigation; No Opposition ....................................... 37
9.2 Representations, Warranties and Covenants ....................... 38
9.3 Advisory Contract Consents ...................................... 38
9.4 Registration as an Investment Adviser and Registration
of Investment Adviser Representatives ........................... 40
9.5 Other Approvals ................................................. 40
9.6 Transfer ........................................................ 40
9.7 Restated LLC Agreement .......................................... 40
9.8 Employment Agreements ........................................... 41
9.9 Non-Solicitation/Non-Disclosure Agreements ...................... 41
9.10 Capitalization, Net Worth and Working Capital of the LLC ........ 41
9.11 Delivery ........................................................ 41
9.12 Evidence of Insurability ........................................ 43
9.13 Insurance Policies .............................................. 43
9.14 Policies and Procedures ......................................... 43
9.15 HSR Act ......................................................... 43
9.16 Cancellation of Options ......................................... 43
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SECTION 10. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS ... 43
10.1 No Litigation; No Opposition .................................... 44
10.2 Representations, Warranties and Covenants ....................... 44
10.3 Advisory Client Consent ......................................... 44
10.4 Delivery ........................................................ 44
10.5 Registration as an Investment Adviser ........................... 45
10.6 HSR Act ......................................................... 45
SECTION 11. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED ..................... 45
11.1 Termination ..................................................... 45
11.2 Effect of Termination ........................................... 46
11.3 Right to Proceed ................................................ 46
SECTION 12. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING .................... 46
12.1 Survival of Representations, Warranties and Covenants ........... 46
12.2 Regulatory Filings .............................................. 47
SECTION 13. INDEMNIFICATION ................................................. 47
13.1 Indemnification by the Majority Stockholders .................... 47
13.2 Indemnification by the Other Stockholders ....................... 48
13.3 Limitations on Indemnification by the Stockholders .............. 48
13.4 Indemnification by AMG .......................................... 49
13.5 Limitation on Indemnification by AMG ............................ 50
13.6 Notice; Defense of Claims ....................................... 50
13.7 Satisfaction of Stockholder Indemnification Obligations ......... 51
13.8 Other Indemnification Matters ................................... 51
SECTION 14. DEFINITIONS ..................................................... 51
14.1 Definitions ..................................................... 51
SECTION 15. MISCELLANEOUS ................................................... 56
15.1 Fees and Expenses ............................................... 56
15.2 Dispute Resolution .............................................. 56
15.3 Waivers ......................................................... 56
15.4 Governing Law ................................................... 57
15.5 Notices ......................................................... 57
15.6 Entire Agreement ................................................ 58
15.7 Assignability; Binding Effect ................................... 58
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15.8 Captions and Gender ............................................. 58
15.9 Execution in Counterparts ....................................... 58
15.10 Amendments ...................................................... 58
15.11 Publicity and Disclosures ....................................... 58
15.12 Consent to Jurisdiction ......................................... 59
</TABLE>
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EXHIBITS
Exhibit 2.1A - Form of Initial Asset Transfer Agreement
Exhibit 2.1B - Form of Final Asset Transfer Agreement
Exhibit 2.2 - Form of Restated LLC Agreement
Exhibits 5.2A & 5.2B - Forms of Client Consent Letters
Exhibit 9.8 - Form of Employment Agreement
Exhibit 9.9 - Form of Non-Solicitation/Non-Disclosure Agreement
Exhibit 9.11(j) - Form of Opinion of Counsel to the Company and
the Stockholders
Exhibit 9.11(k) - Form of Release
Exhibit 9.11(l) - Transferor's Certificate of Non-Foreign Status
Exhibit 10.4(e) - Form of Opinion(s) of Counsel to AMG
SCHEDULES
Schedule 1.2 - Allocation of Purchase Price
Schedule 3.3 - Capital Stock of the Company
Schedule 3.4(a) - Subsidiaries
Schedule 3.4(b)(i) - LLC Capitalization Pre-Closing
Schedule 3.4(b)(ii) - LLC Capitalization Post-Closing and Asset Transfer
Schedule 3.5 - Approvals; Waivers
Schedule 3.6(a) - Real Property
Schedule 3.6(b) - Personal Property
Schedule 3.7 - Advisory Contracts; Assets Under Management
Schedule 3.7(e) - Existing Regulatory Relief
Schedule 3.8(a) - Financial Statements
Schedule 3.8(b) - Liabilities of Company as of Base Balance Sheet
Date
Schedule 3.8(c) - Additional Liabilities of Company
Schedule 3.9(b) - Tax Returns
Schedule 3.9(f) - Validly Electing S Corporation
Schedule 3.9(h) - Liability for Taxes
Schedule 3.10 - Accounts Receivable
Schedule 3.11 - Adverse Changes
Schedule 3.13 - Banking Relations
Schedule 3.14 - Intellectual Property
Schedule 3.15 - Contracts
Schedule 3.16 - Litigation
Schedule 3.17 - Compliance with Laws
Schedule 3.18 - Employees Rendering Investment Management Services
Schedule 3.19 - Insurance
Schedule 3.24 - Employee Benefits
Schedule 3.25(a) - Directors and Officers; Certain Employees
Schedule 3.25(b) - Good Health
Schedule 3.25(c) - Employment Agreements
(vi)
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Schedule 3.28 - Repurchases
Schedule 4.5(b) - Stockholders in Investment Management Business
Schedule 4.6 - Employment Data
Schedule 5.5 - Conduct of Business
Schedule 5.19 - Terminated Agreements
Schedule 7.3 - Consents and Approvals of AMG
(vii)
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT entered into as of November 9, 1998, by and among Affiliated
Managers Group, Inc., a Delaware corporation ("AMG"), Edward C. Rorer & Co.,
Inc., a Pennsylvania corporation (the "Company"), and the holders of the
Company's capital stock listed on Schedule 1.2 hereto (herein collectively
referred to as the "Stockholders" and, each individually as a "Stockholder").
W I T N E S S E T H
WHEREAS, the Company is engaged in the business of providing investment
management and advisory services to private accounts of certain institutional
and individual investors;
WHEREAS, the Stockholders own of record and beneficially all of the issued
and outstanding capital stock of the Company, consisting of one million
(1,000,000) shares of the Company's Common Stock, no par value per share (the
"Common Stock") (said shares of Common Stock being referred to herein as the
"Company Shares");
WHEREAS, the Company has formed Rorer Asset Management, LLC, a Delaware
limited liability company (the "LLC");
WHEREAS, the parties hereto desire and intend that, immediately following
the Closing (as such term is defined in Section 1.4 hereof), the Company will
contribute all or substantially all of its assets to the LLC, and the LLC will
assume all of the liabilities of the Company; and
WHEREAS, to induce the parties to enter into this Agreement, AMG, the
Company and the Stockholders have agreed to make certain representations,
warranties and covenants as set forth herein.
NOW, THEREFORE, in order to consummate said purchase and sale and in
consideration of the mutual agreements set forth herein and other valuable
consideration, the receipt and adequacy whereof are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. PURCHASE OF COMPANY SHARES
1.1 General. Upon the terms and subject to the conditions contained in
this Agreement, and on the basis of the representations, warranties and
covenants herein set forth, AMG hereby agrees to purchase from each Stockholder,
and each Stockholder hereby agrees to sell to AMG, at the Closing all of the
Company Shares owned by such Stockholder (collectively, the "Purchase").
1.2 Purchase Price and Delivery of Company Shares.
(a) Upon the terms and subject to the conditions contained in this
Agreement, at the Closing AMG shall deliver by wire transfer to the
Stockholders, at bank accounts to be designated in writing by the respective
Stockholders to AMG at least three (3) business days prior
<PAGE>
to the Closing Date, an aggregate amount equal to Sixty-Five Million Dollars
($65,000,000), subject to adjustment as set forth in Section 1.2(b) below, in
immediately available funds (as so adjusted, the "Purchase Price"), in full
consideration for the sale of the Company Shares to AMG; the Purchase Price
shall be paid to the Stockholders' bank accounts in the specific amounts set
forth in Schedule 1.2 hereto; provided, however, that AMG shall withhold from
such payment of the Purchase Price at the Closing any amounts paid to the Escrow
Agent pursuant to the Escrow Agreement (each as defined in Section 1.2(e)).
(b) If, as of the Closing, the Company shall have received Consents
from clients whose Advisory Contracts provide for the payment (based on the
Contract Value of each such Advisory Contract) of fees constituting less than
one hundred percent (100%) of the Base Fees, then the payment delivered to each
Stockholder pursuant to Section 1.2(a) above, will be reduced to an amount equal
to the product of (A) the amount set forth in Schedule 1.2 hereto opposite such
Stockholder's name, multiplied by (B) a fraction (x) the numerator of which
shall be the sum of the Contract Values of each Advisory Contract of the Company
which has not been terminated at or prior to the Closing, and with respect to
which the Client of the Company has given its Consent, and (y) the denominator
of which shall be the Base Fees.
(c) At the Closing, upon the terms and subject to the conditions
contained in this Agreement, each Stockholder shall deliver to AMG all of the
certificates representing such Stockholder's Company Shares, duly endorsed for
transfer to AMG in form and substance reasonably satisfactory to AMG, together
with such other transfer documentation as AMG has reasonably requested.
(d) At the Closing, upon the terms and subject to the conditions
contained in each such Option Cancellation Agreement, AMG will pay to each
holder of options to purchase Common Stock who is a party to an Option
Cancellation Agreement with AMG, in full cancellation and settlement of such
options, the consideration provided for in such Option Cancellation Agreement,
and upon such payment by AMG, each such option shall be canceled by the Company
and the holder thereof shall be deemed by his or her acceptance of such
consideration to have released any and all rights such holder had or may have
had in respect of such option.
(e) Prior to the Closing Date, the Stockholders shall enter into an
escrow agreement (the "Escrow Agreement") in form and substance reasonably
acceptable to AMG with a qualified escrow agent (the "Escrow Agent") reasonably
acceptable to AMG providing for a portion of the Purchase Price to be paid by
AMG into escrow at the Closing for the benefit of the Stockholders in amounts
and proportions consistent with such Stockholders' respective anticipated
liabilities pursuant to Section 6.1(i)(A) hereof (such liabilities to be
estimated for such purpose by the Company in good faith in a written schedule
delivered by the Company to the Stockholders and to AMG at least twenty (20)
days prior to the Closing Date, and in any event at least ten (10) days prior to
entering into the Escrow Agreement), and such escrowed monies shall be applied
by the Escrow Agent in satisfaction of the tax liabilities of the Company under
Section 1374 of the Code and any excess escrowed monies and any interest earned
on the escrowed monies shall be released to the Stockholders following the
filing of the Form 1120S for the Company for the period ending on the Closing
Date (provided that the Stockholders shall remain liable for any additional tax
liabilities pursuant to the terms of Article 6 hereof). At the Closing, AMG
shall pay to the Escrow
2
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Agent on behalf of the Stockholders that portion of the Purchase Price provided
for in the Escrow Agreement. Each Stockholder agrees to negotiate in good faith
to enter into an Escrow Agreement reasonably acceptable to AMG with an Escrow
Agent reasonably acceptable to AMG at least ten (10) days prior to the Closing
Date. Notwithstanding anything else contained in this Section 1.2(e), in the
event the Stockholders fail to enter into an Escrow Agreement in form and
substance reasonably acceptable to AMG with an Escrow Agent reasonably
acceptable to AMG at least ten (10) days prior to the Closing Date, AMG shall
not be obligated to pay any portion of the Purchase Price into escrow, and shall
instead pay the entire Purchase Price to the Stockholders at the Closing.
1.3 Directors and Officers. On or prior to the Closing Date, the Company
shall deliver to AMG evidence satisfactory to AMG of the resignations of the
directors and officers of the Company, such resignations to be effective as of
the Closing.
1.4 Time and Place of Closing. The closing of the Purchase and the related
transactions provided for in this Agreement (the "Closing") shall be held at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York
at 10:00 a.m. local time on the date of the Closing, which shall be three (3)
business days after the fulfillment or waiver of each of the conditions set
forth in Sections 9 (other than Section 9.11) and 10 (other than Section 10.4)
hereof, or at such other place or time as may be mutually agreed upon by AMG and
the Company.
1.5 Further Assurances. The Stockholders shall, from time to time after
the Closing, at the request of AMG and without further consideration, execute
and deliver further instruments of transfer and assignment and take such other
action as AMG may reasonably require to fully implement the provisions of this
Agreement.
1.6 Transfer Taxes. All transfer taxes, fees and duties under applicable
law incurred in connection with the Purchase will be borne and paid by the
Stockholders, and the Stockholders shall promptly reimburse the Company and AMG
for any such tax, fee or duty which any of them is required to pay under
applicable law.
SECTION 2. CONTRIBUTION OF ASSETS AND RESTATEMENT OF LLC AGREEMENT.
2.1 Asset Transfer. Promptly following the close of business on the
Closing Date (and in any event prior to the end of such day), the Company and
the LLC shall, and AMG and the Stockholders shall cause the LLC to: (i) enter
into the Initial Asset Transfer Agreement in the form attached hereto as Exhibit
2.1A (the "Initial Asset Transfer Agreement"), as well as each of the other
agreements, documents and instruments
3
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contemplated thereby and (ii) perform each of the transactions contemplated by
the Initial Asset Transfer Agreement as well as each of the other agreements,
documents and instruments contemplated thereby. On the business day first
following the Closing Date (but in any event prior to the commencement of
business on such first following day), the Company and the LLC shall, and AMG
and the Stockholders shall cause the LLC to: (i) enter into the Final Asset
Transfer Agreement in the form attached hereto as Exhibit 2.1B (the "Final Asset
Transfer Agreement" and, together with the Initial Asset Transfer Agreement, the
"Asset Transfer Agreement"), as well as each of the other agreements, documents
and instruments contemplated thereby and (ii) perform each of the transactions
contemplated by the Final Asset Transfer Agreement as well as each of the other
agreements, documents and instruments contemplated thereby. Together, such
transactions are referred to herein as the "Asset Transfer."
2.2 LLC Agreement. Immediately following the Closing, AMG, the Company,
each of the Stockholders and each other person becoming a Member thereof shall
amend and restate the Existing LLC Agreement into the Limited Liability Company
Agreement in the form attached hereto as Exhibit 2.2 (the "Restated LLC
Agreement").
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND STOCKHOLDERS.
3.1 Making of Representations and Warranties. As a material inducement to
AMG to enter into this Agreement and consummate the transactions contemplated
hereby, the Company and each of the Majority Stockholders jointly and severally
hereby make to AMG the representations and warranties contained in this Section.
After the Closing, no Stockholder shall have any right of indemnity or
contribution from the Company or the LLC (or any other right against the Company
or the LLC) with respect to any breach of a representation or warranty
hereunder.
3.2 Organization and Qualification of the Company and the LLC.
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania, with
full power and authority to own or lease its properties and to conduct its
business in the manner and in the places where such properties are owned or
leased or such business is currently conducted. The copies of the Company's
Articles of Incorporation, as amended to date (the "Articles of Incorporation"),
certified by the Department of State of the Commonwealth of Pennsylvania, and of
the Company's by-laws, as amended to date, certified by the Company's Secretary,
and heretofore delivered to AMG, are complete and correct, and no amendments
thereto are pending. The Company is not in violation of any term of its Articles
of Incorporation or by-laws. The Company is duly qualified to do business as a
foreign corporation under the laws of each jurisdiction in which the nature of
its business or the ownership or leasing of its properties requires such
qualification, except where the failure to be so licensed or qualified could not
have a Material Adverse Effect (as such term is defined in Section 14.1 hereof)
on the Company, the LLC or AMG.
(b) The LLC is a limited liability company duly formed, validly
existing and in good standing under the laws of the State of Delaware with full
power and authority under the Delaware Limited Liability Company Act, 6 Del. C.
ss.18-101, et seq., as amended from time to time (the "Delaware Act") and the
Existing LLC Agreement (and, after the effectiveness of the Restated LLC
Agreement, the Restated LLC Agreement) to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is currently conducted or proposed to be
conducted (and, after giving effect to the Closing and the Asset Transfer, the
business currently conducted by the Company). The copies of the LLC's Existing
LLC Agreement (as such term is defined in Section 14.1 hereof), certified by the
Company in its capacity as Manager Member of the LLC, and of the LLC's
Certificate of Formation, as
4
<PAGE>
amended to date (the "Existing Certificate of Formation"), certified by the
Secretary of State of the State of Delaware, each as heretofore delivered to
AMG, are complete and correct, and no amendments thereto are pending. The LLC is
not in violation of any term of the Existing LLC Agreement. The LLC is duly
qualified to do business as a foreign limited liability company under the laws
of each jurisdiction in which the nature of its business or the ownership or
leasing of its properties requires such qualification (and, after giving effect
to the Closing and the Asset Transfer, the business currently conducted by the
Company). As of the Closing, the LLC shall be duly qualified to do business as a
foreign limited liability company under the laws of each jurisdiction in which
the nature of the business it will conduct after giving effect to the Asset
Transfer, or the ownership or leasing of the properties it will receive in the
Asset Transfer, requires such qualification.
3.3 Capital Stock of the Company; Beneficial Ownership.
(a) The authorized capital stock of the Company consists exclusively
of (i) five million (5,000,000) shares of Common Stock, no par value per share,
of which one million (1,000,000) shares are outstanding, and all of such
outstanding shares are duly and validly authorized, issued, outstanding, fully
paid and non-assessable, and (ii) twenty thousand (20,000) shares of preferred
stock, par value $100.00 per share, of which no shares are issued or
outstanding.. Except as set forth in Schedule 3.3 hereto, there are no
outstanding options, warrants, rights, commitments, preemptive rights or
agreements of any kind for the issuance or sale of, or outstanding securities
convertible into, any additional shares of capital stock of any class of the
Company. None of the Company's capital stock has been issued in violation of any
Laws or Regulations. Except as set forth in Schedule 3.3 hereto, there are no
voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of the Company Shares to which the
Company or any of the Stockholders is a party. No Stockholder has any right of
appraisal with respect to the Company's capital stock by reason of the
transactions contemplated by this Agreement. The Company does not have any
outstanding debt securities.
(b) Each Stockholder owns of record and, to the knowledge of the
Company and the Majority Stockholders, beneficially the Company Shares set forth
opposite such Stockholder's name on Schedule 1.2 hereto, free and clear of any
Claims, except as reflected in Schedule 3.3 hereto. Each Stockholder is, to the
knowledge of the Company and the Majority Stockholders, the beneficial and
record holder of the Company Shares set forth opposite his name on Schedule 1.2
hereof, and the capital stock shown on Schedule 1.2 opposite his name are the
only shares of capital stock of the Company held by such Stockholder or with
respect to which such Stockholder has any rights.
3.4 Subsidiaries.
(a) Other than the Company's interest in the LLC, and except as
otherwise set forth on Schedule 3.4(a) hereto, the Company has no, nor has it
ever had any, subsidiaries, debt or equity investments or other ownership
interests, direct or indirect, in any other Person, except for cash and
cash-equivalents. The LLC has no subsidiaries or investments in any other
Person.
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(b) The Company is the sole member of the LLC, and the
capitalization of the LLC (with respect to capital accounts and interests in
profits) is as set forth in Schedule 3.4(b)(i) hereto, with all such interests
owned beneficially and of record by the Company, free and clear of any Claims
other than the restrictions imposed pursuant to this Agreement. After giving
effect to the Closing and the effectiveness of the Restated LLC Agreement, the
capitalization of the LLC will be as set forth in Schedule 3.4(b)(ii) hereto,
with all such interests owned of record and, to the knowledge of the Company and
the Majority Stockholders, beneficially by the entities and in the amounts
indicated in Schedule 3.4(b)(ii), in each case, other than as to the interests
of the Manager Member, free and clear of any Claims other than restrictions
imposed pursuant to the Restated LLC Agreement. All outstanding interests in the
LLC have been duly authorized and issued under the Existing LLC Agreement and,
after giving effect to the effectiveness of the Restated LLC Agreement, the
Restated LLC Agreement. After giving effect to the Closing and the restatement
of the Existing LLC Agreement into the Restated LLC Agreement, the Company will
be the sole Manager Member (as such term is defined in the Restated LLC
Agreement) and manager (as such term is defined in the Delaware Act) of the LLC,
and, exclusive of any impairment of title or claims created by AMG, the Company
will have good and marketable title to its interest in the LLC, as shown in
Schedule 3.4(b)(ii), free and clear of any Claims other than the restrictions
imposed pursuant to this Agreement and the Restated LLC Agreement and claims
created by AMG. Except as set forth in this Agreement or in the Restated LLC
Agreement, there are no rights, commitments, agreements or understandings
obligating or which might obligate the LLC or any of its members (including,
without limitation, the Company (other than any such items created by AMG)) to
issue, transfer, sell or redeem any securities or interests in the LLC. Except
as set forth in Schedule 3.3 hereto or in the Restated LLC Agreement, there are
no voting trusts, voting agreements, proxies or other agreements, instruments or
undertakings with respect to the voting of any interests in the LLC to which the
Company, the LLC or any of the Stockholders is a party.
3.5 Authority of the Company.
(a) The Company has full right, authority and power to enter into
this Agreement and each agreement, document and instrument executed and
delivered, or to be executed and delivered, by the Company pursuant to, or as
contemplated by, this Agreement and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance by the Company of
this Agreement and each such other agreement, document and instrument have been
duly authorized by all necessary action of the Company and the Stockholders and
no other action on the part of the Company or the Stockholders is required in
connection therewith.
This Agreement and each agreement, document and instrument executed and
delivered by the Company pursuant to, or as contemplated by, this Agreement
constitutes, or when executed and delivered will constitute, valid and binding
obligations of the Company enforceable in accordance with their terms. The
execution, delivery and performance by the Company of this Agreement and each
such other agreement, document and instrument:
(i) do not and will not violate any provision of the Articles
of Incorporation or by-laws of the Company, each as amended to date;
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(ii) do not and will not violate any Laws or Regulations
applicable to the Company or by which the Company's assets are bound or
require the Company to obtain any approval, consent or waiver of, or make
any filing with, any person or entity (governmental or otherwise) that has
not been obtained or made, except as specifically identified in Schedule
3.5 hereto, which approvals, consents and waivers identified in such
Schedule will, to the extent obtained, conform in all material respects
to, and otherwise satisfy in all material respects, all contractual
requirements and all Laws and Regulations applicable thereto; and
(iii) except as reflected in Schedule 3.5 hereto, do not and
will not result in a breach of, constitute a default under, accelerate any
obligation under, or give rise to a right of termination of, any
agreement, contract, instrument, mortgage, lien, lease, permit,
authorization, order, writ, judgment, injunction, decree, determination or
arbitration award to which the Company is a party or by which the property
of the Company is bound or affected, or result in the creation or
imposition of any Claim on any of the Company's assets or any Person's
interest in the Company (including, without limitation, the Company
Shares) (other than any such Claim created by AMG, other than by AMG or
any other party hereto entering into this Agreement or the other
agreements contemplated hereby, consummating the transactions contemplated
hereby or taking any other action contemplated hereby);
provided, however, that the representations in clauses (ii) and (iii) shall not
apply to Advisory Contracts to the extent that receipt of consents from a party
to such agreement is contemplated by Section 5.2 hereof.
(b) The LLC has all requisite power and authority under the Existing
LLC Agreement and the Delaware Act (and, after the effectiveness of the Restated
LLC Agreement, under the Restated LLC Agreement and the Delaware Act) to enter
into each agreement, document and instrument executed and delivered, or to be
executed and delivered, by the LLC pursuant to, or as contemplated by, this
Agreement and to carry out the transactions contemplated hereby and thereby. The
execution, delivery and performance by the LLC of each such agreement, document
and instrument have been duly authorized by all necessary action of the LLC and
the Company (in its capacity as Manager Member of the LLC), and no other action
on the part of the LLC, the Company or any other member is required in
connection therewith.
Each agreement, document and instrument executed and delivered by the LLC
pursuant to, or as contemplated by, this Agreement constitutes, or when executed
and delivered will constitute, valid and binding obligations of the LLC
enforceable in accordance with their terms. The execution, delivery and
performance by the LLC of each such agreement, document and instrument:
(i) do not and will not violate any provision of the Existing
LLC Agreement or the Restated LLC Agreement;
(ii) do not and will not violate any Laws or Regulations
applicable to the LLC or require the LLC to obtain any approval, consent
or waiver of, or make any filing with, any person or entity (governmental
or otherwise) that has not been obtained or made, except as specifically
identified in Schedule 3.5 hereto; and
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(iii) do not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of, any agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which the LLC is a party or by which
the property of the LLC is bound or affected, or result in the creation or
imposition of any Claim on any of the LLC's assets or of any Person's
interests in the LLC (other than any such Claim created by AMG, other than
by AMG or any other party hereto entering into this Agreement or the other
agreements contemplated hereby, consummating the transactions contemplated
hereby or taking any other action contemplated hereby).
3.6 Real and Personal Property.
(a) (i) Neither the Company nor the LLC own any real property. All
of the real property leased by the Company or the LLC is identified in Schedule
3.6(a) hereto (herein referred to as the "Real Property.")
(ii) All leases of Real Property by the Company or the LLC are
identified in Schedule 3.6(a), and true and complete copies thereof have
been delivered to AMG. Each of said leases has been duly authorized and
executed by the parties thereto and is in full force and effect. Neither
the Company nor the LLC is in material default under any of said leases,
nor has any event occurred which, with the giving of notice or the passage
of time, or both, would give rise to such a material default. To the
Company's and each Majority Stockholder's knowledge, each other party to
each of said leases is not in material default under any of said leases
and there is no event which, with the giving of notice or the passage of
time, or both, would give rise to such a material default. Subject to
receipt of the requisite consent(s) to assignment (as identified on
Schedule 3.5), after giving effect to the Closing and the Asset Transfer,
each lease identified in Schedule 3.6(a) will be valid and effective in
accordance with its terms, with the LLC having succeeded to all the rights
and obligations of the Company thereunder.
(b) Attached hereto as Schedule 3.6(b) is a list of all the
categories of material assets of the Company including Intellectual Property (as
such term is defined in Section 3.14 hereof). Except as set forth in Schedule
3.6(b) hereto, as of the date hereof, the Company owns all its assets free and
clear of any Claims. All the assets listed in Schedules to the Asset Transfer
Agreement included in Exhibit 2.1 hereto are being transferred to the LLC and,
after giving effect to such transfers, the LLC will own all such assets free and
clear of any Claims. The assets listed in Schedule 3.6(b) hereto include all the
material assets used in, and all the assets necessary for, the conduct of the
business of the Company as currently conducted and all the material assets which
the LLC can reasonably be expected to require for the conduct of such business
immediately following the Closing and the Asset Transfer, and are suitable and
in an appropriate condition for such purpose.
3.7 Assets Under Management. (a) The aggregate assets under management by
the Company as of June 30, 1998 and September 30, 1998 are accurately set forth
in Schedule 3.7 hereto. In addition, set forth in Schedule 3.7 are lists as of
June 30, 1998 and September 30, 1998, of all investment management, advisory and
sub-advisory contracts, together with any other contracts, agreements,
arrangements or understandings pursuant to which the Company provides
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Investment Management Services (including without limitation master agreements
and related documentation relating to Wrap Accounts (as defined below), whether
or not the Company is a party to such agreements or documents) (collectively,
the "Advisory Contracts"), setting forth:
(i) the name of the client under each such Advisory Contract
(including, in the case of "wrap account" relationships and any other
relationships with fiduciaries acting on behalf of underlying clients
(collectively, "Wrap Accounts"), (A) the name of the brokerage firm or
other financial institution or fiduciary (collectively, "Introducing
Agents") with whom the Wrap Account exists, (B) the name of the related
underlying client of the Introducing Agent and (C) to the extent in the
possession of or otherwise known to the Company, identification and a
brief description of any other contracts or agreements between such
Introducing Agent and such underlying client relating to the Investment
Management Services provided to such underlying client by the Company;
(ii) the state (or, if such client is not a U.S. citizen, the
country) of which such client (or, in the case of Wrap Accounts,
underlying client) is a citizen or resident;
(iii) the amount of assets under management with respect to each
such Advisory Contract at June 30, 1998 and September 30, 1998 and the
nature of the Investment Management Services provided (i.e., discretionary
or non-discretionary);
(iv) the fee schedule in effect with respect to each such Advisory
Contract (including, in the case of Wrap Accounts, (A) the fee schedule in
effect between the Company and the Introducing Agent, (B) to the extent
known to the Company, the fee schedule in effect between the Introducing
Agent and the related underlying client, and (C) a description of the
manner of the flow of funds to the Company with respect to such fees and,
to the knowledge of the Company and the Majority Stockholders, a
description of the manner of the flow of funds to all other Persons with
respect to such fees), any fees payable by the related client in
connection with Investment Management Services provided by the Company
other than pursuant to such Advisory Contract, and any (I) material fee
changes or (II) material changes in the amount of assets in any client's
account as a result of deposits or withdrawals made by such client, in
each case from June 30, 1998 to the date of this Agreement or presently
proposed or otherwise expected to be instituted (it being understood and
agreed that, solely for purposes of this representation and warranty, net
deposits or withdrawals with respect to any one client account in the
aggregate in excess of $500,000 shall be material); and
(v) the manner of consent required for the assignment by the Company
of each such Advisory Contract other than those that by their terms
terminate upon assignment (which are so identified) (including, in the
case of Wrap Accounts, the manner of consent required under each agreement
relating to such Wrap Account, whether or not the Company is a party to
such agreement (e.g., agreements between the Introducing Agent and the
related underlying client)); provided that the representation and warranty
made in this Section 3.7(a)(v) is limited to the knowledge of the Company
and the Majority Stockholders for purposes of determining its accuracy as
of the date of this Agreement solely for purposes of (A) determining
whether the closing condition set forth in Section 9.2(a) is satisfied
with respect
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to the making of this representation and warranty on the date of this
Agreement and (B) determining liability for any breach of this
representation and warranty if the Agreement is terminated prior to the
Closing (but is not so limited for purposes of determining the accuracy of
this representation and warranty at and as of the Closing for purposes of
determining whether the closing condition set forth in Section 9.2(a) is
satisfied or for purposes of determining liability for any breach of this
representation and warranty following the Closing).
Except as set forth in Schedule 3.7 and expressly described thereon, there are
no contracts, agreements, arrangements or understandings pursuant to which the
Company has undertaken or agreed to cap, waive, offset, reimburse or otherwise
reduce any or all fees or charges payable by any of the clients set forth in
Schedule 3.7 or pursuant to any of the contracts set forth in Schedule 3.7.
Except as is set forth in Schedule 3.7 hereto, no client of the Company has
expressed in writing to the Company an intention to terminate or reduce its
investment relationship with the Company, or adjust the fee schedule with
respect to any contract in a manner which would reduce the fee to the Company
(or, after giving effect to the Asset Transfer, the fee to the LLC).
(b) As of the date of this Agreement, the Company does not have any
clients with respect to which fees payable to the Company are based on
performance or otherwise provide for compensation on the basis of a share of
capital gains upon or capital appreciation of the funds (or any portion thereof)
of any client.
(c) Each account to which the Company provides Investment Management
Services that is (i) an employee benefit plan, as defined in Section 3(3) of
ERISA that is subject to Title I of ERISA; (ii) a person acting on behalf of
such a plan; or (iii) an entity whose assets include the assets of such a plan,
within the meaning of ERISA and applicable regulations (hereinafter referred to
as an "ERISA Client") have been managed by the Company such that the Company in
the exercise of such management is in compliance in all material respects with
the applicable requirements of ERISA. Schedule 3.7 identifies each Client that
is an ERISA Client with an appropriate footnote. The Company is a qualified
professional asset manager (as such term is used in Prohibited Transaction Class
Exemption 84-14) ("QPAM"), and as of the commencement of business on the first
business day following the Closing Date, the LLC will be a QPAM.
(d) To the knowledge of the Company and the Majority Stockholders,
no controversy or disagreement exists between the Company and any client of the
Company that has had or could reasonably be expected to have a Material Adverse
Effect on the Company, the LLC or AMG.
(e) Except as set forth in Schedule 3.7(e), no exemptive orders,
"no-action" letters or similar exemptions or regulatory relief have been
obtained, nor are any requests pending therefor, with respect to the Company,
the LLC, any Stockholder, officer, director or employee of the Company in
connection with the business of the Company or the LLC, or any client of the
Company in connection with the provision of Investment Management Services to
such client by the Company or the LLC.
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3.8 Financial Statements.
(a) The Company has delivered to AMG true and complete copies of the
following financial statements, copies of which are attached hereto as Schedule
3.8(a):
(i) Audited balance sheets of the Company at December 31,
1995, December 31, 1996 and December 31, 1997, and audited statements of
income, retained earnings and cash flows for each of the three (3) years
then ended. The audited balance sheet of the Company at December 31, 1997
(including the notes thereto) is referred to hereinafter as the "Base
Balance Sheet."
(ii) An unaudited balance sheet of the Company at June 30,
1998 and at September 30, 1998, and statements of income and retained
earnings for the periods then ended, certified by the Company's President.
Said financial statements have been prepared in accordance with GAAP using
the accrual method of accounting, applied consistently during the periods
covered thereby (except that the Company's unaudited financial statements do not
include footnote disclosure and are subject to normal year-end audit adjustments
which are not in the aggregate material) present fairly the financial condition
of the Company at the dates of said statements and the results of its operations
for the periods covered thereby.
(b) As of the date of the Base Balance Sheet, the Company did not
have any material liabilities of any nature, whether accrued, absolute,
contingent or otherwise, asserted or unasserted, known or unknown (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, liabilities for taxes due or then accrued or to become
due, or contingent or potential liabilities relating to activities of the
Company or the conduct of its businesses prior to the date of the Base Balance
Sheet regardless of whether claims in respect thereof had been asserted as of
such date), except liabilities stated or adequately reserved against on the Base
Balance Sheet, or reflected in Schedule 3.8(b) as of the date of this Agreement.
(c) Neither the Company nor the LLC has (including, with respect to
the giving of this representation pursuant to Section 9.2 hereof, after giving
effect to the Asset Transfer) any material liabilities of any nature, whether
accrued, absolute, contingent or otherwise, asserted or unasserted, known or
unknown (including, without limitation, liabilities as guarantor or otherwise
with respect to obligations of others, or liabilities for taxes due or then
accrued or to become due or contingent or potential liabilities relating to
activities of the Company or the LLC or the conduct of their businesses prior to
the date hereof or the Closing, as the case may be, regardless of whether claims
in respect thereof had been asserted as of such date), except: (i) liabilities
reflected or adequately reserved against on the Base Balance Sheet, (ii)
liabilities reflected in Schedule 3.8(c) as of the date of this Agreement or on
the unaudited balance sheet of the Company at September 30, 1998, included as
part of Schedule 3.8(a)), or (iii) liabilities incurred after the date of the
unaudited balance sheet of the Company at June 30, 1998 in the ordinary course
of business of the Company or the LLC consistent with past practice which could
not, individually or in the aggregate, have a Material Adverse Effect on the
Company, the LLC or AMG and which, in the case of liabilities incurred after the
date of this Agreement, also are consistent with the terms of this Agreement.
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3.9 Taxes.
(a) The Company and the LLC have each paid or caused to be paid all
federal, state, local, foreign, and other taxes, government fees or the like,
including, without limitation, income taxes, estimated taxes, alternative
minimum taxes, franchise taxes, capital stock taxes, sales taxes, use taxes, ad
valorem or value added taxes, employment and payroll-related taxes, withholding
taxes, and transfer taxes, whether or not measured in whole or in part by net
income, and all deficiencies, or other additions to tax, interest, fines and
penalties owed by it (collectively, "Taxes" and, each individually, a "Tax"),
required to be paid by it through the date hereof, whether disputed or not. The
unpaid taxes of the Company and the LLC (i) did not, as of September 30, 1998,
exceed the reserve for tax liability (rather than the reserve for deferred Taxes
established to reflect timing differences between book and tax income) set forth
in the unaudited balance sheet of the Company at September 30, 1998 (a copy of
which is attached hereto as part of Schedule 3.8(a)) (rather than in any notes
thereto) and (ii) do not exceed that reserve as adjusted for the passage of time
through the date hereof and the date of the Closing in accordance with the past
custom and practice of the Company in filing its Tax Returns. All Taxes required
to be withheld by the Company including, but not limited to, Taxes arising as a
result of payments to foreign persons or to employees of the Company, have been
collected and withheld, and have either been paid to the respective governmental
agencies, set aside in accounts for such purpose, or accrued, reserved against,
and entered on the books and records of the Company.
(b) Each of the Company and the LLC has, in accordance with
applicable law, filed all Tax Returns required to be filed by it, and all such
returns correctly and accurately in all material respects set forth the amount
of any Taxes relating to the applicable period. A list of all Tax Returns filed
with respect to the Company for taxable periods ended on or after December 31,
1992, is set forth in Schedule 3.9(b) attached hereto, and said Schedule
indicates those returns that have been audited or currently are the subject of
an audit. For each taxable period of the Company ended on or after December 31,
1992, the Company has delivered to AMG correct and complete copies of all Tax
Returns, examination reports and statements of deficiencies assessed against or
agreed to by the Company.
(c) Neither the IRS nor any other governmental authority responsible
for the imposition or collection of any Tax (a "Taxing Authority") is now
asserting or, to the knowledge of the Company or any Majority Stockholder,
threatening to assert against the Company or the LLC any deficiency or claim for
additional Taxes. No claim has ever been made by a Taxing Authority in a
jurisdiction where the Company or the LLC does not file reports and returns that
the Company or the LLC is or may be subject to taxation by that jurisdiction.
There are no security interests on any of the assets of the Company or the LLC
that arose in connection with any failure (or alleged failure) to pay any Taxes.
Neither the Company nor the LLC has ever entered into a closing agreement
pursuant to Section 7121 of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) There has not been any audit of any Tax Return filed by the
Company, no such audit is in progress, and the Company has not been notified by
any Taxing Authority that any such audit is contemplated or pending. No
extension of time with respect to any date on which a Tax Return was or is to be
filed by the Company or the LLC is in force, and no waiver or agreement by
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the Company or the LLC is in force for the extension of time for the assessment
or payment of any Taxes.
(e) Neither the Company nor the LLC has ever been (or has ever had
any liability for unpaid Taxes because it once was) a member of an "affiliated
group" (as defined in Section 1504(a) of the Code). Neither the Company nor the
LLC has ever filed, or has ever been required to file, a consolidated, combined
or unitary tax return with any other entity. Neither the Company nor the LLC is
a party to, nor has any obligation under, any tax sharing agreement. Neither the
Company nor the LLC has any liability for the Taxes of any Person as a
transferee or successor, by contract or otherwise.
(f) The Company (and any predecessor of the Company) has been a
validly electing S corporation within the meaning of Sections 1361 and 1362 of
the Code and a validly electing S corporation within the meaning of the
applicable state law statutes in the states listed in Schedule 3.9(f) attached
hereto at all times since January 1, 1997, and the Company will be an S
corporation up to the Closing.
(g) None of the Company's or the LLC's payroll, property, or
receipts, or other factors used in a particular state's apportionment or
allocation formula results in an apportionment or allocation of business income
to any state or other jurisdiction other than the Commonwealth of Pennsylvania,
and neither the Company nor the LLC has any non-business income that is
allocated, apportioned or otherwise sourced to any state, commonwealth or other
jurisdiction than the State of Pennsylvania.
(h) Except as set forth in Schedule 3.9(h) attached hereto, the
Company will not be liable for any Tax under Section 1374 of the Code in
connection with the deemed sale of the Company's assets caused by the Elections.
The Company has not, in the past ten (10) years, (i) acquired assets from
another corporation in a transaction in which the Company's Tax basis for the
acquired assets was determined, in whole or in part, by reference to the Tax
basis of the acquired assets (or any other property) in the hands of the
transferor, or (ii) acquired the stock of any corporation which became a
qualified subchapter S subsidiary.
(i) For purposes of this Agreement, all references to Sections of
the Code shall include any predecessor provisions to such Sections and any
similar provisions of federal, state, local or foreign law.
3.10 Collectibility of Accounts Receivable. All of the accounts receivable
of the Company shown or reflected on the Company's balance sheet as of September
30, 1998, or existing at the date hereof (less the reserve for bad debts set
forth on such balance sheet) were or are valid and enforceable claims, fully
collectible and subject to no setoff or counterclaim. Neither the Company nor
the LLC has any accounts or loans receivable from any person, firm or
corporation or other entity which is affiliated with the Company or from any
director, officer or employee of the Company except as disclosed in Schedule
3.10 hereto.
3.11 Absence of Certain Changes. Except as disclosed in Schedule 3.11
attached hereto, since the date of the Base Balance Sheet neither the Company
nor the LLC has (i) suffered any
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condition, event or occurrence which has had or could reasonably be expected to
have a Material Adverse Effect on the Company, the LLC or AMG or (ii) taken any
action which, had it occurred after the date hereof and prior to the Closing,
would have required AMG's consent under Section 5.5 hereof.
3.12 Ordinary Course. Except as otherwise specifically contemplated by
this Agreement, since the date of the Base Balance Sheet, the Company has
conducted its business only in the ordinary course and consistently with its
prior practices. Since its formation, the LLC has only conducted those
operations necessary for the performance of its obligations hereunder and
activities necessary in connection herewith and therewith, and the LLC does not
have any assets or liabilities (other than pursuant to the Existing LLC
Agreement and other than liabilities incidental to the formation of the LLC
which are not in the aggregate material).
3.13 Banking Relations. All of the arrangements which the Company or the
LLC has with any banking institution are, in all material respects, completely
and accurately described in Schedule 3.13 attached hereto, indicating with
respect to each of such arrangements the type of arrangement maintained (such as
checking account, borrowing arrangements, etc.) and the person or persons
authorized as signatories or otherwise to take action in respect thereof.
3.14 Intellectual Property.
(a) Except as described in Schedule 3.14, the Company and, after
giving effect to the Closing and the Asset Transfer, the LLC, has exclusive
ownership of, or exclusive license to use, all patent, copyright, trade secret,
trademark, trade name, service mark, formulas, designs, inventions or other
similar proprietary rights (including, without limitation, all rights in and to
the name "Rorer Asset Management") (collectively, "Intellectual Property") used
in the business of the Company as presently conducted. All of the rights of the
Company in such Intellectual Property are freely transferable. There are no
claims or demands of any other person or entity pertaining to any of such
Intellectual Property owned by the Company and no proceedings have been
instituted, or are pending or, to the knowledge of the Company and the Majority
Stockholders, threatened, which challenge the rights of the Company or the LLC
in respect of the Intellectual Property. The Company and, after giving effect to
the Closing and the Asset Transfer, the LLC, has the right to use, free and
clear of any claims or rights of other persons except, with respect to licensed
assets, the rights of the owner/licensor thereof, all customer lists (subject to
applicable confidentiality restrictions), investment or other processes,
computer software (other than rights of other Persons in computer software that
is generally available to the public in the retail marketplace), systems, data
compilations, research results and other information required for or incident to
its services or its business as presently conducted.
(b) All items of Intellectual Property which are material to the
business or operations of the Company and, after giving effect to the Closing
and the Asset Transfer, the LLC, are listed in Schedule 3.14. The Company has no
patents, patent applications, trademark registrations, trademark applications or
registered copyrights.
(c) All licenses or other agreements under which the Company is
granted rights in items of Intellectual Property which are material to the
business or operations of the Company
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and, after giving effect to the Closing and the Asset Transfer, the LLC, are
listed in Schedule 3.14. All said licenses or other agreements are in full force
and effect, there is no material default by any party thereto, and, except as
set forth in Schedule 3.14, all of the rights of the Company thereunder are
freely assignable. To the knowledge of the Company and the Majority
Stockholders, the licensors under said licenses and other agreements have and
had all requisite power and authority to grant the rights purported to be
conferred thereby. True and complete copies of all such licenses or other
agreements, and any amendments thereto, have been provided to AMG.
(d) The Company has not granted rights to others in Intellectual
Property owned or licensed by the Company.
(e) The Company has not made proprietary or non-public information
available to any person other than employees of the Company except pursuant to
written agreements requiring the recipients to maintain the confidentiality of
such information and appropriately restricting the use thereof. Neither the
Company nor any Majority Stockholder has knowledge of any infringement by others
of any Intellectual Property rights of the Company.
(f) The present business, activities and products of the Company,
and, after giving effect to the Asset Transfer and the Closing, the LLC, do not
infringe any rights of any other person in Intellectual Property. No proceeding
charging the Company with infringement of any Intellectual Property of any other
person or entity has been filed or, to the knowledge of the Company and the
Majority Stockholders, is threatened to be filed. The Company is not making
unauthorized use of any confidential information or trade secrets of any person,
including without limitation, any former employer of any past or present
employee of the Company. Except as set forth in Schedule 3.14, neither the
Company nor, to the knowledge of the Company and the Majority Stockholders, any
of the Company's employees have any agreements or arrangements with any persons
other than the Company related to confidential information or trade secrets of
such persons or restricting any such employee's ability to engage in business
activities of any nature. The activities of the Company's employees on behalf of
the Company do not violate any such agreements or arrangements known to the
Company.
3.15 Contracts. Except for those contracts, commitments, plans, agreements
and licenses described in Schedule 3.3, Schedule 3.6(a), Schedule 3.7, Schedule
3.14, Schedule 3.15 and Schedule 3.24 hereto (true and complete copies of which
have been made available or delivered to AMG) (the "Contracts"), and except for
the Existing LLC Agreement and (when entered into) the Employment Agreements,
neither the Company nor the LLC is a party to or subject to any:
(a) investment management or investment advisory or sub-advisory
contract or any other contract for the provision of Investment Management
Services or other similar services;
(b) plan or contract providing for bonuses, pensions, options, stock
(or other beneficial interest) purchases (or other securities or phantom equity
purchases), deferred compensation, retirement payments, profit sharing, or the
like;
(c) employment contract or contract for services which is not
terminable at will by the Company (and, after giving effect to the Closing and
the Asset Transfer, the LLC) without
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liability for any penalty or severance payment (excluding any liability or
obligation imposed by statute (e.g., COBRA));
(d) contract or agreement for the purchase of any assets, material
or equipment except purchase orders in the ordinary course for less than $50,000
each, such orders not exceeding $250,000 in the aggregate;
(e) other contracts or agreements creating any obligations of the
Company or the LLC of $100,000 or more with respect to any such contract or
agreement not specifically disclosed elsewhere under this Agreement;
(f) contract or agreement for the sale of all or any material
portion of the assets of the Company or any contract for the purchase of all or
any material portion of the assets of any other entity other than the Asset
Transfer Agreement and the agreements contemplated thereby;
(g) contract with any investment or research consultant, solicitor
or sales agent, or otherwise with respect to the referral of business to the
Company or the LLC;
(h) contract containing covenants limiting the freedom of the
Company or the LLC (or their respective Affiliates) to compete in any line of
business or with any person or entity;
(i) license agreement (as licensor or licensee);
(j) agreement providing for the borrowing or lending of money, and
neither the Company nor the LLC has any obligations: (i) for borrowed money,
(ii) evidenced by bonds, debentures, notes or similar instruments, (iii) to pay
the deferred purchase price of property or services, (iv) under leases that
would, in accordance with GAAP, appear on the balance sheet of the lessee as a
liability, (v) secured by a Claim, (vi) in respect of letters of credit, or
bankers acceptances, contingent or otherwise, or (vii) in respect of any
guaranty or endorsement or other obligations to be liable for the debts of
another person or entity; or
(k) other material contract or agreement to which the Company or the
LLC is a party or by which either of them is bound.
Each of the Contracts is valid and in full force and effect in accordance
with its respective terms, and there is not, under any Contract, an existing
material breach or event which, with the giving of notice or the lapse of time
or both, would become such a breach. The Company has complied with and is in
compliance with the client's guidelines and restrictions set forth in any
Contract described in Schedule 3.7, including, without limitation, any
limitation set forth in the applicable prospectus, offering memorandum or
marketing material for a fund or other collective investment vehicle or
governing documents for any client. In the event the consents set forth in
Schedule 3.5 and, with respect to the Contract subject to any such consent,
Schedule 3.7, are obtained, and after giving effect to the Asset Transfer and
the Closing, each Contract will remain valid and effective in accordance with
its respective terms, and the LLC will be entitled to all rights and remedies
thereunder to which the Company is entitled on the date hereof, or such Contract
will have been replaced by a new contract with the same party or parties on
terms at least as favorable
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to the LLC as the terms of the present Contract are to the Company. Neither the
Company nor the LLC is bound by any agreement, contract or arrangement which
could reasonably be expected to have a Material Adverse Effect of the Company,
the LLC or AMG.
3.16 Litigation. Except as set forth in Schedule 3.16, there is no
litigation or legal or other action, suit, proceeding or, to the Company's and
the Majority Stockholders' knowledge, investigation, examination or audit, at
law or in equity, or before any federal, state, municipal or other governmental
department, commission, bureau, board, agency or instrumentality, domestic or
foreign (including, without limitation, any voluntary or involuntary proceedings
under the Bankruptcy Code or any action, suit, proceeding or investigation under
any federal or state securities law, rule or regulation), in which the Company,
the LLC, any Stockholder or any officer, director, stockholder, member or
employee of any such Person is a party or otherwise engaged, or to the knowledge
of the Company and the Majority Stockholders with which any of them is
threatened in connection with the business, affairs, properties or assets of the
Company or the LLC, or which might call into question the validity or hinder the
enforceability or performance of this Agreement, or of the other agreements,
documents and instruments contemplated hereby and the transactions contemplated
hereby and thereby. There are no proceedings pending or, to the knowledge of the
Company or any of the Majority Stockholders, threatened, relating to the
termination of, or limitation of, the rights of the Company (and, after giving
effect to the Closing and the Asset Transfer, the LLC) under its registration
under the Advisers Act as an investment adviser or any similar or related rights
under any registrations or qualifications with various states or other
jurisdictions, or under any other Laws or Regulations.
3.17 Compliance with Laws.
(a) Each of the Company and the LLC is, and at all times has been,
in material compliance with all laws and governmental rules and regulations,
domestic or foreign, including, without limitation, the Advisers Act, the
Commodity Exchange Act, ERISA, the Exchange Act, the Investment Company Act, the
Securities Act and the regulations promulgated under each of the foregoing; all
laws regulating, relating to or imposing liability or standards of conduct
concerning protection of human health or the environment; the rules and
regulations of self-regulatory organizations including, without limitation, the
NASD and each applicable exchange (as defined under the Exchange Act); and all
other foreign, federal or state securities laws and regulations applicable to
the business or affairs or properties or assets of the Company and the LLC
(collectively "Laws and Regulations").
(b) None of the Company, the LLC or any Stockholder, or any officer,
director, member, employee or stockholder of the Company or the LLC, is in
default with respect to any judgment, order, writ, injunction, decree, demand or
assessment issued by any court or any foreign, federal, state, municipal or
other governmental agency, board, commission, bureau, instrumentality or
department, domestic or foreign, or by any self-regulatory authority relating to
or otherwise affecting the Company, the LLC or AMG. None of the Company, the LLC
or any Stockholder, nor any officer, director, member, employee or stockholder
of the Company or the LLC, has been or is charged with or, to the knowledge of
the Company or any of the Majority Stockholders, threatened with, or under
investigation with respect to, any violation of any provision of foreign,
federal, state, municipal or other law or any administrative rule or regulation,
domestic or foreign, including,
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without limitation, any Laws or Regulations, affecting or relating to the
Company, the LLC or their businesses or the transactions contemplated hereby.
(c) Except as set forth in Schedule 3.17, none of the Company, the
LLC or any Stockholder is subject to any cease-and-desist or other order issued
by, or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any supervisory letter from or has adopted any resolutions at the request of any
self-regulatory organization or government entity that materially restricts the
conduct of the Company's or the LLC's business or that in any material manner
relates to the Company's or the LLC's management or business and could have a
Material Adverse Effect on the Company, the LLC or AMG, or has knowledge of the
threat of an imposition or receipt of any of the foregoing.
3.18 Business; Registrations.
(a) The Company is and has, since January 1, 1993, been engaged
solely in the business of providing Investment Management Services. From its
inception to January 1, 1993, the Company engaged solely in the business of
providing Investment Management Services and acting as a broker-dealer. The
Company does not provide Investment Management Services to or through (i) any
issuer or other Person that is an investment company (within the meaning of the
Investment Company Act), (ii) any issuer or other Person that would be an
investment company (within the meaning of the Investment Company Act) but for
the exemptions contained in Section 3(c)(1), Section 3(c)(7), the final clause
of Section 3(c)(3) or the third or fourth clauses of Section 3(c)(11) of the
Investment Company Act, or (iii) any issuer or other Person that is or is
required to be registered under the laws of the appropriate securities
regulatory authority in the jurisdiction in which the issuer is domiciled (other
than the United States or the states thereof), which is or holds itself out as
engaged primarily in the business of investing, reinvesting or trading in
securities.
(b) The Company is and has, since its inception, been duly
registered as an investment adviser under the Advisers Act. The Company is duly
registered, licensed and qualified as an investment adviser in all jurisdictions
where such registration, licensing or qualification is required in order to
conduct its business and where the failure to be so registered, licensed or
qualified could reasonably be expected to have a Material Adverse Effect on the
Company, the LLC or AMG. The Company is in material compliance with all foreign,
federal and state laws requiring registration, licensing or qualification as an
investment adviser. The Company has delivered to AMG true and complete copies of
its most recent Form ADV, as amended to date, and has made available copies of
all foreign and state registration forms, likewise as amended to date. The
information contained in such forms was true and complete in all material
respects at the time of filing and the Company has made all amendments to such
forms as it is required to make under any applicable laws. The information
contained in the Company's most recent Form ADV, as amended to date, is true and
complete in all material respects on the date hereof. Neither the Company nor,
to the knowledge of the Company and the Majority Stockholders, any person
"associated" (as defined under both the Investment Company Act and the Advisers
Act) with the Company, has been convicted of any crime or is or has engaged in
any conduct that would be a basis for (i) denial, suspension or revocation of
registration of an investment adviser under Section 203(e) of the Advisers Act
or Rule 206(4)-4(b) thereunder, or ineligibility to serve as an associated
person of an
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investment adviser, (ii) being ineligible to serve as an investment adviser (or
in any other capacity contemplated by the Investment Company Act) to a
registered investment company pursuant to Section 9(a) or 9(b) of the Investment
Company Act or (iii) being ineligible to serve as a broker-dealer or an
associated person of a broker-dealer pursuant to Section 15(b) of the Exchange
Act, and to the knowledge of the Company and the Majority Stockholders, there is
no proceeding or investigation that is reasonably likely to become the basis for
any such ineligibility, disqualification, denial, suspension or revocation. The
Company and each of its investment adviser representatives (as such term is
defined in Rule 203A-3(a) under the Advisers Act) has, and after giving effect
to the Closing and the Asset Transfer, the LLC and each of such representatives
will have, all permits, registrations, licenses, franchises, certifications and
other approvals (collectively, the "Licenses") required from foreign, federal,
state or local authorities in order for it to conduct the businesses presently
conducted by the Company in the manner presently conducted by the Company.
Neither the Company nor the LLC is subject to any limitation imposed in
connection with one or more of the Licenses which could reasonably be expected
to have a Material Adverse Effect on the Company and the LLC or AMG. Since
January 1, 1993, neither the Company nor the LLC has been a "broker" or "dealer"
within the meaning of the Exchange Act, and at no time since the Company's
inception has it been a "commodity pool operator" or "commodity trading adviser"
within the meaning of the Commodity Exchange Act. None of the Company or its
officers and employees is required to be registered as a broker or dealer, a
commodity trading adviser, a commodity pool operator, a futures commission
merchant, an introducing broker, a registered representative or associated
person, a counseling officer, an insurance agent, a sales person or in any
similar capacity with the SEC, the Commodity Futures Trading Commission, the
National Futures Association, the NASD or the securities commission of any state
or any self-regulatory body. Except as set forth on Schedule 3.18, no person
other than a full-time employee of the Company renders Investment Management
Services to or on behalf of clients of the Company or solicits clients with
respect to the provision of Investment Management Services by the Company.
3.19 Insurance. The Company has in full force and effect such insurance as
is customarily maintained by companies of similar size in the same or a similar
business, with respect to its businesses, properties and assets (including,
without limitation, errors and omissions liability insurance), and all bonds
required by ERISA and by any contract or other agreement to which the Company is
a party, all as listed in Schedule 3.19 hereto. The Company is not in material
default under any such insurance policy. After giving effect to the Closing and
the Asset Transfer, each such insurance policy or equivalent policies will be in
full force and effect, with the LLC as the sole owner and beneficiary of each
such policy. Neither the Company nor any Majority Stockholder has knowledge of
circumstances which would cause any such insurance policy to fail to be renewed
on terms materially identical to those currently in effect.
3.20 Powers of Attorney. None of the Company, the LLC or any Stockholder
(with respect to its Company Shares or any other interest in the Company or the
LLC) has any outstanding power of attorney.
3.21 Finder's Fee. None of the Company, the LLC or any Stockholder has
incurred or become liable for any broker's commission, finder's fee or similar
payment relating to or in connection with the transactions contemplated by this
Agreement.
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3.22 Corporate Records; Copies of Documents. The record books of the
Company accurately and completely record all corporate action taken by its
respective stockholders and board of directors and committees and true and
complete copies of the originals of such documents have been made available to
AMG for review. The Company has made available for inspection and copying by AMG
and its counsel true and complete copies of all documents referred to in this
Agreement or in the Schedules delivered to AMG in connection herewith.
3.23 Transactions with Interested Persons. Neither the Company, the LLC,
nor any stockholder, member, officer, supervisory employee or director of the
Company or the LLC or, to the knowledge of the Company or any of the Majority
Stockholders, any of their respective spouses, other family members or
Affiliates, is or during the past three (3) years has been a party to any
material transaction or material contract or arrangement with the Company or the
LLC, or owns directly or indirectly on an individual or joint basis any interest
(excluding passive investments in the shares of any enterprise which are
publicly traded provided his or her holdings therein, together with any holdings
of his or her Affiliates and family members, are less than five percent (5%) of
the outstanding shares of comparable interest in such entity) in, or serves as
an employee, independent contractor, officer, director or in another similar
capacity of, any competitor or client of the Company, or any organization which
has or during the past three (3) years has had a material contract or
arrangement with the Company or the LLC (in each case, other than as expressly
contemplated hereby).
3.24 Employee Benefit Programs.
(a) Schedule 3.24 hereto lists every Employee Program (as defined
below) that has been maintained (as defined below) by the Company at any time
during the three-year period ending on the date of the Closing.
(b) Each Employee Program which has ever been maintained by the
Company and which has at any time been intended to qualify under Section 401(a)
or 501(c)(9) of the Code has received a favorable determination or approval
letter from the IRS regarding its qualification under such section, and has in
fact been qualified in all material respects under the applicable section of the
Code from the effective date of such Employee Program through and including the
Closing (or, if earlier, the date that all of such Employee Program's assets
were distributed). No event or omission has occurred which could reasonably be
expected to cause any such Employee Program to lose its qualification under the
applicable Code section.
(c) Each Employee Program has been established and administered in
accordance with its terms in all material respects, and is in compliance in all
material respects with the applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), the Code and other applicable
Laws and Regulations. With respect to any Employee Program ever maintained by
the Company, there has occurred no "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975 of the Code, or breach of any duty under
ERISA or other applicable law (including, without limitation, any health care
continuation requirements or any other tax law requirements, or conditions to
favorable tax treatment, applicable to such plan), which could reasonably be
expected to result, directly or indirectly, in any taxes, penalties or other
liability to the Company, the LLC or AMG. No litigation, arbitration, or
governmental administrative proceeding
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(or investigation) or other proceeding (other than those relating to routine
claims for benefits) is pending or, to the knowledge of the Company or any
Majority Stockholder, threatened with respect to any such Employee Program and
no facts or circumstances exist that could reasonably be expected to give rise
to any such litigation, arbitration or proceeding.
(d) Neither the Company nor any ERISA Affiliate (as defined below)
(i) has ever maintained any Employee Program which has been subject to title IV
of ERISA (including, but not limited to, any Multiemployer Plan (as defined
below)) or (ii) has ever provided health care or any other non-pension benefits
to any employees after their employment is terminated (other than as required by
part 6 of subtitle B of title I of ERISA) or has ever promised to provide such
post-termination benefits.
(e) With respect to each Employee Program maintained by the Company
within the three (3) years preceding the Closing, complete and correct copies of
the following documents (if applicable to such Employee Program) have previously
been delivered to AMG: (i) all documents embodying or governing such Employee
Program, and any funding medium for the Employee Program (including, without
limitation, trust agreements) as they may have been amended; (ii) the most
recent IRS determination or approval letter with respect to such Employee
Program under Code Sections 401 or 501(c)(9), and any applications for
determination or approval subsequently filed with the IRS; (iii) the three (3)
most recently filed IRS Forms 5500, with all applicable schedules and
accountants' opinions attached thereto; (iv) the summary plan description for
such Employee Program (or other descriptions of such Employee Program provided
to employees) and all modifications thereto; (v) any insurance policy (including
any fiduciary liability insurance policy) related to such Employee Program; (vi)
any documents evidencing any loan to an Employee Program that is a leveraged
employee stock ownership plan; and (vii) all other materials reasonably
necessary for AMG to perform any of its responsibilities with respect to any
Employee Program subsequent to the Closing (including, without limitation,
health care continuation requirements).
(f) Each Employee Program listed on Schedule 3.24 may be amended,
terminated, modified or otherwise revised by the Company, including the
elimination of any and all future benefit accruals under any Employee Program.
(g) For purposes of this section:
(i) "Employee Program" means (A) all employee benefit plans
within the meaning of ERISA Section 3(3), including, but not limited to,
multiple employer welfare arrangements (within the meaning of ERISA
Section 3(4)), plans to which more than one unaffiliated employer
contributes and employee benefit plans (such as foreign or excess benefit
plans) which are not subject to ERISA; and (B) all employment agreements,
stock option plans, bonus or incentive award plans, severance pay policies
or agreements, change in control agreements, deferred compensation
agreements, supplemental income arrangements, vacation plans, and all
other employee benefit plans, agreements, and arrangements not described
in (A) above. In the case of an Employee Program funded through an
organization described in Code Section 501(c)(9), each reference to such
Employee Program shall include a reference to such organization.
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(ii) An entity "maintains" an Employee Program if such entity
sponsors, contributes to, or provides (or has promised to provide)
benefits under such Employee Program, or has any obligation (by agreement
or under applicable law) to contribute to or provide benefits under such
Employee Program, or if such Employee Program provides benefits to or
otherwise covers employees or former employees of such entity, or their
spouses, dependents, or beneficiaries.
(iii) An entity is an "ERISA Affiliate" of the Company if it
would have ever been considered a single employer with the Company under
ERISA Section 4001(b) or part of the same "controlled group" as the
Company for purposes of ERISA Section 302(d)(8)(C).
(iv) "Multiemployer Plan" means a (pension or non-pension)
employee benefit plan to which more than one employer contributes and
which is maintained pursuant to one or more collective bargaining
agreements.
3.25 Directors, Officers and Employees.
(a) Schedule 3.25(a) hereto contains a true and complete list of all
current directors and officers of the Company. In addition, Schedule 3.25(a)
hereto contains a list of all managers and employees of, and consultants to, the
Company who, individually, have received or are scheduled to receive
compensation from the Company and/or the LLC for the fiscal year ending December
31, 1998, in excess of $75,000. In each case such Schedule includes the current
job title of each such individual.
(b) To the knowledge of the Company and the Majority Stockholders,
each employee listed in Schedule 3.25(b) hereto is in good health.
(c) The Company employs and, upon giving effect to the Asset
Transfer, the LLC will employ immediately following the Asset Transfer,
approximately seventy (70) full-time employees and eight (8) part-time employees
and generally enjoys good employer-employee relationships. Except as set forth
in Schedule 3.25(c) hereto (or Schedule 3.24 hereto), neither the Company nor
the LLC has any obligation, contingent or otherwise, under (a) any employment,
collective bargaining or other labor agreement, (b) any written or oral
agreement containing severance or termination pay arrangements, (c) any deferred
compensation agreement, retainer or consulting arrangements, (d) any pension or
retirement plan, any bonus or profit-sharing plan, any stock option or stock
purchase plan, or (e) any other employee contract or non-terminable (whether
with or without penalty) employment arrangement (each an "Employment
Arrangement"). The Company is not in default with respect to any material term
or condition of any Employment Arrangement, nor will the Closing or the Asset
Transfer (or the transactions contemplated hereby or thereby) result in any such
default, including, without limitation, after the giving of notice, lapse of
time or both. The Company is not delinquent in payments to any of its employees
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed for it to the date hereof or amounts required to be
reimbursed to such employees. Upon termination of the employment of any of said
employees, none of the Company, the LLC or AMG could, by reason of the
transactions contemplated by this Agreement or anything done prior to the
Closing, be liable to
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any of said employees for so-called "severance pay" or any other payments except
as set forth in the Restated LLC Agreement or the Employment Agreements. Neither
the Company nor the LLC has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate the Company, the LLC or AMG to make any payments, that would be
rendered non-deductible by Section 280G of the Code. The Company does not have
any policy, practice, plan or program of paying severance pay or any form of
severance compensation in connection with the termination of employment. Each of
the Company and the LLC is in compliance in all material respects with all
applicable Laws and Regulations respecting labor, employment, fair employment
practices, work place safety and health, terms and conditions of employment, and
wages and hours. There are no charges of employment discrimination or unfair
labor practices against or involving the Company. There are no grievances,
complaints or charges that have been filed against the Company under any dispute
resolution procedure that could have a Material Adverse Effect on the Company,
the LLC or AMG or the conduct of their respective businesses, and there is no
arbitration or similar proceeding pending and no claim therefor has been
asserted. The Company has in place all material employee policies required by
applicable laws, rules and regulations, and there have been no material
violations or alleged violations of any of such policies. The Company has not
received any notice indicating that any of its employment policies or practices
is currently being audited or investigated by any foreign, federal, state or
local government agency. Each of the Company and the LLC is, and at all times
since November 6, 1986 has been, in compliance with the requirements of the
Immigration Reform Control Act of 1986.
3.26 Non-Foreign Status. No Stockholder is a "foreign person" within the
meaning of Section 1445 of the Code and Treasury Regulations Section 1.1445-2.
3.27 Transfer of Shares. No holder of stock of the Company has at any time
transferred any of such stock to any employee of the Company, which transfer
constituted or could be viewed as compensation for services rendered to the
Company by said employee.
3.28 Stock Repurchase. Except as set forth in Schedule 3.28, neither the
Company nor the LLC has redeemed or repurchased any of its capital stock or
interests since January 1, 1997.
3.29 Code of Ethics; Insider Trading and Conflicts Policies; Wrap Account
Policies.
(a) The Company has adopted a written policy regarding insider
trading and conflicts of interest and a Code of Ethics which complies and for at
least the past three (3) years has complied, in all material respects, with all
applicable provisions of Section 204A of the Advisers Act, a true and complete
copy of which has been delivered to AMG prior to the date hereof. All employees
of the Company have executed acknowledgments that they are bound by the
provisions of such Code of Ethics and insider trading and conflicts policies.
The policies of the Company with respect to avoiding conflicts of interest are
as set forth in the Company's most recent Form ADV or incorporated by reference
therein, and such disclosure is sufficient to comply with the requirements of
Form ADV. There have been no material violations or allegations of material
violations of such Code of Ethics, insider trading policy or conflicts policy.
(b) The Company has had in effect for at least the past three (3)
years policies and procedures (copies of which have been provided to AMG,
including descriptions of any such
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policies and procedures which are not written) regarding the establishment and
maintenance of Wrap Accounts which are and have been sufficient to address its
fiduciary obligations (if any) with respect to Wrap Accounts (including without
limitation matters relating to the suitability of such fee arrangements,
conflicts of interest arising in connection with such arrangements and similar
matters, to the extent applicable). The policies and procedures of the Company
with respect to Wrap Accounts are as set forth in the Company's most recent Form
ADV or incorporated by reference therein, and such disclosure is sufficient to
comply with the requirements of Form ADV.
3.30 Disclosure. The representations, warranties and statements contained
in this Agreement and the agreements, documents, instruments, certificates,
exhibits and schedules delivered by the Company and the Stockholders to AMG
pursuant to this Agreement (the "Transaction Documents") or any Transaction
Documents, do not contain any untrue statement of a material fact, and, when
taken together, do not omit to state a material fact required to be stated
therein or necessary in order to make such representations, warranties or
statements not misleading in light of the circumstances under which they were
made. All consent solicitation materials to be prepared for use in connection
with the transactions contemplated by this Agreement at the time such
information is provided or used, as then amended or supplemented, and any
information disseminated in respect of the transactions contemplated hereby at
the time such information is disseminated, in each case, will be accurate and
complete, provided that no representation is made as to the accuracy or
completeness of written information supplied by AMG.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS.
As a material inducement to AMG to enter into this Agreement and
consummate the transactions contemplated hereby, each Stockholder hereby
severally makes to AMG each of the representations and warranties set forth in
this Section 4 with respect to such Stockholder. After the Closing, no
Stockholder shall have any right of indemnity or contribution from the Company
or the LLC (or any other right against the Company or the LLC) with respect to
the breach of any representation or warranty hereunder.
4.1 Company Shares. Such Stockholder owns of record and beneficially the
number of Company Shares set forth opposite such Stockholder's name in Schedule
1.2. Such Company Shares are, and when delivered by such Stockholder to AMG
pursuant to this Agreement will be, duly authorized, validly issued, fully paid,
non-assessable and free and clear of any and all Claims (including, without
limitation, claims under the Pennsylvania Uniform Commercial Code). The Company
Shares set forth opposite such Stockholder's name in Schedule 1.2 are the only
shares of capital stock held by such Stockholder or with respect to which such
Stockholder has any rights in the Company. After giving effect to the Closing
and the effectiveness of the Restated LLC Agreement, all interests in the LLC
set forth opposite such Stockholder's name in Schedule 3.4(b)(ii) will be owned
of record and beneficially by such Stockholder in the amount set forth therein,
free and clear of any Claims other than restrictions imposed pursuant to the
Restated LLC Agreement.
4.2 Authority. Such Stockholder has full right, authority, power and
capacity to enter into this Agreement and each agreement, document and
instrument to be executed and delivered by or on behalf of such Stockholder
pursuant to, or as contemplated by, this Agreement and to carry out
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the transactions contemplated hereby and thereby. This Agreement and each
agreement, document and instrument executed and delivered by such Stockholder
pursuant to this Agreement constitutes, or when executed and delivered will
constitute, a valid and binding obligation of such Stockholder, enforceable in
accordance with its respective terms, except as enforceability may be
restricted, limited or delayed by applicable bankruptcy or similar laws
affecting creditors' rights generally. Such Stockholder is a natural person and
has full power and authority to transfer, sell and deliver the Company Shares to
AMG pursuant to this Agreement and, on the terms and subject to the conditions
hereof, at the Closing will transfer, sell and deliver to AMG good and
marketable title to the Company Shares set forth opposite such Stockholder's
name in Schedule 1.2, free and clear of any Claims, except as reflected in
Schedule 3.3 hereto. The execution, delivery and performance of this Agreement
and each such agreement, document and instrument:
(i) does not and will not violate any Laws or Regulations, or
require such Stockholder to obtain any approval, consent or waiver from,
or make any filing with, any person or entity (governmental or otherwise)
that has not been obtained or made; and
(ii) does not and will not result in a breach of, constitute a
default under, accelerate any obligation under, or give rise to a right of
termination of, any agreement, contract, instrument, mortgage, lien,
lease, permit, authorization, order, writ, judgment, injunction, decree,
determination or arbitration award to which such Stockholder is a party or
by which the property of such Stockholder is bound or affected, or result
in the creation or imposition of any Claim on any assets of the Company,
the LLC or AMG or on Company Shares owned by such Stockholder.
4.3 Finder's Fee. Such Stockholder has not incurred or become liable for
any broker's commission, finder's fee or similar payment relating to or in
connection with the transactions contemplated by this Agreement.
4.4 Investment Advisory Representation. Except for his or her own account
and advice given to such Stockholder's spouse, children, grandchildren, parents
and siblings and which such Stockholder is managing without a fee or any other
remuneration, such Stockholder does not provide Investment Management Services
to any person or entity, other than on behalf of the Company (and, after giving
effect to the Closing and the Asset Transfer, the LLC), pursuant to an
investment advisory agreement between the Company (and, after giving effect to
the Closing and the Asset Transfer, the LLC) and a client thereof.
4.5 Agreements.
(a) Such Stockholder is not a party to any employment,
non-competition, trade secret or confidentiality agreement, arrangement or
understanding with any party other than the Company or the LLC. There are no
agreements or arrangements not contained herein or disclosed in a Schedule
hereto, to which such Stockholder is a party relating to the business of the
Company or the LLC or to such Stockholder's rights and obligations as a
stockholder, member, director, officer or employee of the Company or the LLC.
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(b) Such Stockholder does not own, directly or indirectly (and
including ownership by members of such Stockholder's Immediate Family and such
Stockholder's Affiliates), on an individual or joint basis, any interest
(excluding passive investments in the shares of any enterprise which are
publicly traded, provided his or her holdings therein, together with any
holdings of his or her Affiliates and family members, are less than five percent
(5%) of the outstanding shares of comparable interest in such entity) in, or
serve as an independent contractor, employee, officer or director of, any
organization which (i) has or during the past three (3) years has had a contract
or arrangement with the Company or the LLC, (ii) could reasonably be considered
a competitor of the Company or the LLC or (iii) except as set forth on Schedule
4.5(b), is otherwise engaged in the investment management, broker-dealer or
other financial services businesses. The execution, delivery and performance of
this Agreement will not violate or result in a default or acceleration of any
obligation under any contract, agreement, indenture or other instrument
involving the Company or the LLC to which such Stockholder is a party.
4.6 Employment Data. Such Stockholder's (i) date of birth, and (ii) date
of commencement of employment with the Company are both accurately reflected in
Schedule 4.6 hereto.
4.7 Good Health. Each of the Stockholders represents and warrants that he
or she, to his or her knowledge, is in good health. Each of the Stockholders
represents and warrants that, as of the Closing, he or she has given true and
complete responses to all questions asked by insurance brokers and other
insurance company agents in connection with the transactions contemplated by
this Agreement and the Restated LLC Agreement.
SECTION 5. COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
5.1 Making of Covenants and Agreements. The Company, the LLC and the
Stockholders hereby make the respective covenants and agreements set forth in
this Section 5, and the Stockholders agree to use all commercially reasonable
efforts to cause the Company and the LLC to comply with such agreements and
covenants. After the Closing, no Stockholder shall have any right of indemnity
or contribution from the Company or the LLC (or any other right against the
Company or the LLC) with respect to the breach of any covenant or agreement
hereunder.
5.2 Client Consents.
(a) As soon as practicable after the date hereof, but in any event
on or prior to November 15, 1998, the Company shall notify each of its clients
of the transactions contemplated hereby and the assignment of such client's
contract resulting therefrom. Such notice shall be in the form of Exhibit 5.2A
with respect to those clients whose contracts require affirmative written
consent (by their terms or under applicable law) for their assignment, in the
form of Exhibit 5.2B with respect to those clients whose contracts do not
require affirmative written consent (by their terms or under applicable law) for
their assignment, and in a form reasonably acceptable to AMG with respect to
those clients whose contracts terminate (by their terms or under applicable law)
upon their assignment (in each case, with such changes thereto as may be agreed
to by AMG in writing).
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(b) On or prior to November 30, 1998, the Company shall send to each
client who was sent, but who has not by such date returned, a notice pursuant to
Section 5.2(a), countersigned indicating approval of the assignment of such
client's contract resulting from the transactions contemplated hereby, a second
notice in form and substance reasonably acceptable to AMG.
(c) The Company and the Stockholders shall use all commercially
reasonable efforts to, and the Stockholders shall cause the Company to use all
commercially reasonable efforts to, obtain consents from the Company's clients
(or, in the case of clients whose contracts terminate upon their assignment, new
contracts on substantially equivalent terms) in the manner contemplated by this
Section 5.2.
5.3 Authorizations.
(a) The LLC shall, and the Company and each of the Stockholders
shall cause the LLC (i) as promptly as practicable following the date of this
Agreement to prepare and file with the SEC a Uniform Application for Investment
Adviser Registration on Form ADV to register the LLC as an investment adviser
under the Advisers Act (the "New ADV"), and (ii) to make appropriate additional
filings with respect to its investment advisory status as soon as practicable
with all other jurisdictions in which the Company has a place of business
(within the meaning of the Advisers Act) and in each other jurisdiction where it
is necessary or desirable for the LLC to make such filings in order to conduct
its businesses (including, without limitation, the businesses currently
conducted by the Company) after the Asset Transfer and the Closing.
(b) The Company shall use commercially reasonable efforts to obtain,
and the Company and each of the Stockholders will use commercially reasonable
efforts to cause the LLC to obtain all authorizations, consents, orders,
approvals and Licenses of federal, state and local regulatory bodies and
officials that may be or become necessary for their respective execution and
delivery of, and the performance of their respective obligations pursuant to,
this Agreement and the other agreements, documents and instruments contemplated
hereby, and for the LLC to succeed to the business presently being conducted by
the Company.
(c) The Stockholders shall, and the Company and the Stockholders
shall use their best efforts to cause all applicable employees of the Company
to, file, as soon as practicable after the date hereof, such applications for
licensing, registration or qualification of investment adviser representatives
(within the meaning of Rule 203A-3(a) under the Advisers Act) in each
jurisdiction where such applicable investment adviser representative has a place
of business (within the meaning of Rule 203A-3(b) under the Advisers Act) and in
each other jurisdiction where it is necessary to effect such licensing,
registration or qualification in order to conduct the business of the LLC
(including, without limitation, the business currently conducted by the Company)
after the Closing and the Asset Transfer.
5.4 Authorization from Others. The Stockholders and the Company shall use,
and shall cause the LLC to use, their respective best efforts (but shall not be
obligated to make payments or other material concessions to clients in
connection therewith) to obtain all authorizations, consents, approvals, permits
and Licenses of others required to permit the consummation by the Stockholders,
the Company and the LLC of the transactions contemplated by this Agreement.
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5.5 Conduct of Business. Between the date of this Agreement and the
Closing, except as described on Schedule 5.5 hereto, without the prior written
consent of AMG:
(a) The Company will conduct its business only in the ordinary
course of business consistent with past practices and in compliance with all
applicable Laws and Regulations and the LLC will only conduct those operations
necessary for the consummation of the transactions contemplated hereby and
activities necessary in connection therewith;
(b) Neither the Company nor the LLC will (i) make (or incur any
obligation to make) any purchase, acquisition, sale, disposition or lease of any
assets or property (including the purchase of securities for its own account),
or merge or consolidate with any other Person, other than (A) as specifically
provided for in the Asset Transfer Agreement or (B) sales of worn-out or
obsolete property or equipment, and transactions effected in client portfolios,
in each case in the ordinary course of business consistent with past practices,
or (ii) subject to any Claim, other than to the extent currently existing or
which will be removed prior to Closing, any of its properties or assets
(including, without limitation, with respect to the Company, its interest in the
LLC), nor permit any of the foregoing to exist;
(c) Neither the Company nor the LLC will incur any obligation for
borrowed money (contingent or fixed), issue any debt securities or become
obligated as a guarantor or otherwise with respect to the obligations of others;
(d) The Company will not make or incur any obligation to make a
change in its Articles of Incorporation, By-laws or authorized or issued capital
stock or other equity or ownership interests of any type, and the LLC will not
make or incur any obligation to make any change in the Existing LLC Agreement or
the authorized or issued ownership interests in the LLC (other than the
restatement into the Restated LLC Agreement as contemplated by Section 2.2
hereof);
(e) Neither the Company nor the LLC will declare, set aside or pay
any dividend or distribution (whether in cash or in property), make (or incur an
obligation to make) any other distribution in respect of its capital stock or
interests or make (or incur an obligation to make) any direct or indirect
redemption, purchase or other acquisition of its stock or interests (or any
other equity or ownership interest therein) except that the Company may make
dividend distributions prior to the Closing subject to the Company's ability to
comply with the conditions to Closing set forth in Section 9.10;
(f) Neither the Company nor the LLC will (i) make any change in the
compensation or fringe benefits payable or to become payable to, or grant any
termination or severance pay to, any of the Company's present or former
directors, officers, employees, agents or independent contractors, except
changes in the ordinary course consistent with past practice in conjunction with
annual reviews, provided that the foregoing shall not prohibit the payment of
bonus compensation in a manner consistent with past practices, subject to the
Company's ability to comply with the conditions to Closing set forth in Section
9.10, (ii) enter into any collective bargaining agreement, bonus, equity,
option, profit sharing, compensation, welfare, retirement, or other similar
arrangement, or any employment contract or (iii) enter into any contract,
agreement, arrangement or understanding with the Stockholders, members of their
families or their respective Affiliates;
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(g) The Company will not prepay any loans or otherwise satisfy
material payment obligations before they become due, waive or cancel any rights
of material value or terminate any of the Contracts;
(h) The Company will not make any change in its borrowing or banking
arrangements and the LLC will not enter into any borrowing arrangements;
(i) The Company will use all commercially reasonable efforts to
prevent any change with respect to its management and supervisory personnel, and
will not hire or terminate any member thereof;
(j) The Company will have in effect and maintain at all times all
insurance of the kind, in the amount and with the insurers set forth in Schedule
3.19 hereto or substantially equivalent insurance with any substitute insurers
approved in writing by AMG, and prior to the Closing, the LLC will have in
effect and thereafter maintain at all times all insurance of the kind, in the
amount and with the insurers set forth in Schedule 3.19 hereto or equivalent
insurance with any substitute insurers approved in writing by AMG;
(k) Neither the Company nor the LLC will (i) settle or compromise
any material litigation, arbitration, investigation, audit or other proceeding
or (ii) write up, write down or write off the book value of any assets in the
aggregate in excess of $50,000 (except for depreciation and amortization in
accordance with GAAP consistently applied);
(l) Neither the Company nor the LLC will terminate its existence or
voluntarily file for or otherwise commence proceedings with respect to
bankruptcy, reorganization, receivership or similar status;
(m) Neither the Company nor the LLC will make or change any Tax
election, waive or extend the statute of limitations in respect of Taxes, amend
any Tax Return, enter into any closing agreement with respect to any Tax, settle
any Tax claim or assessment or surrender any right to a claim for a Tax refund,
change any method or principle of accounting in a manner inconsistent with past
practice (except to the extent required by GAAP as advised by the Company's
regular independent accountants) or change regular independent accountants;
(n) Neither the Company nor the LLC will take any action that would
reasonably be expected to result in any of the representations and warranties
set forth in Section 4 becoming false or inaccurate in any material respect; and
(o) Neither the Company nor the LLC will agree in writing or
otherwise to take any action inconsistent with the foregoing.
5.6 Financial Statements. Commencing with the month ending November 30,
1998, the Company will furnish AMG, within twenty (20) business days after each
month end for each month ending more than twenty (20) business days prior to the
Closing, with (a) unaudited monthly balance sheets and statements of income and
retained earnings of the Company and the LLC on a consolidated and consolidating
basis, certified by the chief financial officer of the Company, which
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financial statements shall be prepared in accordance with generally accepted
accounting principles applied consistently using the accrual method of
accounting (except that they need not include footnotes), shall present fairly
in all material respects the financial condition of the Company and the LLC at
the dates of said statements and the results of their operations for the periods
covered thereby, (b) complete and correct information regarding the aggregate
assets under management by the Company as of such month end and (c) such other
correct information regarding the Company's assets under management as of such
month end, broken out by category of client, asset class and/or similar types of
information, each to the extent such information already is prepared by the
Company in the ordinary course for its internal use and/or for reporting to the
Stockholders. Within five (5) business days following the date of this
Agreement, the Company shall deliver to AMG the Company's final good faith
written calculation of Base Fees, calculated in the manner provided in Section
9.3.
5.7 Preservation of Business and Assets. Until the Closing, each of the
Company, the LLC and each of the Stockholders shall use all commercially
reasonable efforts to: (a) preserve the current business of the Company, (b)
maintain the present clients of the Company, in each case, on terms that are at
least as favorable as the terms of the agreement between the Company and the
relevant client as in effect on the date hereof, (c) preserve the goodwill of
the Company, and (d) preserve any Licenses required for, or useful in connection
with, the business of the Company (including without limitation all investment
adviser, and investment adviser representative, registrations). In addition,
except as expressly contemplated by this Agreement, none of the Stockholders
shall take any material action not in the ordinary course of business relating
to the Company or which could reasonably be expected to have a material effect
on the transactions contemplated hereby, without the prior consent of AMG which
consent shall not be unreasonably withheld.
5.8 Observer Rights and Access. Until the Closing: (a) a representative of
AMG shall be entitled to attend and observe all meetings of the Company's
stockholders and directors (or a committee thereof) in a non-voting observer
capacity, (b) AMG shall be entitled to receive all notices and information
furnished by the Company to its stockholders and directors (or a committee
thereof) in such capacities, as well as copies of the minutes of any meetings of
the Company's stockholders and directors (or a committee thereof), and (c) the
Company's stockholders or directors (or a committee thereof) shall not take any
action by written consent in lieu of a meeting unless AMG shall have been given
at least two (2) business days prior written notice which includes a copy of
such written consent by which such action is proposed to be taken. The Company
and the LLC shall afford to AMG and its representatives and agents reasonable
access, during normal business hours and with reasonable notice, to the
properties and records of the Company and the LLC in order that AMG may have
full opportunity to make such investigation as it shall desire for purposes
consistent with this Agreement.
5.9 Notice of Default. Promptly upon the occurrence of, or promptly upon
the Company or a Stockholder becoming aware of the threatened occurrence of, any
event which would cause or constitute a breach or default, or would have caused
or constituted a breach or default had such event occurred or been known to the
Company or such Stockholder prior to the date hereof, of any of the
representations, warranties or covenants of the Company or the Stockholders
contained in or referred to in this Agreement or in any Schedule or Exhibit
referred to in this Agreement, the Company and
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such Stockholder shall give detailed written notice thereof to AMG, and the
Company and the Stockholders shall use all commercially reasonable efforts to
prevent or promptly remedy the same.
5.10 Consummation of Agreement. The Company and each of the Stockholders
shall use all commercially reasonable efforts to perform and fulfill all
conditions and obligations to be performed and fulfilled by each of them under
this Agreement, to the end that the transactions contemplated by this Agreement
shall be fully carried out.
5.11 Cooperation of the Company and Stockholders. The Company and each of
the Stockholders shall cooperate with all reasonable requests of AMG and AMG's
counsel and auditors in connection with the consummation of the transactions
contemplated hereby and the making of any filings required in connection
therewith, including, without limitation, filings under the HSR Act, and all
filings made and consents obtained by the Company and/or the LLC in connection
with the transactions contemplated hereby shall be in form and substance
reasonably satisfactory to AMG. In addition, the Stockholders shall, and shall
cause the Company and the LLC to, cooperate fully, as and to the extent
requested by AMG or AMG's counsel or auditors, in connection with the filing of
tax returns and any audit, litigation or other proceedings, whether with respect
to taxes or otherwise.
5.12 No Solicitation of Other Offers. Until a date which is six (6) months
after a termination of this Agreement pursuant to Section 11.1 hereof for any
reason other than a material breach by AMG of its representations, warranties or
covenants set forth herein, neither the Company, the LLC, the Stockholders, nor
any of their representatives will, directly or indirectly, solicit, encourage,
assist, initiate discussions or engage in negotiations with, provide any
information to, or enter into any agreement or transaction with, any person,
other than AMG, relating to the possible acquisition of Company Shares or other
capital stock of the Company, the Company, the LLC or any of their respective
assets, except for the sale of assets by the Company in the ordinary course of
business consistent with past practices and the terms of this Agreement or
transfers of Company Shares between the Stockholders.
5.13 Confidentiality. The Company and the Stockholders agree that, unless
and until the Closing has been consummated, each of the Company, the LLC, the
Stockholders and their officers, directors, members, agents and representatives
will hold in strict confidence, and will not use, any confidential or
proprietary data or information obtained from AMG with respect to its business
or financial condition except for the purpose of evaluating, negotiating and
completing the transaction contemplated hereby. Information generally known in
AMG's industry or which has been disclosed to the Company, the LLC or the
Stockholders by third parties which have a right to do so shall not be deemed
confidential or proprietary information for purposes of this Agreement. If the
transactions contemplated by this Agreement are not consummated, the Company,
the LLC and the Stockholders will return, and cause their respective officers,
directors, members, agents and representatives to return, to AMG (or certify
that they have destroyed) all copies of such data and information, including but
not limited to financial information, customer lists, business and corporate
records, worksheets, test reports, tax returns, lists, memoranda, and other
documents prepared by or made available by AMG to the Company, the LLC or the
Stockholders (and their officers, directors, members, agents and
representatives) in connection with the transaction.
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5.14 Policies and Procedures. The Company, the LLC and the Stockholders
shall, and shall cause the employees of the Company to, cooperate with and
assist in such compliance audits and regulatory reviews as may reasonably be
requested by AMG (and at the expense of AMG and, to the extent agreed to by the
Company, the Company).
5.15 Subsidiaries; Investments in Other Persons. Between the date of this
Agreement and the Closing, none of the Stockholders, the Company nor the LLC
will take any action to acquire, form or otherwise establish any subsidiary of
the Company or the LLC or cause the Company or the LLC to make any investment
in, or otherwise conduct business through, any other Person.
5.16 LLC Interests and Company Shares. Between the date of this Agreement
and the Closing, (a) the Company and the Stockholders will not permit the LLC to
take any action to issue any rights or interests in the LLC, (b) the Company and
the Stockholder will not permit the LLC to take any action that will cause the
existing outstanding interests in the LLC to be revoked, repurchased, rescinded,
terminated, liquidated, transferred, amended or modified in any manner, (c) the
Company and the Stockholders will not, and the Company and the Stockholders will
not permit the LLC to, take any action that is in violation of any term or
provision of the Existing LLC Agreement and (d) neither the Company nor any
Stockholder will sell, assign, pledge, subject to a Claim or otherwise transfer
or restrict such Person's interests in the LLC or any Company Shares without the
prior written consent of AMG. Immediately following the Closing, the LLC shall
issue the interests and rights therein set forth in the Restated LLC Agreement
to the Members (as defined in the Restated LLC Agreement) and shall take such
actions as may be reasonably directed by AMG in connection therewith.
5.17 Employee Programs. Between the date of this Agreement and the
Closing, neither the Company nor the LLC shall (i) maintain any Employee Program
other than the Employee Programs listed on Schedule 3.24, (but they shall
maintain those Employee Programs listed on Schedule 3.24) or (ii) amend or
terminate any such Employee Program.
5.18 Foreign Qualifications. The LLC shall qualify to do business as a
foreign limited liability company under the laws of each jurisdiction where the
Company is, as of the date of this Agreement, qualified to do business as a
foreign corporation and under the laws of each jurisdiction in which the nature
of the business it will conduct after giving effect to the Asset Transfer, or
the ownership or leasing of the properties it will receive in the Asset
Transfer, requires such qualification, except for those jurisdictions where the
failure to so qualify, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on the Company, the LLC or AMG.
5.19 Termination of Certain Agreements. The Company and each of the
Stockholders which is a party to one or more of the agreements set forth in
Schedule 5.19 hereof hereby terminates such agreement effective immediately
prior to the Closing. The Company agrees that it will not exercise any rights of
"first refusal" or similar rights pursuant to the Stock Restriction Agreements
between the Company and the Stockholders of the Company in connection with the
transactions contemplated by this Agreement or otherwise prior to the
termination of such Stock Restriction Agreements.
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SECTION 6. COVENANTS OF THE COMPANY, THE STOCKHOLDERS AND AMG WITH RESPECT TO
CERTAIN TAX MATTERS
6.1 Section 338(h)(10) Election.
(i) The Company and each of the Stockholders will join with AMG in
making an election under Section 338(h)(10) of the Code (and any corresponding
election under state, local and foreign tax law) with respect to the purchase
and sale of the stock of the Company hereunder through the Purchase (the
"Elections"). Each Stockholder will include his or her proportionate share of
any income, gain, loss, deduction or other tax item resulting from the Elections
on his or her Tax Returns to the extent required by applicable law. Each
Stockholder shall also pay his or her share of any Tax imposed on the Company or
the LLC or other successors in interest of the Company attributable to the
making of the Elections, including, but not limited to, (A) any Tax imposed
under Section 1374 of the Code, (B) any Tax imposed under Treasury Regulations
Section 1.338(h)(10)-1(e)(5), or (C) any state, local or foreign Tax imposed on
the Company's gain attributable to the Purchase or the Elections.
(ii) The Stockholders and AMG agree that MADSP (as such term is
defined in Treasury Regulations Section 1.338(h)(10)-1(f)) for AMG's purchase of
the Company shall be allocated among the assets of the Company in accordance
with the provisions of Treasury Regulations Section 1.338(h)(10)-1(f). A
preliminary estimate of such allocation shall be agreed by AMG and the
Stockholders as soon as practicable after the date hereof. The final allocation
as of the date of the Closing (the "Asset Allocation") shall be agreed to by the
Stockholders and AMG as soon as practicable after the date of the Closing. If
the Stockholders and AMG are unable to agree on the Asset Allocation, such
allocation shall be determined on the basis of an appraisal prepared by the
Accounting Firm (as defined below). AMG shall prepare IRS Form 8023 (and any
required attachments ) and any similar state, local or foreign tax forms (and
any required attachments) required to make the Elections (collectively, the
"Election Forms" and each singularly, the "Election Form") and shall submit the
Election Forms to the Stockholders no later than sixty (60) days following the
date of the Closing. In the event of any dispute with regard to the content of
any Election Form (including any dispute concerning the Asset Allocation), the
parties shall diligently attempt to resolve such dispute. If they have not done
so within 15 days after the receipt of the Election Form by the Stockholders,
the dispute shall be resolved by a nationally recognized firm of independent
auditors acceptable to both the Majority Stockholders and to AMG (the
"Accounting Firm"), at least ten (10) days prior to the time the Election Form
is required to be filed. Each Stockholder shall promptly execute the applicable
Election Forms and shall return such Election Forms to AMG promptly and in any
event not less than five (5) days after the date on which the Election Form is
submitted to such Stockholder (following the final resolution of any issues
pursuant to the foregoing sentence). AMG shall file the Election Forms in
accordance with applicable Tax laws.
6.2 Tax Periods Ending on or Before the Date of the Closing. The
Stockholders shall prepare or cause to be prepared and file or cause to be filed
all income Tax Returns for the Company and the LLC for all periods ending on or
prior to the date of the Closing (expenses in connection therewith to be borne
by the LLC out of its Operating Allocation (as defined in the Restated LLC
Agreement)), and AMG shall cause the Company to cooperate in all reasonable
respects in the
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preparation of such Tax Returns. The Stockholders shall permit AMG to review and
comment on each such Tax Return described in the preceding sentence prior to
filing. To the extent required by applicable law, the Stockholders shall include
any income, gain, loss, deduction or other tax items for such periods on their
Tax Returns in a manner consistent with the Schedule K-1s furnished by the
Company to the Stockholders for such periods.
6.3 Cooperation on Tax Matters.
(i) The Stockholders and AMG shall report all transactions pursuant
to this Agreement in a manner that is consistent with the Elections and shall
take no position contrary thereto unless required to do so pursuant to a final
"determination" within the meaning of Section 1313 of the Code or an analogous
provision under state, local or foreign tax law.
(ii) AMG, the Company and the Stockholders shall cooperate fully, as
and to the extent reasonably requested by the other party, in connection with
the filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or other
proceeding and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Company and the Stockholders agree (A) to retain all books and
records with respect to Tax matters pertinent to the Company and the LLC
relating to any taxable period beginning before the date of the Closing until
the expiration of the statute of limitations (and, to the extent notified by AMG
or the Stockholders, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any Taxing
Authority, and (B) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Company or the Stockholders, as the case may be,
shall allow the other party to take possession of such books and records. AMG
and the Stockholders further agree, upon request, to use their best efforts to
obtain any certificate or other document from any governmental authority or any
other person as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
6.4 Tax Status. Between the date of this Agreement and the Closing, the
Company and the Stockholders shall keep in effect and not revoke the Company's
election to be taxed as an S corporation within the meaning of Sections 1361 and
1362 of the Code. Neither the Company nor any of the Stockholders shall take or
permit any action (other than the Purchase) that would result in the termination
of the Company's status as a validly existing S corporation within the meaning
of Sections 1361 and 1362 of the Code.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF AMG.
7.1 Making of Representations and Warranties. As a material inducement to
the Company and the Stockholders to enter into this Agreement and consummate the
transactions contemplated hereby, AMG hereby makes the representations and
warranties contained in this Section 7, to the Company and the Stockholders.
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7.2 Organization of AMG. AMG is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware with full
corporate power and authority to own or lease its assets and other properties
and to conduct its business in the manner and in the places where such assets
and other properties are owned or leased or such business is conducted by it.
7.3 Authority of AMG. AMG has full right, authority and power to enter
into this Agreement and each agreement, document and instrument to be executed
and delivered by AMG pursuant to or as contemplated by, this Agreement and to
carry out the transactions contemplated hereby and thereby. The execution,
delivery and performance by AMG of this Agreement and each such other agreement,
document and instrument have been duly authorized by all necessary corporate
action of AMG and no other action on the part of AMG is required in connection
therewith. This Agreement and each other agreement, document and instrument
executed and delivered by AMG pursuant to this Agreement constitute, or when
executed and delivered will constitute, valid and binding obligations of AMG
enforceable in accordance with their terms. The execution, delivery and
performance by AMG of this Agreement and each such agreement, document and
instrument:
(i) does not and will not violate any provision of the
Certificate of Incorporation or by-laws of AMG, each as amended, to the
date hereof;
(ii) does not and will not violate any Laws or Regulations
applicable to AMG or require AMG to obtain any approval, consent or waiver
of, or make any filing with, any person or entity (governmental or
otherwise) which has not been obtained or made, except as specifically
identified in Schedule 7.3 hereto; and
(iii) assuming that the consents or approvals set forth on
Schedule 7.3 hereto have been obtained, does not and will not result in a
breach of, constitute a default under, accelerate any obligation under, or
give rise to a right of termination of any agreement, contract,
instrument, mortgage, lien, lease, permit, authorization, order, writ,
judgment, injunction, decree, determination or arbitration award to which
AMG is a party and which is material to the business and financial
condition of AMG and its affiliated organizations on a consolidated basis.
7.4 Litigation. There is no litigation or legal or other action, suit or
proceeding pending or, to its knowledge, threatened against AMG or, to AMG's
knowledge, investigations, at law or in equity, or before any federal, state,
municipal or other governmental department, commission, bureau, board, agency or
instrumentality, domestic or foreign (including, without limitation, any
voluntary or involuntary proceedings under the Bankruptcy Code or any action,
suit, proceeding or investigation under any Federal or state securities law,
rule or regulation), in which AMG or any officer, director, stockholder or
employee thereof is engaged or with which any of them is threatened, which would
prevent or hinder the consummation of the transactions contemplated by this
Agreement.
7.5 Acquisition of Shares for Investment. AMG has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its purchase of
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the Company Shares. AMG represents and warrants that it is an "accredited
investor" within the meaning of Rule 501 promulgated by the SEC under the
Securities Act. AMG confirms that the Stockholders and the Company have made
available to AMG the opportunity to ask questions of the officers and management
employees of the Company and to acquire additional information about the
business and financial condition of the Company and the LLC. AMG is acquiring
the Company Shares for investment and not with a view toward or for sale in
connection with any distribution thereof in violation of any federal or state
securities or "blue sky" law, or with any present intention of distributing or
selling such shares in violation of any federal or state securities or "blue
sky" law. AMG understands and agrees that the Company Shares may not be sold,
transferred, offered for sale, pledged, hypothecated or otherwise disposed of
without registration under the Securities Act, except pursuant to an exemption
from such registration available under such Act, and without compliance with
state, local and foreign securities laws, in each case, to the extent
applicable.
7.6 Disclosure. All written information provided by AMG specifically for
inclusion in consent solicitation materials prepared for use in connection with
the transactions contemplated by this Agreement at the time such information is
provided will be accurate and complete in all material respects.
7.7 Finder's Fee. AMG has not incurred or become liable for any broker's
commission, finder's fee or similar payment relating to or in connection with
the transactions contemplated by this Agreement.
7.8 Compliance With Law. AMG, with respect to itself only and not its
Affiliates, is in material compliance with all Laws and Regulations applicable
to it, other than any instances of noncompliance which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Affect on
AMG and its Affiliates on a consolidated basis.
7.9 Filings with the SEC. Since January 1, 1997, AMG has made all filings
with the SEC that it has been required to make under the Securities Act and the
Exchange Act ("Filings"). At the time of its filing, each such Filing complied
as to form with the requirements of the Securities Act or the Exchange Act, as
applicable, in all material respects, and no such Filing, as of the date of
filing, contained any untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except for any of the
foregoing which, individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Affect on AMG and its Affiliates on a
consolidated basis.
SECTION 8. COVENANTS OF AMG.
8.1 Making of Covenants and Agreement. AMG hereby makes the covenants and
agreements set forth in this Section 8.
8.2 Confidentiality. AMG agrees that, unless and until the Closing has
been consummated, each of AMG and its officers, directors, agents and
representatives will hold in strict confidence, and will not use, any
confidential or proprietary data or information obtained from the
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Company or the Stockholders with respect to its business or financial condition
except for the purpose of evaluating, negotiating and completing the transaction
contemplated hereby. Information generally known in the Company's industry or
which has been disclosed to AMG by third parties which have a right to do so
shall not be deemed confidential or proprietary information for purposes of this
Agreement. If the transactions contemplated by this Agreement are not
consummated, AMG will return, and will cause its officers, directors, agents and
representatives to return, to the Company (or certify that they have destroyed)
all copies of such data and information, including but not limited to financial
information, customer lists, business and corporate records, worksheets, test
reports, tax returns, lists, memoranda, and other documents prepared by or made
available to AMG (and its officers, directors, agents and representatives) in
connection with the transaction. Notwithstanding the foregoing, AMG shall be
entitled to make any public disclosures required by applicable laws, rules and
regulations (including, without limitation, the HSR Act, the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder).
8.3 Cooperation of AMG. AMG shall cooperate with all reasonable requests
of the Company in connection with the Company's compliance with its covenants in
Sections 5.2, 5.3 and 5.4 hereof.
8.4 HSR Act. AMG will use commercially reasonable efforts to obtain the
termination of the applicable waiting period under the HSR Act (including any
extensions thereof).
8.5 Notice of Default. Promptly upon the occurrence of, or promptly upon
AMG becoming aware of the impending or threatened occurrence of, any event which
would cause or constitute a breach or default, or would have caused or
constituted a breach or default had such event occurred or been known to AMG
prior to the date hereof, of any of the representations, warranties or covenants
of AMG contained in or referred to in this Agreement or in any Schedule or
Exhibit referred to in this Agreement, AMG shall give written notice thereof to
the Company.
8.6 Consummation of Agreement. AMG shall use all commercially reasonable
efforts to perform and fulfill all conditions and obligations to be performed
and fulfilled by it under this Agreement, to the end that the transactions
contemplated by this Agreement shall be fully carried out.
SECTION 9. CONDITIONS TO THE OBLIGATIONS OF AMG.
The obligation of AMG to consummate this Agreement and the transactions
contemplated hereby are subject to the fulfillment (or waiver by AMG), prior to
or at the Closing, of the following conditions precedent:
9.1 Litigation; No Opposition. No judgment, injunction, order or decree
enjoining or prohibiting any of AMG, the Company, the LLC or any of the
Stockholders or other parties to this Agreement or any of the agreements,
documents and instruments contemplated hereby, from consummating the
transactions contemplated hereby or thereby, shall have been entered and no
suit, action or proceeding shall be pending or threatened at any time prior to
or on the date of the Closing before or by any court or governmental body
seeking to restrain or prohibit, or seeking damages or
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other relief in connection with, the execution and delivery of this Agreement or
any of the agreements, documents and instruments contemplated hereby, or the
consummation of the transactions contemplated hereby or thereby or which could
reasonably be expected to have a Material Adverse Effect on the Company, the LLC
or AMG.
9.2 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of the Company and
each of the Stockholders contained in this Agreement and in any Schedule or
Exhibit attached hereto and in each other agreement, document, instrument or
certificate contemplated hereby or otherwise made in writing by any of them or
made by any person authorized by them to make representations on their behalf,
shall be true and complete in all material respects (except for such
representations and warranties that are qualified by their terms as to
materiality, which representations and warranties as so qualified shall be true
in all respects) as of the date of this Agreement and at and as of the Closing
as though newly made at such time; except that the representations in Section
3.7 shall also be made with respect to assets under management and Advisory
Contracts as of a date which is no more than ten (10) days prior to the Closing
(the "Calculation Date") as reflected in an updated Schedule 3.7 containing all
of the information required by Section 3.7 as of the Calculation Date and
delivered to AMG prior to Closing (the "Updated Schedule 3.7").
(b) Each and all of the agreements to be performed by the Company
and each of the Stockholders hereunder and under the other agreements, documents
and instruments contemplated hereby at or prior to the Closing shall have been
duly performed in all material respects. Each and all of the conditions to be
performed or satisfied by the Company and each of the Stockholders pursuant to
this Agreement and the other agreements, documents and instruments contemplated
hereby shall have been duly performed or satisfied.
(c) The Company, the LLC and each of the Stockholders shall have
furnished AMG with a certificate or certificates dated as of the date of the
Closing with respect to each of the foregoing, provided that each Stockholder's
certificate shall address the Company's, the LLC's and such Stockholder's
performance and representations and warranties only.
9.3 Advisory Contract Consents. Clients of the Company whose Advisory
Contracts provide for the payment to the Company (based on the Contract Value of
each such Advisory Contract) of fees constituting at least ninety percent (90%)
of the Base Fees shall have provided their Consents to the assignment of their
Advisory Contracts resulting from the transactions contemplated hereby, and
Advisory Contracts which (based on their Contract Values) represent at least
ninety percent (90%) of the Base Fees shall survive the Closing and the Asset
Transfer and then be in full force and effect. For purposes of this Section 9.3:
(i) "Base Fees" shall mean the annual advisory fees (other
than incentive or performance fees) payable to the Company under all its
Advisory Contracts, calculated based on assets under management and the
fee schedules set forth in the relevant Advisory Contract as of June 30,
1998; provided, however, that Base Fees shall in no event be less than
$21,500,000 million.
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(ii) "Consent" shall mean (A) with respect to a client whose
contract by its terms or under applicable law terminates upon the
consummation of the transactions contemplated hereby (including, in the
case of Wrap Accounts, any underlying Advisory Contract between the
Introducing Agent and the related underlying client (the "Underlying
Contract") which so terminates), that the LLC shall have entered into a
new Advisory Contract on substantially identical terms (and identical
terms with respect to the compensation payable thereunder) which Advisory
Contract is effective after giving effect to the Closing and the Asset
Transfer (and that, in the case of Wrap Accounts for which the Underlying
Contract terminates upon the consummation of the transactions contemplated
hereby, the Introducing Agent has entered into a new Underlying Contract
with the related underlying client effective after giving effect to the
Closing and the Asset Transfer on terms no less favorable to the LLC than
those contained in the current Underlying Contract), (B) with respect to a
client whose contract (by its terms or under applicable law) requires
written consent from a party or parties thereto for it to survive the
transactions contemplated hereby and by the Asset Transfer Agreement
(including, in the case of Wrap Accounts, any Underlying Contract with
such provisions), that the Company shall have obtained all such written
consents as may be required under such contract (and any applicable
Underlying Contract) and under applicable law, and (C) with respect to a
client whose contract (including, in the case of Wrap Accounts, any
Underlying Contract with such provisions) does not require written consent
(by its terms or under applicable law) from any party thereto for it to
survive the transactions contemplated hereby, that the Company shall have
obtained such consents as may be required under such contract (and any
applicable Underlying Contract) and under applicable law (including, with
respect to the requirement for contracts to include provisions requiring
consent to transfer set forth under the Advisers Act, that the Company has
complied with Section 5.2 hereof with respect to such contract).
Notwithstanding the foregoing, no client of the Company shall be deemed to
have given its Consent if such client has expressed an intent to terminate
or significantly reduce its investment relationship with the Company (or,
after giving effect to the Closing and the Asset Transfer, the LLC)
(including without limitation by terminating or reducing its relationship
with any applicable Introducing Agent) or to adjust the fee schedule with
respect to one or more of its contracts (including any applicable
Underlying Contract) in a manner that could materially reduce the fee to
the LLC from that client or contract from that payable pursuant to the
terms of the contract in effect with the Company on June 30, 1998 or the
date hereof.
(iii) "Contract Value" shall mean, (A) with respect to an
Advisory Contract which was in effect on June 30, 1998, the annual
advisory fees (other than incentive or performance fees) payable to the
Company based on the fee schedule and assets under management set forth in
the relevant Advisory Contract as of June 30, 1998 (adjusted for any
additions and/or withdrawals by the client since June 30, 1998 and for any
amendments to the fee schedule since such date determined through the
Calculation Date), and (B) with respect to an advisory contract which is
entered into after June 30, 1998, the annual advisory fees (other than
incentive or performance fees) payable to the Company based on the fee
schedule and assets under management set forth in the relevant agreement
on the date of such agreement (adjusted for any additions and/or
withdrawals by the client since that date and
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for any amendments to the fee schedule since such date determined through the
Calculation Date).
At the Closing, the Company shall deliver a certificate certifying as to
compliance with the foregoing, which certificate includes the calculation of
compliance, including the Updated Schedule 3.7 and which certificate has
attached thereto evidence of client consents reasonably satisfactory to AMG.
9.4 Registration as an Investment Adviser and Registration of Investment
Adviser Representatives.
(a) The LLC shall (i) have filed the New ADV and the New ADV shall
have become effective and the LLC shall be a registered investment adviser and
(ii) have made appropriate filings under the laws of each state where such
filings may be necessary or desirable (in the reasonable opinion of AMG, which
shall not include any states in which the Company is not registered on the date
of this Agreement) to enable the LLC, after giving effect to the Closing and the
Asset Transfer, to conduct the business presently conducted by the Company.
(b) All applicable employees of the Company shall have become
registered as investment adviser representatives (within the meaning of Rule
203A-3(a) under the Advisers Act) of the LLC under the laws of each state where
such a registration may be necessary (in the reasonable opinion of AMG) to
enable the LLC, after giving effect to the Closing and the Asset Transfer, to
conduct the business presently conducted by the Company
9.5 Other Approvals. Except as otherwise specifically contemplated hereby,
all actions by or in respect of, or filings with, any governmental body, agency,
or official or authority required to permit the consummation of the transactions
contemplated hereby so that after the Closing and the Asset Transfer, the LLC
shall be able to carry on the business presently being conducted by the Company,
in the manner now conducted by the Company, shall have been taken, made or
obtained, and any and all other material permits, approvals, consents, Licenses
or other actions necessary to consummate the transactions hereunder shall have
been received or taken, and none of such permits, approvals, consents or
Licenses shall contain any provisions which, in the reasonable judgment of AMG,
are unduly burdensome.
9.6 Transfer. (a) All actions which AMG, in its reasonable discretion,
determines are necessary or appropriate in order to permit the transactions
contemplated by the Asset Transfer Agreement (and the schedules and exhibits
thereto) shall have occurred and (b) the Asset Transfer Agreement and the
agreements which are exhibits thereto, and such other and additional documents
and instruments of transfer as AMG shall reasonably deem necessary in connection
therewith, shall have been executed and delivered to AMG.
9.7 Restated LLC Agreement. Each Stockholder and each other Person
included as a Non-Manager Member in the Restated LLC Agreement attached hereto
as Exhibit 2.2 shall have executed and delivered the Restated LLC Agreement,
such agreement to become effective immediately following the Closing.
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9.8 Employment Agreements. Each of Edward C. Rorer, James G. Hesser and
Clifford B. Storms, Jr., shall have entered into an Employment Agreement with
the LLC in the form attached hereto as Exhibit 9.8 (the "Employment
Agreements"), and each such Employment Agreement shall be in full force and
effect.
9.9 Non-Solicitation/Non-Disclosure Agreements. Each Stockholder (other
than those who entered into Employment Agreements) and each other Person
included as a Non-Manager Member in the Restated LLC Agreement attached hereto
as Exhibit 2.2 shall have entered into a Non-Solicitation/Non-Disclosure
Agreement with the LLC and the Company (each a "Non-Solicitation Agreement") in
the form attached hereto as Exhibit 9.9, and each such Non-Solicitation
Agreement shall be in full force and effect.
9.10 Capitalization, Net Worth and Working Capital of the LLC. The
Company's capitalization, including ownership of capital stock and options to
purchase shares of capital stock, shall be as set forth on Schedule 1.2 and
Schedule 3.3 hereto. The LLC's capitalization, including capital and profits
interests and other rights to purchase interests in the LLC shall be as set
forth in Schedule 3.4(b)(ii) hereto. At the Closing, and after giving effect to
the Asset Transfer and taking into account all transaction costs of the Company
and the LLC, the LLC shall have a tangible net worth (determined in accordance
with GAAP using the accrual based method of accounting, consistently applied,
but excluding any accounts receivable owed to the LLC by officers, directors,
employees or Affiliates of the Company or the LLC (collectively, "Affiliate
Receivables")) of at least $1,250,000, working capital (defined as current
assets less current liabilities) of at least $1,250,000 (of which accounts
receivable shall consist of not more than $1,100,000, and for purposes of which
Affiliate Receivables shall be excluded) and cash on hand of at least $150,000.
AMG shall be provided with a certificate from the President of the Company at
the Closing representing that the conditions contained in this Section 9.10 are
complied with.
9.11 Delivery. Each of the Company and the Stockholders shall have
executed (where applicable) and delivered to AMG (or shall have caused to be
executed and delivered to AMG by the appropriate person including, without
limitation, the LLC) the following:
(a) the Asset Transfer Agreement (including all agreements and
documents which are schedules thereto) and all such other documents of transfer
and assignment as AMG may reasonably require in connection therewith;
(b) certified copies of resolutions of the board of directors and
stockholders of the Company authorizing the execution of this Agreement and each
of the agreements, documents and instruments contemplated hereby to which the
Company is a party (and which the Company executes on behalf of the LLC);
(c) a copy of the Articles of Incorporation and by-laws of the
Company which, in the case of the Articles of Incorporation, is certified as of
a recent date by the Department of State of the Commonwealth of Pennsylvania;
(d) a copy of the Certificate of Formation of the LLC certified as
of a recent date by the Secretary of State of the State of Delaware;
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(e) a copy of the Existing LLC Agreement of the LLC as in effect
immediately prior to the restatement into the Restated LLC Agreement;
(f) a certificate issued by the appropriate Secretary of State of
each state in which each of the Company and, after giving effect to the Asset
Transfer, the LLC does business and is required to be qualified as a foreign
company or foreign limited liability company, as applicable, certifying that
each of the Company and the LLC, as applicable, are in good standing in such
state as of the most recent practicable date;
(g) true and complete copies of each of the agreements, documents
and instruments contemplated hereby (including, without limitation, the Restated
LLC Agreement), and all agreements, documents, instruments and certificates
delivered or to be delivered in connection therewith;
(h) for each of the persons listed in Schedule 3.25(b), evidence
that such person has had a physical examination within thirty (30) days prior to
the Closing, including a letter from a licensed physician familiar with such
person's health indicating that such person is in good health at such date;
(i) a certificate of the Secretary of the Company both on behalf of
the Company and for the Company as the Manager of the LLC, certifying that the
resolutions, Articles of Incorporation, Existing LLC Agreement and by-laws in
paragraphs (b), (c) and (e) above are in full force and effect and have not been
amended or modified, and that the officers of such corporation or limited
liability company are those persons named in the certificate;
(j) an opinion from counsel to the Company and the Stockholders, in
substantially the form of Exhibit 9.11(j) hereto;
(k) a release of the Company and the LLC from all liabilities other
than those arising out of the transactions or agreements contemplated hereby
from (i) each of the Stockholders, (ii) each of the other Persons named in
Schedule A to the Restated LLC Agreement and (iii) any other Person then
expected by the Majority Stockholders to become a Non-Manager Member (as defined
in the Restated LLC Agreement) of the LLC within the first two weeks following
the Closing, in each case in the form attached hereto as Exhibit 9.11(k);
(l) from each Stockholder, a "transferor's certificate of
non-foreign status" as provided in the Treasury Regulations under Section 1445
of the Code in the form attached hereto as Exhibit 9.11(l) attached hereto;
(m) the resignations of all of the Directors and officers of the
Company at least five (5) days prior to the Closing, such resignations to be
effective as of the Closing;
(n) all corporate record books of the Company, including minutes of
all meetings of stockholders, directors and committees of the Board of
Directors, if any, and the stock records of the Company (including all original
stock certificates surrendered by the Stockholders), provided
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that following the Closing, the Company and the Stockholders and their
respective agents shall be permitted reasonable access to such books and records
during normal business hours; and
(o) such other Certificates and documents as are required hereby or
are reasonably requested by AMG (and, including without limitation, any and all
side letters or agreements entered into by and among any of the Stockholders in
connection with this Agreement and the transactions contemplated hereby).
9.12 Evidence of Insurability. AMG shall have received such evidence as it
shall deem necessary or appropriate as to the insurability of each of the
Persons listed on Schedule 3.25(b) hereto as and in amounts contemplated by
Section 3.5(e) of the Restated LLC Agreement with respect to both key-man life
insurance and disability insurance policies.
9.13 Insurance Policies. Each of the Company and the LLC shall have in
place insurance policies (a) with respect to the Company, covering liabilities
of directors and officers, in such amounts, if any, as AMG shall reasonably deem
necessary and (b) with respect to the LLC, as contemplated by Section 3.19.
9.14 Policies and Procedures. The LLC and its employees shall have adopted
such Code of Ethics, Insider Trading Policies and Supervisory Procedures Manuals
as are reasonably acceptable to AMG.
9.15 HSR Act. Any applicable waiting period under the HSR Act (including
any extensions thereof) shall have expired or been terminated.
9.16 Cancellation of Options.
(a) Prior to the Closing, each holder of options to purchase Common
Stock shall have entered into an Option Cancellation Agreement with AMG in the
form attached hereto as Exhibit 9.16;
(b) No options to purchase Common Stock shall have been exercised on
or after the date hereof; and
(c) At the Closing, each outstanding option to purchase Common Stock
shall be canceled by the Company pursuant to the terms of the Option
Cancellation Agreements.
SECTION 10. CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS.
The obligation of the Company and the Stockholders to consummate this
Agreement and the transactions contemplated hereby is subject to the fulfillment
(or waiver by the Company), prior to or at the Closing, of the following
conditions precedent:
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10.1 No Litigation; No Opposition. No judgment, injunction, order or
decree enjoining or prohibiting any of AMG, the Company, the LLC or any of the
Stockholders or other parties to this Agreement or any of the agreements,
documents and instruments contemplated hereby, from consummating the
transactions contemplated hereby, or thereby shall have been entered and no
suit, action or proceeding shall be pending or threatened on the date of Closing
before or by any court or governmental body seeking to restrain or prohibit the
execution and delivery of this Agreement or any of the agreements, documents or
instruments contemplated hereby or the consummation of the transactions
contemplated hereby or thereby.
10.2 Representations, Warranties and Covenants.
(a) Each of the representations and warranties of AMG contained in
this Agreement and in any Schedule or Exhibit attached hereto and in each other
agreement, document, instrument or certificate contemplated hereby or otherwise
made in writing by AMG or by any person authorized by AMG to make
representations on its behalf shall be true and correct in all material respects
(except for such representations and warranties that are qualified by their
terms as to materiality, which representations or warranties as so qualified
shall be true in all respects) at and as of the Closing as though newly made at
such time.
(b) Each and all of the agreements to be performed by AMG hereunder
and under the other agreements, documents and instruments contemplated hereby at
or prior to the Closing shall have been duly performed in all material respects.
Each and all of the conditions to be performed or satisfied by AMG at or prior
to the Closing pursuant to this Agreement and the other agreements, documents
and instruments contemplated hereby shall have been duly performed or satisfied.
(c) AMG shall have furnished the Stockholders with a certificate
dated as of the date of the Closing to the foregoing effect.
10.3 Advisory Client Consent. The conditions set forth in Section 9.3
shall have been met.
10.4 Delivery. AMG shall have executed and delivered to the Company, the
following:
(a) certified copies of resolutions of the board of directors of AMG
authorizing the execution of this Agreement and each of the other agreements,
documents or instruments contemplated hereby to which AMG is a party;
(b) a certificate issued by the Secretary of State of the State of
Delaware certifying that AMG is validly existing and in good standing in
Delaware as of the most recent practicable date;
(c) true and complete copies of each of the agreements, documents
and instruments contemplated hereby (including, without limitation, the Restated
LLC Agreement) to which AMG is a party, and all agreements, documents,
instruments and certificates delivered or to be delivered in connection
therewith by AMG;
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(d) a certificate of the Secretary of AMG certifying that the
resolutions, Amended and Restated Articles of Incorporation and by-laws in
paragraphs (a) and (b) above are in full force and effect and have not been
amended or modified, and that the officers of AMG are those persons named in the
certificate; and
(e) one or more opinions from New York and/or Delaware counsel to
AMG, in substantially the form of Exhibit 10.4(e) hereto.
10.5 Registration as an Investment Adviser. The LLC shall (i) have filed
the New ADV and the New ADV shall have become effective and the LLC shall be a
registered investment adviser and (ii) have made appropriate filings under the
laws of each state where such filings may be necessary or desirable (in the
reasonable opinion of AMG, which shall not include any states in which the
Company is not registered on the date of this Agreement) to enable the LLC,
after giving effect to the Closing and the Asset Transfer, to conduct the
business presently conducted by the Company
10.6 HSR Act. Any applicable waiting period under the HSR Act (including
any extensions thereof) shall have expired or been terminated.
SECTION 11. TERMINATION OF AGREEMENT; RIGHTS TO PROCEED.
11.1 Termination. At any time prior to the Closing, this Agreement may be
terminated as follows:
(a) by mutual written consent of AMG and the Company;
(b) by AMG, pursuant to written notice by AMG to the Company and the
Stockholders, if any of the conditions set forth in Section 9 of this Agreement
have not been satisfied at or prior to March 31, 1999, or if it has become
reasonably and objectively certain that any of such conditions will not be
satisfied at or prior to such date, such written notice to set forth such
conditions which have not been or will not be so satisfied; provided, however,
that the right to terminate this Agreement pursuant to this Section 11.1(b)
shall not be available to AMG if AMG's breach of this Agreement has been the
cause of, or resulted in, the failure of such conditions to be satisfied by such
date; and
(c) by the Company, pursuant to written notice by the Company to
AMG, if any of the conditions set forth in Section 10 of this Agreement have not
been satisfied at or prior to March 31, 1999, or if it has become reasonably and
objectively certain that any of such conditions, will not be satisfied at or
prior to such date, such written notice to set forth such conditions which have
not been or will not be so satisfied; provided, however, that the right to
terminate this Agreement pursuant to this Section 11.1(c) shall not be available
to the Company if the Company's or any Stockholder's breach of this Agreement
has been the cause of, or resulted in, the failure of such conditions to be
satisfied by such date.
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11.2 Effect of Termination. All obligations of the parties hereunder shall
cease upon any termination pursuant to Section 11.1; provided, however, that (a)
the provisions of this Section 11, Sections 5.12, 5.13, 8.2 and the provisions
of Section 15 hereof shall survive any termination of this Agreement; (b)
nothing herein shall relieve any party from any liability for (i) any material
breach of a representation or warranty contained herein (except for such
representations and warranties that are qualified by their terms as to
materiality, with respect to which a party shall be liable for any breach) as of
the date such representation or warranty was made, provided that no party shall
have liability for any material breach of representation or warranty unless such
party had actual knowledge of such breach at the time such representation or
warranty was made, (ii) any failure to perform and satisfy in all material
respects all of the agreements and covenants to be performed hereunder and under
the agreements, documents and instruments contemplated hereby at or prior to the
Closing or (iii) any failure to perform and satisfy the conditions contained in
this Agreement and the other agreements, documents and instruments contemplated
hereby, and (c) any party may proceed as further set forth in Section 11.3
below.
11.3 Right to Proceed. Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Section 9 hereof have not
been satisfied, AMG shall have the right to proceed with the transactions
contemplated hereby without waiving any of its rights hereunder; provided,
however, that AMG shall, by proceeding, be deemed to have waived its rights with
respect to (a) any breach of a representation or warranty of the Company or any
Stockholder set forth in this Agreement and (b) any breach of a covenant of the
Company set forth in this Agreement, if (and then only to the extent) that AMG
was provided written notice of such breach by the Company at least five (5)
business days prior to Closing, setting forth in reasonable detail the nature of
such breach, and such breach would, taken together with all other breaches of
which AMG was so notified in writing at least five (5) business days prior to
Closing, have caused one or more of the conditions set forth in Section 9.2(a)
not to be satisfied as of the Closing (and such written notice shall so certify
that such conditions would not be satisfied). If the Company and the
Stockholders proceed with the transactions contemplated hereby notwithstanding
the fact that one or more of the conditions specified in Section 10 hereof have
not been satisfied, the Company and the Stockholders shall, by proceeding, be
deemed to have waived their rights with respect to any such noncompliance with
the conditions specified in Section 10 hereof and any related breach of this
Agreement.
SECTION 12. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
12.1 Survival of Representations, Warranties and Covenants. Each of the
representations, warranties, agreements, covenants and obligations herein or in
any schedule, exhibit or certificate delivered by any party to any other party
incident to the transactions contemplated hereby are material, shall be deemed
to have been relied upon by the other party and shall survive the Closing until
the second anniversary of the date of the Closing, except for (i) the
representations and warranties made in Sections 3.9, 3.24 and, to the extent it
relates thereto, Section 3.30, and the covenants and obligations contained in
Section 5.13 and Section 6, which shall survive until the expiration of the
applicable statute of limitations, if any, and (ii) the representations and
warranties made in (a) Sections 3.3, 3.4, 3.5, 3.21 and, to the extent it
relates thereto, Section 3.30, (b) Sections 4.1, 4.2 and 4.3 and (c) Sections
7.3 and 7.7, which shall survive indefinitely. The expiration of any
representation or warranty shall not affect any claim asserted in writing by an
indemnified party to
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an indemnifying party prior to the date of such expiration. All covenants herein
not fully performed shall survive the Closing and continue thereafter until
fully performed except to the extent such covenants are contemplated to be
performed solely prior to Closing (e.g., Section 5.5) or performance thereof is
waived in conjunction with the Closing. Any investigation, audit or other
examination that may have been made or may be made at any time by or on behalf
of the party to whom any such representation or warranty is made shall not limit
or diminish such representations and warranties, and the parties may rely on the
representations and warranties set forth in this Agreement irrespective of any
information obtained by them by any investigation, audit or examination or
otherwise.
12.2 Regulatory Filings. Each party hereto will cooperate with the other
parties in all commercially reasonable respects to enable such parties to make
any and all regulatory filings required by them with respect to the Company, the
LLC or the transactions contemplated hereby (including, by way of example and
not of limitation, the filing of Tax Returns).
SECTION 13. INDEMNIFICATION.
13.1 Indemnification by the Majority Stockholders. The Majority
Stockholders agree, jointly and severally, to indemnify and hold AMG and its
subsidiaries and Affiliates (including, from and after the Closing, the Company
and the LLC) and their respective officers, directors, partners, stockholders,
employees, agents and representatives (individually a "AMG Indemnified Party"
and collectively the "AMG Indemnified Parties") harmless from and against any
damages, liabilities, losses (including, without limitation, diminution in
value), Taxes, fines, penalties, costs, and expenses (including, without
limitation, reasonable fees and expenses of counsel and experts) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) (collectively, "Losses") (provided, however, that the measure of any
such Loss shall not include the diminution in trading value of the common stock
of AMG) which may be sustained or suffered by any of them arising out of or
based upon any of the following matters:
(a) common law fraud by the Company or any Stockholder in connection
with any of their representations, warranties or covenants under this Agreement
or any agreement, document or instrument contemplated hereby or in any
certificate, schedule or exhibit delivered pursuant hereto or thereto, or
otherwise in connection with the transactions contemplated hereby;
(b) any breach of any representation, warranty or covenant of the
Company or any Stockholder under this Agreement or under any agreement, document
or instrument contemplated hereby, or in any certificate, schedule or exhibit
delivered pursuant hereto or thereto, or by reason of any claim, action or
proceeding asserted or instituted growing out of any matter or thing
constituting such a breach;
(c) the activities, conduct, business or operation of the Company or
the LLC prior to the Closing, or arising out of facts, events or circumstances
regarding the Company or the LLC existing prior to the Closing (including,
without limitation, whether or not disclosure of such facts, events or
circumstances was made herein or on the Schedules hereto), excluding liabilities
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specifically reflected or reserved for in the opening balance sheet of the LLC
to the extent so reflected or reserved for and not otherwise subject to
indemnification pursuant to clauses (a), (b) or (d) of this Section 13.1); and
(d)(i) liabilities and obligations for any Taxes incurred by the
Company with respect to any period ending on or before the date of the Closing
(or, for any period beginning before and ending after the date of the Closing,
liabilities and obligation for Taxes to the extent allocable to the portion of
such period beginning before and ending on the date of the Closing), (ii) the
failure of any Stockholder to pay his or her share of any Tax attributable to
the making of the Elections (including, but not limited to, any Tax imposed
under Section 1374 of the Code, any Tax imposed under Treasury Regulations
Section 1.338(h)(10)-1(e)(5), or any state, local or foreign Tax imposed on the
Company's gain attributable to the Purchase or the Elections), (iii) the breach
by any Stockholder of any provision of this Agreement relating to or involving
Tax matters and (iv) any adverse consequences or Losses arising out of or
relating to any failure to pay any such Taxes or resulting from any such breach.
13.2 Indemnification by the Other Stockholders. Each Stockholder, other
than the Majority Stockholders, agrees, severally and not jointly, to indemnify
and hold the AMG Indemnified Parties harmless from and against any Losses which
may be sustained or suffered by any of them arising out of or based upon any of
the following matters:
(a) common law fraud by such Stockholder in connection with any of
its representations, warranties or covenants under this Agreement or any
agreement, document or instrument contemplated hereby or in any certificate,
schedule or exhibit delivered pursuant hereto or thereto, or otherwise in
connection with the transactions contemplated hereby; and
(b) any breach of any representation, warranty or covenant of such
Stockholder under this Agreement or under any agreement, document or instrument
contemplated hereby, or in any certificate, schedule or exhibit delivered
pursuant hereto or thereto, or by reason of any claim, action or proceeding
asserted or instituted growing out of any matter or thing constituting such a
breach.
13.3 Limitations on Indemnification by the Stockholders. Notwithstanding
any other provision of this Agreement to the contrary, the right of AMG
Indemnified Parties to indemnification under Section 13.1 and Section 13.2 shall
be subject to the following provisions:
(a) No indemnification shall be payable pursuant to Sections
13.1(b), 13.1(c) or 13.2(b) to any AMG Indemnified Party, unless the total of
all claims for indemnification pursuant to Section 13.1 and 13.2 shall exceed
$500,000 in the aggregate, whereupon the full amount of such claims shall be
recoverable in accordance with the terms hereof (provided that in no event shall
the limitation provided in this Section apply to any claim for indemnification
for Taxes or based upon or related to a breach of any representation, warranty
or covenant with respect to Taxes or Employee Programs or Tax related matters or
matters related to Employee Programs);
(b) No indemnification shall be payable to an AMG Indemnified Party
with respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or 13.2(b)
after the expiration of the
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related representation, warranty or covenant pursuant to Section 12.1 (the
"Indemnification Cut-Off Date"); provided, however, that such expiration shall
not affect any claim with respect to which notice was given in the manner
contemplated by Section 13.6 hereof prior to the Indemnification Cut-Off Date;
and provided, further, that, notwithstanding the provisions of Section 12.1, all
representations, warranties and covenants of the Company and the Stockholders
contained in this Agreement shall survive indefinitely for purposes of
indemnification sought pursuant to Sections 13.1(a) and 13.2(a); and
(c) No indemnification shall be payable to the AMG Indemnified
Parties with respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or
13.2(b) in amounts in the aggregate in excess of $48.75 million (the
"Stockholder Indemnification Cap").
(d) No indemnification shall be payable to the AMG Indemnified
Parties with respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or
13.2(b) (i) by James G. Hesser in amounts in the aggregate in excess of
$4,875,000, other than with respect to a breach of a representation or warranty
of James G. Hesser set forth in Sections 4.1 or 4.2, for which such limitation
shall be the Stockholder Indemnification Cap (less the aggregate of any
indemnification payments previously made to the AMG Indemnified Parties with
respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or 13.2(b)), or
(ii) by Clifford B. Storms, Jr. in amounts in the aggregate in excess of
$3,412,500 million, other than with respect to a breach of a representation or
warranty of Clifford B Storms, Jr., set forth in Sections 4.1 or 4.2, for which
such limitation shall be the Stockholder Indemnifiction Cap (less the aggregate
of any indemnification payments previously made to the AMG Indemnified Parties
with respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or
13.2(b)).
(e) No indemnification shall be payable to the AMG Indemnified
Parties by any one Stockholder, other than a Majority Stockholder, with respect
to claims asserted pursuant to Section 13.2(b) in amounts in the aggregate in
excess of $487,500, other than with respect to a breach of a representation or
warranty of such Stockholder set forth in Section 4.1 or Section 4.2, for which
such limitation shall be the Stockholder Indemnifiction Cap (less the aggregate
of any indemnification payments previously made to the AMG Indemnified Parties
with respect to claims asserted pursuant to Sections 13.1(b), 13.1(c) or
13.2(b)).
13.4 Indemnification by AMG. AMG agrees to indemnify and hold the
Stockholders (individually a "Stockholder Indemnified Party" and collectively
the "Stockholder Indemnified Parties") harmless from and against any damages,
liabilities, losses, Taxes, fines, penalties, costs and expenses (including,
without limitation, reasonable fees and expenses of counsel) of any kind or
nature whatsoever (whether or not arising out of third-party claims and
including all amounts paid in investigation, defense or settlement of the
foregoing) which may be sustained or suffered by any of them arising out of or
based upon any of the following matters:
(a) common law fraud by AMG in connection with any of its
representations, warranties or covenants under this Agreement or any agreement,
document or instrument contemplated hereby or in any certificate, schedule or
exhibit delivered pursuant hereto or thereto, or otherwise in connection with
the transactions contemplated hereby; and
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(b) any breach of any representation, warranty or covenant made by
AMG in this Agreement or in any agreement, document or instrument contemplated
hereby, or in any certificate, schedule or exhibit delivered pursuant hereto or
thereto, or by reason of any claim, action or proceeding asserted or instituted
growing out of any matter or thing constituting such a breach.
13.5 Limitation on Indemnification by AMG. Notwithstanding the foregoing,
the right of Stockholder Indemnified Parties to indemnification under Section
13.4 shall be subject to the following provisions:
(a) No indemnification pursuant to Section 13.4(b) shall be payable
to the Stockholders, unless the total of all claims for indemnification pursuant
to Section 13.4 shall exceed $500,000 in the aggregate, whereupon the full
amount of such claims shall be recoverable in accordance with the terms hereof;
and
(b) No indemnification shall be payable to Stockholder Indemnified
Parties with respect to claims asserted pursuant to Section 13.4(b) above in
amounts in the aggregate in excess of $26.25 million.
(c) No indemnification shall be payable to the Stockholders with
respect to claims asserted pursuant to Section 13.4(b) above after the
applicable Indemnification Cut-Off Date; provided, however, that such expiration
shall not affect any claim with respect to which notice was given in the manner
contemplated by Section 13.6 hereof prior to the Indemnification Cut-Off Date.
13.6 Notice; Defense of Claims. An indemnified party may make claims for
indemnification hereunder by giving written notice thereof to the indemnifying
party within the period in which indemnification claims can be made hereunder.
If indemnification is sought for a claim or liability asserted by a third party,
the indemnified party shall also give written notice thereof to the indemnifying
party promptly after it receives notice of the claim or liability being
asserted, but the failure to do so shall not relieve the indemnifying party from
any liability except to the extent that it is prejudiced by the failure or delay
in giving such notice. Such notice shall reasonably summarize the bases for the
claim for indemnification and any claim or liability being asserted by a third
party. Within thirty (30) days after receiving such notice the indemnifying
party shall give written notice to the indemnified party stating whether it
disputes the claim for indemnification and whether it will defend against any
third party claim or liability at its own cost and expense. If the indemnifying
party fails to give notice that it disputes an indemnification claim within
thirty (30) days after receipt of notice thereof, it shall be deemed to have
accepted and agreed to the claim, which shall become immediately done and
payable. The indemnifying party shall be entitled to direct the defense against
a third party claim or liability with counsel selected by it (subject to the
consent of each indemnified party, which consent shall not be unreasonably
withheld) as long as the indemnifying party is conducting a good faith and
diligent defense. Each indemnified party shall at all times have the right to
fully participate in the defense of a third party claim or liability at its own
expense directly or through counsel; provided, however, that if the named
parties to the action or proceeding include either both the indemnifying party
and/or one or more indemnified parties and an indemnified party is advised that
representation of both parties by the same counsel would be inappropriate under
applicable standards of professional conduct, an indemnified party may engage
separate counsel at the expense of the indemnifying party. If no such notice of
intent to dispute and
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defend a third party claim or liability is given by the indemnifying party, or
if such good faith and diligent defense is not being or ceases to be conducted
by the indemnifying party, the indemnified party shall have the right, at the
expense of the indemnifying party, to, after three (3) business days notice to
the indemnifying party of its intent to do so, undertake the defense of such
claim or liability (with counsel selected by the indemnified party), and to
compromise or settle it, exercising reasonable business judgment. If the third
party claim or liability is one that by its nature cannot be defended solely by
the indemnifying party, then the indemnified party shall make available such
information and assistance as the indemnifying party may reasonably request and
shall cooperate with the indemnifying party in such defense, at the expense of
the indemnifying party.
13.7 Satisfaction of Stockholder Indemnification Obligations. In order to
satisfy the indemnification obligations of the Stockholders pursuant to Section
13.1 and 13.2 above, an AMG Indemnified Party shall have the right (in addition
to collecting directly from the Stockholders) to set off its indemnification
claims against (a) any and all amounts of interest and principal under any
promissory note issued to such Stockholder pursuant to the provisions of Section
3.11 of the Restated LLC Agreement (whether or not then due and payable) in
accordance with the terms of such note, and/or (b) any and all amounts to be
distributed to such Stockholder by the LLC, whether or not such right of set-off
is specifically provided for in the Restated LLC Agreement and/or (c) any and
all amounts owed or which become owed to such Stockholder or any Permitted
Transferee (as such term is defined in the Restated LLC Agreement) of such
Stockholder by AMG, the Company or the LLC pursuant to the provisions of
Sections 3.11 or 7.1 of the Restated LLC Agreement; provided, however, that,
absent a determination by an arbitrator or a court of competent jurisdiction
that such Stockholder is liable for such indemnification obligation, such right
of setoff shall not extend to any payments to such Stockholder to the extent
paid out of the LLC's Operating Allocation (as defined in the Restated LLC
Agreement).
13.8 Other Indemnification Matters. The Stockholders and AMG agree to
treat any indemnity payment made pursuant to this Agreement as an adjustment to
the Purchase Price for federal, state, local and foreign income tax purposes. If
any indemnification payment under this Section 13 is determined to be taxable to
the indemnified party by any taxing authority, the indemnifying party will also
indemnify the indemnified party for any taxes incurred by reason of the receipt
of such payment and any increase paid pursuant to this Section 13.8, as well as
for related costs incurred by the indemnified party in connection with such
taxes (or any judgment or assessment, including the defense or settlement
thereof, relating to such taxes). Indemnification pursuant to this Article 13
shall be the exclusive remedy for monetary damages available to the Indemnified
Parties, other than for claims with respect to common law fraud.
SECTION 14. DEFINITIONS.
14.1 Definitions. For purposes of this Agreement and the Exhibits and
Schedules hereto, the following terms shall have the respective meanings set
forth in this Section 14.1
"Advisers Act" shall mean the Investment Advisers Act of 1940, as the same
may be amended from time to time, and any successor to such act.
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"Advisory Contract" shall have the meaning specified in Section 3.7(a)
hereof.
"Affiliate" shall mean with respect to any person or entity (herein the
"first party"), any other person or entity that directly or indirectly controls,
or is controlled by, or is under common control with, such first party. The term
"control" as used herein (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly, of the power to (a)
vote twenty-five percent (25%) or more of the outstanding voting securities of
such person or entity, or (b) otherwise direct the management or policies of
such person or entity by contract or otherwise.
"AMG" shall mean Affiliated Managers Group, Inc., a Delaware corporation,
or any of its permitted assigns hereunder.
"AMG Indemnified Party" shall have the meaning specified in Section 13.1
hereof.
"AMG Stock" shall mean AMG's Common Stock, $.01 par value per share.
"Articles of Incorporation" shall mean the Company's Articles of
Incorporation, as amended to the date of this Agreement.
"Asset Transfer" shall mean each of the transactions contemplated by the
Asset Transfer Agreement as well as each of the other agreements, documents and
instruments contemplated thereby.
"Asset Transfer Agreement" shall mean, collectively, the Initial Asset
Transfer Agreement in the form attached hereto as Exhibit 2.1A and the Final
Asset Transfer Agreement in the form attached hereto as Exhibit 2.1B.
"Base Balance Sheet" shall mean the audited balance sheet of the Company
of December 31, 1997.
"Base Fees" shall have the meaning specified in Section 9.3 hereof.
"Claims" shall mean any restrictions, liens, claims, charges, security
interests, assignments, mortgages, deposit arrangements, pledges or encumbrances
of any kind or nature whatsoever, excluding restrictions on transferability
imposed by federal and state securities laws.
"Closing" shall have the meaning specified in Section 1.4 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and any successor code thereto. For purposes of this Agreement, all
references to Sections of the Code shall include any predecessor provisions to
such Sections and any similar provisions of federal, state, local or foreign
law.
"Common Stock" shall mean the Company's Common Stock, $__ par value per
share.
"Company" shall mean Edward C. Rorer & Co., Inc., a Pennsylvania
corporation.
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"Company Shares" shall have the meaning specified in the preamble hereto.
"Consent" shall have the meaning specified in Section 9.3 hereof.
"Contracts" shall have the meaning specified in Section 3.15 hereof.
"Contract Value" shall have the meaning specified in Section 9.3 hereof.
"Delaware Act" shall mean the Delaware Limited Liability Company Act, 6
Del. C. ss.18-101, et. seq., as amended from time to time, and any successor to
such act.
"Election" shall have the meaning specified in Section 6.1(i).
"Employment Agreement" shall have the meaning specified in Section 9.8
hereof.
"Employment Arrangement" shall have the meaning specified in Section
3.25(c) hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor to such Act.
"ERISA Client" shall have the meaning specified in Section 3.7(c) hereof.
"Escrow Agent" shall have the meaning specified in Section 1.2(e) hereof.
"Escrow Agreement" shall have the meaning specified in Section 1.2(e)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time, and any successor to such Act.
"Existing Certificate of Formation" shall mean the Certificate of
Formation of the LLC, as amended to the date of this Agreement.
"Existing LLC Agreement" shall mean the Limited Liability Company
Agreement of the LLC dated as of November 6, 1998, which is the Limited
Liability Company Agreement of the LLC on the date of this Agreement and
immediately prior to its amendment and restatement into the Restated LLC
Agreement.
"Filings" shall have the meaning specified in Section 7.9 hereof.
"GAAP" shall mean United States generally accepted accounting principles
as in effect from time to time.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
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"Immediate Family" shall mean, with respect to any natural person, (a)
such person's spouse, parents, grandparents, children, grandchildren and
siblings and (b) such person's former spouse(s) and current spouses of such
person's children, grandchildren and siblings and (c) estates, trusts,
partnerships and other entities of which substantially all of the interest is
held directly or indirectly by the foregoing.
"Indemnification Cut-Off Date" shall have the meaning specified in Section
13.2(b) hereof.
"Indemnified Parties" shall mean, collectively, the AMG Indemnified
Parties and the Stockholder Indemnified Parties.
"Intellectual Property" shall have the meaning specified in Section
3.14(a) hereof.
"Introducing Agents" shall have the meaning specified in Section 3.7(a)
hereof.
"Investment Company Act" shall mean the Investment Company Act of 1940, as
the same may be amended from time to time, and any successor to such Act.
"Investment Management Services" shall mean any services which involve (a)
the management of an investment account or fund (or portions thereof or a group
of investment accounts or funds) for compensation, (b) the giving of advice with
respect to the investment and/or reinvestment of assets or funds (or any group
of assets or funds) for compensation or (c) otherwise acting as an "investment
adviser" within the meaning of the Advisers Act, and performing activities
related or incidental thereto.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" of any Person shall mean any fact, event, occurrence or other
matter actually known to such Person or of which such Person should have known
following due inquiry.
"Laws and Regulations" shall have the meaning specified in Section 3.17
hereof, and "Laws or Regulations" shall mean any of such Laws or Regulations
individually.
"Leased Real Property" shall have the meaning specified in Section 3.6(a)
hereof.
"Licenses" shall have the meaning specified in Section 3.18(b) hereof.
"LLC" shall mean Rorer Asset Management, LLC, a Delaware limited liability
company.
"Majority Stockholder" shall mean each of Edward C. Rorer, James G. Hesser
and Clifford B. Storms.
"Material Adverse Effect" shall mean, with respect to a Person, a material
adverse effect on the condition (financial or otherwise), properties, assets,
liabilities, business, operations, results of operations or prospects of such
Person and its subsidiaries, taken as a whole.
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"NASD" shall mean the National Association of Securities Dealers, Inc.
"Non-Solicitation Agreement" shall mean a Non-Solicitation/Non-Disclosure
Agreement substantially in the form attached hereto as Exhibit 9.9.
"Owned Real Property" shall have the meaning specified in Section 3.6(a)
hereof.
"Person" shall mean any individual, partnership (general or limited),
corporation, limited liability company, limited liability partnership,
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
"Purchase" shall have the meaning specified in Section 1.1 hereof.
"Purchase Price" shall have the meaning specified in Section 1.2 hereof.
"Real Property" shall have the meaning specified in Section 3.6(a) hereof.
"Restated LLC Agreement" shall mean the Amended and Restated Limited
Liability Company Agreement of the LLC in substantially the form attached hereto
as Exhibit 2.2, as the same may be amended from time to time in accordance with
its terms.
"SEC" shall mean the Securities and Exchange Commission, or any successor
agency thereto.
"Securities Act" shall mean the Securities Act of 1933, as the same may be
amended from time to time, and any successor to such act.
"Stockholder" shall mean a holder of the Company's capital stock listed on
Schedule 1.2 hereto.
"Stockholder Indemnified Party" shall have the meaning specified in
Section 13.3 hereof.
"Taxes" shall have the meaning specified in Section 3.9(a) hereof.
"Tax Return" shall mean any federal, state, local or foreign return,
declaration, report, claim for refund or information return or statement
relating to Taxes, including any schedule or attachment thereto and including
any amendment thereof.
"Taxing Authority" shall have the meaning specified in Section 3.9(c)
hereof.
"Underlying Contract" shall have the meaning specified in Section 9.3
hereof.
"Wrap Accounts" shall have the meaning specified in Section 3.7(a) hereof.
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SECTION 15. MISCELLANEOUS.
15.1 Fees and Expenses. The rights and obligations of the parties hereto
with respect to fees and expenses are as follows:
(a) AMG shall pay its own expenses incident to the negotiation and
consummation of the transactions contemplated by this Agreement and the
agreements, instruments and documents contemplated hereby. The Stockholders and
the Company shall pay their own expenses and the expenses of the Company and the
LLC (other than any fees of Simpson Thacher & Bartlett) incident to the
negotiation and consummation of the transactions contemplated by this Agreement
and the agreements, instruments and documents contemplated hereby; provided,
however, that AMG shall pay fifty percent (50%) of any filing fees required
under the HSR Act and the Stockholders collectively shall pay fifty percent
(50%) of any filing fees required under the HSR Act.
(b) The Stockholders will pay all costs incurred, whether at or
subsequent to the Closing, in connection with the transfer of the Company Shares
to AMG as contemplated by this Agreement, including without limitation, all
transfer and other Taxes and charges applicable to such transfer, and all costs
of obtaining permits, waivers, registrations or consents with respect to any
assets, rights or contracts of the Company.
15.2 Dispute Resolution. All disputes arising in connection with this
Agreement shall be resolved by binding arbitration in accordance with the
applicable rules of the American Arbitration Association. The arbitration shall
be held in Boston, Massachusetts before a single arbitrator selected in
accordance with Section 12 of the American Arbitration Association Commercial
Arbitration Rules who shall have substantial business experience in the
investment advisory industry, and shall otherwise be conducted in accordance
with the American Arbitration Association Commercial Arbitration Rules. The
parties covenant that they will participate in the arbitration in good faith and
that they will share equally its costs except as otherwise provided herein. The
provisions of this Section 15.2 shall be enforceable in any court of competent
jurisdiction, and the parties shall bear their own costs in the event of any
proceeding to enforce this Agreement except as otherwise provided herein. The
arbitrator may in his or her discretion assess costs and expenses (including the
reasonable legal fees and expenses of the prevailing party) against any party to
a proceeding. Any party unsuccessfully refusing to comply with an order of the
arbitrators shall be liable for costs and expenses, including attorney's fees,
incurred by the other party in enforcing the award.
15.3 Waivers. Any waiver of any terms or conditions or of the breach of
any covenant, representation or warranty of this Agreement in any one instance,
shall not operate as or be deemed to be or construed as a further or continuing
waiver of any other breach of such term, condition, covenant, representation or
warranty or any other term, condition, covenant, representation or warranty, nor
shall any failure or delay at any time or times to enforce or require
performance of any provision hereof operate as a waiver of or affect in any
manner such party's right at a later time to enforce or require performance of
such provision or of any provision hereof; provided, however, that no such
waiver, unless it, by its own terms, explicitly provides to the contrary, shall
be construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall
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constitute a waiver in any other instance or for any other purpose or impair the
right of the party against whom such waiver is claimed in all other instances or
for all other purposes to require full compliance.
15.4 Governing Law. This Agreement shall be construed under and governed
by the internal laws of the State of New York.
15.5 Notices. Any notice, request, demand or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been
given if delivered or sent by facsimile transmission, upon receipt, or if sent
by registered or certified mail, upon the sooner of the date on which receipt is
acknowledged or the expiration of three (3) days after deposit in United States
post office facilities properly addressed with postage prepaid. All notices to a
party will be sent to the addresses set forth below or to such other address or
person as such party may designate by notice to each other party hereunder:
TO AMG: Affiliated Managers Group, Inc.
Two International Place, 23rd Floor
Boston, Massachusetts 02110
Attn: Nathaniel Dalton, Senior Vice President
Facsimile No.: (617) 747-3380
With a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: William E. Curbow
Facsimile No.: (212) 455-2502
TO THE COMPANY: Edward C. Rorer & Co., Inc.
c/o Rorer Asset Management
1650 Market Street, Suite 5150
Philadelphia, Pennsylvania 19103-7301
Attn:
Facsimile No.:
With a copy to: Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, Pennsylvania 19103
Attn: Elam M. Hitchner, III
Facsimile No.: (215) 981-4750
TO ANY STOCKHOLDER: To that Stockholder at the address set forth
under such Stockholder's name on Schedule 1.2
hereto.
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In each case, with a copy to: Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, Pennsylvania 19103
Attn: Elam M. Hitchner, III
Facsimile No.: (215) 981-4750
Any notice given hereunder may be given on behalf of any party by his counsel or
other authorized representatives.
15.6 Entire Agreement. This Agreement, including the Schedules and
Exhibits referred to herein and the other writings specifically identified
herein or contemplated hereby, is complete, reflects the entire agreement of the
parties with respect to its subject matter, and supersedes all previous written
or oral negotiations, commitments and writings. No promises, representations,
understandings, warranties and agreements have been made by any of the parties
hereto except as referred to herein or in such Schedules and Exhibits or in such
other writings; and all inducements to the making of this Agreement and the
transactions contemplated hereby which were relied upon by either party hereto
have been expressed herein or in such Schedules or Exhibits or in such other
writings.
15.7 Assignability; Binding Effect. This Agreement or any of the
obligations or rights hereunder (a) may not be assigned by AMG, without the
prior written consent of the Company, other than to an entity under the control
of AMG (for which such consent shall not be required), and (b) may not be
assigned by any of the Stockholders or the Company without the prior written
consent of AMG. This Agreement shall be binding upon and enforceable by, and
shall inure to the benefit of, the parties hereto and their respective
successors, heirs, executors, administrators and permitted assigns.
15.8 Captions and Gender. The captions in this Agreement are for
convenience only and shall not affect the construction or interpretation of any
term or provision hereof. The use in this Agreement of the masculine pronoun in
reference to a party hereto shall be deemed to include the feminine or neuter,
as the context may require.
15.9 Execution in Counterparts. For the convenience of the parties and to
facilitate execution, this Agreement may (a) be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same document, and (b) executed by facsimile.
15.10 Amendments. This Agreement may not be amended or modified, nor may
compliance with any condition or covenant set forth herein be waived, except by
a writing duly and validly executed by AMG and the Company, or in the case of a
waiver, the party waiving compliance (which, in the case of the Stockholders or
the Company shall be the Company).
15.11 Publicity and Disclosures. No press releases or public disclosure,
either written or oral, of the transactions contemplated by this Agreement,
shall be made by a party to this Agreement or any representative or agent
thereof without the prior knowledge and written consent of AMG and
58
<PAGE>
the Company, which consent shall not be unreasonably withheld, except as is
otherwise required by applicable laws, rules and regulations (including, without
limitation, the HSR Act, the Securities Act, the Exchange Act and the rules and
regulations promulgated thereunder).
15.12 Consent to Jurisdiction. Each of the parties hereby consents to
personal jurisdiction, service of process and venue in the federal or state
courts of Massachusetts for any claim, suit or proceeding arising under this
Agreement and hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such state's courts or, to
the extent permitted by law, in any federal court sitting in such state (in each
case subject to Section 15.2 hereof). Each of the parties hereby irrevocably
consents to the service of process in any such action or proceeding by the
mailing by certified mail of copies of any service or copies of the summons and
complaint and any other process to such party at the address specified in
Section 15.5 hereof. The parties agree that a final judgement in any such action
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit or in any other manner permitted by law and shall affect the right of a
party to service legal process or to bring any action or proceeding in the
courts of other jurisdictions.
[END OF TEXT]
59
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
executed as of the date set forth above by their duly authorized
representatives.
AMG:
AFFILIATED MANAGERS GROUP, INC.
By: /s/ Nathaniel Dalton
---------------------------
Name: Nathaniel Dalton
Title: Senior Vice President
COMPANY:
EDWARD C. RORER & CO., INC.
By: /s/ Edward C. Rorer
---------------------------
Name: Edward C. Rorer
Title: Chairman
STOCKHOLDERS:
/s/ Edward C. Rorer
-------------------------------
Name: Edward C. Rorer
/s/ James G. Hesser
-------------------------------
Name: James G. Hesser
/s/ Clifford B. Storms, Jr.
-------------------------------
Name: Clifford B. Storms, Jr.
/s/ Richard C. Boothby
-------------------------------
Name: Richard C. Boothby
/s/ Gurney P. Sloan, Jr.
-------------------------------
Name: Gurney P. Sloan, Jr.
60
<PAGE>
/s/ Elizabeth Getter-Johnson
-------------------------------
Name: Elizabeth Getter-Johnson
/s/ Edward J. Stavetsky
-------------------------------
Name: Edward J. Stavetsky
/s/ Dierdre J. Bostick
-------------------------------
Name: Dierdre J. Bostick
61
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS QUALFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 29,877
<SECURITIES> 0
<RECEIVABLES> 35,384
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,793
<PP&E> 6,829
<DEPRECIATION> 0
<TOTAL-ASSETS> 577,780
<CURRENT-LIABILITIES> 20,739
<BONDS> 200,300
0
0
<COMMON> 273,491
<OTHER-SE> 31,932
<TOTAL-LIABILITY-AND-EQUITY> 557,780
<SALES> 0
<TOTAL-REVENUES> 158,201
<CGS> 0
<TOTAL-COSTS> 97,926
<OTHER-EXPENSES> 23,981<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,567
<INCOME-PRETAX> 27,068
<INCOME-TAX> 10,827
<INCOME-CONTINUING> 16,241
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,241
<EPS-PRIMARY> .92
<EPS-DILUTED> .85
<FN>
<F1>MINORITY INTEREST
</FN>
</TABLE>
